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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    Originally posted by realacres View Post
    Check this, meant in Indian perspective :-

    REITs: Ten things you wanted to know | Business Standard News
    Laws are similar. India has not REIT today so when u say that REIT mostly invest in commercial properties that is completely wrong.



    I think we were discussing Indian budget & REIT in India & not US.
    Btw, rental yields in West, 3 times that of India !! Please explain why would anyone would like to take 1.5-2% yield ?
    Have u missed the complete RE bull market? What is the dividend yield of blur chip stocks on Indian markets? What is the rent yield. Even when yields are low people have poured money into RE for capital appreciation. Isnt that what bull markets are all about? Are you telling me we have to start again this discussion again from 2009?


    It's not me who is thinking, its the REITS firm which are thinking this way.
    And man, don't commercial means not just mall but it includes offices, hotels, warehouses also. Now certainly, Flipkart or Amazon is not going to buy flats to keep their material in it.
    Its your wrong analysis / opinion that REIT invest mostly in commrercial properties and that is not true.


    They now need to pay 15% tax. See budget details.
    No long term tax. Better than the capital gains that apply when one sells a RE - short term or long term - and liquidity which is a big positive. Spin it any way u want this is going to help RE.


    Please come back to REIT in India & avoid comparing REIT in US with Infy share in India.
    U can avoid but investors wont. From their existing demat account they will be able to choose between Gold, RE and companies. 3 assets all available from the same place with the benefit of massive liquidity, better tax laws and no issues of permissions or completions.

    A person can choose to buy gold from an EFT or buy a blue chip stock or buy a portion of RE by investing in REIT stock.

    15% tax. Why don't you read previous posts man ?
    What is the tax on RE capital gains. There are no long term capital gains tax. So if I buy a REIT for 100 today and sell it at 120 after 1 yr no tax on the 20% gain. Dividends wont be taxed at the REIT level but the investor will have to dividend tax which may be 15% but that is still very low compared to taxes that today apply on RE capital gains?

    Still confused or hell bent of proving RE burst??


    Why do you join everything to IT ?? Can we talk with REIT & RE please ?
    I still don't know how Infosys or Outfosys is gonna impact REIT.
    When there is seismic shift in the underlying dynamic u have failed to appreciate them hence the comparison between IT and REIT. U have played down the imp and impact of IT on Indian RE for many years and you are starting to do the same with REIT.


    Better I stick with India as budget was of India.


    The REIT amount required to go public is INR 1,000 Cr. Now how many townships have commercial valuation of 1,000 Cr ??
    Almost all townships are over 1000 cr. Townships have commercial + residential so valuation of 1000 cr is not very big. Plus REIT need not invest in just one project. There is no limit on number of projects a REIT can invest it.

    Man, now even my headlights are appearing like blinkers to you. Time for you to use wipers.
    headlights? seriously dude. U need to read thru the links I have sent and stop looking for -ve news every single day.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by realacres View Post
      First the person has reported what Finance Minister has said in the budget. Now no idea if Fin Min has not idea about REIT.
      The inputs were given by person (its there in news) who works for ​BDO LLP which is an international accounting network that provides advisory services in 144 countries, with over 56,000 people working out of 1,264 offices worldwide.
      Maybe these chaps also don't know anything about REIT.
      So what does that mean? Have u checked the data for urself? How many time before have i pointed out to incorrect reporting? dont blindly follow news just cause it suits ur bias. Thats how people get in trouble - by outsourcing their thinking to a 3rd party

      Min size of REIT required to go public is INR 1,000 Cr. How many REIT have funds of over 1000 Cr to get listed ?? And this rule is for India, please don't bring in what happens with REIT in US. REIT will be taxed at 15% as STCGT.
      Why are u confused man? REIT can invest in many project. So a REIT could invest 200 cr in a part of township and with the rest of the money buy commercial property or flat. Whats so difficult?


      Income from day 1 can be given by REIT only when invested in completed & rental yielding projects. But you denied this above & said REIT will buy land & what not. So how can income start from day 1 ?? Man, you are contradicting yourself.
      Also, REIT needs min investment of 1L, which is not the case with stocks. And as REIT is just like a MF, returns can be negative also.
      You are getting confused. REIT need to invest in just project. So a REIT can allocate 20% to under construction project and the rest to complete projects or whatever % they think is best.

