Foreign fund house Merrill Lynch Capital Markets has consolidated its stake in real estate major Ansal Properties and infrastructure to nearly 6%.
Merrill Lynch Capital Markets Espana SA SV has acquired as much as 11.63 lakh equity shares representing 1.03% stake in Ansal Properties through secondary market purchase route. Prior to this transaction the foreign fund house had 4.94% stake, which got increased to 5.96% after the acquisition of the 1.03% stake in the company.
Calculated on the basis on the closing share price of Ansal Properties, the deal value amounts to about twelve crore rupees. The company had said that it would invest thirty-six hundred crore rupees for developing two hundred seventy acres IT SEZ and parks in the country. The proposed SEZ would consist of an IT zone, commercial zone, residential zone and a recreational area. Shares of the company closed at Rs 101.60, down 4.38% on the BSE.
Tata Group chairman Ratan Tata’s threat to pull the Rs 1,500-crore Nano small-car project out of West Bengal in the face of violence and protests over farmland acquisition has deepened the gloom over the Left Front government’s industrialisation drive, with most of its larger and more ambitious infrastructure projects already on hold over land issues.
Just last week, chief minister Buddhadeb Bhattacharjee had indicated that the government has decided to stop work for the time being for the Salim Group’s proposed Barasat-Raichak Expressway. He had told a public meeting in north Bengal that, henceforth, the government would acquire land only with the consent of the owners.
The Salim Group and the state government had formed a special purpose vehicle, New Kolkata International Development Pvt Ltd, to build a clutch of industrial and infrastructure projects, the largest being around Nandigram, requiring a grand total of 28,500 acres.
The Nandigram chemical hub project had to be abandoned last year in the face of violent public protests. Now it has been shrunk to a location around the existing industrial town of Haldia, with the riverine island of Nayachar included.
The Salim group had earlier committed an investment of almost Rs 20,000 crore over a period of five years in West Bengal.
Next in the queue of casualties was the Rs 33,000 crore DLF township project in Dankuni , in Hooghly district-a public-private partnership project with the Kolkata Municipal Development Authority.
Touted as one of the largest real estate projects in the country, the township is proposed to be spread over 4,840 acres. It will have provision for both residential and industrial projects.
Protests over land acquisition have also put a question mark on the proposed projects like Baruipur and Kalyani townships. Almost 500 acres were acquired by KMDA for the Rs 400 crore project at Baruipur.
According to reports, 2,000 acres were to be acquired in Uluberia for a planned industrial development project. An industrial park over 1,325 acres was also proposed at Sankrail in Howrah. Proposed IT hubs in Kalyani, Durgapur and Haldia are also facing the heat of uncertainty.
The Left Front government’s position is that the state has very little barren land, just 1% of the total land area, and that some farmland will have to be acquired to re-industrialise the state. At present, around 100,000 acres will have to be acquired for the projects on the table. Against this, the total farmland in West Bengal is over 13,700,000 acres.
The property owners of posh localities, just like Delhi NCR,are extremely happy these days as their areas get more and more crowded with outsiders, since these outsiders are always in search of ready to accommodate homes.
However, it is not a win-win situation for them. They also come across some tricky incidences. Sometimes they feel uncomfortable because of the preferences of the expatriates for a specific house.
The higher officials of some of the multinational companies and the British diplomats do not feel bad to stay in the old houses having the colonial-day structural design. As a matter of fact they prefer to stay in such houses. The number of such houses is decreasing very fast but still available in and around Nizamuddin East and West, Friends Colony, and Sunder Nagar.
In the great malling of India, few developers are as well equipped to talk about retail success as Irfan Razack, the man behind Bangalore’s The Forum mall.
Razack heads the Prestige Group, built The Forum in 2004 and while there may be bigger and glitzier malls across India, it continues to set the retail standard, voted India’s best shopping centre in 2008 and best mall in 2007.
Razack said,“It is not just about putting up a building”. Further he added, “Developers don’t always understand that retailers have to have their cash registers ringing. So you need sustainable rents and the right mix of tenants”.
It helps, too, to have the right timing. Three straight years of 9% economic growth from 2005 to 2007 gave a huge boost to Indian consumer confidence, though the gloss is coming off rapidly in 2008 as the economy cools and inflation rises.
Still, shopping malls of all shapes, sizes and themes – be it gold, electronics, cars or weddings – continue to dazzle property developers who have hitched their star to India’s consumer boom.
Favourable demographics – more than half of India’s population is under 25 – along with rising incomes and the ready availability of credit cards have created what looks like a consumer sweet-spot for the mall crowd.
The air-conditioned shopping centre, replete with designer brands, cinema multiplex, food courts and multi-level car-parking, is a new phenomenon for India. Just a decade ago, there were no real malls, and modern or organised retail had a miniscule 3% share of consumer spending.
By 2006, when India’s total retail market was worth $US330 billion ($375.5 billion), there were 90 malls across seven cities and modern retail was on a roll.
Research by the India Retail Forum last year estimated that mall numbers almost doubled in 2007 to 179 operational malls. By 2010, that figure could jump to 412, and reach 715 malls by 2015, covering 350 million square feet of retail space. By then, Indian retail spending will top $US700 billion, and modern retail’s share will be around 20%.
But real estate experts believe the quality of planning, construction and mix of stores in many of India’s malls is poor. “We assess that over 90 per cent of the current and planned shopping mall stock falls below international standards in terms of specification and design,” property agency Jones Lang LaSalle Meghraj noted last year.
And 2009 is widely seen as the crunch year for mall developers, when the weak will go to the wall.
None of this bothers Razack. He has nine malls in the works – in cities such as Chennai, Mysore, Cochin, Mangalore, Hyderabad and three in his home town of Bangalore.
One of his biggest developments is in UB City, a massive commercial and retail complex that Prestige Group is building in partnership with the flamboyant liquor and aviation tycoon, Vijay Mallya, on the site of one of Mallya’s old breweries in the heart of Bangalore.
