Friday, February 13, 2009
Plan to ease FDI in housing
Plan to ease FDI in housing
Hindustan Times Business, February 13, 2009, Page 25
Hindustan Times Business, February 13, 2009, Page 25
Cabinet proposed to relax conditions linked to size, built-up area
While cash-strapped builders are moving towards affordable housing as a practical means to grow business, they may get more elbow room soon. The cabinet appears set to liberalise the flow of foreign direct investment (FDI) in the real estate sector. As much as 100 per cent FDI is allowed but only in projects.
The commerce and industry has moved a cabinet note, copy of which is available with Hindustan Times, to reduce the minimum area for a project to be for FDI from the current 10 hectares (25 acres) to 10 acres for development of serviced housing plots.
The proposal also envisages the reduction in minimum built-up area for FDI to 10,000 square metres from the present 50,000 sq mts of built-up area.
Besides, housing the benefits of this policy would also flow to projects related to hotels, hospitals, family entertainment centres, cineplexes and multiplexes.
In the case of mixed development projects involving the hotel and tourism sectors, the new policy proposal stipulates that at least 50 per cent of the total built-up area be occupied by hotel and tourism related activities and that a minimum of 20 per cent of the total built-up area of a project is used for construction of hotel rooms.
Explaining the rationale, the note said that under the current guidelines, developing serviced plots or built-up areas in small cities and towns is not considered economically viable.
“The minimum area requirement as of now is viewed as a deterrent for infusing FDI into companies desirous of undertaking small sized construction projects. The new FDI proposals are aimed at encouraging FDI into smaller projects,” said the cabinet note.
The current policy permits FDI up to 100 per cent on the automatic route in tourism related industry, hotels and hospitals, when they are taken as stand-alone projects. However, for projects planned as a mix of commercial premises, shopping malls, hotels etc, though FDI is permitted up to 100 per cent on the automatic route, there are conditions linked to capital, minimum area and a lock-in period.
Domestic demand could inject fresh momentum to economy: President
Domestic demand could inject fresh momentum to economy: President
The Hindu Business Line, February 13, 2009, Page 5
Our Bureau
New Delhi, Feb. 12 The President, Ms Pratibha Patil, has said that the Indian economy would register a “relatively high growth” rate even in the prevailing adverse global economic environment. Bucking the global trend, Indian economy is set to grow 7.1 per cent this fiscal.
In her address to the joint session of both Houses of Parliament here today, Ms Patil said that the country’s fundamentals remained much better and that the domestic demand could inject fresh momentum to the economy. The calibrated and prudent economic reform pursued by the Government was helping the country to weather the extreme adversities of the global economic meltdown, she said.
The President highlighted that the Government had already taken a slew of measures to stimulate the economy at this juncture (global economic crisis). They include enhanced availability of liquidity and credit, reduction in taxes and duties and relaxation of Fiscal Responsibility and Budget Management (FRBM) constraints to help increase capital expenditure by the State Governments.
Ms Patil noted that all these measures would drive the demand for goods and services, reviving production activities in the manufacturing and services sectors. She underscored the need for rapid growth in industry and services to provide the avenues for employment required by Indian youth.
“India is a nation of young people. India’s demographic dividends can be realised only if the country invests in developing skills to make our youth employable,” she said.
On banks, the President said that they were “well capitalised” and face no threat unlike many banks in other parts of the world.
Rural infrastructure
As regards the gaps in rural infrastructure, Ms Patil said that these have been systematically addressed through Bharat Nirman.
“Bharat Nirman has served to integrate rural India more centrally into the growth process and unlock its potential”.
Under the rural roads programme, work on 25,000 villages had been completed to provide market connectivity to farmers. Over 50,000 villages have been provided electricity under the Rajiv Gandhi Gramin Vidyutikaran Yojana.
“Today, 98 per cent of our villages have telephone connectivity and mobile telephony is spreading fast in rural India”. In India, there is a phone connection for every three persons and the target is to provide 50 crore connections by 2010.
On central public sector enterprises (CPSEs), Ms Patil said that the Government had taken a number of steps for devolution of managerial and financial autonomy to these enterprises. As a result, the turnover and profits of the CPSEs had increased by about 45 per cent and 22 per cent respectively.
The President also said that the Government was committed to promote renewable energy technologies and increase its share in the energy mix. India has achieved grid-connected renewable power capacity of 13,740 MW and a capacity addition of 14,000 MW has been targeted for the 11th Plan.
Wooing their customers
Wooing their customers
ET Realty, February 13, 2009, Page 25
In a market slowing down, real estate developers are gushing forth with adverts of a secure investment with the key words being 'possession soon', and 'safe investment'. ET Realty takes a sneak peak
Namrata Kohli
Heard the Supertech advert which emphasises on 'possession soon' or the Ashiana one which even spells out exact days, away from possession such as 50 days away from possession in their Jaipur project and 40 days away from possession, in the Jamshedpur one!
The sentiment being that of being wary and cautious by the buyer, developers are going all out to convince the buyers that their investment is secured with them, a fact which is evident in the current branding and marketing communication through print, electronic and especially audio media.
