Monthly Archives: October 2008

Attention turns to rental real estate market

Rental property investments are proving more popular in India as the country sees a slowdown in sales, according to experts.

Real estate companies say people have less money to spend on buying a house, leading many to look at lettings instead.

More recent data from the company shows demand for property in Hyderabad declined by 11% to 12% between June and August.

The paper also reports the survey shows 62% of those looking for property in the city would buy a residence anywhere in the area provided it met their basic requirements.

However, Hyderabad also appears to be bucking the rental demand trend, with the number of people looking for lets in the city down 5% to 11%.

Govt criticizes ASSOCHAM

Taking strong exception to industry chamber Assocham‘s forecast that a quarter of people in certain key sectors will lose jobs in the next ten days, government today said the economy is poised for the other way.

“The Deputy Chairman of the Planning Commission and my colleague Jairam Ramesh (Minister of State for Commerce) have taken serious exceptions to an Assocham report… The pace of job creation may slow down but that doesn’t mean that jobs are being destroyed,” Finance Minister P Chidambaram told reporters here.

The Minister further said another industry chamber FICCI too had contradicted the Assocham study, which had said that in the next ten days or so about 25% to 30% employees are likely to lose jobs in seven sectors including aviation, information technology, steel, financial services, real estate, cement and construction.

Chidambaram further said that 7% growth rate, the lowest projection made by experts, would “create more job than was done in entire NDA regime, when the growth was only 5.8%. Why this question was not raised when the economy was growing at 5.3%?”

Replying to questions on the recent report on slowing of the US economy, the Minister said, “when the world output slows down, the growth in developed countries slows down… it will have an indirect impact on India.”

However, he added, “the India economy is domestic consumption and investment driven economy. Exports will play a significant role but not as much as they do in China.”

Pune to become 7th metro city in India : Assocham

Pune will soon acquire the status of being a metropolitan city in India. According to an Assocham report on ‘The 7th emerging metro city in India’ it owes its upgradation to a fast development pace in the area of infrastructural facilities, friendly business environment, education avenues and employment opportunities.
Contributing factors include the high real estate prices and a large population base as compared to other upcoming cities. The study was carried out in four tier II cities including Pune, Ahmedabad, Lucknow and Chandigarh ranking them on eight

parameters necessary for a metro city. They included social infrastructure, infrastructure availability, real estate cost and availability, transportation facility (connectivity), presence of quality educational institutes, employment opportunity, facility of financial services and business environment.
Pune occupied first position overall though it needs to improve on transportation, social infrastructure and financial services.

Ahmedabad was the second most potential city providing good infrastructure and facilities and connectivity. Lucknow was placed with third rank as it needs to pick up on infrastructure, business environment and social infrastructure.
Chandigarh, the smallest city among the four in terms of area size and population was ranked at the fourth position though it was ranked foremost in financial services and business environment.
Among the four cities, Ahmedabad occupied first rank on the parameter of social infrastructure. The city with literacy rate of 79.89% has high-grade institutes like IIM, NID, NIFT, EDII etc. The city of Nawabs, Lucknow with a literacy rate of 83.5% and presence of quality educational institutes including IIM, SGPGIMS etc was placed at second position. Both Pune and Chandigarh were assigned 3rd positions respectively on the social infrastructure parameter.
Pune has a literacy rate of 80.73% and skilled population, the city is a place of high grade institutes including NIBM, NIC etc. However, 81.9 per cent is the literacy rate in Chandigarh with prominent institutes being Institute of Microbial Technology (IMTECH), Centre for Defence and National Strategic Studies (CDNSS) etc.
The infrastructure parameter rank cities on the basis of sub parameters including number of entertainment avenues, malls and multiplexes along with the presence of star category hotels.
The Queen of Deccan, Pune with maximum number of malls and multiplexes (26) and star category hotels (25) notched the top position. The second rank was occupied by Ahmedabad, with the city having 25 malls and multiplexes and 17 star category hotels. Chandigarh and Lucknow was placed at 3rd and 4th position respectively. The favourable location and smoothen process of acquiring land along with the high property prices are few sub parameters of real estate cost and availability that attracts corporate sector to expand their business.
Pune has outpaced the other three cities on the parameter of real estate prices and availability. After Pune, Chandigarh is considered to be the next emerging real estate market. Ahmedabad occupied 3rd rank while Lucknow at the bottom position was considered as most time consuming city in terms of process for acquiring land.
On the employment parameter, among the four upcoming tier II cities, Pune carved the maximum share of 32.74% in the total jobs tracked for the period January-June 2008. The prominent sectors attracting large number of aspirants include IT,manufacturing, engineering and academics among others.
The four cities are ranked on the parameter of financial services, taking into account the sub parameters including number of offices of scheduled commercial banks, density of offices of scheduled commercial banks per population, number of accounts of the scheduled commercial banks per population, presence of brokerage firms, presence of stock exchange, transparency in trading system. In terms of providing financial services facility to the natives of the city in respect of above parameters, Lucknow occupied first position. The second rank was grabbed by Chandigarh. However, both Pune and Ahmedabad occupied third rank.

