Real Estate Intelligence Service, Monday, November 30, 2009

ALL EYES ON DUBAI

ALL EYES ON DUBAI
The Economic Times, November 30, 2009, Page 1

Global banks, fund managers and central banks are fishing for new clues to take their next call on the citystate. Banks and stock exchanges in Dubai will reopen on Monday after an extended Eid holiday, but ministries and state-owned agencies will remain shut till December 6. The saving grace is that the UAE central bank said on Sunday that it will stand behind local and foreign banks that face losses from Dubai World. It also opened a new lending window for banks. But some questions linger, says Sugata Ghosh

Is there a chance that the financial crisis could boil over to banks?

Unlikely. Because all customer deposits in local and foreign banks in UAE are guaranteed by the government. This was done last year.

What happens to property buyers and realtors?

Many investors, including some HNIs from India, have booked properties in Dubai with a part-payment of 10-30%. This money may get stuck. New investors, looking to buy cheap, will find it difficult to get loans as most foreign banks will trim their exposure to not just Dubai, but the entire Gulf.

Will the virus spread to other markets?

There's already a concern over the inadequate capital of Chinese banks, Fitch downgrade of Mexico and a devaluation by Vietnam. Global investors and banks will now take a hard look at various emerging markets and also economies like Greece and Hungary. Also, there will be a question mark on other Dubai entities and bonds with quasi-sovereign support.

How are policymakers expected to respond?

Central banks and most governments will keep alive the stimulus created by pumping money post-Lehman collapse. They will try to figure out whether what happened in Dubai is just a tip of the iceberg. Mopping up liquidity and interest rate hikes may have to be delayed. Money will hunt safe assets and bubbles in some markets will grow bigger and bigger.

Bad news for India?

A lot depends on how things unfold. MFs may get less investments from Dubai NRIs while developers here are likely to see a demand slowdown. In the secondary market, sentiment would impact stocks. There may be a small opportunity for Indian professionals if Dubai companies decide to fire high-cost expats from the West.

But who will finally bail out Dubai? Abu Dhabi has said it may offer support on a case-by-case basis...

Investors will get some relief from the UAE central bank's statement. There will be more comfort if it promises to repay the Nakheel bonds that are coming up for repayment on December 14. Other forms of restructuring would mean losses for investors: bonds were trading at a discount of 50% and investors may have to forgo 40-50% of the principal amount.

MARKET MAY BUCK BLITZ

IF YOU HAPPEN TO BE A

contrarian investor, the best strategy perhaps would be to book profits on Monday. The widely-held sentiment in the stock market is that the debt crisis that unfolded in Dubai last week is unlikely to have a big impact on Indian equities, reports Santosh Nair from Mumbai.

MEET STARS NEXT DOOR

BUYING A VILLA IN DUBAI

is less expensive than buying an apartment in South Mumbai, reports Sachin Dave from Mumbai. And chances are that you will end up in the same neighbourhood as your favourite star as a couple of years ago, several Bollywood stars had reportedly made a beeline for Dubai properties.

Dubai may drive Re lower for a while

Dubai may drive Re lower for a while
The Economic Times, November 30, 2009, Page 9

Our Bureau MUMBAI

EVENTS in Dubai may drag rupee below 47-47.5 levels this even, even as relative safety of government bonds attract investors, treasury dealers said. The US Dollar Index, a gauge of the greenback’s value against six majors, rose as much as 1% on Friday, extending its rebound from a 15-month low. It has now strengthened for two straight days and is likely to resume its rise when global markets open on Monday, dealers said.

In fact, such has been the risk aversion among global currency traders that the yen hit its highest level in 14 years on the dollar and other higher-yielding currencies on Friday.

Dealers say the short-term rise in the dollar could possible dent the dollar carry trade and lead to its partial unwinding - a possibility that may lead share prices lower in the coming days. A currency carry trade is an investment strategy in which an investor borrows funds with a relatively low interest rate and uses the funds to purchase a different assets yielding a higher interest rate.

Ridham Desai, managing director, Morgan Stanley said in a recent report that one of the possibilities traders should prepare for is an appreciating dollar index, which can lead to a “detrimental effect on Indian equities.”

Dubai said on Wednesday it wanted creditors of state-owned Dubai World and its property subsidiary Nakheel, to agree to a restructuring of its debt.

Forward markets are already predicting that the rupee will weaken in the coming days. Onshore contracts indicate bets the rupee will trade at 46.77 against the dollar in a month, compared with expectations for a rate of 46.34 two days back. That for non-deliverableforwards (NDF) were quoting at 46.65 down from 46.13 two days ago.

Forwards are agreements in which assets are bought and sold at current prices for future delivery.

KN Dey, director at Basix Forex, a firm that advises corporates on Forex said traders will wait for more clarity to emerge on the Dubai crisis before drawing the knives for the rupee. Krishnan Ramachandran , the Dubai based CEO of Barjeel Geojit said the general expectation is that the Government of UAE will come out with a strong intent or statement of support for Dubai and its related business. This can then arrest the possible sell off that one can expect before the markets open on Monday, he added.

