National Conference on Public Private Partnership in Housing

30th September 2009

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Real Estate Intelligence Service, Friday, September 18, 2009

Rates may harden by fiscal end: Rangarajan

Rates may harden by fiscal end: Rangarajan
Business Standara, September 18, 2009, Section II, Page 3

BS Reporter / Hyderabad

Interest rates may harden a bit by the end of the current financial year, according to C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.

Speaking to mediapersons on the sidelines of an international conference on ‘Global Economic Meltdown: Challenges and Prospects’ here on Thursday, Rangarajan said credit offtake was also showing signs of recovery.

He said though capital flow had improved, but were not of the same order as two years ago. Nevertheless, inflows through foreign direct investment (FDI) and foreign institutional investment (FII) would be larger this year compared with last year, he said.
Rangarajan said that fiscal actions involving a cut in excise duty and enlarging government expenditure would stimulate aggregate demand. The government has already extended its stimulus package up to March 2010, which could be reviewed thereafter. On the issue of the continuance of the accommodative policy, he said this policy of the Reserve Bank of India (RBI) and the government might have to be withdrawn gradually.

“The quantitative easing cannot continue indefinitely. RBI particularly has to guard against the re-emergence of inflation,” he said. In this context, Rangarajan cautioned that there shouldn’t be a “premature” withdrawal of the accommodative policy. “It has to come after definite signs of recovery are visible. But once they are visible, we have to withdraw,” he said.

Even in the case of central fiscal deficit, he said, we should revert to Fiscal Responsibility and Budgetary Management (FRBM) targets as the economy began to recover. He does not envisage any increase in the 2009-10 fiscal deficit, which is pegged at 6.8 per cent of the gross domestic product (GDP).

Rangarajan said that RBI had taken right steps by reducing CRR (cash reserve ratio) and repo and reverse repo rates for expanding liquidity. However, it was being pointed out that the actions of the central bank have not percolated to the ground level and credit growth was slow.

“Is this a case of taking the horse to the pond but cannot compel it to drink?” he asked while emphasising that the role of RBI was to create an environment in which additional credit could be made available.

He envisaged that India would see “definite signs” of recovery in the second half of 2009-10 and the economy would grow between 6 and 6.5 per cent. Fiscal 2010-11 would see a distinct improvement and the economy would grow between 7 and 8 per cent. But to go back to 9 per cent growth, the country has to wait for the world economy to improve and the world trade to pick up.

According to Rangarajan, the shock waves produced by the current financial crisis would have their own effect on the structure of capitalism. Acceptable capitalism would require more regulations. Future discussions must centre around the nature and scope of such regulations. Runaway financial innovations that were dysfunctional did more harm than good, he added.

Economic slowdown hampers global FDI flows

Economic slowdown hampers global FDI flows
The Hindu Business Line, September 18, 2009, Page 15

Medium-to-long-term prospects of India, China promising: Unctad.

Our Bureau, New Delhi

The worldwide economic and financial crisis has extracted its toll with global foreign direct investment (FDI) flows getting severely hampered this year, says the UN Conference on Trade and Development (Unctad).

In its World Investment Report 2009, released worldwide on Thursday, the Geneva-based UN body said inflows are expected to fall from $1.7 trillion to below $1.2 trillion in 2009, with a slow recovery in 2010 (to a level up to $1.4 trillion) and gaining momentum in 2011(approaching $1.8 trillion).

Stating that the global economic crisis has altered the FDI landscape, it said investments to developing and transition economies surged, increasing their share in global FDI flows to 43 per cent in 2008. This was partly due to a concurrent large decline in FDI flows to developed countries (29 per cent). However, in 2009, FDI flows to all regions would suffer from a decline, it added.

The report said a major contributing factor to the decline in global FDI flows has been growing divestments by transnational corporations (TNCs). Illustrative of this trend that was that roughly one third of cross-border mergers and acquisitions during 2008 and the first half of 2009 entailed the sale of foreign affiliates to other companies.

According to Unctad, available data in early 2009 point to “a significant downturn” in FDI flows to the South, East and South-East Asian region, besides casting doubts about FDI growth prospects in the short term. Inflows to China and India are inevitably hit by the crisis, too, but their medium-to long-term prospects remain promising, it said, adding that respondents to World Investment Prospects Survey of Unctad ranked China and India as the first and third, respectively, among the most attractive locations for FDI.

During 2008, 110 new FDI-related measures were introduced, of which 85 were more favourable to FDI. But, compared with 2007, the percentage of less favourable measures remained unchanged, it said adding that during 2008, 59 new bilateral investment treaties were concluded, bringing the total number to 2,676.

Overall trends

Unctad found that overall policy trends during the crisis have so far been mostly favourable to FDI, both nationally and internationally. However, in some countries a more restrictive FDI approach has emerged, it said noting that there is a “growing evidence of covert protectionism”.

Instances of ‘covert’ protectionism include favouring products with high ‘domestic’ content in government procurement (particularly huge public infrastructure projects), de facto preventing banks from lending for foreign operations, invoking ‘national security’ exceptions that stretch the definition of national security or moving protectionist barriers to sub-national levels that are outside the scope of the application of global obligations (e.g., in matters of procurement).

Looking to the future, a crucial question is which FDI policies would be applied by host countries; once the global economy begins to recover, Unctad said.

The expected exit of public funds from flagship industries is likely to provide a boost to private investment, including FDI.

This could possibly trigger a new wave of economic nationalism to protect “national champions” from foreign takeovers, it said.

In this context, Unctad suggested that policymakers consider strengthening the investment promotion dimension of international investment agreements through effective and operational provisions.

Investment insurance and other home-country measures that encourage outward investment are cases in point where continued international cooperation could be useful.

The worst global economic and financial crisis has slowed the global production of goods and services by the world’s estimated 82,000 TNCs and their 8.10 lakh foreign affiliates which account for not less than 10 per cent of world GDP and employ about 78 million people.

Unctad’s list of the world’s largest 100 non-financial TNCs is dominated by manufacturing and petroleum companies, which saw their profit margins reduced drastically on the weakening demand for both manufactured goods and fuels. Overall, the profits of the largest 100 TNCs in the world fell by more than 25 per cent in 2008.

Unlock urban land values to beef up infrastructure

Unlock urban land values to beef up infrastructure
The Hindu Business Line, September 18, 2009, Page 17

The Railways should develop new growth centres and use transport corridors asset to contribute to urban renewal.

G. Srinivasan, New Delhi

Building infrastructure, both physical and social, requires huge investments and one of the effective ways of addressing this insurmountable obstacle is to unlock urban land values for infrastructure finance.

This is what experts contended here at a day-long deliberation on Wednesday, jointly organised by the Ministry of Urban Development, Infrastructure Development Finance Corporation, India Urban Space Foundation and National Institute of Urban Affairs in collaboration with Wolfensohn Centre for Development at Brookings.

Participants from different countries highlighted the unresolved paradox in that for most large infrastructure projects — those related to transportation and communications — infrastructure investments push the value of urban land more than the cost of the project.

If land-value gains so accrued exceed project costs, why has it been so difficult to ramp up infrastructure financing? Hence, the policy question to find a proper way out to capture part of the gain in land-values for urban infrastructure finance through land-based financing.

Land-based financing

Some experts opined that despite the incontrovertible arguments for the land-based instruments as part of the solution to urban infrastructure financing, initiatives on these lines often are met with political and popular opposition. The bursts of protests on acquisition of land for industrial projects in West Bengal or the special economic zones (SEZs) coming up in different parts of the country in recent period remain too strong to be set aside.

In fact, the provision in the yet-to-be tabled Land Acquisition (Amendment) Bill 2007 for private developers to acquire 70 per cent of land for an industrial project directly and the rest 30 per cent by the State Governments is a controversial one, provoking political parties to take sides and pot-shots to gain popular sympathy. Despite the obstructions, land-based financing proposals did surface in India, the example being auction of financial centre land by the Mumbai Metropolitan Regional Development Authority (MMRDA) and planned sale of excess land to finance access highway to the new airport built under PPP in Bangalore.

The obvious advantages for public sector companies possessing tracts of unused or waste land are that the land-based financing could generate revenue up-front, reducing dependence on costly debt. Making a case for using surplus lands vested with the Railways, the former Chairman of Railway Land Development Authority and former Member (Engg) of Railways, Mr. S.K.Vij, pointed out that developers seek 25 per cent return on projects. He said the emphasis should be on creating value for the land and not encashing it for immediate gains.

Rightly, he said, the pace of urbanisation, which was 25 per cent in 1991, is to reach 40 per cent by 2021, against 90 per cent urbanisation in advanced countries.

Growth centres

He said the Railways should give its land for developing agri-centres, warehousing, logistics parks, which could lend value to the railway land. Besides, it should develop new growth centres and use transport corridors asset to contribute to urban renewal.

In his presentation, the Executive Director, Faculty of Architecture, Universidad Catolica de Chile, Mr Pablo Allard, presented the Chacabuco plan case, disclosing how three municipalities were incorporated to form a big urban centre, using the National Ministry of Housing and Urbanisation as the nodal agency.

He recounted how the land was put to mixed use for productive activities, services and housing.

