Tuesday, May 12, 2009
Economy to bounce back, 9% growth within 6 mths: Mohan
Economy to bounce back, 9% growth within 6 mths: Mohan
The Financial Express, May 12, 2009, Page 2
fe Bureau, Mumbai
Unwinding of monetary as well as the fiscal policy would happen only after the global economy gets rekindled, says RBI deputy governor Rakesh Mohan.
“It is obviously the case that given the kind of expansion that has taken place in the balance sheets in some of the most significant Central banks of the world, unwinding would be done when needed,” he said on the sidelines of 101st annual general meeting of the Indian Merchants Chamber in Mumbai on Monday.
Mohan who predicted that India is likely to bounce back to 9% growth within six months time, said the speed of the downturn of the global economy has been arrested although the global economy is not yet witnessing an upturn.
One of the on-going consequences of the current crises will be that a great deal of re-thinking would happen within governments and Central banks as to how monetary policies ought be conducted, how financial sector regulations should be done, how these two are related etc.
Responding to the media criticism on his `alleged conservative attitude’ while framing the policies in the RBI , he said, “It’s to be noted that doing reform in the country’s real sector is far different than pursuing reforms in the sensitive financial services sector. It’s good to sacrifice some of the ardent reformative approaches many a times in the interest of the nation.” Mohan said
Listing the lessons, the world needs to learn from the recent downturn, he said, “We should now avoid high volatility in monetary policies and take appropriate response of monetary policy to asset prices. One has to manage capital flow volatility, look for signs of over leveraging and go for active dynamic financial regulations. Also, one has to actively look for regulatory arbitrage incentives or possibilities.’’
Commenting on his resignation from the Central bank, he said, “I receive an offer from the American University that I could not refuse. Every one has to have a time to retire and so I did.”
Shankar Acharya, honorary professor, Indian Council for Research on International Economic Relations said that the current fiscal would be a bad year for India. the slow and painful recovery would happen after 2010 probably. In this fiscal, the country would grow at 5-6% and 7-8% growth is likely in medium to longer run.
The Financial Express, May 12, 2009, Page 2
fe Bureau, Mumbai
Unwinding of monetary as well as the fiscal policy would happen only after the global economy gets rekindled, says RBI deputy governor Rakesh Mohan.
“It is obviously the case that given the kind of expansion that has taken place in the balance sheets in some of the most significant Central banks of the world, unwinding would be done when needed,” he said on the sidelines of 101st annual general meeting of the Indian Merchants Chamber in Mumbai on Monday.
Mohan who predicted that India is likely to bounce back to 9% growth within six months time, said the speed of the downturn of the global economy has been arrested although the global economy is not yet witnessing an upturn.
One of the on-going consequences of the current crises will be that a great deal of re-thinking would happen within governments and Central banks as to how monetary policies ought be conducted, how financial sector regulations should be done, how these two are related etc.
Responding to the media criticism on his `alleged conservative attitude’ while framing the policies in the RBI , he said, “It’s to be noted that doing reform in the country’s real sector is far different than pursuing reforms in the sensitive financial services sector. It’s good to sacrifice some of the ardent reformative approaches many a times in the interest of the nation.” Mohan said
Listing the lessons, the world needs to learn from the recent downturn, he said, “We should now avoid high volatility in monetary policies and take appropriate response of monetary policy to asset prices. One has to manage capital flow volatility, look for signs of over leveraging and go for active dynamic financial regulations. Also, one has to actively look for regulatory arbitrage incentives or possibilities.’’
Commenting on his resignation from the Central bank, he said, “I receive an offer from the American University that I could not refuse. Every one has to have a time to retire and so I did.”
Shankar Acharya, honorary professor, Indian Council for Research on International Economic Relations said that the current fiscal would be a bad year for India. the slow and painful recovery would happen after 2010 probably. In this fiscal, the country would grow at 5-6% and 7-8% growth is likely in medium to longer run.
CPI, WPI-based inflation seen converging
CPI, WPI-based inflation seen converging
The Hindu Business Line, May 12, 2009, Page 15
The Hindu Business Line, May 12, 2009, Page 15
Expected to be at around 5% by end of 2009-10.
K.R. Srivats, New Delhi
Former Reserve Bank of India (RBI) Governor, Dr Y.V. Reddy, sees the wholesale price index (WPI) and the consumer price index (CPI) converging around five per cent by end of fiscal 2009-10.
“I am sticking my neck out. My own hunch is they (WPI and CPI) will converge. CPI will start coming down,” Dr Reddy told Business Line in an interview. He is here to launch his book India and the Global Financial Crisis: Managing Money and Finance.
Asked the basis for such a prediction, Dr Reddy said that it was the lagged effect of the various price changes that had happened. He also said that his comment on convergence was without reference to the spillover consequences of monetary and fiscal measures.
“WPI and CPI should be looked together and you should look at it for the next 12-18 months. One should recognise that it (convergence) is possible,” he said.
On inflation expectations, Dr Reddy said that given our history, it is very difficult to convince people that in India there is deflation threat or inflation is coming down. “I agree that there is an exit problem for fiscal and monetary… but we have multiple instruments and it should be possible to handle excess liquidity”.
Asked to comment about the central bank’s decision to raise interest rates in June 2008, Dr Reddy replied “please read my book”.
On RBI
In his introduction to the book, Dr Reddy writes that RBI taking responsibility, even if decisions had been taken in deference to the government’s wishes, is relevant both for the conduct of monetary policy and select actions on the regulatory front.
“The RBI articulated a need for careful consideration of the monetary policy in response to high inflation, as explained in detail in the governor’s remarks on inflation in Pune on June 23, 2008. However, the RBI announced monetary measures on June 24, 2008. Both statements explained in detail the dilemmas and time-dimensions involved, and indicated the complexities in the conduct of monetary policy and communications with the financial markets.
“These statements illustrate that once expectations had been built in financial markets around the government’s preferences, which is what happened vis-À-vis that led to the statements made above, the RBI had to fulfill those expectations as far as possible to avoid giving an impression of serious differences”
To a question on ‘financial protectionism’ in developed countries, Dr Reddy said that his book had “very clearly” addressed this topic. He highlighted that the global wisdom on the financial sector was changing and global rules of the game were likely to change.
“Financial institutions in advanced economies are now being heavily subsidised (capital). The earlier rules of the game were based on the assumption that there was a level playing field and government should not interfere.
“Now you have a situation, where it is quite possible that reasonably healthy banks in developed economies will also be taken over. Because… the level-playing field has been removed. This also applies to free trade agreements where there are financial services agreements. All of them were based on the ground that markets were operating normally with a level-playing ground”.
