The down ward trend of real estate market price is going down, the housing finance is facing a squeezed condition. Now the Banks have increased the contribution limit of the developers from 25% to 30%.
With the correction of prices in the real estate sector, commercial banks have become choosy in lending. They have become more cautious to finance to new residential and commercial real estate projects. Apart from increasing the housing finance rates, some of the banks have asked the real estate promoters to increase their share in project. This instruction is given to mitigate the associated risks associated with lending. The ongoing economic uncertainty and mounting inflation is likely to impact the immovable property prices. The impact is now visible in some metros.. The decline in real estate indicates tough times ahead for this industry. That is the reason why banks have already turned selective in taking up funding the new proposals.
The central bank has already declared the immovable property segment as a sensitive sector under its prudential norms. The sector is associated with higher risk weightage. Hence it has cautioned banks which have to set aside higher amount of capital for real estate exposure and has advised banks to closely monitor the housing finance rate .However, the apex bank made the point clear that there should not be a 100 % ban on extending housing finance to the existing clients. If the repayment pattern of the client is satisfactory, he should be offered housing finance at competitive rate.
In the current situation, Banks are also asking for higher contribution from the promoters and developers in a move to secure their position in the housing finance segment. They have made the contribution limit 30 %. It was 25% earlier. The State Bank of India has initiated the move. As the contribution limit is extended, the promoters will now have a higher stake in project completion and housing finance repayment. Keeping with the rising cost of loans and the need for additional capital for risky assets of real estate sector in mind, the banks have increased the housing loan interest rate.
All the real estate companies are now bound to pay prime lending rates (PLR) for their new projects. The PLRs in case of most public sector banks is in the band of 12.25 to 12.75 per cent. However, lending was done at a PLR below 10 per cent rate last year. The Indian banking system as a whole gave Rs. 53,897 crore to the real estate sector as housing finance. The year-on-year growth in credit disbursement is 26.7 % (Rs. 17,361 crore) compared to 79 % (Rs. 18,770 crore) in 2007. The growth in the commercial real estate loan segment remained high.
The Indian economy is now facing slowdown across segments. The immovable property market is definitely heading towards the next phase of consolidation. Liquidity crunch in this sector is beginning to drive many mid-sized and small real estate developers to op for small housing finance. Many of the developers of small and medium size are in the process of liquidating their land and incomplete projects by selling them to bigger developers or private equity players even at lower land valuations.
In real estate market, there is no alternative to credit. Land transactions have dried up due to the higher housing finance rate and squeezed credit scenario. The fund-raising capacity of developers has also changed and some have limited their expansion plans, in the squeezed situation. The smaller developers also fear that their project might get stuck due to unavailability of adequate funds. The bank credit had already dried up for small and medium size developers and they now fear rising interest rate will hamper their growth. In short the housing finance and housing finance rate in India are on the way of consolidation.

PBEL Property Development (India) Pvt. Ltd. is new name for indian real estate. It is a joint venture of Property and Building Corporation (PBC), Electra Real Estate (ERE) and Indian developer INCOR Infrastructure. Over the last couple of months PBEL has purchased property worth thousand crore rupees plus across various cities in India.

PBEL Property Development (India) Pvt Ltd has announced the launch of ‘PBEL CITY’ an environmental coexistent project at APPA junction, on outer ring road of the city. Within days of the announcement PBEL has booked unexpected numbers of dwellings, buyers being enthused by the competitive pricing and amenities, including the high focus on environment.

PBEL City is bringing in new technology with world class amenities like adequate traffic management where all drive ways are under ground and facilitating direct access to cellar parking. The whole project is designed with earthquake resistant technology. Every home comes with a modular kitchens & bedroom wardrobes. It has a facility of sports courts, state of the art club house and baby care to conference facilities, water treatment plants and much more.

Mr. Anand Reddy, Executive Director, PBEL, said, “We are offering this project to early birds at a very affordable price. It is literally a steal – nobody at present can offer this with our range of amenities. With professionals at helm of the activity this project comes with world class technology and facilities. I have no hesitation in stating that this is a perfect opportunity for many to invest in their dream home.”

The gloom over the realty sector is reflected in the stock prices of many companies. BSE Realty Index has been the worst performer so far in 2008, having shed more than 68.5% from its January peak. Analysts expect further erosion in valuations of realty stocks with the sector facing a slowdown, input costs rising, and little hopes of interest rates softening.

The sharp correction has led industry leader DLF to announce a buy-back as the management believes the current price does not reflect the intrinsic value of the shares. The company has earmarked eleven hundred crore rupees for the buyback at six hundred rupees per share.

Prabhudas Lilladher, brokerage, said, “Over the last few months, real estate developers have been caught in a vicious circle of sluggish demand and rising cost of capital. Availability of finance has been a problem with rising cost of debt and drying up of equity funding. There have been instances of developers borrowing at interest rates ranging between 24-36 % against 500% collaterals. The lack of liquidity is likely to impact deliveries, leading to project delays as well as postponement of new launches”.

According to Religare Securities, the realty market has witnessed a slowdown in registration volumes in a few cities on account of spike in property prices over the last six to eight months. Owing to this, most companies have fallen short of their sales targets for the quarter.

