Real Estate Intelligence Service, Wednesday, August 19, 2009

Weak monsoon likely to dent GDP: Montek

Weak monsoon likely to dent GDP: Montek
The Financial Express, August 19, 2009, Page 2

fe Bureaus, New Delhi

Planning Commission deputy chairman Montek Singh Ahluwalia on Tuesday said India’s growth projection could come down due to poor monsoon, but inflationary pressures would be controlled as adequate food stock is at disposal.

“The existence of drought by itself can lead to some shaving down of the growth projections,” he told reporters on the sidelines of the conference on ‘Key Inputs for Accelerated Development of Indian Power Sector for 12th Plan and Beyond’ here. However, “we have more than enough food stocks to counter inflationary pressures,” he added.

“The negative impact will not be on the country as a whole, but in some affected parts. No doubt that the (farm) output of some states will fall and there will be some distress,” Ahluwalia said.

In case of decline in agriculture produce “one-fifth of that percentage is knocked off from the projected GDP (gross domestic production) growth”, he said giving his projection on growth due to poor rains this year. However, Ahluwalia tried to allay fears by saying that the impact is limited to kharif crop, which is produced during the summer season, and the rabi crop (winter crop) would not be affected.

Agriculture contributes about 18% of country’s GDP and hence is key to the economic growth. Also, it provides jobs to more than two-third of the country’s 1.1 billion population. Out of more than 600 districts of the country, about 177 districts have been declared drought hit till now.

Experts have already projected a lower growth during the fiscal in the aftermath of deficit rain. As per Prime Minister’s Economic Advisory Council’s chairman C Rangarajan, the economic growth will dampen to 6-6.5%, while Planning Commission member Abhijit Sen said the economy would expand at a slower 5-6%. The economic expansion had come down to 6.7% during 2008-09, against 9% in the previous year.

Poor monsoon may put pressure on inflation: RBI

Poor monsoon may put pressure on inflation: RBI
Business Standard, August 19, 2009, Section II, Page 3

Newswire18 / New Delhi

Reserve Bank of India Deputy Governor K C Chakrabarty said today the weak southwest monsoon could put upward pressure on inflation.

“The expectation is there (of upward pressure on inflation). The erratic monsoon may put pressure on inflation,” Chakrabarty said on the sidelines of a meeting of regional rural banks. India is facing a severe drought situation as the southwest monsoon has been way below normal. As on August 12, the overall rainfall in the country was 29 per cent below normal.

RBI has projected the headline inflation rate based on Wholesale Price Index (WPI) to rise to around 5 per cent by March. India’s headline inflation rate is currently at an over three-decade low of (-)1.74 per cent. The RBI deputy governor said the impact of weak monsoon on the economy could be offset, to some extent, by adequate steps.

“Everybody needs to take precaution. It depends on how we utilise the existing irrigation potential and bring the short-duration crops,” he said.

Use of green technology to become mandatory in SEZs

Use of green technology to become mandatory in SEZs
The Financial Express, August 19, 2009, Page 3

fe Bureaus, New Delhi

Use of green-technology will become mandatory in Special Economic Zones (SEZs)—the tax and duty free industrial enclaves—with the commerce ministry drawing up guidelines for use of equipment using renewable energy sources like solar power in the zones.

Senior officials of the commerce ministry, ministry of new and renewable energy (MNRE) and industry representatives from north met in Delhi on Monday to deliberate on the proposed guidelines. Similar meetings are also expected in other cities, before the guidelines are finalised.

MNRE officials told the participants that they are planning to launch a scheme that subsidies cost of green technology in the SEZs. These include energy systems like solar street lights, solar blinkers, solar power inverters, solar illuminating hoardings and bill boards, aerogenerators upto 30 kw capacity, wind solar hybrids of above 1 kw as well as solar thermal systems for air heating and steam generating applications.

The scheme is proposed to be implemented through Development Commissioners of respective SEZs.

The draft Green SEZ guidelines propose that each SEZ should install solar power systems, which generate a minimum of 50KW per hectare. In addition, developers will have to create facilities for water harvesting, waste management, plantation, and provide eco-friendly local transportation within SEZs.