No Dubai impact on Indian economy: PMEAC

No Dubai impact on Indian economy: PMEAC
The Times of India, November 30, 2009, Page 17

TIMES NEWS NETWORK

New Delhi: Just before the release of economic data for the second quarter, Prime Minister's economic advisory council (PMEAC) chairman C Rangarajan said GDP growth is likely to be 6.1% in Q2 while expressing optimism that the target of 6.5% in 2009-10 was achievable.

GDP data for the second quarter is to be released on Monday. In previous quarter, growth rate was 6.1%, same as Rangarajan has projected for Q2. To achieve 6.5% growth in the entire fiscal, GDP needs to grow by at least 7% and above in the remaining two quarters.

The PMEAC chief, however, ruled out any impact of recent developments in Dubai on the country's economic activity. He said much of India's growth was driven by domestic demand and less on external factors. "The second quarter may reflect to some extent the impact on agriculture. Therefore, the growth rate may not necessarily exceed very much over 6.1% which we saw in the first quarter," Rangarajan said.

The PMEAC chairman said the panel's forecast of 6.5% for the year as a whole was still achievable backed by strong industrial and services growth. "They will be stronger in the second half and will make up for the impact of weak monsoon on agriculture in the third quarter," he added.

The government is likely to review its stand next month on the stimulus packages it had announced earlier to perk up the sluggish economy as pressure mounts on increasing decline in its revenues. The government would have a roadmap by December to consolidate its fiscal position over the next five years, FM Pranab Mukherjee said in Chandigarh.

Wait And Watch

Wait And Watch
The Times of India, November 30, 2009, Page 12

Don’t push panic buttons on the Dubai crisis

Dubai’s government-run investment firm, Dubai World, sought a “standstill” agreement last week to defer repayment on much of its $59 billion debt. This rocked global stock markets. The move now has national governments everywhere worried about the impact of the corporate debt default request. Is there cause for knee-jerk panic? Experts the world over seem to think not. They say Dubai is only the latest demonstration of the perils of overleveraged ambitions. The unravelling of what’s dubbed “the Dubai model” of breakneck speed development was waiting to happen. Indian authorities, on their part, recommend a calm assessment of Dubai’s possible fallout. This is wise.

Banks are checking their exposure levels, and so is industry. Our real estate firms are largely domestically driven, but even those with projects in Dubai don’t seem ruffled so far as their India operations go. So far, it appears that Dubai World’s debt woes could have a marginal fallout. While the conglomerate’s future plans in India may falter, existing projects may remain unscathed. Nonetheless, concern for around five million Indians living and working in the Gulf is understandable. They remit over $10 billion annually. Around 40 per cent of the UAE’s population is Indian, contributing over 10 per cent of incoming remittances. Yet if incomes of the families of immigrants and contracted workers dip, it’s worth recalling that money flow has been thinning for some time. Also, NRI deposits are more likely to be hit than remittances. Again, job contraction may occur, but migrant labourers have been coming home over the past year since most are employed in construction, a sector badly hit by the global recession.

The focus is also on investor confidence, and its possible domino effect in the form of capital outflows from emerging markets. Where India’s concerned, some amount of capital flight may actually facilitate a correction in Dalal Street, in light of a recent surge in FII inflows that raised eyebrows. But the prospect of big outflows looks unlikely. Dubai-based sovereign funds are not big buyers of Indian equities and other financial assets. Nor is there much Dubai-linked private stakeholding in listed Indian companies. So the bourses aren’t likely to be too rattled.

Finally, it’s improbable that Dubai World will be allowed to tank by Abu Dhabi, with all its oil money. With many of the developed world’s biggest banks surviving on government handouts, a bailout for a Middle Eastern government-owned investment fund would be unexceptionable. Minus the firm promise of a quick bailout, however, the markets could bet on a sovereign default. Today, sovereign debt’s piled up everywhere. One sovereign default may make bond holders and markets start doubting the repayment abilities of their debtors. That’s something global finance doesn’t need.

Dubai debt crisis will have limited impact

Dubai debt crisis will have limited impact
The Hindu Business Line, Nove 30, 2009, Page 2

Geojit BNP sees rise in NRI inflows in short-term.

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We see Abu Dhabi booming, while Dubai slowing down with a neutralising effect. After the global financial crisis we are seeing more Indian investors putting money in Indian assets than before. Hence, if there is any panic there will only be improvement in our business in the short-term. Mr C.J.George, CEO, Geojit BNP Paribas
--------------------------------------------------------------------------------

N.K.Kurup, Mumbai

Dubai's debt crisis has rattled markets across the world as the problem revived worries about the health of the global financial system. Although the exposure of Indian companies and banks to the Emirate is negligible, concerns linger about the fallout on the broader economy.

Dubai World, the investment conglomerate of the sheikhdom at the centre of the crisis, has a debt of $59 billion — a major component of Dubai's total debt of $80 billion.

