NCR Realty sector woes: How buying a flat became a nightmare in NCR

India’s biggest property market by volume has numerous projects stuck for years. What has led to this dismal situation?

On a blazing hot Saturday afternoon in June, a group of people assembled in a small room in an under-construction building at Today Ridge Residency, Sector-135, Noida, a part of the National Capital Region (NCR) centred around Delhi.

The motley group, with people ranging from senior citizens to software engineers, had one thing in common. Each one of them has parted with a huge chunk of their savings to buy a home, which had not been delivered to them.

Most of them booked an apartment in the project owned by Today Homes and Infrastructure Pvt. Ltd in 2010.

The buyers were assured of delivery in about two-and-a-half years; it has been six years now and most are yet to get possession.

At some other projects by builders such as Unitech Ltd, Amrapali Group, The 3C Company, Gardenia Group and Jaypee Group, the wait for possession has lasted more than eight years.

Rajiv Kumar Goel, who works for a private firm, said he commutes every Saturday for five hours to and from Faridabad to join the group.

“I have to take leave every Saturday to come here and my company cuts that amount from my salary,” he said.

Today Homes, The 3C company, Gardenia Group, Amrapali Group and Jaypee Group did not respond to a Mintquestionnaire sent a day earlier.

The NCR, India’s biggest property market in terms of volume, has numerous projects such as Today Ridge Residency that have been stuck for years, with just concrete structures and minimal work on the ground.

A combination of lack of funds, rising debt, unsold inventory, a trust deficit among customers and incessant litigation have brought the sector to a standstill, with no takers for the flats under construction.

A Knight Frank India report released on 4 July said that new launches in the NCR have been in a decline since 2010 and have dropped by more than half over the last six years.

Property consultant Liases Foras said NCR has witnessed a rise in unsold inventory by almost 14% to hit a high of 267,000 units by the end of March 2016 and it will take around six years to sell them.

The rot began to set in during the early part of the decade. The residential property market touched a high in early 2010 with firms raising loans to enter real estate in pursuit of what looked like an unstoppable boom.

“In the last 4-5 years we saw everyone from every industry come to real estate. Shoemakers and milk packagers, Godrej, Tata and the who’s who of the world entered the business. But many of them are stuck now,” Omaxe Ltd chief executive Mohit Goel said in an interview.

The sector went from boom to bust in the face of a spate of farm protests and resulting litigation.

Puneet Parashar is a buyer in Amrapali Group’s Heartbeat City project in Sector 107, Noida, which has been stuck in litigation after farmers challenged the land acquisition by New Okhla Industrial Development Authority. The Supreme Court, in an August 2013 order, quashed the acquisition of about 547 acres of land, which included two other projects by the 3C Company and Great Value Projects India Ltd, encompassing a total of about 5,000 flats.

While the apex court passed its order in August 2013, the New Okhla Industrial Development Authority, builders and the lenders didn’t inform the buyers, who kept paying their dues for a whole year without knowing that projects had actually been declared illegal.

Great Value Projects India Ltd and New Okhla Industrial Development Authority didn’t respond to a questionnaire sent to them.

“With the project stuck and the weight of rent already weighing me down, I wasn’t able to shell out EMIs (equated monthly instalments) to my bank. Taking the situation into account, I asked my bank for a restructuring of my loan, but they instead sent me a notice. I had to finally sell my property to pay the loan amount,” said Parashar of the loan taken from Axis Bank.

Axis Bank didn’t respond to a questionnaire sent by Mint.

Low investor interest and lack of cash flow have resulted in ballooning debt at all the major real estate companies, with Jaiprakash Associates Ltd (Jaypee) having a consolidated debt of Rs.58,250 crore as of 31 March. DLF Ltd is saddled with a debt of Rs.22,202 crore and Unitech weighed down byRs.7,165.7 crore.

“The customer cell here clearly says that they don’t have money to finish the project,” said Ashish Srivastava, who booked a flat in Noida’s Jaypee Kassia project in May 2011 and is still waiting for possession.

Jaiprakash Associates did not respond to a Mintquestionnaire.

Many buyers have also accused banks of lack of monitoring while disbursing loans to the builders even when they didn’t have clearances and of looking other way when those funds were diverted.

“Unitech has taken Rs.180-200 crore from buyers. Later, they told us that they spent only Rs.20 crore on the project, which was shocking,” said a buyer who didn’t want to be identified.

The buyers filed a first information report (FIR) against Unitech for fraud and also named ICICI Bank Ltd in the FIR for lack of monitoring and colluding with the builder in cheating the buyers.

“As per the agreement for the housing loan between ICICI Bank and the customer, the bank has in no way any control over the delivery of the property by the developer. Consequently, the bank cannot be held responsible for any delays. However, the bank is engaging with the builder to explore options to resolve the current situation,” an ICICI Bank spokesperson told Mint.

Unitech did not respond to a Mint questionnaire sent on 5 July.

Reserve Bank of India guidelines stipulate that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project and upfront disbursal should not be made in cases of incomplete, under-construction or new housing projects.