According to Ankur Gupta, Ashiana Housing, "The buyer wants to be sure that he is making the right investment. That the structure is ready, that the price is realistic and that the timing of investment is right and even that the project will be completed on time, are his primary concerns which is what we are addressing in our advertising."
Developers are seen stepping up marketing efforts faced with tough market conditions. Some can be seen desperately wooing the buyer with freebies, discounts and deals. Rohtas Goel, CMD, Omaxe Ltd agrees, "Looking at the present scenario where demand has shifted from investors to end-users, who look for freebies and discounts while making purchase decisions, many developers have also announced schemes to perk up sales. Many developers have also lowered their prices of existing and upcoming projects. We at Omaxe are also offering a rebate of 5-10% to our customers who are making timely payments." Omaxe is also seen making announcements of launch of 10,000 homes in Indore at a meagre amount of Rs 4-10 lakh as well as Panache Homes in Greater Noida, Faridabad and Ludhiana which are affordable luxury homes from Rs 12.12 lacs onwards Ambience group has introduced various customer friendly payment plans, as well as discounts of up to 15% on their upcoming luxury property - Caitriona. Aman Gehlot from the Ambience group elucidates, "We agree that during the beginning of the economic turmoil there had been a considerable decline in the real estate sales. The buyers seem to have gone in a wait and watch mode, and there was a need to encourage customers to get them back in investing in the real estate sector. For this very purpose various developers have enhanced their marketing strategies to stand out in the crowd." He adds that, most of the developers are taking the route of road shows, advertising campaigns, and participation in industry exhibition with various other supplementary marketing efforts such as providing innovative deals, freebies to their buyers, discounts or concession on various properties purchased.
Since the current mood of the buyer is to manage the best 'deal', some developers can even be seen encashing upon that sentiment and are wooing the buyers by offering the attraction of 'affordability' as well as 'lifestyle living' within their budgets. "Buy golf facing apartments for Rs 16 lacs with hi-end club in Ghaziabad at Crossing Republic" by Land craft is one such instance.
Assotech's Rajeev Rai, Vice President, Corporate, says that today end users do not just want to buy a beautiful home but an unequalled lifestyle and a living environment unlike any in neighbouring area, that too at an affordable range for them. Bearing this thought in mind, they have launched their project 'The Nest' in Crossings Republik on NH-24 that offers lifestyle "FLEXI" homes with basic selling price ranging from Rs. 21.25 lacs to Rs. 42.44 lacs. 'The Nest' offers the freedom of using 'flexi' spaces inside the apartment and making the best use of all the amenities like Golf Course, adventure sports, water bodies, five star hotel, club, mall, stadium, parking, 24-hour hi-tech security system, bus transport system, etc. which are available right there outside your 'flexi' home.
But as one developer sums up, there is no quick fix formula to crack the real estate deals during this global slowdown period. "Quality, constant innovations and satisfied customers are the best marketing strategies that all the developers should adopt," says Prodipta Sen, Vice President, Marketing and Corporate Affairs, Alpha G:Corp. Prodipta also adds further that the expectations of the end-users are left to watch out for the competence and experience displayed by the actual development that prompt the potential buyers and also has an considerable effect on their buying decision.
2% December output fall lowest in 15 years
2% December output fall lowest in 15 years
The Economic Times, February 13, 2009, Page 7
IIP CRASH & SLIDING INFLATION SET STAGE FOR INTEREST RATE CUTS
Our Bureau NEW DELHI
INDUSTRIAL production fell 2% in December 2008 — the highest year-onyear contraction in any month in 15 years — amid signs that the slowdown was spreading to more sectors.
The expectation is that January 2009 would be a better month. However, there are indications that the worse-than-expected December number is likely to invite a slew of measures including aggressive interest rate cuts and further fiscal boost.
The external affairs minister Pranab Mukherjee, who is also holding the finance portfolio, said in Capital on Friday, “There is a need to sustain foreign trade, revive investments and generate domestic demand in order to maintain growth rates.”
The 2% drop in industrial production, as measured by the index of industrial production (IIP), was largely due to a sharp 2.5% year-on-year contraction in manufacturing, which has the largest weight, 80%, in IIP. Only 7 of the 17 manufacturing sectors showed a positive growth against 10 last month, confirming fears that the slowdown was spreading. Machinery and equipment, other than transport, which has the second-highest weight in the manufacturing index, has logged negative 4.1% growth in December against a growth of 7.9% during April-November 2008.
However, despite the unexpected contraction in industrial output, many economists did not see this as exerting a downward pressure on the CSO’s advance forecast of GDP growth, which stands at 7.1% for the year to end-March 2009. The advance estimates of GDP peg manufacturing growth at 4.1% while cumulative growth till December remained at 3.2%. The optimism is perhaps rooted in the turnaround in the capital goods segment which logged a 4.2% growth in December against a negative 0.1% in November 2008.
