Real Estate Intelligence Report, Friday, July 10, 2009

Economic recovery is too weak to withdraw stimulus, says G-8

Economic recovery is too weak to withdraw stimulus, says G-8
The Financial Express, July 10, 2009, Page 18

Bloomberg

Group-8 leaders said the economic recovery from the steepest recession since World War II is too fragile for them to consider reversing efforts to pump money into the economy.

President Barack Obama pressed for the door to remain open to more stimulus measures, as a renewed stock-market drop stirred concern that $2 trillion spent worldwide so far hasn’t jolted consumers and businesses back to life. “The G-8 needed to sound a second wakeup call for the world economy,” British Prime Minister Gordon Brown told reporters in L’Aquila , Italy , on Wednesday after the opening sessions of the leaders’ annual gathering. “There are warning signals about the world economy that we cannot ignore.”

Divergences over what to do next and calls from developing nations to do more to counter the slump underscored the G-8’s limited room for maneuver. The biggest borrowing spree in 60 years has failed to halt rising unemployment and left investors doubting the strength of the recovery. The MSCI World Index of stocks slid for a fifth day. The 23-nation index has dropped 8% since a three-month rally ended on June 2.

“We’ve been advocating stimulate now, consolidate later,” Angel Gurria, secretary general of the Organisation for Economic Cooperation and Development, said on Thursday. “You’re not going to remove the stimulus now. It’s too early.”

The International Monetary Fund echoed that skepticism, upgrading its 2010 growth forecast while saying the rebound will be “sluggish” and urging governments to stay the economic- stimulus course.

Emerging countries like China will lead the way, expanding 4.7% next year, the IMF said on Wednesday, up from an April prediction of 4%. The Washington-based lender forecast a growth of 0.6% for advanced economies, up from expectations of stagnation.

“It’s a very volatile situation,” European Commission president Jose Barroso said in L’Aquila . “We are not yet out of the crisis, but it seems now that the free fall is over.”

In the US , a jump in the jobless rate to a 26-year-high of 9.5% in June and a 6.9% drop in the Standard & Poor’s 500 Index in the past month raised questions whether Obama’s $787-billion stimulus package is turning the world’s largest economy around.

Democrats in Congress are split over whether to spend more, adding to a deficit that the IMF puts at 13.6% of gross domestic product in 2009, the highest since World War II.

Obama has straddled the issue, saying that spending more borrowed money is “potentially counterproductive.”

A G-8 statement on Wednesday embraced options ranging from the second US stimulus package some lawmakers and economists are advocating to Germany ‘s emphasis on shifting the focus to deficit reduction. “Exit strategies will vary from country to country depending on domestic economic conditions and public finances,” leaders of the eight economies---the US, Japan, Germany, Britain, France, Italy, Canada and Russia---said in the statement .

“There is still uncertainty and risk in the system,” Mike Froman , deputy US national security adviser, told reporters in L’Aquila . While exit strategies can be drawn up, it’s not “time to put them into place.” Bank bailouts and recession-fighting measures will explode the debt of the advanced economies to at least 114% of gross domestic product in 2014, the IMF forecasts.

German chancellor Angela Merkel is the leading opponent of additional stimulus, pushing through a statement at last month’s European Union summit that called for “a reliable and credible exit strategy.” Merkel, campaigning for re-election in September, has warned against billowing budget deficits, which will rise in the EU to an average of 6% of GDP in 2009 from 2.3% last year, the EU forecasts. “We have to get back on course with a sustainable budget, but with the emphasis on when the crisis is over,” Merkel said.

The 16-nation euro economy has shown some signs of resilience since shrinking 2.5% in the first quarter, the most since the currency’s birth in 1999. While measures of business confidence, manufacturing and services have ticked up, job cuts by companies from Austrian Airlines AG to ThyssenKrupp AG pushed up unemployment to 9.5% in May, a 10-year high.

Centre to formulate new housing plan

Centre to formulate new housing plan
The Financial Express, July 10, 2009, Page 2

Treat bank loans to develop SEZ as CRE lending: RBI

Treat bank loans to develop SEZ as CRE lending: RBI
The Financial Express, July 10, 2009, Page 13

Press Trust of India, Mumbai

The Reserve Bank has proposed continuing with the norm of treating bank loans given for acquisition of land for developing SEZs as commercial real estate lending, a suggestion opposed by developers who believe this makes credit costlier.

"These exposures would be classified as CRE exposures," RBI said in its revised draft guidelines on commercial real estate exposures, comments on which is sought by July 15.

