Monthly Archives: November 2008

Terror impact is a temporary setback

Rating agencies and foreign investors do not see any impact on the prospects of the economy because of terror attacks in the financial capital. The meltdown in the global financial markets is still a larger concern.

Past experience has shown that markets have reacted only temporarily to such extraordinary events. Although some reports do not make a reference to the terrorist strikes, the event is likely to have been factored since the report includes India’s Q2 GDP numbers, which were released on Friday.

India’s economic growth falls further to 7.6%

India’s economic growth declined to 7.6% for the second quarter of this fiscal, leaving industry with the hope that policy measures taken over the past month will avert a further fall and help revive manufacturing.

The country’s growth was 7.9 percent during the first quarter of the fiscal (April-June) and 9.2% during the second quarter of 2007-08 (July-September), as per data on gross domestic product (GDP) released by the Central Statistical Organisation (CSO).

Prime Minister Manmohan Singh, Finance Minister P. Chidambaram and Reserve Bank of India (RBI) Governor D. Subbarao have projected the Indian economy to expand by 7-8% during the current fiscal year ending March 31, 2009.

The main reason for the fall in the overall economic expansion during the period under review (July-September, 2008) was a low, 5-percent growth in the manufacturing sector, as opposed to 9.2 percent in the like period of last fiscal.

Similarly, agriculture also logged a significantly lower growth of 2.7%, as opposed to 4.7%, while hospitality, transport and communications expanded the best 10.8 percent against 11 percent during the second quarter of fiscal 2007-08.

What has, however, come as a surprise was the 9.7% growth ion construction, as opposed to 11.8% in the corresponding period of the previous year.

Financial services, realty and business services also registered a notable growth of 9.2%, against 12.4%, given the circumstances where real estate companies have been complaining about a major slowdown.

“Economic slowdown in India has been on since June. The real impact of global economic slowdown on the Indian economy will be actually felt in third and fourth quarters,” said Sri Ram Khanna, professor and head of department in Delhi School of Economics.

Dalip Kumar, head of projects at the National Council for Applied Economics Research (NCAER), an economic think-tank, said economic depression in US had begun showing its impact on the overall industrial growth in India.

“Our industrial growth has been hit and would continue to deteriorate further next year. This has largely contributed to the downfall of India’s economic growth,” Kumar told IANS.

The Associated Chambers of Commerce and Industry (Assocham) said that the 7.6% growth was satisfactory given the circumstances and expressed confidence that the same would be maintained in the remaining months of the current fiscal.

“Slowly and gradually, interest rates, inflation and input costs are falling down whose collective reflection will fall on the overall growth of GDP,” the chamber’s president Sajjan Jindal said in a statement.

Another industry lobby, PHD Chamber of Commerce and Industry, presented a somewhat different picture. “The slowdown in is shows that our economic indicators have started weakening with some segments being affected more than others,” the chamber said.

“Investment in infrastructure should be increased and an early completion of ongoing projects be effected on a war footing. Attention should be paid on building rural infrastructure to rejuvenate demand in the countryside.”


Union urban development minister Jaipal Reddy said that the government will soon make available slum lands in New Delhi for re-development. The government will follow the Mumbai model where land is auctioned to the real estate developers for building flats. Certain number of flats will be reserved for the slum dwellers at a minimal price. The developers can sell other flats to customers at the market rate.

“We are in the advance stage of finalizing the auction process in consultation with the Delhi development Authority (DDA). We would be ready with the guidelines soon,” the minister said.

The minister informed that the government is also taking suitable steps to increase housing supply for people in middle income group in the Capital. “We have asked DDA to construct large number of flats for middle class population living in Delhi. With land cost hitting the roof and the financial slowdown squeezing the paying capacity of people, the government would take all possible steps to release and develop large chunks of land into affordable residential apartments,” the minister said.

Mr Reddy also said that the urban development ministry is giving final touches to the long pending bill on real estate regulator. “It would be a model bill that would be mandatory for Delhi and a model for other states to incorporate in their state legislature,” he said.

