Cushman ties up with Technopak

Leading real estate services firm Cushman and Wakefield tied up with Technopak to make an integrated platform of end-to-end retail services. Technopak is well known management consulting firm in retail in India.
The partnership serves to deepen Cushman’s capabilities for its clients in the retail industry by accessing Technopak’s retail strategy and consulting services, a release said.
For Technopak, this partnership would enable its clients to access Cushman and Wakefield’s global platform of real estate market intelligence, management expertise and a broad range of real estate services.
Cushman and Wakefield and Technopak would together have a market share to more than 50% in the retail services sector and this tie up will help both companies to gain much more control on market and provide their clients a platform of knowledge-based advice backed by execution capabilities.
Mr. Sanjay Verma, Executive MD, South Asia, Cushman and Wakefield said, “This partnership also forms a key component of our long-term strategy to further expand our retail services and strengthen our real estate portfolio in India”.

New Incentivised Schemes for Affordable Housing in Offing

In its upcoming mid-term appraisal, the Planning Commission is likely to introduce couple of new schemes for real estate sector so that it acquires a priority status at times of meltdown and provide for “affordable housing”.

Announcing this at the ASSOCHAM National Conclave on Threat Before Real Estate Sector – What are Solutions? held here today, Housing & Urban Development Adviser in Planning Commission, Mr. Harish Chandra also informed that the Cabinet Secretary has already convened a meeting of all States to seek solutions to revive stressed sectors including that of real estate, without specifying the date for the meeting. He, however, added that the mid term appraisal of Planning Commission will now take place immediately after conclusion of forthcoming Parliamentary Polls.

The new schemes will be unfolded during the forthcoming mid-term appraisal exercise of the Planning Commission even at the cost of deficit financing for which the Commission will enter into series of consultation with industry association like ASSOCHAM, said Mr. Chandra.

According to him, in its recent exercises, the Planning Commission, the RBI and the Finance Ministry have jointly announced series of measures to rebuild confidence in Indian economy and many more such initiatives could also be announced by the Commission after concluding the proposed mid-term appraisal, hinting at further lowering of interest rates for affordable housing.

In the meanwhile, Chief Executive Officers of Omaxe Ltd., Raheja Developers, Pioneer Urban Land & Infrastructure, Jones Lang LaSalle Mehgraj that participated in ASSOCHAM organized conference on Real Estate sector, collectively raised their voice, opposing foreign direct investments in real estate sector.

CMD, Omaxe Ltd., Mr. Rohtas Goel who heads the ASSOCHAM Real Estate Committee said that FDI’s in real estate would neither increase supply and demand for affordable housing. Their entry into it will enhance and shoot up the prices of land and therefore, real estate FDI’s should be discouraged as this will pose a serious challenge to affordable housing.

He demanded that the present model on which real estate sector currently stands crippled, needs to be changed and sought that in its stimulus packages of Rs.40,000 crore for infrastructure development, Rs.10,000 crore should exclusively be allocated for real estate sector as subsidy so that affordable housing becomes a reality.

Mr. Goel said that he has decided to offer affordable housing to people for which the first site identified is that of Indore and subsequently this initiative will spread in other parts of the country like Chandigarh, Ludhiana, Jaipur etc.

Speaking on the occasion, Mr. Navin Raheja, Managing Director, Raheja Developers and Sr. Member of ASSOCHAM Real Estate Committee also opposed FDI’s entry into real estate as it would lead to shooting up of land prices and hardly provide for affordable housing.

According to him, the real estate which is currently under stressed would come out of it in next 2-3 months as developers would have to build houses for all stake holders to stay and survive in the business.

Among others who spoke on the occasion demanding another Stimulus package for real estate sector include ASSOCHAM Secretary General, Mr. D S Rawat, Ex-CMD HUDCO, Dr. P S Rana, Mr. Pankaj Renjhen, Managing Director- North India, Jones Lang LaSalle Mehraj, Mr. Kuldip Chawla, Vice President, Red Fort Cappital and Mr. Shashikant Arora, President, Association of Certified Realtors of India.

Unitech looks for $560 million from PE funds

India’s second-biggest real estate developer Unitech is in talks with private equity (PE) funds for investments up to $560 million (Rs 2,750 crore).

The realtor is also in negotiations with banks to restructure an additional Rs 500 crore of loans as part of its plan to cut debt and secure funding to complete existing projects.

The Gurgaon-based realty firm, whose stock is now trading at less than a tenth of its 52-week peak on the Bombay Stock Exchange (BSE), plans to draw down $110 million (Rs 540 crore) from Unitech Real Estate International Fund to invest in its realty projects in the National Capital Region (NCR). When contacted, the company declined to comment on the development.

Last year, Unitech received commitments of $330 million (Rs 1,620 crore) for its international fund, which was launched exclusively to raise money to invest in the company’s residential projects.

The realty major is also in talks with PE funds to raise $300 million (Rs 1,480 crore) at the corporate level and as much as $150 million (Rs 740 crore) for specific residential projects being developed in Hyderabad and Kolkata. While the company expects to tie up PE funding for its Hyderabad and Kolkata projects, being developed through special purpose vehicles (SPVs), by the end of March 2009, PE funding at corporate level is expected only after the fortunes of the market turn for the better.

