Good morning, you know what? There's a ridiculous amount of money to be made in the real estate business, and to make a business case of our claim, we present a few facts:
📌 Over the last decade, builders made so much moolah that more than 60% of them wrapped up their realty businesses and moved on, to retain their sanity.
📌 Every morning, some big name in the property sector gets a one way ride to the questioning desk in one of the ED's unmarked vehicles.
📌 NBFCs are bracing for a 9% GNPA level in their real estate accounts.
📌 Land and construction material costs are so high that it makes better business sense to halt construction than to continue bleeding green by constructing more.
📌 Carbon commitments and freak weather related damages mean annually increasing costs of building and ownership.
The list goes on. . . See what we mean? 🥶
Welcome to another deal-with-it Monday and yes, you should be here.
🏋️♀️🥝🍳
Commercial Real Estate Investment Essentials
We all know the 'pandemic came and office realty hit a rough patch' story, so we will avoid that pickup line this time around.
Instead, what's far more conversation-worthy are some big positive changes:
1️⃣ India is slowly transforming from being an outsourcing hub, to a research and development destination for global companies
2️⃣ We are one of the world's largest consumer markets for products and services today, and
3️⃣ More and more global brands are entering India to start manufacturing units and other large scale business ops.
And that signals that the one thing we are going to need a lot more of, is good quality office space.
A Demand Uptick Is Underway
Per JLL, office realty saw net absorption of 11.56 million sq. ft in October-December 2021, the highest among the last eight quarters, and up by 86% QoQ. Net absorption was up 26% YoY in H2, 2021.
Also, per experts, net office absorption is headed northwards from here on, for the next few years.
Zooming In
So, if you wish to invest in office realty/commercial real estate/CRE today, what must you know?
To The Penthouse
🔼 Rental yields range from 7.5-10% in commercial realty, compared to 2-3.5% in residential space
🔼 Long-term lease agreements mean predictable cash flows
To The Basement
🔽 Demand can drop quickly during economic slowdown or other disruptions
🔽 When an occupier vacates the property, a new one walking in is an uncertain event
🔽 You need deep pockets to own and maintain office realty
In One Sip
🎙 To earn attractive returns, investors must select the property carefully and conduct a thorough due diligence.
“Location, occupier profile and entry and exit prices should be the key considerations. The property should be in a high-demand location and must have a stable occupier profile,” says Viral Desai of Knight Frank India.
Now You See It
Tier 2 And 3 Cities To Drive Real Estate Growth
🔗 When the number of home loan disbursements in a region is on the rise, it signals growing demand for housing, and vice versa.
Mortgages Growing In Tier 2, 3 Cities
🎙 "We expect the Tier II and III towns to register significant growth. Nearly 70% of our disbursements in the first nine months of this financial year have been from these locations", MD, Sundaram Home Finance.
Cause: With the Indian economy getting back on the growth path, housing demand is healthy again, but due to affordability concerns, hybrid working and congestion in metros, real estate developers are now following homebuyers to small cities.
Assured Return Schemes And HRERA
The Backstory
The Haryana RERA in Madhushree Khaitan v. Vatika Limited had clarified that RERA would have the power to adjudicate on assured return schemes that real estate developers offered through agreements executed before 2016.
However, will RERA in other states accept this view and also cover such schemes post-2016? We will come to that in a moment but first. . .
What is the assured income scheme?
Among many other schemes post the 2008 financial recession, for example, chit funds, developers in the real estate industry started the income assurance scheme to attract investment for projects that were under construction.
The scheme would offer a fixed percentage of return to the investor, without any collateral till they had possession of their property, or even after possession in some cases, making it extremely popular among developers, as it helped them raise money at lower interest rates compared to loans offered by banks and NBFCs.
What the HRERA said?
The HRERA said that developers cannot shy away from a contractual agreement made before the existence of the RERA Act, 2016, simply because the agreement to sell was not in accordance with the format prescribed under RERA - an argument often made by erring builders in court.
What It Means For Investors
✅ It means that they can approach RERA if their money is stuck in an assured return scheme, even though, it only includes agreements executed before RERA 2016.
😐 And that's because there is no clarity yet on whether RERA would have jurisdiction over such assured return transactions that took place after 2016 without using the RERA prescribed agreement format.
---------------Now You See It: That pretty building is the Colaba Railway Station, which opened in 1872-73 for passengers and cargo.
💡 By the 1920s, the Government of Bombay ordered the Railway to hand over the section between Churchgate and Colaba to facilitate the development of the Backbay Reclamation project, now Nariman Point.
After the new Bombay Central station was opened in 1930, the railway line between Churchgate and Colaba was closed and removed.
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The planet Neptune is so far away that it takes light from the sun four hours to reach it, but if the sun were to jump slightly from its current location, Neptune would move immediately in response to the sun’s sudden motion.
Want to drown the Monday blues in some interstellar science? Check out how Einstein arrived at his theory of general relativity.
Have a great day. 💚
☕ The Crew@Ginger Chai