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Wednesday, March 18, 2009
Sign of Hope: US housing rebounds in Feb
Sign of Hope: US housing rebounds in Feb
The Times of India, March 18, 2009, Page 21
REUTERS
WASHINGTON: New US housing starts and permits unexpectedly rebounded in February, according to data on Tuesday that provided a rare dose of good news for the recession-hit economy and fractured housing market.
The commerce department said housing starts jumped 22.2% to a seasonally adjusted annual rate of 583,000 units from 477,000 units in January. That was the biggest percentage rise since January 1990 and also marked the first increase since last April.
"That is an encouraging sign for the US economy. It is good signal of what is to come. With the rally in equities we hopefully have seen a bottom for the economy here,'' said Matt Esteve, forex trader at Tempus Consulting in Washington.
US stocks have been on the rise over the last several days and the major indexes opened flat on Tuesday. US government bond prices trimmed gains after the data and the US dollar fell against the euro as risk aversion eased.
The data came as the Federal Reserve's policy-setting committee was due to start a scheduled two-day meeting on Tuesday, It is expected to leave the target for its benchmark overnight funds rates unchanged at zero-0.25%.
But the statement at the end of the meeting on Wednesday will be scrutinised for clues on the central bank's readiness to start buying Treasuries to boost its efforts to jump-start an economy in recession since December 2007.
New building permits, which give a sense of future home construction, rose 3% to 547,000 units, from 531,000 units in January. That also marked the first advance in permits since April last year.
Compared to the same period in 2008, housing starts were down 47.3% in February and permits declined 44.2%. Completions rose 2.3% to a rate of 785,000 from January's 767,000.
The housing market is at the center of the financial and economic meltdown and bringing some measure of stability to the sector is crucial to rescuing the economy.
Collapsing house and stock market values are a drag on consumer spending, which accounts for over a third of economic activity.
A separate report from the labour department showed US producer prices rose by less than expected in February after the pace of energy price increases slowed, but core producer prices came in a bit above forecast.
The seasonally adjusted producer price index increased by 0.1% last month versus a 0.8% gain in January.
"These two reports will be a relief for everybody and bring some optimism. But the Fed will remain cautious because one month doesn't make a trend,'' said Kurt Karl, chief US economist at Swiss Re in New York.
The Times of India, March 18, 2009, Page 21
REUTERS
WASHINGTON: New US housing starts and permits unexpectedly rebounded in February, according to data on Tuesday that provided a rare dose of good news for the recession-hit economy and fractured housing market.
The commerce department said housing starts jumped 22.2% to a seasonally adjusted annual rate of 583,000 units from 477,000 units in January. That was the biggest percentage rise since January 1990 and also marked the first increase since last April.
"That is an encouraging sign for the US economy. It is good signal of what is to come. With the rally in equities we hopefully have seen a bottom for the economy here,'' said Matt Esteve, forex trader at Tempus Consulting in Washington.
US stocks have been on the rise over the last several days and the major indexes opened flat on Tuesday. US government bond prices trimmed gains after the data and the US dollar fell against the euro as risk aversion eased.
The data came as the Federal Reserve's policy-setting committee was due to start a scheduled two-day meeting on Tuesday, It is expected to leave the target for its benchmark overnight funds rates unchanged at zero-0.25%.
But the statement at the end of the meeting on Wednesday will be scrutinised for clues on the central bank's readiness to start buying Treasuries to boost its efforts to jump-start an economy in recession since December 2007.
New building permits, which give a sense of future home construction, rose 3% to 547,000 units, from 531,000 units in January. That also marked the first advance in permits since April last year.
Compared to the same period in 2008, housing starts were down 47.3% in February and permits declined 44.2%. Completions rose 2.3% to a rate of 785,000 from January's 767,000.
The housing market is at the center of the financial and economic meltdown and bringing some measure of stability to the sector is crucial to rescuing the economy.
Collapsing house and stock market values are a drag on consumer spending, which accounts for over a third of economic activity.
A separate report from the labour department showed US producer prices rose by less than expected in February after the pace of energy price increases slowed, but core producer prices came in a bit above forecast.
The seasonally adjusted producer price index increased by 0.1% last month versus a 0.8% gain in January.
"These two reports will be a relief for everybody and bring some optimism. But the Fed will remain cautious because one month doesn't make a trend,'' said Kurt Karl, chief US economist at Swiss Re in New York.
US housing posts surprise surge
US housing posts surprise surge
The Economic Times, March 18, 2009, Page 7
Wholesale Inflation Up 0.1%; Fed Likely To Continue To Keep Key Interest Rate At Near 0%
AP WASHINGTON
HOUSING construction posted a surprisingly large increase in February, bolstered by strength in all parts of the country except the West, which has been hardest hit by the current housing slump. The commerce department reported on Tuesday that construction of new homes and apartments jumped 22.2% in February compared with January, pushing total activity to a seasonally adjusted annual rate of 583,000 units.
Meanwhile, the labour department reported that wholesale prices edged up a slight 0.1% in February as a big drop in food costs offset a second monthly increase in energy prices.
While the surge in housing construction was far better than the continued decline economists had expected, the rebound is likely to be viewed as a temporary gain given all the problems the housing industry still faces.
Even with the big increase, construction activity remains 47.3% below where it was a year ago. The strength in February was led by a big increase in apartment construction, which can be highly volatile from month to month.
The 0.1% increase in wholesale inflation was much lower than the 0.8% surge in January and smaller than the 0.4% increase economists had expected. Compared with a year ago, wholesale prices are actually down 1.3%. Core inflation, which excludes energy and food, edged up 0.2% in February, only slightly higher than the 0.1% gain economists had expected. Core prices had risen 0.4% in January.
Only last summer, officials at the Federal Reserve had started to worry that a surge in energy costs could spread to other areas of the economy and boost inflation to unacceptable levels. But after the financial crisis struck in the fall, the Fed switched signals and is now aggressively fighting a deepening recession with no real threat of inflation.
The Economic Times, March 18, 2009, Page 7
Wholesale Inflation Up 0.1%; Fed Likely To Continue To Keep Key Interest Rate At Near 0%
AP WASHINGTON
HOUSING construction posted a surprisingly large increase in February, bolstered by strength in all parts of the country except the West, which has been hardest hit by the current housing slump. The commerce department reported on Tuesday that construction of new homes and apartments jumped 22.2% in February compared with January, pushing total activity to a seasonally adjusted annual rate of 583,000 units.
Meanwhile, the labour department reported that wholesale prices edged up a slight 0.1% in February as a big drop in food costs offset a second monthly increase in energy prices.
While the surge in housing construction was far better than the continued decline economists had expected, the rebound is likely to be viewed as a temporary gain given all the problems the housing industry still faces.
Even with the big increase, construction activity remains 47.3% below where it was a year ago. The strength in February was led by a big increase in apartment construction, which can be highly volatile from month to month.
The 0.1% increase in wholesale inflation was much lower than the 0.8% surge in January and smaller than the 0.4% increase economists had expected. Compared with a year ago, wholesale prices are actually down 1.3%. Core inflation, which excludes energy and food, edged up 0.2% in February, only slightly higher than the 0.1% gain economists had expected. Core prices had risen 0.4% in January.
Only last summer, officials at the Federal Reserve had started to worry that a surge in energy costs could spread to other areas of the economy and boost inflation to unacceptable levels. But after the financial crisis struck in the fall, the Fed switched signals and is now aggressively fighting a deepening recession with no real threat of inflation.
Unusual build-up in Akruti City stock leaves market guessing
Unusual build-up in Akruti City stock leaves market guessing
The Economic Times, March 18, 2009, Page 17
Mumbai-Based Realty Co Hits 52-Week High; Overtakes Unitech, Indiabulls Real Estate
Rajesh Unnikrishnan & Supriya Verma Mishra, MUMBAI
MUMBAI-BASED real estate firm Akruti City on Tuesday overtook Unitech and Indiabulls Real Estate to become the second-most valuable property firm in terms of market capitalisation. But the spectacular rise in Akruti’s share price over the past few months has raised quite a few eyebrows. The stock has been consistently outperforming the real estate sector as well as major equity indices during a period marked by sliding real estate prices and a slowing economy.
On Tuesday, the stock surged 12.3% to close at Rs 1,577.80, after touching a 52-week high of Rs 1,610 intra-day. The stock has risen 56% over the past one month alone, compared with a less than 2% rise on the BSE Real estate index, and a 2% fall in the BSE Sensex. Brokers are unsure if the run-up in Akruti’s stock price has to do with the company’s fundamentals, or the low non-promoter holding.
On Tuesday, nearly 70-lakh shares were traded on both exchanges combined, which is slightly more than the non-promoter holding in the stock. And despite such heavy volumes, less than 4% of the trades resulted in delivery. Of the company’s equity base of 6.67 crore shares, promoters own 90%, around 6% is held by corporate bodies, and the rest by the public.
As far as earnings go, the company has reported an earnings per share of Rs 58 for the first nine months of the current financial year, surpassing the EPS of Rs 44.87 for the whole of last year. But the company’s net profit for the third quarter (October-December) fell sharply, weighed down by heavy interest costs. Construction activity has seen a significant slowdown over the past 6-8 months, and many projects have stalled due to lack of funds. Most of Akruti’s projects are in Mumbai, where the fall in prices has been gradual compared to other parts of the country. Yet, it seems unlikely that Akruti would have been immune to the problems in the sector. Industry watchers say the sector in general is likely to fare poorly in the current quarter too, after a dismal performance in the preceding quarter.
“Many companies had booked revenues in their residential properties in advance, expecting timely completion of the projects and good demand,” says an industry person. “A lot of those revenues could be unwound in this quarter,” he adds. Also, brokers point out that the stock is not exactly cheap. On a trailing basis, Akruti is trading at a price to book value(P/BV) of over 13 times. In comparison, market leader DLF is trading at a P/BV of little over 2 times, while Indiabulls Real estate is quoting at a P/BV of less than 1. IL&FS Reality Fund has picked up 15% stake in Infrastructure Ventures India, an SPV floated by Akruti City, for Rs 200 crore. Akruti’s land bank for residential projects (6 million sq ft) in Mumbai has been primarily acquired through the slum rehabilitation route
On Wednesday, Fed officials are expected to signal that they will continue to keep a key interest rate at a record low near 0% for as long as necessary and use other unorthodox means to jump-start the economy.
The Fed has the leeway to focus on the weak economy because inflation pressures are expected to remain low in the face of widespread layoffs that are depressing wage demands.
The Economic Times, March 18, 2009, Page 17
Mumbai-Based Realty Co Hits 52-Week High; Overtakes Unitech, Indiabulls Real Estate
Rajesh Unnikrishnan & Supriya Verma Mishra, MUMBAI
MUMBAI-BASED real estate firm Akruti City on Tuesday overtook Unitech and Indiabulls Real Estate to become the second-most valuable property firm in terms of market capitalisation. But the spectacular rise in Akruti’s share price over the past few months has raised quite a few eyebrows. The stock has been consistently outperforming the real estate sector as well as major equity indices during a period marked by sliding real estate prices and a slowing economy.
On Tuesday, the stock surged 12.3% to close at Rs 1,577.80, after touching a 52-week high of Rs 1,610 intra-day. The stock has risen 56% over the past one month alone, compared with a less than 2% rise on the BSE Real estate index, and a 2% fall in the BSE Sensex. Brokers are unsure if the run-up in Akruti’s stock price has to do with the company’s fundamentals, or the low non-promoter holding.
On Tuesday, nearly 70-lakh shares were traded on both exchanges combined, which is slightly more than the non-promoter holding in the stock. And despite such heavy volumes, less than 4% of the trades resulted in delivery. Of the company’s equity base of 6.67 crore shares, promoters own 90%, around 6% is held by corporate bodies, and the rest by the public.
As far as earnings go, the company has reported an earnings per share of Rs 58 for the first nine months of the current financial year, surpassing the EPS of Rs 44.87 for the whole of last year. But the company’s net profit for the third quarter (October-December) fell sharply, weighed down by heavy interest costs. Construction activity has seen a significant slowdown over the past 6-8 months, and many projects have stalled due to lack of funds. Most of Akruti’s projects are in Mumbai, where the fall in prices has been gradual compared to other parts of the country. Yet, it seems unlikely that Akruti would have been immune to the problems in the sector. Industry watchers say the sector in general is likely to fare poorly in the current quarter too, after a dismal performance in the preceding quarter.
“Many companies had booked revenues in their residential properties in advance, expecting timely completion of the projects and good demand,” says an industry person. “A lot of those revenues could be unwound in this quarter,” he adds. Also, brokers point out that the stock is not exactly cheap. On a trailing basis, Akruti is trading at a price to book value(P/BV) of over 13 times. In comparison, market leader DLF is trading at a P/BV of little over 2 times, while Indiabulls Real estate is quoting at a P/BV of less than 1. IL&FS Reality Fund has picked up 15% stake in Infrastructure Ventures India, an SPV floated by Akruti City, for Rs 200 crore. Akruti’s land bank for residential projects (6 million sq ft) in Mumbai has been primarily acquired through the slum rehabilitation route
On Wednesday, Fed officials are expected to signal that they will continue to keep a key interest rate at a record low near 0% for as long as necessary and use other unorthodox means to jump-start the economy.
The Fed has the leeway to focus on the weak economy because inflation pressures are expected to remain low in the face of widespread layoffs that are depressing wage demands.
Recession could end in 2009: Bernanke
Recession could end in 2009: Bernanke
The Economic Times, March 17, 2009, Page 6
AP WASHINGTON
AMERICA'S recession "probably" will end this year if the government succeeds in bolstering the banking system, Federal Reserve chairman Ben Bernanke said on Sunday in a rare television interview. In carefully hedged remarks in a taped interview with CBS' "60 Minutes," Bernanke seemed to express a bit more optimism that this could be done.
Still, Bernanke stressed — as he did to Congress last month — that the prospects for the recession ending this year and a recovery taking root next year hinge on a difficult task: getting banks to lend more freely again and getting the financial markets to work more normally.
"We've seen some progress in the financial markets, absolutely," Bernanke said. "But until we get that stabilised and working normally, we're not going to see recovery. But we do have a plan. We're working on it. And, I do think that we will get it stabilised, and we'll see the recession coming to an end probably this year."
