Real Estate Investment Trust (REIT), helps an investor to invest in real estate which is been already approved by the Security and Exchange Board of India (SEBI). Most REIT companies, trade on stock exchanges and they provide many benefits to their investor.

REIT received a positive response in its IPO meanwhile REIT is India’s first Real Estate Investment Trust who accommodates investment money and produce it in commercial property.

The Initial Public Offering (IPO) done by Embassy Office Parks REIT has received oversubscription on the second day of bidding.

The Blackstone-backed REITs’ Rs 4,750 crore IPO, which shut on Wednesday, has been bought in 2.6 times. Bids were gotten for more than 181 million offers against 71.3 million on offer, NSE information appeared.

The IPO opened for membership on 18 March 2019 and it shut on Wednesday, 20 March 2019. The value band for the issue was fixed at Rs 299 to Rs 300 for each unit. Least application was for 800 units (i.e., Rs 2.4 lakh at a more expensive rate and Rs 2.39 lakh as lower cost) and in multiples of 400 units from there on.

The classification held for institutional financial specialists was bought in 59% and different speculators 32%, as indicated by the trade information till around 5 pm (IST).

Shobhit Agarwal (MD and CEO of Anarock Capital) says “REITs guarantee to be a noteworthy internal confronting channel for foreign institutional investments as well as impressive individual ventures. Given that the business is still gotten in the prongs of an unwavering liquidity smash, there couldn’t be a superior time than this for remote and local financial specialists to siphon assets into the real estate market through REITs”.

Experts say “Investing in REIT is a profitable step as the company has to pay 90% of their taxable income to their shareholders (annually) in the form of Dividend”.

Individuals who are probably going to put resources into Real Estate Investment Trust (REIT) should realize that the genuine rate of profitability will be determined in the wake of considering all the taxes. Different elements like Individual salary charge pieces, holding period and different wellsprings of pay will likewise be noted down.

REIT is considered as a speculation plan for a person who is searching for diversification and liquidity for their fund. As this isn’t associated with some other resources terms, REIT is been said to be the best venture plot with generally safe and exceptional yield.

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By Shobhit Agarwal, MD & CEO – ANAROCK Capital

The aftershocks of multiple disruptive policy reforms and structural changes continue to ripple through the Indian real estate sector. While its visible transformation from unorganized to organized and opacity to transparency are indubitably positive, we cannot help but count the fatalities of this process.

Many real estate developers are finding it extremely difficult, if not impossible, to realign their businesses to the new norms. It’s not just a question of compliance, but also the fact that the new real estate development norms call for massive capital infusions.

The practice of raising interest-free monies via pre-launches now more or less a thing of the past, interest rates are hardening and the banking sector is not especially well-disposed towards lending to developers. Simultaneously, investors who had depended on heavy cash components for their resale properties have been left in dire straits by demonetization and the concerted drive towards financial transparency.

Many developers need to sell their hung-over inventory in a hurry – either to raise funds for new projects or so that they can cash out and leave the business. Likewise, many investors or other property owners are also desperate to exit their holdings. And as is usually the case, one man’s loss is inevitably another’s potential gain. The current state of the market certainly presents a window of opportunity for smart property buyers who can make the most of it.

Today, there are plenty of distressed properties available on the Indian real estate market. The opportunities include retail and office assets, hotels, individual residential units and even entire housing projects. With proper due diligence and the appropriate capitalization, one can actually strike a gold mine.

However, one still needs to know what one is doing, and also follow some very necessary precautions before entering into a distressed property deal.

Is this the right time to buy distressed properties? 

With rising population in urban areas (more than 10 million people migrate to Indian cities and towns every year, and India’s urban population likely to surpass 800 million by 2050), there is a significant inherent demand for homes, offices, malls and other real estate asset classes.

In the current market conditions, many distressed assets are available at attractive valuations and it may not be a bad idea to seal a deal. However, one should not do this without a clear plan of action on how to utilize or monetize the acquired asset.

