Real Estate Intelligence Service, Friday, November 13, 2009

It’s all about money

It’s all about money
The Economic Times, ET Realty, November 13, 2009, Page 19

Transparency and professionalism is a must to monitor stakeholders of the real estate sector. Whether or not a single regulatory body will perform this task is for time to see

Archana Sinha

To bring the Indian property industry on par with the global real estate sector, the Indian parliament is gearing up to pass the much talked about real estate regulatory bill in the winter session. The industry is keenly watching out for this one as the first draft was found to be faulty and rather lopsided, excluding the government bodies from its purview.

So while the experts feel that it is time to have a single-point regulatory body on the lines of SEBI or TRAI, which would prove beneficial in the long run to the endusers and developers, there is also a cry for bringing total objectivity and professionalism in the workings of the body, to truly achieve its goal. Developers also point out the dangers of overregulation in an industry that already faces several stumbling blocks.

The bill seeks to grant approvals to projects on certain parameters and also expedite all the approval processes mandatory for projects to take off. It is expected to help improve transparency in the sector by rating developers on their financial strength in terms of turnover, liquidity and profitability, scale of operations, intellectual expertise based on the qualification and experience of the management team, and past performance.

According to Ashutosh Limaye, associate director (Strategic Consulting), Jones Lang LaSalle Meghraj, "The stock market has SEBI to provide guidelines, define conduct and processes, provide a redressal system for both buyers and sellers and install necessary consistency and standardisation. The proposed real estate regulatory body intends to do the same for the Indian property market, which currently presents a rather under-organized picture."

Deepak Parekh, chairman of HDFC, had expressed the urgent need for a real estate regulatory body, which should play the role of a monitor for promoting and overseeing real estate reforms, ensuring transparency in sales and protecting buyers from a fraudulent case, if any.

Parekh recommended that the state housing boards should also be brought within the ambit so that there is complete transparency in its working mechanism, the checks and balances are well achieved from every quarter.

The developers have welcomed the move too, but not in its current draft form. Kumar Gera, chairman of CREDAI, India, says, "The intention is good but a lot of thought needs to go into formulating the role of the body, otherwise the effect can be counter-productive. Two main intentions are stated in the preamble: protection of consumers' interest and speeding up the clearances to facilitate the smooth development of real estate. There are enough provisions to achieve the first objective, but I haven't seen anything regarding the second. It needs inclusion of processes. In the present form it is likely to create more processes and hence obstacles. The Urban Land Ceiling act was also formulated with a noble intention, but the outcome was disastrous."

R Vasudevan, MD of Vascon Developers, has a similar view: "I think the intention is very good if followed in its spirit with modification to include the process of speeding up approvals. It will revamp a sluggish and a beleaguered system. In fact, no reputed developer would want a short cut to achieve his end, as his intention would be to become a long-term player. It is not in his interest to delay projects and offer bad products, as it will tarnish his image and his brand. Hence this is welcome but only if it fulfils its intent. A professional approach is the need of the hour now for all of us."

Sunny Bijlani, director, Supreme Universal, which has projects in Pune and Mumbai, says, "It is fine with us to have a regulatory body, which helps bring in transparency to the customers. We are more than happy.

But they have to bring more changes in the rating system to actually do proper justice to the customers, by doing a complete financial analysis of the developers, and not just by collecting some data. Secondly, it should be a single point for all clearances and NOCs so that the project starts on time. Most delays are caused by non-availability of clearances from the government authorities."

Real estate is a major contributor to GDP growth and employment generation. The minister of urban development acknowledges this fact and feels that a single regulatory body at the state level is most needed, for faster approvals, besides faster delivery of projects, accountability of the project developers, professionalism and finally loan acquisition to make affordable housing a reality.

FOCAL POINT

To bring the Indian property industry at par with the global real estate sector, the Indian Parliament is gearing up to pass the much talked about real estate regulatory bill in the winter session.

It is expected to help improve transparency in the sector by rating developers on their financial strength and intellectual expertise.

