Nath casts in concrete plan for laying fresh roads
The Economic Times, January 15, 2010, Page 9
No Maintenance For 20-30 Years, 15-20% Fuel Savings Force Govt To Rethink Plans
Our Bureau NEW DELHI
Transport minister Kamal Nath on Thursday said the government may look at using cement for constructing over 18,000 km of expressways in the country. At present, most of the road network in India is bitumen.
“It would be appropriate to look at (building) expressways with cement, concrete as these will be greenfield projects,” Mr Nath told reporters.
He said concrete can also be used on roads, where wear and tear is high. However, cement would not be used for upgrading the existing bitumen roads.
“We are not going to use cement where there are bitumen roads already,” he said. The proposal, if implemented, would provide a big boost to the cement companies.
ACC Ltd managing director Sumit Banerjee, while delivering the inaugural address at the seminar, said concrete roads are durable, maintenance-free for 20-30 years and have a life of up to 50 years. “Concrete roads offer 15-20% economy in fuel consumption and 10-15% in vehicle running costs compared to bitumen ones,” Mr Banerjee said.
The construction costs of cement roads is, however, more than that of bitumen roads, but in the long-term they recover the savings. Some of municipalities have started building cement roads in a limited way.
Mr Nath also said he has called a meeting of all state transport ministers next month to look at amending the Motor Vehicles Act, 1988, though he did not give specifics of the draft amendments. He was speaking at a seminar organised by industry chamber CII on Concrete Highway Projects.
The Act defines norms for speed limits and permissible loads that trucks can carry, among others.
Friday, January 15, 2010
Nath casts in concrete plan for laying fresh roads
Concrete highways a possibility: Nath
The Hindustan Times, January 15, 2010, Page 24
TIMES NEWS NETWORK
New Delhi: Cement industry is now pitching for concrete highways in the light of road, transport and highways ministry’s plan to construct over 18,000 km greenfield expressways by 2032. Transport minister Kamal Nath on Thursday said the government may look at using cement for construction of these expressways.
“It would be appropriate to look at building expressways with cement concrete as these will be greenfield projects,” Nath said at a seminar — ‘Concrete Highway Projects’ — organised by the CII. He added concrete could also be used on road stretches where wear and tear is high.
Putting the case of cement concrete roads over bituminous ones, Sumit Banerjee, chairman of CII cement industry division and managing director of ACC Ltd, said 71,000 km of highways and expressways were in bitumen and only 40% of this conformed to quality standards. ‘‘Concrete roads have a life cycle of 50 years and also help save 15% in fuel consumption. A combination of fly-ash based concrete roads is environment-friendly and has a 50% longer life cycle and is a solution for today’s need,’’ he said.
Nath said that if the highway development programme looked at incremental usage of concrete then the industry in India would have to consider whether the current capacity would be able to meet the additional demand from the road projects. Already about 10% of the highways covered under the Golden Quadrilateral (GQ) has been cement concrete stretches.
Road and transport secretary, Brahm Dutt said that the NHAI faced many problems so far as construction of concrete stretches was concerned. ‘‘The industry did not honour its commitment on price and quality of cement and this was a deterrent to the development of concrete projects and projects could not take off,’’ he added.
We count every penny now
Business Standard, January 15, 2010, Page 10
Q&A: Sanjay Chandra, MD, Unitech Ltd
Raghavendra Kamath / Mumbai
Sanjay Chandra, managing director of Unitech Ltd — the country’s second-largest real estate developer — steered the company out of near-bankruptcy in 2009 when its debt rose to Rs 11,000 crore and property sales came to a standstill. The company switched its focus from premium housing to affordable and mid-income projects to stay afloat. Unitech was also in the news for selling off its assets in its efforts to reduce debt. The efforts seem to have paid off as Unitech announced on Monday that it booked over 13 million square feet of properties so far in this financial year as against only 3 million booked in the whole of fiscal 2009. In an interview with Raghavendra Kamath, the Unitech MD talks about how he managed the crisis and the road ahead. Edited excerpts:
Do you think the sales momentum will continue now that there are indications of interest rates going up?
