Real Estate Intelligence Report, Tuesday, May 19, 2009

FDI irritants may go; but no change in retail for now: Kamal nath

FDI irritants may go; but no change in retail for now: Kamal nath
The Hindu Business Line, May 19, 2009, Page 13

NEW DELHI: The new UPA Government will be ready to remove procedural bottlenecks for foreign investors but allowing FDI in multi-brand retail will
not be on the immediate agenda, Commerce and Industry Minister Kamal Nath said on Monday.

"We are going to see if there are any irritants in the way ... We have got to make India a very attractive destination for investment," Nath said in an interview. He said FDI inflow to India has "not dried up ... but (getting it) has become competitive".
FDI inflows dropped in February to $1.4 billion, almost one-fourth of the inflows witnessed in the same period a year ago, under the impact of the global credit crunch. In February 2008, foreign investment was $5.67 billion. When asked whether FDI could finally be allowed in the multi-brand retail sector, Nath said, "Not for the time being ... We have done some studies, which need much more work."

Independent think-tank ICRIER had conducted a government-sponsored study on the impact of FDI in retail on neighbourhood kirana shops last year. It had said that the big stores as also mom-and-pop shops can co-exist.

Reviving FDI inflows will be a key challenge for the new government. Changes in FDI policy, announced in February, have created a lot of confusion among both domestic and foreign investors.

Inflation may climb again to touch 5.5% by fiscal-end

Inflation may climb again to touch 5.5% by fiscal-end
The Financial Express, May 19, 2009, Page 2

New Delhi: Inflation, currently at 0.48 %, may again rise to around 5-5.5 % by this fiscal end, forcing the Reserve Bank to tighten money supply, says financial services firm Nomura.

“We expect wholesale price index inflation to rise to around 5-5.5% by end of the fiscal 2009-10, against the RBI’s 4% target,” Nomura said in a report.

According to the firm, the economy and credit growth are expected to recover in 2010, as banks will start easing the credit restrictions.

Therefore, the country may face excess liquidity and so “we expect increasing infationary worries to force the RBI to start implementing exit strategies from its unconventionally loose monetary policy...with the initial focus on liquidity management,” the financial services firm said.

The RBI reduced short-term lending and borrowing rates by 4.25% and 2.75%, respectively since the collapse of Lehman Brothers in the US to infuse liquidity in the system.

The central bank will, Nomura said, initially focus on withdrawing liquidity by issuing treasury bills in the fourth quarter followed by a cash reserve ratio (mandatory cash requirement which the banks have to keep with the RBI) hike of 100 basis points in 2010.

“We expect policy rate hikes of 75 basis points to be followed only later in 2010 once the recovery takes hold,” it said.

Banks should pass on lower costs to customers: RBI Governor

Banks should pass on lower costs to customers: RBI Governor
Business Standard, May 19, 2009, Section II, Page 3

BS Reporter / Chennai/ Hyderabad

Reserve Bank of India (RBI) governor D Subbarao said that banks must pass on the benefit of lower costs from technology-based products and services to their customers.

“I was surprised to note that transfer of funds from one branch of a bank to another, both under the Core Banking System, entailed a service charge for the remitting customer. It does not make sense that the charge for such funds movement within a bank is much more than for the inter-bank funds transfers,” Subbarao said.

Delivering the keynote address at an awards function held by the Institute for Development and Research in Banking Technology (IDRBT) here on Monday, he warned that banks face the risk of losing customer trust by imposing charges not commensurate with the cost of service provided.

Subbarao urged the financial sector leaders to take greater advantage of new technologies as they would reduce the costs of financial transactions, improve the allocation of financial resources and increase the competitiveness and efficiency of financial institutions.

In this context, he said that banks could now take advantage of the expanded reach of the telecom by using the mobile communication technology. According to Subbarao, mobile phone users belong to all strata of society and the phone's integrated chip could function as a multi-application smart card. “This holds substantial promise as the delivery vehicle of the future.”

Subbarao, however, emphasised that while adopting new technologies banks should ensure that adequate security controls were in place.

Stating that IDRBT’s role has extended beyond research over the years, he said that a committee headed by C Rangarajan was now looking into redefining the institute's role. Recommendations from this committee were anticipated soon.

