RBI rate cut may boost demand for real estate

The rise in demand will be mainly in tier II and tier III cities where prices are still affordable, say analysts

Banks have a 67% share of the housing finance market, estimated at `7 trillion as of 31 December. Photo: Hemant Mishra/Mint

New Delhi: The Reserve Bank of India’s (RBI’s) monetary easing could prompt a rise in real estate demand, leading to prices firming up after having dropped around 4% in the recent past, said R.V. Verma, chairman and managing director of National Housing Bank (NHB), the regulator for housing finance firms.

Builders with unsold stock may raise home prices, Verma said on Thursday.

“The Residex (index of property prices in various Indian cities) for January-March could reflect this trend. We are watching it closely,” he said.

RBI cut the key policy rate by 25 basis points (bps) in its 29 January review of monetary policy, and analysts expect it to follow an easy money policy to boost economic growth. Following the RBI rate cut, many banks announced cuts in lending rates, fuelling expectation of a pick-up in retail housing demand. NHB also reduced its prime lending rate, or the rate at which it it lends to other banks, by 25 bps to 9.75% the same day. One basis point is one-hundredth of a percentage point.

The rise in demand will be mainly in tier II and tier III cities where prices are still affordable, said Verma.

“There has been a position of oversupply, which has had a moderating effect on prices. Prices are down 3-4%, primarily in tier II and tier III cities, because this is where the demand for housing loans is concentrated under the slab of Rs.10-25 lakh,” Verma said. “However, because of the increase in positive sentiments and the likelihood of lending rates going down further, the demand may pick up again leading to a price rise in houses by developers which have been under pressure till now.”

Banks have a 67% share of the housing finance market, estimated at Rs.7 trillion as of 31 December. In the Trend and Progress of Housing in India 2012 report released on Thursday, NHB said the housing finance industry could see around 20% growth in 2012-13 from the previous year.

Industry experts said prices are likely to rise in some areas.

“In markets like National Capital Region (NCR) or Mumbai, there have been fewer launches, but pricing has not taken that much of a hit. Prices have been stable or have seen a marginal increase,” said Neeraj Bansal, director, real estate, KPMG. “However, in other parts, where demand has gone down significantly, the developers have been offering good discounts on available prices for ready properties.”

The outlook has become more positive following the cut in interest rates. “There is an increase in positive sentiment, which may lead to an increase in prices in select cities,” he said.

The industry also expects the budget will contain steps that will boost the industry.

“If the industry receives a stimulus, the following quarters post the budget can see more buying from end-users, which will invariably lead to a rise in housing prices,” he said. Bansal said Andhra Pradesh, Mumbai, NCR, Chennai and Bangalore may see house prices increase in the near future. According to some industry estimates, house prices could rise 5-10% in the next few quarters .

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Azure Capital to raise Rs 500 cr through a real estate fund

New Delhi: Azure Capital has said that it will raise up to Rs 500 crore through a real estate fund that focuses on commercial properties across top seven cities of India.

Azure Capital, an integrated investment company, will launch of India Realty Fund-II, a rental yield fund that focuses on commercial properties across top seven cities of India, the company said in a statement.

The size of the fund is Rs 250 crore with an additional Green shoe option of Rs 250 crore, aggregating to Rs 500 crore.

The India Realty Fund II would primarily focus on investment grade commercial properties with lease to reputed tenants in the top seven cities of the country such as Mumbai, Delhi-NCR, Bangalore, Chennai, Hyderabad, Pune and Ahmedabad.

"These projects will provide regular returns to investors with an upside of capital appreciation. The valuations presently are quite attractive as developers are increasingly looking at deleveraging their assets," Azure Capital Advisors CEO Shailesh Ghorpade said.

Ghorpade further noted that India Realty Fund-II targets such investors who have a low risk appetite. It will provide recurring yield income coupled with high and stable capital appreciation, diversified portfolio with superior risk - adjusted returns.

The deployment of the India Realty Fund II will be across 10-12 commercial properties with an average ticket size of Rs 25-30 crore.

The fund plans to raise the entire corpus within 9 months from the first close.

The India Realty Fund I had successfully invested in residential real estate projects in Bangalore and other parts of India, the company said.

PTI

Source: http://zeenews.india.com/business/realestate/upcoming-projects/azure-capital-to-raise-rs-500-cr-through-a-real-estate-fund_62546.html

18% of housing demand to come from top 8 cities: C&W report

The total new demand for residential dwellings during 2012–16 will be 11.8 million units across India, according to real estate consultancy Cushman & Wakefield.

Of this demand, top 8 cities will account for 18 per cent or 2.1 million units across categories.

The annual report "Evolving Paradigm – Future of Indian Real Estate" has been bought out in association with Global Real Estate Institute (GRI). The GRI is a global club of senior real estate investors, developers and lenders.

Of the demand in the top eight cities, the requirement in mid-segment is estimated to be highest at approximately 59 per cent or 1.3 million units, followed by demand in the high-end segment which is 4,51,000 units. The low-end housing demand is expected to be 3,62,000 over the next five years.

Sanjay Dutt, Executive Managing Director, C&W India, in a statement said, "The demand creation in leading 8 cities is reflective of the economic strength that these cities have. We see a higher demand in the mid-ranged segment in these cities."

The total demand for housing units is expected to increase at a compounded annual growth rate of 2.8 per cent across India, with Bengaluru expected to record the highest demand growth of 4.1 per cent followed by Pune and Hyderabad.

NCR is likely to see the highest demand of 381,000 units in mid and high-end segments during 2012 – 2016.

Southern cities of Bengaluru (338,546 units), Chennai (257,796 units) and Hyderabad (199,575 units) will account for approximately 45 per cent of the demand in mid and high-end segments.

Mumbai is expected to see demand of 188,708 for mid and high-end housing, Ahmedabad (173,394 units) and Pune (144,422 units) and Kolkata’s (77,000 units).

Source: http://www.thehindubusinessline.com/news/real-estate/article3964920.ece

Real estate firms revisit plans for smaller cities

Bangalore/New Delhi: Realty firms are revisiting and tweaking strategies for development in India’s smaller cities in a re-run of what was seen during the 2008-09 economic slowdown.

While some large developers are sticking to bigger cities and discontinuing project plans in smaller towns, some are switching from premium to affordable homes to push sales and mixing retail and hotels with pure residential projects to boost demand and spread the risk.

Early last year, a Crisil Research report said smaller cities are likely to offer better growth prospects and price stability for developers and buyers than large markets such as Mumbai that are showing signs of slowing sales and rising prices. Property analysts said the real estate story of smaller cities hasn’t really taken off, causing developers to shrink real estate projects there.

For its planned special economic zone (SEZ) in Kochi in Kerala, Mumbai-based Housing Development and Infrastructure Ltd (HDIL) is looking for a financial and technical partner both for expertise and because the company doesn’t want to take on huge capital expenditure by itself. In Hyderabad, where it has about 150 acres, HDIL may not develop the land and may exit at some point of time.

“With the way the market is functioning and the balance sheet pressures, projects in smaller cities offer returns over a longer period of time. So our focus will be on Mumbai now,” said Hari Prakash Pandey, vice-president, finance and investor relations, HDIL.

Another Mumbai developer that launched a large project in Mangalore last year at a premium price compared with current market prices, is not planning to develop any more projects in other smaller markets.

“The demand waned after selling the first lot of apartments and in retrospect, the pricing seemed to be too high,” said a person familiar with the development, who declined to be named.

In most cases, when large, known names in the real estate industry have entered a specific market, they have often launched projects at a superior price, or tried to develop a project unique to that city, to cash in on their brand.

However, subsequent research has compelled them to play to the demands of property buyers in that market, and getting the pricing right has been the key challenge on this front.

