Real Estate Intelligence Report, Monday, February 09, 2009

Demand for home loans continues to be passive

Demand for home loans continues to be passive
The Hindu Business Line, February 07, 2009, Page 6

Reduction in interest rate alone may not drive demand, say bankers.
--------------------------------------------------------------------------------
The sluggish demand is an issue between homebuyers and builders, and banks have nothing to do as long as prices remain on the higher side.
--------------------------------------------------------------------------------
G. Naga Sridhar, Hyderabad, Feb. 6

Banks are yet to witness any tangible increase in home loan demand even as the interest rates are on a downward spiral.

There has been an expectation among the bankers that a host of monetary measures put in place by the Reserve Bank of India, in the recent past, and the cut in the prime lending rates by many banks would drive home loan demand, especially in the last one month.

“But the demand has been the same (with no increase) and the growth remains at only normal levels,” a spokesperson of ICICI Bank told Business Line over phone from Mumbai.

The sluggish demand is an issue between homebuyers and builders, and banks have nothing to do as long as prices remain on the higher side, he added.

When asked whether the bank would cut its home loan rates in the wake of State Bank of India’s move to offer loans at eight per cent, he said: “We constantly review the rates on the basis of cost of funds.” A revision of rates is likely to happen soon, he added.

SMALL REDUCTION
Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, said a reduction of 1 to 1.5 per centage points in interest rate is not what the customers are looking for.

“If there a one per centage point reduction in interest rate on a Rs 10-lakh home loan, the customer will get a benefit of Rs 1,000 in the interest per annum. This is not going to deter serious buyers when compared with 1-25 per cent reduction in valuation of properties,” he said.

The home loan growth during September and December this fiscal (quarter over quarter) had dipped compared with the corresponding period of previous fiscal in the industry in general, said a senior official of Indian Bank.

“We tried to improve business in this segment by focusing on small ticket loans (below Rs 20 lakh). But there are not many takers there also,” he said.

IT JOBS
Apart from unreasonable property prices, the prevailing uncertainty about jobs, particularly in the IT sector, has hit the number of home loan applicants. “It is a fact that IT professionals were very aggressive in taking house loans till recently,” he said.

Building on rough terrain

Building on rough terrain
The Hindu Business Line, February 08, 2009, Page 11

The company is among the better placed developers to weather the current slowdown. Investors keen to participate in the yet-to-mature real estate sector can consider accumulating the DLF stock.

VidyaBala

While much was being said about the slowing real-estate sector in mid-2008, the September quarter results of the bigger developers such as DLF did not hint at dire prospects for the sector. A gradual slowdown appeared to be on the cards, though. However, the last four months have seen the sector flounder as demand dried up, along with liquidity.

The latest quarter financials speak loud and clear ¬the realty sector is in the midst of a deep correction. So much so that, the largest developer in the listed space, DLF, witnessed a 62 per cent decline in sales and 69 per cent decline in net profits in the December quarter compared to year ago -numbers. The stock market too has responded by beating down the stock by 56 per cent (to Rs 138 now), from its 2009 high of Rs 300.

Given the muted prospects for the company and the sector, should investors retain their exposure to the stock of DLF? They should.

ACCUMULATE
In fact, investors keen to participate in the yet-to-mature real-estate sector in India can consider accumulating the DLF stock. We believe that the company is among the better-placed developers to weather the current slow down.

It can achieve this by tactically altering business strategies and meeting the sector demands as and when there are signs of revival.

The company's guarded approach of preserving its balance-sheet at the cost of postponing some revenues al-¬so appears prudent in these perilous times when it does not take much to get entangled in a debt trap.

The recent spate of incentives given to developers and home loan buyers, combined with the declining interest rates, can be expected to boost demand in the realty sector.

What to expect: Investors who bought the stock at higher levels can average their costs by buying at current prices. Hold with at least a three-five-year perspective to fully participate in a revival. At the current market price, the stock trades at 4.8 times its expected consolidated earnings for FY09. Investors - may have to be prepared for a decline in earnings in FY -09 and muted performance until the first half of FY -10.

We expect a gradual revival after this period, primarily driven by the residential segment, followed by the retail space.

The fortunes of the commercial segment would, however, be tied, mainly to the prospects of the IT sector and revival in this segment may take longer, as significant ex- supply starts kicking in.

PILLS TO COUNTER
SLOWDOWN
Residential segment: DLF has been one of the early players to recognise the slowing demand scenario and shift strategies accordingly. The company, moved to mid-income housing over a year ago, when the premium segment demand appeared sluggish.

In fact, the company managed good growth over the first three quarters of 2008 due to its timely entry into this space.

The company has also been steadily reducing property prices at a time when even smaller players have been reluctant to do so. The weighted average price of its apartments sold in the December quarter at Rs 2,736 is over 40 per cent lower than its sale price a year ago.

