ASK Investment lines up Rs 500-cr real estate fund

ASK Investment lines up Rs 500-cr real estate fund
The Economic Times, March 10, 2009, Page 6

Rajesh Unnikrishnan, ET Bureau, MUMBAI

AT A time when property prices have been moving southwards and experts themselves predicting a tough period ahead, private equity firm ASK Investment Holdings has launched its Rs 500-crore real estate fund.

ASK management thinks the real estate advisory business will complement its existing wealth management business apart from existing growth opportunities in the domestic property market.

“Equity and real estate are two critical asset classes of the wealth creation process. We are closely observing the trends in the domestic real estate market and are convinced that it has an important place in the long-term wealth creation process,” ASK executive director Sunil Rohokale said. The roadshow for the fund started last week and the initial response, according to him, has been positive.

Mr Rohokale claims his fund’s investment strategy is different compared to its peers. “ASK is providing a liquidity window to the investors. This means that the portfolio manager at the end of three years will be able to provide a liquidity enabling facility where the investor can choose to realise 10% of his capital contribution,” he said. The fund is focusing on the top seven cities in the country and is looking to invest mainly in the residential market with a focus on 200 fundamentally strong real estate developers. “ASK is keen on investing in projects that are already underway or about halfway. Our exit will be through sale of self liquidation of assets rather than a public offering,” added Mr Rohokale.

ICAI Council Clears Two More Auditing Standards to Enhance Quality of Audits

March 9, 2009
Press Release

ICAI Council Clears Two More Auditing Standards to Enhance Quality of Audits

The Council of the Institute of Chartered Accountants of India at its 286th meeting held on March 8, 2009 cleared two more Standards on Auditing (SAs), i.e., Revised SA 500, Audit Evidence and SA 720, The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements in the direction of enhancing the quality of audits.

Revised Standard on Auditing (SA) 500, Audit Evidence

Audit evidence is fundamental aspect of an audit on which the final audit opinion and the audit report is based. The quality and effectiveness of an audit is, therefore, to a large extent affected by the adequacy and appropriateness of the auditor’s procedures in gathering and evaluating the audit evidence. Though the Council of the Institute had in May 1988 issued a Standard on Audit Evidence, the Revised version of this Standard cleared today contains greater guidance for the auditors on critical aspects of audit evidence such as what constitutes sufficient appropriate audit evidence, information to be used as audit evidence, factors to consider in selecting items for testing, how to respond in case of inconsistency in or doubts over reliability of audit evidence. In other words, the Revised Standard in principles and procedures to be followed by them to obtain and evaluate audit evidence which is sufficient and appropriate for the purpose of their audit.

This Revised Standard is effective for audits of all financial statements for periods beginning on or after April 1, 2009.

Standard on Auditing (SA) 720, The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements

The responsibility the auditor, in an audit of financial statements, is to express an opinion on the truth and fairness of the financial statements, the basic objective of an audit being to lend credibility to the financial statements. In a number of cases, especially companies, the annual reports or other such documents that contain audited financial statements and audit report thereon, issued to stakeholders, contain a lot of other information which is related/ unrelated to the financial statements. For example, reports by managements/ directors, financial ratios, etc. The Standard is a first of its kind Standard to have been issued by the Institute and requires the auditor to read such other information to identify any material inconsistencies vis a vis the audited financial statements since these can undermine the credibility of those financial statements and the audit report thereon. The Standard contains detailed guidance on auditor’s procedures where such material inconsistency is identified or in the process of reading such other information, any apparent misstatement of facts come to the attention of the auditor.

This Standard is effective for audits of all financial statements for periods beginning on or after April 1, 2010.

Needless to add that both the above Standards are based on the corresponding International Standards issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. Further, the Institute would also bring out implementation guides for both the above Standards.

