HDFC Property holds back funds on ‘ground reality'
The Hindu Business Line, December 23, 2009, Page 1
Cites adverse market conditions, unrealistic valuations by developers.
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Treading warily
It has refrained from funding in the last seven to eight months, though it had ploughed in $380 million (about Rs 1,800 crore) earlier.
--------------------------------------------------------------------------------
S. Shanker, Mumbai
HDFC Property Fund has held back from investing over 50 per cent of its $800-million (Rs 3,800 crore) corpus due to adverse market conditions as also unrealistic valuations sought by developers.
It has refrained from funding in the last seven-eight months, though it had ploughed in $380 million (about Rs 1,800 crore) earlier.
Mr K.G. Krishnamurthy, Managing Director and CEO, HDFC Property Fund, said the fund has taken a cautious approach as suddenly there was a recession-like condition and project valuations were unacceptable.
Mr Krishnamurthy said many sovereign funds from Oman, Abu Dhabi, Singapore and Malaysia were also looking to invest in Indian real estate.
However, developers were still asking for the old discounted cash flow method of valuation. If developers were willing to value their portfolio at realistic levels, there was a very good opportunity for PE funding. However, he saw a sizable opportunity emerging in the next 12 months, though the product mix had undergone a change with IT Parks and Special Economic Zones making way for commercial and residential spaces.
20% DEMAND DROP seen
Notwithstanding realty prices looking up, he felt that the real-estate demand in 2010 would drop by 20 per cent across segments.
This, he attributes to developers' focus on completing existing projects as also the way the stock market has been performing in the last six months.
Citing a positive correlation between the stock market and real estate investment, Mr Krishnamurthy said during January-March, when the markets tanked, there was a scare that some mutual funds would go bust. The middle-class then parked its money in banks.
With developers dropping prices by nearly 40 per cent, it put in the money sighting a good opportunity. Subsequently, builders raised prices and the market improved.
The middle-class had entered when the Sensex was around 18,000 to 19,000 levels and given its reservations about booking losses it would not exit at the present or even marginally higher levels. So, the wait can be longer.
This, coupled with developers scaling down operations in the last one year and the subsequent property price rise, would lead to demand dropping by 20 per cent. The "super growth" of HDFC's loan sanctions in the first quarter of this fiscal, which dropped in the second quarter, reflected the general sentiment, he said.
Mr Krishnamurthy saw a good amount of money flowing into the real-estate only when the middle class found its principal invested in the stock market protected.
While investments in the western region generally were in the stock market, people of the South put their money in mutual funds, he said, adding that the first signs of revival would come from the North, which had always been a cash market.
The Hindu Business Line, December 23, 2009, Page 1
Cites adverse market conditions, unrealistic valuations by developers.
--------------------------------------------------------------------------------
Treading warily
It has refrained from funding in the last seven to eight months, though it had ploughed in $380 million (about Rs 1,800 crore) earlier.
--------------------------------------------------------------------------------
S. Shanker, Mumbai
HDFC Property Fund has held back from investing over 50 per cent of its $800-million (Rs 3,800 crore) corpus due to adverse market conditions as also unrealistic valuations sought by developers.
It has refrained from funding in the last seven-eight months, though it had ploughed in $380 million (about Rs 1,800 crore) earlier.
Mr K.G. Krishnamurthy, Managing Director and CEO, HDFC Property Fund, said the fund has taken a cautious approach as suddenly there was a recession-like condition and project valuations were unacceptable.
Mr Krishnamurthy said many sovereign funds from Oman, Abu Dhabi, Singapore and Malaysia were also looking to invest in Indian real estate.
However, developers were still asking for the old discounted cash flow method of valuation. If developers were willing to value their portfolio at realistic levels, there was a very good opportunity for PE funding. However, he saw a sizable opportunity emerging in the next 12 months, though the product mix had undergone a change with IT Parks and Special Economic Zones making way for commercial and residential spaces.
20% DEMAND DROP seen
Notwithstanding realty prices looking up, he felt that the real-estate demand in 2010 would drop by 20 per cent across segments.
This, he attributes to developers' focus on completing existing projects as also the way the stock market has been performing in the last six months.
Citing a positive correlation between the stock market and real estate investment, Mr Krishnamurthy said during January-March, when the markets tanked, there was a scare that some mutual funds would go bust. The middle-class then parked its money in banks.
With developers dropping prices by nearly 40 per cent, it put in the money sighting a good opportunity. Subsequently, builders raised prices and the market improved.
The middle-class had entered when the Sensex was around 18,000 to 19,000 levels and given its reservations about booking losses it would not exit at the present or even marginally higher levels. So, the wait can be longer.
This, coupled with developers scaling down operations in the last one year and the subsequent property price rise, would lead to demand dropping by 20 per cent. The "super growth" of HDFC's loan sanctions in the first quarter of this fiscal, which dropped in the second quarter, reflected the general sentiment, he said.
Mr Krishnamurthy saw a good amount of money flowing into the real-estate only when the middle class found its principal invested in the stock market protected.
While investments in the western region generally were in the stock market, people of the South put their money in mutual funds, he said, adding that the first signs of revival would come from the North, which had always been a cash market.
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