Market is encouraged by price correction and low interest rates after few months of slump. The improvement is visible in residential sector, especially in low to mid-end housing segment. Level of inquiries went up and transaction velocity increased marginally as compared to first quarter of this year. Most developers deferred plans for launching any new projects, the focus being on deploying the scarce resources on completing projects in hand.
The first quarter results of real estate major HDIL indicate a improvement in the domestic realty sector. Not only volumes, but also prices are now moving northward.
Despite the fact that both sales as well as profit margins fell during the June quarter, the decline was less than expected and pace is also slackening. Revenues fell by 47% year-on-year to Rs 318.61 crore from Rs 601 crore in the same quarter previous year. With more than three-fourth of its revenue coming from low yielding land development and slum rehabilitation scheme projects, the margins have taken a major hit. Operating margin also fell from 58% to about 43%. Net profit stood at Rs 107.47 crore as against Rs 317.9 crore reported in the corresponding quarter of last year.
In this quarter, HDIL sold less than 1.8 million square feet of TDR at an average price of Rs 1,500 per square feet. It is expected to cumulatively sell close to 6-7-million square feet of TDR in financial year 2010. HDIL has managed to restructure major part of its debt liability and repayments would be due only by October 2010. On account of completion of the mall and multiplex at Kandivili, a Mumbai suburb, about Rs 21 crore worth of investments have been transferred to fixed assets from the Profit & Loss account in the current quarter. As the company follows the project completion method for revenue recognition, it is only by 2011 when the ongoing residential projects would get completed. On the airport project, phase I is expected to be complete by fiscal year 2010 and land acquisition for other parts of project is going on. Recently the company has entered into a rental-housing scheme with MMRDA. This is expected to add 30 million square feet of space to its existing 196-million square feet of land bank.
Lodha Developers is ready to deal a 10.3-acre plot in Central Mumbai for Rs 710 crore in what could be the biggest realty deal this year, a sign that the slump in real estate sector may have finally gone. Company’s director Mr. Abhishek Lodha declared the offer made to acquire the Finlay Mill property belonging to NTC.
The developer is looking to fund the transaction through an IPO to raise three thousand crore rupees by end of August.
Lodha’s earlier bid for the 10.3-acre mill land was Rs 657.9 crore when the reserve price was fixed at Rs 708 crore. On Thursday, NTC’s asset review committee did not accept Lodha’s bid on grounds that it was much lower than the reserve price.
Lodha communicated to NTC its decision to increase its offer price for the Finlay property. The other bidder in the fray for the property was Indiabulls Real Estate at Rs 520 crore.
The payment for the Finlay Mill acquisition would be made in three tranches over three months. The deal will be inked between Lodha and NTC in the next ten days.
Emaar MGF, Godrej Properties, Lodha Developers, Sahara Prime City, Nitesh Estates and Sriram Properties will all hit the capital markets in the current year, declaring that the worst may be over for an industry that virtually cratered in the global economic storm last year.
With market conditions still tight, it will be tough for these issuers to demand substantial premium from investors. Looking at the present volatile market, it would be really difficult to predict the premium.
The last to be listed, Mahindra Holidays and Resorts, debuted on BSE 7 percent higher than its issue price. Godrej Properties, the real estate arm of the Godrej Group, plans to sell around 10 percent through its maiden public issue. Before that, the company will place a 3.5 percent equity with select institutions.
The IPO is expected to fetch the company anywhere between 450 crore and 600 crore rupees. It will use the proceeds for building low-cost housing. ICICI Securities and Kotak Mahindra Capital are the merchant bankers to the issue.
As per the draft guideline released by RBI, bank loans to entrepreneurs for acquiring real estate for their business would not be classified as commercial real estate (CRE) exposure. Currently, bank loans to companies for acquiring real estate for hotels and hospitality are treated as CRE exposure and attract a risk weight of 100 percent. Depending on the risk weight, banks are required to set aside capital for loans. Under RBI norms, banks’ capital-adequacy ratio, a measure of financial strength expressed as the ratio of capital to risk-weighted assets, is 9 percent. This means that for loans carrying 100 percent risk weight, banks need to set aside Rs9 worth of capital for every hundred rupees they lend. If these projects are not treated as CRE, their risk weights would vary according to the ratings of the borrower or the ratings of the project for which the loan would be given.
Param Desai, a research analyst with Mumbai-based brokerage Angel Broking Ltd, said, “These guidelines, if implemented, will make it easier for borrowers to get construction finance for a larger variety of projects. Construction finance has been a major concern for most developers during the downturn because most banks are cagey to lend to projects, unless they have a definite action plan and deadline to finish.”
