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

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

Xander Gr to invest $600 mn to develop about 12 malls in India

New Delhi: Global investment firm Xander Group will pump in USD 600 million (about Rs 3,300 crore) to develop and operate about 12 luxury shopping malls across India by 2017.

Virtuous Retail, the group's retail venture, is at present constructing eight such centres at various places and will develop another 2-4 malls in the coming years.

"The scope and potential of organised retail in India is huge. We have committed USD 600 million for a pan-India retail presence. We think, the amount will be invested by 2017," Virtuous Retail Marketing Director Anupam Yog told PTI.

Virtuous Retail, which is sponsored by the Xander Group, was set up in 2007, and is gearing up to open its first project at Surat in Gujarat by the end of this year, he added.

"Surat is our flagship project, where we are investing around USD 50 million. The total size of the shopping complex will be 6,00,000 sq ft," Yog said.

The company has also adopted the 'Surat Boat Race' to promote it in the global platform, besides starting a three-day story-telling event -- Kahani Festival.

"From the Surat project, VR Surat, we are expecting a rental revenue of Rs 30-40 crore annually," Yog said.

The company will hire 300 people for operating the complex, besides indirectly creating about 3,000 jobs.

Talking about the other projects, Yog said: "At present, eight projects are under various stages of constructions in places like Pune, Mumbai, Bangalore, Kolkata and Chennai. The sizes of the malls will vary between 0.5 million sq ft and 1.5 million sq ft."

The company will launch 2-4 new sopping centres, targeting cities like Delhi, Ahmedabad, Hyderabad and Chandigarh, he added.

"Our concept is to provide a lifestyle. We plan to bring in various global brands into India and give consumers a premium retail experience," Yog said.

When asked about its model of operations, he said the company will own, develop and operate the properties.

"In some cases, we are developing the complexes under joint venture agreement with the property owner. The model will vary in different places, but we will never sell off the developed spaces," Yog said.

Some of the under-developed malls in Bangalore, Mumbai and Pune are mixed-use spaces, he added.

Xander Group has so far invested about USD 1 billion in India since 2005 in various sectors, including infrastructure, hospitality and entertainment.

PTI

First Published: Sunday, July 08, 2012, 15:17

Source: http://zeenews.india.com/business/realestate/latest-news/xander-gr-to-invest-600-mn-to-develop-about-12-malls-in-india_55369.html

CREDAI seeks PM intervention to curb black money in realty biz

New Delhi: CREDAI, the apex body for real estate developers, on Thursday sought Prime Minister's intervention to bring reforms for curbing black money in the realty sector.

The Confederation of Real Estate Developers Association of India (CREDAI) suggested reforms in four key areas that impact the real estate - administrative, land, tax and banking.

"The economic reforms initiated by Manmohan Singh as the Finance Minister over 20 years ago have seen the end of the Licence Raj, but the real estate sector is still governed by controls and increased controls," CREDAI President Mr Lalit Kumar Jain said in a statement.

He regretted that industry's demand for quick approvals of project through single-window clearnce system has received poor response from authorities like the Environment Ministry.

"We are victims of the system, not the beneficiaries! We hate this system which makes us look ugly. We curse every person who exploits us to give us a legitimate permission which we deserve instantly and without any illegitimate demand," Jain observed.

CREDAI has been pointing out that there are over 40 clearances that a developer is supposed to get which leads to human interaction with over 150 officials at various stages.

"Any delay at any stage obviously gives rise to 'greasing of palms' as the developer is always anxious to finish his project in time and avoid delays," Jain said, while appealing to the Prime Minister to urgently call for discussions on comprehensive reforms for realty sector.

Commenting on the recent White Paper on Black Money, CREDAI said: "It is a good attempt at focusing the nation?s attention on the issue, but it unfortunately picks on the real estate and deals with just a couple of issues like the Stamp Duty as though that is the only cause of the problem".

Jain lamented that the developer community has become a favourite punching bag for many whenever they talk about the national curse. "We too hate the system that labels us as crooks, cheats and breeders of black money," he said.

PTI

Source: http://zeenews.india.com/business/realestate/latest-news/credai-seeks-pm-intervention-to-curb-black-money-in-realty-biz_48720.html

DLF Q4 net profit down 39% at Rs 211 cr

New Delhi: India's largest realty firm DLF today reported a 39 per cent fall in its consolidated net profit at Rs 211.70 crore for the quarter ended March 31, 2012, on high interest outgo.

The company had posted a net profit of Rs 344.54 crore in the year-ago period.

The total income from operations declined marginally to Rs 2,616.78 crore in the fourth quarter of 2011-12 fiscal as against Rs 2,683.09 crore in the corresponding period of previous year, DLF said in a filing to the BSE.

