Real Estate Intelligence Service, Thursday, December 03, 2009

RBI unlikely to raise rates soon despite strong growth

RBI unlikely to raise rates soon despite strong growth
The Financial Express, December 03, 2009, Page 13

Reuters, Mumbai

The Reserve Bank of India (RBI) will not raise interest rates by the end of 2009, according to a new poll, and only one-third of economists surveyed predict a rate hike by the end of January despite unexpectedly strong growth during the September quarter.

Of 31 economists polled, all expected RBI to tighten at least one of its two policy rates by the end of April, and most expect the central bank to tighten liquidity before raising rates.

“The context of weak credit growth amidst very high liquidity does not warrant a rate action at this point of time. Liquidity tightening ought to precede any rate tightening,” said Shubhada Rao, chief economist at Yes Bank.

Economists who also participated in a poll after the RBI’s policy review on October 27 as a group now found it slightly less likely that the RBI would tighten rates by the end of January.

On Monday, India said the economy grew an annual 7.9% in the September quarter, far above forecasts of 6.3%, driven by government stimulus spending, manufacturing and services and a farm sector that performed better than expected.

That has helped send bond yields to three-week highs on a market view the RBI would tighten sooner rather than later.

An expected decline in farm output, however, may curb growth in the December quarter, and analysts said the RBI would prefer to wait to see growth momentum in coming months before tightening rates.

None of 29 analysts with a view expected the central bank to raise its repo rate , at which it lends short-term funds to banks, or the reverse-repo rate by the end of December.

Of 30 economists with a forecast, nine expected the RBI to raise the repo rate by the end of January, when the central bank holds its next quarterly policy review; 10 of 30 expected an increase in the reverse repo rate , the bank’s short-term borrowing rate, by the end of January.

All but two of 31 analysts polled expected a rise in the repo rate from 4.75% by the end of April, with respondents split on whether the rate would rise to 5% or more.

The 31 respondents were unanimous that the reverse-repo rate would be increased from its current 3.25% by the end of April, with a small majority expecting a one-notch rise to 3.5% and the rest forecasting a rise to 3.75 or 4 %.

By comparison, nine out of 20 analysts polled after the RBI’s October review had expected the central bank to raise its repo rate by end-January, and all expected at least one increase in both the central bank’s benchmark rates by the end of April.

RBI governor Duvvuri Subbarao said last week that since the global crisis, the reverse-repo rate has replaced the repo rate has the effective policy rate.

Australia, which raised interest rates for the third month in a row on Tuesday, remains the only Group of 20 economy to tighten rates as the global economy recovers, with India and South Korea seen as leading candidates to follow suit.

Before raising rates, the RBI is widely expected to increase the cash reserve ratio (CRR) , the proportion of deposits banks must keep with the central bank in reserve.

Of 29 economists responding, five expected an increase in CRR from its current 5% by the end of December, 25 of 30 expected an increase by the end of January, and 27 of 29 forecast a rise by the end of April. By then, CRR could be lifted to as much as 7%, economists said.

India’s main wholesale price index inflation was a moderate 1.34% in October from a year earlier, but is expected by economists to raise to as much as 8%by the end of the fiscal year in March, fuelled by high food prices which tend to be beyond the scope of monetary policy.

World Bank inputs sought for mega highway projects

World Bank inputs sought for mega highway projects
The Hindu Business Line, December 03, 2009, Page 15

The World Bank President, Mr Robert B Zoellick, calling on the Union Finance Minister,Mr Pranab Mukherjee, in the Capital on Wednesday. - Kamal Narang

Our Bureau, New Delhi

The Road Transport and Highways Ministry would like to consult World Bank for technical, financial and legal inputs for the identified mega highway projects of the National Highways Authority of India and the proposed Expressways.

The Union Road Transport Minister, Mr Kamal Nath, said this here today after a meeting with World Bank President, Mr Robert Zoellick.

The meeting also had industry participation from companies including GMR, GVK, IL&FS, IRB Infrastructure.