Unitech has admitted that it has a debt of Rs 8,000 crore on its balance sheet, of which it has to repay Rs 2,500 crore by March 2009.

Of the Rs 2,500 crore, the developer has already restructured Rs 1,000 crore of loans with banks and is in talks to restructure an additional Rs 500 crore. It expects to complete the process by the end of this month.

For the balance Rs 1,000 crore. The company is in talks to sell its Gurgaon-based hotel project and also the project in the national Capital’s Saket area to meet the remaining Rs 1,000 crore. However, a report by CLSA said Unitech needed to repay Rs 1,000 crore of debt to mutual funds this quarter, indicating trouble for the company. Unlike banks, where it has the option of restructuring loans, the debt owed to mutual funds will have to be repaid by this quarter, the CLSA report said. However, Unitech has disputed the report, saying the company did not owe debt to mutual funds.

Indian economy may grow 6.7%

According to Morgan Stanley, Indian economy may grow 6.7% in current fiscal.

According to Chetan Ahya and Tanvee Gupta, economists at Morgan Stanley, “Higher capital flows have been the anchor of a self-fulfilling virtuous cycle of an appreciating exchange rate, lower interest rates, and strong domestic demand growth”. Further they said that however, capital inflows will remain slow for some more period due to continued risk aversion, resulting from slow global environment and rising credit defaults.

Morgan Stanley looks forward to credit growth to down to ten percent over about next half year compared with 4-year average of 28.3% as rising bad loans may make banks risk-averse.

Builders under pressure as buyers force for refund

Some of India’s largest real estate firms such as DLF, Unitech, Omaxe and Parsvnath that launched multiple projects at the peak of the real estate boom are now under pressure from buyers and investors who look to exit these projects.

Already in a difficulty due to unavailability of bank loans and a fall in sales, the developers are less inclined to oblige the buyers who are coming together to mount pressure for refunds in projects that are yet to take off.

Several buyers and investors, angered by the developers’ inability to start work on projects, have stopped payment of installments on their purchases, adding to the companies’ cash problems.

Investors in DLF’s commercial projects in Delhi and Kolkata have come together with the help of brokers to put pressure on DLF to start construction or refund initial deposits.

The broker says DLF has not even paid the government to convert the industrial plots at Shivaji Marg and Okhla in Delhi into commercial plots. However, a DLF spokesman denied this saying, “We go by the agreement with the buyers signed at the time of booking. The allegations over the status of our projects are not true. We will deliver as per schedule.”

Several projects of Omaxe, Unitech and Parsvnath are also facing similar problems. Akash Verma, a Noida-based garment exporter, had booked an apartment each in projects of Omaxe and Unitech in Noida. He booked an apartment at the ‘soft launch’ of Omaxe’s Noida project in May 2007. Omaxe had promised to launch the project formally a few months later at a higher rate. The formal launch never happened and investors like Mr Verma are stuck. Omaxe has turned down requests for a refund. An Omaxe spokesman, however, said the company has ‘considered and taken care’ of all such requests.

Mr Verma has also been unsuccessfully seeking a refund of his investment in Unitech’s Grande project. “I am paying Rs 4.5 lakh as EMI. Unitech executives say the project will be delivered on schedule, but there is no worker at the site,” he says. A Unitech spokesman said, “We generally discourage cancellations. But if the buyers insist, we refund the money after deducting 10-15% of the total value of the apartment.”

Most realty firms do not encourage refund requests. Till the end of 2007, investors could easily sell their property in open market as the prices were going up. But with buyers disappearing from the market, investors are forced to approach developers for refunds.

Some property buyers are seeking refunds due to their weakened financial positions, while several others do so as they are not sure of the developers’ ability to complete the project. There are a few others who seek refunds as they feel that they can strike a better deal now with prices undergoing a major correction.

Ambuja Realty plans to spread

Ambuja Realty will move ahead with the strategy to broaden its horizons into real estate, hospitality, life care and education at the period of economic slowdown.
Mr. Harshavardhan Neotia, chairman of Ambuja Realty, said that the company had not deferred any projects. He said, “We are expanding in all business areas”. Since its inception couple of year ago after the Neotia family sold its stake in Gujarat Ambuja to Holcim, the company has invested twelve hundred crore rupees in projects, with real estate being the main aim.
In the early 90’s, the Neotias had made their foray into housing through Bengal Ambuja Housing Development Ltd in a joint venture with the Bengal Housing Board.
Currently, Ambuja is working on the projects in Chhattisgarh, Punjab and Maharashtra.
In Bengal, it is engaged with its projects in Siliguri, Calcutta and Shantiniketan. The company is engaged in various retail projects in Bengal and Chhattisgarh under the City Center brand. It is building two IT parks — Ecospace in Rajarhat and one more in Nagpur.
Ambuja Realty is also expanding in the hospitality segment. The company wants to build hotels and manage them, too. “You have to start somewhere. We have gained some experience running the fort after the Radisson agreement ended,” Neotia said.

