Real estate revival story being scripted by investors: Analysts

Real estate revival story being scripted by investors: Analysts
The Economic Times, September 8, 2009, Page 9

Ravi Teja Sharma NEW DELHI

THE real estate revival story is being driven by the residential segment, but contrary to the claims made by a number of developers that end-users are their main buyers, the current trend is being driven by investors.

“These are investors who are taking an opportunistic view of the situation where prices have corrected considerably in many locations,” says Sanjay Dutt, CEO business at Jones Lang LaSalle Meghraj (JLLM). He estimates that a good 40% of the stock sold in the last few months would have gone to investors. In Delhi-NCR, this figure might be higher at 50%.

“Investors are back in good numbers and before the curve goes up, they want to buy. Some who have bought are already hoping to book profits during this Diwali,” he adds. This could be a precursor to further improvement in investor sentiments, since investors would take this as a sign to look towards a sustainable run in the future.

Investors took flight from the residential real estate market when the market crashed last year and many have been shy of venturing back. The last few months though have seen a number of affordable launches at price points, which have stimulated the market. Most developers have launched mid-income housing in the Rs 20-40 lakh range, which has created a movement.

While the short-term investor is there, interestingly, a good number of the investors are medium to long-term investors. “These investors are flocking to real estate because of the lack of other investment opportunities in the market at the moment,” says Ajit Krishnan, partner, real estate practice at audit firm Ernst and Young who feels the trigger for these investors was the drop in price points in the residential segment in the last eight months.

These investors are not purely speculative and are investing in real estate as a shelter against inflation, he says. Other investment opportunities today do not yield the same results.

Developers on their part are insisting that a majority of the buyers in their projects are end-users. As there is no set way to differentiate investors from end-users, Unitech looks at consumer behaviour to judge one from the other. “Investors usually are not too bothered about specification details, do not go for site visits too often. We have not seen such behaviour at our projects. It appears that a large majority are end-users,” says R Nagaraju, general manager of corporate planning at Unitech.

Wherever prices have been brought down to attract customers, there have been investors but Aditi Vijayakar, executive director, residential services at Cushman & Wakefield says these investors are mostly long term. “These investors are using this decline in the market to buy another property which they can decide on selling after the project is delivered,” she adds.

Alongside investors are endusers who are mainly interested in completed homes. “The question is of consumption. We are definitely seeing movement in completed properties which are being picked up end-users,” explains Krishnan.

Prices in the residential market in NCR-Delhi and Mumbai have started to climb up in the last months or so and Vijayakar warns that it is a little too early to raise prices. “In the medium term, it will not be sustainable for developers,” she says. There is a concern that the few end-users who have started to show interest might be deterred from making purchases if the prices of homes keeps rising.

Crisis shadow on realty still not over, but dip in rentals slowing

Crisis shadow on realty still not over, but dip in rentals slowing
The Financial Express, September 8, 2009, Page 12

Sajan C Kumar, Chennai

As global economic conditions have begun to stablise, property markets across the country have moved closer to their troughs in the second quarter of the current financial year. The rates of rental declines across major office markets have been slowing, after sharp corrections in the first quarter. According to second quarter Asia Pacific Property Digest 2009 of Jones Lang LaSalle Meghraj, the global real estate intelligence provider, Mumbai’s commercial real estate market had recorded approximately 35% reduction in rentals since the peak in third quarter of 2008.

After a steep decline in the previous three quarters, Mumbai saw two positive signs in second quarter of 2009—a slowdown in rental decline and the start of a revival in demand. In the same period, Mumbai recorded about 1 million sq-ft of leasing transactions, approximately 80% of which involved buildings under construction. The majority of these pre-leases took place in buildings that are due to complete in the next six months. This renewed leasing activity is believed to be brought about by demand from opportunistic occupiers that are capitalising on lower rentals, said the digest.

According to the digest, Mumbai’s commercial real estate market will experience a rise in vacancy and downward pressure on rentals for the next two to three quarters primarily due to the large supply pipeline. Developers of projects that are slated for completion in 2009 will have to be flexible in terms of pricing in order to attract occupiers. Considering the high supply and subdued demand in the market, some developers are expected to announce a change of use from commercial to residential for certain projects.