Lodha Developers’ Rs 657.9-crore bid for the 10.3-acre Finlay Mill property in central Mumbai has not been cleared by the asset review committee of the National Textile Corporation. Bid was placed on 16th of this month. NTC’s asset review committee was to take a decision, as it was much lower than the reserve price. The committee could not arrive at decision, as many members were against awarding the land parcel at a price lower than the reserve price.
NTC MD K Ramchandran Pillai said, “The asset committee had the power to take a decision. Now, the NTC board will decide whether to award the Finlay Mill land to Lodha.” On July 16, the Finlay Mill property received two bids from Lodha and Indiabulls for Rs 657.9 crore and Rs 520 crore, respectively. This was widely viewed as a revival of the real estate.
The survey, “Trend in residential space across top cities in the current scenario” ranked Mumbai as the most preferred destination to invest in property while in south, Chennai is in the first place for property investments, overtaking Bangalore.
Cities like Patna, Nasik, Tiruchirapalli and Madurai have also become choive destinations for property investments, the survey said.
It said 60 percent of respondents felt interest rates for home loan would come down further in the coming months, while 40 percent evinced interests on properties with an area between 500 to 1,000 square feet.
More than three thousand people from the metros and other cities, including Pune, Ahmedabad, Thane, Coimbatore, and Vadodara participated in the survey.
“Market sentiments are reviving and people are ready to invest. Based on our survey, more than 60 percent of customers are looking at buying residential properties in the next six months. They also have a hope that interest rates on home loans will soon come down”, Consim Info Founder and CEO Murugavel Janakiraman said.
Better times are gradually returning to the home retail segment, among the categories worst affected by the slowdown. The segment, which saw a decline of 15-25% in sales, is witnessing a spate of revival, hand-in-hand with the returning stability in housing market.
Leading players in this segment like the Future Group, Godrej Interio, Welspun Retail and HomeStop are hopeful of the trend gaining further momentum, with the festive season right around the corner.
Confirming the trend, Retailers Association of India CEO Kumar Rajagopalan said, “With the housing sector slump, home sections of retailers found themselves in big trouble. But now that there are signs of a recovery in the housing market, home retail is also picking up. Both hard and soft furnishings have shown an increase in sales of anything between 10-15 percent over the past quarter. This segment had seen sales decline by 20 percent.”
Godrej & Boyce, which runs 50-odd ‘Interio’ furniture stores, has been witnessing a revival from May. Mr. Subodh Mehta, senior GM (home business), Godrej Interio said, “While some home retailers may have been downtrading by giving massive discounts, we restricted ourselves to normal promotion. Even though sales are yet to reach the 30-35 percent growth rate as in the pre-slowdown days, it is still growing at a double-digit rate”.
HomeStop, the home concept format owned by Shopper’s Stop, expects sales to grow from September-October onwards. Shopper’s Stop executive director & CEO Govind Shrikhande said, “Though we did not experience a steep decline in sales, our expectations are that sales will again reach its peak in the last quarter”.
Future Group, one of the largest players in home retail with multiple stores like Home Town, Collection-I and Furniture Bazaar, has been reporting a negative same store growth in this segment since the slowdown hit India. The group reported a 10% drop in same store sales till March, slumping further to 28% in April and May, and 34% in June. Group officials feel the fall in same store sales has bottomed out last month.
DLF has dropped its plans to develop a mall on upmarket Commander-in-Chief Road in Chennai due to the ongoing economic recession.
The company has now sought permission to develop the land as a premium residential project. DLF Southern Homes director KK Raman said, “We have completed the design process. We are awaiting approval to announce the launch of our residential project during October-November 2009”.
Sometime in 2005, DLF Commercial Developers acquired the 4.41-acre property from German major Mico Bosch for about Rs 138 cr and had intended to develop it as a retail-cum-office complex. Later, it revised the plans and applied for a multi-storeyed building status, hoping to develop the property as a mall.
Now, for the second time, the company is revamping its plans. It has approached the Chennai Metropolitan Development Authority to permit its reclassification so that the land can be developed as a residential project.
There are various factors that must be discussed before purchasing property. One needs to consider factors such as economic growth outlook, interest rates, job security, demand, credit supply etc, understand the overall dynamics of the real estate sector.
Rough estimates show that out of the total 100 percent real estate market the residential segment weightage is approximately 75 percent whereas 20 percent is commercial office spaces and balance 5% comprises retail, hospitality.
