Real Estate Intelligence Service, Friday, July 24, 2009

Markets bounce back, Sensex closes above 15k

Markets bounce back, Sensex closes above 15k
The Financial Express, July 24, 2009, Page 5

fe Bureaus, Mumbai

Indian equity indices bounced back after Monday’s losses as huge inflows from foreign institutional investors (FIIs) to the tune of Rs 955 crore and comments made by Prime Minister Manmohan Singh that India can achieve a growth of 8% with a high savings rate boosted the sentiments of the markets.

The 30-share Sensex of Bombay Stock Exchange (BSE) added 461.08 points, or 3.14%, to close the day at 15,127 points. The broader S&P CNX Nifty of National Stock Exchange (NSE) surged by 121.05 points, or 2.73%, to end at 4,550.95 points.

The domestic markets started the day on a negative note but made a decent recovery following huge inflows from the foreign as well as Indian fund houses, which led the markets marching forward till the final closing of the session. This apart, fresh buying in realty, capital goods and IT sector stocks also gained.

Deven Choksey, MD of KR Choksey Securities, said, “The markets have been witnessing inflows after every dip. On Tuesday, money came in the markets. The money that is lying on the sidelines is coming in whenever there is a correction and this will continue in the near term. Upward rally may continue in the coming days also, and we might witness Nifty trading at the range of 4,660-4,750 points.”

Dealers and brokers said that markets are hopeful that the government will reveal market-friendly measures in the budget next month.

An analyst from a leading broking house said, “There are chances that, once the budget gets over we might witness more overseas funds coming in India. But till then there are chances that market might remain volatile.”

Provisional figures provided by BSE showed FIIs were net buyers at Rs 955.31 crore, while domestic institutional investors (DIIs) were net sellers at Rs 143.21 crore. In June, FIIs have been on the buying side as they have bought stocks worth Rs 2,317.31 crore, while DIIs have sold stock worth Rs 2,597.44 crore.

“The rally was mostly driven by large-cap stocks and mid-cap stocks as slowly sentiments are improving in the market. However we also witnessed some profit-booking from the insurance companies during the intra-day trade on Tuesday,” said Anita Gandhi, head of institutional business at Arihant Capital market.

IT sectors stocks were in demand for the second straight day with Infosys, Wipro, HCL Tech, Tech Mahindra and TCS leading in front. IT has been one of the beaten down sectors due to rupee getting stronger. Rupee was down at 47.51 to the dollar on Tuesday from 47.55 on Monday.

All of BSE sectoral indices closed the day in green with Realty and IT being the top gains of the day. Out of 2,826 traded on BSE, 1,494 stocks advanced, 1290 stocks declined while 42 stocks remained unchanged. Among Sensex pack, 28 stocks closed in green and two closed the day in red.

Results lift market spirits

Results lift market spirits
The Hindu Business Line, July 24, 2009, Page 1

Our Bureau, Chennai

While the market began on a strong note on Thursday thanks to strong Asian markets, better-than-expected results from a host of companies across sectors lifted the spirit further. So far 12 companies out of the Sensex 30 have announced their quarterly numbers, and have beaten Street expectation amidst global recession.

Maruti Suzuki, which came out with strong numbers today, touched an all-time high of Rs 1,305.5. ACC, ITC and Siemens also declared their financial results today apart from ONGC, which released its numbers after the market closed. Reliance Industries is scheduled to announce its Q1 result on Friday.

The BSE Sensex surged 2.6 per cent to 15,231.04 – the highest since June 12. The NSE S&P CNX Nifty jumped 2.8 per cent to 4,523.75. Overseas investors remained net buyers, according to exchanges’ provisional data.

A Citi report (July 22) said: “It’s still early days without enough sector trends, but the first set of results suggests the leaders are financials (47 per cent vs 38 per cent expected – trading gain boosts), and IT services +22 per cent (TCS the big outperformer) — while energy, and pharma bring up the rear. Standout positive surprises so far are TCS, UltraTech and Axis Bank, while JSW Steel and HDFC Bank have lagged expectations.”

Key Industries Grow 6.5%, Add To All-Round Cheer

Key Industries Grow 6.5%, Add To All-Round Cheer
The Economic Times, July 24, 2009, Page 1

Our Bureau NEW DELHI

THE six core infrastructure industries grew 6.5% in June on the back of a robust performance by cement and steel, adding to the all-round cheer spawned by betterthan-expected corporate results and improved monsoon showers last week.

