Friday, January 15, 2010
Spike in inflation fans rate fears
Spike in inflation fans rate fears
The Financial Express, January 15, 2010, Page 1
fe Bureaus, New Delhi
Inflation rose to a year’s high of 7.3% in December, driven by a 20% jump in food prices, amid indications that generalised inflationary pressures are looming large. With the December wholesale price index rising to its highest after November 2008, and going way above 4.8% reported in the previous month, it looked certain that RBI would attempt to contain liquidity in the upcoming policy review, analysts said.
The annual inflation rate was 6.15% in December 2008.
Prime minister’s Economic Advisory Council chairman C Rangarajan told FE that even though supply-side management is key to controlling inflation, some containment of liquidity seemed necessary. “Some monetary action to contain liquidity can be tho-ught of,” he said, adding that the food prices were still “very high” although, lately, there has been “some tendency” for the prices to moderate.
Weekly whole sale price data for food items released on Thursday came as a respite—food inflation for the week ended January 2 stood at 17.28% from a year earlier as against 18.22% in the previous week.
However, that could hardly dissuade the central bank from using its monetary tools, especially since latest data showed that industrial production rose at faster-than-expected 11.7% in November, signalling robust economic recovery.
Further, Thursday’s data also raised concerns that inflation could continue to rise and peak at 10% in March 2009, as against the RBI forecast of 6.5%.
When the central bank reviews the monetary policy on January 29, it could raise cash reserve ratio (CRR) by half a percentage point or so, if it did not also go for a very moderate hike in policy rates as well, analysts that FE spoke with, said.
“We believe that a gradual policy normalisation through liquidity withdrawal and a higher policy rate are preferable to steeper rate hikes later on. We expect the rate hiking cycle to begin later this month,” said Sonal Varma, vice-president, Nomura Financial Advisory & Securities (India) Ltd.
In December, there was steep increase in prices of food items and manufactured edible items like sugar. While prices of potatoes were up 123.85%, pulses were dearer by 41.58%. As a result, non-processed food articles component of the WPI was up 19.17% against 10% in the same month of 2008. This pushed up the primary articles group index by 14.88%, against 11.15% seen in December, 2008.
Processed food articles in December were costly by 26.4% compared with 4.21% a year ago. This was because sugar prices have shot up by 54% in December, against 14.51% seen in the same month of 2008. Rising food prices has the government worried and was a hot topic of discussion in a pre-Budget meeting between finance minister Pranab Mukherjee and his colleagues from the states. In an attempt to cool down prices, the government on Wednesday announced an extension of validity of duty free sugar imports, eased sugar processing norms and committed to release 2-3 million tonne of food grain in the open market.
The bond market yields eased as the inflation data was seen in line with expectations. While the 30-share Sensex gained 0.4% to end at 17584.87, the 50-stock Nifty increased 0.5% to close at 5,259.90.
The Financial Express, January 15, 2010, Page 1
fe Bureaus, New Delhi
Inflation rose to a year’s high of 7.3% in December, driven by a 20% jump in food prices, amid indications that generalised inflationary pressures are looming large. With the December wholesale price index rising to its highest after November 2008, and going way above 4.8% reported in the previous month, it looked certain that RBI would attempt to contain liquidity in the upcoming policy review, analysts said.
The annual inflation rate was 6.15% in December 2008.
Prime minister’s Economic Advisory Council chairman C Rangarajan told FE that even though supply-side management is key to controlling inflation, some containment of liquidity seemed necessary. “Some monetary action to contain liquidity can be tho-ught of,” he said, adding that the food prices were still “very high” although, lately, there has been “some tendency” for the prices to moderate.
Weekly whole sale price data for food items released on Thursday came as a respite—food inflation for the week ended January 2 stood at 17.28% from a year earlier as against 18.22% in the previous week.
However, that could hardly dissuade the central bank from using its monetary tools, especially since latest data showed that industrial production rose at faster-than-expected 11.7% in November, signalling robust economic recovery.
Further, Thursday’s data also raised concerns that inflation could continue to rise and peak at 10% in March 2009, as against the RBI forecast of 6.5%.
When the central bank reviews the monetary policy on January 29, it could raise cash reserve ratio (CRR) by half a percentage point or so, if it did not also go for a very moderate hike in policy rates as well, analysts that FE spoke with, said.
“We believe that a gradual policy normalisation through liquidity withdrawal and a higher policy rate are preferable to steeper rate hikes later on. We expect the rate hiking cycle to begin later this month,” said Sonal Varma, vice-president, Nomura Financial Advisory & Securities (India) Ltd.
In December, there was steep increase in prices of food items and manufactured edible items like sugar. While prices of potatoes were up 123.85%, pulses were dearer by 41.58%. As a result, non-processed food articles component of the WPI was up 19.17% against 10% in the same month of 2008. This pushed up the primary articles group index by 14.88%, against 11.15% seen in December, 2008.
Processed food articles in December were costly by 26.4% compared with 4.21% a year ago. This was because sugar prices have shot up by 54% in December, against 14.51% seen in the same month of 2008. Rising food prices has the government worried and was a hot topic of discussion in a pre-Budget meeting between finance minister Pranab Mukherjee and his colleagues from the states. In an attempt to cool down prices, the government on Wednesday announced an extension of validity of duty free sugar imports, eased sugar processing norms and committed to release 2-3 million tonne of food grain in the open market.
The bond market yields eased as the inflation data was seen in line with expectations. While the 30-share Sensex gained 0.4% to end at 17584.87, the 50-stock Nifty increased 0.5% to close at 5,259.90.
Inflation surges to 7.31% in Dec, exceeds RBI estimate
Inflation surges to 7.31% in Dec, exceeds RBI estimate
Business Standard, January 15, 2010, Page 6
7.3% inflation raises rate hike specture
7.3% inflation raises rate hike specture
The Economic Times, January 15, 2010, Page 1
Our Bureau NEW DELHI
STEEL and zinc joined sugar and potatoes to take inflation for December 2009 past RBI’s target for the fiscal year, raising the odds that the central bank could resort to some form of monetary tightening as concerned policymakers try to curb rising prices.
Government data on Thursday showed inflation, as measured by the Wholesale Price Index, rose the most in more than 12 months to 7.31% from a year earlier, a day after the PM called a meeting with chief ministers seeking their cooperation to control a situation that threatens to get out of hand.
The inflation rate is ahead of RBI’s revised target of 6.5% for the fiscal year. It was 6.15% last year.
The acceleration in price rise, which began with rising food costs due to a poor monsoon, is spreading to industrial products as economic growth on the back of an easy money policy and low taxes lifts demand for cement, cars and steel.
While this has put the focus firmly on what the central bank will do at its upcoming monetary policy review on January 29, an overwhelming majority of economists polled by ET on Thursday expect RBI to follow China and only raise banks’ reserve requirements.
Inflation jumps to 7.3% in Dec
Inflation jumps to 7.3% in Dec
Hindustan Times, January 15, 2010, Page 1
New Delhi, Jan. 15 -- India's wholesale inflation rose by 7.3 per cent in December, even as policymakers launched a plan to contain prices by shoring up supplies of staple items such as sugar and foodgrain.
