The housing ministry has offered a veritable bonanza for first-time house buyers in the low and middle income groups, suggesting tax breaks, cap on prices and freeze on interest rates. It has also suggested a one-time debt-restructuring for realtors.

Keeping the middle class vote bank in view, the government wants to benefit the urban lower income groups and also open up supply of low and middle income housing.

The housing ministry, headed by Kumari Selja, has recommended to the PMO that the government should encourage dwelling units between 1,000-1,200 square feet that cost a maximum of Rs 1,000 per square feet.

For those wishing to take a housing loan, the ministry has proposed an additional deduction of Rs 50,000 under section 80C of the IT Act. The section already provides for deduction up to Rs 100,000 for investments made in specific areas including housing loan. The relief would be applicable only on loans taken for the first house. If approved, the benefit will be available for the next 2 fiscal years.

The ministry has also recommended that for loans up to Rs 7.5 lakh taken for houses of 400-1,000 square feet, interest rate be maintained at 8%. The government may ask the National Housing Bank and HUDCO for a refinance window to ensure the low rate if banks do not lower their rates, the ministry suggested.

For realtors and builders, the ministry has proposed one-time debt-restructuring, a demand that the real estate sector has been making since the business hit a demand trough. The government will consider asking RBI to provide a restructured debt scheme for a period of one year.

This has already been done for the manufacturing sector, and could see funds flowing smoothly for ongoing projects.

In an effort to bridge the housing gap for lower and middle income groups, the ministry suggested that income tax deduction under section 80 (1) B of the IT Act, which was available in respect of exempting 100% profit from building residential projects for LIG/MIG houses, may be restored for two years.

However, the ministry wants a rider that projects to be built under the concession should not have houses above a carpet area of 1,500 square feet and atleast 15% are below 260 square feet.

“This would encourage construction for the targeted beneficiaries by those builders who have land already available,” said an official.

The package could also grant permission for 100% FDI under automatic route for integrated township projects up to 5 acres in which at least 15% houses are for EWS and 10% for LIG/MIG ranging from 400 square feet to 1000 square feet carpet area.

Satyam Computer Services said that it hired investment bank DSP Merrill Lynch to review its “strategic options to enhance shareholder value,” a hint that the Indian outsourcer is looking to either be acquired or to sell a significant stake to an outside investor.
At the same time Satyam announced it hired DSP Merrill Lynch, the company also delayed a board of directors meeting, previously scheduled for today, until January 10. The canceled meeting was intended to review plans for a share buyback.
On January 10, Satyam’s board will announce its recommendations on options available to the company and review the implications of selling off shares held by the company’s largest shareholders, it said in a statement. The company will also announce steps to improve its corporate governance, a key issue in light of a World Bank announcement last week that Satyam will be excluded from future contracts for providing “improper benefits” to bank employees and failing to document fees paid to subcontractors.
Last week, Satyam issued a statement demanding an apology from the World Bank, but did not dispute allegations made by the bank.
Corporate governance is also an issue following investor criticism over Satyam’s plans to expand into property and infrastructure.
On Dec. 16, Satyam announced plans to acquire Matyas Property and take a controlling stake in Matyas Infrastructure, 2 companies in which Satyam’s founders hold significant stakes, valuing the deal at US$1.6 billion. However, Satyam backed down from those plans the following day, citing “feedback received from the investor community.”

The Associated Chambers of Commerce and Industry (Assocham) has urged the government to set up a Rs.1 trillion ‘revolving fund’ to assist infrastructure firms to weather the global meltdown.

‘Several expansion plans in steel, auto, fertilizer, refineries and oil and gas exploration sectors currently face severe capital shortages,’ said the industry body, adding that the proposed fund could help developers complete these projects with their internal accruals.

A revolving fund is a fund or account whose income remains available to finance its continuing operations without any fiscal year limitation.

In its mid-year economic review, the Assocham said the fall in corporate profitability has already affected the flow of savings into capital market.

‘The effect of this is compounded by global financial crunch that has led to withdrawal of $13 billion from foreign portfolio investment,’ the report said.

The chamber further welcomed the ‘political will’ the government demonstrated in parliament last week by tabling the insurance and other bills, expediting economic reforms.

According to the report, the area of concern is the manufacturing sector where the fall in demand and export orders has combined to bring down output growth to a negative level for the first time.

The mid-year review also expressed concern on the employment situation in the wake of the downturn.

‘Service economy already accounts for some 52% of the GDP (gross domestic product). It should not be allowed to flounder in the wake of global downturn and loss of domestic output,’ Assocham said.

Against this background, ‘reports that some sectors like public sector banks are planning to expand their hiring programs are welcome,’ it added.

‘At the same time, individual industrial units should be enabled to fine tune their staff requirements to changing demand patterns and rapidly changing technological compulsions. Otherwise, the increasing number of sick units would only defeat the objective of maintaining and expanding high levels of employment,’ the report said.