Unitech is looking for restructuring loan

Unitech, India’s second largest listed real estate company, is looking at restructuring a Rs 800-crore loan from public sector banks, as it attempts to save itself from sinking under the huge debt burden. The company is pinning its hopes on debt restructuring, asset and stake sales to private equity (PE) funds to pay a debt of Rs 2,500 crore, which is due by March ’09.

“We are in discussions with public sector banks for rescheduling our loans,” Unitech head of strategy and planning, R Nagraju said. Another company executive, requesting anonymity, said Unitech was seeking to restructure a loan of over Rs 800 crore.

The Reserve Bank of India (RBI) recently allowed banks to restructure loans taken for commercial real estate without turning them into non-performing assets (NPAs). The RBI directive had come following intense lobbying by realty firms, which were finding it difficult to service debt, as sales had dried up and fresh debt was not available.

Most developers are hopeful that banks will reschedule their loans. “It makes sense for banks to reschedule loans, as it will help them show lower NPAs on their books. If banks were to re-possess land, given as collateral by developers, they may get in trouble,” says a Delhi-based mid-sized developer, who didn’t want to be named.

“Land in most cases was over-valued, and prices have been falling since the loans were disbursed. Moreover, in a market, where you have no buyer for land, banks are unlikely to recover even half their cost,” the developer added. Unitech is also expected to pay Rs 200 crore by March for the land it purchased earlier. Mr Nagraju says the company need not pay land dues immediately, as it is yet to get possession of the land.

Unitech is also banking on the sale of its assets, including hotels, office building and land parcels to raise cash. While any deal on its hotel in Gurgaon or office building in New Delhi is yet to be finalized, the company has reportedly sold off a few land parcels meant for institutional use. The company recently sold one school plot for around Rs 30 crore.

Unitech is also looking at raising funds through private equity infusion at company and project levels. Unitech is holding an extraordinary general meeting (EGM) on January 19 to seek shareholder approval to raise Rs 5,000 crore by issuing fresh equity or convertible instruments. The RBI had raised the ceiling for FII holdings in Unitech to up to 100% in November 2007.

The company has been holding negotiations with multiple PE players to raise between $300-$500 million by issuing convertible debentures at the company level and around $200 million by selling stakes in mid-income housing projects.

Is Maytas on the edge of a sellout?

With its promoter in jail, stock price nearing 52-week lows, downgrades by rating agencies and the state chief minister saying he would look into the realty major’s ability to complete plum projects, Maytas is clearly tottering and looks like it is on the brink.
A cross section of its employees, however, maintains that all is well and they are not the same as Satyam. Nevertheless, pointers suggest that either a strategic deal or a sell out is imminent.
Sample this: The promoters of Maytas Infra have pledged substantial portion of their holding -36% as of September 2008-to raise money. With margin calls getting triggered, institutions have begun offloading stakes.
While IL&FS Trust has sold off 11.52%, Investmart dumped 5.61% of the promoter holding pledged with them. The exact quantum of stake that the promoters hold today is not known.
“With an order book of over Rs 13,000 crore, the company needs an immediate cash infusion of Rs 1,200-1 ,300 crore to complete existing projects. With the current situation of promoters, that looks difficult,’’ an analyst tracking the company said.
Only last week, ICRA downgraded the debt programme to LBBB. This means Maytas would now access funds at a higher rate than what it would have before.
State-run MMTC has cancelled its association with the company for the proposed Rs 8,603 crore SEZ near Chennai.

Mumbai flat rates will come down in near future

Mumbai flat price drop now is marginal, will be steeper later, say brokers and consultants, though developers don’t agree.
It is better to continue waiting and watching before putting your money into that new flat, brokers and real estate consultants advise. They concede that prices have decreased but point out that the fall has been marginal; the real reduction is yet to come.
There had been talk of a price correction since the middle of lat year but builders continued to increase prices through the monsoon and Diwali, said real estate consultant Sandeep Sadh, CEO of the portal Mumbai Property Exchange.
“Only after November did they start decreasing prices, marginally. As of January, buyers want a reduction of more than 35%; they should not buy for another six months. It is a farce of a market with builders talking in the air and buyers fishing in the market. Unless builders offer a substantial discount, the market will stagnate till October,” said Sadh.
Only in the distant suburbs does availability outstrip demand, he said, with developers having started reducing rates by 10 – 25%. As per data compiled by the portal, existing rates in Mumbai on an average are not much different than those last September.
Ishwar Kakkad, a broker working in Dadar-Worli area, said that in today’s market he would rather sell than buy. “A price rise can be called healthy if it happens at the rate of inflation, say about 8 – 10% per year. But in the last three years, prices have increased by about 400%. Right now builders are willing to negotiate depending on their urgency; an actual price cut will come when builders openly announce one,” said Kakkad.
He expects the prices to fall eventually, by 40%, “but that will take at least three months to start”.
Faced with little choice as they are, home buyers are not jumping the gun. “The price of my 440 square feet rented apartment at Seven Bungalows in Andheri is now Rs 42 lakh; a year earlier it was Rs 45 lakh. So technically the decrease in price has been less than Rs 500 per square feet,” said Akshay Mishra, who works with a multinational financial firm. Mishra, who has been looking to buy a home for over a year now, has put his plan on hold.
Developers maintain that the market has already seen the much expected correction. “We clearly feel the prices have stabilised and that there would be no more decrease in rates. Developers haven’t increased their rates since March 2008; in the last three months, these rates have fallen by 5 – 20%,” said developer Dharmesh Jain, chairman of Nirmal Lifestyle and vice-president of Maharashtra Chamber of Housing Industry.