Chief statistician Pronab Sen told ETthat GDP growth for the financial year is unlikely to be bleak, adding that the recently-announced fiscal package that seeks to boost spending and cut levies on goods would help consumption and limit the downside risks to economic growth.
The consumer goods segment contracted 2.7% following a 12.8% drop in production of consumer durables and a 0.1% drop in production of consumer non-durables. This is a worrying indicator as the reasonable 6.4% growth in the production of consumer non-durables during April-November 2008 was seen as an indicator that the consumption had not suffered much, particularly in the rural areas.
However, the poor performance of consumer non-durables is at variance with the quarterly results of the FMCG companies, reaffirming the allegation that IIP was faulty and it did not capture true growth because of an outdated product basket. The Q3 results of FMCG companies revealed a strong topline growth across companies even though volumes growth was muted. The big FMCG companies delivered a cumulative sales growth of about 14% and an operating profit growth of over 11% during the quarter.
Mr Sen did agree that IIP data had shortcomings. He said, “For preparing the provisional figures for IIP numbers, we get data from around 50% of the companies which are supposed to give data. The provisional figures are highly influenced by the numbers we get. The data sourcing is done from companies, which have been here in 1993-94, and data from some of the companies which are witnessing fast growth is not captured by IIP.”
The drop in production of consumer durables is likely to be interpreted as a clampdown on discretionary expenditure. Prime Minister’s Economic Advisory Council (EAC) member Saumitra Chaudhari, however, dismissed the 12.8% fall as an aberration.
He said, “EAC is of the view that industrial activity will show a recovery in the final quarter, pushing up the cumulative growth for the year. Keeping in mind the dislocation caused to the sale and manufacturing of a wide array of projects after September 2008, we assess that manufacturing activity will grow by an average of 2.5% in the second half of 2008-09, yielding an annual average of 4% growth for full year. This has an upside built into it if the improvement is somewhat stronger in the closing months of 2008-09.”
The Economic Times, February 13, 2009, Page 7
IIP CRASH & SLIDING INFLATION SET STAGE FOR INTEREST RATE CUTS
Our Bureau NEW DELHI
INDUSTRIAL production fell 2% in December 2008 — the highest year-onyear contraction in any month in 15 years — amid signs that the slowdown was spreading to more sectors.
The expectation is that January 2009 would be a better month. However, there are indications that the worse-than-expected December number is likely to invite a slew of measures including aggressive interest rate cuts and further fiscal boost.
The external affairs minister Pranab Mukherjee, who is also holding the finance portfolio, said in Capital on Friday, “There is a need to sustain foreign trade, revive investments and generate domestic demand in order to maintain growth rates.”
The 2% drop in industrial production, as measured by the index of industrial production (IIP), was largely due to a sharp 2.5% year-on-year contraction in manufacturing, which has the largest weight, 80%, in IIP. Only 7 of the 17 manufacturing sectors showed a positive growth against 10 last month, confirming fears that the slowdown was spreading. Machinery and equipment, other than transport, which has the second-highest weight in the manufacturing index, has logged negative 4.1% growth in December against a growth of 7.9% during April-November 2008.
However, despite the unexpected contraction in industrial output, many economists did not see this as exerting a downward pressure on the CSO’s advance forecast of GDP growth, which stands at 7.1% for the year to end-March 2009. The advance estimates of GDP peg manufacturing growth at 4.1% while cumulative growth till December remained at 3.2%. The optimism is perhaps rooted in the turnaround in the capital goods segment which logged a 4.2% growth in December against a negative 0.1% in November 2008.
Chief statistician Pronab Sen told ETthat GDP growth for the financial year is unlikely to be bleak, adding that the recently-announced fiscal package that seeks to boost spending and cut levies on goods would help consumption and limit the downside risks to economic growth.
The consumer goods segment contracted 2.7% following a 12.8% drop in production of consumer durables and a 0.1% drop in production of consumer non-durables. This is a worrying indicator as the reasonable 6.4% growth in the production of consumer non-durables during April-November 2008 was seen as an indicator that the consumption had not suffered much, particularly in the rural areas.
However, the poor performance of consumer non-durables is at variance with the quarterly results of the FMCG companies, reaffirming the allegation that IIP was faulty and it did not capture true growth because of an outdated product basket. The Q3 results of FMCG companies revealed a strong topline growth across companies even though volumes growth was muted. The big FMCG companies delivered a cumulative sales growth of about 14% and an operating profit growth of over 11% during the quarter.
Mr Sen did agree that IIP data had shortcomings. He said, “For preparing the provisional figures for IIP numbers, we get data from around 50% of the companies which are supposed to give data. The provisional figures are highly influenced by the numbers we get. The data sourcing is done from companies, which have been here in 1993-94, and data from some of the companies which are witnessing fast growth is not captured by IIP.”
The drop in production of consumer durables is likely to be interpreted as a clampdown on discretionary expenditure. Prime Minister’s Economic Advisory Council (EAC) member Saumitra Chaudhari, however, dismissed the 12.8% fall as an aberration.