Banks have to keep more capital aside while lending to commercial real estates (CRE), which make such loans costlier. However, the central bank also proposed to make lending to develop Special Economic Zones (SEZs) as infrastructure loans, which would make the credit to these zones speedier.

Raheja Developers MD Naveen Raheja said, these two guidelines proposed that lending to SEZ developers would not be stalled as these are infrastructure loans, but it would be expensive because they are also CRE loans. He said the lending to SEZ developers falls in the range of 13.6-16.5% interest rates, and the RBI proposal does not make these projects viable anymore.

Raheja said if the CRE status to these lending is withdrawn, interest rates could dip by two percentage points.

RBI also proposed that loans for acquiring units in SEZ be treated as non-CRE lending, a suggestion which is different from its earlier decision in 2006 that sparked protests from SEZ players.

RBI had included these loans in CRE exposures in 2006 in order to prevent speculative dealings in such units.

"Since there are restrictions on transfer of such (SEZ) units and require Government permission, the speculative activity in sale and re-sale of units is unlikely to be there.

"Therefore, such cases should be more like financing of industrial units or the projects and if such is the case, these may not be treated as CRE Exposures," RBI said in its draft guidelines.

RBI also proposed to treat lending to industrial units in SEZs for buying plant and machinery as non-CRE.

Director General, Export Promotion Council for EOUs & SEZs LB Singhal termed the RBI draft guidelines as progressive proposals.

He said treating loans for acquiring land for developing SEZs as non-CRE lending was also part of E-GOM proposal itself.

Reserviors low, but rising

Reserviors low, but rising
The Financial Express, July 10, 2009, Page 1

fe Bureau, New Delhi

Rainfall is improving, but three-fourths of the country still received only scanty or deficient rains up to July 8. According to the latest report of the Central Water Commission, storage levels in 81 major reservoirs across the country are estimated to be around 11% of live capacity at full reservoir level. It had dipped to around 9% in the last week of June. Last year at around the same time, storage levels were around 25%.

Worst hit are northwestern parts of the country, chiefly the key foodgrain producing states of Punjab, Haryana, western Uttar Pradesh, Himachal Pradesh and Madhya Pradesh. So bad has the situation become that on Thursday, Madhya Pradesh sought to be declared a drought-affected state.

Water storage in major reservoirs in these states like Gobind Sagar (HP), Thein (Punjab), Rana Pratap Sagar (Rajasthan), Rihand (UP), Gandhi Sagar and Tawa (MP) is almost half of what it was in the same period last year. However, with the monsoon showing signs of revival, there is still hope that reservoir levels will rise in the days to come.

According to the India Meteorological Department, between June 1 and July 8 the southwest monsoon was around 36% below normal. Week on week, rains are now just 8% below normal, a big improvement over the 20% below normal for the week ended July 1.

Up to Thursday, of the 36 major meteorological sub-divisions in the country, 25 have received deficient or scanty rains, while 11 received normal showers. Almost 76% of the country’s total districts received below-normal rains.

The patchy rainfall has impacted early sowing of some key crops. Paddy acreage up to the first week of July is almost 26% less than last year, while coarse cereal sowing is down almost 53%, oilseeds down 48% and sugarcane area is less by around 3%.

“There is low sowing in many main kharif-growing areas because of low rains, but we are still hopeful that if the monsoon recovers in the next few weeks, we can salvage some of the losses,” a senior agriculture ministry official said.

New Bill to define company directors’ role

New Bill to define company directors’ role
Hindustan Times – Business, July 10, 2009, Page 1

The government is out to clearly define the role of independent directors on company boards through amendments to the Companies Act.

While the role of independent directors came into question after the country’s biggest corporate fraud shook Satyam Computer Services this year, ambiguities on what they are expected to know or do cast a cloud on their role.

The new Companies Bill, which is due to be introduced in Parliament in the current session, will clearly spell out the role of independent directors, Corporate Affairs Minister Salman Khurshid told Hindustan Times in an interview.

“We want to provide protection to independent directors so that they can operate without any fear and the Companies Bill would clearly spell out what they are required to do or know, in case something goes wrong outside their ambit, they would not be held responsible,” he said.

However, the government is not in favour of chalking out a common list of independent directors for companies to maintain the directors truly independent in nature as suggested earlier by several quarters.

“We need to provide protection to independent directors and they would be held responsible only if there is discrepancy in their ambit. Outside that they would not be responsible and would not be held accountable,” Khurshid said.