Those who are planning to buy houses will not shy away from buying just because interest rates will be up. In India, there is still a tendency of not holding mortgages for too long. People are pre-paying mortgages — they are averse to having mortgages on houses they live in. Yes, affordability will reduce; possibly our ability to raise prices will also reduce, but there are ways to subvent it. We are subventing interest rates for a year, and the response has been very good. We actually have home loan desks at all our offices.
How much price increase have you carried out in the previous quarter?
Not much. We increased prices by an average 6-7 per cent in the last quarter. We will go along with interest rates. If the annual interest rate is 10 per cent, we will raise it by 10 per cent. Customers will run away if you increase it irrationally. You have to increase it only to the level where it does not affect your sales. If it slows down your sales, it is not worth it. One should focus on return on equity.
What is your outlook for the coming financial year?
I think sales volume in housing will be excellent. Commercial, or office space will finally pick up; it has been good over the last three months. Commercial is mainly driven by information technology (IT) companies which have started expanding after a 15-18 month lull. Transactions have started happening once again. But rentals will not go up for sometime as there is a huge supply in the market. After this supply is absorbed, you will see rents going up. But, I see that cycle still two years away.
Your stock price has fallen 25 per cent from September whereas the Sensex has risen 10 per cent. Are you worried?
Yes, we have underperformed. It is time to catch up. But, what we told our investors is that we have delivered on the guidance we gave. Stock performance will be taken care of if we deliver. Though we have underperformed the Sensex, our operational performance has been outstanding, and people will soon understand what we are doing. If you look at our operational update, we have added 4,000 workers in the last quarter. In April, we had 3,500 workers, now we have 20,000.
At least a dozen of your projects were running behind the schedule? What are you doing for them?
We have deployed additional manpower on all those sites and all our efforts are on to complete them by financial year 2011.
What is your key strategy going forward?
We will look at housing as a manufacturing business. Land is one of our key raw materials. Construction is second. One of the key things in our business is “when” you bought land — it determines profitability — and the second, “what” was the product and “how” you would make that product. If you make your product in 18 months instead of 30 with better technology, forget about absolute profitability; the return on equity employed will be much faster. We will focus on efficiencies in production cycle. Earlier, we used to think overheads had gone up and we must control costs and so on. But now we count every penny, we count each day. Now we have a separate department which focuses on cost control, where we can control costs.
The focus is on projects that can be monetised faster. We have 8,000 acres of land and most of that was bought at historical prices. Only 10 per cent of our land is under development. Even if you look at incremental land, we are looking at projects that can be launched fast and do not compete with our existing land bank.
You took a U-turn from premium housing to mid-housing to beat the slowdown. Now that markets have revived, will you shift your focus back again?
No. One thing we learnt from the slowdown is that one should cater to a larger audience, which is there in mid-income housing. In good times and good markets, utilise your prime land for premium housing. For example, in our Uniworld resorts, villas start at Rs 2.8 crore. We are selling 15 villas a month. But we cannot depend on that only. You can’t build a sustainable business model that focuses only on luxury. We will do it selectively and only in good locations.
In the coming financial year, how will you bifurcate your housing portfolio?
Unihomes, our affordable segment where we sell homes at Rs 12-13 lakh, will be 25 to 30 per cent (of the business). We feel it will grow substantially. Premium will be 40 per cent and 15 per cent will be luxury. The rest will be commercial.
What is happening with Unitech Corporate Park projects which have had been deferred?
We had deferred one project due to poor demand and the rest are all on track. Construction activity is at an all-time high and leasing activity has been very good.
How do you look back at the troubled times when there were all kinds of rumours about Unitech, including that of bankruptcy?
When we look at that period, we realise our biggest mistake was asset-liability mismatch: Short-term debt for long-term investments. Rollovers earlier used to happen easily, but when the credit crisis came, they stopped. The good thing was that we had assets. Some of our key investors saw value in our company and assets, and did not focus only on short-term market conditions. That’s why we could raise our qualified institutional placements (QIPs) comfortably. The second mistake was that while we had enough land to build tens of thousands of apartments, the market we were catering to was niche luxury segment, which had a limited audience. The good thing is we honoured all our commitments. People appreciated us for that.
