Faith Thoms, director of public relations and communication-Asia Pacific, Hilton Hotels said, “The Hilton Garden Inn Saket project was delayed on various regulatory grounds. We are looking forward to opening the property next year. Hilton Hotels Corporation continues to be committed to its relationship with DLF in India.”

DLF, in its clarification filed with the stock exchanges on Tuesday, too said, “For the benefit of the market in general, it is clarified that DLF’s JV with Hilton is on a firm footing and all plans for development of hotels stand as originally envisaged.”

Further Thoms said that the relationship (with DLF) has evolved positively, with an unprecedented 17 hotel projects currently under development. The first hotel under the alliance, the Hilton Garden Inn Saket in Delhi, is scheduled to open in 2009, Thoms added.

On further progress of the joint venture, Thoms said, “Other examples of our progress include ongoing development of the Hilton and the Hilton Residences in Kolkata which amount to 550 rooms, and the Hilton, Homewood Suites by Hilton and the Hilton Garden Inn projects in Dwarka which comprise over 800 rooms.”

“DLF will exercise prudence in build out phase for the hotel business, which could be pushed back by 12-18 months from planned date owing to existing liquidity constraints,” said DLF in its clarification.

Pradeep Jain, chairman, Parsvnath said, “Due to the present economic slowdown, the company has put a hold on retail diversification. But this is a temporary hold and our international partner has also put hold on its expansion plans in India. If the condition improves, we can review the situation again in another 3-6 months.” However, Jain did not divulge the name of the retail partner.

Jain further added, “At present, we are talking to number of private equity investors, and talks are on for dilution of SEZ stake. We expect the deal to happen in another 2-4 months.”

On retail front, Parsvnath was planning to have 5-10 front-end stores by this fiscal, with an international retail partner supporting the company for logistics. The company’s retail plans included, hypermarkets, food joints, and “very large” retail stores of about 2.5-3 lakh square feet, but it will not include the cash and carry format.

In June, when the company announced its plans to foray into retail space, it expected large roll-out number to add to its balance-sheet this fiscal.

For example, at present banks must have a capital base of Rs 9 to offer a loan of Rs 100. But, in case of real estate sector, RBI has increased the requirement of capital base on certain category of loans by almost 50%. So to offer a loan of Rs 100 to realty, banks should maintain a base of Rs 13.5. On home loans of more than Rs 20 lakh, banks need to keep a capital base of almost 13.5% of the loan amount.
CMD of a public sector bank said this norm has increased the cost of funds, while lending to real estate, even if bad loan in this sector is less than 1%, which is lower than the banking sector average. If government wants to increase the credit flow to realty at competitive rate, the provisioning norms must be relaxed, the banker added.

Chidambaram on Tuesday said the real estate sector affects 50% of GDP, considering dependence of sectors like steel, cement and other small scale industries. He asked banks to enhance credit flow to realty.

The bankers also demanded change in the provisioning norms for other NPAs (non-performing assets). While RBI has tightened norms in the last couple of years, projects are getting delayed because of non-availability of funds, In some cases, corporates are asking for rescheduling of loans.

According to the existing norms, such accounts should be treated as bad loans and capital provisioning has to be made, which affects banks’ profitability. Besides, it reduces capital base of a bank and capacity to give loan.

Therefore, banks said if they are asked to reschedule loans or to give credit to vulnerable sectors, the provisioning norms should be relaxed and be made more practical. It is learnt that finance minister has given them the assurance that RBI will look into the matter soon. After the global financial crisis, central banks world over have relaxed the provisioning norms to enable banks to increase their exposures to companies.

However, keeping in mind the safety factor, Chidambaram asked banks to increase their capital bases to ensure that their total loan portfolio should not be more than 8.33 times of the capital base or in banking terms their capital adequacy ratio (CAR) should not be less than 12%.

Atria Hospitality Management Services (AHMS), a part of the Atria group, will plan, build and operate the Atria Hotel, Atria Express Hotel, Atria Serviced Apartments and Atria Resort brands. AHMS will also offer Hotel and Hotel Project Consultancy, Management Services, Brand Franchise, Training and Sales and Marketing services on a pan-India basis.
Atria has interests in hospitality, power generation, convergence, education and real estate development.

“Service apartments are gaining popularity in Mumbai. There is always a room crunch in November every year especially for long stay guests. Also, companies are cutting down on the cost owing to the recession. Serviced apartment is the next best alternative. There are 9,000 rooms in the five-star category alone in Mumbai which is expected to increase to 11,000 by 2011.

The sector, which has been hit by the global financial crisis, has seen more than a 60% fall in demand in the last six months, say experts.

Under a lease or rent discounting agreement, banks lend to developers for new projects against rents they directly realize for completed projects, which also is mortgaged with the bank. Thus, banks are assured of guaranteed cash flows and also have physical assets in case of defaults.