Real Estate Intelligence Report, Monday, March 09, 2009

ICICI slashes home loan rates, Rs 20 lakh now at 9.75 per cent

ICICI slashes home loan rates, Rs 20 lakh now at 9.75 per cent
Hindustan Times Business, March 7, 2009, Page 25

ICICI Bank took on State Bank of India to intensify a home loan rate war on Friday by announcing a quarter-to-half percentage point cut in lending rates split into three slabs. Loans of up to Rs. 20 lakh will now come at 9.75 per cent, but only for new customers. The new rates for the home loans are- 9.75 per cent for loans up to Rs 20 lakh and 10 per cent for loans in the Rs. 10 to 20 lakh range. Larger loans of up to Rs. 30 lakh will come at 11.5 per cent. "This is not a special scheme but an ongoing continuous scheme. The three slabs have been made to make loans affordable according to the category of the customer," said a senior official from ICICI Bank. "Rates for existing customers are a factor of the cost of funds and hence a cut in those rates are a factor of the cost going down." The new rates came amid a market-shaking initiative by SBI, which priced its loans at 8 per cent, but only for the first year. LIC Housing Finance is offering a rate of 8.75 per cent for loans up to Rs 30 lakh and thus is the cheapest. HDFC is charging 9.75 per cent for loans up to Rs 30 lakh and 10.75 per cent for larger amounts. At 9.75, the offering by ICICI and HDFC is effectively cheaper than the SBI's offering (8 per cent for first year and 10.25 from the second year linked to the BPLR - benchmark prime lending rate -- that takes the effective rate to 9.94 per cent). The effective rate changes from the second year, because SBI's charge goes up in a manner that balances out the gains given to customers in the first year.

Core sector growth slows to 1.4% in Jan

Core sector growth slows to 1.4% in Jan
Business Standard, March 7, 2009, Page 2

BS Reporter / New Delhi

Continuing its declining trend, the index of six core industries grew at its slowest pace in January 2009, as crude and petroleum products output went into the negative territory. However, cement was the only industry to grow at a faster pace on annual basis.

The index expanded by 1.4 per cent in January 2009, against 3.6 per cent in the year-ago month. Economists expect the Index of Industrial Production (IIP) to remain weak in the month under consideration, as the core industries constitute nearly 27 per cent of IIP.

After expanding 4.7 per cent in September 2008, the pace of growth in the core sector index has been declining steadily.

“The core sectors are a large block of the basic goods segment of the IIP. The 1.4 per cent growth in January is one of the lowest,” said a report prepared by Saugata Bhattacharya, vice-president, Axis Bank, who expects the IIP to dip by 1 per cent in the month under consideration.

The IIP had dipped by 2 per cent in December 2008, the worst performance by the index in the backdrop of dropping demand in the domestic, as well as overseas markets.

The key reason for muted growth in the core sector index was due to a unprecedented fall in crude oil production, which dipped by 8 per cent in the month, compared with a contraction of 0.2 per cent in the same month of the previous year. Moreover, petroleum products production also contracted in the month under consideration, as Indian refineries produced less.

In the absence of significant discoveries, and waning output from oil fields like Bombay High, production of the crude oil has been slipping. In the 22 months period between April 2007 and January 2009, production of crude oil has contracted in 14 months.

However, four other components of the core sector — cement, coal, electricity and finished (carbon) steel — expanded in the month under consideration.

“This could be because of the measures announced by the government to boost the economy,” said Soumendra Dash, chief economist, CARE Ratings.

Core sector slides to four-year low

Core sector slides to four-year low
The Financial Express, March 7, 2009, Page 1

Economy Bureau, New Delhi

The prospect of a revival soon in factory output dwindled with the infrastructure sector turning in just 1.4% growth in January, far below the 3.6% recorded in the same month last year.

This is the worst monthly performance since December 2005, according to government figures released on Friday. The core sector six-cement, coal output, electricity, finished steel petroleum refinery products and crude oil-contribute 27% to overall industrial production.

Other ways of gauging industrial output are just as discouraging. Non-oil imports, accounting for around three-fourths of industrial inputs, contracted by 0.5% in January. Similarly, commercial vehicles registered 52% negative sales growth in January 2009, only marginally better than the 58% shrinkage that was seen in December.

