DLF could look at Tweaking Residential Biz Model post notification of RERA Rules

Real estate firm DLF is waiting for the final rules under the real estate regulatory act to be notified to see how it can tweak its business model going forward, said Saurabh Chawla, senior executive director (finance) at DLF during a call with analysts.

“We will have to see if we should run our residential business like our commercial business where we construct before we sell,” he said. “We will have to take an educated call once the rules are notified.”

The company has been trying over the last few years to reduce its debt. It’s biggest attempt to reduce debt is the sale of its promoters’ 40% shareholding in the company’s rental arm DLF Cyber City Developers Limited, which is expected to fetch them close to Rs 13,000 crore. The promoters intend to put back this money into the company to help reduce debt.

Chawla said the company has shortlisted potential investors to sell the stake and the deal is expected to be signed in October.

He said DLF had received multiple bids from sovereign funds as well as some global private equity firms and they have shortlisted a few of them. “The investors are doing their due diligence at the moment and it is expected to complete next month,” he said.

ET had reported earlier that DLF has shortlisted six potential buyers for the sale, which involves 26.8 million sq ft of rented office assets with a rental income of over Rs 2,200 crore. The shortlisted parties include GIC, Blackstone, Warburg Pincus, Brookfield Asset Management, a consortium of Abu Dhabi Investment Authority (ADIA), Kotak Realty Fund and Qatar Investment Authority (QIA) and another fund, whose name could not be ascertained.

Chawla said post the due diligence, the company would sign binding agreements with these investors and then negotiate with them. “By end September or early October, we should be able to guide the market about the culmination of this transaction,” he said.

On the residential side of the business, sales remained muted for the company in the June quarter. “This scenario is likely to remain the same for the next few quarters,” said Ashok Tyagi , chief financial officer for DLF.

DLF’s net debt went up by Rs 285 crore during the June quarter Rs 22,487 crore. On Monday, it had reported an 82.12% increase in its consolidated net profit at Rs 283.04 crore for the quarter ended June 2016 compared to a net profit of Rs 155.41 crore a year ago on the back of one time income from the sale of its cinema exhibition business DT Cinemas.

Tyagi said the company will achieve its guidance of Rs 3000-3,500 crore for gross sales bookings in the fiscal despite the slow market.

Source:- http://realty.economictimes.indiatimes.com/news/residential/dlf-could-look-at-tweaking-residential-biz-model-post-notification-of-rera-rules/53930721

Implementation of RERA norms will ascertain the timely project completion

The Supreme Court has taken the right decision by directing the developer to pay homebuyers money back. Late or no possession has led buyers to move to court for their money invested in such deals.

Homebuyers turned to court and asked for the raise in interest at the rate of 18% concoctive annually, same to builders’ demand for defaults in their payments. RERAs’ norm of equality defines the exact situation here.

The projects going on without completion certificate after RERA will come under the perimeter of RERA and it is going to help many projects in certain ways. Another good thing is, builders will have to inform RERA about how the money was consumed.

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Builders prioritising RERA compliance

It is clearly seen that The Real Estate Regulatory Act (RERA) will gradually bring in the much-needed limpidity in real estate dealings to improve the confidence of homebuyer. Over The concern of RERA coming, Builders of Delhi/NCR have started adapting and reworking on builder-buyer agreements.

Developers are also working on setting up accurate time frames for delivery of possession to evade stern penalties under RERA. This tells the importance of RERA. RERA will help in excluding unreliable or untrustworthy developers or builders. RERA has forced developers to adopt RERA rules in a gradual manner. Expert developers are making sure that they are RERA-yielded before the act comes.

Buyers hopeful of timely possession after RERA

Around 40% of buyers/builders felt that implementation of RERA would help in timely delivery of projects since 70% of the sales proceeds will be set aside in an escrow account by developers and also eliminate non-serious players from the sector, says a new survey. 

Many real estate developers say RERA legislation is a step in the right direction as it will remove the chronic issue of late delivery of housing projects and eliminate the not-so-serious players from the business. It will also inject much-needed capital into the real estate sector and restore the confidence of homebuyers , a survey-based report by FICCI and Grant Thornton says.

Most developers are also in wait and watch mode to see how the provisions of the new Act pan out and impact both the developer community and the sector. They also hope that it does not become another tool for increasing red tapism in the process of obtaining approvals. “The compliance of this Act should not become one more layer of approval to be obtained but rather help in easing out the entire approval process,” they say.

The recently cleared Real Estate Regulatory Act (RERA) will bring in transparency in real estate transactions and help reduce the number of litigations in the sector

Respondents of the survey, Real Estate Regulation Act, 2016 (RERA) – Are we ready? felt that the new Act would improve governance in the sector and attract foreign and domestic investments in the short term. When asked what changes they expected in their real estate dealings after the implementation of RERA, more than 60% felt there would be more transparency.

Around 40% of the respondents felt that implementation of RERA would help in timely delivery of projects since 70% of the sales proceeds will be set aside in an escrow account by developers and also eliminate non-serious players from the sector. More than 40% of the respondents believe that maximum impact will be in the area of project planning and construction.

As many as 50% hoped that the lending options from lenders would improve and availing finance will be easier.

courtesy: hindustantimes.com

PE inflows into office space surge on reforms

MUMBAI: Renewed confidence among institutional investors has pushed private equity flows into commercial real estate in the first half of 2016 even beyond the cumulative investments witnessed during the whole of last year. Office realty has received over Rs 3,256 crore investments from private equity funds during January to June against Rs 3,229 crore in 2015, a JLL India study showed.

