Crisil sees house market recovery in 2010
The Hindu Business Line, June 25, 2009, page 5
Our Bureau, Mumbai
Demand in the Indian residential market is expected to turn positive in 2010 due to improvement in affordability, steady economic growth and greater liquidity, says a Crisil research report on the real estate sector.
However, the decline in the currently overpriced capital values of all three real estate segments of residential, commercial and retail will persist through 2009. Commercial and retail markets will continue to see erosion of lease rentals in the next two years, it says.
The report is an analysis of over 400 areas across 88 micro-markets in Ahmedabad, Bangalore, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai-MMR, National Capital Region and Pune.
Mr Sudhir Nair, Head, Crisil Research, said: “Accelerated growth of Indian economy, recovery of global economy, improved liquidity and expected fall in interest rates are key factors that will signal demand revival in the residential segment. This segment is likely to see a much faster revival due to a strong underlying demand for housing and supply coming at attractive price points.”
The demand in the commercial and retail segments is likely to remain under stress the next two years owing to excess supply and weak offtake, he added.
The report says capital values for residential sector and lease rentals for commercial and retail properties had substantially corrected till March due to a slowdown in both the domestic and global economies, and also due to real estate becoming unaffordable.
Kochi, Chandigarh and Pune, which have greater investor presence as against end-users, saw a greater fall in capital values compared to other cities. The situation is expected to continue through 2009 and 2010, particularly in the commercial and retail segments.
However, Crisil Research believes that demand for houses will improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth in the economy.
Thursday, June 25, 2009
Crisil sees house market recovery in 2010
Denotified SEZs to refund sops
Denotified SEZs to refund sops
The Economic Times, June 25, 2009, Page 9
Amiti Sen NEW DELHI
DEVELOPERS of denotified special economic zones (SEZs) will have to refund tax sops given by the government, according to new rules on the anvil, a government official said. The government has found it necessary to draw up rules for denotification of SEZs after some developers recently sought permission to close projects due to the economic slowdown and contraction in demand.
The new rules are likely to disallow denotification if a considerable amount of construction has happened in the zone or if units have come up there. Denotification would be voluntary.
A SEZ developer gets a number of tax sops, including exemption from customs duties and excise on goods used in the project and from payment of income tax. “All the sops enjoyed by the developer have to be necessarily paid back with interest before the denotification is allowed. This will be a prominent part of the rules,” the official said.
The rules will be kept flexible to deal with fresh issues raised by new cases, the official said, on the condition of anonymity. “Once the rules are framed by the government, they would act as a guide for the board of approval (BoA) for SEZs to deal with denotification applications. As and when the board feels the need, appropriate changes or additions could be made to the rules,” he added.
The BoA for SEZs, which is chaired by the commerce secretary and includes members from finance, revenue, home and agriculture departments, decides on all applications related to SEZs, including approval, notification as well as denotification.
There would also be no denotification if the developer does not want it. “There would be no coercion. If developers are law-abiding and have not broken any rules, then the government cannot denotify their zones,” the official added.
Earlier this month, real estate major DLF got inprincipal approval to denotify four of its IT/ITES SEZs. The government will formally denotify the zones once DLF pays back all the tax saved, pegged at Rs 6-7 crore, through exemption from customs, excise, service tax and income tax. The amount is being verified by the commerce department.
Raheja Universal has also applied for denotifying its IT/ITES SEZ in Navi Mumbai, and reducing by half the size of its second SEZ in the region.
“Once we have the denotification rules in place, it will be easier for the BoA to decide on cases of denotification as they will have set rules to follow. We would also be adhering to the law ministry’s view that if something can be legally notified, there should also be provisions for its denotification,” the official added.
As of March 31 2009, the government has formally approved 568 SEZs in the country, of which 311 have been notified and ready to start operations, with 90 already operative.
Commercial realty gets new lease of life
Commercial realty gets new lease of life
The Economic Times, June 25, 2009, Page 5
Ravi Teja Sharma NEW DELHI
AFTER months of inactivity, the commercial office space market is starting to stir. A number of larger leases are happening across the major cities. Last few months have seen demand for small office spaces in the 5,000-15,000 sqft range. But May onwards, lease deals of the larger kind have started to happen. In Gurgaon, new telecom player Telenor recently closed a deal for 50,000 sq ft on Golf Course Road. Samsung has signed up for 66,000 sq ft in Noida while KPMG has closed a deal for 100,000 sq ft in Mumbai’s Lower Parel area and Wipro has leased similar space in Powai. In Hyderabad, GE has closed a deal for 60,000 sq ft in Gachibowli. “A healthy commercial office sector is an indicator for jobs getting created which in-turn facilitates growth of other segments of real estate,” says Vivek Dahiya, CEO of property consultancy GenReal.
