Real Estate Intelligence Service, Tuesday, November 24, 2009

Govt may do away with lock-in period for FDI in real estate

Govt may do away with lock-in period for FDI in real estate
The Hindu Business Line, November 24, 2009, Page 1

Dept of Industrial Policy and Promotion framing new rules.

Moumita Bakshi Chatterjee, New Delhi

Setting the stage for easier FDI norms in the real estate sector, the Government is considering a proposal to do away with the three-year lock-in stipulation for repatriation of foreign investments in SPV projects.

Industry observers say the move will draw foreign investors — which had avoided project-level or Special Purpose Vehicle funding because of the lock-in condition — into the sector. This will benefit both unlisted as well as listed builders, including such players as DLF, Unitech, Parsvnath Developers, and Ansal API.

At present, portfolio investments do not come with a lock-in clause. The condition is only stipulated for Foreign Direct Investments. Sources said that the condition of a three-year period (from completion of minimum capitalisation) had initially been imposed as a deterrent against speculative investments when the sector was opened up for foreign investment.

In the current context, however, it was felt that there is no similar clause in other sectors, with the exception of Defence. Hence, the Government is considering scrapping the lock-in condition. Other conditions pertaining to minimum area for development of serviced housing plots or construction development, as well as minimum capitalisation norms (Press Note 2 of 2005) are likely to continue.

Sources said the Department of Industrial Policy and Promotion (DIPP) — the nodal Department for framing FDI rules — is also seeking the view of the Urban Development, Housing and Finance Ministries on the issue.

When contacted, a senior official of a large real-estate company told Business Line that dispensing with the lock-in condition would help infuse more capital into projects. “The restriction with regard to repatriation was a deterrent for some foreign investors. If the condition is removed, it will be easier for developers to get more capital for their projects,” the official said, on condition of anonymity.

On the flip side, an analyst pointed out that the move could worry some realtors as their current FDI partners may now find it easier to repatriate investments in projects even before the three-year period is up. “It should not be an easy-come, easy-go policy,” he cautioned.

The Parsvnath Developers Chairman, Mr Pradeep Jain, felt that, depending on the execution, if the project generated internal accruals, the investor would now be free to repatriate his original investment. “I think, it will be good for the sector as a whole…The cost to the project will come down,” he said.

At present, under Press Note 2 (2005), up to 100 per cent FDI is permitted on automatic route in case of integrated township development, housing and construction development activities. This is subject to certain conditions: Minimum area to be developed under each project in case of serviced plots is 10 hectares; minimum area to be developed in the case of construction development project is stipulated at 50,000 square metres (built-up space).

Besides this, there is a minimum capitalisation requirement of $10 million for a wholly-owned subsidiary and $5 million for joint ventures. Although there is a blanket lock-in period stipulated for repatriation, investors are allowed to exit in specific cases, with prior permission of the FIPB.

DIPP proposes further relaxation of FDI for realty

DIPP proposes further relaxation of FDI for realty
Business Standard, November 24, 2009, Page 6

BS Reporter / New Delhi

The Department of Industrial Promotion and Policy (DIPP) under the Ministry of Commerce and Industry has proposed further relaxation of the foreign direct investment (FDI) norms for the real estate sector.

The department has proposed the removal of the lock-in of three years on original investment made into integrated township development and other construction development projects.

Currently, FDI in construction and real estate sectors can be repatriated before the stipulated three years only after securing special approvals on a case to case basis from the Foreign Investment Promotion Board (FIPB).

The department wants to remove the condition of minimum period for repatriation of the original investment. The proposal, being discussed with other ministries, is aimed at boosting FDI flow into the housing and real estate sector.

Housing and real estate ranked fourth among the FDI-attracting sectors. It brought in Rs 32,502 crore of investments over the past nine years (April 2000–August 2009). During April–August period this year, the inflow into the sector was Rs 8,719 crore.

According to sources, DIPP prepared a draft proposal last week to further liberalise the FDI policy in townships, housing, built-up infrastructure and construction.