UB City includes a three-level shopping arcade that Razack expects will be fully operational by October, featuring brands such as Louis Vuitton, Dunhill, Tiffany, Armani, Estee Lauder, Christofle and Rosenthal.
“It is positioned totally as a luxury mall,” says Razack. He says this centre, along with rival developer DLF’s Emporio Mall in Delhi, will dictate the speed of luxury expansion in India. “These malls should succeed. I am certain the buying power is there,” he says.
Razack is a great believer in Bangalore, even though he says its infrastructure falls short of the expectations that come with its status as India’s global technology city. “We should always benchmark to the best in the world,” he says.
Part of the problem is that Bangalore has grown from a city of 1.5 million in 1970 to more than 7 million today. It rose to prominence in the 1990s as the global IT boom gathered speed, and home-grown companies such as Infosys and Wipro emerged as cost-effective, high quality providers of IT-enabled services. But the city’s infrastructure across power, transport and water services is woefully inadequate.
Razack said, “I was born and bred in Bangalore, so I can feel the change”. Further he said, “Once, this was a sleepy old retirees’ town. Now, it is bursting at the seams. It is blessed with a good climate, hospitable people, good social infrastructure in terms of hospitals and schools. Now, it has good housing and office space. But infrastructure is the key. There is no doubt it is falling short”.
Though Bangalore’s star has waned a little as cities such as Chennai and Hyderabad expand their reputations as technology centres, Razack is upbeat about his city’s future: “The need for IT and BPO (business process outsourcing) is not receding in business, it only keeps increasing. It is more and more an integral part of our lives”.
Mr Anand Reddy, Director of PBEL Property Development India Pvt Ltd, an Indo Israeli joint venture, poses with a model of PBEL City, a township comprising thirteen residential and two commercial towers of nineteen storey each on a twenty eight acre area situated in Hyderabad development Corridor in Rajendranagar mandal.
PBEL, an Indo Israeli joint venture real estate company, has pronounced the launch of the first phase of the One thousand two hundred crore rupees PBEL City, a residential-cum-commercial venture, on the border of the city.
The phase-I would have two towers, housing five hundred flats with a cost tag of Rs 41-52 lakh.
Addressing a press conference, Mr Anand Reddy, Executive Director, said the project was expected to be completed in 18-36 months.
Stating that the project was aiming people in the age group of 25-40 and working in information technology, IT-enabled services, banks and airports. Situated near the second exit of the upcoming Outer Ring Road (ORR), the project would have a total of thirteen residential and two commercial towers.
The company had united with L&D, a Malaysian interior design solutions provider, to provide modern interiors. “The buyers, however, could opt out and have their own furnishings,” he added.
After Hyderabad, the company drew plans to take up projects in Chennai and Mysore.
A 995 sq ft apartment in Bangalore for Rs 19 lakh! This is the price at which Golden Gate Properties is offering two-bedroom apartments at ‘The Commune’, its affordable residential project in Bangalore.
“The project aims to fill the need-gap that has risen in the market owing to spiraling real estate costs,” said Mr K. Pratap, Managing Director, Golden Gate Properties.
A self-sufficient township, the project located near Mysore Road with proximity to the NICE Corridor, would have 3,500 units two and three bedroom apartments ranging between 900-1,500 sq ft in total.
The affordable project tag hasn’t stopped the developers from providing fabulous amenities including mini stadium, a retail centre, bank counter, ATMs, kindergarten school, medical centre, wi-fi connectivity, two club-houses, among others. The company plans to invest five hundred crore rupees in this project, which would also be replicated in Hyderabad, Chennai, Kochi, Coimbatore, Mysore, Pune and other cities.
According to Mr Pratap, it took the company 4 years to master the art of building affordable housing solution. “But having achieved this, we will roll out such projects in these cities. For the next one year, our focal point would be on the Commune projects, he said.
The developers would also be using hi-tech construction technology that would ensure faster completion of the project, reducing labour requirements by almost 75 %. Because of the volumes involved, the company’s profit margins would be reduced by almost 50 %, he said.
Two Commune projects in Hyderabad and one more in Bangalore have been planned, for which land has been acquired.
The four projects, including the one announced on 21st August, are estimated at two thousand five hundred crore rupees, for which the company would be investing approx five hundred crore rupees, and the rest would be from sale proceeds.
The other ‘Commune’ in Bangalore would be located on Sarjapur Road, which would come up on one hundred acres with 5,000 units being planned. The first of the ‘Commune’ in Hyderabad would be at Tellapur about 6,000 units over 50 acres, and the other near Secunderabad about 3,000 units.
The company, which had Rs 500-crore turnover last year, is targeting revenues of Rs 1,000 crore now; with many projects under way, Mr Pratap said the target was achievable.
The company plans to enter the capital market in two years. The company, which had received an entity-level $70-million funding from RREEF India Advisors, a subsidiary of the Deutsche Bank Group, is also looking at funding at SPV levels from the group.
“There may be two SPV-level infusions towards the end of this financial year,” Mr Pratap said.
For its IT SEZ in Bangalore, the company is planning an investment of about Rs 800-900 crore, and hopes to “raise private equity at an SPV level in 2-3 tranches, from maybe a single equity player,” he added.
In the wake of a global slowdown in the initial public offerings (IPO) market, Indian companies are losing appetite for listing on the Alternative Investment Market (AIM). Once touted to be a favoured destination for small- and mid-size companies, London’s AIM has managed to get only four companies to list on it so far this year as against 21 companies a year earlier.
AIM had become a lucrative listing platform for companies that wanted to raise capital without being listed in India. Many Indian companies have formed investment holdings in tax havens such as Cayman Islands to tap the London market.
However, with a steep slump in equity markets across the globe, AIM has been no exception. Some of the sectors, especially the real estate, have seen a severe value erosion, dampening the mood of prospective companies towards this market. Indian Film Company and Hirco are trading at 28.49% and 28.20% lower than their issue prices, according to Grant Thornton’s AIM Tracker dated May 2008.