Latest price data released on Thursday showed monthly inflation jumped nearly 3 percentage points from November's 4.78 per cent, though food inflation eased to 17.28 per cent after reaching nearly 20 per cent last month.
More worryingly, prices of non-food items such as textiles, paper products, metals and machinery were also on the rise.
"Week-on-week food inflation is down, which is a very good (sign)," Chief Economic Advisor Kaushik Basu said.
The spike in inflation rate puts pressure on Reserve Bank of India (RBI) to suck out excess money from the system to control prices. The RBI will meet on January 29 for a quarterly review of monetary policy, alth-ough economists said increasing interest rates would be ineffective in cooling the drought-related surge in food prices.
"The inflation jump has been driven by food items, and monetary action can't fix that," said Rajeev Malik of Macquarie Securities.
Analysts expect RBI to increase the percentage of money commercial banks need to park with the central bank by 0.5 per cent, to 5.5 per cent. There is also talk of a potential fuel price hike, which would further lead to cost pressures.
Double-digit inflation by Mar?
Double-digit inflation by Mar?
Times of India, January 15, 2010, Page 23
Jumps To 7.31% In Dec; RBI May Be Forced To Tighten Money Supply
TIMES NEWS NETWORK, New Delhi
The annual rate of inflation based on wholesale prices jumped to 7.31% for the month of December, 2009 as compared to 4.78 % for November. This is likely to force RBI to follow the tight monetary policy resulting into increase in the interest rates.
At 7.31%, it is already above the Reserve Bank of India's projection of 6.5% with upside bias by March 2010. According to Sonal Varma of Nomura Global Economics, a research firm, at the current pace, inflation is likely to rise above 8% in January and inch closer to double-digits by March, 2010.
Also, data released at December-end showed that consumer price-based inflation accelerated to 13.5% in November, 2009 from 11.5%. Varma said eonomic activity is accelerating and inflationary pressures are rising. The December figure is on the top of high inflation of 6.15% in December 2008. The latest figure — driven up mainly by sugar, pulses and potato — added to the government's worries over price rise and will push back any effort to free motor fuel prices.
The numbers also reinforced the expectation of a tighter monetary policy by RBI. The last time wholesale inflation exceeded the December level was in November, 2008 when it had reached 8%. A ray of hope, however, came from weekly food inflation that eased a tad to 17.28% in the week ended January 2 from 18.22% a week ago but pulses, potatoes and onions remained expensive. Despite signs of cooling off, overall data does not allow for slack and point towards a deepening food inflation threatening to spill over into the wider economy.
Prices of processed food items, for example, rose 26.40% in December and nonprocessed food items turned expensive by 19.17%. Potatoes rose over 70% during the week ended January 2, onions and pulses over 45% each and cereals by over 14%.
"Week-on-week it (food inflation) is down, which is a very good (sign). There are a whole lot of measures that are going through that have been decided on," chief economic advisor Kaushik Basu said. Earlier, Planning Commission deputy chairman Montek Singh Ahluwalia had also said that food inflation would ease next month as fear of negative impact of poor monsoon on farm produce has eased.
But the worry is now that prices of manufacturing items may rise due to increase in demand because of revival in the economic activities. The weekly inflation data released on Thursday shows a steep increase in naphtha, bitumen and furnace oil prices. Rising prices of fibres and oilseeds have also led to an increase in nonfood primary articles by 3.9% in December from November and an additional 0.7% in the first week of January.
Therefore, Varma said that inflationary pressures are still building and the current input cost inflation is expected to result in higher manufactured product prices in coming months. In addition, while food price inflation appears to be abating, much of the fall is confined to fruits and vegetables.
Costlier Living
Consumer price-based inflation accelerates to 13.5% in November, 2009 from 11.5% in October, 2009. The latest surge is driven mainly by the price rise in sugar, pulses and potato.
Moreover, prices of manufacturing items may rise due to increase in demand because of revival in the economic activities. This may result in inputcost-led inflation in manufacturing sector.
Govt may look at building concrete roads for express highways: Nath
Govt may look at building concrete roads for express highways: Nath
The Financial Express, January 15, 2010, Page 2
fe Bureaus, New Delhi
Road transport and highways minister Kamal Nath on Thursday said the government is likely to consider use of cement to build certain sections of expressways in the country. The government has planned creating expressways of 18,637 km at a cost of over $100 billion.
“It is viable to build greenfield roads with concrete. So use of cement is appropriate in expressways as they are greenfield. However, it may depend on the location and the projected traffic,” Nath told reporters on the sidelines of National Seminar on Concrete Highway Projects, organised by Confederation of Indian Industry. Nath will meet all state transport ministers next month and is likely to discuss use of cement in road projects.
Road Transport and Highways secretary Brahm Dutt, meanwhile, blamed cement manufacturers for not keeping price commitment while supplying cement for Golden Quadrilateral Projects. “Cement industry must look inward before starting a long-term relationship with road sector. It should not be a case where cement industry now wants to supply cement to road sector as demand in construction sector is down,” Dutt said.
The secretary also blamed cement industry of not supplying required quality of cement in some road projects. “In the last 2-3 years, the cement industry did not maintain its commitment on price and quality of cement and this was a deterrent to the development of concrete projects and many such projects could not take off,” he said citing an example from a Golden Quadrilateral Project where 10% pavements were supposed to be made from cement.
Advocating the concept of concrete roads, ACC Ltd managing director Sumit Banerjee said such roads are durable, maintenance-free for 20-30 years and have a life span of up to 50 years. “Concrete roads offer 15-20% economy in fuel consumption and 10-15% in vehicle running costs compared to bitumen ones,” Banerjee said.
Speaking on his ministry’s ambitious plan of building 20 km roads a day, he said the target would be achieved by April this year. “We are building 9 km roads a day and by April, 20 km roads per day will be created. This is a challenge for the construction industry, for consultants and for the government. However, we are on track,” Nath said.
The Financial Express, January 15, 2010, Page 2
fe Bureaus, New Delhi
Road transport and highways minister Kamal Nath on Thursday said the government is likely to consider use of cement to build certain sections of expressways in the country. The government has planned creating expressways of 18,637 km at a cost of over $100 billion.
“It is viable to build greenfield roads with concrete. So use of cement is appropriate in expressways as they are greenfield. However, it may depend on the location and the projected traffic,” Nath told reporters on the sidelines of National Seminar on Concrete Highway Projects, organised by Confederation of Indian Industry. Nath will meet all state transport ministers next month and is likely to discuss use of cement in road projects.
Road Transport and Highways secretary Brahm Dutt, meanwhile, blamed cement manufacturers for not keeping price commitment while supplying cement for Golden Quadrilateral Projects. “Cement industry must look inward before starting a long-term relationship with road sector. It should not be a case where cement industry now wants to supply cement to road sector as demand in construction sector is down,” Dutt said.
The secretary also blamed cement industry of not supplying required quality of cement in some road projects. “In the last 2-3 years, the cement industry did not maintain its commitment on price and quality of cement and this was a deterrent to the development of concrete projects and many such projects could not take off,” he said citing an example from a Golden Quadrilateral Project where 10% pavements were supposed to be made from cement.