The interest outgo in the fourth quarter increased to Rs 603.89 crore from Rs 455.70 crore in the year-ago period. As on December 31, 2011, DLF had a debt of over Rs 22,000 crore.

In 2011-12 fiscal, the net profit fell by 27 per cent to Rs 1,200.82 crore from Rs 1,639.61 crore in the previous year.

The income from operations, however, rose to Rs 9,629.38 crore in 2011-12 from Rs 9,560.57 crore in the previous fiscal.

Source: http://www.financialexpress.com/news/dlf-q4-net-profit-down-39-at-rs-211-cr/955761/

Rental of high street locations in NCR up by 9% in January-March

NEW DELHI: High street shopping destinations such as South Extension, Karol Bagh and Connaught Place in the national capital saw up to 9 per cent rise in rentals in the first quarter of 2012, but malls in NCR did not receive much attention from retailers due to paucity of quality space.

In sharp contrast to the high street locations, rentals across the shopping malls in the National Capital Region (NCR) remained unchanged from the previous quarter and incidentally from the last year as well, according to a report by global property consultant Cushman & Wakefield (C&W).

"NCR's retail market was largely driven by leasing activities on the high streets where retailers showed greater interest," C&W said.

Rentals in South Extension (I & II) rose by 9.10 per cent, Karol Bagh by 7.7 per cent and Connaught Place by 4 per cent on account of increased enquiries from retailers and some significant leasing activities.

"Malls, on the other hand, continued to see cautious approach by retailers thereby witnessing limited supply and restrictive leasing activities," C&W observed.

The limited availability of quality space has been dithering retailers to commit to the existing space resulting in vacancy levels remaining unchanged at 28 per cent from the previous quarter, the consultant explained.

C&W tracks retail markets of eight major cities of the country including NCR, Mumbai, Kolkata, Chennai, Hyderabad, Bangalore, Pune and Ahmedabad.

Vastrapur in Ahmedabad recorded the highest growth in mall rents at 33 per cent over last quarter mostly owing to renewals of existing tenants at a higher value, while A.S. Rao Nagar in Hyderabad saw highest increase in high street rentals at 26.7 per cent, the report revealed.

"The first quarter of the year has been positive for the retail market and indeed over the last one year. While the mall space has been moving cautiously to ensure that demand to supply ratio remains stable to maintain rental values, the high streets continue to see increased demand and interest from a range of retailers," C&W Director (Retail Services) Jaideep Wahi said.

Mumbai's retail market remained largely stable with both high streets and malls rental unchanged over the previous quarter. But, malls at Vashi saw rise in rental by 7 per cent.

In Bangalore, Vitthal Mallya Road was the hot bed for retail action with both high street as well as mall space in the location recording a growth in rental values. High street rentals rose by 25 per cent and mall rentals by 14 per cent.

Kolkata's traditional high street locations of Park Street, Camac Street and Elgin Street recorded notable rise in rentals on continued interest from retailers. Rental at Park Street was up by 14.3 per cent in the first quarter.

Source: http://articles.economictimes.indiatimes.com/2012-04-25/news/31399036_1_rental-values-mall-space-jaideep-wahi

ORR to make a big contribution to Chennai realty growth

Chennai

Chennai was classified a Beta city in the 2010 global ranking index of Globalization and World Cities Research Network. This organization ranks the cities of the world based on various factors including their economics, connectivity, and cultural influence. Some other cities of the world classified as Beta include Cape Town, Manchester, Seattle and Riyadh.

The only other Indian cities ahead of Chennai are Mumbai (Alpha), New Delhi (Alpha -) and Bangalore (Beta +). One of the major criteria that determine growth and influence of a city is connectivity. It was with this view that the planning authorities of the city laid the foundations for a planned network of arterial ring roads in the second masterplan.

With the city’s second masterplan now in full force, the focus for Chennai is infrastructure and the creation of the blueprint that will sculpt the metropolitan region. This plan was originally slated for application in 2002 but finally received approval only in 2007. One of the most important projects is the creation of the Outer Ring Road.

The first masterplan resulted in the formation of the 100 ft Road (Jawaharlal Nehru Salai) which was to serve as the outer ring road fringing the city’s extremities at that point. While this ushered in significant growth in the western side of the city, the link from Taramani to St Thomas Mount was not completed. This was adopted to become the 35-km Inner Ring Road by the second masterplan and is a key connector between significant corridors of growth. Important highways arise from Chennai leading out radially towards Bangalore, Kolkata, Madurai and Cuddalore, with Chennai being a cardinal point in the nation’s Golden Quadrilateral project of highways.