There are many other large companies like Reckitt Benckiser and HP which are in the market at the moment looking for large spaces to lease. In the south, First Source and Amazon.com have both leased 100,000 sq ft of space each on Chennai’s OMR. Barclays Shared Services has leased 100,000 sq ft in Chennai’s Guindy area. “The last 2 months have seen quite a bit of activity,” says Kaustuv Roy, executive director at Cushman & Wakefield.
Jones Lang LaSalle Meghraj (JLLM) has seen a lot of movement at the HCC 247 Park building in Mumbai’s Vikhroli. “We are about to lease close to 200,000 sq ft of space in the 1.8 million sq ft complex to one tenant,” says Sanjay Dutt, CEO Business at JLLM.
As sentiments have started to improve in the Indian market, companies are coming out of their shell. “Many Indian corporates have been struggling with high rentals. Now, they are securing real estate space at lower cost,” says Dutt, emphasising that JLLM has seen a surge in transactions in the first 6 months of this year having done 40 transactions, though at comparatively lower rentals.
Most of the deals that have happened in the last 1-2 months are of the relocation and consolidation variety, says Dahiya. But now deals for fresh expansion too are starting to emerge. “Companies seem to be leasing additional space for expansion, which is a positive trend,” says Roy. Dutt explains that the fall in demand since late last year and the consequent increase in supply had put pressure on rentals. But in many places, supply is still limited.
US home sales rise
US home sales rise
The Economic Times, June 25, 2009, Page 4
Reuters WASHINGTON
SALES of previously owned US homes rose for a second straight month in May but were weaker than expected, adding to growing fears of an anemic economic recovery from a deep recession.
The chief economist of the National Association of Realtors, which released the data on Tuesday, said sales in some areas appeared to be slowing and warned of the danger of a “delayed” housing market recovery. The Realtors’ group said sales climbed 2.4% last month to an annual rate of 4.77 million units. While that pace was below market forecasts it was the second straight month sales had risen, for the first back-to-back gain since September 2005.
Despite signs the market is stabilizing, the NAR said the median national home price fell 16.8% in May from a year earlier, the third-largest drop on record.
DLF, Unitech to restart Mumbai projects
The Economic Times, June 25, 2009, Page 4
Sachin Dave MUMBAI
MUMBAI seems to be the next destination for India’s biggest realty companies, Unitech and DLF, to restart some of their projects which were put on the backburner. Both these companies have been in the midst of overcoming some serious liquidity problems that they were confronted with.
Unitech, which recently raised $325 million through the qualified institutional placement (QIP), has restarted three of its residential projects in Dadar and Chembur. For DLF, which had bought 17.5 acres from NTC in central Mumbai’s Lower Parel for Rs 702 crore in 2005, construction has commenced again. It was here where it initially planned a retail-cum-entertainment centre. Now, the plan is to have commercial establishments — largely offices — apart from the possibility of some residential apartments.
An official spokesperson for DLF said, “Yes, it is true that the work at NTC mill had stopped for some time, but that was because we had some FSI related formalities which are now in place.” Meanwhile, R Nagaraju, head, corporate planning, Unitech, said, “We have a number of slum redevelopment projects in Mumbai. We also have a focus on affordable housing and some projects will be announced by the end of 2009.”
Industry trackers point out that Unitech has commenced the pre-sale process for its three projects. The company also has land banks in other parts of central and western Mumbai like Lower Parel, Worli, Dadar, Ghatkopar and Malad. A company official said that the focus would now be on residential projects and prices would be lower than the prevailing market rates. It is learnt that Unitech is considering building a commercial project in Lower Parel where the asking price will be Rs 7,000 per square foot. This compares with the current price range of Rs 12,000 to Rs 18,000 per square foot.
Together, Unitech and DLF have a combined debt of over Rs 20,000 crore. While Unitech raised funds through the QIP route, DLF brought in $800 million through a share sale. Both companies have also been selling their land parcels and some property as well to raise liquidity.
