Real Estate Intelligence Service, Monday, November 02, 2009

Govt will step up reforms, says PM

Govt will step up reforms, says PM
The Hindu Business Line, October 31, 2009, Page 21

Pitches for increased investments in physical, social infrastructure.

Our Bureau, New Delhi

The Prime Minister, Dr Manmohan Singh, has said the country needs to aim at sustained economic growth of 9-10 per cent in the coming years.

Speaking at an event here, he said the Government will push for faster reforms and step up the focus on areas such as infrastructure, agriculture and the social sector.

The Government had taken a series of initiatives aimed at investing in rural and urban infrastructure, generating maximum employment and improving productivity of farm economy, Dr Singh said addressing the Hindustan Times Leadership Summit on Friday.

Responding to a query regarding stalled reforms, particularly in labour, insurance and financial sector, he said, “We need to push forward the reforms process in the areas you mentioned and we will do so… We should aim to sustain growth rates of 9-10 per cent per annum… Our primary challenge in the next decade will be to sustain high rates of economic growth, to ensure that the growth process remains equitable, to invest in the education and health of every child and adult, to generate gainful employment.”

Dr Singh pitched for increased investments in physical and social infrastructure, focussing on the need of agriculture and the rural areas. “The fact that our savings rate is 35 per cent suggests that this is a realisable goal,” the Prime Minister said, adding that the challenge for the political leadership at the national and State levels will be to ensure this outcome.

Underlining that the States will have to shoulder the responsibility of the Centre in development, he said, “For each of the initiatives (of the Centre) to be successfully implemented, we need pro-active and creative leadership at the State and district levels.”

Dr Singh said the challenges in nation building were primarily at home, rather than outside, and these are best addressed by ensuring sustained and inclusive growth and development.

Pointing out that the less developed regions of the country are the more populated ones, Dr Singh said this has contributed to persistence of poverty and to the problem of internal migration.

FE Edirorial: The big landlord

FE Edirorial: The big landlord
The Financial Express, October 31, 2009, Page 6

What distinguishes the latest chapter in India’s volatile land narrative is that it stars the Army. As The Indian Express has been reporting, senior officers appear to be involved in a fraudulent scheme to transfer land in Sukna to a sham educational society. The concerned land is located in the Himalayan foothills in Darjeeling, West Bengal. Here, the Vedic Village riddle still remains to be solved. Remember, on August 24, this country resort near Rajarhat was burned to the ground by villagers shouting land grab. Both CPI (M) and Trinamool members appear to have been in cahoots, as 44 acres was given away to the resort for Rs 97 lakh—against the official buying rate of Rs 25 crore. While the issue awaits resolution, it’s industry—in an all too familiar take—that has once again taken the brunt of the backlash. Remember also, the Satyam scam that shocked us all at this year’s opening also had a significant land grab component—with the Raju family having leveraged their political pull to amass thousands of acres across south India. We could go on listing examples, but the point is plain enough, that government agencies have too much control over too much land that they manage too inefficiently.

Budget 2009-10 states that the Central government owned Rs 1,15,796 crore of land assets at the beginning of 2007-08 and that it acquired a further Rs 100 crore’s worth during the year. These are historical estimates. Plus, we have to consider the states’ assets separately. The many scandals that have erupted this year give one face to how these assets are being criminally mismanaged. But the negligence also has an everyday, normalised face. Why, for example, did the Supreme Court recently ban construction of religious structures on public land? They encroach with impunity, making things difficult for traffic control and urban management by the day, and the government looks away. How substantive the encroachment is or how much it costs the exchequer is anybody’s guess. Numbers are only intermittently available, such as when the Naveen Patnaik government admitted that 81,514 acres of public land was in unauthorised possession across Orissa. Generally, records are sparse and updated assessments sparser. Result: a waste of incalculable proportions while important projects are delayed for want of land. The web of regulations—from Chennai to Darjeeling—engenders corruption even as it exacerbates India’s land logjam. High stamp duties, rent control, the Urban Land Ceiling Act, elaborate controls over the conversion of land from one use to another—the list of regulations that need to be reviewed goes on. Meanwhile, those who argue that the regulatory environment in India incentivises criminalisation of real estate make sense.