The year 2009 will lift the gloom in the real estate market as the property market turns buyer friendly with the cuts in property rates and home loan rates. Developers for their part would benefit as they will focus on creating volumes at affordable price points.
The government move to boost home loans will definitely rejuvenate the low-segment borrowers borrowing loans upto Rs 20 lakh. Public sector banks have made their loans cheaper and private banks and HFCs are expected to follow suit. “The important thing now is for the supply side to catch up with the increasing demand in this segment,” say experts.
According to Sanjay Dutt, CEO Business, India, Jones Lang LaSalle Meghraj, the thrust given by the Central Government to bring the economy to its full momentum is encouraging. The correction in real estate prices supported by lower interest is a trigger that would lead to many positive things.

India may get benefited from the increased fund allocation to Asian real estate sector by global investors. Even as total amount raised by private equity real estate funds between January and November 2008 fell by a third to $57 billion from a year ago, the allocation towards Asian markets increased to 28% from 19%. As a result, the funds available for investment in Asia has increased marginally from $15.9 billion last year to $16.2 billion.

But dealmakers say this need not necessarily mean immediate deployment of such funds in India as the property prices have still not corrected enough and demand remains weak.

As per the data collected by New York-based Private Equity Real Estate magazine, Asia and rest of the world (28%) edged ahead of Americas (25%), Global (24%) and Europe (23%) in terms of geographical allocation by investors for all new real estate funds closed in 2008.

India and China are top two contenders for Asia-focused funds, says Cushman & Wakefield director (capital markets) Sandeep Singh. “Funds with short-term horizon may not come to India as downside risks remain. Property prices have fallen, but not enough. Besides, demand is still weak,” he said.

After having seen a five year bull run ending in 2007, the Indian real estate sector is now faced with a tough market with sales flagging and debt unavailable.

Several developers have been seeking private equity funds, but deals have been few and far between over the last 6 months. “There are a number of foreign and domestic funds sitting on cash, but no one is willing to invest immediately. All funds have slipped into wait and watch mode as global economic situation worsens,” says DTZ investment advisory director Ambar Maheshwari.

PE players are seeking higher returns and are willing to wait for valuations to come down. Some of them are even exploring distressed assets.

Lately, fund raising has become a big challenge for private equity players as limited partners or actual investors seek more time following the global economic turmoil which has eroded their wealth and made them cautious of investing. This has delayed the final closure of some major funds, including twelve billion dollar Morgan Stanley Real Estate.

Much of the funds this year were closed by August, after which the global economic scenario deteriorated sharply. Only two funds totaling $533 million were closed in September, while just one $2.7 billion Merrill Lynch Asia fund was closed in October.

Pricewaterhousecoopers India has acquired ECS, earlier known as Eicher Consultancy Services, according to an industry executive with direct knowledge of the transaction.

PwC India paid around Rs 38-42 crore to acquire the Mumbai-based management consulting company, said the executive. In April 2007, PwC India had acquired the tax advisory practice of Ambit RSM, subsequently renamed Ambit. Earlier this year, the firm was also in the news for adding Mumbai-based chartered accountancy firm Dalal & Shah to its audit network.

PwC India has been looking at expanding through acquisitions for a while. “The integration will help PwC India scale up its business operations and increase its client base. It will also help the firm take advantage of the talent pool and brand name of ECS,” the consultant, who asked not to be named, said. A senior executive with a rival firm said PwC could make more acquisitions, as it was aggressively scouting for smaller players since valuations have become attractive.

ECS provides consulting solutions to over 150 clients in the services sectors, including banking, financial services, IT and ITeS. PwC India provides tax and advisory services to clients across various sectors such as banking, insurance and real estate.

The firm assists clients in business process re-engineering, devising growth strategies and in cost and risk management. PwC India provides tax and advisory services to clients across various sectors such as banking, insurance and real estate. It employs some 5,000 professionals operating in India and plans to double headcount in the next 3-4 years, according to a recent media report.