On a positive note, foreign direct investment flows witnessed a CAGR growth of 615% from financial year 2006 to financial year 2008.

Inflows in financial year 2008 stood at Rs 8,750 crore with the likes of Blackstone Group, Goldman Sachs, Emmar Properties, Pegasus Realty, Citigroup Property Investors, Lee Kim Tah Holdings, Salim Group, Morgan Stanley and GE Commercial Finance Real Estate making an entry.

In a situation where availability of finance is a key concern, brokerages remain positive on companies with large cash balances and have their funding requirements in place, thus enabling them to complete projects on schedule as well as take advantage of declining land prices. However, their view on the overall sector remains cautious.

Religare estimates a 35.3% rise in DLF’s first quarter net profit from a year ago, while HDIL is expected to post a mere 4.1% rise in the same period compared to last year.

Religare sees Peninsula Land posting 26.5 % revenue growth for the June quarter from last year with EBITDA margin of 28.1%. On the other hand, Prabhudas Lilladher expects Peninsula Land’s revenue to grow 70% YoY with EBIDTA margin of 54%. The growth in revenue will largely be backed by commencement of construction at Peninsula Business Park, where 50% has been pre-sold.

With slowdown hitting the real estate sector, land/property deals appear to be falling like ninepins. The latest deal to come unstuck is one involving the K Raheja Universal group and Lupin.
According toSources the negotiations between the two parties for part of Lupin’s land at Boisar in Tarapur and Thane district has fallen through primarily because of the existing insecurity in the real estate market.
While officials from K Raheja Universal did not respond to a media query on the deal, Lupin’s spokesperson, replying to an email questionnaire, said: “Lupin is an innovation-led transnational pharmaceutical company with no interest in real estate.”
Incidentally, Lupin had some years ago sold its Bandra Talkies property to a real estate developer. An analyst with a foreign brokerage house covering the firm said Lupin had, at one time, large tracts of land. “The real estate market then crashed. Slowly over the years, Lupin managed to sell most of its properties. It could well be considering the same now,” he said. Lupin has entered the league of the top five Indian pharmaceutical firms. The company hopes to be a $1 billion company by the end of the current financial year.
It is not just Lupin alone which have to bear brunt of the real estate downturn. Other deals which have hit the dirt in the recent past include Orbit Corporation’s deal for a six hundred crore rupees property with Kotak Realty Fund and Citra Developers and Rs 676-crore bid for the 134 crore Pal-Peugeot land at Dombivli-Kalyan.

Five major realty companies including B L Kashyap and Sons are going to bid for developing a Rs 100-crore Five Star hotel in Bathinda, Punjab.

The other three companies which have shown interest in the project are Chalet Hotels Limited, Ashiana Homes and Spirit Global, informed an official of PIDB.

Punjab State Electricity Board (PSEB) through Punjab Infrastructure Development (PIDB) had intended to develop a five star hotel project in Bathinda under Public Private Partnership format on BOT (Build Operate Transfer) basis. IL&FS Infrastructure Development Corporation (IDC) is the project development advisor to Punjab government.

Proposed to be developed on 3.10 acres of land, the scope of the developer would include planning, designing, engineering, financing, construction, marketing, operation and management of hotel facility and recover the investment by earning revenues through various revenue streams.

The technical evaluations of the companies are expected to be complete in a week’s time. Thereafter they would be asked to submit their proposals in detail.

The real estate market is increasingly behaving like the stock market these days. Just like buyers on the Street are putting off their purchases in anticipation of the market falling further, a sluggish real estate market is prompting retailers to postpone expansion plans on hopes of lower rentals. Some are even renegotiating rates for retail space booked earlier.

Reliance Retail, which has expanded rapidly in the past two years since its launch, is learnt to be “biding time”. The company is not looking at booking new space for the next few months, by when it thinks retail rentals would have fallen to a reasonable level. Other retailers, including Arvind Brands, Vishal Megamart and the Wadhawan group, which runs Sabka Bazaar, Spinach and The Home Store, Wills Lifestyle and many others are also going slowly.

This, however, has no impact on retailers’ plans to open new stores in places where they have already booked space. J Suresh, CEO, Arvind Brands said, “There is a clear trend towards decline in retail rentals. We are in no hurry to book space. We are able to book new space at a lower rate and also renegotiate rates for properties that we booked earlier”.

Adds Wadhawan Food Retail director Gaurav Modwel: “It’s only prudent that we become selective. It’s a buyer’s market now. We are booking only those spaces, where we get it really cheap.” The rentals have fallen in some markets in the past few months by 10-20%. And the correction in rentals has made retailers hold back on their real estate decision.

Wills Lifestyle CEO Chitranjan Dar said, “The mad rush to expand is now over. We are more cautious now. The rentals must come down to a level where an average retailer can make money”.

Retail rentals have doubled in the past three years, eating away on average 22-24% of retailers’ revenues. Internationally, rentals comprise 7-8% of retailers’ revenues.

The euphoria led by a booming economy and new-found opportunity in retail had prompted retailers, old and new alike, to expand rapidly even at the risk of lower earnings. Several retailers blamed higher rentals for their lower earnings last year.