Are you looking at PE investments?
We are staying away from them. They want 20 per cent after-tax returns. They want debt-like instruments. It is better to take loans from moneylenders.
Double dip recession ahead?
Business Standard, January 15, 2010, Page 11
About 10 million US residential mortgages are underwater. This may lead to defaults
Jaimini Bhagwati / New Delhi
January 2010 is the first month of the year and of the decade, and there is a thriving market in making economic projections. It is evident that there has been a seismic shift in the global economy’s tectonic plates. The gradual reordering of national economic rankings over the last two decades came sharply into focus with the financial sector meltdown at the end of 2008.
Looking ahead, it is reasonably safe to predict that for the next several years, GDP growth rates in India, China and Brazil would be higher than those in the US, EU and Japan. Table-I provides projected GDP growth rates for these countries. The accuracy of these projections could be contested and would vary, depending on the underlying assumptions. On balance, these numbers reflect a consensus that India, China and Brazil are expected to grow faster than the other countries listed in the table.
The comparatively high growth numbers for India should not make us complacent since the prospects over the next 12 months are far from certain. This article discusses the possibility of a downturn in the US stemming once again from defaults in the real estate sector, and the resulting implications for India.
Currently, one in five or about 10 million US residential mortgages are underwater by 20 per cent or more. That is, the market value of the house or apartment is at least 20 per cent below that of the supporting debt (Source: Equifax). Empirically, this has been the single most important factor which motivates homeowners to walk away from their mortgages. Assuming that on average each home corresponding to the 10 million mortgages is worth $100,000, owners could default on about $1 trillion of debt. Defaults of this order of magnitude do not include potential defaults on $770 billion of commercial real estate mortgages which are underwater (Source: Foresight Analytics).
At the same time, indications are that US consumer spending is not likely to surge soon. For instance, the number of bank credit cards has come down from a peak of 425 million in mid-2008 to 335 million in November 2009, and credit card lines are shrinking. As regards securitisation markets, the combined issuance of Residential Mortgage Based Securities (RMBS), Asset Backed Securities (backed by assets such as loans, leases and royalties but not real estate), Commercial Mortgage Backed Securities (CMBS) and Collateralised Debt Obligations (CDOs) reached a peak of $2 trillion in 2006. In 2009, the total issuance of these four categories of securities was less than $200 billion. Further, commercial and industrial loan outstandings have contracted by about 15 per cent in the last one year. As banks and individuals continue to reduce their debt levels, it is unlikely that consumer-driven demand can replace government spending, which may be difficult to sustain at current levels. It follows that if real estate prices were to erode any more, there is risk of a sharp downturn in the US economy.
Additionally, the crisis of 2008 has not been adequately utilised to make the required improvements in regulatory and compensation norms. Consequently, bankers may rely on short public memory and continue to depend on the Greenspan “put”. The difference is that if there is a financial sector blowout in the second half of 2010, there would be limitations to which taxpayer-funded support could be provided. Table-II details the volumes of central bank and government aid for banks till June 2009 in the US and the Euro area and November 2009 in the UK.
These were extremely generous lifelines for which taxpayers should have received long maturity call options on bank equity with strike prices at the bottom-end of stock valuations during the crisis of late 2008. This unrequited generosity has been fed by accommodating monetary policy with historically low interest rates in the US, UK and Japan. The resulting liquidity has funded a bounce-back in stock markets around the world. For example, the S&P 500 stock index is now trading at 22 times trailing earnings, which is well above S&P’s 135-year average for trailing P/E (price to earnings) of 15. There are also indications that the Chinese housing market is overheating.