IIP growth at 9.1%, bears out rebound

IIP growth at 9.1%, bears out rebound
The Financial Express, November 13, 2009, Page 1

fe Bureau, New Delhi

India’s industrial output grew 9.1% in September from a year earlier, bearing out the economy’s rebound and giving the government reason to consider an earlier-than-expected exit from the fisc-straining economic stimulus. Industrial production data released on Thursday also raised expectations that the 6.5% growth in GDP forecast by the Prime Minister’s Economic Advisory Council for 2009-10 could indeed be achieved.

In the April to September period, industrial output, measured on the index of industrial production (IIP), increased 6.5%. Output will have to grow at close to 10% in the remaining six months of the fiscal for that forecast to come true.

The September industrial output growth is lower than the upwardly revised 11% growth seen in the previous month over the corresponding period a year ago, but much higher than the 6% expansion seen in September last year, a release by Central Statistical Organisation said. The rise in factory output during the month was due to enhanced production of intermediate products, capital goods as well as rise in the production of consumer durables.

Moreover, the latest IIP data shows a month-on-month jump of 17%, ie, September over August 2009. The better-than-expected IIP data, however, failed to cheer the markets much. Even though the Sensex pared earlier losses and entered positive territory after the IIP data was released, it soon returned to negative territory and ended the day shedding 153.6 points at 16,696.

Economists have endorsed the belief that the Indian economy is turning the corner. “The numbers are encouraging. It seems that recovery has set in and we will have demand support in the coming months,” said Madras School of Economics director DK Srivastava.

Yes Bank chief economist Shubhada Rao has increased her annual IIP growth forecast to 8% from 6.3%. “In the next six months, apart from support due to a low base effect, we will also see improvement in demand. In addition, the government’s stimulus measures and the focus on infrastructure will help in a strong growth rate. We do not expect any adverse shocks,” she said.

India’s industrial production has been moving northbound after dipping 0.24% in December—a first in about 15 years.

Apart from a Rs 1,86,000-crore fiscal stimulus package, RBI has pruned its lending rate by 425 basis points in the months between October 2008 and April 2009.

Significantly, merchandise exports, which is also a sign of industrial activity, has been increasing since April, even though it is still in the negative territory. Output from the manufacturing sector, which accounts for nearly 80% of India’s industry, grew 9.3% in September.

Mining output increased 8.6%, while electricity generation expanded 8%.

Overall industrial output was boosted by the consumer durables sector, which grew 22% in September, as factories produced more cars, two-wheelers and appliances like television sets. What is encouraging is that this growth took place, even as output from the sector had expanded nearly 15% in the year-ago month.

Another sector that provided some momentum to the index was intermediate goods, which expanded 11% in the month under consideration. A low base helped the sector see double-digit growth in September, as in the same month of last year it dipped 2.5%.

Election code delays Rs 5k-cr housing scheme

Election code delays Rs 5k-cr housing scheme
The Financial Express, November 13, 2009, Page 2

Kakoly Chatterjee

Nine months after the Centre launched Rs 5,000-crore affordable housing programme, only a fraction of funds have been spent, with officials attributing the slippage to the model code of conduct that was in place till recently.

Maharashtra is the only state which has spent a reasonable amount under the programme, which is being implemented under the public-private partnership (PPP) mode. Maharashtra has spent about Rs 200 crore under the scheme, followed by Himachal Pradesh (Rs 50 crore), Madhya Pradesh and Chattisgarh (Rs 25 crore each).

Under the programme, the government gives an incentive of Rs 50,000 for each dwelling unit, the developer constructs provided that 25% of the units are dedicated for economically weaker sections (EWS). The rest of the houses are constructed for lower income group (LIG) and middle income group (MIG), which the developer can sell at the market price. In most cases, the developer comes with his piece of land parcel.

According to officials in the housing ministry, a spurt in the demand for affordable housing is now evident and the programme could hence pick up in the coming months. The programme launched in February this year envisages allocation of Rs 5,000 crore for affordable housing in 65 mission cities. However, if larger cities are interested in the programme, they would also be encouraged, subject to the availability of funds. Funds are allocated to each state for this scheme. Some states like Maharashtra and Gujarat have been allocated Rs 360 crore each, Uttar Pradesh, Rs 470 crore, Andhra Pradesh, Rs 290 crore, and Tamil Nadu, Rs 240 crore.