While banks are still cautious towards real estate lending, some signs of easing credit are appearing amidst improved financial conditions. Lower interest rates, increased liquidity and greater optimism regarding economic recovery helped to lift investor sentiment and triggered a spat of transactions in some markets in first quarter, albeit mostly at discounted prices. Residential markets saw the largest improvement as buyers were of the opinion that prices may have bottomed while discounts by developers, coupled with lower interest rates, also meant prices have become more affordable for long-term buyers, said the digest.

Though the overall demand for office space in Bangalore was slightly improved in the second quarter compared to the previous quarter, the vacancy rate rose to 11.4% from 10.6%. Significantly, most of the increase in vacancy occurred in the suburbs. The commercial market in Bangalore is likely to stablise through the second half of the financial year, led by the expected increase in demand from opportunistic players that are aiming to lock in lease agreements at attractive rentals. Demand for commercial space is expected to rise, evident from the increased number of requests for proposals floating in the market, said the digest.

Compared with the last two quarters, Pune witnessed resurgence in demand for office space, making a transaction of 5,50,000 sq-ft in second quarter of current financial year. The increase in demand was due to a considerable rationalisation in rentals since second half of 2008. The general sentiment in the market was that rentals across the micro-markets are approaching the bottom of the cycle. Although the demand has picked up, the sizeable supply pipeline of about 4.85 million sq-ft for the next two quarters may result in higher vacancy.

According to the digest, following a steep decline in retail space demand in the first quarter of financial year, the rental correction in Delhi NCR market slowed during second quarter. This was due to the rental deterioration witnessed across all the sub-markets during the last two to three quarters, which resulted in a marginal upturn in the number of requests for proposals. Though the NCR region might witness another round of real estate requirement reduction as retailers tend to close their less-profitable outlets, the region is expected to witness additional retail space of close to 4.5 million sq-ft by end-2010, mainly on account of the delays in the completion of retail malls from 2008 and 2009.

Large format malls to see highest growth in South India

Large format malls to see highest growth in South India
The Financial Express, September 8, 2009, Page 12

Mona Mehta, Mumbai

The Rs 45,000-crore organised retail sector, growing at the rate of 12%, is all set to witness the maximum number of large format malls and branded retail stores in South India, which will be followed by North, West and the East in the next two years.

According to Kumar Rajagopalan, chief executive officer, Retailers Association of India (RAI), retail space is cheaper in South India. Retail rentals in the NCR and Mumbai have gone up three times between financial year 2006-07 and 2008-09 compared to the figures in South and East. High rentals naturally come as a disincentive for setting up new retail properties.

In the South, retail rental rates vary between Rs 50 per sq ft to Rs 150/200 per sq ft depending from one region to another. In comparison to Mumbai and NCR, retail rental rates in Chennai and Bangalore are cheaper by 50-60%.

A report by leading international property consultants, Jones Lang LaSalle Meghraj and Cushman & Wakefield India in association with Shopping Centres Association of India, named Mall Realities India 2010, states that over 100 malls of over 30 million sq feet of new shopping centre space are projected to open in India between 2009 and end-2010.

Bappaditya Basu, vice president - retail, Jones Lang LaSalle Meghraj (JLLM) too agrees that because of high real estate costs, North India is not a preferred destination for large format and departmental stores, but there is a growing demand for luxury goods. The ones that are looking to expand in this region are luxury brands like Zara and white goods brands like Croma. “Aditya Birla is also looking to open up a few stores in some parts of North India, provided that they get appropriate properties at the correct prices. East India is typically a spendthrift economy and retail per se has not expanded beyond Kolkata. Future Group is the only player currently bullish on East India because of its value format. In South India, Future Group, Aditya Birla, Tata and Reliance are all keen on increasing their retail footprint,” Basu adds.

