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Homebuyers Alert! Indian Real Estate Property Prices to Rise Soon

The Indian real estate market has always been riding high on the wheels of volatility and dynamism owing to several social, political, and economic factors that keep on affecting the prices of the properties. Time and again, the industry has proved that it is far from accomplishing the stability of prices that affects the homebuyers the most at the end of the day.

This time again there have been various theories and stories within the close circuits of the investors, brokers, and homebuyers that the prices are surely going to elevate with the increase the prices of various materials such as steel, cement, sand, red brick, and others. Price rise in the purchase of these materials that are vital for the construction of the project will be loaded on the customers by the developers at the end of the day as they too have to recover their cost of expenses and run the show successfully. Though the prices of the materials have been increased, the same will be applicable in the price charts of the properties very soon as per various analyses and predictions by the common man as well as industry critics and insiders.

The Russia-Ukraine Crisis is deemed as one of the major reasons for the price hike that has affected other commodities prices such as oil. As per CREDAI,

  • The price of steel has gone up from Rs. 42,000/- to Rs. 84,900/- per tonne and cement by Rs.260/- to Rs.400/- per bag now.
  • The rates of four-inch brick have also elevated from Rs.6,500/- to Rs.8,000/-. The price of sand (per brass) has gone up from Rs 6,000/- to Rs 7,500/- now.
  • The price of wash sand (per brass) has also gone up from Rs 3,800/- to Rs 4,800/-.

The economic recovery of the Real Estate Market post the first and second wave of the pandemic was just the ongoing process and buyers have just begun to warm up to the market. There was a considerable rise in sales in the luxury housing markets in year 2021. We believe this handsome resurgence in Housing sales will see mean reversion as increase in home prices is surely going to affect sales.

According to the Reserve Bank of India House Price Index, average house prices rose by just 2.5% in the previous year and a further jump in the upcoming fiscal year will surely burn a deep hole in the pockets of home buyers and investors.

With various theories and stories floating in, the outcome will be pretty clear in the coming days but it is never a bad time to invest in real estate or buy your home owing to its high ROI and price appreciation.

For more such exciting analysis and details on real estate, visit CRE Matrix.

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Real Estate Lending 101 – What is Construction Finance?

Construction Finance has been a popular loan segment which has been keenly observed by stakeholders beyond the real estate sector as well, as it acts as a barometer of construction activity to a certain extent. CRE Matrix, through this blog article, takes you through the A to Z of construction finance.

commercial real estate

What is Construction Finance?

Real estate developers need a consistent flow of funds for numerous construction-related works at various stages of projects to guarantee the timely completion of projects. Construction Finance loan is generally intended to meet this need of real estate developers across the life cycle of their intended or ongoing construction projects against the project sales receivables.

Since they are deemed to be comparatively risky, construction loads tend to have higher interest charges as opposed to conventional mortgage loans.

Why Do Contractors Need Construction Finance? 

Construction businesses generally have huge up-front expenses that burn through cash at the commencement of a project, much before payments start rolling in. This gap makes it tough to monitor cash flow from the beginning of a job. Contractors usually require financing to progress: to pay for material expenses on larger projects, to fund new equipment, or to match escalated payroll expenses. Financing can aid construction businesses to smooth out cash flow cycles whether the economy is declining or proceeding towards a construction boom.

Features of Construction Finance 

  • Loans that can be availed by the best real estate developers/builders
  • Can be used for growing and building residential or commercial sites
  • In Tier 1/Tier 2 cities, customized offerings to suit the requirements of  developers

Benefits of Construction Finance 

  • Professional and transparent technique
  • Organizing enormous funding from banks/financial institutions arranging bank guarantees
  • Flexibility in tenor as well as offering a variety of options for repayment
  • Enable tie-ups with banks/HFCs to offer housing finance to customers (home buyers)
  • Strong and effective service delivery model that provides door stop facilities to guarantee simple and quick approval and disbursal of loans

In a nutshell, construction finance loans are usually taken out by real estate developers or homebuyers who are custom-building their own houses. After construction has concluded, the borrower can either refinance their construction loan into a permanent mortgage or acquire a new loan to repay the construction loan (occasionally referred to as the ‘end loan’). 

The borrower might only be needed to pay construction loan rates or interest on the loan while the project is still ongoing. A couple of construction finance loans could entail the balance to be paid off completely by the time the project is complete. 

CRE Matrix, via RE Loans, gives a detailed insight on construction finance loans by numerous developers across the country and the banks/NBFC/funds that provided the loans to them. CRE Matrix is the country’s most preferred authentic analytics platform that allows stakeholders to access analytics from an array of sectors. Users can assess and compare construction finance loans and do so much more on CRE Matrix platforms.

For more CRE industry insights and data research do contact us.

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Real Estate Leasing 101 – Deep Dive into Rent Free Period

When drafting a leasing contract, both tenants and landlords need to be mindful of all the clauses that are present in a commercial lease agreement. There are numerous general clauses in a rental agreement form.

However, specific clauses are significant in their effect on the lease relationship and need to be given extra attention while preparing agreements. A couple of these clauses comprise of the security deposit, rent-free period, force majeure, indemnity provisions, and the right to renew or prolong the lease.

Let’s look at rent-free period in detail:

What is a Rent-Free Period?