“The World Bank is willing to look at funding the viability gap and (build-operate-transfer) annuity projects…not only in terms of financing but institutional support as well,” Mr Kamal Nath told reporters. Till date, World Bank funds projects on an EPC basis.

The World Bank is willing to partner NHAI in doing a review of PPP projects (BOT-Annuity and viability gap funding based) and to identify projects amenable for utilising bank lending support, an official release informed. Among the issues discussed at the meeting included a proposal for seeking World Bank loan assistance for up-gradation of 6376 km of National Highways.

The proposal envisages development of existing single/intermediate lane National Highways, which are not covered under any other development scheme, to two lane standards.

Mr Nath also said that a World Bank team would be visiting India in January 2010 to identify the project in a more detailed manner.

Parekh seeks independent regulator for road sector

Parekh seeks independent regulator for road sector
The Economic Times, December 03, 2009, Page 7

Our Bureau MUMBAI

DEEPAK Parekh, chairman, HDFC has called for extensive reforms in the road sector including setting up of an independent regulator and removal of ceiling on returns for private sector investment in highway projects.

Speaking at an IDFC Investor Conference on Monday, Mr Parekh , who is also the chairman of IDFC, said “Institutional reform of National Highway Authority of India is essential to make it more effective and enhance its capacity to undertake public private partnership projects. Some of the measures that may be considered are appointment of independent directors, decentralisation of operations by devolving more powers to regional offices, and strengthening its internal cadre”. Describing the present pace of road-building in India as `anaemic’, Mr Parekhsaid that significant time delays occur in the bidding process.

India has one of the world’s largest highway development programs to be implemented on a PPP basis. Under the National Highway Development Project the government has taken up the target of constructing more than 54,000 km of highways. At present around 20% of the target has been completed at the rate of 3 km a day. The other four-fifth is targeted for completion in the next five years at the rate of 20 km per day or about 7000 kms a year.

“Achieving such ambitious targets against the anaemic pace of highway development over the last 2-3 years will entail eliminating major constraints to PPP in roads. One of the primary reasons for the slowdown was the premature attempt to control private sector returns on road investment by capping the upside revenue potential due to higher-than-projected actual traffic. “ he said.

“Going forward, this program would rely heavily on private sector funding. Combine this with the fact that there is a proven track record of public-private partnership in the roads sector through the toll and the annuity model, and it becomes very clear that the roads sector provides tremendous opportunities that no can afford to miss - may he be a contractor, a banker, or an investor” said Mr Parekh.

Govt may announce emission targets today

Govt may announce emission targets today
The Times of India, December 03, 2009, Page 1

Nitin Sethi TNN

New Delhi: Seeking to match China in public diplomacy over climate change negotiations, the government is likely to announce on Thursday its plan to reduce the carbon/energy intensity of the Indian economy.

Environment minister Jairam Ramesh is likely to indicate in Parliament a broad target range for reducing either carbon or energy intensity by 2020 as a voluntary measure. The minister’s reply to a calling attention motion on India’s stand on climate negotiations will lay out its plan for a low-carbon economy.

An agency report said India has decided to reduce its carbon intensity by 24% from 2005 levels by 2020. However, government sources said no specific number has yet been worked out and the minister may merely indicate a range, as in China’s case, to retain flexibility.

Days before climate talks begin in Copenhagen, the PMO has moved towards putting a range of carbon emission numbers on the table to blunt any perception that it was lagging emerging economies like China and Brazil on climate commitment.

Government, however, is yet to hold widespread discussions on the issue that is bound to impact the economy at large.

No takers for ‘affordable’ housing

No takers for ‘affordable’ housing
The Times of India, December 03, 2009, Page 2

Rumu Banerjee I TNN

New Delhi: It was touted as a realization of the ultimate middle class dream — houses that fit the pocket. Just that it went bust. Months after developers flooded the market with housing projects tagged as ‘‘affordable’’, there seem to be very few takers. The reason: the actual area of many of these flats is far less than usual. Others are being rejected because of poor location.