Authorities from Dubai to New Delhi have tried to play down concerns, but there is fear a sovereign debt default - should it happen – could have a cascading effect on the global financial markets.

Broking firm Geojit BNP Paribas has a large presence in the United Arab Emirates. Its West Asian joint venture Barjeel Geojit Securities LLC is headquartered in Dubai. Mr C.J. George, CEO of the firm, spoke to Business Line on the likely impact of Dubai World's current debt trouble on Indian markets, NRI inflows and on his own business in the Emirates. Excerpts:

Dubai World's debt crisis impacted the Indian markets on Friday. Will it continue to haunt the Indian markets?

The panic reaction we saw during the opening of the market on Friday was on account of the absence of any firm indication from Gulf markets due to Eid holidays. International investors do not perhaps worry too much about the impact on Indian markets. India has never been bracketed with GCC countries in the past and, hence, there will be more mature reaction in equity markets in the days to come.

Do you expect major selling by FIIs in the Indian market?

One of the most significant outcomes of crisis-ridden global financial markets during the last two years has been a growing recognition of India's uniqueness. FIIs have a more balanced and knowledgeable view of India today than in 2008. Hence, there is unlikely to be major FII selling. If that happens, there are others waiting to buy.

Will the crisis impact the NRI inflows?

There will be increase in inflows in the short-term since NRIs may consider India as a safe haven than domestic bank deposits in UAE and perhaps GCC. However, any protracted crisis can lead to job losses and business closures with impact in the medium term. In the long term, Dubai will continue to attract talent from India apart from unskilled workers, as the city will continue to be the centre of a booming GCC as long as oil is a precious commodity and Dubai is a tax haven with modern infrastructure.

What will be the impact on Kerala given the number of people from the State employed in Dubai and other Gulf countries?

During the last one year we have seen some amount of job losses leading to the return of many NRIs from Kerala. However, as Abu Dhabi started massive construction projects, a large number of them have shifted base from Dubai to Abu Dhabi. Today construction workers are shifting to Saudi Arabia as well where there is a real estate boom driven by real residential demand.

I am of the view that the worst is over for Kerala, as the current crisis is likely to be managed between Dubai and the federal government. The UAE and GCC cannot afford to leave this debt restructuring unsuccessful particularly with ample resources in federal hands.

Is Dubai World's trouble just a trigger? Do you think it could lead to a major crisis? Will it escalate to other Emirates?

Fortunately, the real estate bubble was limited to the Emirate of Dubai only and, hence, I am of the view that this will be the end of crisis for Dubai. The other Emirates are relatively stronger in terms of debt obligations. GCC countries are in better shape today after the recovery in oil prices and, hence, Dubai will continue to retain the position as a global centre in the region leveraging the proximity of Indian sub- continent.

India will be to Dubai what China is to Singapore, unless “one day” Mumbai claims that position. In short, this debt crisis will have only sentimental impact on other GCC countries and limited impact on other Emirates. This observation is on the strong circumstantial evidence that the federal government of UAE will have to support Dubai as the domestic banks have a state guarantee.

How do you see it impacting your business in West Asia?

Barjeel Geojit has been operating in the UAE for the last eight years and the customer segment is predominantly Indian expatriates. We see Abu Dhabi booming, while Dubai slowing down with a neutralising effect. After the global financial crisis we are seeing more Indian investors putting money in Indian assets than before. Hence, if there is any panic there will only be improvement in our business in the short-term. However, in the unlikely event of this development leading to a protracted crisis and job losses at higher levels there will be an impact on our business too.

Will it lead to a liquidity crunch in the global economy, given the fact many central banks are planning to exit from accommodative monetary policy?

If this had happened a year ago it would have been perhaps disastrous than today as the amount involved can now be managed within GCC itself with the bounceback of oil. Moreover, the real estate bubble in Dubai was recognised by global financiers sufficiently long ago when the global real estate market started to crack. There is unlikely to be a second leg of liquidity crunch emanating from this event.

What do you make out of Dubai World's move?

Dubai World's move to restructure the debt should be seen as a genuine effort to restructure both debt and business since the announcement talked about just six month's “standstill” whereas the $60 billion consists of different maturities up to even 2014.
Currently, while the media around the world and international investors are showing panic there is relative calm and confidence internally, perhaps originating from the trust that finally it is a problem of the whole country and not of Dubai alone. Dubai has been growing on the strength of its capability to attract capital and talent globally and they know for sure that Dubai has to continue attracting these scarce resources to remain a vibrant non-oil economy surrounded by oil-rich countries.

Nevertheless, when the stock exchanges open for trading on Monday in Dubai, there will be selling pressure from global investors.

What in your view led to the current crisis?

On the strength of the oil boom in the region, Dubai one among seven emirates of UAE, has been positioning itself as a global centre for finance, trade and tourism due to negligible oil resources at home. During the early years of the current decade seeing growing demand for real estate, the Government started marketing housing projects offering 99 years of residence permit. Such a residence offer for investors in housing projects was neither denied by the Government nor approved. This led to an unprecedented boom in real estate, attracting rich investors from India, Russia, Europe and other places.

