Monthly Archives: November 2008

DLF looks for distress sale

November 7, 2008 – 11:32 pm

DLF Vice-chairman Rajiv Singh says the company would try and fill the gap in its portfolio by acquiring suitable assets which come up for distress sale in a depressed real estate market.

“We will be prepared to look at opportunities, but won’t pick up something just because it’s cheap. However, there are some gaps in our portfolio, which we would like to fill. If there are some significant assets, which are hard to replace in a market like NCR or Mumbai, we will certainly look at it,” said Mr Singh.

He said a challenging external environment had forced his company not to move “at a pace we would have liked to” and asked the government to bring down interest rate for home buyer as well as developers.

“We pay 3% more interest on loan compared to any firm similar to us in another industry,” Mr Singh said. DLF recently borrowed at 16% interest rate. The company reported a 4% decline in net profit at Rs 1,935 crore for the September quarter, compared to the corresponding quarter last year. In comparison to the first quarter of the current fiscal, DLF’s revenue remained flat at Rs 3,840 crore, even as customer advances fell 8.6% to Rs 1,585 crore.

As global economic turmoil unfolds, several MNCs have been taking a relook at their space requirements. Mr Singh says no client so far has backed out, but most of them have been “reluctant to commit space in the past 2 months.” Office space contributes major chunk of DLF’s revenue.

Sales to promoter group company DLF Assets (DAL) contributed 37% to DLF’s sales and 47% to the company’s profits in September quarter. The receivables from DAL though have been piling up, raising analysts’s apprehension on its ability to pay back. DAL currently owes Rs 4,800 crore to DLF. Mr Singh agrees raising equity would be difficult in current situation, but says DAL will be able to raise enough debt on the strength of its rentals and pay back entire amount due to DLF by the end of this fiscal. Properties held by DAL are expected to generate a rental of over Rs 600 crore by March ‘09.

On company’s retail foray, Mr Singh said, “Our intention is to bring high-quality retailer to our malls and that’s why we keep engaging with them. But we have no intention to compete with our other tenants.”

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Atria to expand in India

November 5, 2008 – 1:48 am

Bengaluru-based Atria group will expand in the Indian hospitality sector with plans to add 1500 rooms to its inventory at an investment of Rs 1500 Crore in the next five years. Hotel projects will come up in Delhi NCR, Chennai, Mysore, Coorg and Hyderabad. The group also plans to launch the 270 room Atria Grand, Whitefield, a five star luxury hotel, in 2009.
Atria Hospitality Management Services (AHMS), a part of the Atria group, will plan, build and operate the Atria Hotel, Atria Express Hotel, Atria Serviced Apartments and Atria Resort brands. AHMS will also offer Hotel and Hotel Project Consultancy, Management Services, Brand Franchise, Training and Sales and Marketing services on a pan-India basis.
Atria has interests in hospitality, power generation, convergence, education and real estate development.

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Realtors still stuck in house of correction

November 3, 2008 – 12:01 am

The RBI’s rate cuts alone may not stimulate the sluggish residential market. Experts feel that developers may have to further cut prices to bring buyers back into the market. Meanwhile, as a result of drastic fall in home sales, higher capital and construction cost, most developers have reported decline in revenue in September quarter.

“We are not very sure, but hope that RBI rate cuts will encourage banks to lower interest rates for home loans. A lower home loan rate will increase home buyers’ interest in the market,” says Omaxe CMD Rohtas Goel.

“The lower rates may enhance enquiries from potential home buyers, but may not necessarily result in higher number of transactions,” says international property advisor DTZ director Abhilash Lal. Adds Centrum Broking real estate analyst Rupesh Sankhe, “Affordability is the major issue for any home buyer. Today, the affordability is much lower compared to 2003, when both interest rates and property prices were lower. The property prices too need to come down along with interest rates if people are to be lured to realty market.”

According to an analysis, a buyer’s decision depends 60% on interest rates, 30% on property prices and the rest on sentiment or other unexplained factors. Now, home loan rates are expected to come down, bringing down EMI for buyers, but would still remain high compared to 2003-04 level. Therefore, property prices, which have gone up almost thrice in most markets in the past five years, also need to rationalize. “We earlier expected property prices to correct by 30-35%. Now with expected lower mortgage rates, a correction of even 20-25% may have the desired impact on home buyers,” says Mr Sankhe.