Mr Reddy further said that while the government is trying to pep the dying sentiments in the realty sector, the regular infrastructure needs would also be given a very high priority. He informed that the Planning Commission is considering ministry’s proposal to inject more funds into the existing corpus of Rs 50,000 crore. “We have asked for an additional funding Rs 20,000 to take up additional projects under the flagship programmed of Jawaharlal Nehru National Urban renewal Mission,” he said.

Unitech plans sale of assets to raise funds

In a bid to tide over the current financial crisis, Unitech, the second largest real estate developer in the country, is planning to raise money by selling some of its assets, such as hotels and commercial real estate.
The company, which currently has a debt of Rs 8,200 crore, is also planning to rope in private equity funds for residential projects by March 2009. In addition, it will transfer Rs 1,200 crore of debt to its telecom joint venture.
Talking to Business Standard, Unitech Chairman Ramesh Chandra said the company would raise around Rs 1,500 crore from sale of hotels and commercial space. Besides, it will transfer Rs 1,200 crore of debt to its telecom joint venture and will also realise Rs 300 crore as debt repayment from the joint venture. Unitech had lent Rs 820 crore to the joint venture and given a guarantee for another Rs 1,200 crore.
“By January, Unitech will raise Rs 2,500 crore through these routes,” said Chandra. The company has also decided to sell its plots to schools and hospitals. The company has around 27 plots, mostly of five acres each, and another 15 plots earmarked for hospitals.
Unitech is aiming to divest three of its hotels projects that are nearing completion. Depending upon the success of negotiations, these projects may be divested by 2009. It is already at an advanced stage of discussion to sell Courtyard by Marriot, the 199-room budget hotel in Gurgaon, and expects to close the transaction before January.

Lucky promoters miss market crash

A handful of Indian promoters have made a killing amidst the market mayhem. They were lucky enough to sell their companies at massive premiums this year, narrowly escaping the steep Sensex fall of the last two months.

The Singh brothers sold Ranbaxy in June at a 71% premium over the existing share price, Parikhs sold Zandu Pharma in October at a 54% premium to the latest price, BK Modi sold Spice Communications to Idea Cellular in June at a 52% premium, Burmans sold Dabur Pharma in April at a 56% premium, e4e sold Aztecsoft in May at a 55% premium and, in the same month, IL&FS and US-based brokerage firm E*Trade sold their stakes in IL&FS Investsmart to HSBC at a 63% premium.

These deals were sealed just before the market crashed to sub-10,000 levels. While the stock market started moving down after hitting a peak in January 2008, it had stabilized at 14,000-15,000 in August. But with large US financial services companies going belly up in September, the markets witnessed a fresh round of selling. Sensex, the bellwether stock market index, has lost 36% value since September 14.

Promoters of companies who negotiated the sales can now look back and call it “a close shave.’’ “Usually, when the market trades at a fair price, sellers look at a premium of 15-30%,’’ says advisory firm Grant Thornton’s M&A head Pankaj Karna. But, he adds, “Premiums that sellers command varies across companies. So a billion-dollar company which has a key position in its industry would get higher premium even when markets are trading at a fair price. Given today’s valuations, some promoters can even look at premiums which are in triple digits.”

Some of the deals were finalized when prices were relatively closer to the stock market prices. For instance, owners of textiles exporter Gokaldas Exports had announced they were selling stake to private equity firm Blackstone in August 2007 at Rs 275/share, a premium of 19.5%. The scrip, which rose to a high of Rs 299/share in January, closed at Rs 94.25 on the BSE on Wednesday. Ranbaxy promoters sealed the best deal, selling their company to Japanese drug maker Daichii Sankyo in June at Rs 737/share, a 31% premium to the ruling market price.

Indiareit buys Rs 300 crore stakes

Ajay Piramal-promoted real estate fund Indiareit has acquired about 15 percent stakes in Mumbai-based developer Neptune group for around Rs 300 cr. The deal assumes significance as the fund has chosen to invest in the company, rather than the usual practice of investing in individual projects.

Neptune group chairman Nayan Bheda confirmed the deal, but refused to share the details, including the amount involved. “We have expanded our operations across India and the money will be invested in upcoming projects,” Bheda added.

In the past few years, Neptune has grown into a pan-India player with projects in Pune, Hyderabad, Chennai, Vishakhapatnam, Kochi and Nagpur, among others.