The infrastructure basket comprising coal, crude oil, refining, power, cement and finished steel has a 27% weightage in the index of industrial production (IIP), and the June surge hints at overall industrial growth picking up, according to economists.

A year ago, the core sector had grown by 5.1% while the May 2009 growth was at 2.8%. Cement and steel, both crucial inputs for construction activities, topped the chart with a growth of 12.8% and 5.3%, respectively. “Sectors like steel and cement are very cyclical in nature. The government’s counter-cyclical stimulus measures are showing results by way of a pickup in construction activities. Accordingly, the industrial output figures will also improve,” said DK Joshi, director and principal economist at rating agency Crisil.

The sharp uptick in the production of coal and electricity generation is also in keeping with the increased energy consumption expected as economic growth accelerates.

“In the last three months, it (industrial growth) is improving, but we want to ensure that this recovery continues and India returns firmly on the high growth trajectory,” commerce and industry minister Anand Sharma said on the margins of a business meet on Thursday.

“It’s clear that the government’s stimulus packages and the budgetary proposals have had a positive impact...In fact, sectors like coal and cement have registered a double-digit growth which is a very encouraging sign,” he told reporters.

Core growth up 6.5%

Core growth up 6.5%
The Financial Express, July 24, 2009, Page 1

fe Bureau, New Delhi

Riding double-digit growth in cement and coal output, the index of six core infrastructure industries expanded 6.5% in June, the most in 16 months. Buoyed by this robust performance and given that the Core Six have a 27% weight, economists expect positive news on the index of industrial production, which expanded 2.7% in May.

The latest core sector numbers are an improvement over the 5.1% growth seen a year earlier, as well as the dismal 2.8% seen in May 2009. In the three months ended June this year, the sector grew 4.8%, against 3.5% in the corresponding period last year.

This better-than-expected showing was aided by the base effect—the sectors had lower output in the year-ago period—pushing up growth in June. Barring petroleum products and finished carbon steel, absolute figures in the four remaining sectors were lower than those in the previous month.

Economists maintain that there are tell-tale signs of recovery in the economy. “It seems the green shoots that were seen in previous months are sprouting faster,” said YES Bank chief economist Shubhada Rao.

“This is an indication that both the government and industry are working in partnership,” said commerce minister Anand Sharma at a function organised by Ficci. “It is clear that the stimulus that the government has given has had a positive impact,” he added.

However, India’s chief statistician, Pronab Sen, maintained that the core sector data is not necessarily indicative of a revival. “The core sector is driven by supply-side dynamics and not demand. Hence, I would not draw any conclusions,” he told FE.

A dip in petroleum product output weighed down the sector as a whole. The boost came from the coal sector, where production grew 15%—the most in over two years. But actual output from coalmines in the month stood at 39.33 million tonne, a ten-month low.

Cement production posted a growth of nearly 13% in June, but actual output stood at 17.1 mt, a five-month low. Annual crude oil output growth in June was the highest since August 2007. This was because of the unusually low output from Indian oilfields, where no significant discoveries have been made in the recent past.

The 7% increase in power output was aided by demand for more electricity from factories. But in June, thermal, hydel and nuclear plants generated 62,645.5 mw of electricity, the lowest since February.

RBI may go soft on key rates | RBI to keep dovish stance on rates

RBI may go soft on key rates RBI to keep dovish stance on rates

The Economic Times, July 24, 2009, Page 1 & 11

RBI IS EXPECTED TO retain its soft interest rate bias at next week’s quarterly policy review even if it doesn’t cut key policy rates, reports Our Bureau from Mumbai. Despite the negative headline inflation number, it’s widely felt that inflation will begin to surge post-October. Hence, RBI may not tinker with key rates even as it persuades banks to lend more.

Soft Rate Bias Likely To Continue In Policy Review, Even If Key Rates Are Not Cut

Our Bureau MUMBAI

RBI is expected to retain its soft interest rate bias at next week’s quarterly policy review even if it doesn’t cut key policy rates.

The central bank is already sensitising the market on the need for an orderly withdrawal of liquidity that has been pumped in since the collapse of Lehman. Most world markets, other than LatAm, are believed to be done with rate cuts, and central banks are now thinking of ways to minimise the pains of liquidity rollback.

Despite the negative headline inflation number, it’s widely felt that inflation will begin to surge post-October. Under the circumstances, RBI may not tinker with key rates.

