SRA scheme is in doldrum due to realty slowdown

The much-hyped slum rehabilitation authority (SRA) scheme of the Maharashtra government is in doldrums. This follows a steep slump in the real estate market. One of the biggest players in SRA schemes said, “I have decided to pull out completely. It just doesn’t make sense to get involved in these schemes anymore.” With many SRA projects in limbo, it will be many more years before the city would be able to rid itself off its slums. As many has 1,100 schemes have been sanctioned by SRA in recent months.

However, CEO of SRA Shrikant Singh, said there was no cause for alarm. There is a down-slide in all sectors and SRA is no exception. “But if the demand for flats picks up, those under SRA will be the first ones to be sold as they are cheaper than the ready reckoner rates,” he added. Ready reckoner rates are the rates for flats as determined by the state government and vary for each municipal ward.

Under SRA, a builder had to obtain the consent of at least 60% of occupants in a slum, relocate them in transit camps and then give them pucca flats measuring 300 sq-ft for free. In the space thus vacated, he could build flats for sale in the open market with additional floor space index (FSI). Said Ashutosh Rane, who has undertaken several SRA projects: “The entire economics of these schemes was based on the profits to be made from the free-sale component. With property prices on the downslide and a general freeze in demand for flats, there is absolutely no incentive to go in for SRA projects anymore.”

He said it cost at least Rs 4,000 per square feet on an average to put up an SRA project. “As free-sale SRA flats sell at prices less than those prevailing in non-SRA projects, there is hardly any profit to be made anymore,” he said. Also in view of the banks’ reluctance to give housing loans, there is no way a purchaser can even buy a SRA flat.

It takes four years on an average to implement an SRA project as obtaining the consent of slum-dwellers and building transit camps takes time. Only after this, a builder would be able to start constructing free-sale flats and during these four years, he would have to borrow finance at interest rates of over 25%. The fall in property prices is acting like a big speed-breaker for SRA developers.

For example, Sahana Builders, which is in the process of implementing a mega SRA project at Worli since the past four years, has built several flats with various accessories to house hundreds of slum-dwellers and spent a few crore rupees to build a nullah according to a BMC requirement. The firm is still to start building free-sale flats and it will be a few years before it starts getting returns.

Scenario of Real Estate Industry After Festive Season

With the festive season of Diwali just past us, developers are going hammer and tongs at wooing prospective homebuyers with more and more special offers. However, if sources are to be believed, these discounts and gifts have only come about because the real estate market is heading for correction in a big way. Sources say developers are finding themselves stuck in a liquidity crunch and are therefore offloading some spaces at lower margins.

On the one hand, most of the big names in the real estate industry today are putting up a brave front. This is because they feel nothing will change significantly because of the year-long slowdown in the market that has been brought about due to a meltdown global finance, the US subprime crisis and the crash on the Indian stock market. On the other hand, right from global property consultants to local estate agents, talk about the correction occurring at ground level has led to a reduction in transactions, an increase in lucrative offers and discounts negotiated with those who are ready to deal in this rough weather. Some unusual offers by a few developers have made ripples in the market.

Govt criticizes ASSOCHAM

Taking strong exception to industry chamber Assocham’s forecast that a quarter of people in certain key sectors will lose jobs in the next ten days, government today said the economy is poised for the other way.

“The Deputy Chairman of the Planning Commission and my colleague Jairam Ramesh (Minister of State for Commerce) have taken serious exceptions to an Assocham report… The pace of job creation may slow down but that doesn’t mean that jobs are being destroyed,” Finance Minister P Chidambaram told reporters here.

The Minister further said another industry chamber FICCI too had contradicted the Assocham study, which had said that in the next ten days or so about 25% to 30% employees are likely to lose jobs in seven sectors including aviation, information technology, steel, financial services, real estate, cement and construction.

Chidambaram further said that 7% growth rate, the lowest projection made by experts, would “create more job than was done in entire NDA regime, when the growth was only 5.8%. Why this question was not raised when the economy was growing at 5.3%?”

Replying to questions on the recent report on slowing of the US economy, the Minister said, “when the world output slows down, the growth in developed countries slows down… it will have an indirect impact on India.”

However, he added, “the India economy is domestic consumption and investment driven economy. Exports will play a significant role but not as much as they do in China.”

Attention turns to rental real estate market

Rental property investments are proving more popular in India as the country sees a slowdown in sales, according to experts.

Real estate companies say people have less money to spend on buying a house, leading many to look at lettings instead.

More recent data from the company shows demand for property in Hyderabad declined by 11% to 12% between June and August.

The paper also reports the survey shows 62% of those looking for property in the city would buy a residence anywhere in the area provided it met their basic requirements.