He said, “EAC is of the view that industrial activity will show a recovery in the final quarter, pushing up the cumulative growth for the year. Keeping in mind the dislocation caused to the sale and manufacturing of a wide array of projects after September 2008, we assess that manufacturing activity will grow by an average of 2.5% in the second half of 2008-09, yielding an annual average of 4% growth for full year. This has an upside built into it if the improvement is somewhat stronger in the closing months of 2008-09.”
Dreadful December
Dreadful December
The Financial Express, Feb 13, 2009, Page 6
The minus 2% growth in the index of industrial production (IIP) for December 2008 is the lowest on record since 1993, when the index was first compiled. Scary as the negative growth is, it was not entirely unexpected, even though it is worse than what most analysts predicted. The general consensus favoured a marginal positive growth for December. But, and of course in hindsight, it seems right to argue that given the sharpness of the slowdown we ought to have been ready for this. Remember that the period between October and December saw the worst phase of the credit crunch, and things have reportedly improved in January. Also, the stimulus packages announced by the government are unlikely to have kicked in by December—some of the positives of that package may be seen in January and further down in 2009. So, on the whole, it is quite likely that December may have been the worst for industry.
A breakdown of the numbers though does show some cause for concern. The sharpest slowdown, of minus 12.8%, came in consumer durables—the fate of consumer non-durables was also negative, at minus 0.1%. The fact that consumer durables showed such a sharp slide suggests that firms cut back on production to clear up accumulated inventories. This is clear evidence of a massive consumption squeeze, some of which may have been brought on by the looming prospects of pay cuts and unemployment for a sizeable section of consumers. It is impossible not to mention the interest rate regime, which is in many ways responsible for the exacerbated slowdown that we face. The failure of RBI to cut rates sufficiently has meant dampened investor and consumer confidence. The consumer durables sector has borne the brunt of consumers shying away from taking loans at very high rates in difficult times. Needless to say, manufacturing has also taken a hit on account of the interest rate regime, which continues to be out of sync with global and domestic realities. Perhaps the silver lining in all the dismal numbers surrounding the economy is the steadily falling rate of inflation—it is now down to 4.3%. The latest figure is for January 31, which would have only incorporated the first-round effect of the cut in fuel prices. Inflation will fall further, creating more room for rate cuts. RBI must respond soon if the economy is to avoid a worse-than-possible 2009-10. An insufficient response means we may end up short.
The Financial Express, Feb 13, 2009, Page 6
The minus 2% growth in the index of industrial production (IIP) for December 2008 is the lowest on record since 1993, when the index was first compiled. Scary as the negative growth is, it was not entirely unexpected, even though it is worse than what most analysts predicted. The general consensus favoured a marginal positive growth for December. But, and of course in hindsight, it seems right to argue that given the sharpness of the slowdown we ought to have been ready for this. Remember that the period between October and December saw the worst phase of the credit crunch, and things have reportedly improved in January. Also, the stimulus packages announced by the government are unlikely to have kicked in by December—some of the positives of that package may be seen in January and further down in 2009. So, on the whole, it is quite likely that December may have been the worst for industry.
A breakdown of the numbers though does show some cause for concern. The sharpest slowdown, of minus 12.8%, came in consumer durables—the fate of consumer non-durables was also negative, at minus 0.1%. The fact that consumer durables showed such a sharp slide suggests that firms cut back on production to clear up accumulated inventories. This is clear evidence of a massive consumption squeeze, some of which may have been brought on by the looming prospects of pay cuts and unemployment for a sizeable section of consumers. It is impossible not to mention the interest rate regime, which is in many ways responsible for the exacerbated slowdown that we face. The failure of RBI to cut rates sufficiently has meant dampened investor and consumer confidence. The consumer durables sector has borne the brunt of consumers shying away from taking loans at very high rates in difficult times. Needless to say, manufacturing has also taken a hit on account of the interest rate regime, which continues to be out of sync with global and domestic realities. Perhaps the silver lining in all the dismal numbers surrounding the economy is the steadily falling rate of inflation—it is now down to 4.3%. The latest figure is for January 31, which would have only incorporated the first-round effect of the cut in fuel prices. Inflation will fall further, creating more room for rate cuts. RBI must respond soon if the economy is to avoid a worse-than-possible 2009-10. An insufficient response means we may end up short.
Fuel price cut drags inflation further to 1-year low of 4.39%
Fuel price cut drags inflation further to 1-year low of 4.39%
The Economic Times, February 13, 2009, Page 7
Our Bureau NEW DELHI
REFLECTING the recent cut in fuel prices, inflation dropped to a 12-month low of 4.39% for the week ended January 31, 2009, leaving room for the central bank to slash interest rates further to lift industrial production levels that are currently on a downward spiral.
On Thursday, yields from 10-year bonds fell to the lowest in more than a week, on the back of expectations of a rate cut. Given the demand slump and the contracting industrial output, inflation rates will only fall from here on, rating agency Crisil principal economist DK Joshi said.
“If the current scenario continues, India might get into a deflationary scenario by Marchend for a brief period,” he said.