But a double-digit inflation and RBI’s monetary measures to slow down demand have made retailers cautious. And this increased sense of hesitation has spread across all segments of retail and product categories. The signs of tough times are already visible in the market, where retailers are being forced to offer unseasonal discounts to push sales.

Another significant development is varying retail rentals in the same micro-market. Cushman & Wakefield India director (retail) Rajneesh Mahajan said, “Earlier, most malls in the same micro-market had similar rentals. However, as they become operational, rentals have started to get aligned with revenues and footfalls, and, therefore, we are also seeing differential pricing within the same micro-market”.

According to latest report by global realty consultant CBRE office rentals in Gurgaon have declined by up to 8 % in the second quarter of 2008 owing to increase in supply and softening of demand for office space.
“Gurgaon market has undergone a 5-8 % correction in the office and IT rentals from their peak rates in the last quarter because of increased supply and softening of demand,” CB Richard Ellis said in its report on office rentals for the April-June quarter.
The common monthly rentals for office space in Gurgaon have declined to Rs 95 per sq ft in June from Rs 105 a sq ft in March, it added.
With considerable addition projected in supply of office space in Gurgaon, CBRE said the rentals are expected to remain under pressure over the next few quarters.
The report noted that MG Road, Golf Course Road and DLF Cyber City area in Gurgaon are preferred locations for office space leasing because of factors such as proximity to National Highway-8, accessibility to the Airport and being on route to the proposed Delhi metro.
About Noida, the consultant said it continued to be a viable option for cost conscious IT/ITeS companies due to increased availability of office space options at competitive pricing as well as the locations accessibility from East and South Delhi.
“In the recent quarters, the micro-market has been witnessing robust demand and increased leasing activity. This market trend is also evident from the Noida authority auction of a commercial plot measuring 95 acres which was bought for a record price of Rs 5,006 crore by BPTP,” CBRE viewed.

The famed Nano City project of Hotmail man Sabeer Bhatia, is all set to get a partner soon and that will be realtor Parsvnath Developers. As Sabeer arrives in India on July 10, final decisions will be taken about handing over 30-38% equity stake in the project to Parsvnath Developers.
A senior official of Nanocity Developers told FE, “Since Sabeer is arriving on July 10, final discussions about the deal will be held for 2-3 days. It will be decided only by the end of this week when to announce the pact. We are mulling over handing equity stake anywhere between 30-38% and negotiations are on about giving the development rights to Parsvnath.”
Nano City, which is proposed to come up in Raipur Rani in Haryana will be spread over 11,000 acres with about 23 villages falling under its purview.
The company plans to acquire about 5,000 acres in the first phase over 1.5 years with an investment of about Rs 1,500 crore.
Officials from Parsvnath Developers confirmed that the talks are going on but the negotiations have not reached their final level. “We are discussing the commercial possibilities and then modalities will be worked out. Land acquisition will also be a part of the deal,” the official informed FE.
Nano City project had got all the approvals by September 2007 but there has been a huge delay in the land acquisition process. And now with the new partner coming in the process will have to be started again amidst high prices of real estate in the area. Nano city officials told that the master plan for the project is ready and we plan to have golf courses, educational institutions, and research development companies from across the globe, MNCs etc.

The project is expected to attract world-class companies involved in the creation of Intellectual Property. It is viewed as a future hub for the companies operating in areas such as Software Development, Nano Sciences, Next generation Drug Discovery, Bio-Technology, Energy Research and Semiconductor Research.

The plans of India’s leading private sector company by market capitalization, Reliance Industries Ltd (RIL), to create special economic zones (SEZs) at Jhajjar and Gurgaon in Haryana give the impression to have run into problem over issues related to land acquisition, with land owners in the area demanding around three times the amount the company is prepared to pay because land prices have increased since late 2006, when the company made its offer.
“We require around 25,000 acres for our SEZs. While we are in possession of around 9,500 acres, the owners of the left behind land are demanding around one crore rupees per acre, which is above the notified rates (the rates fixed by the company) of approximately thirty eight lakh rupees per acre (including annuity). This is a huge problem for us,” said an RIL executive, who didn’t wish to be named because he is not authorized to speak to the media.SEZs are industrial enclaves that come with fiscal and other benefits. Companies wishing to set them up have to take an initial approval from the government, acquire the land, and then have the SEZ “notified”, which means the units based there are eligible for the fiscal benefits.
RIL had initially planned one SEZ at Jhajjar, but after the government capped the size of such zones at 12,500 acres, the company decided to create two nearby SEZs.
The company’s other SEZ at Raigad in Maharashtra has run into trouble over the rehabilitation and resettlement package announced.
The Haryana SEZs are expected to require an investment of Rs25,000 crore and have provisions for a cargo airport and a 2,000MW power plant.
The land acquisition rates offered by Reliance Haryana SEZ Ltd, the company formed by RIL to develop the SEZs, is twenty two lakh rupees per acre and thirty thousand rupees per acre as annuity for a period of 33 years, resulting in a total payout of thirty eight lakh rupees per acre.