Experts said in some advanced countries, development fees now pay for a chunk of infrastructure costs as these fees are levied on developers who pass them on to buyers of residential and commercial buildings. Fee structure may be more or less fine-tuned, ranging from a uniform percentage of development cost to “impact fees” that capture the location of development and the costs of connecting to major infrastructure trunk systems such as water lines and road systems.

It was also pointed out that the highest payoff to infrastructure investment is for projects at the regional or metropolitan scale and instances include airports, metro (subways) and light rail systems, major bridges and light rail systems.

Ultimately, land being a polemical subject in India and its acquisition process being cumbersome, a reasonable middle-path could be arrived at safeguarding individual rights while letting some part of the value created by public infrastructure investment to be captured to help pay for such investments, experts said.

More liquidity than system needs

More liquidity than system needs
The Hindu Business Line, September 18, 2009, Page 8

RBI Annual Report 2008-09.

The official response to the emerging crisis a year ago was a massive unwarranted release of liquidity. Much of the money has been making a round trip to the RBI through reverse repos. And now the chickens are coming home to roost, says A. SESHAN.

There is no satisfactory explanation why interest rates have not fallen as much as expected despite the strategy of flooding the economy with money.

The much-awaited Annual Report of the Reserve Bank of India (RBI) recounts the story of the economy that has already been told — starting with the Economic Survey and followed up by Quarterly Reviews of the central bank and the other reports of Indian and international institutions.

Still, it is a valuable addition to the existing literature on the economy, being a convenient one-stop source of information and data and carrying the imprimatur of the Central Board of Directors with data not available elsewhere (e.g. the balance sheet and organisational matters of the Bank).

Like other RBI publications, it is rated highly for its authenticity, even if one does not agree with its interpretations of data. While this reviewer is in broad agreement with many of the observations in the Report, he would like to point out a few exceptions.

Liquidity in West and India

The whole thrust of monetary policy everywhere is on ensuring adequate liquidity to service the requirements of the economic system. In the aftermath of the sub-prime crisis in the West, the damage to both funding and market liquidity persisted for many days.

The severity of the crisis of confidence can be gauged from the fact that the spreads in respect of LIBOR-OIS and TED (difference between the three-month T-bill interest rate and three-month LIBOR) reached the record levels of 364 basis points (one basis point equals one-hundredth of a percentage point) and 465 basis points, respectively, in October 2008.

Historically, in normal times, the spreads hover around 10 and 30 bps, respectively. It was in that context that central banks, especially the US Federal Reserve, had to intervene massively and in unconventional ways to deal with the unusual situation so that the wheels of the financial system were lubricated.

As a result, funds have started flowing and the LIBOR-OIS spread has come down now to 25 basis points that is even below the Greenspan benchmark of 50 basis points in normal times.

During September-October of 2008, there was a liquidity problem in India due to the drying up of foreign sources of credit and capital outflows coupled with advance tax payments. It was further aggravated by the RBI intervention in the forex market selling dollars and absorbing rupees in order to arrest the depreciation of the domestic currency. Otherwise, the country was not in any big way exposed to the sub-prime loan losses.

Foreign currency assets of the RBI fell from $286.12 billion on August 29, 2008 to $274.91 billion on October 3. Of the total decline of $11.21 billion, around two-thirds ($7.7 billion) occurred in the week ended October 3. It is safe to assume that the bulk of it would have been due to market intervention sucking out rupees of a massive magnitude.

Unwarranted action

Till September 26, 2008, non-food credit growth rose during the financial year by 7.8 per cent from 6.1 per cent in the corresponding previous fiscal. Aggregate accommodation including credit and investments in the corporate sector rose by 7.4 per cent from end-March to end-September 2008 against 5.5 per cent in the earlier year. The investment in SLR securities as a proportion of aggregate deposit liabilities was lower at 28.7 per cent than a year back (31.7 per cent) obviously due to disinvestment to finance credit. It was still above the minimum SLR of 25 per cent.

Cash reserve ratio stood at 9.91 per cent barely enough to maintain the statutory minimum and the level of settlement balances for inter-bank clearing.

As a consequence, there was a shortage of liquidity in the money market. The call money rate ruled considerably above the repo rate, sometimes touching 20-plus level. The banks had large-sized access to the RBI for repo operations. The problem was with the call money, and not the credit market. Call money is required for several reasons, only one of which is loans and advances of banks.

The official response to the emerging crisis was a massive unwarranted release of liquidity by the government (through fiscal reliefs) and the Bank, adding up to 7.4 per cent of Gross Domestic Product till the end of March. Much of the money has been making a round trip to the RBI through Reverse Repos, being surplus to the system’s needs. Now the chickens are coming home to roost. A medium-sized lemon costs Rs 5 in Mumbai! There has been no general recession in the economy unlike in the West. Only the growth rate of Gross Domestic Product has been affected. Even then an expected rate of around, say, 6 per cent, is no small matter

Trends in Interest Rates

There is no satisfactory explanation as to why, unlike in the West, interest rates have not come down in India as much as the central bank would like to see in relation to the large cuts it has effected in policy rates despite the common strategy of flooding the economy with money.

What is more, as a pointer to the future, bond rates in the gilt-edged market have been firm. The attempt of the RBI to enter the market to purchase government securities injecting funds that would facilitate subscription to new issues at low yields has not been successful.

Between April 9 and September 10, it sought to buy securities worth Rs 79,500 crore but could do so only to the extent of Rs 50,991 crore (64.1 per cent).

In the auctions conducted so far the Bid-Cover Ratio was below 2 in 9 out of 13 occasions, the one on September 4 touching the nadir of 1.04 per cent. (A ratio of 2 and above indicates a good demand.). The price bids were generally high and a large proportion had to be rejected.

As a result, yields are hardening for buy-backs in alternate weeks that set the benchmarks for the succeeding sale of new securities. It is exactly the opposite of what the central bank wants to achieve.

At the same time, there are massive Reverse Repo (RR) operations of banks with the RBI in excess of Rs 1 lakh crore continuously since the beginning of the current year. There have been reports of arbitrage with dollar as a carry-currency instead of yen. Does it also explain the roller coaster drive of the rupee vis-À-vis the dollar?

Why should banks prefer the RR rate of 3.25 per cent as against much the higher coupons offered on long-term securities? It has to do with market psychology and strategy. Due to the drought prevailing now there is a strong expectation of rates going up before the end of the year due to the additional borrowings of the Centre over and above what has already been announced in the Budget.

The permission given to States to raise an additional amount of Rs 21,000 crore exacerbates the situation. Hence, banks do not want to face the risk of a depreciation of their portfolios.

The strategy of banks now is to sell high and buy low in the so-called open market operations. They would be happy if the RBI continues with the buybacks. As the Americans say, a sucker is born every minute! Why should the banks give up their securities unless the prices are attractive as they can deposit the proceeds only in RR at 3.25 per cent in the absence of adequate demand for credit?

(The author is an economic consultant based in Mumbai. blfeedback@thehindu.co.in)

Realty co plans separate a/c for luxury project

Realty co plans separate a/c for luxury project
The Hindu Business Line, September 18, 2009, Page 3

S. Shanker, Mumbai

To bring in more transparency to its accounting procedure and instil greater confidence among home buyers, Bangalore-based real estate developer Lalith Gangadhar Constructions (an investee company of Kotak Realty Fund) will maintain an exclusive construction escrow account with a bank (Kotak Bank) for the LGCL-Ashlar project it is developing in Garden City.

The Rs 150-crore project comprises 63 villas on 7.75 acres, each carrying a minimum price tag of Rs 2 crore.

The developer plans to launch two more luxury format projects.

The company will keep the budgeted construction cost for the project in a separate construction escrow account from payments received from the home-buyers. The funds here will be used solely for project construction.

Assurance guaranteed

Mr Girish Puravankara, Managing Director of LGCL Developers, said, “This is a major initiative from us to give utmost comfort to our buyers. We realised that home buyers need an assurance that their investment is in safe hands. The escrow account provides added safety as well as increases transparency for our customers in a market where a lot of real estate projects are stuck because of the diversion of sales proceeds received from the customers for non-construction purposes.”

The escrow account procedure is said to be widely followed in the US, UK and Australia. Mr Puravankara said the company would alone operate the account and that the transactions were beyond the purview of buyers who had made their bookings. The account would be operated in accordance to a method the firm’s Board had decided upon.

The Associated Chambers of Commerce and Industry of India has brought out a white paper to make it mandatory for real estate developers to open up an escrow account to ensure transparency in transactions.

Raymond diversifies into real estate business

Raymond diversifies into real estate business
Business Standard, September 18, 2009, Page 3

BS Reporter / Mumbai

Raymond, the Singhania group’s flagship company, has forayed into real estate development. The board of the company today approved using 15-20 acres of surplus land in Thane for developing affordable residential property. The real estate development would be handled by a division of Raymond.

“Depending on the response to this project, we will decide our future strategy for the real estate business,” Chairman and Managing Director Gautam Singhania said.