The delay in executing the project has also resulted in large volume of litigation with buyers organizing themselves into associations and approaching the National Consumer Disputes Redressal Commission for better compensation or refund of their money.

“In the last three years, the filings at national commissions have risen three times. People are becoming aware of their rights, they are also exerting their rights,” said Sudhir Mahajan, a property lawyer.

The buyers have also staged protests against builders.

“We asked Jaypee to meet us on 11 June but they refused to address the group and insisted on meeting individuals only. When 1,000 buyers gathered together on the set day to demand action, they blocked us from the office and even welded the gates. We blocked the expressway for 40 minutes and finally they agreed to talk,” said Nrip Kumar Mehta, one of the organizers of the protest.

The gates of the Jaypee office in Sector 128 today resemble a military outpost, protected by barriers, large gates, barbed wires and a posse of guards to prevent protests on the premises.

“What these builders have been doing is a matter of fraud. They have been raising money on one project and then siphoning it off to another project. Everything is getting stacked up and now it has resulted in this domino effect,” said Vivek Chib, a lawyer who has filed several cases against Unitech on behalf of buyers.

While questions about the conduct of banks remain, they have already started the process of recovering their dues from the defaulters. ICICI Bank and Axis Bank have taken over several properties from Jaypee to recover their dues.

The Gardenia project in Sector 46, which is being operated by Gardenia Aims Developers Pvt. Ltd, is an example of the domino effect on the real estate industry.

According to documents seen by Mint, the developer took a loan of about Rs.134 crore from a consortium of three banks— Bank of India, Oriental Bank of Commerce and Corporation Bank—but couldn’t pay back as the project got stuck due to regulatory issues.

The developer still owes about Rs.86 crore to the bank consortium and about Rs.250 crore to the New Okhla Industrial Development Authority in land dues.

Gardenia did not respond to a Mint questionnaire.

With loan repayment elusive, Oriental Bank of Commerce, on behalf of the consortium, issued a public notice against the Gardenia project, declaring its intent to take over the asset to recover dues.

The consortium of banks didn’t respond to a Mintquestionnaire.

This has led to a plunge in the project’s value with the existing buyers panicking and attempting to cancel their bookings.

“Clearly the project appraisal mechanism could have been better,” said Rajeev Bairathi, head of capital markets, Knight Frank India, adding that around the time banks started to lend, the projects seemed to be doing well.

Some buyers, by staging protests and through constant persuasion, have been able to get the developers to give them possession of their flats, but they have only encountered new problems.

“Jaypee has used very low quality material and has done cost cutting wherever possible. We paid more than a lakh for the club, but nothing is ready and still they are charging us for common area utilization. They have not given us occupancy certificate as well,” said Sanjeev Kumar Aggarwal, a software engineer who finally got possession of his flat in Jaypee Klassic, Noida, after a three-year delay.

There are no signs of recovery in the near term. According to the 4 July report by Knight Frank India, residential unit prices in NCR fell 4% in the first half of 2016 and are expected to keep falling for the rest of the year.

This will further increase the financial strain on developers struggling with a cash crunch.

Some buyers, however, want to take matters into their own hands and finish projects by pooling money.

“Banks should let us build ourselves because Unitech doesn’t have either the willingness or the capability to complete the project. We are ready to help ourselves if administration allows us to do that,” said Vibha Bhatra, a buyer of a flat in Unitech E-space, Gurgaon, which has been under construction since 2011.

Tallest govt building: A 61-storey headquarter for Surat civic body on the cards

SMC officials said that they are checking the feasibility for this project on the 22,000 sq m land on the Ring Road where old sub-jail once stood

SURAT: The Chinese dragon has set tongues wagging in the Diamond City by proposing that it could help build a towering 61-storey headquarters for the Surat Municipal Corporation (SMC).

If the project, which sounds like a fanciful hope for now, is executed this could be the tallest government building in India. SMC has been operating from the historical Mughal Sarai building that was built way back in 1644 during the reign of Shahjahan.

The Chinese delegation comprising government firms that are into construction business had visited Surat last year and claimed that they could construct this fully environment-friendly skyscraper in very short time using pre-fabricated technology.

SMC officials said that they are checking the feasibility for this project on the 22,000 sq m land on the Ring Road where old sub-jail once stood. At least 13 consultants have been asked to prepare designs and submit them to SMC authorities for selection and approval.

Milind Torwane, municipal commissioner, said, "We are awaiting a feasibility report on building a multi-storeyed structure on the chunk of land with us. The mega project of SMC headquarters will take shape through public-private partnership (PPP)."

Standing committee chairman Rajesh Desai said, "We have to take a policy decision on linking the local body's administrative office with commercial establishments. It has not been seen anywhere else." He added, "We will have to shift the site if the 61-storey structure can't be built on the sub-jail land. We will soon take a decision on it."

Sources said that the concept of skyscraper for SMC headquarters was suggested by the Prime Minister's Office following which the Chinese team visited Surat.

