Tuesday, 16 September 2014

Six Up and Coming Real Estate Design Trends

What home-design trends will likely catch on in new construction? Builder Online recently spoke to Mollie Carmichael, principal at John Burns Real Estate Consulting, and Nick Lehnert, executive director at architecture firm KTGY, about the design trends that are gaining popularity in the new-home market this year:

 Private space 

Baby boomers, empty nesters, and Gen Yers are showing a preference for homes that have more private outdoor spaces, straying from the traditional “public” backyard, according to surveys. One way some builders are fulfilling this desire is by positioning the home’s architecture strategically around the outdoor space to enclose it more and allow it to be more open to the interior living spaces. They also are creating more covered outdoor spaces.

The “Super Kitchen” 

Besides being a place for cooking, the kitchen is also the entertainment/conversation area in a home. Open-kitchen layouts have continued to grow in popularity, putting kitchens more front-and-center and visibly exposed to other areas of the house. Kitchen islands are offering extra seating and prep space while larger pantries are offering greater storage. “As the hub, it becomes a consumer’s dream to design these elements together with function, practicality, and flair,” the designers say.

Bigger Media Hubs

More home owners are looking for a place for their large flat-screen television. Larger television sizes are prompting more builders to realize the need for greater wall space to hang the televisions and larger entertainment rooms to accommodate more seating. 

Larger Garage Spaces

If home owners had their way, garages wouldn’t be just for parking the cars. More home owners want spaces for hobbies and storage, and builders are taking notice by creating larger garages for multi-use purposes. 

Home Offices

An office and den space is becoming a bigger desire among home buyers, and the location of it in the home is becoming increasingly important. Placing the home office off the entry is no longer considered the most practical location for it, but builders are experimenting with moving it closer to the “living” area, such as off the kitchen or the family room.

Two Homes in One

As multigenerational living gains popularity, builders are responding by carving out more separate spaces for several generations to live together. For example, some builders are offering semi-independent suites with separate entries, bathrooms, and kitchenettes.

Source: Realty Biz News

Wednesday, 10 September 2014

PM Modi's 100 days: India is now the world's best growth market - Maplecroft

As top ministers extol the government's 100-day performance, a leading international risk-rating firm has told global investors in a confidential report that India is now the world's best growth-market bet as the risks of doing business in the country have declined with the Narendra Modi government having completed its first quarter.

Modi-style governance bodes well for investors who can expect policy clarity and less red tape, said Maplecroft UK's risk analysts in a rating note sent last week to clients, which include the world's top 400 global corporates, apart from financial institutions and think tanks. ET has seen a copy of the report.

The firm has ranked India at No. 1 in terms of economic opportunities for investors, whose interest in the country has spiked dramatically since the general elections. Officials close to the development said India has now become the fifth most requested country in terms of risk and opportunity reports from rating agencies and risk-mapping firms such as Maplecroft.

Risks relating to India's complex regulatory framework, red tape and macroeconomic environment have begun decreasing already, along with several other critical risks such as regime stability and security, according to Maplecroft, which expects Modi to preside over improvements in job creation, the rule of law and anti-corruption measures during his five-year term.

"The government's stability means that investors will benefit from clarity of policy and a regulatory environment that is largely conducive to business. In the coming year, several sectors — including manufacturing and energy — are likely to see limits on foreign direct investment increased.
Furthermore, delays associated with approval of investment licences can be expected to shorten, given Prime Minister Modi's ongoing efforts to overhaul bureaucratic procedures," Arvind Ramakrishnan, head of India at Maplecroft, told ET when contacted about the report.

The change in the narrative is reflected in the Global Growth Opportunities Atlas, which ranks India has the hottest growth market, topping the world in terms of consumer potential, market potential and middle-class growth projections. Though India ranks among the low hundreds on key enabling factors to realise its growth potential such as physical infrastructure business environment and human capital development, Modi's explicit focus on these areas is expected to turn the tide in the medium term, the report noted.

According to the firm's analysis of the June-August period, threat perceptions for investors have declined in areas such as energy security (short term), labour-related supply chain risks, remittances and euro zone exposure. On Modi's ability to tackle the "endemic and institutionalised" corruption that Maplecroft said has hampered industrial production and the development of infrastructure and natural resources in the past five years, the firm is cautiously positive.