IDRBT director, B Sambamurthy, said the institute, which was focusing on developing intellectual capital in the field of banking technology, would be doubling its academic strength in the near future.

Later, the RBI governor presented the IDRBT Banking Technology Awards 2008 to Corporation Bank, Punjab National Bank, State Bank of India, Karur Vysya Bank, ICICI Bank Limited, HDFC Bank and Kotak Mahindra Bank Limited.

GROWTH AND SOCIAL DEVELOPMENT SHOULD GO HAND IN HAND’

‘GROWTH AND SOCIAL DEVELOPMENT SHOULD GO HAND IN HAND’
The Economic Times, May 19, 2009, Page 14

M K VENU & T K ARUN ARGUE FOR THE NEED FOR REFORMS IN THE POLITICAL AND ECONOMIC SPHERES WHILE C RANGARAJAN & KAMAL NATH SHARE THEIR THOUGHTS ON THE AGENDA FOR THE GOVERNMENT

NOTED economist, former chairman of the Prime Minister’s Economic Advisory Council, Rajya Sabha member and former governor of the Reserve Bank of India, DR C RANGARAJAN has a deep understanding of the Indian economy. He believes the primary goal of economic policy should be growth, and poverty reduction. Dr Rangarajan, who at present heads the New Delhi-based think tank National Institute of Public Finance and Policy (NIPFP), outlined to Gireesh Chandra Prasad the challenges before the economy and the immediate priorities for the nation. Excerpts from an interview:

What should be the guiding principle for economic policy at this stage and what are the challenges ahead?

Growth and reducing poverty are the major objectives of economic policy. Economic development and social development need to go hand in hand. It is like walking on two legs. Ignoring any one of them will make the country limp along. Therefore, the focus of economic policy must be to simultaneously accelerate economic growth and ensure that the basic minimum requirements are provided to everyone. The major challenge before the country is to come out of the impact of the economic crisis, which had originated abroad. We should be able to move to a higher trajectory of economic growth soon. We have, in the past, demonstrated our potential for high growth. The challenge before us is to realise this potential.

What should be the immediate economic agenda for the nation?

Over the medium term, there are mainly two areas that require focused attention on the real side. These are agriculture and infrastructure. Within infrastructure, power sector is very important. A substantially large segment of our population depends on agriculture for their livelihood. Improving farm productivity is important to raise their income levels as well as to ensure food security. Foodgrain production should exceed the population growth rate. Agriculture growth is a prerequisite for bringing about significant reduction in poverty. Growth in infrastructure is fundamental for maintaining a sustained overall growth. Infrastructure sector needs to grow at a rate higher than the overall growth rate in the economy. The eleventh five year plan has set high targets for capacity creation in infrastructure. It is important that we achieve this. In the social sector, the most important area that requires attention is health. Making available basic health facilities to everyone is an important way by which we can reduce the impact of poverty. The National Rural Health Mission (NRHM) needs to be strengthened and implemented efficiently.

What should be our priorities in the financial sector?

India’s financial sector has shown great resilience in the current period of global financial meltdown. The twin problems faced by financial institutions abroad were of liquidity and solvency. India’s financial system, on the other hand, does not suffer from a solvency problem. It should become more efficient and should reach out to all productive sectors of the economy. Some reforms in this area are pending in the form of legislation.

We need to get the pending pieces of legislation in the insurance and banking sectors passed. Another important aspect of reform is that the regulatory framework should encompass all segments of the financial system. The biggest failure in the developed world in the recent years has been regulatory failure. We, in India, have succeeded in putting in place a good regulatory frame work. We must ensure that the regulations are followed in letter and in spirit by all financial institutions. The reform process is a continuous one. Its objective is to improve efficiency in the system. Therefore, the process should continue. But it is important to recognise that the emphasis on efficiency does not mean that we ignore considerations of equity. Efficiency and equity must be taken together and weaved into a coherent pattern of growth.

What should be the approach to the high fiscal deficit?