Small realty cos rework deals with landowners

With reduction in land prices , an average 30% across India in the past 6 months, many medium-sized developers are trying to renegotiate the joint development agreements, they had signed with landowners earlier.

“Renegotiations have definitely started happening now with a drop in land prices,” says Cushman & Wakefield director (land & industrial) Manish Aggarwal. Players such as BL Kashyap, Sobha Developers, IVR Prime had entered into JDAs, when the real estate market was at its peak in 2007 and early-2008.

At the peak of the real estate market, several medium-sized developers found it too expensive to acquire land at very expensive rates in cities such as Gurgaon, Pune, Bangalore and Hyderabad. Then, JDAs emerged as the best option.

These same agreements are being renegotiated today because developers feel it is unviable to go ahead with projects in a slow moving market. But the agreement with landowners specifies a time limit for the project to be finished.

The market today is such that developers are being forced to offer lower cost housing, which will be impossible if they do not negotiate. To offer a lower cost product to customers, they will need to get land at a much lower cost.

On the other side, another pressure for some real estate developers is from their private equity partners who want better IRR (internal rate of return), as they perceive the market as higher risk today. Private equity players have, in some cases, increased their IRR expectation by about 10%.

“The land value and sale price along with the overall risk profile of projects have been altered considerably. Therefore, the structuring parameters will have to be adjusted accordingly too,” says real estate expert Anckur Srivasttava.

There are some developers who are trying to get out of deals completely. “Landowners have become more reasonable in the past 3-4 months. They are also willing to negotiate, as they understand that the market is slow and it might be difficult to get another deal in this scenario,” says Cushman & Wakefield’s Mr Aggarwal.

Developers and landowners today are renegotiating both on time as well as percentages. According to a source, in a renegotiation happening between a developer and landowner in Pune, the land valuation has been pegged 10-15% lower, and the developer is asking for at least another 6 months before he starts construction.

Realtors renegotiate deals, put projects on hold

With the information technology and business process outsourcing companies facing an uncertain future following a recession in the US, some real estate players developing space for these companies are being forced to shelve their projects, while others are slashing their rentals and renegotiating lease agreements to stay afloat.

For these real estate developers, already reeling under the impact of a crash in property prices and a severe credit crunch, the demand from IT-BPO sector is shrinking fast. The rentals for IT ready-office spaces have already crashed by up to 40%.

India’s IT-BPO sector, which was growing at a breakneck pace of about 30% in the past five years, is expected to be affected by the economic crisis in the US market. Work outsourced by the US firms accounts for about 65% of the revenues of the sector.

Mumbai-based realty firm Housing Development and Infrastructure (HDIL), which is developing two IT SEZs in Kochi and Mumbai, has decided to go slow till the real estate and IT industries make a recovery. “Since rentals have crashed by 25-40%, there is no point developing these projects immediately,” said Ashok Kumar Gupta, a director of the company.

Some developers are offering lower prices to push their projects. Ganesh Housing, which is developing a 6 million square feet SEZ in Gujarat, is negotiating with potential clients. “Gujarat can offer cheaper space compared with IT hubs like Pune and Bangalore,” said Bhavin Mehta, in charge of business development at the company.

Several real estate players in India’s IT capital, Bangalore, are facing the harsh reality. Srinivas Reddy, who has developed some 18,500 square feet space in Bangalore’s Electronic City, has been quoting a rent of Rs 40 per square feet.

Finding no takers, Mr Reddy is now open to negotiations. Bangalore-based Ranka Group, which has developed 1 lakh square feet at KR Puram, finds itself in a similar situation. “We are demanding a rent of Rs 45 per square feet but potential clients are not willing to offer more than Rs 35 per square feet,” said AK Shetdy, the group COO.

Several real estate brokers are now doing the rounds of IT firms to renegotiate lease agreements. “Renegotiations on lease rentals are bound to happen now since the real estate prices have crashed considerably. The biggest problem for the realtors will be the projects that are under construction and those that have not yet been occupied,” said Raman Roy, CMD of Quatrro BPO Solutions.

Consultants say IT companies will increase pressure to reduce rentals when the date of renewal of the lease agreements comes near. “Typically, these lease agreements are signed for a period of three years and have an automatic rental escalation clause. Since rentals have crashed below the levels prevailed 2-3 years back, renegotiations will happen for sure,” said Anshuman Magazine who heads the South Asian operations of global real estate consultancy CB Richard Ellis.

Bank loans for hospitals and hotels are not commercial

Loans extended by banks to hotels and hospitals may no longer be treated as commercial real estate category. The Reserve Bank of India revised norms on real estate exposure where it included loans extended against security of future rent receivables from commercial real estate exposure.

The revised norms will not immediately impact banks’ balance sheet. This is because standard provisioning for real estate companies were brought on a par with all other industries on November 15, 2008.

