Real Estate Intelligence Report, Tuesday, August 25, 2009

Fiscal deficit won’t exceed 6.8% target: Montek

Fiscal deficit won’t exceed 6.8% target: Montek
The Economic Times, August 25, 2009, Page 6

Our Bureau NEW DELHI

THE Planning Commission has said that the fiscal deficit, the difference between revenue earned by the government and expenditure made, will not exceed the budgetary estimate of 6.8% of gross domestic product (a measure of total economic output of a country).

Planning Commission deputy chairman Montek Singh Ahluwalia said on Monday that there is no “reason to think that 6.8% (fiscal deficit target) will be crossed” even though there is falling revenue and rising expenditure to combat the impact of drought as well as global meltdown. Noting that the deficit is dependent on many factors, he said: “Whatever happens ... one (additional expenditure) can get offset by (savings on) other items. As of now we are not changing the estimate (of 6.8% fiscal deficit).”

Finance Minister Pranab Mukherjee, in the Budget for 2009-10, pegged the fiscal deficit target at 6.8% of the GDP, up from 6.2% in the previous fiscal.

Meanwhile, Prime Minister Manmohan Singh has called the first meeting of the newly constituted Planning Commission on September 1. The meeting, which will be attended by finance minister Pranab Mukherjee, agriculture minister Sharad Pawar and other Cabinet ministers, will discuss the state of the economy and review implementation of the integrated energy policy.

The government had decided to borrow Rs 4.5 lakh crore from the market during the current fiscal, up from Rs 3.1 lakh crore in 2008-09. A higher fiscal deficit would mean that the government will have to borrow more from banks at the cost of industry and other borrowers.

Haryana changes building norms to make room for cheaper homes

Haryana changes building norms to make room for cheaper homes
The Economic Times, August 25, 2009, Page 6

ET Bureau, NEW DELHI

Homebuyers can now look forward to buying homes for as low as Rs 4 lakh to Rs 16 lakh in Gurgaon, thanks to a recent policy initiative by the Haryana government. The state government’s new scheme caps the price of the homes built by developers in return for permission to builders to make more housing units of smaller sizes in the same area.

Developers say the scheme will help launch new projects and increase cashflow . Projects under the scheme would give minimal margin. Nevertheless , developers would be encouraged to launch homes under the scheme, as there is a great demand for low-cost homes,” says Navin Raheja, chairman of Delhi-based Raheja Developers that plans to shortly launch some projects in Gurgaon under the scheme.

The incentives for developers include a relaxed density norm (from current 250 people per acre in Gurgaon to 600 people per acre) and higher ground coverage area from 35% to 50%. “The move to relax density norms will help us build smaller homes and thus make them more affordable ,” Unitech head of corporate planning R Nagraju said, adding that it was impossible to build homes of less than 1,500 sq ft on average under present density norms. Under the new scheme, a 10-acre plot will be able to house over 1,200 dwelling units as against 450 units at present, Mr Raheja estimates. A larger ground coverage means concrete structure could occupy larger area on the ground thus lowering project costs. Construction cost is usually lower in low-rise buildings.

Under the scheme, which will be open for developers until November 20, the low-cost homes with a minimum carpet area of 25 sq mt (approx 350 sq ft) will have a maximum price tag of Rs 4 lakh all over the state. Dwelling units with a minimum 48 sq mt (approx 700 sq ft) carpet area, defined as affordable category by the government, will be sold for Rs 16 lakh in Gurgaon-Manesar urban complex, Rs 14 Lakh in Faridabad, Panchkula and Ballabhgarh complex and Rs 12.50 lakh for rest of the state.

Below poverty line (BPL) families as well as the class IV staff of the state government will be eligible for the Rs 4-lakh homes, which will be at least 15% of the total dwelling units built in a project. The allotment will be made through a draw of lots and allottees can’t sell their property before five years of possession.

