Monthly Archives: July 2008

Net Profit Of Leading Property Developers Rose In Ist Quarter Of FY09

Aided by revenues from mid-income houses, net profit of property developers, such as Unitech and Puravankara Projects, rose in the first quarter of FY09, beating analyst expectations.

Unitech, the country’s largest listed developer, posted a 15.7 % growth in net profit during the quarter, mainly due to higher realisations the company made in the mid-income segment housing, in the range of Rs 40-45 lakh apartments.The company posted a net profit of Rs 423.31 crore in the first quarter of financial year 2009 as compared to Rs 365.67 crore in the corresponding quarter last year. Total income went up by 17.19 per cent to Rs 1,054.37 in the first quarter of FY09 as compared with Rs 899.67 crore in the corresponding quarter last year.

DLF, which is scheduled to announce its results, also entered into affordable segment in cities such as Chennai, and Kolkata.

Bangalore-based Puravankara Projects posted 40.62% growth in year-on-year profit during the quarter due to higher realisations from the sale of apartments and income tax exemptions on its residential projects under section 80 IB. The company sold 1,000 apartments during the quarter.

The company posted a net profit of Rs 61.89 crore as compared to Rs 44.01 crore recorded in the corresponding quarter last year. The company’s revenues went up by 30.88 % at Rs 157.58 crore as compared with Rs 120.40 crore in the last financial year.

Pune-based property company Kolte Patil’s net fell nearly 7% mainly due to lifting of tax exemption on IT parks under section 80 IA. The company posted a net profit of Rs 31.46 crore in the first quarter of FY09 as compared with Rs 33.87 crore in the comparable period last year. However, the company’s revenues rose 17% at Rs 104 crore from Rs 89 crore due to higher realisation from housing projects.

Hyderabad-based IVRCL Infrastructure posted a 15 % rise during Q1 due to higher realisation from infrastructure projects, on a year-onyear basis. Net profit increased to Rs 43.50 crore from Rs 37.87 crore in the comparable period. Total sales increased by 38% at Rs 948.34 crore (Rs 688 crore).

IVR Prime Urban Developers, the group’s real estate firm, posted a 263% increase in net profit at Rs 5.44 crore during the Q1 period as against Rs 1.5 crore, while the turnover went up by 55 per cent at Rs Rs 32.25 crore.

Sunil Mantri To Develop Township

Real estate firm Sunil Mantri said that it will invest Rs 2,000 crore on developing a 2,000-acre residential project in Gwalior over the next decade.

The company signed an MoU with the Special Area Development Authority, Gwalior, to carry out the project under public-private-partnership model, the company said in a statement.

As per the MoU, the realty firm would set up a Hi Tech city over an area of 2,000 acres, comprising 25,000 housing units.

The company has already acquired 375 acres for creating housing for the low and mid-income people.

Around 5,000 houses would be provided in this project and the developments work would be commissioned by October this year.

It is currently developing three new projects in Gwalior, consisting of residential, a shopping mall cum multiplex and commercial spaces.

Fluctuation And Deviating Real Estate Prices

The question that bothers a lot of prospective home buyers is whether they will miss the bus if they wait any further. However, the right question should be: Can I afford to buy a house today? Even if you are one of those blessed ones, the thought should be: Is it a fair price for the house? Your house might not be an investment, but does that mean you should pay any price for it?

The prices currently being quoted are simply atrocious. From a time, not too long ago, when people talked about loans of Rs 10 lakh to Rs 50 lakh, today the average loan size is substantially higher.

A simple 2-bedroom house in Malad can cost up to Rs 1.2 crore (including stamp duty and registration charges). This is the price that sellers expect, but this does not mean they are actually getting it. The cost of a similar flat 4 years ago was close to Rs 30 lakh.

The entire real estate boom took off in 2003 on the back of very low interest rates and low prices. However, the situation has changed now with realty prices going up 3-4 times, while interest rates are 60-70% higher. Incomes have certainly not grown four-fold in the past four years. Today, even if you are earning Rs 25 lakh annually, it is extremely difficult to buy a 2-bedroom house in the suburbs.

Even if you make a down payment of Rs 20 lakh, you will still end up borrowing close to Rs 1 crore. This would mean an EMI of close to Rs 1 lakh per month. So, after tax and EMIs, a person with Rs 25 lakh gross income will be left with just Rs 5-6 lakh as disposable income for lifestyle and living expenses. Once you take EPF contributions, you will just be left with Rs 4 lakh annually.

Lifestyle inflation (driving a car, visiting malls, eating out & entertainment), which is much higher than normal living expenses, eats up a significant portion of one’s income. Hence, it is just not possible even for someone earning Rs 30 lakh to service an EMI of Rs 1 lakh every month. Even if you do manage to do it, you will be left with no savings.

Real estate prices, though location-specific, have been witnessing a slowdown in demand. One might argue that luxury accommodations might not be impacted by this. However, there is a visible slowdown in real estate and prices are down on an average by 10-15% in places like Mumbai.