Even if the recession, which began in December 2007, ends this year, the unemployment rate will keep climbing past the current quarter-century high of 8.1%, Bernanke said. A growing number of economists think the jobless rate will hit 10% by the end of this year. Asked about the biggest potential dangers now, Bernanke suggested a lack of "political will" to solve the financial crisis. He said, though, that the US has averted the risk of plunging into a depression. "I think we've gotten past that," he said.
It's rare for a sitting Fed chief to grant an interview, whether for broadcast or print. Bernanke said he chose to do so because it's an "extraordinary time" for the country, and it gave him a chance to speak directly to the American public.
Bernanke spoke at a time of rising public anger over financial bailouts using taxpayer money. Battling the worst financial crisis since the 1930s, the government has put hundreds of billions of those dollars at risk to prop up troubled institutions and stabilise the banking system.
Democrats and Republicans on Capitol Hill have questioned the effectiveness of the rescue efforts and have demanded more information about how taxpayers' money is being used.
Bernanke's TV interview seemed to be part of a government public relations offensive. Treasury secretary Timothy Geithner appeared on PBS' "The Charlie Rose Show" last week, discussing the financial crisis and the Obama's administration's relief efforts.
Looking back, Bernanke said the world came close to a financial meltdown. Asked how close, Bernanke responded: "It was very close." Bernanke admitted that the Fed could have done a better job of overseeing banks. Critics say lax regulatory oversight contributed to the crisis. Bernanke said he believes all the big banks the Fed regulates are solvent. Big banks won't fail under his watch, Bernanke said — though, if necessary, the government should try to "wind it down in a safe way".
The Economic Times, March 17, 2009, Page 6
AP WASHINGTON
AMERICA'S recession "probably" will end this year if the government succeeds in bolstering the banking system, Federal Reserve chairman Ben Bernanke said on Sunday in a rare television interview. In carefully hedged remarks in a taped interview with CBS' "60 Minutes," Bernanke seemed to express a bit more optimism that this could be done.
Still, Bernanke stressed — as he did to Congress last month — that the prospects for the recession ending this year and a recovery taking root next year hinge on a difficult task: getting banks to lend more freely again and getting the financial markets to work more normally.
"We've seen some progress in the financial markets, absolutely," Bernanke said. "But until we get that stabilised and working normally, we're not going to see recovery. But we do have a plan. We're working on it. And, I do think that we will get it stabilised, and we'll see the recession coming to an end probably this year."
Even if the recession, which began in December 2007, ends this year, the unemployment rate will keep climbing past the current quarter-century high of 8.1%, Bernanke said. A growing number of economists think the jobless rate will hit 10% by the end of this year. Asked about the biggest potential dangers now, Bernanke suggested a lack of "political will" to solve the financial crisis. He said, though, that the US has averted the risk of plunging into a depression. "I think we've gotten past that," he said.
It's rare for a sitting Fed chief to grant an interview, whether for broadcast or print. Bernanke said he chose to do so because it's an "extraordinary time" for the country, and it gave him a chance to speak directly to the American public.
Bernanke spoke at a time of rising public anger over financial bailouts using taxpayer money. Battling the worst financial crisis since the 1930s, the government has put hundreds of billions of those dollars at risk to prop up troubled institutions and stabilise the banking system.
Democrats and Republicans on Capitol Hill have questioned the effectiveness of the rescue efforts and have demanded more information about how taxpayers' money is being used.
Bernanke's TV interview seemed to be part of a government public relations offensive. Treasury secretary Timothy Geithner appeared on PBS' "The Charlie Rose Show" last week, discussing the financial crisis and the Obama's administration's relief efforts.
Looking back, Bernanke said the world came close to a financial meltdown. Asked how close, Bernanke responded: "It was very close." Bernanke admitted that the Fed could have done a better job of overseeing banks. Critics say lax regulatory oversight contributed to the crisis. Bernanke said he believes all the big banks the Fed regulates are solvent. Big banks won't fail under his watch, Bernanke said — though, if necessary, the government should try to "wind it down in a safe way".
Realtors open discount window
Realtors open discount window
The Economic Times, March 17, 2009, Page 5
Unitech, DLF, HDIL, BPTP Offer 30-40% Price Cut On New Residential Projects To Stimulate Demand
Ravi Teja Sharma NEW DELHI
REAL estate developers have found a new way of activating the market. Developers such as Unitech, DLF, HDIL, BPTP and others have launched residential projects in the last couple of months at 30-40% discount to ongoing projects. Analysts believe this will stimulate demand and add muchneeded liquidity to the industry grappling with the problem of not being able to sell off projects launched a year back. “The market might not be bouncing back as yet but because of these launches, the movement has started surely. This is giving confidence to buyers,” says real estate consulting firm CB Richard Ellis CMD Anshuman Magazine.
DLF has launched two projects, in Hyderabad and Bangalore, in the last 3 months totalling close to 4,000 units. Executive director Rajeev Talwar informed that of these, about 500 units have already been sold in the price range of Rs 1,850-1,890 per sq ft. “These prices are lower than prices in 1998,” says Mr Talwar. DLF is expecting sales to improve in the near future. Developers are launching completely new projects. “They have realised that they cannot sit on idle land and need to launch at current market prices,” says Mr Magazine. “The good news is that the response has been fairly good considering the current market conditions,” he adds. Unitech too has launched a few projects in the last 2 months—at Gurgaon and at Dadar in Mumbai. Unitech’s Uniworld Garden II in Sector 47, Gurgaon has been launched at Rs 3,250 per sq ft. “What this launch has done is that it has brought down the ticket size 40-50% in this area,” says Unitech head (corporate planning) R Nagaraju. Mr Nagaraju claims that all the 150 units launched in the first phase in Gurgaon were sold out in 12 days. Indiabulls has launched Centrum Park at Sector 103, Gurgaon recently at a price of Rs 1,950 per sq ft. This is almost 40% lower than prices in the area last year. Sobha Developers, which was planning a project in the same area at a price range of Rs 3,500-4,000 per sq ft, has deferred its plans.
Edelweiss Capital real estate analyst Aashiesh Agarwaal feels it is important for developers to maintain a presence in the market they chose to operate in. “It will help them monetise their land assets which are lying idle at the moment,” he says.
What is reassuring is that a lot of people are back window shopping, says Cushman and Wakefield India executive director (residential) Aditi Vijayakar. But transactions are still slow and people are taking a lot longer to decide. Buyers are uncertain about the delivery capabilities of developers, as the market has seen a number of projects getting delayed recently. Mr Agarwaal though sees this has a release of pentup demand at the price points being offered by developers today. “Marginal buyers have converted at this price point but we don’t see it sustaining. This is a temporary rise in demand,” he says. A robust employment outlook and positive debt repayment capacity will dictate demand outlook going forward, he says. But this is probably the best time to go shopping. “Developers are looking for genuine customers and not punters. There are more projects available and developers are willing to listen to you and hopefully negotiate too,” says Miss Vijaykar.
The Economic Times, March 17, 2009, Page 5
Unitech, DLF, HDIL, BPTP Offer 30-40% Price Cut On New Residential Projects To Stimulate Demand
Ravi Teja Sharma NEW DELHI
REAL estate developers have found a new way of activating the market. Developers such as Unitech, DLF, HDIL, BPTP and others have launched residential projects in the last couple of months at 30-40% discount to ongoing projects. Analysts believe this will stimulate demand and add muchneeded liquidity to the industry grappling with the problem of not being able to sell off projects launched a year back. “The market might not be bouncing back as yet but because of these launches, the movement has started surely. This is giving confidence to buyers,” says real estate consulting firm CB Richard Ellis CMD Anshuman Magazine.
DLF has launched two projects, in Hyderabad and Bangalore, in the last 3 months totalling close to 4,000 units. Executive director Rajeev Talwar informed that of these, about 500 units have already been sold in the price range of Rs 1,850-1,890 per sq ft. “These prices are lower than prices in 1998,” says Mr Talwar. DLF is expecting sales to improve in the near future. Developers are launching completely new projects. “They have realised that they cannot sit on idle land and need to launch at current market prices,” says Mr Magazine. “The good news is that the response has been fairly good considering the current market conditions,” he adds. Unitech too has launched a few projects in the last 2 months—at Gurgaon and at Dadar in Mumbai. Unitech’s Uniworld Garden II in Sector 47, Gurgaon has been launched at Rs 3,250 per sq ft. “What this launch has done is that it has brought down the ticket size 40-50% in this area,” says Unitech head (corporate planning) R Nagaraju. Mr Nagaraju claims that all the 150 units launched in the first phase in Gurgaon were sold out in 12 days. Indiabulls has launched Centrum Park at Sector 103, Gurgaon recently at a price of Rs 1,950 per sq ft. This is almost 40% lower than prices in the area last year. Sobha Developers, which was planning a project in the same area at a price range of Rs 3,500-4,000 per sq ft, has deferred its plans.
Edelweiss Capital real estate analyst Aashiesh Agarwaal feels it is important for developers to maintain a presence in the market they chose to operate in. “It will help them monetise their land assets which are lying idle at the moment,” he says.
What is reassuring is that a lot of people are back window shopping, says Cushman and Wakefield India executive director (residential) Aditi Vijayakar. But transactions are still slow and people are taking a lot longer to decide. Buyers are uncertain about the delivery capabilities of developers, as the market has seen a number of projects getting delayed recently. Mr Agarwaal though sees this has a release of pentup demand at the price points being offered by developers today. “Marginal buyers have converted at this price point but we don’t see it sustaining. This is a temporary rise in demand,” he says. A robust employment outlook and positive debt repayment capacity will dictate demand outlook going forward, he says. But this is probably the best time to go shopping. “Developers are looking for genuine customers and not punters. There are more projects available and developers are willing to listen to you and hopefully negotiate too,” says Miss Vijaykar.
India likely to see fall in office rentals: Report
India likely to see fall in office rentals: Report
The Economic Times, March 17, 2009, Page 6
NEW DELHI: India is facing a situation of major real estate oversupply and is likely to witness “significant falls” in rentals this year, a report has said. According to Jones Lang LaSalle’s (JLLS) March Global Market Perspective, stock of commercial property in major cities, such as Delhi and Mumbai, are forecast to expand by 50% in 2009. “Tier I cities in emerging markets of China and India are facing a situation of major oversupply and also are likely to witness significant falls in rentals this year as vacancy levels climb,” the report said. However, sentiments for the hotel sector are improving for Asian market as a whole, it said. As for markets like Singapore, Tokyo and Hong Kong, which were heavily exposed to international financial services, landlords are drastically reducing rentals in an attempt to maintain occupancy levels.
The Economic Times, March 17, 2009, Page 6
NEW DELHI: India is facing a situation of major real estate oversupply and is likely to witness “significant falls” in rentals this year, a report has said. According to Jones Lang LaSalle’s (JLLS) March Global Market Perspective, stock of commercial property in major cities, such as Delhi and Mumbai, are forecast to expand by 50% in 2009. “Tier I cities in emerging markets of China and India are facing a situation of major oversupply and also are likely to witness significant falls in rentals this year as vacancy levels climb,” the report said. However, sentiments for the hotel sector are improving for Asian market as a whole, it said. As for markets like Singapore, Tokyo and Hong Kong, which were heavily exposed to international financial services, landlords are drastically reducing rentals in an attempt to maintain occupancy levels.
Retail rentals to dip further, correction of 25% likely
Retail rentals to dip further, correction of 25% likely
The Financial Express, March 17, 2009, Page 3
Kakoly Chatterjee
New DelhiOffice and retail rentals are likely to see a further dip in the coming months. Of the two, retail is going to be worse hit. Even after a 10%-15% correction till December, the latest retail launches are set to experience a further correction of 25%.
In order to cope with the current crisis many of the retailers are innovating their business model. Some are getting into a revenue sharing model with the mall owners. Here retailers share a percentage of their profits with mall owners depending on the agreement they have with each other and have to pay lesser rentals as a result.
Some retailers are also going for the shop-in-shop format where the retailers are lending out some of their space to other retailers. Delhi-based retailer, Vishal Megamart has lent out part of its space to laundry retail chain White Tiger and retailer Shopper’s Stop has given out space to Crossword stores even though the last two belong to the same entity-namely the Raheja group.
Most big developers are going for revenue sharing model. But for retailers they are not going for a universal agreement with the mall owners. It is mostly on one to one basis and depending on the location. While this model was prevalent in 20% cases before, this trend is increasingly gaining more popularity in the current scenario.
According to a Religare report the lease rental to gross profit for the period 2007-2008 for Pantaloons was 21%, Vishal Megamart 15%, Provogue 11% and Shopper’s Stop 25%. Analysts believe that these numbers are very high because of unusually high property rates. The international standard for lease rental to gross profit is around 6%. Experts believe, with the price correction across all segments of real estate this ratio is likely to come down to around 10% this year.
Some retailers who had open contracts are renegotiating their deal. Vishal Megamart has been able to get a discount of 15% for most of its rented spaces.
Commercial rentals have also dropped across all sectors. Sanjay Dutt, CEO (business) Jones Lang LaSalle Meghraj said, “A huge future supply and softening demand will push vacancy up across cities in 2009. Pan-India grade A office vacancies will rise from 5% in 2007 to 17% in 2009”. Residential catchments dependent on office worker-based occupancy will see a corresponding dip.
With considerable commercial supply coming in over the next 12 months it is likely to increase competition. Residential will see a corresponding reduction in demand from office-based residential occupants. There will be a slowdown in additional demand for IT/ITES spaces, so previously projected growth will be compromised.
As a result commercial rentals will continue to decline for another 15-18 months, after which they will reach equilibrium point and begin to pick up from there.
The Financial Express, March 17, 2009, Page 3
Kakoly Chatterjee
New DelhiOffice and retail rentals are likely to see a further dip in the coming months. Of the two, retail is going to be worse hit. Even after a 10%-15% correction till December, the latest retail launches are set to experience a further correction of 25%.
In order to cope with the current crisis many of the retailers are innovating their business model. Some are getting into a revenue sharing model with the mall owners. Here retailers share a percentage of their profits with mall owners depending on the agreement they have with each other and have to pay lesser rentals as a result.