Government is planning another round of home loan package to make purchase of a house within the reach of middle class. PSB announced a home loan rate-cuts for homebuyers, a week ago. But, it was found that the package was far from expectations of both the public and developers. In that package, home loan up to five lakh rupees will be available on an interest rate of 8.5%. Loan beyond five lakh rupees and up to twenty lakh rupees will be available from PSB at 9.25%.
But, there is least possibility of any house available for up to twenty-five lakh rupees in big cities. Builders and developers feel the scheme would not fetch the desired result in fighting the slowdown.
The country is facing one of the worst industrial slowdowns in the last fifteen years. It is felt that the economy might get affected badly. To avoid such a situation, government is planning to adopt concerted strategies to arrest the slowdown. The government feels that it can play a vital role in turning around the sentiment.
It is felt that making funds affordable for end users could play an important role. Therefore, the government is planning to increase the present limit of twenty lakh rupees for the concessional rate to thirty lakh rupees. This will meet the requirements of a huge number of buyers in the cities of NCR, in Mumbai, Bangalore, Pune, Chennai and Hyderabad. If the limit is raised to thirty lakh rupees, one can buy a house up to thirty-five lakh rupees with the cheap loan.
Besides, it is learnt the government is also planning to increase the tax rebate on payment of interest on home loan. At present, an interest amount up to Rs 1.50 lakh paid on the home loan taken to buy a house for self-use is deducted from the taxable income.
The limit is likely to be increased to two lakh rupees. This will help reduce the cost of fund further. At present, if one takes a loan of thirty lakh rupees at the concessional rate of 9.25%, the interest payment in the first year comes to around Rs 2,77,500. Out of this, you can take a tax benefit on Rs 1.50 lakh only, which will be deducted from your income, enabling you to save a tax outgo of Rs 45,000. Which means, net interest one pays in the first year is only Rs 2,32,500. This brings down net interest rate on loan to 7.75% from 9.25%.

Real estate company Unitech is planning to merge all its eight telecom subsidiaries to consolidate and better manage the telecom business.

Each subsidiary typically has licences for three to four circles and together, they cover all 22 telecom circles in the country.

“We do not intend to form a holding company for our telecom venture, but will instead merge all telecom subsidiaries,” Unitech MD Sanjay Chandra said, adding that the merger was likely only after the services are launched. Unitech plans to roll out telecom services by the middle of 2009. It has already been allotted spectrum for 16 circles.

The company struck a deal with Norway-based telco Telenor two months ago to offload 60% stake in its telecom venture for Rs 6,120 crore.

As per this deal, Telenor was to get 60% stake in each of the eight telecom subsidiaries, but a merger will mean Telenor will hold 60% stake in the entity formed after the consolidation of business.

The stake sale has got delayed as Telenor has not raised funds for the transaction till now and Unitech is yet to comply with two key conditions as per its agreement with the Norwegian telco. The first tranche of fund, slated to come in by December, may now probably be received only in January.

The deal is contingent on the completion of tower-sharing agreements between Unitech and other service providers and conversion of all eight subsidiaries into private limited companies.

“Five have already been converted, while three will turn into private limited companies soon,” Mr Chandra said adding that the agreement with other service providers for tower sharing is also close to completion.

In order to keep its capital expenditure low, Unitech had decided not to erect any of its own towers but share the existing infrastructure. Unitech is expected to a pay an average rental of around Rs 25,000 per tower.

Marutham Group, the new name in the city’s real estate sector, opened its first venture, Marutham Gateway. The group, based in Chennai, has opened its new venture just opposite to the railway station at Pettah here.
The project comes with a number of features. The two and three-bedroom apartments offer maximum use of space and light.
The amenities include elegant, furnished ground floor lobby, furnished air-conditioned guest suites, party area with pantry, health club, sauna, jacuzzi, squash court, playroom, billiards room, amphitheatre, reticulated gas system, drivers’ rest room, caretaker/security room, closed circuit camera, intercom, unitized sub-station and genset with 100% backup for common areas and designated points in all apartments.
Marutham Gateway project was inaugurated by V. Jayachandran, who was chosen as the distinguished guest of the event.
R. Rajendran, chairman and managing director of Marutham Group, P.E.R. Nambiar, senior advocate and partner of the Group, Anil, architect of the project, Shankar, architect, Sadanantham, businessman and S. Jayachandran, chief-projects, Marutham Group, were also present. The launch also saw the distribution of attractive gifts and free coupons.
Marutham Group has projects at Chennai, Coimbatore, Puducherry and Bangalore and has completed more than two million square feet built up area.
It has an untarnished record of handing over all the projects before the stipulated time. The team of professionals blends the age-old tradition of Vaasthu with new age architectural inventions.

The World Bank on Tuesday confirmed an earlier report that it has barred Satyam Computer Services from doing business with it for eight years, starting September this year, due to data theft and paying bribes to its staff.

However, it’s not clear if the company’s independent directors knew about these allegations. Two independent directors said that the Satyam management had merely informed the board that its contract with the World Bank had ended, without referring to the fact that it has been barred from doing business with the Bank for eight years. The World Bank has been an important client for Satyam, India’s fourth-largest software exporter. The multilateral agency had signed $100-million billing per year contract.

“The World Bank had never complained or informed us… Satyam’s contract with the World Bank had come up for discussions in an earlier board meeting. We were told that as a matter of policy, the World Bank does not renew contracts with the same vendor for more than five years,” said TR Prasad, independent director on the Satyam Board. This was reconfirmed by another independent board member VS Raju. Sudip Mazumder, the World Bank spokesperson said, “Yes, we have banned Satyam from doing business with us”.

He confirmed a Fox News report which had said the World Bank had imposed an 8-year ban on Satyam, the harshest punishment meted out to any company since 2004.