“Green SEZs will help in optimisation of use of energy, conservation of power, efficient use of water, proper management of waste and development of green environment. It would help in pollution free environment and will improve the quality of life of all the people working and staying in SEZs,” said L B Singhal director general of Export Promotion Council for EoU and SEZ.

The proposed guidelines comes after the ministry of commerce and industry issues guidelines for setting up power units inside SEZs in February.

Currently, there are about 580 formally approved SEZs in the country, of which 98 are operational.

DLF set to land Gurgaon tract for Rs 1,703 crore

DLF set to land Gurgaon tract for Rs 1,703 crore
The Economic Times, August 19, 2009, Page 1

Co Sole Bidder As Unitech, Bharti Realty Disqualified

Our Bureaus NEW DELHI CHANDIGARH

DLF is set to bag a 350.71-acre land parcel in Gurgaon for Rs 1,703 crore after it emerged the sole bidder for the land put up for auction by the Haryana government.

India’s largest real estate developer offered to pay Rs 12,000 per sq ft, a tad higher than the reserve price of Rs 11,978 per sq ft, for the land, said a member of the government panel that oversaw the tender process. An announcement is likely to be made in the next few days, he said, requesting anonymity.

The deal is the biggest since last March when Delhi-based developer BPTP outbid DLF for a tract of land in Noida near Delhi with a Rs 5,000-crore offer. But the deal was called off after BPTP failed to arrange funds to complete the deal.

The country’s second-largest real estate player Unitech and Bharti Realty, the real estate arm of the Bharti group, too had bid for the piece of land located on the Gurgaon-Faridabad road, but were disqualified on technical grounds. The project will offer 5-7 million sq ft for development, said a leading property consultant, who asked not to be named.

The Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) had invited bids for the land in January. The land will house a golf course and sports, commercial and residential projects. DLF, which was the sole bidder then, had sought an easier payment plan. HSIIDC reinvited bids in July, giving bidders the facility of a staggered payment plan over seven years and an additional 20% FAR (floor area ratio or the developable floor space over a piece of land).

The winner is expected to pay 10% within 30 days of the bid’s acceptance and another Rs 100 crore in two installments in two years.

DLF sole bidder in Haryana's recreation, leisure project

DLF sole bidder in Haryana's recreation, leisure project
Business Standard, August 19, 2009, Page 4

Neeraj Thakur / New Delhi

The Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) has disqualified Unitech and Malaysia-based Country Heights Holdings on technical grounds from bidding for its 350-acre recreation and leisure project in Gurgaon, according to sources in HSIIDC.

With this, only DLF remains as the bidder and is likely to be awarded the project unless HSIIDC decides to invite bids once again.

“DLF is the strongest contender for the project after the disqualification of two consortiums led by Unitech and Country Heights Holdings,” an HSIIDC official said.

In January 2009, HSIIDC had invited international competitive bids for allotment of 350 acres of prime land on a free-hold basis in Gurgaon. The bid closed on April 30 and DLF emerged as the sole bidder for the project.

However, the corporation invited fresh bids in July this year, as it felt the terms and conditions of the bids posed some problems in the implementation of the project and that is why other parties did not participate in the bidding. It decided to invite fresh bids with some changes in the scheme of project. HSIIDC had kept a reserve price of Rs 11,978 per sq metre for the bid.

The proposed project site is jointly owned by HSIIDC and Haryana Urban Development Authority. A major portion of the site is notified under Sections 4 & 5 of the Punjab Land Preservation Act, 1900 and Radar Restriction Zone and any development works in this portion would be permissible only in accordance with the government ordinance.

According to HSIIDC terms, the bidder — individual or a consortium — shall be a listed company in a recognised stock exchange with a minimum networth of Rs 500 crore as on March 31, 2008.

The bidder should also have completed the development of and successfully operated an 18-hole international PGA standard golf course, along with a club house and other facilities for a minimum period of five years.

