Real Estate Intelligence Service, Thursday, August 06, 2009

Stimulus package boosts housing loan offtake

Stimulus package boosts housing loan offtake
The Economic Times, August 6, 2009, Page 9

Housing Loan Disbursements Up 353% During 3 Months Ended May’09

Supriya Verma Mishra & Pallavi Mulay ET INTELLIGENCE GROUP

THE government’s first ever initiative to give impetus to the realty sector in the form of special home loan package has reaped benefits. The latest data released by the RBI shows that housing loans disbursed by banks as a whole grew by more than four times (353%) during three months ended May 2009. This compares with the average 53% decline in the previous three quarters.

“It was a right step to introduce the stimulus package. This helped to ease out the risk of interest rate volatility for at least the initial years,” said Bank of India executive director M Narendra. Unless housing, real estate and construction sectors are boosted, core sectors like steel and cement would not grow, he added.

The special housing loan scheme was announced in December 2008 when home loan rates were ruling at around 11%. Public sector banks were given a special stimulus package, under which home loans were being offered at low interest.

Housing loans up to Rs 5 lakh were given at 8.5% interest rate and borrowers in the Rs 5-20 lakh category were charged 9.25% for the first five years. However, this scheme was offered for only till June 30, 2009. Response to the scheme was muted initially. The demand picked up only in the later months of April and May. Housing loans increased by Rs 3,138 crore during three months ended May 22 compared to Rs 693 crore in first three months of the scheme.

Take the example of Bank of India. The year-on-year (YoY) growth in residential mortgage for the bank accelerated to 31% at the end of June 2009, compared to 15% growth at the end of March 2009. Other banks also experienced the same.

“The response to the scheme showed the impending demand in the sector. April, May and June saw the maximum loan applications,” said IC Shetty, divisional manager of Canara Bank. This step had the desired effect of boosting housing demand by helping home buyers who were left out during the previous rally when prices were skyrocketing.

Not only did it bring a lot of home buyers back to the market, it also helped developers generate revenues. From a time when there were hardly any units being sold during August’08-March’09, demand picked up to the extent where almost 3-4 flats were being sold every week by April.

Fundraising by realty PEs slumps 72%

Money raised by realty-focused private equity funds declined to an over fouryear-low level of $10.3 billion in April-June 2009 as institutional investors remained hesitant in committing capital, reports PTI from New Delhi. According to a report by global research firm Preqin, PE real estate funds are still struggling to raise capital. In the April-June quarter, 21 real estate funds made aggregate commitments of $10.3 billion, down 72.16% from $37 billion in the year-ago period. The fall is particularly noticeable for funds targeting Asia. “This represents the lowest fundraising quarter for PE real estate funds since Q4 of 2004, when the funds raised an aggregate $10 billion,” Preqin said. The report said investors have turned cautious and are now looking at more established markets. “During this time of economic instability, investors are especially cautious when making new commitments, and are therefore in many cases looking towards more established markets, rather than emerging markets, which are perceived as being higher risk,” the Preqin report said.

Long way to go as top 9 realtors’net dips 76%

Long way to go as top 9 realtors’net dips 76%
The Economic Times, August 6, 2009, Page 5

Subsidy On Affordable Housing Loans May Help Sector, But Possible Price War May Turn Things Worse

Sanjeev Choudhary NEW DELHI

INDIA’S struggling realty industry may have sprouted some green shoots of late, but the top nine listed real estate firms posted a 76% dip in profit and 57% fall in sales in the June quarter, prompting the segment leader to observe that the industry is not “completely out of the woods”.

Analysts said the revival in demand could improve things, especially in light of a government subsidy for loans taken for affordable housing, but warned that a possible price war between players sitting on huge inventories could spoil the scene. “The recovery of the sector will depend a lot on the sustenance of demand,” said Shailesh Kanani, a real estate analyst with Angel Broking.

Rupesh Sankhe, another real estate analyst with Centrum Broking, felt low-priced homes will continue to drive up demand, even though it may not be, “anywhere close to what we saw in 2006 and 2007”.

DLF, India’s largest listed real estate developer, sold 2.5 million sqft of home space in Delhi and Bangalore in June quarter and wants to launch another 16 million sqft of residential space this fiscal. DLF reported a 79% decline in profit and 57% slide in sales for the June quarter.