However, the annual rate of increase in prices of food products was still close to the 10-year high though there was some moderation in prices over the week. The wholesale price index (WPI)-based annual rate of inflation was 5.07% in the week before and at 4.74% in the corresponding week last year.
The fuel price index, which has a weightage of 14.23% in WPI, showed a 3.1% drop over the week due to lower prices of petrol (11%), liquefied petroleum gas (8%) and diesel (7%).
The government had cut retail fuel prices of petrol, diesel and LPG by Rs 5, Rs 2 and Rs 25, respectively, in the last week of January. The fuel index is currently 3.53% below its level last year.
Food articles also became marginally cheaper over the week as the impact of the trucker strike — which lasted eight days in the beginning of January and had pushed up the annual rate of inflation in food articles to a 10-year high — eased out. Fruit and vegetables, along with spices and condiments, got cheaper by 3% each over the week. However, the annual inflation on food articles, which is at 11.48%, still remains close to 10-year high on account of prices of certain cereals which firmed up.
Annual inflation in manufactured products eased to touch 5.26% for the week from 5.37% the week before. Analysts are expecting the prices of manufactured items to ease further as the second round impact of fuel price cuts gets factored into the prices.
Inflation dips to 4.39%, RBI may cut key rates
Inflation dips to 4.39%, RBI may cut key rates
Times of India, February 13, 2009, Page 21
NEW DELHI: Inflation has dipped to 4.39% in the week ending January 31, the lowest level since January 12, 2008, mainly due to recent fuel price cuts by government. On January 28, government had cut petrol price by Rs 5 a litre, diesel by Rs 2 a litre and LPG by Rs 25 per cylinder. In the week ending January 24, inflation was at 5.07%.
Such a steep fall in inflation will give RBI enough room to cut key rates,paving the way for banks to lower interest rates. In the last two weeks, inflation declined by 1.25 percentage points. Many economists feel that if government and RBI do not check this fall now, inflation may turn negative by April, triggering a deflation scenario, which means, in the absolute term, prices may start falling.
At the same time, as the industrial production has turned negative in December, economists feel that government should announce another stimulus package and RBI should cut rates to revive the growth.
During the week, consumer items like liquor became cheaper by 15%, fruit and vegetable by 3% and tea by 1%. During the week, prices of groundnut oil dipped 3%, while imported edible oil and mustard oil declined by 2% each.
Times of India, February 13, 2009, Page 21
NEW DELHI: Inflation has dipped to 4.39% in the week ending January 31, the lowest level since January 12, 2008, mainly due to recent fuel price cuts by government. On January 28, government had cut petrol price by Rs 5 a litre, diesel by Rs 2 a litre and LPG by Rs 25 per cylinder. In the week ending January 24, inflation was at 5.07%.
Such a steep fall in inflation will give RBI enough room to cut key rates,paving the way for banks to lower interest rates. In the last two weeks, inflation declined by 1.25 percentage points. Many economists feel that if government and RBI do not check this fall now, inflation may turn negative by April, triggering a deflation scenario, which means, in the absolute term, prices may start falling.
At the same time, as the industrial production has turned negative in December, economists feel that government should announce another stimulus package and RBI should cut rates to revive the growth.
During the week, consumer items like liquor became cheaper by 15%, fruit and vegetable by 3% and tea by 1%. During the week, prices of groundnut oil dipped 3%, while imported edible oil and mustard oil declined by 2% each.
New norms to pump Rs 10,000 cr into realty industry
New norms to pump Rs 10,000 cr into realty industry
Financial Express, February 13, 2009, Page 4
fe Bureau, Mumbai
The Rs 65,000 crore Indian real estate sector is expected to attract investments to the tune of Rs 10,000 crore, if according to the new foreign direct investment (FDI) rule, companies having FDI will be able to invest in non-FDI compliant projects, which are smaller than 10 hectare/50,000 sq mt, opines real estate companies, international property consultants and lawyers. Rohan Shah, managing partner, Economic Laws Practice told FE, “As per the new FDI rule change, real estate sector will foresee a big change only if investments are allowed below 5 lakh sq ft real estate project apart from pre-trading of real estate, then more new investment opportunities will come up.”
According to Nayan Shah, CEO, Mayfair Housing Private Ltd, “With the new FDI rule, we expect investments to the tune of Rs 10,000 crore to come up in the real estate sector by this calendar year-end.”
Aasheish Agarwaal, real estate analyst, Edelweiss Capital Ltd opines, “As per the new FDI rule change, companies having FDI will be able to invest in non-FDI compliant projects, which are smaller than 10 hectare/50,000 sq mt. These projects have a quicker turnaround time and have lesser risks associated with them. Further, these developers will also be eligible to acquire ready properties.”
Prior the announcement, foreigners were allowed to invest only in greenfield properties spread over 25 acres area (for services housing plots) or 50,000 sq mt built up area for construction—development projects with minimum investment norms, repatriation clauses and development clauses. “Thus, the new FDI rule will have a positive impact on the real estate sector by affording developers with foreign money a greater degree of strategic freedom, enabling them to offer a larger range of projects, which will ultimately benefit the end-consumers,”Agarwaal added.