SunTechnics India, a brand of the Conergy Group, a leading international supplier in the field of solar system integration, has completed the design and installation of India’s first green housing project facilitated with building-integrated solar power. The 58 kilowatt project was developed in partnership with the West Bengal Renewable Energy Development Agency (WBREDA) as an initiative in solar architecture for the Rabi Rashmi Abasan eco-friendly housing complex at New Town Kolkata.

The project, valued at approximately 600K Euros, consists of 26 photovoltaic systems comprising 464 units of Conergy C125W solar modules, which were individually customized in various geometric shapes to fit the roof profiles of each building. By converting sunlight into electricity, each system maximizes energy efficiency by generating clean energy for lighting and other domestic uses. The power will be fed into the public grid and facilitate electricity needs for 25 residential buildings and a community center.

“Using building-integrated photovoltaic (BIPV) elements, buildings can maximize their energy efficiency by saving 0.5 kilograms of carbon emissions for every kilowatt hour of solar power produced,” Rajesh Bhat, CEO of SunTechnics India explained. “Green buildings are thus highly advantageous for consumers and real estate developers in large capital cities. In addition to reaping the benefits of energy cost reductions, green buildings are also interesting architectural applications as they are highly distinctive and innovative.”

S P Gon Chowdhury, former director of WBREDA and Managing Director of the West Bengal Green Energy Development Corporation said, “Conergy has demonstrated a deep commitment to the Indian community and a great willingness to combat climate change through renewable energy technologies. These are values we share. We are extremely pleased to explore the benefits of solar architecture with Conergy in the landmark Rabi Rashmi Abasan housing complex, which we hope will inspire other green initiatives and projects in India.”

S K Bhattacharyay, Director-in-Charge of WBREDA added, “This is the first BIPV project in India using the net metering system of Power Transfer to Grid, implemented under the newly-formulated policy guidelines of the West Bengal State Electricity Regulatory Commission. Its innovative architecture is based on the solar passive concept – in which buildings are oriented to receive the southern breeze, while cavities of the walls are built with polyurethane foam insulations to keep extreme temperatures at bay.”

In India, Conergy has electrified over 250 remote villages with solar home and street lighting systems and also developed the world’s highest photovoltaic and wind hybrid system in the Himalayas. Elsewhere in the region, Conergy has also constructed two 1-megawatt solar parks in South Korea and is currently planning Australia’s largest wind farm at 1,000 megawatts in New South Wales, together with strategic partner Macquarie Capital.

National Buildings Construction Corporation Ltd (NBCC), a Government of India undertaking fully owned by the ministry of urban development, is in talks to develop real estate properties in Dubai in the UAE and Saudi Arabia, the company said.
If the deals go through, this would be the first time that a Government of India undertaking would develop realty projects abroad. The negotiations are in their final stages.
The company is talking to associates in these countries for buying land to develop properties through joint ventures with financial institutions or private equity investors. It has invited prequalification bids for joint development from financial institutions that have a minimum experience of three years in construction, especially in serviced apartments.
NBCC is planning to develop four- and five-star hotels and residential and commercial projects that include retail spaces. HR Dhawan, the general manager of the real estate arm of NBCC, told, “It is an open bid that will be closed in 30 days. The bids will show us the approximate pricing that we will receive and then we will put the reserve price. They will range from a minimum of Rs 100 crore to more than Rs 1,000 crore for each project.”
NBCC will also develop greenfield projects. In India, the company owns land in Kerala, Kochi, Thiruvananthapuram, Chennai, Guwahati, Siliguri, Mohali, Ludhiana and other places. It has significant land bank in south India, which is currently seeing the maximum construction activity in the country. NBCC’s biggest land pockets are in Chennai and Kochi, spread across 54 acre and 50 acre, respectively.
The largest central public sector unit in the Indian construction space, NBCC has a turnover of Rs 2,000 crore.

India’s largest real estate developer DLF has given a new definition to housing for economically weaker sections (EWS). A senior company executive recently proposed to urban development minister Jaipal Reddy—and was promptly snubbed—that servant quarters attached to high-end apartments be counted as the developer’s contribution towards EWS, according to a source in the government.

As per the proposed guidelines, a developer must build at least 35% of dwelling units or 15% of permissible FAR (ratio of developable space to total area available for a project), whichever is higher, for EWS in all group housing projects in Delhi.

As this would mean building cheap accommodation in posh colonies and losing out on revenue, DLF tried to float the ‘servant quarter’ proposal to get around this stipulation. The company has never been comfortable with the EWS quota.

This mindset, however, runs counter to the government’s efforts to ensure more dwelling space for members of economically weaker sections, who now find it impossible to buy a house in metros and suburbs. The realty boom of the past four years has seen housing prices climb three-fold in several markets.

In just a year, DLF’s net profit rose almost four times, from Rs 1,934 crore to Rs 7,856 crore in FY08. However, there has been little initiative by developers to cater to the needs of those who can’t afford expensive houses. Private developers have mostly confined themselves to high-end apartments, which offer fat margins.