Given the steady rise in these investments, experts believe that private equity inflows into commercial real estate in 2016 may even cross the previous five-year high of Rs 4,323 crore seen in 2014.

“The current developments relating to Real Estate Regulatory Authority (RERA) and Real Estate Regulatory Authority (RERA) and Real Estate Investment Trusts (REITs) are major factors that will lead to more investments into the sector. RERA is expected to enhance the transparency and corporate governance, which is preferred by institutional investors. The possibility of an exit avenue in the form of Real Estate Investment Trusts is also prompting developers and institutions to own these assets,” said Anuj Puri, country head of JLL India. Institutional investors’ interest in the country’s commercial assets has been inching upward in the backdrop of rising occupancy levels and steady demand. In India’s largest real estate transaction so far this year, realty developer RMZ Corp acquired the Essar Group’s commercial project Equinox Business Park in Mumbai’s BKC for Rs 2,400 crore. RMZ bought this asset through its alliance with Qatar Investment Authority.

“Recent government reforms along with improved occupancy, rentals and demand for commercial and office space from various industries such as ITITES, pharmaceuticals, BFSI have made the investment into this sector more lucrative. Demand for commercial assets is outstripping supply in the market due to a lack of commercial asset development between 2011 and 2014. This is an ideal time for commercial real estate investments as assets are available at attractive valuations,” said Rubi Arya, executive vice-chairman of Milestone Capital Advisors, that has invested and managed over 4 million sq ft commercial assets in India.

Global investors, including Blackstone Group, Singapore’s sovereign fund GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority have already been investing in Indian realty assets for the past few years. Apart from these, several new funds are also eyeing investment and alliance opportunities.

“Mood has changed from what it used to be two years ago. Investors have started to see the yield curve coming down and now expect good capital gains besides rent appreciation. With this, more funds are prepared to assume equity risk in ready and leased commercial realty projects,” said Sudarshan Bajoria, MD of First Eagle Capital Advisors.

Equity flows in the commercial sector, against debt and mezzanine structures, have also turned stronger, indicating that large investors are keen on equity participation in these projects. Although the right asset remains a key consideration, the increasing share of equity financing indicates strong positive sentiments for commercial assets.

News Source Link: http://economictimes.indiatimes.com/wealth/personal-finance-news/pe-inflows-into-office-space-surge-on-reforms/articleshow/53819311.cms

The conventional thinking to real estate capital

The conventional thinking to real estate capital, which was dependent on landowner joint venture, pre-sales and customer advances, now has gone. Developers are reclining to other funding routes by entering into HNIs and corporate tie-ups.There is an excessive need for capital, which has been forced on the back of deceleration in sales compared to the projection/ assumptions. Steady regulatory changes requiring plan modifications, complete approval and re-approval costs, litigation, FSI charges and customers shying away from settling stage-based payments in favor of subvention or other financial schemes, all this has put unexpected pressure on projects cash flows. This has given a sense of gloom and caution while taking new projects.

The order for capital yearly exceeds over, 50,000 crore outside of the banking sector only within housing projects in major locations. Total exposures of banks have shrunk to below 10 lakh crore, which stands over 11 lakh crore.

Private institutional capital source fail to put in more than 8000-10,000 crore annually. Therefore 80 per cent of the capital requirements are still unfulfilled.

Now the institutions are being cautious; setting up terms that protect capital under stress scenarios, being selective about investment partner, and conducting due diligence and partner discovery exercises. Developers who have prepared themselves for the long haul to recovery sacrifice short-terms profits for long-term gains and work in an orderly and disciplined manner, and then they are able to find capital support easily.

Big corporate developers with strong credit and development history are easily able to enter public debt markets, deposits, foreign institutional investors and other sources of global capital. Due to given margin and uncertainty in cash-flow timing, developers are drawing caution while resorting to expensive private capital through funds, and other private sources due to the cost and terms.

Defluxion has been seen among developer towards equity and quasi capital. Even it meant sharing the upside and profits with capital partners. Developers are becoming aware of the requirements under RERA and have also started business practices to adjust themselves according to the regulations. It is all happening even before the implementation of RERA. Alternative funds are also seeing it easier to put in place a financial discipline because it also matches with RERA requirement. Developer are now being very cautious about; development, regulatory and local norms. Which is consequently make it more simple in creating alignment with their investments, in conducting reasonable steps to avoid committing a tort. As it is helping developers to put in place businesses that are RERA ready, developers are appreciating stringent cash flow. They are also welcoming management norms required by funds.

A fundamental shift in approach in the direction of capital, emerging discipline in fulfilment among developers and high risk adjusted returns resorted by strong assets are creating a huge crowd among private capital investors. Revenues have been strong and steady for RE fund managers over the span of last two years on the back of structured finance, and this also includes senior and subordinated debt.

Exit of funds and investments post 2010 have allowed for successive fund raise. The possessions under management have also grown significantly over the last three years. General PE investors; Brook field, Apollo and KKR are ready to enter into this movement with higher corpus commitments.

Progressively, projects are being re-designed for 1-2 BHK. Delivery times have been accelerated to serve to this growing demand. Prices and amenities for the projects are being rationalized. Many budgetary and monetary have also given the acceleration to this activity.

Investors and funds are mobilizing for such projects, which cater on a large level to the MIG and Lower HIG segment, since these products have faster sales momentum.

Catering to the small ticket (sub-15 lakh) still proving to be a challenge for developers. Funds are still being cautious about the impact of RERA Act. Solitary selected bipartite and multi-lateral institutions or global investors have shown downgrade to back strong players who serve for this LIG segment.