However, Pranay Vakil, chairman, Knight Frank India said, “What I feel is that the impact of the new FDI rule is meant for the future FDIs, but not the existing FDIs. For instance, if a foreign company investing to the tune of 49% in an Indian company that invests the remaining 51% forms a new company, this new company would now be free to launch subsidiary that will not be governed by FDI limitations. If government announces new FDI rule, it should be done directly rather than forcing companies to create a new subsidiary. Currently, existing FDI is coming through the Mauritius route.”
Companies having FDI will be able to invest in non-FDI compliant projects, which are smaller than 10 hectare/50,000 sq mt
Prior the announcement, foreigners were allowed to invest only in greenfield properties spread over 25 acre
Recession and real estate in India
Recession and real estate in India
The Economic Times, February 2009, Page 14
In an earlier article (ET, Nov 19) I had argued that the current global recession has clearly dominant Keynesian features. The crucial issue is not just the fact that there is a demand contraction but that this has been brought about by a market failure which fuels adverse expectations on the part of both producers and consumers.
These adverse expectations lead to reduced production by producers anticipating lack of demand and increased savings by consumers anticipating lack of jobs. Over time, actions of both producers and consumers further justify their expectations which then become self-fulfilling.
In the absence of government intervention (which fills in the missing demand) it is not clear when and how such expectations get reversed. In the 1930s, it took a whole decade to reverse such expectations and even then only because of government intervention. Today, governments have already started coordinating actions and it is unlikely that this recession would last as long.
However, it is still foolhardy to guess when exactly the current recession would come to an end. We have various guesstimates ranging from end 2009 to middle 2010 but it must be clearly realised that there is no scientific basis for such estimates. After all, how can one estimate when the "feel good" factor returns to reverse adverse expectations?
The crucial role of expectations is also clear from the fact that monetary policy has successfully driven interest rates to near zero levels in most OECD countries and yet there is still no sign of demand recovery.
In India too the RBI has tried valiantly to drive interest rates down. Yet the impact seems limited. Over the period September to December last year the RBI pumped in almost all the liquidity it had sucked out of the system in the preceding 12 months. Yet, the PLRs of banks have barely fallen and the new funds have only found their way into the market for government’s T-Bills. Bank holdings of T-Bills are way above the legal requirements. In other words, banks would rather hold government notes promising about 3% to 3.5% return rather than lend to investors at even reduced rates of 7% to 8%! A strange situation where the government pumps money into the system only to see it finding its way back to them via funding of government debt! Expectations are adverse indeed.
This is particularly important in the real estate sector which is now going through very rough times (likely to get much rougher!). The importance of the real estate sector in India cannot be understated given the strong forward and backward linkages that it generates.
The sector has demand implications for intermediate inputs like steel, cement, etc., while keeping afloat the whole construction industry including transport and other intermediate labour services. Given its importance for the economy it is worthwhile to see how adverse expectations are playing a role in this sector and what are the possible solutions.
It should be noted that the role of expectations is particularly important in sectors where speculative activity is greatest. Speculation is typical of the real estate sector in India. A simple test is to compare the purchase price of a property (commercial or residential) with its rental rate.
Casual empiricism indicates that the rental on a residential 2BHK property in a major metro like Delhi is around Rs 1,20,000 per annum. The purchase price of a similar property was around Rs 50,00,000 last year. However, the return on a fixed deposit of Rs 50,00,000 at around 10% per annum would be almost five times the rental. The difference is the return to speculation.
It is not surprising then that adverse expectations have hit the real estate sector hardest. Why are monetary measures not succeeding? For one, the banking sector has still not reduced interest rates sufficiently. Today, bank rates are still around 10-11% on a long-term housing loan.
This must come down to around 6-7% to attract new borrowers. Second, as the RBI periodically announces measures to reduce interest rates this fuels expectations of further cuts and discourages investment in all fixed assets including real estate.
Third, developers are obviously caught in the speculation trap having mopped up most of their own properties in the past on the assumption of a speculative gain in the future. While they have so far expected the government to bail them out, this is unlikely to happen and one can expect substantial property price reductions in the next one year.
The bottom line? The real estate sector has so far relied mainly on upper income domestic demand and external demand. This is unlikely to revive in the near future. For the mass domestic market the ‘Indian dream’ of owning one’s own home is unlikely to be realised at current prices. Only a combination of much lower home loan rates and a significant drop in prices can energise the real estate market on a sustainable basis. What is clear is that monetary measures alone will not suffice at least in the short run.
The Economic Times, February 2009, Page 14
In an earlier article (ET, Nov 19) I had argued that the current global recession has clearly dominant Keynesian features. The crucial issue is not just the fact that there is a demand contraction but that this has been brought about by a market failure which fuels adverse expectations on the part of both producers and consumers.
These adverse expectations lead to reduced production by producers anticipating lack of demand and increased savings by consumers anticipating lack of jobs. Over time, actions of both producers and consumers further justify their expectations which then become self-fulfilling.