Some retailers are also going for the shop-in-shop format where the retailers are lending out some of their space to other retailers. Delhi-based retailer, Vishal Megamart has lent out part of its space to laundry retail chain White Tiger and retailer Shopper’s Stop has given out space to Crossword stores even though the last two belong to the same entity-namely the Raheja group.
Most big developers are going for revenue sharing model. But for retailers they are not going for a universal agreement with the mall owners. It is mostly on one to one basis and depending on the location. While this model was prevalent in 20% cases before, this trend is increasingly gaining more popularity in the current scenario.
According to a Religare report the lease rental to gross profit for the period 2007-2008 for Pantaloons was 21%, Vishal Megamart 15%, Provogue 11% and Shopper’s Stop 25%. Analysts believe that these numbers are very high because of unusually high property rates. The international standard for lease rental to gross profit is around 6%. Experts believe, with the price correction across all segments of real estate this ratio is likely to come down to around 10% this year.
Some retailers who had open contracts are renegotiating their deal. Vishal Megamart has been able to get a discount of 15% for most of its rented spaces.
Commercial rentals have also dropped across all sectors. Sanjay Dutt, CEO (business) Jones Lang LaSalle Meghraj said, “A huge future supply and softening demand will push vacancy up across cities in 2009. Pan-India grade A office vacancies will rise from 5% in 2007 to 17% in 2009”. Residential catchments dependent on office worker-based occupancy will see a corresponding dip.
With considerable commercial supply coming in over the next 12 months it is likely to increase competition. Residential will see a corresponding reduction in demand from office-based residential occupants. There will be a slowdown in additional demand for IT/ITES spaces, so previously projected growth will be compromised.
As a result commercial rentals will continue to decline for another 15-18 months, after which they will reach equilibrium point and begin to pick up from there.
Builders chant ‘timely completion’ mantra to woo buyers
Builders chant ‘timely completion’ mantra to woo buyers
The Hindu Business Line, March 17, 2009, Page 1
Moumita Bakshi Chatterjee
New Delhi, March 16 When it comes to selling residential projects in a downturn, the promise of ‘timely completion of project’ has become as good a bait, as any other — affordability, complementary club membership or swimming pools.
With the slowdown in sales and cash crunch delaying real estate projects, some builders have started pitching ‘on time completion’ as their Unique Selling Proposition — a commitment that until recently was taken for granted.
According to Mr Sanjay Verma, Executive Managing Director (South Asia), Cushman & Wakefield, this new positioning is a response to restore consumer confidence. “The biggest fear of a real estate buyer today is protection of his capital invested into a project, and its completion,” he says.
A case in point is the recent marketing campaign unleashed by Crossings Republik which declares that despite the “tough times” and “slump in global economy”, its project has been running on schedule. Another ad campaign, by Purvanchal Construction Works, talks of a commitment to “completion and possession on time”.
Industry experts feel that when the market was ‘euphoric’, completing projects on time was a given. Now with funds drying up and projects getting stalled, real estate buyers are already feeling the heat — for some possession has been delayed by over one year. Builders are now hoping to differentiate themselves from the rest, by meeting project deadlines.
“In the case of Crossings Republik, we felt that some people had raised doubts on whether the project timelines could be maintained in the current market scenario. We wanted to reassure them that the first phase of 2,000 apartments is on track and would be delivered this year,” explains Mr Sanjeev Srivastva, Managing Director of ASSOTECH, a real estate company which has a project in the mega township of Crossings Republik.
Mr Pankaj Bajaj, Managing Director of Eldeco Group, says, “The past bull run in the property market had seen entry of many non-serious players, but the market has now realised that fly-by-night operators are unlikely to deliver. At the same time, the serious players are making a conscious attempt to differentiate themselves from others. They are reiterating their commitment to adhere to time lines.”
The Hindu Business Line, March 17, 2009, Page 1
Moumita Bakshi Chatterjee
New Delhi, March 16 When it comes to selling residential projects in a downturn, the promise of ‘timely completion of project’ has become as good a bait, as any other — affordability, complementary club membership or swimming pools.
With the slowdown in sales and cash crunch delaying real estate projects, some builders have started pitching ‘on time completion’ as their Unique Selling Proposition — a commitment that until recently was taken for granted.
According to Mr Sanjay Verma, Executive Managing Director (South Asia), Cushman & Wakefield, this new positioning is a response to restore consumer confidence. “The biggest fear of a real estate buyer today is protection of his capital invested into a project, and its completion,” he says.
A case in point is the recent marketing campaign unleashed by Crossings Republik which declares that despite the “tough times” and “slump in global economy”, its project has been running on schedule. Another ad campaign, by Purvanchal Construction Works, talks of a commitment to “completion and possession on time”.
Industry experts feel that when the market was ‘euphoric’, completing projects on time was a given. Now with funds drying up and projects getting stalled, real estate buyers are already feeling the heat — for some possession has been delayed by over one year. Builders are now hoping to differentiate themselves from the rest, by meeting project deadlines.
“In the case of Crossings Republik, we felt that some people had raised doubts on whether the project timelines could be maintained in the current market scenario. We wanted to reassure them that the first phase of 2,000 apartments is on track and would be delivered this year,” explains Mr Sanjeev Srivastva, Managing Director of ASSOTECH, a real estate company which has a project in the mega township of Crossings Republik.
Mr Pankaj Bajaj, Managing Director of Eldeco Group, says, “The past bull run in the property market had seen entry of many non-serious players, but the market has now realised that fly-by-night operators are unlikely to deliver. At the same time, the serious players are making a conscious attempt to differentiate themselves from others. They are reiterating their commitment to adhere to time lines.”
FDI in January up 59%
FDI in January up 59%
The Hindu Business Line, March 17, 2009, Page 5
Press Trust of India / New Delhi
At a time when the world economy is facing the worst credit freeze in several decades, India attracted $2.7-billion foreign direct investment (FDI) in January, up 58.8 per cent from a year ago, and remained a favourite destination for cross-border investments.
"January numbers are very good... It is an indication of the confidence that the rest of the world has in India," Secretary in the Department of Industrial Policy and Promotion Ajay Shankar told PTI.
The FDI inflows for the April-January period aggregated to $23.8 billion and is expected to cross the last year's target of $25 billion this fiscal.
Though the government had set a target of $35-billion FDI for 2008-09, it looked rather ambitious in the wake of the global downturn.
Up to September this fiscal, the monthly inflows were in excess of $2 billion. However, the following three months saw a sharp dip in the overseas investments.
The January figures bring a renewed hope that India is back on the radar of global investors.
The Hindu Business Line, March 17, 2009, Page 5
Press Trust of India / New Delhi
At a time when the world economy is facing the worst credit freeze in several decades, India attracted $2.7-billion foreign direct investment (FDI) in January, up 58.8 per cent from a year ago, and remained a favourite destination for cross-border investments.
"January numbers are very good... It is an indication of the confidence that the rest of the world has in India," Secretary in the Department of Industrial Policy and Promotion Ajay Shankar told PTI.
The FDI inflows for the April-January period aggregated to $23.8 billion and is expected to cross the last year's target of $25 billion this fiscal.
Though the government had set a target of $35-billion FDI for 2008-09, it looked rather ambitious in the wake of the global downturn.
Up to September this fiscal, the monthly inflows were in excess of $2 billion. However, the following three months saw a sharp dip in the overseas investments.
The January figures bring a renewed hope that India is back on the radar of global investors.
LIC Housing Fin cuts lending rates by 75 bps
LIC Housing Fin cuts lending rates by 75 bps
The Hindu Business Line, March 17, 2009, Page 6
Our Bureau
Mumbai, March 16 LIC Housing Finance has reduced lending rates by 75 basis points for its existing borrowers. The company’s existing borrowers will now get loans at 10-10.5 per cent, depending on the profile of the customers and the housing project, said Mr R.R. Nair, Director and Chief Executive, LIC Housing Finance.
Before the reduction, the rates were in the range of 10.75-11.25 per cent. “As our cost of funds has come down, we are passing the benefit to our borrowers. Our incremental cost of funds is in the range of 8.25-8.75 per cent”, Mr Nair said. For new home loan borrowers, LIC HF offers a loan of up to Rs 30 lakh at 8.75 per cent. For loans above Rs 30 lakh, the interest rate is 9.75 per cent.
The Hindu Business Line, March 17, 2009, Page 6
Our Bureau
Mumbai, March 16 LIC Housing Finance has reduced lending rates by 75 basis points for its existing borrowers. The company’s existing borrowers will now get loans at 10-10.5 per cent, depending on the profile of the customers and the housing project, said Mr R.R. Nair, Director and Chief Executive, LIC Housing Finance.
Before the reduction, the rates were in the range of 10.75-11.25 per cent. “As our cost of funds has come down, we are passing the benefit to our borrowers. Our incremental cost of funds is in the range of 8.25-8.75 per cent”, Mr Nair said. For new home loan borrowers, LIC HF offers a loan of up to Rs 30 lakh at 8.75 per cent. For loans above Rs 30 lakh, the interest rate is 9.75 per cent.
GDP growth to stabilize at 7%
GDP growth to stabilize at 7%
The Financial Express, March 17, 2009, Money & Funds, P II.
Agencies, Mumbai
India's real GDP is projected to grow by seven per cent in FY 10, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review in Mumbai.
CMIE expects the growth rate to climb slowly from around six per cent in the first-half to about eight per cent in the second-half of FY 10.
The real GDP would be close to the 7.1 per cent growth, that is likely to be achieved in FY 09. The global liquidity crisis in late September 2008 has suddenly brought the economys story of nine per cent growth to a grinding halt. FY 10 would gradually recover from this jolt.
Signs of recovery are already evident in the little data that is available for January 2009. While the global economy seems to be getting into a deep crisis, the domestic Indian economy is likely to see a smarter and quicker recovery in FY 10, it said.
The agricultural sector has traditionally been the principal source of volatility in the overall growth of the Indian economy. A decline in GDP growth is usually the result of a fall in agricultural production.
In the last ten-year period ending 2005, the agricultural sector recorded a fall in output in every alternate year.
CMIE pointed out that this seriously debilitating trend seems to have been reversed. The agriculture sector has registered positive growth for four consecutive years--from FY 06 to FY 09.
CMIE expects it to register a positive growth rate again for the fifth consecutive year, in FY 10.
We expect the growth rate to slow down to 2.4 per cent. Nevertheless, a fifth consecutive year of positive growth in agriculture would contribute directly to the growth in FY 10 and would have a positive impact on domestic demand, CMIE report said.
The agriculture sector registered a 2.2 per cent fall in output in the third quarter of FY 09. This decline was not expected, although it comes after a 2.4 per cent fall in kharif sowing and, it comes over a high base since the corresponding quarter a year ago had seen a growth of 6.9 per cent.
We believe that at least a part of the fall may get corrected with revisions in agriculture production data. This is likely to happen in the case of cotton and to a small extent in the case of rice.
The fall of October-December 2008 does not dilute the new confidence in agriculture because production is increasingly shifting in favour of the Rabi season. And, while Kharif sowing was down by 2.4 per cent, Rabi sowing is up by 3.1 per cent.
The Financial Express, March 17, 2009, Money & Funds, P II.
Agencies, Mumbai
India's real GDP is projected to grow by seven per cent in FY 10, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review in Mumbai.
CMIE expects the growth rate to climb slowly from around six per cent in the first-half to about eight per cent in the second-half of FY 10.
The real GDP would be close to the 7.1 per cent growth, that is likely to be achieved in FY 09. The global liquidity crisis in late September 2008 has suddenly brought the economys story of nine per cent growth to a grinding halt. FY 10 would gradually recover from this jolt.
Signs of recovery are already evident in the little data that is available for January 2009. While the global economy seems to be getting into a deep crisis, the domestic Indian economy is likely to see a smarter and quicker recovery in FY 10, it said.
The agricultural sector has traditionally been the principal source of volatility in the overall growth of the Indian economy. A decline in GDP growth is usually the result of a fall in agricultural production.
In the last ten-year period ending 2005, the agricultural sector recorded a fall in output in every alternate year.
CMIE pointed out that this seriously debilitating trend seems to have been reversed. The agriculture sector has registered positive growth for four consecutive years--from FY 06 to FY 09.
CMIE expects it to register a positive growth rate again for the fifth consecutive year, in FY 10.
We expect the growth rate to slow down to 2.4 per cent. Nevertheless, a fifth consecutive year of positive growth in agriculture would contribute directly to the growth in FY 10 and would have a positive impact on domestic demand, CMIE report said.
The agriculture sector registered a 2.2 per cent fall in output in the third quarter of FY 09. This decline was not expected, although it comes after a 2.4 per cent fall in kharif sowing and, it comes over a high base since the corresponding quarter a year ago had seen a growth of 6.9 per cent.
We believe that at least a part of the fall may get corrected with revisions in agriculture production data. This is likely to happen in the case of cotton and to a small extent in the case of rice.
The fall of October-December 2008 does not dilute the new confidence in agriculture because production is increasingly shifting in favour of the Rabi season. And, while Kharif sowing was down by 2.4 per cent, Rabi sowing is up by 3.1 per cent.
FIIs return to market, push Sensex up 412 pts
FIIs return to market, push Sensex up 412 pts
Business Standard, March 14, 2009, Page 1
BS Reporter / Mumbai
The benchmark Sensex registered its highest gain in the current calendar year, up 412.86 points, on the back of all-round buying triggered by stronger global cues, despite sustained capital outflows.
The Bombay Stock Exchange (BSE) 30-share index opened firm and remained in positive terrain throughout the session to settle the day at 8,756.61, a rise of 4.95 per cent over the previous close.
Before this, the Sensex had risen by 492.28 points, or 5.37 per cent, on December 10, 2008. The broad-based 50-issue Nifty of the National Stock Exchange also improved further by 101.80 points, or 3.89 per cent, to 2,719.25, from its last close.
Foreign institutional investors (FIIs) turned buyers after consistent selling for over a month. On Friday, they bought shares worth Rs 299.24 crore and domestic funds pumped in Rs 392.69 crore, according to provisional figures from the stock exchange.