Also, the rate of interest charged by banks for loan against rent, generally for tenure of five-six years, is generally 1%-2% lower than the benchmark lending rate. “Lease discounting is a much safer mode of lending, as the entire loan amount is covered through the rent agreement, and the banks are cushioned against defaults,” admitted a senior official from SBI Capital Markets.

According to real estate developers, for commercial projects, unlike the residential projects, where the funding is mostly through advances, lease discounting is a preferred funding option at present.

“Unlike other sources, bank loans against lease agreements have not dried up in the recent months. Also bankers are more interested in such safer modes of funding,” said Pradeep Sureka, president, Confederation of Real Estate Developers’ Associations of India (CREDAI) Bengal. Ravindra Chamaria, chairman and managing director, Infinity Infotech Parks, said, “For commercial project, internal accruals and banks have been major sources of funding.

However, banks are now selective in lending, and rent discounting is an option for developers who already have one commercial project on lease.” Sources in major PSU banks like Allahabad and Uco Bank said, they had limited exposure in the real estate sector and little headroom for further lending. Banks preferred alternative instruments like lease discounting, only after assessing underlying risks, said sources.

“We have entered into lease discounting arrangements with developers. However, one has to take into account several factors like proper lease agreement, credit rating and market conditions before entering into such agreements,” said sources in Allahabad Bank. “We have limited headroom for real estate sector, and have already exhausted the stipulated limit for real estate lending. If we had the limit, we would have considered, alternative and safer lending options to the sector,” said sources in another public sector bank.

In the recent months, unviability of commercial projects has prompted many developers to convert commercial projects into residential ones, said Pradip Chopra, chairman and managing, P S Group, which is also developing an IT project in Sri Lanka.

“Recently, many banks have extended substantial credit to real estate developers. For example, one of the public sector banks recently funded as many as ten real estate projects in Kolkata,” said Chopra.

For real estate developers with a national presence, the withdrawal of funds by foreign institutional investors have also been a cause of concern, prompting newer instruments for completing the ongoing projects.

“The FIIs withdrawal had a major impact on real estate projects. Evidently there is a slowdown in the pace of construction in commercial projects,” said sources in Unitech.

NRIs from across Punjab prefer investing in residential properties in and around Chandigarh, Jalandhar, Amritsar, Patiala and Ludhiana. This year, however, they have decided to stay put and not return home.

“The situation is very bad at present and is expected to grow worse in future,” says Kamaljeet Singh, president of the NRI Sabha in Jalandhar. He added that the impact of the global meltdown has been felt by all the sectors and real estate is one of the worst hit.

Property brokers across the city agree that the recession has further dealt a blow on the real estate industry, which was already going through a bad phase.

But the economic juggernaut began slowing earlier this year because of inflation and a severe liquidity crunch, fallout from the US sub-prime crisis. Now economic activity may shrink as part of a global slowdown.
India’s growth estimates of 9% at the beginning of current year have been revised to well below 7 percent, and the effect is directly visible in the realty sector.
According to the Associated Chambers of Commerce and Industry (Assocham), the real estate sector is estimated to be worth at least fifteen billion dollar in which FDI is four billion dollar.

This might even force a number of units to close down. The construction sector, which is the second largest employment provider in the country, is facing tough time because of the government policies, says CMD of Parsvnath Developers, Pradip Jain. He says that government must change its policy and allow the flow of funds at low interest rates so that people may buy houses. He said that banks should be allowed to lend directly to developers to meet their construction schedule.

This, he emphasized, will enable the sector to tide over the current crisis and help save the jobs of lakhs of poor construction labourers. Builders and developers feel that interest rates on home loans should be brought down to less than 10% from the present 13% to enable end users to buy houses. Since the global financial crisis came to a head, the banks have been discouraging home loan customers. The floating home loan rates of most of the banks have gone up to 13%. This has affected the affordability of end users.

The EMI of the same amount of loan for 20 years has gone up by almost 50% in the last four years as the interest rates have gone up from 7% to 13%. In fact, a senior developer says the problem arose after the government and the RBI started treating the real estate sector as a den of speculators. He says that instead of finding a remedy for the market crisis, they decided to kill the sector itself by discouraging banks from giving loans to developers.

CMD of Assotech, Sanjiv Srivastava , says that the sector played an important role in the high growth of new economies like IT, BPO and retail by providing them state-of-the-art buildings with all amenities, matching their new requirements. The crux of the matter is that the new economies grew only in those cities where world-class realty development first started.

In the NCR also, after the realty development first kicked off in Gurgaon, it came up as a hub of IT and BPO centres. Later, because of the availability of quality retail space, organized retail in the form of malls also came up, with Gurgaon showing the way, once again. Only after similar quality constructions started in Noida, did all these new economic activities start moving to that suburb.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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