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REIC: Bangkok's vacant plot prices rise 13.2%

Published: 26 Feb 2018 at 07:08

The Real Estate Information Center (REIC) says the vacant land price index in Greater Bangkok last year was 165.6, a gain of 65.6 points from 2012, the base year, and increase of 13.2% from 2016.

The highest increase in land prices was 14.9% in 2013, while the lowest increase was 4.6% in 2016.

In the fourth quarter of 2017, the vacant land price index in Greater Bangkok was 168.3, a rise of 1.1% from the third quarter and 12.5% year-on-year.

Mass transit lines and land use depending on city zones have an impact on land price. Announcement of a mass transit line makes land prices rise 24.6% on average. For any change in zoning regulations, land prices increase by 22.8% on average.

The top five areas with the highest increase in land prices during 2012-17 were located along the MRT route with a rise of 173.7% or 29% a year on average, followed by the Dark Red Line between Bang Sue and Hua Lamphong with a rise of 169.5% or 28.2% a year.

The area with the third-highest increase in land price was along the Gold Line between Thon Buri to Pracha Thippok with an increase of 148.9% or 24.8% a year.

The fourth-highest rise was in locations along the Green Line (Mor Chit-Saphan Mai-Khu Khot) with a rise of 148.1% or 24.7% a year.

The fifth was in locations along the Dark Red Line between Bang Sue and Rangsit with a 144% rise or 24.1% a year.

The REIC conducts quarterly surveys of vacant land prices based on land transactions at the Lands Department.

The most recent data was from land transferred to companies, as declared prices were mostly actual prices. Land transferred to individuals is usually declared at lower than the actual price.

This could be the turnaround year for real estate. Here's why

Economic Times, Jan 14, 2018, 03.10 PM IST

India took a long time to get over the socialist hangover of the post-Independence belief that houses were to be provided by the government. It happened in the early 2000s. Billboards and advertisements offered myriad schemes to own a home in the city: “no EMI until possession”, “pay 20% now and 80% at possession”, “get 3BHK at the price of 2”, “get assured rentals for 2-3 years”, “up to 95% financing available”, “free modular kitchen and wooden flooring”.

A Delhi-based employee of a public sector company, who prefers to be called Roy, was due to retire in 2011. With both his daughters settled, he had hoped to move into a home with his wife of 40 years. As a prospective home buyer, he soon became “hot property” for realty developers. The euphoria was high.

Property agents started hounding him. Roy says he booked a flat from the Amrapali Group in 2010. Eight years on, after paying 80% of the cost, Roy alleges that he still doesn’t own the flat and continues to stay in a rented accommodation. Amrapali has yet to deliver 40,000 flats across its 10 housing projects in Noida and Greater Noida.

“Land being a fixed asset gives the sector a high capacity to leverage. It works on a model where a business can be started by taking loans multiple times the value of the underlying asset. Most developers have built their model based on the high perceived value of the underlying asset and not the proven capacity to execute,” says an official of Noida authority on condition of anonymity.

The Rise & Fall
The macroeconomic environment was also conducive. India’s GDP grew 8.4% in 2010-11. Banks offered easy home loans to buyers, and funds to developers, over leveraging the sector. Projects were launched without the 15-odd necessary clearances and authorities looked away. With historical annual returns of 20% (1991-2014) on real estate, who would have thought the realty will bite one day?

Vis-a-vis real estate, gold, equity and bank FDs gave returns of 10.9%, 15.5% and 8.8% respectively, according to a Resurgent India report. The house of cards fell in 2013-14 as the GDP contracted to 4.7% (the baseline revision later pushed it to 6.9%). As the bubble burst, buyers stopped paying and banks stopped funding. The liquidity crunch saw developers delaying projects: a few went bankrupt and litigation and bad deliveries followed.

Some 40,000 buyers each of the Jaypee Group and Amrapali and 19,000 of Unitech have been reportedly left in the lurch — doubly burdened with EMIs and house rents.

“The banks invested, builders gained and buyers like us are facing losses,” says a hassled home buyer of Unitech. Getamber Anand, CMD of ATS Infrastructure, says: “In the past 7-10 years, many new aggressive players with no experience thought of making easy money. They kept on buying land and launching new projects. However, I would say the intention of developers such as Jaypee was noble but they could not manage cash flow and got caught in a debt trap.”