Mahindra & Mahindra (M&M) has decided to go slow on its world city project in Bengal.
The conglomerate, with interests ranging from automobile and real estate to IT, financial services and infrastructure, had planned to invest Rs 4,000 crore in Bengal over the next few years to develop the 100-acre IT special economic zone (SEZ) and township.
M&M executive director Arun Nanda had met Bengal IT minister Debesh Das, chief secretary Amit Kiran Deb and tourism minister Manab Mukherjee in December 2007.
The world cities are integrated units which are divided into business and residential zones. They require anywhere between 100 acres and over 3,000 acres.
In Bengal, M&M looked beyond Calcutta to Kalyani and Siliguri for the township project. They have seen locations at Kalyani but thereafter there has been no response from them.
M&M, also known for developing destinations such as Munnar for tourism, is scouting for similar locations in the state. The company had also expressed interest in a hospitality project at New Town, Rajarhat.
The company’s IT arm, Tech Mahindra, is building the Bantala SEZ in over 12 acres and plans to employ 2,000 people in the first phase of 18 months.
M&M has also signed a memorandum of understanding with the West Bengal Tourism Development Corporation to provide consultancy to the state government for setting up eco-friendly infrastructure in the Sunderbans.

Hyderabad-based Totem Infrastructure Limited is looking to expand its portfolio by adding real estate to its group of operations. It plans to build Rs 200-crore multi-use apartments in about 10 acre close to the outer ring road here. The company presently is executing infrastructure works relating to irrigation, power, railways and roads.

Also, the company is looking to change its business model from cash contracts to long-term revenue channels like build, operate and transfer. Totem director and chief operating officer Abhijit Roy told the media.

In February the company had, raised $10 million (about Rs 40 crore) from Singapore-based private equity fund Aquarius Investment Advisors. It plans to utilize this money for growth plans, expanding to new locations and operations.

Right now, Totem has offices in Hyderabad, Delhi and Indore and new offices are being planned in Kolkata and Nagpur shortly. “We want real estate to account for at least 25 % of our portfolio,” Roy said.

Totem’s current order book stands at Rs 1,000 crore to be executed in two-and-a-half years. Most of the existing projects are cash contracts and hence the required investments are mobilized through advances and other means. To fund these, the company has also formed a consortium of banks with Union Bank of India as the lead bank. The company expects the order book to increase to Rs 2,500 crore for this financial year and in three years it plans to go public to raise funds for various projects.

Among the various projects, it is building about roads in Maharashtra, Uttar Pradesh and Karnataka on a BOT (build, operate, transfer) basis. It established its presence in central India recently by bagging the order for the III phase of the Omkareshwar Project Canal System from Sadbhav Engineering Limited for Rs 310 crore.

Totem is also executing an NTPC power project in Nagpur and constructing minor bridges, culverts and others for an internal railway line for expansion of the Bhilai power project for RITES, a government of India enterprise.

The Rs 150-crore company is now looking to forge a public-private partnership in a state project in Rajasthan and recently submitted a request for quotation (RFQ) in this regard.

Asia’s leading business space solutions provider Ascendas has emerged a front-runner for acquiring a 6.18 acre plot in Chennai for developing commercial space.

The land at Nandambakkam, near Chennai Trade Centre, belongs to Sravanna Properties, a subsidiary of a TVS group, managed by brothers Venu Srinivasan (CMD of TVS Motors) and Gopal Srinivasan (CMD of the new VC, TVS Capital Funds). The Singapore-based Ascendas has reportedly been short-listed by TVS along with a retail biggie, an educational institution and two parties from Mumbai and North.

As the first step for clinching the deal, TVS has signed a letter of intent with Ascendas. However, top sources on both sides declined to comment.

The deal has been hanging fire for quite some time and apparently TVS also hoped to realize a better value for the land in the event of State approving the second master plan for Chennai with higher floor space index (FSI).

Realtors have been anticipating relaxation in FSI to 2.5 from the current 1.5. Keeping this in view, TVS is said to have asked Ascendas to give two quotes, one with current FSI and another with a relaxed rule under the second master plan.

Ascendas is said to be doing a due diligence of the land. Sources in the know of the development said if the FSI is increased, then the deal would fetch Sravanna Properties about Rs 220 crore.

Sravanna Properties had fixed the upset price of the property at Rs 35 crore per acre. The company has been expecting a price realization of Rs 225 crore from the land. Originally, it was acquired by TVS-E in 1999 from ICL Foundries of India Cements for around Rs 10 crore.

A fresh lease agreement has to be drawn with the Defence authorities to handle the pathway problem, which has been hampering the deal progress. Currently, the road is maintained by TVS Electronics.

All the loose ends are likely to be tied up soon and the deal expected to fructify by August.

Home sales in India might have turned slow but sales to NRIs is on boom continuously. According to Jones Lang LaSalle Meghraj (JLLM), residential sales to NRIs have tripled over the last half year, from 3% to 10% of the total business.

Lodha Group senior Vice President R. Kartik said, “What would happen when one loses his job in the US? The downturn is scaring many NRIs who fear job cuts”. JLLM’s Raminder Grover said, “There is a renewed interest in selling abroad”.

Sobha Developers has viewed the share of NRI sales go up from five percent to ten percent of its sales. Sobha Developers Managing Director J. C. Sharma said, “In the last six months, we have been selling about twenty five thousand square feet a month to NRIs”.

Many NRIs have been planning of coming back to India and many of them are making safety investments. Over the last few months, Lodha has seen twenty-five percent rise in its sales to NRIs.