As a part of the stimulus package, the general provisioning requirement on standard advances for commercial real estate sector has come down from 2% to 0.04%.

However, under reducing the standard provisioning for commercial real estate, RBI had said that they were counter cyclical prudential measures. This means that as and when the economic cycle changes, RBI may increase provisioning norms on commercial real estate sector.

Meanwhile, on Thursday, RBI has continued to maintain that SEZs will be treated as commercial real estate. In case of hotels, the cash flows would be mainly sensitive to the flow of tourism, not directly to the fluctuations in the real estate prices.

In the case of a hospital, the cash flows in normal course would be sensitive to the quality of doctors and other diagnostic services provided by the hospital. In these cases, the source of repayment might also depend upon the real estate prices to the extent that the fluctuation in prices influences the room rents, but it will be a minor factor in determining the overall cash flows.

In these two cases, the recovery in case of default may partly depend upon the sale price of the hotel or hospital. Considering that repayment is not dependent on real estate prices, recovery is only partly dependent on the real estate prices, RBI decided not to treat them as real estate exposures.

Justifying its stand on treating loan against future rent receivable as real estate, RBI pointed out that a few banks have formulated schemes where the owners of existing real estate such as shopping malls, office premises agree to repay loans from the income that is generated from the rentals by these properties.

Such finance may or may not be secured by the mortgage of the underlying properties. In case it is unsecured, the repayment will be sensitive to fall in real estate rentals and there would be no source of recovery in case of default. In case the loan is secured by mortgage of the underlying property, both the repayment and recovery would depend upon property prices.

SEZ growth may follow down track

The adverse effects of the Satyam fiasco are not only going to be felt by the IT industry. Even the real estate sector is worried.
If global clients and investors in the IT domain decide that India is not the best place to dabble in for the moment, then there is going to be an enormous amount of vacant commercial and residential space in the market. This will add to the woes of the real estate sector, which has seen a correction in prices of 25%-30% in the year gone by.
According to global real estate consultants Cushman & Wakefield, over 80% of commercial space taken up in the country is by the IT and ITeS sector. The total commercial space absorption in 2008 by the country’s main business metros that include Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR and Pune was 36.7 million square feet.
“There could be a significant slump or deferment of planned IT SEZs across the country,” says a leading real estate developer who has a large bank of commercial office space planned for.
Besides, companies like Satyam traditionally lead the herd to set up shop in tier II and III towns, which in turn spurs real estate development in those destinations. This too may slow down.
But developers and consultants are more worried about Hyderabad’s real estate market, which is already reeling under the impact of the global slowdown. The absorption rate of commercial units for 2008 had fallen by a whopping 67% in the city at just 1.3 million square feet when the total supply was close to 4 million square feet.

Home buyers to return back

Home buyers could arrive back in the Indian real estate market in force after the Reserve Bank of India reduced rates and the cash-reserve ratio requirement. The bank slashed the repo rate by 100 basis points to 5.5% and the reverse repo rate to 4%. Officials also lowered the cash reserve ratio by 50 basis points to 5%, effective from January 17.
Real estate companies are now hoping the move will finally start to see credit moving again after a clampdown on lending saw sales slump.
Mr. Rohtas Goel, M.D., Omaxe, said, “We are confident that banks will reduce interest rates for the housing sector, which will help bring back the end-user to the market.”
Financial analysts are now waiting to see how many of India’s banks pass the cuts on in full.
Confidence in the market had already been boosted in December after officials revealed the government was working on a second stimulus package for the Indian economy.
Many experts believe that home loan rates will drop down to around 8% – the level expected to tempt buyers in huge numbers.

Malls losing brands to high street

Malls are loosing brands to high street. Retailers grappling with issues of viability, visibility and branding are now quitting malls. Recent months have seen a gradual, but noticeable exodus of brands from malls to single-format stores on high street.

This trend has added to the stagnant spaces in new malls, which have already been finding it difficult to get initial bookings from retailers. According to a report by global real-estate solutions firm Cushman & Wakefield (C&W), the mall vacancy rate in urban India touched a high of 16% by the end of 2008.

The survey was carried out across eight major cities—NCR, Mumbai, Kolkata, Ahmedabad, Bangalore, Chennai, Hyderabad and Pune. The report attributes the vacancy levels to inconsistent mall supply and revival of the high street as the most sort after retail destination. The highest level of vacancy in malls was witnessed in Delhi and Pune, with vacancy levels of 24% and 15%, respectively.

“There is a gradual but noticeable exodus from malls to single-format stores on high street. Today, retailers seek viability in stores and give lesser importance to stores for branding purposes,” says JLLM (Jones Lang LaSalle Meghraj) MD (retail) Shubhranshu Pani.

“The retailers are preferring the high street because of higher visibility, independent access and the greater comfort level as compared to the malls,” Cushman & Wakefield retail services director Rajneesh Mahajan adds.