But clearly, the icing on the cake for infrastructure is the creation of the Outer Ring

Road (ORR) in Chennai. “The ORR will be a multi-model transport corridor, 62km in length and it will connect the fringes of the city,” states one of the Chief Planners at CMDA (Chennai Metropolitan Development Authority), “We have set aside 400 ft for development and planned a six-lane highway with some land reserved in the middle for rail facilities. This will be one a firstof-its-kind corridor developed in the country. The main objective of this project is to decongest the city and throw open large urban areas of the metropolitan region to development. We have earmarked spaces for residential, commercial and non-polluting industries to come up along the ORR’s extent, and it closely follows the boundaries of the Greater Chennai Metropolitan Area. This is one of the major projects to regulate development in the second masterplan. Information about this growth is readily available in the website for easy access.”

It is expected that the ORR will open out at least 700 sq km for development. The Chennai Outer Ring Road will run to a length of 62 km connecting Vandalur on NH-45 (GST) in the South-Western edge with Minjur in Thiruvotriyur-Ponneri-Pancheti (TPP) Road in the northern fringe of the city and close to the Ennore Port and other industrial developments in the Northern areas. The road will run via Nazarathpet on NH-4 (Bangalore Highway), Nemellichery on NH-205 (Chennai-Tirupati-Anantpur Highway) and Padayanallur on NH-5 (Chennai-Calcutta). The Vandalur to Nemillichery stretch, a length of 29.65 km, is being implemented as Phase-1 of development. The Tamil Nadu Road Development Company Limited (TNRDC), Chennai has been appointed as Managing Associate for this project.

“Land of 400 ft has already been acquired. Here, a development of 25m+25m of road lanes on either direction is being built with a 22m set aside for future development of a public transit system,” says an official at the TNRDC. “Another 50m of land is being kept on the right side of the road for future development. Phase 1 of the project (Vandalur to Nemillichery) is underway now; the contract was awarded to the GMR group and the tender process is in progress for the construction of the second phase. We expect that at least three interchanges will be complete on this phase by early 2013. There is bound to be easy access and reduction of traffic within the city with the formation of the ORR. A slew of satellite towns is expected to come up too.”

“The ORR, which links four national highways, is expected to provide a significant thrust to the growth of various sectors. The development is planned so as to connect the industrial, manufacturing and IT corridors,” states N Hariharan, Office Director – Chennai, Cushman and Wakefield, major real estate consultants, “The locations along the Outer Ring Road, especially the intersections of the Outer Ring Road and national highways are expected to witness significant real estate growth. These peripheral markets provide the benefit of lower land rates as against the high land costs in the city. The provision for commercial development along the corridor is likely to draw investments; the earmarking of land for future Mass Rapid System or Light Rail Transit is expected to boost connectivity and thereby promote growth.”

He cites the example of Bengaluru and Hyderabad, both of which have witnessed significant growth of late. “Bengaluru and Hyderabad have witnessed similar infrastructure developments that have augmented growth along the connecting corridors. The Outer Ring Road in Bengaluru has fuelled the growth of one of the fastest growing IT corridors. The stretch from Sarjapur to Marathahalli has witnessed significant commercial and residential developments in addition to housing various SEZ developments. Hyderabad has also registered growth on similar lines with the Outer Ring Road becoming operational even as locations like Appa junction, Narsingiand Bandlaguda are seeing increased residential developments.”

The GMR group bagged the 1,100 crore tender for phase 1 of construction in Chennai by emerging as one of the lowest bidders. “The formation of the road is done on a Build-Operate-Transfer model over 20 years to be implemented by the bidders’ own funds,” says the official from TNRDC. “Two and a half years is earmarked for the building of the road and 17.5 years for maintenance during which there will be an initial concession ( 300 crores was the figure for phase 1 received by GMR) and an annuity will be paid every six months till the completion of the 20 years.”

Says N Singiraj, a resident of Selaiyur and a former contractor with the Military Engineering Services, “The Outer Ring Road will be very helpful with direct access. Not only will it foster development in remote areas, traffic and congestion will also be smoothed out. Take Tambaram for instance. After the construction of the overbridge and enhanced connectivity, the area has become less chaotic. Also, the value of the land goes up in places around the project. So, the ORR makes a lot of sense from the real estate and economic standpoints too.”

The city is already a hub for automobile manufacturing, IT, Petroleum refinery, shipping and more. With the Outer Ring Road that promises to transform the city’s landscape, Chennai is all set to metamorphose into a well-connected megapolis very soon.

Source: Times Property in The Times of India, Chennai