The proposal, after discussions with the ministries of finance and urban development, and the Prime Minister’s Office and the Planning Commission, may be put up before the Cabinet Committee of Economic Affairs.

Real estate players welcomed the DIPP move. “If the government takes out the three-year lock-in stipulations for FDI, the investments will be cheaper. Today, cost of the investments are calculated considering a three-year period. If there is liquidity, then one can work out better deals, bringing down the cost of funding and thereby the project cost,” said Pradeep Jain, chairman and managing director of Parsvnath Developers Ltd.

Plan to remove lock-in period for FDI in realty

Plan to remove lock-in period for FDI in realty
The Financial Express, November 24, 2009, Page 3

fe Bureau, New Delhi

Foreign players can freely enter and exit the Indian real estate market now. The department of industrial policy and promotion (DIPP) — the nodal foreign investment policy-making body — has proposed the removal of the mandatory three-year lock-in for foreign direct investment (FDI) in real estate. The department has moved a draft Cabinet note to this effect for an inter-ministerial clearance.

The lock-in period was a cautionary move against speculative trading in the sector. The government had introduced a lock-in for foreign investment in realty companies in a bid to prevent a possible real estate bubble. The restrictions were also aimed at checking sudden flight of capital. By putting a lock-in period for foreign capital, the government had also effectively discouraged the promoters’ own funds coming into the company through the NRI route. A mandatory lock-in period has always acted as a deterrent for promoters bringing such funds through the NRI route.

The government is likely to amend the Foreign Exchange Management Act to exempt foreign players in Indian real estate from facing a mandatory lock-in clause. However, other conditions such as minimum capitalisation and area of development will remain unchanged.

At present, FDI up to 100% is allowed in realty projects on automatic route with certain conditions like a three-year lock-in on investments, minimum capitalisation of $5 million and development of at least 10 hectares of land. These conditions are applicable on all foreign investors, including NRIs. It is understood that the government has initiated the move keeping in view the fact that the sector is on its all-time ebb owing to the slowdown. The government has taken the step to enable foreign companies repatriate their money whenever they feel from the Indian venture.

Emaar grapples with worries on delays, debt

Emaar grapples with worries on delays, debt
Business Standard, November 24, 2009, Page 3

Tinesh Bhasin & Raghavendra Kamath / Mumbai

Shravan Gupta, the 36-year-old co-promoter of real estate developer Emaar MGF Land, has been globetrotting for a while, making presentations to investors in the run-up to the company’s Initial Public Offer (IPO) by the year-end.

This is Gupta’s second attempt in two years to tap the IPO route. His first attempt in February last year failed due to lack of investor interest.

Things have improved for the property sector since then, but only just. Valuations have moved south globally and there are enough experts who see red whenever prices go up a bit.

So, Gupta is trying hard to convince prospective investors but, like any other real estate developer, has a tough task ahead. Property sales saw their lowest levels during the September 2008-May 2009 period, after global economic slowdown forced buyers to postpone home buys to save cash. This led to slower growth and project delays impacting the profitability of companies in the sector.

Emaar MGF reported losses, too. The net loss before tax for FY 2009 was Rs 166.3 crore, says the latest draft red herring prospectus (DRHP) filed by the company. The company also saw many of its 29 projects getting delayed. For instance, the project named The Views in Mohali was supposed to be completed by this financial year, by the previous DRHP. It is now postponed to 2011-1012, a delay of over a year.

The job loss and economic slowdown in the country also saw buyers cancelling bookings in Emaar MGF’s premium projects. Mohali Hills, where the developer is selling plots, witnessed the number of units sold coming down to 1,681 as on August 31, 2009 from 1,723 as on August 31, 2007, with the difference reflecting cancellations. The company had started construction on this site in 2006-07.

This trend is seen across all sectors of real estate. These include residential projects at Gurgaon and Chennai. The completion date for their only ongoing retail project, The Central Plaza, in Mohali Hills, has been extended to the next financial year from the current one, according to the new DRHP.