In October this year, Ram Mynampati, president (commercial and healthcare business) of Satyam Computer Services and a member of the Board, also said the World Bank, as a matter of policy, does not renew contracts with the same vendor. E-mail queries to two other directors, Vinod Dham and Krishna Palepu, remained unanswered at the time this story was written.

Since 2003, Satyam had been writing and maintaining all software for World Bank across all locations. This also included maintenance of software in back-end offices. Satyam’s shares plunged as much as 14% to close at Rs 140.40 on Tuesday, amid rumours, subsequently denied, that its founder and chairman B Ramalinga Raju was stepping down from the Board. Further he added, “I have not received any message or intimation from the promoter,” TR Prasad, independent director.

According to the US-based Fox News, in 2005, the Bank’s chief information officer, Mohamed Muhsin, was sacked after being accused of improperly buying preferential stock options from Satyam, even as he awarded the firm major contracts.

After an internal investigation, Muhsin was banned permanently from the Bank in January 2007. But Satyam was allowed to remain in control of the Bank’s information network till early October 2008, a report on the Fox News website said.

The World Bank’s disclosure on Tuesday could be an embarrassment for the company which is embroiled in an unrelated controversy after its scuppered bid to buy two firms linked to its promoter B Ramalinga Raju.

Mr Raju holds an 8.5% stake in Satyam Computer Services which faced a major shareholder rebellion last week after it announced plans to buy two firms linked to the promoter for $1.6 billion. The decision was endorsed by the Board. But within a few hours, the company called off the deal to buy Maytas Infra and Maytas Properties. It has, however, been tight-lipped on key questions on who did the valuation of the real estate firm.

Meanwhile, the registrar of companies in Andhra Pradesh has initiated a probe into Satyam’s proposed acquisition. But the company has not received any communication from Sebi or the US SEC, said a company official, who did not wish to be named. The investment committee of Life Insurance Corporation, Aberdeen, and Reliance Mutual Fund are seeking an explanation from Satyam promoters on the jinxed Maytas acquisition. The institutional investors own a sizeable stake, almost 60%, in the company.

Unitech is planning to raise $300-500 million through an issue of convertible debt instruments to multiple private equity investors.

According to a person with direct direct knowledge of the company’s plan, Unitech, which is desperately looking for a cash infusion to repay a debt of Rs 2,700 crore in three months, is holding negotiations with a host of global PE players, including TPG Axon, Carlyle, Och-Ziff, Sun Apollo and IL&FS funds.The realty firm is looking at issuing debt instruments that will be converted to equity in the next 18 months or so.

At the current market capitalization, $300-500 million would equate to 22-36% of the company’s equity stake. The promoters, Ramesh Chandra and family, own 74.5% stake in the company. According to an investment banking executive, the conversion price could be in the range of Rs 60 a share, but it couldn’t be independently verified.

Unitech is also looking at raising about $200 million from its various residential projects through special purpose vehicles. UBS is advising Unitech on its entire fund-raising effort. Unitech MD Sanjay Chandra said, “Multiple funds have shown interest in investing in the company as well as its projects. We are evaluating the proposals.”

Unitech’s board approved the proposal to raise Rs 5,000 crore through the issuance of securities. However, there are doubts about the Gurgaon-based company’s ability to find an investor at an attractive price. An analyst with a Mumbai-based domestic brokerage says it won’t be easy for Unitech to raise funds and no institutional investor will be willing to pay a huge premium for investing in the company.

Unitech shares declined by 7.5% on BSE to close at Rs 42 on Tuesday. Fitch Ratings on Tuesday downgraded Unitech’s long-term rating to ‘BBB(ind)’ from ‘A-(ind)’. The downgrade reflects the ongoing delay in the completion of asset sales, and its impact on Unitech’s ability to service its short-term debt obligation, according to Fitch.

On December 11, Singapore-based securities broking group Kim Eng came out with a report on Indian realty in which it mentioned that Unitech has to raise Rs 1,800 crore over the next three to four weeks to stay afloat.

Meanwhile, Unitech’s Gurgaon hotel deal may get delayed over the valuation. While Unitech has been expecting a valuation of Rs 270 crore, the potential buyers — four businessmen who separately run Dilbagh, Vimal, Pan Bahar and Rajshree gutkha companies — are not willing to pay more than Rs 210 crore, said a person who is leading the discussions. While hotel chains like ITC and Accor have also evinced interest, a source said Unitech will have to considerably lower its asking price for a deal to go through with the hotel companies. A Unitech executive said the deal may not go through as the gutkha players lack funds to back the deal.

Diversified infrastructural industrial conglomerate Jaypee Group is merging its hotel, cement, real estate and construction subsidiaries Jaypee Hotels (JHL), Jaypee Cement (JCL), Gujarat Anjan Cement (GACL) and Jaiprakash Enterprises (JEL) with the flagship public-listed company Jaiprakash Associates (JAL).