FTSE’s AIM All-Share Index has plunged more than 25% since January this year. Experts also believe that AIM has been facing a tough competition from new junior markets in Asia, especially Singapore’s catalyst, previously known as Sesdaq. One of the problems with AIM is it is less liquid. The monthly average liquidity of AIM was just 6% in 2007 compared with 17% on Singapore’s catalyst. But the volatility on AIM has been quite low, attracting a lot of retail investors. The listing requirements on AIM are very simple, making it easier for companies to qualify. It does not require a track record and neither does it stipulate a minimum market capitalization.
“There are some large investors who take positions on AIM such as hedge funds and pension funds, but since liquidity has been low, their interest has weaned away. For the first half of this year, there have hardly been any companies tapping AIM. But as global markets revive, the condition will improve. Some of the issues have been deferred too,” says Amit Khandelwal, partner, Ernst &Young. There is also a view that weak performance of some of the real estate companies on the London Stock Exchange’s (LSE) junior market is due to a lack of brokerage research on some of the stocks.
Adds Harish H V, partner, Grant Thornton, “Markets had corrected after January, but companies were demanding a premium over current valuations, which was not possible. But now they have come to terms. We are in talks with some 20 companies in sectors such as power, infrastructure and pharma.” As on June 30, 2008, a total of 25 India-focused companies were listed on AIM with a combined market cap of over $7 billion.
Human life is unquestionably any terrorist attack’s most tragic casualty. However, the economic impact and impact on real estate is unavoidably in the minds of many in the industry.
After the bomb blasts on July 25 and 26th in Bangalore and Ahmedabad, a number of questions have been raised on how terrorist attacks could have an impact on the real estate markets in India. With worries looming large over similar attacks in other cities, it is time to reflect on some of the short-term global real estate trends which were seen after 9/11 terrorist attacks on the World Trade Centre.
There are two mediums through which terrorism impacts economies. Firstly, terrorist attacks have a direct impact on our economy because they destroy productive physical and human capital. Secondly, terrorism increases the level of fear and uncertainty which could have a larger impact on the overall economy.
After 9/11, office properties in landmark buildings in the proximity had experienced increases in vacancy rates than office properties not located in the nearby areas. The attacks have also drastically increased the perceived risk of large-scale terrorist attacks in Central Business Districts (CBD) and in turn, placed particularly large pressures on major financial centers world over.
In the post 9/11 era, vacancy rates had increased more for buildings with a high perceived vulnerability to large scale terrorist attacks than for buildings that are not perceived as preferred targets. After the WTC attacks, it was anticipated that there would be a flight of occupiers and capital from the CBD areas. Even though this did not happen, new demand was stronger in suburban markets than in CBDs in many cities around the world.
From a short-term perspective, in the face of uncertainty, corporations have delayed their realty decisions. Many companies have only renewed their leases than move to new business premises. Global corporate real estate expansion was slow during the gulf war. Premiums paid for prestigious buildings and the highest floors have also marginally declined.
Many major firms adopted a multi-premises strategy facilitated by technology and favored decentralization. Global firms even considered a greater regional and international dispersal of headquarters activities to avoid business damage. Demand has accelerated for teleconferencing facilities and broadband connections as a substitute for frequent business travel.
Building management costs also increased due to enhanced security measures and higher insurance premiums. Many new projects at that time which were under development were reviewed in terms of building specification and configuration.
The security aspect has also become a differentiating factor for Grade A versus Grade B space. Buildings across the world started following the extensive security practices which were in place only in a few developed countries.
Realty slowdown is delaying delivery of homes. Several developers have postponed execution of their housing projects as funds become scarce, demand softens and raw material prices rise. While some others are deliberately delaying projects in order to reduce supply as demand weakens.
Several projects across the country are getting delayed as developers aren’t able to generate enough cash to continue construction work. Projects are delayed by as much as 6 months to over a year. “Funding is largely unavailable. Those developers who can access funds are also shying away from it since it has become very expensive. In addition, income from sales of housing units has declined with the softening of demand,” says Cushman and Wakefield executive MD Sanjay Verma.
All developers are facing the heat on account of high interest rates, which the country’s central bank has been hiking in order to tame inflation. Mid and small developers are faring worse as banks have almost shut their door on them.
“It is a tough time for real estate firms. A weak demand is affecting cash flow. Moreover, the cost of debt and construction has risen. How can one continue construction with the same pace in this environment,” says a senior executive at Omaxe.
Some developers cite usual reasons such as delayed government sanction and unavailability of men and material for the current unusual delays. “Till the last month, steel was difficult to procure even at a very high rate delaying execution of projects,” says Gaursons joint MD Manoj Gaur.
Not all delays are forced by just funding or material constraint. Says Sanjay Verma of Cushman & Wakefield, “Some developers are not minding delaying projects as they feel a reduced supply of homes will help them sustain prices in the face of slowing demand.”
In such cases, early buyers in the project are surely going to suffer as they will have to wait for a much longer time for delivery of their dream homes. Verma feels the scenario in real estate is unlikely to improve for at least one year as interest rates are expected to remain high.
Economic slowdown in the US is expected to temper demand for IT and ITeS office space in Gurgaon and Noida during the second half of 2008, a global realty consultant has said in its report.
In its latest report for second quarter 2008, Jones Lang LaSalle Meghraj said that though Indian office markets have continued to post growth over the past few years, the last few quarters have seen a polarization in the office markets in terms of growth in demand across the country.
It has categorized the office markets across six major cities Mumbai, Delhi NCR, Bangalore, Chennai, Hyderabad and Kolkata in three broad segments.
First segment includes markets which are likely to be “susceptible” in terms of retarded demand growth for the remaining half year of 2008, the report said.
The consultant has put Gurgaon and Noida (Delhi NCR suburbs), whitefield and electronic city (Bangalore suburbs), OMR (Chennai suburbs), Thane and New Mumbai ( Mumbai suburbs) and Rajarhat (Kolkata suburbs) in the “susceptible” category.
“In case of the susceptible markets, demand from occupiers in the IT/ITES segment, could be rationalized on the back of economic slowdown in the US.