      What I wonder is then why are builders like KUL, Goel Ganga etc. not raising money via REIT ?? Please explain ??
      Was the pass thru tax structure available before this budget? No. Now that the FM has made it clear about the tax status investors and companies will use it. Without the special tax benefit why would someone opt for a REIT? The special tax structure is what makes a REIT special.
      Last edited by herohiralal; July 15 2014, 12:00 AM.

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by southsea View Post
        @HH - From wikipedia - "A real estate investment trust (REIT) is a company that owns, and in most cases, operates income-producing real estate."
        Pls check the links I have shared before. If you want to use wiki then refer to the reference section of that wiki page on REIT and go thru the articles provided there. The definition on wiki about REIT is limited.

        Here is another 2 links

        Real Estate Investment Trust (REIT) Definition | Investopedia

        The REIT Way

        and here is the yahoo finance link on REIT. Check out the names and then you can go thru the presentations of some of the companies on how they form REIT. Even builders form REIT to share risk of projects.

        REIT is just a finance structure. Think of like a shell corporation with massive tax benefits.

        REIT - Retail Overview: Industry Center - Yahoo Finance


        1. We cannot say for sure, but it is unlikely they will be allowed to hold empty land here in India. Financing construction perhaps yes. But all these help builders and help increase supply. Demand still has to come from increase in jobs and wages.
        You think RE companies will use REIT to build more houses or will they use it first to distribute risk? So for e.g. will DLF launch a REIT to launch new projects first or to take off from its books the commercial property portfolio it has? DLF was trying to do a MBS (mortage backed security) for sometime but a REIT allows it to do it much quicker and mostly cost effectively.

        The biggest impact in the short term will be in providing liquidity to RE companies and then we will see REIT being used to fund new projects.


        2. A miniscule number of Indians invest in the stock market. I am not convinced REITs will trigger some kind of an inflow of new buyers. All it will take is a steep fall or two in REITs and half the folks on these threads harping on about REIT will go back to FDs/gold/RE.
        So again how much does LIC invest in RE market every yrs? How much do FIIs invest? What do u mean by inflow of new buyers? Mutual funds, LIC and FII will be major players in the REIT like they are today in the stock market.


        3. Yields on residential assets are abysmally low. Commercial is only slightly better. Malls I agree with you are dead game. But commercial can mean offices, hotels, factories even. Given low yields and dodgy legal/regulatory system where no one is ever punished, will people find REITs that attractive ?
        Somehow I am reminded of the rush for 'infrastructure' mutual funds of 2006-2008.
        So when u mean low what reference are u using? FD or dividend yield of stocks?

        Remember REIT can appreciate in value plus pay dividend just like stocks. FDs dont give capital appreciation so instead of buying into a crap power companies people will invest in a REIT.

        This REIT policy is very useful for the builders.

        It will surely result in some scam and some irrational exuberance but that happens with any new investment class. The main point is whether this policy is good for RE or not. Thats what this thread is about. People were claiming the BJP govt is going to control RE prices but it has done exactly the opposite. If they wanted to control RE prices they would have initiated land reform but instead they have taken the easier way out.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Look at this.

          Blackstone, local partner Embassy Group developing maiden real estate investment trust - The Economic Times

          DLF, partner sell Pune IT SEZ to Blackstone for Rs 810 cr | Business Standard News

          "Embassy and Blackstone have a joint portfolio of over 16 million square feet of office space in Bangalore and Pune.

          "We wish to increase the portfolio to 30 million sq ft by looking at assets in the top five metros. We may consider this portfolio that is likely to have a value of USD 2 billion on the stock exchanges. Further, listing here makes more sense for our investors here," he said. "

          See the sequence. DLF sold properties to Blackstone which is now going to list it on the stock market using a REIT. What does this do? Allow blackstone to exit at a profit or free up cash to make more investments. People will follow this model.

          REIT policy has made trading in RE a lot simpler and thats good news for builders and smart investors. If you think this is going to help buyers then you are mistaken. This policy is not about helping buyer. There is abig debate in the US going on how big firms like KKR, blackstone, REITs and rich chinese are buying a lot of property and there isnt really a enduser driven RE recovery. The rents are going up.

          If the govt wanted to burst the bubble they would not have allowed REIT. They would have increased land supply. How is pouring money into RE going to help burst the bubble is beyond me!!

          Originally posted by southsea View Post
          @HH - From wikipedia - "A real estate investment trust (REIT) is a company that owns, and in most cases, operates income-producing real estate."