RBI will ask banks to provide real estate data fortnightly

RBI will ask banks to provide real estate data fortnightly
The Financial Express, October 31, 2009, Page 2

fe Bureaus

Tightening its vigilance on banks exposure in real estate, the Reserve Bank of India (RBI) is planning to ask banks to furnish relevant data on fortnight basis. Usha Thorat, deputy governor, RBI said while increasing the provisioning cover for standard assets in commercial real estate sector, RBI, among other factors is guided by 41 % y-o-y increase in the credit to this sector.

This data is now available with a lag of two months. Attempts are on to get this return on a fortnightly basis, so that meaningful comparison of data is possible, she said while addressing a workshop organised by Indian Banks Association (IBA).

According to her RBI faces major hurdles in compiling this data in terms of quality, consistency and timeliness. Our experience shows misclassification in Basic Statistical Returns ( BSRs) data by banks still persists, perhaps due to non-alignment of codes with BSR codes.

Lack of training at branch level also could be an issue. We feel that these problems can be solved to a large extent if all customer details are fed into the core banking solution (CBS) and the CBS occupation codes are mapped exactly as per BSR occupation codes, she said. Inconsistency and misclassification issues can be avoided by ensuring that the base customer data captures all the parameters and characteristics of the customer, she explained.

Unitech suffers double blow as revenues & profit dip 50%

Unitech suffers double blow as revenues & profit dip 50%
The Economic Times, November 01, 2009, Page 3

ET Bureau, NEW DELHI

India’s second largest property firm Unitech on Saturday said it would continue to focus on lower-priced homes to drive sales in the coming quarters, even as it reported a 50% decline in both revenues and profits for the September quarter, over the year ago period, on the back of property slump that started last year.

The company, which was on the verge of collapse early this year due to its huge debt burden in a market where demand for properties had dramatically declined, said it has reduced its total debt by a fourth this fiscal.

Unitech raised $900 million by selling fresh shares to institutional investors in two tranches between April and July to infuse the much-needed liquidity and partly repay debt. As of September 30, Unitech had Rs 740 crore in cash and bank balance and a total loan outstanding of Rs 6,659 crore, the company said in a statement.

The Gurgaon-based realty company’s net profit for the September quarter was Rs 178 crore and net sales at Rs 509 crore was down 48% from the year-ago period.

Unitech said it received bookings for over 10 million sqft of residential space worth Rs 4,000 crore across Gurgaon, Noida, Greater Noida, Chennai, Kolkata, Mumbai, Bhopal, Lucknow and Mohali in the first six months of this fiscal. It has launched a total of 30 new projects comprising 21 million sqft of space since April.

Unitech MD Sanjay Chandra said, "Encouraged by the strong response (to lower-priced homes), the company plans to offer similar product in other cities." The company had launched homes in the price range of Rs 10-25 lakh across six cities under UniHomes brand earlier this fiscal.

Unitech has also ramped up construction activity at various project sites and currently has over 60 projects under execution, Mr Chandra said, adding that workforce employed at project sites has increased nearly five-fold to 16,000 in six months.

Unitech net profit halves

Unitech net profit halves
Business Standard, November 1, 2009, Page 3

BS Reporter / New Delhi

The country’s second-largest real estate developer, Unitech Ltd, registered a 50.7 per cent decline in the net profit during the quarter ended September 30 due to sluggish demand in the housing sector. The net profit was reported at Rs 177.86 crore for the quarter, compared with Rs 358.92 crore in the corresponding quarter in the previous financial year.

Revenue for the period was recorded at Rs 509.49 crore, 48 per cent lower from the Rs 985.29 crore reported during the same three months in the previous year. However, when compared with the preceding April-June quarter, Unitech’s profit grew 12.73 per cent.

'Godrej Properties will soon become our fastest-growing business'

'Godrej Properties will soon become our fastest-growing business'
Business Standard, November 2, 2009, Page 2

Q&A: Adi Godrej, Chairman, Godrej Group

The slowdown is behind us and the country will grow at around 9-10 per cent, believes Adi Godrej, chairman of the Godrej Group. This, he adds, spells good news for his fast moving consumer goods (FMCG) business and properties venture, as well as for Godrej Agrovet. In a chat with Business Standard, he says Godrej Properties will now be a focus area for the group, with an emphasis on affordable housing. Edited excerpts:

Do you believe the worst is behind us?
Definitely. Look at our results. Except for the sales figure of Godrej Industries (GIL), which was affected by the sale of Godrej HiCare, all our businesses have done well. The other point is that Godrej Sara Lee gets consolidated with Godrej Consumer Products and not with GIL, further bringing down the sales growth. However, the consolidated net profit of GIL jumped 240 per cent in the reporting quarter, as compared to the figure of the corresponding quarter a year ago. On a standalone basis, it was 350 per cent.