“This coupled with the strong supply pipeline in many of these markets could lead to a potential consolidation in the respective markets, leading to relatively higher vacancies,” Jones Lang LaSalle said, adding that this might not lead to any immediate rental consolidation.
The Consultant, however, cautioned that “if the global economic slowdown sustains, we foresee the vacancies to rise in these micro-markets due to strong supply volumes. This might put pressure on the rental values next year”.
The growing pressure on hotel and mall developers, faced with soaring construction costs that have risen by some 40%, is seeing Indian hoteliers and realtors importing built-up rooms, fittings, furniture and utility goods from China to save costs and time.
The trend of imports is catching on as costs have risen up to 50%, say industry executives and suppliers.
Indian hoteliers and realtors are importing built-up rooms and utility goods.
“A lot of vendors in China are creating entire (hotel) rooms,” says Akshay Kulkarni, director for South Asia at Cushman and Wakefield Hospitality, the hotels division of the real estate consultant by the same name. “Hotel operators can go there and choose the room fit-outs that they want for their hotels.”
This, hotel consultants say, will help budget hotels cut down the time taken to build a hotel by 8-10 months and costs by 40-50%. Typically, it takes between 12-18 months to build the hotel structure and up to another 10 months to fit it out. “It cuts out a lot of costs in terms of time saving,” says Kulkarni.
With supply in the domestic hospitality industry lagging demand, such measures to ready hotel rooms faster helps the business on the revenues side as well. Even with current expansions and new hotels being put up, India’s 150,000 hotel rooms predicted for 2010, up from 89,000 today, will fall short of demand then by some 100,000 rooms.
Hotels importing material and, in some cases, full rooms from China include mid-market hotel firm Sarovar Hotels Pvt. Ltd, which has around 35 new hotels coming up in the next three years, and business hotel chain Royal Orchid Hotels Ltd, which runs nine hotels in the country and plans to expand across pan-India by 2010.
The Sarovar’s orders range from furniture, sanitary plumbing, hair dryers, electronic safes, keys and locks to glass for windows, shower fittings, mattresses, tiles, soap dispensers and light fittings, for new properties in Chandigarh, Hyderabad and Bangalore. The preferred location in China for such Indian imports is the Guangdong province. Once the consignment is shipped to India, all that hoteliers do is assemble and fit these into the bare room structures.
“Guangdong has markets called a furniture city, or lights city spread across a 10km stretch on either side of the road,” Ajay K. Bakaya, executive director at Sarovar Hotels, said. “The only thing you need there is a local representative, or a local office that can manage everything for you once you have placed your order. We see huge cost savings of around 50%” with duties and a foreign earnings-linked scheme for capital goods imports, he added.
Sarovar works with Hong Kong-based logistics and sourcing company Blue Art Overseas Ltd, which is paid a commission of around 3% on the total consignment value shipped to India.
According to Ramesh Nahata, chief executive officer of the firm, for a normal factory in China that has orders for about 200-250 rooms, it would take two months for production, one month for transit and clearing, and another 10 days for assembling. In contrast, “if you were to give the contract to an Indian contractor, it will take him an average of four-six months to do the same,” he said.
One early trend among mall developers, according to an analyst tracking realty and construction firms, is that they are importing prefabricated walls from China in the last three-four months after steel prices shot up. The analyst, employed by a domestic brokerage, who did not want to be named because he is not authorized to speak to the media, said, “It helps developers cut costs by 15-20% and time by 30-50%.”
Such practices will also help developers and hotel chains finish projects on time because less manual labour is required for projects where prefabricated materials are used.
The Royal Orchid group is, however, more careful of what it gets from China and imports only artificial grass and hot plates from there. “It is not completely necessary to go to China for the entire hotel room, particularly not for our five-star rooms that require quality stuff. However, for our four-star rooms, we are looking at importing furniture, flooring and marble from China,” said Keshav Baljee, vice- president (corporate affairs) at Royal Orchid Hotels. Furniture imports save time by 10-15%, says Baljee, while imported flooring trims costs by around 20%.
Prices of construction raw materials have gone up in the last year, which has pushed up the construction cost for developers by as much as 40%. Between January and April, prices of pig iron went up by more than 70%, construction steel and wire rods by more than 36% and hot-rolled coils by more than 40%.
Leading hotel chains and top real estate developers are understood to be bidding for the beleaguered UK investment group Dawnay Day’s four-star hotel chain Ten Hotels and other real estate assets in India. ITC, Royal Orchid, Pride Hotels, Sarovar group, Lemon Tree, DLF and Paraswanath have made a pitch for the deal, which is valued at around Rs 500-700 crore.
When contacted, Ten Hotels MD Mandeep Lamba said, “The business restructuring process is being handled out of the UK and I would not be able to make a comment at this moment until I receive dependable information on the same. As of now, the business in India is operating normally with construction activities on the hotels continuing as scheduled. The first Ten Hotel would get operational in Jaipur later this year”.
All the hotel chain and real estate developers spoke to confirmed that they have received proposals from investment bankers and are currently evaluating options. Some of the interested parties may jointly bid for the business.
It is learnt that the group is also keen to rope in a potential investor immediately to infuse $20-30 million to tide over a period till a suitable buyer is finalized for the assets. “With the hotel and real estate market currently going through a slowdown, it would be difficult to get a good price,” said an official from a Delhi-based hotel chain.
Real estate developers Ansal API and Raheja Developers are attempting to tide over the gloom in the real estate sector by pursuing their special economic zone (SEZ) plans. While Ansal has announced plans for six infotech SEZs across three states, Raheja is setting up north India’s first engineering SEZ in Haryana.
While Ansal will pump in Rs 3,600 crore for developing four IT SEZs and two IT parks spread over 270 acres, Raheja plans to invest Rs 4,500 crore in an engineering SEZ to be built over 255 acres. Both the projects are to be completed in five years.
“In addition to an equity component of Rs 1,000 crore, the company will raise around Rs 1,500 crore through debt. The remaining Rs 1,100 crore will be funded through internal accruals,” said Rakesh Jain, executive director (marketing), Ansal. The four SEZs would be located in Greater Noida, Gurgaon, Lucknow and Khopoli in Maharashtra. The IT parks would come up in Lucknow and Noida spread over an area of 18 and 10 acres respectively.
