Real Estate Intelligence Service, Wednesday, August 12, 2009

Drought or not, FM sees 6%+ GDP

Drought or not, FM sees 6%+ GDP
The Economic Times, August 12, 2009, Page 9

Our Bureau NEW DELHI

THE economy will grow by more than 6% this fiscal year, finance minister Pranab Mukherjee said on Tuesday, a day after the met office cut its monsoon forecasts for the third time this year, triggering concerns a spreading drought across the country would cramp growth.

The Indian Meteorological Department on Monday said rains in the June-September season would be 87% of the average compared with its previous forecast of 93% on June 24, and this has sparked worries about sowing in the kharif season.

But Mr Mukherjee said the economy would be able to easily cope with the drought and urged against panic while conceding that deficient rains would reduce the kharif crop sowing by 20%.

“There’s no point in pressing the panic button. This country managed the century’s worst drought in 1987. We transported drinking water through railways. We organised fodder for the cattle. This country has the experience of handling the situation,” Mr Mukherjee said at the annual conference of chief commissioners and directors general of Income Tax.

A GDP growth of just around 6% would nevertheless bring economic growth estimates to the lower end of the government’s own forecasts, although closer to the Reserve Bank of India’s figure. The government’s economic survey had forecast GDP growth of at least 6.25% and as much as 7.75% if the global economy recovered. The economy expanded by 6.7% in the last fiscal, after growing by more than 9% in the preceding three years.

The 1987 drought had affected over 6,500 villages and 1.4 million hectares of land, with rainfall deficit estimated at over 19% then. This time around, 161 districts out of the country’s 604 districts have been declared droughthit. The government has already stepped up efforts to buy more sugar, banned the export of wheat and restricted rice shipments. “Fortunately, Punjab and Haryana have extensively used the ground water. In Bihar and certain other states, there are shortfalls,” Mr Mukherjee said.

He also expressed confidence that government would surpass its direct tax collections target of Rs 3.7 lakh crore for 2009-10. The finance minister emphasised that tax laws should be simple, stable and robust. “Tax rates should remain moderate and multiplicity of taxes, tax exemptions and deductions should be gradually phased out to improve tax compliance,” he said.

We can handle drought, says govt

We can handle drought, says govt
Business Standard, August 12, 2009, Page 5

BS Reporter / New Delhi

Finance Minister Pranab Mukherjee today said there was no need to press the panic button, though there would be 20 per cent decline in sowing of summer crops due to scarce rainfall. A total of 161 districts have been declared drought-prone.

He stuck to the Reserve Bank of India's growth projection of 6 per cent and above for the current financial year. “This country has the experience of handling the situation and I will advise not to press the panic button,” Mukherjee said today at the annual conference of chief commissioners and directors-general of income tax.

India is only one of the 20 countries in Asia whose agriculture and economy critically depend on the rains of the summer monsoon. The monsoon rains are essential for agriculture, which boosts rural income and drives economic growth.

In a separate meeting with representatives of the Federation of Indian Chambers of Commerce and Industry, Prime Minister Manmohan Singh assured that the government would do “everything possible” to put the lid on food inflation. “He (prime minister) was quite confident that given the buffer stock, they (government) would be able to handle the food inflation," Ficci secretary-general Amit Mitra told reporters after the meeting. Central agencies like Food Corporation of India have buffer stocks of over 50 million tonnes of rice and wheat.

The metereological department said the average monsoon rainfall has been deficient by 25 percent in the country for the period June 1 to August 5. However, the Finance Minister said it would not affect the overall economic scenario. He also expressed confidence that the direct tax collection target of Rs 3.7 lakh crore will be surpassed for the current financial year.

He said the country managed the century's worst drought in 1987. It had affected over 6,500 villages and 1.4 million hectares of land.

Mukherjee said the government was ready to manage a drought, and a contingency plan was also in place. "There is always a contingency plan," he said, indicating measures such as allowing import of foodgrain, continuing with the ban on exports and asking state-run agencies to buy more stocks from the open market.

