Tag Archives: Real Estate

Puravankara buys sixty-two acres in Bangalore

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Provident Housing is a fully-owned subsidiary of the Bangalore-based Puravankara Group. Provident housing is learnt to have bought a 62-acre land parcel in the outskirts of Bangalore. The deal is believed to have been struck for a value of 150 crore rupees. The deal between Provident Housing and the seller, who is an individual, was signed earlier this month.

The land parcel is located on the Mysore road around half-an-hour away from the heart of Bangalore. This is said to be an outright purchase with Provident Housing, scheduled to make the payment in two tranches. In the first stage, the buyer has paid a nominal token amount at the time of signing the agreement and the balance would be paid when the project is completed.

Recently, many real estate developers have been exploring opportunities in the affordable housing sector. The Puravankara Group will have these projects in Chennai and Bangalore and is negotiating deals in Hyderabad and Coimbatore. It is learnt that deals in Hyderabad and Coimbatore will be finalized in a month.

Price correction supports realty

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Market is encouraged by price correction and low interest rates after few months of slump. The improvement is visible in residential sector, especially in low to mid-end housing segment. Level of inquiries went up and transaction velocity increased marginally as compared to first quarter of this year. Most developers deferred plans for launching any new projects, the focus being on deploying the scarce resources on completing projects in hand.

HDIL’s first quarter result shows recovery

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The first quarter results of real estate major HDIL indicate a improvement in the domestic realty sector. Not only volumes, but also prices are now moving northward.
Despite the fact that both sales as well as profit margins fell during the June quarter, the decline was less than expected and pace is also slackening. Revenues fell by 47% year-on-year to Rs 318.61 crore from Rs 601 crore in the same quarter previous year. With more than three-fourth of its revenue coming from low yielding land development and slum rehabilitation scheme projects, the margins have taken a major hit. Operating margin also fell from 58% to about 43%. Net profit stood at Rs 107.47 crore as against Rs 317.9 crore reported in the corresponding quarter of last year.
In this quarter, HDIL sold less than 1.8 million square feet of TDR at an average price of Rs 1,500 per square feet. It is expected to cumulatively sell close to 6-7-million square feet of TDR in financial year 2010. HDIL has managed to restructure major part of its debt liability and repayments would be due only by October 2010. On account of completion of the mall and multiplex at Kandivili, a Mumbai suburb, about Rs 21 crore worth of investments have been transferred to fixed assets from the Profit & Loss account in the current quarter. As the company follows the project completion method for revenue recognition, it is only by 2011 when the ongoing residential projects would get completed. On the airport project, phase I is expected to be complete by fiscal year 2010 and land acquisition for other parts of project is going on. Recently the company has entered into a rental-housing scheme with MMRDA. This is expected to add 30 million square feet of space to its existing 196-million square feet of land bank.

Lodha hikes bid price for NTC’s Finlay

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Lodha Developers is ready to deal a 10.3-acre plot in Central Mumbai for Rs 710 crore in what could be the biggest realty deal this year, a sign that the slump in real estate sector may have finally gone. Company’s director Mr. Abhishek Lodha declared the offer made to acquire the Finlay Mill property belonging to NTC.

The developer is looking to fund the transaction through an IPO to raise three thousand crore rupees by end of August.

Lodha’s earlier bid for the 10.3-acre mill land was Rs 657.9 crore when the reserve price was fixed at Rs 708 crore. On Thursday, NTC’s asset review committee did not accept Lodha’s bid on grounds that it was much lower than the reserve price.

Lodha communicated to NTC its decision to increase its offer price for the Finlay property. The other bidder in the fray for the property was Indiabulls Real Estate at Rs 520 crore.

The payment for the Finlay Mill acquisition would be made in three tranches over three months. The deal will be inked between Lodha and NTC in the next ten days.

Realty companies are back on track

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Emaar MGF, Godrej Properties, Lodha Developers, Sahara Prime City, Nitesh Estates and Sriram Properties will all hit the capital markets in the current year, declaring that the worst may be over for an industry that virtually cratered in the global economic storm last year.