Mumbai-based Raymond is the world’s third-largest maker of worsted fabric, used in making men’s suits. The company has a plant in Mumbai’s neighbouring town, Thane, which has surplus land. It declined to specify the full size of the surplus, but just said 15-20 acres had been earmarked for the first phase of development.

“The plant will remain there. We will use a part of the surplus land according to the regulatory approvals we have received,” said Singhania.

He declined to give any details regarding the investment or time frame for the projects. “We have just got the board’s approval. Now we will look into details,” he said. The company is appointing an internal team to start with. It would gradually recruit experts for the real estate business.

The realty sector has caught the fancy of quite a few textile companies, including Bombay Dyeing, Century Textiles and Alok Industries. Since most textile mills in Mumbai have shifted operations to the hinterland of Maharashtra or Gujarat, the land thus freed is being used by real estate developers for building residential and commercial complexes.

The textile industry has failed to attract foreign direct investment and, with the slump in the international markets, textile companies are venturing into different sectors.

For instance, Century Textiles had shut operations in Mumbai’s Worli area last year. The 30 acres owned by the Birla company is to be converted into commercial real estate, especially for IT and IT-enabled services.

The company had reported Rs 231 crore of loss for the financial year 2008-09, against a profit of Rs 18 crore in the previous year. The revenue of the company for 2008-09 grew to Rs 2,628 crore, against Rs 2,444 crore in the previous year.

Mumbai towers

Mumbai towers
The Hindu Business Line, September 18, 2009, Life, Page 1

Space-starved metro sees the only way to go, and grow, is up. A slew of 50-plus-storey buildings are rising right in the heart of the city..

Aruna Rathod

From mill lands to malls and from shanties to skyscrapers, Mumbai’s skyline is changing. In just a matter of months, a string of 50-plus-storey buildings will tower up in the heart of the metropolis. Take, for instance, areas like Lalbaug, Parel and Sewri, which until a few years ago were middle-class settlements housing mill workers and lower income groups, but now have apartments that cost upwards of Rs 5 crore.

Lower Parel itself is in the middle of a metamorphosis, with old dilapidated structures being pulled down to make way for sprawling malls, glossy office buildings and skyscrapers to house the well-heeled. Its newest landmark is the 65-storey Indiabulls Sky, offering ‘private residences’ with all the attendant luxuries, of course at a price. Just a stone’s throw away, the 75-storey Jupiter Mills Tower is coming up as also the 80-storey Raheja Platinum and Waves buildings in Worli, followed closely by the 65-storey Dynamix-Balwas project at Marine Lines, and the 60-storey twin towers in Tardeo. The 45-storey Shreepati Arcade at Nana Chowk, which was the tallest building in the country until a few years ago, is already way behind in the reach-for-the-sky race.

No choice but vertical?

The reason Mumbai is going vertical is that it is the only solution. Builders and architects are concentrating on skyscrapers primarily because they are convenient — you can create a lot of real estate out of a relatively small ground area. High-rises seem to be the only option for a congested city like Mumbai.

Architect Hafeez Contractor, the pioneer of superstructures in Mumbai, says, “We have to accept high-rises as fait accompli. Mumbai has a population of 18 million and the area is only 470 sq km; when you are looking at such a large population over a small area of land, vertical is the only way to go.” He predicts that the city’s population will increase to 30 million in the years to come. “How will Mumbai deal with this rise? The only answer for Mumbai is to increase the FSI (Floor Space Index), only when we do it will the city get on its own feet and earn more. Right now, there are illegal constructions and they are utilising the facilities of the city.”

Suburbs rising

If Mumbai is growing into the sky, the suburbs are not far behind. The 33-storey Heritage building, constructed by the Hiranandani Group at Powai, happens to be the tallest in the suburbs. A staunch believer in high-rises, Surendra Hiranandi, Managing Director, Hiranandani Constructions, echoes Contractor’s view. He adds, “We have the lowest FSI in the world and it is time we get higher FSI for better development. For the housing problems in Mumbai to be solved we need to go vertical. A fairytale solution is to have one’s cottage with a vegetable garden, but that is just not possible in India. Low-rises are a luxury and perfect for rich countries while for developing countries it is high-rises. I believe that high-rises are a solution not only for Mumbai but for India.”

Interestingly though, high-rises are an expensive proposition for the builders too. Real-estate consultant Sunil Bajaj says, “As you increase the number of floors, the proportionate construction cost of the building goes up substantially. But with high-rises, residents get good ventilation and natural light, space for wide roads, open spaces, adequate parking, provision for drainage, children’s parks, while the builders get better rates for their projects.” According to Bajaj, people today are upwardly mobile and high-rises are a worldwide phenomenon.

High pressure

But much as the developers are bullish about going vertical, there are others who are sceptical about the unchecked growth. Like architect Mukesh Mehta, who believes that infrastructure is the lifeline of a city and it shouldn’t be put under pressure. “We need to go vertical but this is not a permanent solution. At some point even these spaces will be exhausted. The island city of Mumbai is already developed, now we need to develop accessibility to the mainland, concentrating on places like Borivili (western suburb of Mumbai) and Navi Mumbai (a satellite township). What needs to be done is to provide better infrastructure like transportation, as buildings, small or tall, will always come up.”

It’s not only Mumbai but also its counter-magnet satellite city across the creek — Navi Mumbai — that is going vertical with a vengeance. The entire 8-km stretch of Palm Beach Road, with mangroves on one side, is dotted with more than 100 high-rises on the other side. “Palm Beach Road is the Queen’s necklace of Navi Mumbai, and the high-rises are its sparkling jewels,” says Bajaj.

Meanwhile, Neev group has announced the construction of a 32-storey building called Ivory Tower in the centrally located Prabhadevi area.

Company head Jitendra Jain said the prime location would make it convenient for buyers to commute to the commercial hubs of the city. The project will sprawl across 2.13 lakh sq. ft.

Some of the group’s other projects include Darshan Heights — a residential tower at Elphinstone; Shree Jayant Darshan — a niche 24-storey tower at Nana Chowk; and Darshan Pride — a 19-storey residential property at Tardeo. All the projects are in the heart of Mumbai city.

Real Estate Intelligence Service, Thursday, September 17, 2009

Bull Charge Continues; Nifty Nears 5000

Bull Charge Continues; Nifty Nears 5000
Surya R Kannoth, Mumbai
The Economic Times

Bulls resumed their charge for the second straight session Wednesday sending equity benchmarks to nearly 16-month highs. Expectations of a strong earnings season along with encouraging comments from Fed Chairman about the US economy kept investor sentiment upbeat. Commodity stocks clocked handsome gains making the BSE Metal Index the biggest sectoral gainer.

On Tuesday, US Federal Reserve Chairman Bernanke said the country's recession was "very likely" at an end. Bernanke said there was general agreement among economists that the US would return to growth in the third quarter of this year and continue to pick up in 2010. But he said any recovery would be slower than in previous economic crises, which means unemployment will also be slow to fall. The US jobless rate climbed to 9.7 percent in August, its highest level in 26 years. This spurred stocks across the world.

“The trend continues to remain up and very strong as markets are lacking any huge selling from the FIIs or the domestic players. We were looking for a fresh trigger and one of the triggers is the advance tax numbers and the second could be the earnings estimates for this quarter in the coming days. To add to the good news, Bernanke declared that US recession is very likely over. Banking, metal and auto stocks continue to show strong resilience. The next target for the Nifty is 5100,” said a technical analyst with a domestic brokerage.

Bombay Stock Exchange’s Sensex settled at 16,677.04, higher by 1.35 percent or 222.59 points from the previous close. The index touched a high of 16,700.56 and low of 16,498.59 during the day.

National Stock Exchange’s Nifty moved closer to its next immediate target of 5000. The index ended at 4958.40, up 1.36 percent or 66.3 points. The index surged to a high of 4966.30 after opening at 4894.65.

Broader markets performed in line with bluechips. The BSE Midcap Index climbed 1.45 percent and BSE Smallcap Index rose 1.1 percent.

Hotel stocks were also buzzing with action after the Reserve Bank of India notified that hotel ventures run by the entrepreneurs themselves be taken out of the real estate exposure for banks so that they become eligible for loans on the lines of infrastructure projects. This new relaxation would enable hotels to avail larger credits at better interest rates, which would help to lower the overall cost of such hotel projects. Shares of Kamat Hotels surged 20 percent, EIH Hotels climbed 19 percent and Royal Orchid advanced 12.64 percent.

GAIL (-2.28 percent), Reliance Infrastructure (-1.21 percent), BPCL (-1.06 percent), Hindustan Unilever (-1 percent) and Wipro (-0.82 percent) were the losers.

SEBI'S TRANSPARENCY NORMS MAY CHANGE IPO GAME

SEBI'S TRANSPARENCY NORMS MAY CHANGE IPO GAME
Arun Kumar, New Delhi
The Economic Times

The stock market regulator’s move to create a level-playing field between institutional and other investors by prohibiting companies doing initial public offers (IPOs) from sharing financial projections with research arms associated with the sale arrangers may change the way IPOs are sold to investors, investment bankers say.

Since analysts associated with investment bankers who are selling the issue cannot make financial projection, it would be difficult for the advisors to come up with price estimates even in pre-IPO road shows, said a leading investment banker on condition of anonymity.

