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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Attention turns to rental real estate market

October 31, 2008 – 6:01 am

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%.

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Govt criticizes ASSOCHAM

October 31, 2008 – 1:38 am

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.”

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Pune to become 7th metro city in India : Assocham

October 30, 2008 – 4:38 am

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.

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Realty stocks battered, Unitech down by over 51%

October 25, 2008 – 2:48 am

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.

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Borrowers will have to wait for lower lending rates

October 22, 2008 – 5:16 am

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.

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Indiabulls Real Estate surges 22%

October 21, 2008 – 6:20 am

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.

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RBI cuts repo rate might be good news for realtors

October 21, 2008 – 2:11 am

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.

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