Author Archives: skgupta

Bangalore is costliest Indian city to live in.

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Glitzy tech capital Bangalore just earned a new sobriquet, the costliest Indian city. An analysis of the Reserve Bank of India’s Consumer Price Index (CPI) shows that Bangalore is a couple of notches higher than the all-India cost-of-living average, with financial capital Mumbai just a shade behind.

The CPI is a measure of a standard basket of items, including food, clothing and transport, across cities. In the price race, Delhi is comfortably placed very low in the table, deriving its cushion from the subsidies galore it receives from the Centre. Take, for instance, LPG cylinders, which is a must-have in middle-class families.

According to Bharat Petroleum’s latest figures, Bangalore currently pays Rs 415 for a 14.5-kg refill, Kolkata Rs 405, Mumbai Rs 402 (expected to go up after budget), Delhi Rs 399 and Chennai Rs 393.50. Bangalore’s CPI peaks in the national chart at a whopping 200, followed closely by Mumbai at 199, Kolkata 184 and Delhi a distant 181. The national CPI average is 198.

For homemakers like Koramangala resident Aditi Rao, life in Bangalore is becoming tougher with each passing day. “Frequent hikes in the prices of basic items put our home budget out of sync every month,” said Rao, 34.

Budget analyst Ravi Duggal, who has lived in Mumbai and Delhi, observed that the high cost of living in Bangalore has come about as a result of the IT industry. He said there were different reasons for differential living costs among cities, including the aspiration of people. Talking of India’s two leading cities, he said, “Where education is concerned, for instance, Delhi has more public education facilities than Mumbai.”

What makes Mumbai equally expensive? “There are many factors, the chief being high rentals. Over 40% of the salary of an average Mumbaikar goes into paying rent,” pointed out economist Vibhuti Patel of SNDT University.

BKC and its Past, Present & Future

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Bandra Kurla Complex was created by MMRDA as an alternate CBD to Mumbai, with the express purpose of halting the further growth of offices and commercial activities in South Mumbai. Currently, BKC has a total stock of 8 million square feet of office space. An additional supply of 2.5 million square feet is expected in 2012 with the completion of The Capital, FIFC and TCG Finance Centres. Over the last few years, BKC’s G Block has gained prominence as the key location within this unique micro-market. The current vacancy level at Bandra Kurla Complex stands at 16%.
Leasing and buying activity at Bandra Kurla Complex continued to accelerate during the last two quarters. The rent correction appears to be complete, with most existing buildings and new projects recording flat rates or slight increases over the prior quarter. The overall stability of the market is a sign that it has bottomed out.

With the Diamond bourse soon to be operational in 2 million square feet of premises, the people churn at BKC will increase dramatically. How the MMRDA will address the management of this sudden onslaught of traffic remains to be seen. Other areas of concerns at BKC include the continued lack of F&B outlets and sufficient public transportation. The Metro project announced in 2008 would be a game changer; however, this project has been drastically delayed. The monorail project, now scrapped, could have been a significant infrastructure boost for Bandra Kurla Complex.

Various infrastructure initiatives like the Santacruz–Chembur Link Road will help adjacent areas around BKC such as LBS Road, Sion, Kurla, Kalina and Mahim to develop, posing competition for BKC. Many senior executives who work in BKC are expected to shift their residence to Bandra, driving up residential prices in Bandra.

Real Estate Investments Become Cheaper For the NRI with Weak Rupee

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Rupee has been depreciating and has positively influenced the demand from NRIs for residential properties in various cities across India, especially in Mumbai. The rupee has been touching new lows every day. Even today, the rupee touched 54.82 per dollar in early trades. Exporters and the NRIs are two categories which stand to gain from the weak currency, as they will receive more rupee funds on conversion. The term NRI also includes Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs).

“Because of the rupee’s downward trend, real estate has become cheaper for NRIs and many of them are now actively seeking residential property investment opportunities in the financial capital,” says Om Ahuja, CEO – Residential Services, Jones Lang LaSalle India “Apart from the advantages they have due to the depreciating rupee, developers are more than willing to offer discounts today owing to their on-going liquidity concerns,” says Om Ahuja.

 

Lodha may buy DLF’s Mumbai land-sources

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India’s Lodha Group is in advanced talks to buy a plot of land in Mumbai from DLF, the country’s largest listed real estate developer, for about $500 million, two sources with direct knowledge of the situation said.

Sale of the 17-acre plot is seen as part of DLF’s plan to sell some of its assets to pare its debt of about $4 billion. DLF bought the land for about 7 billion rupees ($129 million) in 2005.

Mumbai-based developer Lodha has emerged as the front-runner for the land parcel in central Mumbai said the sources, declining to be named as the matter is not public yet.

