February 21, 2020
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The Plot Thickens

The entry of foreign firms revolutionises the real estate business

The Plot Thickens
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EVERY panwala or kiranawala, with knowledge of a couple of empty flats in his neighbourhood, rolls up his sleeves and turns into a real estate agent. But, creeping into the market are multinational firms, who, by virtue of size, funds and service, are rewriting the rules of the game.

Enter the new breed of brokers: functioning from posh offices, using laptops, and backed up by professional degrees—in contrast to the barely educated local brokers who function from seedy rooms. As of now, eight multinational property consultants (see box) are in India and more are likely.

"We came to India as our clients wanted our services," says Elizabeth Parry, director, Richard Ellis Ltd, who, with Colliers Jardine (India) Property Services, were the first to set shop in 1995. Their main clients: foreign firms entering India, who prefer to rely on companies they are familiar with. "Our clients wanted our services in India as the risks and exposure are high and information hard to come by," says Aashish Velkar of Cushman & Wakefield (India) Pvt. Ltd. "Accountable advice is what we provide," adds Marcus Wraight, director, Chesterton Meghraj Property Consultants Pvt. Ltd.

Besides brokerage, these firms offer evaluation, research, property audit, property management. Services that are mostly new to India. "We are trying to institutionalise the real estate business," says Pranay Vakil, MD, Knight Frank (India) Pvt Ltd.

Though they arrive with the intention of servicing foreign clients, these firms ultimately target the Indian corporate sector and the retail segment of the market. Top Indian corporate clients have already been roped in—Knight Frank services the House of Tatas and the Godrej Group, Richard Ellis advises the Lal Bhai and the Dalmia groups.

The Estate Agents' Association of India (EAAI) is worried. "We have lost over 30 per cent of business to these firms," says Ronnie Wadia, secretary, EAAI. "They are able to use an array of computers which store their database. Plus, contacts with the parent firm abroad help them get deals with the local subsidiary. And, they provide far better service to clients than we do," he admits.

'Service' is the mantra. As in the "comprehensive hand-holding exercise" that Colliers Jardine and its ilk do when trying to sell the flat of a Mr Joshi:

  •  They scrutinise his documents, check whether he has paid all his dues.

  •  Inform him of all recent transactions in his area to give him an idea of the prevailing market price.

  •  Quiz the buyer about the source of his funds, ask him about the mode of payment.

  •  Ask when he wants delivery of the flat.
  •  Advice Mr Joshi to keep part of the amount for capital gains tax.

  •  Check whether Mr Joshi is in "arrears on taxes". Because all transactions of immovable property above Rs 5 lakh must have a certificate under section 230 (A) of the IT Act, which states that the person is clear on all taxes. If not, the IT department can impound sale proceeds and recover taxes.

  •  Be with Mr Joshi till he hands over the keys of the flat to the buyer.

    Despite the tough talk, foreign firms and local brokers do interact. All the firms have a panel of brokers through which they transact deals and build database. "It would be easy to be rude about local brokers but they control the market. They have knowledge of market and landlords," says Wraight.

    Yet, according to Wadia, 90 per cent of the broking community has been hit. And, the next move on the agenda of the foreign firms is the retail segment. According to Kumar, five years down the line, Colliers will look at the retail segment together with joint venture partner, HDFC. "We want to be the Singapore Airlines of real estate in the country, catering to a range of people—corporates, rich and the middle class," he says.

    Are foreign firms edging out local brokers? It seems so, at least as far as mega deals go. Colliers Jardine claims it "negotiated the biggest square footage deal in India" for software giant Microsoft Corp. in Hyderabad. And Knight Frank and Colliers Jardine worked on either side to sell the Siemens Building, at Worli, Mumbai—a Rs 47 crore deal.

    Wraight doesn't see any reason for the old-timers to worry: only five per cent of the deals are done by MNCs, local brokers do the majority of the deals, he says. But the writing on the wall for local brokers is crystal clear: shape up or ship out.

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