However, Hyderabad also appears to be bucking the rental demand trend, with the number of people looking for lets in the city down 5% to 11%.

Real estate slump may pull prices by 20%

With a slump in the Indian real estate sector due to excessive credit crunch and demand slowdown, home buyers can expect a further correction in real estate prices in the range of 15% to 20% in next six months. There are several factors working against the Indian real estate sector that can bring about such a price correction.

With the Reserve Bank of India (RBI) tightening money supply and increasing interest rates to fight inflation, the developers are facing liquidity crunch. Banks are getting jittery over loan disbursals to real estate developers. Even if the developers manage to get loans from banks, they are hard-pressed to keep more collateral with the banks.

“With debt market getting dried up, developers facing the heat of liquidity crunch and PE funds shying away from real estate investments and speculative investments at an all-time low, we can expect a 15-20% correction by the first quarter of 2009,” Jones Lang LaSalle managing director Anuj Puri said.

The global credit crunch which has affected the Indian market has taken the sheen off large property firms like DLF and Unitech. The two are seeing their market cap eroding almost completely and their fund raising plans hitting a rut due to unavailability of funds. To further aggravate the situation, the property market has also been witnessing a drop in PE fund flow.

PE investors, who had been happily picking realty deals earlier this year, appear to have tightened their purse strings now, with September witnessing only two transactions worth just $12 mn compared with August, when PE funds pumped in $427 mn into Indian realty sector.

According to data compiled by Grant Thornton, while the number of deals during January-September was higher at 45 against last year’s 39 deals, the average ticket size of the transactions has come down substantially in the first three quarters of 2008, reflecting softening valuations across the crisis-ridden real estate sector.

The rate of interest on home loans has drastically shot up from around 7.75% in 2004 to around 12.75% now. Almost 90% of home buyers opt for loans to buy homes. With interest rate on home loans on a rise and the severe liquidity crunch in the banking sector on the back of the global financial turmoil, fuelled by real estate crises, banks are unwilling to lend.

“Now the time has come when you have only genuine buyers for a property. Speculators who believed in short-term investments in properties have completely vanished from the scene. Therefore, to help genuine buyers , developers will have to cut prices,” real estate consultancy realty verticals head Rajan Ahuja said.

On further price correction in real estate, Unitech MD Sanjay Chandra said: “The prime issue is of affordability. It’s not about per sqft rate, but about the overall price tag of a house. We are reducing ticket size. We now offer three-bed room flats, which is much smaller in size than we earlier used to sell, thereby bringing down the price of a flat.”

According to a report on the Indian office market by CB Richard Ellis, a global real estate consultant, seven major Indian cities, including Delhi, Mumbai, Kolkata and Bangalore, showed a marked decline in demand during the quarter ending September. The report also said leasing of office space had slowed down in the first two quarters of the year.

Pune to become 7th metro city in India : Assocham

Pune will soon acquire the status of being a metropolitan city in India. According to an Assocham report on ‘The 7th emerging metro city in India’ it owes its upgradation to a fast development pace in the area of infrastructural facilities, friendly business environment, education avenues and employment opportunities.

Contributing factors include the high real estate prices and a large population base as compared to other upcoming cities. The study was carried out in four tier II cities including Pune, Ahmedabad, Lucknow and Chandigarh ranking them on eight

parameters necessary for a metro city. They included social infrastructure, infrastructure availability, real estate cost and availability, transportation facility (connectivity), presence of quality educational institutes, employment opportunity, facility of financial services and business environment.
Pune occupied first position overall though it needs to improve on transportation, social infrastructure and financial services.