Both accounted and unaccounted global money started chasing real estate leading to even “day trading” in real estate.

There were even cases of buying in the morning and selling in the evening! Finally, when the global financial system cracked, the Dubai real estate bubble also crashed. The construction-driven economy was slowing down with highly leveraged projects. Dubai World, the real estate and infrastructure arm of the ruler of Dubai, was excessively leveraged during the boom years and when the demand disappeared had to catch up with debt repayments without positive internal cash flows.

While the boom in real estate collapsed, the federal government finally came out with a clarification that the buyers of real estate can only have six months renewable VISA in place of the highly publicised perception of 99 year's VISA. This was a bolt from the blue which was the last nail.

However, while Dubai was declining, Abu Dhabi, the cash-rich Capital city Emirate started booming on investment-driven by own capital. Abu Dhabi has been a lender of last resort for Dubai with vast oil resources and global financial investments of more than a trillion dollars. Abu Dhabi came out with a landmark announcement a year ago by declaring State guarantee on all bank deposits which led to calm in banking sector.

If Dubai announces any investor-friendly revision of VISA period, it can dramatically change the fortunes of domestic real estate market.

Dip in rentals boosts commercial realty mkt

Dip in rentals boosts commercial realty mkt
The Financial Express, November 30, 2009, Page 1

Mona Mehta, Mumbai

Following the correction in commercial realty rates in metros by 20% to 40%, top builders expect sales to improve by 50% in Q3 and Q4 of 2009-10. In the first two quarters of the fiscal, sales of office space rentals grew 10% to 15%.

To tap the growing opportunity, large builders in various metros are offering ready-to-possess offices, shops and commercial plots, and under-construction offices at 15% to 20% discount.

The correction in commercial real estate rates comes at a time when the general sentiment is buoyant. There is ample cash flow in the market. However, the correction in the office space rentals is 15%— lower than that of the residential real estate sector.

According to Harinder Dhillion, vice-president (marketing) of Delhi-based Raheja Builders, “New Delhi followed by Gurgaon and Noida have witnessed 15% increase in sales of commercial space since the second quarter of this fiscal. As a result, we are planning to offer price discounts of up to 10% to 15% on office space rentals through our commercial properties based in Gurgaon.”

Mumbai-based Royal Palms India has recently launched ready-to-possess offices, shops and commercial plots as well as under-construction offices for corporates at 3,999 per sq ft at Goregaon East, Mumbai. Royal Palms has a total of 4 lakh sq ft of office space/plots. Depending on the need of the buyer, the company can offer offices or buildings ranging from 400 sq ft to 80,000 sq ft.

Says Dilawar Nensey, joint MD, Royal Palms India, “The land on which these properties are located was acquired over 26 years ago at negligible cost and hence, even at these rates we will make reasonably good profit.”

Royal Palms has sold over 1,600 offices so far with top names like Topsgroup, Monarch having their business HQ at Royal Palms.

There are industry experts who believe that rentals do vary according to specific occupier profiles.

Says Pawan Swamy, managing director (markets, West India) of Jones Lang LaSalle Meghraj, “Office space rentals in the metros have corrected by up to 40%, which would mean that they are now back to the 2005-06 levels, which is when the economic up-cycle began.”

Bangalore-based real estate companies are looking to expand commercial properties in the city’s central business district. According to LS Vaidyanathan, executive director, Nitesh Estates, “Commercial office segment is another vertical we are looking to expand in the coming years. These are likely to come up predominantly in Bangalore ‘s central business district and in its surrounding areas.”

Dubai bubbles up humour mills

Dubai bubbles up humour mills
Business Standard, November 30, 2009, Page 16

Press Trust Of India / Dubai

‘The Sun Never Sets on Dubai World’, claims the logo of the state-owned conglomerate of the Gulf city government. That’s why it got burnt under towering debts.

This may not be funny for those who have actually burnt their fingers and much more in Dubai’s debt repayment crisis, but many others are finding humour in the problem being faced by the West Asian city.

This is just one of the many jokes that have started doing the rounds over the internet and through SMSes, poking fun at the tagline of Dubai World, the flaghip investment holding company of the Dubai government.

“True to our claim — The Sun Never Sets on Dubai World — our investment portfolio extends across 100 different cities in the world,” a banner continues to scream on the website of Dubai World, even as it has expressed its inability to pay in time $59 billion in debts and has sought time till at least May to meet these obligations.

The humour mills go a step further saying ‘Dubai is offering one celebrity free with each apartment purchased in its posh real estate properties’. Various realty projects like The Palm and The World, being developed on man-made islands have shot to fame with many celebrity purchasers, whose names have been extensively used to lure non-celeb buyers.

These include stars from Hollywood, Bollywood and sports. However, these celebrities are also said to be sitting on huge losses, as the value of these properties plunged sharply, first due to the global financial crisis and now with this latest crisis.

Another joke goes something like this — ‘How do you define optimism? It is a realtor building luxury apartments in Dubai and expecting it would be sold.’