The merger will bring the group’s all cement companies under one roof enhancing economies of scale and effectively deal with demand-supply mismatch in different regions, the Delhi-based company said.

The move will also help the company avoid outgo on account of dividend distribution tax (DDT). The real estate, hotels and other construction subsidiaries will be also brought under one umbrella, giving the group a synergy in businesses. The transaction, which will be cashless, will bring down promoters’ stake in JAL from 45.28% to 37.65%. The cross holding of the company shares will be transferred to the trusts being created by the respective companies. The benefit of the shares to be held with the trust shall accrue to JAL.

JAL holds 100% stake in JCL, which is setting up a cement plant in Andhra Pradesh. JCL, in turn, owns 95% in GACL, which is building a cement plant in Gujarat. JCL and GACL are unlisted firms. JP Enterprises, a listed firm, is into civil engineering, construction and real estate. Jaypee Hotels, 72% owned by JAL, owns three hotels in Delhi and Agra. JAL owns a hotel in Mussourie. All hotels in the Jaypee group are run by JHL, which also owns land parcels.

The merger will be effective from April 1, 2008. The share swap ratio for the merger will be 1:11 for GACL (one share of JAL for 11 share of GACL), 1:10 for JCL, 1:1 for JHL and 3: 1 for JEL. Shares of Jaypee Hotel closed up 4.56% at Rs 84.85 on the Bombay Stock Exchange on Monday. The stock has rallied 114% since December 5. Jaiprakash Associates fell 2% to Rs 87.40.

MUMBAI: “We do not want charity. We will construct our own houses”. Repeating this refrain, crusaders of middle income housing are pushing their demand of implementing the government rule (GR) of 1983 that promises allotment of plots for construction of affordable group housing. According to the GR, the state enables housing societies to construct homes as per their requirements and spending capacity by providing them land at low rates. Members of the Brihan mumbai Nivara Abhiyan (BNA) have threatened to go on a hunger strike from Wednesday at Azad Maidan if this rule is not implemented at the earliest.

According to activists of the cause, over 3,900 applications of housing societies, each having 25-30 members, are pending to avail of the scheme for the past eighteen months. “Successive governments in Maharashtra have failed to implement the GR that was issued in 1999. After these housing societies were formed two years ago to avail of the scheme, we wrote to then chief minister Vilasrao Deshmukh and there were regular follow-ups. But there was no response,” said Vinayak Joshi, trustee of BNA.

The agitation that started in 1981 by Nagari Nivara Parishad (NNP) ended in 1992 when possession of 62 acres of land in Dindoshi, Goregaon (East) was given to it. NNP had resorted to a week-long Gandhian hunger strike in 1987 and then president of India, Gyani Zail Singh intervened and accepted the demand of NNP. After a wait of five years, NNP got possession of the land and constructed 6,152 buildings subsequently.

Now, people say that the same should be extended to the applications that are pending. Each member of the housing society has even deposited Rs 10,000 in the bank so that the sum can be used to construct homes when they get the go-ahead. According to them, the financial meltdown that has led to the real estate slump has failed to bring cheer to those seeking affordable housing. “Due to limited supply of small flats and holding capacity of the builders, middle and low income house buyers continue to find the prevailing prices beyond their reach,” alleged Joshi.

This, coupled with the repeal of the Urban Land Ceiling Act (ULCA) adds to the problem. “While repealing the act, the state had claimed that there would be an increase in affordable housing by unlocking Mumbai’s urban land bank. But this is not true,” said Mrinal Gore, former MLA and trustee of BNA. “Those who can afford to pay an honest price for a flat and pay all taxes are being shunted out of the city,” she added.

Real estate company Unitech Ltd said on Monday that it plans to raise up to Rs 5,000 crore through issue of securities. The company said this is an “enabling resolution”, and follows the expiry of a similar resolution earlier. But it did not give out details of fund raising.
Unitech Ltd shares ended nearly 3.4% higher on BSE, at Rs 45.75 on Monday.
The company, in a notice to BSE, said besides the raising of additional long-term funds, the Board of Directors had also given the nod to increase authorized share capital of the company from Rs 500 crore to Rs 1,000 crore. Unitech has convened an Extraordinary General Meeting (EGM) on January 19, 2009, to seek the shareholders’ approval on the proposals.
“It is an enabling resolution that we would like to keep at any point so whenever we need, we can raise funds. At this point, there are no specific plans and the markets too are not favorable, but things could improve over the next one year,” a senior company official said.
It may be recalled that Unitech Ltd is hoping to mobilize up to Rs 4,000 crore through the sale of some assets and equity in order to repay part of its Rs 8,400 crore debt by March, 2009.
This would be achieved through transfer of about Rs 1,200 crore loans to Unitech Wireless; raising about Rs 1,200-1,500 crore through a sale of hotels and office properties; and Rs 1,000 crore from private equity funding into residential projects.