“There has been a reasonable revival in demand for homes not just in low-cost or mid-income, but also for high-end,” DLF vicechairman Rajiv Singh told an analyst conference call on Friday.

His immediate competitor, Unitech, reported 63% decline in profit with sales down by half.

“Property prices have come down and so has the interest rate. That’s why home buyers are again looking at the property market,” said R Nagraju, head of corporate planning at Unitech. The firm is targeting to sell a total of 30 million sqft of space this fiscal.

Other realty players Indiabulls Real Estate, Parsvnath, Omaxe, HDIL, Akruti, Sobha and Purvankara too have reported decline in profits up to 95% for the June quarter. Parsvnath chairman Pradeep Jain said the worst was over for the sector and demand had started picking up. But the pick-up in demand hasn’t really erased all concerns as DLF’s Rajiv Singh said the sector was still not “completely out of the woods.” Much of the new bookings received in residential projects have been in what developers call ‘affordable’ category or homes priced between Rs 20-35 lakh. Encouraged by the response, more developers are readying to launch homes in this segment. The tax benefits announced recently by the government for smaller homes is likely to act as additional incentive for projects in the category. “Supply is likely to increase faster than the demand in the residential market, as many developers, who had been postponing their launches for a long time are now launching new projects,” says another analyst with a Mumbai-based brokerage firm, who didn’t want to be named. He says prices may correct further as new supplies hit the market.

Mr Sankhe of Centrum believes the scope for price correction in low-price segment is limited, but high-end homes can still see property prices drop at least 10%.

Some developers such as HDIL and privately held Lodha developers have claimed that prices have already started firming up in Mumbai. But analysts as well as some developers, including DLF and Unitech, say price hike would hit demand and not be good for the sector at this stage.

DLF TO EXIT INSURANCE VENTURE

DLF TO EXIT INSURANCE VENTURE
The Economic Times, August 6, 2009, Page 1

Paramita Chatterjee & Sanjeev Choudhary, NEW DELHI

DLF, the country’s largest real estate company, is looking to exit its life insurance joint venture with US-based Prudential Financial as it continues to sell non-core businesses that demand fund infusion.

The company, still to recover from last year’s realty crash, is now scouting for a potential buyer for its 74% stake in DLF Pramerica Life Insurance in what could be the first deal in India’s fledgling insurance industry, at least two persons familiar with the matter told ET.

The first person, a senior executive in the insurance industry, said DLF wants to exit the insurance business it entered in 2007, as it is loath to spend more money on any business that is not its core area of operation. DLF-Pramerica, which currently has a capital base of Rs 130 crore, is expecting fresh infusion of Rs 150-200 crore from its parents this fiscal to push its market penetration.

DLF retreating from non-core biz

A SENIOR DLF executive confirmed the company didn’t intend to be a long-term player in the insurance business and would exit when it gets an opportunity. He, however, added that DLF is yet to appoint a merchant banker for the same.

A DLF spokesman, however, denied the report. “It is absolutely wrong information, we don’t have any plan to exit,” he said. The two executives could not confirm if DLF would also exit its asset management joint venture with Prudential Financial where the foreign partner holds a majority 61% stake.

They also refused to talk about potential suitors and the valuation the unlisted firm is likely to attract. With none of the 22 insurance companies in the country listed on the market and the industry yet to see an M&A deal so far, no analyst was willing to make a guess on the likely deal size.

Since the onset of the downturn in the realty sector, DLF has been looking at retreating from all its non-core and unviable businesses. The company is exiting wind power business, two township projects at Dankuni in West Bengal and Bidadi in Karnataka and a convention centre project in Delhi.

DLF, which reported a 79% decline in profit and 55% decline in sales for the June quarter, has also put on the block many of its land parcels, including its hotel projects. During the real estate boom years of 2004-2007, DLF ventured into many unrelated sectors just like several other cash-rich developers.

The company tied up with international brands such as Giorgio Armani, Salvatore Ferragamo and Dolce & Gabbana to start retail operations. It also joined Hyderabad-based Gayatri Projects to foray into road development. It unveiled a mega hotel plan, but rolled it back rapidly after the downturn set in the realty sector.

DLF was also among the many realtors including Unitech, Parsvnath and Jaypee that had applied for telecom licences in 2007. Only Unitech received the licence.