“It is for the first time that we are investing in the entity-level. The deal will help us get a pan-India presence as Neptune is expanding operations across India,” said Indiareit Fund Advisors CEO Ramesh Jogani.

Indiareit is looking at investments in excess of Rs 200 cr in properties in Mumbai and Hyderabad. It had invested Rs 225 cr in Bangalore-based Skyline Constructions & Housing last year.

Sell property before correction sets in

As talks of an impending crash in property prices gather steam, the policy to be adopted by home-seekers is clear: wait and watch. The right time and price are a few months ahead. However, if you are a seller, the reverse is true.

Time is ripe for those planning to put their residential property on the block, say property consultants. This might be your best chance to get a fair price before correction gains ground. In fact, some experts believe that correction has already seeped in, with certain locations witnessing a correction as sharp as 25%.

“If one is able to sell the property for a reasonable sum, this is the right time to sell it and cash out,” said Pankaj Renjhen, managing director (Mumbai) of property consultancy firm Jones Lang LaSalle Meghraj. “For old properties in particular, the prices are better at the moment, so it’s time to look for the best options and make an exit,” added Aditi Vijayakar, director, residential services, Cushman & Wakefield.

Frasers Hospitality signs First Three Properties in India

Frasers Hospitality has signed contracts to manage its first three properties in India. June 2009 will see the opening of Fraser Residence Beverly Park, Bangalore, owned by the Skyline Group and managed by Frasers Hospitality. The property will have 50 Gold-Standard serviced residences and is located in the business district of the Hebbal sector, close to Bangalore’s new International airport.
Skyline Group also signed another contract for Frasers Hospitality to manage its other Bangalore property. Slated for opening in 2011, Fraser Place Hosur Road, Bangalore will have 153 serviced residences and is located at Bangalore’s “Electronic City” near the IT Park.
“Bangalore is India’s IT Hub,” said Skyline’s Group Managing Director Avinash Prabhu. “We are confident that the Fraser brand of luxury serviced apartments which has a loyal following in Europe, Australia and Asia, will appeal to the expatriate community here, as well as the well-heeled India businessmen and professionals in Bangalore on medium-term travel.”
A contract for Frasers Hospitality to manage a third Bangalore property has been signed with the Minerva Group. Fraser Place Whitefield, Bangalore will have 99 serviced residences located in the heart of the city’s IT hub of Whitefield, a well connected and self contained suburb, home to many multinational companies. The property will also open in June 2009.
India forecasts US$35 billion in foreign direct investment for its 2008-09 financial year, an increase of 42% compared to US$24.57 billion in 2007-08.
“Though these numbers will be impacted by the financial crisis, India will still see positive growth,” said Mr Choe. “This is impressive by global standards and India will still see demand for high-quality secure branded hospitality like Fraser especially among business travelers, our target market.”
All Fraser-branded properties provide five-star-type luxury combined with the space of an apartment, with separate living room, dining room and fully-equipped kitchen complete with clothes washer and dryer. In addition, residents can enjoy a full range of facilities, including all-day dining, business centre, swimming pools, fitness club, children’s playground and indoor playroom.

RBI makes recast of realty loans tougher

India’s struggling real estate sector is set to come under further pressure in the coming weeks as the Reserve Bank of India (RBI) has made it tougher for banks to ‘restructure’ loans, forcing them to cut house prices or risk being starved of bank funding. Banks often resort to restructuring loans — a practice aimed at preventing loans from being classified as bad — when they sense their borrowers are facing difficulties in repaying loans. In a typical restructuring, banks give borrowers more time to repay the loan by extending the loan tenure, and sometimes, even at reduced interest rates.

Such an exercise enables banks to keep their non-performing assets (NPA) ratios under check and their books clean of the stigma of dud loans. But in a little-known directive issued earlier this year, the central bank has ordered that the moment a loan to a builder is restructured, banks must classify the account as an NPA.

However, for restructured loans in all other sectors, the account can continue to be treated as a so-called ‘standard asset’, thus sparing banks from having to make large provisions in their profit and loss accounts. The inability to restructure loans easily is forcing banks to put pressure on builders to cut prices, sell properties and service loans. Builders are usually left with little choice as an NPA tag will make it difficult for them to approach other banks for funds.