Meanwhile, Rahejas said its engineering SEZ will accomodate complexes for light and medium engineering goods exporters and have approximately seven million sq ft of residential area. “Investors and well reputed business houses from across the globe have expressed keen interest in associating themselves as co-developers and investors in the SEZ,” Navin M Raheja, chairman, Raheja Developers said.
NW18 adds: Ansal API is in talks with both Indian and overseas private equity investors to raise up to Rs 2,500 crore for funding its SEZs and two IT parks.
The company may also dilute its stake in these IT SEZs and parks.
‘Out of the total Rs 3,600-crore investment in the IT SEZs and parks, the company will put in around Rs 1,000 crore. The remaining will be from other investors,” said Jain.
A slowdown in demand, coupled with tight liquidity conditions, has forced realty companies to look for alternative sources of funding with private equity emerging as the most preferred choice.
In July, Ansal API had said it will invest over Rs 900 crore in an engineering-based SEZ in Murthal, Haryana.
Currently, the company has a land bank of around 7,000 acres across residential, commercial, integrated townships, retail, SEZs and IT park projects.
Berggruen Holdings, a New York-based private investment company, which is setting up a series of three- and four-star hotels under its arm Berggruen Hotels, will invest over Rs 1,000 crore in India till 2012.
This quantum will be funded through a debt-equity ratio of 2:1. The company has tied up with IDFC for a loan of Rs 130 crore in its first tranche to fund the construction of eight properties.
Partha Chatterjee, whole-time director and chief marketing officer, Berggruen Hotels, said, “We are also looking to tie up with other funding agencies.” He said, “The funding for the first tranche from IDFC is in the ratio of 1:1 while it will be in the 2:1 ratio for the second tranche.”
Chatterjee said that the entire quantum of debt will be drawn up according to a need-based blueprint to fund about 38 properties in India till 2012 and will include the cost of land and construction.
So far, Berggruen has spent Rs 150 crore in acquiring land in about 18 cities. It had slowed down its land acquisition spree some time ago, daunted by the spiraling realty costs. In some cities-Mumbai, Delhi, Chennai, Jaipur and Pune, for instance-realty prices shot up by 50-60%, forcing Berggruen and other hospitality players to slow down.
However, now, with the realty market depressed, hoteliers have become bullish again.
The first Berggruen property is likely to start operating from February next year in Thiruvananthapuram, as the company had zeroed in on land there earlier.
Berggruen will fund its overseas ventures according to a need-based plan, like it is doing in India, since there is no point in keeping idle money, Chatterjee said.
But, according to hotel industry analysts, a quantum of about $100 million could be required for such ventures.
The company is also looking at greenfield projects overseas — in the Middle East and North Africa region, South East Asia and South Asia. It is looking at five properties in Morocco, six in the United Arab Emirates and four in Turkey.
In South Asia, Sri Lanka and Maldives are on the radar. In Morocco and UAE, the company will develop greenfield projects through the joint venture route.
In Turkey, it will develop and manage the properties on its own since Berggruen has a large establishment there.
Real Estate major Ansal Properties and Infrastructure Ltd today said it plans to set up special economic zones in Greater Noida, Haryana and Rajasthan.
“We are set to set up SEZs at Greater Noida, Haryana and Rajasthan and are organising a roadshow in the holy city of Varanasi to let the people know about our plans at their native places,” Ansal API Vice-Chairman and Managing Director Pranav Ansal said in a statement here.
The company is developing a 2,000-acre township, besides an IT SEZ in Lucknow. The company has also launched a 2500-acre township near Greater Noida.
Besides, it has launched residential and commercial projects in Agra, Meerut, Lucknow, Greater Noida and Ghaziabad. It had last month announced plans to invest Rs 900 crore in a 250-acre engineering SEZ at Sonepat, Haryana.
The real estate sector may be experiencing a slump at present, but that has not stopped the Mumbai Metropolitan Region Development Authority (MMRDA) from offering two huge plots for long lease. The two plots are sited within the Wadala truck terminus opposite the IMAX multiplex.
The agency, undertaking multiple infrastructure projects in Mumbai, hopes to draw top notch developers and companies for the bid as the plots are well-connected by rail and road.
The MMRDA on Tuesday called bids for the two plots, meant for commercial complex and a movie multiplex respectively, for a lease of eighty years.
While the plot for the commercial complex has a permissible construction area of 24,000 square meters, the one for a cinema complex has a built up area of 13,500 square metres, said officials. The MMRDA has fixed a reserve price of Rs 240 crore for the commercial plot and Rs 135 crore for the movie theater complex. The successful bidder would have a free hand to design, finance, built and operate the commercial and movie multiplex plots, said officials.
“Nobody else has such big plots in the Wadala area. The MMRDA plots would set a benchmark in real estate rates in this central area of Mumbai,” said an official from MMRDA’s town planning department. “MMRDA strongly favours offering the commercial plot to financial institutions such as banks, insurance companies, housing finance agencies, merchant banks, asset management companies or mutual fund groups. We would prefer renowned FIs to bid for the plot. Corporate developers catering to financial institutions or IT/telecom companies would also be a good option,” said officials.
Asked if the time is right to put the plots under sale, MMRDA officials said the brisk pace of infrastructure development along the Wadala Truck terminus would definitely attract big names in real estate and FIs. “The recently sanctioned monorail line between Jacob Circle and Chembur would have a station at the Wadala terminus. Moreover, MMRDA would soon invite bids from developers to construct the Inter-state Bus terminus nearby,” said the official.
The plots, argue officials, is well connected even with the existing rail and road network. “It’s just five minutes from the Guru Tegh Bahadur (GTB) station on the harbour line. There is a flyover connecting the plot to the Eastern Express highway also,” pointed officials.
