Real Estate Intelligence Service, Thursday, November 19, 2009

US inflation edges up, housing starts fall sharply

US inflation edges up, housing starts fall sharply
The Economic Times, November 19, 2009, Page 19

WASHINGTON: Construction of new homes in the United States fell sharply last month, showing potential weakness in the economy's recovery, while consumer prices rose slightly more than expected. The commerce department said housing starts dropped 10.6% to, the lowest level since April and the percentage drop was the biggest since January. A separate report from the labour department showed the Consumer Price Index rose 0.3%, a touch above market expectations for a 0.2% increase, after rising an unrevised 0.2% in September.

Lodha Dev to invest Rs 6,000 cr

Lodha Dev to invest Rs 6,000 cr
The Financial Express, November 19, 2009, Page 7

Press Trust of India

Mumbai-based realty firm Lodha Developers, which plans to hit the capital market with its IPO early next year, will invest Rs 6,000 crore in the next three years on construction of its existing projects. “We are currently developing about 30 million sqft comprising 38 projects. The average cost of construction to develop the projects is Rs 2,000 a sqft,” managing director Abhisheck Lodha told PTI.

At an average construction cost, the total investment to develop the existing projects works out to be Rs 6,000 crore. The company's current land bank stands at 260 million sqft, which is enough to keep it busy for the next 10-12 years. About 80 per cent of the company's total business is housing and the rest is office space, he said.

Nasscom to take up regulatory issues with government to spur growth

Nasscom to take up regulatory issues with government to spur growth
The Financial Express, November 19, 2009, Page 7

Rachana Khanzode, Mumbai

In a bid to promote growth of the engineering services sector Nasscom (National Association for Software Services Companies) is in talks with the government to overcome regulatory challenges. The engineering services industry has been facing a number of challenges with respect to export/import regulations, infrastructure like testing units with capabilities, international certification and domain expertise.

Krishna Mikkilineni, co-chairman, engineering services, Nasscom, and president and MD, Honeywell Technology Solutions, said: “We are in talks with the government with respect to the export and import regulations that restrict transfer of products from India to US and Europe. We are also working out on other challenges with the government like infrastructure, testing capabilities, international certification and academia.” The industry is facing a challenge to take up projects that involves end to end product development because these products cannot be sent to the clients in the US or Europe due to regulatory challenges. The US contributes about 58% while Europe contributes 29% of the total revenues. Also, India doesn’t have a certification that has recognition in the international market. These challenges have put its nearest competitor China in a better position to deliver products.

A day before, Nasscom said that the engineering services industry, which is now at its nascent stages with market of about $ 7 billion to $ 9 billion in 2009, is poised to grow to $ 50 billion by 2020. Regu Ayyaswamy, VP & global head, engineering and industrial services, Tata Consultancy Services, said, “The $50 billion target by 2020 is quite a doable number if there is a collaboration between the industry, government and academia. We have the potential and the value but the fact is that the China can do it faster because of these challenges.”

Currently, India has a market share of 20-25% while China has a market share of about 15-20%. While third party service providers that have been facing tough times in the IT services and BPO space are backing big time on the engineering services based on the non-linear model. Therefore these initiatives by the Nasscom become extremely important for the industry. S Valmeeka Nathan, VP & global head, product life cycle & engineering solutions at Infosys technologies, says, “Engineering services has a high margin advantage, non-linear built and potential to bring transformation in our relationships with the client.”

Centre’s focus shifts to expenditure

Centre’s focus shifts to expenditure
The Financial Express, November 19, 2009, Page 1

Sunny Verma, New Delhi

The government plans to take up a series of expenditure reform measures as a part of its strategy to roll back the fiscal stimuli and to meet the medium-term fiscal consolidation goal.

The Prime Minister’s Office and the Cabinet Secretariat, in concert with the finance ministry, are debating a proposal of India targeting a debt-to-GDP ratio of 65% as a medium-term objective, officials said. The current ratio is about 82%. This ratio, measured as a proportion of total public debt to gross domestic income, indicates the fiscal space a country has.