“We are putting pressure on the real estate sector to reduce property prices. In such times, even if they are able to keep their head above water, it would be fine. They have all had a good innings so far. Now, they have to learn to live with thin margins,” said TS Narayanasami, chairman & managing director of state-run Bank of India, and the chief of industry body — Indian Banks’ Association.

“Just banks reducing interest rates will not help in reviving sentiments; builders will have to bring down prices for buyers,” Mr Narayanasami added.

Bankers say demand for home loans has fallen because buyers are waiting for property prices to fall. “Banks have taken the initiative by cutting home loan rates. Prices of cement and steel too have fallen, but builders have not reduced property prices,” said MV Nair, CMD of Union Bank of India.

Although the RBI relaxed some bank lending norms for the building sector last weekend, it has remained quiet on the issue of restructured loans of builders.

Analysts have expressed concerns over the financial health of the real estate sector. City-based retail broking firm, India Infoline, fears the liquidity situation of developers could worsen further if banks refuse to refinance maturing debts of real estate companies and maintain the credit freeze on their accounts.

“We reckon that debt maturing over the next 12 months for developers like Unitech, Sobha and Puravankara is higher than our estimate of these companies’ revenues over the corresponding period. The situation with Omaxe, Parsvnath and Ansals also remains precarious, owing to large land advances and high receivables”, it said in a research note.

The building sector has seen a raft of credit downgrades amid refinancing concerns and bankers say the sector has little choice but to cut prices. “If a builder does not pay, banks would either initiate a recovery proceeding or restructure the loan. A recovery proceeding often results in lower realization. This, hopefully, should indirectly put pressure on builders to bring down price and go for negotiated sales,” said SA Bhat, CMD of Indian Overseas Bank.

DLF freezes projects

The liquidity squeeze-induced slump in demand has forced real estate leader DLF to fire some employees, put a number of hotel and housing projects on hold and yearn for 7% home loan rates.

“We must have laid off some employees somewhere,” DLF Chairman K P Singh told reporters on the sidelines of India Economic Summit, but did not give the number of jobs that were cut.

The company has also deferred some of its projects due to poor demand. “In hotels, residential and commercial everywhere…deferred because of lower demand and liquidity crisis,” he said, again without sharing the specifics.

Singh also said high interest rates have taken a toll on demand. “There are no takers for housing sector… Ideally, the interest rate should be around 7%.”

Asked if the current prices of the realty projects are inflationary, Singh denied and said: “It cannot be inflationary as it has to be competitive. It also depends on supply and demand.”

Because of demand going down, many projects have been closed down by many developers across the country, he added.

Morgan Stanley stays optimistic on Indian realty

The global economic slump and downturn in the real estate hasn’t deterred Morgan Stanley Real Estate from going ahead with its India plan. It’s planning to invest an additional $1 billion over the next five years and has recently formed a large team for Indian operations.

These investment plans—the company had earlier invested about $750 million in the India—come despite views that India could see fewer commercial investment transactions in the near term. There is an opportunity to develop asset management expertise in real estate to help grow the property industry, said Morgan Stanley Real Estate in India interim head Sean Williams, who is also MD of Morgan Stanley Capital KK.

The company has formed a 12-member team for this purpose and has also appointed Naresh Naik to head the asset management division. “Infrastructure is key to support new residential, industrial and retail facilities. Limited institutional ownership of property means little asset management expertise exists outside of individual owner-users of property,” said Mr Williams. “As such growth opportunities exist…but more broadly, there exists a need to develop asset management expertise to help evolve the property industry’s focus from growth to profitability,” Mr Williams added.

Banks and financial institutions across the world tightened lending to real estate after the subprime mortgage crisis in the US and other countries compounded into the ongoing liquidity crisis that has affected all economies including India.

A recent DTZ report, a global real estate adviser, says real estate capital market was about $12 trillion in 2007, including products in public and private debt and equity, although “this would have been compressed significantly in the last 12 months,” said Mr Williams. “To date, the percentage of global cross-border inflows to India has been modest, and this is likely to remain a bit lower in the short term, with many investors focused on deals with lower risk-return profiles,” he added.

