Mahindras cash in on early SEZ appeal

Workers are putting the finishing touches to a five-storey building that will house a 3,200-seater BPO unit of lnfosys Technologies in the 2,500-acre multi-product special economic zone (SEZ), 21 km from the Pink City. Infosys has leased 200-acres in the 385-acre IT zone, which is sold out Fifty meters away at the SEZ’s technology park, two floors of offices are ready.

Deutsche Bank Outsourcing International, which has leased out seven floors in two buildings, will start operations this week. Welcome to the Mahindra World City Jaipur. Even as several SEZs are struggling to get off the ground, the Mahindras have managed to kick off their second SEZ at Jaipur, after their first one in Chennai.

“None of the big SEZ projects have taken off while we have made good progress on two of them. The Jaipur project will be operational this month,” said Arun Nahda, vice-chairman, Mahindra lifespaces.

Most other projects have not been able to cross the first hurdle of land acquisition. “The Mahindras believed in SEZs before they came into place in India. Others are sitting on approvals and now thinking about what to do with them,” said Tapan Singhal, senior manager, Pricewater-houseCoopers.

To be fair, many SEZs have come up in the country. But a majority of them are captive units of IT, ITes, or pharma companies. Many government free trade zones and export promotion zones have been converted into SEZs. There are about half a dozen third-party SEZs from developers like DLF and Unitech but they are much smaller in size and scale (40-60 acres).

“Many of the big SEZ projects are suffering because of issues related to land acquisition; execution is not so much an issue. Mahindras were early starters in Chennai in the older regime, when land stipulation was not there,” said Vivek Mehra, executive director, PricewaterhouseC-oopers and an expert on SEZs. Mahindra World City Jaipur—a 74:26 joint venture between Mahindra group firm and Mahindra Lifespaces and Rajasthan Industrial and Investment Corporation is the largest public private partnership projects in Rajasthan, and is expected to create large scale industrial development and employment in the state.

The multi-product SEZ will have three zones: IT (750 acres), light engineering, including auto and auto component (250 acres), handicraft (250 acres), besides zones for apparel, gems & jewellery, logistics and warehousing, a domestic tariff area for ancillaries to support export units and 1,000-acres of social infrastructure.

Twenty companies have signed up for these zones, who will invest more than Rs 1000 crore, employ 75,000 people and generate exports of Rs 3500 crore within four years.

The group’s first SEZ, the 1400-acre Mahindra World City near Chennai, already boasts clients like Infosys, Wipro, BMW and Braun and achieved a break even this year, in its eighth year.

The Mahindras had acquired 1,000-acres of land, close to the Ford factory near Chennai for an auto-ancillary park and later thought of doing a township. “When we thought of an SEZ, we said can we build an island of excellence, opportunity for people to get plug and play infrastructure,” said Nanda, a 35-year-old veteran at the M&M Group.

Mahindras In fact, M&M’s success in Chennai saw other businessmen jumping onto the SEZ bandwagon. What does it do differently that’s helping it implement its projects while others are stuck with issues like land acquisition?

“The basic difference is we did not look at it as a real estate business but as an infrastructure business. The profits can wait. We focused on creating the right infrastructure and attracting the right anchors (clients like Infosys),” said Nanda.

Take Chennai, for instance. It took the company four-and-half years to acquire the land and build the infrastructure and another year to get a good anchor in Infosys.

“A good anchor makes a lot of a difference,” said Nanda. It wasn’t easy; Mahindra had to invest upfront (Mahindras, for instance, are investing Rs 600 crore in Jaipur), build the infrastructure for Infosys to come in.

Mahindra could rope in Infosys after three of its directors led by Narayan Murthy visited the site and bought into the concept that a parallel city can be built 35-km away from Chennai. Of course, Infosys also managed to get a great deal, (not to be written: as an anchor, it got a rate which was a third of what others paid). “They showed faith in us and we delivered to that faith,” said Nanda who needs customers like Infosys who can scale-up quickly from 5,000-people at a centre to 25,000-people.

Even after selling all space in Chennai, it invested in sprucing up a nearby railway station that eased commuting for its customers’ employees. Perhaps, it’s not enough. “Our experience has been fair to good at Chennai. The SEZ went through a learning curve and in some areas could not match our speed in execution of our facility.

For instance, we have grown to 6500 employees there and the railway system cannot take the load. The internal transport system has been inadequate,” said TV Mohandas Pai, director (human resources), Infosys. Yet, its Chennai project has been able to win the confidence of its customers. So, when the government of Rajasthan invited Infosys to set up a campus in Jaipur, it suggested to them to create a SEZ so that there will be totality of infrastructure.

RBI move adds to real estate sector’s woes

New Delhi : The Reserve Bank of India’s decision to raise repo rate and cash reserve ratio is expected to add to woes of the real estate sector.

The realty industry — which is already smarting under a sluggish demand and price correction feels that RBI’s move would tighten the liquidity crunch for developers, and dampen end user demand by putting pressure on home loan rates.

“The hike in repo rate and CRR will negatively impact real estate sector. The hike would mean flow of money to the sector would be tighter than before.

The developers will now have to look towards other sources of funds, which could be on higher rates thus impacting the cost-benefit ratio of each company.

However at Omaxe we may not feel slowdown in the company’s investment plans and they stay as announced earlier,” Mr Sunil Malhotra, Vice-President (Finance), Omaxe Ltd, said.

Delay projects

According to Mr Sanjay Verma, Executive Managing Director (South Asia) of Cushman & Wakefield, the credit policy has set the stage for hardening of interest rates.