Advocating the concept of concrete roads, ACC Ltd managing director Sumit Banerjee said such roads are durable, maintenance-free for 20-30 years and have a life span of up to 50 years. “Concrete roads offer 15-20% economy in fuel consumption and 10-15% in vehicle running costs compared to bitumen ones,” Banerjee said.
Speaking on his ministry’s ambitious plan of building 20 km roads a day, he said the target would be achieved by April this year. “We are building 9 km roads a day and by April, 20 km roads per day will be created. This is a challenge for the construction industry, for consultants and for the government. However, we are on track,” Nath said.
Nath casts in concrete plan for laying fresh roads
Nath casts in concrete plan for laying fresh roads
The Economic Times, January 15, 2010, Page 9
No Maintenance For 20-30 Years, 15-20% Fuel Savings Force Govt To Rethink Plans
Our Bureau NEW DELHI
Transport minister Kamal Nath on Thursday said the government may look at using cement for constructing over 18,000 km of expressways in the country. At present, most of the road network in India is bitumen.
“It would be appropriate to look at (building) expressways with cement, concrete as these will be greenfield projects,” Mr Nath told reporters.
He said concrete can also be used on roads, where wear and tear is high. However, cement would not be used for upgrading the existing bitumen roads.
“We are not going to use cement where there are bitumen roads already,” he said. The proposal, if implemented, would provide a big boost to the cement companies.
ACC Ltd managing director Sumit Banerjee, while delivering the inaugural address at the seminar, said concrete roads are durable, maintenance-free for 20-30 years and have a life of up to 50 years. “Concrete roads offer 15-20% economy in fuel consumption and 10-15% in vehicle running costs compared to bitumen ones,” Mr Banerjee said.
The construction costs of cement roads is, however, more than that of bitumen roads, but in the long-term they recover the savings. Some of municipalities have started building cement roads in a limited way.
Mr Nath also said he has called a meeting of all state transport ministers next month to look at amending the Motor Vehicles Act, 1988, though he did not give specifics of the draft amendments. He was speaking at a seminar organised by industry chamber CII on Concrete Highway Projects.
The Act defines norms for speed limits and permissible loads that trucks can carry, among others.
Concrete highways a possibility: Nath
Concrete highways a possibility: Nath
The Hindustan Times, January 15, 2010, Page 24
TIMES NEWS NETWORK
New Delhi: Cement industry is now pitching for concrete highways in the light of road, transport and highways ministry’s plan to construct over 18,000 km greenfield expressways by 2032. Transport minister Kamal Nath on Thursday said the government may look at using cement for construction of these expressways.
“It would be appropriate to look at building expressways with cement concrete as these will be greenfield projects,” Nath said at a seminar — ‘Concrete Highway Projects’ — organised by the CII. He added concrete could also be used on road stretches where wear and tear is high.
Putting the case of cement concrete roads over bituminous ones, Sumit Banerjee, chairman of CII cement industry division and managing director of ACC Ltd, said 71,000 km of highways and expressways were in bitumen and only 40% of this conformed to quality standards. ‘‘Concrete roads have a life cycle of 50 years and also help save 15% in fuel consumption. A combination of fly-ash based concrete roads is environment-friendly and has a 50% longer life cycle and is a solution for today’s need,’’ he said.
Nath said that if the highway development programme looked at incremental usage of concrete then the industry in India would have to consider whether the current capacity would be able to meet the additional demand from the road projects. Already about 10% of the highways covered under the Golden Quadrilateral (GQ) has been cement concrete stretches.
Road and transport secretary, Brahm Dutt said that the NHAI faced many problems so far as construction of concrete stretches was concerned. ‘‘The industry did not honour its commitment on price and quality of cement and this was a deterrent to the development of concrete projects and projects could not take off,’’ he added.
The Hindustan Times, January 15, 2010, Page 24
TIMES NEWS NETWORK
New Delhi: Cement industry is now pitching for concrete highways in the light of road, transport and highways ministry’s plan to construct over 18,000 km greenfield expressways by 2032. Transport minister Kamal Nath on Thursday said the government may look at using cement for construction of these expressways.
“It would be appropriate to look at building expressways with cement concrete as these will be greenfield projects,” Nath said at a seminar — ‘Concrete Highway Projects’ — organised by the CII. He added concrete could also be used on road stretches where wear and tear is high.
Putting the case of cement concrete roads over bituminous ones, Sumit Banerjee, chairman of CII cement industry division and managing director of ACC Ltd, said 71,000 km of highways and expressways were in bitumen and only 40% of this conformed to quality standards. ‘‘Concrete roads have a life cycle of 50 years and also help save 15% in fuel consumption. A combination of fly-ash based concrete roads is environment-friendly and has a 50% longer life cycle and is a solution for today’s need,’’ he said.
Nath said that if the highway development programme looked at incremental usage of concrete then the industry in India would have to consider whether the current capacity would be able to meet the additional demand from the road projects. Already about 10% of the highways covered under the Golden Quadrilateral (GQ) has been cement concrete stretches.
Road and transport secretary, Brahm Dutt said that the NHAI faced many problems so far as construction of concrete stretches was concerned. ‘‘The industry did not honour its commitment on price and quality of cement and this was a deterrent to the development of concrete projects and projects could not take off,’’ he added.
We count every penny now
We count every penny now
Business Standard, January 15, 2010, Page 10
Q&A: Sanjay Chandra, MD, Unitech Ltd
Raghavendra Kamath / Mumbai
Sanjay Chandra, managing director of Unitech Ltd — the country’s second-largest real estate developer — steered the company out of near-bankruptcy in 2009 when its debt rose to Rs 11,000 crore and property sales came to a standstill. The company switched its focus from premium housing to affordable and mid-income projects to stay afloat. Unitech was also in the news for selling off its assets in its efforts to reduce debt. The efforts seem to have paid off as Unitech announced on Monday that it booked over 13 million square feet of properties so far in this financial year as against only 3 million booked in the whole of fiscal 2009. In an interview with Raghavendra Kamath, the Unitech MD talks about how he managed the crisis and the road ahead. Edited excerpts:
Do you think the sales momentum will continue now that there are indications of interest rates going up?
Those who are planning to buy houses will not shy away from buying just because interest rates will be up. In India, there is still a tendency of not holding mortgages for too long. People are pre-paying mortgages — they are averse to having mortgages on houses they live in. Yes, affordability will reduce; possibly our ability to raise prices will also reduce, but there are ways to subvent it. We are subventing interest rates for a year, and the response has been very good. We actually have home loan desks at all our offices.
How much price increase have you carried out in the previous quarter?
Not much. We increased prices by an average 6-7 per cent in the last quarter. We will go along with interest rates. If the annual interest rate is 10 per cent, we will raise it by 10 per cent. Customers will run away if you increase it irrationally. You have to increase it only to the level where it does not affect your sales. If it slows down your sales, it is not worth it. One should focus on return on equity.
What is your outlook for the coming financial year?