Unlike the stock market, there is no index for the real estate market and no price-discovery mechanism. In fact, the price discovery is very subjective and identical properties in the same building can go for two different prices. If one had a real estate index, it would have had given details on number of transactions.

There have been several reports of builders borrowing at very high interest rates and some defaulting on their interest payouts. In fact, real estate stocks have been hammered the most and the basic assumptions on which their landbanks were valued are a matter of debate now.

Speculators have started to exit since late last year and investors trying to exit now are unable to get the price they could dictate some time back. With rising interest rates, demand should come down. However, location still rules and some premium commercial property could still fetch good money.

Not that it is any indicator, but if you look at the price-to-rent ratio (PR Ratio) similar to PE ratio, one can clearly see that the prices are in the bubble territory.

Since there are no margin calls in the realty space, the holding capacity of an investment can be substantially higher than a leveraged exposure in stock market, where margin calls have to be attended immediately. Hence, real estate prices generally do not fall drastically.

Small builders are cash-starved and are not getting into new projects. This is the case with mid-size developers. However, big builders with access to IPO funds and PE funds can wait for an extended period of time before cutting prices.

One can clearly see that the discounts offered in the form of stamp duty waivers or furnishings are nothing but a desperate attempt to get end-users.

Like in the stock market, it pays to be patient in the real estate market too. For realty market to sustain itself there should be a steady inflow of end-users. Speculators and investors can only take it to a certain level. End-users can only come when prices are affordable and for that at least 30% correction is a must.

Red Fort Capital Joined Hands With Godrej Properties

Red Fort Capital, a private equity fund focused on real estate development, is in advance stages of negotiations with six developers for an equal number of projects worth Rs 4,000 crore in the metros across India.
The PE fund joined hands with Godrej Properties to develop an IT park in Kolkata, where Red Fort Capital has picked up 49 % stake. The project, Godrej Genesis, is expected to generate sales of over Rs 750 crore.
“We are in the process of closing a number of transactions in the NCR, Mumbai and Bangalore. We are currently talking to six different developers in these cities,” Red Fort Capital Director Kuldip Chawlla said.
Without divulging names of the possible builders, he said three of them are ‘big national developers’, while the rest are local players.
The company currently is evaluating one residential and one commercial project in each city, where the fund would pick up stake between 30 % and 80%, he added.
“The total project cost of all the six properties could be over Rs 4,000 crore. These projects will be developed in the next 2-4 years,” Chawlla said.
Elaborating on its IT park project in Kolkata, Chawlla said ‘Godrej Genesis’ would have a developable area of over one million sq ft.
“This is our first project in Kolkata. Already many domestic as well as international IT firms have shown their interests to set up offices in the complex,” he added.

REMF Cleared By Finance Ministry

The cloud on real estate mutual funds (REMF) has lifted. The finance ministry has brushed aside RBI’s concerns of REMFs violating foreign direct investment (FDI) norms in the realty sector. North Block has said the central bank’s concern stating that REMF scheme notified by Sebi in April contradicted FDI norms was unwarranted.

The finance ministry view could pave way for the launch of new investment avenues for small investors keen to tap the real estate sector’s growth potential. The doubts raised by RBI added to the hesitation in REMF launches.

Highlighting that the scheme allowed NRIs and FIIs to invest in real estate sector in conflict with the policy, the apex bank had asked finance ministry to intervene and take up the issue with Sebi. Read More »

Ansal Properties and Infrastructure Ltd To Rs 900 Crore In Sonepat

Leading realty developer Ansal Properties & Infrastructure Ltd  said it will invest Rs 900 crore for developing a 250-acre engineering-based Special Economic Zone at Sonepat in Haryana. Read More »

Investment Cos Selling Assets At Throwaway Prices

Lack of provisions in the country’s bankruptcy laws to deal with cross-border insolvency may force Western investment companies hit by global credit crunch to sell off their assets in the country at throwaway prices instead of being able to sell their worldwide assets in one go to obtain a better price.
Since Indian courts do not recognize decisions of insolvency courts in other countries, bankrupt foreign investment companies would be forced to scurry for a domestic buyer before their local assets get into never-ending insolvency proceedings here.
Industry sources said such troubled foreign investors who have massive holdings in many of the upcoming real estate and shopping mall projects in the country will not be able to realize the value of their assets by selling them in one block. Investors would prefer finding a buyer quickly for the Indian asset even at a loss rather than letting it lose its value further in lengthy litigation. Once local lenders or material suppliers take legal steps for recovering dues, it could take even decades for a resolution.
Sumant Batra, leading bankruptcy expert and vice-president of global association of insolvency professionals Insol International said,”In the absence of a cross-border insolvency law in the country, many investors in the US or the UK who have invested in India through special purpose vehicles in tax-friendly countries like Mauritius may not be able to sell their assets in India in a manner where both the Indian as well as foreign lenders and other stake holders get satisfactory resolution”. Mr Batra added that having a cross-border bankruptcy law will be extremely beneficial for domestic companies too as they are increasingly buying assets abroad.
Buyers are willing to pay a higher price in a market if they get cheaper asset in another market. Selling individual assets to different parties significantly reduces the chances for the sinking holding company to exit the business at a decent price and redeploy the proceeds in new businesses. Many overseas funds that have invested in Indian companies are owned by holding companies in the US and the UK, and are in deep financial trouble. More and more such companies are expected to put their Indian business on the block.
It is crucial for the funds to sell their local assets quickly as the fund flow to the entity executing the projects in India keep drying up and chances of defaulting on payments due to lenders or material suppliers here are high. Once this happens, the local lender or material supplier could take recourse to recovering the money by invoking the Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, under which they could take recovery proceedings within 60 days of issuing a notice to the company. They could also move the Company Law Board.