He also said Punjab and Haryana made up for low rain by using ground water, even as Bihar and Uttar Pradesh were facing shortage of water

CAUGHT HIGH & DRY

CAUGHT HIGH & DRY
The Economic Times, August 12, 2009, Page 13

Two weeks ago, RBI anticipated growth to be better-than-expected. A fortnightlong dry spell, when the monsoon is at its peak, has changed all that. The situation no longer gives RBI leeway to tweak interest rates, says Mayur Shetty


TURNING the country’s official measure of price rise — the wholesale price index (WPI) into a joke, retail prices of several pulses and even vegetables look set to touch the Rs 100-per kg level even as the WPI continues to be in negative territory. Tur dal, the basic ingredient of the humble dal-chawal meal, has seen the highest price rice in recent times. It is estimated that retail food prices have risen by a third in the past three months.

The failure of the monsoon is expected to push up already high food prices even further. With deficient rainfall for all of August so far, forecasts are that there will be a sharp drop in agricultural output of pulses and cereals. Even if the rains revive in the coming days, it will be too little too late. Although future trading in tur dal has been banned, the prices of other pulses and sugar in commodity exchanges show that they are going to be in short supply. According to Crisil, “The distorted monsoon pattern has translated into lower sowing during the kharif season. At the all-India level, area sown till 31st July was 6.0% lower than the area sown during the corresponding period last year.”

The cumulative rainfall deficiency has now risen to 25% from 19% over the week, according to a Kotak equities report. Though it was less than 54% as on June 24, the fact that the peak monsoon season will soon be over, leaves the country with the prospect of a deficiency of 20-25% even with some subsequent improvement in rain.

To make things worse on the price front, international oil continues to quote close to its eight-month high of $70 per barrel. Although this is less than half of the peak levels of last year, a sustained rise will mean that some of the increase would have to be passed on to consumers in the form of a petrol and diesel hike. If fuel prices do go up further, they would have a cascading effect on other consumer prices. With the government increasing coal prices, there could be an upward revision in power tariffs as well. While the monsoon has hit food supply, the recent outbreak of swine flu across the country is likely to effect productivity, as several businesses and offices may have to closed down as part of precautionary measures and also because of cancelled events and travel plans.

While all of this is extremely negative news for the economy, curiously the BSE Sensex appears to have been unaffected. The Sensex touched this year’s high of 15924, which was much higher than the pre-crisis levels.

With so much liquidity eased by central banks across the world, funds are flowing into the Indian market which continues to be the second best in the world. The fallout can be witnessed in real-estate prices, which are showing signs of hardening.

It is now very clear that expectations of growth in August are far more tempered than they were in June. Research houses have lowered growth expectations for the current fiscal. Citibank has revised its growth forecast for India down to 5.8% from 6.8% before the monsoon. Most other research houses expect growth to be at least half a percentage point below what they had expected it to be before the monsoon.

The forecasts present a dramatic change in sentiment from what was prevailing last month. In July, Reserve Bank of India (RBI) governor said that he was leaving rates unchanged and he expected growth could be higher than the 6.5% originally estimated at the beginning of the fiscal. Indeed, the views of economists as presented in the macroeconomic report showed that the mood in July was that growth would be higher than expected.

If July’s status-quoist policy was designed for better-than-expected growth, RBI may soon have to take measures to tackle a slowdown coupled with double-digit consumer price inflation. RBI’s dilemma is similar to the one faced by all central bankers when confronted with a stagflation situation. The drop in growth will mean that RBI cannot hike rates, but at the same time raging food price inflation will make it difficult for the central bank to ease monetary policy.

The food situation will require the government to take policy measures through subsidies for irrigation and release of buffer stock. Some of these measures will put further pressure on the fiscal situation, pushing up government borrowing and yields on government securities could rise. What this means for banks is that they will no longer be able to generate profits by selling government bonds to each other or by writing back higher provisions for depreciation made in the past.