Realty stocks battered, Unitech down by over 51%

Real estate sector was the biggest loser in today’s stock market plunge, led by country’s second largest firm Unitech that witnessed a sharp fall of over 51%.

The realty index witnessed a 24.4% decline, which is more than double the benchmark index Sensex fall of nearly 11%. The index has fallen by 31 per cent in a week, 55.5% in a month and 82% in the past one year.

Real estate companies, which have a presence in the index, saw an erosion of about Rs 20,000 crore in market capitalization.

Unitech lost 51.3% to settle at Rs 30.1 on the Bombay Stock Exchange, followed by DLF, which lost 24% to close at Rs 203.9 a share.

Ansal Infra, Indiabulls Realty, Omaxe, Parsvnath, Sobha Developers, Peninsula Land, Mahindra Lifespace and Phoenix Mills fell by 10% to 20%. HDIL scrips fell 9%.

The steepest fall in the case of Unitech followed media reports that the firm defaulted on payments to Greater Noida Development Authority for a land deal struck in 2006.

Unitech issued a statement to the Bombay Stock Exchange that the authority has revised payment schedule.

“Unitech is currently not in default and was never in default with regard to the payment to the authority,” the statement said.

Borrowers will have to wait for lower lending rates

According to HDFC chairman Deepak Parekh, lending rates would ease only after deposit rates come down, which will take some time to happen. The statement comes at a time when most people hoped that banks would start lowering their lending rates, following the recent repo cut by the Reserve Bank of India (RBI).

Welcoming the liquidity infusion steps taken by the central bank, Mr Parekh said, “RBI has taken all possible steps to infuse liquidity and in the past 10 days. This will help the growth of the economy as well.”

He added that cash conditions were comfortable at the moment, and that he didn’t expect any further moves in the upcoming half-yearly monetary policy. “We might have to wait for the next credit policy for further moves,” said Mr Parekh, speaking on the sidelines of a conference on Tuesday.

He indicated that the central bank had taken a number of liquidity-infusing steps in the past two weeks, including cutting the repo rate by a percentage point and slashing cash reserve requirements for banks by 250 basis points. Though he refused to comment on interest rates with respect to HDFC, Mr Parekh added, “Lending rates can not come down unless deposit rates come down. At present, deposit rates across banks are pretty high.” He also said that real estate sales had come down.

Real estate sales are dull at the moment. Prices need to come down for sales to rise again,” he added. Mr Parekh added that he saw the economy growing at 7% this year. “Though it is considerably below projections of 9%, it is still a strong rate of growth for any country,” he added.

Indiabulls Real Estate surges 22%

Shares of Indiabulls Real Estate surged over 22% to Rs 131.15 on BSE Tuesday, while Indiabulls Financial Services climbed over 7% to Rs 105.60 after the company assured of not having any non-performing loan in its portfolio.

The financial services company reported a net profit growth of 21.4% to Rs 136 crore for the second quarter ended September and said that it does not plan to expand its loan portfolio from the current Rs 11,000 crore due to adverse market conditions.

The company saw loan repayments of Rs 2,000 crore during July-September and did not face any problems with large-ticket loans, Director Gagan Banga said.

Brokers said market sentiment has improved on positive move taken by the central banks to ease liquidity crisis that boosted the financial and realty stocks. Realty index of BSE was up 7%, while Bankex was up 4% in afternoon trading.