With market conditions still tight, it will be tough for these issuers to demand substantial premium from investors. Looking at the present volatile market, it would be really difficult to predict the premium.

The last to be listed, Mahindra Holidays and Resorts, debuted on BSE 7 percent higher than its issue price. Godrej Properties, the real estate arm of the Godrej Group, plans to sell around 10 percent through its maiden public issue. Before that, the company will place a 3.5 percent equity with select institutions.

The IPO is expected to fetch the company anywhere between 450 crore and 600 crore rupees. It will use the proceeds for building low-cost housing. ICICI Securities and Kotak Mahindra Capital are the merchant bankers to the issue.

Cheaper loan for hotels

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As per the draft guideline released by RBI, bank loans to entrepreneurs for acquiring real estate for their business would not be classified as commercial real estate (CRE) exposure. Currently, bank loans to companies for acquiring real estate for hotels and hospitality are treated as CRE exposure and attract a risk weight of 100 percent. Depending on the risk weight, banks are required to set aside capital for loans. Under RBI norms, banks’ capital-adequacy ratio, a measure of financial strength expressed as the ratio of capital to risk-weighted assets, is 9 percent. This means that for loans carrying 100 percent risk weight, banks need to set aside Rs9 worth of capital for every hundred rupees they lend. If these projects are not treated as CRE, their risk weights would vary according to the ratings of the borrower or the ratings of the project for which the loan would be given.
Param Desai, a research analyst with Mumbai-based brokerage Angel Broking Ltd, said, “These guidelines, if implemented, will make it easier for borrowers to get construction finance for a larger variety of projects. Construction finance has been a major concern for most developers during the downturn because most banks are cagey to lend to projects, unless they have a definite action plan and deadline to finish.”

NTC board to decide on bid

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Lodha Developers’ Rs 657.9-crore bid for the 10.3-acre Finlay Mill property in central Mumbai has not been cleared by the asset review committee of the National Textile Corporation. Bid was placed on 16th of this month. NTC’s asset review committee was to take a decision, as it was much lower than the reserve price. The committee could not arrive at decision, as many members were against awarding the land parcel at a price lower than the reserve price.

NTC MD K Ramchandran Pillai said, “The asset committee had the power to take a decision. Now, the NTC board will decide whether to award the Finlay Mill land to Lodha.” On July 16, the Finlay Mill property received two bids from Lodha and Indiabulls for Rs 657.9 crore and Rs 520 crore, respectively. This was widely viewed as a revival of the real estate.

Consider all the factors before purchasing

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There are various factors that must be discussed before purchasing property. One needs to consider factors such as economic growth outlook, interest rates, job security, demand, credit supply etc, understand the overall dynamics of the real estate sector.

Rough estimates show that out of the total 100 percent real estate market the residential segment weightage is approximately 75 percent whereas 20 percent is commercial office spaces and balance 5% comprises retail, hospitality.

The mid market residential segment (residential properties between Rs 15 – 50 lakh) represents nearly 85% of total mortgage disbursements in India. Therefore, the mid market residential segment represents nearly 64% of the market. Almost 55% of mortgage finance disbursement for residential properties happens within the top seven cities and the balance 45% is shared by the whole country.

There was a dearth of two to three bedroom properties within this range of Rs 15 – 50 lakh within the greater metropolitan areas of major cities. Easy supply of money from equity capital sources created an artificial demand of land for the development of large township projects and SEZs. Everybody started announcing huge and multiple projects but ignored the calculation, execution and delivery capability perspective involved.

Most developers started projects 10 – 20 times the total square footage of what they had delivered in the last 20 – 30 years. The various sources of institutional capital lapped up the story. However critical considerations like the nature and kind of organisation structure, management bandwidth, labour, capital equipment, machinery, project time were ignored.