“This is bad news for developers. Already, the credit crunch is hurting project financing, which is leading to delays in residential and commercial projects. Projects could now get delayed further,” he said.

Real estate players are currently grappling with dwindling sales, correction in land prices, tepid demand, and rising input costs, even as they face a liquidity squeeze. In such a scenario, if banks hike the interest rates on home loans further, the residential demand is likely to get hit, said industry observers.

Mr Pradeep Jain, Chairman, Parsvnath Developers Ltd, agreed that increase in cost of borrowing (for developers) would escalate the cost of the real estate project — the burden would ultimately be passed on to consumers. “The cost of borrowing goes up not only for builders but for all ancillary and input industries as well, leading to a higher price tag for the real estate product.

Moreover, it has an impact on home loans,” he said, but pointed out that foreign direct investment still remained a viable option for the players to raise capital.

Mr Jain also opined that end users or first time home buyers are unlikely to get deterred by a marginal hike in the home loan rates.

The board consensus in the industry is that increase in home loan rates would certainly have a detrimental effect on the mid and upper-end segment of home buyers. Mr Kunal Banerji, President, Marketing, Ansal Infrastructure and Properties Ltd, said “Although, we do not predict any drastic change in the overall robust demand for quality housing at this stage, there could be a long-term effect on the speed of the overall growth, particularly in the residential real estate category.”

Echoing the sentiments, Mr Ajay Mangal, Director (Finance), Uppal Group, felt that demand will surely be hit once the home loans become costlier.

Andhra Pradesh Government looking for an International Partner

The Andhra Pradesh Government is looking for an international partner to design and develop an 800 acre integrated township at Kadapa district in the state. The integrated tourism and township project will be developed by the Andhra Pradesh Tourism Development Corporation (APTDC) under the public private partnership (PPP) mode. The company will be expected to design, finance and construct the integrated township. Besides this, the other responsibilities of the partner would be to operate, manage and maintain the proposed project, the APTDC said. The proposed township will be developed around Gandikota, on the banks of Penna river, situated amidst Gandikota Fort and would be within 350 km of important south Indian cities such as Hyderabad, Chennai and Bengaluru.

Maytas consortium bags Hyderabad metro rail project

A Consortium led by Maytas Infra Ltd, a real estate infrastructure company promoted by Satyam Computer owners, has bagged the country’s first urban transit project on public private partnership (PPP) mode by quoting a negative grant to the Andhra Pradesh government.

The consortium—Maytas, Navabharat Ventures Ltd, Ital Thai Development Public Company and IL&FS — has offered the state government Rs 1350 crore (net present value) for the Hyderabad Metro Rail Project to be implemented on a build, operate and transfer (BOT) basis over the concession period of 35 years.

The cost of the project is estimated to be Rs 12,500 crore. It has been bagged by the consortium for 35 years on a build, operate and transfer model led by Maytas Infra Ltd, the real-estate infrastructure company backed by the promoters of Satyam Computer Services.

The consortium has offered Rs 1,350 crore per annum to the government over a period of 35 years on the build, operate and. transfer (BOT) model. The Maytas Infra-led consortium emerged as the lowest bidder among the five international consortia shortlisted for the project.

After 35 years, the contract can be extended by 25 years and would be open to re-negotiation. The consortium hopes to leverage the 18-20 lakh square feet of real estate, available in and around Metro rail stations, for commercial development and ensure a sizable revenue stream. The consortium has decided not to use the viability gap funding (up to 20 per cent of the project cost) offered by the government, according to sources involved in the bidding exercise.

The project would receive Rs 969 crore from the Centre’s Jawaharlal Nehru Urban Renewal Mission scheme and an equivalent amount from Andhra Pradesh government. The State would also provide land required for building stations, parking lots and space needed at the terminal stations.

Ansals launch SEZ project in Murthal

Ansal Properties and Infrastructure has launched its fifth special economic zone (SEZ) project in Murthal, in Sonepat district of Haryana. The SEZ is spread over 250 acres and will see investments of over Rs 900 crore.

The project will be funded through internal accruals of the company. The SEZ would be the first in northern India specifically targeting the mechanical engineering goods sector. Ansal API president, international marketing, Kunal Banerji said: “We are in talks with Siam, Acma and other component and engineering associations for their members to come up with parks and manufacturing units in the SEZ project.”

This SEZ will have factories of engineering goods and hotels. Infrastructure in the form of roads, power, water supply, drainage and others will be funded by Ansal.

The engineering industry in Sonepat contributes substantially to the total exports in the country. Given the demand for Indian engineering products globally, the existing units are looking to expand and new units are also coming up in the city.

The company has got licences to develop townships, group housing and commercial projects on 255.5 acres in Haryana. It has also entered into a JV with IL&FS for two projects in Badshahpur in Gurgaon. While IL&FS will hold 49% stake in these JV, APIL will hold the rest. Ansal has a land bank of 7,000 acres with 17 townships, 15 shopping malls and three SEZs under different stages of development across the country.

Investors bearing brunt of realty slump

When a unit of German conglomerate Siemens AG put an apartment in Walkeshwar, a tony south Mumbai neighbourhood, for auction in June, it expected the usual big crowd of buyers that such sales attract. And, in line with the past, it expected a huge premium from the base price of Rs4 crore, or roughly $1 million.

Siemens had to shelve the sale when just three bidders turned up, two of whom bid Rs3.75 crore each, lower than the base price.