Ahmedabad was the second most potential city providing good infrastructure and facilities and connectivity. Lucknow was placed with third rank as it needs to pick up on infrastructure, business environment and social infrastructure.
Chandigarh, the smallest city among the four in terms of area size and population was ranked at the fourth position though it was ranked foremost in financial services and business environment.
Among the four cities, Ahmedabad occupied first rank on the parameter of social infrastructure. The city with literacy rate of 79.89% has high-grade institutes like IIM, NID, NIFT, EDII etc. The city of Nawabs, Lucknow with a literacy rate of 83.5% and presence of quality educational institutes including IIM, SGPGIMS etc was placed at second position. Both Pune and Chandigarh were assigned 3rd positions respectively on the social infrastructure parameter.
Pune has a literacy rate of 80.73% and skilled population, the city is a place of high grade institutes including NIBM, NIC etc. However, 81.9 per cent is the literacy rate in Chandigarh with prominent institutes being Institute of Microbial Technology (IMTECH), Centre for Defence and National Strategic Studies (CDNSS) etc.
The infrastructure parameter rank cities on the basis of sub parameters including number of entertainment avenues, malls and multiplexes along with the presence of star category hotels.
The Queen of Deccan, Pune with maximum number of malls and multiplexes (26) and star category hotels (25) notched the top position. The second rank was occupied by Ahmedabad, with the city having 25 malls and multiplexes and 17 star category hotels. Chandigarh and Lucknow was placed at 3rd and 4th position respectively. The favourable location and smoothen process of acquiring land along with the high property prices are few sub parameters of real estate cost and availability that attracts corporate sector to expand their business.
Pune has outpaced the other three cities on the parameter of real estate prices and availability. After Pune, Chandigarh is considered to be the next emerging real estate market. Ahmedabad occupied 3rd rank while Lucknow at the bottom position was considered as most time consuming city in terms of process for acquiring land.
On the employment parameter, among the four upcoming tier II cities, Pune carved the maximum share of 32.74% in the total jobs tracked for the period January-June 2008. The prominent sectors attracting large number of aspirants include IT,manufacturing, engineering and academics among others.
The four cities are ranked on the parameter of financial services, taking into account the sub parameters including number of offices of scheduled commercial banks, density of offices of scheduled commercial banks per population, number of accounts of the scheduled commercial banks per population, presence of brokerage firms, presence of stock exchange, transparency in trading system. In terms of providing financial services facility to the natives of the city in respect of above parameters, Lucknow occupied first position. The second rank was grabbed by Chandigarh. However, both Pune and Ahmedabad occupied third rank.

DLF eyeing Luxottica franchisee

The country’s largest real estate developer, DLF, is set to sign a franchisee agreement with Italian group Luxottica to retail its premium and luxury eyeware brands, including Oakley, Ray-Ban, Chanel, Dolce & Gabbana, Donna Karan, Prada, Versace and Polo Ralph Lauren.

Euro 15 bn Luxottica group is a leading designer, manufacturer and distributor of prescription frames and sun-glasses in the premium and luxury segment. The group owns 10 premium eyeware brands, including Ray-Ban, Oakley, Vogue and Revo. Luxottica has licence agreements with 20 top brands, including Burberry, Prada, Tiffany and Salvatore Ferragamo.

DLF will open over 100 Sunglass Hut stores over five years, under the franchisee agreement, which is initially valid for seven years, according to a source. The first store is likely to be opened in New Delhi next month. Luxottica currently operates over 2,000 Sunglass Hut retail stores across the globe. In all, the company has over 6,000 optical and sun retail stores across Asia, China, South Africa, Europe and America.

Luxottica has been operating in India since 1999 when it purchased the ailing Ray-Ban from its then owner Baush & Lomb. The company has lately started distributing its other eye-ware brands through a wholly-owned subsidiary in India. The company also has a local manufacturing facility. But now, DLF will take over entire distribution and retail of Luxottica’s products.

The eyeware market has been rapidly growing in India. Besides several leading global brands, the domestic eyeware makers, too, have exploded on the scene trying to access different segments of the market.

For DLF, the tie-up with Luxxotica is significant as it will give the realty firm a toe-hold in accessory space and help it build a strong retail portfolio. The real estate giant has been looking at tying up with several high-end brands in each category to launch itself in the domestic market as a major retail player.

It has already tied up with premium fashion brands Armani, Dolce & Gabbana and Salvatore Ferragamo. The company is also eyeing multi-brand retail and has been in talks with some major foreign retailer for a partnership, although a deal has not been finalized yet.

Realty stocks battered, Unitech down by over 51%

Real estate sector was the biggest loser in today’s stock market plunge, led by country’s second largest firm Unitech that witnessed a sharp fall of over 51%.

The realty index witnessed a 24.4% decline, which is more than double the benchmark index Sensex fall of nearly 11%. The index has fallen by 31 per cent in a week, 55.5% in a month and 82% in the past one year.

Real estate companies, which have a presence in the index, saw an erosion of about Rs 20,000 crore in market capitalization.

Unitech lost 51.3% to settle at Rs 30.1 on the Bombay Stock Exchange, followed by DLF, which lost 24% to close at Rs 203.9 a share.

Ansal Infra, Indiabulls Realty, Omaxe, Parsvnath, Sobha Developers, Peninsula Land, Mahindra Lifespace and Phoenix Mills fell by 10% to 20%. HDIL scrips fell 9%.

The steepest fall in the case of Unitech followed media reports that the firm defaulted on payments to Greater Noida Development Authority for a land deal struck in 2006.

Unitech issued a statement to the Bombay Stock Exchange that the authority has revised payment schedule.

“Unitech is currently not in default and was never in default with regard to the payment to the authority,” the statement said.