The pricing of residential projects went up by 400 – 500 percent in most cities between 2006 – 2008. Interest rates also went up from an all time low of 7.00 percent, 20-year fixed mortgage to as high as 13.75 percent floating rate in 2008. This put a lot of strain on affordability.

The stock market crash and job insecurity that followed the Lehman Brothers fiasco, drove away investors and actual buyers. The credit tightening from domestic banks and marked to market losses started reflecting on credit supply to the sector and the market went dead.

Developers came stress with no cash flows from the sale of projects and rentals of commercial office spaces and retail spaces also dipped by as much as 50% and everybody started playing the waiting game and bottom fishing to get back into the market.

The most credible development companies, in the absence of retail buyers, could not find capital to complete under-construction projects. This led to delays and temporary abandoning of projects. Developers were forced to rethink strategies to get back cash flows and improve sales. This led to developers having a “Eureka” moment about affordable housing.

Luckily for the markets better sense has now prevailed and several developers are re-pricing projects downwards and repositioning them as affordable housing. The banks have also selectively started lending to developers, albeit in small amounts and with strict performance criteria. The banks have also brought down interest rates and also restructured debts. This has slowly brought buyers to the market.

The worst seems to be over for the mid-market residential real estate asset class, although the same is not yet true for commercial office spaces and retail malls. This segment essentially drives cash flows as well as the major chunk of demand. This segment is also one which gets maximum bookings from actual user market rather than the investor bookings in percentage terms. Therefore, it is the lead segment in driving real estate markets. Unfortunately, it was the most neglected segment during the bull run of 2006 – 2008.

Now that most developers have realised that this segment is bringing back buyers who were left out to due to affordability issues during the bull run, cash flows are likely to improve. There have been a few launches of affordably priced projects, which have seen a positive response from actual users.

This has led to other developers following suit and taking advantage of the positive sentiment that has emerged towards affordable/mid market residential segment. The market will see a slew of such launches in the next three months to one year, giving ample choice to actual buyers. Prices will stabilize for a while.

Commercial realty back to its position

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After long time of stagnation in the commercial real estate market in Mumbai, there is finally some revival. First off the block was the 10.3-acre Finlay Mill property for which there have been bids from Lodha Developers and Indiabulls Real Estate. On July 31, NTC will put the 16-acre Kohinoor Mill-1 property also on the block, for which the base price will be Rs 1,200 crore. Both these properties are in central Mumbai.
In the case of Finlay Mill property, the last day for the submission of bids was Thursday. Lodha Developers and Indiabulls Real Estate have put in their bids. The base price for this property, which has a buildable area of 4.20 lakh square feet, is Rs 708 crore with Lodha’s bid at Rs 657.9 crore and Indiabulls’ at Rs 520 crore. The property was put on block twice earlier.
It is learnt that property consultant Jones Lang LaSalle Meghraj has been mandated for the sale of the Kohinoor Mill-1 land. This is the first time that this land is being put on the block. The Kohinoor Mill-1 property is different from that of Kohinoor Mill-3, which was bought by Manohar Joshi and Raj Thackeray for Rs 421 crore in 2005.

Affordable housing is not more affordable for builders

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The  sector appears to have found its feet with focus on affordable housing and this may reflect in the June quarter results of the companies. The move has led to higher sales for many companies, but on the other hand, it has also impacted the margins negatively. The reason being that the mid-segment housing is a high volume with low margin business.

It may also be understood that only the residential market has seen a recovery, while the commercial and retail segments are still under stress.

Among all the listed companies, Orbit and Indiabulls Real Estate (IBREL) are expected to show a marginal improvement in sales. With a huge fall in property prices in the luxury segment, Orbit has shown 5% increase in sales. With a 70% YoY decline in revenue, Parsvnath is expected to see the highest fall. DLF and Unitech may follow with 60% and 54% decline, respectively. As a move to generate cash for business activities, both these companies have exited from unviable projects and also sold noncore assets. This would help in completing under-construction projects. Even some large SEZ projects have been shelved.