The Securities and Exchange Board of India, or SEBI, came out with a new disclosure and investor protection guidelines on September 3, which state that the research report should be only based on the published information as contained in the offer documents which analysts at non-arranging brokerages and retail investors rely on.

Before SEBI’s rule tweak, the market practice was for banks advising companies to share financial numbers with the analysts associated with their research department, which in turn prepare a report making their own future projection in comparison to the peer group. These reports are subsequently shared with institutional investors prior to filing the prospectus. They are not meant for the retail or ordinary investors.

But the new guidelines say that “no selective or additional information or information extraneous to the offer document shall be made available by the issuer or any member of the issue management team/ syndicate to any particular section of the investors or to any research analyst in any manner whatsoever including at road shows, presentations, in research or sales reports or at bidding centres”.

Research houses not associated with the issue and have no access to the company’s financial details can make their own projections based on publicly available information. In the recent NHPC share sale, for instance, CLSA, a unit of France’s Calyon, which was not advising on the issue, said the issue was overpriced in comparison to its peer group.

Some 30 companies, which were planning to file prospectus for public offers by September 30, including Sahara Prime City, Lodha Developers, Emaar MGF, and Godrej Properties, have to decide the prices at which they plan to sell their shares based on the new rules. These companies plan to raise between Rs 3,000 crore and Rs 5,000 crore.

Reaction from investment bankers to the new rule was generally negative, though none were willing to be quoted by name. Reports from analysts at investment banks involved with the share sale help in pricing IPOs, and in arriving at the company’s fund requirements, said another banker and added such a practice is followed in the US.

Based on the investment plan and implementation schedule of the companies, analysts make their future projections and fund requirements, which are used to give a benchmark valuation and arrive at a price band, said a banker. These reports are not shared with ordinary investors, he added.

If under the new dispensation, even indicative projections are not available, how will you price the issue, asked a banker?

The latest move hinders price discovery and provides room for uninformed analysts’ reports to confuse investors, according to investment bankers.

Bankers said that even in case of follow-on public issues, such as those of Rural Electrification Corporation and NTPC, which are planning to sell shares by the end of this fiscal, analysts associated with advisors to the issue couldn’t project earnings. This may distort pricing, said a banker.

Your Parking Space Just Doubled

Your Parking Space Just Doubled
The Times of India (Mumbai edition)

It’s taken six months for the rulebook to be amended, but Mumbaikars now have a reason to cheer. The state government has finally approved the amendment of the Development Control (DC) rules to double ‘off-street’ parking spaces in new housing societies, malls, cinema halls and other important government and private establishments.

The new rules will allow smaller tenements with an area of 225 sq ft in the island city to claim a parking space. In the suburbs, this has been brought down to 450 sq ft from the previous 700 sq ft limit.

More parking has also been made available for hotels, shopping complexes, educational institutes, markets and stadia and clubs. For one, the state has doubled the mandatory parking space in cinemas and multiplexes from the current four percent of the total seats to eight percent. For private hospitals and industrial complexes, it has been doubled to one parking space for every 1,500 sq ft of floor area from the existing 3,000 sq ft. Hotel developers have to provide standard parking space for every 600 sq ft of the total floor area of the establishment. It was initially 1,200 sq ft. (See A home for your car). The notification comes at a time when the BMC is struggling to deal with the parking menace.

“The state’s decision to modify the existing rule 36 of the Development Control regulation has come as a shot in the arm in our efforts to provide sufficient parking space to citizens. However, effective implementation of these rules will be a challenge in the backdrop of the changing urban landscape of the city,’’ said a senior official of the development plan department.

“Developers will not mind constructing more only-parking floors since it also means free FSI,’’ said Niranjan Hiranandani, of Hiranandani Constructions. Civic officials, too, are of the opinion that the amendments will ensure a spurt in construction of multi-storey podiums and other parking facilities by builders, but compliance of the law, they said, will pose a problem.

The state, however, has an uphill task ahead if it. Every day, 400 new vehicles are registered in the city. By 2011, more than 16 lakh private vehicles will ply our roads. Currently, the available road space in the city is only 63.31sq km, of which at least 13.8sq km is lost on account of unauthorised and unplanned parking.

10 developers want to pull out of SEZs; 8 seek more time

10 developers want to pull out of SEZs; 8 seek more time
New Delhi
The Economic Times Mint

The economic slowdown and the problems in acquiring land are making developers re-think their SEZ plans and 10 of them have approached the government for withdrawal of approvals for setting up the tax-free enclaves.

Besides, at least eight SEZs, have sought extension, citing different reasons like problems in acquiring land.

The applications for seeking withdrawal of approvals and extension of validity of clearances will be considered by the Board of Approvals in the Commerce Ministry in its meeting on October five.

Promoters which want to pull out of these projects in the wake of the slow down for commercial space include Gremach Infrastructure Equipments for its proposed project at Kolhapur, ETL Infrastructure Services' project at Kancheepuram in Tamil Nadu and Maharashtra Industrial Development Corporation for a bio-technology SEZ at Jalna in Maharashtra.

Those seeking extension of time include Mumbai SEZ, promoted by Reliance Industries' Chairman Mukesh Ambani and his close aide Anand Jain, Gitanjali Gems, Jubliant Infrastructure and L&T Hitech City, an official said.

The BoA has so far approved one-year extension to 81 developers.

After the economy felt the impact of the global recession from September 2008 the demand for commercial space saw a big erosion.

Indian SEZ policy must adapt to the current socio-political climate

Indian SEZ policy must adapt to the current socio-political climate
Chennai
The Hindu

The Government’s policy of promoting Special Economic Zones (SEZs) as growth engines is tempered with a cautious approach to locating land for SEZ sites, M. Velmurugan, Executive Vice-Chairman, Guidance Bureau, Industries Department said on Wednesday.

Addressing a meeting on ‘Special Economic Zones-Opportunities’ hosted by the Indo-Japan Chamber of Commerce and Industry, Velmurugan said the State policy is against compulsory land acquisition or developing sites that had more than 10 percent area of wetlands.

In fact, one of the main criticisms against SEZ promotion was that wetland ecosystems were being converted for non-farming purposes, he pointed out.

With an aim at avoiding disharmony around a SEZ habitat, the Government also insisted that developers engage in CSR initiatives and earmark jobs for locals at an SEZ site, he said.

According to Velmurugan, Tamil Nadu had the third most number (52) of SEZs in the country after Andhra Pradesh (70) and Maharashtra (57). The highest number of SEZ initiatives were in the IT/ITES segment with 36 global companies making it to Chennai. “In fact, the State continued to receive a number of proposals even during the downturn”, Velmurugan said.

He pointed out that the most outstanding among success stories of global players setting base in Chennai was the rise of Nokia telecom SEZ in Sriperumbudur as its biggest manufacturing unit in the world producing as many as 11 mobile handsets every second.

Since setting up its facility in Chennai after considering options in China and Thailand, Nokia had raised its manufacturing strength by over 12 times to produce 150 million handsets annually, he said. In fact, it is now recognised that the SEZ format is the best business model to compete with China as mobile phones belong to the list of 217 items notified for zero customs duty under the Information Technology Agreement, the official said.

Velmurugan pointed out that unlike the Chinese SEZ experience where majority of investors were non-resident Chinese and Taiwanese, the investor profile in Indian SEZs was diverse.

A Healthy Trend

A Healthy Trend
Neha Dani
The Times of India (Mumbai edition)

The proverb "Health is Wealth" in the current scenario has regained meaning even though many working professionals have hectic and strenuous work hours and are finding it difficult to dedicate time to fitness.

Understanding the needs of the buyers, developers are giving many recreational and sports facilities in their projects.

Nirmal Lifestyle's project Lifestyle City is an affordable project, where sports are given importance. Nirmal Lifestyle is coming up with Olympic standard sports infrastructure at their Kalyan project Lifestyle City. Dharmesh Jain, CMD, Nirmal Lifestyle says, "Sports is a key feature in our Lifestyle City project. The whole idea of sports infrastructure was to give people access to and enjoyment of games in their own complex. Such infrastructure can also encourage people to take sports seriously and help to create future sportsmen." Instead of going to a club and spending huge amounts, residents can enjoy their weekends and game sessions with their children.

Lodha Group is focusing on a children's play area with other sports facilities in Lodha Primero, Lodha Goldcrest. The mini cricket ground with amphitheatre style seating offered by Lodha at their project Lodha Aqua will attract kids as well as older enthusiasts. Besides, they also have tennis courts, squash courts, indoor basketball, volleyball, badminton among others.

“Sports provide numerous opportunities to grow socially, emotionally, and physically," says Vishal Jumani, Director, Supreme Universal. Ekta World and Supreme Universal have also given sports enough importance in their project Lake Homes at Powai, which has tennis courts, squash courts, swimming and jogging track.

Going jogging in the early morning is a stress buster and keeps your heart healthy. Today, developers provide tracks where a jogging session is easy.

Mittal Builders have provided amenities like well-equipped gyms in their projects like Mittal Grandeur, Mittal Park among others. Anil Mittal, Director, Mittal builders says, "These amenities are an added factor for working people, as they don't have to go outside."