The company was developing IT office spaces in various cities such as Gurgaon, Chennai and Hyderabad, said the earlier DRHP. Projects in the latter two cities are excluded from the recent DRHP. The Gurgaon IT project is now split in three commercial spaces, with IT occupying only 4.2 acres as compared to 15 acres earlier.

To adjust to the new market demands, the company has started making changes to its projects. Just like other large developers ventured into affordable housing, Emaar MGF resized its new launches to make these more affordable—Emerald Hills and Emerald Estates in Gurgaon, for instance. Sources said this strategy has started paying and the company has seen sales picking up.

But the biggest concern for investors putting money in the realtor’s IPO is the debt of Rs 5,807.8 crore. The company’s debt-to-equity ratio is 1.2:1. If the IPO goes through this time, it plans to pay off Rs 1,972.1 crore of debt from the Rs 3,850 crore it will garner. This will take care of 46 per cent of the loan the company had taken till March this year.

It remains to be seen if Emaar MGF will pull it off this time, especially with the ‘modest’ valuations it has put to its business, compared to the last attempt. In February last year, the company had proposed to sell 10.4 per cent of equity at an aggressive Rs 6,462 crore.

Markets have re-rated the real estate sector. In December 2007, the market participants were so bullish on the sector that DLF’s stock touched Rs 1,073.8 in December 2008 on the Bombay Stock Exchange. This was five months after it listed on stock exchanges at around Rs 570. The company is currently trading even below the issue price at Rs 385.30 a share.

Govt. should stay out of land acquisitions for SEZs

Govt. should stay out of land acquisitions for SEZs
Business Standard, November 24, 2009, Page 6

Maharashtra to create land bank

Maharashtra to create land bank
The Financial Express, November 24, 2009, Page 11

Sanjay Jog, Mumbai

The recession-hit realty sector now has reason for cheer. The Maharashtra government, seeking to hasten the availability of housing stock under its flaghship programme of providing 10 lakh houses in five years, plans to create a land bank of 1,000 to 2,000 hectare across the state. A part of the land under the Maharashtra Industrial Development Corporation, along with land under the Urban Land Ceiling Act, will be earmarked for housing. The state government has already earmarked about 350 hectare of land near Nagpur for housing.

The government, which aims to make these houses, of 500 sq ft or below, available to the low and middle classes in particular through the Maharashtra Housing & Area Development Authority (Mhada), will also promote the involvement of realty players from the private sector. Besides, the government also proposes to jointly develop the land owned by farmers by giving them 10 or 20% of the developed land, in a manner similar to that followed during the implementation of SEZs in the state.

The state government plans to provide 2.5 floor space index (FSI) across the state for the Mhada schemes and wants Mhada to participate in the bidding for lands, including that of textile mills The minister of state for housing, Sachin Ahir, told FE that a land bank will give a much needed boost to construction activity. “I want to make it clear that the government is not competing with the private sector but wants the public private participation model to be implemented, in order to add more housing stock. In rural and semi-urban areas, farmers will be involved if they agree to provide land for housing. Nearly 10-20% of the developed land will be given to such farmers.”

Niranjan Hiranandani, chairman, Hiranandani Developers, welcomed the government’s move. “The current government has taken a holistic view to achieve growth. Creation of a land bank is one of the components to boost housing. However, the government is simultaneously paying due attention to urban infrastructure, which includes water, metro and security. Similarly, the development in smaller towns and rural areas is also being pursued.”

Mohan Deshmukh, former president of Maharashtra Chamber of Housing Industry, made a strong pitch for the removal of restrictions on FSI on the lines of Andhra Pradesh. He also suggested that the government should follow the PPP model to create more housing stock more aggressively.

Ranjit Niknavare, executive committee member, Confederation of Real Estate Developers Association of India, however, said, “It is a challenging assignment since it is not easy to create a land bank across the state. While it is very desirable to create units with areas less than 500 sft across the state, the land, if located unfavourably in terms of its distance from city centres, might not get the kind of response that the government is anticipating. Likewise, it may be better to offer the same facility of additional FSI to private developers who have land banks and who are willing to allow their full utilisation for this segment of sub-500 sft flats. This way, the customers have a choice of developers between MHADA and private developers and this may bring the prices of flats further down and afford better apartments to customers. While this initiative seems to be to give MHADA an opportunity to provide homes to economically weaker sections and the middle income group, this effort can be further augmented by support from the private sector.