Many companies have launched new residential projects in affordable housing segment. Though construction costs would be low, EBIDTA margins would decline by 5-10 % average due to sharper decrease in prices. However, companies like Unitech, DLF, HDIL, and Sobha that have raised funds have improved their balance sheet positions and thus lowered their overall finance cost. Average EBIDTA margin for June’ 09 would be 39% as against 43% for March’ 09. Peninsula Land is expected to show positive margin, as the number of projects was very limited, hence leverage was also low.

Despite all the gloom, realty sector is seen to show some improvement in margins. The overall PAT margins for the June quarter will be at 26%. Though real estate sector is one of the major contributors to the over all profit growth for India Inc, yet it is low as compared to the past PAT margins of 35-40 %. However as alternate sources of funds have become available, builders have managed to improve their cash position. Loans have been restructured and thus interest liability has been reduced. Developers like Mahindra Lifespaces, IBREL and Peninsula Land are expected to report PAT margins upward of 30%.

Banks suggest no increase in real estate price

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Banks in India are suggesting property developers to stop increasing real estate prices as it could stop the market recovery. Developers have been taking advantage of rise in sale but its side effect could put off the buyers.

S. Sridhar, Chairman and Managing Director of the Central Bank of India described the move as short sighted and that the developers are naïve if they think that by increasing prices, they would stimulate demand. Further he said, “It is difficult to generalise but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand”. He added, “If the real estate players revise the prices upwards, it will stall the recovery process. Demand for housing loans has picked up among the banks but the situation is still fragile”.

IREO to invest 500 million dollars

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Global real estate giant IREO will invest 500 million dollars in various infrastructure projects in India.
IREO is already one of the largest investors in the country’s real estate sector. The company currently has thirteen projects and is in the process of constructing an IT SEZ in Pune. The company has projects in many states including Haryana, Punjab, Tamil Nadu, Maharashtra and Delhi. The company said it would develop an eight million square feet housing project in the next one year.

Hollow budget for real estate

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Lots of expectations were to be met. Lots of requirements were to be fulfilled. Industries were waiting for a rescue hand from Mr. FM to fight against recession. Nobody is happy with this average kind of budget. I was watching pre-budget views and I was hoping much more than what is presented in budget.
If we talk about real estate sector, there is no major change. Government made it easy to build multi storey buildings in rural areas. The fact behind is, will any builder invest his money to make a multi storey building in rural area? My answer is simply ‘No’ and I hope most of the builders think the same. If we talk about the raw material used in this industry, there is no deduction in rate. This means, the struggle of a middle class person, to build a home, has increased.
No solid steps are taken to increase foreign investments. No attractive plans for NRIs. This simply means that Government has no concern for foreign investment.

Indian HNIs make realty investment

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Cash MoneyForeign developers are trying to attract Indian HNI (High Net Worth Individual). HNIs are people with net financial assets (liquid assets) of at least $1 million, excluding primary residence and consumables. India is projected to be the world’s third largest economy by 2050. A subsequent increase in the number of wealthy individuals, real estate consultants from across the world are trying and also getting the HNI segment interested enough to buy.
Strong GDP growth, robust figures in industrial and service sectors, high market capitalization and steady FII inflows are some factors contributing to the rise in HNI wealth. In 2006, India’s HNI population crossed the one lakh figure, which made it the second-fastest growing HNI segment in the world.

“Affordable house” or a compromise?

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Finding a home in metro cities is not cup of tea for a middle class family. If we talk about affordable house projects, either such houses are in far fringe areas or a result of poor design, cheap production material and lack of space. This simply means that buyers have to do some compromise with their expectations. Many real estate companies are launching houses at 10-20 lakhs. But most of them are not up to mark. If we talk about tier II and tier III cities, those who are working in metro cities cannot move towards small towns for a house.
As per my opinion, there should be some design standards for builders and if they offer affordable house, cost cutting must not affect the design and production material issues.