I think sales volume in housing will be excellent. Commercial, or office space will finally pick up; it has been good over the last three months. Commercial is mainly driven by information technology (IT) companies which have started expanding after a 15-18 month lull. Transactions have started happening once again. But rentals will not go up for sometime as there is a huge supply in the market. After this supply is absorbed, you will see rents going up. But, I see that cycle still two years away.
Your stock price has fallen 25 per cent from September whereas the Sensex has risen 10 per cent. Are you worried?
Yes, we have underperformed. It is time to catch up. But, what we told our investors is that we have delivered on the guidance we gave. Stock performance will be taken care of if we deliver. Though we have underperformed the Sensex, our operational performance has been outstanding, and people will soon understand what we are doing. If you look at our operational update, we have added 4,000 workers in the last quarter. In April, we had 3,500 workers, now we have 20,000.
At least a dozen of your projects were running behind the schedule? What are you doing for them?
We have deployed additional manpower on all those sites and all our efforts are on to complete them by financial year 2011.
What is your key strategy going forward?
We will look at housing as a manufacturing business. Land is one of our key raw materials. Construction is second. One of the key things in our business is “when” you bought land — it determines profitability — and the second, “what” was the product and “how” you would make that product. If you make your product in 18 months instead of 30 with better technology, forget about absolute profitability; the return on equity employed will be much faster. We will focus on efficiencies in production cycle. Earlier, we used to think overheads had gone up and we must control costs and so on. But now we count every penny, we count each day. Now we have a separate department which focuses on cost control, where we can control costs.
The focus is on projects that can be monetised faster. We have 8,000 acres of land and most of that was bought at historical prices. Only 10 per cent of our land is under development. Even if you look at incremental land, we are looking at projects that can be launched fast and do not compete with our existing land bank.
You took a U-turn from premium housing to mid-housing to beat the slowdown. Now that markets have revived, will you shift your focus back again?
No. One thing we learnt from the slowdown is that one should cater to a larger audience, which is there in mid-income housing. In good times and good markets, utilise your prime land for premium housing. For example, in our Uniworld resorts, villas start at Rs 2.8 crore. We are selling 15 villas a month. But we cannot depend on that only. You can’t build a sustainable business model that focuses only on luxury. We will do it selectively and only in good locations.
In the coming financial year, how will you bifurcate your housing portfolio?
Unihomes, our affordable segment where we sell homes at Rs 12-13 lakh, will be 25 to 30 per cent (of the business). We feel it will grow substantially. Premium will be 40 per cent and 15 per cent will be luxury. The rest will be commercial.
What is happening with Unitech Corporate Park projects which have had been deferred?
We had deferred one project due to poor demand and the rest are all on track. Construction activity is at an all-time high and leasing activity has been very good.
How do you look back at the troubled times when there were all kinds of rumours about Unitech, including that of bankruptcy?
When we look at that period, we realise our biggest mistake was asset-liability mismatch: Short-term debt for long-term investments. Rollovers earlier used to happen easily, but when the credit crisis came, they stopped. The good thing was that we had assets. Some of our key investors saw value in our company and assets, and did not focus only on short-term market conditions. That’s why we could raise our qualified institutional placements (QIPs) comfortably. The second mistake was that while we had enough land to build tens of thousands of apartments, the market we were catering to was niche luxury segment, which had a limited audience. The good thing is we honoured all our commitments. People appreciated us for that.
Are you looking at PE investments?
We are staying away from them. They want 20 per cent after-tax returns. They want debt-like instruments. It is better to take loans from moneylenders.
Business Standard, January 15, 2010, Page 10
Q&A: Sanjay Chandra, MD, Unitech Ltd
Raghavendra Kamath / Mumbai
Sanjay Chandra, managing director of Unitech Ltd — the country’s second-largest real estate developer — steered the company out of near-bankruptcy in 2009 when its debt rose to Rs 11,000 crore and property sales came to a standstill. The company switched its focus from premium housing to affordable and mid-income projects to stay afloat. Unitech was also in the news for selling off its assets in its efforts to reduce debt. The efforts seem to have paid off as Unitech announced on Monday that it booked over 13 million square feet of properties so far in this financial year as against only 3 million booked in the whole of fiscal 2009. In an interview with Raghavendra Kamath, the Unitech MD talks about how he managed the crisis and the road ahead. Edited excerpts:
Do you think the sales momentum will continue now that there are indications of interest rates going up?
Those who are planning to buy houses will not shy away from buying just because interest rates will be up. In India, there is still a tendency of not holding mortgages for too long. People are pre-paying mortgages — they are averse to having mortgages on houses they live in. Yes, affordability will reduce; possibly our ability to raise prices will also reduce, but there are ways to subvent it. We are subventing interest rates for a year, and the response has been very good. We actually have home loan desks at all our offices.
How much price increase have you carried out in the previous quarter?
Not much. We increased prices by an average 6-7 per cent in the last quarter. We will go along with interest rates. If the annual interest rate is 10 per cent, we will raise it by 10 per cent. Customers will run away if you increase it irrationally. You have to increase it only to the level where it does not affect your sales. If it slows down your sales, it is not worth it. One should focus on return on equity.
What is your outlook for the coming financial year?
I think sales volume in housing will be excellent. Commercial, or office space will finally pick up; it has been good over the last three months. Commercial is mainly driven by information technology (IT) companies which have started expanding after a 15-18 month lull. Transactions have started happening once again. But rentals will not go up for sometime as there is a huge supply in the market. After this supply is absorbed, you will see rents going up. But, I see that cycle still two years away.
Your stock price has fallen 25 per cent from September whereas the Sensex has risen 10 per cent. Are you worried?
Yes, we have underperformed. It is time to catch up. But, what we told our investors is that we have delivered on the guidance we gave. Stock performance will be taken care of if we deliver. Though we have underperformed the Sensex, our operational performance has been outstanding, and people will soon understand what we are doing. If you look at our operational update, we have added 4,000 workers in the last quarter. In April, we had 3,500 workers, now we have 20,000.
At least a dozen of your projects were running behind the schedule? What are you doing for them?
We have deployed additional manpower on all those sites and all our efforts are on to complete them by financial year 2011.
What is your key strategy going forward?
We will look at housing as a manufacturing business. Land is one of our key raw materials. Construction is second. One of the key things in our business is “when” you bought land — it determines profitability — and the second, “what” was the product and “how” you would make that product. If you make your product in 18 months instead of 30 with better technology, forget about absolute profitability; the return on equity employed will be much faster. We will focus on efficiencies in production cycle. Earlier, we used to think overheads had gone up and we must control costs and so on. But now we count every penny, we count each day. Now we have a separate department which focuses on cost control, where we can control costs.
The focus is on projects that can be monetised faster. We have 8,000 acres of land and most of that was bought at historical prices. Only 10 per cent of our land is under development. Even if you look at incremental land, we are looking at projects that can be launched fast and do not compete with our existing land bank.
You took a U-turn from premium housing to mid-housing to beat the slowdown. Now that markets have revived, will you shift your focus back again?