Friday’s rally was partly the result of positive remarks by chiefs of Bank of America, Citi and JP Morgan on their profitability, which has sparked a rally in global markets over the past few days.
Samir Arora, fund manager of Singapore-based Helios Capital, said: “Internationally, the equity markets had priced bank stocks by taking into consideration that many of them were moving towards bankruptcy. However, when top banks like Citibank and Bank of America declared that they are back in profits in the last two months, it has provided great relief to the financial sector.”
Gul Tekchandani, investment consultant, said: “Our oversold markets were waiting for a trigger, which was provided by the foreign developments.” According to him, though India has not seen bailouts and failure of institutions unlike the US, the domestic markets have suffered largely from poor sentiment.
All sectoral indices were up on Friday. The realty index was up 7.57 per cent, followed by metals (6.26), bankex (5.85) and information technology (5.63).
Market breadth was positive, with 1,583 counters registering gains and 854 ending with losses. Business volumes improved to Rs 3,230.11 crore from Rs 2,726.77 crore on Thursday. However, trading volumes were relatively low at 266.1 million shares.
ICICI Bank was the top-traded share with the highest turnover of Rs 253.55 crore, followed by Akruti (Rs 192.74 crore), RIL (Rs 180.72 crore), Educomp Sol (Rs 168.86 crore) and Bharti Airtel (Rs 122.28 crore).
Business Standard, March 14, 2009, Page 1
BS Reporter / Mumbai
The benchmark Sensex registered its highest gain in the current calendar year, up 412.86 points, on the back of all-round buying triggered by stronger global cues, despite sustained capital outflows.
The Bombay Stock Exchange (BSE) 30-share index opened firm and remained in positive terrain throughout the session to settle the day at 8,756.61, a rise of 4.95 per cent over the previous close.
Before this, the Sensex had risen by 492.28 points, or 5.37 per cent, on December 10, 2008. The broad-based 50-issue Nifty of the National Stock Exchange also improved further by 101.80 points, or 3.89 per cent, to 2,719.25, from its last close.
Foreign institutional investors (FIIs) turned buyers after consistent selling for over a month. On Friday, they bought shares worth Rs 299.24 crore and domestic funds pumped in Rs 392.69 crore, according to provisional figures from the stock exchange.
Friday’s rally was partly the result of positive remarks by chiefs of Bank of America, Citi and JP Morgan on their profitability, which has sparked a rally in global markets over the past few days.
Samir Arora, fund manager of Singapore-based Helios Capital, said: “Internationally, the equity markets had priced bank stocks by taking into consideration that many of them were moving towards bankruptcy. However, when top banks like Citibank and Bank of America declared that they are back in profits in the last two months, it has provided great relief to the financial sector.”
Gul Tekchandani, investment consultant, said: “Our oversold markets were waiting for a trigger, which was provided by the foreign developments.” According to him, though India has not seen bailouts and failure of institutions unlike the US, the domestic markets have suffered largely from poor sentiment.
All sectoral indices were up on Friday. The realty index was up 7.57 per cent, followed by metals (6.26), bankex (5.85) and information technology (5.63).
Market breadth was positive, with 1,583 counters registering gains and 854 ending with losses. Business volumes improved to Rs 3,230.11 crore from Rs 2,726.77 crore on Thursday. However, trading volumes were relatively low at 266.1 million shares.
ICICI Bank was the top-traded share with the highest turnover of Rs 253.55 crore, followed by Akruti (Rs 192.74 crore), RIL (Rs 180.72 crore), Educomp Sol (Rs 168.86 crore) and Bharti Airtel (Rs 122.28 crore).
RBI verifying solvency of 10 realty firms
RBI verifying solvency of 10 realty firms
Business Standard, March 14, 2009, Page 1
Anindita Dey / Mumbai
Internal assessment follows banks’ worries over systemic risks.
The Reserve Bank of India (RBI) is examining the books of ten real estate companies to verify their solvency and assess the systemic risks arising from possible defaults by these companies on various loans and public deposits.
Sources close to the development said the exercise followed concerns expressed by bankers over possible large-scale defaults in loans and deposits, which may have implications for the entire system.
The companies identified for assessment are DLF, Indiabulls Real Estate, Unitech, HDIL, Mahindra Lifespace, Peninsular Land, Ansal Properties, Phoenix Mills, Anantraj Industries and Akruti Citi Ltd.
The exercise is currently an internal assessment based on available information in the public domain. RBI has also sourced data on loans, cash deposits and other fixed deposits held by these companies from all banks and mutual funds. Most of these companies have also borrowed through non banking financial companies (NBFCs) that they have floated, and the central bank is verifying the books of these related NBFCs independently.
The exercise, said these sources, aims at a comprehensive analysis of the data relating to these companies for determining the correct debt-equity ratio, solvency, state of liquidity to avert defaults, cash flows and profit margin in the current operations.
After the review, the companies or their NBFC arms may be advised to check exposure in line with cash flows, and banks may also be asked to cut exposure.
Sources said these real estate companies had raised long-term loans from banks and had placed commercial paper amounting to thousand of crores to raise short-term financing from the mutual funds.
The mutual funds, in turn, got a major part of the subscription to their schemes from the banks who held public deposits. This means a default on even a single commercial paper will impact the mutual funds, the banks and ultimately public deposits.
Large-scale borrowing has distorted the normal debt equity ratio for most of the companies and made them highly leveraged. RBI is of the view that the debt is being camouflaged in cases where the ratio meets standard norms.
Business Standard, March 14, 2009, Page 1
Anindita Dey / Mumbai
Internal assessment follows banks’ worries over systemic risks.
The Reserve Bank of India (RBI) is examining the books of ten real estate companies to verify their solvency and assess the systemic risks arising from possible defaults by these companies on various loans and public deposits.
Sources close to the development said the exercise followed concerns expressed by bankers over possible large-scale defaults in loans and deposits, which may have implications for the entire system.
The companies identified for assessment are DLF, Indiabulls Real Estate, Unitech, HDIL, Mahindra Lifespace, Peninsular Land, Ansal Properties, Phoenix Mills, Anantraj Industries and Akruti Citi Ltd.
The exercise is currently an internal assessment based on available information in the public domain. RBI has also sourced data on loans, cash deposits and other fixed deposits held by these companies from all banks and mutual funds. Most of these companies have also borrowed through non banking financial companies (NBFCs) that they have floated, and the central bank is verifying the books of these related NBFCs independently.
The exercise, said these sources, aims at a comprehensive analysis of the data relating to these companies for determining the correct debt-equity ratio, solvency, state of liquidity to avert defaults, cash flows and profit margin in the current operations.
After the review, the companies or their NBFC arms may be advised to check exposure in line with cash flows, and banks may also be asked to cut exposure.
Sources said these real estate companies had raised long-term loans from banks and had placed commercial paper amounting to thousand of crores to raise short-term financing from the mutual funds.
The mutual funds, in turn, got a major part of the subscription to their schemes from the banks who held public deposits. This means a default on even a single commercial paper will impact the mutual funds, the banks and ultimately public deposits.
Large-scale borrowing has distorted the normal debt equity ratio for most of the companies and made them highly leveraged. RBI is of the view that the debt is being camouflaged in cases where the ratio meets standard norms.
Youngsters shun realty buy as job losses increase
Youngsters shun realty buy as job losses increase
The Economic Times, March 15, 2009, Page 6
IN THE ABSENCE OF EASY LOANS, YOUNGSTERS ARE IN DILEMMA WHETHER TO INVEST NOW OR NOT
Raja Awasthi & Neha Dewan NEW DELHI
GUESS what correction in the real estate market has done to the buyer's age? It has pushed up the buyers' age profile. During the boom, the average age of the buyer had dropped to as low as the mid-20s. But with sentiments not perking up, this segment too has witnessed a sharp drop in buying capacity and has pushed up the average age once again in the 35 plus age bracket.
SundayETdid a thorough ground research and spoke to developers and bankers across the country as well as industry experts who agreed that there has been a significant change in the buyer profile in the last few months.
Says Navin M Raheja, CMD, Raheja Developers: "The young executives are now actually apprehensive about their jobs and future course of actions. They are in dilemma whether to invest now or not. Earlier, everyone used to get loans easily. Executives of MNCs are facing problems getting their loans approved as banks have really become strict, selective and are financing on the strength of the projects after thorough due diligence. Even if one gets a loan, it's the repaying capacity which makes one think twice and discourage young home buyers from investing in property."
That's natural since low market sentiments, job insecurity coupled with a considerable stress on limited savings makes young customers shy away from home loans. Even people from the IT/ITeS industry who formed a major chunk of young home loan buyers earlier are now significantly affected by the turmoil in global markets. Rohtas Goel, CMD, Omaxe Group, is of the view that there is a distinct demarcation that can be seen in the buyer profile. "Mostly buyers of affordable homes belong to middle-level working class of age group 27 years to 35 years while buyers of luxurious homes belong to higher management working class or those who want to park-in their money for better returns starting from the age of 40," he says.
Many in the industry say that constant property appreciation in last three to five years and easy bank finance which went upto 85-90% was earlier attracting young buyers to invest in real estate. However, now with a reduction in property value, banks are now also expecting higher buyer committment by restricting lending to only 70-75% of the total value. This is also a major reason why young buyers are avoiding the market. Says Rajiv Sahni, Partner Infrastructure & Real Estate Practice, Ernst & Young: "These factors put a direct strain on one's financial capacity, hence there is a reduced interest from career-starters to part with their marginal savings on real estate."
Anshuman Magazine, CMD, CB Richard Ellis South Asia agrees that a lot of youngsters will now not be able to afford housing easily due to the state of the economy. A postponement of buying decisions in the short-term by this segment is thus expected. In fact the downturn in the real estate sector is visible as far as the home loan market goes. The home loan segment according to industry estimates, has witnessed a drop in offtake.
Many private sector banks across the board also confirmed that they have witnessed a considerable decrease in the number of queries from people seeking home loans in last few quarters. Says Sushil Muhnot, executive director, personal banking, IDBI, "Only people who are well-settled and who are getting a right price are coming forward for housing loans. That segment is mostly in the mid-30s bracket."
AGE FACTOR
Sharp drop in buying capacity has pushed up average age once again in 35 plus bracket
IT/ITeS employees that earlier formed a major chunk of young home buyers are now affected by turmoil in global markets
During the boom, average age of home buyer had dropped to as low as mid-20s
Stress on limited savings is making young customers shy away from home loans
The Economic Times, March 15, 2009, Page 6
IN THE ABSENCE OF EASY LOANS, YOUNGSTERS ARE IN DILEMMA WHETHER TO INVEST NOW OR NOT
Raja Awasthi & Neha Dewan NEW DELHI
GUESS what correction in the real estate market has done to the buyer's age? It has pushed up the buyers' age profile. During the boom, the average age of the buyer had dropped to as low as the mid-20s. But with sentiments not perking up, this segment too has witnessed a sharp drop in buying capacity and has pushed up the average age once again in the 35 plus age bracket.
SundayETdid a thorough ground research and spoke to developers and bankers across the country as well as industry experts who agreed that there has been a significant change in the buyer profile in the last few months.
Says Navin M Raheja, CMD, Raheja Developers: "The young executives are now actually apprehensive about their jobs and future course of actions. They are in dilemma whether to invest now or not. Earlier, everyone used to get loans easily. Executives of MNCs are facing problems getting their loans approved as banks have really become strict, selective and are financing on the strength of the projects after thorough due diligence. Even if one gets a loan, it's the repaying capacity which makes one think twice and discourage young home buyers from investing in property."
That's natural since low market sentiments, job insecurity coupled with a considerable stress on limited savings makes young customers shy away from home loans. Even people from the IT/ITeS industry who formed a major chunk of young home loan buyers earlier are now significantly affected by the turmoil in global markets. Rohtas Goel, CMD, Omaxe Group, is of the view that there is a distinct demarcation that can be seen in the buyer profile. "Mostly buyers of affordable homes belong to middle-level working class of age group 27 years to 35 years while buyers of luxurious homes belong to higher management working class or those who want to park-in their money for better returns starting from the age of 40," he says.
Many in the industry say that constant property appreciation in last three to five years and easy bank finance which went upto 85-90% was earlier attracting young buyers to invest in real estate. However, now with a reduction in property value, banks are now also expecting higher buyer committment by restricting lending to only 70-75% of the total value. This is also a major reason why young buyers are avoiding the market. Says Rajiv Sahni, Partner Infrastructure & Real Estate Practice, Ernst & Young: "These factors put a direct strain on one's financial capacity, hence there is a reduced interest from career-starters to part with their marginal savings on real estate."
Anshuman Magazine, CMD, CB Richard Ellis South Asia agrees that a lot of youngsters will now not be able to afford housing easily due to the state of the economy. A postponement of buying decisions in the short-term by this segment is thus expected. In fact the downturn in the real estate sector is visible as far as the home loan market goes. The home loan segment according to industry estimates, has witnessed a drop in offtake.
Many private sector banks across the board also confirmed that they have witnessed a considerable decrease in the number of queries from people seeking home loans in last few quarters. Says Sushil Muhnot, executive director, personal banking, IDBI, "Only people who are well-settled and who are getting a right price are coming forward for housing loans. That segment is mostly in the mid-30s bracket."
AGE FACTOR
Sharp drop in buying capacity has pushed up average age once again in 35 plus bracket
IT/ITeS employees that earlier formed a major chunk of young home buyers are now affected by turmoil in global markets
During the boom, average age of home buyer had dropped to as low as mid-20s
Stress on limited savings is making young customers shy away from home loans
Realty prices ‘will not go up for at least two years’
Realty prices ‘will not go up for at least two years’
The Hindu Business Line, March 14, 2009, Page 3
Lodha Group eyes 30% revenues from affordable home segment.
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It is important to get the value equation right. The customer is not willing to buy unless he sees value in a product. The pricing has to be spot on for buyers to walk in. — Mr Abhisheck Lodha, Director, Lodha Group
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S. Shanker
Mumbai, March 13 With a 6,000-acre land bank in Mumbai and over 27 million sq.ft across 30 ongoing projects, the Lodha Group is clearly one of the largest developers in the country.