DLF declined to comment, while a spokesman for Lodha said the company was not in talks with DLF.

MoU Between Century Real Estate and IIM-B

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Bangalore-based, Century Real Estate and the Indian Institute of Management Bangalore has signed an MoU for setting up the IIMB-Century real estate research initiative.

The IIMB-Century Real Estate Research Initiative will focus on collecting data and conducting scientific, cross-disciplinary research on the Indian real estate sector that will be published in leading academic and practitioner journals, the realty company said in a statement.

“There is a tearing need for such an initiative in the real estate space that will focus on research, act as an interface between the industry and the policy makers and eventually churn out quality human resource for this sector,” says P Dayananda Pai, Founder-Century Real Estate.

Additionally the research initiative will seek to provide guidance and policy recommendation to government and industry stakeholders on major issues relating to the Real Estate sector.

“The initial charter for the Research Initiative will be to create taxonomy of relevant data that will be required to do meaningful research, initiate research projects that fill key knowledge gaps and engage with key stakeholders within the industry” says professor Venky Panchapagesan, who has been leading the effort to set up this initiative at IIMB.

Will MoU Between CREDAI, Fire Department work?

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Announcement of a memorandum of understanding (MoU) between the Confederation of Real Estate Developers Association of India (CREDAI) and the Karnataka State Fire and Emergency Services (KSFES) Department on fire safety certification has raised quite a few eyebrows in the real estate industry.

While an industry expert questioned how “credible” would the entire process be, if the issuance of a no-objection certificate (NOC) and a clearance certificate (CC), which earlier took months or even years, would now have to be completed within 30 days. “Currently, the KSFES has been manually going through each drawing and then mulling over all the errors and suggestions. This consumes a lot of time. According to our MoU, we will be providing software prepared by a company which would identify the errors in the drawing. It would indicate whether a particular project proposal is in acceptance of the norms by highlighting the faults in red colour. Then at the click of a button, the department can either condone or reject the proposal. The company has provided similar software to civic bodies of other places like Mumbai, Pune, Ahmedabad, Nagpur and other places. Hence, their credibility is established,” asserted Sushil Mantri, under whose President ship CREDAI signed the MoU. He argued that it is important to make this move as almost 90 percent developers are suffering because a handful of builders did not follow norms.

“CREDAI members are responsible for almost 60-70 percent output of the city. Further, to become a member of the confederation, they have to sign a code of conduct which covers all the approvals and rules. By delaying progress of approvals, not only do builders incur losses as production suffers, but also the revenue to the city and BBMP is further delayed,” he said.

CREDAI and Builders’ Rift over Code of Conduct

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Firstly, several developers declined to abide by the code of conduct laid down by CREDAI. Following this, the association has expelled several developers, while some have resigned discontinuing their involvement with the organisation.

Opposing the self-regulation code, the builders refused to sign the association’s code of conduct. The bone of contention for builders was the code of conduct that primarily outlines transparency clauses that builders have to follow.

Ultimately, CREDAI expelled some builders, as they did not comply with the directives despite the body having issued several notices to them. DLF, Hirco and Hiranandani Realtors have been expelled from the Chennai Unit, whereas four builders have resigned from the Bangalore unit.

CREDAI has further decided to expel non-compliant builders in NCR and informed the expelled builders that they can be a part of CREDAI unit only if they sign the code of conduct.

 

Emerging Property Markets are Gaining much Steam

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PwC real estate partner, John Forbes, told the 2012 Cambridge Real Estate Finance and Investment Conference that the global financial crisis means that the milestone could come sooner than expected. ‘Back in 2007, we predicted that the GDP of the leading emerging markets would surpass that of the leading advanced economies by 2050. The intervening global financial crisis has slowed growth overall, but the deceleration has been most marked in the advanced economies,’ he said.

Real estate investors need to adapt as emerging markets start to dominate and China, the United States, India and Brazil are set to become the four major economies, it is claimed.

‘The shift in the balance of economic power is therefore happening more rapidly. We expect there to be three dominant economies by 2050 China, the United States and India. Then there will be a significant gap to the country that we expect to be in fourth place, Brazil,’ he explained. ‘We are already standing at a milestone. According to the latest data published by the International Monetary Fund in April, the share of world GDP of emerging and developing economies is expected to overtake that of advanced economies for the first time this year,’ he added.

 

Her told delegates that it is not a question of ‘if’ real estate investors will adapt to this changed landscape but ‘when’ and ‘how’. ‘Emerging market economies will be a major source of investment opportunities but also of capital. Real estate businesses need to address both. In terms of investing in emerging markets, investor concerns need to be considered,’ he pointed out. ‘The providers of capital have become increasingly attentive about a range of governance and transparency issues. This will be a major factor in determining which emerging market real estate businesses will attract international capital,’ he said.