Said Renu Chaddha (name changed), who had bought a flat in an affordable housing project that was launched in Faridabad earlier this year, and is looking for another property to invest in. ‘‘At that time, only a few developers had launched their projects. All of them had good locations, so my husband and I decided to invest. It was only around Rs 20 lakh.’’ Six months down the line, Chaddha says that the newlylaunched housing projects have left her without any inclination to buy.

‘‘The usual room specifications are 1200-1400 sq.ft. for a two bedroom flat. But most of the projects coming out now and being marketed as affordable housing measure between 800-1,000 sq.ft,’’ admitted Pradeep Mishra of Sainik Estates, a local brokering firm.

The affordable tag, according to Mishra, has been added to a number of projects coming out in the past few months. But most have been finding it difficult to find buyers. Smaller rooms for a price of Rs 25-30 lakh have not obviously got buyers excited. Mishra added that many projects have also suffered from the fact that prices were not really reasonable despite being called so.

‘‘Many are over Rs 25 lakh, which is not seen to be in the affordable range,’’ said Mishra. Builders have also brought down costs by cutting on additional charges like car parking, club, preferential location charges etc. by almost 50%.

On the other hand, projects with better specification which are actually selling in the less than Rs 25 lakh price bracket are usually hampered by poor location, say market experts. Said Satya Prakash, an executive with an international realty consultants, ‘‘Many developers are launching such projects in Gurgaon’s sector 91, 92 or 95 or in the inner sectors of Sohna Road. Other localities include the extended Golf course road in Noida or Faridabad sectors that are not near the Delhi border. All these areas are not seen as investment-friendly.’’

Ironically, till even six months ago, the affordable housing schemes were being hailed as a dream come true for a realty market that had been reeling from recession. In the past few months though, barely 30-40% of the new projects have had buyers, said Mishra.

Dubai World to meet creditors soon

Dubai World to meet creditors soon
The Financial Express, December 03, 2009, Page 10

Reuters, Dubai

Government-owned Dubai World will meet its main creditors next week to discuss a request to delay payment on $26 billion in debt, which has shaken the global markets and confidence in the Gulf Arab business hub. The meeting will be the first formal encounter between Dubai and key lenders since the conglomerate that spearheaded Dubai’s rapid growth disclosed its debt woes on November 25.

An Abu Dhabi bank executive, who declined to be named, said London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank were on the creditors panel.

The banks did not immediately confirm their participation on the committee, which an Asian-based banking analyst said was likely to reflect those with greatest exposure to Dubai World, whose debts were run up during a property boom that turned to bust with the global financial crisis last year.

Dubai World has asked creditors of its flagship property firms Nakheel and Limitless for a six-month debt repayment standstill as part of a restructuring plan. The most urgent question is the fate of Nakheel's $3.52 billion Islamic bond, which matures on December 14. The International Monetary Fund said on Tuesday that banks from Britain are the most exposed to the conglomerate.

Dubai World to meet creditor panel

Dubai World to meet creditor panel
The Economic Times, December 03, 2009, Page 17

StanChart, HSBC, Lloyds, RBS, Emirates NBD And Abu Dhabi Commercial Bank On Panel

Inal Ersan & Raissa Kasolowsky DUBAI

GOVERNMENT-OWNED Dubai World will meet its main creditors next week to discuss a request to delay payment on $26 billion in debt that has shaken global markets and confidence in the Gulf Arab business hub.

The meeting would be the first formal encounter between Dubai and key lenders since the conglomerate that spearheaded Dubai’s rapid growth disclosed its debt woes on Nov 25.

An Abu Dhabi bank executive, who asked not to be named, said London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank were on the creditors panel.

The banks did not immediately confirm their participation on the committee that an Asianbased banking analyst said was likely to reflect those with greatest exposure to Dubai World, whose debts were run up during a property boom that turned to bust with the global financial crisis last year.