Even over the last quarter, the average sale price declined by 8 per cent. In some of its new launches in the Rs 25-30 lakh category, its pricing has been aggressive in relation to the local market prices. On the other hand, it has completely postponed all launches of luxury homes.

DLF has also launched plotted developments in cities such as Pune and Hyderabad to hasten the working capital flow.

While these strategies are yet to yield expected results, we believe that it may be wrong to expect an immediate spurt in demand; the relatively attractive property offerings experimented in the mid-income segment, along with the declining interest rates, may help the residential segment, where DLF has about 14.4 million square feet under construction.

Office and retail segment: DLF has been taking a cautious stance on office space as it anticipates marginal cancellations with corporates putting on hold their expansion plans. DLF has, therefore, resorted to suspension of activity in about 35 per cent of its 35 million sq ft of commercial space under construction.

In. more recent times, the company also shifted focus to the sale model rather than lease model (where such projects are typically sold to group company DAL).

This essentially means that sale to DAL would significantly come down in the near future.

Meanwhile, a good part of debtor dues from sales to be made to DAL by March 2009 may get monetised if DAL succeeds in securing private equity funding, which it is currently working on. Failure to do this may once again increase debtors outstanding from the group company.

Interestingly, while the volume of leases booked has dropped drastically, and lease rates are lower than the September quarter, the December office lease rate at Rs 51 per sq ft, is still higher than a year ago rate of Rs 43 (it is another matter that average costs too have gone up).

This suggests that DLF has been selective in choosing on¬1y those areas for leasing where prices are firm. This trend was visible in the company's retail sales as well.

Aside from its shifting business mix, DLF has also postponed some of its capital-intensive hotel projects (other than joint venture projects) and de notified a special economic zone that was instead calibrated into a residential project.

These measures may help it respond to the changing market needs and keep liquidity flow from drying up.

DEBT
As a result, DLF's net debt: equity position has remained at a safe 0.6 per cent. The company has not incurred fresh debt for operations, the whole of the last quarter.

A good part of the debt has also been converted into long-term dues as a result of securitisation of sales/rent receivables. The average cost of debt is currently 11.9 per cent. For the quarter ended December 2008, DLF's operating profit margins slumped to 56 per cent from 69 per cent a year ago. Reduction in revenues in the high-margin lease segment, entry into mid income housing and the sharp slashes in price were the key reasons for the decline.

Margins may see further drag with more budget houses being sold in the coming quarters. Therefore, increase in volumes would be the key to reasonable growth.

Survival of the biggest

Survival of the biggest
The Economic Times, February 08, 2009, Page 3

Amid all the gloom and doom, DLF looks best equipped to ride the storm and emerge stronger

Raja Awasthi & Neha Dewan NEW DELHI

THE current global economic slowdown is taking its toll on several sectors. Realty has been among the worst hit. Companies from the sector listed on the bourses have been badly hit and their massive erosion in wealth is being reflected in their numbers.

India’s largest real estate company by market capitalisation, DLF reported a worrying 69% fall in consolidated net profit to Rs 670.79 cr for the third quarter of FY09 over the corresponding period last year. That’s just not the only reason for the company to be in the spotlight for the last few days. The unending speculation on exiting the ambitious International Convention Centre project in Dwarka in the capital, uncertainty over the proposed project at Dankuni in West Bengal and the Rs 60,000-cr Bidadi project in Karnataka are visible signs that the company is facing the brunt of the slowdown.

The convention centre project has reached a deadlock due to talks with DDA on renegotiation of the contract. Similarly the status of the proposed township project at Bidadi is also unclear due to land acquisition problems. Ditto is the case with the project at Dankuni in West Bengal which is in the doldrums due to problems of land acquisition.

The player has already stopped work on several of its commercial projects. While talking to SundayET, DLF vice chairman Rajiv Singh outlined the journey starting with a situation of abundance to one of paucity of capital. “The present situation is very different from the boom that we witnessed during the last few years. The real estate industry has moved from a period of abundant capital availability to the times of liquidity crisis. The current economic environment has impacted sentiment at the macro level, and demands both from home buyers and corporate are being affected,” he said quite candidly.

According to company sources, the downturn in the real estate market has prompted the group to sell some of its non-core assets and go in for a process of restructuring its debt in the coming quarters. The company expects to raise Rs 2,000 cr by selling its non-strategic assets such as its power business and land that was intended to be used for retail and commercial projects over the next few quarters.

On the anvil are plans to raise around Rs 2,000-2,500 cr in DLF Assets Ltd (DAL),–an entity owned by DLF’s promoters–by selling stakes to private equity investors. Industry trackers admit that the phase is difficult and only the big boys could weather it. Sanjay Dutt, CEO at global real consultancy Jones Lang LaSalle Meghraj (JLLM), thinks all real estate majors are feeling the pinch of the slowdown, and it is not a case where the long-term survival of any entity can be taken as given. “While no real estate company can claim to be offering excellent returns at this rather challenged moment in time, DLF is one of those which are best equipped to ride the storm and emerge stronger. It is a company that has come to terms with the reality of the current scenario and altered their strategies accordingly,” he says. That’s what DLF has attempted to do. A rejig in its strategy to move towards affordable housing is one of the initiatives. The company management also hinted at a drop of 15% price cut across projects if the economic downturn was to continue.