‘Meeting the changing expectations of investors is a challenge for many real estate businesses even in advanced economies. Those in emerging markets are generally starting from a less developed point and for them the journey will be longer,’ he added.

Jan-March Net Profit Of Unitech Plunges 98% On Weak Property Demand

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Unitech Ltd. (507878.BY), one of India’s top realty companies by sales, Wednesday posted a 98% drop in consolidated net profit for the January-March quarter as expensive loans and property prices crimped demand for apartments and shopping malls. Profit in the fiscal fourth quarter plunged to INR22.6 million from INR1.03 billion a year earlier. The figure lagged the INR790 million averages of estimates in a Dow Jones Newswires poll of five analysts. Sales declined 32% to INR7.16 billion from INR10.54 billion.

Unitech and other realty companies in India have been hit by weak demand in a slowing economy. The central bank raised interest rates 13 times between March 2010 and October 2011, before finally easing rates this April. Also, rising living costs and reluctance of most realty companies to make major cuts in prices have made potential buyers put off purchases.  Unitech’s net profit for the financial year ended March 31 fell 56% to INR2.48 billion. Sales declined 23% to INR24.46 billion.

“Financial year 2011-12 was a very challenging year, particularly in terms of availability as well as cost of funding for real estate projects,” said Ajay Chandra, Unitech’s managing director. “This has resulted not only in an increase in financing costs for the company, but also adversely affected construction activity.” Chandra said, however, that he expects the current financial year to be “significantly better” as there has been a gradual improvement in availability of funding in recent months. Also, interest rates are expected to come down.

He said Unitech plans to deliver nearly nine million square feet of space in this financial year which began on April 1, up from last year’s 3.4 million square feet. The guidance will be helped by Unitech receiving bookings for 7.19 million square feet in the past financial year — including 6.34 million square feet of residential bookings — totalling INR38.08 billion. The company launched projects of 7.81 million square feet last year.

Noida Land Order Got No Reviews from Allahabad High Court

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Home-buyers in Noida and Greater Noida will have to wait longer for their flats. The Allahabad high court on Monday dismissed the plea of the Noida and Greater Noida authorities seeking review of its earlier order requiring all projects in the area to get the NCR Planning Board’s approval. So, till these clearances are in place, buyers will not get possession.

However, there was some relief for the buyers as well, with the court striking down a review petition by a group of villagers who wanted the land acquisition quashed in a village where construction work had started. The ruling led to some farmers in Noida Extension taking to the streets and attacking housing projects. They blocked traffic for a few hours.

The court also stuck to its earlier ruling granting increased compensation as well as 10% of the developed land to farmers.

Both the Noida and Greater Noida authorities had filed applications seeking review of the order dated October 21, 2011 which requires the NCR Board’s clearances for projects. The authorities argued before the three-judge bench of Justices Ashok Bhushan, S U Khan and V K Shukla, there was no need for such approvals but the bench was not impressed.

The court also dismissed applications to review the order on providing 10% developed plots to farmers. The authorities said development work in the area was almost complete and there were no leftover plots which could be given to farmers. Appearing for the farmers, Kamal Singh Yadav opposed the review applications saying developed plots were available but was not being provided to farmers. On October 21, 2011, after hearing 491 petitions against land acquisition filed by farmers of 63 villages falling under Noida and Greater Noida, the Allahabad High Court had cancelled land acquisition in three villages where construction had not started.

The acquisition was undertaken by the authorities using the urgency clause in the name of industrial development. But later the land use was changed to residential and plots sold to builders. However, in 60 villages where substantial construction work was already done, the court did not quash the acquisition. Instead, it asked the authorities to increase compensation and provide 10% to the affected farmers.

Thus, while ensuring enhanced compensation to farmers, the court also took into account the interest of more than 50,000 people who had booked flats and houses in projects on the acquired land. Now, the two authorities have no other option but to take approval of NCR planning board whose meeting is scheduled later this month and pay enhanced compensation to farmers.

Real Estate Investing in Pune, India’s Other Growth City

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Most of the funds are based out of Mumbai, which gives Pune obvious preference, as the city’s proximity allows these funds to track and monitor the market – and their investments – easily. Also, Pune is among the most rapidly growing cities in India after Mumbai, NCR and Bangalore.

According to Sameer Gholve, Manager of Capital Markets at Jones Lang LaSalle India, Pune has been favoured destination amongst Real Estate PE funds since 2005 – the year FDI opened for real estate.