DREAM PROJECT

Haryana government’s new scheme caps the price of the homes built by developers in return for permission to builders to make more housing units of smaller sizes in the same area

Incentives for developers include a relaxed density norm (from current 250 people per acre in Gurgaon to 600 people per acre) and higher ground coverage area from 35% to 50%

Under the new scheme, a 10-acre plot will be able to house over 1,200 dwelling units as against 450 units at present

UP’s new township policy to rope in private players

UP’s new township policy to rope in private players
The Financial Express, August 25, 2009, Page 19

Deepa Jainani, Lucknow

The Uttar Pradesh government has announced the New Township Policy to promote and facilitate private investment in developing new townships with modern amenities all over the state. In accordance with the provisions of the Policy, Awas Bandhu, the Housing and Urban Planning Department of the Uttar Pradesh, has invited offers for pre-qualification from reputed developer companies for the development of new townships in Uttar Pradesh.

The developers would be free to propose new townships anywhere in the state, based on their assessment of the potential of a particular place and the only criteria that has been fixed is that the new townships will only be at least 3 kilometers outside the existing development areas, industrial development areas and other notified/municipal areas.

The New Township Policy comes in the backdrop of the widespread deficiency in housing and infrastructure facilities in the state, especially in the large cities. The total housing demand during the 11th Five Year Plan has been estimated at 15.84 lakh dwelling units, ie 3.16 lakh dwelling units per year in the urban areas of the state against which the annual capacity of government agencies, has been limited to about 1.0 lakh units.

Realising the resource constraints as well as the limited capacity of the government agencies to meet the ever-increasing demand for strengthening and augmenting the infrastructure services in the existing urban areas, the state government has come up with this innovative urban planning solution, whereby development of new townships can ensure availability of housing and infrastructure services to the urban households.

These new townships are also expected to be equipped with modern amenities, an efficient traffic and transportation system and will be economically and environmentally sustainable, which will be developed as satellite towns around the existing urban areas in the course of time.

Speaking to FE, a senior official of the housing and urban planning department said the New Township Policy has been kept open-ended so that the developers are free to propose setting up these townships in any city or town of the state as per its potential and the need of its people.

Urban ministry blocked plan-1 of Hindustan Prefab’s revival

Urban ministry blocked plan-1 of Hindustan Prefab’s revival
The Financial Express, August 25, 2009, Page 12

Praveen Kumar Singh, New Delhi

Hindustan Prefab Ltd (HPL), which was given a Rs 128-crore revival package on Thursday, could have been merged with profit-making National Buildings Construction Corporation (NBCC), but for the urban development ministry’s objection to a proposal by the Board for Reconstruction of Public Sector Enterprises (BRPSE).

The ministry of urban development, which administered the sick company till the end of 2007-08, ruled out the merger fearing that NBCC may not be able to bear the additional financial burden. NBCC was earlier a sick company too, but had staged a turnaround at the beginning of the decade.

Hindustan Prefab, now under the ministry of housing and urban poverty alleviation, was referred to the BRPSE in 2006. It had accumulated losses of more than Rs 147 crore and a negative net worth of over Rs 141 crore at the end of March 2009, while on the other hand, NBCC had earned a net profit of Rs 159.16 crore during 2008-09 and had a net worth of Rs 335.32 crore at the end of March 2008.

After the merger proposal failed to be implemented, BRPSE, in February 2009 suggested the conversion of the government loan of Rs 128 crore into equity. In addition to this, it asked for an interest-free loan of Rs 97.2 crore to enable HPL to set up a new plant in Delhi . But again, neither the ministry of finance nor the ministry of urban development had accepted the second part of the fresh proposal.