Aspects to investigate before acquiring a distressed property:

• Reasons for the distress sale – It is extremely important to identify the reason for why a property has become distressed, to assess if they involve policy changes (which may affect the new owner as well), financial troubles or wrong intent. The latter is the most difficult to identify and tackle, and so must be investigated with utmost care.
• Existing debt – A distressed property buyer must do a thorough check on the existing debt which the new buyer will assume. In addition to the overall quantum, one must segregate such debt into short-term and long-term, and also understand if the debt is backed by any security or otherwise.
• Physical condition – However attractive the valuation may appear, the physical condition of the asset to be purchased plays a key role in its inherent value to the new owner. Regardless of whether the buyer plans to refurbish and release/sell and/or demolish and rebuild the property, this check is important to assess the cost implications.
• Law adherence – A prospective buyer of a distressed property must ensure that the asset is developed as per the stipulated regulations, including FSI permissions, statutory approvals, fire safety norms, and many more. If there is even a faint hint of a violation, the buyer must understand the risks and have a plan towards mitigating them.
• Litigation check – The buyer should check for litigations that embrace the distressed asset. It should be commercially viable to own the property despite the existing litigations, and the buyer should have the knowledge, means and a plan to overcome such issues.
• Title clarity – A clean title is a must for the hassle-free future transactions or development of the purchased asset.
• Lease contracts – If a buyer is acquiring a pre-leased asset, it is imperative to check the lease contracts and their expiry dates so that they can be factored into future financial projections.

Conclusion

The momentary pause and panic in the real estate sector of a country whose GDP likely to reach $5 trillion by 2025 can certainly be viewed as an opportunity by large global investors who are looking to enter into or expand in India. However, such players are not gamblers and will always ensure that they have the benefit of an experienced India-based consultancy to identify opportunities as well as their accompanying risks and required mitigation plans.

Individual investors, on the other hand, bear the onus of due diligence while acquiring distressed assets. It should be clear that a well-meditated play in distressed property can reap rich benefits, while an inadequately researched acquisition can result in a severe financial setback and even legal complications.

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By Prashant Thakur, Head – Research, ANAROCK Property Consultants 

Project delays are one of the most alarming issues historically dogging the Indian real estate sector. The dearth of effective planning and execution of construction activities, escalating construction costs, approval delays, diversion of allocated funds to other projects and tepid sales are some of the predominant factors resulting in project delays. The homebuyer is, of course, at the losing end.

To put it in numbers, during 2017, out of the total 5.8 lakh residential units slated to be completed across the top 7 cities in India, only 1.5 lakh units were actually delivered until December 2017. This indicates that around 4.3 lakh units actually missed their stipulated completion deadlines.

The National Capital Region (NCR), one of the country’s largest residential markets, was seriously wounded by sudden policy changes, structural reforms – and the dubious practices of unscrupulous developers. As a result, it topped the list of cities with maximum project delays. Around 1.5 lakh units in NCR missed the 2017 deadline. The story in Mumbai Metropolitan Region (MMR) was no different with nearly 1.1 lakh units missing the said deadline.

NCR: Where project delays are the order of the day

In NCR, out of the total 1.9 lakh units expected to be delivered in 2017, only 42,500 units were given for possession as promised. Approximately 49% (~73,000 units) of the undelivered residential units were in Greater Noida, followed by 17% (~25,300 units) in Ghaziabad, 13% (~19,400 units) in Gurgaon and 11% (~16,000 units) in Noida.

• Greater Noida: A deeper analysis of the construction activity scenario in Greater Noida reveals some glaring issues. Developers in Greater Noida were expected to deliver around 84,200 units in 2017, of which only 13% were delivered and an additional 39,000 units (46%) are committed for completion by 2018 year-end. Due to the National Green Tribunal (NGT) directive, projects in Greater Noida have been stalled for years due to land litigations between farmers and the developers.
• Ghaziabad: Of the 29,300 units which were to be delivered in 2017, nearly 86% failed to meet their deadline. Only 14% have been handed over to buyers, and around 8,100 units (32%) are envisaged to be completed by year-end 2018. While a few projects have been sealed for recovering the Ghaziabad Development Authority’s (GDA’s) development charges, others face difficulties in obtaining completion certificates.
• Gurgaon: The Millennium City was also not able to deliver around 19,400 units in 2017; the delivery of these units was shifted to future dates. Out of 27,300 units committed for delivery in 2017, only 29% were handed over to buyers and around 14,400 units (53%) are being pushed for completion by year-end 2018. The good news is that most of the delayed units are likely to be completed in 2018, and the delivery of only limited units is being pushed to the subsequent years.
• Noida: Barring of construction activity within a 10-km radius from Okhla Bird Sanctuary between 2013-15 has stalled a large number of projects in Noida region. Out of the 23,900 units committed for delivery in 2017, 67% were unable to meet the deadline. Around 7,900 units (49%) of the delayed units are projected to be completed by December 2018.