Many NRIs and Persons of Indian Origin (PIO) want to invest in India, both commercial and residential properties. NRIs and PIOs also plan to buy such properties as an investment, and rent them out to earn a secure income stream.
This article talks about various rules and restrictions related to such purchases. It also clarifies the concerns about taxation (capital gains and income tax), repatriation, etc.
The rules regarding purchase, rent and sale of immovable property by Non Resident Indians (NRIs) have been thoroughly simplified and liberalized in recent years.
Let’s have a look at the current regulations for NRIs regarding purchase, renting out and sale of residential / commercial property.
Purchase of Property:-
A Non Resident Indian (NRI) can buy a residential (apartment, house, etc) or a commercial (shop, office, go down, etc) property (but not farm land or a farm house or a plantation) without seeking any permission from the Reserve Bank of India (RBI).
But the NRI can not participate in any business activity in real estate.
No. Of Properties:-
There is no restriction on the number (or value) of properties that can be bought by NRIs.
Payment for purchases:-
The payment can be made using money remitted through banking channels, or using the funds from the NRE / FCNR / NRO accounts.
Permission from the Reserve Bank of India (RBI):-
No permission is needed by NRIs to buy a property in India.
Mortgage property to a bank / financial institution:-
An NRI can mortgage the property to a bank / financial institution to take a loan for funding the purchase.
Stamp duty / registration fee exemption:-
No stamp duty / registration fee freedom is available to NRIs.
Permanent Account Number (PAN):-
A PAN number is not mandatory for NRIs buying residential or commercial property.
Inheritance of property in India:-
NRIs can inherit a property in India.
Purchase going wrong:-
If the payment is made from an NRE / FCNR account, and the deal is canceled or there is no allotment of property, the refund amount can be repatriated by NRIs.

DLF is looking at setting up a Rs 800-crore venture capital (VC) fund with a mandate to invest in companies engaged in equipment management and construction activity. This is being seen as a strategic move by DLF to support its rapidly expanding construction activity.

The Delhi-based firm has filed the documents with market regulator SEBI seeking approval for setting up the VC fund. DLF rejected to comment beyond this because the matter is under SEBI process.

The realty boom of the past three years has rapidly changed the scale at which realty firms worked in India. Companies have seen unprecedented growth and have taken up projects several times the size they had done in the past, requiring manpower, equipment and management skill on a completely new level.

DLF, India’s largest real estate firm, has been a leader in taking up bigger projects and executing them at a rapid pace. It constructed 9 million square feet of space in the last fiscal and plans to complete 16 million square feet this year.

It has set a target of 22 million square feet for the next fiscal. With such an ambitious target on mind, DLF needs a strong support infrastructure in place. The company has already been focused on strengthening its execution capabilities and significantly improves its performance.

A venture capital fund is only going to augment DLF’s effort towards quicker execution. The fund will invest in small companies which will manage equipment, construction material and manpower. The VC-funded companies may buy advanced equipment, critical for fast execution and then lease it to DLF for construction. Similarly, these companies can independently manage construction material and manpower and become a solid source of supply to DLF, whose operations have now spread across the country.

These VC-funded firms, which are likely to have long term agreements with DLF, will have the flexibility to put to use their men and material by offering them to other developers.

The government is planning to scrutinise investments flowing in from tax havens such as Andora, Aruba, Bahamas, Costa Rica and Dominica where investor details remain confidential due to banking policies.

According to sources in the department of industrial policy and promotion (Dipp), the government is concerned about Indian residents parking money in the island nations to route them back for investments. There are also mounting fears of money being used for terror funding and laundering activities.

Investments in the nations do not get reported as the island countries maintain banking secrecy and do not reveal the nature of investments.

Intelligence agencies have expressed fears that funds from such places were flowing into the stock market through participatory notes issued by foreign institutional investors.

“We need to crack down on such investments. Intelligence authorities and National Security Council (NSC) would assist in tracking such investments,” a government source said, adding that most such funds flow into the real estate sector.

According to estimates, funds from such nations flowing into the real estate sector totaled $150 million. Although the money through the route may be a paltry amount compared to $2-billion FDI in 2007-08, the government fears this is just the beginning of an impending influx.

The slowdown in the real estate sector has started impacting the securitization of loans to the industry. The demand for such securities has dried up as debt mutual funds turn wary and cut exposure to these securities, considered the most illiquid of tradable papers.

The market for loan securitization was Rs 31,000 crore, of which real estate loan securitization accounted for 20% of the total market as on March 2008. Both ICICI bank and the State Bank of India refused to comment.

It is allowed to a bank or a NBFC to sell the loan as a securitized paper. Mutual funds are the major buyers of these papers, return on which is linked to the rating of the loan. Following the securitization, loan disappears from the balance sheet of the banks or NBFCs, who in turn communicate to the borrowers that their loan has been sold to an investor.

From borrower’s point of view, it could mean lesser disclosure. Borrowers then keep repaying to the Special Purpose Vehicle (SPV) where such paper is parked instead of the bank or NBFC. Banks make good the spreads between lending at a certain tenor to selling the loan for a higher yield. Rajiv Shastri, Lotus MF said, “We have been very wary about these loans from the very beginning, primarily because they didn’t offer high asset cover-age. Most papers floating in the market offered one-and-a-half times asset coverage, which is nothing if prices start falling. Last November-December, we just took two papers, which offered us a coverage of 3-4 times”.