No. One thing we learnt from the slowdown is that one should cater to a larger audience, which is there in mid-income housing. In good times and good markets, utilise your prime land for premium housing. For example, in our Uniworld resorts, villas start at Rs 2.8 crore. We are selling 15 villas a month. But we cannot depend on that only. You can’t build a sustainable business model that focuses only on luxury. We will do it selectively and only in good locations.
In the coming financial year, how will you bifurcate your housing portfolio?
Unihomes, our affordable segment where we sell homes at Rs 12-13 lakh, will be 25 to 30 per cent (of the business). We feel it will grow substantially. Premium will be 40 per cent and 15 per cent will be luxury. The rest will be commercial.
What is happening with Unitech Corporate Park projects which have had been deferred?
We had deferred one project due to poor demand and the rest are all on track. Construction activity is at an all-time high and leasing activity has been very good.
How do you look back at the troubled times when there were all kinds of rumours about Unitech, including that of bankruptcy?
When we look at that period, we realise our biggest mistake was asset-liability mismatch: Short-term debt for long-term investments. Rollovers earlier used to happen easily, but when the credit crisis came, they stopped. The good thing was that we had assets. Some of our key investors saw value in our company and assets, and did not focus only on short-term market conditions. That’s why we could raise our qualified institutional placements (QIPs) comfortably. The second mistake was that while we had enough land to build tens of thousands of apartments, the market we were catering to was niche luxury segment, which had a limited audience. The good thing is we honoured all our commitments. People appreciated us for that.
Are you looking at PE investments?
We are staying away from them. They want 20 per cent after-tax returns. They want debt-like instruments. It is better to take loans from moneylenders.
Double dip recession ahead?
Double dip recession ahead?
Business Standard, January 15, 2010, Page 11
About 10 million US residential mortgages are underwater. This may lead to defaults
Jaimini Bhagwati / New Delhi
January 2010 is the first month of the year and of the decade, and there is a thriving market in making economic projections. It is evident that there has been a seismic shift in the global economy’s tectonic plates. The gradual reordering of national economic rankings over the last two decades came sharply into focus with the financial sector meltdown at the end of 2008.
Looking ahead, it is reasonably safe to predict that for the next several years, GDP growth rates in India, China and Brazil would be higher than those in the US, EU and Japan. Table-I provides projected GDP growth rates for these countries. The accuracy of these projections could be contested and would vary, depending on the underlying assumptions. On balance, these numbers reflect a consensus that India, China and Brazil are expected to grow faster than the other countries listed in the table.
The comparatively high growth numbers for India should not make us complacent since the prospects over the next 12 months are far from certain. This article discusses the possibility of a downturn in the US stemming once again from defaults in the real estate sector, and the resulting implications for India.
Currently, one in five or about 10 million US residential mortgages are underwater by 20 per cent or more. That is, the market value of the house or apartment is at least 20 per cent below that of the supporting debt (Source: Equifax). Empirically, this has been the single most important factor which motivates homeowners to walk away from their mortgages. Assuming that on average each home corresponding to the 10 million mortgages is worth $100,000, owners could default on about $1 trillion of debt. Defaults of this order of magnitude do not include potential defaults on $770 billion of commercial real estate mortgages which are underwater (Source: Foresight Analytics).
At the same time, indications are that US consumer spending is not likely to surge soon. For instance, the number of bank credit cards has come down from a peak of 425 million in mid-2008 to 335 million in November 2009, and credit card lines are shrinking. As regards securitisation markets, the combined issuance of Residential Mortgage Based Securities (RMBS), Asset Backed Securities (backed by assets such as loans, leases and royalties but not real estate), Commercial Mortgage Backed Securities (CMBS) and Collateralised Debt Obligations (CDOs) reached a peak of $2 trillion in 2006. In 2009, the total issuance of these four categories of securities was less than $200 billion. Further, commercial and industrial loan outstandings have contracted by about 15 per cent in the last one year. As banks and individuals continue to reduce their debt levels, it is unlikely that consumer-driven demand can replace government spending, which may be difficult to sustain at current levels. It follows that if real estate prices were to erode any more, there is risk of a sharp downturn in the US economy.
Additionally, the crisis of 2008 has not been adequately utilised to make the required improvements in regulatory and compensation norms. Consequently, bankers may rely on short public memory and continue to depend on the Greenspan “put”. The difference is that if there is a financial sector blowout in the second half of 2010, there would be limitations to which taxpayer-funded support could be provided. Table-II details the volumes of central bank and government aid for banks till June 2009 in the US and the Euro area and November 2009 in the UK.
These were extremely generous lifelines for which taxpayers should have received long maturity call options on bank equity with strike prices at the bottom-end of stock valuations during the crisis of late 2008. This unrequited generosity has been fed by accommodating monetary policy with historically low interest rates in the US, UK and Japan. The resulting liquidity has funded a bounce-back in stock markets around the world. For example, the S&P 500 stock index is now trading at 22 times trailing earnings, which is well above S&P’s 135-year average for trailing P/E (price to earnings) of 15. There are also indications that the Chinese housing market is overheating.
Consequently, the risks for India in the next one year are: (a) sharp reduction in OECD demand which could again impact Indian exports negatively; and (b) shortage of export and other credit. If this were to happen, Central and state government finances would be adversely affected, which could further reduce our collective appetite for reforms. In anticipation, we could take the following steps: (a) keep mopping up forex inflows and tie up optional contracts for longer-term forex credit; (b) better align oil and gas pricing to international prices; (c) push for an agreement on GST implementation timelines in the first half of 2010 when states would be less apprehensive about their finances. Oil prices may not pose a risk as a fall in global demand could lead to softening of oil prices. However, if tensions rise in the Persian Gulf, oil prices could increase even as demand drops in developed economies.
To sum up, it is increasingly likely that in the last quarter of 2010, there may be another round of convulsions in western economies. The consequent opportunity costs for India of not having insurance mechanisms in place and pushing for reforms could be higher than usual. We are on a trajectory to reach 9 per cent GDP growth and if we slip back to 5-6 per cent, the economic and social costs resulting from reduced means to fund employment generation could be very high.
The author is India’s Ambassador to the European Union, Belgium and Luxembourg. Views expressed are personal
Business Standard, January 15, 2010, Page 11
About 10 million US residential mortgages are underwater. This may lead to defaults
Jaimini Bhagwati / New Delhi
January 2010 is the first month of the year and of the decade, and there is a thriving market in making economic projections. It is evident that there has been a seismic shift in the global economy’s tectonic plates. The gradual reordering of national economic rankings over the last two decades came sharply into focus with the financial sector meltdown at the end of 2008.
Looking ahead, it is reasonably safe to predict that for the next several years, GDP growth rates in India, China and Brazil would be higher than those in the US, EU and Japan. Table-I provides projected GDP growth rates for these countries. The accuracy of these projections could be contested and would vary, depending on the underlying assumptions. On balance, these numbers reflect a consensus that India, China and Brazil are expected to grow faster than the other countries listed in the table.
The comparatively high growth numbers for India should not make us complacent since the prospects over the next 12 months are far from certain. This article discusses the possibility of a downturn in the US stemming once again from defaults in the real estate sector, and the resulting implications for India.