Government officials have exuded optimism about industrial production inching back into positive territory in January. Department of Industrial Policy & Promotion secretary Ajay Shankar had predicted last month that thanks to automobile, steel and cement companies showing signs of strength, “there is positive (IIP) news in January numbers”.

The IIP had shrunk for the first time in 15 years in October 2008. In November, it showed signs of some recovery by registering a 1.7% growth, but then contracted by 2% in December, against a growth rate of 8% in the same month a year earlier.

The slump in infrastructure industries bears out India Inc’s argument that without a substantial lowering of interest rates by banks, there would be little rise in credit off-take. RBI data released on Wednesday showed that from mid-December to mid February, credit to industry from the banking sector grew by only Rs 8,000 crore, against Rs 87,000 crore in the same period last year.

Of the core sector six, cement at 8.3% growth registered the best performance in January, against 5.6% in the same month last year. The worst performance was registered by crude oil production, which shrunk 8.1% in January from -0.2%. For the April-January period, overall growth slipped to 3.2%, from 5.7% a year earlier.

“The weakness in core sector growth reflects the inability of the government to implement any capacity expansion programmes in infrastructure. It could have expedited programmes like highway construction, electricity generation and transmission. This is not a derived demand. Such effective implementation of these programmes could have become the growth engine, but we see governance weakness,” said Indian Council of Research in International Economic Relations director & CEO Rajiv Kumar.

Vinayak Chatterjee, chairman of infrastructure consultancy firm Feedback Ventures, said, “The infrastructure constraints are growing more worrisome by the day. Unless fresh capital investments are made, the situation is unlikely to improve further. “

Nomura economist Sonal Varma agrees. “Though coal and cement sectors have done well, crude oil production has remained weak. When seen together with the slowdown that we saw in auto production in January, we are expecting IIP growth to be 0.3%. But this will be better than the December 2008 figures.”

Chidambaram predicts upturn by year-end

Chidambaram predicts upturn by year-end
Business Standard, March 7, 2009, Page 2

BS Reporter / Mumbai

Home Minister P Chidambaram today said that the country’s economy was expected to show an upturn by third or fourth quarter of 2009-10 and registering a 9 per cent growth by 2011.

While the economy is projected to expand by 7.1 per cent this year, the third quarter gross domestic product growth is estimated at 5.3 per cent. This would mean that the economy has to grow by 7.6-7.7 per cent during January-March, Chidambaram said, adding that it was something that looked difficult.

The minister was speaking at a conference organised by the International Bar Association. “Even until about two-three months ago, we were pretty confident that we will navigate this difficult year and end with a growth of a little over 7 per cent. In the first half of the current fiscal year, growth was 7.8 per cent. We were hoping that in the second half we will do 6.5 per cent. But the results of our third quarter GDP growth have been quite depressing,” he said.

Blaming the Western economies for weak regulation and being the originators of global economic crisis, Chidambaram said that regulations must always remain a step ahead of innovation.

Interest subvention catching on

Interest subvention catching on
The Hindu Business Line, March 8, 2009, Page15

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Developers in Kolkata are waking up to the advantages of the interest subvention scheme, which is considered a win-win for buyers, banks and developers.

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Manish Basu

Having remained unreceptive to the idea of reducing home prices at a time of slackening demand, developers in Kolkata are now catching up with their counterparts in other cities in launching a new scheme — the pre-equated monthly instalment (pre-EMI) subvention scheme.

The steep decline in the number of units sold since October has made them look closely at strategies of boosting demand, the most recent being the interest subvention scheme. Those convinced about the scheme have already launched (three to four developers) it or are soon to launch it and those who are doubtful have at least started etching out substitute strategies, such as a direct discount. Either way, the consumer in Kolkata stands to gain.

Under the subvention scheme, the consumer planning to buy a house by going in for a home loan makes only an upfront payment of 15-25 per cent of the home price to the developer while the rest is disbursed to the developer periodically by the bank with which the developer has a prior tie-up. The consumer does not pay anything thereafter till the delivery of the flat or for the period (example-one, two or three year) for which the offer is valid — depending upon the nature of the scheme. The developer in turn pays the pre-EMI amount (which is only the simple interest component) to the bank in phases. After the delivery of the flat, the customer starts paying EMI, which constitutes both principal and interest, till the loan period ends.