In Ahmedabad, around a year and a half ago, Ajmera Realty and Infra India Ltd launched a project at around Rs. 5,000 per sq. ft.

Now when it is planning to launch another residential project, and is deciding on the pricing, it is likely to be around Rs. 2,500-3,000 a sq. ft.

“Customers are price-sensitive and while we see good potential in a market like Ahmedabad, the pricing has to be right for that market,” said an official at Ajmera Realty, who didn’t want to be named.

Analysts are not so sure about the future of real estate development in smaller cities, and said that like earlier, local developers in these markets will be dominant.

Though many developers such as DLF Ltd, in the aftermath of the slowdown, said that they will concentrate on their core geographies, many again moved towards smaller cities as larger markets showed sign of slowing.

“Large developers have realized that metros are more experienced and mature markets. I believe most of them would sell land and move away from tier II and III cities,” said Anuj Puri, chairman and country head, Jones Lang La Salle, a property advisory.

Mumbai-based Godrej Properties Ltd, which aims to be a national firm with presence in 12 cities, is particularly focussed on building its presence in markets such as Bangalore, Chennai, the National Capital Region and Ahmedabad, said Pirojsha Godrej, managing director and chief executive.

In terms of in real estate development in these markets, Godrej said its “national brand and joint venture business model” would enable it to capture opportunities.

Real estate consultants also say a lack of funding, particularly from private equity (PE) investors and to some extent, non-banking financial companies (NBFCs), has also restrained developers from taking a leap of faith in these markets.

Mahindra Lifespace Developers Ltd, which has projects in Mumbai, Chennai and Pune, launched a premium residential project in Nagpur this February announcing its entry into that city.

Managing director and chief executive Anita Arjundas said the company has selectively, not actively pursued projects in smaller cities.

“Nagpur was more of a test but the response has been encouraging. But it finally it boils down to cost structures to develop in such cities, and we currently don’t have that kind of depth,” said Arjundas.

A number of northern India-based developers such as Omaxe Ltd, Ansal API, Assotech Ltd and Amrapali Group have gone to smaller cities with residential projects. While earlier, these projects were completely residential, later they shifted to developing commercial spaces alongside.

Noida-based Assotech tied up with hotel chains and launched hotel projects along with residential projects.

The company owns a hotel in Rudrapur in Uttarakhand state under the Radisson brand.

It also has residential projects under a joint venture with another Noida-based developer, Supertech Group Ltd.

Crisil Research’s 2011 estimate was of a robust pipeline of 354 million sq. ft of supply planned for the next three years in emerging property markets.

Tata Housing Development Co. Ltd, known for spearheading the low-cost housing initiative among private developers, wants to take the brand to smaller cities, but will restrict itself to markets such as Ahmedabad, Pune and Bhubaneswar.

“Real estate competitiveness in these markets is low but we are not looking at even smaller Tier III and IV cities,” said Tata Housing managing director and chief executive Brotin Banerjee.

madhurima.n@livemint.com

Source: http://www.livemint.com/2012/09/09232055/Real-estate-firms-revisit-plan.html

Chennai realty rates in for a respite?

There is a lot of curiosity about whether realty prices in Chennai are moving up, down or staying stable. Industry analysts have noted a slump in sales, which has prompted buyers to entertain hopes that prices might soften. Property Plus spoke to industry watchers to gauge the prevailing mood in the residential realty sector.

What everyone agrees on is that Chennai is a stable market where prices are driven by the end-users. “Residential property prices move in accordance with actual sales,” says Badal Yagnik, MD, Chennai & Coimbatore, Jones Lang LaSalle India, adding that “residential property in Chennai is driven more by location than by specifications and amenities.”

Thus, prices have moved up based on the proximity to IT parks. “Many projects are coming up close to the IT parks, which are priced at a higher range,” says Aditya Verma, COO and EVP, Makaan.com. Old Mahabalipuram Road, for example, has been influenced the most due to IT companies setting up base there. “The average price per square foot in this area has appreciated 29.57 per cent in the last one year, moving from an average Rs.2,715 in August 2011 to Rs.3,950 in August 2012,” says Verma. Other localities that have become popular because of the IT boom are BST Road, Sholinganallur, Tiruporur, Tambaram and Oragadam.

In other areas, however, real estate prices might have actually gone down. According to Makaan.com Price Trends, a tool that captures the property prices movement in major Indian cities, Chennai property prices have dropped by approximately 12.6 per cent in the last one year. The average price per square foot has dropped from Rs.4,437 in August 2011 to Rs.3,800 in August 2012. In the second quarter of 2012, prices appear to have stayed stable because of dampening demand.

One of the key reasons affecting realty prices in the city seems to be the scarcity of land and the high cost of premium FSI within the city. “The available options in these locations have shot way past the budgets of even the upper middle class,” says Yagnik. Within Chennai city, prices for a standard flat with minimum or no amenities can range from Rs.1.5 to Rs.5 crore. “Other factors driving capital values in the residential market are increasing construction costs and increasing borrowing costs,” says N. Hariharan, director, Chennai, Cushman & Wakefield.

Given this, developers are looking increasingly at suburban locations. Unfortunately, in these areas, infrastructure development has been abysmally poor. This could be one big reason why prices and sales have remained stagnant.

In the near future, prices do not show an inclination to rise. “In order to uphold sales enquiries, developers might refrain from increasing prices,” says Hariharan.

As Verma points out, developers in many markets such as Chennai, Bangalore and Mumbai are holding property prices to avoid panic among the investor community.

The next few months, before the festive season hits, might prove crucial for the Chennai realty sector. “The realty market is facing multiple head winds that will keep property prices under check at least in the medium term. However, a short-term correction is actually healthy for the market and could attract fence-sitters, thereby boosting sentiments,” says Verma. For buyers waiting for some indicators, this sounds like a small reprieve.

Source: http://www.thehindu.com/life-and-style/homes-and-gardens/article3750833.ece

Despite slowdown, housing prices bullish across cities

According to the residential real estate index prepared by the National Housing Bank (NHB), the housing prices in 16 cities including Delhi, Mumbai, Chennai, Bangalore, Pune, and Kolkata improved in the quarter ending June 2012, compared to the previous quarter ending March 2012.

In fact, in most of these cities, prices improved quarter after quarter since January-June 2009 quarters barring in a few exceptions like Bangalore, Hyderabad , Jaipur, and Indore, where prices have corrected in some quarters.

But when compared to prices in January-June 2009, when the index was first announced , the prices in the latest quarter have shown a significant jump.

It is also because January-March 2009 was the first quarter when the impact ofglobal bank crisis of 2008 was fully realized. In fact, the index of property prices in Delhi continued to fall till January - March 2010, when the index touched 106, from 121 in January-June 2009.

According to the NHB, the prices of residential properties in 16 cities have shown an increasing trend in the range of 1.1% in Kochi to 10.5% in Pune, in April-June 2012 quarter , against the previous quarter.

At the same time, it saw marginal decline in three cities - Jaipur, Hyderabad and Indore. Faridabad remained stagnant in this quarter.

According to the data prepared by the NHB, the maximum increase was observed in Pune, by 10.5%, followed by Bangalore (8.7%), Patna (8.6%), Ahmedabad (6.4%), Ludhiana (5.3%), Lucknow (4.1%), Mumbai (3.7%), Delhi (2.6%), Kolkata (2.6%), Bhubaneswar (1.7%), Bhopal (1.7%), Chennai (1.7%), Surat (1.2%), Guwahati (1.2%), Vijayawada (1.1%), and Kochi (1.1%).

Three cities have shown marginal decline in prices over the previous quarter, with a maximum decline of 2.6% observed in Jaipur, Indore (2.4%), and Hyderabad (1%).