It is estimated that the fiscal deficit of the Centre and the states put together has touched 10% of the gross domestic product (GDP) in 2008-09. Perhaps next year, too, the overall fiscal deficit may be around that level. Such a deficit is warranted in the circumstances faced by the country. However, this level of fiscal deficit is not sustainable over a long period. We should take the Fiscal Responsibility and Budget Management (FRBM) targets as a cyclical average. That is, a level to be achieved over an entire cycle. There may be high fiscal deficits in periods of recession but it should be reduced in periods of boom. We should focus on meeting the FRBM targets once the economy starts achieving higher growth. Keeping the FRBM target as a midterm goal would be good for the country.

What are the benefits of a near majority for the Congress party?

We can look forward to a strong and stable government at the Centre, which is essential for taking appropriate decisions with respect to the economy. It also means consistency in policy formulation. The government will also be able to take strong decisions, which sometimes is difficult in a coalition government.

PM EAC’s Tendulkar offers insight into REVIVAL STRATEGY

PM EAC’s Tendulkar offers insight into REVIVAL STRATEGY
The Economic Times, May 19, 2009, Page 15

The prime minister’s economic advisory council, a key think tank that works hand in hand with the government, had made ‘painful adjustments’ in the country’s growth forecast from its original projection of 7.7% for the last fiscal and 7%- 7.75% for this fiscal when the impact of the economic slowdown was unfolding in January this year. ET caught up with the PMEAC chairman Suresh Tendulkar for a brief chat on what could be done to revive the country’s economic growth. Excerpts:

Do you think that the recent poll results, which is a vote for stability, makes a case for revision in economic growth forecasts by EAC?

The EAC had forecast a growth of 6.5% to 7% for the 2008-09 fiscal. This fiscal year too, we expect that the economy will grow at least at the same rate due to strong domestic demand. The improved confidence in the economy (as reflected in the capital market movements) is a good sign, which I hope, should add to the momentum. The lagged impact of the fiscal stimulus and monetary policy measures taken to stimulate the economy will be evident in the coming days. India’s economy is likely to remain relatively weak in the first half of fiscal 2009-10 and will slowly pick up there after. It is expected to show a fairly strong recovery in second half of the fiscal.

Many independent research firms have started upgrading their growth projections for the fiscal... Your views?

Stability assures room to carry out policies that the leader believes in, and in this case, there are some crucial ones (reforms) that are likely to be rolled out fast. It is easier to roll out reforms, (especially in the pension and insurance sectors) if there is no pressure from coalition partners. The slowdown provides an opportunity to invest in technology and diversify both regionally and globally. I maintain that an overly pessimistic view of the Indian economy is not warranted as rural demand continues to be strong and banks are well capitalised and healthy.

What are the key areas that the government should focus on to achieve development goals?

I think the delivery of infrastructure services, including power and social sectors such as education and health, are the key areas requiring attention. Execution of the social and physical infrastructure projects in the pipeline should be accelerated in rural as well as urban areas. The authorities should also facilitate the flow of credit. This will help in spurring rural demand. International capital goods prices have come down now. Extending technology upgradation initiatives into other sectors should be considered. India is recovering from an economic slow down, not a recession. The forthcoming budget should aim at strengthening the nation’s recovery from the slow down.

Considering the fall in crude oil prices in recent times, don’t you think that it is an opportune time to dismantle the administered pricing mechanism for petro products?

It is. We haven’t had such an opportunity to do away with administered pricing of petroleum products in the last few years. Political resistance to such a move would be minimal now.

Is the high fiscal deficit a matter of worry? What will be your suggestions for the government in managing public finances?

It must be recognised that there is compelling need to adjust the fiscal stance to the exceptional circumstances through which the economy has been passing. There is an equally urgent need to bring government finances back on the track of fiscal consolidation once there is an improvement in economic conditions and before the exceptional ways in present times start to grow into a habit and create a fiscal crisis in the medium term.

This fiscal year too, we expect the economy to grow at least at the same rate (6.5% to 7%) due to strong domestic demand

The delivery of infrastructure services, including power and social sectors such as education and health, are the key areas requiring attention

Expect a fund-raising rush in primary market

Expect a fund-raising rush in primary market
The Economic Times, May 19, 2009, Page 15

The market will remain firm but it doesn’t mean that index can go up everyday; it will be range-bound, and that’s good

One of India’s top investment bankers, Vallabh Bhansali, chairman of Enam Consultants is not one to write off today’s market reaction. The man who has seen several swings in the market over the last three decades says that the UPA government has a great opportunity to put the economy back on track. ET Now’s Ashwin J Punnen caught up with him.