Manoj Gandhi, India head of Anuj Infra Tech, which is an associate partner of seven companies of government of China, said, "Prefabrication construction technology means things are prepared in a factory and later assembled at the site.

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Indiabulls Real Estate Cuts Debt By 16% to Rs 4,617 Crore In FY16

New Delhi: Indiabulls Real Estate reduced its net debt 16 per cent to Rs 4,617 crore during the last fiscal year, helped by a positive operating cash-flow.

In an analyst presentation, the Mumbai-based developer said the company achieved a net debt of Rs 4,617 crore as of March 31, as against the target of Rs 4,800 crore.

"Sixteen per cent year-on-year reduction in net debt during FY16. Overall reduced net debt by Rs 863 crore during FY16, down to Rs 4,617 crore on March 31, 2016, from Rs 5,480 crore as on March 31, 2015," Indiabulls Real Estate said.

The company has a target to cut net debt to Rs 3,300 crore by March next year.

During 2015-16, the company's promoters made an equity infusion of Rs 538 crore. Sales bookings of the firm stood at Rs 626 crore during the quarter ended March 31.

Indiabulls Real Estate also said it plans to launch two projects with a total saleable area of 7.29 million square feet, of which 5.06 million square feet would be housing.

The company is developing 11 projects with a total saleable area of 30.51 million square feet. It has presence in key metros of Mumbai, Chennai and the NCR. The company has entered the London property market through acquisition of 22, Hanover Square in Mayfair, Central London, a 87,444 square feet commercial property in July 2014.

On land bank, the company informed it has fully paid land bank of 1,017 acres in key cities across India which is sufficient for proposed development over the next seven years. It also possesses 2,588 acres of SEZ land at Nashik, Maharashtra.

Last week, Indiabulls Real Estate had reported a 23 per cent rise in consolidated net profit at Rs 305.04 crore in 2015-16 as against Rs 248.08 crore in the preceding fiscal year.

Total income of the company increased to Rs 2,785.84 crore from Rs 2,736.60 crore in 2014-15.

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RBI proposes rules to regulate P2P lending

The much awaited and widely acclaimed Real Estate (Regulation and Development) Act, 2016 comes into force tomorrow i.e May 1, 2016 setting in motion the process of making necessary operational rules and creation of institutional infrastructure for protecting the interests of consumers and promoting the growth of real estate sector in an environment of trust, confidence, credible transactions and efficient and time bound execution of projects.   

            Ministry of Housing & Urban  Poverty Alleviation has notified 69 of the total 92 sections of the Act on Wednesday this week bringing the Act into force from May 1,2016 culminating the eight year long efforts in this regard. A proposal for a law for Real Estate was first mooted at the National Conference of Housing Ministers of States and Union Territories in January, 2009.

            As per the notification announcing the commencement of the Act on May 1,2016, Rules under the Act have to be formulated by the Central and State Governments within a maximum period of six months i.e by October 31,2016 under Section 84 of the Act. Ministry of HUPA would make Rules for  Union Territories without legislatures while the Ministry of Urban Development would do so for Delhi.

            Section 84 of the Act stipulates that “The appropriate Government shall, within a period of six months of the commencement of this Act, by notification, make rules for carrying out the provisions of this Act.”

            Early setting up of Real Estate Regulatory Authorities with whom all real estate projects have to be registered and Appellate Tribunals for adjudication of disputes is the key for providing early relief and protection to the large number of buyers of properties.

            Section 20 of the Act says “The appropriate Government shall, within a period of one year from the date of coming into force of this Act, by notification establish an authority to be known as the Real Estate Regulatory Authority to exercise the powers conferred on it and to perform the functions assigned to it under this Act”. These Authorities decide on the complaints of buyers and developers in 60 days time.

            Section 20 of this Act also empowers appropriate Governments to designate any officer preferably Secretary of the Department dealing with Housing, as the interim Regulatory Authority until the establishment of Regulatory Authority under the provisions of the Act.

            Regulatory Authorities, upon their constitution get three months time to formulate regulations concerning their day to  day functioning under Section 85 of the Act.

            Likewise, under Section 43 of the Act, Real Estate Appellate Tribunals shall be formed within a maximum period of one year i.e by April 30,2017. These fast track Tribunals shall decide on the disputes over the orders of Regulatory Authorities in 60 days time.

            Under the directions of the Minister of Housing & Urban Poverty Alleviation Shri M.Venkaiah Naidu, a Committee chaired by Secretary (HUPA) has already commenced work on formulation of Model Rules under the Act for the benefit of States and UTs so that they could come out with Rules in quick time besides ensuring uniformity across the country. The Ministry will also will come out with Model Regulations for Regulatory Authorities to save on time.

            The time limits of six months for formulation of Rules and one year for setting up Regulatory Authorities and Appellate Tribunals are the outer limit and the States willing to act quickly could do so and the Ministry of Housing & Urban Poverty Alleviation would notify the remaining Sections of the Act to enable relief to the buyers under the Act as quickly as possible, as desired by Shri M.Venkaiah Naidu.