The aborted auction reflects the tough times that investors are experiencing as the realty market cools. Investors who bought properties in New Delhi, its suburbs of Noida, Gurgaon and Greater Noida, Mumbai and Bangalore, anticipating sales at hefty premiums, are finding it difficult to make a profitable exit at current price levels.

Falling demand – some estimates put the decline at up to 30% in the realty resale market has led to a drop in prices by 15-30% in the otherwise hot residential resale markets of Greater Noida, Noida, Gurgaon and Mumbai. Prices have declined by 15% even in south Mumbai, says S.G. Maheshwari, a realty expert and former president of Estate Agents Association of India, of the normally price inelastic area one of the most expensive in the world.

Investors, different from those who buy apartments and property for their own use, who constitute a large portion of all residential transactions, are bearing the brunt of the decline. For instance, in Delhi and its suburbs, according to a survey by real estate consultant DTZ, nearly two of three residential transactions are re­sales.

Investors, until about a year ago, accounted for nearly 50% of property and apartment deals, according to estimates by some realtors. They were attracted to the real estate as an asset class given the 100-200% appreciation in some three years.

Generally, investors would try to sell the properties within a year of purchase and book profits. Not any more.

Liquidity crunch

Such investors are shying away from new realty projects, making it tougher for developers to get financing for their projects. Residential projects are usually self-financing in nature, meaning that developers use the money they get from customer advances to fund the development.

Investors have temporarily put buying plans on hold, says B.P. Dhaka, chief operating officer at Parsvnath Developers Ltd. “This is adding to the liquidity crunch of developers,” says Dhaka. Adds G.P. Savlani, resident director of the Confederation of Real Estate Developers’ Association of India, “Investors are not buying new properties and those that have bought” are retaining them.

Coupled with the decline in demand is the surge in prices of raw materials such as steel and cement and the dwindling availability of financing from banks and other financial institutions, Savlani says that developers are mainly trying to complete existing projects, not add new ones.

Most investors are deferring sale plans and waiting for prices to rise, according to Rajat Mahajan, national vice-president for leasing and business development at Century 21, a real estate brokerage firm.

One investor has a property in Greater Noida, which he “bought as an investment three years back” from the Stellar Group. “But I plan to hold on to it for some time as the resale market is stagnant,” he says, asking not to be named. Other investors are not so patient. In Jolly Maker Apartment I and II, residential towers in Cuffe Parade, south Mumbai, a flat of 1,700 sq. ft carpet area was selling at Rsl8 crore as recently as the beginning of the year. Sellers have now discounted them to Rsl3-14 crore, says Maheshwari.

Even after the price cut, there are few buyers.

No takers

In Delhi, brokers’ advertisements offering discounts on resale properties have become common. Realty agent Manoj Jain, for instance, is offering a 4% discount on 1,775 sq. ft apartments at Parsvnath City in Dharuhera near Delhi.

He has five such flats to sell at the development that investors bought in 2006, he says. The price on offer of Rsl,728 (versus Parsvnath’s selling price of Rsl,800) may still not be enough to lure buyers.

In Bangalore, property consultants said resale transactions have slowed considerably despite price correction to the tune of 15-20%, particularly in areas such as Whitefield and Indira Nagar where there is considerable supply yet few’ takers.

An entrepreneur in the city who did not want to be named had bought a two-bedroom flat three years ago in Malleshwaram, north-west of Bangalore, for Rs29 lakh. He is trying to sell his property. “I am getting about Rs34 lakh for it now, but it’s almost 20% less than the rate even six months back. I want to sell it and invest in a bigger apartment but am waiting for prices to increase,” he says.

Such investors may have to hold onto their properties for a longer period as prices will continue their slide in the coming months, experts say. Resale prices are likely to fall by another 15%, according to Pankaj Renjhen, managing director at Jones Lang La Salle Meghraj, property consultancy and brokerage firm.

Propmart Technologies, a Bangalore-based real estate services provider, is organizing a resale property fair where about 120 such properties will be up for grabs. “We hope to facilitate resale transactions in a market which has otherwise been dull for some time now,” said R. Balaji, chief executive, Propmart Technologies.

Suncity to develop retail malls

New Delhi : Suncity Projects on Saturday said it would invest Rs. 8,000 crore to develop ten retail malls across the country in the next six years.

“We will start with four such projects in northern States where Rs. 2,000 crore will be invested. We will then expand this to six more cities in various States,” said Suncity Projects Vice-President (Retail) VijayArora. Addressing a press conference here, Mr. Arora said the “retail cities” would be called “Jewel of India”. “Initially, it would come up at Greater Noida, Indore,

Jaipur and Mohali and house India’s top brands besides giving spaces to local handicrafts and also entertainment industry,” he added. Stating that the ambitious retail projects would also have space for hotels, offices and entertainment zones, Mr. Arora said the projects would be funded through internal accruals and debt in equal proportion. “We are open to dilute up to 50 per cent stake on the projects for raising funds from private equity players.”

Infrastructure is the key

Mumbai, the financial and economic capital of India, is well-positioned to compete with the global cities and emerge as the megalopolis of the twenty-first century. It has an inherently strategic location advantage, with its proximity to other cities of the country. It also has a large, diverse pool of intellectual talent. However, the huge infrastructure deficit of the city could act as a major constraint in its growth potential.

The efficiency and effectiveness in infrastructure development will determine the future of Mumbai’s success story behind the metropolis and help it in its way to globalization.

Mumbai generates a large share of national revenues; hence its development is critical to the national economy. It contributes 33% of income tax collections, 60% of custom duty collections, 20% of central excise collecions and 40% of foreign trade of the country.