Wednesday, June 24, 2009
Growth revival imminent
Growth revival imminent
The Economic Times, June 24, 2009, Page 14
World Bank Estimates Unduly Pessimistic
THE World Bank has cut its global growth forecast for 2009. It has said the world GDP will shrink by nearly 3% as against 1.7% it had forecast in March. For India, however, the Bank has raised the growth estimate from 4% in March to 5.1% in 2009-10. We believe the Bank is being unduly pessimistic about the prospects for growth in India. There is enough evidence to suggest India’s GDP should easily expand by 7% in 2009-10. The quick estimates of GDP released recently by the Central Statistical Organisation (CSO) show how domestic investment and consumption levels are much better than what one might have projected after the global financial meltdown last year. For one, Gross Fixed Capital Formation (GFCF) at current prices held up quite impressively in the first quarter of 2009 at 34.8% of GDP compared with 33.4% in 2008 first quarter. Indeed, this indicates the domestic investment rate is holding up in spite of a full year of recession in the developed world. Pessimists had argued the investment rate could decline dramatically after the global meltdown. However, there are signs that capital flows are easing of late. About $25 billion of equity funds have come into the emerging markets this year. For India, with an investment rate of 34%, one can safely project a GDP growth of 7-8%.
Again, after the 2008 meltdown, it was assumed the Indian consumer would withdraw into a shell largely due to the fear factor caused by the severity of the recession. For a while, this seemed very plausible. However, now there are signs of a consumption revival, as reinforced by data from consumer goods manufacturers. The CSO data also reveals that Private Final Consumption Expenditure has grown to 53.8% of GDP in January-March 2009 compared with 50.4% of GDP in the first quarter of 2008. Similarly, the Government Final Consumption Expenditure has also risen from 12% of GDP in first quarter 2008 to 14% of GDP in January-March 2009. This is partly the result of the big fiscal stimulus — up to 4% of GDP — over the past eight months. Unlike in the OECD region, there is no demand recession in India. A GDP growth of 7-8% is there for the asking, with some good policies in place.
Two exceptions | India, China stand out in global gloom
Two exceptions India, China stand out in global gloom
The Financial Express, June 24, 2009, Page 6
The World Bank’s latest projections on growth sent stock markets in India on a tailspin. They shouldn’t have, because despite the gloomy picture predicted for most economies around the world, India and China come out looking fairly solid. The Bank predicts that growth in India in 2009 will be to the tune of 5.1%, moving up to 8% in 2010 and then to 8.5% in 2011. Given that in the recent past, India’s actual growth rate has exceeded the Bank’s conservative prediction, things look quite good. Few would have predicted a return to 8% in 2010, looking at the way things had unravelled in the last quarter of 2008. Interestingly, India’s growth rate will, according to the Bank, exceed China’s for the first time in many decades in 2010. In 2011, both the economies will be growing at a neck-and-neck pace. The resilience of India and China, which together account for one-third of global population, has to be good news not just for these two countries but also for the rest of the world.
The really gloomy picture comes from the state of the developed world and the emerging economies of Latin America. The US is expected to contract by 3% in 2009 before posting low but positive rates of growth of 1.8% and 2.5% in 2010 and 2011. The Euro area will perform worse than even the US, contracting by 4.5% in 2009 before rising by 0.5% and 1.9% in 2010 and 2011. Japan is likely to record a dismal -6.8% in 2009 before recovering to 1% and 2% in 2010 and 2011. Interestingly, Latin America seems to have finally caught the crisis bug. The region as a whole is expected to contract by -2.2% in 2009. Out of the region’s biggest economies, Brazil will contract by -1.1%, Mexico by -5.8% and Argentina by -1.5%. These countries will move into the positive terrain in 2010 and 2011 but will grow between 3% and 4% only. In fact, the estimate of growth for all developing countries except China and India for 2009 is -1.6%. This underscores the importance of the economies of India and China in leading a global recovery. In India, growth could get a real boost if the government delivered some concrete action in infrastructure and unleashed a few bold reformist measures in the coming Budget. Even 10% might be gettable.
Infrastructure is key to success of govts: Montek
Infrastructure is key to success of govts: Montek
The Financial Express, June 24, 2009, Page 1
fe Bureau, Mumbai
Infrastructure development will be the key to running successful governments in India, feels Montek Singh Ahluwalia, deputy chairman of the Planning Commission.
Speaking at a conclave of Indian and global top financial experts, Ahluwalia said: “The recent poll results show that governments that are seen to have developed infrastructure have won, which in the long run will support demand.” He was speaking at the fourth Emerging Markets Forum organised by IDFC and supported by the Express group and the Bombay Chamber of Commerce.