PE Fund Picks 40% In Amrapali SPV

Private equity fund SUN-Apollo Ventures has invested Rs 300 crore for 35-40% equity in an SPV of Noida-based realty firm Amrapali group.

SUN-Apollo is a joint venture between Delhi-based Khemka family’s SUN group and US-based private equity fund Apollo Real Estate Advisors. Apollo’s development and investment portfolio is spread across US, UK, Russia and other European countries, besides India. SUN Group, which has interests in oil & gas, mining, real estate, infrastructure, food & beverage and technology, has been active in India, Russia and other emerging markets.

Amrapali group chairman Anil Sharma said, “The SPV will develop a 200-acre township in Jaipur and a 15-acre high-end housing project in Noida. Both projects are likely to be completed in two-and-a-half years”. The Jaipur Township will have housing, retail, commercial and IT space. Amrapali group, which has developed six urban residential colonies in the national capital region, is at present executing real estate projects worth Rs 8,000 crore in several cities.

The SUN-Apollo fund infusion is the latest in the series of PE funding in the Indian real estate despite a slowdown. Many PE funds had raised funds when the going was good for the realty sector as well as the financial markets. SUN-Apollo had closed a $630-million fund last year.

Therefore, the PE infusions in Indian realty are mostly the deployment of funds raised earlier. But now with credit crisis gripping the globe, fund raising has considerably slowed. Meanwhile, demand has slowed down and bank credit is largely unavailable to realty firms, forcing them to seek cash from PE players at a not so favourable term. Real estate players are said to be settling for a project valuation of 30-40% less than what they could have got a year ago.

Cash crunch has forced several real estate ty players to focus on executing existing projects, rather than expand into new areas. Some, however, are still exploring new themes. Amrapali group is foraying into hospitality with a 230-room hotel in Greater Noida.

Anant Raj Expects 40% Profit In Fiscal Year 09

Anant Raj Industries Ltd expects profit for the year ending March 2009 to rise 30% to 40%, helped by sales of two residential projects and robust rental income.

The real-estate firm, which has most of its projects in northern India, has said it will focus on growing income from rentals. The firm reported a profit of 4.37 billion rupees for 2007/08.

Executive Director Amit Sarin told, “We will get 10 million rupees a day in rentals by the end of this quarter. We expect 20 million a day from the next quarter”.

Sarin said that During the April-June quarter, Anant Raj’s profit more than doubled to 1.52 billion rupees, helped by the sale of a minority stake in a mall.

Real Estate Projects Become Attractive Due To Foreign Architects

In their bid to score over their rivals, many developers are now going abroad to hire noted architects who can design their new projects. Not withstanding the fact that currently the realty sector is seeing downward trend, still some of the noted design companies from other countries are opening their Indian offices to cater the real estate market.
The likes of Godrej Properties, Unitech, Omaxe, Hiranandani and many more are hiring foreign architect firms. As recently as last year, Godrej hired DP Architects of Singapore to design their 50-storey residential project in Mahalaxmi area of Mumbai. US-based Hellmuth Obata Kassabaum Inc (HOK), has already worked with Indian builders such as Unitech, Hiranandani and many other big firms. Will Roes, programme manager of HOK India says that they bring a global perspective and diverse expertise to a project.

It is true that hiring foreign designers and planners have many advantages. But, the negative side of hiring them is that in some cases they do not understand the complexities of doing business in India, including tax laws and also cultural consideration , feels Devinder Gupta of realty advisory Century 21 India.
In an interview, Niranjan Hiranandani, the managing director of the Hiranandani group says that there is a big difference in approach between Indian and foreign firms that undertake design jobs. He feels that international firms are more empathetic to developers’ needs and aspirations. “They find a solution which is required for a particular site, location and land. They are also more in tune with the land use demand,” says Hiranandani. “They are more open to new ideas. On the other hand, Indian firms have a trial and error approach to design and planning. They also try to impose their ideas on the developers.”

Singapore based firms like RSP Architects Planners and Architects 61 Ltd are also designing projects in many big cities in India and are serious of winning more projects here. RSP has reportedly opened their offices in Mumbai, Bangalore, and Hyderabad. It designed the international Tech Park in Bangalore.

It has also designed offices for IT giants like Wipro, Satyam and Microsoft. Devinder Gupta informs that legendry Unitech group has taken the services of great golfer Greg Norman to design the lush green golf course for their prestigious Unitech Grande project in Greater Noida. Clearly, the Indian realty firms are taking the services of foreign firms and experts to make their projects attractive.