Consequently, the risks for India in the next one year are: (a) sharp reduction in OECD demand which could again impact Indian exports negatively; and (b) shortage of export and other credit. If this were to happen, Central and state government finances would be adversely affected, which could further reduce our collective appetite for reforms. In anticipation, we could take the following steps: (a) keep mopping up forex inflows and tie up optional contracts for longer-term forex credit; (b) better align oil and gas pricing to international prices; (c) push for an agreement on GST implementation timelines in the first half of 2010 when states would be less apprehensive about their finances. Oil prices may not pose a risk as a fall in global demand could lead to softening of oil prices. However, if tensions rise in the Persian Gulf, oil prices could increase even as demand drops in developed economies.
To sum up, it is increasingly likely that in the last quarter of 2010, there may be another round of convulsions in western economies. The consequent opportunity costs for India of not having insurance mechanisms in place and pushing for reforms could be higher than usual. We are on a trajectory to reach 9 per cent GDP growth and if we slip back to 5-6 per cent, the economic and social costs resulting from reduced means to fund employment generation could be very high.
The author is India’s Ambassador to the European Union, Belgium and Luxembourg. Views expressed are personal
Small is BIG now
The Economic Times, ET Realty, January 15, 2010, Page 21
Thanks to space crunch and rising prices of the available land, big cities are now becoming out of reach for those wanting to buy a home of their own. Hence, it is the Tier II and Tier III cities that are being preferred by home buyers
Shri Ram Shaw
With real estate in metropolitan cities becoming prohibitive, many buyers with limited budgets are turning to Tier II and Tier III cities to buy their long cherished dream houses. Usually, these towns are located close to their native places. Even though they may not be able to live in these apartments now, these city workers feel secure in the knowledge that they have a place that they can turn to once they retire from their professional careers. In addition to this factor, growing industrialization and rising opportunities in the service sector are driving demand for housing in Tier II and Tier III cities.
As real estate boom gathered pace in the first decade of this millennium, a large number of metro-based developers announced housing projects in Tier II and Tier III cities. There were several reasons for their foray into smaller cities. The market in metropolitan cities had by then turned red hot. The price of land had risen to such high levels that most developers worried whether it was possible to develop viable housing projects at such prices. In comparison, the price of land in Tier II and Tier III cities was far more moderate. While many micro-markets in metropolitan cities had saturated, in Tier II and Tier III cities, supply was still inadequate to meet the demand arising from the spread modern retailing, outsourcing, IT and manufacturing to these cities.
By early 2009, many developers had adopted the obvious strategy of price correction in existing projects to clear mounting inventories and lure consumers back to the market. During the period, there was another paradigm shift as many developers realized that the market had converted from an investor driven one to an end-user dominant one. Recognizing that the end users were seeking homes that were affordable, developers altered their product portfolio and launched affordable housing across India to revive demand by the end of the first quarter of 2009. The affordable housing concept, coupled with reduced home loan rates, put the real estate market on the path to recovery.
The cities of National Capital Region (NCR) hold the highest potential of future growth, providing maximum investment potential and have demonstrated the healthiest absorption rates during this dynamic phase of real estate development. These cities are amongst the Top 10 cities ranked on absorption levels. Noida has emerged as the leader in NCR. Noida and Faridabad have demonstrated high absorption primarily due to launch of affordable housing projects. The recent projects of Jaypee (Aman) in Noida and BPTP (Elite Floors) in Faridabad were primarily driving the high absorption values in these cities with developers commanding more than 70% of the market share.
Noida-based developer, The 3C Company, has announced the country's largest green-residential project, Lotus Boulevard, spread across 40 acres and to be built with an outlay of Rs 1,550 crore. Vidur Bhardwaj, director of the company said, "Lotus Boulevard will strengthen our commitment to provide worldclass facilities, which are not only user friendly but also contribute in reducing carbon footprints."