Currently, one in five or about 10 million US residential mortgages are underwater by 20 per cent or more. That is, the market value of the house or apartment is at least 20 per cent below that of the supporting debt (Source: Equifax). Empirically, this has been the single most important factor which motivates homeowners to walk away from their mortgages. Assuming that on average each home corresponding to the 10 million mortgages is worth $100,000, owners could default on about $1 trillion of debt. Defaults of this order of magnitude do not include potential defaults on $770 billion of commercial real estate mortgages which are underwater (Source: Foresight Analytics).
At the same time, indications are that US consumer spending is not likely to surge soon. For instance, the number of bank credit cards has come down from a peak of 425 million in mid-2008 to 335 million in November 2009, and credit card lines are shrinking. As regards securitisation markets, the combined issuance of Residential Mortgage Based Securities (RMBS), Asset Backed Securities (backed by assets such as loans, leases and royalties but not real estate), Commercial Mortgage Backed Securities (CMBS) and Collateralised Debt Obligations (CDOs) reached a peak of $2 trillion in 2006. In 2009, the total issuance of these four categories of securities was less than $200 billion. Further, commercial and industrial loan outstandings have contracted by about 15 per cent in the last one year. As banks and individuals continue to reduce their debt levels, it is unlikely that consumer-driven demand can replace government spending, which may be difficult to sustain at current levels. It follows that if real estate prices were to erode any more, there is risk of a sharp downturn in the US economy.
Additionally, the crisis of 2008 has not been adequately utilised to make the required improvements in regulatory and compensation norms. Consequently, bankers may rely on short public memory and continue to depend on the Greenspan “put”. The difference is that if there is a financial sector blowout in the second half of 2010, there would be limitations to which taxpayer-funded support could be provided. Table-II details the volumes of central bank and government aid for banks till June 2009 in the US and the Euro area and November 2009 in the UK.
These were extremely generous lifelines for which taxpayers should have received long maturity call options on bank equity with strike prices at the bottom-end of stock valuations during the crisis of late 2008. This unrequited generosity has been fed by accommodating monetary policy with historically low interest rates in the US, UK and Japan. The resulting liquidity has funded a bounce-back in stock markets around the world. For example, the S&P 500 stock index is now trading at 22 times trailing earnings, which is well above S&P’s 135-year average for trailing P/E (price to earnings) of 15. There are also indications that the Chinese housing market is overheating.
Consequently, the risks for India in the next one year are: (a) sharp reduction in OECD demand which could again impact Indian exports negatively; and (b) shortage of export and other credit. If this were to happen, Central and state government finances would be adversely affected, which could further reduce our collective appetite for reforms. In anticipation, we could take the following steps: (a) keep mopping up forex inflows and tie up optional contracts for longer-term forex credit; (b) better align oil and gas pricing to international prices; (c) push for an agreement on GST implementation timelines in the first half of 2010 when states would be less apprehensive about their finances. Oil prices may not pose a risk as a fall in global demand could lead to softening of oil prices. However, if tensions rise in the Persian Gulf, oil prices could increase even as demand drops in developed economies.
To sum up, it is increasingly likely that in the last quarter of 2010, there may be another round of convulsions in western economies. The consequent opportunity costs for India of not having insurance mechanisms in place and pushing for reforms could be higher than usual. We are on a trajectory to reach 9 per cent GDP growth and if we slip back to 5-6 per cent, the economic and social costs resulting from reduced means to fund employment generation could be very high.
The author is India’s Ambassador to the European Union, Belgium and Luxembourg. Views expressed are personal
Small is BIG now
Small is BIG now
The Economic Times, ET Realty, January 15, 2010, Page 21
Thanks to space crunch and rising prices of the available land, big cities are now becoming out of reach for those wanting to buy a home of their own. Hence, it is the Tier II and Tier III cities that are being preferred by home buyers
Shri Ram Shaw
With real estate in metropolitan cities becoming prohibitive, many buyers with limited budgets are turning to Tier II and Tier III cities to buy their long cherished dream houses. Usually, these towns are located close to their native places. Even though they may not be able to live in these apartments now, these city workers feel secure in the knowledge that they have a place that they can turn to once they retire from their professional careers. In addition to this factor, growing industrialization and rising opportunities in the service sector are driving demand for housing in Tier II and Tier III cities.
As real estate boom gathered pace in the first decade of this millennium, a large number of metro-based developers announced housing projects in Tier II and Tier III cities. There were several reasons for their foray into smaller cities. The market in metropolitan cities had by then turned red hot. The price of land had risen to such high levels that most developers worried whether it was possible to develop viable housing projects at such prices. In comparison, the price of land in Tier II and Tier III cities was far more moderate. While many micro-markets in metropolitan cities had saturated, in Tier II and Tier III cities, supply was still inadequate to meet the demand arising from the spread modern retailing, outsourcing, IT and manufacturing to these cities.
By early 2009, many developers had adopted the obvious strategy of price correction in existing projects to clear mounting inventories and lure consumers back to the market. During the period, there was another paradigm shift as many developers realized that the market had converted from an investor driven one to an end-user dominant one. Recognizing that the end users were seeking homes that were affordable, developers altered their product portfolio and launched affordable housing across India to revive demand by the end of the first quarter of 2009. The affordable housing concept, coupled with reduced home loan rates, put the real estate market on the path to recovery.
The cities of National Capital Region (NCR) hold the highest potential of future growth, providing maximum investment potential and have demonstrated the healthiest absorption rates during this dynamic phase of real estate development. These cities are amongst the Top 10 cities ranked on absorption levels. Noida has emerged as the leader in NCR. Noida and Faridabad have demonstrated high absorption primarily due to launch of affordable housing projects. The recent projects of Jaypee (Aman) in Noida and BPTP (Elite Floors) in Faridabad were primarily driving the high absorption values in these cities with developers commanding more than 70% of the market share.
Noida-based developer, The 3C Company, has announced the country's largest green-residential project, Lotus Boulevard, spread across 40 acres and to be built with an outlay of Rs 1,550 crore. Vidur Bhardwaj, director of the company said, "Lotus Boulevard will strengthen our commitment to provide worldclass facilities, which are not only user friendly but also contribute in reducing carbon footprints."
However, with the worst of the downturn behind us, major players are once again dusting off their plans for smaller cities, albeit with several modifications. Kumar Gera, chairman of Confederation of Real Estate Developers Association of India (CREDAI), says, "Over the long term, real estate development in smaller cities will be aligned to the l e v e l of their economic progress and the infrastructure put in place by their respective state governments." Devinder Gupta, CEO of Century 21 India, says, "One of the basic reasons for investment flocking to these smaller cities is the availability of properties at affordable prices. Government is also taking an active interest in promoting these cities as investment options to decongest Tier I cities and to ensure more uniform development." He adds that growing congestion in the metros has forced governments and corporates to seek alternatives in smaller cities, and this has in turn boosted demand for real estate in them. Some of these cities, with their rapid pace of development, present attractive opportunities to real estate developers.