However, with bank credit growth slowing to 16.3% year-on-year, RBI will use all its suasive powers to get banks to lend more. “Governor Subbarao is likely to point out to bank chiefs that lending rates have not fallen by half as much as RBI’s policy rates,” said Sujan Hajra, chief economist with Anand Rathi Securities, who does not expect the governor to revise any of his policy rates.

SBI chairman OP Bhatt had recently said the central bank may lower its 20% credit growth target.

According to Mr Hajra, “RBI’s focus will be to ensure that the government’s borrowing progresses smoothly. To achieve this, it may increase commitment to open market purchases and could also do away with the special dispensation that allows banks to leverage up to 150 basis points of their statutory liquidity ratio for on-lending to finance companies.” A higher SLR requirement will sustain demand for government securities. (SLR requirements specify the extent of bank deposits to be invested in government securities.).

While a benign rate regime will be good for borrowers, it might not work in favour of banks. Despite the best efforts of banks, bond yields are likely to continue edging upwards because of the oversized borrowing plans of the government. “We expect bond yields to harden in the fourth quarter and remain hard for the whole of the next fiscal,” said Mridul Saggar, chief economist with Kotak Securities.

Mr Saggar feels there is no alternative but to return to fiscal prudence. “Fiscal borrowing is large and requires accommodation. The first best solution for this is to control the fiscal deficit,” he said.

Economists are unanimous in their view that the central bank is unlikely to take any measure that would derail the growth momentum. At worst, RBI is expected to maintain status quo. At best, it could bring down the reverse repo rate. However, most economists see this as a remote possibility.

Besides using moral suasion, bankers expect RBI to ease norms to encourage banks to lend. One possibility is that lenders will get more leeway for restructuring loans. This would allow them to rework loan agreements to give more time to a stretched borrower without having to classify the loan as a bad asset. There could be boosters for infrastructure financing by easing capital requirements on take-out financing—deals where a long-term financier agrees to take over a longterm loan initially disbursed by a bank.

IN LARGER INTEREST

With inflation expected to surge post-October, RBI may not tinker with key rates

But it is sensitising market on need for orderly withdrawal of liquidity pumped during crises

Most world markets are said to be done with interest rate cuts

RBI is likely to ease norms that will encourage banks to lend, such as more leeway for restructuring loans

There could be boosters for infrastructure financing by easing capital requirements on take-out financing

Time overruns may be condoned when there are no defaults

RBI unlikely to tinker with rates

RBI unlikely to tinker with rates
The Financial Express, July 24, 2009, Page 21

Press Trust of India, Mumbai

Surplus liquidity in the banking system and low demand for credit might prompt the Reserve Bank of India (RBI) to maintain a status-quo in its key rates, bankers have said.

In the quarterly review of its annual monetary policy on Tuesday, the central bank is also likely to lay out a more clear road map to conduct the government borrowing programme in a smooth manner and may hike the GDP and inflation forecast for FY10, they said.

“There is enough liquidity in the banking system, even though, they may keep headroom to lower the CRR (cash reserve ratio), any cut is unlikely in the current policy. It may leave the repo and reverse repo rates unchanged,” Uco Bank CMD SK Goel said.

Given the difficult market conditions, the apex bank may relax the NPA norms for stress-ridden sectors and extend the deadline for loan restructuring, Goel said.

The possibility of hiking the SLR (statutory liquidity ratio) requirement of banks to 25% from the current 24% cannot be completely ruled out, he added.

To arrest the slowdown in the economy by stimulating demand, the apex bank has trimmed its CRR to 5%, repo and reverse repo rates to 4.75% and 3.25% respectively since October last year.

“RBI may lower the credit and deposit targets for banks as it is difficult to meet those in the prevailing conditions,” Bank of Baroda chief economist Rupa Rege Nitsure said.

In its annual monetary policy, the central bank had set the credit target for banks at 20% and deposit base at 18%. With the economy showing signs of recovery, there are chances of the central bank reviewing its GDP and inflation targets for the fiscal to 6-6.5% and 5%, respectively, as against 6% and 4.5% projected earlier, Nitsure said.

The central bank is widely expected to come out with a clearer picture on how to go about the massive government borrowing programme to cause less disruptions in the market.

A slew of measures are likely to alleviate the pressure on banks on account of large defaults, Kotak Mahindra Bank’s Group Head of retail liabilities KVS Manian said.

This may include the extension of loan restructuring facility till December, Manian said.

Bankers, in a meeting with the RBI Governor D Subbarao, had sought extension of loan restructuring facility till December against the earlier deadline of June 30.