The data has been prepared by NHB RESIDEX, which tracks the movement in prices of residential properties on a quarterly basis, an exercise it has been conducting since 2007.

However, according to the NHB Residential Index, the property prices in the NCR region increased by around 11% in the last one year, while a close look of different micro markets give a different picture.

The property prices in certain developing pockets like Dwarka Expressway in Gurgaon went up by almost 50-80 % in the last one year. Similarly, in other developing pockets like New Gurgaon and Golf Course Extension Road, property prices have gone up by 30-50 %.

In Noida, prices of property on the Noida-Greater Noida Expressway increased by almost 30% since June 2011. In Ghaziabad too, prices in Indirapuram and Vaishali went up by around 30%. In certain pockets like Crossings Republik, where possessions have been given to buyers, the prices have improved by almost 50% in the last one year.

However, prices in the matured markets of Delhi, Gurgaon , and Noida have not appreciated so sharply during the period, as they are already very high. As in the index, when prices of properties located in different areas are taken into account, it does not give a clear picture. But, the index has vastly improved and reveals the prevailing bullish trends in the property markets in the NCR.

QUICK BYTES

Compared to prices in January-June 2009, when the index was first announced , the prices in the latest quarter have shown a significant jump

Source: http://economictimes.indiatimes.com/features/et-realty/despite-slowdown-housing-prices-bullish-across-cities/articleshow/16042170.cms

Prices on Residential Property Soar in India

Residential property values are on the rise in India. In Chennai they rose by 35 percent. In Greater Noida and Mumbai they skyrocketed 33 percent higher. The increases occurred in a one year period ending in June 2012.

As prices on existing properties went up, housing loan growth went down by 17 percent in June of 2011 to 15.1 percent in June of 2012. These figures come from the Reserve Bank of India.

Price increases are attributed to developers who defend themselves, saying labor and the cost of getting credit force them to get the increased monies needed from the homebuyers. Analysts put it another way saying it is due to the primary market having a high demand and developers being slow to begin new projects.

The manager of one real estate research company claims that developers have deliberately delayed supplies with the intent of keeping property prices high. In fact, in the second quarter there was a 24 percent decline in the beginning of new projects.

Mumbai is a prime example with a 73 percent decrease in the second quarter. Work was started on a mere 1,200 units in that prominent city. This is a huge decrease compared to the 4,460 that were launched in the first quarter. There were only nine projects undertaken in the second quarter.

It seems that there is a pattern, namely, the higher the price on a home, the lower the demand. Mid-range priced homes are still in demand. The prices that increased by 5-10 percent in the first and second quarters are predicted to rise by that much again during the third and fourth.

The developers all blame the cost of land rising. They also cite the price of cement, steel and wages of construction workers. The figures are up in places such as Bangalore, a city that experienced an increase of about four percent. Bangalore’s market is favorable while in cities such as Hyderabad the market is unfavorable, with the exception of the central areas.

A developer located in Bangalore saw a 73 percent increase in net profits. That was for the second quarter, ending in June of 2012. It is attributed to the lower cost to purchase land as compared to Mumbai, where land is sold at a premium price.

Residential property there rose 10 percent but only in specific areas. Other than that, the prices are not fluctuating either up or down.

Source: http://pptymag.com/prices-on-residential-property-soar-in-india/8547/

Trump's first project takes off in India

PUNE : US real estate billionaire Donald Trump's first luxury homes project in India has finally taken off. Trump Towers, two 22-floor skyrises, are being built by Panchshil Realty with Donald Trump at Kalyani Nagar, Pune, under a brand licence agreement. With approvals in place, construction has already begun for the 44 five-bedroom flats admeasuring approximately 6,000 sq ft and priced at Rs 12 crore each. Having burnt his fingers twice - the Pune project being his third venture in the past three years - Trump signed the agreement with Panchsil only after the developer got all the statutory building approvals in place, sources said.

Trump is also close to finalizing plans to construct Trump Towers at a three-acre plot close to Boat Club in Chennai and another on a 10-acre plot at Noida. All the three projects are approximately worth Rs 1,500 crore.

Trump's first venture at Bangalore broke off within months while Trump's second project in Mumbai with Rohan Lifescape has not moved further due to regulatory hurdles.

Source: http://timesofindia.indiatimes.com/business/india-business/Trumps-first-project-takes-off-in-India/articleshow/15398221.cms

India's shopping malls lose bustle as economy slows down

MUMBAI: The biggest shopping mall in Mumbai, one of the world's most crowded cities, can feel like a pretty lonely place. Eight months ago, multi-storied Phoenix Market City opened for business in the eastern suburb of Kurla with a total floor area of 1.13 million square feet, the size of about 15 soccer fields. To date, just two-thirds of its 320 stores have been taken up and foot traffic can be thin.

Asia's third-largest economy is growing at its slowest pace in nine years and sluggish consumer spending is forcing mall developers to scale back plans. It will take years for the glut of retail space conceived during headier times to be absorbed by tenants, even as India fine-tunes rules to make it easier for foreign shops to enter the country on their own, analysts say.

"We are holding back on new store openings and focusing on our existing stores," said Ramesh Tainwala, chairman of Planet Retail, which has leased shops in Phoenix Market City and is the Indian partner of global retail brands, including Body Shop, Next, Nautica and Debenhams.

"We are shutting down some of our stores in areas where rentals are too high, and with the slowdown in consumption complicating things further," he said, adding that the company is also asking landlords to renegotiate rents.

Consumer spending is on track to grow just 5.7 per cent this year, compared with 24 per cent in 2010, according to Euromonitor International, a feeble pace for a domestic demand-led economy.

Nationally, retail vacancy rates are 20 percent and will likely rise to 25 per cent by 2014, according to property consultants Jones Lang LaSalle, as floor space in malls grows to 100 million square feet from 66 million now. More than 90 per cent of shopping in India is still done at unorganised one-off shops.

By comparison, Thailand's capital of Bangkok alone has 62 million square feet of mall space, of which only about 7 per cent is empty, according to a report by CB Richard Ellis.

"There are just not enough people walking in," said Akshay Khatri, who manages the Van Heusen apparel store in Phoenix Market City, which is developed by Phoenix Mills, one of India's few developers specialising in malls.

Vacant malls, though, are also to be found in China where there has been a rush to build them. The 7 million-square-foot New South China Mall in the southern manufacturing city of Dongguan - the biggest mall in the world - is mostly vacant.

EMPTY SHOPS

Of the 12 million square feet of Indian shopping centre space planned for opening in 2012, only about 60 per cent is expected to do so, according to Jones Lang LaSalle, as delayed mall projects dot India's biggest cities.

DLF, India's largest property developer, has kept its proposed 4.5 million square foot Mall of India project in Gurgaon on hold since late 2008. That mall was to have been India's largest, with 2 million square feet of retail space.

"The crazy building boom in retail real estate is not going to come back," said Kishore Bhatija, chief executive officer of InOrbit Malls, owned by developer K Raheja, which altered its plan for a 500,000 square-foot-mall in Vadodara to 400,000 square feet, and added a hotel instead.

"There is stress on the business model. It is getting a bit expensive. Real estate prices and construction costs are rising but the retail business is not growing enough to absorb this," said Bhatija, adding that breakeven on projects is lengthening, in some cases to 10 or more years from seven in 2007-2008.

In fast-growing cities like Ahmedabad, Pune and the New Delhi region, vacancy rates at malls are more than 25 percent, according to property consultants Cushman & Wakefield, putting pressure on rents.

Retail rents are down 30-40 per cent from peaks in 2008, according to ratings agency Crisil. That's especially painful for developers, when servicing loans is expensive at 12-13 per cent interest. The building boom of 2007-2008 was funded in part by cheap private equity.