PM wants fresh thinking from states on environment

PM wants fresh thinking from states on environment
Business Standard, August 19, 2009, Page 7

BS Reporter / New Delhi

It was the economist Prime Minister who spoke to state environment ministers today, when he said states should explore mobilising additional resources for river cleaning through innovative models like Special Purpose Vehicles (SPVs).

“We have established the National Ganga River Basin Authority as an empowered body under the Environment Protection Act, 1986. We hope that this model will be adopted for other major rivers in our country, based on the experience we gain in its implementation. We have substantially increased the allocation for river conservation programme in this year’s budget, including a special provision of Rs 250 crore for the river Ganga,” he told the state ministers.

He also came out in the open about corruption in environmental clearances and said the view was that “environmental clearances have become a new form of Licence Raj and a source of corruption. This is a matter that needs to be addressed head-on. There are trade-offs that have to be made while balancing developmental and environmental concerns. But the procedures must be fair, transparent and hassle-free. Decisions must be taken within a specified time.”

While mentioning discrepancies in the Environmental Impact Assessment Reports, he said procedures were being streamlined and rationalised for mandatory environmental clearance. But state governments needed to establish Environment Impact Assessment authorities at the earliest. He also urged states to create their own action plans, consistent with the strategies in the national plans.

He also said there was pressing need to modernise the existing forest and wildlife management system, especially filling the vacancies. Those who live in the forests must be taught conservation and were not necessarily the enemy, he said.

The PM paid rich tributes to Union environment minister Jairam Ramesh for the “new sense of purpose and earnestness he has brought to this department”. He referred specifically to the Compensatory Afforestation Management and Planning Authority (Campa) and predicted that the transfer of funds from the Campa account to the states “is the forerunner of things to come of greater collaboration, cooperation between the Centre and the States”. “I congratulate Jairam for this initiative,” the PM said.

Singh also urged states today to create their own state-level action plans for climate change consistent with the strategies in the national one on this issue. He said broader consultation with states was needed on this issue.

He also chose to adopt a more conciliatory tone on climate change than that of his officials, saying past mistakes of carbon emission ought not to be repeated. “As we go forward in the march of development, we have the opportunity not to repeat those past mistakes,'' he said. The government has consistently been saying it would not accept any Western pressure on emission caps and would not compromise on the country’s energy needs.

Environment clearance a source of corruption: PM

Environment clearance a source of corruption: PM
The Economic Times, August 19, 2009, Page 7

Asks States To Develop Action Plan On Climate Change; Seeks Broader Consultation

Our Bureaus NEW DELHI

PRIME Minister Manmohan Singh has called for a transparent, fair and hassle-free environment clearance process for any project. Addressing a conference of state ministers of environment and forests in New Delhi on Tuesday, Mr Singh said environment clearances have become “a new form of licence raj and a source of corruption”. “This is a matter that needs to be addressed head-on. There are trade-offs that have to be made while balancing developmental and environmental concerns. But the procedures must be fair, transparent and hassle-free. Decisions must be taken within a specified time,” he said.

Mr Singh said the environment impact assessment (EIA) of projects by the government is a major attempt to rationalise the system of giving mandatory environmental clearance. “I would urge all the states that have not yet established state EIA authorities to do so at the very earliest,” he added.

The Prime Minister also reiterated the Indian position in the climate change negotiations that developing countries need access to technologies available with developed countries outside of a stringent IP regime. Even so, Mr Singh stressed on the need for domestic investment in new environment-friendly technologies. “We need to strengthen the scientific foundations of our environment policies and strengthen our capacity to deal with the challenges that lie ahead.”

Mr Singh also stressed on the need for domestic measures to deal with climate change and asked states to develop their own action plan, in consistence with the National Action Plan, on climate change. The state plans would aim to enable communities and ecosystems to adapt to climate change effectively.

“I would urge each state government to create their own state level action plans consistent with the strategies in the national plans. We need much broader consultation with the states on this issue,” Mr Singh said.