Real estate developers frustrated over credit policy

Real estate developers and consultants expressed disappointment over the RBI’s credit policy announced today and has asked the apex bank to infuse more liquidity into the system and to the property sector.

“It’s disappointing but understandable,” global real estate consultant Cushman and Wakefield Managing Director (South Asia) Sanjay Verma said.

He noted that though inflation has begun sliding, it is still in double digits, so there is always a fear that additional liquidity can stoke a price rise.

“For me, the availability of credit to developer should be the bigger priority. Demand is there, someone needs to supply,” Verma added.

The liquidity situation is bad enough to delay construction and this condition is worse than the high interest rate regime, he said.

“There is disappointment as the financial markets and the entire productive sector were expecting some relief from the credit policy as it was anticipated that RBI would reduce the bank repo rate and CRR,” Parsvnath Developers Ltd Chairman Pradeep Jain said.

The policy has shaken the confidence of investors to the extent that the Sensex fell to its lowest since 2006, he said.

Suncity Projects Director Ashok Bansal too expressed unhappiness over the policy. “We were expecting some relief from RBI but that did not happen. We are disappointed,” he said.

Amit Sarin of Anant Raj Industries said: “We are disappointed. The RBI should take some bold decisions to bring back positivity in the market”.

The apex bank today announced the credit policy keeping repo rate unchanged at 8% and CRR at 6.5%.

HCC’s new townships on hold

Given the current turmoil in the market and subsequent impact on real estate, Hindustan Construction Company has decided to put on hold its planned townships in Pune, Nasik and Thane. Land acquisitions for these projects have been deferred for now given the high interest rates and low liquidity in the market.

HCC will focus more on government projects in power and water sectors and will look to bid for PPP projects with caution.

Ajit Gulabchand, chairman and managing director, HCC, said while the Lavassa and IT park in Mumbai is on schedule, the company has decided to go slow on the township projects in Pune, Nasik and Thane given the current market environment.

“One will have to wait and watch how the situation unfolds. Lower interest rates, greater liquidity and confidence building measures are needed,” Gulabchand said.

He said the company is looking at the possibility of joint development of townships where land owners and the company get together to develop projects. “It will help us save on cash outflows,” he remarked.

Land required for these proposed townships was around 200-400 acres and senior officials at HCC said only 40-70 acres of land in each project has been acquired so far.

“The total investment so far has been to the tune of Rs 40 crore,” officials stated.

However, the deferment of the projects comes as the company expects land prices to see a correction due to market conditions. “We expect prices to come down; as a result the cost of land acquisition will become much more viable,” officials added.

Gulabchand said while the current financial scenario is grim, the company will be focusing more on bidding for government projects in water and power sector in an attempt to insulate itself as far as possible.

“We believe in these times government will step up its direct investments in infrastructure which we will bid for,” he said.

On PPP projects or BOT, Gulabchand said that the company will move cautiously given that interest rates are high and concession periods are short. “Until factors like interest rates and concession periods improve, we will remain cautious about participating in infrastructure projects,” he said.

Parsvnath says festival sales down by half

Sales at Parsvnath Developers’ in the festival season of Diwali are down to half from a year ago, but the real estate developer does not plan price cuts to boost sales, its chairman said.
High interest rates on home loans and central bank rules forcing banks to assign a higher risk weight to real estate loans have dented property demand in India.
“There is a substantial fall, 40-50%” in Diwali sales, Pradeep Jain said on the sidelines of an industry conference.
“Liquidity is a large concern. Banks have frozen everything. The indirect message to financial institutions is not to lend.”
Analysts say property prices are still high and need to correct some more before demand picks up. But Parsvnath has no such plans, Jain said, citing rising input costs.
“We’re not going to cut prices. There is no softening of prices, the end-user demand is still there,” he said, but declined to comment on the firm’s expected sales in the fiscal year to March 2009.
Parsvnath would focus on reducing costs by reducing salaries and firing “non-performing staff,” and would speed up projects to improve cash flows, Jain said.
“We are not abandoning any project and not considering to do so,” he said. The cost cutting measures would come in within a month, Jain said.

Real estate investment trust offers better investment opportunity

The Indian real estate market has undergone palpable transformation in the last few years. This change has been led by rapidly rising demand for residential, office, retail, hotels and now warehousing space. Also, India offers higher average rental yields – 8.5 – 10.5% as compared to 3.5% in Japan, 5.2% in Singapore and 5.7% in Hong Kong. Higher yields and a relatively better spread between ten-year government bonds along with strong economic growth, increasing income levels, growing middle class and widespread urbanization has helped the Indian real estate market attract large investments.