Most realtors who went on a diversification spree then are now looking to repay their debt through cash generated by asset sale. In these circumstances, it’s natural for DLF to want to exit insurance, which is a capital-intensive business with huge fund needs. Companies in the sector are injecting capital annually to deal with cutthroat competition.

DLF’s partner may not be expecting its exit plans though. In an earlier interaction with ET, Timothy Feige, co-president, international insurance business of Prudential Financial, said: “We are happy with DLF as our partner and together we are looking to expand our operations in India.” In the first quarter of the current fiscal, DLF Pramerica recorded Rs 4.34 crore in terms of sale of life insurance products. The firm has around 600 employees and 450 agents. It has offices in Haryana, Punjab and the National Capital Region (NCR).

The beginning to this fiscal has not been exciting for the life insurance industry. “Premium collection from new products has fallen in the last few months. For insurers, specially the newer ones, its difficult to sustain as the fund requirement in the sector is huge,” said an executive of a Delhi-based private insurer, on condition of anonymity.

Overall growth in the life insurance industry remained almost flat, with private insurers reporting a decline of 20% in the category. They clocked Rs 5,427 crore during the first three months of fiscal while the figure was much higher at Rs 6,795 crore last year.

Currently, the life category constitutes only around 4% of the total GDP in the country. The FDI limit in the insurance space for foreign players is capped at 26% but the government is planning to raise it to 49%.

Stimulus package boosts housing loan offtake

Stimulus package boosts housing loan offtake
The Economic Times, August 6, 2009, Page 9

Housing Loan Disbursements Up 353% During 3 Months Ended May’09

Supriya Verma Mishra & Pallavi Mulay ET INTELLIGENCE GROUP

THE government’s first ever initiative to give impetus to the realty sector in the form of special home loan package has reaped benefits. The latest data released by the RBI shows that housing loans disbursed by banks as a whole grew by more than four times (353%) during three months ended May 2009. This compares with the average 53% decline in the previous three quarters.

“It was a right step to introduce the stimulus package. This helped to ease out the risk of interest rate volatility for at least the initial years,” said Bank of India executive director M Narendra. Unless housing, real estate and construction sectors are boosted, core sectors like steel and cement would not grow, he added.

The special housing loan scheme was announced in December 2008 when home loan rates were ruling at around 11%. Public sector banks were given a special stimulus package, under which home loans were being offered at low interest.

Housing loans up to Rs 5 lakh were given at 8.5% interest rate and borrowers in the Rs 5-20 lakh category were charged 9.25% for the first five years. However, this scheme was offered for only till June 30, 2009. Response to the scheme was muted initially. The demand picked up only in the later months of April and May. Housing loans increased by Rs 3,138 crore during three months ended May 22 compared to Rs 693 crore in first three months of the scheme.

Take the example of Bank of India. The year-on-year (YoY) growth in residential mortgage for the bank accelerated to 31% at the end of June 2009, compared to 15% growth at the end of March 2009. Other banks also experienced the same.

“The response to the scheme showed the impending demand in the sector. April, May and June saw the maximum loan applications,” said IC Shetty, divisional manager of Canara Bank. This step had the desired effect of boosting housing demand by helping home buyers who were left out during the previous rally when prices were skyrocketing.

Not only did it bring a lot of home buyers back to the market, it also helped developers generate revenues. From a time when there were hardly any units being sold during August’08-March’09, demand picked up to the extent where almost 3-4 flats were being sold every week by April.

Fundraising by realty PEs slumps 72%

Money raised by realty-focused private equity funds declined to an over fouryear-low level of $10.3 billion in April-June 2009 as institutional investors remained hesitant in committing capital, reports PTI from New Delhi. According to a report by global research firm Preqin, PE real estate funds are still struggling to raise capital. In the April-June quarter, 21 real estate funds made aggregate commitments of $10.3 billion, down 72.16% from $37 billion in the year-ago period. The fall is particularly noticeable for funds targeting Asia. “This represents the lowest fundraising quarter for PE real estate funds since Q4 of 2004, when the funds raised an aggregate $10 billion,” Preqin said. The report said investors have turned cautious and are now looking at more established markets. “During this time of economic instability, investors are especially cautious when making new commitments, and are therefore in many cases looking towards more established markets, rather than emerging markets, which are perceived as being higher risk,” the Preqin report said.