The next talks about how the US was saved from the carnage when markets in almost all other countries witnessed tremors of Dubai crisis. ‘There is a new reason to celebrate Thanksgiving day— that is to thank Dubai for disclosing its crisis on this day when markets were closed in the US.

PS: Dubai and other Mid-East markets were also saved as they were also closed for Eid.’

Another joke says: ‘Dubai was building high-rise buildings in the middle of the sea (referring to projects like The Palm and The World). As recession made cement expensive and those working on projects were corrupt contractors from India, the bricks were put together only with sand and without cement. The result: All collapsed and even sand dunes were washed away.’

The humourists are also seeing cash-strapped airlines rushing to start flights on the long-neglected Kerala sector as a host of Malayalis could return to India soon.

There is also a new definition for Dubai: It’s a place visited by those with money to meet those with experience. At the end of the visit, they exchange their assets.

Another SMS asks: How many Arabs does it take for a deal? The answer is two — first to make the drawing of a building on sand and another to sell it before wind blows it away.

One about a person just back from Dubai asks the difference between a Dubai-return and a large pizza. The answer: A large pizza can feed a family of four.

And making you laugh at the cost of yet another Dubai- return quotes him as saying: “This crisis is worse than a divorce. I’ve lost half my net worth and I still have a wife.”

Economists project 6.6% GDP growth in second quarter

Economists project 6.6% GDP growth in second quarter
The Financial Express, November 30, 2009, Page 17

Press Trust of India, New Delhi

The Prime Minister's economic advisory panel expects the economy to grow by around 6.1% in the second quarter, the same as in the preceding three months, due to the impact of a weak monsoon on agriculture.

However, other economists peg the growth rate in the range of 6.2-6.6% against a healthy 7.7% in the corresponding period last fiscal. The data for the second quarter gross domestic product (GDP) growth will be released on Monday by the Central Statistical Organisation.

“The second quarter may reflect to some extent the impact on agriculture. Therefore, the growth rate may not necessarily exceed very much over 6.1% which we saw in the first quarter...I think so, it will be around 6.1%," PM's Economic Advisory Council (PMEAC) chairman C Rangarajan said. If this happens, the PMEAC's projection of 6.5% growth rate in the current fiscal will require the economy to expand by around 7% in the second half of this fiscal. "We forecast 6.5% for the year as a whole... It will have to be around 7% (in the second half)," Rangarajan said.

He said industrial and services growth will be stronger in the second half and will make up for the impact of the weak monsoon on agriculture in the third quarter. However, HDFC Bank Economist Jyotinder Kaur said she expects the economy to grow by 6.6% in the second quarter mainly due to industrial growth. "But, agricultural growth is likely to shrink by 3.5-4%," she said.

With farm output contracting, rating agency Crisil principal economist DK Joshi expects the growth in the second quarter to be 6.2%. "In the second quarter, agriculture growth is expected to be negative while industry would grow at a higher rate. I expect Indian economy to grow by 6.2% in July-September period," he said.

Axis Bank economist Saugata Bhattacharya pegged the growth rate to be in the range of 6.2-6.4%. He also expects farm output to fall, by 4%, but industry to witness strong growth.

"Growth rate is likely to between 6.2% and 6.4% in the July-September period on the back of strong industrial growth, even as agriculture could register a de-growth of 4%," Bhattacharya said. Stimulus measures helped the economy post 6.1% growth rate in the first quarter of this fiscal, against 5.8% in the preceding two quarters.

In Chandigarh, finance minister Pranab Mukherjee said on Saturday that this could be construed as start of the recovery. Hit hard by global financial crisis, Indian economic growth rate slowed down to 6.7% last fiscal from a high of 9% in the preceding three years. Mukherjee said the economic growth is expected to be in the range of 6 to 7% in the current fiscal.

The Reserve Bank of India has pegged the economy to expand by 6% this fiscal.

More affordable houses, but not enough buyers

More affordable houses, but not enough buyers
Business Standard, November 30, 2009, Page 1

Raghavendra Kamath / Mumbai

After the euphoria, “affordable” realty developers are faced with the reality of excesses.

Consider this: In May this year, property developer Jaypee Greens put the sold-out sign within hours of launching its affordable project Aman on the Greater Noida expressway. The 3,000-odd apartments were priced at Rs 2,100 per square feet. Another Jaypee Group company, which was offering flats along the same expressway for Rs 4,500-6,000 a sqft, was finding the going tough.

Developers are now having to deal with a situation where they have to carry forward the stock as supply has far outstripped demand. As a result, in Hyderabad, almost two in every three sub-Rs 30 lakh apartments that came into the market in the 12 months ended October 2009 remained unsold. In Kolkata, Bangalore and Gurgaon, the situation is only marginally better with one in every two houses yet to find a buyer.

It’s an all-India trend. Data collated by real estate research firm PropEquity shows that developers who had rushed to launch affordable housing projects are sitting with over 40 per cent unsold stock.

