Showing posts with label construction. Show all posts
Showing posts with label construction. Show all posts

Serviced Apartments – An emerging arena in Real Estate


Not all but some of our readers will agree with this post. We recently got a chance to study the functioning and business model of Serviced Apartments in Hyderabad (India) and felt the need to share the same with our readers. Let’s see how effectively we can communicate our views on this topic.


Serviced Apartments – What are they?


For those who are not aware of the term Serviced Apartments; they are no different from normal residential apartments, but with an exception that they provide complete services to the tenants.

Serviced Apartments are fully furnished houses including all the white goods that are provided to the tenants for use. The tenants residing in these apartments can make use of all the “free services” provided by the owners – house-keeping, food, electricity, laundry etc.



In short, a Serviced Apartment can be thought of as a variant of a PG (Paying Guest) accommodation, with some exceptions.


Business Model


This is one of the most exciting and profitable business models that can exist as recurring income source in real estate. Here instead of charging for apartment as a whole, tenants are charged on per bed basis. This will become more clear from the following example:

Shown below is a residential apartment in Hyderabad having 25 apartments of 3 bedrooms each –



Now consider these 2 scenarios –

Scenario 1: Rent as an apartment

Earnings
Rent per apartment/month
No. of apartments
Total/month
Rs. 25000
25
Rs. 625000

Costs
Cost per apartment/month
No. of apartments
Total/month
Misc
Rs. 2000
25
Rs. 50000

Net Profits
Profit
Rs. 575000


Scenario 2: Rent as Serviced Apartment

Earnings
Rent per bed/month
Total beds per apartment
No. of apartments
Total/month
Rs. 10000
6
25
Rs. 1500000

Costs
Cost per apartment/month
No. of apartments
Total/month
Housekeeping
Rs. 2000


Electricity
Rs. 2500


Wifi
Rs. 1500


Food
Rs. 6000


Misc
Rs. 3000


Total
Rs. 15000
25
Rs. 375000

Net Profits
Profit
Rs. 1125000


So after looking at the figures of both the scenarios, we have very less to explain anything. You can cultivate money in the second scenario and at least we are considering jumping in this arena as soon as possible!


Disclaimer: The figures quoted above are exact figures of a Serviced Apartment in Hyderabad, but we are not sure whether this will hold true in other cities as well.



------ Thanks for reading RealT Horizon J ------

G+2: An Emerging Real Estate Model


As we said in our earlier post that we went to the fields in Jaipur to explore this sector further, today we share with our readers a prevalent model in this space. During our visit to actual sites and meeting with various people closely associated with RealT, we came across a model that is highly prevalent in Tier 2 cities at present. Let’s share some insights on this topic.


What exactly is G+2?


Due to recent developments, Tier 2 cities have stringent land by-laws. These laws restrict unplanned and uneven growth of these cities which are on their way to become mega cities. One such by-law restricts the vertical growth of town to a certain limit, based on the size of plot and width of the road on which the plot is located.

A typical G+2 construction


Paying full respect the laws, Builders & Developers have devised an alternative to make optimum use of the available plot and have come up with the concept of Ground+2 floors. Now depending on the designs prepared by the Architect, Builder can erect 4-6 flats on that small piece of land. Generally these plans are designed in a way that there is ample space for parking of 4-6 vehicles alongside the building. If the dimensions of plot doesn’t allow ample parking space, Builder can even go for Stealth floor for parking. Even in this case, the next 3 floors will be counted as G+2.

G+2 with stealth floor



Benefits of G+2

  • Ideal for mini-builders
  • Cost of construction minimizes due to economies of scale (multiple constructions on the same piece of land)
  • Pretty good profit margin
  • Easy to sell
  • Time-to-complete the project is small




Why is it lucrative for mini-builders?


Small Investors and new entrants prefer this model of RealT so much so that you would see hundreds of such projects going on in Jaipur all around. The reason being:

Low cost of Entry
These projects can be initiated with relatively small amount of money as compared to traditional huge projects.
Minimized Risk
Even if all the flats are not booked, the builder is safe as he is sitting on a valuable asset.
Funding Operational Costs
The operational costs of next floor can be funded by the bookings of previous floor.
Controlled Expansion
The builder is free to pull back from going deep into the project at any time.


Closing Remarks: Want to foray into Real Estate? – Go for the above model, but don’t forget to do a proper market analysis for demand side!


---- Thanks for reading. Your comments will help us improve our analysis. J ----


Risks in Real Estate Investments



In our earlier post – Real Estate for Small Investors, is it? [click here], we suggested various ways in which people can invest in this field.

But very often it is seen that a common man is reluctant to invest in real estate properties, owing to the perceived and prevalent risks in this sector. This reluctance is even more severe when an individual is asked to invest in the areas, located far from his/her current place of residence. Let us first have a look at the types of real estate investments that a common man generally makes.

