Real Estate Intelligence Report, Tuesday, June 09, 2009

Economy should grow at least 6.7% in ’09-10’

Economy should grow at least 6.7% in ’09-10’
Times of India, June 9, 2009, Page 21

TIMES NEWS NETWORK

New Delhi: With some sectors of the economy still reeling under the impact of the global economic downturn, deputy chairman of Planning Commission Montek Singh Ahluwalia on Monday said that the plan panel is discussing with the finance ministry the possibility of raising planned outlay for some sectors in the coming Budget.

After being reappointed as plan panel chief, Ahluwalia said: "What we are looking at is, is there a case for doing a little bit more (in plan expenditure) in some sectors."

With economic conditions turning better, he was optimistic that the economy should record at least 6.7% growth rate this fiscal, the same witnessed in 2008-09.

The plan panel chief said basically expenditure absorption capacity of different sectors was being looked at for making "some" recommendations. "Obviously how much can be done depends on what you regard as a tolerable overall fiscal deficit, and that is one of the key issues being discussed with the finance ministry at this moment," Ahluwalia said.

Indicating major expansion of flagship programm es, the deputy chairman argued in favour of raising resources through part disinvestment of public sector undertakings (PSUs).

"What I can say is we should at least be aiming at the same growth as achieved last year and I think we could do a little better," he said.

Many people say 7% growth is not impossible this fiscal and some believe it could be better, he said, adding that a lot depended on how the global economy behaves in the second half of this fiscal.

Accepting that the entire 11th plan may need a major change after the mid-term review, Ahluwalia said that the corrective measures would be taken after considering global economic trends and their likely impact on the Indian economy.

He said new initiatives in the pipeline are being indicated by the government at various fora and depending on the absorptive capacity of various programmes and their likely impact on the recovery process, the government should consider additional allocation. Such increases will have to be kept within the acceptable fiscal deficit limits, he added.

Speaking on the proposed food security Bill, Ahluwalia said it was very important to ensure availability of food and for this the country needed to increase productivity. "We will soon to have an Act to ensure food security and the objective is to secure food requirement of the weakest sections of our society. But in the larger perspective, we require assurance of adequate food supply and its affordability," Montek Singh Ahluwalia said.

Plan panel sees bright outlook for current fiscal

Plan panel sees bright outlook for current fiscal
The Hindu Business Line, June 9, 2009, Page 15

World economic situation ‘much more favourable’ now.

–Ramesh Sharma

The Deputy Chairman, Planning Commission, Mr Montek Singh Ahluwalia, addressing a press conference in the Capital on Monday.

Our Bureau, New Delhi

The Planning Commission sees economic outlook brightening up for the current fiscal even though the country achieved only 6.7 per cent in 2008-09 which was preceded by four years of high growth.

Addressing a news conference on the first day, after he was reappointed as the Deputy Chairman by the Prime Minister last Friday, Mr Montek Singh Ahluwalia, said, “We must at least aim at the same growth rate as last year. We will do a little better, but a lot depends on how the global economy behaves in the second half of the year”.

He maintained that the current economic situation worldwide is “much more favourable” compared to three months ago, adding that “everybody expects that sharp downturn is coming to an end but people are not sure how good a rebound we are going to see in the world economy”.

Fiscal deficit

Asked about the concerns on rising fiscal deficit in the wake of two stimulus measures and an interim budget on the economy and whether the Government would revisit fiscal deficit targets, Mr Ahluwalia parried them off by pointing out that there were various other methods than direct spending, which the Government could deploy to spur growth.

He said the Government was weighing various options on what more could be done for certain sectors reeling under the impact of slowdown.

To augment investment in the infrastructure sector, he said the Government could look at relaxing norms for India Infrastructure Finance Co Ltd (IIFCL), which has raised substantial amount through tax-free bonds for re-financing infrastructure projects which were approved after March 31. He said that “we are at a stage where we can invite bids for big infrastructure projects”.

Disinvestment

On disinvestment, he said the Government could look at disinvestment in public sector undertakings as a rational way of mobilising resources. “Disinvestment is a rational proposal. There is a lot of scope to raise resources through disinvestment. There should be no objection if the Government brings down its stake to 51 per cent in PSUs”.

To a query on any further stimulus measures to stoke demand and revive activity across the real sectors of the economy, Mr Ahluwalia refused to comment as the budget preparation is under way in the Finance Ministry. “We are in discussion with the Finance Ministry about the appropriate size of the planned expenditure for this fiscal and how much we can do with regard to what is tolerable fiscal deficit level.”