Commercial properties are waiting for takers

The slow down in the global economy has led to huge vacant office spaces. According to reports, empty offices in New York City, Chicago and Los Angeles have already exceeded 10%. And Mumbai, too, is following a similar path. “It’s the same story here, and it has to do with the global meltdown,’’ said a CEO of a leading city-based real estate company, who did not wish to be identified. Real estate observers say that the city’s premier commercial business district of Nariman Point has been witnessing a growing number of empty offices. It is learnt that for the first time in several years, there is space available in grade one buildings in Nariman Point. In fact, the business hub has seen vacancy levels in grade one buildings rise to 11%, said sources tracking the rental market. Till recently, the vacancy level was barely 2% in this area.

According to a report by the US-based Urban Land Institute and PricewaterhouseCoopers, commercial real estate in America faces its worst year since the “wrenching 1991-1992 industry depression’’. The report predicted 15-20% losses in real estate values, from the mid-2007 peak, and quoted real estate industry experts expecting financial and real estate markets in the US to bottom in 2009, and then flounder for much of 2010. Since the last quarter of 2008, all the prime commercial business districts such as Nariman Point, Bandra-Kurla Complex and Parel have been affected. Corporates and MNCs are not renewing their lease agreements and are shifting out. But even as the demand slackens, at least 5 million square feet of office space is expected to hit the market this year in the mill land enclave of Lower Parel. Sources say that the vacancy levels, which are in the region of 5%, could increase in the coming months. In Parel, several corporates have renegotiated their lease agreements by hammering the price down by as much as 40% to 50%.

Kaustuv Roy, director Transaction Services of global property consultancy firm, Cushman & Wakefield, said vacancy levels have been inching upwards largely due to a change in corporates’ business strategies as visible in the last six to nine months. The firm’s research shows a 6.4% overall vacancy in Mumbai. “Many corporates are relocating from high cost to lower cost locations, thus ensuring locations such as Worli seeing a marginal increase in the vacancy levels. The demand side has been very slow and cautious. This has slowed down the rate of absorption of office space over the last year,’’ he said.

Mumbai received almost 9.5 million square feet of office space, leading into an excess supply situation in certain locations. Kaustav said this trend will continue in the first few months of 2009 as a large supply of 16 million sq ft is expected, most of which is due in the first six months. Knight Frank India chairman Pranay Vakil said that up to 80% of the office market is driven by the IT-ITES industry, which has now considerably slowed down. “It is no surprise that vacancy levels will go up in this segment as most of the stock was created in anticipation of the demand. In Parel, for instance, offices are getting created but the demand is not there,’’ he said.

In the US, the New York Times reported that in Chicago, demand has dried up just as office towers are nearing completion. Vacancies are also rising in Houston and Dallas, which had been “shielded from the economic downturn until recently by skyrocketing oil prices and expanding energy businesses,’’ said the NYT report. Anuj Puri, chairman and country head of Jones Lang Laselle Megraj, said the only connection between these cities is the meltdown of financial markets. “It is not just about New York and Mumbai. This is a worldwide phenomena. Some of the office space in all major cities will be freed by big investment banks, which have disappeared. Nothing will dramatically change in 09, from what we have seen in the last quarter of 08,’’ he said.

Commercial lease rental market has seen rents dropping on an average of 20% to 25% and going up to 50% in certain locations like the erstwhile mill land enclave in central Mumbai Lease rentals in Nariman Point are currently hovering around Rs 375-Rs 400 per square feet a month in premium buildings compared to Rs 475-Rs 500 per square feet a month nine months ago. Rentals in grade C buildings hardly command Rs 250 per square feet. In Parel, office space which was being leased out at the rate of Rs 300 to Rs 350 per square feet a month four months ago, is now down to Rs 150-Rs 200 per square feet a month. In the BKC, too, there has been a drop from an average of Rs 400 per square feet six to nine months ago to the current Rs 275-Rs 300 per square feet.

Jharkhand’s capital is attracting investors

Jharkhand’s capital Ranchi emerges as the single city in eastern India that has an incredible mixture of metropolitan culture along with traditional touch. The city is on the way to meet all the criteria of a metropolitan city. Ranchi is a marvelous place with great strength to put itself on the way of growth. It has already made its entry into the era of real estate, since it became the capital of Jharkhand. Mr. S.N. Singh, president of Jharkhand unit of Confederation of Real Estate Developers Association of India (CREDAI) said that with many industry giants have set up their office, there is development in bothresidential and commercial real estate sector. But, land prices are high but plots are less”. Various industry leaders have already opened their channels in the city. Ranchi also has multiplex and few five-star hotels and motels. Clearly, the average Ranchiites lifestyle has mentioned that it is not far to be enlisted as modern city.

Developers Unable to meet Retail Space Target

DLF, Parsvnath and other real estate developers have lagged behind by 54% in their target to open retail space even as retailers’ vacancy climbed to 16% last year. Cash-strapped real estate developers failed to deliver eleven million square feet of retail space in 2008, according to a study released by Cushman & Wakefield. Out of the proposed 74 malls in key eight cities at the beginning of 2008, only 34 were delivered through the year. Developers in NCR lagged the most with a supply of 4.7 million square feet compared with the earlier target of 7.1 million square feet. Developers may continue to restrict their supply, or go slow on retail space by a similar amount in 2009 across key major cities.