If that is all part of a long-term process, the current financials is certainly an area of concern. The DLF Group recorded consolidated revenues of Rs 1,503 cr for the quarter ended December 31, 2008, as compared to Rs 3,651 cr in the corresponding quarter last fiscal. Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) stood at Rs 908 cr as compared to Rs 2,554 cr in the corresponding quarter.

Malls morph into offices

Malls morph into offices
The Hindu Business Line, February 08, 2009, Page15
--------------------------------------------------------------------------------
Faced with oversupply, developers are converting retail projects into commercial office space.
--------------------------------------------------------------------------------
Moumita Bakhi Chatterjee

As major retailers slam brakes on heady expansion plans opting, instead, for selective rollouts, real-estate developers — faced with a mall oversupply situation — are switching gears and converting retail projects into commercial office space.

“There is a clear oversupply situation in the market today, when it comes to malls. Retailers are facing a tough time, given the liquidity pressure arising from slowing sales, and have started closing stores that are economically unviable and are becoming choosy about taking up new space.

Project conversion
“Also, in certain cases, the mall locations were not well-thought-out and the catchment areas, weak. As a result there have been no takers for such locations,” says DTZ Director, Mr Rajeev Bairathi, adding that demand-supply imbalance in retail space was prompting developers to go for project conversion after seeking required approvals, based on ‘zoning’.

JMD Group, last year, altered its plans for a mall spread over 3.5 lakh sq.ft in Gurgaon and turned in into ‘Corporate Suites’, a sprawling office space. “Malls are already in excess supply. We also felt that the maintenance overheads were working out to be higher for us, in the case of retail space. But in an office space, these are generally taken care of by the corporate tenant,” says Mr Sunil Bedi, CMD, JMD Group.

That aside, while the retail demand has tanked in certain cities, the office market continues to attract ‘takers’, says Mr Brijesh Bhanote, Vice-President, Sales and Marketing, Vipul Ltd, a company which converted its project ‘Agora’ into office space sometime back. “We anticipated the oversupply situation nearly 18 months back, and accordingly decided to change ‘Agora’ into office space,” says Mr Bhanote.

According to Cushman & Wakefield, the actual mall supply in major cities in 2008 stood at only 9.7 million sq.ft, almost 54 per cent lower than the initial supply projection of 20.8 million sq.ft for the year. The scale-back in supply has been attributed to multiple reasons, one of them being developers’ acknowledgement of the current market reality in retail sector.”

“We are aware of 5-7 cases of project conversion. Retail space is being converted not only into office buildings, but also into hotel projects. This trend may continue in some markets for the coming quarters,” says Mr Rajneesh Mahajan, Executive Director of Retail Services, Cushman & Wakefield.

Natural choice
Market watchers say that for realtors looking at alternate uses for space initially earmarked for retail purposes, office is the natural choice. “In the current environment where consumer sentiments are weak and footfalls have slumped, retail occupants are shying away from committing high or fixed rentals and are looking to pay on the basis of performance of the store. Office rentals, on the other hand, are not based on revenue-share model,” they point out.

In certain cases, instead of a full makeover, developers are opting for the middle ground — that is, retaining the space on the ground floor for retail usage, while transforming the rest of the building into office space. Conversion to office, however, implies a hit on rentals; real estate development cost for retail space is higher as is the risk factor, hence margins tend to be better in case of retail projects.

“While the rentals vary from market to market, on an average the differential comes to 10-20 per cent. But that’s a chance that builders are taking, as they may not get full retail occupancy for the project. By turning it into office or hotel project, the developer ends up utilising the space. So the loss is only notional,” says Mr Mahajan of Cushman & Wakefield.

Common specifications
Retail-to-office conversion becomes a tad easier as certain specifications (such as the need for ample parking space), remain common to both. “Modular retail enclosures can be knocked-off to convert the area into free open space for office use,” say market observers.

However, Mr Raghav Gupta, President, Technopak, feels that while switching to an office space may be the “closest compromise” for developers who are stranded with an oversupply it brings its own set of challenges. “I believe that the retail space design is not optimally suited for office use. Also, the location is not optimal, as malls are generally conceptualised in high-traffic density areas,” adds Mr Gupta.

Realty firms may gain from UP govt’s and buy norms

Realty firms may gain from UP govt’s and buy norms
Business Standard, February 09, 2009, Page 5

SIDDHARTH KALHANS & NEERAJ THAKUR
Lucknow/New Delhi, 8 February

The country’s fund-starved real estate developers are likely to benefit from a recent move by the Uttar Pradesh government to relax norms on payment period for land acquisitions, experts say.