Mumbai has a deep natural harbor which handles a significant part of India’s passenger traffic and cargo. It is the most populous city of India, with the large influx of people on an annual basis, putting a tremendous pressure on the Mumbai’s infrastructure.

The city is characterized by large infrastructure deficits – more than 54% of Mumbai’s population lives in slums which lack basic services – this compares with an average of 33% for mega cities globally, it has only 2 to 6 hours of water supply as compared to acceptable standards of 24×7 water supply; it has a poor water transmission and distribution system; it has as much as 35% of households without access to sanitation; it has an old storm water drainage network which cannot take a rain intensity of more than 25 min/hour; it has inadequate transportation network with average travel speed of 6-8 kms/hour; its drainage capacity is highly inadequate with only 50% carrying capacity of the potential sewage.

There has been little renewal or replacement of city infrastructure, with the result that the city infrastructure assets are obsolete and are operating at sub-optimal efficiency.

The level of investments has failed to keep pace with the rising population and income levels. The huge deficiency in infrastructure results in substantial decline in the quality of life. Further, it also adversely impacts the productivity and efficiency of business in the city. As a result, the time and cost of transactions increases manifold.

In realization of the need to undertake investments in Mumbai infrastructure, the civic infrastructure projects have been included under Jawaharlal Nehru National Urban Renewal mission (JNNURM). These projects are mainly aimed at sewerage, storm water drains and water supply; and will be funded by the state and central governments to the extern of 50% with rest contributed by the municipal corporation.

Transportation is the city’s most imperative infrastructure requirement in its bid to become a world-class city. There is a need for upgradation of transport infrastructure to world-class standards, so as to enable seamless, end-to-end connectivity. The Mumbai Metropolitian Region Development Authority (MMRDA) has announced an ambitious revamp plan of Rs 2,07,956 crores till 2031. This will include the transport-related projects of the suburban railway, metro rail, highways, water transport, bus network, etc.

The infrastructure investments of Mumbai are huge, and will only increase due to inflationary pressures, ii there are further delays in provisioning the same. According to the Chief Minister’s task force (2004), in order to transform Mumbai into a world-class city, an investment of Rs.200,000 crore will be required over the next ten years, primarily on transport and housing.

These huge investment requirements cannot be met out of government funds alone, and would necessitate public-private partnerships to chanellise private funds. A sound, coherent, integrated approach involving state and central governments as well as private companies is needed for a timely action in this regard.

Akash Deep Jyoti is Head-Corporate & Infrastructure Ratings, CRISIL Limited The views expressed are personal.

Competition Motivates Developers To Come Up With More Luxury Projects

Competition is growing in the Indian real estate market and to grow up in the ladder, developers are building skyscrapers and partnering with worldwide spas and engineering companies. Shree Ram Urban Infrastructure (SRUI) is planning to partner with worldwide spa companies like Thailand-based Banyan Tree and Madrid of Hong Kong in order to set up a 10, 000 sq ft luxurious spa in its Palais Royale 50-storeyed skyscraper complex in Worli (Mumbai), on the lines of One Brand Square, a super luxurious residential skyscraper. Competitor, Lodha Group’s new project, Lodha Bellisimo’s (at Mahalaxmi) A and B wing will be ready by 2009-end, and C wing by 2011, where-in the elevator (with finger print access) opens directly into once residence. Along with that, there is an exclusive private elevator that connects the two levels of one’s duplex home. The company has partnered with Kapadia Associate, Architects, Sitetectonix, Singapore for Landscape and Johnson Controls Inc (JCI), USA for facility management.

Dubai no more just a shopping destination

World-class infrastructure, coupled with safe living and a facilitated business environment, makes Dubai an ideal place to live and work. Dubai is ranked first in global population and employment growth [National Statistics Office] making the demand for Dubai real estate even more viable. The fact is that Dubai has witnessed 13% growth year-on-year since 2000, which makes for a higher growth rate than both India and China, presently the two most powerful developing countries in the world. Dubai has been growing at a swelling speed. It’s no more just a shopping destination. It is emerging as an international destination for property investors. The open nature of the society in Dubai makes it safe for people who want to retire, relocate or simply looking for a secure return on their money. As a good long-term investment, investors are increasingly tending to view housing and real estate in Dubai especially from Asia with a particular focus from India. Real estate in Dubai is expanding at a phenomenal rate in the last five years and continues to do so. Apart from this, the increase in population, flourishing tourism and readily available mortgage facilities from banks and financial institutions gave rise to an extraordinary real estate boom in Dubai. Real estate projects of over $360 billion are currently under development in the UAE. These projects include some of the world’s most spectacular and awe-inspiring architectural wonders including the world’s tallest building, largest mall, biggest theme park and indoor ski resort, among others. There is a large majority of Indians in the UAE. Due to the close proximity between the two countries there are large numbers of Indians who have bought properties in Dubai. It is extremely easy for Indians to own a property in the UAE. There is no restriction in the kind of properties one can buy – apartment, land or in terms of maximum or minimum size of the property one can hold. One can also sell the property at any time and repatriate the proceeds.

Spice launches real estate service on SMS

Spice Telecom, the cellular service provider of Punjab launched Spice Real Estate LIVE on SMS service which makes commercial & household property related information from all over India readily available to Spice customers. This service offers Spice prepaid & postpaid subscribers the convenience of accessing real estate information & a wide range of real estate related services on Spice mobile, via a simple SMS. Mukul Khanna, VP– marketing, Spice Telecom said, “Spice believes in launching cutting edge mobile applications. It has tied up with hotpropertyindia.com to provide easy access to real estate information from across India.”