          1. We cannot say for sure, but it is unlikely they will be allowed to hold empty land here in India. Financing construction perhaps yes. But all these help builders and help increase supply. Demand still has to come from increase in jobs and wages.
          2. A miniscule number of Indians invest in the stock market. I am not convinced REITs will trigger some kind of an inflow of new buyers. All it will take is a steep fall or two in REITs and half the folks on these threads harping on about REIT will go back to FDs/gold/RE.
          3. Yields on residential assets are abysmally low. Commercial is only slightly better. Malls I agree with you are dead game. But commercial can mean offices, hotels, factories even. Given low yields and dodgy legal/regulatory system where no one is ever punished, will people find REITs that attractive ?
          Somehow I am reminded of the rush for 'infrastructure' mutual funds of 2006-2008.
          Last edited by herohiralal; July 15 2014, 01:44 AM.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by realacres View Post
            First the person has reported what Finance Minister has said in the budget. Now no idea if Fin Min has not idea about REIT.
            The inputs were given by person (its there in news) who works for ​BDO LLP which is an international accounting network that provides advisory services in 144 countries, with over 56,000 people working out of 1,264 offices worldwide.
            Maybe these chaps also don't know anything about REIT.
            Pls can you check with that 'expert' and the FM why they have no clue how REITs work?

            Office REITs in U.S. Plan the Most Construction in Decade - Bloomberg

            Rather than theoretical definitions pls look at reality. Any sensible real estate REIT would be stupid to compete with pension funds and sovereign wealth funds to compete for completed properties.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              @HH - Even when yields are low people have poured money into RE for capital appreciation.
              This is perhaps the most common misunderstanding on the IREF forum. Folks think capital appreciation is somehow separate from yields. Price = future income. So capital gains can only come if people expect future earnings (income) to rise. At some point if incomes dont match expectations, prices either fall or stagnate.

              >REIT is just a finance structure. Think of like a shell corporation with massive tax benefits.
              So essentially are MFs, ETFs, etc. Taxed in the hand of the investors and not the AMC. Not sure what your point is here.

              >Mutual funds, LIC and FII will be major players in the REIT like they are today in the stock market.
              In percentages maybe so. But my assertion was that for the near term the total holdings of the REIT will be limited. If history is any indicator, there will be a plethora of 'NFO's in REIT, investor exuberance and then despondence and a few years hence some normality.

              In India - " At least 90% value of Reit assets should be in ready properties generating revenue. The remaining 10% can be in other specified assets. Reits will have to distribute at least 90% of their net distributable income after tax to investors. Vacant and agricultural lands are proposed to be kept out of the reach of Reits, which will invest only in Indian assets."

              >How is pouring money into RE going to help burst the bubble is beyond me!!
              1. I think, if the money does come in, it will help builders monetize their existing assets and free up resources for new supply.
              2. You are making an assumption here that money is going to come pouring through REITs. Are you saying that only a handful of us here think its a bubble and the rest of the world thinks Indian RE is undervalued?

              >So when u mean low what reference are u using? FD or dividend yield of stocks?
              FD. Or you could price/earnings ratio if you want to compare against equities.

              As for land reform I agree. Our bubble is a speculative land price bubble. The rest is just construction cost + raw material cost, both of which more or less track inflation. But even REITs cannot stop the correction.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by southsea View Post
                @HH - Even when yields are low people have poured money into RE for capital appreciation.
                This is perhaps the most common misunderstanding on the IREF forum. Folks think capital appreciation is somehow separate from yields. Price = future income. So capital gains can only come if people expect future earnings (income) to rise. At some point if incomes dont match expectations, prices either fall or stagnate.

                Fantastic point....one should read it many times if not understood in first shot...

                While depending upon phases of RE cycle, rental appreciation can vary from capital appreciation...in long run (say 10 year cycles) both will always be same...

                However it will be equally naive to compare yield patterns of EMs with DMs....Ruchir Sharma has written detailed analysis in his book “breakout nations” why places like Rio Di Genaro, Masco, Mumbai are not comparable to NY/LDN…

                REIT is certainly positive for RE sector…it will help big and quality builders to monetize/securitize good properties and money received in hand will support if not elongate the bubble...also this is likely to benefit commercial and Industrial RE much more than residential RE so we may see reversal of divergence seen in Commercial vs residential in last 3-4 years

                It will be very surprising to not see 2-3 bn flowing in Indian RE via this route in next 18-24 months
                Last edited by Baruch; July 15 2014, 12:36 PM.