With growth under strain, banks will also be under continued pressure to keep interest rates low. In a Citibank report, Rohini Malkani and Anushka Shah have said: “We maintain our view that though the enhanced borrowing programme could result in yields firming up, surplus liquidity conditions, still-muted credit growth coupled with RBI’s role in the borrowing programme, would cap yields at 7.5% levels.”

PNB to cut home loan rate to 8.5% this week

PNB to cut home loan rate to 8.5% this week
HT Business, August 12, 2009, Page 1

As the festival season kicks off, so does the battle for the home loan market. Punjab National Bank (PNB) is all set to announce a competitive home loan rate to counter State Bank of India’s (SBI) low rate offering for the three months beginning August 8.

But at 8.5 per cent for three years, it is marginally higher than SBI’s offering. This rate will be for loans of upto Rs 30 lakh; for bigger loans, the rate would be 9.25 per cent or 25 basis points (100 basis points make 1 percentage point) lower than the current rate.

The bank is expected to announce this “festive offer” this week.

“This will be a part of the festive offering by the bank,” said a senior official who did not wish to be named.

Despite repeated attempts, top officials at the bank were unavailable for comment.

Between the two, SBI’s offer --- 8 per cent in the first year for loan between Rs 5 lakh and Rs 50 lakh and 8.5 per cent for the next two --- is cheaper. For Rs 5 lakh and below, the bank charges 8 per cent for five years.

PNB and SBI are not alone. Housing Development Finance Corporation (HDFC) reduced its rates in July to 8.75 per cent for loans upto Rs 15 lakh and 9 per cent for loans between Rs 15 lakh and Rs 30 lakh.

These are still higher than what is being offered by SBI and what PNB has planned.

Market leader ICICI Bank, however, has not revised its home loan rates — it charges an interest rate of 9.25 per cent for loans upto Rs 30 lakh and 9.75 per cent for loans between Rs 30 lakh and Rs 1 crore; beyond that it charges 10 per cent.

Tata Steel cuts long product prices

Tata Steel cuts long product prices
Business Standard, August 12, 2009, Page 4

B Reporter / Kolkata

Tata Steel has reduced prices of long products, used primarily in the construction sector, by Rs 1,000-1,500 a tonne with immediate effect.

A Tata Steel spokesperson said the reduction was in spot prices. Market conditions and low demand due to the monsoon were the main reasons.

Earlier in the month, state-owned Rashtriya Ispat Nigam Ltd (RINL), Steel Authority of India Ltd (SAIL) and JSW Steel in the private sector, had dropped long product prices.

While RINL reduced prices across long products by Rs 1,000-2,300 a tonne, SAIL cut prices by Rs 500-2,000 a tonne. And JSW Steel had slashed 3-4 per cent of long product prices.

Industry sources said the main producers were pushed to dropping prices, as long products manufactured by secondary producers were lower by about Rs 5,000 a tonne. Secondary producers account for around half of all long products manufactured.

However, long product prices were expected to remain stable over the next one month. “There is a possibility that October onwards there could some upward movement in prices. Internationally, prices are going up and that is a good sign,” said sources.

It appeared that long product and flat product prices were moving in opposite directions. A the start of this month, steel makers increased flat product prices by Rs 500-1,000 a tonne. Flat products are consumed by the automobile and consumer durable sectors.

The increase in flat steel was on the back of the increase in global steel prices. In Europe and the US, demand has been gradually picking up. In the past couple of months, hot rolled (HR) coil prices in the international market moved up $200 a tonne to around $600 a tonne.

Firms may tap realty sector again

Firms may tap realty sector again
Business Standard, August 12, 2009, Section II, Page 3

Raghavendra Kamath / Mumbai

After a long hiatus, private equity companies are eyeing the Indian real estate sector as buyers return to the market in the backdrop of falling interest rates and property rates.

Though property funds are getting proposals from developers, the standstill home sales in the third and fourth quarters of the previous financial year and the slow movement in commercial properties are prompting PEs to take a second look at their investments, sector consultants say.