Fuel prices

On deregulation of fuel prices, Mr Ahluwalia said that he has not seen any proposal from the Government so far but said that while the policy should favour domestic prices to get aligned with international crude prices progressively, the domestic users of kerosene should be subsidised.

He said the unique identity cards to be issued to citizens would be eventually converted into smart cards to those people below the poverty line and other welfare programme beneficiaries to ensure targeted use of such subsidies to avoid wastage of precious resources.

On the consolidation of flagship programmes of the UPA Government as outlined in the President’s address to Parliament, Mr Ahluwalia said that this is needed not only to get benefits to the intended people as also to avert overlapping of programmes to ensure efficiency of resources use.

SEZs to raise overseas loans

SEZs to raise overseas loans
The Financial Express, June 9, 2009, Page 1

Sunny Verma, New Delhi

External commercial borrowing (ECB) norms are slated to be liberalised further with the government planning to expand the list of sectors that can raise funds overseas. Among the biggest beneficiaries of the move will be developers of special economic zones (SEZs).

RBI has finally agreed to allow SEZs to raise overseas loans under the same guidelines as infrastructure firms—a proposal that it has been resisting since 2006. This is a significant change in stance as the central bank has hitherto treated SEZs as real estate projects. RBI conveyed its altered view to the finance ministry last month, officials said.

Funds in the overseas credit market are relatively cheaper than domestic debt. SEZ developers would probably be allowed to raise international funds for any purpose, except the purchase of land, officials said.

The proposed relaxation comes as a part of an overall review of ECB policy being carried out by the government to ease the flow of capital into the critical infrastructure sector. The high-level coordination committee on ECBs—comprising finance secretary Ashok Chawla, an RBI deputy governor and other senior officials—is expected to finalise the new norms this week.

“It will give us access to overseas funds and ease the credit constraints faced by developers. Even the eGoM (empowered group of ministers) has recommended this to RBI,” said Export Promotion Council for EOUs & SEZ Units director-general Lalit B Singhal.
Last November, the eGoM has suggested to RBI that SEZ developers be allowed to raise up to $500 million in ECBs annually. The eGoM, chaired by Pranab Mukherjee, who is currently the finance minister, had also asked RBI to treat SEZs as infrastructure projects rather than real estate projects.

The real estate tag assigned by RBI bars SEZ developers from raising ECBs, while raising the risk weight assigned by banks on loans to them. However, units based in these zones are permitted to raise overseas loans.

“It is broadly consistent with having SEZs that are export oriented. Now raising funds abroad will be easy since there is lot of global liquidity. But the question is, at what price,” said a leading economist, who asked not to be named.

The Ashok Chawla-led committee, which meets this week, has also debated the issue of allowing infrastructure firms to replace their rupee loans with foreign debt as a temporary measure.

This was seen as appropriate in light of the bloated borrowing programme of the government, which could crowd out corporate India when demand for credit is likely to pick up in the second half of this fiscal.

Realtors cash in on the great Indian affordable home rush

Realtors cash in on the great Indian affordable home rush
Business Standard, June 9, 2009, Page 1

Raghavendra Kamath & Neeraj Thakur / Mumbai/new Delhi

A fortnight ago, Jaypee Greens started bookings for its housing project — Aman — at the 70-acre residential township on the Greater Noida Expresssway. All the 3,000 flats, priced at Rs 2,100 a sq ft, were sold out by the first day. Exactly a year ago, the Jaypee Group company was offering flats along the same expressway for Rs 4,500-6,000 a sq ft.

Two days later, another Delhi-based developer, BPTP, announced that it had received bookings nearly four times more than its offer of 1,000 flats at its 1,500-acre township at Faridabad.

Welcome to the great Indian home rush at a time when the glitter of the premium segment has faded. Real estate companies are now going to the other extreme and falling over each other to offer affordable housing at a price range of Rs 5 lakh to Rs 50 lakh.

The varied pricing is a function of affordability being a relative term, depending on the location. For instance, a Rs 50 lakh apartment in Mumbai is considered affordable housing. In a city like Nagpur, the same price will qualify for premium housing. There is no confusion, however, with the huge target consumer base: 23 million Indians earning at least Rs 5,000 a month who do not own a house but aspire to do so, according to a study by Asish Karamchandani, CEO of Monitor India, a management consultancy firm.