Venturing where few private players have gone before, India's largest realty firm, DLF, is planning to build one lakh affordable houses, which would cost less than Rs 20 lakh, in major cities across the country. It has also plans to cut its debt by half, to Rs 6,200 crore, by the end of this fiscal year. "Launch of new 'value' housing segment with a distinct brand is under planning," according to an analyst presentation posted on the DLF website. At present, DLF builds apartments under two segments - luxury and premium (midincome).
In a conference call with investors and analysts, DLF vice-chairman Rajiv Singh said the company plans to launch 3-4 million sq ft in 2010 under 'value' housing and expects a margin of 25-30% from this segment. He said the company is still working on the details.
In the face of growing incidents of protests against land acquisition, the Centre has asked states to ensure that industrial sites be allotted in such a way that no stakeholder is left unhappy. The issue came up at the meeting of state industry secretaries, convened recently by the Department of Industrial Policy and Promotion (DIPP).
"The challenge before us is to see that land is readily available for industrial purposes and that everybody develops a stake in industrialization," said DIPP secretary, Ajay Shankar. He added that the land should be made available "in a manner so that nobody is unhappy with it". Several states, particularly in the eastern region, have witnessed widespread protests against land acquisition for industrial purposes.
The Centre is particularly concerned over delays due to problems in land acquisitions for large plans like Rs 1 lakh crore steel projects of ArcelorMittal in Orissa and Jharkhand, a source said. One of the proposals being debated is whether farmers parting with their assets should be made equity owners in the projects coming up on their land.
FOCAL POINT
Major players are once again dusting off their plans for smaller cities
One reason for investment flocking to smaller cities is the availability of properties at affordable prices. Government is also taking active interest in promoting these cities as investment options to decongest Tier I cities and ensure development.
The Economic Times, ET Realty, January 15, 2010, Page 21
Thanks to space crunch and rising prices of the available land, big cities are now becoming out of reach for those wanting to buy a home of their own. Hence, it is the Tier II and Tier III cities that are being preferred by home buyers
Shri Ram Shaw
With real estate in metropolitan cities becoming prohibitive, many buyers with limited budgets are turning to Tier II and Tier III cities to buy their long cherished dream houses. Usually, these towns are located close to their native places. Even though they may not be able to live in these apartments now, these city workers feel secure in the knowledge that they have a place that they can turn to once they retire from their professional careers. In addition to this factor, growing industrialization and rising opportunities in the service sector are driving demand for housing in Tier II and Tier III cities.
As real estate boom gathered pace in the first decade of this millennium, a large number of metro-based developers announced housing projects in Tier II and Tier III cities. There were several reasons for their foray into smaller cities. The market in metropolitan cities had by then turned red hot. The price of land had risen to such high levels that most developers worried whether it was possible to develop viable housing projects at such prices. In comparison, the price of land in Tier II and Tier III cities was far more moderate. While many micro-markets in metropolitan cities had saturated, in Tier II and Tier III cities, supply was still inadequate to meet the demand arising from the spread modern retailing, outsourcing, IT and manufacturing to these cities.
By early 2009, many developers had adopted the obvious strategy of price correction in existing projects to clear mounting inventories and lure consumers back to the market. During the period, there was another paradigm shift as many developers realized that the market had converted from an investor driven one to an end-user dominant one. Recognizing that the end users were seeking homes that were affordable, developers altered their product portfolio and launched affordable housing across India to revive demand by the end of the first quarter of 2009. The affordable housing concept, coupled with reduced home loan rates, put the real estate market on the path to recovery.
The cities of National Capital Region (NCR) hold the highest potential of future growth, providing maximum investment potential and have demonstrated the healthiest absorption rates during this dynamic phase of real estate development. These cities are amongst the Top 10 cities ranked on absorption levels. Noida has emerged as the leader in NCR. Noida and Faridabad have demonstrated high absorption primarily due to launch of affordable housing projects. The recent projects of Jaypee (Aman) in Noida and BPTP (Elite Floors) in Faridabad were primarily driving the high absorption values in these cities with developers commanding more than 70% of the market share.
Noida-based developer, The 3C Company, has announced the country's largest green-residential project, Lotus Boulevard, spread across 40 acres and to be built with an outlay of Rs 1,550 crore. Vidur Bhardwaj, director of the company said, "Lotus Boulevard will strengthen our commitment to provide worldclass facilities, which are not only user friendly but also contribute in reducing carbon footprints."
However, with the worst of the downturn behind us, major players are once again dusting off their plans for smaller cities, albeit with several modifications. Kumar Gera, chairman of Confederation of Real Estate Developers Association of India (CREDAI), says, "Over the long term, real estate development in smaller cities will be aligned to the l e v e l of their economic progress and the infrastructure put in place by their respective state governments." Devinder Gupta, CEO of Century 21 India, says, "One of the basic reasons for investment flocking to these smaller cities is the availability of properties at affordable prices. Government is also taking an active interest in promoting these cities as investment options to decongest Tier I cities and to ensure more uniform development." He adds that growing congestion in the metros has forced governments and corporates to seek alternatives in smaller cities, and this has in turn boosted demand for real estate in them. Some of these cities, with their rapid pace of development, present attractive opportunities to real estate developers.
Venturing where few private players have gone before, India's largest realty firm, DLF, is planning to build one lakh affordable houses, which would cost less than Rs 20 lakh, in major cities across the country. It has also plans to cut its debt by half, to Rs 6,200 crore, by the end of this fiscal year. "Launch of new 'value' housing segment with a distinct brand is under planning," according to an analyst presentation posted on the DLF website. At present, DLF builds apartments under two segments - luxury and premium (midincome).
In a conference call with investors and analysts, DLF vice-chairman Rajiv Singh said the company plans to launch 3-4 million sq ft in 2010 under 'value' housing and expects a margin of 25-30% from this segment. He said the company is still working on the details.
In the face of growing incidents of protests against land acquisition, the Centre has asked states to ensure that industrial sites be allotted in such a way that no stakeholder is left unhappy. The issue came up at the meeting of state industry secretaries, convened recently by the Department of Industrial Policy and Promotion (DIPP).
"The challenge before us is to see that land is readily available for industrial purposes and that everybody develops a stake in industrialization," said DIPP secretary, Ajay Shankar. He added that the land should be made available "in a manner so that nobody is unhappy with it". Several states, particularly in the eastern region, have witnessed widespread protests against land acquisition for industrial purposes.
The Centre is particularly concerned over delays due to problems in land acquisitions for large plans like Rs 1 lakh crore steel projects of ArcelorMittal in Orissa and Jharkhand, a source said. One of the proposals being debated is whether farmers parting with their assets should be made equity owners in the projects coming up on their land.
FOCAL POINT
Major players are once again dusting off their plans for smaller cities
One reason for investment flocking to smaller cities is the availability of properties at affordable prices. Government is also taking active interest in promoting these cities as investment options to decongest Tier I cities and ensure development.
Home is where the money is
Home is where the money is
The Economic Times, ET Realty, January 15, 2010, Page 21
Experts say residential sector will play a role in reviving real estate this year
As the year 2010 begins, it is heartening to note that homebuyers are taking the lead in reviving the realty market. Looking forward, it is almost certain that the residential sector will continue to play a major role in shaping future growth in the sector. For homebuyers, this also means that developers are going out of their way to woo customers, with projects to suit different tastes and budgets.