However, despite the growing attractiveness, the Indian markets have been constrained by certain limiting conditions like absence of transparency and lack of institutionalization and liquidity. The issue of transparency is being taken care by way of reforms being undertaken by the state governments. The most effective way to tackle the other two is by allowing Real Estate Investment Trusts (REITs) to be active in the Indian markets.

REITs are investment vehicles that allow institutional as well as retail investors to partake in real estate ownership, management and development. REITs are already present in a number of mature real estate markets across the world like US, UK, Japan, Australia, Singapore, etc. and are now making inroads in emerging markets like India.

In India, REITs will help fill the financing gap as they would provide access to capital, both debt and equity capital from public and private sources at reduced costs. They will also offer an exit route for the developers to revolve funds and improve their margins. Success of REITs in other markets like USA, Australia, Singapore, etc. is a major case in point for their introduction in India.

For example, in Australia REITs play a major part in the commercial property market, with over 50% of the value of institutional quality commercial properties being held by REITs, supported by an active unsecured debt and commercial and mortgage backed securities market. According to CRISIL, REITs in India have the potential to hold atleast a 5% share (more than US$ 70 billion) of the total realty market by 2010.

This coupled with higher realty returns that the country offers (average development yields in India vary between 20-25 % while it is lower in the US and the UK) spell a great opportunity for the success of REITs in India. Draft guidelines for REITs in India were issued by the Securities and Exchange Board of India (SEBI) in December 2007 and are likely to be approved and enacted in the near future. However, much ground needs to covered and several issues need to be addressed before REITs can find a footing in the country.

The current regulations in India involve high transaction costs, present problems in ensuring clear land titles and prolonged delays in obtaining clearances and approvals. Moreover, at present, there is an absence of a credible database on real estate markets as well as standardized, accepted practices for property valuations. In such a scenario, it is very essential that certain regulatory reforms as well as an enabling framework is brought in so as to facilitate REITs to become an effective tool for institutionalizing real estate in India.

In the absence of a liquid market for income-yielding assets and the credit squeeze which has constrained development plans, many Indian developers have been exploring overseas listings through REIT structures in markets like Singapore. However with the recent fall in the global equities market (S-REIT index has fallen nearly 30% since its June ‘07 peak) and the significant drop in risk appetite for Asian assets together with the under-performance of the India Bulls Properties Investment Trust at the Singapore Stock Exchange has led to the postponement of the REITs plans by other major developers like Unitech and DLF. There is no doubt that it is time that the Indian realty markets start to develop on the back of a research-driven , structured investment approach, which has a long-term perspective and REITs would offer the ideal solution.

Unitech to announce telecom stake sale next week

Indian real estate firm Unitech Ltd will make an announcement regarding a stake sale in its telecoms business next week, Managing Director Sanjay Chandra told.

Unitech was in talks to sell a stake in the telecom venture to Norwegian telecom group Telenor.

Unitech is scheduled to announce its second quarter results on Oct 31.

Chandra said the firm expected revenue and profits to grow “upwards of 20 pct” in the financial year 2008/09.

Freebies fail to attract home buyers

Home buyers appear to be waiting for a ‘crash’ in realty prices. Offers such as, waiver of stamp duty and registration charges, free lifestyle home or modular kitchen and free parking, have failed to boost home sales.

Unless developers are willing to reduce prices by at least 25-40% to affordable levels, home buyers are likely to stay away. This was the message emanating from a four-day property exhibition organized by the Maharashtra Chamber of Housing Industry (MCHI) at the Bandra-Kurla complex despite the huge response.

“We are highly encouraged by the overwhelming response to the exhibition. The attendance of quality home seekers on all four days and their interest in the property shows the rising demand for housing in Mumbai and the state,” said Pravin Doshi, president of MCHI.

However, it does not seem that the response was matched by conversions. Although 800 properties by 85 real estate developers were put up for sale and 15 housing finance companies were also on hand to provide funding, it is estimated that the conversion rate was below 10%. It must be kept in mind that such exhibitions are not really the point of sales for something personal like a home.

The gloomy state of the sector is quite apparent. For genuine home buyers, there was the possibility of further negotiation at the site office of the project. An analysis of the under construction or newly-launched projects shows that the majority of supply is likely to come from Mulund, Thane, Navi Mumbai and Bandra to Borivali.

In addition to the above deals, there were more inducements like Sunil Mantri Realty offering Rs 100 per square feet discount on one of their projects. Vinay Unique Constructions was giving away a 10-gm gold coin and Kohinoor City was offering a waiver on club membership and floor rise as well.

Despite these baits, affordability continues to be the main concern. It was observed that flats with an area of 550-800 square feet and costing Rs 35-60 lakh saw huge customer interest.