“North Block did not want to give any fresh funds to the company. The ministry said it could only waive the old loans and the company has to depend on other sources for fresh funds. Also, the urban development ministry did not want to do away with the land identified for the new plant. So the new proposal was accepted in parts. The government has already approved the accepted part of the conversion of loan into equity,” said a senior official of BRPSE, involved in making the recommendations. “However, we feel it would have been better if HPL was merged with NBCC, even though the ministry of housing and urban poverty alleviation is now confident of reviving the company by giving it more orders,” he added.

With the Cabinet’s decision on Thursday, BRPSE is keeping its figures crossed over the future of HPL. “We wish the company return to profits soon, with an existing order book of Rs 2,000-crore,” the official said. For 2009-10, HPL is expected to reduce its net loss to Rs 2.09 crore. During 2008-09, the company had incurred a net loss of Rs 8.69 crore, with a sales turnover of Rs 150 crore.

SEZs to get leeway in power distribution

SEZs to get leeway in power distribution
The Financial Express, August 25, 2009, Page 3

Rituparna Bhuyan, New Delhi

In a move to ease procedural hassles, the commerce ministry is pushing for removal of licensing requirements needed to distribute power to factories, business outsourcing units, software developers and social infrastructure like hospitals and malls located inside Special Economic Zones (SEZ).

The power and commerce ministry are in the advanced stages of inter-departmental talks that would lead to doing away with the requirement for obtaining licences for distributing power inside Special Economic Zones.

“We hope to present the proposal for Parliament's approval in the winter session,” said DK Mittal, additional secretary, department of commerce at a meeting a seminar organised by IIM Ahmedabad, Centre for Infrastructure Policy and Regulation and Indian Infrastructure.

However, a SEZ developer will have to obtain a licence if it wants to distribute power outside the zone.

The proposed move will help in cutting down the long-drawn licensing requirements needed for obtaining a licence for distribution of power and will help companies like the Mundra Port, promoted by Adani group, and SEZ Ltd and scores of other SEZs, which are on their way of becoming operational.

“The proposed move will mean that the moment a SEZ gets notified, the developer will get a deemed licence status to distribute power to the units and other supporting infrastructure inside the zone,” said Pankaj Modi, head, SEZ and planning, Mundra Port and SEZ Ltd.

The commerce ministry had released guidelines on generation and distribution of power in SEZs on February, 2009. Though it spelt out norms for building power plants inside the tax free industrial enclaves meant for exports, the guidelines maintained that the developer will have to obtain a distribution licence, as mandated by the Electricity Act of 2003.

At present, there are 98 functional Special Economic Zones housing 2279 units while scores of other zones are likely to start exporting by the end of this year, in spite of the global slowdown. Uninterrupted power and a state of the art distribution network are crucial to make SEZs lucrative to prospective clients.

To ensure that the units get uninterrupted supply, the developers either build power plants or have to buy power from other distribution networks. For example, Mundra SEZ, which is being developed in over 6,000 hectares— currently the largest SEZ—will host a 4,629 mw power plant in side the zone, which will not only supply power to the units located inside it, but also to grids located outside.

At present, Mundra has completed construction of a 330mw unit in the power plant.

Reliance Utilities Ltd, which partnered Reliance Jamnagar Infrastructure Ltd in building the Jamnagar-based Special Economic Zone refinery, has already built a 720mw plant inside the zone.

LIC arm to finalise realty venture fund partner this month

LIC arm to finalise realty venture fund partner this month
Business Standard, August 25, 2009, Section II, Page 2

Press Trust of India / Mumbai

Mortgage loans lender LIC Housing Finance (LICHF) was likely to finalise a partner for its real estate venture capital fund by the end of this month, a top company official said.

LICHF is launching a Rs 500 -crore real estate venture capital fund and has been scouting for a domestic partner. The fund is slated to be launched by end-September.

“The board committee on the venture capital fund is likely to decide the final partner by the end of this month,” LICHF’s Director and Chief Executive Officer R R Nair said.

LICHF, which is a 100 per cent subsidiary of LIC, has already short-listed five entities for its venture capital fund.