In addition, a severe cash crunch due to syphoning of funds by developers for other projects, tweaked project details to bypass environmental/regulatory clearances, changing norms, water/sand crisis and red-tapism became some of the common causes of the long-delayed projects of NCR. Consumer sentiment was severely shaken by these delays and finally brought the sector to a standstill. Developers’ profits took a massive hit and their negative cash flows increased the delays even more.

Can NCRs developers beat the odds in 2018?

The above analysis talks only about the delayed projects that are anticipated to be delivered by the end of 2018. There is more to the story – namely the actually planned deliverables for the year 2018. Besides the delayed 79,400 units whose revised possession timelines are now December 2018, there are actually planned deliveries of around 86,600 units for this year. Altogether, NCR developers are expected to deliver around 1.66 lakh units (3.9 times the units delivered in 2017) by this year-end.

Will developers in NCR be able to deliver such a large number? That is certainly something that bears watching closely. With RERA expected to streamline residential real estate, homebuyers are hopeful that projects that have been stalled or slowed down over the years will pick up momentum and finally be delivered.

The Government authorities are certainly scrutinizing the issue by auditing long-delayed projects to chalk out initiatives and ensure their completion. All-in-all, with a massive number of residential units due for completion, year 2018 is a tough one for the NCR property market.

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By Shobhit Agarwal, MD & CEO – ANAROCK Capital

A decade ago (in 2007-08), prior to the global financial crisis hitting D-street, the Indian initial public offerings (IPO) market gave a stellar show with overall ₹41,300 crore funds raised, making India the 5th largest market in volume and 7th largest in value terms. Then the capital markets crashed in after the global economic slowdown in 2008, and the numbers fell as low as Rs 2,030 crore.

The consecutive years also saw a limited number of IPOs being filed by companies. However, 2017-18 saw the resurrection of the Indian IPO market. As many as 45 companies resorted to raising much-needed capital via the IPO route. A record of about ₹82,100 crore has been collectively raised by these companies – a whopping three-fold jump from previous years’ ₹28,200 crore and almost double the 2007’s IPO figure.

Strong domestic liquidity, the resilient Indian economy, the surge in foreign institutional investors and improving investor sentiments have pushed the IPO charts northwards.

Indian Realty – pre and post global recession

Prior to the global financial apocalypse that shook the world including India, the real estate sector was at its peak. Till then, the wave of financial liberalization allowed banks to give credit to large-scale borrowers – resulting in a sharp rise in foreign capital inflows and domestic liquidity.

Post-2013, the story changed and the previous roar of Indian real estate first sank to a murmur – and then, more or less, fell silent. The liquidity crunch coupled with high inflation and execution delays compelled housing buyers to postpone their purchase decisions. This naturally impacted housing sales and property prices, leaving developers with huge piles of unsold inventory.

Battling massive negative cash flows, many developers also failed to deliver their promised projects. Things worsened when high-risk provisioning was assigned to the real estate sector when various realty firms either defaulted or faced bankruptcy. Banks became reluctant to lend to developers as they were already burdened with non-performing assets (NPAs).

IPOs as an alternate source for cheap capital also slowed down because of weakened consumer sentiments to the backdrop of deteriorating builder reputation who failed to live up to their promises, causing buyers to feel the brunt of delayed delivery of projects.

Many builders then resorted to overseas funding, private lending and qualified institutional placements (QIPs) which allowed only listed companies to raise funds, and non-banking finance companies (NBFCs) which charged steep interest rates.

Deciphering the BSE Realty Index

The BSE Realty index which reflects the performance of the top-listed real estate players was at its peak until 2008. After that, the index witnessed a slump due to weak macroeconomic conditions, rising unemployment and declining real estate demand.  However, the recent spate of reforms including DeMo, RERA and GST have helped the market conditions improve due to increased transparency and accountability. With this, the realty index also seems to be heading north now.

Till date, around 16 private realty players and two Government-owned real estate companies have opened their shares to the public. Of this, DLF (issued in 2010) owns the highest issue size of ₹9,000 crore till date. In the consecutive five year period, from 2011-16, there were no large-scale IPOs issued by big real estate players.

The recent IPO filing by the Government-owned Housing and Urban Development Corporation (HUDCO) in May 2017 and National Buildings Construction Corporation Limited (NBCC) in April 2018 received manifold subscription due to their diverse businesses. While HUDCO emphasizes financing urban infrastructure and housing, NBCC has a hard focus on civil construction projects, civil infrastructure for the power sector, and real estate development.