Real Estate in India is expected to Show Further Decline

The present time is not ideal for the realty market. The decelerated pace has affected the sector. The leading banks have increased the interest rates of home loans and the inflation level is also rising. Therefore, putting together, the probable property buyers are feeling dejected. But perhaps there may be a silver lining. The prospective buyers are delaying their home-buying decision to buy properties because of a widespread conjecture of probable price reduction in times to come. How long one should wait and watch is however not known. Anuj Puri, the chairman and country head of the operations of the international real estate consultancy Jones Lang LaSalle Meghraj (JLLM) in India, says that the correction will take 4 to 6 months depending on the local trend of the market and the holding power of the developers operating in that location. JLLM also makes a forecast of 5 to 15% probable price reduction in different hyped micro markets of Pune, Bangalore, Gurgaon, Noida, and other such locations. The real estate India appears to be going through a rocky period. The real estate markets of South Mumbai, several other places in Mumbai suburbs, and some locations in New Delhi may experience a price reduction of even up to 10%. These areas already have seen unreasonable price trends. As per Mr. Puri, the problems for the developers to finish the existing projects as well as initiate new projects will escalate which will result in reduced incoming supply. This will also increase the consumption time needed for the existing supplies. The prospective buyer of India property will reschedule the decision of purchasing property because of his or her limited disposable income. Sonepat and Ghaziabad property market however has been quite stable and has attracted a lot of investors.

Industry objects to railway land being given away to builders

Industry chambers and NGOs have objected to railway land in Pune being leased out to a builder to set up a multiplex, rather than utilising the land for enhancing commuter amenities and expanding railway infrastructure.

The Mahratta Chambers of Commerce, Industry and Agriculture (MCCIA) has submitted a memorandum to the union railway minister, Lalu Prasad Yadav, objecting to leasing six acres of land at the Pune Railway Station to a leading city builder.

MCCIA, on behalf of the railway commuters and the citizens of Pune has strongly objected for leasing out of this land to a third private builder for business purposes and has requested the railway minister to intervene and cancel the decision of the railway board of leasing out the said plot.

Chandmal Parmar, chairman of the Railways, Road and Traffic Management Sub­committee of MCCIA, said the land could be better utilised for providing commuter-friendly amenities such as an additional entry and exit gate, reservation centre, ticketing centre, waiting hall, and parking space.

Railway authorities have made attempts to commercialise this plot but had faced stiff resistance from industry chamber, NGOs, media and subsequently by the Pune Municipal Corporation and director, town planning, Maharashtra led to this land remaining with the railways. MCCIA said that the railway department has extended the offer of leasing out this land.

This despite the fact that the railways has been assuring people that the land would be utilised only for railway related work.

According to Parmar there is no availability of land with the Railways near Pune station and there is heavy traffic congestion at the main gate of the station, scarcity of parking space and heavy rush at the only reservation centre.

With the population in Pune growing at a very rapid rate and there was pressure on the railway infrastructure, the chamber said. In this scenario, Indian Railways needs additional land for developmental purposes and this piece of land, which is adjoining to existing station campus could be better utilised, the chamberfelt.

India under construction

Indian real estate in the past few years, has significantly transformed itself and has been through a roller coaster situation – the highest of the high being the unprecedented flow of FDI following the opening up of the sector, interest rates at a very affordable 7 per cent, public listings of many companies and price hike; on the other end the lowest of the low has been market capitalisation of the recently listed companies hitting unexpected lows, a 20-30 per cent price correction in the metros, sluggish absorption, spiralling inflation adding to the already high input costs and the worst of the lot interest rates at 14 per cent.

But, these are surface level fluctuations that operate on what must be described as one of the biggest opportunities in the world for construction and infrastructure development. India needs not just homes (22 million of them), there is need for offices, SEZs, airports, roads, schools, hospitals, entertainment centres … the list is endless.

This inherent need is an opportunity that cannot be denied. In 2020, India is slated to be an economic super power and one of the underlying assumptions is that infrastructure would be the booster rocket of growth. But, for all this to happen, some realities of the real estate business need to change.

The following three things will be a reality in 2020: 100 per cent infrastructure – Real Estate projects, whether residential or commercial, will have 100 per cent infrastructure guarantees. This means that all projects would have quality access roads, water, electricity, connectivity, safety and security. Our cities are bursting at the seams and given our pace of development, the shortcomings of meeting infrastructure needs are likely to widen.

Thus, the projects that are likely to succeed in the future will be those that have quality in terms of basic infrastructure. In fact, real estate development which encompasses housing, schools and colleges, hospitals, SEZs, offices, retail and industrial developments, entertainment centres and sports facilities will converge with the conventional infrastructure (of roads, water, electricity, airport, ports etc) and be seen as an integral part of infrastructure development of the nation.

SRZs – Special Residential Zones must become a reality. Unless one addresses affordable housing for the teeming millions much of the expected gains may remain a dream. The SRZs are like SEZs, only the development caters to housing for the masses. SRZs are to be free of government levies and taxes, thus making homes more affordable by upto 30 per cent. This will ensure that the common man has a chance of getting a roof over his head at affordable prices with the best of essential amenities.

Green mantra – Green and a sustainable environment while carrying out urban development would be part of the landscape like water and electricity. This is not only because one needs to contribute to preserving our environment, but also because sust’ainability would translate into distinct cost advantages. Green and sustainability will be consumer driven and not necessarily developer driven.