K.R. Srivats, New Delhi
Former Reserve Bank of India (RBI) Governor, Dr Y.V. Reddy, sees the wholesale price index (WPI) and the consumer price index (CPI) converging around five per cent by end of fiscal 2009-10.
“I am sticking my neck out. My own hunch is they (WPI and CPI) will converge. CPI will start coming down,” Dr Reddy told Business Line in an interview. He is here to launch his book India and the Global Financial Crisis: Managing Money and Finance.
Asked the basis for such a prediction, Dr Reddy said that it was the lagged effect of the various price changes that had happened. He also said that his comment on convergence was without reference to the spillover consequences of monetary and fiscal measures.
“WPI and CPI should be looked together and you should look at it for the next 12-18 months. One should recognise that it (convergence) is possible,” he said.
On inflation expectations, Dr Reddy said that given our history, it is very difficult to convince people that in India there is deflation threat or inflation is coming down. “I agree that there is an exit problem for fiscal and monetary… but we have multiple instruments and it should be possible to handle excess liquidity”.
Asked to comment about the central bank’s decision to raise interest rates in June 2008, Dr Reddy replied “please read my book”.
On RBI
In his introduction to the book, Dr Reddy writes that RBI taking responsibility, even if decisions had been taken in deference to the government’s wishes, is relevant both for the conduct of monetary policy and select actions on the regulatory front.
“The RBI articulated a need for careful consideration of the monetary policy in response to high inflation, as explained in detail in the governor’s remarks on inflation in Pune on June 23, 2008. However, the RBI announced monetary measures on June 24, 2008. Both statements explained in detail the dilemmas and time-dimensions involved, and indicated the complexities in the conduct of monetary policy and communications with the financial markets.
“These statements illustrate that once expectations had been built in financial markets around the government’s preferences, which is what happened vis-À-vis that led to the statements made above, the RBI had to fulfill those expectations as far as possible to avoid giving an impression of serious differences”
To a question on ‘financial protectionism’ in developed countries, Dr Reddy said that his book had “very clearly” addressed this topic. He highlighted that the global wisdom on the financial sector was changing and global rules of the game were likely to change.
“Financial institutions in advanced economies are now being heavily subsidised (capital). The earlier rules of the game were based on the assumption that there was a level playing field and government should not interfere.
“Now you have a situation, where it is quite possible that reasonably healthy banks in developed economies will also be taken over. Because… the level-playing field has been removed. This also applies to free trade agreements where there are financial services agreements. All of them were based on the ground that markets were operating normally with a level-playing ground”.
Cautious and tightfisted
Cautious and tightfisted
Business Standard, the strategist, May 12, 2009, Page 1
Byravee Iyer / Mumbai
As the downturn tightens its grip, consumers shy away from spending. Consumer confidence takes a beating in India and the world over.
In the October 2008 round of the Nielsen Global Consumer Confidence Survey, things still looked upbeat. The financial markets were facing their worst crunch ever. Still, India was way ahead of the pack as the nation of most confident consumers on earth. Its score of 114 on the Nielsen Consumer Confidence Index was several laps ahead of the global average of 84.
The latest edition of the Nielsen survey shows that the confidence of the Indian consumer has been seriously dented, notwithstanding the government’s fiscal stimulus and stray signs of economic recovery. India has ceded the top spot to Indonesia. It is now, in fact, ranked third — Denmark has come second.
Worse still, it has now become a part of the double-digit consumer confidence crowd. At 99, 15 points lesser than last time, it is the lowest India has scored in the last six rounds of the survey. (The fall this time round has been steeper; in the previous round, it had fallen eight points from 122.) The elite club of triple-digit consumer confidence countries now has only two members — Indonesia (104) and Denmark (102).
Gloom and hope
Meanwhile, global consumer confidence has fallen seven points to 77. (As a result, the gap between India’s score and the global average is now down to 22 from 30 in the last round.) No fewer than 49 of the 50 countries surveyed have registered a fall in consumer confidence. Taiwan is the only country to go against the grain — its consumer confidence is up three notches to 63.
To add to the gloom, about 77 per cent of consumers surveyed by Nielsen globally think their economy is in recession, up from 63 per cent in October last year.
In India, only 28 per cent of the respondents think their economy is not in recession. (Technically, India is facing a slowdown in growth and not a recession where there is a decline in the gross domestic product.) In other words, as many as 72 per cent could feel India is in recession. (In contrast, 65 per cent of Chinese polled in the survey feel their economy is not in recession.) Of those who believe the country is in recession, more than half (56 per cent) think it will come out of recession in the next 12 months.
On their part, several leading producers of consumer goods say sales are robust and at least the next three months look good. (Few companies now venture to predict the future beyond a quarter, thanks to the market volatilities of the past six months.) “At Samsung, we have not seen drop in sales for any product category. In fact, at the end of the first four months of the year, we are still maintaining growth of over 25 per cent in terms of our sale of consumer electronics,” says Samsung India Deputy Managing Director Ravinder Zutshi.
Maruti Suzuki Chairman R C Bhargava had recently said that his company, which is the country’s largest producer of cars, had seen record production in March and things looked good for the next three months. Pawan Munjal, the managing director and CEO of Hero Honda, India’s largest two-wheeler company, says sales are looking good till the next festival season which will end with Diwali in North India some time in November. “We should grow at a healthy pace till then,” says he.
Much of this growth of course is going to come from small towns and villages — markets that haven’t borne the brunt of the economic slowdown. Good rains, the farm loan waiver and the rural welfare schemes have all added to the purchasing power there. Still, it has failed to lift the mood of the Indian consumer, the Nielsen survey shows.
On the jobs front, India is the second most optimistic country in the world after Indonesia. Six per cent Indians believe this is an excellent time for jobs, while as many as 41 per cent feel it is a good time for jobs. This is not surprising since India has not seen the kind of large-scale layoffs that have happened in the West. “If you are an employee, Asia is the place to be. And in Asia, India is the place to be,” says Mercer Asia Pacific Head Peter Promnitz. Conservative Indian companies are still handing out conservative annual increments. Consequently, 62 per cent of the Indians surveyed are optimistic about their personal finances over the next 12 months. Little surprise then, 40 per cent Indians say this is a good time to buy the things they want or need.
“I would say that the consumer has certainly become cautious in his spending. Impulse purchase may have come down. However, need-based purchase still continues, which has contributed to growth in the sector,” explains Samsung’s Zutshi.
Savings spree
But that hardly makes Indian consumers big spenders of money, according to the Nielsen survey, for a majority of them now prefer to put their spare cash into savings. As many as 66 per cent of those polled say they will save, up from 58 per cent in the last Nielsen survey. Thirty-three per cent say they will also invest in shares and mutual funds, down from 42 per cent last time. Twenty-two per cent will also put their money into retirement funds, up from 20 per cent in the previous survey. The import is significant — people are nervous about the stock markets and feel retirement planning is a better way to secure the future.
