Real Estate Intelligence Report, June 19, 2009

Road to recovery

Road to recovery
ET Realty, June 19, 2009, Page 1

After a long lull, housing sector is back in business. Some real 'actions' are being witnessed in the realty market, including the high-profile launches of some major projects coupled with increased sales inquiries. ET Realty reports

Sanjeev Sinha

Spurred by price corrections, new launches, lowering of interest rates, increase in sales inquiries and, more importantly, the newfound mantra of 'affordable housing', the real estate industry has started showing signs of recovery. Industry body Assocham has gone to the extent of saying that the real estate recovery is possible in the coming three months. A recent Assocham Business Barometer (ABB) survey has found that anticipating strong policy measures for the real estate in the forthcoming Budget, embattled realty majors see positive signs of recovery taking place within the next three months as affordable housing projects rev up demand and improved cash flows address their liquidity concerns.

As per the survey, a whopping 92% of the respondent developers considered affordable housing as the most dominating segment to shore up the demand in real estate sector. And the policy actions supplementing the robust demand in the housing sector are likely to hold the key for a s p e e dy re c ov - e r y p h a s e in the s e c - tor.

Although the findings of this survey may seem to be too optimistic, particularly in view of the prolonged slowdown in the industry, but taking the current positive signs in the property market into account, both industry majors as well as ex perts feel the real estate recovery is not a distant dream. And they have ample reasons to believe this.

Firstly, after a gap of more than a year, some real 'actions' are being witnessed in the realty market, including the high-profile launches of some major projects coupled with increased sales inquiries. Along with that, some realty majors are also said to have recorded an overwhelming response for their upcoming projects. For instance, the Jaypee group claims to have booked all the 3300 apartments of Jaypee Greens Aman, its new residential project in Noida, within 24 hours of their launch, while Capital Greens, DLF's first residential project in Delhi, is claimed to have showed bookings of 1,400 flats on the first day itself. Such instances only prove that buyers and strategic investors are once again warming up to the sector, though in a restricted manner. Secondly, the Indian economy recorded a betterthan-expected growth rate of 6.7% in 2008-09. "The GDP growth rate, clocked in tumultuous times of global financial crisis, lends credibility to the presence of real domestic demand and consumption continuing to fuel the economy, though albeit at a reduced growth rate," says Neeraj Bansal, associate director - advisory services, KPMG.

Thirdly, sensing a nearterm economic recovery and, resultantly, expecting the realty sector to outperform other sectors in the months to come, fund managers are reposing their faith in real estate. This explains why in the month of April, mutual fund houses increased their exposure in the realty sector to Rs 308.16 crore as against Rs 98.76 crore in March, translating into a whopping 212.03% rise in the exposure.

Fourthly, there is a renewed faith of overseas investors also, stemming from the series of steps taken by developers to improve their financial position." Unitech has, for instance, cut debt by Rs 2,000 crore while DLF has repaid Rs 1,700 crore of loans in the past year. And similar is the case with lots of other large and mediumsized developers," says Bansal. Fifthly, home loan disbursements by the country's top lenders, which signal the actual demand for homes, is also improving. HDFC saw its fourth quarter disbursals going up by 17.5% at Rs 12,400 crore, while LIC Housing saw an increase of 42% and 22% in March and in Q4, respectively. Moreover, a general softening of interest rates has also helped developers cut their borrowing costs by as much as 300 basis points.

However, more than anything else, 'affordable housing' is believed to have currently taken the industry by storm. "Affordable housing will play a significant role in the real estate recovery over the next few months as developers are now connecting with 'real buyers' for the 'real prices' and are pricing projects more competitively," says Bansal.

Brotin Banerjee, MD & CEO, Tata Housing, agrees. "The demand for new homes has picked up in the second quarter of 2009 from the previous one. Increasing interest in affordable and lowcost housing is widely expected to help India's real estate market make a recovery in 2009 to 2010," he says.