Now, independent houses catch the eye of realty developers

Now, independent houses catch the eye of realty developers
The Financial Express, November 24, 2009, Page 19

Preeti Parashar, Chandigarh

With affordable housing being a priority for both developers and customers, a few realtors are focusing on offering low-density housing, a luxurious lifestyle away from cities. Low-density projects will have lesser units in a defined area and will offer an independent lifestyle in which people are willing to pay a large premium for greater space and comfort. Market analysts believe that the in times to come, such a concept will push the market value of the projects. Also, customers looking to own an exclusive space in the outskirts of the city will prefer such projects.

Samir Chopra, director, RE/MAX India, said, “Though affordable housing is definitely relevant in our times, when a majority of the population is middle or lower middle-income group and a growing number of people are looking at a comfortable place to live in. Low-density projects will provide an attractive alternative to consumers who like to own a bigger accommodation at the price of increased commuting.”

One such project- The Empyrean, being developed by FIRE Luxur on the outskirts of Bangalore, has an outlay of $350 million. Approximately 2,100 units will be developed over 210 acre. Om Chaudhry, CEO, FIRE Capital Fund said, “The Empyrean Bangalore has already been launched and has received a tremendous response from the market. This product is targeted towards the mid-income customers, primarily the young, salaried class, who are keen to upgrade from apartments in the city to independent housing on the outskirts.”

He also added, “The Silver Springs Township in Indore, our first investment, is again a low-density development and has only 387 units spread over 51 acre. Such developments offer a better quality of life to its residents.

Karnataka Rural Infrastructure Development Ltd. has invited RFP for development of 1.606 acres of prime land along Hosur Main Raod, Bangalore on DFBOT

Karnataka Rural Infrastructure Development Ltd. has invited RFP for development of 1.606 acres of prime land along Hosur Main Raod, Bangalore on DFBOT basis.
The Economic Times, November 24, 2009, Page 7

http://www.klac.gov.in/
http://www.ksiidc.com/
http://www.iidcindia.co.in/
http://www.ilfsindia.com/

Tata Housing to foray into new markets

Tata Housing to foray into new markets
Hindustan Times, November 24, 2009, Page 27

Tata Housing, after receiving phenomenal response for its low-cost housing project at Boisar, 120 km away from Mumbai, now plans to launch similar projects in tier I and tier II cities, its chief executive said.

“We will set up a pan India presence across in India. We are expanding into new geographies and markets like Lonavala, Pune, Chennai and other markets,” said Brotin Banerjee, CEO & MD, Tata Housing Development Company.

The company’s foray into new markets comes after its successful entry into the ultra low-cost home market for industrial workers in fringe areas of Boisar. Six months ago the company had launched housing projects in the price range of Rs 3.9 lakh to Rs 6.7 lakh on the portion of a 67 acre plot.

“We received 7,000 applications for 1,000 Shubh Griha flats and as a gesture of goodwill offered another 300 flats in the first phase. All the 1,300 flats will be delivered as per schedule in March 2011,” said

Contrary to normal practice of project delays by the developers’ community, Tata Housing is, in fact, running ahead of the schedule and within six months of the project launch it has constructed up to two floors of some buildings.

In the first phase, it is constructing 61 buildings in a configuration of ground-plus two floors and each building is being constructed within 120 days starting from ground breaking.

As on date five buildings have reached up to first floor slab, 19 buildings have come up to plinth level and foundation is coming up in 15 buildings.

According to engineers working on the project, all 61 buildings would be complete by August 2010. The same plot of land has also an affordable housing segment with flats being priced at Rs 12 lakh onwards.

“Phase I was sold out within 2 months of the launch — this is a phenomenal response we received for New Haven,” said Banerjee.