Mauritius-based Landmark Special Opportunities Company (LSOC) and Landmark Real Estate Fund (LREF) are picking up around 60% stake in Kolkata-based realty company Forum Ventures for close to Rs 100 crore, a person involved in the transaction said.

The transaction involves issue of 10 crore fresh equity shares and transfer of the same to the two Mauritius companies. While LSOC would invest a little over Rs 88 crore in the Forum Ventures, the other foreign equity partner, LREF, would pump in close to Rs 11.7 crore.

Both LSOC and LREF would make investments in Forum Ventures through their Mauritius-based subsidiaries, LSO Subco and LREF Subco, respectively, the person said. Forum Project Holding, a development company owned by the Forum Group, holds around 37% in the Forum Ventures.

Forum Project Holding is engaged in development of real estate, lease rental, property management and related activities.

While LSOC has invested around $75 million in various real estate projects in India, LREF has a total exposure of $ 9.3 million in Indian real estate sector. Forum Ventures would act as a holding company and use the foreign funds from the Mauritian investors for making downstream investments in the real estate sector including investment in Forum ETA Realty. Forum Ventures holds 26% stake in Forum ETA, which is planning to set up a information technology hub near Kolkata.

The investment by LSOC and LREF comes at a times when the real estate sector is facing fund crunch with buyers and investors shying away. Backed by large landbanks, the real estate sector commanded very high valuations till some time ago. However, the valuations of listed players have fallen drastically, following the crash in the stock market. Lower valuations have made PE players and international real estate funds more cautious with their investments in the realty sector.

Interestingly, some international real estate companies and funds have shown interest in small unlisted companies. Israel’s construction company U Dori Group is picking up a 50% stake in residential project in JV with Hyderabad’s Surana Group for Rs 125 crore.

At a time when the global financial crisis is impacting the real estate sector across the globe, NRIs are invariably in a dilemma about where to put their money in real estate.

The local accommodation laws in countries like Dubai have compelled thousands of expatriate Indians to send their families back home due to soaring housing costs.

This is why it makes sense for expatriate Indians abroad to invest in Indian real estate to meet any contingencies. Barring Dubai, West Asia does not encourage expatriate investments in housing.

Anyway, not all NRIs can afford to invest in local housing. There are different kinds of NRI investors looking for investments in real estate back home.

What is ideal for one group may or may not fit in to the investment category for others. However, a cursory glance at the options will enable them to take a pragmatic approach to the investment exercise.

The government regulations prohibit investments in categories like agricultural land, farmland/farmhouse and plantation properties. Those who have inherited such property from relatives can retain them.

But to dispose them off, one needs to follow certain ground rules laid down by the authorities. For NRI end users who are planning to eventually return home, investments in residential property would be the best option.

As NRIs have been accustomed to living in places with good infrastructure facilities, investments in housing should be in cities which have educational, health and reemployment opportunities.

NRIs could plan well to invest in greenfield projects which will reduce upfront payment liability. Home loans are available and banks have branched out to several countries to extend facilities to NRIs.

The Congress-led government in Andhra Pradesh has sanctioned a Rs 121-crore project to Maytas Infra, barely two days after the founder and chairman of Satyam Computer Services B Ramalinga Raju’s scuppered bid to buy infrastructure firm run by his son Teja Raju.

The state has issued an order on Saturday sanctioning funds for the road project in Kadapa, the constituency of Andhra Pradesh chief minister YS Rajasekhara Reddy. The order said that the project was awarded to Maytas Infra on a nomination basis and funds will be provided by the state’s irrigation department.

Simply put, there was no bidding for this project, a 30-kilometre road between Mangapatnam and K Sugumanchipalli in Kadapa on state highway 31. The road is meant to provide connectivity to an irrigation project being executed by Maytas Infra.

“I am not aware of the details of the government order,” said principal secretary (irrigation) SK Joshi.
A company spokesperson said Maytas Infra has been awarded the project to construct a new road to replace the existing road. The new road project has to be completed by June 2009, he said. The sanction of funds to Maytas Infra could spark off a controversy, coming as it does just two days after Satyam’s failed bid to pick up a 51% stake in the company.

According to unconfirmed reports last week, Satyam had proposed the deal since some of the promoters and their investment firms had faced margin calls from financiers after having borrowed against stocks.

VV Raju, chief financial officer, Maytas Infra, had said last week that the company had no issues regarding working capital requirements and no immediate capital expenditure needs.

Maytas Infra is the consortium partner in the Rs 12,000-crore Hyderabad Metro Rail project. The company had floated a special purpose vehicle in September last to execute this project. But the project became controversial after the Delhi Metro Rail Corporation chief E Sreedharan had labelled it “a future political scam” and questioned its operational viability. The Hyderabad Metro Rail has since snapped ties with the prime consultant DMRC.

