Real Estate Intelligence Report, Thursday, July 02, 2009

India, China will see 8% growth next year

India, China will see 8% growth next year
The Economic Times, July 2, 2009, Page 10

ROBERT Parker, vice-chairman at Credit Suisse Asset Management, believes growth will accelerate in emerging markets, notably China and India, helping these countries decouple from developed economies. Parker, who has spent 27 years in various positions at Credit Suisse, spoke with ET NOW on a wide range of issues, including sustainability of the nascent recovery in the global economy and the likelihood of asset bubbles fuelled by cheap money.

How convinced are you that the global economy has turned the corner?

I do think that in the developed economies — the US, the UK, Europe and Japan — the very dire recession that we saw in the fourth quarter of last year and in January and February of this year has clearly come to an end. I do think that in the developed economies, we will see stronger economic data in the third quarter of this year. For example, US economic growth could be as high as 2-3%, and I think, we will see positive numbers in Europe and Japan for the second half of 2009. Having said that, some factors could constrain recovery in 2010, and consequently, I think that growth in the US and Europe could struggle to be much above 1% in 2010. Constraining factors are obviously the lower levels of bank leverage — bank lending is recovering very slowly — and also consumers rebuilding their savings and a reduction in consumer borrowing and also the dead weight of unemployment. Unemployment in the US and Europe is probably going to average at 9.5-10%. So, there are factors which are probably going to result in a very mediocre recovery on a two-year time horizon. One positive thing, however, is that you are going to get decoupling between the developed economies and most of the emerging markets. Consequently, next year, I think, we could see Chinese growth reaccelerate towards 8%, likewise in India. Latin American growth will be much higher — probably double the level we’ve seen in the first half of 2009.

Do you believe that coupled with loose monetary policy, the very high correlation in asset prices — commodities and equities in particular — that we’re witnessing now is going to set us up for more asset bubbles and potentially cause a hard-landing in markets?

I think, the Federal Reserve is going to keep the federal funds rate between zero and 25 basis points, probably for the next nine months. In the UK, the Bank of England is going to be stuck with a policy rate of 50 basis points at least for the rest of this year. So, with very low money-market rates, I think, there will be a steady flow of capital out of money-market funds. Investor cash levels are still very high in institutional and retail firms. So, capital will flow into equities and other asset classes. The correlation between commodities and equities, this year, of course, has been perfectly logical. Economic recovery means that the demand-supply balance for commodities has been tightening up, after the very weak demand-supply situation we saw in the second half of 2008 and early 2009, and clearly, an improved growth outlook is positive for equity markets. I think, however, this rally in equity and commodity markets could start to fail towards the end of this year and going into the first half of 2010. If I am right, the developed world only has a growth of around 1% next year. Clearly, the demand for commodities from developed economies is going to ease off at a time when in certain commodity markets — notably oil and other energy sectors — supply is reasonably easy. So, I think, further upside in energy prices is very limited, indeed. In 2010, I don’t think, we are going to have an asset bubble in equities. Obviously, priceearnings ratios are higher today than just three months ago. I think, it’s going to be a year where defensive equities will outperform cyclical equities given my growth outlook.

Govt plans 'green' regulator

Govt plans 'green' regulator
Business Standard, July 2, 2009, Page 7

BS Reporter / New Delhi

The environment ministry is working on an independent professional body which is expected to come up in a year.

The proposed entity, to be called the National Environment Protection Authority, would be modelled on telecom regulator Trai and market regulator Sebi, Environment Minister Jairam Ramesh said today.

Ramesh said that the ministry was suffering from an unhealthy rate of acceptance of all proposals that seek environment and forest clearance. It is not possible for the ministry to deal with the entire gamut of environment protection issues, especially the monitoring of compliance by various applicants, he added.

The pollution control boards monitor the compliance now but it is too weak, he said, adding that the national environment protection authority empowered by law will be a scientific body to regulate the process of clearance and compliance.

Meanwhile the existing environment impact assessment mechanism is being revamped and the public hearing process is also under scrutiny by the minister who today said that the process has lost all credibility.