Meanwhile, some Indian architects feel that global firms are definitely good when it comes to designing projects. But, they are critical of some of the mismatch. On many occasions, the initial designs done by them don’t make any sense. Finally, Indian architects have to enter the scene to undo the damage. CMD of Omaxe group, Rohtas Goyal says that with money starting to flow into Indian realty sector, it has become necessary to bring global architectural practices and expertise.

Moreover, customers fancy projects designed by overseas firms. From the developers’ point of view, it becomes a good marketing and sales proposition. It may be mentioned here that Omaxe has recently hired Indian Davis cup Star Leander Paes company to help them design the tennis courts in their residential projects. Those who follow the realty market of India feel that as competition hots up and properties get bigger, developers going to hire global architects to design their projects will become more frequent.

Moreover, builders are entrusting the design work for commercial projects and master planning of a mixed use developments to foreign firms.

It is also learnt that several developers choose foreign architects only for their large projects. Anil Sharma of Amrapali group said, “It is affordable to hire an international firm to master planning if there is a big volume of work. Time is never an issue with them. They keep their words”.
Meanwhile, there are some people in realty sector who feel that foreign firms will continue to win projects here, but they will be hired for a limited purpose. They would design the master plans of the projects, while the execution part would continue to be taken care by the Indian firms.

Milestone To Launch MEAS With Ecofirst

Milestone, India’s largest independent Real Estate Fund house is launching Milestone Ecofirst Advisory Services (MEAS) through a 50:50 Joint Venture with Ecofirst. Ecofirst, established with a multi million pound budget, is a J. Leon Group company based in UK.

With the launch of Milestone Ecofirst Advisory Services (MEAS), for the first time in the country, a real estate fund house will be offering its invested companies/projects specialized consultancy services for eco-friendly development. Read More »

Goa To Appoint NRIs

Goa is set to become the first state in India to appoint non-resident Indians (NRIs) to various boards and corporations. Eduardo Faleiro, former minister of state for external affairs and currently Goa’s commissioner for NRI affairs, told, “Putting Goan expatriates on state boards and corporation is one of our various steps to reconnect them with their roots. When this happens, Goa will be the first Indian state to accord this honour to expatriates”.
Faleiro, who is here to attend the annual Global Goans Convention, said the state government was wooing back expatriates with a variety of schemes.
Faleiro said, “In view of their often-heard complaints about property disputes, we are amending the tenancy Act next month for a summary trial of property-related cases filed by NRIs. These people cannot stay in India for a long time to fight such cases”.
He said about 500,000 people of Goan origin live abroad. Further he said, “Almost one third of Goa’s total population of 1.4 million lives abroad. The Global Gaons Convention is our effort to reconnect with our expatriate community scattered all over the world”.

Faleiro said that Goa was also the first state to have started a scheme to issue ‘Goa Cards’ to NRIs to give them unhindered access to government departments. He said, “We will also be the first state in India to put NRI representatives from countries with a large Goan expatriate population on a high-powered committee to address their grievances. This committee, headed by me, will have high-ranking state officials, including district collectors”.
To expedite NRI investment proposals, he said that the Goan government has appointed a nodal officer in the industry department.
“To reconnect second and third generation Goans abroad with their roots, the state government has launched a programme called `Know Goa’.
“Under this programme, we will invite 15 youngsters (in the age group of 18 to 26) who have distinguished themselves academically or professionally, to visit Goa for 15 days as guests of the state. We will pay all their expenses,” the former Indian minister said.
Faleiro said that the state government has also initiated a study to monitor migration from Goa. Further he said, “As part of this study, we will visit people in their homes to know how many of their family members live abroad and how much money they send back home. We have also asked the Reserve bank of India to help us know how much remittances are coming into the state”.

Leading Real Estate Player Interested In Hospitality sector

Suffering from low margins, Indian developers are entering fresh businesses like retail and hotel to expand revenue stream and offset slowing demand for real estate projects due to six year high lending rates and severe financing norm. Below are a few recent investments in the hospitality sector
Yatra Capital, a Jersey-based private equity firm, will invest more than four million euros in an forthcoming Taj hotel in Calcutta. Yatra Capital will acquire a 40 % stake in Jalan Intercontinental Hotels Private Limited, the company which is building the two hundred room property. The hotel will be managed by Indian Hotels Limited under the Taj Gateway brand.
Warburg Pincus-Casino Group: The Kochi-based Casino Group of Hotels (CGH) is in the market to raise capital. According to the media report, private equity fund Warburg Pincus is in talks with the company to invest upto three hundred twenty five crore rupees. CGH is a foremost hospitality group in Kerala, and is wholly owned by the the Dominic family. The report adds that they may divest upto 20 %, which would value the enterprise at around one thousand six hundred crore rupees. The company requires funds for its domestic as well as abroad expansion.
Rakindo Developers has raised four thousand crore rupees from Lotus Investment fund to develop hotel properties across India under the brand name Millennium and Copthorne Hotels. It has initiated construction in Hyderabad and Bangalore, and plans to set up hotels in Vizag, Kochi and other south Indian cities.
Delhi’s DLF and Parsvnath have also planned 75 and 100 hotels, respectively. DLF is teaming up with Hilton Hotels and Parsvanth with Royal Orchid Hotel.
Sahil Group, Pune-based property developer has coupled up Carlson Hotels Worldwide-Asia Pacific for a project under the Radisson Resort and Spa brand at Alibaug and Pune
Nirmal Lifestyle has formed a JV with Accor Hotel for development in Mumbai and Goa.