Three more things that will happen to change the face of the real estate sector by 2020 include: Land would have uniform laws throughout the nation. Currently land being a ’state’ subject is under the jurisdiction of the local governments. There is a kaleidoscope of interwoven state, centre and local laws dealing with every parcel of land.

This means that there are varying rules, regulations, standards, practises, from town to town across the country. In short-business is not as usual across India. Even the simple concept of replicating ‘best practises’ across the country cannot be replicated smoothly due to a fragmented legal framework.

A single window for all NOCs and clearances – There is hardly any predictability in terms of when one can get clearances or NOCs. It can take any time from three months to three years. One of the primary reasons for this is the lack of a single window for all clearances and NOCs.

Reducing the ‘time to market’ will reduce costs. The current unpredictability results in a significant loss of efficiency A single window clearance will cut out this unpredictability, enhance efficiency and ultimately pass on cost benefits to end-users as risks of delay significantly decrease.

Efficient land records – Perhaps the riskiest part of the real estate business is the lack of robust and reliable land records. If one were able to have reliable land records by 2020, one would have taken a huge step towards making the sector bereft of risk.

In 1991, our then Finance Minister Manmohan Singh had concluded his maiden budget presentation with these words, “No power on earth can stop an idea whose time has come”. The time for real estate development to drive the GDP, to create employment and to take India to its rightful position in the comity of nations — is here! During the next two decades the signage across our country will be “India: under construction.”

Standing tall

Gurgaon, today stands tall and proud as the favoured investment hub for investors and realty players in the national capital region. The NH8 Expressway (an eight lane toll expressway between Delhi and Gurgaon), the Kundli-Manesar-Palwal expressway, the Metro Rail project scheduled for completion by 2010, the Rajiv Gandhi Education City in Kundli on the Delhi-Haryana border, specialised malls and a Special Economic Zone to house around 2400 units; have left Gurgaon a top investment city Says Kabul Chawla, MD, BPTP Limited, “Today Gurgaon is a role model for any city’s development.

It has become one of the most important corporate, industrial, and residential hubs of the country Matching any international city of its kind, with policy initiatives from Haryana government on infrastructure, water and power, Gurgaon by 2020 will emerge as the ‘The Destination’.”

For smooth and planned development, the areas of Gurgaon-Manesar Complex Development Plan 2021, which have so far been developed in public and private sector, including existing town and village population to accommodate 22 lakh individuals, has been increased by an additional area of 21733 hectares in the form of urbanisable area to accommodate 15 lakh additional population.

Thus, the total urbanisation area of Gurgaon-Manesar Urban Complex would accommodate 37 laces population by 2021. As per the plan, 14930 hectares of land for residential purpose has been reserved. The residential areas proposed in the Development Plan shall be developed on a community living concept by providing all facilities and services within the sector on average net residential density of 200 persons per hectare.

An area of 1404 hectares has been reserved for commercial purposes, of which HUDA has developed 480 hectares land. The remainder will be developed for commercial offices and malls.

As demand for developed industrial plots/land in Gurgaon-Manesar Urban Complex increases, 5441 hectares have been reserved for industrial use. According to Kunal Banerji, President, Marketing, Ansal API, “Initially a small farming village located south of Delhi, Gurgaon has grown extensively during the last decade. Considering the current rate of growth and the construction of national highway, Gurgaon could witness the world’s best infrastructural and transport facilities in times to come.”

The development of Udyog Vihar, which is not only the show window of HSIIDC but also the largest pollution free industrial park in the country along with the flagship industrial park – IMT Manesar, the Haryana government is aggressively projecting the region as a Knowledge Corridor that would house IT companies offering the best of commercial, institutional, residential, and recreation facilities.

Experts are projecting it will be a roaring success by 2020 as many prestigious companies are already in the process of setting up their units in this park. Last year, the annual growth rate of the IT industry in Gurgaon was 30 to 35 per cent, against the Nasscom stipulated growth rate of 24 and 28 per cent.

Apart from this, 75 new IT companies have set up offices in Gurgaon, which is likely to go up manifolds with the setting up of cyber SEZ city having high quality infrastructure. The overall figures of the state would be much higher if private players continue to be bullish for IT SEZ.

Toeing the line of SEZ development, HSIIDC and Reliance Ventures Limited in a joint venture, are setting up a multi-product mega special economic zone over an area of 25,000 acres in Gurgaon and Jhajjar District. Close behind, DLF Ltd is setting up a mega multi project SEZ in Gurgaon of over 20,000 acres. Adds Punit Beriwala, Managing Director, Vipul Ltd, “Gurgaon has been a jewel for real estate in Delhi NCR.

Huge corporate movement in the city, shiny condominiums, sprawling malls, and big retailers have placed Gurgaon in prime focus. From developing the first private township to the first mall in NCR, Gurgaon has always been a step ahead of rest of the NCR region.

Gurgaon-Manesar Urban complex Plan 2021 is already on the cards to provide integrated development to the region.” Asserts Rakesh Garg, Director, Business Development and Sales, Uppal Housing, “Tremendous growth of business and commerce will take place in Gurgaon by 2020.

As it is the most industrially developed zone – buying, selling, renting of real estate properties will see a major growth by 2020. By 2020, people will see integrated development and Industrial Model Township (IMT), bigger green buffers, spacious roads and arteries, earmarked entertainment, residential, commercial, institutional, industrial and transport zones in Gurgaon.