Another important thing is that the government intends to focus on the construction of affordable housing for the poor and middle class people across the country by involving the private sector, and has assured that emphasis will be placed to facilitate the flow of institutional funds for affordable housing.

However, apart from a combination of all these factors, the industry needs further stimulus to move ahead on the road to recovery. "The pace of introduction and implementation of favourable government measures, 'better pricing' and 'innovative product & schemes' by developers supported by 'lowered interest rates' by banks will chart the course towards recovery in its true sense. An overall improvement in investment climate is essential for recovery," says Bansal.

Sebi allows anchor investors in IPO market

Sebi allows anchor investors in IPO market
The Financial Express, Corporates & Markets, June 19, 2009, P1

fe Bureau, Mumbai

In a move that would boost confidence of investors in the IPO market, market regulator Securities & Exchange Board of India (Sebi) has allowed anchor investors (qualified institutional investors) in initial public floats of companies with a lock-in of 30 days from the day of listing. The Sebi has also made it mandatory for unlisted companies tapping the capital market to get listed in at least one exchange having nationwide terminals.

Market experts say both these steps would help in raising the confidence and quality of the primary market in India. Normally, whenever a company comes out with an initial public offer, its success or failure depends on the response it gets from the qualified institutional buyers. Retail investors largely apply for an IPO only on the closing date, after seeing the response of institutional investors.

“Issuers felt that if some qualified institutional buyer is ready to invest even before the public issue, it would give confidence to retail investors,”said Sebi chairman CB Bhave today, while announcing the board's decision.

Reacting to the development, Deven Choksey, MD, KR Choksey Securities, said: “The anchor investors would provide a safety net for IPOs in adverse market conditions. With anchor investors stepping in, retail investors would feel more secure and comfortable in subscribing to any public issue."

The anchor investors are supposed to bring in 25% upfront money before the issue and the remaining 75% within two days of allotment. Moreover, no person related to the promoter or promoter group and book running lead managers can apply as anchor investors to ensure more certainty to transactions.

"By not allowing promoters or promoter-related groups to apply as an anchor investors, Sebi has ensured that round tripping of promoters' money would not happen. This would also ensure that the anchor investors are knowledgeable and genuine, which would give a positive signal to other investors," said, Amitabh Chakraborty, president (equity), Religare Securities.

Making it mandatory for unlisted companies to get listed in a stock exchange having nationwide presence would weed away poor quality IPOs and ensure that only genuine companies tap the market, felt Choksey.

Regulator diktat

•Sebi has made it mandatory for unlisted companies tapping the capital market to get listed on at least one exchange having nationwide terminals

•Whenever a company comes out with an IPO, the success or failure depends on the kind of response it gets from QIBs

•Anchor investors are supposed to bring in 25% as upfront money before the issue and the remaining 75% within two days of the allotment

No inflation for first time in 30 years

No inflation for first time in 30 years
Hindustan Times, June 19, 2009, Page 1

At -1.61 per cent, the wholesale price based inflation rate turned negative for the week ended June 6 — the first time in three decades, according to government data released on Thursday.

Inflation measures the rate at which prices go up.

For consumers, however, there is little to cheer, as the negative inflation rate does not mirror the movement in retail prices that continue to rise or remain at elevated levels.

The index used to measure the inflation rate based on wholesale prices assigns only 22 per cent to food and essential commodities that determine the cost of living of most people.

Prices in this category rose 5.7 per cent in the week ended June 6, but the increase was more than offset by a 12.7 per cent drop in prices of fuel products.

In this month last year, the government had sharply increased petrol and diesel prices to cut losses of oil companies. As global crude prices softened, prices of petrol and diesel at home were restored to pre-June 2008 levels.

“(The) wholesale price index is likely to be in the negative region for some time to come. This is something ...(that does) not really lead us to any major policy shift,” Finance Secretary Ashok Chawla told reporters.