Incidentally, the president and chief executive officer of Maytas Infra PK Madhav was arrested last week on charges of an alleged financial fraud in a different case unrelated to Maytas Infra.

With PSU banks finally offering attractive interest rates for home loans below Rs 20 lakh, the assumption was that it would spur demand in smaller towns where housing is cheaper.
As getting a Rs 20 lakh home loan just got cheaper at a 9.5% interest rate, buyers flock and builders revel, a welcome break after the long realty slump.
Be it Surat or Indore, realtors as well as potential homebuyers are rejoicing, as apartments in good localities are available for as low as Rs 1300 per square feet.
Swetaang Shree Maali, a Builder, Neo Associates (Indore), said, ”For builders this could rise our liquidity position as people will start buying”.
Buyers too are happy as they feel that now with the government’s move, state banks have reduced rates, so they could fulfill their dream of buying a home.
Well, a look at the rates in emerging IT hub Pune and Bhubaneswar in Orissa reveals that the mood is not quite upbeat despite the attractive package announced by the PSU banks.
A two-bedroom house in both these cities will still mean shelling out at least Rs 30 lakh.
Anup Mohapatra, President of Real-Estate Developers’ Association, said, “20-30% of the bookings come from the single executives and employees in the IT sector but now you can’t expect bookings from them because they are under constant threat of losing jobs.”
He added further that the package won’t help Pune people in any way as the rates of the properties here are so high that one won’t get anything even for Rs 20 lakh.’
Hence clearly, the package is a liquidity pump for builders, hopes for a new home for others, but a significant rest are still wondering whether the special package announced with much fanfare by the PSU banks will help them buy their dream home.

The Pune Municipal Corporation has announced 50% reduction in premium charges for small housing units.

Municipal commissioner Mr. Pravinsinh Pardeshi said that to promote low cost housing, we have decided to offer 50% reduction in premium charges for housing units with an area of less than 50 square meter. For units with area between fifty to eighty square meter, the concession would be around 25%. The reduction would be applicable from next month. Further he added that there are no changes in development charges.

These days, the premium charges range from 100-200 rupees per square feet, depending on the locality.

The municipal corporation has been directly and indirectly bearing the brunt of recession, Pardeshi said. “The civic body gets an annual income of 250 crore rupees from development charges and premium charges. But, for the last few months, very less construction proposals are coming for permission.” He added that the average income from development charges has dropped from twenty crore rupees per month to ten crore rupees per month.

“Real estate business is suffering from recession and there is no demand for big housing units. Many projects, which are already started, are struggling to attract customers. There are no new proposals. We hope that the concession in premium charges will give a boost to construction of small housing units for customers who couldn’t afford big houses,” Pardeshi said.

Mr. Pardeshi further said that the developers who have already submitted plans could alter their proposals and propose small housing projects to get benefit of the concessions.

There are many ways to invest. But the investor should be prudent enough to select a proper area, which is safe and secure with assured reasonable returns. Few years ago, bank deposits, stocks, mutual funds, insurance policies and bullion, were the most opted field. With increased business, globalization of economy has unfolded many more areas. Investment has become very complex, which has led to the emergence of specialized investment advisers.

Bank deposits, insurance policies and mutual funds have become unattractive because of low returns and failure of many companies. Stock market is always unpredictable. These investment avenues are for short-term investments, and need close monitoring too. These days, real estate has emerged as a safe and high yielding investment opportunity. Investment in real estate is a long-term investment and needs considerable amounts.
The yield in the realty market has to be calculated on the capital invested and annual rental returns, less property tax, income tax and annual maintenance charges. This return varies according to the type of property. There are certain determining factors, which play a crucial part in the property investment.

Investment in real estate needs higher amounts and the minimum entry level will be in multiples of lakhs, for residential, and much more for office and commercial space.

The sale of property requires a long time to find a suitable purchaser and comply with the legal requirements. Further, the appreciation of capital value of the land is slow but certain and stable, unlike in stocks and shares.

The realty investment calls for more discretion and involves complicated process like title verification, land use according to local laws, floor area ratio, restriction on sale for some period, and many more laws, rules, etc, depending upon the political environment.

Uncertain tax rules and rates, which vary every year, need to be considered. Property tax is an annual commitment which is being increased every year by self-assessment or capital based assessment. Rental income also attracts income tax to be paid annually; sale of property attracts capital gains and purchase invites stamp duty and registration charges. Property tax and stamp duty vary from state to state.

As stated earlier, the type of property is also very important. It may be residential, commercial or office space. The demand and supply position of each sector needs to be carefully examined. Real estate sector offers two types of returns.

This is monthly form of returns in the form of rentals, or the returns on the lease amount invested in bank, securities or in business. The other type is returns on sale of the property. The amount to be invested also depends on the mode of returns expected. Generally, leasing of property is attractive only for business people.

Lease amount does not attract interest. While commercial property and office space yield high returns to the extent of 15%, residential property yields about 8%.