Indians, therefore, are tightfisted when it comes to buying new clothes, going on holidays, as well as spending on out-of-home entertainment and home improvement. It’s safe to assume that Indian consumers are cautiously optimistic.
Beating India in the savings department are Singapore and Hong Kong at 75 per cent and 74 per cent, respectively. In fact, nearly half the global respondents (48 per cent) say they will now put spare money into their savings kitty. This is two percentage points more than the last round of the survey. Paying off debts too has risen two percentage points to 32 per cent. The downturn, it appears, has had a serious impact on lifestyle in many parts of the world. No doubt, extravagance has stalled and the population of individuals with no spare cash has risen. Only retirement fund investments remain flat at 10 per cent.
Things are different in China, Thailand and Singapore as citizens of these countries still burn their spare cash on holidays and vacations. Retail therapy continues to pay off in Russia, Brazil and China as more than 35 per cent of respondents there say they will spend their money on new clothes.
What worries?
When it comes to concerns, India has quite a few, including job security and the economy. Job security is the biggest concern for big savers in Singapore, Hong Kong, UAE, Vietnam, Spain and Hungary. The global concern over job security is up from 9 per cent to 22 per cent.
India is the second-most worried nation when it comes to terrorism. Sixteen per cent Indians say it is their top-most concern. The November terror attacks on Mumbai and the rise of the Taliban in neighbouring Pakistan have shaken them.
Overall, the biggest global concern is the economy, which is up from 20 points to 23 points. Another leading concern is increasing fuel prices, particularly for the US — the world’s largest fuel consumer. France, Russia and New Zealand are most concerned about increasing food prices. Footloose and fancy-free are The Netherlands, Norway and Denmark with no concerns at all.
Business Standard, the strategist, May 12, 2009, Page 1
Byravee Iyer / Mumbai
As the downturn tightens its grip, consumers shy away from spending. Consumer confidence takes a beating in India and the world over.
In the October 2008 round of the Nielsen Global Consumer Confidence Survey, things still looked upbeat. The financial markets were facing their worst crunch ever. Still, India was way ahead of the pack as the nation of most confident consumers on earth. Its score of 114 on the Nielsen Consumer Confidence Index was several laps ahead of the global average of 84.
The latest edition of the Nielsen survey shows that the confidence of the Indian consumer has been seriously dented, notwithstanding the government’s fiscal stimulus and stray signs of economic recovery. India has ceded the top spot to Indonesia. It is now, in fact, ranked third — Denmark has come second.
Worse still, it has now become a part of the double-digit consumer confidence crowd. At 99, 15 points lesser than last time, it is the lowest India has scored in the last six rounds of the survey. (The fall this time round has been steeper; in the previous round, it had fallen eight points from 122.) The elite club of triple-digit consumer confidence countries now has only two members — Indonesia (104) and Denmark (102).
Gloom and hope
Meanwhile, global consumer confidence has fallen seven points to 77. (As a result, the gap between India’s score and the global average is now down to 22 from 30 in the last round.) No fewer than 49 of the 50 countries surveyed have registered a fall in consumer confidence. Taiwan is the only country to go against the grain — its consumer confidence is up three notches to 63.
To add to the gloom, about 77 per cent of consumers surveyed by Nielsen globally think their economy is in recession, up from 63 per cent in October last year.
In India, only 28 per cent of the respondents think their economy is not in recession. (Technically, India is facing a slowdown in growth and not a recession where there is a decline in the gross domestic product.) In other words, as many as 72 per cent could feel India is in recession. (In contrast, 65 per cent of Chinese polled in the survey feel their economy is not in recession.) Of those who believe the country is in recession, more than half (56 per cent) think it will come out of recession in the next 12 months.
On their part, several leading producers of consumer goods say sales are robust and at least the next three months look good. (Few companies now venture to predict the future beyond a quarter, thanks to the market volatilities of the past six months.) “At Samsung, we have not seen drop in sales for any product category. In fact, at the end of the first four months of the year, we are still maintaining growth of over 25 per cent in terms of our sale of consumer electronics,” says Samsung India Deputy Managing Director Ravinder Zutshi.
Maruti Suzuki Chairman R C Bhargava had recently said that his company, which is the country’s largest producer of cars, had seen record production in March and things looked good for the next three months. Pawan Munjal, the managing director and CEO of Hero Honda, India’s largest two-wheeler company, says sales are looking good till the next festival season which will end with Diwali in North India some time in November. “We should grow at a healthy pace till then,” says he.
Much of this growth of course is going to come from small towns and villages — markets that haven’t borne the brunt of the economic slowdown. Good rains, the farm loan waiver and the rural welfare schemes have all added to the purchasing power there. Still, it has failed to lift the mood of the Indian consumer, the Nielsen survey shows.
On the jobs front, India is the second most optimistic country in the world after Indonesia. Six per cent Indians believe this is an excellent time for jobs, while as many as 41 per cent feel it is a good time for jobs. This is not surprising since India has not seen the kind of large-scale layoffs that have happened in the West. “If you are an employee, Asia is the place to be. And in Asia, India is the place to be,” says Mercer Asia Pacific Head Peter Promnitz. Conservative Indian companies are still handing out conservative annual increments. Consequently, 62 per cent of the Indians surveyed are optimistic about their personal finances over the next 12 months. Little surprise then, 40 per cent Indians say this is a good time to buy the things they want or need.
“I would say that the consumer has certainly become cautious in his spending. Impulse purchase may have come down. However, need-based purchase still continues, which has contributed to growth in the sector,” explains Samsung’s Zutshi.
Savings spree
But that hardly makes Indian consumers big spenders of money, according to the Nielsen survey, for a majority of them now prefer to put their spare cash into savings. As many as 66 per cent of those polled say they will save, up from 58 per cent in the last Nielsen survey. Thirty-three per cent say they will also invest in shares and mutual funds, down from 42 per cent last time. Twenty-two per cent will also put their money into retirement funds, up from 20 per cent in the previous survey. The import is significant — people are nervous about the stock markets and feel retirement planning is a better way to secure the future.
Indians, therefore, are tightfisted when it comes to buying new clothes, going on holidays, as well as spending on out-of-home entertainment and home improvement. It’s safe to assume that Indian consumers are cautiously optimistic.
Beating India in the savings department are Singapore and Hong Kong at 75 per cent and 74 per cent, respectively. In fact, nearly half the global respondents (48 per cent) say they will now put spare money into their savings kitty. This is two percentage points more than the last round of the survey. Paying off debts too has risen two percentage points to 32 per cent. The downturn, it appears, has had a serious impact on lifestyle in many parts of the world. No doubt, extravagance has stalled and the population of individuals with no spare cash has risen. Only retirement fund investments remain flat at 10 per cent.