After the unfolding of the Satyam episode in January, more than 400 independent directors in various companies had resigned, many of them in fear or anxiety over being held accountable for things beyond their control.

The exodus is becoming a cause for concern for India Inc. “We are aware of the issue and the Companies Bill would address the issue,” the minister added.

Govt plugs loophole to stop illegal profits by developers

Govt plugs loophole to stop illegal profits by developers
Hindustan Times – Business, July 10, 2009, Page 1

The government is bringing an amendment that would prevent you and your closest kin from buying more than one flat in the same building in affordable home projects.

This is applicable for buildings approved for construction of smaller flats of less than 1000 square feet of built-up area targeted at low and middle income households in Delhi and Mumbai and 1,500 square feet elsewhere.

Developers were found entering into agreement to sell multiple adjacent units to a single buyer violating the clauses under which they enjoy 100 per cent tax exemption.

“Accordingly, it is proposed to insert new clauses in the said subsection (10 of section 80-IB of the I-T Act) to provide that the undertaking which develops and builds the housing project shall not be allowed to allot more than one residential unit in the housing project to the same person,” said the proposed amendment of the Finance Bill.

No individual can buy more than one flat, neither the spouse nor minor children can own flats in the same building.
This amendment will take effect from April, 2010.

“The intent of the government is good and it would promote affordable housing. the policy is in the right spirit,” said Anuj Puri, chairman & country head, Jones Lang LaSalle Meghraj (JLLM), a real estate consultancy.

Inflation rate stays negative; food still costly

Inflation rate stays negative; food still costly
The Hindu Business Line, July 10, 2009, Page 7

Wholesale Price of all commodities up at 234.7.

In ‘primary articles’, annual inflation declined to 4.8 per cent in the latest reported week from 5.4 per cent in the previous week, due to the decreased inflation in ‘non-food articles’ at (-) 3.8 per cent.

Our Bureau, New Delhi

Inflation continued in the negative for the fourth week in succession, even as consumers continue to bear the brunt of high inflation in food products.
Food inflation

The annual Wholesale Price Index-based inflation rate fell 1.55 per cent for the week ended June 27, compared with the previous week’s annual decline of 1.3 per cent.
Inflation in the food index, however, continued at 8.9 per cent for the second week in running, with double digit inflation seen in cereals, pulses, vegetables, tea, sugar, and common salt.

According to data released by Ministry of Commerce and Industry, the year-on-year rate of inflation continued negative for the fourth week in succession, ensuring that for the whole month of June 2009, inflation has been below zero.

During June 2008, inflation ranged from 11.7 – 12 per cent.

The official WPI for ‘All Commodities’ for the latest reported week rose by 0.04 per cent to 234.7 points from 234.6 points for the previous week.

Fuel and power

In ‘primary articles’, annual inflation declined to 4.8 per cent in the latest reported week from 5.4 per cent in the previous week, due to the decreased inflation in ‘non-food articles’ at (-) 3.8 per cent, from (-) 1.9 per cent in the earlier week.

Inflation in the other two sub-groups remained stable, recording 8.5 per cent in ‘food articles’ and 4.4 per cent in ‘minerals’.

In ‘fuel and power’, year-on-year inflation held steady at (-) 12.4 per cent in the current week. In ‘manufactured products’, inflation fell to 0.2 per cent in the current week, from 0.5 per cent in the week ended June 20, following lower or stable rates in most sub-groups, except non-metallic mineral products and machinery and machine tools, where negative inflation eased marginally.

In the face of the near zero inflation rate in the commodity group, items recording two digit inflation are malt liquor, jute, hemp and mesta textiles and pesticides.

For the week ended May 2, the final WPI for All Commodities stood at 233.9 points as compared to 231.6 points and annual rate of inflation based on final index, calculated on point to point basis, stood at 1.48 per cent as compared to 0.48 per cent.

THE BEST DEALS

THE BEST DEALS
ET Realty, July 10, 2009, Page 1

More than 65% of the newly launched residential units in the NCR are priced below Rs 30 lakh, and there are ready buyers for them. ET Realty reports

Prabhakar Sinha

Affordable housing is the new mantra in the real estate sector and has increased the affordability quotient of middle class end users in their quest for their own sweet homes. The fall in the interest rate to around 9.5% on home loans up to Rs 30 lakh has further added to this factor.

According to a survey conducted by global realty research firm DTZ, affordable houses of less than Rs 30 lakh have shown a robust demand with most of the newly launched units, during the last six months, recording absorption in the range of 30-50%.