The total flow of PE funds into Pune until December 2011 was approximately US$800 million. This consisted of both foreign and domestic monies through around 32 major transactions over the last five years. 2009 saw the lowest flow of private equity funds into the city, though Investors regained confidence in 2010 arrived. The renewed investor confidence resulted in a massive recovery of private equity deal closures in Pune

As expected, most of these funds have been invested in the residential property asset class. In fact, residential real estate has proved to be the most consistent and enduring magnet for private equity funds into Pune’s real estate sector. In comparison, investments into SEZs, industrial parks (STPIT) and mixed-use townships have primarily been seen only before mid-2008. From 2010 onwards, the interest in these formats as asset classes has been quite meagre.

Significantly, 61% of the total private equity investments that have been seen in Pune were done in projects located in East Pune. East Pune has the majority of the city’s IT industry developments such as Magarpatta Cyber City in Hadapsar, EON IT Park in Kharadi, CommerZone in Yerawada, Weikefield IT Park on Nagar Road, etc. These IT developments have had a major spin-off effect on the profile of these areas. The higher spending power and commensurate aspirations of the people working in these establishments has caused the arrival of massive malls and also generated a huge demand for quality residential projects. These projects are proving to be the major magnets for private equity investments into Pune’s real estate sector.

Affordable Housing Policy for All

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In two months, India could have a brand new affordable housing policy, an effort to give some boost to a weakening real estate sector. The Union Ministry of Housing and Urban Poverty Alleviation (Mhupa) is in the process of finalising such a policy in two months.  The government had already allowed external commercial borrowing  for low cost houses in India in the annual Budget. But the real estate companies are not too keen on this segment because of the low margins. Hence the government is now trying to make affordable housing attractive for the developers as well.

The policy will raise the floor space index to compensate developers for high cost of land and also ease density norms, the Business Standard article says. It would give capital and interest subsidy to developers. Even government land would be auctioned on the basis of who could build maximum number of low cost houses.

Approvals would be given in six-eight weeks as against almost 70 approvals they require at present which typically take   between two to three years.

A recent example of such a case is the allegation by the Maharashtra Chamber of Housing Industry and the Confederation of Real Estate Developers’ Associations of India that plan to construct 500,000 affordable homes in Mumbai, Thane and Raigad districts of Maharashtra is gathering dust due to “inaction and policy paralysis” on the part of the state government. Such projects could be better executed with some sort of a single window clearance system.

On the other hand, the government is also making strict riders for the ECB borrowing so that money cannot be borrowed for low cost housing and transferred to other segments.  So the government could mention specific projects and developers that could access the ECB funds and also mention specific channels like National Housing Bank to borrow the funds.

India Inc. Faces Fall in Earnings and Revenue Growth

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Indian firms are being squeezed by rising input costs and cooling demand, resulting in a slowdown in earnings and revenue growth compared to recent quarters.

An ETIG analysis of 600 companies that have announced results for the quarter ended March 31, 2012, shows that net profit, excluding firms in banking & financial services and oil & gas sectors, slid 2.5% from a year ago while revenue growth slipped to 14%, relatively slower than the previous quarters.

Net profit fell for the third consecutive quarter, though the decline was not as marked compared to the 12% fall in the December 2011 quarter and 38% in the quarter prior to that. Revenue growth hasn’t dipped below 15% in the past couple of years.

In the quarter ended September 30, 2011, revenue growth had grown in single digits.

The earnings scorecard for the quarter ended March 2012 was weighed down by the poor showing of industry heavyweights such as Reliance Industries, Bharti Airtel, Sterlite Industries and Sesa Goa, all of which reported a fall in profits and mounting pressure on margins.

Barring some sectors, the ETIG analysis shows, companies are unable to pass on rising expenses to end-users, a fact reflected in the continuing erosion in their operating margins before depreciation. Operating profitability shrank for the eighth consecutive quarter in March compared to a year ago.

Though it was 200 basis points higher than in the December 2011 quarter, at 19% it was still lower than the over-22% registered two years ago when the economy was recovering from the 2008-09 slowdown.

Residential Market Demands will Remain Stagnant

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A recent report by Global Property Consultants CBRE South Asia, India Residential Market View – 2011 states that while the residential markets across NCR and Mumbai witnessed steady escalation in prices during the revival period from 2009 to first half of 2011 (as high as 40-50% in certain micro-markets), the latter half of the year brought in stagnation in overall prices.

Numerous repo-rate revisions by RBI, which led to upward revision of mortgage rates, tighter control on teaser rates earlier being offered by financial institutions to reduce EMI burden in the initial years of loan tenure, and inflationary pressures impacted end user as well as investor sentiment by the end of 2011. This coupled with supply pile-up lead to downward pressures on capital values across various micro-markets in these leading hubs. While the year 2012 started on a positive note with the central bank reducing repo rates by 50 basis points for the first time in several months (after increasing it 13 times in the last 2 years), the impact on demand rejuvenation might be limited.