That’s a good enough reason for Unitech’s GM (Corporate Planning) R Nagaraju to say the company would be “churning out affordable flats just like a factory produces goods”.

The country’s second-largest developer has shelved all premium housing projects for now. Poor response from buyers also prompted the company to recently convert its luxury project, Unitech Grande in Noida, to a mid-income project.

If Jaypee and BPTP hit the jackpot in the National Capital Region, others weren’t far behind. The Lodha Group, for example, has broken the sub-Rs 2,000 per sq ft price barrier in Mumbai by launching a 6,500 unit affordable home project at Dombivli at Rs 1,998 a sq ft. The integrated township will be spread over 125 acres with 3,500 houses.

The scene is the same elsewhere in the country. Bangalore-based CSC Constructions has launched three projects in the IT city, offering 2,000 apartments at Rs 5-13 lakh. Encouraged by the response, CSC has six more such projects in the pipeline.

Chennai hasn’t escaped the low-cost housing bug either. A subsidiary of Puravankara Projects, for example, sold 2,500 such homes in the Tamil Nadu capital within days and is now planning to develop 60 million sq ft of such properties over five years across five cities.

There are no firm estimate of the total number of such affordable flats on offer, but back-of-the-envelope calculations show top developers such as DLF, Unitech, HDIL and others are planning over 55 million sq ft of new launches this financial year, around 90 per cent of their total number of new projects.

According to a study by PropEquity Research, 74 per cent of residential apartment sales in Mumbai in the first quarter of 2009 came from the low-cost segment. The trend was the same in Gurgaon and Chennai, too, where the corresponding numbers were 60 and 58 per cent. In all these cases, the apartment sizes were reduced and the average prices corrected 15-25 per cent, PropEquity data show.

This shift towards low-cost or affordable housing started after home sales fell up to 70 per cent in the early part of this calendar year from their peak in 2007-08. “People were earlier going for aspirational houses, as their salaries were going by 20 to 25 per cent every year. But now they have realised that salaries are not going to go up any time soon and those who have reached the top levels have already bought houses,” said Anshul Jain, chief executive officer, India, DTZ International Property Advisors.

Developers build on low margins, high volumes

Developers build on low margins, high volumes
Business Standard, June 9, 2009, Page 5

Raghavendra Kamath & Neeraj Thakur / Mumbai/new Delhi

Does low-cost housing make economic sense? It seems to. Developers believe the loss in margins (20 per cent in affordable housing, against 50-300 per cent in case of premium housing) can be made up somewhat by the sheer volumes of sales. Rajeev Talwar, group executive director of DLF, says: “Every group has to chart out its strategy. We have decided to take on the market by pricing our products 30 per cent lower than others, even if it means less margins.”

In any case, as Rashesh Shah, chairman of brokerage firm Edelweiss points out, the days of making a killing are over. “Sales weren’t happening anyway and developers have finally realised that they would survive only if they brought prices down,” Shah says. That realisation has prompted developers to tweak their strategies and reduce apartment sizes to attract home buyers. For instance, Unitech has stopped giving modular kitchens and is laying vitrified tiles instead of expensive marbles in its affordable housing projects, apart from cutting parking and basement space. It also restricts the total floors in a building to three-four to save on construction costs.

“The average cost of our land is Rs 200 a sq ft and construction cost varies from Rs 900-1,500 a sq ft. In affordable projects, we keep construction cost to the bare minimum. We design our buildings and use materials accordingly,” says a Unitech official.
Besides, Unitech has reduced the size of its apartments to 800-1,000 sq ft, on an average, from 2,000-2500 sq ft a couple of years ago, even as the price per sq ft has come down to Rs 3,000 from Rs 4,500 a sq ft earlier.

DLF, too, is changing its housing designs in Gurgaon to squeeze in more two-bedroom units. Scores of property developers, such as Akruti City and Parsvnath Developers, use pre-fabricated slabs in their buildings, which help them save 15-20 per cent in costs against manually-laid slabs in their buildings. While others, such as Unitech, Ansal API and Omaxe, import sanitaryware and fittings from countries such as China, Malaysia and others, as these are 10-15 per cent cheaper than Indian products.

Most developers are also focusing on completing their housing projects in 30 months instead of the earlier 36 months, using advanced technology.

Tata Housing, which is building 15,000 low-cost homes in the country, is keeping construction cost to about Rs 700 a sq ft by sharing returns with the land owners, according to Managing Director Brotin Banerjee.