"Narendra Modi has promised to clean up governance by cracking down on corruption, and expedite approvals for investment projects. Modi is likely to achieve some success in this endeavour at the national level,' it said, only to add that nepotism, petty bribery and other forms of corruption in state governments remain a moderate risk.

The firm downplayed concerns about communal tensions arising under Modi's watch, saying there is little sign he will resort to policies that alienate religious minorities, such as amending religion-based family laws or restricting quotas for minorities in jobs and education.

"Modi realises that pursuing divisive policies could result in a loss of public and investor confidence in his ability to maintain social harmony and a stable business environment," Ramakrishnan said.

Al-Qaeda's India expansion announced by Ayman al-Zawahiri last week is unlikely to raise terror threat levels for the country, Maplecroft told investors. "There is little evidence that groups like the LeT (Lashkar-e-Taiba) and IM (Indian Mujahideen) share the Al-Qaeda (AQ) vision of a global caliphate. LeT's primary raison d'etre continues to be the 'liberation' of the state of Jammu & Kashmir from Indian rule. IM does want Islamic rule for all of India but does not have global ambitions," the firm said in a separate advisory to clients issued last Thursday.

Source: The Economic Times

Sunday, 7 September 2014

How to invest in property with Rs 2 lakh

If you have Rs2 lakh to invest, your bank may roll out a red carpet, your stock broker may inundate you with hot tips and the neighbourhood jeweller may even offer a discount on making charges. However, you will probably get laughed out of the estate agent's office.
Not anymore. With Sebi issuing final guidelines for real estate investment trusts (REITs), you will soon be able to get a piece of the action in the property market with as little as `2 lakh.

REITs are just like mutual funds, but instead of using the money collected from investors to buy stocks and bonds, they invest in property.

Last month, the Union Budget removed an important hurdle by giving pass-through taxation status to REITs. Last fortnight, Sebi issued the guidelines, settling several of the concerns raised by the real estate industry. The launch of REITs will increase the flow of funds to the cashstarved real estate industry. "Even if half of the currently available Grade A office space gets converted to REIT and is listed in the next 2-3 years, it can mean an inflow of `60,000-72,000 crore," says Anuj Puri, chairman and country head, JLL India.

High entry barrier

Whether you invest in a residential property or commercial space in a metro or tier I city, the minimum investment is normally upwards of `30-40 lakh. Sebi's guidelines for REITs have pegged the minimum investment at `2 lakh, which will allow retail investors to participate in the real estate market. In the secondary market, the minimum holding could be even lower at `1 lakh. "REITs will allow even middle income individuals to invest in real estate. Without this, they can't participate because of the huge entry barrier," says Keki Mistry, vice-chairman and CEO, HDFC. The low ticket size means that investors can diversify their portfolios by including real estate without investing huge amounts in the asset class. The high entry barrier is not the only problem with investments in real estate.

With no real estate regulator in place, individual investors are at the mercy of politically connected builders in India. If, however, they invest in a REIT, they will be able to join hands and get bargaining power against the developers.

The other benefit is diversification. When one invests in a real estate project, the returns are dependent on how well that project is received in the market and the rental income it is able to command. On the other hand, REITs invest in several projects and, therefore, provide the benefit of diversification to the investor. With a low entry barrier of `1 lakh in the secondary market when units are listed, an investor can spread his investment across 3-4 REITs launched by different asset managers. The liquidity offered by REITs is another positive feature of this mode. While selling a property can take weeks, even months, REITs will inject liquidity into the investment by listing the units on the stock exchanges. The day is not far when one will be able to buy and sell property at the click of the mouse.

How attractive is the investment?

While Sebi has given the go-ahead to REITs, right now they can invest only in commercial real estate. This narrows the scope considerably because most of the action in the sector is in residential real estate. Even in commercial projects, 80% of the investment must be in rent-earning projects. The balance 20% can be in other assets, including projects under construction (restricted to 10% of the total REIT assets), listed or unlisted debt of real estate companies, equity shares of real estate companies having 75% income from realty activities, government securities and money market instruments.