  • Buy a piece of land
  • Buy a constructed property
  • Lease a building
  • Convert a far flung piece of land
  • Book a property in an ongoing project by a builder


No doubt that these are all great means of investing and many a times provides handsome returns on the employed capital. In fact many individuals have made huge fortunes by simply following the above mentioned approaches of investing. But still, this sector seldom sees the confidence and faith among the investors as it is entitled to get. Reason? Well, here are few of them:


Major Risks





These are some of the most common risks that people believe can affect their RealT investments. Let us come to each risk one by one and the ways in which they can be mitigated to some extent:


Risk
Issues
Mitigation
Economic Risk
  • This is the first & foremost risk faced by any investment in any region.
  • The fluctuating prices of land in some regions due to the mismatch between demand and supply tend to give rise to the fear of this risk.

  • This risk can be mitigated by setting a clear time horizon of investment.
  • Moreover pre-investment background work of historical price movement in the region can give the investor some confidence.

Illegal Possession
  • This risk is most common in any investment made outside your hometown & mostly in metropolitan cities like Mumbai, Delhi etc.
  • Rental investments face this risk as there have been cases wherein tenants have illegally occupied the properties. 
  • Even the non-rented properties face this risk due to the presence of land-mafia (a person illegally claiming others’ properties).

  • Land acquisition laws have become stricter these days.
  • Before renting a property, it is recommended to have a background check of the tenant & have a robust legal agreement of limited tenure. Landlords should increasingly ask for payments through PDC (Post Dated Cheques) to be on a safer end.
  • Regular visits to the non-rented property and putting up your name board on the property can reduce this risk to a large extent.

Project Operating Risk
  • People investing in the ongoing projects by builders face this risk.
  • This risk may arise when a builder / contractor falls short on finance or other resources required for completing the project.
  • This is also linked with the financial risk explained above.

  • Never pay complete or major part of payment in advance to the builder. This will finish his liability to complete the project in planned manner.
  • Check the track record and credibility of the company before investing in their projects.
  • Have proper legal agreements ready at each checkpoint of payment.

Construction Risk
Closely related to the above genre of risk, this arises when there are inefficiencies in the construction process.

Refer to our previous post – Construction of a RealT project  [click here] for more detailed insights on this point.
Interest Rate Risk
  • Often due to the not-so-stable political and economic conditions in India, the RBI chooses to change the interest rates of the housing loans.
  • This may cause additional pressure on the individual investor as his planned outlay can change drastically in terms of interest payment.

  • The individuals should thoroughly clear the conditions with the issuing bank about the interest rate fluctuation in case of changes by the RBI.
  • Some banks allow fixed interest rates forever, but that are slightly more than the market rates; but definitely more secured.

Expropriation Risk
  • Expropriation risk basically refers to the risk of a private property having used for a public purpose.
  • This risk mainly applies to age-old dormant properties.
  • Mega profit-generating realty projects in very unstable economies like African Nations also face this risk.

  • This risk can be done away with by being a bit cautious and vigilant for your properties.
  • On age-old ancestral properties, susceptible to this risk, you should do a bare minimum construction time to time. This way it won’t be dormant anymore.
  • In unstable nations, the company carrying out the project should proactively partner with the government in profits or other ways so as to reduce the risk of expropriation drastically.

Financing Risk
Borrowers for real estate investments often face the risk of financing, especially after the sub-prime crisis of 2008.

The above mentioned interest rate fluctuations are also included in the gamut of financial risks.

More on financing can be read in our earlier posts, which also covers the various ways of financing a RealT project:



These risks are prevalent in almost each and every real estate investment. Of course, the extent of different risks will depend on the size and nature of the investment. But if handled with a little more care, these risks can be minimized to a large extent and then even the Real Estate Investments will find their lost glory again.


---- Thanks for reading RealT Horizon. Your comments will help us improve our analysis. J ----


Special Investment Regions – New Real Estate Investment Opportunities



Every real estate investor keeps on looking for new opportunities for investments, but often ignores the ones standing right in the front. This post is just to throw some light on one such opportunity.


What are Special Investment Regions?



Most of us know about SEZs and their recent outburst in India, but very few of us are aware of the upcoming prospects being offered by the new development plans of Government of India – Special Investment Regions (SIRs). These are meant to be gigantic projects which spans to the tune of several thousand hectares. Just to show it in a hierarchy:





As is quite evident from the above categorization, the size and extent of SIRs is unmatched. The potential for infrastructure and real estate development in these regions can only be judged by the example of upcoming project - Dholera SIR in Gujarat, India.