While demand for sub-Rs 30 lakh apartments went up in Mumbai, Gurgaon, Noida, Thane, Bangalore, Kolkata, Hyderabad and Pune, supply grew at a faster pace as realtors rushed into the market to improve their cash flows at a time when there were few takers for upper-end dwelling units.

As a result, of the 105,637 units that entered the market between November 2008 and October 2009, only 57 per cent (60,464 apartments) found buyers, the PropEquity data revealed. In Hyderabad, where around 8,200 sub-Rs 30 lakh dwelling units entered the market during the 12 months ended October 2009, a little over a third of the stock found buyers.

In some cities, the unsold stock is so huge that it would take 4-16 months to sell the entire stock of housing units even if no new supply is added in the next couple of months. For example, Gurgaon, where the average absorption of units is 326 a month between August 2009 and October 2009, it would take at least 16 months to clear the stock. Kolkata would take eight months and Bangalore six months to clear their inventory.

The number of months is calculated by dividing the unsold stock at the end of October 2009 by average units sold in the last three months.

A number of property developers such as Unitech, Omaxe, Tata Housing, Puravankara, Lodha Developers and Ansal have announced projects in the sub-Rs 30 lakh category in the last one year following the economic downturn, coupled with fear of job losses and salary cuts that slowed sales of premium projects.

PropEquity founder and CEO Samir Jasuja said a lot of developers took the plunge as it was the only segment that was doing well. And since unit sizes were small, more houses were built in a given piece of land. Supply has overshot demand and, therefore, we are seeing a piling up of inventory,” said Jasuja.

Pankaj Kapoor, Chief Executive of Liases Foras, another real estate research firm, said in recent months many developers increased rates sensing signs of normalcy in the market. “The impact of the price rise has been in all segments, but since the sub-Rs 30 lakh segment was selling the most, sales were hit maximum in this segment,” said Kapoor.

HDFC Chairman Deepak Parekh agrees. “Products are selling wherever their developers are quoting realistic prices. But where prices have gone up sharply, they may be unable to sell,” he said. Parekh, however, felt the inventory pile-up may not be an all-India phenomenon since a company he knew could not get 100 apartments it wanted to buy in Mumbai recently.

That argument has many supporters. “There could be a long pipeline but good products at the right price always sell. We are getting very good response for our New Haven in Boisar,” said Brotin Banerjee, managing director and CEO of Tata Housing. The company has sold around 500 of the 1,500 apartments on offer since the project was launched in September, 2009. The apartments are in the Rs 12 lakh-25 lakh category.

But this is in sharp contrast to May 2009 when Tata Housing had managed to sell 1,500 apartments in the sub-Rs 6 lakh category in Boisar within a month of its launch.

Realty IPOs to feel the heat

Realty IPOs to feel the heat
Hindustan Times, November 30, 2009, Page 19

Domestic realty companies which are planning to tap the primary markets may not see a smooth sailing as the Dubai debt crisis is likely to undermine investor confidence in the sector.

As many as nine realty companies, including Emmar MGF, have filed their draft red herring prospectus (DRHP) with the market regulator SEBI aiming to raise about Rs 15,000 crore.

“It will not be surprising if some realty companies defer their share sale plan,” said Jagannadham Thunuguntla, equity head, SMC Capitals. “The Dubai debt crisis will not give any positive signal to investors in realty companies and IPOs of companies like Emmar MGF will face huge challenge.”

As per the DRHP filed with the SEBI, nine relators are planning to raise an estimated Rs 15,000 crore through the initial public offers (IPOs). This includes Emmar MGF’s Rs 4,000 crore issue, followed by Sahara Prime City (Rs 3,400 crore), Lodha Developers (Rs 2,700 crore), BPTP (Rs 2,000 crore), and Godrej Properties (Rs 500 crore).

“The realty IPOs will find it tough to sail through. Although investor confidence in the secondary markets have revived in the past six months, the primary markets are yet to witness such revival,” Unicon Financial Chief Executive Gajendra Nagpal said.

What should the Indian worker do?

What should the Indian worker do?
Hindustan Times, November 28, 2009, Page 25

Basit Rizvi (30 years) is a tensed man these days. He works for the SGB Group, an engineering company in Dubai, as a credit controller and is uncertain about the fate of his job. Although he earns around Rs 1 lakh (1,000 dirhams) per month, he spends Rs 35,000 on rent of his apartment, travel expenses, phone bills and food bills.

Basit also has to send money for his mother, wife and newly-born daughter, who are staying in Mumbai and has to pay for his flat in Kharghar on the outskirts of Mumbai. “I have to make the payment for the flat of Rs 40 lakh in 4 to 5 years depending on the progress of the construction.”

With chances that the Dubai crisis may turn bigger, lakhs of expats are uncertain about the fate of their jobs. According to estimates from the Indian Consulate General to the UAE, Venu Rajamony, in July, an estimated 1.5 million Indians are in UAE with 1.2 million of them in Dubai and Northern Emirates.

According to wealth advisors who manage portfolios of several Non Resident Indians from the Gulf countries, many of them are over leveraged. What this means is that they have borrowed to buy assets such as a house, car and other accessories.