Negative inflation not cause of concern: Montek

Negative inflation not cause of concern: Montek
Hindustan Times - Business, June 19, 2009, Page 21

Inflation moving into negative territory is not a cause of concern, Planning Commission Deputy Chairman Montek Singh Ahluwalia said on Thursday.

"It is not a cause of concern whatsoever," he said while commenting on inflation, which turned negative -1.61 for the first time after more than 30 years.

He further said it was expected that "inflation would appear negative for a little while".

Having touched a peak of 12.9 per cent in August last year, inflation turned negative in the first week of June declining by 1.6 per cent. Though inflation turned negative, the prices of food items like fruit and vegetables, cereals and oil have continued to move up.

"This (negative inflation) is not a matter of crisis rather this is course correction or normalisation. There is nothing to worry as this is happening because of the base effect," Planning Commission member Saumitra Chaudhuri said.

According to Chaudhuri, "as prices had risen to very high level last year, the negative inflation is more of a statistical issue."

Voicing out a similar view, Prime Minister's Economic Advisory Council (PMEAC) Chairman Suresh Tendulkar said that the negative inflation is a temporary phenomenon and is mainly due to base effect.

Inflation in sub-zero zone; govt unfazed

Inflation in sub-zero zone; govt unfazed
The Financial Express, June 19, 2009, Page 1

Economy Bureau, New Delhi

For the first time in over 30 years, inflation turned negative at minus 1.61% for the week ended June 6. But analysts and policy advisors said India did not face the threat of a contraction in demand-or deflation-as the economic growth was holding up.

The negative reading of the inflation figure was mainly from the high base effect since inflation was elevated during the same time last year. Inflation was at 11.66% during the same week last year.

Inflation is likely to remain in the negative zone for 2-3 more months, primarily on this statistical effect. A deeper reading of the inflation data, however, reflects that the price pressures still persist and have the potential to spoil the party, especially since oil prices have moved above $70 a barrel in the international markets on hopes that the slowdown was thawing.

“Inflation numbers are unusual but not unexpected. This does not really lead us to any major policy shift,” finance secretary Ashok Chawla said. According to him, falling inflation is not a reflection on demand contraction as the economy is growing.

Steep upward revision in the inflation data–sometimes by as much as 70 basis points since March 2009–indicates that inflation is on the rise. This, coupled with visible stability in the domestic economy, means the Reserve Bank of India is unlikely to cut policy rates, even though industry chambers on Thursday stepped up their demands for further reduction.

Some public sectors banks, though, plan to cut interest rates.

“India is in no way going into a deflationary zone; rather inflation is on the rise,” said Planning Commission member Saumitra Chaudhuri.

Another senior policy advisor, who asked not to be named, said, “If you see the accumulated inflation for this fiscal, it’s already turning higher compared to 2007-08.

More importantly, March onwards, the difference between the revised and provision inflation numbers is increasing. When this happens, it is a sure sign that inflation is on the rise. On the other hand, when the difference is lesser, it implies that inflation is decreasing.” For the week ended April 11, inflation was revised to 0.96% from 0.26% recorded during provisional estimates. Ignoring the inflation data, the 30-share BSE Sensex ended down 1.77% at 14,265.53 points as investors looked to book profits on an 80% rally since early March.

Chawla said, “It’s (negative inflation) a technicality borne out of the fact that fuel prices were very high during the corresponding period last year,” International crude oil, currently at $71 a barrel, was trading around $140 a barrel during the same period last year. As a result, the fuel index slipped by 13% to 326.2 from 374.2 in the corresponding week a year ago.

Planning Commission deputy chairman Montek Singh Ahluwalia said negative inflation was not a cause of concern. Former chairman of Prime Minister’s Economic Advisory Council Suresh D Tendulkar said RBI was unlikely to cut rates. “Some banks are already reducing their lending rates so I don’t see RBI cutting the policy rate,” he said.