“During 2011, we witnessed initial buoyancy in the real estate market as investor and developer sentiment improved, riding on the high residential demand wave. However with repeated interest rate hikes, rising prices and prevailing economic conditions, the market saw a dip in sales towards the middle of the year,” said Anshuman Magazine, Chairman & Managing Director, CBRE South Asia Pvt Ltd. This led to a supply pile-up in the key markets of NCR (National Capital Region), Mumbai and Bangalore, leading to capital values remaining flat across various micro-markets in these three leading hubs.

“While the recent rate cut by the RBI has helped generate positive sentiments in the market, stagnancy in demand will continue in the short to medium term unless there is an overall improvement in the economic scenario,” Mr Magazine added The NCR market witnessed considerable appreciation in capital values in the first half of the year, with premium markets witnessing steady demand from expatriates, high net worth individuals (HNIs) and executives from multinationals and Indian companies.

IL And FS PE Plans Fund For Yatra Capital

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IL&FS Investment Managers Ltd (IIML), the country’s largest home-grown private equity firm by assets under management (AUM), is planning to launch a fresh fund under the banner of Amsterdam’s Euronext-listed Yatra Capital.

Yatra Capital is an India-focused real estate investment firm, promoted by Saffron Capital Advisors.

Archana Hingorani, chief executive officer and executive director of IIML, told “We are in the process of getting shareholder approval at its upcoming annual general meeting. After the approval comes and depending upon the capital markets, we will be able to raise fresh money for the same.”

IIML would be hoping to be second time lucky.

This involved renaming the existing shares of Yatra Capital as ‘real estate shares’ whereas the new share class was to be christened as ‘infrastructure shares’. This would have developed Yatra Capital as a multi-class fund house with a strategy to invest in Indian infrastructure through debt and equity components, as against its present strategy of primarily equity investments in the Indian realty sector.

Yatra Capital has invested across asset class but its maximum exposure is in the retail segment where it has invested in market city projects of the Mumbai-based realtor Phoenix Mills Ltd. It also has enterprise level stake in Saket Engineers Pvt Ltd and the Phoenix Mills.

After the proposal was submitted, a number of amendments were suggested by the concerned shareholders and the board had later determined that until a final position was reached on the potential amendments to the proposal, it would not be implemented. This happened in spite of the board getting what it called a ‘broad’ investor support.

As per Oberoi Realty Mumbai Land Prices Set to Extend 15% Decline

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Mumbai land prices, India’s most expensive, may extend their 15 percent decline this year as high borrowing costs force indebted developers to sell real estate, Oberoi Realty Ltd. (OBER) Chairman Vikas Oberoi said. “We are waiting for the right opportunity to buy,” Oberoi, who runs India’s second-largest developer by market value, said in an interview in Mumbai. “I don’t want to waste my bullets. Oberoi, with no debt and about 13 billion rupees ($244 million) in cash, will take advantage of falling prices to buy land, he said. Oberoi Realty reported a 5 percent increase in earnings to 1.43 billion rupees in the three months ended March 31 as the company increased home prices, beating analyst estimates.

 

Analysts have expressed concern that Oberoi isn’t deploying cash to buy land and putting the money to better use. The “missing clarity” on new land acquisitions may be a drag on valuations with “idle cash” offering lower returns, Mumbai-based analyst Tejas Sheth at Emkay Global Financial Services Ltd. said in a note to clients on April 26. Oberoi said he is in the market to buy land. “I am not watching the audience; I am watching my game, not playing for the gallery.” Oberoi said. “I am very interested and very aggressive to acquire land, but aggression can’t be jumping off the cliff, it has to be backed with caution and preparation. After I jump I want to land on my feet not on my head.”

Mumbai’s amended building rules for home construction will spur new projects and increase supply in India’s most expensive property market, where permissions to build had come to a virtual halt, Oberoi said. “The rules have crystallized what one can get, the basic land potential is clear,” Oberoi said. “Discrimination between two developers has now gone as everyone gets the same area. It’s levelled the playing field in a big way, which is fantastic.”

 

Competition Commission of India Pulls Up DLF

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The Competition Commission of India (CCI) has pulled up real estate major DLF Ltd in a recent order for cancelling the allotment of an apartment of a member of DLF’s Park Place RWA, stating that it was in “direct contravention” of its stay order of September 2010.

The order was passed by the commission to prevent the opposite party from abusing its dominant position to the detriment of allottees during pendency of the proceedings. The CCI also severely admonished the builder for discriminatory behaviour towards members of the owners’ association and other allottees/owners.