In case you have an expat friend, pass on this advise given by certified financial planners.

“Those expats who have taken loans to buy a house, car or any other loan in Dubai should try their best to pay back their loans as punishments are severe in that land.

On the other hand, those who have invested in assets such as real estate in Dubai and Dubai’s equities should sell of these assets before the value of their assets fall,” said Gaurav Mashruwalla, a certified financial planner.

Here are some advises for NRIs, who are uncertain about their jobs.

Step 1: “Create a six months contingency fund so that in case you lose your job and have to return to India, the fund can take of critical expenses — expenses a person incurs every month such as equated monthly instalments (EMI), rent, insurance premium, grocery bills and phone bills,” said Jaideep Lunial, a certified financial planner.

Step 2: Stop all discretionary expenses such as shopping, leisure and casual expenses.

Step 3: If you have invested in Indian equities and systematic investment plans, encash them and shift to safe debt instruments such as bank fixed deposits.

Step 4: There are many banks offering schemes where the loanee does not have to pay an EMI and interest till he gets the possession of the flat. Also choose a bank that does not levy a pre-payment penalty.

Step5: “Buy a term insurance policy such that in case of an unfortunate event, all your liabilities, the one time expenses that the child will incur for education, marriage in addition to the monthly expenses of your family are taken care of. Your term insurance should be 25 times your annual income," said Ranjeet Mudholkar, principal advisor, Financial Planning Standard Board of India.

Realtors could be affected if the crisis persists

Realtors could be affected if the crisis persists
The Financial Express, November 30, 2009, Page 1

Mona Mehta , Rajat Guha, New Delhi/Mumbai

The Dubai financial crisis would largely bypass the Indian real estate sector for now. Only companies that have receivables from UAE-based buyers and under-developed projects in the emirate could be affected.

The industry looks confident. Most realty players FE spoke with said the crisis would only have a marginal impact on them, since their exposure to the Dubai market is relatively small. But some are worried that if the crisis lingers on, the overall weak sentiment could constrain the capacity of a few debt-ridden firms to roll over their loans.

Most real estate firms have been rolling over their debt since the global financial meltdown began last year. The country’s largest and second-largest real estate firms, DLF and Unitech, now have a net debt of about Rs 12,000 crore and Rs 6,659 crore, respectively, on their books.

Says Anuj Puri, country-head at consultancy firm, Jones Lang LaSalle Meghraj, “If the corporate debt default in Dubai turns into a sovereign default, there would be real economic issues, which may not only hit India but others also.”

The underlying fear perhaps explains the performance of the realty scrips on the bourses. On Friday, realty stocks like HDIL, Omaxe, DLF, Parsvnath, Indiabulls Real and Unitech were down 2-2.5% while the BSE realty index plummeted 7% in the intra-day session. The index later recovered and ended down 0.6%.

For the record, both DLF and Unitech said they are insulated from the crisis as they have no exposure to the Dubai real estate market.

“We have no Dubai exposure. Our projects with the Nakheel group and Limitless stand stalled. These projects never took off due to land acquisition problems there, so there is no impact,” a DLF spokesperson said. “The Indian property market is very robust and largely dominated by internal demand. So there will be no adverse impact on us,” added DLF executive director Rajiv Talwar.

Unitech’s MD Sanjay Chandra made a similar assertion, “There is nothing much to worry about our company as we are completely insulated from the Dubai crisis”.

Some analysts apprehend that the Dubai crisis may delay Emaar MGF’s plan to list in India. Dubai’s largest realty player Emaar has suffered major losses because of the liquidity crunch. This may have a bearing on its Indian JV partner, Emaar MGF.

Emaar MGF, a joint venture between Indian realty company MGF and UAE’s Emaar Properties, is among the many Indian property firms planning a listing. It has filed the draft red-herring prospectus with market regulator Sebi to raise about $830 million, about half the amount it had planned to raise in 2008 from an aborted IPO.

However, a company statement said, “Our business and funding plans are on track”.

Pranab Datta, vice-chairman & managing director, Knight Frank, feels real estate companies with unfinished projects should focus on completing their projects on schedule to avoid adverse consequences.

Delhi-based Omaxe, which has a presence in Dubai, is likely to exit its two real estate projects there. “We will soon decide on exiting the Dubai realty projects. We had planned a Rs 2,850-crore investment in Dubai. We have already paid Rs 50 crore to Nakheel as the first installment and may seek a refund if we exit the Dubai project,” chairman Rohtas Goel said. Omaxe, he added, was yet to receive land possession from Nakheel.

Dubai has borrowed a $80 billion in the last four years in a bid to transform itself into a global financial hub. But the property prices there slumped buy a half from their 2008 peak. Analysts had warned that Dubai’s real estate market was not sustainable in the long-term, since it was not driven by end-user demand.

