Roundtable: Real Estate 2011
The International Who's Who of Real Estate Lawyers has brought together two of the leading practitioners in world to discuss key issues facing lawyers today.
Participants
ANAND DESAI
DSK Legal
India
Ballard Spahr LLP
USA, PA
Who’s Who Legal: What types of work have been keeping real estate lawyers busy? Are there any particular sectors which are seeing an increase in activity?
Anand Desai: Traditional “conveyancing” continues as a practice area.
In addition, private equity, real estate funds, and real estate investment trusts (REITS) have increased activity in India, particularly in large projects such as townships and industrial parks. Foreign direct investment (FDI) has certain restrictions which need to be factored into a transaction. Private domestic lending (including by non-banking finance companies) at high rates has replaced the squeeze imposed by the Reserve Bank of India on housing loans, which had grown to almost a bubble. Foreign lending for real estate is not permissible.
Matters such as stamp duty and taxes on property transfers, volatile prices (much of India has exorbitant land prices, and stamp duties are payable ad-valorem in most parts on transfers, mortgages etc.) has resulted in innovative models for financing against land and buildings under construction as security, mezzanine finance and step in rights for financiers.
The changes have resulted in requiring real estate lawyers to gain knowledge of, or work with lawyers who have knowledge of, cross border transactions, FDI, financing, private funds, and taxation.
Richard Goldberg: For the most part, lawyers have been busy doing workouts and working on distressed real estate in general. There has been an increase in securitised lending but the volume is a fraction of what it was before the collapse. Relationship lending is still slow with banks withholding credit.
Who’s Who Legal: Has your practice changed to adapt to the current levels of work in the real estate sector?
Anand Desai: We at DSK Legal, have a dedicated real estate team in each of our offices, who regularly practice not only in the mainstream/traditional real estate field but also the modern “corporate” real estate field. We also work across competencies described above. As we get work pan-India, as opposed to just in the cities where we have offices, we have built up a network of competent lawyers to assist in matters such as title searches, local laws and taxes et cetera.
Richard Goldberg: Yes. I have been doing workouts primarily in the hospitality sector. Except for two construction loans for shopping centres (which are extremely rare in the market today), there has been very little positive activity. On the other hand, the techniques used in hospitality workouts are somewhat novel with an emphasis on debt to equity conversions.
Who’s Who Legal: Lawyers we spoke to noticed a significant gap in the expectations on price between buyers and sellers of real estate. Is this the case in your jurisdiction?
Anand Desai: India has enormous economic diversity. The mismatch in price expectations does exist, but not uniformly across the country. Property prices near metros continue to be high, with less transactions. Prices have also increased significantly in tier I, II and III cities, which are growing rapidly. Increased costs of construction, including labour costs triggered by the National Rural Employment Guarantee Scheme, and borrowing rates, has added to the price of apartments and offices. Housing markets in less developed towns that are close to metros are developing fast.
Richard Goldberg: The gap still exists although I believe it is closing. Mostly the gap exists simply because the values have diminished to such an extent that the sellers cannot find sufficient capital to pay off existing debt and banks have been willing to modify loans on a short term basis to accommodate to that situation.
Who’s Who Legal: How is the future looking for real estate? Do you envisage a return to the previous level of activity and profitability?
Anand Desai: The government keeps talking about affordable housing, and doing away with the ills that plague the real estate industry, including unscrupulous developers. Activity continues to be high, as are prices. The credit squeeze has hurt liquidity of several over-extended developers, but the business otherwise stays profitable.
Richard Goldberg: In the short term, the future does not seem promising. Housing still leads the way in a negative sense. Without housing starts, jobs are affected. Withouf jobs, the office and retail sector will not show long term growth. The multi-family market is showing some resurgence but not to the extent one would hope considering the housing start shortfall.
In the intermediate term (two to three years) one should expect the beginning of the rebound. However, reaching the levels of 2000-2002 is not likely in the near term. Reaching 2007 is not conceivable at present and one would hope not replicated.