Mr Singh held the developed countries responsible for the climate change crisis and the current state of environmental degradation. He described climate change as a “major global challenge”, and stressed that India recognises the seriousness of the issue, and that India was aware of its “obligation” to address the crisis. To the global perception that India’s opposition to legally enforceable emission caps is an expression of its unwillingness to take note of the climate change crisis, he said: ”There should be no doubt in anybody’s mind that we fully recognise not just how important this issue is to our country’s future but also our own obligation to address it.”

Even so, Mr Singh made it clear that countries like India “face the unfair burden of past mistakes not of our making”. However, Mr Singh stressed that as India pursues its development goals, it should seize the “opportunity not to repeat those past mistakes”.

He said India was “conscious” of its “responsibilities” and sought to enhance the ecological sustainability of India’s development path. “As the country moves forward, the growth strategy can be and should be innovative and different. We are still at early stages of industrialisation and urbanisation. Our energy needs will increase sharply in the decades to come. We can and we must walk a different road, an environment friendly road,” he added.

Govt refuses Lodha bid for Finlay Mill

Govt refuses Lodha bid for Finlay Mill
Business Standard, August 19, 2009, Page 4

Raghavendra Kamath / Mumbai

The Union textile ministry has refused to accept the bid made by Mumbai-based Lodha Developers for Finlay Mill’s land in Central Mumbai.

According to sources close to the development, the ministry feels that the National Textile Corporation (NTC), which has put the land on sale, will get better prices than the bid put in by Lodha Developers. The company, which had initially placed a bid of Rs 657.90 crore, later hiked it to Rs 710 crore, following a request from NTC.

When contacted, Lodha Group Director Abhishek Lodha said that he was yet to see the government documents and, hence, was unable to comment.

The development is likely to have an adverse effect on the auction of Kohinoor Mill Lands, which is expected to come up shortly. Industry experts opined that the government is unlikely to get a better price, given the poor property market conditions.

“If somebody has that kind of money, they would put it in equity or bullion markets, and not in property. Property markets are yet to recover,” they pointed out.

Lodha Developers was planning to build an office-cum-residential complex at the Finlay Mill plot. In 2005, the company had acquired a 7.5-acre plot at Apollo Mills in Chinchpokli for Rs 180 crore.

NTC had put the Finlay Mill land on the block with a reserve price of Rs 708 crore for 10.3 acres. The government, which had appointed Jones Lang LaSalle Meghraj as consultants, had received a good response from developers, including Reliance Vorando, Tata Realty, Lodha Developers, DB Realty, Nahar Group and Kalpataru Developers.

Core push to keep cement demand intact

Core push to keep cement demand intact
The Economic Times, August 19, 2009, Page 7

Higher Infrastructure Spend, Improving Housing Market In Metros To Blunt Effect Of Weak Monsoon On Industry

Sanjeev Choudhary NEW DELHI

THE cement industry that saw rural demand driving its impressive 12% growth last fiscal, does not foresee any significant impact of a weak monsoon on demand. It believes a higher government infrastructure spend and an improving housing market in metros may offset any fall in rural demand because of a weak monsoon.

Analysts though believe a weak rural demand coupled with new cement capacities may put pressure on prices.

“The second half of this fiscal may see rural demand for cement getting impacted partly because of lower disposable income at the hands of farmers due to a poor monsoon,” says Jaiprakash Associates CFO Rahul Kumar. Jaiprakash Associates, which has an installed capacity of 14 million tonnes per annum, mainly operates in Madhya Pradesh, Uttar Pradesh and Bihar.

Mr Kumar says impact on rural demand for cement could be higher in Bihar and eastern Uttar Pradesh, where dependence on rain for farming is higher compared with Haryana or Punjab, where irrigation facilities are well-spread.

He though hopes that a shortfall in demand caused by a weak monsoon or drought may get offset by government projects and improvement in the housing market.

The cement sector has seen a robust growth in the past several quarters. As per data published by the Cement Manufacturers Association (CMA), cement production and despatches grew 12% and 11.7%, respectively in the four months to July this fiscal year. Last fiscal saw an unusually impressive growth of 12% for the cement sector, despite GDP growth slowing to 6.7% on higher government infrastructure spend and rural demand.

