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Surcharge and RR hike in Mumbai will burden buyers and sellers

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Pune Smart City

The Brihanmumbai Municipal Corporation has proposed a surcharge of one per cent on the sale and purchase of properties, as well as an increase in the ready reckoner rates by 3.95 per cent. We examine the impact that this is likely to have on home buyers’ budgets

Recently the Brihanmumbai Municipal Corporation (BMC) in its budget, had proposed a surcharge of one percent on the sale and purchase of properties, to fund its infrastructure projects. In yet another move, the Maharashtra government also proposed to increase the ready reckoner (RR) rates. These moves could come as a nightmare for home buyers and sellers.

“This surcharge on home buyers, at a time when the state government is also hiking the ready reckoner rates by 3.95%, thereby, increasing stamp duty, has been met with some resistance from the industry. In a tepid sales environment, these additional charges could hinder buyer sentiment that has, over the course of February and March 2017, gradually improved across different ticket sizes,” says Shubika Bilkha, business head at the Real Estate Management Institute (REMI).

In a city like Mumbai, with high property prices, buyers are already spending about 40-45 percent of their monthly family income on the expenses for buying a house, such as EMIs. With a hike in rates, developers will be left with unsold inventory, due to negative consumer sentiments, say experts. Consequently, the surcharge may force developers to offer discounts, so that they are able to offload their inventory.

RR rates and trends in Mumbai

Year RR rate hike
2012 17%
2013 12%
2014 13%
2015 15%
2016 7%
2017 3.95%

Data provided by REMI

 

In the last five years, changes in the RR rates in cities like Pune and Nagpur, have been lower than in Mumbai. The moderate increases in these cities, have kept the real estate rates in check and helped to maintain a healthy sales momentum. “The ready reckoner rates decide the floor price of a property. Builders do not sell below this price, nor do the buyers pay lesser than these rates. This is because according to the law, anything above or lower can be considered a black money transaction,” explains Amit Wadhwani, director of Sai Estate Consultants.

Increasing the RR rates, at a time when property prices have already fallen by 25-30 per cent, is not at all good news for the industry, he maintains. “This is the lowest hike in the past few years. However, with the real estate market at a low point at the moment, even this percentage hike will lead to negative sentiment, among buyers and sellers. It will adversely affect consumer sentiment, as well as the government’s affordable housing projects,” warns Wadhwani.

How an increase in the RR rates, impacts the overall cost of the home

The ready reckoner rates are government-issued prices of properties. They are hiked (or reduced), so that the difference between the ongoing market rates and the government prescribed rates, are at its least. A hike in RR rates, increases the taxes that one has to pay on a property purchase and hence, one will have to put in more money while buying a property. However, experts point out that the process of deciding the RR rates, is often unable to capture the variations due to locations, type of constructions and specifications and this leads to arguments and confusion at the time of registration.

Amol Shimpi, associate dean and director, RICS School of Built Environment, Mumbai, explains the impact of RR rate hike, with an example: “Consider a property priced at Rs 50 lakh. A six per cent increase in the RR rates, would increase the value of the property by Rs 3,00,000. With an additional home loan procured to bridge the gap, the EMI is likely to go up by Rs 2,800-3,200 per month. An average middle-class buyer may have to cut down other household expenses, including health care and education and it may also affect his lifestyle.”

Source: Housing.com

 

Commercial

Blackstone In Process To Buy L&T’s Commercial Property Portfolio For Rs. 2300 Crores

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Blackstone In Process To Buy L&T’s Commercial Property

Being one of the world’s leading investment firms, Blackstone has emerged as the most aggressive institutional investor in India’s real estate sector. Now this US-based private equity player is in advanced talks with L&T Realty, to acquire two commercial properties covering a total of 1.7 million sq ft., in a deal valued at Rs. 2,300 crores. Blackstone leads the market with its highest

Blackstone has been picking up properties across major cities in deals that are turning out to be benchmarks in the sector. Owning the India’s biggest portfolio of income producing office assets, this company holds a total of over 31 million sq ft. across key property markets of Noida, Mumbai, Pune and Bengaluru.

This portfolio of the real estate arm of engineering major Larsen & Toubro includes a 9 lakh sq ft. office block at the company’s commercial project at Seawoods, in Navi Mumbai. And there is another 8 lakh sq ft. of fully-leased commercial tower at the L&T premise in Powai suburb. This Seawoods office tower will be acquired in phases as the leasing process is yet to complete.

L&T Realty will assist in further leasing at Seawoods commercial block, as the deal is expected to be inked by late February as the process is currently in its final stages. Earlier in 2016, Blackstone made a deal in Navi Mumbai, a 1-million sq ft. retail mall was bought adjacent to the office tower in Seawoods, from L&T Realty for over Rs. 1,400 crores.

Being the part of the India’s largest Transit Oriented Development, Seawoods Grand Central, is L&T Realty’s office block in Navi Mumbai. This project is a mixed-use development area across 40 acres that includes the mall and other commercial spaces.

Blackstone is said to be directly acquiring these assets, without including its existing joint ventures with Bengaluru-based Embassy Group and Pune’s Panchshil Realty. This is not the first time that the New York based institutional investor has acquired assets and stake in portfolios independently.