Shubhranshu Pani, managing director of retail at Jones Lang LaSalle, said when the downturn in 2008/09 spurred a correction in rents there was a shift from fixed rents to revenue-linked rents, putting more risk on the developer.

"Just increasing rents will not work because at the end of the day it has to be affordable for retailers to do business," said InOrbit's Bhatija.

SLOW START

India recently allowed full foreign ownership in single brand retail, but retailers have not rushed in to set up shop on their own as sourcing rules remain a challenge. Only Sweden's Ikea, the world's biggest furniture retailer, and UK shoe chain Pavers have applied to enter under the new rules.

India may also soon revive a plan to allow in foreign supermarkets such as Wal-Mart Stores and Carrefour, which could eventually create huge anchor tenants for shopping centres.

"Will that mean an immediate expansion of shopping centres? No," said Sanjay Dutt, managing director at Cushman & Wakefield. "It will take three, four years until there is a big revival," he said.

At Phoenix Market City in Mumbai only 205 of the 255 leased stores are open.

"We have quite a lot of stores there and the current traffic is rather disappointing," said Planet Retail's Tainwala.

Reflecting some of the concerns, shares of Phoenix Mills, which has four malls across India, are down about 15.3 per cent over the past year, underperforming the wider Mumbai market .BSESN which is down about 10.7 percent.

Shishir Srivastava, CEO of Phoenix Mills, believes that once a multiplex cinema and bowling alley open in coming months and more retailers like Lancome, Esprit, and Inditex's Zara open shop, traffic will increase and monthly sales will rise from the current 770 rupees a square foot.

Monthly spending at its original mall, the popular High Street Phoenix in central Mumbai, India's largest city, is 1,500-1,600 rupees a square foot.

"It takes a while for a new shopping centre, especially one as big as this, to fill out and establish itself," Srivastava said. "Things could have been better but we are optimistic."

Source: http://timesofindia.indiatimes.com/business/india-business/Indias-shopping-malls-lose-bustle-as-economy-slows-down/articleshow/15249801.cms

Hindujas to foray into India's real estate sector

The Hinduja Group, with a global presence in core sectors like oil and gas, automotive, power, information technology (IT), banking and finance, on Sunday announced a major foray into the real estate sector in India, involving an investment of up to $15 billion.

Just back from a visit to India, Group Chairman S P Hinduja said here that the Indian economy "with its underlying strengths could become a beacon of hope in an otherwise bleak global environment."

The Group has acquired a landbank of over 3,500 acres in metros like Mumbai, Chennai, Hyderabad and Bangalore for development of integrated residential and commercial townships, SEZs, with hospitality, healthcare and related facilities, he said. These projects will involve an investment of $10 billion to $15 billion over the next five years, according to Hinduja.

The group was also looking at a portfolio of 10,000 Mw in the power sector in the medium-term, he said. Implementation of a 1000 Mw project is already under progress, Hinduja said.

Expressing optimism over the state of the Indian economy, Hinduja said its fundamentals remained strong and it had the potential to bounce back to high growth of eight to nine per cent a year. "The slowdown currently experienced by the economy is largely due to external conditions and not, as a section of the business community and media say, by coalition politics, lack of leadership, corruption etc," he said.

Hinduja said the ruling and opposition parties in India were united in their resolve to reverse the present deceleration of growth momentum and make India more competitive in the global economy.

He also noted that India continued to enjoy great credibility in international forums and among global leaders, "which is a major plus."

The leading UK-based industrialist said that non- resident Indians (NRIs) continue to repose confidence in the country with their remittances touching around $60 billion last year, the highest for the developing countries, including China.

He is also confident that India will go for more of economic reforms and liberalisation and will not revert to a state-led model.

Hinduja noted that India had plans for investment of $1 trillion in developing its infrastructure in the next five years.

"It is a win-win opportunity for India and the developed countries. The investment in infrastructure will help in poverty alleviation in India and acceleration of economic growth and jobs creation in the investor countries," he said.

He said India can leverage its rising international status to mobilise investments in the country by foreign investors and NRIs to meet the government's target.

He said the investment priorities should be rural, semi- rural/urban areas.

"This will create employment opportunities where they are needed, helping alleviate poverty without distribution of subsidies, gifts and donations. The consumer market will be enlarged, contributing to increased production and economic growth," he said.

At the same time, Hinduja underlined that one of the conditions for awarding mega projects should be building up of social infrastructure in education, healthcare, water supply etc in adjacent semi-urban or rural areas.

He also demanded that the government should reduce the large number of permissions required for starting up industries or infrastructure projects.

"The key in this regard would be to organise all central, state and local level clearances before the projects are awarded to investors. This would reduce corruption and ensure speedy and timely completion of projects," Hinduja said.

He also said the Indian bureaucracy should be "sufficiently galvanised" with accountability and rewards. "The concerned government departments should monitor the projects with a Project Implementation Review Chart having time-lines for completion of different phases of the projects. An incentive scheme should be in place for rewarding the government officials for timely completion of projects," he said.

Hinduja also highlighted the challenge faced by India from the menace of corruption and black money. "The main causes of generation of black money have been the requirement for funds to meet the expenses of political parties and to fight elections at local/state/national levels; the need for making illicit payments to secure government contracts and influence government policies etc," he said. "This is a cancer which must be addressed. Unstructured, non-institutional political funding is the root of corruption in India. Electoral reforms may be introduced to regularise and make political parties accountable for funds received," he said. He also said that state funding of political parties' election expenditure can be part of a large scheme of political, electoral and taxation reform to stop the flow of money into parallel economy. He pointed out that many developed countries have opted for 20-30 per cent tax to make black money stashed abroad accountable. "India could also consider entering into similar agreements with foreign countries so that the unaccounted wealth abroad can come to India and taxed. Such fhttp://www.business-standard.com/india/news/hindujas-to-foray-into-indias-real-estate-sector/481174/unds could help reduce India's burgeoning fiscal deficit," he said.

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'Realty firms postpone shopping mall construction in 8 cities'

Realty firms have delayed the construction of shopping malls in eight major cities due to large vacant space in the existing complexes, according to property consultant Cushman & Wakefield.

"The retail real estate market recorded a deferment of more than 30 per cent of retail mall space against the projected supply for the first half of the year," C&W said in a statement.

The consultant, however, said the deferment was necessary considering the high vacancy rates in the shopping malls and cautious approach adopted by retailers on expansion.

The eight major cities (Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, NCR and Pune) witnessed a fresh mall supply of 2.27 million sq ft during first half of 2012.

"Approximately one million sq ft of expected mall supply was deferred to second half of the year or next year. The overall vacancy rate for the major cities as of H1, 2012 stood at 19.6 per cent, marginally higher than the previous quarter.

NCR saw the highest mall supply deferment of over 80 per cent ensuring the city maintained 28 per cent vacancy levels. NCR saw only 1.2 lakh sq ft of mall supply in H1. Bangalore saw the highest mall supply of 1.5 million sq ft in H1 2012.

"This slowdown in mall construction need not be viewed as a negative growth indicator for the retail real estate segment. The current pace is, in fact, expected to help in maintaining a healthier supply to demand equation; especially for oversupplied micro-markets," C&W India Director Retail Agency Jaideep Wahi said.

"With high vacancy levels as well as cautious expansion plans of retailers, the deferment of supply is a necessary measure to bring stability in the retail market," he added.

According to report, the rental values across most mall destinations within these 8 cities remained largely stable, except for certain micro-markets in Bengaluru, NCR, Kolkata and Mumbai where mall rentals have seen a growth over the previous quarter in the range of 2-13 per cent.