Meanwhile, the other subsidiaries, Godrej Agrovet and Godrej Properties, have done very well in the reporting quarter. While last year the commodity cycle affected our core business, this year it's doing well, with the prices of commodities like vegetable oil (the raw material for GIL's oleochemicals business) becoming reasonable once again.

Could you expand on your plans for Godrej Properties?
We have filed a draft red herring prospectus (DRHP) with Sebi to divest 13.5 per cent stake. The pre-IPO stake sale (of 4 per cent) and IPO should happen by the year end. Money from the IPO will be used for the expansion of Godrej Properties, in which we will continue investing, since we see a strong revival in residential property. Our focus will be on residential -- especially affordable housing -- and commercial properties. Godrej Properties will soon become our fastest-growing business.

Did the monsoon season disappoint you this time?
Had the monsoon season been good throughout, it would definitely have helped us in bettering our results. However, it wasn't all that bad. The latter part of the monsoon season was good, and hence I do not see the kharif crops doing too badly. Besides, the rabi season should be good. In fact, our Godrej Agrovet business thrives even in a bad monsoon, since the need for animal feed grows if the rains aren't good. And we are the leaders in compounded animal feed.

Which means rural demand remains good.
Yes. Look at Godrej Consumer's results, wherein rural sales have grown by 40 per cent in the past six months, double of that in urban areas. We have also increased our penetration in rural markets. The rural segment contributes 42 per cent to our total sales and we expect to increase it to 50 per cent in three years.

Will this translate into increased marketing spends?
Very much. In fact, we have been investing a considerable amount of money on marketing and our advertising budgets have almost doubled.

You appear bullish about the overall economy. But the stock markets are reacting differently...
True. We expect India's gross domestic product figures to rise to 9-10 per cent. I wonder why the markets are reacting differently.

Is it because they've factored in all the positives?
Probably.

DLF plans ‘value’ housing to expand market reach, unlock land banks

DLF plans ‘value’ housing to expand market reach, unlock land banks
The Hindu Business Line, November 1, 2009, Page 3

Our Bureau, New Delhi

Real-estate major DLF Ltd plans to launch ‘Value’ housing projects under a distinct brand, joining the growing list of industry players that are eyeing the affordable housing segment to boost demand. The company will launch 3-4 million sq ft under this new category, which it has classified as a lower extension of premium housing. According to a presentation by the company to analysts, its value housing projects will come up in Chennai, Bangalore, Hyderabad, Chandigarh and Gurgaon. While the company has kept the pricing under wraps, industry sources said it could be in the range of Rs 1,700 per sq ft. However, this could not be independently confirmed with the company.

During the analyst call, DLF is learnt to have said that Value housing will enable it to expand its market reach. The company is eyeing margins of 25-30 per cent for this new product category, sources said, adding that it also saw this as a great way to unlock land parcels.

“We have significant land parcels available for value housing projects. We are not saying that value housing is not profitable for us… It will be an extension of premium housing segment,” the Vice-Chairman, Mr Rajiv Singh, said in a conference call to discuss July-September results.

According to the analyst presentation, its net debt stood at Rs 12,135 crore (Rs 11,686 crore). Outlining its debt de-leveraging plan, the company said it had already received Rs 1,064 crore in Q1 and Q2 from unlocking non-core assets, and another Rs 4,436 crore was expected through similar action during the remainder of the year. It is also expecting Rs 1,000 crore operational surplus during the second half of the current fiscal and Rs 500 crore from DLF Assets Ltd in FY10. These would combine to bring down the net debt to Rs 6,199 crore, the company said.

Mid-market segment spurs revival

Mid-market segment spurs revival
The Hindu Business Line, November 1, 2009, Page 17

Bangalore developers shift focus to the Rs 35-45 lakh residential segment as they see growing demand.

Anjana Chandramouly

The mid-market segment could again be driving Bangalore’s residential market. Developers now believe that this is where demand could be in the immediate future.