            The remaining 22 Sections to be notified relate to functions and duties of promoters, rights and duties of allottees, prior registration of real estate projects with Real Estate Regulatory Authorities, recovery of interest on penalties, enforcement of orders, offences, penalties and adjudication, taking cognizance of offences etc.

Realty firms likely to see muted sales, profits in March quarter

 Property market in Delhi NCR remains under pressure; Mumbai continues to see sales volumes only in select residential projects

Top real estate companies are expected to post muted sales and profits in the January-March quarter compared to a year ago due to limited project launches, tepid cash flows and weak consumer sentiment.

The property market in the national capital region (NCR) remains under pressure, while Mumbai continues to see sales volumes only in select residential projects. Demand for Rs.1 crore-plus houses is weak in Bengaluru and Pune, while mid-income housing continues to see reasonable offtake.

However, even as residential sales remain lacklustre, a key positive that has emerged over the past four quarters is a pickup in leasing activity for office space, especially in Bengaluru.

“New project launches remained subdued during the quarter, with developers focusing on clearing existing inventory rather than launching new projects at a time when demand is sluggish,” said Sandipan Pal, an analyst with Motilal Oswal Securities Ltd.

Some of the launches in the quarter were Godrej Properties Ltd’s second phase of The Trees in Mumbai, Mahindra Lifespace Developers Ltd’s Vivante in Mumbai and Sobha Ltd’s International City in Gurgaon.

“While a general slowdown prevails in real estate markets across the country, NCR remains the worst-affected,” Pal said.

So far this year, the BSE Realty Index has fallen 0.51%. On Monday, it closed at 1,337.41 on BSE, up 4.4% from the previous close. India’s top two developers, DLF Ltd and Oberoi Realty Ltd, are expected to post lower sales and profits for the three months ended March, due to the lack of new launches and limited revenue recognition from projects.

DLF, the largest developer by market value, may see its March quarter net profit fall by 16.5% to Rs.143.25 crore compared to the corresponding quarter a year ago, according to a Mint poll of six brokerages. Its revenue is likely to marginally rise by 3.61% to Rs.2,023.5 crore.

“While DLF’s revenue is expected to be driven by older projects, operationally, we expect a weak quarter in terms of pre-sales with no new launches. Net debt is likely to increase on account of weak operating cash flow. The key monitorable will be update on progress of promoters’ stake sale in the annuity business,” said a report by IDFC Securities Ltd.

Click here for enlarge

DLF recently sought expressions of interest from top global investors to sell a 40% stake in its rental assets arm as it seeks to pare debt. The rental assets arm holds about 20 million sq. ft of leased-out office space and is valued at about $2 billion. Multiple investors are likely to buy stakes in the office rental unit.

Sequentially, DLF is expected to post a drop of 17.1% and 24.4%, respectively, in net profit and revenue, according to the Mint poll.

On Monday, shares of DLF rose 2.4% to Rs.124.95 on BSE.

Mumbai-based Oberoi Realty is expected to post a 14.1% drop in net profit to Rs.88.48 crore from a year ago, while its revenue may see a sharp drop by 31.3% to Rs.235.80 crore.

“Oberoi didn’t have any launch in the fourth quarter, and will see a decline in sales booking on a year-on-year and quarterly basis. The third quarter was an eventful one for Oberoi, which launched its big Borivali project then and witnessed revenue recognition from its Esquire project,” said Adhidev Chattopadhyay, an analyst at Elara Securities Ltd. Quarter-on-quarter, Oberoi Realty may see a 53.1% and 67.9% fall in net profit and revenue, respectively.

Oberoi Realty rose 17.7% to close at Rs.279.85 on BSE after The Economic Times reported that Swedish furniture retailing giant Ikea is in talks with the developer to buy a built-to-suit retail space for more than Rs.900 crore in suburban Borivali. Oberoi Realty told BSE said that no transaction has taken place yet.

Slowdown woes apart, developers also struggled to meet their annual sales guidance owing to delays in approvals, making it tough to launch projects on schedule.

“FY16 is the third consecutive year where Sobha Ltd has missed its annual sales guidance with 3.4 million sq. ft of sales worth Rs.2,010 crore versus guidance for 4 million sq. ft of sales worth Rs.2,600 crore,” said an Elara Securities report. Even Prestige Estates, which had set an annual sales target of Rs.5,500- 5,800 crore for 2015-16, revised it in the course of the year.

While Godrej Properties continued to sell well in projects such as the second phase of Trees, a key monitorable will be if its debt levels remain in check, said analysts. Developers such as Oberoi Realty and Kolte-Patil Developers Ltd, among residential players, have low debt even as sales remain tepid.

Bengaluru-based Prestige Estates and Brigade Enterprises Ltd have robust annuity portfolios mainly due to their office projects, coupled with a strong residential launch pipeline.

Realty firms miss residential sales guidance for 2015-16

A few developers revise sales target for March quarter; weak demand, delay in approvals seen as reasons for slump

Bengaluru: Real estate developers struggled to meet their residential sales guidance for the year 2015-16 due to tepid consumer sentiment and delays in securing project approvals.