The Mayawati-led Uttar Pradesh government had said it is planning to come out with a relief package for acquisition of land to develop integrated townships, and metro cities in the state. The government plans to extend the payment period for acquisition of the land to 10 years as against the prescribed norm of five-seven years.

The relaxation, if approved by the cabinet, will give a breather to cash-strapped developers who are in negotiations with banks and mutual funds to defer repayments and restructure loans. Several of them have also deferred projects following a slump in demand. Land accounts for more than 50 per of the cost of a project.

“By extending the installment duration, the government will be able to ensure completion of the project,” said, Sanjay Verma, executive MD, South Asia, Cushman and Wakefield, a real estate services firm.

The Uttar Pradesh government also plans to waive the nominal penal interest (about 2 per cent) for delayed installments on land. Also, in case a developer is not able to pay the instalment, the government will avoid cancelling the land deal. “Allottees to have defaulted on payment of 95 per cent of the total cost of the land will be affected,” says the proposed policy document.

Apart from the relaxations, the UP government has also extended the 50 per cent waiver on stamp duty and registration of properties by another six months, or till September 30, 2009 to ease the hardship. The earlier exemption was to expire on March 31, 2009. The developers availing themselves of the facilities of the relief package will have to submit their revised applications by June 30.

Earlier, the Uttar Pradesh government had granted permission to 10 companies for construction of hi-tech townships in seven cities.

Low-cost homes still out of buyers’ reach

Low-cost homes still out of buyers’ reach
Business Standard, February 09, 2009, Page 5

RAGHAVENDRA KAMATH & NEERAJ THAKUR
Mumbai/New Delhi, 8 February

When Maharashtra Housing and Area Development Authority (Mhada) started selling the application forms for its 3,863 affordable houses in Mumbai on January 12, nearly 1.89 lakh forms were picked up from HDFC branches within next two days.

The state housing authority had priced its low-income group flats at about Rs 330,000 and that’s the segment where it witnessed the highest demand; in the first five hours, 88,222 forms — priced Rs 100 each — were sold.

The mid-income group (MIG) flats were priced between Rs 12 lakh and Rs 17 lakh. Several of these housing projects were being offered at prime locations of Mumbai suburbs, including Andheri, Goregaon and Chembur.

In contrast, private developers continue to price their affordable housing projects at much above the low-income housing category launched by Mhada. Most of the affordable projects launched by developers are priced between Rs 12 lakh and Rs 60 lakh, which is still beyond the reach of potential home buyers, say property consultants and experts tracking the sector.

Last week, New Delhibased Omaxe launched three projects under the brand ‘Omaxe Panache Homes’ in Greater Noida, Faridabad and Ludhiana, in the affordable segment. The price range: Rs 12 lakh-Rs 22 lakh.

After a lull of three-four months, DLF, the country’s largest property developer, plans to launch a few mid-income projects, in the price range of Rs 20 lakh-Rs 60 lakh across the country. Parsvnath, another New Delhi-based developer also has plans to launch projects in low and mid segments in Noida, Sonepat, Indore among other cities in the next couple of weeks, according to sources in the company.

“Old product is not selling in today’s market. They have to change the price and product to suit a buyer’s pocket. If they sell 50 to 60 per cent of their earlier projects, then they will launch new ones, otherwise they will not,’’ said Akshaya Kumar, managing director of Park Lane Property Advisors.

Analysts point to the fact that both investors as well lenders have pressurised the developers to get more into affordable housing segment as they see more demand there. But developers are reluctant to launch products on land parcels acquired at high prices. Land cost makes up for about 50-70 per cent of the project cost. Builders selling affordable projects are also announcing projects far away from cities such as New Delhi. Developers are apologetic on the stance. “It is not as if we don’t want to come out with affordable projects in New Delhi, but land prices are so high that it makes practically impossible for a developer to come out with homes in the range of Rs 6-15 lakh,” said Rohtash Goyal, chairman and managing director, Omaxe.

New Delhi and NCR witnessed some of the highest land deals in the past few years before the market crashed. Developers have bought land at auctions at exorbitant prices in the hope of making huge profits through luxury projects.

“The demand in the luxury segment has dried up. However, due to investors’ pressure the developers have to change their portfolio and come up with projects that promises returns even at a lower rate,” Aditi Vijyakar, executive director of global property consultancy Cushman &Wakefield, said.

Property sales in major metros have fallen up to 70 per cent from the beginning of 2008 as interest rates shot up, leading to increase in the home loan payouts. A crash in property markets and an economic slowdown have put further pressure on the finances of developers.

REALTORS MAKE IT A PRIVATE AFFAIR

REALTORS MAKE IT A PRIVATE AFFAIR
The Economic Times, February 08, 2009, Page 1

Lenders being offered larger stakes in projects for bailing out promoters

Raja Awasthi & Anand Rawani NEW DELHI

THE much-vilified loan shark, once the staple of movies and theatre, is now donning angel wings to save developers from the swamp that institutional lenders abandoned them in.