Realty IPOs Gaining Momentum

To the considerable relief all stakeholders, the struggling real estate sector is now stabilizing to some extent. As a result, real estate IPOs are also gaining momentum. Reports suggest that Mumbai-based Lodha Developers Limited, Thane-based Puranik group and Bengaluru-based VBHC Value Homes are planning to raise funds through public offerings.

One predominant factor contributing to this spurt is the improving economic parameters, including GDP growth rate. Also, RERA implementation in 2017 raised the confidence of investors and end-users of real estate. After decades of disorganized eccentricity, the Indian real estate sector is transforming into an organized one, with improving transparency and accountability providing a new ray of hope.

Good times ahead? 

Looking at the record-breaking number of IPOs in 2017-18, the current fiscal is also likely to remain robust with numbers suggesting that India Inc may collectively raise over Rs 2,00,000 crore in equity and equity-linked offerings – and IPOs take centre-stage. Real estate IPOs, which had taken a backseat over the last few years, are once again getting ready to ride the revival wave.

ANAROCK’s research also clearly highlights the increasing real estate absorption momentum with a Q-o-Q rise in housing sales across the top 7 cities. The stage is set and the actors are primed for a massive IPO push over the next few years.

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By Shobhit Agarwal, MD & CEO – ANAROCK Capital

We often hear of banks auctioning off seized distressed properties, and how such properties can be lucrative investments as they come at very attractive prices. Studying the market of distressed properties is not very easy, but there are some areas of predictability. The ‘supply’ of distressed properties is usually closely linked to the prevailing economic situation. Severe market setbacks or stock market crashes can result in an unusually large infusion of distressed properties in the market.

In a normal or vibrant economic situation, the availability of such assets is much lower. Less than 8% of Indians who have borrowed from a bank to acquire a residential property will default on their home loans unless there are exceptional circumstances involved.

How do properties become distressed and go to the auction block?

A homeowner is considered to be in default when he or she is behind on the agreed-upon EMIs for three consecutive months or more. When a home loan is in default, banks do not seize the assets of the borrowers immediately. They send a notice to the borrower highlighting the missed EMI repayments, and that they will take strict action if the situation is not remedied.

Banks do understand the various reasons why a borrower may have defaulted on EMI payments, which include financial crisis, serious health setback, loss of job, a family crisis, etc. These are facts of life, and banks do not make themselves unapproachable to defaulting borrowers who state such reasons. Once the buyer has explained the reasons or they are otherwise evident to the bank, an offer to restructure the EMI and extend the tenure of the loan is made.

A borrower may ask for a grace period on the basis of a good repayment record for loan repayments and that interest rates have increased beyond affordability. The borrower can ask the bank to refinance the loan, resulting in reduced EMIs over and increased tenure period. The defaulting borrower may offer to liquidate other assets such as fixed deposits, insurance policies or mutual fund investments in order to repay the debt. He or she may even sell the property themselves to pay back the amount instead of letting the bank take over and auction it.
If these measures help the borrower to catch up on the outstanding EMIs, the property will not come up for auction. Auctions happen only in extreme cases – and even then, the borrower may not incur a total loss. If the property is sold within three years of its purchase, the borrower is entitled to a profit on the sale after the bank has recovered its dues. If three years have elapsed since the property’s acquisition, the owner is still entitled to tax exemption benefits.

If the borrower is still unable to pay back the principal amount and interest on a home loan after 90 days, the bank will classify a home loan as a Non-Performing Asset (NPA) and will seek to recover the complete home loan amount. To do so, they will seize the borrower’s assets and/or the mortgaged property. They are authorized to do this under the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests) Act to protect their interests.

Even at this stage, the banks may not go as far as auctioning off the property, preferring to resolve the borrower’s issues by further easing the repayment process and burden for the borrower. Only when all these measures fail will the bank proceed with selling the property.

The Process of Property Auctions

At this stage, the bank will take the defaulting borrower’s property into its possession and seek to dispose of it under the guiding factors of the SARFAESI Act. The process begins when a borrower’s home loan account is classified as a ‘chronic’ NPA – one where no other form of resolution is possible. The bank will issue the borrower a 60-day notice, which is technically a reminder to the defaulter stating the issue and the factors that have led them to this point in full detail.

If the defaulter does not respond during this notice period, the bank proceeds with the auction of the property. Even in this period, the borrower has the option of resolving the issue or raising an objection to the notice. For instance, the bank will specify the property’s fair value and the borrower can object if the property is perceived to be undervalued or if he or she has an alternative to pay off the pending dues to the bank.

The banks must then serve a fresh 30-day notice period to auction the property, and the subsequent notice will include all the relevant details of the sale. Finally, the property is auctioned and the outstanding amount is recovered.