In the wake of a rise in interest rates, subvention on home loan rates was a new discount offer made by developers like Mayfair Housing, Ekta World and the Dosti group. Under the offer, the customer pays a low fixed interest rate of 8.75% for a fixed tenure of two to three years, while the balance interest is borne by the developer.

30-35% Drop Expected in Residential Price in Mumbai

Centrum Broking Pvt Ltd today shared findings from its research report on the Mumbai Real Estate Sector. It expects a 30-35% fall in India’s residential prices from the peak, with the Mumbai Metropolitan Region (MMR) estimated to witness the lowest fall of 20-30% until April 2009. Residential demand in Mumbai is estimated at 66mn.square feet vs 55mn.square feet supply The report says that the decline in real estate prices in Mumbai will bring back affordability and is expected to boost demand. The factors that are likely to result in a lesser price drop in MMR include.

The favorable demand supply equation shields against steep correction in Mumbai – Owing to its geography and high population density, Mumbai has limited land area and demand for quality properties tends to far outstrip supply, resulting in high prices. Slum rehabilitation, redevelopment unique business opportunity in Mumbai provides opportunity to real estate players participating in the highly lucrative slum rehabilitation and development business considering that half of Mumbai’s twelve million population lives in slums.

Strong cash flow visibility for Mumbai focused property developers – Stable cash flow of Mumbai focused developers will help these companies tide over the liquidity crunch. Mumbai suburbs to witness huge supply – The trend for suburbanization is likely to continue with suburban locations capturing demand for small to medium format spaces. Redevelopment of properties – Mumbai offers huge opportunities for developers in the redevelopment space. According to a survey done by the Maharashtra Housing Area Development Authority (MHADA) in 2006, Mumbai has 19642 dilapidated buildings that are more than 40-100 years old.

Zuri brand of hotels in India

Phoenix Group Global, a promoter of luxury resorts, on Tuesday announced the launch of its own brand of Zuri luxurious hotels and resorts in India. The first five-star hotel will open at Whitefield in Bangalore in January next year, said Priti Chand, media officer of the business group. “We are acquiring land for five other hotels in Ahmedabad, Visakhapatnam, Kochi, Chennai and Nagpur and will be investing around Rs 10.5 billion for these projects,” Chand said.

Phoenix Group Global, a multinational conglomerate based in Dubai has interests in the hospitality, real estate and floriculture sector and owns and manages hotels under the franchise of Carlson Hotels Worldwide. At present it has two hotels in Goa (Radisson White Sands Resort and Country Inns and Suites) and one in Kerala (Radisson Plaza Resort and Spa, Kumarakom). The Indian arm is managed by brothers Aditya and Abhishek Kamani. “All our hotels will be under the Zuri brand,” Chand said.

Property price could become stable

A two-day real estate conference, Build Up 2008, which started in Bangalore on Tuesday, bore the grim realities of the global financial crisis and its impact on Indian real estate. Neither of the two major speakers — Union urban development minister S Jaipal Reddy and CM B S Yeddyurappa — turned up.

The other prominent speakers painted a somewhat sombre picture. “We are feeling the ripples of the global slowdown.
There’s a 30% drop in new projects compared to a year ago,” said Kumar Gera, chairman of the Confederation of Real Estate Developers Association of India. However, he added pent-up demand will manifest itself once markets stabilize.
Irfan Razack, CMD of Prestige Estates, said, “Prices in the primary market are expected to stabilize. People are not going to make the profits they did before.”
J C Sharma, MD of Sobha Developers, said, “Going forward, people could see a softening in land prices.”

Indiabulls leads ‘A’ group

Real estate developer Indiabulls Real Estate soared 27.65% to Rs 136.90, as realty stocks extended gains on hopes cut in lending rates will spur demand for residential properties. The scrip topped gainers in BSE’s ‘A’ group shares.

The Reserve Bank of India, on 20 October 2008, cut the repo rate, by 100 basis points to 8%, with immediate effect. The repo rate is the rate at which the RBI provides funds to banks against the collateral of government bonds for a day to three days.

E-learning solutions provider Educomp Solutions spurted 23.97% to Rs 2,066.40. It was the second biggest gainer in A group. The stock extended gains for the second session in a row, on acquiring 51% stake in Takshila Management Services, which specializes in setting up schools in cities across India. The acquisition is aimed at Educomp’s plan to set up twenty-five schools over the next two years.

Infrastructure Development Finance Company, which finances infrastructure projects, galloped 20.82% to Rs 62.10. It was the third biggest gainer in A group.