RBI cuts repo rate might be good news for realtors

RBI has cut the repo rate by 100 bps to 8%. This is effective immediately. The Finance Minister, P Chidambaram said that the repo rate cut will help in moderating inflation. This is a positive move which will enthuse both borrowers and investors, Mr. Chidambaram added. The RBI’s move is consistent with the government’s aim of maintaining high growth, he added.
This news may come as a boon for the realty companies as it may help bring down loan rates. This is the first repo cut since 2003.
We feel that a lot of liquidity is already infused in the past ten days. The move may not have an immediate impact on stock prices. Confidence will not come just because of a CRR cut or a repo rate cut. But once global markets recover, this will give a further boost to stock markets.

Developers are offering property discount

Property developers in India are offering massive discounts as the markets suffer from the global finance crisis. There are offers everywhere. Posters declare – discount bonanza – and the deeper you delve the better the bargain.
Offers include free covered parking spaces, exemptions from preferential location charges, discounts on the rate per square feet of the property, paid interest and holidays.
Some developers are also offering to pay stamp duty and registration fees which can account for between 4 and 10% of the cost of buying a property. Then there are offers to pay electric bills for a set period.
‘These offers are being used as a marketing tool mostly by developers in Delhi, Mumbai and Chandigarh. The trend is likely to continue till the interest rates come down to a moderate level and capital values cool off,’ said Sandeep Goel, managing director of MSX Developers Pvt Ltd.
It is interest rates that are causing property prices to fall as purchasers can’t afford to buy. The rate has gone up from 7.5% to more than 12% and this has obviously shocked the homebuyers whose budgets have gone haywire. ‘As a result, the buyers are going in for smaller tenements or waiting for interest rates to fall. This festive season, we are offering heavy discounts on down payments,’ said Rakesh Yadav, managing director of Antriksh Housing Constructions.
However developers remain focused and they believe that prices will start rising again. ‘For actual buyers it is the right time (festive season) to buy property because the coming time will be more costly. The industry senses that the long-term forecasts for the sector continue to be good,’ said J B Kramchandani, senior vice president of Parsvnath Developers.
‘Two and three tier cities are also driving the investment and growth phase of the country owing to the huge unexplored potential in these cities. Still, these offers are a good deal in terms of potential price appreciation,’ he added.
However not all developers are making offers. Sanjeev Srivastava, managing director of Assotech Limited, said his company does not believe in offering sops to sell apartments. ‘The kind of quality we have delivered to date and our past record of timely delivery of property has created a strong goodwill in the minds of our prospective buyers,’ he pointed out.
‘Buyers who are booking their properties with us during the current Diwali season, are pretty confident about the Assotech brand and its commitment to provide innovative and cost effective product in due time,’ he added.

Lenders force builders to start selling

MUMBAI:Financiers have started talking tough with Indian property firms in trying to salvage the money they had lent. “Sell-before-it’s-too-late” is a point that some of the big lenders are driving home, while a few overseas funds which had committed equity investments in tranches have gone into arbitration to wriggle out of the promise.

Most builders were prompt with interest payments till September 30. But lenders now fear that many would default in the December quarter or may be even earlier. A large builder has already failed to pay interest to a foreign fund, which had purchased the structured securities at the peak of the property boom.

Banks and institutions have lent over Rs 75,000 crore to Indian builders. This does not include around Rs 25,000 crore worth of bonds and debt papers which mutual funds had bought. While the total value of land and properties held as collateral is more than the outstanding loan, it’s still cold comfort. If builders start defaulting in a big way, the lenders will be left holding huge tracts of land amid crashing property prices.

The lenders said that in some cases, loans coming up for repayment in October and November will not be rolled over — a threat they feel could push some builders to sell properties at a lower price and service the loan interest.

Some of the loans are on a rental discounting model, which means the builder pays the loan interest every month out of the rental income from commercial properties. For construction finance, the loan is cleared in equal quarterly installments, where the amount — like individual home loans — consists of interest and part-principal. A trickier situation is where properties are lying half-built or have been nearly completed, but potential tenants like brokers and finance firms have backed out with the downturn in the market.