“We have already short-listed five domestic partners,” Nair said. LICHF has set up a stand-alone company for the fund, he said.

LICHF’s parent company and country’s largest life insurer, Life Insurance Corporation of India (LIC), would also be one of the partners, he said.

“LIC group will be the majority stakeholder in this venture capital fund. The partner should have at least a 20 per cent holding in it, but that would be decided by the board,” Nair said.

Rahejas plan Rs 1k-cr IPO to fund SEZs

Rahejas plan Rs 1k-cr IPO to fund SEZs
The Financial Express, August 25, 2009, Page 4

Mona Mehta, Mumbai

New Delhi-based Raheja Developers is planning an initial public offering (IPO) within this financial year. The company plans to raise above Rs 1,000 crore, as per sources tracking the development. The money will be used to finance the company's projects in two special economic zone projects in Haryana and meet its working capital requirements.

A source in the company, not authorised to speak to the press, said, “We are considering a public offer and the proceeds would be utilised to finance new (SEZs), which Raheja Developers is planning to launch, and meet working capital requirements. We are yet to finalise the exact amount of funds to be raised through the IPO.” An e-mail sent by the company to FE, however, disclaimed any such plans.

Raheja Developers, an unlisted company, has posted 28% increase in net profit at Rs 32 crore for the financial year ended March 31, as compared to Rs 25 crore reported during the previous corresponding period. The company has registered 18.51% rise in sales turnover at Rs 320 crore for the financial year ended March 31, as compared to Rs 270 crore recorded during the previous corresponding period, said a company source. It claims a 300% growth in revenue in the last three years, but these figures could not be verified.

Listed realty companies have improved their market cap by 7.24% in the past one month (since July 24) as per BSE data. The stocks had suffered a massive correction and dipped by 17.79% in the past one year, but the recent improvements have encouraged the non-listed realty companies to tap the equity markets. Competitor Lodha Group, too, has just started working on the process of coming up with an IPO, said Abhinandan Lodha, director, Lodha Group. According to him, “How much funds will be raised will depend on the capital markets. But we will surely raise huge funds for our future projects.”

Param Desai, research analyst (real estate) at Angel Broking, said, “Like listed realty companies, non-listed realty companies too can raise funds through QIPs. Going the QIP route works for the institutions who have liquidity at their disposal. Instead of doing a market deal, they are able to do a transaction directly with the company. This involves a formal process of interaction with the company and investors are privy to more information. Also, for realty companies it gets faster access to funds unlike in IPO.”

Sebi rules say an unlisted company must record profit for three out of the preceding five years to qualify for listing. If it does not, it has to then go in for a book building issue with at least 50% committed subscription by institutional investors.

Emaar MGF complex to come up in Shillong

Emaar MGF complex to come up in Shillong
The Financial Express, August 25, 2009, Page 2

fe Bureaus

In what could be the largest realty project in north-east, Emaar MGF Land in a joint venture with Windermere would set up a residential complex in Shillong at an initial investment of Rs 400 crore.

Once completed, the 84-acre Windermere Estate coming up at Umpling in Shillong would have villas, community retail centre, clubhouse and a hotel, a company statement said on Monday.

"The development of Windermere Estate would have a multiplier effect on the local economy and provide employment, which will directly and indirectly benefit over 1,000 people. More importantly, this move is a reflection of Shillong's growing stature as a prominent business and education hub and a world-renowned tourist destination in the north east," the statement further added. "We have keenly studied the north-east market. Our internal deliberations clearly identified Shillong as the city with tremendous value-proposition and growth for evident reasons; well-traveled populace, changing tastes and a desire to own the best," Sanjay Choudhary, CEO (East), Emaar MGF said.

"With Emaar MGF's expertise in developing Commonwealth Games Village in New Delhi, the company would bring in similar expertise to develop Windermere Estate," Charles Pyngrope, Meghalaya Assembly Speaker and a partner of the project added.