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Originally posted by southsea View Post
                  @HH - Even when yields are low people have poured money into RE for capital appreciation.
                  This is perhaps the most common misunderstanding on the IREF forum. Folks think capital appreciation is somehow separate from yields. Price = future income. So capital gains can only come if people expect future earnings (income) to rise. At some point if incomes dont match expectations, prices either fall or stagnate.
                  Yields are equal to rent income from property and not capital appreciation cause to "yield" the capital appreciation one has to sell the asset but the yield is soemthing that one gets while holding onto the asset. So yields in India RE have been quite low for a long time but that hasnt stopped the bubble from growing.

                  >REIT is just a finance structure. Think of like a shell corporation with massive tax benefits.
                  So essentially are MFs, ETFs, etc. Taxed in the hand of the investors and not the AMC. Not sure what your point is here.
                  Can MF invest in property? Do u have a HDFC Top 200 fund that invests in malls, apartments etc etc? Also comparing RE and stocks is not correct. The companies that are listed on the stock exchange compete with local and global companies whereas RE is a local, controlled and rigged business.
                  >Mutual funds, LIC and FII will be major players in the REIT like they are today in the stock market.
                  In percentages maybe so. But my assertion was that for the near term the total holdings of the REIT will be limited. If history is any indicator, there will be a plethora of 'NFO's in REIT, investor exuberance and then despondence and a few years hence some normality.
                  I dont think the total holdings will be limited. REIT simplifies the process in which a investor can invest in RE so the pull for such an investment avenue is going to be large.

                  In India - " At least 90% value of Reit assets should be in ready properties generating revenue. The remaining 10% can be in other specified assets. Reits will have to distribute at least 90% of their net distributable income after tax to investors. Vacant and agricultural lands are proposed to be kept out of the reach of Reits, which will invest only in Indian assets."
                  This is what I dont like about indian law. A person reading what you have up above will think REIT has to invest 90% in completed and rent generating properties. So now how does one classify rent generating properties?

                  Here is what the SEBI proposal is
                  "Explanation: For the purpose of this clause, ‘rent
                  generating property’ shall mean property of which not less
                  than 75% of the area has been rented/leased out."

                  Chapter 5. Point 18.4 http://www.sebi.gov.in/cms/sebi_data...1398382013.pdf

                  So you see the 90% limits is kind of a grey area. I would say its 75%.

                  >How is pouring money into RE going to help burst the bubble is beyond me!!
                  1. I think, if the money does come in, it will help builders monetize their existing assets and free up resources for new supply.
                  2. You are making an assumption here that money is going to come pouring through REITs. Are you saying that only a handful of us here think its a bubble and the rest of the world thinks Indian RE is undervalued?
                  The whole world (except the Euro region) has a housing bubble going on. Check out prices in US, UK, China, Aus and Canada. Money printing or local policies have helped the bubble grow back up.

                  >So when u mean low what reference are u using? FD or dividend yield of stocks?
                  FD. Or you could price/earnings ratio if you want to compare against equities.

                  As for land reform I agree. Our bubble is a speculative land price bubble. The rest is just construction cost + raw material cost, both of which more or less track inflation. But even REITs cannot stop the correction.
                  REIT is going to provide a nice easy exit to many RE players. It will also be used as an instrument for channeling a lot of savings. Lets watch and see.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    @HH - "Yields are equal to rent income from property and not capital appreciation cause to "yield" the capital appreciation one has to sell the asset but the yield is soemthing that one gets while holding onto the asset. "
                    I dont understand this statement. Perhaps you could restate it.
                    '
                    Can MF invest in property?'
                    I was saying that financially/tax-wise REIT is not different from MF/ETFs. The underlying asset class is certainly different.

                    So yields in India RE have been quite low for a long time but that hasnt stopped the bubble from growing.
                    1. I think we can say with some certainty that the bubble is not growing now.
                    2. If you accept the assertion that 'In general, prices have grown faster than rents over the last 10 or so years', then it is mathematical fact that yields were high 10 years back.
                    >It will also be used as an instrument for channeling a lot of savings
                    We certainly need more money in financial assets than in barren land or empty apartments. But I am not hopeful about the 'lot' part.
                    In any case, these things play out over years.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Originally posted by southsea View Post
                      [B] If you accept the assertion that 'In general, prices have grown faster than rents over the last 10 or so years', then it is mathematical fact that yields were high 10 years back.
                      Really liked the way you put it :-)

                      Today on CNBC- some firms were putting potential money around 10-12bn USD via REIT...

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