Post the release of this report, JLLM has recently done a realty check on the region-specific upcoming mall projects. In South, while Isckon Charities is setting up Gokulam Mall in Bangalore, Marg Constructions is developing Riverside mall in Chennai. Indu Projects is setting up Indu Mall and IJM is constructing IJM Mall in Hyderabad. ETL is constructing ETL Central Mall in Coimbatore.

DLF Brands -- the retail and lifestyle division of DLF Ltd-plans to set up fourth store apart from introducing DKNY jeans to India soon after opening three Donna Karan New York (DKNY) stores in Delhi. In West, K Raheja Constructions is developing Infinity 2 mall at Malad in Mumbai, Satra Property is setting up Dreams in Mumbai. Meanwhile, a Market City mall in Kurla, Mumbai is coming up from Marketcity Developers. Paranjpe Schemes is setting up Xion mall at Hinjewadi in Pune. DLF is setting up DLF Mall in Lower Parel in Mumbai.

Kshitij Investment Advisory Company (KIAC), the real estate arm of Future Group, is planning to set up two malls in the East by mid-2010, said a company source on promise of anonymity. While J P Infrastructure (P) ltd and Prozone Enterprises (P) Ltd are setting up Prozone Mall in Aurangabad.

Adidas India Marketing Pvt Ltd is planning to set up 200 branded stores which will include maximum ‘Adidas’ shop-in-shop formats and a few flagship stores in top 80 cities in India in this financial year. This is mainly because retail rentals have fallen sharply, says Tushar Goculdas its director - marketing and sales. Meanwhile, Portico New York, a brand by Creative Portico (India) too is planning to set up 160 Portico branded shop-in-shop retail formats and thereby increase penetration in North and South India, according to Chandan S, its senior general manager-retail and marketing.

Property Zone - a joint venture between Old Mutual Investment Group Property investment Ltd, South Africa and ICS Realty Private Limited, India - is in the process of setting up 5 to 6 branded malls in East, followed by South and North, Siddharth Sahgal, centre director, Property Zone told FE, “Funds to the tune of Rs 500 to Rs 600 crore has been routed through South Africa which we will manage and infuse to set up retail formats in India.” Pension funds based in South Africa are planning to invest an additional Rs 1,000 crore to Rs 1,500 crore in the Indian retail sector soon, a highly placed industry source told FE.

STAMP DUTY IN URBAN AREAS REDUCED TO 5%

STAMP DUTY IN URBAN AREAS REDUCED TO 5%
Business Standard, Kolkata/Bhubaneswar

The Orissa government today approved an amendment to the Orissa Development Authority Act and Orissa Town Planning and Improvement Act, reducing the stamp duty in urban areas to 5 percent from 8 percent at present and waiving the collection of additional 3 percent as town area surcharge.

This measure has been taken as part of the state government’s reform commitment to the Union government on the implementation of the Jawaharlal Nehru Urban Renewal Mission (JNURM), chief secretary T K Mishra said.

Briefing the media after the meeting of the state cabinet, Mishra said, the cabinet in its meeting on 22 February had approved the reduction in the stamp duty and the waiver, the necessary ordinance couldn’t be brought out due to the model code of conduct in force during the last general elections.

He said, at present, the stamp duty is 8 percent in urban areas and an additional 3 percent is collected as town area surcharge. The cabinet accepted a proposal of the housing and urban development department to reduce stamp duty to 5 percent from 8 percent while the 3 percent town area surcharge will be abolished.

This will bring down the cost of registration of land in the urban areas and will lead to better compliance. Out of the 5 percent collected as stamp duty, the state government will retain 3 percent with it while the remaining 2 percent will be provided to developmental authorities and improvement trusts in urban areas, he said.

Bengal cancels land allotment to IT cos

Bengal cancels land allotment to IT cos
The Hindu Business Line, September 8, 2009, Page 1

Infosys, Wipro to be told of scrapping of township project.

Our Bureau, Kolkata

It is official now. The West Bengal Information Technology Department, in a post on its Web site on Monday, announced the scrapping of the proposed IT township project, Kolkata Links, at Rajarhat near here.