With Colgate-Palmolive, JP Morgan Chase and L&T Infotech as the prime tenants, the commercial tower in Powai is completely leased out. This leasing factor together with all the long-term contracts, makes the Powai asset valued at Rs. 1,500 crores with a capitalization rate of about 8.5%.

Establishing its first Indian office in 2005, the leading private equity player has committed over $6 billion to the Indian companies till date. Total 19 companies owning 31 million sq ft. across 18 operating office parks, with an investment of $2.7 billion, comes under Blackstone.

An additional 11 million sq ft. of commercial space under development across the country, adds to this large portfolio. Over the past few years, the Indian real estate assets have been seeing aggressive pattern of investments, by the major global institutional investors such as Blackstone Group, GIC, Goldman Sachs, Qatar Investment Authority, Canada Pension Plan Investment Board and Brookfield Asset Management.

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Indiabulls Real Estate Acquires A Commercial Building With Leasable Area Of 2.5 Lakh Sq Ft. In Gurgaon

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Indiabulls Real Estate

Indiabulls Real Estate has earned a distinct reputation for building projects that turn spaces into inspiring places, since its inception. Indiabulls Real Estate went on to expand its projects portfolio, with its prime focus on construction and development of residential, commercial & SEZ projects, across major Indian Metro cities. Today Indiabulls Real Estate is ranked amongst the top Real Estate companies with a total Gross Development value of INR 32,189 crores and net worth of INR 5,480 crores as of 2017.

Indiabulls Real Estate has commercial development with a leasable area of 3.15 million sq.ft. under construction. Further, it has a land bank of 1,046 acres and also possesses 2,588 acres of SEZ land at Nasik, Maharashtra. In 2014, the company acquired the prime property, 22 Hanover Square in Central London for Rs.1630 Cr. The group has also been conferred the status of a Business Super brand by the brand council Superbrands, India. Indiabulls Real Estate is known for its successful delivering of superior products, services to its customers, partners and shareholders.

Indiabulls Real Estate is planning to acquire a large commercial building with a leasable area of 2.5 lakh sq ft in Gurgaon.

To acquire this large area of prime and newly constructed commercial building, Indiabulls Real Estate’s wholly-owned subsidiary has entered into a definitive and a binding agreement. A BSE filing by the Indiabulls reveals that, the deal has an expectancy period of four months, mainly after receiving the Occupation Certificate of the building. Although the name of the seller and deal value was not disclosed.

With many leading multi-nationals operating in the vicinity, makes it a developed prime commercial location. Equipped with an additional leasable area, the company expects to enhance its annuity revenue to Rs 1,450 crore in FY 20-21 from the rental properties portfolio of Indiabulls Real Estate.

With its expansion spree, Indiabulls Real Estate, is counting on the revival in the real estate market in Gurgaon for making its project a success. The commercial realty market is witnessing a strong demand in Gurgaon. So Indiabulls Real Estate is looking forward to set up a state of the art business park in Gurgaon, which would be able to draw reputed corporates and MNCs. As some big-ticket commercial space rentals and deals are expected to be finalized in this space.

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Commercial

Adani’s Bandra-Kurla Complex Project To Be Taken Over By Shapoorji Arm For Rs 2,000 Crore

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Adani’s Bandra-Kurla Complex Project To Be Taken Over By Shapoorji Arm

Shapoorji Pallonji Investment Advisors which is an investment arm of conglomerate Shapoorji Pallonji Group is set to acquire a commercial project Inspire BKC from Adani Realty in a nearly Rs. 2,000-crore transaction. The project is located in Mumbai’s business district Bandra-Kurla Complex (BKC), informed two persons familiar with the development.

Shapoorji Pallonji Investment Advisors has emerged as the frontrunner from a total seven shortlisted interested entities including US-based private equity major Blackstone Group and an alliance between Qatar Investment Advisors (QIA) and Bengaluru based realty developer RMZ.  For this over 8 lakh sq ft project Shapoorji Pallonji Investment Advisors has already completed the due diligence process.

One of the people mentioned above said, “The due diligence process for the asset has been concluded recently, and currently the final documentation is going on. The deal is expected to be concluded soon as both the parties have frozen the structure of the transaction.”

The project has recently been completed and the developer is in the process of receiving few civic approvals, following which it will be concluded. Adani Realty is also one of the companies that is working on closing few leasing transactions here.

In one such lease deals, Swiss multinational pharmaceutical major Novartis’ India arm has entered into an agreement to pick up over 1lakh sq ft office space in this commercial project. This was one of the largest front office commercial transactions in terms of space in the Mumbai in 2017.

Shapoorji Pallonji Investment Advisor is also kept in the loop on the progress of space leasing transactions in this commercial project.

In its first-ever real estate related engagement in India in October the global insurance and asset management major Allianz Group teamed up with Shapoorji Pallonji Group to create an investment platform for office properties.

The platform, SPREF II, will be a Singapore-domiciled, rupee-denominated and close-ended fund planning to raise $500 million in equity.

After partnering with the Canada Pension Plan Investment Board (CPPIB) in 2013 for a platform with an initial target corpus of $200 million this is Shapoorji Pallonji Investment Advisors’ second such tie-up.

The commercial real estate has been registering a healthy growth across prime office markets in past three years.

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