They also wanted the central bank to ease the NPA norms in certain sectors, particularly infrastructure. RBI deputy governor KC Chakrabarty has recently said RBI’s effort was to ensure a stable and benign interest rate regime, comfortable liquidity and adequate credit flow to productive sectors.

WPI inflation at -1.17%, but food prices on fire

WPI inflation at -1.17%, but food prices on fire
The Economic Times, July 24, 2009, Page 11

Our Bureau NEW DELHI/MUMBAI

WHOLESALE prices fell year-on-year for the sixth consecutive week, even as a week-on-week increase in the prices of mass-consumption food items such as pulses, fruit, potatoes and rice pushed up household grocery bills.

The annual rate of inflation based on the wholesale price index (WPI) stood at -1.17% for the week ended July 11, according to data released on Thursday, but there was no let-up in inflationary pressure on primary food articles, which saw a price hike of 90 basis points over the previous week.

In fact, ET calculations show that grocery bills have increased by almost 9% since January, prompting some experts to warn that it will soon impact consumer spending on less essential products.

“As these (grocery) are all essential items, one cannot cut expenditure on the same, though their prices are rising,” said Yashika Singh, economist of Dun & Bradstreet. Instead, expenditure on consumer durables, entertainment and traveling, which are discretionary in nature, could be reduced, she said.

Indranil Pan, chief economist with Kotak Bank, however, does not see a significant shift in the consumption pattern. He agreed that increasing grocery bills would affect the middle and lower income strata of society in terms of reduction in purchasing power, but said there won’t be a significant shift in consumption patterns.

“The stimulus in the form of arrear payments and salary increases due to implementation of the Sixth Pay Commission, increase in minimum support prices and loan waiver for farmers, and reduction in surcharge on income tax will increase the disposable income in the hands of lower and middle income groups,” he pointed out.

Pronab Sen, chief statistician of India and secretary in the ministry of statistics and programme implementation, attributed the rise in food prices to speculation in the market to a considerable extent. “The moment it is known that the monsoon may go off track, speculation starts in the market. Food price inflation, therefore, starts before monsoon,” he said.

DK Joshi, director and principal economist at rating agency Crisil, cited poor production of pulses and cereals as the reason for food items becoming costlier.

The more than one percentage point upward revision in annual rate of inflation for the week ended May 16 to 1.65% from the originally reported 0.61% indicated that inflation may come out of the negative zone quicker than expected. Also, inflation for the June 11 week was marginally above -1.21% in the previous week, although it was sharply lower than the 12.13% rise recorded in the corresponding week a year ago.

The May revision and the week-onweek increase show that even though the annual rate of inflation remained negative, inflationary pressures were building up.

“I think inflation may remain in the negative territory for about a month before turning positive,” said Mr Joshi.

In fact, retail inflation as measured by the food-heavy indices for rural consumers, CPI-Al and CPI-RL, has already crossed into double digits and was placed at 11.52% and 11.26%, respectively, for June 2009.

According to Mr Sen, inflation tends to get exaggerated or underestimated depending on the direction it is moving. “That is because of the way data is collated and estimates are prepared. The first estimate is prepared based on whatever information is available to date and later the number is revised. Therefore, if inflation is accelerating, the number tends to get underestimated while in a scenario where inflation is decelerating, the number gets overestimated,” he told ET.

Developers rain offers to ramp up demand

Developers rain offers to ramp up demand
The Financial Express, July 24, 2009, Page 22

Preeti Parashar, Chandigarh

In an effort to attract buyers towards real estate projects, developers have introduced various offers and schemes in the market. Ranging from a free luxury car to a free flat, buy-back guarantee or special prices for the armed forces, the developers are getting innovative in offering freebies to woo buyers.

Market experts feel such corrective measures are being taken to pump up the demand.Delhi-based Collage Group, which is developing a residential project exclusively for NRIs in Amritsar, has come up with an initiative of offering better specifications at same price. Vivek Srivastava, director, Collage Group, told FE, "The economic downturn made us think over adding value to the product offered. So we increased the specifications of the accommodations without increasing the prices. The apartments being offered to the public are fully air-conditioned with modular kitchen, LCD in living room, wooden flooring, bathrooms with top-of-the-line fittings, etc. But the price is very affordable in the range of Rs 26-28 lakh for a two-bedroom apartment."

Apart from this, Collage Group has also introduced special pricing with a discount of Rs 600/sq ft on the total price for the armed forces. In some cases, the buyer has nothing to lose even if the prices of the property decline in the future.