“While primary articles were up 5.8%, manufactured products stayed flat (0%) and the fuel price index contracted by 12.8%. Of the headline -1.6% WPI, 1.3% was attributed to primary articles but this was offset by a -2.89% contraction in the fuel index,” Citi India wrote in a note on Thursday. While negative WPI readings will likely persist for the next 3 months, we expect inflation to edge up to 4% by year end, it said.

In its annual review of the monetary policy 2009-10 in April, RBI has projected inflation would turn negative during the year. “This is only of statistical significance and is not a reflection of demand contraction as is the case in advanced economies,” RBI had said.

The finance ministry projected the inflation rate to remain positive based on de-seasonalised inflation data. “The de-seasonalised month to month inflation rate turned positive in March, 2009, and remains so in April and May.

On an annualised basis, the (de-seasonalised) WPI inflation rate was 3.2% in March. Based on provisional data it declined to 0.8% in April and then shot up to double digit in May, 2009.

Inflation is, therefore, very likely to turn positive before the end of the year and be positive for the year as a whole (average for 2009-10),” the ministry said in a statement on Thursday.

WPI turns negative | But This Is No Deflation

WPI turns negative But This Is No Deflation
The Economic Times, June 19, 2009, Page 10

FINALLY, we have a negative inflation number. The wholesale price index for the week ended June 6, 2009 fell by 1.61% from a year ago, provisionally. This is the first fall since December 1978, and is largely due to the high base effect caused by the sudden jump in prices last year. Inflation was rising at an accelerated pace early June last year, driven by the sharp rise in prices of fuel and power as well as manufactured goods. The WPI had reported a 11.7% rise for the week ended June 7, 2008. The situation has dramatically changed since then. Growth collapsed globally with many countries slipping into a recession. And this cooled commodity prices, including that of petroleum products. Earlier this year when the rise in inflation began to ease, some feared that India could slip into deflation. Indeed, that was an exaggerated fear, although the pace of growth slowed. Even the latest set of inflation numbers should not fuel any such concerns. Anecdotal evidence suggests that demand is reviving, much of it due to the three fiscal stimulus packages and cheaper cost of borrowing. Indeed, many economists have dismissed the negative number as a statistical phenomenon. The declining inflation may persist for a few weeks due to the high base last year.

At the same time, it should be noted that general price level continues to rise, albeit at a slower pace compared to the same period of the last year. Since the beginning of this fiscal, the index for all commodities have risen 1.8%, for primary articles by 3.5%, for fuel group by 1.6% and for manufactured products by 1.4%. It must be noted prices of manufactured products — constituting about 64% of the index — continue to rise on a week-on-week basis. Prices of primary food articles such as fruits and vegetables slipped compared to last week. However, prices of these products are unlikely to stay depressed for long. With monsoon expected to be somewhat weak, prices of farm produce are bound to rise. Also, the declining inflation has not meant that cost of living is falling. The consumer price index (CPI) for industrial workers rose a faster 8.7% in April 2009 compared to 8.03% in March. CPI for rural and agricultural labourers also continued to rule above 8.5% in April 2009.

SEBI ends entry load for MF schemes

SEBI ends entry load for MF schemes
Hindustan Times Business, June 19, 2009, Page 21

Investors will not have to pay an entry load for investing in mutual fund schemes anymore. They will instead pay a commission to their distributor or advisor directly and the quantum of the upfront commission would be mutually agreed upon.

This decision was taken by Securities and Exchange Board of India (SEBI) at its board meeting on Thursday in a move that shifts mutual fund selling to a fee-based regime.

Investors currently pay entry load of 0.5-2.25 per cent on the amount they invest in mutual fund schemes, though some mutual funds do not charge if the investment is made directly and not through a mutual fund distributor or advisor.

“Now, mutual fund investors will be deciding how much commission they want to pay and would be paying it directly to distributors,” C B Bhave, Chairman of SEBI, told reporters.

“Which distributor will sell mutual fund now?” asked the head of a leading mutual fund, who did not want to be identified. “There is no incentive for them to sell funds, they will only sell ULIPs, which gets them high commissions.”