The cancellation letter for one Vipin Mahajan was issued on January 28 last year when the interim order was in force. According to Mahajan, despite the directions being in force to date, the opposite party issued a letter in January last year, cancelling the booking of his apartment and forfeited a sum of Rs 23,06,778 out of the total amount of Rs 44,89,503.

While the CCI accepted this restoration of status quo and therefore felt that no further direction needs to be passed as far as restitution of Mahajan’s apartment was concerned which had been a great relief for the allottee concerned, the CCI as prescribed by the Competition Act 2002 “is obliged to impose penalty because of the deliberate non-compliance”? This, the order stated, was a violation of Section 42 of the Act.

Also, Section 48 of the Act makes it a liability of every person for penalty, who at the time of contravention was in charge of or was responsible to the company for conducting its business. DLF will now have to disclose the name of the errant persons who were responsible for the misconduct and also give a show cause notice as to why the penalty should not be imposed. The case on the same is up for hearing on May 17.

Meanwhile, a spokesperson of DLF Ltd clarified that the company had “restored the ownership of the apartment which was %cancelled due to non-payment of dues by the %allottee”.

Cognizant Technology Solutions Invests in Realty Sector

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The US-based company, which has large offshore presence in India, has revised its investment plan to a total of $700 million in real estate from 2011 through 2015. Cognizant Technology Solutions has increased its real estate infrastructure expansion in India by nearly $200 million.

This is to expand its campuses in India by an additional 10.5 million sq ft. This expanded programme includes expenditure on land acquisition, facilities construction and furnishings to build new company-owned IT development and delivery centres in regions primarily designated as Special Economic Zones in India.

In February 2011, the company announced $500 million of investment in its India infrastructure expansion through the end of 2014. However, at the beginning of calendar 2012, the company decided to expand its planning horizon for the India real estate programme to 2015 and beyond, said a company spokesperson. For the first quarter ended March 2012, Cognizant finished with $2.5 billion of cash and short-term investments. It spent around $60.5 million for capital expenditures during the quarter. “During 2012, we expect our capital expenditure to total approximately $370 million,” Ms Karen McLoughlin, Chief Financial Officer, Cognizant, told analysts while discussing the company’s financial results.

Cognizant ended the March quarter with around 1, 40,500 employees globally. Of this, nearly 105,000 are in employed in its India centres.

 

250 Crore for Real Estate Private Equity Fund from LIC Housing Finance

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LIC Housing Finance Ltd, the mortgage unit of India’s biggest insurer, has achieved a first close of Rs 250 crore for its maiden real estate private equity fund. Launched late last year, the fund has a target size of Rs 500 crore, with a green shoe option of Rs 250 crore. This provision will allow LIC Housing Finance Asset Management Company, the manager of the fund, to sell more units than planned.

“We have raised Rs 250 crore so far from institutional investors like banks and corporates,” AK Sharma, chief executive of LIC Housing Finance, told ET. We also have additional commitment of Rs 50 crore and are hopeful to finish fund raising by June end.” The fund has a target net internal rate of return of over 22%. It will invest in urban real estate such as mid-income housing projects, IT parks and warehouses across tier I and II cities. “There is a huge demand for mid income category homes in the range of Rs 1,600-4,000 per sq ft and we will target such opportunities,” Sharma said.

The fund is already looking at various proposals. The asset management arm of LIC has received a commitment of Rs 50 crore each from LIC and LIC Housing Finance. LIC, which earlier targeted retail investors, is now looking to raise the remaining capital from the institutional investors. “Retail investment in private equity is yet to pick up. Retail investors do not understand the risks and rewards associated with the business,” Sharma said. There are at least half a dozen real estate-focussed funds in the market that are trying to scoop up fresh or follow-up funds to invest in Indian real estate. These include HDFC Property Fund, JP Morgan Asset Management, IndiaReit Fund Advisors and Kotak Realty Fund.

Delhi Government comes up with Fresh Directive on Sale of Properties

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Government of Delhi issued a fresh directive to the revenue department asking it to allow sale and purchase of immovable properties only through proper sale and not allow any such transactions by way of General Power of Attorney.

The direction issued by Divisional Commissioner Vijay Dev came as registration of properties at 13 sub-registrar offices across the city had slowed down drastically due to confusion on the issue following issuance of an advisory last month by the government clamping down on property transaction through GPA. “In today’s direction, the government has asked all concerned officials to strictly comply with the Supreme Court order on the issue. The order has been issued to remove the confusion,” said an official.

The government had put restrictions on GPA as a mode of property transfer following the apex court order on October 12 last year but such transactions had been taking place despite the order, prompting the government to issue the advisory. Following the advisory, registration of properties has come down at the sub-registrar offices.