The mid market residential segment (residential properties between Rs 15 – 50 lakh) represents nearly 85% of total mortgage disbursements in India. Therefore, the mid market residential segment represents nearly 64% of the market. Almost 55% of mortgage finance disbursement for residential properties happens within the top seven cities and the balance 45% is shared by the whole country.
There was a dearth of two to three bedroom properties within this range of Rs 15 – 50 lakh within the greater metropolitan areas of major cities. Easy supply of money from equity capital sources created an artificial demand of land for the development of large township projects and SEZs. Everybody started announcing huge and multiple projects but ignored the calculation, execution and delivery capability perspective involved.
Most developers started projects 10 – 20 times the total square footage of what they had delivered in the last 20 – 30 years. The various sources of institutional capital lapped up the story. However critical considerations like the nature and kind of organisation structure, management bandwidth, labour, capital equipment, machinery, project time were ignored.
The pricing of residential projects went up by 400 – 500 percent in most cities between 2006 – 2008. Interest rates also went up from an all time low of 7.00 percent, 20-year fixed mortgage to as high as 13.75 percent floating rate in 2008. This put a lot of strain on affordability.
The stock market crash and job insecurity that followed the Lehman Brothers fiasco, drove away investors and actual buyers. The credit tightening from domestic banks and marked to market losses started reflecting on credit supply to the sector and the market went dead.
Developers came stress with no cash flows from the sale of projects and rentals of commercial office spaces and retail spaces also dipped by as much as 50% and everybody started playing the waiting game and bottom fishing to get back into the market.
The most credible development companies, in the absence of retail buyers, could not find capital to complete under-construction projects. This led to delays and temporary abandoning of projects. Developers were forced to rethink strategies to get back cash flows and improve sales. This led to developers having a “Eureka” moment about affordable housing.
Luckily for the markets better sense has now prevailed and several developers are re-pricing projects downwards and repositioning them as affordable housing. The banks have also selectively started lending to developers, albeit in small amounts and with strict performance criteria. The banks have also brought down interest rates and also restructured debts. This has slowly brought buyers to the market.
The worst seems to be over for the mid-market residential real estate asset class, although the same is not yet true for commercial office spaces and retail malls. This segment essentially drives cash flows as well as the major chunk of demand. This segment is also one which gets maximum bookings from actual user market rather than the investor bookings in percentage terms. Therefore, it is the lead segment in driving real estate markets. Unfortunately, it was the most neglected segment during the bull run of 2006 – 2008.
Now that most developers have realised that this segment is bringing back buyers who were left out to due to affordability issues during the bull run, cash flows are likely to improve. There have been a few launches of affordably priced projects, which have seen a positive response from actual users.
This has led to other developers following suit and taking advantage of the positive sentiment that has emerged towards affordable/mid market residential segment. The market will see a slew of such launches in the next three months to one year, giving ample choice to actual buyers. Prices will stabilize for a while.
After long time of stagnation in the commercial real estate market in Mumbai, there is finally some revival. First off the block was the 10.3-acre Finlay Mill property for which there have been bids from Lodha Developers and Indiabulls Real Estate. On July 31, NTC will put the 16-acre Kohinoor Mill-1 property also on the block, for which the base price will be Rs 1,200 crore. Both these properties are in central Mumbai.
In the case of Finlay Mill property, the last day for the submission of bids was Thursday. Lodha Developers and Indiabulls Real Estate have put in their bids. The base price for this property, which has a buildable area of 4.20 lakh square feet, is Rs 708 crore with Lodha’s bid at Rs 657.9 crore and Indiabulls’ at Rs 520 crore. The property was put on block twice earlier.
It is learnt that property consultant Jones Lang LaSalle Meghraj has been mandated for the sale of the Kohinoor Mill-1 land. This is the first time that this land is being put on the block. The Kohinoor Mill-1 property is different from that of Kohinoor Mill-3, which was bought by Manohar Joshi and Raj Thackeray for Rs 421 crore in 2005.
The sector appears to have found its feet with focus on affordable housing and this may reflect in the June quarter results of the companies. The move has led to higher sales for many companies, but on the other hand, it has also impacted the margins negatively. The reason being that the mid-segment housing is a high volume with low margin business.
It may also be understood that only the residential market has seen a recovery, while the commercial and retail segments are still under stress.
Among all the listed companies, Orbit and Indiabulls Real Estate (IBREL) are expected to show a marginal improvement in sales. With a huge fall in property prices in the luxury segment, Orbit has shown 5% increase in sales. With a 70% YoY decline in revenue, Parsvnath is expected to see the highest fall. DLF and Unitech may follow with 60% and 54% decline, respectively. As a move to generate cash for business activities, both these companies have exited from unviable projects and also sold noncore assets. This would help in completing under-construction projects. Even some large SEZ projects have been shelved.