Elgin Road in Kolkata recorded the highest growth in mall rents at 12.4 per cent over last quarter mostly owing to renewals of existing tenants at a higher value.

Some prominent high streets destination recorded higher increase in rental values as against malls, reflecting the bent of interest amongst retailers for high-street.

Select locations across Bengaluru (MG Road, Jayanagar, Koramangala, Vitthal Mallya Road) recorded increase in rental by 8-9 per cent over the previous quarter.

Camac Street in Kolkata saw the highest increase in high street rentals at 25 per cent followed by MG Road in Bengaluru at just over 9 per cent. Gurgaon and Pune also saw increase in high street rents by 7-8 per cent.

Source: http://www.deccanherald.com/content/263504/realty-firms-postpone-shopping-mall.html

Blackstone eyes biggest realty deal

MUMBAI/BANGALORE: Blackstone Group is set to acquire 36% ownership in the tenanted office space portfolio of southern developer Embassy Property Developments for about $230 million (Rs 1,300 crore), said bankers close to the transaction. This will be Blackstone's biggest real estate deal in India, giving it part ownership of more than 12 million sqft office towers housing prominent technology names that drive the outsourcing economy.

Embassy, one of the top business park builders in the country, is demerging the FDI complaint office buildings in which Blackstone will acquire a significant minority interest. Blackstone has signed a term-sheet with the Bangalore-based developer and is conducting due diligence. The company's commercial play has largely been focused on the development of business parks, of which the two largest—the 100-acre Manyata Tech Park and the 65-acre Embassy Golf Links Business—are situated in Bangalore.

The tenant list of Embassy's office buildings— spread across Bangalore, Pune and Coimbatore—includes IBM, Accenture, Capgemini, Atos Origin, Cognizant, Fidelity, Mercedes Benz and Target. Embassy Group CMD Jitu Virwani and a spokesperson for Blackstone declined to comment. Embassy had shelved a $500-million initial public offering (IPO) last year.

The transaction values Embassy's new holding company for office buildings at $900 million after rolling over Blackstone's earlier investment in one of the projects. Blackstone had acquired HDFC's minority stake in a large business park for $100 million, and the latest deal takes overall investment to about $330 million. The Blackstone investment will cover only tenanted office buildings and not those under development.

Blackstone owns hotels, shopping malls and office buildings primarily in North America and Europe. The PE major has shown appetite for Indian office buildings and struck smaller deals with developers like DLF in the past two years. Blackstone's real estate portfolio, with an estimated worth of $48 billion, include Hilton hotels and the recent acquisition of Motel 6 from Accor.

Private equity firms and global investment houses are allocating a part of their portfolio to risk-free income yielding assets, such as IT business parks, which provide 9% to 12% assured returns besides providing capital value appreciation. Baring Private Equity Partners invested $100 million for a stake in the office space portfolio of another Bangalore developer RMZ Corp earlier this year, while Singapore-listed investment house Ascendas is in advanced talks to buy out an IT SEZ of Shriram Properties in Chennai.

Source: http://timesofindia.indiatimes.com/business/india-business/Blackstone-eyes-biggest-realty-deal/articleshow/14814726.cms

Realty demand slow; volumes are down greatly: Godrej Prop

Godrej Properties the real estate development arm of the Godrej Group, has created a Rs 770 crore development fund with a clutch of global investors, including Dutch pension services provider APG and Sparinvest Property Fund II.

Targeting their focus markets of Mumbai, NCR, Bangalore Pune and Chennai, the realty firm aims to develop residential properties in these cities. Godrej Properties has set-up an investment horizon of two years.

"We will fully invest the capital over that period of time and we think the projects would take four to five years from that time to execute, " says Pirojsha Godrej, the managing director and CEO of Godrej Properties.

The total life of the fund will be around six to seven years. He says that while the economic environment in the country is lagging, he feels property is quite a sentiment driven industry and should be fine.

"Property prices are holding up reasonably well. What has happened, however, is that demand is a little bit sluggish and volumes in most markets have dipped considerably," he says.

Below is an edited transcript of his interview. Watch the accompanying videos for more.

Q: What is the mood in the market itself? It is somber when you look at economic development parameters and capex parameters and not quite showing in property prices, certainly not in Bombay. Give us an idea of the markets that you operate and how property prices are behaving?

A: You rightly pointed out that the economic environment generally in the country isn't its strongest currently. But I think property is quite a sentiment driven industry. But that has not really reflected in property prices and that's true of almost all the markets we are in today. Property prices are holding up reasonably well. What has happened, however, is that demand is a little bit sluggish and volumes in most markets have dipped considerably.

My sense is given the way input costs have moved over the last year and given that prices have actually remained quite flat, it's unlikely that there is a room for a huge price correction, because developers' margins are under quite a bit of pressure. But that will depend largely on how the next few months go and whether general economic sentiment improves, because I do think ultimately property is a very sentimentally driven sector.

Q: Today Godrej is higher in terms of trade because of this property fund which you are floating with a group of investors of around Rs 770 crore. Take us through the nuances of it? When exactly would it become active?

A: The agreement on what the initial size of the fund is about Rs 770 crore and what kind of target projects we will do which is largely residential projects in the key cities of Mumbai, NCR, Bangalore, Pune and Chennai has already been put in place. Now what will happen is we will identify the actual project that we will do through this partnership and go out and actually get the land needed for those and start executing those.

We have already started working on identifying suitable projects. The great thing about this platform is it allows us as a developer to scout opportunities for land parcels at reasonable prices and be able to buy those without having to buy them on our own balance sheet, because Godrej Properties has always followed capital efficient land sourcing strategy.

This will allow us to continue to do that, but particularly in market conditions where we think there are some quite exciting opportunities to get land at good valuations this will allow us to add many new projects to our portfolio and we will also get a fee from our partners in this platform. The idea was to agree ahead of time on the types of projects we would like to do, create a platform to invest in those and then go out and do multiple projects with the same set of partners.

Q: Would they largely be Mumbai based projects?

A: We have talked about projects in five cities. The top three cities will be Mumbai, Delhi and Bangalore. The exact ratio of split between those three cities would probably depend on the types of opportunities we identify, but clearly Mumbai for us is one of our most important markets, both through projects under this platform and through our other joint venture development management fee and redevelopment models.

Q: Do you commit to an IRR or Investment Return Rate to your investors in this fund? Also share with us how your fee is structured?

A: There is no commitment or no sort of preferred or guaranteed returns at all in this structure. It's a pure equity partnership. Godrej Properties will put up 29% of the required capital. Our capital partners will put in the remaining 71%. We will get equity returns in proportion to our investments. Godrej Properties for handling the projects will also get a very substantial development management fee which will be calculated on a per square foot basis.

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Q: You do have 29% equity. Give us a sense of who the other investors are and why exactly are you all focusing more on residential projects as opposed to commercial projects? What is the rationale for that in particular? How much are you estimating in terms of investment?

A: The total investment commitment for now is Rs 770 crore and Godrej Properties is liable for investing 29% of that total amount. We have setup an investment horizon of two years. We will fully invest the capital over that period of time and we think the projects would take four to five years from that time to execute. So the total life of the fund will be sort of six to seven years. Of course we have the opportunity to increase the size of committed capital in this platform if all our partners are happy with the outcome. We think there is a good chance that over time this could be increased further in terms of size.

As to why we are focusing largely on the residential space, there are few key answers for that. One, given our capital efficient land sourcing strategy, we think residential is the more appropriate strategy for us, because typically you can sell-off plans in the residential space and your customers can basically fund the construction of the project, which is a little bit more difficult to replicate in the commercial space.