However, Sudip Bandyopadhyay, managing director, Reliance Money, the largest distributor of mutual funds said, “Conceptually, it’s a good move and we welcome it but we need to see how it gets implemented on the ground. We think it will bring maturity to the market.”

On the ground, the move raises a different question. “How many investors will pay fee?” asked Surya Bhatia, an independent financial planner. “In the long term it will be good but they should club insurance products along with this, otherwise there will be no level playing field.”

At the end of March 2009, mutual funds had a total of Rs 493,300 crore of assets under management. The total number of mutual fund investor accounts in India was 42 million, though the actual umber of investors would be lower as investors hold multiple folios.

As per the SEBI decision, distributors are now required to disclose the commission received by them for different schemes or funds they are distribute and/or advise.

Dispelling fears of distributors taking investors for a ride, Bhave said, “Investor would decide how much he wants to pay. In an investor-dominated market, the competition will ensure a lower rate of commission and higher quality of service.”

Rupee declines to one-month low on growth concerns

Rupee declines to one-month low on growth concerns
Business Standard, June 19, 2009, Section II, Page 3

AGENCIES Mumbai

The rupee closed at a one month low as concern that the worst of the global economic slump isn’t yet over prompted foreigners to trim their local holdings of stocks.

The currency fell for a third day, declining 0.1 per cent to 48.215 a dollar at the close, the lowest since May 15.

Overseas funds sold more Indian shares than they bought for a third straight day and the benchmark Bombay Stock Exchange Sensex posted its biggest two-day decline since March 3.

“Global funds are far from confident about the prospects of equities in developing nations, which is resulting in outflows,” said K V Mallik, treasurer at state-owned UCO Bank in Kolkata. “I don’t think the trend will reverse anytime soon and the currency will bear the brunt.” Global investors sold a net $241 million in the three days to June 17, according to the Securities & Exchange Board of India, trimming this month’s purchases to $1.1 billion. The currency has rallied 5.2 per cent this quarter.

The rupee rose as much as 0.4 per cent earlier today on speculation exporters will take advantage of its drop past 48 to convert overseas earnings.

Offshore contracts indicate traders bet the rupee will trade at 48.40 per dollar in a month, compared with expectations for a rate of 48.28 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars. Bonds gain

Bonds rose for a second day, their best run in a month, on speculation surplus cash in the financial system is fueling demand for debt.

The yield on the most-traded note maturing in 2014 dropped as banks, the biggest buyers of government securities, probably increased purchases as their deposits rose.

The yield on the most-traded 6.07 per cent note due May 2014 fell two basis points to 6.59 per cent at the close, according to the central bank’s trading system. The price climbed 0.08, or 8 paise per 100-rupee face amount, to 97.83. A basis point is 0.01 percentage point.

Indian lenders must invest at least 24 per cent of their deposits in government bonds and other approved securities. A government report today showed wholesale prices fell for the first time in three decades. Bank deposits rose by Rs 15,730 crore in the two weeks to May 22. That was the fifth consecutive two-week period when bank deposits rose, according to data from the central bank. Call ends flat

Call money rate ended unchanged today as abundant liquidity enabled borrowers to raise funds at the lower end of the interest rate corridor, dealers said. One-day call rate ended at 3.25-3.30 per cent, unchanged from Wednesday. CBLOs ended at a weighed average rate of 1.98 per cent as against 2.31 per cent on Wednesday

Centre shifts focus to large SEZ units

Centre shifts focus to large SEZ units
The Economic Times, June 19, 2009, Page 9

Shobhana Chadha & G Ganapathy Subramaniam, ET NOW

THE commerce department is planning to speed up implementation of multiproduct special economic zones (SEZs) through its active intervention, a move that has significant implications for mega SEZ promoters like Reliance, Posco, Ispat Industries, India Bulls and DLF.

In the same vein, the department is also planning to go slow on approving new SEZ projects for promoters who are yet to implement cleared projects. A review meeting has been fixed for Friday to identify the problems faced by promoters in implementing multi-product SEZs.