Fund raising by realty-focused PEs slumps 72% in Q2

Fund raising by realty-focused PEs slumps 72% in Q2
The Financial Express, August 6, 2009, Page 13

Press Trust of India

New DelhiMoney by realty-focused private equity funds declined to over a four-year-low level of $10.3 billion in April-June 2009 as institutional investors remained hesitant in committing capital.

According to a report by global research firm Preqin, private equity real estate funds are still struggling to raise capital in the current economic environment.

In the April-June quarter, 21 real estate funds made aggregate commitments of $10.3 billion, down 72.16% from $37 billion in the year-ago period. “This represents the lowest fund raising quarter for PE real estate funds since Q4 2004, when the funds raised an aggregate $10 billion,” Preqin said.

The report said that investors have turned cautious and are now looking at more established markets.

“During this time of economic instability, investors are especially cautious when making new commitments, and are therefore in many cases looking towards more established markets, rather than emerging markets, which are perceived as being higher risk,” Preqin said.

Although money raising by the private equity real estate industry has declined sharply, the fall is particularly noticeable for funds targeting Asia. “Asia and rest of world funds, which were responsible for 25% of the aggregate capital raised in 2008, have accounted for just 9% so far in 2009,” it said.

Anticipating slump in demand amid the global economic downturn, many investors have reviewed their investment portfolios and reconsider their allocations to PE real estate.

However, the level of activity will pick up dramatically in the coming six months as investors remain committed to achieving a globally diversified portfolio, it said. “The next three months may still be a struggle for the asset class and we will probably see similar levels of fund raising in Q3 to those we saw in the first half of 2009.

“It is clear that investors are choosing to delay making new investments until the long-term economic outlook becomes clearer, but many predict that this will happen at the end of the year,” it said. The report said that following resumption of fund raising in the real estate asset class in the fourth quarter of 2009, next year would turn out to be the biggest fund raising year in long-term.

Red Fort Capital to pick up 50% stake in Noida project

Red Fort Capital to pick up 50% stake in Noida project
Business Standard, August 6, 2009, Section II, Page 3

Newswire18 / New Delhi

Private equity fund Red Fort Capital will pick up around 50 per cent stake in a Noida residential project, a source familiar with the development said.

The project —Lotus Boulevard, is spread over 40 acres in Sector 100 of Noida and is being developed by the 3C Company.

3C Company has already delivered over 12 million square feet of commercial projects, which includes Wipro’s Gurgaon campus and Patni Computer Systems Noida office.

“Red Fort Capital will acquire up to 50 per cent stake in the project. The total project cost is in the range of Rs 1500-1600 crore,” the source said.

A formal announcement on the deal will be made Thursday. With revival in demand for residential space, a number of private equity funds are now looking to invest in realty projects.

The global economic downturn and liquidity crunch had forced many of realty funds to defer their plans of investing in India-based realty projects. Red Fort Capital currently has one realty fund, Red Fort India Real Estate Fund I LP.

The private equity fund has already allocated over $400 million across 10 deals in India. In June, Red Fort Capital had acquired an 18 per cent stake in a luxury residential project of Parsvnath Developers in Delhi for Rs 90 crore.

Godrej Properties, Lodha may float IPOs soon

Godrej Properties, Lodha may float IPOs soon
Business Standard, August 6, 2009, Page 2

BS Reporter / Mumbai

Success of other QIPs, need for equity capital to push decision

Private property developers such as Godrej Properties and Lodha Developers may tap capital markets in the next three-four months to raise funds for their ventures, according to investment banking sources.

Godrej Properties, part of the Godrej group, may float an initial public offer of around Rs 500 crore in the next three months, said a banker close to the development. The company plans to sell 9.4 million equity shares in the IPO, which will constitute 13.5 per cent paid up capital of the company, the draft red herring prospectus (DRHP) filed by it showed. The company also plans a pre-IPO placement of 2.4 million shares with investors, the company said.

Though the company had filed a DRHP with the Securities and Exchange Board of India (Sebi) in June 2008, it had postponed the IPO due to adverse market conditions. Godrej Properties recently got a nod from Sebi for the IPO, which has a window of 12 months. However, the company wants to hit the market at the earliest, sources said.

