Construction, infra sector hopeful

Construction, infra sector hopeful
The Times of India, February 25, 2009, Page 26

TEAM TOI

The construction and infrastructure industry is hoping for some cost amelioration after the reduction in excise duty on bulk cement, as well as the cut in service tax. Larsen and Toubro CFO Y M Deosthale said, “It is a good measure, but the impact of the reduction in excise duty on bulk cement will depend on how much of the benefits the manufacturers will pass on to the consumers. Even if 50% of benefits are passed on, it will have an impact on infrastructure.’’

Officials at Mumbai-based Hindustan Construction Company (HCC), which is constructing the Bandra-Worli sealink, were, however, not optimistic. “The impact of these measures on our projects will be minimal,’’ they said.

Civil engineers working on another city brige project explained: “Currently the price of cement is Rs 4,500 per tonne and the cost content of cement in large bridge projects is between 4-5%. In the case of large concrete dam projects, the cement content is higher and the cost is between 8-9%. The impact of the reduction in cement prices might amount to anywhere between 1-0.5% on most civil engineering projects.’’

CII director general Chandrajit Banerjee said: “The reduction in excise duty on bulk cement to 8% will also help reduce costs of real estate and infrastructure development.’’ But, he also had some additional demands: “These fiscal measures should be coupled with further monetary measures as inflation has now come down to below 4%.’’

Steel prices set to fall... Will Get Cheaper By Up To Rs 600 A Tonne

Steel prices set to fall...
Will Get Cheaper By Up To Rs 600 A Tonne
The Times of India, February 25, 2009, Page 26

TEAM TOI

Steel makers, who choose to pass the full benefit of the 2% point excise duty cut announced on Tuesday, could soon announce price cuts to the extent of Rs 500-600 per tonne on hot rolled coil (HRC) steel and TMT (thermo mechanically treated) bars. For the ‘aam aadmi’, the reduction in steel prices could mean reduction in the construction costs of a house and lower input costs for automobiles, besides other capital goods.

Though Tata Steel declined to comment, JSW Steel said it will pass on the excise duty cut to customers. “This excise duty cut will have a definite impact just like any other reduction on indirect taxes has brought so far. A 2% cut is significant and we will pass it on immediately,’’ JSW Steel finance director Seshagiri Rao said. Industry experts say that excise duty cuts are usually passed on by companies in form of price-cuts, or discounts. Last time when the excise duty was cut, steel companies swiftly passed on the benefits to customers.

After a continuous decline from September 2008, HRC steel is currently selling at Rs 26,500 a tonne while rebars/TMT bars fetch Rs 26,300 a tonne. A 2% excise cut will mean that prices will fall by Rs 500-600, if companies pass on the full benefit, said Pawan Burde of Angel Broking. He said companies’ profitability will not be affected and this excise cut may even support flagging growth of steel.

Domestic steelmakers have raised production from the low levels of November-December 2008 and many expect sales volume to improve on a quarter-on-quarter basis for the January quarter. Vikram Amin, director, sales & marketing, Essar Steel, said, “The reduction of excise duty in the present economic condition will be beneficial as this will have a possibility of increasing demand and give a boost to the sagging economy.’’

...Cement could become marginally cheaper...

...Cement could become marginally cheaper...
The Times of India, February 25, 2009, Page 26

TEAM TOI

The government’s move to reduce excise duty on bulk cement from 10% to 8% will result in a marginal drop of Rs 3-4 a 50 kg bag on retail levels. “The move to drop levies on bulk cement is to allign it with cement sold in bags, which is already taxed at 8%. This is more of a correction of an anomaly in the system,’’ said Rakesh Singh, V-P (marketing), The India Cements.

Therefore, in his view, prices for bulk-buyers, like ready mix concrete (RMC) batching units, could drop marginally. A V Dharmakrishnan, executive director, Madras Cements, said the move to lower duties would result in a price cut of Rs 3-4 a 50kg bag at the retail level.

Industry players said the drop would be between Rs 60 and 70 a tonne for bulk buyers like construction companies and RMC units.