Things are different in China, Thailand and Singapore as citizens of these countries still burn their spare cash on holidays and vacations. Retail therapy continues to pay off in Russia, Brazil and China as more than 35 per cent of respondents there say they will spend their money on new clothes.
What worries?
When it comes to concerns, India has quite a few, including job security and the economy. Job security is the biggest concern for big savers in Singapore, Hong Kong, UAE, Vietnam, Spain and Hungary. The global concern over job security is up from 9 per cent to 22 per cent.
India is the second-most worried nation when it comes to terrorism. Sixteen per cent Indians say it is their top-most concern. The November terror attacks on Mumbai and the rise of the Taliban in neighbouring Pakistan have shaken them.
Overall, the biggest global concern is the economy, which is up from 20 points to 23 points. Another leading concern is increasing fuel prices, particularly for the US — the world’s largest fuel consumer. France, Russia and New Zealand are most concerned about increasing food prices. Footloose and fancy-free are The Netherlands, Norway and Denmark with no concerns at all.
Another nano from Tatas
Another nano from Tatas
The Economic Times, May 12, 2009, Page 12
A Big Boost For Affordable Housing
TATA’S Nano experiment could become a movement in reaching affordable products to the bottom of the consumer pyramid. It is indeed heartening that the Tatas are extending the concept of Nano to housing. Tata Housing, a subsidiary of Tata Sons, has announced a project near Mumbai that would build homes costing Rs 3.9 lakh and Rs 6.7 lakh. Tata’s foray into housing at the lower end underlines the increasing realisation that demand is a lot more stable in the lower income groups. These groups have their own income-expenditure dynamics that is not fully exposed to the vagaries of the increasingly globalised Indian economy. Telecom, though not in the same category as housing, is a good example of the robust demand at the lower end. As telecom operators have moved away from the saturated urban markets to small towns and rural areas, growth has accelerated — subscriber additions crossed 15 million in March. True, every additional subscriber lowers their average realisation per subscriber, but there is addition to the bottom line too. Similarly, houses in sub-Rs 10 lakh category may not carry big margins, but the demand is bound to be massive. Even the government estimates the bulk of the 25 million housing unit shortage to be in the lower income category.
The entry of a large and credible corporate such as the Tatas at the lower end of the market can crystallise this potential demand. More importantly, it could galvanise other serious developers to come into this segment and drop prices to gain market share. Though companies like DLF and Unitech are going into more affordable housing, they are nowhere near testing the market for under Rs 10-lakh housing unit. For this to happen policy must also create an enabling framework. Clear property titles and relationships with financiers would enable a big developer to arrange funds for their buyers. The government will have to free up land for creating more towns. Availability of more land would bring down prices. Tatas’ housing project, for instance, is about 100 km away from Mumbai. An efficient mass rapid transport system can make such projects more attractive to those who cannot afford housing within the city limits.
No loans, DDA to buy Games Village flats
No loans, DDA to buy Games Village flats
The Times of India, May 12, 2009, Page 5
New Deal To Translate Into Rs 700-Crore Bailout Package For Recession-Hit Developer
TIMES NEWS NETWORK
New Delhi: After weeks of uncertainty, DDA has finalized a bailout formula for the Commonwealth Games Village project, mired in financial difficulties caused by the recession.
The project had got stuck mid-way as the builders — Emaar MGF — failed to raise the required funds. It will now be given a boost of about Rs 700 crore. This fund, says DDA, will not be a loan but the purchase price of 333 flats that it will buy from Emaar MGF. A part of the fund, which will be given in installments based on various stages of completion of the project, will be handed over immediately.
DDA spokesperson Neemo Dhar maintained that the fund was not to be seen as a loan, but as a price for the flats which DDA will dispose of later along with the flats that were to be handed over to the agency as a part of the original deal. Dhar said: ‘‘Out of the 1100 flats that are to be built, two-thirds were to be handed over to us after completion. Now, the 333 flats will form an additional part of the number which will be coming to DDA.’’
Meanwhile, Emaar MGF is heaving a sigh of relief as the project gets off the ground once again. When tenders were floated for the project, the company had signed the deal at a staggering Rs 435 crore for the land alone. The deal required the project to be built by the company, with the clause that it would sell off its share of flats at market rates to raise funds. However, its attempt to sell the flats ran into a financial wall earlier this year. The flats, which were being offered at a market price of Rs 12,500 per square foot, reportedly found few buyers prompting Emaar MGF to go to DDA for a bailout.
Emaar MGF spokesperson said: ‘‘DDA’s decision to invest in the Games Village is a very positive development and signifies the national importance of the project. This move is a firm step in ensuring the completion of the prestigious Village.’’ He added that the company was ‘‘committed to the timely delivery of the Games Village’’. Incidentally, the land development body is now purchasing the flats at Rs 11,000 per sq ft, a rate that was arrived at by a panel of experts from HUDCO, CPWD, NDCC and DDA.
The Times of India, May 12, 2009, Page 5
New Deal To Translate Into Rs 700-Crore Bailout Package For Recession-Hit Developer
TIMES NEWS NETWORK
New Delhi: After weeks of uncertainty, DDA has finalized a bailout formula for the Commonwealth Games Village project, mired in financial difficulties caused by the recession.
The project had got stuck mid-way as the builders — Emaar MGF — failed to raise the required funds. It will now be given a boost of about Rs 700 crore. This fund, says DDA, will not be a loan but the purchase price of 333 flats that it will buy from Emaar MGF. A part of the fund, which will be given in installments based on various stages of completion of the project, will be handed over immediately.
DDA spokesperson Neemo Dhar maintained that the fund was not to be seen as a loan, but as a price for the flats which DDA will dispose of later along with the flats that were to be handed over to the agency as a part of the original deal. Dhar said: ‘‘Out of the 1100 flats that are to be built, two-thirds were to be handed over to us after completion. Now, the 333 flats will form an additional part of the number which will be coming to DDA.’’
Meanwhile, Emaar MGF is heaving a sigh of relief as the project gets off the ground once again. When tenders were floated for the project, the company had signed the deal at a staggering Rs 435 crore for the land alone. The deal required the project to be built by the company, with the clause that it would sell off its share of flats at market rates to raise funds. However, its attempt to sell the flats ran into a financial wall earlier this year. The flats, which were being offered at a market price of Rs 12,500 per square foot, reportedly found few buyers prompting Emaar MGF to go to DDA for a bailout.