Also depending on the particular year - 70-80% of all demand for real estate in India is in the residential space. So it's fundamentally a bigger market. Lastly we think the Godrej brand while a big source of strength across asset classes is particularly advantageous to us in the residential space. So, that's why you are seeing us focused primarily in the residential real estate.

Q: Give us an idea of how many million square feet or other measures of land will come in for sale in FY13 and FY14?

A: We don't give specific guidance on the numbers in terms of square foot of new projects coming online, but we think this year will be a very robust one for us in terms of new launches. In the last couple of weeks we have launched two projects, one in Mumbai and the other in Pune. We have a launch slated in NCR this month and several launches and new phases of existing projects to be launched during the remainder of the year.

Over the course of FY13, we expect to launch either in terms of new projects or phases in existing projects about 15 as compared to five to six last year. So we do have a fairly robust launch calendar. What is exciting for us about the current environment is that while there are certain challenges with demand being weak due to economic sentiment there are also a lot of opportunities on the business development front.

I think we have been very successful in capturing those and things like the announcement of this investment platform will further our ability to add new projects which in turn will increase the amount of launches we will have over the next couple of years. So I am quite bullish in terms of the number of launches we have got slated in the next two years.

Q: There are some brokerage reports which have pointed that out there is a possibility that the gearing of the company could increase in FY13-FY14 simply because there might be increased outflow of payments going forward. Do you foresee any stress on the balance sheet of the company going forward?

A: In March of this year, in quite difficult market conditions we were able to do India's first ever IPP and through that we raised about Rs 470 crore. At the end of last quarter we actually reduced our gearing level from almost 2:1 at the end of the third quarter to just over 1:1.1 to be precise at the end of quarter four. There may in the short-term be a slight increase in debt as we get into these new projects but certainly we have a very strong focus on ensuring a healthy balance sheet.

Our borrowing costs are amongst the lowest in the industry and we will continue if there ever is a situation where our gearing gets beyond that targeted levels, we will be sure to find way to raise equities to bring that under control as we have recently done in March. For now we think we are quite comfortable in terms of the strength of our balance sheet.

Q: Your revenues in FY12 for instance were about 10-12% higher than the previous year. What could be the run-rate in the current year either in terms of volume of flats you sell or square feet you sell or in terms of the money you expect to make? Your margins were around 23%. Does it go higher? Does it stay there? Give us a broad guidance, I am not asking for specifics?

A: Last year we actually grew revenue bookings and profits from operations all by about 46-50%. Our actual net profit last year declined because of higher input costs affecting margins and because we did lower number of private equity deals for the year, but I think we saw fairly robust growth on most operational parameters last year and certainly we would like to sustain that kind of growth. It will depend a lot on frankly how the overall economic conditions tend to be later this year. We expect things to improve. We do expect further interest rate cuts and if those things happen, we think the kind of growth number I mentioned are quite repeatable this year as well.

Source: http://www.moneycontrol.com/smementor/news/finance-capital/realty-demand-slow-volumesdown-greatly-godrej-prop-725639.html

Rough patch for realty

Property developers in all major cities are battling with significant drop in sales of residential properties due to the economic slowdown and delay in approvals

Real estate industry seems to be entering another trough. Property developers in all major cities are battling significant drop in sales of residential properties due to the economic slowdown and delay in approvals. Mumbai and Delhi, which already witnessed a substantial dip in sales of commercial properties in the past couple of years due to excess supply, are now hit by a slump in sales of residential properties.

According to industry officials, the impact on residential sales till December 2011 was marginal, and developers were betting big on projects to ride out the economic slowdown. However, a sudden fall in sales during the January-March quarter has shattered hopes of an early recovery.

While commercial property sales were affected due to oversupply, the residential segment has been hit mainly due to slow approvals as sales are proportionate to new launches, apart from the inevitable impact of a general slowdown and drop in sentiments.

Lalit Kumar Jain, chairman of Kumar Urban Development, told FC Build sales have dropped in cities, especially Mumbai and Delhi. “In the past 18 months, there were very few approvals for new projects in these cities. Since sales are directly proportionate to new launches, we have witnessed a significant dip in absorption of residential properties.”

Jain says the demand is stable in cities like Pune, Bangalore and Chennai since these markets are mostly driven by end users.

Rajeev Talwar, managing director, DLF, agrees, “Sales are down because of slow approvals mainly in Mumbai. In the past 18 months, there has been no supply coming in due to delays in project approvals.”

Real estate experts feel the problem is due to unreasonable increase in property prices along with uncertain economic conditions. Pankaj Kapoor, chief executive officer of Liases Foras, said that in April-June 2009, Mumbai witnessed sales of 21 million sq ft, the highest in past four years, that has now declined to barely 8 million sq ft in the January-March quarter.

“Sales increased in June 2009 as real estate prices corrected during the economic slowdown. However, prices went up steeply after 2009, and now developers are witnessing lower sales due to these unreasonable prices,” said Kapoor.

“The high cost of land is creating another hassle for developers in big cities. They are shelling out huge amounts for acquiring land, that has resulted in price increase of properties,” Kapoor said, adding, “The balance sheets of developers are already stressed, and declining sales would reduce their profitability further.”

PropEquity, a data analytics and research firm, said in a recent report that residential unit absorption numbers in January-March in the national capital region (NCR) and Mumbai metropolitan region (MMR) plunged over 50 per cent due to the economic slowdown enveloping the country.

Surprisingly, Bangalore, the IT-capital of India, has escaped relatively unhurt, and witnessed a drop in absorption by just 18 per cent.

Jackbastian Nazerth, chief executive officer, Puravankara Projects, said, “In the southern markets, the drop in sales is lower than cities like Mumbai and Delhi as the prices are still affordable. In the past one year, property prices have increased by around 15-18 per cent in Bangalore, whereas, in Mumbai and Delhi, price increase is around 30-40 per cent, mainly driven by speculative buying by investors.”

Nazreth said while the Bangalore market is driven by end users, the city requires more houses as 60 per cent of the population still stays in rented houses.

“We are worried that speculative buying should not start in southern region, leading to situations like what Delhi and Mumbai is facing. We don’t sell more than two apartments to individuals, and most of the other developers in the southern region are also following the same so that speculative buying remains under control,” Nazreth added.

Paras Gundhecha, president of Confederation of Real Estate Developers Association of India (Credai), said the main reason for the slowdown in sales are because of unaffordable prices in Mumbai and Delhi, and also a slowdown in economy.

“For developers, the total cost of developing the project has increased significantly in the past two years in these two cities as developers are paying higher interests due to delay in approvals, and also due to very high cost of land. Interest costs have gone up by 30 to 40 per cent for developers due to approval delays. Further, developers are paying very high prices for land acquisition since it is scarce in cities like Delhi and Mumbai,” says Gundhecha.

However, in cities like Bangalore, Pune and Chennai, developers are not paying higher interests as approvals more or less come on time, and land is available at reasonable price. Moreover, these markets are driven by end users and not by investors. Generally, investor-driven markets would see downside risks than end user driven markets, said the report by PropEquity.

According to PropEquity, the total absorption fell just 18 per cent in Bangalore, to 7,704 units in the first quarter, from 9,410 units in the previous year. Mumbai metropolitan region in January-March period saw absorbed of 11,473 units, compared with 27,676 units a year ago. The total supply in this region in the first quarter of the calendar year 2012 was 89,461 units. In Navi Mumbai, 2,709 units were absorbed in the same period, compared with 7,903 units a year ago, whereas, Mumbai witnessed sales of 4,642, compared with 10,915 units a year ago. Thane witnessed sales of 4122 units, compared to 8,858 units a year ago.

In NCR, 15,104 units were absorbed during the first quarter of 2012, compared with 35,420 units during the corresponding period a year ago. Total residential supply in NCR in the same period was 107,731 units.