Ramesh, who unveiled a new website for environment and forestry clearance today, said that he was unhappy with the quality of environment impact assessment and it was being changed.

The ministry had tied up with the National Quality Council of India to upgrade the quality of EIA, the minister said today.

Model Bill for regulating realty sector to be firmed up by Aug-Sept

Model Bill for regulating realty sector to be firmed up by Aug-Sept
The Hindu Business Line, July 2, 2009, Page 2

To address concerns of consumers, industry.

Our Bureau, New Delhi

A model Bill for regulating the real estate sector is expected to be finalised by August-September timeframe, the Minister for Housing and Urban Poverty Alleviation, Ms Kumari Selja, said on Wednesday.

Unveiling the 100 day agenda for her Ministry, Ms Selja said that the Model Bill would propose a regulator and aim to address the concerns of consumers as well as the real estate industry. The finer details of the model Bill could not be ascertained.

“We have initiated a dialogue with all key stakeholders including private sector, NGOs, and various States to prepare the model Bill for regulating the real estate sector. There are two-fold concerns, one from consumers who are sometime exploited and the other aspect is the real estate industry which is saying please help us get the clearances,” the Minister said. A senior Ministry official told Business Line that the model Bill would focus on affordable housing and also address regulation and registration.

Focus area

The Minister said that a key focus area for the Ministry over the next 100 days would be formulation of Rajiv Awas Yojana for slum dwellers and the urban poor, with a view to promote a slum-free India in the next five years. The Government would extend support to States willing to assign property rights to people living in slums, she said.

Elaborating on the model legal framework for according property rights to slum dwellers, the Minister said that this framework would draw on the best practices both within and outside the country and be circulated to States and UTs to enable them establish their own legal frameworks suiting local conditions.

Also, following the National Urban Housing and Habitat Policy 2007 and report of the High Level Task Force on affordable housing, the Ministry will now set up two committees. The first committee will work out the parameters for estimating the number of households under the categories of affordability (EWS, LIG, LMIG) and the other will focus on promotion of housing micro finance company, which could be permitted to take household saving as deposits.

She said that the Ministry would also launch skill development programme for employment promotion of urban poor, targeting 10 lakh people over the next five years (starting with 2 lakh in FY10).

ECB policy: Realty players see no near-term gain

ECB policy: Realty players see no near-term gain
The Hindu Business Line, July 2, 2009, Page 2

Viability of new SEZ projects under question due to export slowdown.
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Policy focus
The Government has allowed SEZ developers to avail themselves of ECBs for providing infrastructure facilities within the SEZ

This offers an additional avenue to get funding at a lower cost
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Our Bureau, New Delhi

Real estate players on Wednesday hailed the Government’s decision to open the external commercial borrowing (ECB) window for special economic zone (SEZ) developers, although some players felt that the move may not offer immediate gains given the global economic downturn.

Reacting to the latest changes in ECB policy, real estate major Unitech said that while the move was “positive”, it would not make a big difference in the short-term.

“There would be no immediate benefit due to the global financial market conditions. However, this offers an additional avenue for SEZ developers to get funding requirement at a lower cost”, a senior Unitech offical said. Currently, Unitech has five IT-SEZs in the country.

The Government on Tuesday modified its external commercial borrowing (ECB) policy to allow SEZ developers to avail ECBs for providing infrastructure facilities within the SEZ.

The SEZ developers can avail themselves of ECBs only under the approval route, according to a Finance Ministry release. However, ECBs will not be permissible for development of integrated township and commercial real estate within the Special Economic Zones (SEZs).

Meanwhile, the country’s largest real estate company, DLF’s Group Executive Director, Mr Rajiv Talwar, pointed out that while money was available overseas, the current viability of new SEZ projects was itself is under question due to the slowdown seen in exports. Currently, DLF has five SEZs that are fully operational while it had recently got Government approval for de-notification of five other SEZs..

Hitherto, ECB was not permissible for the development of the SEZs. Only the units in the SEZs were permitted to access ECBs and that too for their own requirements.