The changing face of office spaces

The changing face of office spaces
The Economic Times (Mumbai edition)

As the Indian economy continues to grow and Indian companies become more 'global' in nature, one aspect that has changed in sync, are office spaces. "It is not just about the building's exterior design," explains Ajay Kakar, CMO, Aditya Birla Financial Services Group (ABFSG). "Rather, it is the interiors that have now come into focus. The new vibrant trends in interior design are based on integration and transparency," he adds.

Integration is the key here, he explains. From having various office spaces spread over different locations across Mumbai and its suburbs, ABFSG now has almost 1,000 employees operating from a single location, across five floors of a brand new office building, near Lower Parel. The office architecture also plays a binding role in this integration. The design aspect incorporates transparency, through the use of glass cabins, walls and separators. The integration aspect is achieved through the use of vibrant, corporate brand colours across all the floors, explains Kakar. At the same time, the use of common infrastructure facilities, like recreation, communication, canteen, etc., during challenging economic times results in improving cost efficiency, adds Kakar.

On the Andheri Kurla Road, developer Rasesh Kanakia's newest offering, 215 Atrium. "Actually, the project has two neighbouring constructions in its first phase, namely, a four star hotel and office spaces," he elaborates. The hotel's design aspect seems to have rubbed off on the office building, as it has a huge atrium that extends all the way to the top. "215 Atrium is a corporate hub, with the look and feel of a four-star hotel," shares Vishal Doshi, AGM (marketing and business development), at the Kanakia Group. A Singaporean architect designed the interiors and you feel the difference when you enter the premises, points out Doshi. “The Kanakia Group also plans to shift their corporate headquarters to the top floors of 215 Atrium, soon. I think this is the ultimate endorsement a developer can give to his project”, insists Doshi. 215 Atrium will soon be expanded, with two more buildings coming up in the same compound.

Moving from Andheri Kurla Road towards the Aarey Colony Gate, architect Nilesh Barve is at the site of the commercial building, Imperium, a project by Prince Plastics Group, which he feels, "is different". Office spaces have to convey a 'feel good' factor, to its visitors and to those who work there. “We have attempted to do this at the Imperium, through its design form”, especially, the interiors, says Barve. "The design form has to be brought to life by using material that is not artificial and this helps in conveying the right sentiment," he says. Also, it helps in the creative aspect when the client or developer does not want to cut corners, points out Barve. The result then is "Truly, an office space that reflects the new India," concludes Barve.

Novel malls for showcasing brands

Novel malls for showcasing brands
Priyanka Dasgupta Bhrama
Financial Chronicle

Entertainment World Developers (EWDPL), a partner firm of Mumbai-based Phoenix Mills, is launching a concept called `Treasure Showcase’, which will help Indian manufacturers and emerging brands to showcase their products/brands in a mall environment. EDWDPL is into developing shopping malls, residential town¬ships and hospitality projects.

The company is planning to build 20 malls in 11 states spreading over an area of 1 million sq ft with this new concept by 2011. “In these malls, depending on the kind of market, the area of Treasure Showcase will range from 15,000 to 50,000 sq ft,” said Kush Medhora, chief operating officer, EWDPL.

The entire concept will be built on a revenue sharing basis. “There will be no rent, no CAM, no deposit, no maintenance. With Treasure Showcase, the idea is to enable more Indian products and brands to benefit from modern retail practices, leveraging retail intelligence and a new business/ revenue model. Here emerging brands will rub shoulders with established brands under the same roof. Besides, it will also lead to an increase in footfalls, drawing in consumers who are currently non-mall customers, offering them greater choice,” said Manish Kalani, managing director, EWDPL.

These malls will come up in places like Agra Amaravati, Bangalore, Bareilly, Bhilai, Chennai, Hyderabad, Indore, Jabalpur, Kolkata, Lucknow, Mumbai, Mohali, Nanded, Pune, Raipur, Thiruvananthapuram, Udaipur, Ujjain and Vado-dara in categories ranging like apparel, footwear, electronics, food, accessories, cosmetics, jewellery and home furnishings.

According to Kalani, this will help in promoting consumption, by providing emerging Indian consumers access to a wider bouquet of brands at various price points. “While India’s aggregate consumption is set to quadruple by 2025, the emerging middle class in metros, cities and towns will significantly drive consumption across categories — thus, creating the need for a whole new generation of brands that are young, trendy and affordable,” he said.

The company expects to generate revenues of over Rs 500 crore by 2011 from Treasure Showcase. Nearly Rs 300 crore will be invested in creating and promoting this concept, which would include the cost of real estate. “The whole concept will be based on a transparent / pre-determined margin sharing revenue model,” Kalani said.

Retail boom seen as mall space to touch 120 m sq ft

Retail boom seen as mall space to touch 120 m sq ft
Mumbai
Deccan Herald

India can expect to have nearly 120 million square feet of total mall space by the first quarter of 2011 spread across 350 malls, said a report titled Malls of India.

The latest edition of Malls of India, published by IMAGES Group, which was at the India Retail Forum on Wednesday here, also pointed out that in Mumbai, an additional 67 million square feet of mall space is projected to be added by the first quarter of 2011.

The Research study further reveals that 174 new properties are currently in various stages of planning, construction and leasing across the country’s metros, plus tier I, II and III locations. Currently, there are about 172 large and small malls open in India offering just over 52 million square of space for retail, entertainment and F&B formats, said the Report. North and South India lead in terms of percentage growth of mall count and square foot space, says the report, which also presents extensive details of operational malls and developments currently in various stages of planning, constructing and leasing. The number of operational malls in North zone will increase from the present 79 in September 2009 to 150 by Q1, 2011. Thus, the percentage increase in this zone in number of malls will be 49 percent by 2011.

Within the South zone, Bangalore and Chennai are listed as the most prolific cities, in terms of square feet mall space, with 44 percent and 32 percent of the total 7.2 million square feet existing mall space, respectively. According to the Image F&R projection, the number of operational malls in the South zone will increase from 21 operational malls in September 2009 to 72 by Q1, 2011.The highlight of the development in South is that the total existing mall space of 7.2 million square feet is projected to be more than doubling to touch 18.43 million square feet by 2011.

In the West, Mumbai has been dominating mall development activity and continues to do so, accounting for almost 66 percent of the total 56 existing shopping malls. The report adds that the number of operational malls in West zone will increase from the present 56 as on September 09 to 87 by Q1, 2011.

In the Eastern region Kolkata will dominate the scenario. Out of 16 operational malls in East zone, Kolkata is dominating with 10 quality retail spaces, and will continue to dominate future mall developments, accounting for over 51 percent of the 6.14 million square feet additional mall space. The number of operational malls will be doubling from the present strength of 16 as on September 2009 to 37 by Q1, 2011.

Real Estate Intelligence Service, Wednesday, September 15, 2009

Private Equity Funds Sell Homes Cheap To Gain Market Foothold

Private Equity Funds Sell Homes Cheap To Gain Market Foothold
Shabana Hussain, New Delhi
Mint

Private equity funds are aggressively chasing the nascent revival in Indian home purchases by undercutting the more established realty companies such as DLF Ltd and Unitech Ltd, sometimes by as much as half the going rate.

The funds, which have tied up directly with landowners, are willing to sacrifice margins to push sales and make up for being unknown to prospective homebuyers.

South Asian Real Estate Group (Sare), First Indian Real Estate Capital Fund Pvt. Ltd, or FIRE Capital, and Red Fort Capital have launched projects in locations such as Gurgaon, Noida, Ghaziabad, Indore and Bangalore.

Crescent Parc, a company promoted by Sare, launched Royal Greens two weeks ago in Sector 92 in Gurgaon at Rs1,397 per sq. ft. Royal Greens will have low-rise apartments of ground plus four floors with amenities such as a gym, a swimming pool, a school and a hospital.

In comparison, DLF’s New Town Heights, the company’s affordable housing project in the adjacent sectors of 90, 91 and 86, is priced at Rs2,150-2,250 per sq. ft, and Raheja Developers Ltd’s Navodaya in Sectors 92 and 95 is priced at Rs2,475 per sq. ft.

The funds say they want to establish a brand name for themselves and attract buyers in a market where demand has just started to pick up.

FIRE Capital, a $250 million (around Rs1,220 crore) real estate focused fund, has launched integrated township projects in Indore, Nagpur, Bangalore and now plans to launch in Chennai.

In Bangalore, for instance, FIRE Capital has gone in for a soft launch of villas at its project, The Empyrean, on the outskirts of the city near Whitefield at Rs2,000-2,500 per sq. ft whereas the market rate in that location for a similar project is Rs4,000-5,000 persq. ft, said Om Chaudhry, founder and chief executive of FIRE Capital. “Initially, we had to do penetrative pricing because the market didn’t know us.”

Margins in such projects are either low or negligible. “But even if I don’t make too much profit, I need to establish a name,” said Chaudhry.

Once a brand name is established with little or no margin, prices can be increased gradually, he added. “That strategy is working for us. We now have an established brand name in Indore.”

In the case of Sare, a $400 million fund, the company said it consciously chose a lower price because that is the rate at which the market would have accepted a new developer. Sare claims to have sold 180 of the 360 apartments in Royal Greens at Gurgaon.