PEs Move Concentration From Real Estate Sector

Uncertainty in the equity market seems to be paving the way for newer investment opportunities. Private equity (PE) players have been quick to recognize these. Of late, their attention seems to have shifted from the most-talked about sectors like real estate and financial services, which were the flavour of the season till some time ago, to sectors like education, healthcare, defence, logistics, warehousing and infrastructure.

These ‘not so talked about’ sectors are now attracting big private equity players. Though some of these are the very basic sectors of the economy, it is only recently that investment interest has found a place in them.

The key reason is the underlying growth potential of these sectors. As compared to developed economies, India has been lagging far behind in the development of basic sectors like education, health-care and basic infrastructure. If the Indian economy is to grow at the rate of 9%, the government will have to focus on these key sectors. Hence, it makes good business sense for investors to catch them when they are young.

Borrowers will have to wait for lower lending rates

According to HDFC chairman Deepak Parekh, lending rates would ease only after deposit rates come down, which will take some time to happen. The statement comes at a time when most people hoped that banks would start lowering their lending rates, following the recent repo cut by the Reserve Bank of India (RBI).

Welcoming the liquidity infusion steps taken by the central bank, Mr Parekh said, “RBI has taken all possible steps to infuse liquidity and in the past 10 days. This will help the growth of the economy as well.”

He added that cash conditions were comfortable at the moment, and that he didn’t expect any further moves in the upcoming half-yearly monetary policy. “We might have to wait for the next credit policy for further moves,” said Mr Parekh, speaking on the sidelines of a conference on Tuesday.

He indicated that the central bank had taken a number of liquidity-infusing steps in the past two weeks, including cutting the repo rate by a percentage point and slashing cash reserve requirements for banks by 250 basis points. Though he refused to comment on interest rates with respect to HDFC, Mr Parekh added, “Lending rates can not come down unless deposit rates come down. At present, deposit rates across banks are pretty high.” He also said that real estate sales had come down.

Real estate sales are dull at the moment. Prices need to come down for sales to rise again,” he added. Mr Parekh added that he saw the economy growing at 7% this year. “Though it is considerably below projections of 9%, it is still a strong rate of growth for any country,” he added.

TDIL’s scheme for customers

TDI Infrastructure Ltd (TDIL) has announced a scheme for customers who wish to build their homes by offering subsidized construction and assured rentals.

A first of its type scheme, Build and Earn, will enable plot owners of TDI City, Kundli, to build their dream house while enjoying a rebate of about 20-25% on the overall construction cost. Kamal Taneja, managing director, TDIL, said, “Thus, if your plot measures 250 square yards, then you will get a rebate to the tune of Rs 2,50,000 on construction”.

Intended to relieve customers from construction-related worries, the scheme will also offer them rent for a period of 22 months post completion of construction, subject to the customer’s approval. Under the scheme, the company will build the house at an agreed price and handover the premises to the customer.

The company is offering two schemes – ‘Assured rent for 22 months post construction’ and ‘Gross Adjustment in the construction expense’. Various options under both the schemes are offered to customers so as to fit their pockets. The construction time spans between 10 and 12 months in either of the scheme. The plot owner will make the entire payment in four equal installments starting from the day of registration.

Taneja said, “Quality housing at an affordable price has always been our motto. With more and more people signing for this scheme, this will bring life to TDI City, Kundli – the new New Delhi.

Further he added, “We have received an overwhelming response to the scheme. We will immediately start the construction work. We will continue to launch such innovative schemes that will boost confidence of our customers, who have been associated with TDI for long”.

Real estate has grown during the last five years

The real estate sector in India has grown 30% to 35% during the last five years, reflecting the rapidly-increasing demand for office, commercial and industrial space, as well as bigger homes now considered within the range of India’s prospering working classes. But the economic juggernaut has been slowing since earlier this year due to double-digit inflation, a severe liquidity crunch as fallout of the U.S. sub-prime crisis, and now, the possibility of economic activity shrinking as part of a global slowdown. The country’s growth estimates of 9% at the beginning of the year have been revised to well below 7%, and the effect is directly visible on the realty sector. “No one’s buying any more,” says Ashwani Shukla of New Delhi-based Triveni Associates, “Two years ago, 25-year-olds earning fat pay packets from [multinational corporations] were buying high-end apartments. Now, there are no takers for flats selling at 20% markdowns. Estate agents are finding it difficult to even meet daily overheads.”

Shukla himself has branched out of real estate and started selling insurance six months back, “to pay the bills.” According to various estimates, sales in cities like Mumbai and Chennai are down 30% to 40%. Hoping to induce buyers at Diwali, realtors are advertising cash discounts of 5% to 10% for down payments, and as much as 25% discounts if buyers are willing to wait two to three years before taking possession of the property. “But there is no liquidity with the end user,” says Arvind Nandan, director of consultancy at real-estate consultants Cushman and Wakefield India, “Home-loan rates have hit the roof, and people’s investments have lost value at the stock market. No one has the money to buy.”