A string of all-cash deals are happening today in the realty sector with private financiers — plain-vanilla money lenders, relatives or business associates — pitching in to bail out companies struggling to raise money for projects they are committed to, say developers and consultants that SundayET spoke to.

In return, these lenders are being offered nearly double the stake in projects than what was being given till a year ago.

SundayET is aware of at least one project where, for a cash loan of Rs 100 crore, the developer pledged the entire project, which is currently valued at Rs 150 crore.

“Private financiers are getting higher stakes in projects because sales and pre-sales have slowed down and many projects are languishing at the construction stage. Developers used to finance their projects through presales, which is currently not an option. Liquidity pressures are mounting and developers are choosing to dilute higher equity stake to obtain the required execution capital,” says Shobhit Agarwal, joint MD (capital markets), Jones Lang LaSalle Meghraj.

SundayET spoke to officials of at least two banks and a private equity company, which confirmed that almost all the major realty companies in the country are seeking cash from private financiers, even individual lenders, in return promising them a return of 50-70%.

Says Sandeep Singh, executive director (investment services), Cushman & Wakefield: “Given the double whammy of reduced sales and liquidity crunch on bank debt side, many developers currently are facing a severe cash crunch. Hence, private financiers from the local, unorganised markets are currently able to get sweeter-thanever deals from the developers.”

Even publicly-listed realty companies have picked up debt to the tune of Rs 4,000 crore from private financiers in the last few months, said an industry player who didn’t want to be identified.

In October last, SundayET had reported that liquidity concerns were tightening the screws on real estate developers and many of them were picking up money at 40-48% (interest per annum) from the market. This was bound to happen as private equity deals had disappeared from the market and their stocks were hitting 52-week lows on Dalal Street.

According to a senior bank official, who did not want to be identified, banks are very reluctant to give loans to real estate players. “Since we are expecting a correction in real estate prices, it is necessary to keep a cushion and ask for a higher collateral,” he said.

Says Amitabh Guha, ex-joint MD of SBI: “Additional collateral asked for by commercial banks can be attributed to management of the loan sanctioned and increased risk for lending to real estate sector due to slow down in the economy.”

India set to beat the Dragon in growth rate

India set to beat the Dragon in growth rate
The Economic Times, February 08, 2009, Page 1

Export-dependent China post lower GDP hike at 6.8%

Shantanu Nandan Sharma NEW DELHI

CALL it the brighter side of the current downturn. India may pip export-dependent China in the last quarter of FY09 and emerge as the fastest growing nation among all large economies. As China’s GDP growth rate dropped to 6.8% during October to December quarter and is expected to go down further, the Indian government has become hyper-active to achieve at least a 6.5% growth in Q4 to register a win over China.

If India achieves a better growth rate than China even for one quarter, the message will go across to the world and help India in wooing foreign capital, waiting to chase growth stories. Already, government officials in India have been highlighting reports of a few investment analysts who doubted China’s official GDP numbers and claimed that it could just be in the positive territory in the last quarter.

A secretary in the government of India confirmed to SundayET that India has a brighter chance of overtaking China in the last quarter of FY09, or Q1 in case of China which follows the calendar year. “China is heavily dependent on exports and the way things are unfolding China’s GDP for January-March quarter would be quite low. We have so far achieved 7.9% and 7.6% growth in the first two quarters, according to the provisional numbers. Though our Q3 number, to be announced by month end, is expected to be less than the comparable number in China (6.8% in Oct-Dec, 08), the softening of interest rates will stimulate demand and ensure a faster growth rate than China in Q4,” he said.

Though the Chinese economy grew at 9% during 2008, down from the revised 13% growth rate in 2007, the last quarter number (6.8%) has made the Indian authorities hopeful that India might be able to pip China in GDP growth. As China’s export constitutes 37% of its economy against 13% in the case of India, the recession in the developed world will make China suffer the most.

Prime Minister’s economic advisory council (EAC) member Satish C Jha said he won’t be surprised if India grew faster than China. “The situation in China is worse than us. Exports are drastically coming down and China is hit hard. Our economy is driven more by domestic demand and our rural economy is much more resilient than that of China. If our stimulus packages are implemented properly, I won’t be surprised if India pips China in GDP growth,” Mr Jha said.

RACE HOTS UP
CHINA’S GDP GROWTH RATE IN OCT-DEC QUARTER - 6.8%
CONTRIBUTION OF EXPORTS TO CHINA’S ECONOMY - 37%
INDIA’S GDP GROWTH RATE IN JULY-SEPT QUARTER - 7.6%
CONTRIBUTION OF EXPORTS TO INDIA’S ECONOMY - 13%

More steps in pipeline to support labour-intensive sectors: Pranab

More steps in pipeline to support labour-intensive sectors: Pranab
The Economic Times, February 07, 2009, Page 7

Our Bureaus NEW DELHI

EXTERNAL affairs minister Pranab Mukherjee, who is looking after the finance portfolio, said on Friday the government will take more steps to support labour-intensive sectors and emphasised that the Gandhian model economy with a rural focus was the need of the hour. Mr Mukherjee said the government expects that despite the global economic downturn, the economy would expand at 7% this fiscal, after recording an average growth rate of 9% for the last five years.