As on March 31, 2015, the Jaypee Group had an estimated gross debt of Rs 75,000 crore, according to a Credit Suisse report. Despite a fall in housing rates, most buyers remained cautious in 2017. The year saw a massive dip in project launches. According to property consultants Anarock (which bought out Jones Lang LaSalle’s residential and fund management business in India), only 94,000 units were added in top seven cities between Q1 and Q3 of 2017, a 50% drop from the same period in 2016.

According to Anarock, Delhi-NCR has the maximum number of unsold residential units among cities — approximately 2,00,000. In Delhi-NCR, Greater Noida has the maximum share of unsold inventory, followed by Gurugram. In contrast, unsold residential inventory has declined rapidly in Mumbai: in the Mumbai Metropolitan Region it fell to 1,80,000 units at the end of September quarter of 2017 from 192,000 units in the year-ago period, and in Bengaluru, it has dropped to 1.04 lakh units from 1.24 lakh u ..

“This is a period of change that will benefit serious players,” says Manoj Gaur, MD, Gaursons India. “Any developer with a good track record has been selling property fairly easily in this market,” says Anshuman Magazine, chairman, India & Southeast Asia, CBRE, a USbased commercial real estate services and investment firm.

Room for Improvement
India’s booming real estate story is just about 20 years old. After Independence, the dominant thinking was that government will provide housing. Mostly state development authorities did the job till about 2001 with a few exceptions like Hiranandani, DLF and the Ansal Group. Haryana was the first state to promote private real estate developers in 1990s. After Gurugram, Noida caught on and soon high rises sprang up in cities.

“It’s a relatively new industry in which models are put in place by relatively new players,” says the authority official.

The government passed the Real Estate Regulation & Development Act (RERA) in 2016, which makes mandatory registration of all projects with a clear deadline, empowers buyers to cancel booking and get refunds, and calls for punitive action for non-delivery. “RERA has instilled confidence among buyers. A regulation is in place that is making the sector organised. Now projects will have to be completed. All this should result in a more mature real estate market,” says CBRE’s Magazine.

The prime objective of RERA is to safeguard the interest of home buyers by restricting fly-by-night players, increasing the share of organised segment and bringing in transparency.

“An entry barrier has been created for nonserious players because of RERA. Developers are getting organised,” says Manoj Gaur. Now projects will have to be completed, and it will take care of a majority of the problems in the sector, adds Magazine. But experts also feel RERA is useful only till the developer is solvent. India’s insolvency act gives banks the first right to recover dues.

Homebuyers, being unsecured creditors, will get nothing out of the insolvency proceedings. Also, with the onus of delivery entirely on builders, the authorities are out of the ambit. This is a glaring omission, say experts. By the end of July 2017, all states should have implemented and set up RERA authority. However, many are still lagging on that count. Dilution of a few RERA rules by some states has also hurt buyers’ confidence.

Maharashtra is the frontrunner in the process of implementing RERA, having registered over 13,000 projects till October 2017. Under RERA, any project that has not got completion certificate by May 1, 2017, will be treated as ongoing project and will have to be registered as such. But states such as Haryana, Andhra Pradesh, Jharkhand, Chhattisgarh, Telangana and Odisha have yet to get their RERA websites live, notes Anarock.

“RERA has definitely worked in terms of enhancing home buyers’ sentiment but the disparity between the states in the implementation of the law is something that needs to be looked at,” says Jaxay Shah, national president, Credai (Confederation of Real Estate Developers Association of India). Many acknowledge that it is a good law with noble intentions.

“RERA has managed to restore consumer sentiments to a great extent and has helped the sector to tread on the path of revival,” says Navin Raheja, CMD, Raheja Developers. A slew of other reforms has started to clean the muck. Apart from GST and demonetisation, law on benami property and push for affordable housing with infrastructure status have helped.

“As part of the scheme, we have launched an affordable plotting project on the Gurugram-Sohna Road under the Deen Dayal Jan Awas Yojana of the Haryana government. There is a pressing demand for at least 2 crore homes in the urban areas of the country, of which 95% is under the affordable segment,” says Raheja.

ATS, with its ancillary company House Craft, delivered 6-8 million sq ft of projects till November 2017, all units of less than 600 sq ft and in the affordable category. “New housing will come up but more in the affordable segment. Developers will make no-frills house. As GDP grows, this segment too will get a boost,” says Niranjan Hiranandani, managing director, Hiranandani Group. With its mission of housing for all by 2022, the Centre has been pushing the Pradhan Mantri Awas Yojana (PMAY), wit ..