The process of bank-auctioning itself is, however, quite cumbersome and lengthy. The bank will first advertise the upcoming property auction on a given date, assimilate the various offers and then determine the final buyer. The process can get prolonged even further if the buyer intends to acquire the property via a loan, either from the same or a different bank or financial institution. Also, all intending buyers need to be fully vetted and the final transfer of ownership is subject to a NOC by the pertinent housing society.

Are distressed property auctions a good investment bet?

It is true that properties on sale via bank auctions can be bought at prices which are significantly lower than the prevailing market rates in that particular area and for that particular property size and type. However, it should also be borne in mind that the base price for a property on auction is a function of the outstanding loan amount in question. In other words, the longer the current owner has been servicing the home loan, the lower will be the base price of the property. If the current owner is only a few EMI cycles short of complete repayment, he or she will seek to restructure the loan on the property instead of allowing it to be auctioned off.

Getting to know of such opportunities is not hard. The public will be informed quite efficiently when an auction for single or multiple seized properties is to take place, as the bank will advertise the fact along with all pertinent details online and in leading dailies. Distressed properties and their scheduled auctioning will also be mentioned in a bank’s annual report under the category of bad debts. Interested buyers may also turn to trusted property consultants who will apprise them of distressed assets on the market, and what the expected price range will be.

The primary potential advantage to buying a distressed property being auctioned by a bank is obviously the possibility of getting an asset at a potentially lower price than the prevailing market rates for such a property in that particular location. Another plus could be the potential for securing a property in a prime location. Also noteworthy is the reduced burden of due diligence since the auctioning bank will already have established that the property is legally sound in all aspects. Notably, the property would come up for auction only after the previous owner has exhausted all available avenues to stay the proceedings, and no longer has any legal recourse.

Challenges

There are some potential challenges to investing in properties being auctioned by banks. In the first place, there is no single database of such properties to consult. Secondly, it is impossible to anticipate what the highest bid for any given property will be, so there is no assurance of acquiring a particular property one is interested in.

In any case, buyers need to be very familiar with the exact process involved before, during and after buying a distressed property. The process of buying distressed property on auction is only complete when it has met with the expectations of both the auctioning bank as well as the property’s previous owner. If it hasn’t, there could be legal problems even after the property is legally purchased by its new owner. Also, the buyer must have a complete understanding of the ownership history of such a property and needs to ask for all the pertinent paperwork. This is important in case the new owner seeks to sell the property again at some stage.

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By Realty Quarter Bureau

India’s leading real estate services firm ANAROCK Property Consultants today announced its partnership with HVS, the global hospitality sector leader. As a new business vertical under the ANAROCK Group,  HVS ANAROCK will focus on brokerage, feasibility studies, operator searches, appraisals, executive search and other hospitality sector consulting and advisory services throughout South Asia.

Anuj Puri, Chairman – ANAROCK Property Consultants takes on the added role of Chairman – Hospitality at HVS ANAROCK and the Firm’s soon-to-be-appointed CEO will report to him. Shobhit Agarwal, MD & CEO – ANAROCK Capital will head the transactions vertical at HVS ANAROCK.

Stephen Rushmore Jr, President and CEO – HVS, commented, “We are very excited to partner with ANAROCK as we share a strong professional and cultural fit. Together, we foresee rapid expansion in the region and will be able to tap into more resources to serve our clients better than ever. India has always been an exciting market for us, and we are targeting a concentric outward growth into the hottest South Asian markets from here. HVS India has had more than two decades of exposure in the country, and we anticipate the partnership will leverage ANAROCK’s proprietary real estate funding platform to increase HVS India’s revenues by up to 75% over the next two years.”

Anuj Puri confirmed that ANAROCK is in the process of rapid expansion in terms of both geographies and business verticals, and the launch of HVS ANAROCK dovetails perfectly with these plans. “HVS is the leading global hospitality player, and we have aligned our synergies to tap into this market in India and beyond,” he said. “Tourism in India is growing by over 15% annually, and the launch of HVS ANAROCK coincides with some of the most exciting times for the Indian hospitality industry.”

Shobhit Agarwal has already concluded hospitality-specific capital markets deals worth over US$ 2 billion in his previous assignments across key markets. “There is a huge number of funding, divestment and acquisition deals to be tapped into, and HVS ANAROCK already has excellent relationships with India’s leading hospitality operators,” he said. “Over the past four years, India has seen some 4-5 major hospitality-related deals annually, with leading private equity players being active participants on the funding side.”

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