“Typically for a large cement company, bulk sale is only 6-10% of turnover. Also, even if it means lower prices at the retail level this move would mean Rs 3-4 reduction per bag. For a product being sold at Rs 220 or Rs 230 at the retail levels this (reduction) is hardly anything,’’ industry sources added.

Besides, cement buying doesn’t get influenced by lowering excise duties marginally. “You buy cement when you construct. It has got to do more with sentiment rather than prices. True, the government is trying to perk up spending. Cement demand is inelastic to price, therefore lowering prices will not result in higher demand,’’ sources added.

... But service tax cuts, not lower duty, to help realty

... But service tax cuts, not lower duty, to help realty
The Times of India, February 25, 2009, Page 26

TEAM TOI

The real estate industry is not enthused by the cut in duty on bulk cement from 10% to 8%. However, the cut in service tax rate from 12% to 10% will benefit those who have taken large commercial properties on rent.

Gera Developments CMD Kumar Gera said the reduction of 2% will have no impact at all. “It will make a difference of just Re 1 per square foot on the cost of construction. It is irrelevant and means nothing for the industry,’’ Gera said.

Real estate consultant Ashok Narang too felt that the reduction on bulk cement duty would make no difference on real estate. “The market will kickstart only when banks bring down interest rates to about 7% for a longer period. This cut in duty is just an eyewash. There need to be more incentives for the housing sector.’’

The head of a large real estate company said the cut in service tax will benefit those who are on rent in large commercial complexes. “For example, someone paying Rs 1 crore as rent annually for an office space. Earlier, he would have paid Rs 12 lakh as service tax. Now he would save Rs 2 lakh annually since under the new rate his service tax outgo will be Rs 10 lakh,’’ said the official.

However, industry players feel the government decision could have a positive impact on people’s sentiment. Property redeveloper Pujit Agarwal said that at a time when market sentiments are low, any kind of incentive is helpful, however small. “The duty cuty will bring down the cost of construction by just 1.5%. It is not much, but nevertheless a breather for the industry. The government wants to show it is being proactive,’’ he said.

South Mumbai developer R C Chaturvedi said a cement bag currently costs Rs 260. “With this reduction the saving per bag will be just 1.2%. This will not make much difference on the cost of construction,’’ he added. Developer Sunil Mantri of Mantri Realty said a cement bag will now be cheaper by Rs 5 to Rs 7. “Its a good step by the government, although a small one,’’ he observed.

Developer Pravin Doshi, who is also the president of the Maharashtra Chamber of Housing Industry, however, observed that this will make a difference on big projects. “It will help a lot. The cost of construction will reduce by at least 7% to 8%. It is a good decision.’’

S&P outlook a cause for concern

S&P outlook a cause for concern
The Financial Express, Corporates & Markets, February 25, 2009, Page I

Overseas borrowing costs to rise, risk aversion to worsen, but no reason to panic yet

fe Bureau, Mumbai

The move by international credit rating agency Standard & Poor’s (S&P) Ratings Services on Tuesday to revise its outlook on the long-term sovereign credit rating on India to negative from stable has set off a flurry of concern amongst India Inc and fund managers. While, the concern that the outlook downgrade will be followed by an actual ratings downgrade seems well placed, some experts mention that this could not be a reason for a panic.

Says, Amit Goyal, president Confederation of Indian Apparel Exporters (CIAe),“The negative ratings will have an adverse impact on foreign investment in India Inc. The ratings will take India in the defaulter’s league internationally.”

Amit Tandon, managing director, Fitch Ratings reckons that this move could pose a problem for Indian corporates, especially those who had plans to raise funds overseas.

The telecom sector is expected to face the wrath of the change in outlook. Indranil Deb, principal, Mobius Strip Capital Advisor says, “Corporates in the telecom sector would usually source from countries like Japan where the inflation was much less and the borrowings were at a lower interest rate. But now, the projects on which these telcos were backing on are becoming riskier and therefore they themselves would shy away. Where as, international investors would be reluctant to pool in investments as the sovereign ratings are negative and there is a high chance of default.”