He was quick to add that the area already has a strong presence of residential homes. “People staying in Sion-Koliwada, Everard nagar, Bhakti Park are a stone’s throw from this plot. Anyway, moviegoers all over Mumbai know of this area because of their visit to IMAX Adlabs,” add officials.
Mumbai has come into view as the most preferred destination for logistics and warehousing companies with proposed investments for setting up logistics parks in the city touching around Two hundred million dollar (Rs872 crore), a report said.
In spite of their lack of support infrastructure, smaller cities such as Nagpur in Maharashtra, Gurgaon in Haryana, Visakhapatnam in Andhra Pradesh, were recognized as promising locations, based on their proximity to manufacturing centres, geographic location and accessibility, according to the report released by real estate consultant Cushman and Wakefield Inc.
“Since almost one-third of the total realty development in the sector is expected to take place in emerging locations, many tier II and tier III cities and peripheral locations that offer good connectivity to multiple markets will witness increased activity from logistics players, providing a thrust to the real estate market,” said a statement from Cushman and Wakefield India’s joint managing director Sanjay Dutt.
The report estimates that 110 logistics parks, spread over 3,500 acres and costing $1 billion, will be operational by 2012 across the country. This is apart from some 45 million sq. ft of warehousing space costing $500 million that will come up during the period.
Bangalore, Indore Ambala, Ahmedabad, Jamshedpur and Alwar were classified as promising hubs in the report.
Kolkata, Chennai and Hyderabad were rated as “established logistics hubs”.
“Logistics people have started tapping (areas) closer to manufacturing locations because our arterial distribution networks such as the railways and the national highways are clogged,” said C.S. Verma, vice-chairman and managing director of logistics company ACV Logistics Pvt. Ltd.
A Delhi based real estate company, which claims to have transformed the dreams of several of its customers to reality, is being trampled by a leading Mumbai-based NBFC.
The promoters of the real estate company had pledged its shares with the NBFC and accepted a funding of Rs 300 crore to meet its short-term working capital. But as a result of the prolonged bearish phase and constant pounding of realty shares, the promoters are unable to meet margin calls that are triggered when share prices slide.
If market sources are to be believed, the company is not in a position to even meet the interest due on its borrowings. Fearing that the loan would end up as bad debt, the NBFC has started dumping the shares of the real estate developer, triggering a further slide in the stock price.
The stock is already down 80% from its peak price seen some months ago. But market circles feel the hammering is not yet over, and the stock may test new lows in the coming days.
The Bangalore based Mantri Developers has successfully bid for a 4.9 acre plot of land at Siruseri IT Park on the IT Highway for developing an amenities centre. The price Rs 10.5 crore per acre for a 75-year lease is considered a new benchmark in Chennai’s real estate market.
The plot of land, located at the entrance of the IT Park and adjoining the IT Highway, was originally acquired by the State Industries Promotion Corporation of Tamil Nadu Ltd (SIPCOT). It was handed over to the Tamil Nadu Road Development Company (TNRDC) which develops the IT Highway also known as Old Mahabalipuram Road (OMR) or Rajiv Gandhi Salai on a 99-year lease for developing world-class facilities for the IT and ITES sector as well as the road users.
The TNRDC’s earlier efforts to identify a business partner for the project failed because all were far below the upset price of Rs 10 crore fixed by the company.
When the TNRDC floated a revised bid recently, Mantri offered to pay Rs 10.5 crore per acre and emerged successful. The TNRDC will hand over the land on a 75-year lease to Mantri for setting up a hotel four star or five star and an amenities centre with shopping mall and club house measuring roughly 6.5 lakh sq ft. The developer will be at liberty to identify a viable business proposition.
While sources in the TNRDC and Mantri refused to comment, it is learnt that the two firms are working towards the conclusion of the bid process. Mantri will have to make a one-time payment of Rs 51.45 crore for the plot of land. Mantri’s offer is more than double of what many IT companies have paid for acquiring land from SIPCOT in the Sirusseri park.
However, the commercial value of private properties along the IT Highway between Sholinganallur and Sirusseri range from Rs 15-20 crore per acre. Mantri is also developing a residential project Mantri Synergy at Padur on the IT Highway.
The builder is already promoting luxury and business hotels in Bangalore and Hyderabad and IT space in Bangalore and Pune. The group started by Sushil Mantri with a low capital of Rs 10 lakh in 1999 in Bangalore, has so far completed more than a dozen residential projects in Bangalore.
The real estate in Indian market is constantly changing and developing at a rapid pace. The most preferred destinations of last year may not be the better options this year, while next year might bring certain unparalleled set of investment destinations in the real estate market of India. As such nothing can be predicted in advance in this sector.
The basic reason for this changing situation is that the real estate is booming which is causing most of the country’s metros and also certain previously popular Tier II towns to modify at an unequalled pace. The prices of the immovable property have actually reached sky heights which might be beyond the reach of the middle class group, but it still forces them to expect a little more abroad each year. The investors assess these trends of migration, examine the magnitude and range of growth and determine certain new towns as the next destination.
The Information technology (IT) companies are these days the capital growth drivers in the real estate market of India and are stunningly not dependent on the central business locations. The core of the entire boom of outsourcing is that it sorts more awareness for the multi-nationals to transfer the functions of back-office and even undergo extensive research processes to India rather than undertaking them in their home countries.
As a matter of fact both the end buyers and sellers of the IT-based services and products are based overseas anyway. This basically means that the IT/ITEs (information technology enabled services) establishments have the potential to function from anywhere in India, as far as there is accession to skilled work force and other required infrastructure.
In fact, these companies can conveniently profit from the asset of cheap real estates while the prices in small towns have made-up the way for the city boom of Tier II/III. However, the IT/ITEs companies basically serve as catalyst for almost every sector of real estate in India and as such the retail, infrastructure and residential sectors would very soon start perking up in those particular localities too.
The main mantra of the real estate investment is however, the emerging localities are actually more preferable than the established and the saturated ones. The established regions sooner or later would reach a eminent altitude in terms of apprehension potential, no matter after that the growth rate may either stagnate or slow down.