Advantage all

According to Mr Abhijit Das, Regional Director of JLL Meghraj, the scheme puts all the three involved stakeholders — buyers, banks and developers — in a win-win situation. “For people staying in rented homes, it makes absolute sense because, on the one hand, they are not burdened by additional monthly payments till they shift to new flats; on the other hand, the extra interest payment due to delay in delivery time falls on the developer, prompting him to speed up construction,” he said.

Mr Sumit Dabriwal, Managing Director, Riverbank Holdings Pvt Ltd, cited a prime concern faced by the potential buyer during the current recession — whether to delay buying as interest rates were expected to come down and property prices were predicted to fall. “The new scheme addresses these issues perfectly,” he said, “on the one hand, the buyer can avail the upside of reduction in interest rates when he actually starts paying EMI and on the other he gets an indirect discount eqivalent to a price cut.”

The company launched a one-year interest subvention scheme in tie-up with HDFC Bank in January for its Rs 35 lakh and above flats in Maheshtala, on the fringes of Kolkata. The project has sold nearly 20 flats since the launch of the scheme compared to little business in the previous four months.

The new scheme may also prove beneficial for the bank as it reduces chances of default, an SBI official related to the development said. “We will, however, be extremely cautious in choosing the developers and only those with a good track record and credibility to meet completion commitment will be considered,” he said.

As for the developer, apart from a direct boost in customer confidence, this will also provide a flow of funds from the banks indirectly with the developer having to dish out lower interest rate of 9-10 per cent on home loans in comparison to 12-14 per cent on builders’ loan from bank, Mr Biswadip Gupta, General Manager, Eden Realty Venture, said. The company may consider continuing the scheme even after the recession, depending on business prospects, he observed.

The flow of fund is essential now, as credit from banks for construction has dried up and the advance booking amounts have also reduced considerably, Mr Shiva Aftana, Vice-President of Ruchy Realty, said.

The company launched in February the pre-EMI subvention on high-end flats (starting from Rs 60 lakh) near E M Bypass. The company has not factored in the extra cost in the price of flats, he said.

Some reservations too

However, Mr Pradeep Sureka, regional President of the Confederation of Real Estate Developers’ Association of India and Managing Director of the Sureka group, differed on the issue, saying that if a project depends upon the scheme for funding, it might get stalled if there were not enough takers for the scheme. The company recently reduced prices of units near Ruby Hospital by 10 per cent and is also evaluating prospects of launching the interest subvention scheme.

“We predict a bit of a price war now, particularly when construction costs are down,” he said. The interest subvention scheme would imply a 10-12 per cent indirect discount on existing prices, according to a developer in the final stages of launching the scheme.

Mr Harshvardhan Neotia, Chairman of the Ambuja Realty Group, said the company would launch the new scheme for a limited period during the downturn in tie-up with HDFC and the State Bank of India.

The company plans to introduce an 18-24 month interest rate subvention for existing project of price range between Rs 3,750 and Rs 4,000 per sq.ft. It is also contemplating launching it in an upcoming middle-income category project of Rs 2,500 to Rs 3,000 per sq.ft range.

Mr Pradip Kumar Chopra, Chairman of the PS group, said the scheme is not viable for high-income group units. “It as an excellent deferred payment option for people who cannot afford to pay pre-EMI interest but it is not a viable mode of discount.” Rather, a direct discount would mean the customer has to pay less on account of stamp duty and registration and also save on income tax benefit on pre-EMI interest payment. The company has reduced prices of units in Rajarhat by 30-40 per cent in the last few months to Rs 1,700-1,800 per sq.ft, he said.