Unable to launch projects and sell in line with expectations, a few realty firms even revised or downsized their sales targets in the March quarter.

While real estate developers in Mumbai and Bengaluru selectively launched projects in the last fiscal year, most in India’s largest property market—the National Capital Region centred on Delhi—refrained from bringing more new supply into the market—causing sales to shrink.

Bengaluru-based Prestige Estates Projects Ltd, which generated about Rs.5,030 crore of sales in 2014-15, includingRs.1,000 crore of rental income, is expected to have clocked a little above Rs.3,000 crore in 2015-16.

Prestige Estates, which had set an annual sales target ofRs.5,500- 5,800 crore for 2015-16, revised it in the course of the year.

PrestigeGroup’s chairman and manaing director Irfan Razack said the approval delays and the inability to launch projects in Chennai and Hyderabad affect- ed the sales momentum.

“We are happy with the numbers in the current environment, and we would be the highest to generate such sales in the current environment,” Razack said.

In the April-December period, Prestige launched just 3.8 million sq.ft of the full year’s target of 12 million sq.ft and met just 33% of the Rs.5,800 crore sales target. However, with three residential launches in the March quarter and one commercial project seeing good response, the company is targeting more than Rs.1,000 crore of sales bookings in the last quarter and Rs.3,000 crore for FY16, according to an Elara Securities India (Pvt.) Ltd report.

Prestige did not give out exact numbers due to the impending results.

Another Bengaluru developer, Sobha Ltd, last week said it has registered new sales of 3.38 million sq.ft, valued atRs.2,012 crore, 3.2% higher than its 2014-15 performance, in a scenario where demand remained muted in almost all property markets in the country.

Sobha’s affordable housing brand Dream Acres emerged as its fastest selling product.

An Elara Securities report said that “FY16 is the third consecutive year where Sobha Ltd has missed its annual sales guidance with 3.4 million sq.ft of sales worth Rs.2,010 crore versus guidance for 4 million sq.ft of sales worthRs.2,600 crore. This was largely owing to continued delay in approvals for new launches (Kochi, Chennai and Gurgaon), slowdown in the Rs.1 crore-plus segment and sustained weakness in the Gurgaon market.”

“Most developers missed their sales guidance last year, but 2016-17 is expected to be much better. Developers in Bengaluru such as Sobha and Prestige have a strong pipeline of launches, and that will naturally boost sales numbers. We expect NCR to remain slow and Mumbai will be mixed bag where some developers will sell well,” said Adhidev Chattopadhyay, real estate analyst at Elara Capital.

On a pan-India basis, Mumbai-based Lodha Group again seems to have hit the highest sales numbers, crossingRs.8,000 crore in gross sales—far ahead of Prestige Estates and Godrej Properties Ltd (GPL). GPL generated sales of about 4,422 crore in the first three quarters of FY16. The company didn’t disclose full year numbers. Lodha Group, which beat India’s largest developer DLF Ltd and Prestige in 2014-15 to clock the highest new residential sales of Rs.7,800 crore, had set an ambitious target of Rs.9,000 crore for 2015-16.

Lodha Group’s 40-acre residential project Amara in suburban Thane was the largest contributor towards sales last year. In the past month or so, it has clocked 1,500 apartment bookings that would amount to Rs.1,300 crore. In total, in 2015-16, Amara contributed nearly Rs.3,000 crore, followed by Palava, a township near Mumbai which generated another Rs.1,200 crore.

“The product, brand and price are the three things that played important roles in generating this kind of sales. We have also been able to significantly improve the net to gross ratio without sustained consumer-centric approach,” said Prashant Bindal, chief sales officer, Lodha Group.

While the gross sales typically indicate customers who have paid the booking or the signing amount, net sales would mean when a customer actually makes the initial 20% payment.

Pune-based Kolte-Patil Developers Ltd, which had set a target of selling 3-3.5 million sq.ft of residential space, revised it to 2-2.5 million sq.ft in the last quarter, Elara Capital’s Chattopadhyay said.

In 2015-16, DLF is expected to match the level of 2014-15, when it clocked sales of about Rs.3,850 crore, said analysts.

DLF’s chief executive Rajeev Talwar said that there was a visible rise in customer enquiries. “Customers are gradually coming back. In the last 5-6 years, developers only launched residential projects leading to a lot of supply in the market and this will take time to be absorbed. But... the new financial year will definitely be better in terms of buyer sentiment,” Talwar said.

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Cash-starved developers tie up with bigger rivals to fund projects

Large firms step in as development managers for smaller developers in return for a share of revenue and profits.

Aproposed, luxury residential project on south Mumbai’s Hughes Road is finally ready to take off after eight years of waiting for approvals, but developer Rohan Lifescapes is not in a position to execute it.

The 150,000 sq. ft project of Rohan Lifescapes, which at one point had tied up with Trump Organization USA Llc to build a Trump Tower, has now been taken up by Radius Developers. Radius and Rohan Lifescapes have entered into a revenue-sharing partnership, where the former will develop the project.