But a source at a Dubai-based bank confirmed the makeup of the panel.

Dubai World has asked creditors of its flagship property firms Nakheel, developer of three palm-shaped islands in the Gulf, and Limitless for a six-month debt repayment standstill as part of a restructuring plan. The most urgent question is the fate of Nakheel’s $3.52 billion Islamic bond, which matures on Dec. 14.

Dubai, part of the seven-member United Arab Emirates federation, said the government would not guarantee the debts of Dubai World, whose overall liabilities total almost $60 billion, including those of units not part of the restructuring.

The International Monetary Fund said on Tuesday that banks from Britain are the most exposed to the conglomerate which boasts the motto “The Sun Never Sets on Dubai World”.

UAE markets, battered in the last two days, were shut for the country’s national day holiday, but Qatar’s bourse defied analyst expectations by climbing nearly five percent after plunging more than eight percent on Tuesday.

The Dubai debacle, which initially spooked global stock, debt and currency markets, has exposed the frailties of “quasi-sovereign” lending.

Foreign banks had lent to Dubai governmentlinked firms on the implicit understanding that they were backed by the UAE — the world’s third largest oil exporter that was flush with cash from a six-year boom in oil prices.

“Something that has irritated international investors is that the government distanced itself from Dubai World, which legally speaking is true, but morally speaking, they had gone out of their way before to make that tie,” one investor said. — Reuters

DLF plans June listing of DAL

DLF plans June listing of DAL
The Financial Express, December 03, 2009, Page 1

Rajat Guha, New Delhi

The promoters of DLF, the country’s largest real estate firm, have finally firmed up plans to list their real estate investment trust (Reit) firm, DLF Assets Ltd, in Singapore in June 2010, to raise about $1.2 billion. DAL, wholly-owned by the K P Singh family, buys commercial property from DLF and collects lease rentals from it.

Company officials said the listing decision is based on an assessment that the Singapore market has begun moving North and so it made sense to list DAL around the middle of next year. Also, the firm has no option but to expedite the listing as one of its PE investors, Symphony Capital, wants to cash its investment in DAL. If the listing is not done and Symphony, like DE Shaw before it, wants to exit, the promoters would have no option but to sell a portion of their stake as they did in May this year.

The London-based Symphony has invested around $400 million in DAL in May 2008.

Sources close to the planning process said DLF has already begun talks with merchant bankers, including the Singapore-based DBS as well as Citibank and has set a June window for the listing. The company has decided to file for a listing with the Singapore Stock Exchange in January.

DAL had earlier planned to list in Singapore but had to shelve the plan following the global meltdown.

After two straight quarters of growth, Singapore has projected that its economy would expand by up to 5% in 2010. Coupled with this, the Reit market in the country is also looking up.

When contacted a DLF spokesperson said, “We would not comment on market speculation”.

In May, the promoters had sold 9.9 % of their stake in the company to institutional investors to raise Rs 3,860 crore. After that the promoters’ stake had come down from 88.5% to 78.6%.

Part of the proceeds was to pay off DE Shaw, which had invested $400 million in DAL. While the exact break-up is not known, DLF is likely to pay around Rs 2,200 crore to DE Shaw for buying out its stake in DAL and the remaining will be injected directly into DAL which, in turn, will use the proceeds to pay DLF towards its contractual obligations. DAL owes around Rs 5,000 crore to DLF.

DLF’s profit has fallen for five straight quarters, and the September quarter profit was almost half that of a year earlier. The company has net debt of over Rs 12,000 crore on its books at the end of the September quarter.

DAL buys commercial real estate from DLF at market price and then leases it out. DAL had been buying assets from DLF in the past, but the realty firm has lately suspended sales to DAL since Q3 FY09.

Cement firms begin raising prices again

Cement firms begin raising prices again
Business Standard, December 03, 2009, Section II, Page 4

Sohini Das / Ahmedabad

But opinion remains divided on extent and duration of the hike.