However, with the worst of the downturn behind us, major players are once again dusting off their plans for smaller cities, albeit with several modifications. Kumar Gera, chairman of Confederation of Real Estate Developers Association of India (CREDAI), says, "Over the long term, real estate development in smaller cities will be aligned to the l e v e l of their economic progress and the infrastructure put in place by their respective state governments." Devinder Gupta, CEO of Century 21 India, says, "One of the basic reasons for investment flocking to these smaller cities is the availability of properties at affordable prices. Government is also taking an active interest in promoting these cities as investment options to decongest Tier I cities and to ensure more uniform development." He adds that growing congestion in the metros has forced governments and corporates to seek alternatives in smaller cities, and this has in turn boosted demand for real estate in them. Some of these cities, with their rapid pace of development, present attractive opportunities to real estate developers.
Venturing where few private players have gone before, India's largest realty firm, DLF, is planning to build one lakh affordable houses, which would cost less than Rs 20 lakh, in major cities across the country. It has also plans to cut its debt by half, to Rs 6,200 crore, by the end of this fiscal year. "Launch of new 'value' housing segment with a distinct brand is under planning," according to an analyst presentation posted on the DLF website. At present, DLF builds apartments under two segments - luxury and premium (midincome).
In a conference call with investors and analysts, DLF vice-chairman Rajiv Singh said the company plans to launch 3-4 million sq ft in 2010 under 'value' housing and expects a margin of 25-30% from this segment. He said the company is still working on the details.
In the face of growing incidents of protests against land acquisition, the Centre has asked states to ensure that industrial sites be allotted in such a way that no stakeholder is left unhappy. The issue came up at the meeting of state industry secretaries, convened recently by the Department of Industrial Policy and Promotion (DIPP).
"The challenge before us is to see that land is readily available for industrial purposes and that everybody develops a stake in industrialization," said DIPP secretary, Ajay Shankar. He added that the land should be made available "in a manner so that nobody is unhappy with it". Several states, particularly in the eastern region, have witnessed widespread protests against land acquisition for industrial purposes.
The Centre is particularly concerned over delays due to problems in land acquisitions for large plans like Rs 1 lakh crore steel projects of ArcelorMittal in Orissa and Jharkhand, a source said. One of the proposals being debated is whether farmers parting with their assets should be made equity owners in the projects coming up on their land.
FOCAL POINT
Major players are once again dusting off their plans for smaller cities
One reason for investment flocking to smaller cities is the availability of properties at affordable prices. Government is also taking active interest in promoting these cities as investment options to decongest Tier I cities and ensure development.
Home is where the money is
The Economic Times, ET Realty, January 15, 2010, Page 21
Experts say residential sector will play a role in reviving real estate this year
As the year 2010 begins, it is heartening to note that homebuyers are taking the lead in reviving the realty market. Looking forward, it is almost certain that the residential sector will continue to play a major role in shaping future growth in the sector. For homebuyers, this also means that developers are going out of their way to woo customers, with projects to suit different tastes and budgets.
Talking about the phenomenon, Kaustuv Roy, executive director, India, Cushman and Wakefield, the international property consultants says, "Post meltdown, the residential sector has been the fastest to recover with stabilisation of prices being the major factor. The oversupply percentage was lower compared to other sectors, where estimates were much higher than the actual demand."
A similar note was struck by Anuj Puri, country head, Jones Lang LaSalle Meghraj. In a December 2009 report by Cityscape Intelligence, he says, "Although many large retailers are back in the market and pursuing growth cautiously, it is the residential sector which is undoubtedly the revival king, striking a high note over the last one and-a-half quarters, with pent-up demands bubbling over into hardcore sales and committed enquiries. The residential revival is by far most sustainable." The actual players in the market, the developers, also feel the same. Jayant Gehi, general manager, Mayfair Housing says, "I couldn't agree more the residential sector will lead this has already started, as in the last six months major consumers came from this segment. Although recently we have seen signs of revival in the commercial and retail sector too, at the helm of it all, residential spaces would find the greatest number of buyers. India needs too many homes and there are too few at the moment. Supply would increase as the government and banks are taking interest in augmenting the sector."
Manju Yagnik, vice-chairperson, Nahar Group, adds, "Banks are supporting residential projects with loans and tieups. In fact the commercial projects are kept under lock and key as they were made for IT and foreign companies, which have put their plans to enter India on hold since recession.” Brotin Banerjee, CEO and MD, Tata Housing, says, "The Indian residential market has certainly been leading the way to recovery.”