Residential market has seen price correction in the past few months to the tune of 20-25% in several pockets, but sales haven’t picked up. Besides higher interest rates and property prices, global financial turmoil, stock market crash and fears of job cuts too are worrying home buyers.

The squeeze in the real estate market is now getting reflected in realtors’s earnings figure. India’s largest real estate developer DLF reported a 4% decline in net profit at Rs 1935 crore. The second largest realty firm, Unitech, reported 3% decline in sales at Rs 983 crore and 12.6% lower profit at Rs 358 crore. Parsvnath’s sales fell 45% to Rs 217 crore, and profit dropped 78% to Rs 22 crore. Omaxe’s revenue declined 70% to Rs 204 crore and profit fell 87% to Rs 20 crore.

The biggest issue for realty firms today is liquidity crunch, as sales have dried up and banks are refusing to lend while private equity funds have slipped into wait-and-watch mode. “Rate cuts may not actually help ease liquidity situation for the real estate firms. Unless RBI relaxes lending norms to real estate, nothing is going to change,” says Mr Lal of DTZ.

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Chandigarh is fourth emerging metro

November 1, 2008 – 8:01 am

ASSOCHAM study says city fares well in real estate prices, business environment but lags behind in other parameters necessary for a metro city. Chandigarh comes a close second in real estate prices, financial services and business environment, but lags behind in other five parameters necessary for a metro city, says the ASSOCHAM Eco Pulse Study. The study ranks four tier-II cities — Pune, Ahmedabad, Lucknow and Chandigarh — as the most likely contenders for a metro status after Delhi, Mumbai, Chennai, Kolkata, Bangalore and Hyderabad.

They were assessed on eight parameters necessary for a metro city, such as 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.

According to the analysis, Pune occupies the first position, though it needs to improve on transportation, social infrastructure and financial services. Ahmedabad is the second city with most potential to be a metro, as it provides good infrastructure facilities and connectivity. The study puts Lucknow in the third place as it needs to pick up on infrastructure, business environment and social infrastructure.
Chandigarh, the smallest of the four in terms of area and population, ranks fourth though it fares well in real estate prices, financial services and business environment. At 9.21%, it is the least employment-generating city among the four emerging metros.

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Real Estate sector is in dire straits

November 1, 2008 – 3:27 am

The tight liquidity condition and the rise in interest rates have affected realty sector hard. Because of the RBI’s policy of discouraging banks in lending to real estate developers, the fund flow to the sector has dwindled.

This might even force a number of units to close down. The construction sector, which is the second largest employment provider in the country, is facing tough time because of the government policies, says CMD of Parsvnath Developers, Pradip Jain. He says that government must change its policy and allow the flow of funds at low interest rates so that people may buy houses. He said that banks should be allowed to lend directly to developers to meet their construction schedule.

This, he emphasized, will enable the sector to tide over the current crisis and help save the jobs of lakhs of poor construction labourers. Builders and developers feel that interest rates on home loans should be brought down to less than 10% from the present 13% to enable end users to buy houses. Since the global financial crisis came to a head, the banks have been discouraging home loan customers. The floating home loan rates of most of the banks have gone up to 13%. This has affected the affordability of end users.

The EMI of the same amount of loan for 20 years has gone up by almost 50% in the last four years as the interest rates have gone up from 7% to 13%. In fact, a senior developer says the problem arose after the government and the RBI started treating the real estate sector as a den of speculators. He says that instead of finding a remedy for the market crisis, they decided to kill the sector itself by discouraging banks from giving loans to developers.

CMD of Assotech, Sanjiv Srivastava , says that the sector played an important role in the high growth of new economies like IT, BPO and retail by providing them state-of-the-art buildings with all amenities, matching their new requirements. The crux of the matter is that the new economies grew only in those cities where world-class realty development first started.

In the NCR also, after the realty development first kicked off in Gurgaon, it came up as a hub of IT and BPO centres. Later, because of the availability of quality retail space, organized retail in the form of malls also came up, with Gurgaon showing the way, once again. Only after similar quality constructions started in Noida, did all these new economic activities start moving to that suburb.

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