A second wave of cement price rises is likely within a fortnight, say industry watchers. After “bottoming out” during the second half of the year, the commodity’s prices seem back on track, with a series of hikes expected in the coming two months.

There have already been two prices hikes within a week. After prices were up by Rs 5-10 for a 50 kg bag in the last week of November in western and southern India, prices rose by Rs 8-11 a bag in the Mumbai region yesterday. Stockists and dealers believe the next set of price rises would happen in the north, enjoying comparatively stable prices till now vis-a-vis the south and the west.

Non-trade cement prices had fallen by 20-30 per cent in the past three months and were back at 2005 levels in western and southern India.

Confirming the price rise in the Mumbai market, an industry insider claimed: “We can expect another round of price rises this month, to be followed by another wave in January, but this time in the north.” He did not want to be identified.

Rupesh Sankhe, an analyst based with Mumbai-based Angel Broking, said: “In many areas, end-users, mainly realty players, have been waiting for prices to fall further, as sentiments in the west and south have been bad in the last quarter. This has had a certain impact on the demand-supply dynamics. After players in Andhra Pradesh have already announced price hikes, the same is expected from the north-based players, too, in late December or the first week of January.”

When asked, a Delhi-based stockist said on condition of anonymity that prices would be up by around Rs 5 a bag towards the middle of December. Business Standard got similar responses from stockists and dealers in western India as well, who were selling the commodity from Ambuja Cement, ACC and Ultratech. Ultratech Cement, an Aditya Birla outfit, now also markets Grasim’s production after a merger.

However, the north Indian players maintained that prices would remain stable in the region in the coming months. “We do not see any major swing in consumption trends and expect prices to remain stable,” said Shailendra Chouksey, Director, JK Lakshmi Cement. He, however, added: “Cement prices are traditionally volatile and are difficult to predict.”

“Overall, the demand has been up by 10 per cent so far this year and should continue to be 9.5 per cent during next year,” said H M Bangur, managing director of Shree Cement, that sells nearly 90 per cent of its production in north India and enjoys a 11 per cent market share in the region. He, however, maintained that prices in the north are unlikely to go up and would remain stable in the coming months.

Cement dispatches have risen considerably during November compared to the same month last year, indicating a demand surge. ACC and Ambuja Cements reported a 4-5 per cent growth in dispatches, while the Aditya Birla Group saw a 15 per cent growth. JK Lakshmi Cement dispatches were up 8 per cent from 320,000 tonnes in November 2008 to 346,000 tonnes in November 2009. Shree Cement, the Beawar (Rajasthan)-based manufacturer has dispatched a total of 709,000 tonnes in November 2009.

Highly placed official sources in Andhra Pradesh-based Mangalam Cement indicated that the current prices in the south were not sustainable and margins of companies had started eroding. “They were down to Rs 130 a bag in certain regions, and most players had no choice but to raise prices,” he said.

The sluggish demand in the southern market that had set cement prices on a downward spiral earlier this year now seems to be picking up. Dalmia Cement, a major player in the region, recorded a 28 per cent rise in cement dispatches in November to 280,000 tonnes, reinforcing that demand is once again back. Sankhe claimed that “States have lined up projects of around Rs 2 lakh crore in the public-private partnership mode, and this, coupled with the Commonwealth Games in October 2010, will induce a spurt in demand.”

HDFC may extend new home loan offer

HDFC may extend new home loan offer
Business Standard, December 03, 2009, Section II, Page 2

Newswire18 / New Delhi December

Mortgage major Housing Development Finance Corp (HDFC) might extend its new home loan scheme beyond January, if cost of funds remained stable, a senior company official said today.

The company on Tuesday launched a new scheme, under which borrowers will pay a fixed interest rate of 8.25 per cent till March 2012 and then move to a floating rate structure.

This offer rate is applicable to all new home loan customers who apply before January 31 and take at least part-disbursement before March 31.