The international rating agency said, the outlook revision reflects its view that India’s fiscal position has deteriorated to a level that is unsustainable in the medium term.

However, disagreeing with India’s growth towards the negative curve, Goyal added that despite a whirl of global summitry, India’s growth rate is projected at 6% compared to its neighbouring countries that are growing at an alarming rate of not more than 2-3%.

The banking community does not seem much perturbed about the change in outlook. KC Chakrabarty, chairman and managing director, Punjab National Bank, while mentioning that the cost of borrowing overseas could escalate, says, “The credit rating agency has just revised India’s outlook to a negative one and the next stage will be the downgrading of the country’s rating which has not happened so far.” TS Narayanasami, chairman and managing director, Bank of India reckons that stronger companies would still be able to raise funds at competitive rates overseas. He also adds, “There is no scarcity of money on the domestic front for other companies in the country.”

Another banker with an overseas bank avers that India has been through these outlooks and ratings earlier and has managed to come out glowing. “This is another test for the country, and it has to shine through,” he adds.

A section of analysts were expecting this move and reckon that this was inevitable considering the crisis that the global economies and India faced. It was something the government and the policy makers had to do in order to tide over the difficulties, they reckon. The move will definitely have consequences in terms of rising borrowing cost and increased risk aversion, however, it is being seen as a lesser of an evil. “At this time, increasing the fiscal deficit is the wisest step taken by the government. In such a scenario, private spending would take a backseat. It would concern us if the demand does not increase. It would be a setback for the economy,” says Hitesh Agrawal, head of research, Angel Broking

“The downgrade by S&P will have some impact from the FII perspective. These kinds of country rating might impact the inflow of investment. However the rating would not impact economic activities,” commented Aparup Sengupta, managing director and chief executive officer, Aegis.

DLF rates go south,rivals may follow

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DLF rates go south,rivals may follow
The Economic Times, February 25, 2009, Page 1

Prices Cut 20-30%, Customers Who Bought At Higher Rates To Get Refunds

Our Bureaus NEW DELHI I CHENNAI

THE COUNTRY’S largest property developer, DLF, has cut home prices by up to a third at its ongoing projects in Chennai and Bangalore, triggering hopes that other big real estate firms will follow its lead to try and boost sagging demand.

Customers who have bought homes at its Garden City project in Chennai and Westend Heights in Bangalore at higher rates will be eligible for a refund, a DLF official said, and indicated that a drop in prices may be in the offing in other cities too.

Rates for the Garden City project—the company has already sold 2,000 of the total 3,500 apartments there—have been cut by 17% to Rs 2,650 per sq ft. DLF has slashed prices by 32% to Rs 1,850 per sq ft for the Bangalore project, where it is building 2,000 homes.

A DLF official said the decision to reduce prices was in response to the changed conditions in the real estate sector because of “unprecedented global events and changes in raw material costs”.

Already, many buyers are said to be queuing up to consider DLF’s offer in Chennai. While one group of buyers claims to have mobilised 600 exit letters, DLF authorities maintain that it is only between 150 and 200 members.

Several analysts have been saying a 30-35% decline in prices is essential to spur demand. Home buying has fallen off sharply since the middle of 2008 because of high property prices and finance costs as well as uncertainties over job security. As sales dried up, credit became expensive and private equity funds vanished, property companies ran into a severe cash crunch. Realty firms have also been under pressure from banks and the government to reduce prices.

While developers have been slow in reacting to the changes, DLF’s decision has the potential to influence the entire market.

“DLF’s bold move will prompt other companies as well to reduce prices,” said Anshul Jain, CEO of property consultancy DTZ India.

DLF’s closest rival, Unitech, which hasn’t launched any new project in the recent past, says it is “still watching the market”.

R Nagaraju, the head of strategy and planning, said the company’s new launches will definitely be at lower price points.

DLF’s move to extend the price cut to existing customers in ongoing projects is being seen as particularly significant. Most realty companies have so far refused to lower rates in ongoing projects, unwilling to provide refunds for apartments already sold.