What is your view on the euphoria in the markets today. Do you think that the markets have overreacted?

I think it’s an extraordinary moment in India’s history that the states like Kerala, UP, Bihar, Bengal have decided to change the course. (This has) not happened in the past 50-60 years. And also the fact that a lot of pundits were concerned about where our democracy is going. So I think it’s been very momentous. It’s difficult always to say that you know this is how the market should react. And that seems to have overreacted a little that you know almost without trading your indexes are up more than 2,000 points. To that extent yes, but I think it should not belittle the kind of development the Indian democracy has created. May there was a lot of short position in the market and they were caught very badly. That may have accentuated the euphoric reaction. I expect sanity to come back to the market in a day or two. I see in a 2-3 years time, the Sensex touching super levels which will be way beyond the 21,000 levels. Globally, the liquidity position has improved and I feel that allocation for India will surely go up. I don’t want to give a level for the Sensex but I feel that these levels are sustainable in the near term and we could see upsides from here.

What’s your medium term outlook for the market? Where is it heading to?

I think it’s optimistic and bullish. I think the market will remain good which doesn’t mean that index can go up everyday. It will fall into a range of some kind and that’s good. I think as long as the capital market is there to help companies to raise money, investors to make wise investments and I think we’ll have that kind of scenario.

What according to you should be the top priority for the new government. What policy initiative should they take to kickstart the economy?

I think the government should make use of this five year stability in governance to come up with a phase-wise plan, for the short-term, medium term and full term. And they should spell it out. When you have a populist mandate given to you, there are chances that you get carried away and take measures that are not good for the stability of the economy. In the short-term the government will have to continue with the fiscal stimulation measure to kick start the economy. Even from the capital market perspective, the geo-political agenda should be very important considering the issues in our neighbourhood. The government should take pro-active measures to tackle the issue. The government has a fantastic opportunity to do a lot for the economy and they should seize the opportunity and act.

Looking at the state of the market, will the government be able to push through a massive divestment programme. Will there be appetite for PSU stocks?

Definitely, there will be appetite for PSU stocks if the government carries out divestment in a systematic manner. Here you should not force the market, instead you should use the market. During the NDA government they had bunching of issues, that was bad. If they bring quality PSUs out in the market at realistic prices then they will be able to successfully divest stakes. Corporate governance is an issue in PSUs and the first thing they have to spell out before going out to sell PSU stake is the coprorate governance policy of public sector companies. Valuation is a key part when it comes to market, whether it is public or private. But government should also look at other revenue raising measures. They should look at rolling out new services where they could collect tax or revenues. For example licensing 3-G spectrum, using massive land bank of railways, ports etc.

What is your outlook on the primary market. Do you foresee a revival in the IPO market?

I see the primary market reviving in the near term. We will start seeing companies coming to the public market to raise money. And my guess is that there would a few IPOs hitting the market in next two months time. The market was in a limbo for the past 15 months and it has opened up. You have seen some large companies managing to raise through equity sales in the QIP market. What is heartening is that promoters have become more realistic and practical. I see this as a sign of maturity of Indian promoters.

What about FCCBs that are coming for redemption. Will there be defaults?

With rupee strengthening and the stocks prices rallying FCCB issuers should feel comfortable. I don’t think there will be major problems there. The rupee has touched 48 and it may even go up further. I feel if that happens then the FCCB market itself will revive. If the stocks prices rise, then you would see more conversions.

Realty firms shares on upswing, biggies gain

Realty firms shares on upswing, biggies gain
The Financial Express, May 19, 2009, Page 4

Mona Mehta, Mumbai

Following the Sensex touching 14k mark, shares of major listed real estate companies gained at the Bombay Stock Exchange (BSE). While the shares of DLF Ltd gained 25% on the BSE to close at Rs 325 on Monday, shares of competitor Unitech Ltd gained 29.41% to close at Rs 66. Shares of Indiabulls Real Estate Ltd jumped 38.51% to close at Rs 205. Meanwhile, Orbit Corporation Ltd has also gained an altitude of 20% to close at Rs 104.45. The stocks of Puravankara Projects gained 9.36% on the BSE to close at Rs 69.50.