When asked, a Godrej Properties official declined to comment on the IPO. Its proceeds are expected to be used for buying land and construction activities, sources said. ICICI Securities and Kotak Mahindra are bankers for the issue.

Another Mumbai-based developer, Lodha Developers, is also looking at an IPO of Rs 2,000 crore by the year end and plans to a file a DRHP soon, a television channel reported today. But when asked, Abhisheck Lodha, director of Lodha Developers, declined to comment.

“Lodha’s IPO plans are in the preliminary stages and nothing has been finalised yet. Apart from IPO, there are various ways of raising funds. We will take a call soon,’’ said a banker involved in the fund raising process.

According to consultants, the succesful qualified institutional placements (QIPs) of property developers in the recent past and requirements of equity capital are prompting developers to go for an IPO. “The QIPs of real estate companies have been accepted very well by the market. Most of the real estate companies are in need of equity capital, as they are highly leveraged. They need to get equity capital to lower their leverage positions,’’ said Ambar Maheshwari, director, investments, DTZ, an international property consultant.

Real estate companies such as Unitech, Indiabulls Real Estate, HDIL and Sobha Developers raised over Rs 7,500 crore this year by selling shares to investors through QIPs.

“Real estate companies planning an IPO should have a flexible strategies in terms of launches, products and pricing to tackle the uncertain times in the property market,’’ said Maheswari.

Sonia to take final call on land acquisition Bill

Sonia to take final call on land acquisition Bill
Business Standard, August 6, 2009, Page 7

Saubhadro Chatterji / New Delhi

Ally Mamata Banerjee wants major changes in the contentious Bill.

Congress managers have left it to party president Sonia Gandhi to take the final call on introducing the contentious land acquisition amendment Bill during the current session of Parliament.

As Railway Minister and Congress’ coveted ally Mamata Banerjee wants radical changes in the Bill and is totally opposed to presenting the Bill in its present form in Parliament, the Congress leadership wants Gandhi to take the political decision.

“There are some issues involved. We have to talk to the Congress president to take a decision,” Finance Minister and Leader of the Lok Sabha Pranab Mukherjee told Business Standard.

Rural Development Minister C P Joshi is in favour of immediate presentation of the Bill in the original form, but Banerjee wants changes before placing the Bill in the House.

Banerjee’s party, the Trinamool Congress, wants four major changes in the present Bill. These are — landowners should have legal right to buy back their land if the proposed industry doesn’t take off within the stipulated time, no government role in acquiring land to set up industries, no industry in agricultural land, and land cannot be acquired forcibly against the wishes of the farmers.

The land acquisition amendments were placed in the previous Lok Sabha along with the Rehabilitation and Resettlement policy Bill. But the Bill lapsed as the 14th Lok Sabha came to an end in May. The land Bill amendment will enable the states to acquire 30 per cent land if the private players manage to buy the rest.

A large section of the Congress, including Pranab Mukherjee, thinks there is no harm in tabling the two Bills in Parliament in the original form. Their logic is: let the Bills be placed in the House.

Changes can always be incorporated later after the twin Bills come back from the Standing Committee. Even Human Resource Development Minister Kapil Sibal is a strong supporter of this path.

But Banerjee doesn’t see much merit in this arrangement and wants the government to table a revised land acquisition Bill. She has no problem with the other Bill — the Rehabilitation and Resettlement policy Bill. Congress managers have left it to Gandhi as she played a key role earlier in pushing these bills aimed to benefit farmers.

In her address in the Congress Parliamentary Party meet last week, Gandhi had declared that the Rehabilitation and Resettlement Bill will be brought in this current session. But she remained mum about the Land Acquisition amendment bill.

The tension between Trinamool Congress (TC) and the Congress over the land bill got reflected in a recent internal meeting of the Rural Development Ministry. The Minister of State and TC member Shishir Adhikary told his senior minister Joshi that the proposed bill is “worse than the act formulated by the British rulers in 1894” because in British act “small and marginal farmers” were separately mentioned but the 2009 amendments has no special provision for this section of the society.

Congress managers have now left the matter at Sonia Gandhi’s table: if she can convince Banerjee and get the Bill tabled on August 7 or hold back the bill, not ruffling the Railway Minister’s feathers.