Many companies have launched new residential projects in affordable housing segment. Though construction costs would be low, EBIDTA margins would decline by 5-10 % average due to sharper decrease in prices. However, companies like Unitech, DLF, HDIL, and Sobha that have raised funds have improved their balance sheet positions and thus lowered their overall finance cost. Average EBIDTA margin for June’ 09 would be 39% as against 43% for March’ 09. Peninsula Land is expected to show positive margin, as the number of projects was very limited, hence leverage was also low.
Despite all the gloom, realty sector is seen to show some improvement in margins. The overall PAT margins for the June quarter will be at 26%. Though real estate sector is one of the major contributors to the over all profit growth for India Inc, yet it is low as compared to the past PAT margins of 35-40 %. However as alternate sources of funds have become available, builders have managed to improve their cash position. Loans have been restructured and thus interest liability has been reduced. Developers like Mahindra Lifespaces, IBREL and Peninsula Land are expected to report PAT margins upward of 30%.
Debt-ridden realty player DLF said that it will sell more land and wind power business this financial year to raise Rs 1,900 crore and lowered the sales figure for flats.
With a total debt of over fourteen thousand crore rupees to start the year 2009-10, DLF had been doing everything conceivable, including sale of promoters’ equity in the company as also different projects. DLF has sold 2500 flats during 3 months ending June.
Rival Unitech on the other hand has been able to bring down its debt to below Rs 5,000 crore and today it is believed to have some cash surplus.
As part of its management of debt, DLF sold Rs 1,000 crore worth of land during April-June period and is planning to garner 900 crore rupees to part-repay the debt by exiting its wind power business.
Construction firm Omaxe said its subsidiary has entered into an agreement with Allahabad Development Authority for the development of a township in Allahabad.
Pancham Realcon has has entered into a memorandum of understanding for the development of township in Allahabad on a proposed area of 1,535.12 acres, Omaxe said in a filing to the Bombay Stock Exchange. However, the company has not disclosed the financial details of the township project.
Banks in India are suggesting property developers to stop increasing real estate prices as it could stop the market recovery. Developers have been taking advantage of rise in sale but its side effect could put off the buyers.
S. Sridhar, Chairman and Managing Director of the Central Bank of India described the move as short sighted and that the developers are naïve if they think that by increasing prices, they would stimulate demand. Further he said, “It is difficult to generalise but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand”. He added, “If the real estate players revise the prices upwards, it will stall the recovery process. Demand for housing loans has picked up among the banks but the situation is still fragile”.
Global real estate giant IREO will invest 500 million dollars in various infrastructure projects in India.
IREO is already one of the largest investors in the country’s real estate sector. The company currently has thirteen projects and is in the process of constructing an IT SEZ in Pune. The company has projects in many states including Haryana, Punjab, Tamil Nadu, Maharashtra and Delhi. The company said it would develop an eight million square feet housing project in the next one year.
The national capital has become the most expensive city in the country for expatriates. Comparing with other metro cities, New Delhi is ahead of Mumbai, Bangalore and Chennai.
However, all Indian cities have witnessed a decline in their rankings in terms of cost of living this year with New Delhi falling to the 65th position from 55th place in last year’s survey, in the global list of 143 cities.
Further, Bangalore has dropped to 133rd rank from the 118th rank in last year’s survey, while Chennai is the cheapest Indian city at 135th rank falling from 117th position last year.
Mercer’s survey covers 143 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is a comprehensive cost of living survey and is used to help multinational companies and governments determine cost of living allowances for their expatriate employees.
Overall, a significant reshuffle of cities can be observed in this year’s ranking, mainly due to considerable currency fluctuations.
Photo by Paolo Màrgari – paolomargari.itIndiabulls Real estate has planned to use more than five hundred million dollars to launch projects at a time. This money is raised from a recent share sale. Mr. Gagan Banga, CEO, said that their aim is to launch 6-7 residential projects in this FY. He showed interest towards pursuing some large projects.
Indiabulls is expecting a strong demand at projects in tier-II cities such as Baroda, Ahmedabad and Indore as these have been appropriately priced, between 2,000-5,000 rupees per square feet. Indiabulls is assured that they can meet the increasing demands for residential real estate.
The plan to create the ‘maharatna’ group among the so-called ‘navaratna’ companies is part of the 100-day agenda of the ministry of heavy industries and public enterprise.
Currently 18 ‘navratna’ companies have financial autonomy to invest up to one thousand crore rupees in setting up joint ventures or subsidiaries abroad and freedom to decide on merger and acquisitions without the government permission.