“For any developer, the vacancy level should not cross over 5%. The vacancy level of 16% suggests that most of the malls across India are finding it difficult to manage their operational cost,” said Rajneesh Mahajan, director of retail services at Cushman & Wakefield. The reason for the shortfall was the mismatch between the potential and actual occupancy. The Indian organised retail sector grew at 25% in 2007. Anticipating the growth of retail sector at above 35% in the coming years, developers had announced big retail projects. However, owing to economic slowdown, the growth of the retail sector has come down to 15% in 2008, resulting in developers deferring their projects for 1-2 years. “From the projected supply of 20.8 million square feet space in the first quarter of 2008, we will see a spill over of about ten million square feet development in 2009-10. Lack of funds leading to construction delays and cautious expansion by retailers have resulted in slow absorption of retail space in malls,” said Mahajan.

Homes @ 20 Lakh

Real estate companies are now aggressively pitching projects highlighting 2-bedroom apartments available for around Rs 20 lakh, hoping to lure buyers and revive the moribund housing market.

“It is not as if there is a dramatic reduction in prices, but developers want to take advantage of the lower interest rates being offered for home loans up to Rs 20 lakh,” says Sanjeev Shrivastava, MD of Assotech Realty, a Delhi-based firm.

For instance, prices were always in the range of Rs 25-30 lakh at the Crossings Republic in Ghaziabad near Delhi, a case that illustrates Mr Shrivastava’s point. Even when realty prices were wallowing in irrational highs, two-bedroom houses at Crossings Republic were going for under Rs 30 lakh because of the isolated location and poor connectivity.

Gaursons, Paramount, Panchsheel, Skytech Developers and Orange Properties are some of the players which have come out with advertisements for two-bedroom houses priced at the Rs 20-lakh level.

However, for a prospective buyer, the catch lies in the end cost and the location.

The advertisements often conceal additional costs such as external development charges, parking fees, club membership and power back-up charges. So, a house priced at Rs 20.50 lakh may actually cost Rs 26 lakh while an apartment at the second or the third floor may cost Rs 2 lakh more.

Market analysts also point out that some of the projects being advertised are located far away from city limits, or are yet to obtain approval from lenders.

Recently, Bangalore-based real estate marketing firm Orange Properties launched big budget campaigns to attract buyers to its maiden project consisting of 800 apartments, 270 villas and 40 row houses at Devanahalli near Bangalore. It offered a 800-square feet two-bedroom house for Rs 13.5 lakh and a 1,500 square feet villa for Rs 70 lakh.

The offer came with added inducements — assured rental of Rs 5,000 for two-bedroom apartments for two years, and a free Mercedes car worth Rs 28 lakh for villa buyers.

“The offer was initially open for four days, but we extended it for another four days given the overwhelming response from across the country,” says Orange Group senior vice-president Pericho Prabhu, who claims to have sold at least 200 apartments in eight days flat.

However, the project doesn’t fall in areas covered under the Bangalore draft master plan 2015. That means it is at least 48 kms away from the city centre with no guarantee of a public transport system.

There are certain other cases where home buyers are not getting their loans sanctioned, as the projects are yet to be approved by mortgage lenders. Recently, a well-known builder in Gurgaon sold off several apartments in his project after a similar heavy budget advertising, but buyers are now in a fix, as banks are not sanctioning loans for the project.

Another project by Falcon Realty, which promises to give a one-room-kitchen flat for Rs 5.5 lakh and a one-bedroom apartment for Rs 9.9 lakh in Alwar, is also yet to obtain the approval from lenders.

US-based hedge fund QVT Financial opposes Hirco’s restructuring

US-based hedge fund QVT Financial LP has strongly opposed Hirco Plc’s proposal to merge two Indian subsidiaries of the Hiranandani group with itself. QVT holds a minority stake in Hirco, a real estate fund floated by the Mumbai-based developer Hiranandani group in the Alternative Investment Market (AIM) of London.

Hirco has called an extra-ordinary general meeting on January 16 in Mumbai to seek the shareholders nod for the proposed merger.

According to a statement issued by QVT, the fund believes that the move is economically damaging to the shareholders of Hirco and favourable to the Hiranandani group. QVT has urged the Hirco shareholders to vote against the resolutions, proposing the merger.

QVT said in the statement that the Hiranandani group would stand to reap financial windfall and would scale up its holding in Hirco by the proposed merger.

It is also troubled that the timing and remote location of the EGM may disenfranchise shareholders, the statement said.

Sahara announces partners for residential projects

Sahara Prime City, the real estate arm of Sahara India, has appointed different construction companies for developing residential blocks at Sahara City Homes.

The projects are the part of Sahara’s chain of 217 townships to be developed across India. Each township is spread over 100-300 acres. Development of the townships is taking place in phased manner.

In first phase, 102 cities have been chosen. The construction work in Lucknow, Nagpur, Gwalior, Coimbatore, Ahmedabad and Indore is in full-swing.

Buying home becomes affordable

The wish of millions of middle-class Indians to own a home remained just a pipe-dream as soaring prices and builders’ keenness to focus on exclusive gated communities shut them out of the market.

It could change because bank loans become cheaper. More middle-class Indians can hope to get a step on the housing ladder in 2009. Various builders cut prices to move unsold stock and build cheaper homes.