But lenders know that they can’t push too hard. “We are targeting to meet the borrowers separately to assess their respective cash flow positions. We have to take a case-by-case approach,” said a banker. What’s worrying them is the huge leverage in the real estate sector, with most builders bringing in relatively little money as their own capital to borrow big-time against land banks.

Real Estate Deals Down 57% Globally In 2008

The number of commercial property transactions has dropped off significantly in the past three months, according to a report by Real Capital Analytics – including in Asia. Macklowe, Fortress, Morgan Stanley, Aviva and GE are the world’s biggest sellers of real estate.

Commercial property deals are down globally by 57% over the past year, with transaction volumes off by as much as 77% in countries such as the US, according to a report from Real Capital Analytics.

Even Asia is not escaping the credit crunch, with the pace of property sales down by 18% in the year to August – with deal flow expected to decline by as much as 68% in the third quarter of 2008 compared to the previous 12 months.

The RCA report has highlighted what private equity real estate deal guys have known for the past month – that transactions are almost impossible to close in the current environment.

Indeed, according to the Global Capital Trends report, all property sectors across the globe are being affected by the credit crunch – with hotel and office experiencing the greatest contraction in sales so far this year with transactions down by 71% and 65% respectively in the year to August. Sales of retail, industrial and apartment were also down globally by 62%, 48% and 49% respectively.

Land and development rights fell the least, seeing a decline of just 19 percent in sales in the 12 months to August. However the sector is expected to fell the full force of the downturn in the third quarter – with transaction volumes estimated to fall by 72% compared to the year before.

The US has been one of the worst affected real estate markets during the credit crunch, with new property offerings outpacing the number of closed deals by two-to-one.

Highly-leveraged sellers such as Macklowe Properties were among the biggest property sellers in the year to August, as the credit squeeze forced them to liquidate assets. Macklowe Properties sold $6.5 billion of property, according to the report, following by Fortress Investment Group on $6.4 billion, Morgan Stanley on $4.8 billion, Aviva London on $3.9 billion and GE Capital on $3.8 billion.

Sales of assets from the Archstone apartment company, taken private by Lehman Brothers and Tishman Speyer for $22 billion in October 2007, accounted for 12% of all apartment sales in the US since June.

One consequence though of tighter credit conditions, the report added, was the proliferation of equity joint ventures. “With significantly more equity needed to get deals done, investors are teaming up or taking on equity partners to complete transactions,” the report said. Around a fifth of all property acquisitions worldwide are made jointly between two or more equity partners, while for deals above $250 million, 42% of all transactions are done through a JV.

Choice Hotels To Invest Rs 1500 Crore

Choice Hotels is deciding to invest fifteen hundred crore rupees over coming two years to double the number of its hotels from the present twenty-five to fifty across India. The company has already started construction of twenty-one more hotels and has tied up with various construction companies. Choice hotels has done dealing with Amrapali group, Mittal group, Asterix group and Sabri group. Planning for hotels in New Delhi, Amritsar, Hyderabad, Pune, Chandigarh, Manesar, Gurgaon, Goa, Bangalore, Chennai, Ludhiana, Noida and Bathinda is going on. Choice hotels has contracted Amrapali group for 3 hotels, Mittal group for 2, Asterix group for 2 and Sabri group for 4 hotels.