Ram Yadav, chief financial officer, Orbit Corporation told FE, “The surge in our company’s stocks is purely market-driven. The way real estate stocks are shaping in the last three to four months, we felt that the demand consolidation has started on lower rates and we are confident that the next nine to 12 months look positive for the real estate sector. There is a huge demand sitting in the sidelines which we feel will grow by 20% to 30% by July 2009. “ However, DLF and Unitech officials refused to comment on the market movement.

Prior to achieving gain in stocks this quarter, major real estate companies witnessed dip in growth rate of sales by 82% and net profit by 89% during the fourth quarter of the financial year 2008-09, as per the BSE Realty Index. Since the past two quarters, India's realty players have been facing a liquidity crunch as the cost of funding rose last year amidst the global credit squeeze, while home buyers shied away due to inflated valuations. New projects have since been put on the backburner while many of those under construction are delayed.

As for the rationale behind the recent surge in major real estate stocks, Anshuman Magazine, chairman and managing director, CB Richard Ellis, South Asia explains, “One of the factors that has led to the surge in the stock market is the overall unexpected results of the elections which has had a positive impact on most of the stocks in the market including that of real estate. Besides this, the gain is also on the expectation from the government to ease the liquidity situation and accelerate investment into infrastructure. An improvement in customer confidence and consumption too will have a positive impact on real estate companies.”

Ravi Ramu, director, Puravankara Projects agrees with the fact that the buying sentiments of customers are looking increasingly better. However, he refused to comment on stock surge.

There are other property consultants who also agree that stability is returning as a result of a clear political mandate. Shobhit Agarwal, joint MD, capital markets, Jones Lang LaSalle Meghraj (JLLM) opines, “Without a doubt, both Saturday and Monday have been landmark events. It is evident that stability is returning as a result of a clear political mandate. Monday saw a resurgence of confidence in the Indian business community. This was clearly in short supply over the last three months, given the global economic events that were dictating sentiments over this period. From what we have seen, liquidity is increasing, and we fully expect a positive trickle-down effect on retail investors and home buyers."

Reflecting the triumph of the UPA in the general elections, the sentiments on Dalal Street were nothing less than euphoric with the Indian stockmarkets creating history by hitting a ‘double upper circuit’ as investors scrambled for stocks. Says Dinesh Thakkar CMD Angel Broking said, “The reason for this optimism is not difficult to fathom as with a clearer mandate, the UPA is on strong ground to carry out the reforms required that would push India towards the 10% growth trajectory over the next 5 years.”

Indiabulls to raise up to Rs 3k-cr through QIPs

Indiabulls to raise up to Rs 3k-cr through QIPs
The Financial Express, Corporates & Markets, May 19, 2009, Section II, Page 1

fe Bureau, Mumbai

The shareholders of Indiabulls Real Estate Ltd (IBREL) has approved raising up to Rs 3,000 crore ($600 million) through shares sale to qualified institutional buyers (QIPs), to fund its projects and acquire new businesses, the company informed BSE. With the issue opening on Monday, the allotment of the shares is expected to be made around May 22, the company’s draft prospectus showed. Morgan Stanley is the lead book manager to the issue.

When contacted, Indiabulls director Gagan Banga refused to divulge details about the purpose for raising funds through QIPs. Investment banking sources said the company was expected to use the QIPs proceeds to fund its power projects, mainly a 1,320-mw project planned in Amaravati in Maharashtra. The QIPs was expected to be a precursor to the initial public issue (IPO) being planned by the company, sources said.

QIPs is basically a primary market fund requirement which fuels either the growth or completes restructuring capital in the company. Last week, the founders of DLF, India’s largest listed developer, raised $783 million through a share sale in the firm. In April, New Delhi-based developer Unitech raised $325 million through a placement of shares with institutional investors.

IBREL scrip was one of the biggest gainers in on the Bombay Stock Exchange on Monday, going up by more than 38% to Rs 205. The benchmark Sensex rose by 2,100 points on Monday ahead of breaching the upper circuit, closing at 14,272 points.