One such player, CHD Developers, has launched various offers like property value assured and 12 month assured returns on commercial properties at its commercial project, CHD Plaza, at CHD City in Karnal, Haryana. CHD extends a unique investment protection shield to all its investors, wherein it will bear the complete differential loss in case the price is less at the time of sale. Under the assured returns scheme, the company is offering a guaranteed return of 12% per annum on the buying price for 24 months. "We have noticed a surge of over 50% in enquiries whenever any such scheme is initially launched. During the validity of any of our schemes, we are able to sell a majority of properties in a project. The percentage is as high as 80% in such cases. I would say that such schemes should be offered by all real estate developers as they surely can help the buyer in making a buying decision," said an official of CHD Developers.

With a view to reduce costs the companies are also extending areas, downsizing heights and introducing new concepts like fabricated structures. Omaxe Constructions is focusing on optimising the cost by 5-7% in each project. As per an Omaxe official, the company is developing three-storey buildings rather than multi-storey buildings. Pre-cast structures will also be used which may reduce the construction costs by up to Rs 100/sq ft.

ICREA TO LOBBY FOR REALTY SECTOR

ICREA TO LOBBY FOR REALTY SECTOR
The Times of India (Bangalore edition)

At a recent International Consortium of Real Estate Association's (ICREA) global board of directors' meet at Ottawa, a series of education, technology upgradation and property marketing related issues were outlined for the Indian market.

It may be recalled that the National Association of Realtors - India (NAR-India) had signed a bilateral agreement with ICREA to bring this global body to the domestic market. This bilateral agreement makes it possible for member realtors here to interact with around 2.5 million realtors across 35 countries for real estate business.

"As the economy revives and the real estate market starts opening up, education will play a major role in garnering a better part of the pie. Clients will be more demanding in the context of optimum use of space, potential of property, and investment worth. This will mean realtors need to be geared up with a deeper understanding of the market and buyer", says Farook Mahmood, director - India, ICREA and Founder President, NAR-India.

ICREA has a host of education programmes for realtors that will be customised for the domestic market. The education programme includes courses on transnational referrals (TRC), valuation of property, legal matters related to transactions, and most importantly on marketing. All these are certification courses.

SALES ON THE RISE, SAY REALTORS

SALES ON THE RISE, SAY REALTORS
The Times of India (Bangalore edition)

In a recent pan India property brokers' poll, Edelweiss Securities Ltd, a financial services major, confirms that the volumes and transactions in the residential property market have shown strong signs of going upwards, after elections. The poll survey, compiled by Aashiesh Agarwaal, CFA, and Akshit Shah, says that a favourable electoral outcome has triggered a reversal in consumer sentiments.

"In our opinion, buyers were sitting on the fence anticipating a further price fall. However, a significant change in sentiment after elections, preceded by stimulus measures, has contributed to a strong recovery in volumes and prices. We believe prices have increased in the past 1-2 months", they say.

Nearly 87 percent of brokers witnessed an increase in transactions in the past one-month against no sales earlier, while 76 percent of the total respondents are still expecting prices to stabilise over the next three months. The brokers' outlook over the next 12 months has changed significantly since the last poll - 53 percent of respondents now expect prices to increase against 53 percent that expected a decline in prices earlier.

In the overall observations, 96 percent of brokers believe prices have fallen over the past year while 67 percent believe prices have stabilised over the past three months. Nearly 84 percent have seen an increase in transactions over the past one-month while 72 percent have witnessed an increase in enquiries over the past month.

Regarding price stability, according to the poll, 72 percent of the brokers polled expect prices to stabilise over the next three months while 53 percent expect price trends to be positive over the next one year. On what has changed significantly in the residential sector since the last poll, Aggarwal and Shah observed that the developers have either raised or are planning to raise funds via stake sale. At the same time, new launches at reduced prices showed high absorption rate for these projects. Above all, the positive outcome of the elections catalysed the demand.

In the first week of April, the company had conducted a poll of 100 potential buyers at a property exhibition. One of the key findings was that 52 percent of potential buyers thought prices were attractive, although many were still in the mood to wait for a further price correction. However, a strong election outcome has led to these buyers jumping back into the fray.

Lowering of interest rate too has played a positive role. The repo rate was cut from five percent in March 2009 to 4.75 percent in April 2009. The reverse repo rate was cut from 3.5 percent in March 2009 to 3.25 percent in April 2009.

Besides these factors, according to the report, throughout India, brokers have turned positive since the previous poll and the percentage of brokers with a negative outlook for the next three months has decreased to 13 percent from 76 percent earlier. Overall, for the next three months, brokers have turned their outlook to steady.