CMA president and Shree Cement MD H M Bangur says on a long-term average basis cement has grown 1.3 times the GDP growth numbers. So if GDP were to grow by 7%, the cement industry can safely be assumed to grow by over 9%, he says, adding that a weak monsoon may impact cement growth by hardly 1-2 percentage points this year.

The cement industry has a total installed capacity of 227 million tonnes per annum, including 8 million tonnes added in the four months to July. The industry expects to add another 20 million tonnes this fiscal. “An oversupply in several regions coupled with lower household income in rural areas will put pressure on prices,” says Rupesh Sankhe, a cement analyst with Centrum Broking.

South India’s largest cement maker India Cement however doesn’t agree. “We will have to wait and see how prices move in future,” says India Cement MD N Srinivasan, adding that analysts have been proved wrong several times on predicting oversupply.

He also believes that a weak monsoon will not erode demand as most households have multiple sources of income. Mr Srinivasan though is cautious on the impact of inflation. “If the government were to divert funds meant for infrastructure expenditure towards giving food subsidy to poor people, infrastructure spend will come down leading to lower demand for cement,” he says.

China goes house hunting via private route to boost recovery

China goes house hunting via private route to boost recovery
The Financial Express, August 19, 2009, Page 18

Reuters, Beijing

The Chinese government is attempting to pass the baton of growth from state-funded infrastructure investment to the private housing sector, a risky but necessary move to sustain the economic recovery.

Construction cranes sprouting in big cities, busy furniture shops and soaring property sales all show that the transition is going smoothly so far, though officials are wary that house prices may rise too high, too quickly.

China’s biggest listed property developer, Vanke (000002.SZ), lifted its housing starts target for this year by 45% while its rival Poly Real Estate (600048.SS) said sales in January-July rose 143 % from a year earlier.

On the ground, construction firms, big and small, are trying to meet the demand, last years’ downturn now a distant memory.

“It’s been a long time since we’ve had a day off. Several months, I think, though I can’t remember exactly,” said Zhang Minghui, owner of a small building company in Beijing.

“From late last year to early this year, we basically had nothing to do. Everybody was careful with their money because of the crisis and so projects got delayed.” Zhang cut his staff to three in November but is now back up to a crew of 14.

The economic importance of the property sector in China is hard to overstate. Investment in residential housing accounted for about 10% of gross domestic product before a property boom turned to bust in 2008, roughly the same as the contribution from the country’s vaunted export factories. The government’s first steps last year to revive the stalling Chinese economy were to offer tax cuts to encourage home purchases, followed by rules to ease access to mortgages. These are bearing fruit.

With housing investment up an annual 11.6% in the first seven months, Chinese growth momentum is broadening out and the central government has been able to slow the pace of its stimulus spending on infrastructure. But Beijing must strike a fine balance in its bid to kick-start the housing market.

On the one hand, it wants rising prices to persuade house hunters to stop putting off purchases and to get developers to invest in new projects. On the other hand, it is wary of prices rising too quickly, luring speculators into the market and turning it into an asset bubble, not an economic driver.

“Because it is closely linked to so many industries, volatility in the real estate market will inevitably lead to macroeconomic volatility,” the government-run China Economic Times warned on Monday.

The housing market rebound in Beijing, Shenzhen, Guangzhou and other big cities means that prices are already back to their 2007 peak, the report noted. While prices are high, a surge in sales has depleted housing inventories and developers need to break ground to catch up, Ken Peng, an economist at Citigroup in Beijing, said.

That the Chinese property sector is at a turning point, just getting back on its feet, is seen in the differing fortunes of shops at the Shilihe hardware market in east Beijing.

Those selling goods for early stages of construction, such as tiles, say business is strong. Vendors of lights, among the final purchases for a new home, say it is only now perking up.

“We have done some sales to attract shoppers. But we have actually started scaling these back,” said Chen Yu, a saleswoman at Jushang Lights.

The government can take heart in how most of the real estate money has been spent to date.

Investment in property construction was up a fifth in western China—the part of the country with the biggest need for new housing—in June compared with a year earlier. Wealthier coastal areas in the east, which are already heavily built up, saw a 4.4% rise.