This is the second project on Hughes Road, where the average property price is Rs.50,000 per sq. ft, which Radius has taken over. The first was another stalled venture by Hubtown Ltd.

Over the past year or so, Rohan Lifescapes, which has 10 ongoing projects spread across south and central Mumbai, has also sold a two-acre land parcel in Worli that it was to develop, and has formed an equal partnership with another firm for a property on Hughes Road.

“The real estate industry is going through a change, and going forward, there will only be a few developers with roles divided amongst them. There will be the ones who can clear the land, get the permissions and then there will be those who have the financial strength and development expertise to execute those,” said Rohan Lifescapes’ chairman Harresh Mehta.

The real estate sector in India, which has witnessed its longest, harshest slowdown that has lasted for more than two years now, is undergoing fundamental changes, property analysts say.

There are around 11,500 real estate firms registered with industry body Confederation of Real Estate Developers Association of India (Credai-National) and there would easily be a few thousand local developers across property markets who aren’t registered.

The sluggish market has led to a goldmine of opportunities for larger developers who are bailing out developers stuck with projects.

“There are way too many developers in the country and that will change,” said Anuj Puri, chairman and country head at property advisory JLL. “There are clear signs of consolidation in the sector where weaker developers, who can’t sell their own projects any more or don’t have the financial strength, are selling their projects or tying up with better, larger developers.”

As sales remained tepid and cash flows uncertain, a number of real estate firms have fallen into a potential debt trap and are borrowing heavily. Developers who banked heavily on valuable land parcels in Mumbai and the National Capital Region (NCR) suddenly found themselves stuck with expensive assets that they didn’t have the ability to develop.

Orbit Corp. Ltd, which at one point of time owned some of the best-located projects in south Mumbai, is now arranging capital to relaunch at least five of them, and looking to strike a partnership with other developers for its large proposed project in Alibaug and another one in Mumbai.

“There is not one project that has been delivered on time in Mumbai, leaving buyers sceptical on making a decision to buy a home,” said Orbit Corp. managing director Pujit Aggarwal.

With the Real Estate (Regulation and Development) Bill, 2013, approved by the Rajya Sabha last week and then by the Lok Sabha on Tuesday, the stage is set for some big reforms in the sector. The real estate bill takes a hard look at the developer community, particularly the ‘fly-by-night’ operators, and demands unprecedented regulation in the sector in the form of financial discipline, transparency and credibility. “The real estate bill asks for financial closures on projects and other reforms that will eventually make it tough for all kinds of developers to survive,” Puri said.

What earlier seemed to be ‘distressed sales’ by specific developers who wanted to monetize their assets, is now becoming a business strategy for many, who know that they can’t survive on their own in the current challenging market conditions.

This has paved the way for new forms of partnership models: development management, joint development and joint ventures to name a few.

Developers such as Godrej Properties Ltd and Tata Housing Development Co. Ltd have tied up with multiple developers in different markets, allowing them to enter into new property markets without buying any land.

In January, Godrej Properties signed a development management agreement with Lotus Greens to build a housing project in Sector 150 of Noida, marking the former’s entry into the Noida market. It has also entered into a joint development agreement with Vihang Group to develop 15 acres of land off Ghodbunder Road in Thane.

Pirojsha Godrej, managing director and chief executive of Godrej Properties, in an interview on 8 February said that it’s not necessarily distressed developers that approach the company. Companies that want help in monetizing their projects faster, with greater value than they can do independently, are also seeking partnerships.

“We are pursuing dozens of such opportunities and at any given point in time, we are discussing with a number of developers,” Godrej said.

Large real estate firms have stepped in as development managers for smaller developers and landowners, in return for a share of the revenue, share in profits or a management fee.

Radius Developers, headed by Sanjay Chhabria, has made multiple acquisitions and struck joint ventures in the past year and a half, partnering with firms such as DB Realty Ltd and Sumer Group in Mumbai.

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Top 10 tips to boost investing results in 2016.

1. Keep an eye on the Fed (and other central banks)

Central banks may not be in the driver's seat when it comes to world markets right now, but they definitely have a hand on the wheel. A few words from Federal Reserve Board Chair Janet Yellen or European Central Bank President Mario Draghi can send stock markets across the world charging upward or downward hundreds of points.

A big part of the investing story in 2016 will undoubtedly hinge on how well Yellen manages the U.S.'s transition to normal, non-zero interest rates. If she raises rates too quickly, it could push the still-rickety U.S. economy back toward recession. If she raises rates too slowly, cheap credit could fuel a bubble in asset prices.


In general, higher interest rates mean slower economic growth and thinner profits for U.S. firms, so you'd think that the longer Yellen holds off in raising rates, the better for U.S. stocks.

But Yellen's reluctance to raise rates hasn't always been interpreted as a positive signal by the markets, perhaps because it's seen as evidence that the U.S. is on shakier economic ground than we'd like to think.