Bahrain’s TAIB Bank shells out Rs 216 cr for 26% in Anant Raj

In the midst of a general slow down in the Indian real estate market, TAIB Bank, a leading private bank based in Bahrain, has picked up a 26% stake in Anant Raj Projects for Rs 216 crore. The deal, one of the first Shari’ah-compliant transactions in the Indian real estate industry, puts the valuation of the subsidiary of New Delhi-based Anant Raj Industries (ARIL) at Rs 831 crore.

TAIB Bank has routed the investment through its real estate investment arm Acacia Real Estate. Anand Raj Projects plans to develop of 6,00,000 square feet of retail space which is expected to be operational by first half of 2009. The proceeds of the transaction will be invested in this project. DTZ India, the Indian subsidiary of DTZ Holdings, and International Property Consultant were the advisors to the transaction.

Confirming the development, ARIL executive director Amar Sarin said, “Though the real estate market is passing through a tough phase, the investors are still keen to invest in bankable projects. Our deal with Acacia reinforces the fact that in real estate and, especially, in retail sector, location still remains the fundamental value generator”.

India’s real estate market is experiencing a slow down. Developers are facing a cash crunch due to the slow down in sales as well as tight liquidity conditions. This has perhaps forced them to look at raising funds from PE investors.

Rajeev Bairathi, associate director, investment advisory, DTZ said, “This deal proves that despite prevailing market condition, investors are ready to pay a premium for participating in projects promoted by reputed developers with established track record, adequate experience and expertise in creating quality product”.

Indian Realty Need Chinese Rules

It’s now quite evident that real estate companies are in for some difficult times. CRISIL not only foresees a delay in many planned and ongoing projects, it believes several players are over-leveraged and that the combination of sluggish demand and rising costs will lead to a shakeout. In particular, residential complexes, funded largely by customer advances, have been severely hit by the slowdown in bookings, which means it will be a while before the projects are completed. So it’s going to be a long and painful wait for buyers who have paid up. Much of this pain could perhaps have been avoided if the government kept an eye on builders and subjected them to more scrutiny. Indian laws, it would appear, are far too lenient. In China, for instance, developers can pre-sell a residential property only when one-third or two-thirds of the construction is complete, depending on which province they’re in. It’s a far easier world out here where builders are free to pre-sell property even before they’ve started digging. Those who want to own a home of their own, and who doesn’t, often have little choice but to play along. Buyers also have very little idea about how their hard-earned money is being utilized by the developer. In China, we’re told, mortgage payments have to be utilised for a specific project. Maybe that’s the way it should be done here too; builders would then not be able to divert customer advances for other purposes. Because that’s precisely what some of them appear to have been doing. Overly ambitious developers have bid for land banks and are now scrambling for the money to settle the bills. Unless things take a turn for the better, these developers will probably not have the financial wherewithal to start building even if they get possession of the land. And neither will they be penalized for this. In China, a realty firm must develop the land acquired within a certain time frame, failing which the appreciation in the value of the land is taxed. Back home that’s not the case, so there’s really no hurry to start any construction, the land can simply lie vacant. It’s a pity that this can happen in a country where there are so few houses and so many more people waiting for a home of their own.
Chinese developers hold relatively small land banks; brokerage CLSA estimates it would be sufficient for development over a 4-10 year period, depending on growth targets; in India developers are estimated to be holding on to land banks for anywhere between 8 and 15 years. To be fair, approvals in India do take much longer than they do in China because much of the land is agricultural land. But even then, companies appear to be in a hurry to pick up property. Given that there’s a downturn in the offing, they might just end up owing a lot of inventory at a time when prices are coming off. Most Indian property players are already so highly leveraged that few would be able to cash in on falling prices. The difference in the amount of debt that Indian and Chinese players have on their books is striking. The average gearing for listed Chinese developers, CLSA reckons, is 50-60% with only a couple of them at 100%. For companies back home, the average would be closer to 100% with a couple of firms indulging themselves beyond that. What’s more, some of them are not able to recover their money in time; receivables for Parsvanath rose by about 20% sequentially in the March 2008 quarter. The higher cost of money means the debt will continue to pile up.
As it is, it’s not easy to tell what kind of shape the finances of property firms are in. That’s because the percentage-of-completion method followed by companies means that sales and profits and recognized well before the entire project is completed. That just won’t do in China; revenues there flow into the books only after the project has been completed and the property handed over to the buyers. In that sense, investors in property stocks may want to note, Indian firms would seem to be less transparent than their Chinese peers.
That’s possibly because they can get away with it. As CLSA notes, in India property developers are “friends” of policy makers in India. On the contrary in China, while they may enjoy similar good relations with the provincial governments, the central government has been seen to be taking aggressive steps against the sector. Conditions in the real estate space in China today are pretty similar to those in India. Property markets there too have weakened and buyers are biding their time. A big difference, however, is that property prices in China are still considered affordable whereas back home even a modest home remains out of reach. That’s the main reason why there have been so few transactions. It’s time we changed some of the rules, home buyers deserve better.