Debt funds from the houses of Reliance, DWS and HSBC have been fairly aggressive in buying real estate loans. Reliance MF CEO Vikrant Gugnani said, “We are more cautious in today’s conditions like anyone else. We have always been conservative in our investment policy and we remain so”.

BNP Paribas Chief Investment Officer (CIO) Mr. Ram Kumar said, “If it is a loan taken by a big realty company, the rating will be higher and there are more buyers for such papers. But we treat these investments like any other paper, although they are illiquid. We do not invest in them anymore. We did, two years go”. Many other fund managers too have changed their stance now.

For over two years now, the RBI has raised the risk weight for commercial real estate loans to 150% in addition to issuing guidelines on multiple occasions to banks to limit their exposures to the sector. Nevertheless, real estate loans form only a small part of most banks’ balance sheets, thus allowing them to continue financing real estate assets.

Binani Cement, the flagship company of the Rs 1,700-crore Binani group, is considering long-term bulk cement supply contract with real estate developers including Raheja and Hiranandani. The initiative, if it fructifies, will be the first in the industry and other cement companies may follow suit.

Binani Cement’s managing director Vinod Juneja confirmed the discussions between the company and a few real estate firms on this regard. “It is at a very initial stage. Yes, we had talks with some real estate developers on cement contracts”.

According to industry experts, this will be a win-win contract for both. The long-term contract will empower the real estate developers to control over vagaries of price fluctuations of the commodity. On the other hand, Binani Cement will get assured buyers of its produce.

Industry sources said that the realty sector may invite cement companies to participate in bidding before signing any such contracts. Asked on this, Mr Juneja said that his company would not hesitate in bidding, if required. Analysts attributed the main reason for the slow down in the real estate sector to tight monetary condition. Increase in cement prices, that too during the rainy season which normally sees a price drop, makes the situation further unfavourable for the developers.

Incidentally, Binani is also getting into the real estate sector this fiscal. The company has around 56 acres of land in Wada, about 30 km from Thane in Mumbai. It plans to develop the land jointly with a partner into an IT Park. Binani Cement is expanding in the northern and western parts of India in the next quarter. This expansion is a part of the company’s plan to become $1 billion firm by 2012. It operates from its fully-integrated cement plant at Binanigram in Rajasthan.

Brothers Vijay and Deepak Raheja who used to run B Raheja Builders, a real estate firm that operates in Mumbai, Bangalore and Pune, have split the business between themselves and set up separate companies, according to an executive at a company that does business with B Raheja Builders and who did not want either himself or his firm to be identified.

The split was confirmed by executives working for Vijay and Deepak Raheja although the brothers themselves did not comment on it.
The JW Marriott hotel under construction at UB City in Bangalore is being handled by V Raheja Design after the split . A questionnaire sent to Vijay Raheja’s Bangalore office wasn’t answered. Repeated calls to Deepak Raheja’s office on 4th July were met with the response that he “doesn’t speak to the media”.
The head of a real estate advisory claimed the split was an amicable one. “This is a planned split which is not driven by acrimony. Splits are inevitable when a company has grown big enough and two brothers decide to pursue interests separately,” said Akshaya Kumar, chief executive officer of Park Lane Property Advisors. Mint couldn’t independently ascertain the contours of the split or the events leading up to it.
Vijay Raheja’s new company is called V Raheja Design Construction while his younger brother Deepak Raheja’s firm is simply called Advantage Raheja.
Executives at the two firms said that after the split, the various properties and projects of B Raheja Builders have been divided between the brothers. For instance, the new JW Marriott hotel under construction at UB City in Bangalore’s central business area will be handled by V Raheja Design, which also owns around 100 acres of land near the city’s new Devanahalli airport.
“Vijay Raheja’s new firm has several projects in Bangalore including a villa project in Whitefield (in the city’s outskirts), a commercial complex in Richmond Circle (central business district) and another high-end residential property in Hennur. We are targeting a 2009 deadline to complete the Marriott project,” said a senior executive at V Raheja Design Construction in Bangalore who did not want to be identified as he is not authorized to speak to the press.
This executive added that the company is also looking for more land in the city to launch new projects.
Meanwhile, Advantage Raheja is developing a residential project in Mumbai, Iris Park, and another residential property by the same name in Bangalore, said a senior marketing executive at the company who, too, did not wish to be identified because he is not authorized to speak to the media. This person added that some ongoing projects including one in Bangalore’s Dollar’s Colony area would be completed by B Raheja Builders.
The 56-year-old B Raheja Builders was founded by Bhagwandas Raheja.
After developing hotels such as JW Marriott and premium residential properties in Mumbai, the B Raheja group expanded its operations to the IT hubs of Bangalore and Pune. Last year the company received an investment of $45 million from US-based investment banker Wachovia for two projects in Bangalore. Real estate firms typically float each of their projects as a separate company so as to raise money efficiently.
B Raheja Builders is privately held and no independent valuations on its size are available.
“A single company can’t have the kind of bandwidth and specialization which these individual companies have achieved. In the case of the Rahejas, the next generation has only consolidated and bettered what their predecessors achieved,” said Anuj Puri, country head of Jones Lang LaSalle Meghraj, a real estate advisory.
B Raheja, for instance, is known for its ability to manage hotel projects.
The extended Raheja clan has had its internal disputes but has also worked on projects together
Gopal Raheja and Vijay Raheja went to court two years ago over a hotel project in Bangalore before eventually settling their dispute. Gopal Raheja and Chandru Raheja have also had their differences which were made public in the initial share sale filing of the latter’s Shoppers Stop.