“Today, there is a lot of opportunity in high-rise projects. There is a huge demand in the Rs 35-45 lakh price bracket,” says Mr N. Anantha Naarayanan, Head – Homes (Karnataka), DLF Homes. And who are the customers? IT professionals with an annual income of about Rs 12 lakh. “There are more people who can afford a Rs 35-45 lakh home now than those who would want a Rs 80-lakh home,” he adds.

This is clearly the thought that is even forcing the company to take a fresh look at another project in Bangalore. A row-house project in Jigani Industrial Estate, 12 km from Electronics City, which even has almost all approvals in place, could be converted into a high-rise apartment project “if that is where the demand is”, says Mr Naarayanan.

The decision, he adds, would be taken in a couple of months “as we are trying to feel the pulse of the market now.”

What he feels works in the favour of high-rise projects is the easy saleability factor. With another project in the city from the same company having tasted success, being a high-rise apartment project with about 1,100 units out of the total 1,962 units planned being sold, the company wants to get the choice of segment right. “In today’s market, you cannot afford to go wrong. If the probability of success is higher with high-rise projects, we would want to go with the market,” he says.

Now, affordable villas

A little over a year ago, the mid-market segment in Bangalore meant the Rs 50-70 lakh price category. But today, as Mr Naarayanan points out, the mid-market is way below the Rs 50-lakh mark. It’s not just the mid-market where the price definition has changed.

The accent is on the affordable segment clearly, it seems, even if one were to be talking about villas! How else would one explain a villa in the Rs 50-70 lakh segment?

FIRE Luxur, a joint venture between FIRE Capital Fund and Mr Prabhu Ramachandran of the Nilgiris Group, recently launched an affordable villa project in the city — The Empyrean. Located on the outskirts, near Whitefield, the project will have two-bedroom and three-bedroom apartments starting at Rs 27 lakh and Rs 30 lakh, respectively. The row-house prices start at Rs 47 lakh, while villas have been priced above Rs 50 lakh and go up to Rs 1.6 crore for a 5,500-sq-ft property.

Mr Om Chaudhry, CEO, FIRE Capital Fund, says that the market for villas has evolved now from what it was in 2005 or 2006.

“In the last year or so, villas have become more affordable and the distinction between villas and apartments has blurred a bit,” he adds.

While affordable villas are “still a dream, that’s where we would like to be,” says Mr Chaudhry. Describing the Rs 50-70 lakh price bracket as a “sweet spot”, he adds that a bulk of the project’s offerings “is in this bracket”.

Demand picking up

Some developers feel that even in a recession-hit residential market such as Bangalore, the demand for villas has been quite strong.

“The valuations though have dropped just as other valuations. The market is not as large as before as the rental market for villas has come down quite a bit,” says Mr Koshy Varghese, Managing Director, Value Designbuild Private Ltd.

Mr Prakash Gurbaxani, CEO and Managing Director, QVC Realty, says his QVC Hills project, offering a gated community of single-family homes or villas, has seen enquiries picking up in the past two-three months. “Demand is also picking up,” he says.

He admits that villa prices have come down by 20-25 per cent from the peak pricing that Bangalore witnessed. “There is clearly a market for villas in most cities, not just Bangalore. Villas or gated community offer the community living and security option that apartments offer — and, at the same time, the privacy of an independent house.”

The silver lining, Mr Varghese adds, is the fact that villas are now being purchased by end-users mainly. “However, there are also investors trying to cash in on reasonable deals in this segment,” he adds.

Presence of speculators

Though those in the realty sector claim that speculator demand is waning, he says that speculators are already in the market.

“Many of them came in and picked up units that were going at low prices or distress sales. Even today, prices are worth the time of the investor.

“Many units will appreciate in time. Attractive investment opportunities are still available,” he adds.

And would an aggressive pricing strategy as adopted by FIRE Luxur bring back investors into the market? Mr Chaudhry of FIRE Capital says that as long as developers know who they are selling to, speculators could be avoided.

“We have deterrents in place to ensure that re-sale is avoided in a short span. The lock-in period would depend on the stage of construction that a buyer comes in and the price. We are also selective about our channels of distribution,” he adds.

Mr Sandeep Trivedi, Director - Development Consulting at Cushman & Wakefield, says that an aggressive pricing strategy does enable the investor community to consider the projects seriously and “from a long-term perspective the projects are likely to earn a fair return.”