DLF, along with other realty companies, has been battling falling sales and put construction on more than half of its commercial projects on hold due to lack of demand. The company reported a 69% decline in profit in the December quarter.

DLF slashes rates by up to Rs 13 lakh in Chennai

DLF slashes rates by up to Rs 13 lakh in Chennai
Business Standard, February 25, 2009, Page 6

In a move that may put pressure on other players to follow suit, DLF, India’s largest property developer, today announced a reduction of up to Rs 13 lakh in the prices of flats at its new residential project in Chennai.

This is the third city, after Bangalore and Hyderabad, where residential projects with reduced price tags have been announced in the last few weeks. Gurgaon, Panchkula and Kochin may also see similar project launches from DLF in the coming days, an executive of the company said. The decision is in line with the company’s recent announcement, which said it was strengthening its focus on the “affordable housing” segment in select cities.

Both existing customers as well as new customers will benefit from the price cuts announced in Chennai today.

“We have not waited for the government to provide further stimulus to announce a cut in prices. The prices are 20-30 per cent lower than the earlier announced rates. This was possible after we improved our efficiencies and made some changes in the project specifications,” Rajeev Talwar, group executive director, DLF, said.

According to a DLF spokesperson, the price at the time of the soft-launch of the project in March 2008 was Rs 2,800 per sq ft for flats in the range of 1,200-2,000 sq ft. Once the project was announced, it went up to Rs 3,000 per sq ft. The amount has now been revised to Rs 2,500 per sq ft for the initial customers and Rs 2,550 per sq ft for the subsequent ones.

Overall, there are 3,493 houses, of which almost 1,500 are available under the early bird scheme.

“There would be a benefit of between Rs 3.5 lakh and Rs 13 lakh per unit from the reduction, depending on the size of the apartment,” the spokesperson said.

In the case of Hyderabad and Bangalore, where new projects were announced recently, the company reduced the size of the flats and also the price. The reconfigured prices were Rs 1,850 per sq ft for flats in the range of 1,088 to 1,500 sq ft.

The DLF move is expected to compel other players also to revise their prices for existing and new projects.

Unitech sells off Gurgaon Hotel for Rs 230 crore

Unitech sells off Gurgaon Hotel for Rs 230 crore
Business Standard, February 25, 2009, Page 6

Arun Kumar / New Delhi

Unitech, the country’s second largest real estate firm, has sold its 200-room budget hotel – Courtyard by Marriott – in Gurgaon to Delhi-based Roop Madan, a high net worth individual (HNI), for around Rs 230 crore. According to sources, the agreement has already been signed and a formal announcement is expected in the next couple of days.

Interestingly, Unitech has also withdrawn its proposal to raise Rs 5,000 crore through issues in overseas markets. Earlier, the company had applied to the Foreign Investment Promotion Board (FIPB) seeking some exemption to bring in more foreign investment in the holding company.

When contacted, a Unitech spokesperson said, “We are in advance stages of negotiations with some of the HNIs and expect to close the transaction shortly.” On the issue of withdrawing its application from FIPB, he refused to comment.

Roop Madan, the buyer of Courtyard by Marriott, has interests in imports, in premium liquor and cigarette trade with investments in many real estate projects, sources said.

This would be the first asset sale by Unitech, which has decided to mop up funds by selling assets such as hotel, commercial real estate and institutional land. The company, which currently has a debt of Rs 8,200 crore, is expected to raise around Rs 1,500 crore from sale of hotels and commercial space.

Sources said that Unitech was also in discussion with a group of HNIs to divest 225,000 sq ft of office space in South Delhi for around Rs 500 crore. The company is planning to sell the office space on a floor basis to HNIs. “In this market, it is difficult to sell large property to an individual buyer,” sources said, and added, “The deal, to be closed in early March, is expected to fetch around Rs 500 crore.”

The Gurgaon hotel’s sale comes at a time when the hotel business has slowed down considerably, with January being one of the worst months in the recent past. Unitech invested Rs 100 crore on this project, including Rs 10 crore on real estate.