Dholera SIR – Quick Insights 

  • Total Area : 800 sq. kms: a green field location
  • Developable Area: 500 sq. kms.
  • World-class infrastructure & connectivity: within & outside
  • Central spine express way & Metro Rail to link the SIR with mega cities
  • Airport & Sea Port in the vicinity
  • Proximity to mega cities: Ahmedabad, Bhavnagar, Vadodara
  • Capable to cater to both International & Domestic Market
  • Close to Gujarat International Finance TechCity (GIFT)
  • Logistic support of the Dedicated Freight Corridor (DMIC)
  • Benefits of the high impact Delhi Mumbai Industrial Corridor (DMIC) 
Dholera SIR is a project planned along the Delhi-Mumbai Dedicated Freight Corridor:



As shown in the above map, Dedicated Freight Corridor (DFC) spans through 6 states with a length of 1483 kms:
  • Uttar Pradesh-22 km (1.5%)
  • NCR of Delhi- 22 km (1.5%)
  • Haryana- 148 km (10%)
  • Rajasthan- 578 km (39%)
  • Gujarat- 565 km (38%)
  • Maharashtra- 148 km (10%)

This scale of the DFC offers a lot of industrial, commercial and subsequently residential development along its length. In order to make full use of this opportunity, Gujarat government has initiated a mega SIR project along the DFC – Dholera SIR.

This visionary approach will offer a lot of real estate development opportunities in this region. Some of the planned RealT & infrastructure developments include:


The above representation indicates just few of many possible developments that are going to take place with the upcoming SIRs in India. These are mega projects that require decades to complete and fully implement, hence giving investors ample horizon for investment. Dholera SIR, for instance is planned to roll out in 3 phases:











Closing Remarks: With the announcement of Special Investment Regions, there has been a huge anticipation of investment opportunities among investors. The other upcoming SIRs include the one between Mumbai-Bangalore DFC. RealT Horizon is keeping an eye on these developments, are you??


---- Thanks for reading. Your comments will help us improve our analysis. J ----







Real Estate for Small Investors, is it?


First of all, apologies for a delayed post this time. We were hooked up with some Real Big issues!

So tell us, where do you think is money in RealT Sector? Or is it just a fad & small investors can never make out anything from this sector?

As far as what we have concluded from our secondary research data, it seems that more than 65% of people are not interested in investing in real estate primarily because they think – “we require huge investments to buy a property!”

We would not completely deny this fact but at the same time, it doesn't entirely hold too. Before we go any further and clarify this ‘myth’, let us first give you a glimpse of where money lies in RealT Sector:





So as apparent from the above categorization (we are assuming that you are a normal investor with not much knowledge of other fields of real estate), there are several fields apart from transactions and development from which you can make money in this sector. Take for example Relocation Services. By relocation services, we mean that you can provide services to relocate people or businesses & arrange for accommodation and other services in case required by them. This will provide you with an opportunity to make some handsome amounts with fewer efforts.

Services like ‘Appraisal’ require technical know-how of how to value a given property. If you have the proficiency to do this, you can make this as your career and trust us, you won’t require anything else to pursue as your profession.

On the similar lines is another vertical – ‘Property Management’. As Portfolio Manager is to Stock Market, Property Manager is to Real Estate. And we think that we need not to reiterate how much fortune a Portfolio Manager makes! If you have some expertise and experience in the field of real estate, this is your place to be.


How can Small Investors invest in Real Estate?


This is probably the most important question that haunts every middle-class individual when he/she starts earning. With the rise of middle class population in India in recent years, people who just graduate from the universities look forward to invest in some vehicle. But due to unavailability of any structured or convenient vehicle for investment in Real Estate, the obvious choice that they are left with is – Stock Market or Fixed Deposits.

We would like to throw some light on how a mid-income group person or a small investor can invest & make money in this market. There are several measures available for this purpose, few of which include:
  • Affordable Housing
  • Attractive EMI schemes
  • Joint Investments
  • Private Lenders
  • REITs

Within the scope of this post, we will just try to explain Affordable Housing & later we will take on other measures.


Affordable Housing


As per JLL’s report on ‘Affordable Housing in India – 2012’, there is no clear-cut definition of the term ‘affordable’. This is because it has different meanings in different scenarios as it is a relative concept. Just going by KPMG’s definition of affordable housing, it can be seen as:


Income Level
Size of Dwelling Unit
Affordability
Economically Weaker Sections
<INR 1.5 lakhs pa
Upto 300 sq. ft.
EMI to Monthly Income: 30% to 40%
House price to annual income ratio: Less than 5:1
Lower Income Groups
INR 1.5-3 lakhs pa
300-600 sq. ft.
Middle Income Groups
INR 3.0-10 lakhs pa
600-1200 sq. ft.
 
  Source:  KPMG

Affordable housing is a new concept which emphasizes on catering the needs of the above 3 mentioned income group individuals. The differentiation is based mainly on the size of dwelling unit and the location of the unit.

Small investors, typically falls under the umbrella of Middle Income Group. There are a number of trusted and reputed players in the business of affordable housing all over India, mainly in the metropolitan cities where the concentration of LIG’s and MIG’s is maximum:

Source: JLL Research, 1Q12




Closing Remarks: It is said “where there is will, there is way..” This falls apt in case of real estate investing. Though seemingly very tough, it becomes simple if you want to devise ways in this sector. And believe us, the pace and size of returns which you can expect from real estate is far more than any other investment.


---- Thanks for reading J ----

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