Re rise imminent on strong macro figures, say experts

Re rise imminent on strong macro figures, say experts
The Economic Times, November 30, 2009, Page 9

Anto Antony NEW DELHI

WITH interest rates ruling near zero in most of the developed world, investors’ search for higher returns has seen hoards of them rushing to emerging markets, triggering a sharp appreciation in currencies and stock prices.

Although the rupee had slipped marginally to Rs 46.56/$ on Friday as foreign institutional investors (FIIs) took money out of Indian markets due to jitters following the Dubai crisis, it is expected to strengthen in medium term. “The markets are likely to get over the nervousness by the end of the week and appreciation of rupee is expected to continue due to strong macro fundamentals like growth and low balance of payments,” said Ananth Narayan, head of Standard Chartered’s money market operation in South Asia.

FII inflows into the country in the calendar year till November have crossed $16 billion, compared with the annual inflow of $20 billion seen in 2007. The year 2008 saw foreign institutions turning net sellers to the tune of $9.36 billion.

Further strengthening of the Asian currencies would also depend on their dependence on exports, as Asian central banks of export-reliant economies have repeatedly intervened to check appreciation to maintain export competitiveness.

Forex market-makers points out that India’s strong fundamentals and narrowing trade deficit is lending solid footing to country’s currency. Movement in eurodollar currency pair — euro has been appreciating against dollar — is also lending traction to the rupee.

The United States is, however, trying to talk the dollar up. “We recognise of course that given the very important role of US in the global economy, the important role the dollar plays in the system, that we bear a special responsibility for being a source of stability and strength for the global economy,” US Treasury Secretary Timothy Geithner told a press conference in Singapore a fortnight ago after a meeting of Asia-Pacific finance ministers.

A negative growth surprise in India, imposition of capital inflow measures in the emerging economies, or a growth surprise in the US could compel the Federal Reserve to tighten the interest rates suddenly checking rupee appreciation. China adopting a flexible currency regime could give the regional currencies a leg up. “The revaluation of Chinese yuan against the dollar is expected, but the timing and extent of appreciation is not clear. This move will trigger a rally in other Asian currencies against dollar including rupee. Given the negative outlook for dollar in the near term with EUR/USD target at 1.55, further rupee appreciation is just a matter of time,” said J Moses Harding, Head of Global Markets Group at Indus Ind Bank said.

Medium and large size exporters with strong treasuries in place are expected to survive this patch of depreciating dollar. Medium-sized Mumbai-based textile exporter Alok industries, which will exports goods worth close to Rs 1,500 crore this year, is confident of coming out unscathed from the depreciating dollar.

According to Alok CFO Sunil Khandelwal, companies that has been importing from India or other manufacturing hubs will not find it viable to change their sourcing model in line with short-term swings in dollar. But the movement in yuan, which is pegged to dollar, remains a matter of concern.

With the Chinese yuan — that moves in tandem with dollar — depreciating against other currencies China could steal demand from other emerging economies.

3 developers seek to walk out on SEZs

3 developers seek to walk out on SEZs
The Economic Times, November 30, 2009, Page 9

Amiti Sen NEW DELHI

THREE large notified special economic zones or SEZs have requested the government to allow them to abandon their projects, suggesting that the slowdown has taken a toll on the investments in these model enclaves envisaged to give a push to industrial growth.

The government does not yet see this as a worrying sign or set back in attempts to created worldclass industrial infrastructure.

Essar’s engineering SEZ in Hazira, Royal Palms IT/ITeS SEZ in Mumbai and SNP Infrastructure’s IT/ITeS SEZ in Tamil Nadu have expressed their inability to go ahead with their projects, citing poor market conditions.

The requests will be considered at the December 15 meeting of the board of approval, government body that approves proposals for setting up of the enclaves that are eligible for substantial tax concessions.

All three have cited `global slowdown a nd market conditions’’ as reasons for their wish to exit the projects, a commerce department official, who did not wish to be named, told ET.

The number of notified projects, projects that have the final go-ahead to start development and setting up of units therein, which developers are seeking to withdraw has now gone up to twelve.

Earlier, developers including real estate major DLF and Rahejas had put in requests for de-notification of some of their SEZs.

“It is true that there are some developers who do not find it viable to carry on with their projects because of the economic slowdown. But, at the same time, the government is also receiving requests for setting up new projects and exports from the zones is on the rise,” the official added.

The board of approval has received eight new requests for setting up SEZs which includes projects from L&T and Sterlite Industries and three requests for conversion of in-principal approval to formal approvals, which happen when developers have managed to acquire land.

A number of developers also want to hold on to their project approvals and wait for the economy to improve before making investments.

Requests from as many as eleven SEZ developers, including Korean steel giant Posco, IndiaBulls infrastructure and Reliance Haryana for grant of a third extension to the approval given to their projects in Orissa, Raigarh and Gurgaon, respectively, will also be considered by the board of approval.

A total of 16 developers have asked for the first extension of formal approvals given to their projects.

The validity of an approval given to a SEZ project is for one year and the SEZ rules provide for grant of two extensions of twelve months each. “While granting the first extension will not be a problem, the board has to examine under what circumstances projects can be given a third extension,” the official said.