In April, IBREL had said that the company’s board had approved a plan to raise $600 million through QIPs of securities. The company has posted a 98.34% dip in net profit at Rs 6.77 crore for the quarter ended December 31, 2008, as compared to Rs 410 crore recorded during the previous corresponding period. The company has reported a 93% dip in total income from Rs 535.72 crore during the quarter ended December 31, 2007 to Rs 37.44 crore during the quarter ended December 31, 2008.

Currently, a number of listed real estate companies are in the process of raising funds across India through QIPs. These include Delhi-based Ansal Group, Sobha Developers, Omaxe Ltd and Bangalore-based Puravankara Projects.

India’s realty players are facing a cash crunch as the cost of funding rose last year amidst the global credit squeeze, while inflated valuations kept home buyers on the sidelines. New projects have since been put on the backburner while many of those under construction are delayed.

Indiabulls group has interests in real estate, infrastructure, financial services, multiplex and power sectors. Indiabulls Group companies are listed in Indian and overseas financial markets. The net worth of the group exceeds $2 billion, according to the company’s website.

Developers find JVs attractive in realty market fall

Developers find JVs attractive in realty market fall
Business Standard, May 19, 2009, Page 4

Raghavendra Kamath & Neeraj Thakur / Mumbai/new Delhi

Cash-strapped property developers, who had leveraged aggressively between the boom years of 2005-2008 to fund land buying, are now increasingly opting for joint ventures (JVs) with owners to save cash while developing land, developers and consultants said.

Developers who are launching new projects are opting for this route, as they need not pay the entire amount in one lot and owners need not forego the potential rise in value. As much as 70 per cent of land deals in the country take place through this model now, against 40-45 per cent a couple of years earlier, say property consultants.

If some developers return built-up space to land owners for their contribution, others share a percentage of revenues with owners. The model changes depending on location, price and potential.

Unitech, the country's second largest developer, has developed 1.5 million sq ft of space in JVs with local companies in Chennai and has launched an office property project in Mumbai in a JV with the local Omkar group.

Delhi-based Raheja Developers, which has 100 acres of land under joint development, is planning to launch an 18-acre luxury residential project in Gurgaon in the next six months under the JV route, wherein they are giving 30 per cent of the apartments to land owners. Mumbai-based Sunil Mantri Realty, which entered into eight JVs in the past year, gives 10-50 per cent of built up area to the land-owners depending on the project.

Tata Housing, a unit of Tata Sons, recently launched a Rs 100 crore low-cost housing project in Bhoisar, in the Mumbai outskirts, in a JV with a local company, wherein Tatas share a certain percentage of revenues with the latter. Tata Housing plans to follow a similar model in other cities and is talking with state governments for public-private partnership agreements, said Brotin Banerjee, managing director.

"The downturn and drying up of bank funds has forced developers to work out this option. A plenty of such options are available today, where developers need to take care of only development and construction cost,'' said Sunil Mantri, promoter of Sunil Mantri Realty.

Analysts say developers are in a difficult situation today due to leveraged balance sheets and fall in cash flows, which is forcing them to look at new options.

"Aggressive land acquisition through leveraging the balance sheet was the mantra during FY 2005-08. Real estate companies hit the equity markets and raised funds to build up a land bank, with the additional intention of reducing debt from operations. However, the with economic slowdown from January 2008, cash flows dried up significantly,'' said stock brokerage Emkay Securities in a recent report.

Developers say the fall in stock and property markets, coupled with slowdown in the economy, is also forcing land owners in places such as Mumbai to opt for JVs with realtors. "Earlier, this concept was popular in the north and south. Now we are getting proposals from cities such as Mumbai too, as land owners are exploring different options to raise money,'' Mantri said.

Adds Anshuman Magazine, chairman and managing director of property consultant C B Richard Ellis: "Terms are in favour of developers when markets are down. It depends on the profile of a developer in such agreements.''

Though the concept is getting popular, some developers and consultants have apprehensions about the model. "Though we are not averse to joint development, we prefer outright purchase, as one gets full control of the land and avoids dealing with land owners later,'' said Rajeev Piramal, executive vice-chairman, Peninsula Land.

Says Mantri: "It is fine as long as the deal is structured properly. If the sharing is unreasonable, then it will put both developers and land-owners in trouble.''