As part of the review of the ECB policy, the Finance Ministry has also decided to continue the existing policy of permitting development of integrated township as a permissible end use, under the approval route, until December 2009.

Under the existing ECB policy, utilisation of ECB proceeds for the real estate is not permitted. However, as a sector-specific measure, the use of ECB proceeds for the development of integrated township had been permitted in January 2009 and the policy was due for review in June 2009.

The Export Promotion Council for EOUs and SEZs (EPCES) Director General, Mr L.B. Singhal, termed the Centre’s move as a “good step forward”, pointing out that SEZ developers can now access ECB funding for infrastructure facilities in a SEZ.

“SEZs by nature are infrastructure projects. One of the stated objective of the SEZ Act is to create infrastructure. In the first place, the ECB window should not have been withdrawn for SEZs”, Mr Singhal told Business Line.

Mr Singhal also said that RBI, along with the guidelines on the latest ECB policy changes, should issue directions to the effect that the terms and conditions for lending by commercial banks to SEZs should be the same as those specified for infrastructure financing.

Land acquisition, R&R Bills run into Mamata hurdle

Land acquisition, R&R Bills run into Mamata hurdle
Business Standard, July 2, 2009, Page 6

Saubhadro Chatterji / New Delhi

Both the Bills have been pending in Parliament for approval.

Railway Minister and leader of Trinamool Congress Mamata Banerjee may force the government to redraft the much-delayed Rehabilitation and Resettlement (R&R) Bill 2007 and the Land Acquisition (Amendment) Bill, which spell out the United Progressive Alliance (UPA) government’s policy on land acquisition.

Both the Bills have been pending in Parliament for approval and form the lynchpin for faster industrialisation. Several large industrial projects, such as integrated steel plants by ArcelorMittal and Tata Steel and an aluminium complex by Posco, have run into problems as a result of controversies over land acquisition.

Banerjee could not raise these objections during the tenure of the first UPA as her party was not a member of the government then. When the Trinamool Congress became a UPA ally in its second term — it is the second-largest ally with 19 seats — Prime Minister Manmohan Singh had asked Banerjee to set out her ‘opinion’ to both the issues.

The Trinamool Congress wants sweeping changes in the Bill. Not only does the party want “land banks” to be created by all state governments, it also wants farmers to have the legal right to get back their land if the proposed project is not set up on the acquired land.

“My leader will spell out the party’s stand to the prime minister on these issues. But as a political worker I feel farmers should have legal rights to get back their land if it is not used for the proposed project,” Adhikary told Business Standard.

The Land Acquisition (Amendment) Bill, 2007 seeks to amend the original 1894 Act for the acquisition of land for public purposes and for companies undertaking projects.

The pending amendment to the Land Acquisition Act allows the government to acquire a residual 30 per cent of the land required for an industrial project for reasons of contiguity provided the private party buys 70 per cent of the land first.

Adhikary bluntly rules out this formula and insists there should be a provision to ensure that the purchase of land by the private players is done in a “transparent manner”.

“There are several instances where the private parties have bought land by intimidating or pressuring people. This can’t be allowed,” he said.

Banerjee has reaped big political dividends from anti-land acquisitions agitations for industrial projects. The first of these was in Nandigram, a three-hour drive from Kolkata, where her party’s fierce opposition to land acquisition for a chemical hub forced the Left Front government to relocate the plant. Last year, her party led a protest in Singur, an hour’s drive from Kolkata, where Tata Motors was to set up its Nano small car project. Trinamool’s central demand was that land acquired from unwilling farmers be returned to them. That campaign not only forced Ratan Tata to relocate the project to Gujarat, but her party won 19 seats out of 42 in West Bengal in the 2009 Lok Sabha elections, inflicting the left Front’s worst election record since it came to power.

Adhikary said the Trinamool Congress will also vehemently oppose “any industry on multi-crop land”. “We can’t allow industrialization of multi-crop land. It involves India’s food security and also the agriculture sector needs to be strengthened,” he said.