Tech Mahindra To Invest Rs. 638 Crore In Next 3 Years

Tech Mahindra announced a capex plan of Rs. 638 crore ($150 million) for next three years, 60% of which will go as investments in physical infrastructure such as buildings and real estate while 40% will be used for enhancing technology.

The company plans to open new centres in Belfast (Ireland), Milton Keynes (UK), Chandigarh and Kolkata.

Builders Flouting EWS Norms To Land In Trouble

Builders would face hefty fines if they do not set aside 15% space in their housing projects for the economically weaker sections (EWS). The ministry of housing has asked states to crack down on developers who violate EWS reservation. Repeated failure to implement the policy may also result in government taking back land allocated for such projects.

“It is UPA government’s policy to provide housing to the weaker sections of the society, and non-compliance will result in tough action from the government. Builders cannot go against the National Housing and Habitat Policy, which has made mandatory for them to set aside at least 10% for EWS construction,” a senior housing ministry official said.

According to the policy, at least 15% of land in housing projects or 20% floor area ratio (FAR), whichever is greater, has to be reserved for EWS/ LIG (low income group) housing. The Center has taken seriously to instances in states such as Karnataka, Delhi and UP where builders have flouted EWS norms. Therefore, it has directed states to enforce the reservation strictly.

According to officials, city municipal authorities would not permit developers to advertise their buildings or flats if the building plan does not have accommodation for poor. Apart from EWS allocation, necessary building bye-laws and lay-out clearances by registered architects have to be in place before the builders can advertise their properties.

Apart from pursuing the mandatory EWS housing, the ministry has also asked the finance ministry to direct nationalized banks to lend EWS families funds at lower rates to buy houses. The ministry has said the poor should be charged 5% below the prevalent market rate.

UEM To Invest In Infrastructure Project In India

Bullish about the Indian infrastructure sector, United Engineers Malaysia (UEM) Builders, the entirely owned subsidiary of Khazanah National Berhad, an investment division of the Malaysia government has showed keen awareness to invest in infrastructure projects for example expressways, real estate and bring in their expertise in waste management. UEM has already made investments of over three hundred crore rupees since its presence in India for the preceding eighteen years.
UEM has completed over seven hundred kilo meter of roads with an investment of over two thousand three hundred crore rupees in UP, Karnataka, Kerala, Bihar, West Bengal, Gujarat, Andhra Pradesh, Tamil Nadu and Maharashtra.
“The Indian market is very important for UEM as we see a enormous potential in this market. India is a key driver for UEM’s overall growth and we have always been devoted towards this market. The company is devoted to supporting India in building an sophisticated infrastructure, suited to its growing business and social requirements. India is one of the top three global markets for the group,” Tan See Yin, senior director, UEM International (East Asia) said.
PLUS Expressways Berhad, a subsidiary of UEM group, is aggressively participating in pre-qualification bids for NHDP-III and V. As Asia’s largest toll concessionaire, the company is keen to share its experience and expertise, and to play a significant part in India’s road infrastructure development, Yin said, who was in India to get a sense of the improvement of the company’s several initiatives said.
“The group has so far spent in more than three hundred crore rupees to build up its team and resources in India. India is a focus country for our international expansion and we are devoted to contributing in India ‘s infrastructure needs,” Yin said.
UEM presently has over ten branches and site offices in India, including presence in key cities such as Delhi , Mumbai, Bangalore, Chennai and Chandigarh.

Trump Jr. Plans $1 Billion Fund for India Property Acquisitions

Donald Trump Jr., whose father built a multi-billion dollar fortune in real estate, plans to set up a fund of as much as $1 billion to buy property in India, betting on the nation’s economic growth.
New York-based Trump Organization Inc. also plans a residential and hotel project in Mumbai with a local partner to tap the growing wealth of middle- and higher-income Indians. The city is India’s biggest trading center for stocks, bonds, commodities, diamonds and gold, and home to some of the country’s largest companies including Reliance Industries Ltd. and State Bank of India.
Trump said, “Our entry has to be in Mumbai and that’s where everything is going on right now in terms of the high-end real estate”. Further he said, “That’s the place where one is going to achieve the highest prices per square foot. It sets the tone for all of the other future developments”.
India’s $912 billion economy grew an average 8.8% since 2004 and is forecast to expand as much as 8.5% in the year to March 31, according to the central bank.