In short, the Fed is a wild card this year.
One stable investment is a certificate of deposit. Find the best CD rates.

2. Get ready for some volatility in 2016

A number of studies have shown that periods of intense volatility tend to cluster together. The 2nd half of 2015 featured several months of intense volatility, so that would seem to augur for more of the same in at least the 1st half of 2016.

On top of that, changes to the federal funds rate have tended to be accompanied by volatility in the markets over the past few decades, so it's shaping up to be a bumpy ride in 2016.

3. Keep enough cash on hand to avoid liquidating assets

In low-volatility times when asset prices are on an upward trend, it's tempting to be invested in the market as much as possible. Why hold cash that's earning next to nothing, the thinking goes, when you can have your money working hard in the markets for you? In an environment where the market is continually setting record highs, you can always liquidate investments at full value to fund whatever cash needs you may have.

With volatility likely to be strong in 2016, it might make sense for those who depend on their portfolio to pay some or all of their living expenses to set aside a larger cash cushion ahead of time. That's so they don't have to sell assets at temporarily depressed prices in order to meet routine or unexpected expenses.

4. Be aware of assets outside of your brokerage account

When you're planning out your portfolio, it's easy to lose track of non-financial assets because they don't appear on brokerage statements. That can lead to accidentally concentrating too much of your overall wealth in some sectors and not enough in others.

For instance, say you decide you want exposure to the residential housing market, and you go out and put a sizable chunk of your stock portfolio into the SPDR S&P Homebuilders ETF (XHB). If you're also a homeowner and have a big percentage of your net worth tied up in your home equity, as many homeowners do, your total exposure to residential real estate is your equity, plus whatever percentage of your overall assets are in XHB. At that point, you may be overexposed if the housing market goes sideways again.

The same applies to your human capital -- a complicated-sounding term that means the present value of all your future paychecks put together. For example, if you're a petroleum engineer, your paychecks, and consequently, the value of your human capital, are very much tied up in the fate of the oil industry.

If things go really bad, you could end up seeing your wages stagnate or, worse, you could become unemployed. In that case, it may not be a great idea to have a huge allocation to oil companies in your portfolio on top of that.

A good financial planner would take into account all of your assets, not just the financial ones, and so should you.

5. Make a plan and stick with it

When you see the value of your portfolio take a big hit, it's understandable to want to log on to your investment accounts immediately and sell, sell, sell.

But how do you avoid falling into the buy-high, sell-low trap? Mostly by having -- and sticking with -- a comprehensive investment plan. That plan should have 2 essential parts:

1. An investment policy statement, or IPS, that takes into account your particular time horizon, risk tolerance and goals.
2. A strategic asset allocation designed to help you reach the goals within the constraints outlined in your IPS.

Of course, your investment plan shouldn't be carved in stone. It's important to update it regularly, particularly if something fundamental changes with your investing needs or market conditions.
Stick to your plan through day-to-day fluctuations rather than going on a selling frenzy every time you get uncomfortable. Think of it as a guardrail to keep you between the ditches when market turns get twisty.

6. Dollar-cost averaging can be your friend

Research seems to suggest that if you have money on the sidelines, you're more likely to get better returns by putting it into the market all at once rather than making smaller securities purchases at regular intervals -- a practice known as dollar-cost averaging.

But dollar-cost averaging can have benefits from a behavioral finance perspective -- that is, it helps investors not to freak out and sell everything when the blue chips are down.

For example, say you get a $2,000 bonus at work and want to put some money into a tax-advantaged 529 college plan account for your kids' education.

If you put the entire lump sum in right before the market takes a big hit and your brand-new investments lose 10% of their value in a day, you're going to be tempted to sell it all and move into unproductive cash investments.

On the other hand, if you put $200 per month in for 10 months, day-to-day price fluctuations may not have the same emotional impact.

Particularly in a year that's looking to be fairly volatile, that type of strategy might be useful, especially for beginning investors.

7. Watch for bargains

When you're investing for the short term, big drops in asset values are bad news. The prices may never recover before you have to cash out, locking in your losses.

But when you're investing for the long term, bear markets and large-scale drops in asset prices should be looked at the same way you look at a buy-one, get-one-free sale at the supermarket -- as an opportunity to stock up (no pun intended) when prices are low.

There are a few key sectors that look likely to be depressed in 2016, most notably energy, materials and utilities. As long as it fits in with your overall investment plan, taking the opportunity to pick up some of the historically highest-performing companies in those sectors may help boost your returns over the long term.

8. Be skeptical of portfolio-based lending

Portfolio-based lending, or using securities in your portfolio as collateral for loans, has become a big business for banks' wealth-management arms. It's often sold this way: Why liquidate investments that are doing well when you can take out a low-interest-rate loan and pocket the difference?
But there's 1 big reason that portfolio-based loans are usually a bad idea: If the securities decline substantially in value, you could be on the receiving end of a margin call. If that happens, you may either have to put up more collateral or face having the loan come due immediately.