The past few years have seen houses become just another financial asset, as punters and wealthy investors, buoyed by surging stock market earnings, trooped into the property market in the blind faith that the only direction to house prices was up. Their faith was rewarded, and house prices were driven up to surreal levels. Builders were only happy to play along, and many of them focused on high-margin exclusive developments, almost oblivious to the fact that such properties were beyond the reach of the vast majority of India’s 300-million middle class.

But sometime last year, realty discovered reality. High prices together with double-digit interest rates put off genuine buyers and many families abandoned their search for a home. And the stock market collapse turned the tables on the speculators, and with them, the building trade.

Perfect time to innovate real estate

After a long run, Indian real estate sector has begun to show signs of slump. In fact, the present changes that Indian economy and real estate sector is going through can also been seen as the test of the resilience of the economy and our real estate sector.

In fact, real estate sector is a vital driver of growth of our economy. It is the 2nd largest employer; it provides employment to the real masses and unskilled workers besides skilled workers, with a vast majority of them below poverty line. The sector supports multiple industries, ranging from steel, cement, paint, sanitary ware, light fixtures, glass, aluminum etc. The sector also contributes towards urban development by undertaking public private partnerships including slum rehabs and is a significant contributor to government revenue.

The present situation of the Indian real estate sector reminds the challenging times that the sector faced in the mid nineties. Much of the demand in the early nineties was created by speculative property investors expecting their assets to appreciate in value – an ‘irrational exuberance’ over the short term, without there being a sufficiently wide and deep class of actual buyers of property.

But this time around, the demand was driven by the booming economy. In the last five years, India has grown at a compound annual rate of 8.9%. The high rate of growth dramatically improved the income level of urban Indians and the middle class today has significantly greater buying power than a decade ago. The overall economic development in India has stimulated demand for more and better housing, increase in office space, development of modern retail formats, and demand for more hotel rooms and the need for improved forms of entertainment.

Slow real estate sector may come to fast-track again

Reserve Bank of India’s (RBI) latest round of interest rate cuts together with the government’s fiscal stimulus package may prod some home buyers to return to the moribund housing market, but industry officials say the steps may not be enough to revive the market.

Some developers say the moves do little to specifically address the realty sector’s main source of troubles credit flow to developers.

The central bank on Friday reduced repo and reverse repo rate by one percentage point and banks’ cash reserve ratio (CRR) by 50 basis points, which is likely to enhance liquidity in the system and make lending to home buyers and developers easy and less expensive.

“Rate cuts will definitely have positive impact on demand for homes. RBI’s actions in the past have eased liquidity in the system, but credit flow to developers still remains an issue,” says Gera Developers chairman Kumar Gera, who is also the chief of real estate industry body Credai.

Developers were expecting that the government would raise the limit on homes loans classified as priority sector lending for banks to Rs 30 lakh from Rs 20 lakh now; and raise exemption limit for tax benefits on interest paid on home loans to Rs 3 lakh from Rs 1.5 lakh now.

The real estate sector has been in the grips of a sharp slowdown since the beginning of last year, with sales having fallen drastically in the last quarter. Lower sales hit developers’ cash-flows, while unavailability of bank credit and funds from private equity squeezed them further, forcing most of them to delay projects and lay off employees. The realty sector is a big employer and a key source of demand in a variety of other sectors, and the government has been keen to lift this industry to spearhead a wider economic recovery.

The RBI has repeatedly cut CRR and key rates in the past two months, but banks have not been very forthcoming in lending to developers because of the high risk perception of the sector. This is because several house-builders find difficult to service debt and pay for the land already acquired amid slowing sales.

The government’s move to allow builders to raise foreign loans or external commercial borrowings (ECB) to develop townships is also being seen as a significant move, although again having a limited impact.

“The government move will not flood Indian real estate with funds, but in today’s time, every step counts. This is a signal to the developers to locate money wherever it is sitting,” says DLF group executive director Rajeev Talwar. DLF, India’s biggest property company, is developing a handful of townships across the country and may potentially benefit from the government’s move.

Residential projects outside proposed townships are unlikely to benefit from government’s latest stimulus package, officials say.

The government also announced that it will work with state governments to make land available for low and middle-income segments, although industry officials say this move is unlikely to have any impact in the short-term.

Realty developers to meet RBI Governor for more packages

Members from the Confederation of Real Estate Developers Association of India (CREDAI) will be meeting the RBI Governor D Subbarao next week to demand more Government support for the struggling real estate sector. The developers are likely to push for lower interest rates and restructured debt for the developers.
Speaking to The Indian Express, Pradeep Jain, Chairman, Parsvnath Developers said, “We will approach the RBI to demand a restructuring of existing debt by way of Financial Institutions (FIs) granting a minimum moratorium period of a year. Beyond one year, terms and conditions will be up to FIs. Also, the recently reduced interest rates for home loan borrowers upto twenty lakh rupees should be increased to thirty lakh rupees for customers in metros only. In addition, the home loan mortgage interest rate still needs to fall below 10%.” The real estate sector continues to demand relief even as the new stimulus package allows developers of integrated townships to borrow funds from overseas and asks states to release land for low and middle-income housing schemes. However, the industry believes that liquidity should improve as a result of these measures.