It has also been witnessed there is quite a little scope for the new and latest market drivers like malls to get a preferred place in concentrated regions – while, the prices remain high.
However, it can be elaborated that this is actually not a preferable scenario from the profitable investment point of view as the best investments need low entry levels and considerable growth and that also in a realistic time-frame. As such it has been witnessed that though one or more than one destination reaches their peak potential on almost all the accounts, the new destinations obviously come into limelight instantly.
It is also quite worth mentioning that in this quite unstable financial market where unsecured and personal loans charge the sky rocketing interest rates, the rates of interest in loan against property are following the reverse path. This particular situation has geared the growth of real estate in India.
The boom in the retail market actually has a significant impact in the commercial real estate market. In fact, the actual size of the wholesale sector in India is about Rs. 8,10,000 crores and amazingly out of it just 2% is unionized or comply corporate constitution. However the Indian retail sector is steadily growing at a pace of 20% per annum and what is more important, the unionized pie of this sphere was calculated to grow from 2% of the whole wholesale market in 2001 to 22% in 2005.
Most luxury and premium brands are looking for quality retail-centric real estate spaces not only for expanding their branded retail shops but also for having their new offices, according to industry experts.
Hugo Boss luxury watches, which is being retailed by Titan Industries Ltd through about 15 to 20 of 250 World of Titan showrooms, will also be retailed through upcoming luxury retail malls, apart from premium departmental stores and premium malls in India, Harish Bhatt, chief operating officer, Titan Industries said. According to him, “We are open to selling luxury Hugo Boss luxury watches in luxury malls and premium departmental stores which provide an environment for accessible luxury watches. Besides this, luxury malls also provide scope for higher brand visibility.”
Luxury and premium goods distributor Brand Marketing India Private Ltd (BMI), promoted by the Mumbai-based Murjani Group has moved out of its four offices in Nariman Point (including one office at The Trident, Mumbai) and shifted to Metro theatre building in February this year. In Metro theater building, Murjani Group has set up its new 7,000 square feet office. This is to have ample quality real estate space in Mumbai for its office, Shehzad Karachiwala from Murjani Group said.
BMI has exclusive licensing rights to top global brands including Gucci, Jimmy Choo, French Connection, Calvin Klein, La Perla and Bottega Veneta. BMI brands are already sold in Mumbai’s Shoppers Stop, The Trident and Vama and will be part of Delhi’s luxury mall DLF Emporio as well as UB City in Bangalore. While luxury retailers Crossroads, Oberoi and the MBD Group are all hoping to launch luxury malls soon, new luxury brands entrants such as Armani and Miss Sixty too are vying for quality space in luxury malls.
According to Shubhranshu Pani, managing director – retail, Jones Lang LaSalle Meghraj, “Luxury brands look for quality retail-centric real estate spaces. 5-star hotels do provide quality spaces, but such hotels obviously have their own agenda and the environment is based more on hospitality than retail. Moreover, 5-star hotel spaces are limited and do not offer much scope for expansion, or the introduction of a healthy brand mix. Currently, luxury brands still find value in occupying space in 5-star hotels and are retaining these. However, thanks to the advent of luxury malls such as UB City and DLF Emporio, they now have alternatives and are beginning to benefit from the re-loaded, focused retail experience.”
Property firms are eyeing newer overseas markets for business opportunities as the domestic real estate market continues to slump.
While the looking overseas trend isn’t too new, firms such as the Bangalore-based Puravankara Projects Ltd and Sobha Developers Ltd, and the Delhi-based Parsvnath Developers Ltd are pushing ahead to expand their global presence.
Overseas offices can help in multiple ways. An office in the US, for instance, could help them look for more private equity funds; in China it can help find cheaper construction material; there are potential buyers in Singapore and Australia, which also has possible investors. And in countries such as Sri Lanka and Malaysia, Indian developers are looking to identify properties.
PRA Realty, a property developer from Pune, which is pumping in nearly $100 million (Rs432 crore) into three township projects in Nagpur and Pune and Nashik, has set up an office in Chicago with a new chief financial officer (CFO) based there.
“The idea is to interact with US-based funds there, raise capital and explore business opportunities,” said Rustom Bharucha, managing director (MD), PRA, which also has a marketing office in Dubai.
Traditionally, Indian developers have been opening marketing and sales offices in the United Arab Emirates, particularly in Dubai, with builders such as Hircon Llc., Ajmera Housing and more recently, Omaxe, constructing projects there. But developers such as Parvsnath, Lodha Group, Sobha and Puravankara are also moving in on new locations, such as South-East Asia and China, as well as traditional locales such as the UK and US.
Sobha, for instance, gets much of its raw material and interior fittings, such as tiles and silicate boards (used in bathroom ceilings) from Guandong, on the southern coast of China, where it has set up an office. In 2007, Sobha estimates, it imported material worth Rs2.5 crore from China, a number that is expected to rise sharply.
“As a company expands across cities, it is important to have a presence internationally so that people know about your products. We are planning to open offices in Australia and Singapore besides the US and UK in the near future,” says J.C. Sharma, executive director of Sobha. The firm is expanding in India by launching projects in Pune, Coimbatore, Kerala and Mysore.
Parvsnath is in talks with a Singapore-based real estate firm for a hospitality and real estate joint venture. The Indian developer has already set up a subsidiary for its Singapore operations, Parsvnath Developers Pte Ltd, and would soon set up offices there. The firm expects to develop at least one five-star hotel there. “We are talking to real estate firms there for partnerships,” Pradeep Jain, chairman, Parsvanath, said at a press conference to announce its fourth quarter results. “Singapore market is very transparent and well organized. Margins in Singapore are almost same as in India.”
Puravankara has just opened an office in Sri Lanka. The company plans to launch a 300-super luxury villa project on 26 acres near Colombo. “We are in the last leg of approvals for the project. We have appointed representatives in the UK and US,” says Ravi Ramu, CFO.