The West Bengal Government had proposed to offer land to Infosys and Wipro in the township project.

The project had hit a political roadblock due to local disturbances. Both the companies would be informed about the issue, the statement indicated.

The uncertainty over the IT township project had been in the air for some time. A few days ago Business Line, quoting the State IT minister, had reported that the project had hit a roadblock. It started with allegations of illegal land deals. .

“The Government does not want to be involved in any illegal activity. Already, some departments have favoured scrapping the project. Thus, the IT Department cannot proceed with the project, and at this moment we are unable to stick to our assurances of providing land to Wipro and Infosys, and thereby constrained to inform them about the Government’s inability,” the statement said.

Recently, Mr Raj Kishore Modi, one of the directors of Akash Nirman, the nodal agency for land acquisition for the project, was arrested following a controversy over acquisition of land in nearby Vedic Village, a resort.

Mr Modi is also a Director of the resort that suffered extensive damage in an agitation by local people.

The incident evoked sharp reactions from different sections , including some within the West Bengal Government.

Monday’s statement made it clear that the IT Department had no role to play in the land acquisition. “In May 2009, the IT Department got a list of 90 acres of land from the private partner that could be given to IT companies and the West Bengal Electronics Industry Development Corporation (WEBEL) provided the details of the 90 acres of land to Infosys,” the statement said.

No land has been transferred till date to either WEBEL or the joint sector company, Webel Akash IT Links Pvt Ltd, the press release added.

Auto, home loans see revival: Kamath

Auto, home loans see revival: Kamath
Business Standard, September 8, 2009, Section II, Page 3

BS Reporter / Mumbai

Credit demand from consumers seemed to be back on track, especially in sectors such as auto and home loans though banks had cut down unsecured loan exposures, said KV Kamath, chairman of ICICI Bank.

“So far as mortgages are concerned, I think they are back from where they were a year ago. The tension between buyer, builder, and the lender is now more or less off. Auto sector financing is also back,” Kamath said at the sidelines of a banking seminar.

The chairman of the country’s largest private sector bank felt 80 per cent of the consumer loans were back, the remaining 20 per cent mostly unsecured loans had taken a back seat.

“Unsecured consumer credit is certainly hit. Banks are not lending unsecured loans,” he said. “We at ICICI Bank have significantly slowed down unsecured loans since one year. We only give unsecured loans to few existing clients, which have deposits and a good track record with us,” he said while adding that ICICI Bank took the lead in slowing down unsecured loans.

Though home loans have picked up, commercial real estate loan demand is still slack due to excess capacity creation.

The growth of retail credit demand was not reflected in the overall credit growth numbers as a slowdown in working capital demand dragged down the overall numbers, felt Kamath.

“It’s not reflected in the numbers because lack of working capital. This loan is distorting the numbers. If we keep the working capital loan aside, lending rate will be healthy by the end of the year,” he said while adding that credit growth for 2009-10 was likely to be 29 per cent except the working capital loan.

Credit growth during April 1 to August 14 was only 1 per cent compared with 3.3 per cent a year ago.

Also, the projects, which were in a conception stage a few months back, were being implemented now, he said.

Kamath saw interest rates remaining stable going ahead.

“To me, I do not fear interest rates to go up immediately. What the Reserve Bank of India will do if inflation rears up, we think we have to wait for one month for the monetary policy. It may react based on the what is the type of inflation and whether monetary policy action will help or not,” he said.

Baddi realtors still reeling under slump

Baddi realtors still reeling under slump
The Financial Express, September 8, 2009, Page 19

Preeti Parashar, Chandigarh

Even though the realty market is bouncing back in various cities across the country, the demand continues to be slow in Baddi, Himachal Pradesh. Keeping in mind the ongoing slump, the developers too are in a wait and watch mode. As per information available majority of realtors have been able to complete only 30-40% construction work of their projects.

“The demand here has not picked up since the slowdown started last year. We have developed about 50% of the total 720 apartments in the first phase but the bookings are quite slow. We are waiting for the market to pick up and then we will start our second phase construction,” an official from Omaxe Construction in Baddi told FE. Omaxe is offering one, two and three bedroom flats ranging between Rs 10 lakh to Rs 24 lakh in Baddi and so far has got about 20-30% bookings.