Through the (PPP) model, Maharashtra is building 40,000 houses, Himachal Pradesh, 10,000 houses, Madhya Pradesh and Chhattisgarh, 5,000 each. A project for 10,000 houses in Lucknow , Uttar Pradesh is in the process of being appraised by the ministry.

Major projects in Maharashtra include— 13,000 houses being built by Maharashtra Housing and Area Development Authority (MHADA) where 30% to 40% of the houses are dedicated for economically weaker section (EWS), 20,000 houses are being built near Pune over 123 acre where 25% is dedicated for EWS.

Robust IIP numbers fail to cheer markets

Robust IIP numbers fail to cheer markets
The Financial Express, November 13, 2009, Page 4

fe Bureau
The robust growth in India's industrial production for the month of September 2009, which was better than expected, failed to cheer the street sentiments with the key domestic equity indices ending the day on a negative note. A section of the market feels that the four months of strong rebound in domestic industrial activity would give enough headroom for the Reserve Bank of India (RBI) to go ahead with its liquidity tightening policy. India's industrial activity for the month of September rose to 9.1% while the government revised upwards the IIP figures for August 2009 to 11% from 10.4%.

"The IIP figures for the month of September were much higher than general expectation which is a very strong sign of growth coming back to the economy," said Siddhartha Sanyal, Economist at Edelweiss Capital.

On a similar note Deven Choksey, MD, KR Choksey Securities, said, "With the IIP figures in the last few months showing a rebound, the September data were by and large on expected lines. The growth has been primarily driven by capital goods and consumer durables mainly on the back of robust demand from the rural sector and festive season demand."

Experts feel that for the economy to be on a strong growth momentum, activity in India's export sector should pick up that would help broadbase the domestic growth. "So far the growth has been primarily seen in strong domestic demand driven sectors," said Sanyal. "So if there is some kind of an uptick in export-based sectors in the coming months, we will see further uptick in the growth momentum".

However, consecutive four months of decent growth in the industrial production has also raised concerns of an early monetary tightening by the RBI among the market participants. This resulted in a sell-off in rate sensitive realty and banking sectors stocks. The BSE realty was the biggest loser down 3.05% lead by DLF that slid 3.44% or Rs 13.20 to close at Rs 384.05. Similarly the BSE Bankex lost 2.53% lead by State Bank of India, which was down 3.51% or Rs 83.45 to end the trading session at Rs 2,379.35.

Real estate prices set to rise 20% in Q4

Real estate prices set to rise 20% in Q4
The Financial Express, November 13, 2009, Page 5

By Mona Mehta

Real estate prices, including residential and commercial, are likely to go up 15-20% in the next quarter, across Indian cities, say top builders and international property consultants. The reasons they cite are hike in land cost, infrastructure cost and a rise in demand for homes by 10% to 15% across Indian cities. Industry experts believe that the rise in real estate prices will come at a time when the Reserve Bank of India (RBI) is likely to hike interest rates on home loans by 25 to 50 basis points in the next quarter.

However, the real estate sector seems to be one of the worst hit across all geographies in the economic slowdown. In addition to high taxes, transaction costs continue to remain high across geographies and needs rationalisation, comments Ganesh Raj, partner and industry leader, real estate practice, Ernst & Young.

Anand Narayanan, director, residential, Knight Frank, told FE, The RBI is likely to increase interest rates on home loans by 25 to 50 basis points. This is because, RBI is focussed on anti-inflationary measures. RBI has released liquidity into the system and cut CRR, putting upward pressure on inflation. Over the last one year, RBI has reduced bank rate by 150 basis points, as a result of which credit is available at much cheaper rate.

Every year, there is a gradual (by 15% to 20%) increase in real estate prices in homes and offices mainly due to hike in infrastructure and land cost. In the next one to two quarters, there will be slow escalation of real estate prices across Indian cities, says Abhisheck Lodha, director, Lodha Group.

Niranjan Hiranandani, MD, Hiranandani Constructions agrees that real estate prices in homes and offices will hike by 15% to 20% in the next few weeks. Now, large public sector banks, in association with builders will introduce new schemes pertaining to interest rates on home loans which will fuel demand. However, more impetus should also be provided for creating supply for affordable housing.