Non-resident Indians, or NRIs, buy 15–25% of all new real estate developments in India, depending on the location and the project, claims a recent report by Jones Lang LaSalle Meghraj, a global real estate consultant. While NRIs from the UK, Canada and Dubai have been investing in Indian real estate, those from Singapore, Hong Kong and Thailand have now started buying properties here, says Raminder Grover, managing director, Homebay Residential (a subsidiary of Jones Lang LaSalle Meghraj).
Days after Chief Minister Buddadeb Bhattacharjee declared that Indonesia-based Salim group’s Expressway was put on hold due to the land acquirement problem, Prasoon Mukherjee, Salim Group’s pointsman and chairman of NKID (New Kolkata Infrastructure Development) expressed confidence that the other jumbo projects of the Group, including the PCPIR, are on track.
Mukherjee said “We have several projects in Bengal and the Expressway is a small part of it. The momentary hold on the Raichowk-Kukrahati project will not affect our other projects, which are bigger in proportion. I have full confidence on the state government and the chief minister regarding the industrial development in the state,”.
In the teleconference, Mukherjee, who is now abroad, said he is till now to get an official order from the state government indicating that the Expressway project is on hold.
“But I have heard of it,” he said. “Regarding the Expressway, we are prepared to wait. Our initial work and land survey is over. Whenever a consensus for land is achieved, we will go ahead with it.”
On the subject of the land acquisition problem in Bengal, Mukherjee said: “People’s consensus is necessary for land acquisition. The people must be made aware of the positive side of development, before one asks for their land. I trust the government is doing just that.”
Mukherjee stressed that all major projects in Bengal, including the PCPIR and township developments projects, are on track and moving on smoothly.
“We already have 13,000 acres and are in a position to claim another 12,000 acres.”
A non-resident Indian, Mukherjee had mediated the deal between the Salim Group and the state government in July 31, 2006, two months after Bhattacharjee took began his second term as the chief minister.
From mid-2006, the mega corp announced three separate projects. The largest, involving an investment of Rs 40,000 crore, was to be implemented by a Special Purpose Vehicle, the New Kolkata Infrastructure Development.
The NKID was to set up two Special Economic Zones, a cluster or industrial estates, a 100-km Expressway and a clutch of townships, involving the acquisition of nearly 37,300 acres.
The NKID project received a setback in 2007, when people of Nandigram violently resisted the government’s attempts to acquire farmland for a chemical industrial estate and an SEZ without consulting them.
The result showed up this year: the CPM was routed in the elections to the three-tier panchayat setup in East Midnapore and South 24 Parganas.
The huge project is being developed and executed in Chembur, Mumbai by GA Builders, an “RNA Corp Group” company that would provide “New Homes” to more than 1950 tenants, according to a media release. The Subhash Nagar Colony, built by MHADA, is about 55 years old and comprises 57 buildings that house 36 members each. On completion of the mass housing project, the tenants would be re-housed in flats with an area of 320 square feet plus 65 square feet in the form of a flowerbed, niche or dry area with all necessary amenities. After obtaining all the requisite approvals for the redevelopment of the project and after setting up the transits for tenements, the company is all set to make its mark in Mumbai real estate sector.
“We have so far built 744 flats for the residents in five buildings, and have finalized plans to build eight more buildings for 546 families who have signed for redevelopment.” Mr. Manoj John, spokesman for RNA Corp said. He added that more than 1300 families out 1950 have accepted their plan to turn Subhash Nagar into mini-township. Mr. John further said “Considering the sheer scale of this project, we have undertaken extensive infrastructure enhancement drive that includes setting up of drainage and sewerage infrastructure, underground water lines, recreation grounds, playgrounds, internal roads. Underground and overhead tanks will ensure uninterrupted water supply with an added provision for piped gas connection.”
Besides the amenities, RNA also provides for a “Zero Maintenance Cost” for the society by ways of issuing fixed corpus to each member of the society. A Fixed deposit of the aggregate of the corpus funds generates monthly interests to take care of the maintenance and also meets other costs to be borne by the society, the release added. Additionally, RNA will also help the tenants during the transit period by providing them with the cost towards brokerage for rental accommodation, the rentals and shifting charges. With over two decades in the construction industry, RNA Corp’s expertise and knowledge of local partners coupled with its strong focus on customer satisfaction, has resulted in gaining an impeccable reputation and setting up a successful track record of performance.
Indian logistics industry is expected to grow at 15% to 20% per annum, reaching its revenues of $385 billion by 2015, said a report prepared by Cushman and Wakefield, which term the sector as new powerhouse for the real estate sector in times to come.
As per C&W estimates, the market share of organized logistics players is expected to double to approximately 12% in the same period. The new logistics centers will give big boost to the industrial activities in the country.
The report revealed that 110 logistics parks spread over 3,500 acres at an estimated cost of $1 billion are expected to be operational by 2012. Around 45 million sq ft of warehousing space will be ready in the next four years.
Most of these developments are concentrated in 14 locations. Sanjay Dutt, joint MD, C&W India said, “Since almost one-third of the total realty development in the sector is expected to take place in emerging locations, many tier-2 and tier-3 cities and peripheral locations that offer good connectivity to multiple markets will witness increased activity from logistics players, providing a thrust to the real estate market.” Mumbai has emerged as the preferred location for the development of logistics parks with an investment of approximately $200 million. The city will witness the development of seven to eight logistics parks on 600 acres around Mumbai.
The other cities that fall within the established locations include Kolkata, Chennai and Hyderabad. These locations are characterized by excellent port, rail and road connectivity and are witnessing significant investment in infrastructure, said the report. High concentration of organized retail, established manufacturing hubs and proposed SEZ developments will further augment the attractiveness of these locations.
Besides the established centers, a number of hubs like Nagpur, Vizag and Gurgaon have also emerged. But currently they are lagging behind in support infrastructure. However, due to high ratings on other parameters such as geographic location, existing and proposed manufacturing clusters and SEZs and accessibility, they are promising locations for the purpose.
A number of infrastructural developments are taking place in these locations, which would increase the attractiveness of these locations in the next 3-5 years, said the report. Gurgaon has advantage of being situated on the golden quadrilateral with easy access to the dedicated freight corridor.