The company is in advanced stages of talks with the Delhi-based Raheja Developers (which owns the land) to initiate a similar low-cost project at Manesar near Gurgaon. The apartment size will range between 283 sq ft and 465 sq ft each. Plans are on the anvil to start similar projects, called Shubh Griha, in Chennai and Kolkata and, subsequently, in other Tier-I and Tier-II cities.

What also helps are the measures announced by the government — special interest rates for sub-Rs 20 lakh home loans. Public sector banks charge a maximum interest rate of 8.5 per cent for loans below Rs 5 lakh and 9.25 per cent for those between Rs 5 lakh and Rs 20 lakh. A marginal part was also played by the lower input costs of steel and cement, which has seen some softening in the last 12-18 months.

All’s not over for premium Unitech’s GM (Corporate Planning) R Nagaraju could have been exaggerating when he said premium housing had become extinct. The fact is quite a few companies are still operating at different price-points and the real estate market has got segmented,though with a bias towards low-cost projects.

For instance, just seven days after Tata Housing announced its Shubh Griha project, group company Tata Realty announced a high-end residential project in the Chennai special economic zone. At Rs 13,000 a sq ft, the price tag for the smallest apartments would be Rs 2.6 crore and the largest Rs 3.9 crore.

The complex would have about 180-200 apartments and is getting an encouraging response. For Tata Housing, too, Shubh Griha is just one of the eight projects the company is taking up. But, going forward, the company expects low-cost housing to have a 20-25 per cent share in the total mix, while another 25-30 per cent would be accounted by mid-income homes, with high-end products taking up the balance.

Abhishek Lodha, director of the Lodha group, says the company would build premium housing for margins, and mid-income housing for volumes.

The company has launched five mid-income housing projects in Mumbai and an equal number of high-end projects in South Central Mumbai. The Lodha Bellissimo in Mumbai’s Mahalaxmi area, for example, is offering super-luxury apartments spread across 48 floors.

Or, take Emaar MGF, for example. The company recently launched ‘The Terraces’ with an aim to cater to the growing mid-market segment. Phase-I of the project is expected to be completed by 2010, with units priced at Rs 36 lakh onwards. It would house three independent dwelling units, with the ground floor priced at Rs 46 lakh, first floor at Rs 38 lakh and the second floor at Rs 36 lakh — not exactly low-cost, but affordable for the mid-income population. The company, however, is also operating at a much higher price-point too — Commonwealth Village, for example, despite the temporary hiccups.

Many also say it’s just a matter of time before the premium housing market comes alive. Aditi Vijayakar, executive director (residential), Cushman & Wakefield, says: “In the future, as the demand for luxury projects gains momentum, big players will once again change their portfolio to high-end apartments.”

Then there are, of course, recession-proof areas, like Mumbai’s Bandra or Santa Cruz. Prices continue to rule high at Rs 20,000-40,000 a sq ft, mainly because of the demand-supply mismatch and the aspirational value. Real estate developers all over the country must be hoping the tag extends to many other areas as well.

Sensex suffers vertigo, slumps to five-week low

Sensex suffers vertigo, slumps to five-week low
The Economic Times, June 9, 2009, Page 17

INVESTORS BOOK PROFIT AS MANY FEEL CURRENT VALUATIONS ARE STRETCHED

Our Bureau MUMBAI

EQUITY benchmarks on Monday declined the most in five weeks, mirroring global weakness, as investors booked profits on concerns that recent upsides were not sustainable unless corporate earnings showed signs of recovery. With the wider section of the market perceiving that stock valuations are stretched for the moment, brokers expect Indian equities to continue tracking global trends, at least till a few sessions before the Budget on July 3.

BSE’s 50-share Sensex closed at 14665.92, down 437.63 points, or 2.9%, over the previous close. NSE’s 50-share Nifty ended at 4429.90, down 157 points, or 3.42%. Secondline shares bore the brunt of the sell-off, with the BSE Mid-cap and Small-cap indices tumbling 5-6%. Trading in 806 stocks on BSE were frozen at the lower end of the intraday circuit filter after there were only sellers.

The bear domination in the market was complete, with losers thrashing gainers 2246: 582 on BSE.

“There was no newsflow to trigger the correction, so it had to be profit booking,” said Prateek Agrawal, V-P and head-equity, Bharti AXA Investment Managers. “Of course, there are concerns about the sudden strengthening of the dollar against the rupee and uncertainty whether certain QIPs (qualified institutional placements) may get closed or not,” he added.