The Supreme Court had on October 12 last year ruled that sale transactions carried out in the name of GPA will have no legal sanctity and immovable property can be sold or transferred only through registered deeds.

How Koramangala Became a Hot Real Estate Destination in Bangalore

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The area spread over 1,800 acres in eight blocks, was once petrified by mosquito menace and mangroves. Once upon a time localities used to call Koramangala ‘Sollemangala’ (Solle means mosquitoes in Kannada). It was a village and was considered not a great place to live for a Bangalorean in the 80s and 90s.

Today, it is one of the hottest real estate destinations in India’s Silicon Valley. “I would kill to get a place in Koramangala,” said MR Jagannathan jokingly. The 60-year-old retired employee stays very close to Koramangala. “It used to be in the outskirts of the city when I could afford it. Now, unfortunately I cannot buy a place there.” This is just a glimpse of how much the landscape and aspiration for Koramangala has changed over the years.

“You won’t believe it. I once had an offer to buy a plot in Koramangala for a few lakhs in the 90s. That time if I would have stretched a bit I could have actually owned something in Koramangala, but it was not so good then. This is one decision I regret to have made,” added Mr Jagannathan.

The Rahejas, real estate developers, are often credited with changing the landscape of Koramangala when they come up with mixed-use project called Raheja Arcade. Many companies those days shifted from other parts of Bangalore to Raheja Arcade. Then Forum Mall, which further increased the value of the locality. In fact Forum is one of the earliest malls in the country, which was constructed to meet international standards. Even to this day, it is one of most successful malls in the country.

At present, the rentals for mid-segment residential properties are expected to grow by 5-10 per cent in the Koramangala locality over the next few months. “This is due to good social as well as physical infrastructure, good connectivity to various business districts and availability of premium developments,” said Naveen Nadwani, director South India, for Cushman & Wakefield, a real estate consulting firm.

“Rentals for residential properties in the high-end segment are expected to remain stable while mid-segment are expected to witness further increases on account of persistent demand. While in the commercial office market space as well as in the retail segment, rentals may remain stable in the short to medium term,” added Mr Nadwani

While the rate for land parcels range between Rs 13,000-15,000 per square feet, not much of commercial space is available for sale. “At present, no major land parcels suitable for developers are available in Koramangala. Only a few scattered small plots ranging up to a size of 3,500 sq ft owned by individuals are available,” added Mr Nadwani. The residents of Koramangala are buying whatever is available. Recently, a well-known local businessman bought two adjacent plots in the vicinity. 

 

After September 2010, Godrej Properties Posts Its Worst Ever Quarterly Performance

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Godrej Properties,  part of the Godrej group and one of the most promising Indian real estate companies, posted its worst ever quarterly performance after the September 2010 quarter when compared year on year. The company has registered a subdued growth of 8% in its consolidated net sales and 17.4% drop in operating profit. The company’s performance was impacted by subdued sales volumes, weak operating margins and a slowdown in execution. Over 60% of its total income during the quarter was accounted for from projects connected to group companies. The remaining projects earned a negligible margin. Certain commercial projects were sold below the break-even cost leading to drop in margins.

Cost escalation and higher share of minority interest also impacted the company’s margins. Growth in sales volumes have not been very encouraging in its Garden City project in Ahmedabad which contributed 16% to the total income compared to 49% in the preceding December quarter. Net debt after excluding the money rose from IPP stood at 1554 crore leading to debt equity of 0.85. This is higher than the ratio of 0.55 at the end of the previous fiscal.

The company’s management though is optimistic about improving margins, ramping up execution and launching 17 new residential projects in FY13. Maintaining the health of its balance sheet is going to be a major priority. However for now, the stock is likely to see some more correction as the Street would knock off the premium built into the realty stock price on account of the company’s asset light model, good track record and reputation of its promoters.

Third India Realty Fund to be launched by IL and FS PE with target of $ 500M

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IL&FS Investment Managers Ltd (IIML), the country’s largest home-grown private equity firm by assets under management (AUM), is scripting a new realty fund, according to sources close to the development. The public-listed PE fund manager, which has AUM of $3.2 billion, will launch the IL&FS India Realty Fund (IRF) III with a targeted corpus of $500 million in the current financial year.

The targeted size of the new fund is much smaller than the second fund called IRF II, which raised a humongous $895 million. IRF II was launched in 2007 and had a target corpus of $750 million. But it managed to raise a higher corpus when the market was at its peak. The second fund has managed gross returns of 19.9 per cent per annum across two divestments.

A wealth manager privy to the development said, “The Company has decided to raise a smaller fund as managing a large fund has become tough since its average deal size is of $20-30 million.”

According to sources, the company’s management has shared with its investors that the fund requirement in Indian realty is not as large as its peers in other countries and thus, the PE firm would like to stick to small-sized deals.