Germany-based hotel management and consultancy firm, RIMC International, has entered into a 50:50 joint venture agreement with Pune-based Sahil Group of Companies, to manage and operate hotel projects in India. The joint venture company, RIMC Sahil India, aims to operate about 20 properties in the country by 2012. It has earmarked an investment of about three million USD for the same period.

Speaking exclusively with Hospitality Biz, Vinay Phadnis, Chairman and Managing Director, Sahil Group of Companies, stated, “Due to immense potential within the Indian hospitality industry, RIMC wished to have a presence in this market. The alliance will also help to accelerate our company’s growth and presence in the country.” RIMC Sahil India will start operations with six properties located in Mumbai, Pune, Kolhapur, Gurgaon and Jaipur across different categories. Of these, two properties — one each, under the three and four star categories, respectively — in Pune and a three star property in Jaipur are already under construction and slated for operations by mid January 2009.

Hotel room rates have dropped by 25% this month following an equally sharp fall of 35% in occupancies across all the premium business hotels. To salvage business volumes, premium hotels like Hyatt, Leela, Marriott, ITC, Four Seasons, the Lalit (previously InterContinental- the Grand) are sharpening focus on segments unaffected by the tough business environment.

Traditionally, hotels compensate low-business volumes in December by leisure travel. However, the economic slowdown and the terrorist attack in Mumbai have played havoc to both business and leisure travel this year.

“We have begun focusing on ‘guaranteed’ business segments like cabin crew, extended long-stay programmes and companies in the FMCG and oil rig space to tide over the ongoing economic slowdown,” said Anurag Bhatnagar, GM of Le Royal Meridien. Hotels have started introducing special packages and value rates for rooms for the coming holiday season to boost business volumes. Hotels expect the business travel to pick up from the first week of January, sources said.

Most premium hotels raised room rates in October this year by 15-20% as October-January is usually a peak season for the sector. However, these hotels are unable to do business at the contracted room rates owing to the global economic slowdown.

Customers, who earlier contracted rates for a particular room, are downgrading within the premium business hotel category, the sources said. However, resort destinations like Goa, Kerala are faring better as compared to premium business hotels,” said Vivek Nair, VC and MD of Mumbai-based Hotel Leela Venture.

Hospitality sector is now seeking a relief package in the wake of the slowdown and massive room cancellations. Also, the industry is currently threatened with a large number of non-performing assets (NPA), as many hotels paid high prices for real estate to meet the shortage of 1.5 lakh rooms for the 2010 Commonwealth Games.

Hotels also seek a 5% reduction in luxury tax rate to give a fillip to business, the sources said. Currently, the luxury tax is being charged by various states ranging from 5% to 15%.

Also in some states, luxury tax is charged on the services provided by the hotels like spa treatment, meeting room rentals. Hotels have to follow the practice of charging luxury tax only on the room charges, the sources said.

India’s fourth-largest IT services provider Satyam Computer Services was forced to reverse yesterday’s decision to diversify into real estate and infrastructure following strong shareholder protests that saw its stock price fall 30% on BSE.
Satyam had proposed to acquire Maytas Properties and Maytas Infra, companies controlled and run by the promoter family, for $1.6 billion (around Rs 7,680 crore).
Satyam Chairman B Ramalinga Raju expressed surprised at the market reaction to this decision but said the board “decided to call off these actions in deference to the views expressed by many investors”. The promoters hold 8.7% in Satyam.
Yesterday, institutional holders had strongly objected to the fact that the decision, which the company conveyed to the BSE after trading hours, was not communicated to shareholders first and that the company did not choose to give the money earmarked for diversification to shareholders.
The larger concern for the investor communityis that this action might impact Satyam’s core IT business. Industry sources said six to eight clients with long-term engagements with the company are seriously re-valuating their IT outsourcing contracts “since they are not satisfied with the intent and focus of the company”.
The analyst community, too, is riled. “Though it has retracted the decision, it shows the weakness of the management. It will do little to restore confidence in the company,” said Deven Choksey, managing director, KR Choksey Securities.
“While their intent gets exposed it also shows that they do not know how to use the cash. Besides, there is no guarantee that a similar action will not be taken again, since the management has said it will work out an investor-friendly deal,” he added.
“Today’s announcement to reverse the decision is the right move. However, it will take quite a while for the company to regain its credibility,” said Harit Shah, research analyst (IT and telecom) at Angel Broking.
Meanwhile, Satyam chief financial officer Srinivas Vadlamani today said, “It’s a judgement call. We did a lot of background work on the buyout plans which were part of our overall diversification strategy.”
He added that “the characteristics of Maytas acquisitions are like any other buyout”.
“We followed everything under the spirit of the law. But we had not anticipated this situation. We don’t want everything to go down the drain. We are working together to address the volatile reaction in the right way and restore our shareholders’ confidence,” he added.