Sanjay Sharma, founder of Gurgaonscoop, a real estate portal, said this is the first time he has seen a developer offer such low prices relative to the market. “The location where Royal Greens is coming up can easily command a price of Rs1,800 per sq. ft,” he said. “It is a knock off of at least 20 percent of the actual price.”

The big-name developers have launched affordable housing projects by reducing the size of apartments, with the price per sq. ft still on the higher side. For instance, Unitech’s affordable housing project, Unihomes in Sector 117 of Noida, costs around Rs2,960 per sq. ft, but the overall cost of the apartments range from Rs17-30 lakh as they are sized between 580 and 990 sq. ft.

If prices are too low, developers may slack off on some projects, said Sharma.

“When the margins are so low, eventually it might make sense for a developer not to complete a project and execute another one that gives profits,” he added.

Red Fort Capital recently picked up a 50 percent stake in Lotus Boulevard, an integrated township project in Sector 100 in Noida being developed by 3C Company, a New Delhi-based developer. The project will have 3,000 residential units and according to Red Fort, around 1,500 apartments have already been sold.

The apartments of between 987 and 1,850 sq. ft are priced at Rs2,825 per sq. ft. “Apartments cost less because of a combination of smaller size and reduced price per sq. ft,” said Subhash Bedi, managing director of Red Fort.

Investment In Real Estate Sector Is A Long-Term Play

Investment In Real Estate Sector Is A Long-Term Play
Shrija Agrawal
Mint

Ireo Management Pvt. Ltd, a real estate focused fund, is not just a private equity (PE) player. It is also a co-developer with about 80 percent of its portfolio consisting of its own projects. The fund has $500 million (Rs2,435 crore) to invest across segments in realty such as education, hospitality and retail, apart from port infrastructure. However, it has preferred to take a cautious approach.

In an interview with VCCircle, Lalit Goyal, vice-chairman and managing director, Ireo Management, talks about demand pick-up and investor appetite in the real estate sector.

Edited excerpts:

What is your assessment of the investment opportunities in real estate?

There are lots of opportunities, but pricing (from an investor’s point of view) is still on the higher side. That is why, a lot of deals are not getting closed. We think there is more correction (yet) to happen before funds start putting in their money. For example, we are sitting on a capital of $500 million to allocate. And we have not invested in the last nine months.

Aren’t real estate developers looking towards PE players for a bailout in a distressed environment, with funds indulging in price shopping?

Our strategy is to either own 50 percent of the project or 100 percent of the equity. So when you talk about 100 percent, the deals are few. Everyone is doing price shopping, but real estate depends a lot on location, and the location that we want is still not investment-friendly.

What were you thinking when the realty market went down?

Naturally, our investors started feeling jittery on whether to invest in this market. There were no real answers. The whole board was on hold for six-seven months. Everyone was looking for a direction where the markets will go.

Do you see demand picking up now

Demand is definitely picking up in the residential sector and it will be better if the interest rates are lowered. Ideally, Indian mortgage interest should be a maximum of 7-8 percent.

What is your outlook for the future?

Basically, prices went up very sharply and fell down very sharply. I expect it to settle down somewhere in (the) middle. I don’t think the realty market will go down any further. The prices will move up, though not steeply.

The market will stabilize after going up by another 15-20 percent. It’s a good time to buy from an end-user’s perspective. The commercial markets will take time to stabilize as it will depend on the global markets.

What will be your investment strategy for the next two quarters?

We will adopt a cautious approach. We will not go for auctions or high-cost teams.

Have you exited any of your investments?

We have been investing in India for the last five years and have still not taken a single dollar out. It will take three-four years more before we monetize. At eight years, it is indeed a long-term investment.

The markets have to correct and we still have a lot of time with us. So we are not looking at a quick exit. We believe real estate is a long-term play.

What is your key differentiator?

We have the DNA of both a fund and a developer. That makes us different from a normal private equity fund. We are very cautious on pricing, location and our partners. Pedigree is what we look at before investing in a company.

How are your realty projects coming along?

We will be launching 100 million sq. ft this year. We have already constructed around 4-5 million sq. ft in our Pune project, which has already been launched. Our residential project is around 80 percent sold and the SEZ (special economic zone) in Pune is nearly complete and leased out.

The deal pipeline looks healthy. We invest at the SPV (special purpose vehicle) level and there are a few projects which are willing to dilute over 50 percent. Our investment mix is 75 percent in residential and the remaining in SEZs and commercial parks. We feel (that) residential projects tend to be less risky.

Which other sectors in realty are you bullish about?

We are looking at the hospitality sector and waiting for the education sector to open up. Education is a big market and is still underfed. We have been studying this space for two years. Education fits (in) well with our portfolio of integrated development.

In hospitality, our focus will be on mid-market and budget (hotels), but we can also look at selective luxury hotels. We already have two properties in our portfolio. And once the government allows multi-brand retailing, we will look at the retail space. We are open to the port sector from a long-term investment perspective.

Property Titling Law To Protect Owners

Property Titling Law To Protect Owners
New Delhi
The Times of India

Just registering your property and ensuring that your ownership rights make it to the records of the land-owning agencies like MCD and DDA is not enough to safeguard your right as an owner. To protect your right to the title and to check the growing cases of properties in the capital being targeted for takeovers, an expert team has come up with the first draft of a property titling law.

The plan is to set up a central titling authority. It will maintain complete records of all properties and scrutinise the details provided to identify and decide on the real owner. Each property will be issued a unique identification number. A tribunal will be set up for resolving all disputes relating to immovable property in Delhi.

This is expected to prevent fraudulent ownership claims as the records will be available to prove ownership in court. Under the existing system, property ownership details are not available with the authorities concerned.

However, real estate observers and sources in the government say getting all records together at one place will be tough and may take many years as there are multiple land-owning agencies in Delhi DDA, MCD, NDMC and gram sabhas. Moreover, the properties in unauthorised colonies are not yet registered.

A presentation was made before the Delhi cabinet, led by chief minister Sheila Dikshit, on Monday. After the meeting, the CM spoke on the need for a titling law but stressed that the process should be simple.

UT widens housing society doors

UT widens housing society doors
Chandigarh
The Times of India

After a lot of brainstorming, UT administration on Monday proposed changes in rules governing transfer of housing society memberships or their share in the name of people who buy property there after the cooperative’s creation or gain possession through general power of attorney (GPA).

Home secretary Ram Niwas said people will be allowed to transfer their membership or share in housing cooperatives to subsequent owners or GPA holders of their properties without needing to clear dues pending with the societies.

This is being done to fulfil an old demand of GPA holders, he said.

Till now, those seeking to transfer their membership or its share had to apply for no-dues certificates from societies, who in turn had to procure the document from Chandigarh Housing Board (CHB).

With the new rule, the transfer will be allowed if the new owner or GPA holder submits an affidavit that he or she will clear the dues that the previous holder of the membership had not dealt with. This will also apply in case of dues that might emerge from subsequent audits, Niwas said.

In case of registered wills, transfer of property’s ownership will be allowed after an advertisement seeking objections against it is published in a leading newspaper. Objectors will be asked to put forward their reasons for opposition to the transfer within a month.

For unregistered wills, the recipient will need certification from a competent court of law so that no dispute arises after the membership or its share is transferred.

The names of all those, who are jointly given GPA, special power of attorney (SPA) or ownership of property in wills will need to be mentioned in the membership certificate. However, only that person, whose name appears first on the certificate, will be allowed to vote in matters regarding society’s functioning.

In cases where one person holds the GPA and another has the SPA of a property, the society will need an undertaking in shape of affidavits from the said individuals in which they specify who can get the membership.

OMAXE to launch three township projects by December

OMAXE to launch three township projects by December
Kolkata
DNA Business Standard The Hindu

Omaxe Ltd plans to launch three more hi-tech township projects by December this year, said Sunil Malhotra, vice-president finance. A major project among these is the launch of multiple phases of the company's Allahabad township, he said.

Omaxe is looking at equity infusion and joint ventures with landowners for these projects. Malhotra said the company plans to raise funds through a qualified institutional placement (QIP) in the next one or two quarters, but declined to confirm the amount to be raised.

Omaxe has a total debt of Rs 300 crore, but Malhotra said the company's debt liability for the current fiscal was manageable as it had rescheduled or restructured most of the amount.

The Delhi-based developer's subsidiary Garv Buildtech Private Ltd has also signed a memorandum of understanding with the Lucknow Development Authority to develop a hi-tech township. The company is investing Rs 2,300 crore on this project and expects to generate revenues of around Rs 2,800 crore.

The project will start generating cash revenue in the current fiscal as work on the first phase would be partially completed. The project will include commercial office space, IT development and a large area for industrial development, Malhotra said.

The MoU has been signed and Omaxe has started acquiring land. About 500 acres will be acquired in the first phase, of which 75 percent will be acquired by the developer and the remaining 25 percent will be provided by the state government, Malhotra said.