An e-mail query sent to the IIML spokesperson did not elicit any response.

IML scrip declined 1 per cent to close at Rs 27.15 on the BSE, in a strong Mumbai market on Monday.

The firm had raised its maiden realty fund IRF I in 2006 with a corpus of $525 million, which was fully invested. From the second fund, it has invested in more than 30 deals, spanning projects across the country. Going forward, it wants to invest in the same deal size bracket (up to $30 million) from its next fund.

As per its website, IIML currently has six real estate funds with $2 billion under management. Besides its own funds, it operates a few joint venture real estate funds including IL&FS Milestone Funds I and II, along with Milestone Capital.

 

Bangalore: Girish Karnad Reflects

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Few decades ago, people came to Bangalore essentially for the horse races. Once the racing season was over, the city emptied out. Bangalore had little else to offer.

Today the racecourse has been moved out of the city—a former chief minister’s dream of erecting a 100-story commercial tower à la Singapore in the course’s place was foiled by public outcry—and Bangalore throbs through the year with no concern for the seasons. Its roads are chock block with traffic, and its hotels crammed.

Bangalore started its life as a cantonment built by the British to keep a watchful eye on the nearby princely city of Mysore. It was European in its orientation, with wide roads, bungalows with pillared porticoes, and spired churches where everyone spoke English. And nearby was its “native twin,” Bengaluru, congested and cowed, where the lingua franca was the South Indian language of Kannada.

In 1956 the administrative map of India was redrawn on a linguistic basis with each of its nearly 20 languages defining a separate state. And Bangalore found itself the capital of a new Kannada state, at the mercy of political and economic forces it was unprepared for. The first to pour in were bureaucrats who needed offices, houses, and roads to run the new state, their numbers swelled by the philosophy of a socialist economy that led to the setting-up of government-sponsored enterprises, like the telephone and the aeronautical industries. Ancillary enterprises followed, leading to an influx of migrant workers.

Mumbai Realty Market Looks For Some Upward Growth

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The real estate market in Mumbai looks poised for some upswing after going through a lukewarm phase for the past few months. Evidently, there has been a marked increase in sales in March 2012 when 5,776 properties were registered, which is 37% more than the 3,639 registrations in the month of February 2012.

Similarly, at least 50 projects have been launched in the last three months, which further underlines the positive sentiment in the real estate market. The developers ‘ fraternity is quite upbeat about this encouraging development in the past few months.

Says Bharat Mody, CFO, Hubtown Limited, “The recent registration data is certainly encouraging and we are hopeful of numbers getting better from here on.” Similarly, Diipesh Bhagtani, Executive Director, Jaycee Homes Ltd, says: “It’s always good news when we see higher number of registrations and project launches.” Developers, however, have their own reasoning for this positive trend witnessed in the real estate market. The festive spell in the month of March has also been instrumental in giving a boost to the sales in the residential space, observe developers.

Shailesh Sanghvi – Director of Sanghvi Group of Companies, says: “Auspicious occasions such as Gudi Padwa, Akshya Tritya and Dhanteras give an impetus to booking of flats. As Gudi Padwa fell in the month of March, this worked as a major driver for property registrations.

With several developers attracting homebuyers with significant discounts and incentives the trend will continue to prevail since it is the most favourable day to purchase the flat or to perform their Graha Pravesh puja.

On this festive occasion there is an affirmative sentiment in people and more prospects are keen to buy, a discount offer helps them to take the decision faster, releasing some monetary burden.” In addition to this, bonus and healthy job market have certainly created an optimistic sentiment in the market, he points out. However, according to Mody, this improvement has mostly come from the re-sale property rather than any fresh purchases. “Therefore, things will significantly change only if situation on pending approvals improves drastically. That will create fresh supply in the market and ease the upward pressure on prices and will prove to be win-win for government, home-buyers and developers,” he says.

Additionally, developers aver that the primary reason is that the new Development Control Rules (DCR) that came into effect in January has been instrumental in boosting the sales. The recent bunching up of project launches after the new DCR came into effect in January 2012 seems to have driven the recovery, observe realty experts. “Developers and customers are now certain of what they are buying and investing into. Also, we have made it mandatory for developers to sell flats on carpet pricing, leaving no dispute on clarity of areas.”

Moreover, with the Reserve Bank of India (RBI) cutting interest rates for the first time in three years after raising borrowing costs by record 375 basis points in 13 moves from mid-March 2010, this factor has also been responsible for the spike in purchases. The RBI lowered the repurchase rate to 8 per cent from 8.5 per cent on April 17. Incidentally, Mumbai’s residential home sales recovered from a three-year low in the quarter ended in March.