Hindustan Construction Co to complete Lavasa ahead of schedule

Hindustan Construction Co to complete Lavasa ahead of schedule
The Financial Express, Corporates & Markets, March 7, 2009, Page VIII

fe Bureau, Pune

Hindustan Construction Company (HCC) is expecting a total revenue of Rs 1,47,000 crore over the next 10-15 years from it’s Lavasa hill-station project being developed near Pune.

The project will be completed ahead of its schedule, said Ajit Gulabchand, CMD, HCC and chairman, Lavasa Corporation.

“We have sold out all 1,400 apartments and villas in the first phase of the township and have begun work for phase II. The project is expected to be completed by 2015 instead of 2020 as scheduled earlier,” said Gulabchand.

“There have been no cancellations despite current market conditions. The company is working on several new tie-ups in the area of architecture, animation, design, filmmaking, hospitality, education and industry,” he said.

A total of six hotels will be coming up at the project site, with a combined capacity of 1,000 rooms.

Accor will be opening a Pullman and Novotel hotel in the project. Thus far, around Rs 1,500 crore has been invested in the project and it has been funded by a debt equity ratio of 2:1, he said.

Peak investments required for this phase would range Rs 2,000-5,000 crore, he noted.

The Lavasa hill-station project is being developed by HCC along with the Avantha group and Venkateshwara Hatcheries. HCC holds 65% stake in Lavasa Corp, while Avantha Group has 16% and Venkateshwara Hatcheries 12%; 5% is held by local entities.

Axis Bank, Allahabad Bank and Bank Of India together hold around 4.5% in the project and have invested aorund Rs 450 crore in it. Gulabchand said the company will not dilute its equity further at this stage. “Lavasa owns stakes in properties in the project from 11% to 100% in some cases. In the Accor project, Lavasa holds 26% stake; it holds 20% in the NASA space project coming up here,” he said.

On the upcoming Gujarat project, Gulabchand said the company will conduct studies over next couple of years to decide the kind of model that needs to be created. The total investment in this project is around Rs 40,000 crore.

Govt refusal to allow foreign partner kills DLF convention centre project

Govt refusal to allow foreign partner kills DLF convention centre project
The Financial Express, March 7, 2009, Page 1

Corporate Bureau, New Delhi

Delhi’s mega convention centre to be built by the country’s largest real estate firm, DLF, has been scuppered, as the government is unwilling to let the company seek a foreign equity partner for the prize project.

Speaking at the Express Group’s Idea Exchange programme on Friday, DLF group chairman KP Singh said, “We are ready to revisit the project if we are allowed to rope in foreign partners for funding, including private equity players.” The Delhi convention centre is one of four state-of-the-art facilities announced in Union Budget 2007-08.

Singh said unless Delhi Development Authority (DDA) allowed a special purpose vehicle for the project to include additional equity players, the project was unlikely to take off. DLF bagged the development, being sole bidder, in July 2007. Its financial bid was Rs 901.8 crore, against a reserve price of Rs 900 crore.

Spread over an area of 14 hectare, the mega convention centre was slated to come up at Dwarka, near the city’s airport, and was billed as one of DDA’s most ambitious projects. The complex was to have an integrated built-up area of 1.83 lakh sq m, comprising a 86,400-sq m convention & exhibition complex, a 60,000-sq m built-up area for a hotel complex, and 36,600 sq m for a commercial complex.

Discussing the government’s role in real estate and urban development, Singh said it should play the role of an enabler and facilitator. “It is not possible for developers to acquire huge tracts of land. As a result, the government should play an active role in acquiring land for developments,” Singh said.

DLF’s township in Dankuni, West Bengal, has been shelved because the state government was unable to acquire 4,840 acre of land. The company subsequently offered to scale down the project to 500 acre. But the state government failed to acquire even this smaller tract of land. The proposed township was originally estimated to cost Rs 40,000 crore and was to be DLF’s biggest project in eastern India.

DLF, which has recently reduced the prices of its properties by 15-20%, is not planning to slash rates any further. Instead, it expects other developers to follow suit, which would lead to a price correction and revive demand. Singh said interest rates should come down further to boost the housing market and EMIs on housing loans should be exempt from income tax.