Market slowdown Affects Hotel Development

With real estate stocks being hit adversely by the market slowdown, the phenomenon is expected to have a spiraling effect on hospitality development in India. Most real estate majors with a series of hospitality developments in their portfolio are affected by this trend. This may lead to a stall or delay in the completion of projects as well as a revision of the project expenditure. Over the past few months, real estate stocks have seen a major downfall, with an average of 60 to 65% drop in the share prices during 2007-08.

Prem Subramaniam, Head, Infrastructure Development Finance Company (IDFC) said, “There is not only a slowdown in the market, but also an alteration in project costs with the configuration of interest rates”.

While financial market analysts expect the decline in real estate stocks to continue in coming months, they also speculate that hotel projects will be stalled due to lack of liquidity and equity funding in the markets. On the contrary, hospitality consultants feel that projects that are already secured with funds will not be affected.

Will Slowdown Stop The Journey Of Realty?

Today, there is talk of a slowdown as buyers are taking just a little longer to decide if they want to go ahead and take that decision now. Pranay Vakil, chairman, Knight Frank said, “Without a doubt, interest rates have made a difference. After all, the monthly outgo will increase”.

Taking a closer look at what’s going on in Delhi and the National Capital Region (NCR), it is observed that transactional volumes for residential projects have witnessed a drop of 20-25% over the past six months. Among these are the upscale projects like Emaar MGF’s Palm Street project in Gurgaon, the Uppal Group’s Plumeria housing project in Greater Noida, Unitech’s project on Taj Express highway and BPTP’s Parklands project in Faridabad.

Developers themselves are not too kicked about the state of affairs. While maintaining that inflation and interest rates have been the key factors, they are not too optimistic about the way forward. Vipin Aggarwal, executive director, Omaxe said, “There is a slowdown and this will continue for at least a year and half. Besides, the real estate sector is itself facing a cash crunch. There are many companies that are focusing on completing the project at hand instead of increasing the size of their land-banks”.

By contrast, Mumbai story has been quite different and this has been led by the fact that demand far exceeds supply. According to Dharmesh Jain, chairman, Nirmal Group of Companies, that is a point that cannot be ignored. He pointed, “Supply is meager and that is a huge problem”. This demand-supply disequilibrium has helped the process of making Mumbai among the most expensive property locations globally.

Property prices in up-market areas like Malabar Hill in South Mumbai have moved up from around Rs 12,000 per square foot in 2003 to twice that figure this year. More importantly, there was a deal struck at Rs 60,000 per square feet earlier this year.

Across the country, there have been up-market projects coming up at a frenetic pace. Not surprisingly, a large player like DLF is playing down the slowdown story. “Our properties are developed according to the current market needs. In order to stimulate demand, we are also coming out with affordable housing and, therefore, we have not witnessed much of an impact on account of a slowdown,” says a DLF spokesperson.

India’s IT capital, Bangalore has also been witnessing a drop in sales volumes. According to J C Sharma, managing director, Sobha Developers, home sales have dropped this year compared to 2007. Further he said, “Like any other industry, real estate is going through a cycle”.

Gaziz Globe And Big Shopping Group From Israel To Invest In India

The Indian real estate market is set to witness the entry of investors like Gaziz Globe and Big Shopping Group from Israel, Mirax from Russia and a few others from Eastern and Western Europe. Together, these investors are likely to invest around Rs 10,000 crore in Indian property that is FDI compliant, in the coming months, through the PE route.
The move is expected to bring relief to developers who are increasingly finding it difficult to mobilize funds from banks. Jones Lang LaSalle Meghraj (JLLM) is currently working on these transactions. It is understood that a number of funds from Israel have bought large tracts of land in Goa and are scouting for more land and property elsewhere.
According to Anuj Puri, chairman & country head, JLLM, “Currently, there are liquidity issues in Indian real estate market. Hence, funds from Israel and Russia will bring relief to Indian developers. Since PE players are investing in Indian properties that are FDI compliant, the funds will be invested in the ongoing construction of properties over 50,000 sq m in size. They cannot invest in ready property.”
While Gaziz Globe is investing in various retail projects, Big Shopping Group is investing in new retail projects in Pune and Mumbai.
Meanwhile, Mirax, Russia, is evaluating the feasibility of investing in developments in Mumbai. Kardan Group, Israel, is also investing in an SEZ in Pune.

Retail Boom In India

With rise in prosperity and disposable income of the middle class people in cities due to high economic growth, India is witnessing a retail boom.

This has led to the growth of organized retailing, which is changing the way shopping is done, particularly in big cities like Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad among others.

The most visible symbols of organized retailing are the swanky malls, which have mushroomed in most of the large and medium size cities across the country. In cities like Delhi, with extreme weather conditions, malls have become a runaway success.

Even at the height of summer season, when temperature soars up to 42 degree Celsius, shopping is no more an unpleasant exercise. Instead, these malls in various part of the city have made it a pleasurable exercise, in fact, it has become a way to relax and chill out in an air-conditioned environment!