During the first quarter, Gurgaon witnessed sales of 5,547 units, against 9,242 units a year ago. Noida witnessed sales of 4,848 units, against 9,160 units a year ago. Greater Noida witnessed sales of around 1,050, against 12,163 units a year ago. Faridabad witnessed sales of 446, against 910 a year ago. Ghaziabad witnessed sales of 3,201 units, against 3,433 units a year ago. Delhi witnessed sales of just 12 units, against 512 units a year ago.

Samir Jasuja, founder and chief executive officer of PropEquity, said the take-up rates in key micro-markets have fallen significantly. “In the coming quarter, there would be strong pressure on many micro-markets, and we expect inventory overhang to increase and absorption could continue to slow down. Mumbai and Gurgaon have already seen one of the sharpest falls in absorptions, with Mumbai metropolitan region seeing a drop of 58 per cent, and NCR a drop of 57 per cent. If this trend continues, there could be ‘stage 1’ price correction in the range of 5 to 20 per cent, especially in micro-markets of NCR, Mumbai metropolitan region and Hyderabad. Some micro-markets where inventories have been managed well by developers would be able to overcome this phase,” says Jasuja.

So, the next few months would be crucial for the sector before taking a final choice – either a stabilisation phase, or a ‘stage 1’ price correction.

jharnamazumdar@mydigitalfc.com

Source: http://wrd.mydigitalfc.com/real-estate/rough-patch-realty-445

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Investors Clinic witnesses 20% demand rise for Indian properties

DUBAI — Investors Clinic Infratech, a leading real estate marketing and brokerage firm operating under the brand name of “Investors Clinic”, has successfully marked its footprint in the UAE within just six months of starting Dubai operations.

In a short span, the company has successfully served over 1,000 NRI families and have witnessed a strong 20 per cent increase in demand from Indian expats in the second quarter of 2012. The UAE-based NRIs are generally looking for investment property back home (rather than end use) within a price range of Rs7.5 million to Rs15 million with an assured return.

In the GCC alone, an estimated 5.5 million to six million NRIs are working today including semi-skilled and unskilled labourers. According to banks in the Gulf, the average home loan size is Rs3-7 million and the predominant demand revolves around apartments. The overall home loan business in Dubai alone ranges from Rs7.2-8 billion, according to an Economic Times report.

Honey Katiyal, CEO, Investors Clinic, said: “Rupee falling might be a bad news for India but real estate tends to gain from the development. It is the time when Non Resident Indians will benefit the most in Indian real estate market. The real estate market especially in Delhi NCR is vibrant with offerings for every segment. The NCR is the largest residential market in the country by sheer volume of residential units launched. Currently, it has more units than the combined tally of the other five metropolitan cities of Mumbai, Chennai, Bangalore, Kolkata and Hyderabad.”

Source: http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/uaebusiness/2012/June/uaebusiness_June92.xml§ion=uaebusiness

India No. 3 in world in realty price rise

MUMBAI: Even as first-time buyers are exhausting their savings to buy a home, realty rates in India are going through the roof. Property prices increased by 12%, propelling India to third position among 53 countries where prices have appreciated in the past year.

The global house price index survey by property consultants Knight Frank shows that Brazil recorded the strongest annual growth (23.5%) in the past year, followed by Estonia with a growth rate of 13.9%. Globally, however, the picture isn't so rosy, the index shows.

The index is compiled on a quarterly basis using official government statistics or central bank data where available.

Property prices rose 0.9% in 2011-12 globally, shows survey

According to Samantak Das, national head (research) of Knight Frank, intrinsic factors drive property prices in each city. "Base prices in tier-2 cities like Bhopal and Guwahati are affordable compared to big cities like Mumbai, which are reeling under price pressure. The price difference in turn reflects on flat sales across various cities across the country,'' said Das.

According to house price index survey by Knight Frank, while real estate markets in some countries are doing well, globally picture doesn't look so rosy. "Global property prices have seen their weakest annual performance since depths of recession in 2009, recording 0.9% growth in the year ending March 2012. Doubts over Eurozone's future, along Asian governments' efforts to cool their markets and deter speculative investment, have taken their toll and house prices were static in the first three months of 2012,'' says the report.

Times View

The fact that property prices in India are rising at such a fast clip is good news for the real estate business and clearly also reflects India's status as one of the world's fastest growing economies. However, it also means that affordable housing remains a dream for many who flock to our cities as job seekers.

An important reason for this is that mega cities continue to bear a disproportionate share of the burden of providing economic opportunities to people. The government can ease the pressure on these cities and hence on property prices by rapidly developing transport infrastructure and satellite towns that can absorb some of the load. That will not only spread growth more evenly, it will make life in the cities more pleasant for everyone.

Source: http://timesofindia.indiatimes.com/business/india-business/India-No-3-in-world-in-realty-price-rise/articleshow/13860510.cms

India real estate players under pressure

Indian realty sector seems to be going through a rough phase. On one hand, in metros like Mumbai, sales have declined, and the government has been strict with regulations and granting clearances. On the other hand, it is difficult to get investments.

DLF, India’s biggest realty player, has seen a 38.6% drop in its profits for the quarter ended March 2012. One year ago, DLF reported a net profit of Rs 344.54 crore, but this year, it has come down to Rs 211.7crore. Higher interest costs and margin compression have been cited as the reason for the loss. A brokering report said that interest cost increased by 32.5 percent year-on-year to Rs 604 crore, while other income declined by 30 percent year-on-year to Rs 131 crore.

DLF has a staggering Rs.22,725 crore debt on its book, after shedding only Rs33crore in the fourth quarter. The firm has long been looking to sell non-core assets and sell off some of the special economic zone(SEZ) properties, but have not met with much success. The company is looking sell around 12 million sq. ft of residential space to raise Rs.4,000 crore and Rs.6,500 crore, respectively

DLF is not alone. Parsvanath Developers too, have posted a loss of Rs 23 crore in the fourth quarter. Last year, it had made a profit of Rs32crore. Mr Pradeep Jain, chairman, Parsvnath Developers Ltd, said: “Financial Year 2011-12 has been very challenging for us, primarily due to the increasing cost of material, funding and then the unavailability of funds for real estate sector. “

Other players, like Omaxe and HDIL, who have reported profits, have also pointed out that there is scarcity of funds available for realtors. The glum economic scenario, along with the rupee devaluation has put a strain on builders. To add to their worries, market regulator Securities and Exchange Board of India (Sebi) has issued a notification that makes Rs1 crore the minimum limit for alternative investments, including realty funds, up from Rs5 lakh earlier.

Sebi’s move will make it difficult for builders to find investors, as many of them would not like to invest as high as Rs1 crore in real estate when the situation is tough. Hence, the demand for private equity funding will remain, even though the borrowing rates are sky high in cities like Mumbai and Delhi.

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Source: http://www.businessreviewindia.in/money_matters/india-real-estate-players-under-pressure

How southern cities escaped the real estate bubble

Everybody cribs about how costly buying real estate in Indian cities is. It's a national pastime of sorts. But nowhere is the collective griping greater than in cities like Mumbai and Delhi, where prices have moved northwards faster than the rest of the county.

In comparison, realty prices in south India are saner and everybody, from banks to realty developers to the first-time buyer feels a lot more comfortable. Like RV Verma, chairman of the National Housing Bank (NHB) puts it, "For banks, Chennai and Bangalore are one of the best centres. They feel comfortable as these markets are stable and the potential for NPAs [non-performing assets] is lower."

The past year has seen home sales slow down across the country. The slump in sales has been pronounced in Delhi-NCR and Mumbai, over 40% compared to the previous year. A combination of exorbitant property prices and high home loan rates made buyers balk. Realty sales in south India were down too, but thanks to an improvement in the fortunes of the IT sector, not as sharp.