DLF does the unusual: asks buyers to price homes

DLF does the unusual: asks buyers to price homes
New Delhi
DNA Hindustan Times

DLF Ltd is doing something not yet seen in the realty space: it plans to derive prices of its new residential projects by asking customers how much they are ready to pay. The developer, through designated brokers, has sent thousands of SMSes to potential customers for its Capital Greens project Phase II in New Delhi, seeking feedback on price.

"We started doing this in August. The idea is to have a scientific method of arriving at the price rather than deciding it on our own. This is the first time we are doing such a study, and we will continue this practice for other new projects," DLF's group executive director Rajeev Talwar said.

The survey looks at variables such as household income, floor preference, current residential location, offer price and facilities such as gym etc to arrive at what's called an "amicable" pricing.

Talwar said the worst is over so the flats will be sold at a premium compared with Phase I. DLF is looking to offer 1,900 apartments in its new project after Dusshera or September-end, which would be priced at least 15 percent higher from the Phase I price of Rs 5,500 per square feet.

When the developer launched Phase I in April, it sold flats at half the price of similar projects in the vicinity. That helped the company sell the whole phase in a day.

In Phase II, DLF would offer flats of 1,200-2,600 square feet sizes. It expects to finalise the pricing in a week.

DLF had bought the parcel of land from DCM Shriram in 2007 through a Rs 1,675 crore deal. An analyst with a foreign brokerage, who covers the company, found this a "fair way" to price.

"If DLF continues this model for all its projects, it would see good demand; this is a free-market mechanism. But the downside is that margins may take a hit as pricing could always be on the aggressive side," the analyst said, on the condition of anonymity. Ambar Maheshwari, director investment advisory at DTZ, the realty consultant, said home prices seem to have bottomed out.

"The rate of slowdown in the real estate sector has definitely subsided. But it is difficult to forecast as when we can expect the levels of 2007 and early 2008 volumes," Maheshwari said.

City Corp Launches Second-Hand Flats Biz In Pune

City Corp Launches Second-Hand Flats Biz In Pune
Pune
Business Standard

Real estate developer City Corporation has entered second-hand apartments business through an apartment exchange scheme meant for its future customers who would exchange their present house with an apartment in the firm's Amanora Park Town project in Pune. City Corporation would buy old apartments from customers, renovate them and sell-off through an established network of real estate agents.

Interestingly, the firm does not say, the move comes out of the urgency of selling the apartments in a slumped real estate regime. "We are looking at this exchange offer as a business opportunity along with a value-added service for our probable customers," said City Corporation managing director Aniruddha Deshpande.

City Corporation is developing a 400-acre township named Amanora Park Town in Pune, which would have 12,000 apartments in different categories. As per this scheme, a flat owner, who wishes to buy an apartment at Amanora Park Town, would hand-over power of attorney to City Corporation at a mutually agreed price. This amount would then be considered as down payment for the new apartment booked in Amanora Park Town and the flat owner would continue to stay in the old flat till the new flat gets ready.

The scheme has been made available for residential flats located within Pune city that are not more than 20 years old. "At a given time, we have planned for a capacity of buying up to 250 old flats. For this, we have made a provision of approximately Rs 75 crore. The process would work like an inventory where we will buy old flats and sell them off on a regular basis. And through these deals, we expect to generate revenue worth Rs 170 crore from Amanora Park Town," Deshpande added.

Interest Subvention May Give Impetus To Affordable Housing

Interest Subvention May Give Impetus To Affordable Housing
Chennai
The Hindu

The one percent interest subvention approved recently by the Union Cabinet is expected to provide an impetus to the affordable housing segment in the suburbs.

Banks and housing finance companies are gearing up to capitalise on this scheme and increase the disbursement of home loans.

“As a major portion of the demand is from the affordable segment below Rs.20 lakh, the initiative will be of help to a large number of buyers,” said R.R. Nair, director and chief executive of LIC Housing Finance Ltd.

However, he was sceptical of the efficiency of the scheme to cater for the affordable segment with provision of the one percent subsidy for just 12 months. “We have had discussions on the scheme and will be happy to participate in it,” he said.

An official of State Bank of India said the scheme was expected to have an impact on housing units only in the suburbs of Chennai.

Around 5,000 units with price less than Rs.20 lakh are coming up on the outskirts of the city, said Prakash Challa, president, Confederation of Real Estate Developers’ Association of India-Tamil Nadu.

Mall Developers, Retailers Warming Up To Revenue-Sharing Model

Mall Developers, Retailers Warming Up To Revenue-Sharing Model

Ashish K Tiwari, Mumbai
DNA

Mall developers and retailers in the country appear to be slowly warming up to the revenue-sharing model. Mumbai-based Entertainment World Developers Pvt Ltd (EWDPL) has just launched a mall-in-mall concept called Treasure Showcase, which allows non-mall brands to sell their merchandise without having to pay rent or common area maintenance charges. The company will, however, take a percentage of the retailer's turnover as its share, EWDPL chairman and MD Manish Kalani said.

Hitherto, despite being touted as the best possible arrangement between a mall developer and a retailer, the adoption of the revenue-sharing model has been less than encouraging. The handful of success stories include Inorbit Mall in Mumbai, Select Citywalk in south Delhi and the soon-to-be-launched Palladium mall at High Street Phoenix, Mumbai.

The parties cite incorrect retailing format, opacity in recording sale transactions, hesitation in sharing books of accounts and lack of successful track record etc among the reasons for a slow adoption.

"A lot of retailers have problems with sharing sales/revenue numbers. It's a real task for the mall developer because retailers are hesitant in doing so," Dharmesh Jain, chairman and managing director of Nirmal Group of Companies, said at the recently concluded CII Real Estate Conference.

Revenue sharing generally involves the developer charging the retailer on the basis of a minimum guarantee or percentage of turnover, whichever is higher, or a combination of the two. The minimum guarantee figure is arrived at by taking into account the ongoing market lease rate that can be commanded for the space being occupied by the retailer. As for the percentage of sales, it ranges between 3% and 25% depending on the nature of business being conducted by the retailer.

Pranay Sinha, managing director of Star Centres, feels the key lies in being able to choose tenants who can generate enough business to cover the cost of housing their stores in the mall. "It's a science," he says. "Besides, once the retailer is assured that the mall developer/ management will channelise all their efforts in doing things that will eventually improve the retailers' business, they have no issues sharing an X% of their revenues with the developer."

The demand-supply imbalance in the retail real estate space has changed in favour of retailers in recent months. Over a year ago, they were chasing mall developers for space at unreasonable rates. However, today, with new properties coming up and retailers playing safe on expansion plans, lease rentals have taken a knock of 30-35% across the country.

However, few retailers favour revenue sharing over lease rentals. Many see it as a mere marketing ploy to lure retailers in. "It always is accompanied by a host of add-ons that eventually work to the disadvantage of the retailers. There is no clarity on what exactly is my per square foot cost," says Jay Gupta, customer care associate and managing director of The Loot India Ltd.

On their part, developers feel most retailers are yet to establish themselves as professional outfits. Vishesh Rawat, senior manager -- retail, Ansal Plaza, says, "Maintaining transparency in sales and accounting processes are crucial for building faith in the mall owners. Besides, most of them are new and don't have long and successful track records of retailing profitably in Indian markets. Retailers make profits or losses primarily due to their business format and operations. Why should we have a stake in their profits or losses?" he asks.

B S Nagesh, vice-chairman, Shoppers Stop Ltd, sums up the situation. "People are still experimenting and sanity can be achieved only once both the businesses reach a certain level of maturity. Till then it will continue to be a highly debatable issue of choosing between fixed rentals and revenue sharing as a business model."

Going by industry reports, barely 25 of the 250 odd malls in the country are malls in the real sense, though around 50-75 are slowly reaching that level.

Chinese Co Mulls Investment In Rs 700-Crore Mall Project

Chinese Co Mulls Investment In Rs 700-Crore Mall Project

Ahmedabad
The Times of India

City's unique upcoming Rs 700-crore venture has caught the eye of a Chinese company. Foshan Meihua Furniture Co Ltd evinced interest for investment into the first-of-its-kind 'Material Mall' being developed in 1 lakh sq yd area in Vastral along the Sardar Patel Ring Road.

"It's not a routine mall. Apart from shops and offices, a large convention centre, an exhibition and display hall for product launches, a luxury hotel and theatre has been planned for this mega venture. Apart from Chinese company, a firm based in France has also shown interest in the project," said Uday Bhatt, chairman of city-based Galaxy Group.

Managing partner of the US $30 million Chinese company Francis Lee said he has been studying the Indian market and is in talks with Galaxy Group for a strategic tie-up. His company provides designer furniture solutions to five-star and above luxury hotels across the globe. Terming the property show an organized effort, Lee said, "It could have been better and bigger aimed at a larger audience if it had been promoted nationally, involving more players."

Lee, a Singapore national, said that the concept of availability of building material, furniture, interior and exterior, electric items among others is appealing, specially on the fast growing Gandhinagar-Ahmedabad-Vadodara (GAV) corridor.