Rs 30k cr loans may turn bad in 10
The Hindustan Times, January 15, 2010, Page 24
Pradeep Thakur TNN
New Delhi: Indian banks appear to have saddled themselves with significant liabilities with a report pointing to big accumulation of non-performing assets (NPAs) in 2010.
On Monday, global rating agency Fitch warned that NPAs of banks were likely to go up by 1%. The report has made specific reference to restructured loans, saying that credit worth Rs 30,000 crore in this category alone could turn bad by next year when two-thirds of them are expected to mature.
The caution comes in the wake of RBI’s advisory to banks to be more prudent in extending credit on teaser rates. During 2008-09 and in the first quarter of 2009-10, banks on an average restructured 4.4% of their total loans, up from 0.71% in 2007-08. Restructuring was mostly in the form of rescheduling principal for a period of 12 to 24 months, thereby giving the borrowers time to see off the downturn.
In 2009, besides lowering interest rates, many of these banks had restructured their existing loan portfolios of the commercial real estate due to rising inventories and financial crunch faced by the sector. While overall the NPAs of banks had increased from Rs 55,800 crore on March 31, 2008 to Rs 66,900 crore in March 2009, the credit extended to commercial real estate went up phenomenally.
The total outstanding credit to the commercial real estate of Indian banks, both government-owned and private, at the end of March 2009 was Rs 91,500 crore as against Rs 63,000 crore till March 2008. This was not only an increase of 45% over the previous year but was more than double the amount of Rs 44,000 crore exposure of these banks during the boom period of 2007.
The major portion of this huge lending came from the government banks. This despite the fact that the RBI had prescribed regulatory limits on banks exposure to individual and group borrowers as a preventive measure given the ongoing sub-prime crisis in the western world. A part of this growth was also due to the existing loan portfolio being restructured by banks for the failure of borrowers to pay.
Thursday, January 14, 2010
Stimulus may be pulled out in two phases
Stimulus may be pulled out in two phases
The Economic Times, January 14, 2010, Page 1
Deepshikha Sikarwar NEW DELHI
THE government may return to pre-crisis indirect tax rates in two phases beginning April, as it weighs potential derailing of economic recovery if this is done at one go in the government’s eagerness to move towards fiscal prudence.
The partial rollback suggestion figured in the first round of pre-budget consultations between Prime Minister Manmohan Singh, finance minister Pranab Mukherjee and other policymakers recently, a senior government official privy to the debate told ET.
Now that the economic growth appears to be firm with strong industrial output data, officials are looking to roll back easy policy measures taken to save the economy from losing growth momentum because of a global recession. While those measures helped realise the goal, they pushed fiscal deficit to a 16-year high of 6.8% of GDP.
Corporate profits are soaring, consumers are spending, but lobby groups are advocating continuation of easy policies to avoid derailing the recovery.
“There is definitely no need to continue the stimulus for sectors that are doing well... an overdose of stimulus is also not good,” said DK Joshi, principal economist, Crisil.
The government had cut the cenvat rate to 10% from 14% in December 2008 and then by another 2 percentage points to 8% in the interim budget in February 2009. The service tax rate was cut to 10% from 12%.
The first round of hike in cenvat, or the median excise duty rate levied on nearly 90% of goods manufactured, and service tax is likely in the forthcoming budget, said the official. The second phase is yet to figure in discussions.
The government’s view on rollback is strengthened by the factors that point to the prospects of the economy returning to 9% growth after industrial production grew a strong 11.7% in November 2009, the highest in about two years. Sales of automobiles, cement and TV sets are soaring.
The top 50 companies on the S&P CNX Nifty index, including Maruti Suzuki and Hindalco, may report a 27% jump in earnings growth for the December quarter, a forecast by ETIG shows.
Affordable housing boom... or bust?
Affordable housing boom... or bust?