No slowdown in realty projects

Mahindra and Mahindra on Monday said there is no slowdown in its real estate projects, even as there is a slump in demand.

“We are not slowing down on any of our projects. Jaipur is rocking, Chennai is doing well, city-based projects such as Faridabad are also doing well,” Mahindra and Mahindra Ltd Executive Mr Arun Nanda said.

Fundamentals of real estate have not changed. Mr Nanda said, there were no funding issues for its projects and the company’s affordable housing projects are not going to disappear.

“We have actually got cash in the bank,” he said, adding there is a huge demand in Rs 30 to 40 lakh apartments segment. He, however, said the housing loan segment is facing problems and investors are not coming forward. “Demand has been put on back-burner and interest rates are hurting people,” he said.

Real Estate Firms Look At Diaspora

In these times of economic slowdown, Indian companies, especially real estate firms, are looking at diaspora in the Middle East for investment.
The government kick-started a series of “investment meets” last week in Muscat that had major Indian firms hard selling India’s economic stability to the diaspora.
The Muscat meeting, held under the aegis of the overseas Indian affairs ministry on November 12, is the first in over 16 such meetings to be held in the Middle East, UK and US.
These countries account for the bulk of the Indian diaspora. According to Col Harmeet Singh Sethi, head of the Overseas Indian Facilitation Centre (OIFC), the Indian government and business groups will target areas in the Middle East that remain largely ignored but represent big money including Sharjah, Dubai, Abu Dhabi and Bahrain.
According to Sethi, real estate, education and wealth management are key areas where India is looking for investment and support from the diaspora. One of the major obstacles in this area is the bureaucracy and red tapism. “We were told that India is rated the 83rd most difficult place to do business in. There were reservations expressed by business people there who are interested in investing in India but we were able to allay their fears to a large extent,” Sethi said.
The meeting included biggies like DLF, Career Launcher and Kotak Mahindra.
The investor tete-a-tete comes close on the heels of PM Manmohan Singh’s trip to Oman where he asked Gulf nations to invest in Indian infrastructure and help the country register 9% growth.
India is now looking at big-ticket investments in areas like infrastructure, healthcare, education, assisted living, wealth management and real estate.
Indians send the highest amount of remittances back home, beating even China. India has now captured one-tenth of global remittance flows with total remittances from overseas Indians growing steadily from $2.1 billion in 1990-1991 to $27.1 billion in 2006-2007.
But investment from the diaspora lags behind. Sources said the ministry of overseas Indian affairs was keen to convert this emotional bond into a financially productive one.

Save money by shifting home loan to public sector banks

The Indian government is trying hard to bring down the interest rates in order to counter the economic slowdown. Indian finance minister, Mr. P. Chidambaram, met with heads of private as well as PSU banks and advised them to lower lending rates.

Expectedly, several public sector lenders were first to follow the advise. SBI have lowered their prime lending rates to 13%. Bank of Baroda, Allahabad Bank, Syndicate Bank, Central Bank of India, Oriental Bank of Commerce and Corporation Bank have reduced lending rates by 75 bps to 13.25% with effect from November 10. Dena Bank cut its PLR to 13.5% from 14.25% and, among foreign banks, Citibank lowered its benchmark lending rates by 50 bps to 15% with immediate effect.

Chidambaram asks US, Europe to ‘set their house in order’

Finance Minister P Chidambaram has asked the US and Europe to “set their house in order” to reverse the impact of the financial crisis on economies worldwide and help capital to flow back to developing nations.

“If they (US and Europe) set their house in order, surely capital will flow back to developing countries credit will flow back and things will be much better”, he said in an interview to a private television channel ahead of the G-20 Summit here.

The Minister further said, “What India wants is that the country where this crisis originated the US and some countries in Europe must do all that is necessary to reverse the impact of the crisis of the global economy, especially the economies of the developing countries”.

Asked about the ways to encourage capital flow back to developing countries, Chidambaram said, “We do not have to do anything more. What we have had in place was enough to attract capital in the last three years. What is happening now is because of what is happening in their countries.”

