Some developers are of the opinion that there has been a shift in buyers/investor behaviour over the last few months. From an ownership driven model, the rental model is gaining traction.
While the real estate sector is steadily showing signs of recovery and increased confidence among homebuyers after reforms such as the implementation of the Real Estate Regulatory Act (RERA), there is not much optimism on the residential price appreciation front. Huge inventory pile-up along with slow sales velocity are some of the major reasons why property prices are expected to more or less remain stable for the next few months.In such a scenario, some real estate developers have now started leasing out both sold and unsold inventory in their ready-to-move-in projects to make the area livable and ensure that they do not turn into ghost towns. Leased out properties are also helping them sell unsold units faster.
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Leasing may spur growth
Some developers are of the opinion that there has been a shift in buyers/investor behaviour over the last few months. From an ownership driven model, the rental model is gaining traction. “We are into both ownership driven real estate and the rental business wherein we provide rental returns to owners as well as put up our own unsold inventory on rent to corporates. This helps us enhance the saleability of our residential units as investors are encouraged to buy already leased properties as it fetches assured returns,” says Sriram Chitturi, MD, Shanders Group, that has projects in Bengaluru.
Some of the units in its Alta Vista project located in Electronic City in Bengaluru have been leased out to Symbiosis Institute and the company is in talks with Titan to lease out more such units.
“Rather than creating ghost towns in a market which is slow, it is better to lease out units. This is also because currently, supply is more than demand. We easily get a rental yield of 4 percent to 6 percent and we are able to sell unsold units quickly through this method. By putting units on lease we are offering a product that is closer to a financial instrument to investors who are in any case not interested in residing in the project,” he says.
Out of the 30 unsold units that were leased out, the company has recently managed to sell at least 15, he claims, adding the rent for these apartments is around Rs 42,500. The company is planning to replicate the model in its other projects spread across Bengaluru.
Companies that are into aggregating such properties are also having a field day. PropUrban, an online -to- offline (O2O) real estate investment advisory and transaction platform, dealing in commercial and residential properties, has signed up 51 developer properties for leasing purposes.
“These include both unsold stock as well as those that have been sold to buyers or investors. We are hoping to close 150 such units by end of this month. The return on investment on such unsold inventory that is leased out is close to around 8 percent as these projects are either located close to the airport or near corporate hubs,” says Mir Jaffer Ali, founder and CEO, PropUrban.comWatch: How RERA is going to change your homebuying experience
“We are also in the process of initiating nationality-specific leasing for corporates based out of Bengaluru wherein Japanese or Korean companies lease out a cluster of 10 to 20 apartments for their staff. We manage these properties for them. We also tailor the apartments as per their cultural needs and specifications,” he explains.
Another project located close to the Bengaluru airport called Micasa has also been pre-leased to corporates. The project is being developed by NCR-based Supertech Limited.
“We are offering employees of corporates pre-leased apartments in this project which will be handed over by end of this year. In our project located in Sector 137, Noida we have leased out 137 studio apartments to companies. Pre-leased apartments offers a win-win option to developers as it helps them sell pre-leased properties to investors,” says RK Arora, chairman, Supertech Limited.
This concept offers a great opportunity to developers to enhance the saleability of their projects. “Such a product is viable for investors as it offers immediate returns. Selling unsold housing stock that has already been leased out can help developers sell their units faster. It also helps increase rental housing stock in the market,” says Rajeev Talwar, chairman, NAREDCO & CEO DLF Ltd.
Impact of Demonetisation
There is a lull in the market so far as new launches are concerned. In the latest report from Cushman & Wakefield, the top 8 cities witnessed residential launches of approximately 25,800 units in the first quarter of 2017, registering a 16 percent decline from the corresponding period last year. A closer look at the trend indicate that launches have seen a steady quarter – on – quarter (Q-o-Q) decline for the last four quarters corresponding with the announcement of Real Estate Regulatory Act (RERA) 2016 in March last year and the demonetisation exercise in November 2016. Launches in the residential sector have declined by about 8 percent during the period April 2016 to March 2017 compared to the same period in 2015-16.
Also, as per estimates by Liases Foras, the unsold stock in top eight cities across the country stands at 8,98,434 units with maximum unsold inventory in NCR market at 2,61,556 followed by MMR at 2,26,338 and Bengaluru at 1,13,075.
Developers are renting out properties to liven up their projects. “Rather than keep the project idle, leasing out units is a better option. As more people move into the project, there is faster traction and the housing stock sells faster. The idea is not to create a revenue stream but to see traction improving,” adds AS Sivaramakrishnan, head, Residential Services, India, CBRE South Asia Pvt Ltd.email@example.com