The Economic Times, January 14, 2010, Page 7
Over The Past Year, Many Developers Have Either Resized Or Called Off Projects On Low Buyer Response
Sobia Khan BANGALORE
IT STARTEDwith a big bang. Affordable housing ventures by popular realty groups promised what the middle-class could not even dream of. Owning a flat in one of the metros, at rates which were within their reach, was a dream too good to be true. But after the initial blitzkrieg, the real picture emerging is far from promising.
Here is a view of the current affordable realty landscape. Bangalore-based Golden Gate Properties, which planned to launch 2,500 affordable apartments under the Commune brand, has called off its project. The firm, which planned to invest Rs 2,000 crore in its affordable ventures in Bangalore and Hyderabad, has done so mainly because of low bookings, states an employee at the company. The fate of its other ventures in Bangalore and Hyderabad also hangs in limbo.
Similarly, Gurgaon-based Omaxe, which had set up a subsidiary—National Affordable Housing and Infrastructure—to build cheap houses, is yet to launch its Bangalore project. The firm had plans to roll out apartments in the Rs 3-18 lakh range around Bangalore during the first phase. An email query to the company remains unanswered.
Omaxe had announced that it would roll out 10 lakh units across India. But only two projects in Faridabad have taken off. Its plans to invest Rs 8,000 crore in affordable housing projects across India seem to remain only on paper.
And for groups like Ozone, floated by the promoters of Reliance Industries and HDFC Venture Fund, the going has been slow. Sources say the company has managed to sell just 30% of its apartments (in the range of Rs 29-30 lakh) since its launch in January 2009. Despite the attractive price range, it has sold only 280 of its 912 units in Ozone Evergreen in Bangalore. S Vasudevan, MD, Ozone Group, however, insists that the off-take has not been that slow.
The Brigade group is also facing a lukewarm response from the market. “The company has received expressions of interest only for 900 apartments. Though the price is affordable, the distance (it’s located in a far-flung location) is making it unviable for buyers,” a source said. However, the company claims to have received 2,000 expressions of interest for its value homes. The firm plans to set up four affordable housing projects totalling 10,000 units across Bangalore in the next 6-12 months.
Similarly, CSC Construction, a recent entrant in the value home market with three housing projects, is also believed to be facing challenges. CSC which launched 2,180 units in mid-2008, is now setting up only 1,000 units. However, PC Sukanand, MD, CSC Constructions clarifies: “The response for all our projects have been good. We resized the projects due to legal issues.”
Over the past one year, developers have either resized or called off projects due to low buyer response. Digging deep into the reasons for this, realty analysts like Amit Bagaria, chairman of real estate consultancy firm Asipac, said, “Affordable housing will only work in locations which are easily commutable and has social infrastructure. Transparent pricing is also another important element.”
According to real estate consultancy firm Knight Frank, good connectivity to work places is the most important factor influencing buyers’ decision in selecting their residence. Pranay Vakil, chairman, Knight Frank, says: “Some projects were launched with the expectation that they can influence connectivity.” The Knight Frank survey also revealed that developers have to pay external and internal development charges to the government which are ultimately passed on to the consumer thus increasing the overall cost of a house. “The EDC and IDC costs coupled with the high transaction cost and stamp duty can go as high as Rs 350-400 per sq ft which is transferred on to the end-user by the developer,” the report stated.
However, there have been a lucky few like the Patel Realty India’s project in Bangalore which sold 800 units out of its 1,000 affordable apartments in its Bangalore projects within 50 days of its launch. Similarly, Puravankara claims to have sold 700 of its 1,120 apartment in the first phase in Bangalore. In Chennai, it claims to have sold out 900 of the total 1,000 apartments. However, industry sources said the firm has so far sold out only 300 units and is struggling to sell the remaining apartments in the market.
HIGH HOPES
Bangalore-based Golden Gate, which planned 2,500 affordable apartments under the Commune brand, has called off its project
Omaxe had announced it would roll out 10 lakh units across the country. But only two projects in Faridabad have taken off
Ozone has managed to sell just 30% of its apartments (in the range of Rs 29-30 lakh) since its launch in January 2009
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