In the absence of government intervention (which fills in the missing demand) it is not clear when and how such expectations get reversed. In the 1930s, it took a whole decade to reverse such expectations and even then only because of government intervention. Today, governments have already started coordinating actions and it is unlikely that this recession would last as long.
However, it is still foolhardy to guess when exactly the current recession would come to an end. We have various guesstimates ranging from end 2009 to middle 2010 but it must be clearly realised that there is no scientific basis for such estimates. After all, how can one estimate when the "feel good" factor returns to reverse adverse expectations?
The crucial role of expectations is also clear from the fact that monetary policy has successfully driven interest rates to near zero levels in most OECD countries and yet there is still no sign of demand recovery.
In India too the RBI has tried valiantly to drive interest rates down. Yet the impact seems limited. Over the period September to December last year the RBI pumped in almost all the liquidity it had sucked out of the system in the preceding 12 months. Yet, the PLRs of banks have barely fallen and the new funds have only found their way into the market for government’s T-Bills. Bank holdings of T-Bills are way above the legal requirements. In other words, banks would rather hold government notes promising about 3% to 3.5% return rather than lend to investors at even reduced rates of 7% to 8%! A strange situation where the government pumps money into the system only to see it finding its way back to them via funding of government debt! Expectations are adverse indeed.
This is particularly important in the real estate sector which is now going through very rough times (likely to get much rougher!). The importance of the real estate sector in India cannot be understated given the strong forward and backward linkages that it generates.
The sector has demand implications for intermediate inputs like steel, cement, etc., while keeping afloat the whole construction industry including transport and other intermediate labour services. Given its importance for the economy it is worthwhile to see how adverse expectations are playing a role in this sector and what are the possible solutions.
It should be noted that the role of expectations is particularly important in sectors where speculative activity is greatest. Speculation is typical of the real estate sector in India. A simple test is to compare the purchase price of a property (commercial or residential) with its rental rate.
Casual empiricism indicates that the rental on a residential 2BHK property in a major metro like Delhi is around Rs 1,20,000 per annum. The purchase price of a similar property was around Rs 50,00,000 last year. However, the return on a fixed deposit of Rs 50,00,000 at around 10% per annum would be almost five times the rental. The difference is the return to speculation.
It is not surprising then that adverse expectations have hit the real estate sector hardest. Why are monetary measures not succeeding? For one, the banking sector has still not reduced interest rates sufficiently. Today, bank rates are still around 10-11% on a long-term housing loan.
This must come down to around 6-7% to attract new borrowers. Second, as the RBI periodically announces measures to reduce interest rates this fuels expectations of further cuts and discourages investment in all fixed assets including real estate.
Third, developers are obviously caught in the speculation trap having mopped up most of their own properties in the past on the assumption of a speculative gain in the future. While they have so far expected the government to bail them out, this is unlikely to happen and one can expect substantial property price reductions in the next one year.
The bottom line? The real estate sector has so far relied mainly on upper income domestic demand and external demand. This is unlikely to revive in the near future. For the mass domestic market the ‘Indian dream’ of owning one’s own home is unlikely to be realised at current prices. Only a combination of much lower home loan rates and a significant drop in prices can energise the real estate market on a sustainable basis. What is clear is that monetary measures alone will not suffice at least in the short run.
FII holdings in Indian cos down to 2003 level
FII holdings in Indian cos down to 2003 level
The Times of India, February 13, 2009, Page No. 21
The Times of India, February 13, 2009, Page No. 21
Domestic Institutions Hike Stakes, Surpass Retail Players
MUMBAI: Foreign investors, the most influential investor group in the Indian market, have reduced their holdings in Indian companies drastically in the last four quarters and are back to their December 2003 holding levels. However, domestic institutional institutions (DIIs), led by insurance companies, have cushioned part of the FII exodus. And now, for the first time ever, DIIs own more than what retail investors hold in Indian companies, an analysis by a Citigroup arm of the latest disclosed shareholding patterns showed.
The report also pointed out that for the first time in four years, DIIs and retail investors, that excludes promoters, own more than FIIs. In BSE 500 stocks, which make up for 94% of the all BSE listed companies, DIIs now hold 8.86%, while retail investors hold 8.64%. Retail investors, who were holding 16.4% of the BSE 500 companies in March 2001, have mostly been shedding their positions since then.
Sebi data also shows that in 2008, FIIs took $13 billion (Rs 54,500 crore) out of the Indian market, a trend reversal from a $17 billion (Rs 72,700 crore) net inflow in 2007. Compared to this, DIIs -- which include mutual funds, insurance companies, banks and other financial institutions -- pumped in nearly Rs 14,000 crore in 2008, more than double the Rs 6,400 crore they had invested in 2007.
The Citi report titled ‘Back to...2003' said the last quarter's sell-off, when about 1.4% of FIIs holdings were sold, brought it down to 15.5%, the same level where it was five years ago. This is the same level where it was during the early days of the last bull market. In value terms, foreign ownership is still higher at $94 billion than in December 2003, ‘‘but the level is almost of an age gone by,'' the report said.