According to Dilawar Nensey, joint managing director, Royal Palms India, With the rise in demand for housing, the demand for housing loans too shall increase, thereby tempting lenders to increase the interest rates. However, we do not foresee any change in the near term in the interest rates especially in the sub-Rs 15 lakh category. Even when they rise, the increment will not be more than 1.5%. For instance, Royal Palms has sold over 700 units in the affordable housing segment in a span of four months, valued at about Rs 150-160 crore, which is a sure sign that the real estate sector is once again reviving.

Real estate prices have gone up by 25-30% during the third quarter of the financial year 2009-10 in Mumbai. This is comparatively higher than South Delhi which has recently witnessed 15% spurt in prices, Pranay Vakil, chairman Knight Frank India said. In south India too, especially Bangalore and Chennai, realty prices are likely to go up 15-20%.

Prices have already started firming up, especially in certain pockets within the country. The prices can only increase from here as whatever buying we have witnessed has been due to actual users and not by investors or speculators. Of course, the maximum growth is expected in the affordable housing segment which is between Rs 20 lakh and 45 lakh in urban cities, Nensey added.

Builders brace for competition as sector builds brick by brick

Builders brace for competition as sector builds brick by brick
The Financial Express, November 13, 2009, Page 5

Mona Mehta

The competition has started becoming intense in the real estate market with top builders witnessing actual sales conversion of residential apartments in the metro cities during the first seven months of the current financial year. Enthused by the response, builders are charting fresh strategies to increase the number of residential projects.

Abhisheck Lodha, director, Lodha Group, told FE, We have sold 4,500 units of residential apartments (around 50 lakh sqft) during the past seven months. During the third and fourth quarters, we hope to sell an additional 5,500 units. Prices, at present, are such that buyers find it attractive. People have buying power and the real buyer is coming to the market.

According to Lodha, There are about 38 ongoing projects spread across 29.9 million sqft. In the next five years, about 66 million sqft will be used to build 18-20 new projects. In order to fund the existing and new ventures, we are raising about Rs 2,800 crore in the next three to four months through an IPO.

Amid revival in the real estate market, the demand for projects launched by top builders has been much stronger compared to the peak witnessed in 2007. According to industry experts, 30% of the demand is for residential projects in the price bracket of Rs 5-15 lakh, 26% is between Rs 15 and Rs 25 lakh and 22% is in the range of Rs 25-40 lakh. Around 12% buyers opt for apartments priced between Rs 35 and Rs 50 lakh, while a mere 6% is ready to pay over Rs 50 lakh.

Harinder Dhillon, vice-president-marketing, Raheja Developers, said: We have sold 316 apartments in Q1 and Q2 of the financial year 2009-10. This was largely because of the launch of just one new relatively small-size project plus finishing sales of older projects, which we have had in the first half of 2009-10. The second half will witness at least four project launches and we expect to sell 1,500 apartments in Delhi and the NCR itself in this period. We have so far not ventured into Chandigarh, so all figures are for Delhi and Gurgaon. Prices have not really softened. A rise in property prices in being witnessed in Gurgaon because of a revival in the market sentiment.

Delhi is best bet for realty developers, investors: Report

Delhi is best bet for realty developers, investors: Report
The Hindu Business Line, November 13, 2009, Page 17

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A FICCI-Ernst & Young scorecard of top 30 cities in 2008, said improved air quality, and reduced slum population in Delhi also helped improving the quality of life.

Mumbai ranked a close second and scored better on the business environment index though its pace of infrastructure development was slower.
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Our Bureau, Mumbai

Delhi continues to be the preferred choice of developers and investors for real estate with fast-paced improvements in physical infrastructure, emerging flyovers, underpasses, pedestrian walkways, high-capacity buses, hotels and townships being a key influencing factor.

A FICCI- Ernst & Young scorecard of top 30 cities in 2008, said improved air quality, and reduced slum population in Delhi also helped improving the quality of life. The growth of Gurgaon and Noida as preferred destination for office space for some leading global companies contributed to the business environment index.

Mumbai ranked a close second and scored better on the business environment index though its pace of infrastructure development was slower.

The report indicates that a functional metro railway, modernisation of the international airport, road widening projects and dedicated efforts to make the ring roads signal free had gone down well with the respondents.