Merrill buys into Rajlaxmi’s new warehousing project

Merrill Lynch, the US-based investment bank, has picked up a minority equity stake in Hyderabad-based logistics provider Shree Rajlaxmi group’s upcoming warehousing development project for an undisclosed amount.

“The project is a high-quality warehousing development that offers solutions to customers to enhance efficiency in their distribution channels,” said Rajlaxmi group director Anish Damodaran. The group has identified additional locations to expand its presence on a pan-India basis, he added.

Indian warehousing sector has emerged as an attractive sector of investment for private equity. The sector offers significant growth opportunities, but currently there aren’t too many investors in this space, say industry executives. Private equity and real estate funds such as BlueRiver Capital and Kotak Reality have already invested in the logistics companies.

“Rajlaxmi has strong domain knowledge in warehousing and execution capabilities, which will enable the project to offer space well suited to customer requirements,” said Merrill Lynch Asia Pacific managing director and head of commercial real estate Timothy Grady.

With India’s GDP growing at over 7% per year and the manufacturing sector enjoying double-digit growth, the Indian logistics industry is at an inflection point, and is expected to reach a over $125 billion in 2010, an analyst said. It is expected that with increased geographical distribution of incomes in India, consumer markets are extending beyond Mumbai, Delhi, Bangalore, Chennai and Hyderabad.

Calls grow for Indian real estate market aid

Indian real estate market associations are ramping up pressure on the government to produce a “stimulus package” to help the sector.

Groups like the National Real Estate Development Council (Naredco) are petitioning for new measures to make it easier for foreign property investment firms to buy in India.

Hindu Business Line also reports politicians are being asked to intervene to ease a shortage of credit for developers looking to complete building projects.

Attention has swung to the Indian government after China announced a $586 billion package for infrastructure and other domestic projects in a bid to help its own economy.

Barwa enters Indian real estate market

The Barwa Real Estate and Sun Group, a leading investor and private equity fund manager in India have entered into a joint venture agreement to explore the Indian real estate market.

Sun Group and Barwa have proposed to form a 50:50 joint venture company to be named as Sun-Barwa Land. The new company will seek approval from the Foreign Investment Promotion Board (FIPB) in India to aggregate, acquire, hold and develop land banks in high growth areas in the country. Sun Group and Barwa together will raise capital from Qatari and Middle Eastern investors.

Ghanim Bin Saad Al Saad, Barwa’s chairman and managing director said: “It was part of our strategy to enter the Indian market that has strong fundamentals and solid growth parameters. Barwa looks forward to its partnership with Sun Group due to its extensive experience in the Indian market.”

Nand Khemka, chairman of Sun Group said: “ We are proud to be partnering with Barwa which brings significant expertise from Qatar and the region to India with potential for major growth for years to come.”

Realty Sector demands ‘stimulus package’

National Real Estate Development Council (Naredco) and the Confederation of Real Estate Developers’ Associations of India (Credai) has petitioned the Government to ease foreign direct investment and external commercial borrowing norms and formulate a policy for rescheduling of term or construction loans to facilitate the roll-over of existing debt.

The request has also to be seen in the context of the recent announcement by China that it would invest about $586 billion on boosting infrastructure and consumption including low-cost housing.

In a letter to the Prime Minister recently, Credai said that the high credit squeeze was forcing ongoing projects to a virtual halt, amid an “extremely negative sentiment in the market”.

“Capital of both developers and funds have significantly eroded with crashing valuations. Developers and funds are unable to raise loans from external sources to finance completion of ongoing projects due to ECB and other restrictions on real estate development,” Credai said.

Stressing on the need to define ‘affordable housing’, Credai said that the FDI and ECB rules need to be modified to encourage investment in affordable housing. The norms currently allow 100% FDI in construction development projects including housing, commercial premises and resorts subject to conditions minimum capitalization, and area for development. “The limits of 50,000 square metres or 25 acres could be relaxed for this sector,” it said.

It further said that ECBs should be permitted for the real estate particularly for completion of all ongoing projects where there is already equity in form of FDI. Currently, the ECB is prohibited for real estate development.