“As the next year’s outlook is more downbeat, the government has taken a number of measures to inject liquidity, to bring down the cost of borrowing and to stimulate demand through fiscal measures. When necessary, the government will take further steps to ensure that labour-intensive sectors are less adversely affected,” the minister said at a conference by Research and Information System for Developing Countries.

He said the country has the capacity to drive the economy forward on the strength of domestic demand by investing more on infrastructure, labour intensive sectors and on the improvement of the social safety net.

Speaking to reporters after the seminar, Mr Mukherjee said it was not decided yet as to when some of the measures will be announced. “You will have to wait till I present the budget,“ he said. The interim budget is due on February 16. Home minister P Chidambaram, who was the finance minister till recently, had said on Thursday the government would be within its rights to announce new measures, despite the ensuing elections.

Mr Mukherjee also said that global financial institutions need to put more resources for developing countries. They have to allocate funds for the rural economy, social infrastructure and local communities. “The resources must be put in institutional capacity-building and skills’ development....To me, there is a necessity, once again, to revisit Gandhian economics with its emphasis on rural selfhelp and sustainable economic development. Anything contrary would be disastrous,” said Mr Mukherjee.

The government is also pushing for a regional approach to lessen the impact of the economic crisis. Mr Mukherjee said that India is attaching great importance to regional groupings like the South Asian Cooperation, Asean and Saarc. Appreciating Asean for taking steps towards regional economic integration, he said: “A regional financial architecture, drawing upon the high currency balances in Asia, would mitigate the severity of the economic crisis for us.”

He further added that countries in Asia had the capability to push the economy forward by investing in infrastructure and labour-intensive sectors. “We, in Asia, have the capacity to undertake significant contra-cyclical steps to drive the economy forward on the strength of the domestic demand by investing more on infrastructure, on labour-intensive sectors and on the improvement of the social safety net,’’ he said.

Govt has its limitations: Nath
NEW DELHI: Fresh incentives to further stimulate the economy are still under formulation, commerce and industry minister Kamal Nath has said. The government will look at everything that can stimulate the economy, the minister said on Friday, adding the government also had its limitations. Speaking to the media after his meeting with the visiting Finnish trade minister, Mr Nath said some sectors have been hit because of contraction in demand and non-availability of liquidity internationally. “We are taking steps to ensure a level playing field and see that transaction costs are minimised by whatever procedures and whatever mechanism and tax neutralisation we can do. Of course, India cannot give subsidies which are not WTO compatible,” he said. The RBI will continue to take monetary steps to help the industry, he said.— Our Bureau

Still unreal estate

Still unreal estate
The Financial Express, Feb 09, 2009, Page 6

Developers must cut prices

Housing finance companies may have reduced the interest rate on home loans, but borrowers are still in wait-and-watch mode, anticipating a necessary correction in real estate prices. The latest data from RBI credit policy shows that the off-take of credit for housing has slowed to 8.8% until December last year from 14.6% during the same period in 2007. To boost the home loan market, public sector banks are aggressively reducing their floating rates. State Bank of India, the country’s largest commercial bank, lowered its rate to 8% for new customers over the coming year—the second time it has reduced mortgage rates in as many months. Private sector banks are charging around 10% for fresh loans. Though the rate cuts are targeted more at new buyers, the economic slowdown coupled with high real estate prices in Tier-I and Tier-II cities (where the demand for housing is most), are dissuading potential homebuyers.

Interest rate cuts alone will not help boost real estate sales across the country and reciprocatory steps need to be taken by real estate developers. Though some developers have reduced prices by 10 to 15%, it is just not sufficient and most of the cuts were actually in the premium segment where the demand has plateaued. With the impact from the ongoing financial crunch mounting across all sectors, developers may have to sell the unsold stock at a much cheaper price to stay in business. Property prices, in the last two years, have gone up by as much as 70% in metros and developers’ profit margins went up almost three- to four-fold. But with the stock market at an all-time low and real estate speculation almost drying up, it is now end-users who are the potential buyers of property. A lot of developers are rushing to clean up their highly leveraged balance sheets and are under mounting pressure to meet their interest payment deadlines. In such a situation, a further cut in unsold property prices can boost sales, generate much needed working capital for the developers, which they can invest in low-cost housing as the long-term housing demand remains buoyant. The Planning Commission estimates that there is a shortage of 24.7 million houses, out of which 99% is in the EWS and LIG segment. The government has announced a series of sops for developers venturing into construction of affordable housing and investing in this category through a public-private partnership can be a win-win situation for all in the long-run.