In an environment where security prices could be fluctuating more than in the recent past, that could end badly for investors. If you need cash to make a purchase, a better move might simply be liquidating part of your portfolio and using the proceeds from the sale instead.

9. Take advantage of tax management opportunities

One positive effect of rocky markets is that they allow for some substantial capital gains management on taxable investments.

Basically, any investment you own in a taxable account that has gone up in value a lot is a tax bomb waiting to explode and stick you with a bill for up to 20% of the gain, depending on your income.
The 1 thing that can defuse these tax bombs is using losses on investments that didn't work out to offset the gains.

Here's the basic trick: You see that stocks in a particular category are falling across the board because of some broad economic trend. You happen to own a stock in this category that's been a loser compared with its peers for some reason -- its products aren't as good, its management is clueless, whatever. You don't want to own it anymore, but you believe the sector it's in will recover at some point before the end of your time horizon.

But wait! There's another stock in that same category that's consistently beaten your bad stock and looks well-positioned for a comeback. You can sell the bad company's stock, use the proceeds to buy the good stock, and boom, you have a tax loss to offset gains elsewhere in your portfolio, and you haven't violated the wash-sale rule.
Times of elevated volatility, like 2016 is looking to be, are a perfect time to pull off just such a maneuver. So, if you have chronically underperforming investments that you've wanted to unload for a while and have some long-term capital gains issues that need to be addressed, keep tax-loss harvesting in mind.

10. Be aware of the difference between cyclical vs. secular trends

A cyclical trend is just what it sounds like: a market trend that will reverse itself within a few months or years and go back the other way, like how broad stock market indexes fall in the lead-up to a recession and then begin rising as an economy comes out of recession.

A secular trend is different. It's a longer-term trend in an industry or market brought on by some fundamental change, like the fall of Polaroid as digital cameras gained in popularity or the decline of newspaper stocks as Web-based news consumption became the norm.

Sometimes in the moment, it can be difficult to tell the difference between the 2. For instance, are current low oil prices a cyclical trend that will soon reverse, leading to prices rising to record levels in the future? Or are oil companies looking at more or less permanently slow growth, thanks to gains in renewable technologies and increasing environmental regulation designed to slow global warming?
Will financial stocks recover as they adjust to (and lobby against) new regulations designed to keep them from blowing up the global economy again? Or, are their low stock prices a symptom of disruption by prepaid debit card providers, robo-advisers and other fairly recent "fintech" competitors?

As the pace of technological change accelerates in 2016 and beyond, these types of questions will become even more pressing for investors, increasingly determining which investors win and which ones lose.

Sun Capital

Regulating real estate States need to do much more to help cut realty prices

The Rajya Sabha may have cleared the Real Estate (Regulation and Development) Bill, but land is a state subject, so the legislation will need to be worked on by states who may want to alter the norms. That could delay the implementation by anywhere between 12 and 24 months. Maharashtra already has a Bill in place, cleared in 2015, but other states such as Karnataka, Tamil Nadu and West Bengal—where there is a fair bit of construction taking place—may take time ushering it in.

Maharashtra already has a Bill in place, cleared in 2015, but other states such as Karnataka, Tamil Nadu and West Bengal—where there is a fair bit of construction taking place—may take time ushering it in.

Nevertheless, the stringent norms will chasten developers across the spectrum since smaller projects and commercial ones too now fall within the ambit of the law. Since consumers and developers will now be paying the same penal interest rates, developers will hopefully complete projects on time. They will need to be far more disciplined while allocating funds and cannot divert money since 70% of the collections for a project must be kept aside by the developer in an escrow account, and used only for the cost of land and construction of that property. While builders had been lobbying to bring down this amount to 50%, the government, to its credit, did not yield. Given that the norms have been tightened, developers will be more circumspect now, ensuring they are protected against unforeseen events. For example, environmental bans—such as the one near the Okhla bird sanctuary in Noida—have taken a toll on projects, and builders will not leave themselves vulnerable to such rulings.

While the law appears to benefit the buyer since the price will be determined according to the carpet area rather than what is known as the ‘super built up’ area—which includes the walls and common areas—it would be naive to believe that builders will not extract the profits they want. As such, unless supply overtakes demand, it’s hard to see home buyers not being exploited. In cities such as Mumbai, the FSI should be increased but this should be accompanied by appropriate infrastructure provided by the state government and the builder. The new law rightly requires promoters to register themselves with the Real Estate Regulatory Authority that needs to be set up within a year in every state—before he books, sells or offers for sale any project. Section 11(3)(a) of the Bill mandates that developers share the final project plans as part of their disclosure terms, with no room for changes. The penalties, for violating the rules, are high and could amount to 10% of the project cost and up to 3 years in jail. However, in all fairness, the authorities that give the necessary clearances also need to be made accountable for delays; a single-window would be helpful. The regulator must monitor the government agencies as much as it does the developers. The real estate sector has been a law unto itself allegedly because of its nexus with politicians and a symbiotic relationship of this nature doesn’t break up easily. Nevertheless, the new law is a good attempt at cleaning up the space.

Sun Capital