Emaar MGF spokesperson said: ‘‘DDA’s decision to invest in the Games Village is a very positive development and signifies the national importance of the project. This move is a firm step in ensuring the completion of the prestigious Village.’’ He added that the company was ‘‘committed to the timely delivery of the Games Village’’. Incidentally, the land development body is now purchasing the flats at Rs 11,000 per sq ft, a rate that was arrived at by a panel of experts from HUDCO, CPWD, NDCC and DDA.
Monday, May 11, 2009
Spreading their wings
Spreading their wings
HT Estates, May 9, 2009, Page 1
A slow moving property market has got sever al developers interest ed in businesses such as education and healthcare.
Diversification is being seen as the way out of the liquidity crunch, a means to bring in the much-needed cash flow. A foray into these so-called “safe” sectors is also a strategy to enhance the value of their core real estate business and draw buyers waiting in the wings to their townships.
While some firms have begun the sale of their noncore assets such as school and hospital plots on existing land banks to generate immediate cash flow, others are looking at these two sectors as a longterm opportunity.
Developers have realised that any residential township needs to have a mix of quality schools, hospitals and basic infrastructure such as power, telecom, water and sewage facilities to become a success. They are, therefore, looking at these verticals as money-spinners and opportunities that create a natural hedge within the group in times of a downturn. The premise is that people would continue to pay for quality education and healthcare.
Designing businesses around necessities is, therefore, the key to success — a natural and sustainable progression.
The popular model being adopted is that of a joint venture wherein the developer provides the basic infrastructure and specialists take over to run the facility. Realty experts say that developers going the JV way should look at a gestation period of 7-9 years before they start to get returns. The other way out is to sell a land parcel and immediately exit. This is comparatively an easy game as it brings in instant liquidity and works as long as the returns are good.
Turning adversity into opportunity
The huge demand supply gap is attracting realty players towards the education sector. While Unitech has announced the sale of school plots varying from 1000 yards to 5 acres for nursery primary and high , schools in South City II, Nirvana Country and Greenwood City, AEZ has recently acquired a 50 per cent stake in Mother’s Pride to help the education group in infrastructure development. The Gujarat government recently allotted 750 acres to Anantraj industries to develop an education city on the Ahmedabad Mehsana highway and Omega Realty, Ahmedabad, plans to set up business schools to be named United World School of Business with a proposed investment of Rs 105 crore.
According to Sanjeev J Aeren, MD, AEZ Group, “It makes business sense for realty players to get into creation of infrastructure for the education sector in these times.
For us, diversification has been a well thought-out strategy and we had started working on it even before the market had witnessed a slowdown.
Besides, diversification into this segment is a foray into more or less a recession-proof sector and is aimed at creating synergies in our fields.”
“The education sector offers tremendous growth potential. There is a shortage of supply in the education sector that we can successfully cater to. However, having been in the education sector for over 20 years now, it would not be fair to say that this is a path taken to overcome the liquidity crunch or beat the current market conditions as it is not a new venture for us. All our education initiatives are under the Chiranjeev Charitable Trust and not under Ansal API. The Trust is looking at investing about 200 crore in higher education in the near future,” points out Pranav Ansal, Vice Chairman and Managing Director, Ansal API. The group started its first school, Chiranjeev Bharti School in Gurgaon in 1991. Today it has three schools in Gurgaon with 4000 students. It runs the Sushant School of Art and Architecture and Ansal Institute of Technology It also has a tie up with e-learning service provider Educomp.
Jaypee Group has its own education division that is into developing schools and engineering institutes.
“Education institutes are a On the health highway Besides education, there are realty firms that are eyeing the healthcare pie. Both education and healthcare are an extension of realtors committing money on golf courses, entertainment facilities, power plants, telecom etc, during the bull run. Basic necessities are today seen as money-spinners, businesses not affected by cycles and a natural hedge within the group. The premise is that when your core is lying low and there is not much activity, the focus should be on getting the ancillary right.
Healthcare is a different ball game and works on specialised skill sets. The success of a healthcare facility in any township depends on brands and on renowned doctors who can draw crowds. There have been companies who've set up healthcare verticals prior to the slowdown and those who are considering it as an important component in their integrated townships.
“We are drawing up a healthcare strategy. We'll be constructing a super speciality, 450-bedded hospital in our township in Noida. This would be run by our own vertical. The hospital is slated to open in 2011,” reveals Dixit.
According to Harsh Neotia, Chairman of Ambuja Realty Development Ltd, “Our group got involved with healthcare and education much before the slowdown, these businesses have, therefore, not been prompted by recessionary trends but driven by our own interest in these two sectors. We've been into healthcare for the last seven years. We are currently constructing two super speciality hospitals in Siliguri and in Kolkata. For the Siliguri Integrated Township there is a multispeciality hospital project that will take two years to complete. My view is that one should get into different businesses based on one's understanding of the business and a credible partner.” The Emami group also has a separate healthcare vertical. The group is building several super speciality hospitals in Kolkata and one in Bhubaneswer under the brand name Amri hospitals.
D.N.Agarwal, Executive Director of AMRI Hospitals, says that though there are opportunities for realty players in the healthcare sector, those wanting to get into it should tread carefully as it is a long-term investment and manpower intensive. It's not simply about constructing a building, he adds. must for any integrated township. We plan to build a J P International School on our Noida project. Besides, there will be at least 15-20 schools inside the township,” says Rita Dixit, Executive Director, Jaypee Greens.
The business of education
HT Estates, May 9, 2009, Page 1
A slow moving property market has got sever al developers interest ed in businesses such as education and healthcare.
Diversification is being seen as the way out of the liquidity crunch, a means to bring in the much-needed cash flow. A foray into these so-called “safe” sectors is also a strategy to enhance the value of their core real estate business and draw buyers waiting in the wings to their townships.
While some firms have begun the sale of their noncore assets such as school and hospital plots on existing land banks to generate immediate cash flow, others are looking at these two sectors as a longterm opportunity.
Developers have realised that any residential township needs to have a mix of quality schools, hospitals and basic infrastructure such as power, telecom, water and sewage facilities to become a success. They are, therefore, looking at these verticals as money-spinners and opportunities that create a natural hedge within the group in times of a downturn. The premise is that people would continue to pay for quality education and healthcare.
Designing businesses around necessities is, therefore, the key to success — a natural and sustainable progression.
The popular model being adopted is that of a joint venture wherein the developer provides the basic infrastructure and specialists take over to run the facility. Realty experts say that developers going the JV way should look at a gestation period of 7-9 years before they start to get returns. The other way out is to sell a land parcel and immediately exit. This is comparatively an easy game as it brings in instant liquidity and works as long as the returns are good.