Lack of infrastructural in Baddi is considered to be the biggest impediment in the way of growth of the realty market. Buyers are kept at bay due to absence of sources of entertainment, good schools, colleges, hospitals etc. Many players like Omaxe, Amaravati, Hill View, Shakun Infrastructure, Mount View group and Suncity projects developing residential colonies in Baddi and suburbs are facing the brunt of slump in demand. To tackle the situation, some developers have decided to delay the completion of their projects whereas others are opting to rent out the apartments to the corporate sector.

But assured rental schemes offered by some developers have also failed to pump up the sales so far. “Though the rentals in Baddi are high as compared to Chandigarh or Panchkula but there are very few takers. Where a two bedroom flat can be rented out at Rs 7,000 to Rs 9,000 in Chandigarh, the same parameters are offered in the range of Rs 12,000-Rs 14,000 in Baddi. Apart from the companies taking apartments on rent, individual buyers are very few,” said Ankush Garg from Mountview group. He further added, “In our project—Naina Apartments—we developed 128 units, out of which only 30 units have been given the possession so far. Though we have the approvals to build over 300 apartments we are waiting for the response to pick up.”

Few realtors are also planning to venture into affordable housing segment in Baddi region. SK Bajaj from Prestine hotels and resorts said, “We are coming up with a new colony- Silver city on Baddi-Nalagarh road where one and two bedroom apartments will be developed.”

Real Estate Intelligence Service, Monday, September 07, 2009

Restoring the growth momentum would require filling a resource gap of Rs. 1.6 lakh cr to finance public investment until 2012

Restoring the growth momentum would require filling a resource gap of Rs. 1.6 lakh cr to finance public investment until 2012
The Financial Express, September 7, 2009, Page 4

Manmohan Singh, Prime Minister

India will end the current financial year with a GDP growth rate of 6.3%, despite a slowdown in the second and third quarters. The planning commission estimate released on Tuesday comes a day after government data showed first quarter GDP growth at 6.1%. The meeting of the commission, chaired by PM Manmohan Singh, said restoring the growth momentum would require filling a resource gap of Rs. 1.6 lakh croe to finance public investment until 2012, the terminal year of the 11th Five-Year Plan. Without mentioning disinvestment in public enterprises, Singh said the plan panel has established the challenge of resource mobilization.

Economy in recovery mode: Ficci survey

Economy in recovery mode: Ficci survey
Business Standard, September 7, 2009, Page 4

The confidence level of India Inc is on the rise, as the impact of fiscal stimulus measures have begun to show on the economic activity. Eighty per cent of the companies believe that the Indian economy is on the road to recovery and expect improvements in growth performance in the months to come.

A survey to gauge business confidence sentiment, carried out by Federation of Indian Chambers of Commerce and Industry (Ficci), for the month of September, also said 60 per cent of the companies reported improved industry performance at present, compared to the last six months.

The survey drew responses from 372 companies with wide geographical and sectoral spread. Companies participating in this survey had a turnover ranging from Rs 1 crore to Rs 1,16,000 crore. Respondents to the survey were from sectors like textiles, cement, steel, leather, chemicals and fertilisers, oil and gas, automobile and auto components, food processing, electrical equipment and machinery, plastic and rubber, among other sectors.

Around 86 per cent of the survey participants, however, have reported that poor progress and spread of monsoon this year could act as a dampener for the economic growth. Besides weak demand, the other factors that are adversely affecting performance of members of corporate India are a rise in the cost of raw materials, manpower and credit, with 55 per cent, 45 per cent and 41 per cent of the respondents complaining about these, respectively.

Moreover, 92 per cent of the companies surveyed said there was enough liquidity in the system and there was not much difference in the loan amount sanctioned and disbursed by banks. However, a significant 70 per cent of the respondents felt a high fiscal deficit and the massive borrowing programme of the government might lead to hardening of interest rates in the coming months.