Talking about the phenomenon, Kaustuv Roy, executive director, India, Cushman and Wakefield, the international property consultants says, "Post meltdown, the residential sector has been the fastest to recover with stabilisation of prices being the major factor. The oversupply percentage was lower compared to other sectors, where estimates were much higher than the actual demand."
A similar note was struck by Anuj Puri, country head, Jones Lang LaSalle Meghraj. In a December 2009 report by Cityscape Intelligence, he says, "Although many large retailers are back in the market and pursuing growth cautiously, it is the residential sector which is undoubtedly the revival king, striking a high note over the last one and-a-half quarters, with pent-up demands bubbling over into hardcore sales and committed enquiries. The residential revival is by far most sustainable." The actual players in the market, the developers, also feel the same. Jayant Gehi, general manager, Mayfair Housing says, "I couldn't agree more the residential sector will lead this has already started, as in the last six months major consumers came from this segment. Although recently we have seen signs of revival in the commercial and retail sector too, at the helm of it all, residential spaces would find the greatest number of buyers. India needs too many homes and there are too few at the moment. Supply would increase as the government and banks are taking interest in augmenting the sector."
Manju Yagnik, vice-chairperson, Nahar Group, adds, "Banks are supporting residential projects with loans and tieups. In fact the commercial projects are kept under lock and key as they were made for IT and foreign companies, which have put their plans to enter India on hold since recession.” Brotin Banerjee, CEO and MD, Tata Housing, says, "The Indian residential market has certainly been leading the way to recovery.”
The Economic Times, ET Realty, January 15, 2010, Page 21
Experts say residential sector will play a role in reviving real estate this year
As the year 2010 begins, it is heartening to note that homebuyers are taking the lead in reviving the realty market. Looking forward, it is almost certain that the residential sector will continue to play a major role in shaping future growth in the sector. For homebuyers, this also means that developers are going out of their way to woo customers, with projects to suit different tastes and budgets.
Talking about the phenomenon, Kaustuv Roy, executive director, India, Cushman and Wakefield, the international property consultants says, "Post meltdown, the residential sector has been the fastest to recover with stabilisation of prices being the major factor. The oversupply percentage was lower compared to other sectors, where estimates were much higher than the actual demand."
A similar note was struck by Anuj Puri, country head, Jones Lang LaSalle Meghraj. In a December 2009 report by Cityscape Intelligence, he says, "Although many large retailers are back in the market and pursuing growth cautiously, it is the residential sector which is undoubtedly the revival king, striking a high note over the last one and-a-half quarters, with pent-up demands bubbling over into hardcore sales and committed enquiries. The residential revival is by far most sustainable." The actual players in the market, the developers, also feel the same. Jayant Gehi, general manager, Mayfair Housing says, "I couldn't agree more the residential sector will lead this has already started, as in the last six months major consumers came from this segment. Although recently we have seen signs of revival in the commercial and retail sector too, at the helm of it all, residential spaces would find the greatest number of buyers. India needs too many homes and there are too few at the moment. Supply would increase as the government and banks are taking interest in augmenting the sector."
Manju Yagnik, vice-chairperson, Nahar Group, adds, "Banks are supporting residential projects with loans and tieups. In fact the commercial projects are kept under lock and key as they were made for IT and foreign companies, which have put their plans to enter India on hold since recession.” Brotin Banerjee, CEO and MD, Tata Housing, says, "The Indian residential market has certainly been leading the way to recovery.”
Rs 30k cr loans may turn bad in 10
Rs 30k cr loans may turn bad in 10
The Hindustan Times, January 15, 2010, Page 24
Pradeep Thakur TNN
New Delhi: Indian banks appear to have saddled themselves with significant liabilities with a report pointing to big accumulation of non-performing assets (NPAs) in 2010.
On Monday, global rating agency Fitch warned that NPAs of banks were likely to go up by 1%. The report has made specific reference to restructured loans, saying that credit worth Rs 30,000 crore in this category alone could turn bad by next year when two-thirds of them are expected to mature.
The caution comes in the wake of RBI’s advisory to banks to be more prudent in extending credit on teaser rates. During 2008-09 and in the first quarter of 2009-10, banks on an average restructured 4.4% of their total loans, up from 0.71% in 2007-08. Restructuring was mostly in the form of rescheduling principal for a period of 12 to 24 months, thereby giving the borrowers time to see off the downturn.
In 2009, besides lowering interest rates, many of these banks had restructured their existing loan portfolios of the commercial real estate due to rising inventories and financial crunch faced by the sector. While overall the NPAs of banks had increased from Rs 55,800 crore on March 31, 2008 to Rs 66,900 crore in March 2009, the credit extended to commercial real estate went up phenomenally.
The total outstanding credit to the commercial real estate of Indian banks, both government-owned and private, at the end of March 2009 was Rs 91,500 crore as against Rs 63,000 crore till March 2008. This was not only an increase of 45% over the previous year but was more than double the amount of Rs 44,000 crore exposure of these banks during the boom period of 2007.
The major portion of this huge lending came from the government banks. This despite the fact that the RBI had prescribed regulatory limits on banks exposure to individual and group borrowers as a preventive measure given the ongoing sub-prime crisis in the western world. A part of this growth was also due to the existing loan portfolio being restructured by banks for the failure of borrowers to pay.
The Hindustan Times, January 15, 2010, Page 24
Pradeep Thakur TNN
New Delhi: Indian banks appear to have saddled themselves with significant liabilities with a report pointing to big accumulation of non-performing assets (NPAs) in 2010.
On Monday, global rating agency Fitch warned that NPAs of banks were likely to go up by 1%. The report has made specific reference to restructured loans, saying that credit worth Rs 30,000 crore in this category alone could turn bad by next year when two-thirds of them are expected to mature.
The caution comes in the wake of RBI’s advisory to banks to be more prudent in extending credit on teaser rates. During 2008-09 and in the first quarter of 2009-10, banks on an average restructured 4.4% of their total loans, up from 0.71% in 2007-08. Restructuring was mostly in the form of rescheduling principal for a period of 12 to 24 months, thereby giving the borrowers time to see off the downturn.
In 2009, besides lowering interest rates, many of these banks had restructured their existing loan portfolios of the commercial real estate due to rising inventories and financial crunch faced by the sector. While overall the NPAs of banks had increased from Rs 55,800 crore on March 31, 2008 to Rs 66,900 crore in March 2009, the credit extended to commercial real estate went up phenomenally.
The total outstanding credit to the commercial real estate of Indian banks, both government-owned and private, at the end of March 2009 was Rs 91,500 crore as against Rs 63,000 crore till March 2008. This was not only an increase of 45% over the previous year but was more than double the amount of Rs 44,000 crore exposure of these banks during the boom period of 2007.
The major portion of this huge lending came from the government banks. This despite the fact that the RBI had prescribed regulatory limits on banks exposure to individual and group borrowers as a preventive measure given the ongoing sub-prime crisis in the western world. A part of this growth was also due to the existing loan portfolio being restructured by banks for the failure of borrowers to pay.
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