This mall phenomenon had given rise to apprehensions that high street shops were heading for an ignominious death. But, a recent survey done by Jones Lang LaSalle Megharaj, a global real estate consultancy firm, found that despite rise in number of malls in a city, high street shops continue to flourish.
The survey suggests that the presence of new malls within an established high street increase the retail appeal and attractiveness of the entire stretch. It allows malls and high streets to equally benefit from a growing footfall base of consumers flocking to such a street where they can find a combination of both high street retailing and climate controlled shopping in new malls.

The report says, “Though it is early days, the initial evidence does suggest the fact that departmental stores as well as malls and high streets can indeed play to each others strength.”

The report said that the anecdotal evidence of the complementarity of high streets and malls comes from the few instances that were found in Bangalore, Chennai, Hyderabad, Kolkata and Pune where informal feedback from retailers along the shopping high street as well those in the operational malls suggested that both of them are benefiting from the presence of the other.

A senior consultant with the firm Tanaji Chakraborty says that the high street shops, which were facing tough times some time back, have come back with a vengeance. Particularly, in the fully developed area, where further expansion of retail outlets is not possible, the existing high street shops have regained their charm.

In the last couple of years, since consumerism is on the rise, these high street shopping areas are getting revitalized either by the association of shopkeepers or by municipal corporations to enhance the consumer experience.

This results into augmentation of retail attractiveness. The report said that revitalization of streets globally is a very serious issue and often this is linked to the issue of regeneration of entire region. Typically stakeholders of streets, retailers, property owners, mall developers, development authorities, local council, all collaborate to map out a regeneration strategy with a view to improve the economic and image impact of the street.

Report said that this movement is at a very nascent stage, though undoubtedly as economic interest refocuses on prime inner city areas, which typically have superb locations but suffer from run down image , there would in future initiatives regenerate to unlock value.

Connaught Place in Delhi has been regenerated by NDMC. The process to beautify its Central Park has already been completed by the municipal authority. The walk-way and the main building are now also being done up by the concerned authority.

Similarly, Khan Market has been revitalized by the association of shopkeepers. The report said that with the possibility of shopping street revitalization becoming an increasing reality across markets in coming years, the retail pitch of high streets is expected to be enhanced in future, thereby allowing for inclusive growth of retail along these prime corridors in Indian cities.

This is also evident from the fact that rentals of high street shops have doubled in the last couple of years. The rentals in Khan Market, which was quoting at around Rs 650 per square feet per month in 2006, has gone up to Rs 1,300 per square feet per month in the first quarter of 2008.

The report said that the increase in prime shopping street rents have almost doubled across the board, with the rise in rentals ranging between 30% and 100% over the last few years. Rental value growth over the years in other leading cities has been no less impressive.

At such levels, the report said, some of the top-rung Indian shopping streets, especially the likes of Khan Market and Connaught Place in New Delhi, and Linking Road in Mumbai are slowly but steadily creeping into the league of expensive high streets of the world. However, Chakraborty said that this is not a very healthy sign as it suggests the lack of availability of good infrastructure and quality retail space in the country.

Chakraborty said that the development of high street mall takes time as it evolves with the growth in the population in the area. On the other hand, malls are developed on standalone basis. They attract customers from far-flung areas also.

Therefore, in most of the new townships, developers raise malls to provide shopping infrastructure to the inhabitants of the township, while at the same time they attract customers in the nearby catchments to survive in the initial years.

But, over a period of time, the high street shop will also come up and flourish in the same township. Therefore, he said that it is not either mall or high street shopping center but it will be both that will flourish as the economy will grow in the country.

ICICI Venture will sell its 50 % stake in TSI Ventures

Private equity firm ICICI Venture, a division of ICICI Bank on 4th July said it has arrived at an agreement with Tishman Speyer to sell its stake in their real estate joint venture to the US firm.
ICICI Venture will sell its 50 % stake in TSI Ventures India Pvt Ltd, a real estate JV company, to Tishman Speyer, which will now become the lone owner. According to a company statement Tishman Speyer and ICICI Venture will remain equity partners in TSI’s three existing projects.

Ginger Hotels Group Plans To Launch 60 to 70 Properties In India

According to Financial Chronicle’s interview with Prabhat Pani, CEO, Ginger Hotels, the Ginger Hotels group plans to launch 60 to 70 properties in India, within the next three to four years. The company has adopted a new method of refurbishing existing properties, instead of buying land for new hotels.

So far, investment in the Indian expansion has been Rs 250 Crores. The group’s first Delhi property (13th Indian property) is the hotel group’s maiden collaboration with a government body like the Indian Railway Catering and Tourism Corporation (IRCTC). Ginger Rail Yatri Niwas, which is an upgraded version of the pre-existing hotel, launched under a PPP model.

In North India, Ginger Hotels has a property under construction in Ludhiana, which is coming up on the fourth and fifth floor of a mall. The company is developing its business model, as well. The hotel group will look to enter Lucknow, Faridabad, Ajmer, Noida, Baddi, Kota, Bhilwara, Jodhpur, Gurgaon etc. Pani declined to comment on international developments.