Real Estate Intelligence Service, Monday, September 14, 2009

Indian Real Estate Sector To Witness Recovery From End-2009

Indian Real Estate Sector To Witness Recovery From End-2009
Mumbai
Business Standard The Economic Times The Financial Express Deccan Chronicle

The Indian real estate is expected to enter the recovery phase by end-this year and macro-economic and sector-specific factors will act as catalysts in this recovery, a leading real estate consultancy said.

"Economic recovery during CY 2010-11 is likely to reinvigorate the interest of foreign investors in India's real estate market. We expect enhanced capital inflow in the real estate sector in the medium-to-long-term," Jones Lang LaSalle said in its report.

Initial yield is expected to show compression during CY 2010-11 and capital values are likely to decline during 2010 before recovering in 2011, the company said in the report.

"Initial yield has already started to show a declining trend during 2009 which is likely to be the case in the near-term. Yield on 10-year Indian Government Bonds is likely to harden due to higher fiscal deficit," it said.

The report said although the high fiscal deficit is likely to harden interest rates in the economy, all other macro-economic variables are expected to improve during CY 2010-11 which is likely to induce real estate market recovery after the slowdown of CY 2008-09.

According to the World Economic Outlook Report by IMF, the world economy is likely to contract by 1.4 percent during 2009.

While advanced economies are expected to contract by 3.8 percent by the end of this year, emerging and developing economies are likely to grow by 1.5 percent. India and China are expected to grow by 5.4 percent.

"India and China are expected to witness a robust recovery with increase in real GDP growth from CY 2008-09 levels and Indian economy is expected to grow at 5.4 percent during 2009 (the second highest in the world after China, which is likely to grow at 7.5 percent)," the report said.

FDI to flow into housing sector

FDI to flow into housing sector
Mumbai
The Asian Age Deccan Chronicle

Foreign investment in the real estate is likely to flow into the residential sector in India in the near-term as it has an enormous potential for growth due to the massive unmet housing demand.

A report by real estate service firm Jones Lang LaSalle says, "While risks may be higher for investment in real estate in India than in developing economies, the returns on investment are significantly higher in India.

Speaking on the report, Anuj Puri of Jones Land LaSalle Meghraj said, "Global capital flows are looking for existing and futuristic growth indicators and patterns and India has displayed both to a measurable degree. These factors, coupled with an already discernible return of positive sentiments in the real estate business, will result in enhanced interest by foreign real estate investors."

The report was released at the conference on Turnaround in the Downturn- An insight into the current Real Estate Scenario organised by the Confederation of Indian Industry (CII) here.

Arun Nanda, the executive director of Mahindra & Mahindra, said the revival of the Indian real estate sector lies in providing affordable housing by cross subsidisation and conscious effort on part of the developers to inculcate corporate social obligation.

Calling upon the stake holders of the Indian real estate sector to analyse the reasons of the downturn in the sector, he emphasised that with the reduction in interest rates from 14 percent to eight percent, the sector was now showing signs of revival. He also laid emphasis on development of satellite centres as a means to tackle the issue of growing urbanisation and urged the need to ensure balanced urbanisation.

15 realty firms waiting in wings to enter market

15 realty firms waiting in wings to enter market
Mumbai
The Economic Times

After NHPC and Oil India POs, 15 real estate companies are waiting in the wings to tap the capital market to raise up to USD 6 billion with the housing sector showing signs of recovery.

"Fifteen real estate firms including Lodha Developers, Oberoi Constructions, Emmar MGF and Godrej Properties among others are planning to raise around USD six billion from the domestic market in the next six to eight months," Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj, said here.

These are basically firms which wanted to come out with the IPO earlier, but held them back due to bearish market, he said. "However, I believe that the market has appetite for USD 1.5-2 billion during the period and thus it will be difficult for second or third-runk companies to raise funds if they do not price the IPO properly," Puri said.

The success of a real estate IPO would depend upon corporate governance, background of the companies and the right pricing among others, he said, adding that start-ups and relatively unknown firms would face difficulty to raise funds from the market.

Puri said almost USD six billion private equity fund was also likely to come in the six to eight months time to the domestic real estate market. "Private equity funds which have raised the money from the Indian market and the management are Indian and also those which might have raised fund outside are now investing in the Indian market," Puri said.

However, he said private equity funds raised overseas and managed by non-Indians are still not coming into the Indian real estate market.

Puri, meanwhile, cautioned that the price of the residential properties should not go up drastically as the industry was still on the thin ice. "A minor 5-10 percent hike is fine, but anything beyond that will take away the confidence from the consumers," Puri said.

Finally, Some Regulation

Finally, Some Regulation
Krishna Kumar Mangalam
The Times of India (Delhi edition)

The central government is working on a model real estate regulation bill to provide guidelines to facilitate growth and promotion of healthy and transparent, efficient and competitive real estate sector in the country, said the housing and urban poverty alleviation minister Kumari Selja. This is a welcome move and will help the sector in becoming efficient and competitive. However, developers feel the government should form a separate regulator on the lines of Securities and Exchange Board of India (SEBI) to regulate the sector.

Addressing a conference on real estate, the minister said Indian real estate market is unorganized and fragmented and that most of property transactions are based on certain perceptions and not necessarily on sound business principles. In this, customer satisfaction is low and the procedure for redressal is long and cumbersome.

This has created problems for both buyers and developers. As end users are not sure of delivery of a house by builders on time, they don’t want to risk a purchase by taking a loan from the bank. Particularly, in times of a slowdown when developers are facing a financial crunch, the likelihood of developers not completing projects on time is high. In fact, in the last couple of years, many reputed builders have not been able to deliver their projects on time. Some of the projects, in fact, were delayed by more than two years.

Apart from this, many buyers are not even sure of the specifications, which developers promise while selling them the houses/flats. Worse still, when developers do not deliver on time or stick to the promised specifications while selling, buyers do not know where to for redressal. Going to a court is not only time consuming but also expensive.

This has forced buyers to either defer their purchase or to go for completed projects. But, this apprehension of end users has affected genuine developers as well, which have a plan and required finances to complete a project. However, in the last couple of months, end users have started showing interest in buying new projects. But, they want to buy in the projects of reputed developers alone. This has created problem for the new but good developers.

To increase the stock for affordable housing the focus has to be on augmenting land supplies. Kumari Selja said the issue is a critical one and requires a number of measures such as alternative methods of land assembly, development and disposal to be pursued, check on prices of urban land, encouraging public-private partnership, promoting intense use of land-higher densities, revision in Floor Area Ratio or Floor Space Index and change of norms to suit local situations, discouraging speculation in land development, and allotment or disposal process to check rising prices of land.

PE invite into housing sector in the works

PE invite into housing sector in the works
The Economic Times, New Delhi

The government is preparing guidelines for the participation of private equity (PE) funds in housing sector under the Rajiv Gandhi Awaas Yojana, minister of state for urban development Saugata Roy said. The scheme aims to make a slum-free India in five years with construction of over 10 lakh houses.

“The ministry, in consultation with the Planning Commission, is currently processing guidelines to ensure PE’s participation in the Yojana,” he said at a national conclave on private equity in infrastructure organized by Assocham.

The government wants to harness private funds to provide affordable housing to millions of households under the scheme, he added.

“PE funds are keen to park their investments in the Yojana .... Besides, the government cannot generate resources for this on its own,” he said.

As per IDFC Projects Equity managing director Sachin Johri, a large number of PE’s are willing to take stake in such projects to an extent of 40-50 percent. Enumerating benefit of participation of private equities in the scheme, Roy said PE funds will also provide expertise in valuing infrastructure projects, advise in fine-tuning business models, assist in toning up operational efficiencies and strengthening corporate governance.

The urban development ministry is also in talks with the World Bank for a $5 billion loan under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for improving urban infrastructure, the minister said. The WB loan requested under the JNNURM is expected to be finalized “shortly” after authorities have vetted the attached conditionality, he said.

Home Buying In A Sweet Spot For Deals

Home Buying In A Sweet Spot For Deals
Sandeep Singh, New Delhi
Hindustan Times (Delhi edition)

The annual festive season is here amid a stable economic environment, a relatively secure atmosphere on jobs, low interest rates and stable residential property prices after an 18-month-long correction period.

So, is this the time to buy that dream home?

Experts say yes, and their views are backed by the current macroeconomic environment, and the state of real estate sector.

Property prices to remain stable
Property prices dipped between 15 and 30 percent in the slowdown period. However, with a quick revival in markets, home buying sentiments are also up.

"Market has bottomed out and any further correction looks unlikely.

However, I think they are not going to go up in a hurry," said Anuj Puri, chairman and country head, Jones Lang Lasalle Meghraj.

Prices are expected to remain more or less stable. "There is a possibility of price rise in some areas but there won't be a significant change as there is good supply and the global economy is still slow," said Anshuman Magazine, chairman and managing director, South Asia, at property consultancy firm CB Richard Ellis.

Stable prices are expected to help end-users, not speculators.

"It is not the time for investors who are looking to make money in the short term," said Puri.

But certain areas in cities like Mumbai and Delhi where supply remains a constraint has seen some up tick in prices. "I see prices going up because there is demand in the Mumbai market," said Niranjan Hiranandani, managing director, Hiranandani Constructions.

As builders launched affordable home projects over the last three months, they generated some buying interest. But then, speculators were zooming in as well.