How will India Survive In Global Financial Crisis

The significance of the financial crisis that has hit the US economy can be measured from the fact that the cost of the rescue of these financial giants to the Federal Reserve and Treasury Department has been estimated at close to a trillion dollars.
According to some analysts, the total cost on this count could go up to $2 trillion since the financial turmoil is not likely to end anytime soon. Most of these banks had created debts to the tune of 30-40 times their equity against the prudential norm of not exceeding ten times.
In India, the Reserve Bank of India has been pumping in liquidity into the system and local banks have been borrowing at least Rs 70,000 crore on an average over the past three weeks under its liquidity adjustment facility. Even so, liquidity has been drying up.
Recently, the Asian Development Bank down-scaled the growth expectations of many Asian economies, including India’s, in its half yearly report: Asian Development Outlook 2008.
The ADB attributes this to the worsening conditions in major industrial economies that will weaken demand for goods and services. “The myth of uncoupling has been exploded”, the report says.
India’s GDP growth estimate for the current financial year has been downgraded from 8% to 7.4% and, for the next financial year, from 8.5% to 7%.
ADB bluntly states that “very large fiscal imbalance created by the current level of subsidization of oil, fertilizer and food, as well as other off-budget items, sets a daunting task for economic management.”
With the financial turmoil in the US and Europe showing signs of worsening since the publication of Asian Development Bank’s half-yearly report, one need not be surprised if GDP growth in India turns out to be even lower than that projected by Asian Development Bank — just around 7% or so for the current fiscal. In line with the falling capital markets across the world, which have already wiped out investor wealth of over ten trillion dollars this year so far, the Indian stock market has witnessed an unprecedented fall over the past few weeks. Not surprisingly, FIIs have been pulling out from the stock market in a big way, corporate borrowings from the global markets are becoming increasingly difficult, raising money for new investments through public issues is on hold, and liquidity in the economy is fast drying up.

Public-private partnerships may come under CAG purview

In a move that may indirectly bring private companies under the scrutiny of Comptroller and Auditor General (CAG), the statutory body has decided to bring five new sectors including public-private partnerships (PPP) into its ambit. The other four sectors are environment and climate change, e-governance, social audit and regulatory bodies.

In its ongoing biennial meeting, the CAG office will also examine the nature of reforms and re-engineering of audit processes, methodologies and approaches to support its intended role. The statutory body feels that in today’s liberalized and globalize environment, the increasing varieties of organizational forms have raised serious challenges for the audit process and methodology. According to a CAG report, Rs. 1,50,000 crore has been allocated to various central government-funded schemes.

Under the current procedure, the statutory body is not able to capture the amount in transit or the actual sum utilized. At any point of time there is an estimated float of Rs 10,000 crore. “This has been the issue with many national schemes such as National Rural Employment Guarantee Scheme (NREGA) and National Rural Health Management (NRHM).

We found loopholes within these two schemes and informed the government. We’re currently working on a system which can sort out government accounts where multi-layered agencies like non-governmental organizations (NGOs) are working,” said deputy CAG, Bharti Prasad, on the eve of the 24th Accountants General conference. Plans are on to enhance the role of state CAGs and further integration process between them and the CAG.

Reality check as property market slumps in India

With the global credit crisis leading to the worst slowdown in the Indian real estate market in recent times, agents and developers are hoping the festive season surrounding Diwali, the Hindu festival of lights, will drive away the gloom. Coming at the end of October, Diwali will prove a crucial period for developers as many Indians consider it to be the start of the Hindu business year and an auspicious time to start new ventures, buy property and expensive consumer goods.

Indian cities enjoyed a real estate boom for nearly four years, ending 2007. After being stagnant for the first part of the year, property prices slid about 15% during the last two months in key metro areas like New Delhi or Mumbai and fast-growing cities like Bangalore and Pune.

Apart from prime locations in such cities, price corrections of up to 15% could continue in the residential, office and retail space.

Realty consultants said the property market will be affected for at least a year.

Current Fiscal FDI may miss target by 10 Billion Dollars

The foreign direct investment to the country may miss the current fiscal target by as much as $10 billion in the backdrop of a global economic slowdown and the US financial crisis, CEOs said in a survey.

In a survey of CEOs by industry body Assocham, majority said India could optimally receive about $25-26 billion of FDIs in 2008-09 fiscal against the targeted volume of $35 billion.

Other factors that may hinder the investment flow includes, adverse sentiments in the stock market, bottlenecks on infrastructure, no initiatives on disinvestments, rising interest rates, it said.

The target of FDI in the last fiscal was USD 30 billion, of which the total investment received were about $25 billion.

About 300 CEOs opined that like last fiscal, sectors like services, computer software and hardware, construction, real estate and telecom would lead in getting FDI in 2008-09, Assocham President Sajjan Jindal said.

During January to June, India received FDI to an extent of $22 billion only. During this period, FDI flow from the US towards India stood at $1.3 billion, which is only 6.11% of total FDI of $22 billion received by India during the period.

Out of 400 CEOs interviewed, 280 said stock market would continue to remain in dampen mood as large number of investors have shifted their investments to traditional source of savings channels.