STABILITY, LOW INTEREST RATE SET TO PUSH REALTY MARKET

STABILITY, LOW INTEREST RATE SET TO PUSH REALTY MARKET

B S Manu Rao
The Times of India (Bangalore edition)

At this point in time, there are two questions floating around in the property market. On the minds of buyers is the poser that begs for an answer during a downturn - will prices drop further. The course of the economy and when the property market will open up again, bringing in the flood of pent up demand, is the question the industry is debating.

Either way, property is a business everyone wants to see picking up. This sector contributes significantly to the GDP and opens up opportunities for a host of segments.

Perhaps the first welcome sign of the downturn bottoming out here has been seen in the job market. Headlines announcing the traumatic retrenchments are no longer visible. The insecurity is not as pronounced and many are sure the slide has been stemmed. This is the first step towards a more vibrant property market. A secure job is the basis for a homebuyer to look for that dream home. With job security comes the demand for homes as most would like to buy their first home as soon as possible to finish the loan quicker and possibly look for a property investment next.

“In the IT sector, there are some positive signs since the last quarter. This indicates that business could be looking up. On the job front, the large-scale retrenchment phase seems to be behind us. With this positive trend continuing, techies could look at buying property again,” says K S Narahari, Director (Communications and Internet Marketing), Texas Instruments India. "These sentiments are certainly much more positive than what existed in the sector six months ago", he adds.

Home loan rates

In times of tight household budgets, the single-digit home loan rate is a major plus point. Even with job security, a prospective homebuyer will find it more comfortable to repay a home loan at nine percent than the 12 percent levels prevailing a quarter ago.

Finance is the most significant part of buying a home. It spans across many years. A low interest rate regime fuels the property market with salaried investors buying property as a long-term option. The capital appreciation in property over a long term is huge and never lets an investor down. This is especially so given the home loan tax benefits and rental income property yields. These bring down the effective cost of loan, and hence cost of investment.

MALL VACANCIES RISE BY 5-15 PERCENT

MALL VACANCIES RISE BY 5-15 PERCENT

Avinash Nair & Yashpal Parmar, Ahmedabad
The Economic Times (Bangalore edition)

As mall developers rework their strategies to sustain cash-flows, mall vacancies in major retail destinations like Delhi, Mumbai, Pune and Hyderabad rose between 5 and 15 percent in June 2009. During the last six months, developers juggling with various revenue models have discovered to their relief that certain “flexible” revenue models like ‘minimum guarantee’ and ‘revenue sharing’ have picked up steam.

“Riding on 30-40 percent annual rental growth in 2006 & 2007, and strengthening consumerism, developers in India planned and began constructing malls in dozens. A rental correction of 30-35 percent from the peak in 2008 was not able to entice retailers, leading to several malls becoming operational in the first six months of 2009 at high vacancies,” says Abhishek Kiran Gupta, head - research, of a global real-estate consultancy firm. According to Gupta, the mall vacancies have continued to increase between 5-15 percent in retail hotspots like Delhi, Mumbai, Pune, Bangalore and Hyderabad.

In retail hotspots like Ahmedabad, the higher mall vacancies can be attributed to the geographical distribution of malls. “Geographical distribution of malls in Ahmedabad is poor, with the western part of the city having a majority of the organized mall space. Had the developers spread their retail developments towards other residential catchments as well, the risk of higher vacancy would have somewhat diminished,” Gupta said. “While the existing high vacancies in malls might give an indication of oversupply of retail space in the city, a dearth of ‘quality retail space’ in Ahmedabad continues. Developers would have realised that retailing needs more quality space than quantity space and as a sector, works differently than other asset classes,” he added.

At a time when mall vacancies continued to rise, the mall developers juggling with various revenue formats to sustain adequate cash-flows found that flexible revenue models like minimum guarantee and revenue sharing have become popular. “Select malls in the country like Inorbit and Forum Value Mall in Bangalore, along with Select City Walk in Delhi have shifted to a combination of minimum guarantee and revenue sharing models, accompanied by a performance clause in the agreement. Depending on the format of the store and the tenant, the revenue sharing terms are decided,” Gupta said.

“Such flexible revenue models are highly acceptable to the retailers as the risk is shared between the real estate owner and the retailer. Also, it makes the developer more accountable for generating footfalls and conversion rates in the mall. For the developer, it reduces the risk of high vacancy in the mall while keeping a probability of better revenues in the future,” he added.