“Implementation of large SEZs is a priority now, and we need to resolve the problems faced by them,” said top commerce department officials on condition of anonymity. A number of multi-product SEZs, including Mukesh Ambani’s mammoth projects in Haryana and Maharashtra, are facing obstacles such as deadlocks over land acquisition.

One large SEZ can easily outdo exports from a bunch of small SEZs, reaching turnovers of billions of dollars within a couple of years of implementation, officials think. A number of other SEZ promoters, including those implementing projects like Mahindra Reality, Ansal Properties & Infrastructure, Omaxe, Videocon Realty Infrastructure and Parsvnath may also attend Friday’s meeting. The government wants to keep a close watch on the implementation of multi-product SEZs and the commerce department would act like a single window facilitating clearances, the sources said.

DLF says no to sale of core assets

DLF says no to sale of core assets
The Economic Times, June 19, 2009, Page 15

Co To Sell Only Non-Core Assets, Pulls Back Prime Properties As Lending To Real Estate Cos Starts To Ease

Ravi Teja Sharma NEW DELHI

INDIA’S largest real estate company, DLF, has decided against selling core assets—residential, industrial and commercial plots—which it had put on the block.

The company will now sell only the hotel plots, which are non-core to its business. DLF executive director YK Tyagi told ET that the company has pulled back these assets from the market over the last 2-3 weeks, considering that bank lending to the real estate sector has started to ease. Last month, the company’s promoters had offloaded 9.9% shareholding to raise Rs 3,980 crore, which has put the company in a comfortable position.

A few prime properties in Gurgaon’s Cybercity and Udyog Vihar areas have been on the block for sometime now have been pulled back. DLF recently told ET that it planned to raise Rs 10,000 crore by selling land parcels, treasury investments and real estate projects in the next 2-3 years.

“The decision to pull back these core assets from the market was taken considering the fact that banks have become more liberal with lending to real estate companies,” said Mr Tyagi. He said that after the recent stake sale by the promoters of the company, DLF is in a comfortable position.

DLF promoters had sold 9.9% stake last month to raise Rs 3,980 crore, which has put the company in a comfortable position. Capital Group picked up close to 5% in DLF, while HSBC, GIC and Fidelity bought smaller stakes. Following the open market transaction, the promoter group now holds 78.6% stake in DLF.

Mr Tyagi added that the company will continue to sell its non-core assets, including hotel plots and its wind power business which would help them reduce their debt by half. DLF’s debt stands at around Rs 14,000 crore. “We expect to sell all of the hotel plots by the end of the year,” he said. The company had said earlier that they do not want to exit the entire hotel business.

While looking at hotel properties and plots just as an investment, DLF would like to retain the Aman brand. DLF has a number of hotel plots located in Mumbai, Kolkata, Bangalore, Gurgaon, Baroda, Lucknow, Kasauli (Himachal Pradesh) and Sikkim among others. According to sources, DLF has managed to sell hotel plots in Sikkim and Baroda.

A number of core assets—commercial, residential, industrial plots—were on sale by the developer, some of which it managed to sell over the last few months. The company recently sold its 66% stake in Hindoostan Spinning and Weaving Mill in central Mumbai for Rs 310 crore.

Punjab announces incentives for revival of real estate

Punjab announces incentives for revival of real estate
The Financial Express, June 19, 2009, Page 10

Chandigarh: The Punjab government has come out with a stimulus package to give boost to affordable housing and real estate sector in the state. A spokesman said the stimulus package included waiver of change in land use charges for industrial land use in the state and moratorium on payment of external development charges till December 31. Also, promoters, who make prepayment of EDC installments would be entitled for discount of 5%. Penal interest on overdue charges has also been cut from 18% per annum, he said. Wherever zonal/sector plan have been notified, the minimum area for developing a colony would be 25 acres. In low-potential zone, the minimum area for residential colony would be reduced from 25 acres to 10 acres.