India’s debt-to-GDP ratio stood at 81.9% at 2008-end, compared with China’s 17.7%, Brazil’s 64.5%, Russia’s 5.8%, US’s 70.5%, UK’s 51.9% and Japan’s 196.3%, according to International Monetary Fund estimates. IMF expects India’s debt-to-GDP ratio to rise to 86.8% in 2009 and 88.9% in 2010.

Public debt encompasses debt owed by all branches of government—Centre, state, municipal and local bodies.

Officials familiar with the discussion told FE that it is the first time the government is shifting gear towards expenditure control as a key tool to fiscal improvement. The idea is to curb the runaway revenue expenditure, which are mostly operational expenses, like interest payments and salaries, and arrest the decline in the rate of growth of capital expenditure, which leads to asset creation and more revenue from existing assets.

The 13th Finance Commission, which is to submit its report in December, would suggest ways to prune non-plan expenditure and improve the quality of spending.

The seriousness of its intent can be gauged from the government’s decision last week to pare the fuel quota for bureaucrats. Government officials below the secretary’s rank are now entitled to a fuel quota of 200 litre per month, down from 300 litres a month.

This would result in monthly savings of about Rs 4,500 per official.

The government has so far relied upon the tax buoyancy in the last five years prior to the global economic crisis to improve its fiscal position. “For any fiscal consolidation process to be durable, there is a need to act on the expenditure front,” a senior official told FE.

This is also an indication that finance minister Pranab Mukherjee has taken on board Reserve Bank of India governor D Subbarao’s suggestion to focus on ‘expenditure compression’. The RBI has also asked the 13 th Finance Commission to suggest how much fiscal improvement can be achieved from the expenditure side. This is particularly significant as it highlights continued coordination between the RBI and finance ministry as they begin to unwind monetary and fiscal expansion.

“We cannot sit back and hope that tax increase will deliver fiscal consolidation on a platter,” Subbarao said last month in Istanbul. “Revenue expenditure has increased from around 12% of GDP during the period 2000-08 to over 15% now. We need to work seriously on expenditure compression,” he said.

The official also said the government will act upon Prime Minister’s Economic Advisory Council’s suggestion to put in place a medium-term expenditure plan. The council has argued that even without significant cuts, expenditure can be reduced this fiscal.

‘Since liability on account of pay revision and loan waiver have been settled, if the expenditure on various schemes are kept constant in nominal terms, there could be a reduction of 1.5% of GDP in the deficit next year’, the EAC economic outlook for 2009-10 said.

Credit growth sluggish at 9.78%; lowest in 12 years

Credit growth sluggish at 9.78%; lowest in 12 years
The Financial Express, November 19, 2009, Page 4

fe Bureaus, Mumbai

During the fortnight ended on November 6, bank loans have gone up by Rs 23,148 crore taking outstanding advances to Rs 28,91,713 crore—an increase of over 9%—the slowest growth in 12 years. According to data from the RBI, credit growth stood at 9.78% or Rs 2,57,677 crore, as on November 6, 2009, as against 9.66% through October 23, 2009, on year-on-year basis.

According to the RBI data, deposits grew by 18.56%in the same period. The outstanding deposits at the end of November 6 stood at Rs 41, 67,306 crore against Rs 35, 15,029 crore in the corresponding fortnight a year ago. The deposit growth as on October 23, 2009 stood at 19.02%, or Rs 6, 63,819 crore.

The RBI had noted during the policy that credit growth is unlikely to meet 20% target but projected a growth of 18% for the same. At the same time, aggregate deposits of scheduled commercial banks are projected to grow by 18%. The RBI had urged the bankers to step up their efforts towards credit expansion while preserving credit quality, which is critical for revival of growth.

Crisil, a subsidiary of S&P believes the credit growth will pick up in the second half as there are signs of revival in the economy with higher IIP numbers. “Industrial credit will grow at a moderate pace with strong investments in key sectors. Retail credit has also been improving on a month-on-month basis, particularly in housing and auto loans. The credit demand is expected to grow among consumers to derive benefit of low interest regime and expectation of better growth in income levels,” said the report.