By 2020, Gurgaon will witness tremendous economic growth and will soon become a hub from business centres to residential complexes.” While the electricity issue is still being worked upon, plans are also afoot to introduce dual-pipe water supply in the new sectors coming up in Gurgaon under Master Plan 2021.

According to sources, about 800-cusec water from the Yamuna would be sourced through the NCR Water Channel planned between Sonepat and Gurgaon at the cost of Rs 225 crore. The work on the NCR Channel has already started and it would be ready by June 2009 as per the plans. Initially the channel is expected to supply 500 cusec and gradually it would add 300 cusec more to its capacity Much, however, remains to be done to take Gurgaon to 2020 and global standards.

According to Banerji, “this city has haphazard growth and needs a uniform development. Solid waste management, effective public transport system, water management and water harvesting, proper sewage and drainage system, etc are the need of the hour in the present Gurgaon.”

Beriwala suggests, “It needs a dedicated Government authority to look after local needs. The city would also need a range of hospitals and schools to fulfil local demand.” One thing, however, that all these people with differing views converge on is that be it industrial development, commercial expansion, or a residential boom, there is no stopping Gurgaon now. Known as the ‘Developed West’ of the NCR, the region, keeping its current pace of development in sight, will become a city worth living in. From sky rise buildings to posh apartment complexes, Gurgaon by 2020 will become a township to reckon with.

Realty Slump Spells Boom Time for Foreign Investors

Country’s real estate sector might be witnessing ebbs but the downturn is only making things attractive for foreign investors. The slowdown, in fact, has set in more realistic valuations and growth-oriented investment opportunities for biggies to close in on lucrative deals.

The US slowdown and the fact that China is tightening its FDI policy is also aiding a remarkable shift in investment. Experts reckon that cities like Mumbai, Bangalore and the NCR region are hot investment destinations owing to their strategic importance.

Consider this: While Donald Trump Junior is setting up a $1bn fund to buy property in India, Lehman Brothers Real Estate Partners has recently acquired a 50 % stake in Unitech’s Mumbai project. Also, Taib Bank, a leading private bank based in Bahrain, recently picked up a 26% stake into a project of Anant Raj Industries.

Similarly, global financial services firm JP Morgan Chase has reportedly bought a 33% stake in a Special Purpose Vehicle (SPV) of real estate firm Alok Infrastructure and Damac Properties, a luxury lifestyle provider in the Middle East, plans to invest $5 bn over the next three years in the Indian luxury homes sector.

In a similar development, Blackstone Real Estate Partners, an affiliate of the Blackstone group, recently announced the purchase of a minority stake in Bangalore-based Synergy Property Development Services for $18 mn. The latter is a leading project and construction management company of India.

“We are excited to be doing this innovative deal and about teaming up with the best project manager in India as we build our business in the region. In the longer term, we believe there will be attractive real estate investment opportunities that follow from this partnership,” Chad Pike, senior managing director and co-head of Blackstone’s real estate group said. JP Morgan Chase and Lehman Brothers however refused to comment on the developments when contacted by ET.

But Industry experts do feel that most investors have been cashing in on the domestic market over the last six months. Shobhit Agarwal, MD, Capital Markets of global real estate consultancy Jones Lang LaSalle Meghraj (JLLM), feels that most foreign finance institutions and funds sponsored by Wall Street banks are eyeing the Indian market at this time.

“Besides the slowdown, the US recession has made money move out into more suitable markets like India, while property valuations are amenable for investment at reasonable entry costs.”

In fact, government figures on the sectors attracting the highest FDI equity inflows further validate this claim. Housing and real estate sector attracted Rs 1,510 crore in the month of April ‘08 alone, higher than the automobile industry at Rs 1,368 crore for the same month or even telecommunications at Rs 747 crore.

“Till now, most of these investors were standing in the fence. Naturally so, as the earlier valuations were very high in terms of viability of projects…however, now they are much more feasible,” says Ganesh Raj, Partner & National Leader, real estate practice, Ernst & Young.

Peter Riddoch, CEO, DAMAC Properties feels that the Indian real estate market has huge demand potential, even at this time. “We are currently looking at Tier I and Tier II cities. We are in the evaluation phase. Definitely Tier I will command a premium but overall, the country is on a great growth path.”

There are some who view the slump in real estate as a necessary correction. Kanwar Deep Singh, Chairman, Alchemist Group sums up the trend: “All private equity firms that have invested in India in the last five years have made money at the rate of 30% per annum.

We have offers from most leading private equity firms to invest and in future, we will roll out many SPVs to tap the investment,” he says. The Rs 7,000-crore Alchemist group’s arm Alchemist Realty has a JV with the Rennaissance Group, an international real estate company, and has projects worth over $2 bn afloat in India.

Greener pastures

Many real estate companies that were hitherto confined to developing residential and commercial spaces are chalking out plans to build spas and resorts, lured by their ability to generate revenues consistently over a long period of time. At present, some standalone players dominate the resort and spa industry. With the entry of big realty companies, the industry is set to become more organised and competitive.

While some developers are setting up independent resorts and spas, others are offering similar products in ultra luxury mega township projects.

Brigade group, Sobha Developers and Omaxe are among those planning to establish resorts across India. “Like all real estate asset classes, this too is directly impacted by the supply and demand dynamics, and hence, the recent influx of capital into the hospitality sector.

Though investment and gestation period is higher than residential or commercial office projects, it creates a bigger enterprise value. It is healthy, from a developer’s perspective, to diversify into different asset classes,” says Karun Varma, managing director of property consultancy firm Jones Lang LaSalle Meghraj (Bangalore).