Turning adversity into opportunity
The huge demand supply gap is attracting realty players towards the education sector. While Unitech has announced the sale of school plots varying from 1000 yards to 5 acres for nursery primary and high , schools in South City II, Nirvana Country and Greenwood City, AEZ has recently acquired a 50 per cent stake in Mother’s Pride to help the education group in infrastructure development. The Gujarat government recently allotted 750 acres to Anantraj industries to develop an education city on the Ahmedabad Mehsana highway and Omega Realty, Ahmedabad, plans to set up business schools to be named United World School of Business with a proposed investment of Rs 105 crore.
According to Sanjeev J Aeren, MD, AEZ Group, “It makes business sense for realty players to get into creation of infrastructure for the education sector in these times.
For us, diversification has been a well thought-out strategy and we had started working on it even before the market had witnessed a slowdown.
Besides, diversification into this segment is a foray into more or less a recession-proof sector and is aimed at creating synergies in our fields.”
“The education sector offers tremendous growth potential. There is a shortage of supply in the education sector that we can successfully cater to. However, having been in the education sector for over 20 years now, it would not be fair to say that this is a path taken to overcome the liquidity crunch or beat the current market conditions as it is not a new venture for us. All our education initiatives are under the Chiranjeev Charitable Trust and not under Ansal API. The Trust is looking at investing about 200 crore in higher education in the near future,” points out Pranav Ansal, Vice Chairman and Managing Director, Ansal API. The group started its first school, Chiranjeev Bharti School in Gurgaon in 1991. Today it has three schools in Gurgaon with 4000 students. It runs the Sushant School of Art and Architecture and Ansal Institute of Technology It also has a tie up with e-learning service provider Educomp.
Jaypee Group has its own education division that is into developing schools and engineering institutes.
“Education institutes are a On the health highway Besides education, there are realty firms that are eyeing the healthcare pie. Both education and healthcare are an extension of realtors committing money on golf courses, entertainment facilities, power plants, telecom etc, during the bull run. Basic necessities are today seen as money-spinners, businesses not affected by cycles and a natural hedge within the group. The premise is that when your core is lying low and there is not much activity, the focus should be on getting the ancillary right.
Healthcare is a different ball game and works on specialised skill sets. The success of a healthcare facility in any township depends on brands and on renowned doctors who can draw crowds. There have been companies who've set up healthcare verticals prior to the slowdown and those who are considering it as an important component in their integrated townships.
“We are drawing up a healthcare strategy. We'll be constructing a super speciality, 450-bedded hospital in our township in Noida. This would be run by our own vertical. The hospital is slated to open in 2011,” reveals Dixit.
According to Harsh Neotia, Chairman of Ambuja Realty Development Ltd, “Our group got involved with healthcare and education much before the slowdown, these businesses have, therefore, not been prompted by recessionary trends but driven by our own interest in these two sectors. We've been into healthcare for the last seven years. We are currently constructing two super speciality hospitals in Siliguri and in Kolkata. For the Siliguri Integrated Township there is a multispeciality hospital project that will take two years to complete. My view is that one should get into different businesses based on one's understanding of the business and a credible partner.” The Emami group also has a separate healthcare vertical. The group is building several super speciality hospitals in Kolkata and one in Bhubaneswer under the brand name Amri hospitals.
D.N.Agarwal, Executive Director of AMRI Hospitals, says that though there are opportunities for realty players in the healthcare sector, those wanting to get into it should tread carefully as it is a long-term investment and manpower intensive. It's not simply about constructing a building, he adds. must for any integrated township. We plan to build a J P International School on our Noida project. Besides, there will be at least 15-20 schools inside the township,” says Rita Dixit, Executive Director, Jaypee Greens.
The business of education
Post slowdown, realtors are looking at education as an anchor to draw in population to their integrated townships.
Experts say that the model may operate well typically in a franchisee context. Education runs on brand or expertise and anchors help in drawing population. Many properties do not get sold because of lack of basic infrastructure such as power, roads, healthcare or education. Once these are provided, those waiting in the wings may be drawn to the townships.
Even in education, not all institutes are profitable. While the K plus 2 level is highly regularised, the play school and the PG diploma sector that requires specialised skill sets is highly profitable. These two segments are, therefore, clear opportunities, points out Ajit Krishnan, partner, Ernst & Young.
Also, there may be land parcels in integrated townships still vacant but earmarked for schools. This may be an opportunity to get rid of idle inventory and put it to profitable use, he adds.
Concurs Anuj Puri, Chairman and country head of Jones Lang LaSalle Meghraj; education is a recession proof sector and developers are looking at providing infrastructure to players in this segment.
“Foray into education or for that matter health care is more of an opportunistic play and a long term play at that. Realtors venturing into these sectors should look at a gestation period of 7-9 years before they can start looking at returns."
Realtors are seeing a steady revenue income from these ventures. If there is demand and a reasonable price on offer, things can work well in a joint venture, says Kaustav Roy, Director (tenant strategies), Cushman & Wakefield, India.
Agrees Sharad Aggarwal, president, Educomp. “Schools can be built by real estate companies but they also need to be run by experts. Joint ventures in this direction are an opportunity as long as both understand each other and are into a mutually beneficial relationship.”
Experts say that the model may operate well typically in a franchisee context. Education runs on brand or expertise and anchors help in drawing population. Many properties do not get sold because of lack of basic infrastructure such as power, roads, healthcare or education. Once these are provided, those waiting in the wings may be drawn to the townships.
Even in education, not all institutes are profitable. While the K plus 2 level is highly regularised, the play school and the PG diploma sector that requires specialised skill sets is highly profitable. These two segments are, therefore, clear opportunities, points out Ajit Krishnan, partner, Ernst & Young.
Also, there may be land parcels in integrated townships still vacant but earmarked for schools. This may be an opportunity to get rid of idle inventory and put it to profitable use, he adds.
Concurs Anuj Puri, Chairman and country head of Jones Lang LaSalle Meghraj; education is a recession proof sector and developers are looking at providing infrastructure to players in this segment.
“Foray into education or for that matter health care is more of an opportunistic play and a long term play at that. Realtors venturing into these sectors should look at a gestation period of 7-9 years before they can start looking at returns."
Realtors are seeing a steady revenue income from these ventures. If there is demand and a reasonable price on offer, things can work well in a joint venture, says Kaustav Roy, Director (tenant strategies), Cushman & Wakefield, India.
Agrees Sharad Aggarwal, president, Educomp. “Schools can be built by real estate companies but they also need to be run by experts. Joint ventures in this direction are an opportunity as long as both understand each other and are into a mutually beneficial relationship.”