Realtors to be under pressure

Realtors to be under pressure
The Financial Express, February 09, 2009, Page 4

New Delhi: The real estate sector is likely to remain under pressure for the next few months due to small capital flow into this segment as lending to developers has not improved considerably among other factors, a report says.

“We maintain a zero weight for India in our regional real estate portfolio. On a 12-month view several real estate names in India look good value, but for the next few months expect the sector to come under continued pressure,” Macquarie Research said in its report. In today’s scenario, banks are scrutinising mortgage borrowers more closely but they have resumed lending to some extent. “However, lending to developers has not improved and may have tightened even further and the well is dry for developers,” it said.

“Borrowing for developers remains very, very tight. Conditions are perhaps at their worst ever level. Project financing has dried up as banks will not put money up front for developments,” the report said and added : “Banks are now waiting for pre commitments for up to 30-40% of developments before approving finance.” Besides, there are concerns regarding the structural challenges within the sector, such as the requirement for romoters to disclose their equity stake pledges and the possible equity holder dilution which may come about due to strict bank lending policies to developers.
—PTI

DLF-Fortis proposed JV falls through

DLF-Fortis proposed JV falls through
The Economic Times, February 07, 2009, Page 6

Khomba Singh NEW DELHI

A PROPOSED joint venture (JV) between India’s largest property company, DLF, and hospital chain Fortis Healthcare to set up multispecialty hospitals across DLF’s 31 townships has fallen through as the project has become unviable.

When contacted, the Fortis spokesman declined to comment. But a company official insisted that its stated target of 40 hospitals by 2012 through a combination of the organic and inorganic route remains on track. A DLF spokesperson said, “The memorandum of understanding (MoU) has not been renewed and the agreement is not binding on either of the companies.”

A person who has knowledge of the development, on conditions of anonymity, told ET, ”DLF was looking for a larger deal and wanted to have Fortis Hospitals in many of its townships. But, most of the proposed townships are not viable locations for hospitals, except two or three.” The proposed JV would have moved ahead had DLF provided price incentives or other facilities, which it did not. Hence, there was no value for investing in townships and the MoU signed between the two companies has expired.

In 2007, DLF and Fortis had signed an MoU to float a 74:26 JV company to set up 250-400 bed hospitals in DLF’s townships with an investment of around Rs 6,200 crore. Fortis Healthcare is unlikely to tie up with any other property firm given the business slump real estate companies are facing. “Other real estate companies also have ideas for hospitals, but they are all sailing in the same boat, ” the official added.

The proposed partnership was seen as a win-win situation for both the companies as having a super-specialty hospital would have enhanced the value of DLF’s townships, besides meeting the regulatory requirements of having a healthcare facility. For Fortis, it fitted well with its plan to expand its footprint nationwide and increase its base to a total of 40 hospitals by 2012 by leveraging DLF’s land bank.

But, situations began to change last year as the Delhibased real estate company delayed many of its projects due to weak property demand. But the company had said its partnership with Fortis was intact and would jointly set up the hospitals.

Omaxe to repay Rs 900 cr loan in next few months

Omaxe to repay Rs 900 cr loan in next few months
The Economic Times, February 08, 2009, Page 6

Raja Awasthi NEW DELHI

REAL estate major Omaxe Group, which has a consolidated debt of around Rs 1,500 crore, now plans to repay nearly Rs 900 crore worth of loans in the next few months. Faced with mounting debt obligations, this move is aimed at restructuring high cost loans and comes in the wake of the Reserve Bank of India’s recent decision to allow banks to restructure loans taken for commercial real estate without turning them into non-performing assets.

Says Omaxe Group CMD Rohtas Goel: ”The restructuring would ease pressure on cash flows and enable us to concentrate on execution of existing projects. We are in the process of completing several projects in the coming one year. The company is launching several of its low-cost housing projects on the land bank in its possession which is expected to substantially improve cash flows.”

The company already has bookings for 41 million sq ft worth of space of which it has delivered 4.9 million sq ft. Its target is to deliver another 5.1 million sq ft space in the current financial year to achieve the target of 10 million sq ft.

The group also plans to launch the construction of 10,000 homes in Indore. These low-cost homes will be built as part of a project worth an estimated Rs 1,000 crore. Construction on the development is expected to be complete within the next 18 months and the units are likely to cost between Rs 4 lakh and Rs 10 lakh.

“We will launch 10,000 affordable houses in February on a 200-acre township in Indore. The group has to develop more affordable housing in north India and soon more such projects will be announced,” added Goel.

Chanting the affordable mantra

Chanting the affordable mantra
The Financial Express, February 08, 2009, Page 11

Preeti Parashar

The wait of many to own an affordable house is finally over. With interest rates slashed for home loans up to Rs 20 lakh and real estate developers shifting focus to affordable housing, this is the right time to purchase your dream home. Where a few months ago the developers were investing heavily into luxury housing projects, now majority of them have announced their long term investment plans for affordable housing.