The Gurgaon hotel was almost ready and could be opened soon after making marginal changes, sources said. Given the bad sentiment faced by the hospitality sector, no conventional hotelier was keen to buy the property. In fact, a recent auction by a GMR-led consortium at Delhi International Airport for hotel projects received a lukewarm response.

Govt rushes to get land acquisition, rehab bills passed

Govt rushes to get land acquisition, rehab bills passed
The Economic Times, February 25, 2009, Page 2

Our Political Bureau NEW DELHI

IN an attempt to prevent skirmishes of the kind that left the Buddhadeb Bhattacharjee government badly bruised in the wake of Nandigram and Singur clashes, the Manmohan Singh government is racing against time to get the Land Acquisition (Amendment) Bill, 2007, and the Rehabilitation and Resettlement Bill, 2007, passed in the remaining two days of Parliament.

The proposed bills, which were cleared by GoM on Tuesday, allow states to acquire 30% of land for private developers provided they have acquired the remaining 70% for setting up industrial and SEZ projects. Thus, the state would come into picture much later. This has been weaved in only to prevent a repetition of the ugly clashes that rocked Singur, Nandigram and other places where large industrial projects were on the anvil.

The R&R Bill, which is designed to give a statutory status to the National R&R Policy, 2007, makes it mandatory for parties concerned to get a social impact assessment prepared by independent multi-disciplinary expert group in cases where 400 or more families are displaced in plain areas and 200 or more families in tribal and hilly areas.

With the ongoing session of Parliament meandering to a close, the government only has two days left to secure the passage of the two Bills, which were cleared by the GoM after endorsing the suggestions put forward by the Union rural development ministry. Given the procedural constraints faced by him, it remains to be seen whether Mr Raghuvansh Prasad Singh is able to steer the two bills through in the two Houses within this time-frame.

The Land Acquisition (Amendment) Bill seeks to amend several provisions of the antiquated Land Acquisition Act, 1894, in an attempt to balance the need for land for developmental and other purposes with the interests of the people whose land is to be acquired.

The revised bill redraws the definition of “public purpose”, making it clear that governments could wield land acquisition powers only for three purposes—strategic uses such as those aimed at the armed forces, public infrastructure projects and where a project being set up by a person (which includes companies) serves a larger public interest and meets the 70% norm.

The policy provides for land-for-land compensation, besides preference to affected families for jobs in projects coming up on their plots. Land-owners entitled to compensation would be made stakeholders in the development process by allowing them to take up to 20% of the amount in the form of equity stakes, provided the acquiring entity is authorised to issue these instruments. The proportion of these shares could be enhanced to up to 50% with the prior approval of the government. The policy discourages speculative transactions of land acquired for public purposes.

The R & R Bill has also revised the quantum of compensation (solatium) to be given to persons whose land is to be acquired by the state. It’d be 60% of the land’s market value in the case of normal acquisition, and as much as 75% in the case of urgent acquisition.

Land would be acquired at existing market prices or area floor rate, whichever is higher. In case of a dispute, landowners will be able to approach the Land Acquisition Disputes Settlement Authority, which would be set up in every state. The benefits include allotment of land to the extent available with the government in resettlement areas and preference in employment to at least one person from each nuclear family affected by the project.

There will be special provisions for STs and SCs in the rehabilitation package. The new policy would replace the existing national policy on R&R for project-affected families, enacted during the NDA regime in 2003. The benefits under the new policy would be available to all affected persons and families whose livelihood have been affected. This would also include replacement because of natural calamities and their will be no cap on the number of people or families for the purpose of compensation. The benefits also include scholarship for education, preference in allotment of contracts and housing benefits, including houses to the landless affected families.

AVOIDING NANDIGRAM
The proposed bills allow states to acquire 30% of land for private developers provided they have acquired the remaining.
The R&R Bill makes it mandatory to get a social impact assessment prepared by independent group.
Governments can wield powers only for 3 purposes—strategic uses, public infrastructure projects and where a project serves a larger public interest and meets the 70% norm.

Real Estate Intelligence Report, Tuesday, February 24, 2009