The survey says out of 29,367 residential units launched during the period, 82%, or 24,118 units were priced in the range of Rs 1,500 to Rs 3,000 per sq ft in the National Capital Region of Delhi. According to DTZ, this makes an average housing unit of around 1,000 sq ft cost less than Rs 30 lakh, fitting the budget of the middle-income buyer. To be even more specific, DTZ said more than 65% of the newly launched residential units are priced below Rs 30 lakh.

The main reason behind the launch of such a large number of units in the price range of Rs 30 lakh is the overwhelming demand in the 'budget' segment. This is clearly indicated in the sale of apartments recently launched in Noida, Gurgaon, and Faridabad by JP Green, Mahagun, Gaursons, Assotech, Supertech, Purvanchal and BPTP. In some cases, the entire projects were sold out within a couple of days - and, now, a developer is even considering allotment of the flats to applicants through a lottery system, as the number of applicants are almost double the number of apartments on offer.

There is a huge rush to buy houses by the middle class people, who till six months ago found it almost impossible to do so. However, the research firm says the affordable homes are coming with riders, which every prospective buyer must take note of. Not only has the average size of housing units been decreased in the first half of 2009, as compared to the size of units launched a year ago, the amenities provided by developers have also been curtailed.

For 2-BHK units, size it has come down by 14% - to 1,080 sq ft. For 1- and 3-BHK units, the size has decreased by 5% and 12% - to 720 sq ft and 1,493 sq ft, respectively.

In the budget segment, only basic amenities like car parks, security, power back up, and lifts for highrise apartments are being provided. In many cases, even amenities like swimming pools and a gym, which had become a common features in the condominiums being developed for the last five years, are not being provided. Therefore, while selecting an apartment, a buyer must be clear as to what he is buying.

Developers have again shifted their focus in developing independent floors. The report says developers have indicated a preference for constructing independent floors in lowrise housing units and apartments of less than 1,000 sq ft in highrise buildings because of the cost advantage they offer. According to the report, in the last six months, 28% of the units launched were in the form of individual floors in lowrise housing, as compared to only two villa projects, which were launched. However, the buyer must check it before buying, as half of the independent-floor projects do not provide even power back up.

Apart from that, in the condominium of affordable apartments, the density of flats is higher than that in the premium apartments. This will certainly put extra pressure on the common area. But, still, the price at which they are being offered is certainly a good value for money.

Falling stocks hit QIP investors

Falling stocks hit QIP investors
Business Standard, Money & Markets, Section II, Page 1

BS Reporter / Mumbai

Qualified institutional buyers (QIBs), which recently invested in placements of companies, have suffered serious losses due to thek recent slide in stock markets.

Sample this: The stock price of Network 18 has slipped 23.58 per cent since its institutional placement. Similarly, Bajaj Hindusthan, HDIL, Unitech, Dewan Housing, GVK Power & Infrastructure and Shobha Developers were all down between 4 per cent and 18 per cent.

Since the beginning of the year, 15 companies have raised Rs 24,800 crore through qualified institutional placements (QIPs). And there are over 30 other companies, who have received their shareholders' nod for such issues. These include Pantaloon Retail, JSW Steel, IndusInd Bank and S Kumars. Educomp raised Rs 607 crore via private placement on Thursday.

In the last two weeks, the stock markets have been rather volatile with a downward bias. Market experts said that this could lead to a falling enthusiasm for QIPs. This is because the price will have to be the average of the last fifteen days' stock price, according to the Securities and Exchange Board of India's (Sebi) guidelines.

"The rush for QIPs could slow down as the losses incurred on recent QIPs would discourage institutional players," said Ashwin Parekh, partner, Ernst & Young.

However, all of them have not suffered so badly. QIPs done in April and May have done quite well. While the stock price of Unitech is down 13.78 per cent compared with the price of its recent placement, but investors in the earlier one in April saw returns of 80.13 per cent.

Similarly, investors in DLF's promoter stake sale would have benefited by almost 21.17 per cent. And Power Trading Corporation and Emami (issue on July 2) returned 14.40 per cent and 12.71 per cent, respectively. Market players said that some of this sharp fall in prices could be attributed to offloading by institutional players which were allotted shares earlier. Since QIPs are mostly sold at a discount and do not have a lock-in period, investors have the option of selling off. And the March to mid-June would have been a good period to offload these stakes for a profit. But the sharp drop in the market has ensured that the many institutions with recent allotment of shares were unable to exit.