The lull in this space was very evident: Only three PE deals worth Rs 600 crore have taken place in the realty sector in the last nine months as against Rs 40,000 crore worth of deals during the same period in 2008, according to Venture Intelligence, which tracks venture capital and PE investments.

The deals since December 2008 were: IL&FS buying 15 per cent in Mumbai-based Akruti City’s special purpose vehicle for Rs 200 crore, Sun-Apollo picking up 15 per cent in Mumbai-based Keystone Realtors for Rs 300 crore and Delhi-based Red Fort Capital investing Rs 90 crore in a luxury project of Parsvnath Developers.

Now, it seems that realty funds will loosen their purse strings again with funds such as Red Fort Capital, Saffron Asset Advisors, Ajay Piramal Group’s Indiareit Fund, ICICI Venture, Mumbai-based ASK Group and others who are in talks with developers.

On August 6, Delhi-based real estate firm 3C Company said Red Fort Capital had picked up 50 per cent stake in its Rs 1,550-crore project in the national capital region. Red Fort has already put in Rs 150 crore in the project, the company said.

Red Fort, along with Japanese firm Sumitomo Mitsui Banking, is also jointly bidding to buy management rights of Merrill Lynch’s $2.65 billion Asian Real Estate Opportunity Fund.

“Markets are moving on in residential side and customer confidence is up. Developers liquidity has also improved and hence we are seeing a revival of private equity interest in real estate,” said Subhash Bedi, partner, Red Fort Capital.

Ajay Piramal group-promoted Indiareit fund, which has so far invested Rs 1,500 crore in the country, is in talks with developers in metros such as Mumbai, Bangalore and Pune and is expected to sign deals in the next two months.

“I think there will be a lot of interest in the real estate space as there is a lot of unspent money with funds and investors,” said Ramesh Jogani, chief executive officer and managing director of Indiareit Fund Advisors.

The revival in property sales has also helped firms which are looking at raising funds. ASK Group’s Rs 500-crore domestic realty fund has raised Rs 200 crore from high networth individuals (HNIs) since its launch in April 2009. The fund, which is expected to close soon, is looking to invest in city-centric residential projects across the country’s prime cities.

However, analysts and fund managers say PEs are more cautious in terms of investments now compared to the last six months given the tough times the realty sector had to witness recently.

“PEs are asking for good deals with reasonable valuations. Nobody is looking at plain vanilla land deals, but at projects where a certain level of construction has been completed. They are only looking at projects where there is clear visibility of revenues and developers have sold a certain percentage of projects,’’ said Ambar Maheshwari, director of Investments at DTZ, an international property consultant.

“Overseas investors are cautious as realty, as an investment class, is going through a consolidation phase. In the next six to 12 months, we can see a interest revival as Indian growth story is on track,” said Ajoy Veer Kapoor, managing director of Saffron Asset Advisors which has invested nearly Rs 1,220 crore (180 million euros) in the country and plans to invest Rs 816 crore (120 million euros) by March 2010.

Residential realty ‘stabilising’ in Delhi NCR, Chennai, Kolkata

Residential realty ‘stabilising’ in Delhi NCR, Chennai, Kolkata
The Hindu Business Line, August 12, 2009, Page 1

Moumita Bakshi Chatterjee

After a virtual freefall triggered by the global meltdown, the prices in the residential markets in Delhi NCR, Chennai and Kolkata appear to have ‘stabilised’ in July.

The average capital values in these markets remained more or less unchanged in July compared to April, according to data compiled by Cushman & Wakefield.

The Pune market, however, bucked the overall trendand saw a price decline of 2-11 per cent. Interestingly, the Mumbai mid-range residential market actually saw a rise in capital values in suburban locations — Bandra (W), Khar, Santacruz (W), Andheri, Malad, Powai.

“We have seen a bit of an improvement across most markets, and prices have plateaued. The ready-to-move offerings are attracting end-users, but even the projects that are under construction are seeing end-user interest now. Although there is an improvement in demand, there is supply coming into the market and so the capital values are unlikely to spike in the short-term,” said Ms Shveta Jain, National Head, Marketing and Investment, Residential Services, Cushman & Wakefield India.