Compared with the 2007 report, cities ranked between 11 and 20 have seen a shuffle of sorts. Goa is a notable entry into the top 20. Vishakhapatnam, Kochi, Coimbatore, Amritsar, Bhubaneswar, Guwahati and Madurai moved up in the order, while Vadodara, Bhopal, Rajkot and Lucknow dropped lower.

The report, comprising the rankings and factors influencing the growth of the 30 cities, key trends and tax and regulatory climate, and the developer-investor survey was released at a FICCI real estate summit here on Thursday.

Mr Ganesh Raj, Partner and National Leader, Real Estate Practice, Ernst & Young, said “This year’s report among others covers key trends and tax and regulatory climate across six key geographies, city rankings and developer-investor survey. The real estate sector seems to be one of the worst hit sectors across all geographies in the economic slowdown.”

Some key findings of the survey indicated that the market seemed to have recovered faster than what many expected. The sentiment on the sector was optimistic with 77 per cent of the respondents believing that the pain was short-lived this time. However, many respondents warned that the quick recovery, frantic buying and new launches could once again cause a real estate bubble and advised cautious planning.

Delhi and Mumbai saw high-end residential continuing to be relatively strong compared with the rest of the country, though sales had considerably slowed down. Eighty per cent of the investors were in favour of funding the residential segment. Markets across most regions are primarily driven by end-users. In Mumbai, the high-end residential segment in particular is slowly experiencing short-term investors creeping in, the report said.

Realty cos eye Rs 15,000-crore mop-up

Realty cos eye Rs 15,000-crore mop-up
The Economic Times, November 13, 2009, Page 14

But These Market-Bound Cos May Hit Valuation Wall Given Investors’ IPO Aversion

Deeptha Rajkumar MUMBAI

CASH-STRAPPED real estate companies looking for succour from the capital market are likely to run into headwinds on the pricing front. Market watchers say unless the promoters price their issues a bit more realistically, they are likely to see a tepid response from investors. Some of the high-profile new issues over the past few months were felt to have been priced expensively, resulting in the stocks faring poorly on listing.

Nearly a dozen real estate companies are looking to mop up over Rs 15,000 crore through public offerings in the coming months. Godrej Properties, DB Realty, Emaar MGF, Lodha Developers, Sahara Prime City, Kumar Builders, Ambience, Ashoka Buildcon are among the companies which have filed their draft red herring prospectuses (DRHP) with Sebi. Those in the pipeline, but which have not yet filed their DRHPs, include Nitesh Estates, Prestige Constructions, BPTP and Oberoi Constructions .

The IPO-filings mark the second round of fund-raising in the real estate industry, which had been wracked by the global financial crisis and the resultant drop in demand. Signs of a revival in the residential segment in April-May this year, prompted many to hit the capital market to raise funds.

Merchant bankers are, however, sceptical about investor appetite given the huge overhang of paper.

“There are serious challenges on the pricing front,” says Nimesh Shah, MD, Fortune Financial. Mr Shah is of the view that there is too much paper on offer at the moment, which is dampening investor appetite.

“And with almost all of the recent quality companies quoting at a discount to the offer price, the prospects look bleak,” he added.

Industry experts point out that investors should look at the earnings model of the real estate companies rather than the landbank model because in the latter, prices tend to be volatile.

Also, there are concerns that builders are putting value to the whole piece of land where they have partial ownership.

“Investors need to do due diligence as to whether the land bank is agricultural land or non-agricultural land. Currently, valuation of land is being done arbitrarily. If it is agricultural land, one needs to factor in the cost of conversion (property tax & cost to be paid to the government etc),” said a real estate developer on condition of anonymity.

Investment bankers believe that this phenomenon is not true of India alone but is also seen in other countries like China. “Real estate companies are quoting at an almost 60% discount to their NAVs,” said a banker with interests in the region.

“Given the overall weakness in the IPO market in the recent months, pricing and quality of promoters will be paramount,” says Munesh Khanna, CEO & MD-investment banking, Centrum Capital.

However, JC Sharma, MD, Shobha Developers, believes one should look at the macro picture. “The real estate industry is still not getting proper representation in India. In a developed/developing economy, it constitutes 10% of the market cap of the country. We still have a long way to go,” he told ET.