02 May 2017

1. Real Estate Act comes into force on 1st May 2017, some states may miss deadline

The Real Estate (Regulation and Development) Act or RERA came into force on Monday buoying home buyers while builders are busy upgrading businesses for the new regime of stricter regulatory supervision across the country, but several states have missed their October deadline and are yet to notify final local RERA rules. States such as Assam, Tripura, Karnataka, Tamil Nadu, Punjab, Himachal Pradesh, Mizoram, Jharkhand, Telangana, West Bengal and Chhattisgarh are yet to formalise RERA rules despite being ready with draft rules.

(Source: ET Realty, 1 May 2017)

Valuation & Advisory Services View

It is a positive move towards giving structure to one of the biggest revenue contributor and employment generating sector. This will not only provide clarity on the roles and responsibility of various stakeholders, but also give a level playing field to differentiate between performers and non-performers. This act will be beneficial to both developers and buyers. 

Research View

In our opinion, setting up the required “RERA infrastructure” such as the authority and the Appellate Tribunal as well as an online platform is likely to take at least 3 to 6 months. During this transition time, both real estate developers and agents are likely to face challenges in the short term as they need to comply with the new set of regulations.  We believe improved project planning will help developers avoid delays and manage project funds efficiently. It would be prudent to hire planning professionals to take all steps to ensure timely project completion. Making such preparations early should give developers an edge over rivals and boost buyers’ trust.

2. Affordable housing projects to get extra FSI in Tamil Nadu 

Giving a major thrust to the affordable housing segment, the Tamil Nadu government has accorded higher Floor Space Index (FSI) ranging from 15 to 50% for apartment projects catering to the Economically Weaker Sections (EWS), Low Income Group (LIG) and Middle Income Group (MIG) families. 

(Source: The Times of India, 26 April 2017)

Research View

The recent announcement of Tamil Nadu state government provides 50% extra FSI for residential unit size less than 40 sq m, 30% more for 40 sq m to 60 sq m and 15% more for 60 sq m to 70 sq m. In our opinion, this should boost the developer’s interest for affordable housing projects.  

According to our research survey, affordable housing projects in Chennai are predominantly seen in localities such as Ambattur, Avadi, Vanagaram, Korattur, Oragadam, Guduvancherry and also along OMR and GST corridors. These projects are primarily targeting the first time homebuyers. The unit sizes of such projects range from 40 sq m to 75 sq m and the average ticket size falls between INR 11.5 lakhs to INR 30 lakhs. Further increase in FSI will increase the affordability of these projects. In our opinion, to further boost private participation in affordable housing the government should also look into providing subsidies on land and construction materials for affordable housing projects.  

3. CPPIB may buy IndoSpace from Everstone Group 

Canada Pension Plan Investment Board (CPPIB), one of the world’s largest asset managers, is close to buying India’s largest warehousing company Indo-Space, owned by private equity fund Everstone Group, for roughly USD700 million. CPPIB will further invest up to USD1.2 billion in the company, signaling the continued interest of the Canadian company in India. 

(Source: The Economic Times, 24 April 2017)

Research View

With a favourable policy regime allowing 100% foreign direct investment (FDI) in marketplace e tailing coupled with impending rollout of the goods and services tax (GST), India’s warehousing and logistics industry have been attracting significant investor interest since last three years. With private equity and sovereign wealth funds, scout for investment opportunities, the Indian logistics sector should see further growth in the organised sector. Recently, a few developers have shown a keen interest in this sector, for example, in 2016 Embassy Group was reported to enter into a joint venture of USD250 million with the renowned PE firm Warburg Pincus to build industrial and warehousing spaces in India. Also, Embassy Group has also reported to partner with Brookfield Asset Management to build 4 million sq ft of warehousing facility in Chennai.


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