“As of now, the scheme is available till January-end, but if the cost of funds is at current levels, we may look to extend the scheme. If Reserve Bank of India hikes its key policy rates, as is widely expected, then an extension is unlikely as the cost of funds will move up,” the official said.

HDFC has launched this scheme in response to State Bank of India’s popular 8 per cent home loan offer earlier this year.

Under the SBI plan, a borrower pays a fixed rate of 8 per cent for the first year, and 8.5 per cent for second and third years. From the fourth year, the borrower can opt between fixed and floating rates.

The best home loan war is on

The best home loan war is on
Business Standard, December 03, 2009, Section II, Page 3

With HDFC also jumping on the dual-rate bandwagon, a home buyer has some good options.

After calling State Bank of India’s (SBI) 8 per cent home loan offering ‘a gimmick’, Housing Development Finance Corporation (HDFC) jumped on the dual-rate bandwagon yesterday with its ‘festive’ 8.25 per cent offer for home loan seekers.

The offer, which will be valid for loans sanctioned till January 31, 2010, is likely to provide more options to potential home buyers. Already, there are a number of players offering attractive rates.

If one goes simply by numbers, the lowest rate is offered by Bank of Rajasthan (BoR) – at 7.5 per cent per annum – a good 50 basis points less than the SBI offer. Development Credit Bank is offering 7.95 per cent for the first year. Then, there are a lot of players who are offering 8 per cent rate in the first year such as Axis Bank Power Plus, State Bank of Bikaner and Jaipur and Canara Bank.

But for home buyers, the first year rate should not be the most important factor. Reason: Home loans are normally for a period of 15 to 20 years. Consequently, if the rate is low in the first few years and shoots up later, home buyers are going to find themselves under serious financial strain.

SBI offers 8 per cent for the first year and 8.5 per cent for the second and third year. The rate will be 2.75 per cent less than its benchmark rate or the State Bank Advance Rate from the fourth year onwards.

HDFC’s dual-rate offering is quite comparable at 8.25 per cent till March 2012, and then at a floating rate which is 500 basis points below their benchmark.

So, if you take Rs 25 lakh for 20 years from, say BoR, the equated monthly instalment (EMI) for the first year will be Rs 20,140. For a similar loan from SBI and HDFC, your first year monthly outgo will be Rs 20,911 and Rs 21,302, respectively.

The savings from taking a BoR loan will be Rs 771 per month (Rs 9,252 a year) and Rs 1,162 per month (Rs 13,944 a year) for SBI and HDFC, respectively. Not a significant number if one considers that home loan is a long-term product. In the second and third year, HDFC (till March 2012) will charge 8.25 per cent, whereas BoR and SBI are offering 8.5 per cent.

Before deciding on the best rate, one also has to look at costs such as processing fee. BoR charges 0.5 per cent to 1 per cent of the loan amount, HDFC 0.5 per cent and SBI nil.

For a person, who is taking a Rs 25-lakh loan, the processing fee for the BoR loan comes to Rs 12,500 to Rs 25,000. For HDFC, it will be Rs 12,500, and for SBI, the cost is zero. As a result, savings on the BoR product in the first year gets wiped out due to higher costs.

From the fourth year, the floating rate will be a function of the bank’s existing cost of funds and the benchmark rate. Though it is quite difficult to predict the future rate of interest, to get some idea about the outflows, one can use today’s benchmark rates and calculate the average rate of interest per year.

And the number would look something like this. BoR is offering the best rate at 8.53 per cent, followed by HDFC and Axis Bank at 8.63 and 8.65 per cent, respectively. At 8.76 per cent, SBI’s rate comes fourth.

This rate war gives the potential borrower a lot of options. For individuals, who want to buy a home now, the entry rates are very competitive. They can pay lower EMIs now, and pay higher when their incomes improve after three years.

Further, this is a good option for borrowers who want to shift their high-cost existing loans to cheaper options. That is, most existing borrowers are paying in excess of 10 per cent. It is a good option to shift now. However, they will need to work out the cost of shifting as it entails a prepayment penalty.