Money-starved Indian companies have rushed to raise money through QIPs in the past month or so, thanks to the sharp rebound in stock prices worth 70-90% over the past three months. Brokers said some of these QIPs were steeply priced, sparking fears if they would find buyers and would convey the ‘wrong signals’ to investors about stock valuations.

On Monday, foreign institutions net bought Indian shares worth Rs 831.95 crore while their domestic counterparts net sold worth Rs 480.13 crore, according to provisional NSE data.

Shares of software majors bucked the broader weak trend due to the rise in dollar against the rupee. Since most software companies bill majority of their revenues in dollars, investors hope the strengthening of the US currency would boost profits.

But, analysts are cautious about the immediate prospects of top software shares such as Infosys, TCS and Wipro on apprehension that existing prices do not justify earnings.

“FY10E P/E (price to earnings) multiples have increased ~67- 86% YTD (year-to-date) for frontline IT stocks, even as consensus EPS (earnings per share) estimates have declined 9-14%,” said BNP Paribas Securities India’ Abhiram Eleswarapu and Avinash Singh, in a report.

“This reflects not just increased risk appetite for equities, in our view, but also investors pre-empting significant earnings upgrades,” they added.

Realtors go for management contract model

Realtors go for management contract model
The Economic Times, June 9, 2009, Page 10

Gouri Agtey Athale PUNE

SINCE land is the one feature common to businesses as diverse as hotels, hospitals, educational institutions and golf courses, real estate developers are diversifying into these areas.

They are looking at extending the management contract model of the hospitality industry to the other businesses. In hotels and hospitals, developers are looking at management contracts while building their own schools and colleges, which will be run by professionals.

Well-established local hospitals also see the value in this. For instance, Ruby Hall Clinic, an established hospital in western Maharshtra, has tied up with two developers for three hospitals, each with 170-180 beds. It will also set up one hospital on its own, Ruby Hall Clinic’s Parvez Grant said. He added that when a hospital is majority-owned by a developer, it will retain the brand name Ruby. The chairman and managing director of Vascon Engineers R Vasudevan, a developer, said he is working on a three to five years strategy, where he will have verticals in the main company. These verticals will be for hotels, hospitals and educational institutions.

“We are already in the hotel space. Of our eight hotel properties, we are majority stakeholders in five and minority in the balance three, with plans to add one hotel property annually. We will consolidate our hotel projects, buying out our minority partners. This exercise is currently underway, to separate those hotel properties in which we have a majority stake from the ones in which we are minority shareholders,” Mr Vasudevan said. Vascon Engineers’ hotel vertical could be formed in another six months. Indications are that he could consolidate all FDI-compliant projects, making it easier to route the funds.

Another developer, Oxford Properties, has made some progress. Its chairman, Anil Seolekar, said they have formed separate companies to look after their allied businesses. The developer has a 10-15 year plan and this includes a small city, an 800-acre development in the Lavale .

Omaxe to raise Rs. 1,800 cr

Omaxe to raise Rs. 1,800 cr
The Financial Express, Corporates & Markets, P VIII

Realty developer Omaxe on Monday said it will raise Rs. 1,800 crore through various means, including issuing securities to qualified institutional buyers on a private placement basis, and hiking the FII limit in the company to 40%. The company will raise up to Rs. 1,800 crore by various means, including by issuance of further securities to persons other than the existing equity shareholders and also by way of qualified institutional placement, Omaxe said.

CII expects recovery by second half of current fiscal

CII expects recovery by second half of current fiscal
The Hindu Business Line, June 9, 2009, Page 15

Our Bureau, New Delhi

The Confederation of Indian Industry (CII) said that it expects an economic turnaround and recovery to happen only by the second half of 2009-10.

In its ‘Northern Region Business Outlook Survey’, the industry chamber said that the overall outlook for business is better for the current six months (April-September 2009) as compared to the last six months (October-March 2008-09).

Based on 132 industry responses across Chandigarh, Delhi, Haryana, Himachal Pradesh, Jammu and Kashmir, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand, the survey also looked into the expectations on investments, capacity utilisation, sales, availability and cost of credit.

According to CII, the results were encouraging with positive expectations across the spectrum.

The main concerns for the industry, as outlined by the respondents, were slackening consumer demand, global economic instability, besides an unstable currency, which harmed exports and high interest rates.