Though some may see this as an unnecessary restriction, the straitjacket of rental yielding projects is actually a blessing in disguise. First, there is major difference between rental yield from commercial and residential properties in India now. "While rental yield on commercial property is slightly lower than the interest rate, the one on residential property is very low. So REITs will not work in the residential market now," says Mistry . If rental yield from commercial projects is less than the prevailing interest rate, why should one consider investing in REITs? "The rental yield is not very attractive now, but is expected to rise in the future," says Ujwala Rao, national director, capital markets, JLL.Besides, there is always the possibility of capital appreciation that will push up the NAV .

Bottom of the cycle

Bottom of the cycle Still, there are several factors that investors need to keep in mind. As of now, the commercial real estate market is in doldrums. "In several pockets, the price of commercial real estate is around 30% cheaper compared to residential real estate," says Kapoor. Though there is an escalation clause in most commercial real estate projects, it is a users' market and, therefore, they are able to renegotiate the rents downwards. This also means that commercial real estate is reasonably priced right now. There is a greater scope for appreciation. As the economy picks up momentum and commercial activity increases, things are likely to improve. "This is the time to get into commercial real estate because it is at the bottom of the cycle," says Kapoor. Other experts join the chorus of optimism. "For REIT to work, you need a buoyant real estate market. Nothing much had been happening in the past 3-4 years, but things have started picking up now," says Mistry . "Commercial real estate is linked to economic recovery . Rentals may remain under pressure for the next 12-18 months given the oversupply, but with the speed of supply moderating in the coming years, the situation should improve," says Mittal.

Taxation of REIT income

This was the biggest bone of contention for REITs. The recent budget offered some relief when the finance minister announced that REITs will be a pass-through vehicle. In the earlier structure, both the trust as well as the investors had to pay tax. Now, the trust will not pay tax on income. Only the investor will be taxed when he gets the income or sells the units. However, experts warn that this pass-through benefit is not applicable to all types of incomes from the REIT (see table) "The pass-through benefit is only for interest income earned by the REIT from its special purpose vehicle (SPV). As of now, there is no pass-through for rent or other income received by the REIT from property directly held by it," says Sriram Govind, core member of the international tax team, Nishith Desai Associates. He says the REIT has to pay corporate tax on such income earned by the SPV. Similarly, the REIT will also have to pay capital gains tax on sale of shares of the SPV. There is also no relaxation on the dividend distribution tax on payouts by the SPV to the REIT," says Govind.

Though the dividend received from SPVs is taxfree for REIT as well as investors, the SPV would have already paid corporate tax and dividend distribution tax on such income. Factor this tax into the calculation of returns from REITs.

Though the dividend distribution tax is a prickly problem, what more than makes up for it is the treatment of capital gains from the REIT.

Since there is a securities transaction tax (STT) on the listed REITs, the long-term capital gains will be tax-free while short-term capital gains will be taxed at a concessional rate of 15%.

However, you need to hold the REIT units for at least three years to qualify for long-term capital gains. In addition, the investor has to pay tax on part of the income received during the period. "The listed pass-through vehicles are at a tax disadvantage," says Feroze Azeez, director, Investment Products, Anand Rathi Private Wealth Management.

Since some of the income from the REIT will be tax-free and some other will be taxable, the big question is, how will investors know the difference? "There will be some reporting mechanism and the break-up will come at the time of income distribution from the REIT," says Rao of JLL.

Interestingly, REITs offer a better deal to NRIs on the tax front. The withholding tax for them is only 5% compared to 10% for resident Indians.

And the amount received may be tax-free for them, at least in most countries, while the Indian investors have to pay tax based on their slab rates. If the NRI has to pay tax on the income in the country of residence, he can claim this 5% as a rebate. What are the risks?

The biggest risk can come in the form of developers keeping their prime rent-earning properties and dumping their not-so-good assets on REITs. Though there will be professional valuers, the real estate market is notorious for its opacity. It is still a builder's market and the investors don't have any access to the valuation process. Though the introduction of REITs is expected to improve the situation, the lack of transparency and the black money component in the real estate deals is another possible risk.

Finally, there may be stable regular income, but the capital appreciation or depreciation depends on the market price of commercial real estate and, therefore, will be volatile.

Sebi's guidelines for REITs is only the first step. There are bound to be teething problems when the market starts functioning. However, this has paved the way for a more vibrant market for real estate. If you want to invest in real estate but don't have deep pockets, you can consider REITs as the vehicle that can take you there.

Source: TOI