“The monetary policies of the RBI for real estate projects and home loans by Indian banks, closure of ECBs and rise in interest rates together with stock market crash have lead to a situation where credit has dried up and buyers are hesitant to invest despite a strong demand,” said the Naredco Director-General, Brig. (Retd.) R.R. Singh.

Naredco has said that in cases where the land is purchased from Government agencies, banks should be allowed to finance the land cost in addition to construction costs.

The RBI, since October, has reduced several benchmark rates including mandatory deposit that banks keep with the central bank (cash reserve ratio), the amount which banks have to park in government securities (statutory liquidity ratio) and repo rate to unlock bank funds and trigger a low interest rate regime. However, the spate of negative news from the real estate sector shows no signs of waning. A report released by Cushman & Wakefield yesterday had pointed out that retail rentals fell by up to 20% in the third quarter ended September 2008, as retailers moved cautiously on expansion plans.

Home loan sales reviving

Bankers believe their strained home loan portfolios will see relief in the coming quarters, with interest rate cuts coming into force.
“We expect our home loan offtake to increase by 22 per cent y-o-y next quarter with the fall in interest rates,” said B.R. Pai, General Manager, Syndicate Bank. The bank, which has sixty-five hundred crore rupees home loan portfolio, saw a slower 18% y-o-y growth in home loans disbursed last quarter, as compared to a 30% growth for the same quarter last year.
Home loans will become cheaper as most public sector banks, including State Bank of India, Canara Bank and Syndicate Bank among others, have cut their benchmark prime lending rates (BPLR) by 75 basis points. Bankers are betting on buyers who had earlier postponed their purchases owing to a high interest rates to come on board.
Kumar Gera, chairman of the Confederation of Real Estate Developers’ Associations of India (Credai), said there is a pent up demand for residential property that will lead to a demand uptake once liquidity returns.

Growth may slow down

MUSCAT:Prime Minister Manmohan Singh on Sunday conceded that economic growth may slow down “somewhat” next year but said the fundamentals of the economy were strong and the banking system was safe and sound.

Addressing the Indian diaspora and the business community at two functions on the second day of his two-nation tour, the Prime Minister maintained that despite the shadow of a slight fall in the growth rate, India would continue to train its sights on investing $500 billion in the economic and social infrastructure over the next five years.

“Due to the current international economic and financial situation, our growth rate may come down somewhat next year. However, we still hope to achieve a growth rate of seven to 7.5% next year. The fundamentals of our economy are strong. Our banking system and financial institutions are well capitalized and secure,” he said. The high-level committee appointed by him to monitor the situation would suggest short and long-term measures to accelerate growth.

The Prime Minister’s observation means that this would be the first time India faces a dip in economic growth after averaging 9% over the last four years.

Dwelling on the macro-economic fundamentals, he pointed out that the domestic savings rate remained at a healthy 35% and was hopeful of the “young demographic profile” leading to a further increase in the rates of savings and investment over the coming years.

Turning to the Indian diaspora in Oman, estimated at roughly 5 lakh, he observed that their annual remittance of over $780 million is a “reflection of your ties with the motherland and your confidence in India.”

The India-Oman Memorandum of Understanding signed on Saturday for setting up a joint investment fund would open the door for greater investment.

Foreign Insurers Set to Invest Heavily in a Cash-Starved India Market

India’s latest move to liberalize its insurance sector may create the long-hoped-for opening for foreign insurance companies to advance into the under-developed market. But while business is thriving, foreign insurers must face reality checks in the form of the country’s limited capacity for infrastructure and system supports, competition from public insurers, operating expenses and investment costs.

The Indian Parliament’s raising of direct foreign investment limits in insurance ventures from 26% to 49%, if enacted in December, will mark a milestone in India’s insurance industry since the opening of the sector for private and foreign investors in 1999. Since then, insurance sector has been expanding by an average of 25% per year, according to PricewaterhouseCoopers in a recent report.

Underlying factors for liberalization are being driven by fundamental developments in the country’s insurance market, in which foreign capital injection and knowledge are important to fuel the growth of distribution and product promotion.

Prior to the partial opening of the market, the insurance sector was controlled by a handful of state-owned enterprises. In the absence of competition, product choice was largely limited to endowment and money-back life policies and fire and property policies, according to PricewaterhouseCoopers.