Valued at over Rs 32,000 crore, it has 300 million sq.ft under planning, slotted for delivery over the next five years. Beyond Mumbai, it has launched a super-luxury format complex at Hyderabad, where 60 of the 500 apartments costing Rs 2.5 crore to Rs 3.5 crore have been sold. Pune is next on its radar.
Speaking to Business Line, Mr Abhisheck Lodha, Director, shares his thoughts on the slowdown and its likely fallout on real estate prices.
Prices across metros have dropped 20-25 per cent during the last 8-10 months. Do you see a further correction given the subdued mood all around?
The backdrop leading to the current flux should be explained. From 2003 to early 2008, the momentum was driven not by value-additions but more due to easy availability of money.
The global scenario has since changed and the Indian economy, despite high domestic consumption, is really not insulated from it in toto. Overleveraged builders and developers are bound to offload their holdings and this would impact the market. Tier-II cities will be at the receiving end more so in areas of large over-supply.
There is talk that prices could go up in six months as there are few launches happening. Do you agree with this view?
Honestly, I do not see prices going up at least for the next two years.
Moreover, with elections and a new Government expected at the helm, we are in a situation where no policy issue can be addressed even in case of a dire need over the next three months.
DLF has officially cut prices in Chennai and Bangalore. Will others like you follow suit?
We have to learn from this story. Overall it creates a negative impression with the existing buyers. It is important to get the value equation right. The customer is not willing to buy unless he sees value in a product. The pricing has to be spot on for buyers to walk in. We have managed to sell 1,000 units of our CASA brand of affordable- luxury homes in Thane near Mumbai between December 15 and February 2.
How will you (developers) assure people that the down payment made for a project of his/her choice (for the near future) is not diverted to ongoing ones?
This is where the reputation of the developer matters. We have not faced such issues and in any case once a Lodha project rolls out, besides our equity, the project funding is sewn up. The borrowed fund level dips as internal accruals flow in. One probable way to address the issue would be for developers to create an escrow account.
Have you cut back on projects or shelved any?
We are on track but it would be wrong to say we are not impacted. As regards Mumbai, we have shelved a commercial project in Andheri. However, we are launching a middle-income group housing project at Dahisar this week and a 60-lakh-sq.ft township at Dombivli in April. All will be completed as per schedule.
The Lodhas are known for premium housing. How well are you equipped to make the transition to the affordable segment?
It is seamless. Only the scale of operation varies as specifications such as design change. But apart from this the quality parameters remain the same. The company looks to generate 30 per cent of its revenues from the affordable segment.
How much will you focus on the affordable segment, given that its margins are far lower than the luxury formats?
The high-end homes bring in higher margins. But what is the purpose if you there is not much demand? The affordable segment too is profitable and 20-25 per cent margins can be realised in a two-year span.
Funding is an issue for all developers. How are you placed?
We have over Rs 2,000 crore bank funding in the 12-14 per cent interest bracket, apart from PE funding of about Rs 1,500 crore.
Last year, there was talk of the Lodha Group going in for an IPO.
Not in the present market conditions.
The Hindu Business Line, March 14, 2009, Page 3
Lodha Group eyes 30% revenues from affordable home segment.
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It is important to get the value equation right. The customer is not willing to buy unless he sees value in a product. The pricing has to be spot on for buyers to walk in. — Mr Abhisheck Lodha, Director, Lodha Group
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S. Shanker
Mumbai, March 13 With a 6,000-acre land bank in Mumbai and over 27 million sq.ft across 30 ongoing projects, the Lodha Group is clearly one of the largest developers in the country.
Valued at over Rs 32,000 crore, it has 300 million sq.ft under planning, slotted for delivery over the next five years. Beyond Mumbai, it has launched a super-luxury format complex at Hyderabad, where 60 of the 500 apartments costing Rs 2.5 crore to Rs 3.5 crore have been sold. Pune is next on its radar.
Speaking to Business Line, Mr Abhisheck Lodha, Director, shares his thoughts on the slowdown and its likely fallout on real estate prices.
Prices across metros have dropped 20-25 per cent during the last 8-10 months. Do you see a further correction given the subdued mood all around?
The backdrop leading to the current flux should be explained. From 2003 to early 2008, the momentum was driven not by value-additions but more due to easy availability of money.
The global scenario has since changed and the Indian economy, despite high domestic consumption, is really not insulated from it in toto. Overleveraged builders and developers are bound to offload their holdings and this would impact the market. Tier-II cities will be at the receiving end more so in areas of large over-supply.
There is talk that prices could go up in six months as there are few launches happening. Do you agree with this view?
Honestly, I do not see prices going up at least for the next two years.
Moreover, with elections and a new Government expected at the helm, we are in a situation where no policy issue can be addressed even in case of a dire need over the next three months.
DLF has officially cut prices in Chennai and Bangalore. Will others like you follow suit?
We have to learn from this story. Overall it creates a negative impression with the existing buyers. It is important to get the value equation right. The customer is not willing to buy unless he sees value in a product. The pricing has to be spot on for buyers to walk in. We have managed to sell 1,000 units of our CASA brand of affordable- luxury homes in Thane near Mumbai between December 15 and February 2.
How will you (developers) assure people that the down payment made for a project of his/her choice (for the near future) is not diverted to ongoing ones?
This is where the reputation of the developer matters. We have not faced such issues and in any case once a Lodha project rolls out, besides our equity, the project funding is sewn up. The borrowed fund level dips as internal accruals flow in. One probable way to address the issue would be for developers to create an escrow account.
Have you cut back on projects or shelved any?
We are on track but it would be wrong to say we are not impacted. As regards Mumbai, we have shelved a commercial project in Andheri. However, we are launching a middle-income group housing project at Dahisar this week and a 60-lakh-sq.ft township at Dombivli in April. All will be completed as per schedule.
The Lodhas are known for premium housing. How well are you equipped to make the transition to the affordable segment?
It is seamless. Only the scale of operation varies as specifications such as design change. But apart from this the quality parameters remain the same. The company looks to generate 30 per cent of its revenues from the affordable segment.
How much will you focus on the affordable segment, given that its margins are far lower than the luxury formats?
The high-end homes bring in higher margins. But what is the purpose if you there is not much demand? The affordable segment too is profitable and 20-25 per cent margins can be realised in a two-year span.
Funding is an issue for all developers. How are you placed?
We have over Rs 2,000 crore bank funding in the 12-14 per cent interest bracket, apart from PE funding of about Rs 1,500 crore.
Last year, there was talk of the Lodha Group going in for an IPO.
Not in the present market conditions.
DLF to seek cheaper funds for Haryana metro project
DLF to seek cheaper funds for Haryana metro project
The Hindu Business Line, March 14, 2009, Page 5
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DLF is developing a metro link from Delhi Metro Rail Corporation’s Sikanderpur station in Gurgaon to National Highway 8.
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Our Bureau
New Delhi, March 13 DLF Metro Ltd on Friday said it will approach India Infrastructure Finance Company Ltd (IIFCL) to seek lower cost funds for the Rs 742-crore project of building 6.1 km of metro rail tracks in Haryana.
A consortium of ITNL ENSO Rail Systems Ltd, a group company of IL&FS and DLF, had emerged the sole bidder for the project being implemented through public-private partnership by the Haryana Urban Development Authority (HUDA).
Under the project, DLF is developing a metro link from Delhi Metro Rail Corporation’s Sikanderpur station in Gurgaon to National Highway 8, where DLF’s Cybercity township is located.
According to Mr C.B.K. Rao, Executive Director, DLF Metro Ltd, “The Rs 742-crore project cost will have an additional financing cost of Rs 160 crore. IL&FS, which has experience in the area, will work on the financial closure.”
The project will be executed on a debt-equity ratio of 70:30. From the equity portion of Rs 225 crore, IL&FS will own 74 per cent and DLF will own 26 per cent, he said.
IIFCL has so far raised Rs 9,800 crore through bonds for various infrastructure projects, and the projects will get the funds at a rate of 10.35 per cent from the banks.
The IIFCL Managing Director, Mr S.S. Kohli, said the IIFCL has raised the amount at an interest rate of 6.85 per cent which will be given to banks at 7.85 per cent.
“We plan to complete the 6.1-km metro rail project in Gurgaon by December 2011. We are ready from our end. As soon as we get the letter of intent from the State Government, we can start construction,” Mr Rao said adding that he had spoken to IIFCL seeking a debt of about Rs 600 crore.
The company has initiated talks with metro coach manufacturers such as BEML, Bombardier, Alstom and Siemens.
The Hindu Business Line, March 14, 2009, Page 5
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DLF is developing a metro link from Delhi Metro Rail Corporation’s Sikanderpur station in Gurgaon to National Highway 8.
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Our Bureau
New Delhi, March 13 DLF Metro Ltd on Friday said it will approach India Infrastructure Finance Company Ltd (IIFCL) to seek lower cost funds for the Rs 742-crore project of building 6.1 km of metro rail tracks in Haryana.
A consortium of ITNL ENSO Rail Systems Ltd, a group company of IL&FS and DLF, had emerged the sole bidder for the project being implemented through public-private partnership by the Haryana Urban Development Authority (HUDA).
Under the project, DLF is developing a metro link from Delhi Metro Rail Corporation’s Sikanderpur station in Gurgaon to National Highway 8, where DLF’s Cybercity township is located.
According to Mr C.B.K. Rao, Executive Director, DLF Metro Ltd, “The Rs 742-crore project cost will have an additional financing cost of Rs 160 crore. IL&FS, which has experience in the area, will work on the financial closure.”
The project will be executed on a debt-equity ratio of 70:30. From the equity portion of Rs 225 crore, IL&FS will own 74 per cent and DLF will own 26 per cent, he said.
IIFCL has so far raised Rs 9,800 crore through bonds for various infrastructure projects, and the projects will get the funds at a rate of 10.35 per cent from the banks.
The IIFCL Managing Director, Mr S.S. Kohli, said the IIFCL has raised the amount at an interest rate of 6.85 per cent which will be given to banks at 7.85 per cent.
“We plan to complete the 6.1-km metro rail project in Gurgaon by December 2011. We are ready from our end. As soon as we get the letter of intent from the State Government, we can start construction,” Mr Rao said adding that he had spoken to IIFCL seeking a debt of about Rs 600 crore.
The company has initiated talks with metro coach manufacturers such as BEML, Bombardier, Alstom and Siemens.
Exports will begin to look up in two months: GK Pillai
Exports will begin to look up in two months: GK Pillai
The Economic Times, March 16, 2009, Page 11
The commerce department, over the past year, has worked closely with Indian industry, including exporters, to help the Centre work out packages to help combat the global economic downturn. Commerce secretary GK Pillai, in an interview with Amiti Sen, talks about a range of issues, including the effectiveness and limitations of such packages, and how the next fiscal could play out for Indian business. Excerpts:
How effective are the stimulus packages announced by the government so far?
We have done whatever we can in the overall financial situation. You could say one could have always done more, but you have to keep a perspective of the implications on other sectors as well as the financial implication of the total stimulus package. However, one or two decisions could have been taken earlier as the government took time in differentiating between sub-sectors which were facing problems.
Will there be need for another package when a new government comes in?
It will depend on what we basically see taking place at that time. We will do some fiscal year-end stocktaking, and look at trade figures of April and possibly a bit of May. We will also look at the global forecast and how stimulus packages in other countries—be it the EU, the US or China—are playing out.
our take on the next few months in terms of export growth and job losses in the export sector...
I think whatever job losses are to take place will happen till April, because by then India’s exports would have stabilised. We are looking at exports worth $160-170 billion this fiscal, and at least $170 billion the next year. So, after April, exporters, who now have a leaner workforce, will try to consolidate and take in more people. However, here I am assuming that things across the world are moving as they are and not getting worse.
How long do you expect the downturn to last in India and the world?
In India, I expect our bottoming-out to happen by March-April while things will bottom out in the rest of the world by June, stay that way for the next six months and then pick up again.
Why do you think India is better off than the US or the EU?
We have a growing economy, a young population and robust savings. While our saving rates are still high, the American savings rate is in the negative territory. When people will save, there will be demand and the economy is bound to pick up. For instance, in the area of housing, the demand has completely been wiped off in several countries, including the US, but in India there is still demand for houses. Because of the downturn, people may be going in for two-bedroom houses instead of threebedroom ones, but they are still buying.
The Economic Times, March 16, 2009, Page 11
The commerce department, over the past year, has worked closely with Indian industry, including exporters, to help the Centre work out packages to help combat the global economic downturn. Commerce secretary GK Pillai, in an interview with Amiti Sen, talks about a range of issues, including the effectiveness and limitations of such packages, and how the next fiscal could play out for Indian business. Excerpts:
How effective are the stimulus packages announced by the government so far?
We have done whatever we can in the overall financial situation. You could say one could have always done more, but you have to keep a perspective of the implications on other sectors as well as the financial implication of the total stimulus package. However, one or two decisions could have been taken earlier as the government took time in differentiating between sub-sectors which were facing problems.
Will there be need for another package when a new government comes in?
It will depend on what we basically see taking place at that time. We will do some fiscal year-end stocktaking, and look at trade figures of April and possibly a bit of May. We will also look at the global forecast and how stimulus packages in other countries—be it the EU, the US or China—are playing out.
our take on the next few months in terms of export growth and job losses in the export sector...
I think whatever job losses are to take place will happen till April, because by then India’s exports would have stabilised. We are looking at exports worth $160-170 billion this fiscal, and at least $170 billion the next year. So, after April, exporters, who now have a leaner workforce, will try to consolidate and take in more people. However, here I am assuming that things across the world are moving as they are and not getting worse.
How long do you expect the downturn to last in India and the world?
In India, I expect our bottoming-out to happen by March-April while things will bottom out in the rest of the world by June, stay that way for the next six months and then pick up again.
Why do you think India is better off than the US or the EU?
We have a growing economy, a young population and robust savings. While our saving rates are still high, the American savings rate is in the negative territory. When people will save, there will be demand and the economy is bound to pick up. For instance, in the area of housing, the demand has completely been wiped off in several countries, including the US, but in India there is still demand for houses. Because of the downturn, people may be going in for two-bedroom houses instead of threebedroom ones, but they are still buying.