Real Estate
Sustainable urban habitat: industry has to take the lead
Sustainable urban habitat: industry has to take the lead
The Financial Express, May 11, 2009, Page 5
fe Bureau
The title says it all. An exploration of sustainability in the provision of basic urban services in Indian cities, is true to its name. Brought out by The Energy and Resources Institute (Teri) in partnership with Sustainable Urbanism International and Arghyam, and with support from Rohini and Nandan Nilekani, the report not only highlights the state of affairs in cities, but also makes recommendations for making cities sustainable. Focusing on sectors like buildings, water, solid waste management, transport and power, the report also makes a case for engaging the private sector either on its own or through public-private partnerships (PPPs) in developing sustainable cities.
For example, corporates have a big role in the construction and maintenance of sustainable buildings. It also offers them strategic business opportunities. Companies can begin with themselves by converting their offices and residences into green buildings. Small, but institutionalised steps like annual water and energy audits would subsequently help in maintaining sustainability. It’s important because buildings consume 30-40 % of the global energy use and emit 24% of world CO2 emissions. About 90% of the energy is used for heating, cooling, lighting and other applications. Construction and material manufacture account for only 10% of the energy used. Improved energy efficiency measures alone can help reduce 30% of greenhouse gas emissions by 2020. Whether it’s industry or transport, all the sectors offer scope for emission reduction.
Similarly, having a preferential policy for purchasing green products would go a long way. Besides, manufacturers can produce resource efficient products, particularly electrical appliances. It’s desirable for companies to test, certify and label their products. Financial institutions can come out with innovating green products. MNCs can facilitate transfer of clean technology. More importantly, corporates and public-private organisations have a role in creating a market for greener products and technologies.
Referring to water, the report recommends laying down institutional mechanisms for PPPs in executing services contracts like billing and collection, management contracts like water treatment and mapping of distribution network. Similarly, in solid waste management, the private sector’s role has been underlined in service improvement and better cost recovery. It calls for capacity building of local bodies to enable them to appreciate the issues regarding processing facilities and landfills before they enter into contracts with the private sector. In fact, they have to be informed not only legally, but also technically.
Though the Teri report fills the knowledge gap in this area in the country, yet it’s only the first step in this direction. Says RK Pachauri, director-general, Teri, in the foreword to the report, “Clearly, recommendations for improved service delivery in cities cannot be complete without appropriate regulatory frameworks and institutional arrangements to empower city governments with adequate financial resources, institutional capacities, and more importantly, good governance practices.”
Making cities sustainable is important because half of the world population lives in cities. The proportion of people living in cities is projected to rise to 70% by 2050, according to the UN-Habitat. It will have significant impacts. Cities contribute the most to a nation’s GDP, which leads to corresponding level of energy consumption and CO2 emissions. So, cities, particularly production and services centres, hold the key to reduce CO2 emissions and check climate change. In cities, most of the energy is consumed by industry; residential and commercial buildings, and services and transport. It’s a little wonder that initiatives like UK’s Sustainable Cities Index 2008, UN-Habitat’s Sustainable Cities Programme and Clinton Climate Initiative’s C40 Large Cities Climate Leadership Group have sprung up worldwide.
The Financial Express, May 11, 2009, Page 5
fe Bureau
The title says it all. An exploration of sustainability in the provision of basic urban services in Indian cities, is true to its name. Brought out by The Energy and Resources Institute (Teri) in partnership with Sustainable Urbanism International and Arghyam, and with support from Rohini and Nandan Nilekani, the report not only highlights the state of affairs in cities, but also makes recommendations for making cities sustainable. Focusing on sectors like buildings, water, solid waste management, transport and power, the report also makes a case for engaging the private sector either on its own or through public-private partnerships (PPPs) in developing sustainable cities.
For example, corporates have a big role in the construction and maintenance of sustainable buildings. It also offers them strategic business opportunities. Companies can begin with themselves by converting their offices and residences into green buildings. Small, but institutionalised steps like annual water and energy audits would subsequently help in maintaining sustainability. It’s important because buildings consume 30-40 % of the global energy use and emit 24% of world CO2 emissions. About 90% of the energy is used for heating, cooling, lighting and other applications. Construction and material manufacture account for only 10% of the energy used. Improved energy efficiency measures alone can help reduce 30% of greenhouse gas emissions by 2020. Whether it’s industry or transport, all the sectors offer scope for emission reduction.
Similarly, having a preferential policy for purchasing green products would go a long way. Besides, manufacturers can produce resource efficient products, particularly electrical appliances. It’s desirable for companies to test, certify and label their products. Financial institutions can come out with innovating green products. MNCs can facilitate transfer of clean technology. More importantly, corporates and public-private organisations have a role in creating a market for greener products and technologies.
Referring to water, the report recommends laying down institutional mechanisms for PPPs in executing services contracts like billing and collection, management contracts like water treatment and mapping of distribution network. Similarly, in solid waste management, the private sector’s role has been underlined in service improvement and better cost recovery. It calls for capacity building of local bodies to enable them to appreciate the issues regarding processing facilities and landfills before they enter into contracts with the private sector. In fact, they have to be informed not only legally, but also technically.
Though the Teri report fills the knowledge gap in this area in the country, yet it’s only the first step in this direction. Says RK Pachauri, director-general, Teri, in the foreword to the report, “Clearly, recommendations for improved service delivery in cities cannot be complete without appropriate regulatory frameworks and institutional arrangements to empower city governments with adequate financial resources, institutional capacities, and more importantly, good governance practices.”
Making cities sustainable is important because half of the world population lives in cities. The proportion of people living in cities is projected to rise to 70% by 2050, according to the UN-Habitat. It will have significant impacts. Cities contribute the most to a nation’s GDP, which leads to corresponding level of energy consumption and CO2 emissions. So, cities, particularly production and services centres, hold the key to reduce CO2 emissions and check climate change. In cities, most of the energy is consumed by industry; residential and commercial buildings, and services and transport. It’s a little wonder that initiatives like UK’s Sustainable Cities Index 2008, UN-Habitat’s Sustainable Cities Programme and Clinton Climate Initiative’s C40 Large Cities Climate Leadership Group have sprung up worldwide.
Real Estate
Coming to terms with reality
Coming to terms with reality
The Hindu Business Line, May 10, 2009, Page 15
--------------------------------------------------------------------------------
There are positive signs in the market. New projects are being announced and residential construction is picking up. Slow but sure signs of a change for the better.
--------------------------------------------------------------------------------
R. Balaji
Getting the market to face reality is the biggest challenge confronting the realty sector today, according to Mr Kumar Gera, Chairman, Confederation of Real Estate Developers’ Associations of India (CREDAI). The market perception is being moulded by the media based on the performance of listed companies that represent a small fraction of the industry.
Mr Gera, who was in Chennai earlier this week, spoke to Business Line on a range of issues facing real estate developers, the market situation, the prevailing perception of the market, the proposed law to regulate developers, project funding, and infrastructure development to grow the peripheral areas in the urban centres.