Best real estate deal

Real estate prices are over the moon these days and if you are house hunting there isn’t a decent deal available on earth. So isn’t it better to have a piece of land on moon.
The commute would may be a drag but there’s plenty of space on the moon and the view is to die for. A whole acre costs a measly Rs 1,000. No wonder, even Indians have put down a deposit. Scientists know it is rich in minerals and believe it might have frozen water. This is why NASA’s planning a lunar post by 2020.
“International treaties forbid private or sovereign ownership of extraterrestrial real estate,” says space lawyer Ranjana Kaul.
Plots have already started been named – The Sea of Tranquility, Mount Agnes, the Alpes Valley.

Core sectors show sharp dip in growth

A day after data on direct tax collections indicated dismal growth in key sectors, the bad news was confirmed on Friday by fresh data on the growth of six core infrastructure sectors, which showed they had grown by just 3.9% in the first half of current financial year, a sharp dip from 6.9% for April-September last year.

The data on a crucial part of the index of industrial production showed the growth of six sectors – crude oil, petroleum refining, coal, electricity, cement and finished steel – was 5.1% for September this year over the same month last year. These sectors constitute a little more than a quarter of the weight of the IIP but these being vital inputs for other industries, the weakening of their growth momentum seems to indicate a more widespread slowdown.

To what extent that fear is well-founded should become clearer when the aggregate IIP data is released next week, but there is anecdotal evidence to support the fear. In recent weeks, there have been reports of units of even large corporates having to temporarily shut down due to inventories piling up.

The government has recently disputed such interpretations based on IIP data, arguing that the index with 1993-94 as its base year is too out of sync with the current reality to reflect the actual health of the economy. However, both central excise and direct taxes have shown a downward spiral in the first six months of this fiscal, making it difficult to argue that IIP data is an aberration.

On Thursday, the finance ministry had released its direct tax figures where real estate, infrastructure, cement, automobiles, power, textiles and downstream oil companies were shown as sectors that witnessed a slowdown in growth. The advance tax collections from these sectors had the sharpest falls. Even the September figures for central excise, a pointer to the health of the domestic industry, showed a negative growth of 3.8%.

Capital won’t be issue for big realtors

Fund-starved realtors may heave a sigh of relief. Banks are now considering loans to this sector on case-to-case basis, especially for those facing genuine liquidity problems.
The move follows Prime Minister Manmohan Singh’s assurance to the industry that liquidity should not be a problem for companies having good fundamentals. Leading bankers have started asking developers to present a detailed account of their business challenges. Banks are also considering providing loans for purchase of land which was a strict no-no so far. Public sector banks are taking the lead in reviving the hopes of realtors.
Experts say RBI’s recent moves will also provide sufficient cushion to banks to lend to real estate companies. RBI slashed CRR by 350 basis points in the last few weeks, which will infuse about Rs 140,000 crore in the system. The central bank will also inject liquidity through its repo tenders at 7.5% instead of 8%. RBI has also lowered SLR to 24% from November 8 against the current norm of 25% of the banks’ deposits. Real estate developers’ association, Naredco, has had series of meetings with the leading banks, highlighting the effects of credit crunch on the sector and their shrinking revenue streams.
When contacted, Assotech MD Sanjeev Srivastava, who is a member of Naredco, said: “It has been brought to banks’ notice that 90% of the real estate market comprises unlisted firms. Hence the market situation is not the benchmark to draw conclusions about paying capabilities of unlisted companies. Top bankers have given us positive signals that things would soon improve.”
DLF executive director (finance) Saurav Chawla said things have started improving for the real estate sector. “In October, banks had temporarily shut loan disbursals but now interest rates have gone down and lending will regain momentum. As far as DLF is concerned, in the hardest of the times, we could sell our properties. We expect to do even better if liquidity improves,” he said.
Industry players pointed out that banks are waiting for a bit of correction to happen in the real estate sector. “With a slump in the Indian real estate sector due to excessive credit crunch and demand slowdown, home buyers can expect a further correction in real estate prices in the range of 20% in the short term. This would improve paying capacity of the loan borrowers and reduce their overall exposure,” a Delhi-based developer said.