New FDI rule allows Unitech to raise 5k cr sans govt nod
New FDI rule allows Unitech to raise 5k cr sans govt nod
The Economic Times, March 16, 2009, Page 14
FINMIN ACCEPTS REQUEST TO WITHDRAW PROPOSAL TO ISSUE GDRS
Rajat Guha & Sanjeev Choudhary NEW DELHI
REAL estate company Unitech can now raise a maximum of Rs 5,000 crore through global depository receipts (GDRs) without waiting for an approval from the foreign investment promotion board (FIPB), following a recent change in the foreign investment policy. The finance ministry has accepted Unitech’s request to withdraw its proposal to raise foreign capital through GDRs and instead allowed it to access the automatic route.
The finance ministry has acceded to the realty company’s contention that Unitech is owned and controlled by resident Indian citizens and its downstream investments in other companies would not be deemed foreign. The company had sought FIPB’s permission to issue GDRs and convert its status from operating to operating-cum-holding company for investing in companies down the line.
“The government has changed the FDI policy and so we have withdrawn our application,” said Unitech MD Sanjay Chandra. Unitech is planning to go in for GDRs since it would allow the company to access investments from even those financial institutions that are not registered in India and hence ineligible to invest in India-listed firms, Mr Chandra said.
Raising funds through GDR or any other route has become increasingly difficult these days given the economic downturn and pessimism in the markets globally. Besides, not many funds are currently bullish on Indian real estate. In this scenario, Unitech is attempting to broaden its potential investor base, in the hope that it might be able to tap some such investors, which might be ineligible to participate in a private placement of equities in an Indian company, but interested in investing.
Unitech is currently in talks with at least three private equity funds to raise funds. Although Unitech has its board’s approval for raising a maximum of Rs 5,000 crore, it may raise only around Rs 1,500 crore through fresh issuance of shares. Unitech’s shares have fallen close to 95% off its peak recorded in January 2008.
Companies now do not need government permission for raising foreign capital to make downstream investments, according to the new rules. The new norms do not require companies to seek government nod for downstream investment if the investing company is majority owned and controlled by a resident Indian.
As per the provisions of the Press Note 2 of 2009 announced last month, if an Indian company owned and controlled by resident Indian citizens makes an investments in another company, the foreign investment in the investing company will not be taken into account for calculating the total foreign investment in the company.
Unitech’s board on December 22 had approved plans to raise Rs 5,000 crore through fresh issuance of securities. Following the board resolution and shareholders’ approval, Unitech had sought permission from FIPB, the nodal body for clearing foreign investments, to raise up to Rs 5,000 crore through GDRs. In its application to FIPB, the realty firm had said that it planned to issue 40 crore GDRs at a price of Rs 36.78, calculated as per the GDR scheme.
ALL CLEAR
Finmin acceded to the firm’s contention that Unitech is owned and controlled by resident Indian citizens and its downstream investments in other companies would not be deemed foreign Unitech may go for GDRs since it would allow the company to access investments from even those financial institutions that are not registered in India.
Heads I buy, Tails I don’t
Heads I buy, Tails I don’t
The Economic Times, March 16, 2009, ET Investor’s Guide.
The real estate market is much like the stock market; its peaks and bottoms are always discovered in hindsight. Being a buyer’s market, the easy way out is to quote your price and see if developers are willing to sell, says Supriya Verma Mishra
WILL real estate prices fall further? Do builders have the financial muscle to complete ongoing projects? Should I hold my stocks in real estate companies or sell? These are the questions on everybody’s minds. And answers are unfortunately hard to come by. As a buyer, one would want to save the last penny. But it is well nigh impossible to catch the market bottom. The real estate market is much like the stock market; its peaks and bottoms are always discovered with hindsight. Being a buyer’s market, the easy way out is to quote your price and see if developers are willing to sell.
THE FACTS
Real estate projects are suffering from time and cost overruns as cash-crunched builders are finding it difficult to find buyers. This has put pressure on the prices and terms of trade have shifted in favour of the end user. Nonetheless, some basic facts must be borne in mind before deciding to make the down-payment for your dream home. First and foremost, one must be clear about whether the house is being bought for personal use or investment. Further, one needs to look at one’s payment capacity. Going by human nature, one may like a house which is beyond one’s budget. Is it advisable to stretch oneself to buy that dream home? If yes, how much should we borrow and what proportion should be funded internally. As a buyer, one should not be lured to buy a home only because the interest rates are low; rightly priced property must be available at a right location.
GET GOING…
Buying property for investment purpose is not really on people’s mind in the current economic environment. With job security at stake, it is not advisable to commit any amount, however low the property prices or borrowing costs. For people who want to upgrade to a better location or buy their first home, this is the right time to look for that dream house. One should opt for a builder with a renowned name, so as to minimize the risks associated with project non-completion. Do not attempt to go bottom fishing, irrespective of the negotiating skills that you may possess. The other important thing to keep in mind is that real estate is a long-term asset class. Though selling one’s house is the last thing that anyone would do, one must not be bogged down by short-term property price fluctuations. If you’ve zeroed in on the right location, the ideal strategy is to sit across the table and finalize the deal. These negotiations may extend upto three-four months for properties that are still beyond affordable levels. Instead of trying to settle at the lowest price points, one must quote a rate based on financial strength. A word of caution: one should not get over leveraged as this would expose oneself to high risk.
DEMAND PULL
There is cautious optimism among the buyers after a drop in prices. After a significant drop in interest rates, a further 10-15% drop (depending on location) in prices is believed to be luring buyers. With the average home loan size hovering at Rs 15 lakh, according to the largest home financing company HDFC, and the ticket size for a 2BHK ranging from Rs 45-80 lakh, there is a big disconnect. The developers have finally realized that neglect of the strong middle class was a big blunder. And their focus has now shifted towards the affordable housing sector. This could bring buyer confidence back into the market.
STOCK MUSINGS
t might be good time for the home buyers, but the situation is not the same for investors of real estate companies. The stock market has taken a beating and the real estate stocks have been hammered beyond recognition. There are no visible signs of recovery, at least in the next 12 months. This has left the investors in a lurch. However, tough times
like these call for tough decisions.As we all know, the demand has dried up, be it in the residential segment, retail or commercial. Many companies have committed huge funds towards ambitious projects. The completion of those projects, however, appears to be a bleak possibility. This would affect the companies’ cash flows and have a bearing on revenues as well. In fact, some developers are diverting the limited funds to complete the low-margin affordable residential projects. Realising the potential demand in this category, some developers have even launched new projects. Despite the huge demand, this is a volume game with low margins. The business model of companies is therefore shifting from high-margin luxury apartments or villas to thin-margin mid market housing, thereby reducing the overall profit margins of the group company.
It is advisable for investors in real estate stocks to hold on to their investments. It would not be wise to liquidate a portfolio that has already shed 70-80%. There would be recovery in the market in the long term, when the real estate cycle revives.
On the other hand, some investors may be looking at buying real estate stocks as they have given up almost all their gains. Here again, it is not clear how quickly these developers will be able to get over their cash crunch. Although shares may be available at low prices, it is advisable to wait and see how the real estate cycle turns out.
FUTURE MEASURES
The real estate as an industry has been painted with one large brush of corruption and greed. Some steps need to be taken to give the sector a clear and transparent image. Unlike the developed markets, there is no established housing index (other than the newly launched NHB index) that will help people to benchmark property prices for a certain location. This will not only help prospective buyers to know the prevailing rates in a particular locality, but also instill confidence in times of despondency.
Although the real estate sector has become organized recently, there needs to be clarity on the area (carpet or built-up) at which prices should be quoted. The stamp duty and registration charges have to be rationalized in line with the drop in prices. Multiple state laws, single window clearances and title clearances are other reforms that must be introduced to boost the country’s second-largest employment generating sector.
Inflation is down, but so is industrial output
Inflation is down, but so is industrial output
The Hindu Business Line, March 13, 2009, Page 1
January sees some growth
Turnaround in capital, consumer goods sectors.
Our Bureau
New Delhi, March 12 Industrial output showed a dip for the second month in a row, the decline being 0.5 per cent in January 2009. Led by a continuing downturn in the manufacturing and mining sectors, the overall output was marginally better than the minus 0.63 per cent clocked in December.
January’s numbers, however, were way below the 6.2 per cent year-on-year rise in output clocked in the same month of 2007-08.
For the first ten months of the current fiscal, industrial growth was recorded at three per cent (versus 8.7 per cent during April-January 2007-08), putting a question mark on the official projection of 7.1 per cent GDP growth for 2008-09.
Official advance estimates had pegged industrial growth at 4.8 per cent for the current fiscal.
The January data show that while the performance of intermediate and basic goods had been disappointing, there had been an encouraging turnaround in the capital goods and consumer goods sectors.
According to the latest official Index of Industrial Production (IIP) data released here on Thursday, the overall growth in manufacturing output, which has a weight of around 80 per cent in the IIP, declined by 0.8 per cent and mining production by 0.4 per cent .
However, electricity generation rose, though at a slower pace of 1.8 per cent against 3.7 per cent a year ago.
Food products
In terms of specific industries, 12 out of the 17 sectors showed a decline in growth in January.
The biggest dip in production, at 16.1 per cent, was witnessed in the case of food products, followed by wood and wood products (15.2 per cent) and transport equipment and parts (13.4 per cent).
Among those recording a growth, the production of machinery and equipment other than transport was up 17.5 per cent.
Other positives to the industrial story include consumer goods, particularly durables, which showed a growth after a long time.
Consumer durables and non-durables recorded a growth of 2.5 per cent and 0.7 per cent respectively , with the overall growth in consumer goods sector being 1.1 per cent.
The Hindu Business Line, March 13, 2009, Page 1
January sees some growth
Turnaround in capital, consumer goods sectors.
Our Bureau
New Delhi, March 12 Industrial output showed a dip for the second month in a row, the decline being 0.5 per cent in January 2009. Led by a continuing downturn in the manufacturing and mining sectors, the overall output was marginally better than the minus 0.63 per cent clocked in December.
January’s numbers, however, were way below the 6.2 per cent year-on-year rise in output clocked in the same month of 2007-08.
For the first ten months of the current fiscal, industrial growth was recorded at three per cent (versus 8.7 per cent during April-January 2007-08), putting a question mark on the official projection of 7.1 per cent GDP growth for 2008-09.
Official advance estimates had pegged industrial growth at 4.8 per cent for the current fiscal.
The January data show that while the performance of intermediate and basic goods had been disappointing, there had been an encouraging turnaround in the capital goods and consumer goods sectors.
According to the latest official Index of Industrial Production (IIP) data released here on Thursday, the overall growth in manufacturing output, which has a weight of around 80 per cent in the IIP, declined by 0.8 per cent and mining production by 0.4 per cent .
However, electricity generation rose, though at a slower pace of 1.8 per cent against 3.7 per cent a year ago.
Food products
In terms of specific industries, 12 out of the 17 sectors showed a decline in growth in January.
The biggest dip in production, at 16.1 per cent, was witnessed in the case of food products, followed by wood and wood products (15.2 per cent) and transport equipment and parts (13.4 per cent).
Among those recording a growth, the production of machinery and equipment other than transport was up 17.5 per cent.
Other positives to the industrial story include consumer goods, particularly durables, which showed a growth after a long time.
Consumer durables and non-durables recorded a growth of 2.5 per cent and 0.7 per cent respectively , with the overall growth in consumer goods sector being 1.1 per cent.
E-registry of mortgaged homes on cards
E-registry of mortgaged homes on cards
The Hindu Business Line, March 13, 2009, Page 1
IBA move could bring down housing loan frauds.
K. Ram Kumar, Mumbai, March 12
In a bid to overcome the menace of home loan frauds, the Indian Banks’ Association (IBA) proposes to set up a committee to work out the modalities for establishing a central electronic registry that will list all mortgages created by deposit of title/sale deeds with banks.
Though the establishment of a central registry has been envisaged under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, the proposal, somehow, had escaped the attention of law-makers as well as bankers.
With banks regularly falling prey to frauds being committed in home/ mortgage loans using fake sale/title deeds, the IBA committee, to be headed by the National Housing Bank Chairman & Managing Director , is expected to fast track the matter relating to the registry.
Less scope to cheat
According to Mr M. R. Umarji, Chief Advisor (Legal), IBA, once the registry is established, banks can verify the mortgage status of a house/property and accordingly take a decision on sanction or otherwise of a loan. “The registry would make it almost impossible for borrowers to get away by offering the same collateral/ security to take loans from various banks,” he said.
For a small fee, banks as well as those intending to purchase house/property can run a check with the proposed centralised electronic registry to verify whether a notice regarding the house/property has already been filed.
As the e-registry is envisaged as a repository of title holdings through e-filing of notice about the collateral/security, banks, once they are satisfied about the clarity of the title with respect to the collateral/ security being offered by a prospective borrower, will be encouraged to take faster credit decisions and may even charge lower interest rates.
Rs 600-cr loss?
The need for setting up a centralised registry assumes importance because between 2002 and 2006, when the economy was buoyant, 28 public sector banks cumulatively reported home loan frauds to the tune of around Rs 600 crore. This was disclosed by Reserve Bank of India in a reply to an application made under the Right to Information Act,
Bankers say that if one considers the PSBs’ home loan push in 2007- 2009, the home loan fraud could be in the region of Rs 1000 crore. The situation would be worse in the case of new generation private sector banks, which of late are showing an increasing interest in the home loans front.
The Hindu Business Line, March 13, 2009, Page 1
IBA move could bring down housing loan frauds.
K. Ram Kumar, Mumbai, March 12
In a bid to overcome the menace of home loan frauds, the Indian Banks’ Association (IBA) proposes to set up a committee to work out the modalities for establishing a central electronic registry that will list all mortgages created by deposit of title/sale deeds with banks.
Though the establishment of a central registry has been envisaged under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, the proposal, somehow, had escaped the attention of law-makers as well as bankers.
With banks regularly falling prey to frauds being committed in home/ mortgage loans using fake sale/title deeds, the IBA committee, to be headed by the National Housing Bank Chairman & Managing Director , is expected to fast track the matter relating to the registry.