"Bangalore and Chennai are still more affordable compared to other big cities," says Hariharan Ganesan, manager, research at property advisory firm Jones Lang LaSalle (JLL) India.

Land as Gold

So what's keeping prices in check in southern cities? "Scarcity and expensive land parcels have hit the affordability factor in Mumbai and Delhi. However, land is not priced out in the south," says JC Sharma, managing director and vice-chairman of Sobha Developers, which had reduced property prices by 10% post-2008 slowdown.

The north has also seen a rise in property prices because of the speculative nature of the market. It is also largely an investor-driven one. "In the north, a passion for real estate along with the need to park black money has pushed up property prices dramatically in recent times," says Anckur Srivasttava, chairman of GenReal Property Advisers.

Says Anshul Jain, CEO of DTZ India, a real estate consultancy: "Around 70% of the realty market in NCR-Delhi and Mumbai is investor-driven." An investor-driven market sees more distortions and is less transparent. Residential property prices in Bangalore, Hyderabad and Chennai have seen a rise of 1-35% since the fourth quarter of 2009, says JLL in a recent report. In contrast, Mumbai and the NCR have seen residential values run up between 20% and 40% in the same period.

The Steady South

Southern realty's absorption rate has been helped by the cautious pricing strategies adopted by local builders. In contrast, in Mumbai and NCR, property prices have already crossed the peak levels of 2007. New launches in south India are still predominantly in the Rs 4,000 per sq ft range compared to many parts of the NCR and in Mumbai where project launches are in the Rs 7,000-10,000 per sq ft range.

"We have seen stable sales in the south. Sales in the last fiscal were better here than in the north," says Jackbastian Nazareth, CEO at Bangalore-based developer Puravankara Projects. According to real estate research firm Liases Foras, Bangalore sold 10.55 million sq ft of property in the March quarter, as compared to 9.16 million sq ft over the same period last year. Chennai's property market registered a growth of 26% in the quarter.

Low Inventories

All this put together has meant that unsold inventory is far lesser in south. Chennai and Hyderabad have a total of 42.75 mn sq ft and 33.38 mn sq ft of unsold stock each. In comparison, Mumbai metropolitan region and NCR have 121 mn sq ft and 233 mn sq ft of unsold inventory, which will take at least 23-40 months to get absorbed, says Liases Foras.

On the housing finance front, the southern cities accounts for nearly 40% of the nationwide disbursals of Rs 1.95 lakh crore (retail home loans) for 2011-12. "While Mumbai and Delhi-NCR have slowed down, Chennai, Bangalore, Hyderabad, Pune and Kolkata have led the demand for home loans," says VK Sharma, chief executive officer of LIC Housing Finance.

Going Strong

The commercial property segment also continued to be in an upbeat mode with Bangalore, Chennai and Hyderabad accounting for nearly 45% of India's office stock, largely due to the IT and ITeS sector.

"Commercial space supply in the southern cities is in line with demand. We have leased 99.4% of the office space and have an additional 7 million sq ft under execution," says Raj Menda managing director of RMZ Corp, a developer. Demand was driven by IT and ITeS sector, with 64% of the country's IT SEZs are housed in the southern cities.

"With a total stock of nearly 140 mn sq ft in the major cities of south India, the vacancy rate by end 2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%," says a JLL report.

Source: http://timesofindia.indiatimes.com/business/india-business/How-southern-cities-escaped-the-real-estate-bubble/articleshow/13550940.cms

Chennai realty market on the rise

Chennai

After the downturn in 2009 that had spelt doom for the economy, though for a short while, property prices are on an upward spiral and the realty sector is now witnessing a boom reminiscent of the pre-recession days.

The demand for property in Chennai continues to remain high and recovery has been better than other major cities in the south such as Bangalore and Hyderabad. The many projects that have been launched in the suburbs in the last few months are a pointer to this fact.

The nature of investors in the Chennai market has a lot to do with its growth story. “The rise in property prices in Chennai has, perhaps, not been as steep as in other cities such as Mumbai and Bangalore. In cities like Mumbai, a lot of speculators work are at work in the market,” says Prakash Challa, National Vice President, CREDAI. “During the downturn, there was a drop in prices of about 15- 20% and postrecession, the pent-up demand was partly responsible for the quick recovery of the market in the city,” he says.

In the last decade, there has been a huge growth in the manufacturing and the service sectors in the city. While OMR (Old Mahabalipuram Road) has become a favourite destination for the new-age IT employees, old manufacturing centres on the outskirts of the city are finding new takers. “Most buyers in these areas are from the working class. Employees of the IT and manufacturing sectors consist of a huge chunk of buyers in these areas. They have the means and buying property here gives them proximity to their workplace,” says Wilson Mathews, Director, Sales and Marketing, True Value Homes, explaining the rising popularity of places like Mogappair, Ambattur and GST (Grand Southern Trunk Road).

Last month, Daimler India, the subsidiary of Stuttgart-based Daimler AG announced a new assembly line at their manufacturing facility in Oragandam. Perhaps, developments like these have given investors a reason to believe that these areas too will develop in a big way in the future. Mukesh Kumar Kothari, a city based businessman, has bought land on the outskirts hoping to capitalise on the growth in these areas. “It is difficult to buy property within the city. Hence I have bought a plot on the outskirts because I feel in the coming years, the price will increase and there will be more development in these areas,” he says.

The price rise in the city is being ascribed to the increased price of land. The recent hike in the guideline value has only added to the cost. “In 2005, the cost of land in Sholinganallur was Rs 1.5 crore per acre. By 2008, it suddenly rose to Rs 20 crore per acre,” says Prakash, who feels that the cost of construction has gone up adding to the cost of land. “In 2005-06, the cost of construction was Rs 1000 per sq ft, while it has now increased to Rs 1600 per sq ft. The steel price has drastically increased, so much so that there has been a jump of over 50% in the last three months. The mining sector is riddled with scams and there is some kind of cartelisation in the cement and steel industry. The cetheir ment manufacturers capacity \ in the have last doubled three years, though the production is only one-fourth of the capacity,” he says.

The increase in the cost of construction might be indicative of some kind of artificial shortage in the steel and cement industry, though Alex Jacob, a citybased Structural Designer feels that the price hike is a result of increased construction activities. “So much construction is happening and even with higher prices, people are buying,” he says.

While all this might give consumers some reason to buy, it has not gone down well with everyone. With political instability, property prices in places like Hyderabad have not seen a major hike and many are looking towards Hyderabad as well.

Srinath Narayanan, a citybased Chartered Accountant, feels that places like Coimbatore and Hyderabad might be a better bet. “Chennai market is not accessible for all investors anymore. With the available resources, it is simply not possible to invest in areas like Kodambakkam or Mylapore,” he says.

But investors are hopeful of development on the outskirts as well. “Though I belong to Chennai and definitely plan to live here, I might buy property elsewhere for investment purpose, but what I buy in Chennai, is for my residential purpose,” says Varadharajan, a city-based banker, who has bought a flat in Chrompet.

“The place was considered to be quite far from the city initially. But now, with the city limits expanding, these areas are also well equipped with necessary infrastructure,” he says.

It is a well-known fact that the Chennai real estate is predominantly an end-user’s market. “This very fact gives the realty scene in the city some stability. People are buying in spite of high prices because they know that if they don’t decide now, the prices will increase even further. Infrastructure is shaping up well, with the metro rail work and other development activities. NRIs, originally from Chennai, are now hopeful of the potential that the city holds,” says Wilson. The investors might also agree.

Written by Arjun Narayanan

Source: Times Property, The Times of India, Chennai