On the issue of “land banks” by state governments, the Trinamool Congress will cite the examples of Gujarat and Maharashtra and say that states need to identify the land for industry first before setting up new industry.

“After making a land map, the local people should be consulted and only if there is a consensus should the government go ahead and acquire the land,” Adhikary said.

Better safe than sorry

Better safe than sorry
The Economic Times, July 2, 2009, Page 12

Beware Of Teaser Loans

IS THE State Bank of India (SBI) out to displace Citi or ICICI Bank in aggressive banking? Its latest offer of home loans at a fixed rate of interest for the first three years, after which customers can choose between a floating and fixed rate, follows on the heels of similar teaser loan offers earlier. Given that teaser loans (adjustable-rate loans in which borrowers pay a relatively low interest rate initially, after which the rate is re-set) have been hugely discredited in the subprime crisis, SBI’s new-found fascination with such loans is hard to comprehend. As is the RBI’s silence on the issue. Teaser loans are meant to entice borrowers into taking loans because they look like a dream; never mind they might turn into a nightmare some years hence. In the instant case, the interest rate is fixed low up-front only for the first three years. From the fourth year onwards, the rate depends on SBI’s advance rate; borrowers opting for a floating rate paying 2% more and those opting for a fixed rate paying 1% less. There is also a five-year re-set clause which means every five years rates could change. Since housing loans, typically, have long maturities there is a high probability that the interest rate at the fag end of the loan period could be very different from that at the beginning. EMIs (equated monthly instalments) could be higher or lower depending on how the interest rate moves; higher EMIs could result in repayment problems. SBI, on its part, will have to be very careful in selecting home-loan borrowers if it is not to end up with a bad housing loan book. In a country where retail borrowers are yet to fully comprehend the implications of floating rates of interest, teaser loans could be dicey.

Public sector banks (PSBs), it is true, have often chafed at being compared unfavourably with their nimbler private sector counterparts. And yes, there is much they can learn from the latter, especially when it comes to customer-service. But today if PSBs are sitting pretty vis-a-vis their private sector rivals, it is because they remained firmly grounded and, by and large, did not get carried away by ‘irrational exuberance’ and risky products. SBI would do well to remember that.

Sobha raises Rs 526 cr thru QIP

Sobha raises Rs 526 cr thru QIP
The Hindu Business Line, July 2, 2009, Page 3

Our Bureau, Bangalore

Sobha Developers has successfully closed the bidding for qualified institutional placement (QIP) raising about Rs 526 crore.

The company, in its filing on the Bombay Stock Exchange, said that the board of directors had approved the issuance of 25,162,135 equity shares of face value of Rs 10 each at a price of Rs 209.4 per share.

With this QIP, the promoters’ stake in the company will come down by about 23 per cent from the current 87 per cent.

It is learnt that the funds would be utilised for working capital requirements and also part payment of the company’s debts. According to sources, buyers include domestic and foreign investors. Enam and Morgan Stanley managed the issue for Sobha Developers.

This is part of the company’s efforts to restructure its Rs 1,900-crore debt, and its current leverage is 1.65 times. The company is also looking at raising funds through sale of a part of their 3,000-acre land-bank, and is in talks with potential buyers for prime land parcels in Bangalore. In an interview to Business Line earlier, company officials had said that they hoped to raise about Rs 900 crore through preferential allotment, SPV-level funding, and sale of land.

Unitech to raise Rs 2,789 cr

Unitech to raise Rs 2,789 cr
The Financial Express – Corporates & Markets, July 2, 2009, Page I

Real estate firm Unitech on Wednesday said it will raise over Rs 2,789 crore through private placement of shares to institutional investors at Rs 81 a piece. The board has approved the issuance of over 34.43 crore shares to qualified institutional buyers (QIB) at a price of Rs 81 a piece, aggregating to Rs 2,789.32 crore, Unitech said The company, which had raised Rs 1,621 crore in the second half of April at Rs 38.50 per share through the qualified institutional placement (QIP) route, launched the second round on Friday at Rs 81 per share. Following the first round of QIP, promoter's stake had come down to 51 per cent from about 64 per cent.