Less scope to cheat
According to Mr M. R. Umarji, Chief Advisor (Legal), IBA, once the registry is established, banks can verify the mortgage status of a house/property and accordingly take a decision on sanction or otherwise of a loan. “The registry would make it almost impossible for borrowers to get away by offering the same collateral/ security to take loans from various banks,” he said.
For a small fee, banks as well as those intending to purchase house/property can run a check with the proposed centralised electronic registry to verify whether a notice regarding the house/property has already been filed.
As the e-registry is envisaged as a repository of title holdings through e-filing of notice about the collateral/security, banks, once they are satisfied about the clarity of the title with respect to the collateral/ security being offered by a prospective borrower, will be encouraged to take faster credit decisions and may even charge lower interest rates.
Rs 600-cr loss?
The need for setting up a centralised registry assumes importance because between 2002 and 2006, when the economy was buoyant, 28 public sector banks cumulatively reported home loan frauds to the tune of around Rs 600 crore. This was disclosed by Reserve Bank of India in a reply to an application made under the Right to Information Act,
Bankers say that if one considers the PSBs’ home loan push in 2007- 2009, the home loan fraud could be in the region of Rs 1000 crore. The situation would be worse in the case of new generation private sector banks, which of late are showing an increasing interest in the home loans front.
Migration to cities will ease poverty: WB
Migration to cities will ease poverty: WB
The Financial Express, March 13, 2009, Page 4
fe Bureau, New Delhi
Urbanisation can help lift people out of poverty, the World Bank said in its World Development Report 2009: Reshaping Economic Geography, released in India on Thursday. Arguing for greater concentration in cities, the report said the process of migration from villages to cities should be encouraged and welcomed. The governments should establish common institutions that promote this market-led evolution of industrial cities rather than trying to evenly spread the economic activity across geography of a country, the report said.
Presenting a 3D view of economic development, where Ds stand for density, distance and divisions, the report said some places such as Tokyo, US, Western Europe, Mumbai, Beijing and Shanghai are doing well because they have higher population densities, shorter distances, and fewer divisions or man made barriers to trade. One of the most prosperous cities Tokyo, for instances, is home to 3.5 crore or a quarter of the Japan’s population packed into less than 4% of its land. Gurgaon, which 20 years ago was a cluster of villages, is now one of the most service-oriented corridors sitting in the middle of India’s largest consumer market, the report stated.
“We economists think about how things are done and what things are done, but we don’t think as much about where things are done,” said the report’s director Indermit S Gill. “But where economic activity is concentrated can be the difference between poverty and prosperity—for people as well as for countries.”
The report said rapid urbanisation in many countries has led to faster and shared growth, resulting in lower poverty. For instance, the Republic of Korea went from more than 80% rural to over 80% urban between 1950 and 2000. It also transformed from a low income country into a high income nation during the same period.
The report acknowledges this process of agglomeration and concentration can result in creation of big slums, just as it happened during the industrial revolution in cities like London, Paris and New York in the 19th century, but it also pulls people out of poverty. The dynamic pull of the cities would attract people towards economic opportunities and the governments anticipate this and plan accordingly, with a view to encourage this process, the report said. “Twenty-five years ago in an increasingly crowded Mumbai, authorities tried to keep out more migrants and stopped building infrastructure. But people came anyway, and Mumbai now has 16.5 million people, more than half of whom live in slums,” it said.
“The role of government remains important—not to spread out economic activity but to encourage mobility toward it, and to ensure universal access to basic services such as health and education,” the report said. Instead of worrying about the size of metropolis, the report calls for policy makers to ensure that these places work well and efficiently. The report also argues for greater mobility of labour and capital across the world and increased market access within a country and among countries. The World Bank has been publishing WDR every year since 1978 on a particular aspect of development. The next year’s theme is development in a changing climate.
• Rapid urbanisation in many countries has led to faster and shared growth, resulting in lower poverty
• The process of agglomeration and concentration can result in creation of big slums
• The report argues for greater mobility of labour and capital across the world
The Financial Express, March 13, 2009, Page 4
fe Bureau, New Delhi
Urbanisation can help lift people out of poverty, the World Bank said in its World Development Report 2009: Reshaping Economic Geography, released in India on Thursday. Arguing for greater concentration in cities, the report said the process of migration from villages to cities should be encouraged and welcomed. The governments should establish common institutions that promote this market-led evolution of industrial cities rather than trying to evenly spread the economic activity across geography of a country, the report said.
Presenting a 3D view of economic development, where Ds stand for density, distance and divisions, the report said some places such as Tokyo, US, Western Europe, Mumbai, Beijing and Shanghai are doing well because they have higher population densities, shorter distances, and fewer divisions or man made barriers to trade. One of the most prosperous cities Tokyo, for instances, is home to 3.5 crore or a quarter of the Japan’s population packed into less than 4% of its land. Gurgaon, which 20 years ago was a cluster of villages, is now one of the most service-oriented corridors sitting in the middle of India’s largest consumer market, the report stated.
“We economists think about how things are done and what things are done, but we don’t think as much about where things are done,” said the report’s director Indermit S Gill. “But where economic activity is concentrated can be the difference between poverty and prosperity—for people as well as for countries.”
The report said rapid urbanisation in many countries has led to faster and shared growth, resulting in lower poverty. For instance, the Republic of Korea went from more than 80% rural to over 80% urban between 1950 and 2000. It also transformed from a low income country into a high income nation during the same period.
The report acknowledges this process of agglomeration and concentration can result in creation of big slums, just as it happened during the industrial revolution in cities like London, Paris and New York in the 19th century, but it also pulls people out of poverty. The dynamic pull of the cities would attract people towards economic opportunities and the governments anticipate this and plan accordingly, with a view to encourage this process, the report said. “Twenty-five years ago in an increasingly crowded Mumbai, authorities tried to keep out more migrants and stopped building infrastructure. But people came anyway, and Mumbai now has 16.5 million people, more than half of whom live in slums,” it said.
“The role of government remains important—not to spread out economic activity but to encourage mobility toward it, and to ensure universal access to basic services such as health and education,” the report said. Instead of worrying about the size of metropolis, the report calls for policy makers to ensure that these places work well and efficiently. The report also argues for greater mobility of labour and capital across the world and increased market access within a country and among countries. The World Bank has been publishing WDR every year since 1978 on a particular aspect of development. The next year’s theme is development in a changing climate.
• Rapid urbanisation in many countries has led to faster and shared growth, resulting in lower poverty
• The process of agglomeration and concentration can result in creation of big slums
• The report argues for greater mobility of labour and capital across the world
Migration to urban areas is good, says World Bank
Migration to urban areas is good, says World Bank
Business Standard, March 13, 2009, Page 4
BS Reporter / New Delhi
Taking a dig at India and other countries that believe economic activities must be spread geographically to benefit the poor, a new World Bank report has called for concentration of production, mobility of people and economic integration to lift rural people out of poverty. Population shift from villages to cities is natural and should be encouraged, it said.
This contradicts India’s policy of countering migration by setting up industries in backward areas and offering temporary employment through schemes like the National Rural Employment Guarantee Programme.
“The world’s most geographically disadvantaged people know all too well that growth does not come to every place at once,” said Indermit S Gill, director of the World Development Report (WDR) and chief economist, Europe and Central Asia. “Markets favour some places over others. To fight this concentration is tantamount to fighting prosperity,” Gill added.
Giving India’s example, where more than 60 per cent of the nation’s poor live in the economically backward states, the report calls for policies that promote mobility of people, products and ideas. Instead of worrying about the size of metropolises, the report calls for policymakers to focus on improving the basic infrastructure to make sure these places work well like Tokyo or New York.
Giving example of Mumbai, the report says despite its attempts to discourage inflows of people, who were attracted to economic opportunities, Mumbai has twice as many people as in 1980s. Half of the city’s population lives in slums as the government has not created the requisite infrastructure.
The standard practice in cities with limited land is to raise the permitted Floor Space Index (FSI) over time to accommodate urban growth, as in Manhattan, Singapore, Hong Kong and Shanghai. However, the Municipal Corporation of Greater Mumbai went the other way by lowering the permitted FSI, which has resulted in a vicious circle of supply shortages and high land prices.
The report lays special importance on 3Ds – density (of population closer to economic activity), distance (reducing transport cost) and divisions (less divisions or barriers to trade) — to make economic hubs.
In India, new economic activity in the industry and services is now concentrated along India’s metropolises and coastal cities, increasing the central region’s economic distance from density. While people want to move closer to opportunities, mobility has not been helped by ethnic and linguistic divisions, coupled with policies that seek to revive growth in lagging areas through subsidised finance and preferential industrial licensing.
Instead, the government should provide improved education, health and other social services across the country to prepare quality human resource which can migrate to economic hubs for better opportunities, Gill said.
The report criticised India’s special economic zones (SEZs), which are not as well located as in China. China has located its SEZs in coastal areas and has promoted migration of its people to these areas as well as foreign investment, and leading to greater connectivity to foreign markets.
Unplanned urbanisation bane of Indian cities, says report
Unplanned urbanisation bane of Indian cities, says report
The Financial Express, March 13, 2009, Page 4
fe Bureau, New Delhi
Cities are witnessing rapid urbanisation and population concentration since economic activities are mostly concentrated in these areas. Migration from economically weaker areas serves as another cause of fast-emerging trend, which has multiple ripple effects.
According to the World Development Report 2009 on Reshaping Economic Geography, “The poor are gravitating to towns and cities, but more rapid poverty reduction will probably require a faster pace of urbanisation, not a slower one—and development policy makers will need to facilitate this process, not hinder it.” Since a transformation involves both the urban and the rural, strategies must include measures to improve a spectrum of settlements—secondary cities, small urban centers, towns, and villages.
Mumbai, the financial capital of India, can be seen as an example. The city has a diverse population, and this will help determine priorities for all levels of the government (central, provincial, and municipal). In rapidly urbanising areas, congestion can quickly set in and metropolitan areas may also need to address within-city divisions posed by shantytowns and slums.
The city planners of Mumbai, in the 1960s and 1970s, decided that its population should be controlled at about 7 million. Land regulations and infrastructure policies were designed accordingly. However, people migrated into the city in search of livelihood, and today, the city is more than twice the intended size, with the highest population density of any metropolitan area in the world.
It is estimated that 54% of Mumbai’s 16 million people now live in slums and another quarter in degraded apartments, lowering the permitted FSI to 1.33 in 1991.
Almost all buildings in Mumbai with an FSI exceeding 4.5, were built before 1964. Under the rules that existed until recently, new buildings, including those in the central business district, were subject to the FSI of 1.33. As a result, space consumption in Mumbai averages 4 square meters, much less than the 12 square meters in Shanghai and the more than 20 square meters in Moscow. Also, about half of its residents are huddled within 2 property taxes and inflated real estate prices for revenue.
The result is a vicious circle of supply shortages and high land prices. Mumbai slipped from the 25th place to 40th in the league table of “best cities for business” between 1995 and 1999. It remains India’s premier business city—it topped Chennai and Bangalore in investment in 2007 and was the top destination for domestic migrants. World Development Report 2009 questions how long it will keep this position unless it reforms its regulations and improves infrastructure.
Successful cities react to growing traffic congestion with spatially connective infrastructure, WDR 2009 points out. But preceding such infrastructure in all successful cities is a fluid land market and an empowered local government. In December 2005 Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was launched to take care of rapid urbanisation of Indian cities.
The Financial Express, March 13, 2009, Page 4
fe Bureau, New Delhi
Cities are witnessing rapid urbanisation and population concentration since economic activities are mostly concentrated in these areas. Migration from economically weaker areas serves as another cause of fast-emerging trend, which has multiple ripple effects.
According to the World Development Report 2009 on Reshaping Economic Geography, “The poor are gravitating to towns and cities, but more rapid poverty reduction will probably require a faster pace of urbanisation, not a slower one—and development policy makers will need to facilitate this process, not hinder it.” Since a transformation involves both the urban and the rural, strategies must include measures to improve a spectrum of settlements—secondary cities, small urban centers, towns, and villages.
Mumbai, the financial capital of India, can be seen as an example. The city has a diverse population, and this will help determine priorities for all levels of the government (central, provincial, and municipal). In rapidly urbanising areas, congestion can quickly set in and metropolitan areas may also need to address within-city divisions posed by shantytowns and slums.
The city planners of Mumbai, in the 1960s and 1970s, decided that its population should be controlled at about 7 million. Land regulations and infrastructure policies were designed accordingly. However, people migrated into the city in search of livelihood, and today, the city is more than twice the intended size, with the highest population density of any metropolitan area in the world.
It is estimated that 54% of Mumbai’s 16 million people now live in slums and another quarter in degraded apartments, lowering the permitted FSI to 1.33 in 1991.
Almost all buildings in Mumbai with an FSI exceeding 4.5, were built before 1964. Under the rules that existed until recently, new buildings, including those in the central business district, were subject to the FSI of 1.33. As a result, space consumption in Mumbai averages 4 square meters, much less than the 12 square meters in Shanghai and the more than 20 square meters in Moscow. Also, about half of its residents are huddled within 2 property taxes and inflated real estate prices for revenue.
The result is a vicious circle of supply shortages and high land prices. Mumbai slipped from the 25th place to 40th in the league table of “best cities for business” between 1995 and 1999. It remains India’s premier business city—it topped Chennai and Bangalore in investment in 2007 and was the top destination for domestic migrants. World Development Report 2009 questions how long it will keep this position unless it reforms its regulations and improves infrastructure.
Successful cities react to growing traffic congestion with spatially connective infrastructure, WDR 2009 points out. But preceding such infrastructure in all successful cities is a fluid land market and an empowered local government. In December 2005 Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was launched to take care of rapid urbanisation of Indian cities.
In realty show, towering rates face elimination
In realty show, towering rates face elimination
The Economic Times, March 13, 2009, Page 1
Buyers Keep Away Despite 50% Fall In Rates
Rajesh Unnikrishnan & Sanjeev Choudhary
MUMBAI NEW DELHI
SOME two weeks ago, Mumbai-based stock broker Ashok Samani won an auction to buy eight apartments owned by the late Harshad Mehta and family in the posh Worli locality. Mr Samani, who put in a winning bid of Rs 32.60 crore, or Rs 26,080 per sq ft, for the apartments in an upmarket housing society called Madhuli, is pleased with the bargain.