UP wants to complete Yamuna Expressway before Games

UP wants to complete Yamuna Expressway before Games
The Financial Express, November 19, 2009, Page 4

Deepa Jainani, Lucknow

Intending to make Yamuna Expressway a growth engine for all future development of the state, the Uttar Pradesh government has issued directives that the expressway be completed and open to traffic before the 2010 Commonwealth Games in New Delhi. Sticking to the time schedules, the concessionaire of the project Jaypee Infratech is working at neck breaking speed, having completed almost 80% of the earthwork and starting off with concreting from Noida end.

Speaking to FE on condition of anonymity, an official of the state government said lot of prestige is associated with the project as it will be the first infrastructure development project that would finally see the light of the day during the two-and-a half year reign of chief minister Mayawati. In a way it would be the yardstick by other developers for investing in the state. The chief minister has many more ambitious plans for the state, all of which would either revolve around Yamuna Epressway or would be fostered by it. With land for the entire 165-km expressway already available with the developer, a massive workforce of around 10,000 people has been pumped in to work round the clock to complete the mega project. The total cost of the project is pegged at Rs 10000 crore.

The expressway, which will cross the five districts of Gautambudh Nagar, Aligarh, Mahamaya Nagar (Hathras), Mathura and Agra, will have six interchanges from point zero at Noida. Apart from these interchanges, other structures like car tracks, pedestrian pathways, canals, bridges and underpasses are also being constructed simultaneously.

A senior official of the Yamuna Expressway Authority said a total of six toll plazas are being proposed. While there would be two each at Gautambudh Nagar and Mathura, Aligarh and Agra would have one toll plaza each.

The project, which is being constructed on build operate transfer PPP basis, will be maintained and operated by the concessionaire during the entire concession period of 36 years and after expiry of the concession period, it shall be handed over to the authority. An official of the company stated that the toll amount is being worked upon and no final shape has been given to it yet.

RIL mulls entry into low-cost housing

RIL mulls entry into low-cost housing
Business Standard, November 19, 2009, Page 3

Kalpana Pathak & Surajeet Das Gupta / Mumbai/new Delhi

The initiative, still on the drawing board, could be kicked off by 2010.

After successfully dabbling in organised retail in 2006, Mukesh Ambani, chairman of India’s largest private sector company, Reliance Industries (RIL), has now set his eyes on no-frills, low-cost housing.

The initiative, still on the drawing board, could be kicked off by 2010. An RIL official said the company would do large projects and at multiple locations.

“RIL has deep pockets and excellent execution skills. It has executed two large projects like the Jamnagar refinery and the KG-D6 basin in a record time. Another such large project is only obvious for the company to get into,” said a source close to the development.

RIL holds a land bank of 5,000 hectares in Haryana through Reliance Ventures, a subsidiary of RIL created by forming a joint venture with Haryana State Industrial Investment Development Corporation and over 4,840 hectares through the Navi Mumbai SEZ, in association with Cidco (the Maharashtra government’s industrial and township development arm).

“RIL is sitting on a huge land bank with regard to its special economic zones (SEZs) in various locations. It could be putting that to commercial use for mega housing projects in the no-frills category,” said an analyst from a Mumbai-based broking firm who tracks RIL closely.

Low-cost housing has become the new mantra for realty players across the country. Sector analysts say the global economic recession ended a four-year property boom in India, largely driven by the luxury-housing segment, which resulted in a nearly three-fold increase in residential prices in major cities.

“Entry of corporate houses like RIL will be good for the market, as it will uplift the real estate sector into an industry. Every business house that enters the sector, be it Godrej, Mahindra, Piramal, Tata and now RIL, will help in making the procedures in the sector more transparent,” said Rajeev Talwar, Group Executive Director, DLF.

Earlier this year, the Tata Group’s unlisted firm, Tata Housing Development Company, said it would invest up to Rs 100 crore in a 1,200-unit township at Boisar, on the outskirts of Mumbai, and would sell apartments at prices ranging between Rs 3.9 lakh and Rs 6.7 lakh. The company aims to build up to 15,000 low-cost homes over the next four years across several cities, including Mumbai, Delhi and Bangalore.