Buying real estate? Read this first!

Traditionally real estate in the form of the house that we live in has been the single largest investment for most of us. This is seen not only in India but across the world. Let us now apply the metrics that we attribute to investments in general to real estate and see the answers that come up.

No more than a hiccup for Indian market

Indian real estate companies together have an exposure of $2 billion to the United Arab Emirates (UAE), a big chunk of it in Dubai. Almost half the exposure is of real estate developers based in Mumbai.
The Mumbai companies’ total investments in the UAE are between $500 million and $1 billion; those from Bangalore and Delhi take this total to $2 billion. Most of the money was invested in Dubai, one of the emirates in the UAE.
“The major part of this money would have come from the banking system, with not just developers but retail investors too taking bank loans to buy property,” said Sunil Mantri, president of the Maharashtra Chamber of Housing Industry.
Not only developers but retail investors also borrowed money from banks and diverted it to buying property in Dubai. If property prices in the emirate keep dropping as they have, they would have a problem in repaying their loans.
Among banks, Bank of Baroda has the largest exposure to Dubai of about Rs 4,000 crore; only Rs 600 crore of it in real estate. “Our total book in the UAE is Rs 10,000 crore,” said M D Mallya, chairman & managing director of the bank. The bank’s overall real estate exposure, including that in India, is Rs 3,800 crore.
In the Palm Jumeria project where 500 bungalows are under construction, several have been bought by non-resident Indians and rich Indians, including film stars Amitabh Bachchan and Shah Rukh Khan. Each bungalow costs between Rs 30 crore and Rs 50 crore. As the property is under construction, it may be a long time before they can have a house-warming party there.
Companies that have invested in projects still to be completed will be in trouble as the property market has collapsed. Not only building activities have come to a halt, there are few buyers for ready properties.
Besides residential and commercial projects, Indian companies are also involved in road, bridge and power projects. “They too will be impacted,” said Prannay Vakil of Knight Frank, a property consultancy which marketed Nakheel properties in India. Overleveraged companies too will have problems as prices are dropping fast and fresh investors are hard to find.
At least one developer which invested in Dubai, Hiranamdani Properties, claims to be home and dry. The company has only one project there -- 26 Marina, the 380- metre tall apartment block. “About 97 per cent of the property is sold out and money has come into the company,” claimed Niranjan Hiranandani. His company has a piece of land in the emirate but has not decided how to develop it.

Small Dubai exposure may save Indian real estate arena

The demand- based Indian real estate industry having a very little exposure in the overseas markets will sustain the Dubai shock waves, according to experts.
The government- city owned conglomerate, Dubai- World, has interests in real estate, ports, transportation, logistics, natural resources and the leisure industry.
The firm carries around $ 60 billion in liabilities.
Anuj Puri, chairman and country head, corporate default situation. However, the sovereign has not defaulted, so the condition is presently restricted only to real estate. This would not have a major direct impact on India's real estate market, which is largely locally driven. Nevertheless, it is conceivable that the RBI may take a cautious approach in terms of liquidity in the real estate sector, which would not be good news in light of the fact that FDI norms for Indian real estate are on the verge of being relaxed." Almost all major real estate players, including Unitech Ltd, DLF, India Bulls Ltd and HDIL have confirmed having no who had plans for the Dubai market are now getting cautious.
For instance, Delhi- based Omaxe is likely to exit its two real estate projects in Dubai.
Rohtas Goel, CMD, Omaxe Ltd, said, " We will soon decide on exiting the Dubai realty projects. We had planned Rs 2,850- crore investment in Dubai. We have already paid Rs 40 crore to Nakheel as first installment last year for buying land for both the projects. The possession of land was to be handed over as per the set timelines. However, Omaxe has still not gained any rights from master developer He added, " With global downturn, there has been a slowdown in Dubai real estate market too. Current developments may not have large impact on us as we have other exit options open for us." Nagarjuna Construction is another company that has a venture in Dubai - a 440- apartment project. The company is now going slow on it.
Also, Emaar MGF, a joint venture between Dubai- based Emaar Properties and India's MGF, said its operations are only in India and the developments in Dubai would have no impact. " Our business and funding plans are on track," a company statement said.