“It’s a reasonable rate. Compared to prices in 2008, it’s a decent buy,” he said.
Indeed, homes in buildings of Madhuli’s class were selling for Rs 38,000-40,000 around the same time last year, about a third higher than the rate at which Mr Samani struck his deal. Mr Samani may be happy with his bargain, but many other potential buyers don’t think the time is ripe for good deals.
In early 2008, a Rs 18-crore deal was negotiated for a 2,925 sq ft house in Delhi’s Defence Colony by a builder who planned to demolish the house and develop flats, hoping for a return of about 30% on his investment.
Wriggling out of deals
BUTafter the downturn in the real estate market, he is trying hard to wriggle out of the deal, even at the cost of losing the Rs 50 lakh he had paid as ‘token money’ indicating his intention to purchase the property. “A few buyers have approached me with a price of Rs 9-10 crore, but exited midway," said a broker who is negotiating on behalf of the property’s owner.
As in the rest of the world, the real estate market in India is trapped in a vicious cycle of plunging prices. With the bottom nowhere in sight, potential buyers do not want to try and catch a falling knife, said Pranay Vakil, chairman, Knight Frank India, a property consultancy firm.
“They are expecting a further cut in prices while developers themselves have been dropping prices anticipating an increase in sales volumes.”
Rajneesh Chhabra, a property broker based in south Delhi, says asking rates are down 30% from their peak but it’s still almost impossible to find a buyer.
“Financiers have disappeared from the market and those dependent on bank loans do not buy property in south Delhi,” he said, adding that deal volumes have shrunk more than 95% from their peaks about a year ago.
With the financial year drawing to a close this month, cashstrapped real estate developers have already cut prices by an average 40% in all their upcoming projects.
“I expect that prices will soon come back to the 2003-04 level when rates were hovering between Rs 12,000 and Rs 17,000 in upmarket areas like Malabar Hills,” said Yashwant Dalal, president of the Mumbai Estate Agents Association. In Malabar Hill, the most expensive home address in India, prices have fallen by a fourth to Rs 25,000-45,000 per sq ft, depending on the age of the building and amenities.
Ten months ago, actor Vinod Khanna offered to pay Rs 1.25 lakh per sq ft for a 2,500 sq ft apartment in the ultra-luxury El Plazo housing society in the Hanging Gardens area of Malabar Hill.
"Now the rates are in that area (Hanging Gardens) are around Rs 70,000 to Rs 75,000 per sq ft. Similarly, in Pedder Road, rates are around Rs 45,000 per sq ft," Mr Dalal said.
A London-based Indian national acquired a 3,475 sq ft property at NCPA apartments in the Nariman Point area for Rs 97,842 per sq ft nearly six months ago, but rates there are almost half that now, said a south Mumbai property dealer.
In central Mumbai’s Worli and Lower Parel areas, rates are down to Rs 12,000-18,000 per sq ft while they have fallen by more than a fifth to Rs 15,000- 25,000 in Bandra. Where price drops have been of the order of 50%, buyers appear to be showing interest.
"We are quoting Rs 16,000 per sq ft for our new project in Lower Parel and the initial response has been positive," said Ram Yadav, finance director of Orbit Corporation. A year ago, property prices in this area were over Rs 35,000 per sq ft. Properties in the heart of the national capital on Prithviraj Road, Aurangzeb Road, Amrita Shergil Marg, Jor Bagh and Golf Links, which have seen deals involving industrialists such as LN Mittal, Naveen Jindal and GM Rao as well as film star Shah Rukh Khan, are now struggling to find buyers. A 11,250 sq ft home in Golf Links, which was bought for Rs 70 crore, is now available for Rs 50 crore, but there are few takers.
“Earlier, financiers used to buy homes. Now they neither have money nor the hope that they will be able to sell it at a higher rate and so have just withdrawn from the market. End-users are rare and they only negotiate, but don’t buy in the expectation that prices will fall further,” said Neeraj Chopra, a Dwarka-based property broker.
In India’s technology capital Bangalore, prices have fallen by up to 25% in some areas, a recent report by Morgan Stanley said. DLF, India’s biggest real estate company, cut rates by about 30% at its upcoming project and the company sees prices falling further.
Irshad Ahmed, president of Irshads Property Matters, said in suburbs such as Whitefield, Outer Ring Road and Sarjapur Road, hard bargaining can result in final prices that are 30% lower than card rates.
Property dealers and builders are also are lining up an array of discounts and freebies to try and clinch deals.
The Gateway project by developer Brigade in Malleshwaram, among the oldest localities in town, is quoting at Rs 5,090 per sq ft as against Rs 5,790 per sq ft last year. But there is scope for negotiations, depending on which flat is chosen and the mode of payment, a marketing team official said. Second sale rates at Gateway are Rs 4,700-4,800 per sq ft, according to a property dealer.
In Bangalore’s downtown area—the Mantri group’s upmarket Altius complex here has only one apartment to a floor with a current market price of around Rs 14 crore—there aren’t many units available for a second sale. A city broker says as there are no other projects that open up to views of the city’s lung space, Cubbon Park, the price will hold. But the number of people showing interest in buying has dropped, he added.
However, in the upmarket areas of Chennai, there have been no considerable price drops.
In Chennai’s Arcot Road, Purasawakkam, Thiruvanmayur and Valasaravakkam areas, rates still hover between Rs 4,700 and Rs 6,600 pre sq ft, about the same as a year ago, a dealer said, but prices have fallen by 20-30% in the suburbs. In Kolkata, home prices have fallen from their peak around the middle of 2008 and hover around levels seen at the beginning of last year. In areas such as Ballygunge Circular Road, Sunny Park and Queens Park, rates that were Rs 8,500-10,000 per sq ft in January 2008 jumped to Rs 13,000-14,000 in June-July before dropping to Rs 9,000-11,000.
“Prices in the city’s posh areas, including Ballygunge Circular Road and Queens Park, had surged because of limited supply but they have been hit now. Areas like Prince Anwar Shah Road, Behala and Lake Town remain unaffected as real estate prices in these areas never reached unrealistic levels,” said Jitendra Khaitan, CEO of real estate consultancy Pioneer Property Management. Sumit Dabriwala, managing director of property developer Hiland Group, said highend residential properties, which were being sold for Rs 12,000-15,000 per sq ft last year, are averaging Rs 9,000-10,000 per sq ft now. “On an average, properties in upmarket areas have seen a 10-15% price reduction in the premium category,” he said.
A number of banks have cut home loan rates in recent weeks, sparking hope that sales will pick up in the quarter beginning April, rescuing the property market from its downward spiral. This could be a crucial period as the impact of the ongoing financial crunch is expected to peak by then.
(With inputs from J Padmapriya in Bangalore, Anuradha Himatsingka in Kolkata and Hemamalini Venkatraman in Chennai)
The Economic Times, March 13, 2009, Page 1
Buyers Keep Away Despite 50% Fall In Rates
Rajesh Unnikrishnan & Sanjeev Choudhary
MUMBAI NEW DELHI
SOME two weeks ago, Mumbai-based stock broker Ashok Samani won an auction to buy eight apartments owned by the late Harshad Mehta and family in the posh Worli locality. Mr Samani, who put in a winning bid of Rs 32.60 crore, or Rs 26,080 per sq ft, for the apartments in an upmarket housing society called Madhuli, is pleased with the bargain.
“It’s a reasonable rate. Compared to prices in 2008, it’s a decent buy,” he said.
Indeed, homes in buildings of Madhuli’s class were selling for Rs 38,000-40,000 around the same time last year, about a third higher than the rate at which Mr Samani struck his deal. Mr Samani may be happy with his bargain, but many other potential buyers don’t think the time is ripe for good deals.
In early 2008, a Rs 18-crore deal was negotiated for a 2,925 sq ft house in Delhi’s Defence Colony by a builder who planned to demolish the house and develop flats, hoping for a return of about 30% on his investment.
Wriggling out of deals
BUTafter the downturn in the real estate market, he is trying hard to wriggle out of the deal, even at the cost of losing the Rs 50 lakh he had paid as ‘token money’ indicating his intention to purchase the property. “A few buyers have approached me with a price of Rs 9-10 crore, but exited midway," said a broker who is negotiating on behalf of the property’s owner.
As in the rest of the world, the real estate market in India is trapped in a vicious cycle of plunging prices. With the bottom nowhere in sight, potential buyers do not want to try and catch a falling knife, said Pranay Vakil, chairman, Knight Frank India, a property consultancy firm.
“They are expecting a further cut in prices while developers themselves have been dropping prices anticipating an increase in sales volumes.”
Rajneesh Chhabra, a property broker based in south Delhi, says asking rates are down 30% from their peak but it’s still almost impossible to find a buyer.
“Financiers have disappeared from the market and those dependent on bank loans do not buy property in south Delhi,” he said, adding that deal volumes have shrunk more than 95% from their peaks about a year ago.
With the financial year drawing to a close this month, cashstrapped real estate developers have already cut prices by an average 40% in all their upcoming projects.
“I expect that prices will soon come back to the 2003-04 level when rates were hovering between Rs 12,000 and Rs 17,000 in upmarket areas like Malabar Hills,” said Yashwant Dalal, president of the Mumbai Estate Agents Association. In Malabar Hill, the most expensive home address in India, prices have fallen by a fourth to Rs 25,000-45,000 per sq ft, depending on the age of the building and amenities.
Ten months ago, actor Vinod Khanna offered to pay Rs 1.25 lakh per sq ft for a 2,500 sq ft apartment in the ultra-luxury El Plazo housing society in the Hanging Gardens area of Malabar Hill.
"Now the rates are in that area (Hanging Gardens) are around Rs 70,000 to Rs 75,000 per sq ft. Similarly, in Pedder Road, rates are around Rs 45,000 per sq ft," Mr Dalal said.
A London-based Indian national acquired a 3,475 sq ft property at NCPA apartments in the Nariman Point area for Rs 97,842 per sq ft nearly six months ago, but rates there are almost half that now, said a south Mumbai property dealer.
In central Mumbai’s Worli and Lower Parel areas, rates are down to Rs 12,000-18,000 per sq ft while they have fallen by more than a fifth to Rs 15,000- 25,000 in Bandra. Where price drops have been of the order of 50%, buyers appear to be showing interest.
"We are quoting Rs 16,000 per sq ft for our new project in Lower Parel and the initial response has been positive," said Ram Yadav, finance director of Orbit Corporation. A year ago, property prices in this area were over Rs 35,000 per sq ft. Properties in the heart of the national capital on Prithviraj Road, Aurangzeb Road, Amrita Shergil Marg, Jor Bagh and Golf Links, which have seen deals involving industrialists such as LN Mittal, Naveen Jindal and GM Rao as well as film star Shah Rukh Khan, are now struggling to find buyers. A 11,250 sq ft home in Golf Links, which was bought for Rs 70 crore, is now available for Rs 50 crore, but there are few takers.
“Earlier, financiers used to buy homes. Now they neither have money nor the hope that they will be able to sell it at a higher rate and so have just withdrawn from the market. End-users are rare and they only negotiate, but don’t buy in the expectation that prices will fall further,” said Neeraj Chopra, a Dwarka-based property broker.
In India’s technology capital Bangalore, prices have fallen by up to 25% in some areas, a recent report by Morgan Stanley said. DLF, India’s biggest real estate company, cut rates by about 30% at its upcoming project and the company sees prices falling further.
Irshad Ahmed, president of Irshads Property Matters, said in suburbs such as Whitefield, Outer Ring Road and Sarjapur Road, hard bargaining can result in final prices that are 30% lower than card rates.
Property dealers and builders are also are lining up an array of discounts and freebies to try and clinch deals.
The Gateway project by developer Brigade in Malleshwaram, among the oldest localities in town, is quoting at Rs 5,090 per sq ft as against Rs 5,790 per sq ft last year. But there is scope for negotiations, depending on which flat is chosen and the mode of payment, a marketing team official said. Second sale rates at Gateway are Rs 4,700-4,800 per sq ft, according to a property dealer.
In Bangalore’s downtown area—the Mantri group’s upmarket Altius complex here has only one apartment to a floor with a current market price of around Rs 14 crore—there aren’t many units available for a second sale. A city broker says as there are no other projects that open up to views of the city’s lung space, Cubbon Park, the price will hold. But the number of people showing interest in buying has dropped, he added.
However, in the upmarket areas of Chennai, there have been no considerable price drops.
In Chennai’s Arcot Road, Purasawakkam, Thiruvanmayur and Valasaravakkam areas, rates still hover between Rs 4,700 and Rs 6,600 pre sq ft, about the same as a year ago, a dealer said, but prices have fallen by 20-30% in the suburbs. In Kolkata, home prices have fallen from their peak around the middle of 2008 and hover around levels seen at the beginning of last year. In areas such as Ballygunge Circular Road, Sunny Park and Queens Park, rates that were Rs 8,500-10,000 per sq ft in January 2008 jumped to Rs 13,000-14,000 in June-July before dropping to Rs 9,000-11,000.
“Prices in the city’s posh areas, including Ballygunge Circular Road and Queens Park, had surged because of limited supply but they have been hit now. Areas like Prince Anwar Shah Road, Behala and Lake Town remain unaffected as real estate prices in these areas never reached unrealistic levels,” said Jitendra Khaitan, CEO of real estate consultancy Pioneer Property Management. Sumit Dabriwala, managing director of property developer Hiland Group, said highend residential properties, which were being sold for Rs 12,000-15,000 per sq ft last year, are averaging Rs 9,000-10,000 per sq ft now. “On an average, properties in upmarket areas have seen a 10-15% price reduction in the premium category,” he said.
A number of banks have cut home loan rates in recent weeks, sparking hope that sales will pick up in the quarter beginning April, rescuing the property market from its downward spiral. This could be a crucial period as the impact of the ongoing financial crunch is expected to peak by then.
(With inputs from J Padmapriya in Bangalore, Anuradha Himatsingka in Kolkata and Hemamalini Venkatraman in Chennai)
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