Home prices may fall in first quarter of 2009

Potential home buyers, who have been deferring their purchase decisions, may have to wait till April-May to get a good deal.

The ripples of the ongoing financial crunch, coupled with mounting pressure from various other circles, will peak between January and March. That’s when many developers will be forced to sell the unsold stock at a much cheap price.
Anuj Puri, chairman and country head of Jones Lang Lasalle Meghraj said, “The signals are very much visible. Developers are already offering lots of freebies. I feel, they will hold on to prices till the end of the festive season. If sales are not happening in the current quarter, the Jan-March quarter will see a price crash in some pockets, and in the first quarter of the next fiscal, developers will be forced to sell homes at a much lower rate as their loan repaying capacity will be under challenge”.
He added that in the current market scenario, if developers want to bring some cash flow into their company that will happen only by selling their residential and commercial properties. “All other routes are drying up,” he said.
India’s property market has been among the hardest hit by the global financial turmoil as high interest rates and gloomy economic prospects have driven out buyers and squeezed funds for real estate developers.
Through this year, property prices have already declined more than 10-20%, though in cities like Mumbai and Delhi, prices are still too high for a middle class consumer. Developers like Orbit Corporation have already cut prices by 20% from Rs 26,000 to Rs 21,000 at Parel in Mumbai.
Broking firm Edelweiss Securities in its recent report on real estate said property prices are likely to decline by 10% in the current calendar and another 15% by the end of the current financial year.
“I feel, by the end of the year, developers will feel the real pinch of the current financial crisis. They have to cut prices to keep the wheel rolling. It would happen early next year,” said Pranay Vaikil, chairman of Knight Frank India.
Industry official said, though the rate cut by RBI will improve the confidence level of consumers, it will not reverse the ongoing trend in the market as most buyers will prefer to wait and watch.
“While the repo rate cut signals the reversal of the interest rate cycle, it might be too early to conclude on its impact on the real estate. With liquidity remaining tight for India Inc, home loans rates might see some softening by select players, as the uptake at current rates for residential borrowers is dwindling. Such a move could revive the demand in residential real estate market, that has seen sudden drop in recent times,” DTZ director Ambar Maheshwari said.
According to industry officials, many realty companies were banking on the stock market and foreign investors for new projects. As those sources dry up with the global meltdown, they will be forced to cash out, even if it means selling existing stock at a lower price.

Deloitte Haskins Sells partner Jayesh Kariya said, “Those with a strong financial background would still be able to hold on to the inventory but the ones with leveraged positions will give in to the pressure. The picture would be much clearer by the end of the current year. This period beginning from late December ’08 to March ’09 could provide a good buying opportunity for homebuyers”.

Developers are admitting that there aren’t too many transactions taking place. The festival season between Dusshera and Diwali has traditionally been the time when most families choose to move into their new homes. “Though enquiry levels are increasing, it is not translating to actual deals. Consumers are still hesitant,” said a Mumbai-based developer.

Indiabulls Real Estate surges 22%

Shares of Indiabulls Real Estate surged over 22% to Rs 131.15 on BSE Tuesday, while Indiabulls Financial Services climbed over 7% to Rs 105.60 after the company assured of not having any non-performing loan in its portfolio.

The financial services company reported a net profit growth of 21.4% to Rs 136 crore for the second quarter ended September and said that it does not plan to expand its loan portfolio from the current Rs 11,000 crore due to adverse market conditions.

The company saw loan repayments of Rs 2,000 crore during July-September and did not face any problems with large-ticket loans, Director Gagan Banga said.

Brokers said market sentiment has improved on positive move taken by the central banks to ease liquidity crisis that boosted the financial and realty stocks. Realty index of BSE was up 7%, while Bankex was up 4% in afternoon trading.

RBI cuts repo rate might be good news for realtors

RBI has cut the repo rate by 100 bps to 8%. This is effective immediately. The Finance Minister, P Chidambaram said that the repo rate cut will help in moderating inflation. This is a positive move which will enthuse both borrowers and investors, Mr. Chidambaram added. The RBI’s move is consistent with the government’s aim of maintaining high growth, he added.

This news may come as a boon for the realty companies as it may help bring down loan rates. This is the first repo cut since 2003.
We feel that a lot of liquidity is already infused in the past ten days. The move may not have an immediate impact on stock prices. Confidence will not come just because of a CRR cut or a repo rate cut. But once global markets recover, this will give a further boost to stock markets.