The deputy chairman’s statement is the clearest indication so far of the importance the government is expected to place on infrastructure in the Budget, and through the rest of the year.
Ahluwalia assured the bankers that the economy is in good shape and they should not have any fear in financing infrastructure projects on the premise that the economy won’t be able to sustain that. He acknowledged that bank credit is much easier “than it was until 4-5 months ago” but more needed to be done. The line of thought was endorsed by Deepak Parekh, chairman HDFC, who said the Indian banking system was flushed with funds but commercial banks were parking these with the Reserve Bank of India. “The demand for credit is not rising in line with the liquidity, As a result, I think the lending rates are likely to go down further. I expect the rates to go down by at least 50 basis points over next six months.”
As a component of the infrastructure sector, Parekh said, demand for affordable housing (up to Rs 30 lakh per unit) is on a constant rise as property prices have corrected much in this segment. “HDFC's loan disbursement in this segment is improving on a month-over-month basis in the current year.”
Bimal Jalan, former governor of RBI, too, said he was concerned about the spread between the actual lending rates and the repo rate—the price at which they source money from RBI. “This is something the RBI will have to look at closely,” he told FE.
The current repo rate is around 5.5% and the banks are lending at 11% rates. “A huge gap of around 600 basis points,” he asserted.
Ahluwalia also said the Indian economy should show firm signs of revival during the second half of 2009. “Though the economic recovery has already kick started, I think it is reasonable to assume that the worst is over. And now it will get back to the more normal growth.”
The theme of the three-day conclave is the transformational potential of the Indian economy within the next three decades. Harinder Kohli, president & CEO of the Centennial Group, said, “The studies we have carried out have taken experiences of over 150 countries to develop the scenario. India has the potential to grow from contributing 2% of the global GDP to 16% of the GDP by 2039.”
But to do that, Rajiv B Lall MD& CEO of IDFC, said the overriding observation that emerges from the experts is that Indian policy makers need to be proactive and anticipate change better.
Zia Mody, senior partner with leading law firm AZB & Partners, said: “The debate and discussions related to political and governance problems in India will be welcome”.
Economy will kickstart in 3rd quarter
Economy will kickstart in 3rd quarter
The Financial Express, June 24, 2009, Page 2
fe Bureau, Mumbai
Key decision makers and influencers gathered at the fourth Emerging Markets Forum and expressed their views on the Indian economy, while most seemed bullish; there were also some voices of concern.
On the positive side, HDFC Bank chairman Deepak Parekh, reckoned that the Indian banking system was flush with funds and the commercial banks were parking these with the Reserve Bank of India (RBI). “The demand for credit is not rising in line with the liquidity, As a result, I think the lending rates are likely to go down further. I expect the rates to go down by at least 50 basis points over next six months,” said Parekh
Speaking about the housing sector Parekh mentioned that the demand for affordable housing (up to Rs 30 lakh per unit) is on constant rise in the country as property prices have corrected lot in this segment in recent past. “HDFC's loan disbursements in this segments is improving on month-over-month basis in current year,” said an optimistic Parekh.
Planning Commission deputy chairman Montek Singh Ahluwalia also mentioned that the economy would surely kickstart in the third quarter of the calendar year. Ahluwalia was promptly surrounded by the a host of eager participants from over the globe and India as well.
However, Rajya Sabha member and former RBI governor Bimal Jalan, who would also be one of the panel member in the four days of discussion (three in Mumbai and on in New Delhi), mentioned that he was concerned about the spread between the actual lending rates and the repo rate. “This is some the RBI will have to look at closely,” he told FE reporters.
The current repo rate is around 5.5% and the banks are lending at 11% rates. “A huge gap of around 600 basis points,” he asserted. “I am really curious about the manner in which the government intends to plug the fiscal deficit in the current circumstances and manage to wriggle out of what could be a potentially serious predicament,” said a banker.
Speaking about the event, Pratip Kar, a senior official with the World Bank and former Sebi executive director, said, “Foreigners in this forum would get to know about the seriousness and the direction of government reforms in the days to come. That would attract a lot of foreign funds in the country.”
“The debate and discussions related to political and governance problems in India along with exchange of ideas with regards to the possible institutional solutions, is a welcome move” added Zia Mody, senior partner with leading law firm AZB & Patrners.
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