Photo by thisperthlifeResidential property prices are expected to fall by about 10% this year. Residential property rates declined by 18% to 20% in this March. Despite this drop, buyers are watching market scenario with ‘wait and watch’ policy. This trend is likely to continue through 2009. Mr. Sudhir Nair, Head, CRISIL Research says, “Demand in the commercial and retail segment is likely to remain under stress for the next two years owing to excess supply and weak off take.”
It is believed that lower home loan interest rates would help to revive demand in the residential segment. Hence, capital values are likely to stabilise in the first half of 2010, and increase during the second half of the year.
Lots of expectations were to be met. Lots of requirements were to be fulfilled. Industries were waiting for a rescue hand from Mr. FM to fight against recession. Nobody is happy with this average kind of budget. I was watching pre-budget views and I was hoping much more than what is presented in budget.
If we talk about real estate sector, there is no major change. Government made it easy to build multi storey buildings in rural areas. The fact behind is, will any builder invest his money to make a multi storey building in rural area? My answer is simply ‘No’ and I hope most of the builders think the same. If we talk about the raw material used in this industry, there is no deduction in rate. This means, the struggle of a middle class person, to build a home, has increased.
No solid steps are taken to increase foreign investments. No attractive plans for NRIs. This simply means that Government has no concern for foreign investment.
SALES slowdown, stagnating capital values and a need to manage resources better are pushing Indian realty firms to invest in technology that will help them achieve optimum productivity, information access and regulatory compliance.
End-to-end enterprise resource planning (ERP) solutions, that manage diverse projects across different locations, are slowly finding favour. ERP vendors are seeing increased enquiries pushing them to develop tailored solutions targeted at mid-market realty firms.
When Delhi realty firm RDS Projects’ standalone ERP deployment failed, it turned to a solution that provided efficient management of projects across locations and customers: Aurigo Brix. Similar was IDEB’s case, which used Aurigo’s product across realty projects in Southeast Asia and India.
Recently, global tech giant SAP said Maharashtra-based builder City Corporation has gone live on its ERP solutions to help accelerate business plans, such as building 50,000 houses across five townships in Pune including India’s first digital township, Amanora Park Town.
SAP has signed deals with Chennai-based True Value Homes and the Kolkata-headquartered Tantia Construction and also counts GMR Infra and HCC as its major clients.
From tech biggies to mid-market IT firms, everybody is gunning for a slice of this market. While Bangalore-based Sonata Software has launched SonnetCONSTRUCT, a specialised ERP solution for this vertical, Oracle India and HP have teamed up for a bundled offering — Oracle Accelerate Solution for HP ProLiant servers — that will help mid-size businesses across verticals sustain and grow operations.
While vertical-specific ERP figures are not available, the overall market is expected to top $250 million in 2009, growing at a CAGR of over 25.2% between 2004 and 2009.
The firm recently launched its fifth generation product, BRIX 2009, an industry add-on to Microsoft’s ERP solution suite, Dynamics AX and available through select partner channels in the US, Middle East and Africa.
DLF has already scrapped a 5 star hotel project in Prabhadevi in Mumbai with Akruti. DLF was the majority stakeholder in the project. DLF has been looking to monetise its non-core assets to raise funds over the next one year to pay off its debt.
The company had net debt of Rs 13,958 crore, of which Rs 3,591 crore is due for repayment this fiscal. The developer has also put its wind power business on the block and is expecting to collect about Rs 900 crore from it. DLF said it would reduce its outstanding debt by half in this financial year by raising about Rs 5,500 crore through assets sales, plot sales and cash flow from the business.
Mumbai seems to be the next destination for realty giants DLF and Unitech. Both companies are trying to restart some of their projects in Mumbai which were on hold.
Unitech, said, “We have a number of slum redevelopment projects in Mumbai. We also have a focus on affordable housing and some projects will be announced by the end of 2009.” A company official said that the focus would now be on residential projects and prices would be lower than the current market rates.
Courtesy: SeracatPVP Ventures has sold its 90- ground prime property at Vadapalani in Chennai to education group SRM for Rs 140 crore. The property developed over 90 grounds with a built-up space of 3 lakh square feet. SRM University has chalked out big plans for making use of the office space. It is in the process of setting up its admissions office.
PVP Ventures has been on a property selling spree and the deal with SRM comes on the back of the sale of its theatre complex in the city’s suburbs and a hotel property in Ooty. The company is learnt to be selling its properties in an effort to focus on its core businesses of urban infrastructure and power generation.