The Mindspace complex in a Mumbai suburb has both Gopal Raheja (better known as GL Raheja) and Suresh Raheja holding a stake in the project being developed as a joint venture with the Nusli Wadia-promoted FE Dinshaw Trust. Even the Marriott in Juhu, Mumbai, was co-developed by various Raheja companies.

Higher input costs, low market valuations and scaled up capacity amidst reduced demand is likely to take its toll on the cement industry. The growth rate of the industry is projected to drop below 10 % for the current fiscal.

According to a report by Edelweiss Research, weak fundamentals and mounting cost pressures are likely to further pull down the replacement costs, even as valuations have corrected sharply in the recent past.

High inflation and home loan rates have slowed down the growth trajectory of the real estate sector, which accounts for 60 % of the total cement demand.

This slowdown is likely to hurt the cement sector the most. The surplus of cement in the industry is predicted to be as high as 20.7 million tonne in 2008-09 and 47.4 million tonne in 2009-10.

The major expansion plans announced by the companies will further add to their woes, as low market demand will significantly reduce the capacity utilization.

Setting up of new facilities will impart additional capacities of 34 million tonne and 45 million tonne respectively in 2008-09 and 2009-10. This is likely to bring down the capacity utilization in the industry down from the current 101 % to 82 %. Even as it loses power to dictate prices, increased cost of power, fuel and freight will add pressure on input costs.

Among the cement majors, valuations for ACC and Ultratech seem to have bottomed out with discount as high as 35 % of the replacement costs.

Ambuja Cements too is trading at a higher discount than previous down cycle, suggesting bottom valuations. However, replacement valuations for Madras Cements and India Cements indicate scope for further down slide when compared to their previous down cycle valuations.

The report has suggested that speedy implementation of sixth pay commission and lower inflation and interest rates are necessary for the up cycle to begin. It has added that aggressive consolidation in the cement sector can also help them to avoid surplus production.

HDFC chairman, Mr. Deepak Parekh criticized developers for not differentiating between super built-up area and carpet area of the houses that they deal. He pointed that developers mis-guide buyers by selling on the basis of super built-up area, without clearly mentioning how much the carpet area is. In Delhi, the authorities are following the recommendations of new Master Plan of Delhi 2021. But these are not enforced.

Mr. Anuj Puri, chairman and country head, Jones Lang Lasalle Meghraj said, “Building bylaws and regulations differ from state to state and even city to city. However, it invariably turns out that property buyers are required to pay for construction that falls in FSI-free areas—areas of congregation, passage, and common conveniences. In a typical project, these areas do not tend to constitute more than 15-20% of the overall FSI. Nevertheless, all that a buyer would really wish to pay for is the exact amount of space available for personal use in the property, in other words, the carpet area”. Mr. Puri said that you can’t have a house without walls so the buyer ends up paying for the space occupies by the walls as well occupy, by this criterion, the buyer will have to pay for built-up area. Puri contends, “This is, of course, unavoidable.”
Also, if one takes an example of any of the projects in the country, he will find by a simple calculation that he is being charged extra. Let us say the developer is charging two thousand five hundred rupees per square feet as a basic rate. The buyer is interested in buying an apartment of 1,250 square feet. So the value of the apartment stands to be Rs 31.25 lakh. But this does not include the parking charges and maintenance charges. The price calculated does not include the preferential location charges either.

Pune-based DS Kulkarni Developers Ltd has inked a shareholders contract with GTC Cyprus to mutually develop a two hundred fifty acre multi-services special economic zone (SEZ) in Pune through a 50:50 joint venture.
GTC Cyprus is the real estate company of the Netherlands-based Kardan Group.
The Kardan Group has real estate projects in western eastern and central Europe, and China. This will be the group’s first venture in India.
“GTC will invest ninety million dollar to acquire the land,” a DS Kulkarni official said. “Any further equity contribution shall be made by DS Kulkarni Developers and GTC in their respective shareholding proportion,” he added.
The overall built-up area of the project is estimated to be more than 15 million sq ft and the total investment in the project is estimated at around one million dollar.
In 2007, GTC Real Estate had signed a “term sheet” with DS Kulkarni Developers for the development of a phased commercial and residential project in Pune.
The term sheet had stated that both the parties would set up a 50:50 joint venture. DS Kulkarni Developers will transfer to the JV a plot of approximately one million square metres. In consideration for its share in the joint venture, GTC will transfer, in installments.
Kardan is an international investment company based in the Netherlands, listed on Euronext Amsterdam and the Tel-Aviv Stock Exchange.