Market perception
On market perception, Mr Gera says the challenge is getting the assessment as close to reality as possible. For now, the media focus has primarily been on listed companies whose information is in the public domain. The fact is that the couple of dozen listed companies together account for just about 5 per cent of the market share, but the “entire industry is being painted with the same brush.”
These companies also account for about 60 per cent of the debt from banks and financial institutions, which are biased by “the perception of transparency.” There is a mismatch in distribution of debt and the market share.
On the other hand, over 95 per cent of the market is with a large number of small players — partnerships, proprietor-run and joint venture companies. The bulk of the industry is represented by these “small players with a high equity in the business and little outside funding.”
So what is the reality or the developers’ perception of the market? “It is a buyers’ market,” says Mr Gera. Developers have adjusted to the market conditions. The market is not as bad as it was at the start of the year. Following the global financial crisis towards the end of last year everything came to a halt and the market hit a downturn. Banks were worried that asset prices would fall steeply and cut back on funding, insisted on higher margins to cover for a possible drop and potential customers decided against spending.
But now the market has adjusted to the change — prices are down, banks have brought down interest rates and customers are getting a good deal. There are positive signs in the market. New projects are being announced and residential construction is picking up. Slow but sure signs of a change for the better, he says.
Affordable segment
Affordable housing is one segment where there is some activity. This is not a well-defined segment — effectively, customers find it affordable when they see value for money. This category spans the entire gamut of the residential development and market segments. CREDAI is pushing for Special Residential Zones (SRZs) to bring in organised large-scale development of residential zone.
The governments have to bring in infrastructure and provide utilities upfront. But typically in most cities buildings come up first and people wait for water, power and sewerage facilities. Schemes such as the Jawarharlal Nehru Urban Renewal Mission have to be dovetailed with the development of SRZs.
When infrastructure is well spread out more land becomes available and prices will not spiral upwards. Look at any of the metros — Chennai, Delhi, Mumbai, Kolkata — there is no supply in the main areas of the city and these are all growing in the periphery. Ahmedabad is a good example, says Mr Gera. Infrastructure development in the periphery helps to keep prices down.
Law to regulate
The Central Government has proposed a law to regulate the developers — Mr Gera is a part of the committee framing the draft — which is likely to be drafted in the coming weeks. But the initial drafts focus primarily on regulating the developers. This is essential, he acknowledges, but how about the other parties involved, the buyers, banks, financial institutions and local authorities, he asks.
According to Mr Gera, it would be unfair to blame developers alone for a shortfall in service. Everybody with a stake in the transaction has a responsibility. Financial institutions that agree to fund a project must stick to their commitment; local authorities who have to give approvals need to stick to schedule, provide basic utilities and infrastructure — they profit from levies, charges and taxes. They need to be accountable; banks and housing finance institutions delay disbursements to buyers which in turn hits the developer.
Buyers band together after signing on the dotted line and start dictating terms to the developer. So all concerned have to be brought under the purview of the proposed law argues, Mr Gera. CREDAI will work towards this objective, he says.
The Hindu Business Line, May 10, 2009, Page 15
--------------------------------------------------------------------------------
There are positive signs in the market. New projects are being announced and residential construction is picking up. Slow but sure signs of a change for the better.
--------------------------------------------------------------------------------
R. Balaji
Getting the market to face reality is the biggest challenge confronting the realty sector today, according to Mr Kumar Gera, Chairman, Confederation of Real Estate Developers’ Associations of India (CREDAI). The market perception is being moulded by the media based on the performance of listed companies that represent a small fraction of the industry.
Mr Gera, who was in Chennai earlier this week, spoke to Business Line on a range of issues facing real estate developers, the market situation, the prevailing perception of the market, the proposed law to regulate developers, project funding, and infrastructure development to grow the peripheral areas in the urban centres.
Market perception
On market perception, Mr Gera says the challenge is getting the assessment as close to reality as possible. For now, the media focus has primarily been on listed companies whose information is in the public domain. The fact is that the couple of dozen listed companies together account for just about 5 per cent of the market share, but the “entire industry is being painted with the same brush.”
These companies also account for about 60 per cent of the debt from banks and financial institutions, which are biased by “the perception of transparency.” There is a mismatch in distribution of debt and the market share.
On the other hand, over 95 per cent of the market is with a large number of small players — partnerships, proprietor-run and joint venture companies. The bulk of the industry is represented by these “small players with a high equity in the business and little outside funding.”
So what is the reality or the developers’ perception of the market? “It is a buyers’ market,” says Mr Gera. Developers have adjusted to the market conditions. The market is not as bad as it was at the start of the year. Following the global financial crisis towards the end of last year everything came to a halt and the market hit a downturn. Banks were worried that asset prices would fall steeply and cut back on funding, insisted on higher margins to cover for a possible drop and potential customers decided against spending.
But now the market has adjusted to the change — prices are down, banks have brought down interest rates and customers are getting a good deal. There are positive signs in the market. New projects are being announced and residential construction is picking up. Slow but sure signs of a change for the better, he says.
Affordable segment
Affordable housing is one segment where there is some activity. This is not a well-defined segment — effectively, customers find it affordable when they see value for money. This category spans the entire gamut of the residential development and market segments. CREDAI is pushing for Special Residential Zones (SRZs) to bring in organised large-scale development of residential zone.
The governments have to bring in infrastructure and provide utilities upfront. But typically in most cities buildings come up first and people wait for water, power and sewerage facilities. Schemes such as the Jawarharlal Nehru Urban Renewal Mission have to be dovetailed with the development of SRZs.
When infrastructure is well spread out more land becomes available and prices will not spiral upwards. Look at any of the metros — Chennai, Delhi, Mumbai, Kolkata — there is no supply in the main areas of the city and these are all growing in the periphery. Ahmedabad is a good example, says Mr Gera. Infrastructure development in the periphery helps to keep prices down.
Law to regulate
The Central Government has proposed a law to regulate the developers — Mr Gera is a part of the committee framing the draft — which is likely to be drafted in the coming weeks. But the initial drafts focus primarily on regulating the developers. This is essential, he acknowledges, but how about the other parties involved, the buyers, banks, financial institutions and local authorities, he asks.
According to Mr Gera, it would be unfair to blame developers alone for a shortfall in service. Everybody with a stake in the transaction has a responsibility. Financial institutions that agree to fund a project must stick to their commitment; local authorities who have to give approvals need to stick to schedule, provide basic utilities and infrastructure — they profit from levies, charges and taxes. They need to be accountable; banks and housing finance institutions delay disbursements to buyers which in turn hits the developer.
Buyers band together after signing on the dotted line and start dictating terms to the developer. So all concerned have to be brought under the purview of the proposed law argues, Mr Gera. CREDAI will work towards this objective, he says.
Real Estate
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