“With the government’s push for housing for all by 2022, the year 2018 will be the year of affordable segment,” says Praveen Jain, CMD, Tulip Infratech. Big new developers with corporate pedigree such as Prestige, Tatas, Mahindra and Godrej are making a foray into real estate. This should further improve the quality of homes built.

“There has been a dearth in project launches which could have a negative effect on the supply of real estate properties. The increasing demand, on the other hand, could mean that prices might increase in the future, due to the mismatch in demand and supply,” says Jaxay Shah of Credai. This leaves buyers with the fundamental question. Will 2018 be a turnaround year?

“There is a shortage of two crore units in the seven metros besides four crore in tier-2, -3 and -4 cities. So one thing is established— there is demand,” says ATS’ Anand.

Home and Dry
Many feel 2018 will be the year of consolidation and demand picking up. “Fence-sitters have realised that prices have bottomed out. 2018 is the year real estate will look better with greater compliances and transparency. Q3 of this year already saw sales kick-off again and I feel from Q1 of FY2019 we will see a turnaround in sales. This consolidation will continue till 2020. From low-turnover, high-margin, we will become high turnover, low-margin,” adds Anand.

It will be the season to buy.

“Even as investors still look at market cautiously, end users will continue to benefit,” says Magazine. But will investors get the same 20% CAGR returns, starting 2018? “When rate goes up, the percentage of returns has to decline. Something that went from 10 to 100 can’t go from 100 to 1,000 in the same time. The appreciation we saw in the past was significant. Now, as the economy matures, you can’t get the same returns,” says Magazine.
“By 2020, the mid and premium segment too should see a recovery,” says Jain of Tulip Infratech. Should investors then wait some more? “We may not see a scintillating market recovery in 2018, but whatever growth we see from here will be sustainable and backed by stronger market fundamentals than ever before. The days of speculative peaks and troughs are safely behind us,” says Anuj Puri, chairman of Anarock.

Reforms have changed the landscape of real estate: Jaxay Shah, national president, Credai

What are the changes that have happened in the real estate sector?

Implementation of reforms like RERA and GST has changed the landscape of the sector, initiating a new era of transparency and accountability, which has enhanced the trust of home buyers to a great extent. This will not only benefit buyers but will also encourage credible developers while clamping down unscrupulous activities. The affordable housing segment’s emergence in 2017 has also contributed majorly to the sector’s growth and has been able to rejuvenate the industry.

Will consolidation happen with RERA? The implementation of RERA has led to an increase in the number of compliances and has introduced a different set of standard operating procedures. The inability of smaller players to adhere to new rules and regulations could prompt them to either merge with or be acquired by bigger companies. Is RERA working for the sector? Are there worries?
RERA has definitely worked in terms of enhancing home buyers’ sentiment. The disparity between the states in the implementation of the law, however, is something that needs to be looked at.

Where do you think are residential prices headed?

As opposed to many projections, prices of Indian real estate properties have remained stable and the trend is set to continue in 2018 too. Currently, there has been a dearth in new project launches due to the introduction of RERA, which could have a negative effect on the supply of real estate properties. The increasing demand, on the other hand, could mean that prices might increase in the future due to the mismatch in demand and supply.

Growth prospects for 2018 look bright: Anshuman Magazine, chairman (India & Southeast Asia), CBRE

What is the outlook for 2018?
Residential segment has been low in 2017 due to demonetisation, GST, RERA. Sales slowed down; overall launches also declined. It created a lot of liquidity crunch. The impact was felt more in NCR and Mumbai, but the sector has suffered overall. The positive side is that the affordable segment is happening. Going forward, the outlook for residential segment in 2018 is very optimistic. Supply is coming in in the affordable segment, which is where the big demand is. As economy picks up, the movemen ..

Will we again see the kind of returns real estate gave earlier?
Price increase will be at sensible levels, not at historical levels. But you never know: if economy again grows at 9.5% again, real estate prices may again pick up. In the short term, exponential appreciation is ruled out.

Commercial or residential: which will do better?
These are two different markets. Commercial segment has been doing very well. In 2015, some 38 million sq ft office space was taken up in India. In 2016, 46 m sq ft was taken up and in 2017 about 40 m sq ft space was expected to close. It is unparalleled. I expect commercial sector to go up. Because rates are high, the growth will not be like earlier but it will continue to do well at least till 2018.