Affordable announcements
DLF Home Developers, wholly owned subsidiary of DLF Group has already announced an investment of Rs 15,000 crore over the next three years to develop various residential projects across the country in Rs 15-40 lakh range. The plan is to construct about 40,000 housing units in the mid-income category. An official from DLF Homes said that the company will now be focusing on developing houses, which are affordable for middle and upper middle class. “The major factors that have affected the realty business include the economic slowdown as well as an over supply of housing options in the top-end category of the market. So the lower segments which remained untapped are now being focused upon,” says the official.

He further adds, “Developers are willing to squeeze their margins and will be developing affordable housing units by reducing the size and specifications and offering one or two bedroom apartments.” The investors are slowly returning to the market as the developers have reduced their project prices and are offering lucrative deals. Where on an average two bedroom apartments were priced between Rs 35-40 lakh, now the prices have come down to about Rs 15-35 lakh.

On the other hand, Omaxe Constructions plans to invest around Rs 8,000 crore over the next five years in affordable housing projects. DP Srivastava, Director, Omaxe Constructions says, “We have plans to develop over 10,000 houses in the first year with an investment of Rs 1,000 crore. Overall the apartments will be ranged between Rs 5-10 lakh and Rs 10-20 lakh categories. In the present scenario about 90% people can afford a home in the price range of Rs 5-15 lakh.”

As the company has created a land bank of about 700 acre of licensed land, with 1,000 acre in the process of acquisition, the plan is to build affordable housing projects across the country. Srivastava further adds, “We are planning to launch five projects under the affordable housing category by March in Madhya Pradesh and Uttar Pradesh. But due to low market sentiments there has been a delay in launching these projects. Yet we are hopeful of delivering the half-finished apartments by year end.”

Small city offerings
Developers are offering lesser value additions in the apartments than before to make up for the reduced prices. RP Malhotra from Dee Ess Estates says, “The developers that used to offer fully-furnished apartments are now offering the basic model. The high-end projects are still not able to find buyers whereas the affordable houses in the range of Rs 10-20 lakh will soon see a jump in sales.”

Sandwoods Infratech, after developing two luxury housing projects in the northern region has moved on to develop studio apartments priced between Rs 6.22 and Rs 6.55 lakh. Taking care of the basic needs of the middle income group the company is offering 360 one-room apartments in Baddi, the industrial hub of Himachal Pradesh. SK Bagolia, Managing Director Sandwoods Infratech says, “We are coming up with a five-storey building — Sandwoods Heights in Baddi and the apartments have been priced keeping in mind the needs of the service class as well as the skilled class. We are also scouting for space in Shimla to launch another affordable housing project.” Apart from attractive offers for prospective home-owners, the company has launched a scheme for investors looking for opportunities in Himachal Pradesh. Here, Sandwoods Infratech will rent out apartments and offer guaranteed monthly returns to investors. In the down payment plan, the investor has to make an upfront investment of Rs 6,00,000 to purchase the apartment. The company will then guarantee payment of Rs 3,000 per month in return to the investor starting immediately after booking for a lock on period of five years. In the construction linked payment plan, the investor can pay just 15% of the price upfront, with bank loans available for the remaining amount. Here, the company will pay the EMI to the bank till the completion of construction (approximately two years) and then guaranteed monthly returns of Rs 3,000 per month for a lock in period of further three years.

Another player — Taneja Developers & Infrastructure is investing close to Rs 500 crore on reasonably-priced housing projects in Punjab. Coming up in Mohali, TDI City is offering two bedroom apartments at Rs 14 lakh and 17.5 lakh. “We have got 500 units booked out of the total 700 offered. Phase II of this project has also been launched over 200 acre of land which will be developed into an integrated township. Other housing projects are coming up in Jalandhar, Panipat, Sonepat and Kundli,” shared Amit Batra, Regional Head, TDI.

Considering the fact that people are now preferring to buy a house rather than staying in rented apartments, the developers are offering flats ranging between Rs 12 lakh to Rs 20 lakh. Sanjeev Narang from Raglan Infrastructure says, “We are offering two Bedroom flats at Rs 12.71 lakh, three bedroom at Rs 15.61 lakh and four bedroom at Rs 20.51 lakh in Gulmohar City project at Derabassi. About 325 bookings have been made out of 450 flats offered. Even though sales have slowed down now but we will hand over the possession in November this year.”

On the contrary, the recession seems to have increased the demand in Baddi industrial belt. And the developers are planning to convert their projects into low-cost housing projects. SK Bajaj from Shakun Infrastructure, Baddi says, “Developers here have submitted plans to change over to affordable housing. Surprisingly, in the last 2-3 months the demand has picked up and one and two bedroom apartments are selling like hot cakes. We had offered 40 one-room sets and all units were sold within a month. One room apartments range between Rs 6-6.5 lakh and two bedroom flats between Rs 7.5-8 lakh.”

The global economic slowdown has hit the realty sector hard. But by offering affordable housing to the customers the developers are confident of sailing through these turbulent times.