The landmark shift in ownership data, showing DIIs holding more than the combined holding of retail investors, could also be a sign of a maturing market. ‘‘Domestic investors (ex-promoters) now collectively own more than foreigners for the first time in four years. The big gainers continue to be the insurance companies who now own 5% of India Inc,'' the report said.
Foreign funds are known to concentrate their holdings in blue chips and the latest data corroborates the same. As of last quarter, FIIs held 22.5% in the 30 sensex stocks, while retail investors held 8.6%, insurance companies 6.4% and mutual funds 4.1%.
Getting real on realty
Getting real on realty
Business Standard, February 13, 2009, Page 9
Thanks to the realty sector crying hoarse and the fact that an economy in a serious downturn does call for government action, India’s real estate majors have got some respite. They will now be able to reschedule the loans that were to be repaid by March 2009, and some restructuring can also be expected, now that banks don’t have to classify the loans as NPAs. And at least home loan rates from the State Bank of India have been slashed — you can finance a home at 8 per cent. Whether or not it can afford to do so given that 1,000-day money still fetches a depositor 9 per cent is another question. The problem, however, is that if the real estate majors don’t get real, they could soon be in line for another bailout next year, or even earlier. Much of the problem, as is evident, is of their own making. They didn’t see the writing on the wall and so, while cashing in on the boom on the way up, didn’t lower prices quickly enough as the economy started slowing. Or perhaps they didn’t want to?
One would have thought that in return for the government’s generosity, the industry would return the favour. After all, they’re using up scarce capital. Also, construction costs are down now that prices of steel have fallen nearly 50 per cent. But even though the signs of trouble are pretty apparent to everyone now, you still don’t find too many cuts in prices by real estate majors. Sure, there are the usual discounts of 10-20 per cent being offered, but these aren’t really serious offers. If you look closely enough, builders aren’t really offering to slash costs in existing locations—for instance, DLF is selling apartments in Hyderabad at 20 per cent below the market price. But most are holding on to inventory in the posh areas, and are converting larger flats into smaller ones; the prices per sq ft aren’t really lower.
This sounds counter-productive. For, with construction costs collapsing, you’d expect that, even at lower prices for completed flats, the margin structure of the majors wouldn’t get affected too badly — for the older players like DLF where the land banks are so old, the incremental costs are only those of raw materials and labour. So, if they lowered prices and attracted more buyers (it’s a myth that, with job uncertainty, the middle classes will not buy property even if priced correctly), the builders would see their cash flows improve. Also, builders were ostensibly bailed out so that they could create jobs for construction workers. But most developers are postponing or stalling projects, so where are the jobs for construction workers?
One reason why builders are not really making sharp cuts in prices, is possibly because they’re underestimating the slump. So, they’re willing to lose some income now for capital appreciation later. A look at some analyst reports suggests this is unlikely to happen. If sales volumes collapse like they’re expected to—CLSA expects DLF’s top line to fall from Rs 14,438 crore in 2007- 08 to Rs 9,907 crore in 2008-09 and Rs 5,079 crore in 2010, and Merrill Lynch reckons Unitech’s revenues will slide from Rs 2,998 crore in 2008-09 to Rs 2,557crore in 2009-10 —the debt overhang will get killing. In the December 2008 quarter, by the way, industry revenues were down anywhere between 60-90 per cent. The reported net debt, however, is huge. DLF’s is close to Rs 14,000 crore, Unitech’s is Rs 9,000 crore and Sobha’s Rs 1,800 crore. A Deutsche Bank report says a spike in debtors and debtor days, across the sector, implies either that customers are delaying payments or have stopped paying. Now combine the two to see how potent the combination is. According to CLSA, DLF’s interest bill in 2009-10 will be in the region of Rs 1,800 crore on revenues of just over Rs 5,000 crore. In 2010-11, the bill is expected to be only slightly smaller at Rs1,680 crore. The story is not much better for Unitech; interest payments are estimated to rise from Rs 264 crore in 2008-09 to Rs 423 crore in 200910. Given this, isn’t it a better idea to simply slash prices in a few projects and get cash flows going? Unless, of course, the real estate majors are confident they’re too big to fail, and another bailout is around the corner. That, after all, is the real lesson from the US financial crisis — you don’t pay for your sins, we do!
DLF withdraws from Bengal project
DLF withdraws from Bengal project
Financial Express, C&M, February 13, 2009, PI
Real Estate developer DLF has withdrawn from the Rs. 5000-crore Dankuni township project near the metropolis citing the current economic recession. After a Cabinet sub-committee meeting on industry on Thursday, principal secretary with the CM’s secretariat Subesh Das said that DLF had intimated that the it would not undertake the project due to the economic downturn.
Financial Express, C&M, February 13, 2009, PI
Real Estate developer DLF has withdrawn from the Rs. 5000-crore Dankuni township project near the metropolis citing the current economic recession. After a Cabinet sub-committee meeting on industry on Thursday, principal secretary with the CM’s secretariat Subesh Das said that DLF had intimated that the it would not undertake the project due to the economic downturn.
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