The rent-free period is approved by both the tenant and the landlord. Therefore, the renter is not obligated to pay the rent during this time. This duration is used to facilitate the tenant to set up and establish all the needed equipment for them to utilize the commercial property for the proposed reason.

This duration can increase from three months to eleven months, contingent on the scale and extent of installation needed in the property. This period can also be stretched if the requirement arises. Nevertheless, it would be good to cite the maximum length of the rent-free period after joint agreement between the two parties. A clause declaring that the fit-outs may be eliminated and taken back by the renter can also be integrated in a commercial lease agreement.

Benefits of a Rent-free Period

  • If the landlord is promoting a new lease of commercial property and wishes to provide a rent-free period as an incentive to prospective occupiers, particularly if renters are apprehensive about startup expenses or footfalls in the present economic climate.
  • If a significant ‘fit-out’ work is required to place the commercial property into an appropriate condition to permit the tenant to trade. In such a scenario, a rent-free period will facilitate the renter to make use of the cash which might otherwise be utilized on rent to execute the works and enhance the condition of the premises. For instance, if work is essential to fulfill the health and safety protocols for a restaurant, or if the occupier is altering the use of the property and needs to basically modify the layout.
  • It can assist the renters’ cash flow during an existing lease, with a view to enable the future landlords’ rental yields. In this case, negotiation could have a landlord consenting to a lower rent with their occupier during an existing term in return for other revisions to the lease. For instance, if there is a break clause, the tenant assents to push back their ‘break date’ or relinquish their right to break and thus essentially extends the overall length of the term (by a tenant waiving their capability to end a lease early).
  • If the lease is about to expire soon and the landlord wants the existing tenant to continue with their arrangement, then a rent-free period clause could be offered to the tenant. It can be a way to mitigate the renters’ temporarily delayed cash flow, instead of forfeiting their lease or having to take other enforcement action.

In a nutshell, rent-free periods are especially common when times are tough economically. This specific incentive is offered to motivate tenants to sign leases. It is interesting to reflect as to why a landlord does not lower the level of rent and instead opts for rent-free period as this allows him to charge the same rent from other prospective tenants, who may not fully know about the rent-free discounts.

At CRE Matrix, we dissect every lease and figure out the effect of rent-free period on the overall lease economics.

For more CRE industry insights and data research do Contact us.

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Real Estate Leasing 101 – A to Z about CAM (Common Area Maintenance) Charges in India

Negotiating a lease for your business is not only a complicated procedure but if you’re a novice at it, you will most likely stumble into several new, possibly confusing concepts. One such term is common area maintenance (CAM). This is the fee that tenants pay in commercial leases for areas that are common to all renters. 

What exactly are Common Area Maintenance (CAM) Charges?

There are numerous tenants in a commercial building and the shared areas need to be maintained regularly. A CAM (Common Area Maintenance) expense is a surplus expenditure, in addition to the base rent, paid jointly for the maintenance of the commonly owned premises like the lobbies, elevators, parking lot, laws, corridors, public bathrooms, and building security. 

They are fees paid by tenants to landlords to assist in covering expenditures related to overhead and operating costs for common areas. CAM rates are generally described in the lease agreement to dispel any uncertainty as to what they might entail. It is vital to completely comprehend these charges prior to signing a new lease. 

How is CAM Fee Computed?                                                                             

At the commencement of every year, the property manager projects common area maintenance chargesfor the property in its entirety or a part of the yearly budget. Then, that CAM estimate is split correspondingly across the tenants in the building. Your percentage of the charges is gauged by dividing your square footage by the gross leasable portion of the building. This total cost is computed into your monthly operating outlay, so it can be paid in little increments all through the year. 

Is CAM Fixed or Variable?

The CAM fees can either be ‘fixed’ or ‘variable’. The tenants need to get it incorporated in the lease agreement as to what type of common area maintenance charges they will have to pay – whether it is fixed or variable. If it is variable, then it must be explained on what factors the fees diverged. Then, it must also be included in the contract as to what percentage will the CAM fee be raised from one year to another. Tenants need to be aware if they are charged with ‘administrative fees’ apart from the CAM fees and what would be the separation of charges for the two. 

Drawbacks to Avoid 

Utmost care needs to be taken when consenting to the CAM charged by the tenant. It is highly recommended to scan through the financial documents of the landlord carefully to reach the accurate CAM fees or to clear out the anomalies in the CAM charges in real estate suggested. What encompasses common area maintenance charges is described roughly to pass on the operational expenses of the commercial building as much as possible to the tenants. 

Unless the lease agreement specifies what comes under the CAM charges, the tenants are counseled prior to signing the lease agreement to get a clear understanding from the landlord about the following:

  • Salaries of the supporting staff as well as the security guards in the common areas
  • Insurance expenditures of the building
  • Restoration and revamping of the building, parking lot, and any supplement to the building at a later stage such as solar panels of the rooftop and so forth. 
  • Electricity and water charges in the expenses in the common areas. 

Where can you find the CAM charges in the building which interests you?

At CRE Matrix, we have analyzed over 1 Lakh lease documents across the country and many of these contain CAM charges. CRE Matrix is the India’s most favorite authentic analytics platform that allows stakeholders from different industries analyze CAM charges and much more.