The capital values in the key locations in Chennai have stabilised over the past few months, mainly on the back of new projects with attractive price tags. However, high-end development in Boat Club and Poes Garden have seen capital values drop 5-6 per cent.

India’s financial hub, Mumbai, also showed some encouraging signs, as spike in demand lent stability to values. The demand has been particularly visible in the mid-range segment, especially suburban Mumbai.

This, in turn, has led to an increase in values for such locations.

The high-end property space continued to correct albeit marginally and the dip was not as pronounced as the previous quarters. Supply for new ready-to-move in apartments has been constrained due to slowdown in construction activities while there is an improvement in demand, said C&W.

There were no major price adjustments in Delhi NCR in mid and high end segment in July. The same was true for most parts of Kolkata.

Pune, on the other hand, registered fall in capital values both in the premium and mid-range housing. The drop in value for North East and East locations in both the categories stood at nearly six per cent (compared to April this year) as builders reset their expectations in line with buyers’ perception. In the mid-end segment, Wakad witnessed significant correction (about 11 per cent) owing to excess supply. Wanowrie including NIBM Road and Kondwa too have been hit by an oversupply situation and unrealistic prices.

Bangalore mid-range market showed minor correction in some parts (Central, South, North West) and stability in others (East, South East and North). The high-end housing market continued to see further correction – over 10 per cent was seen in the Off Central area (Frazer Town, Benson Town, Richards Town and Dollars Colony). Secondary market outperformed the primary housing market, with end-users willing to take advantage of reduced prices and lower interest rates.

SEZs exports up 25% in Q1

SEZs exports up 25% in Q1
The Financial Express, August 12, 2009, Page 2

fe Bureaus, New Delhi

Bucking the trend, exports from special economic zones (SEZs) increased by over 25% in three months ended June 2009, even as overseas sale of Indian goods remained in the negative territory during the period.

Briefing the Board of Approval (BoA) on SEZs on Tuesday, commerce secretary Rahul Khullar said between April and June this year, exports from 98 functional SEZs stood at Rs 39,410 crore.

“This is substantial, but could have been better,” Khullar told reporters after the meeting.

The BoA on Tuesday gave its in-principal approval to India’s largest solar energy-based SEZ. The 101-hectare zone will be built by Lanco Solar Pvt Ltd in Ramdaspur near Cuttak, Orissa. The developer is yet to complete land acquisition for the zone and so was given in-principle approval. There are four other solar energy-based SEZs, which had been cleared by the BoA in its earlier meetings.

The board formally approved two other SEZs which have completed land acquisition formalities. They are Brooke Bond Real Estates Pvt Ltd, Bangalore, and Karnataka State Electronics Development Corporation Ltd in Shimoga, Karnataka.

Overall merchandise exports from India in the three month period under review contracted 25.7% and stood at Rs 2,48,171 crore, as demand for goods in traditional overseas markets in the United States and Europe weakened. In fact, exports saw contraction for nine consecutive months ended June 2009.

“Over 90% of SEZ exports are from the manufacturing sector ranging from handicraft to hi-tech goods. The growth is despite the fact that none of the multi-product zones having area above 1,000 hectares have become operational,” said a commerce ministry official.

The ongoing economic slowdown has adversely impacted the development of zones as many developers have asked for more time to build their SEZs. In Tuesday’s meeting, the board allowed 25 formally approved SEZs an additional year to become operational. The zones have cited limited availability of liquidity and lesser demand for space in SEZs as reasons for slow development of the zones.

Khullar said that the commerce ministry is in discussion with other members of the board to establish a sub-committee under the BoA. It will look into procedural issues. The move will decrease the load on the BoA, and is expected to speed up clearance of SEZ-related policy bottlenecks.

The BoA also approved additional construction activities in the zones which can be started after the SEZ is notified and will not need separate permissions. These include setting up of bus bays, rail heads and fire stations.