The huge demand in the luxury segment has inspired builders to explore this domain, aimed at upper and upper middle class people. Thanks to the new­found prosperity, rich Indians are willing to travel overseas to countries such as Thailand for the spa or the specialised resort experience. In such a scenario, why not create a similar ambience at home?

“Spas and resorts are a highly specialised form of business. A hotel needs to provide some basics, but a resort has to provide an experience, a spa needs to have a purpose. These projects in a luxury residential complex need sound business foundation,” says Jesper Hougaard, managing director of French spa chain Serena Spa, which has set up independent spas in India. The group is mulling joint ventures with local realty developers.

Hougaard says the business is highly dependant on consistent efficiency and high quality standards. “There is business potential in India, not only because of foreigners and Indian expatriates, but also because of the local populace. The discerning Indian would look for quality products that are natural, besides efficient and well-trained staff and high hygiene levels,” he says.

Almost all spas and resorts, to be developed by these realty firms, are theme-based. While the spas offer either Oriental or European experiences, resorts are themed around golf courses or wooded serene areas.

Sobha Developers is setting up an ayurvedic spa, offering traditional Kerala ayurvedic massages and herbal baths on its 55-acre integrated township, Sobha City in Thrissur. The project entails an investment of Rs 850 crore and is expected to be ready by May 2011.

“Tier II cities offer tremendous potential for real estate development. We aim to capitalise on the growing demands of tier II cities by offering the best of all facilities to the consumers,” says P N C Menon, chairman, Sobha Group. Brigade Group’s hospitality wing, Brigade Hospitality, too has partnered Banyan Tree Hotels & Resorts to launch a Rs 100-crore sprawling hill resort in Chikmagalur, Karnataka.

Spread over 48 acres, the hill resort will have 25 high-end villas — The Banyan Tree Resort and Spa — and a 74-room Angsana Resort and Spa. These two resorts are expected to become operational by 2009-2010.

Vineet Verma, chief executive officer, Brigade Hospitality Services, says the company plans to strengthen its presence in the hospitality segment. “Brigade Hospitality plans to strengthen its presence in the hospitality sector through a series of state-of-the-art projects,” he says.

Delhi-based Omaxe has tied up with Thai Privilege Spa to establish and operate, in the next two years, 10 spa outlets of Thai Privilege Spa in Delhi and other parts of north India. It is setting up The Forest Spa in Noida, Royal Residency in Ludhiana, Omaxe Spa Village in Faridabad, among others. The developer will also house Thai Privilege Spa in its luxury residential projects.

“Keeping in view a stressful life due to fierce competition, which takes away the joys of life, Omaxe has introduced the concept of spas within the complex of its hi-end ultra luxury apartments and penthouses,” says Rohtas Goel, chairman and managing director, Omaxe.

The company has joined hands with Leander Sports, a wellness concept design company promoted by lawn tennis player Leander Paes, to design and manage fitness facilities in five of the company’s townships in northern India.

Meanwhile, DLF has also strengthened its presence in the hospitality sector with the acquisition of Singapore-based luxury hotel and resorts chain, Aman Resorts. Bangalore-based MRG Hospitality and Infrastructure, a small entity, has also entered the race and is developing resorts over 38 acres on the Bangalore-Mysore Road.

With spas and wellness centres mushrooming all over the country, industry experts say tie-ups with branded spa chains will help developers leverage their names. A spa or resort that delivers a memorable experience has the potential to have a loyal, high-end clientele.

‘Cost of living in metros rising’

Renting a two-bedroom luxury flat in Mumbai is more expensive than that of Singapore, Bangkok, Kuala Lumpur or even Seoul The cost of petrol is higher than that of Tokyo. And the price of 1 kg long grain white rice in a medium priced establishment is more than that of Singapore or Beijing.

Mumbai is catching up with the biggest metros of the world in more ways than one. The cost of living in the city has risen considerably since last year.

But Mumbaikars are not the only ones coping with high prices. With inflation in India shooting above 11 % this month, people in Delhi, Chennai and Bangalore too are equally feeling the pinch of price rise.The annual Cost of Living Survey done by Mercer, a global consulting firm, in 143 cities around the world reveals all the four Indian metros have moved up the ranking.

Mumbai ranked 48 this year — up four places since last year — still remains the most expensive city in India. New Delhi, Bangalore and Chennai are also moving faster up the ladder. Ranked 55, the capital moved up 13 places since last year, while both Chennai at 117 and Bangalore at 118 moved up 16 places since last year.

Experts says, high inflation and a strengthening rupee are some of the important factors that have contributed to the changes in the ranking of Indian cities. “Overall, the Indian cities are moving up as the aspirational demand and resulting cost of consumer goods increases, says Gangapriya Chakraverti, Business Leader for Information Product Solutions, Mercer.

Although the traditionally expensive cities of western Europe and Asia still feature in the top 20, cities in Eastern Europe, Brazil and India are inching up the list. In fact, cities like Stockholm and New York now appear less costly by comparison,” adds Chakraverti.

Incidentally, New York, which also happens to be the base city against whom the global cities were compared, too, has moved up a few ranks from 15 to 22 this year. Moscow continues to be the most expensive city, followed by Tokyo which moved up two places since last year.

London emerged third most costly city down one place since last year and Oslo stood 4th up from 10th position in 2007. Incidentally, Asuncisn in Paraguay is the least expensive city in the ranking for the sixth consecutive year.

New Port of call for realty

With expansion activities of two major ports — Chennai and Ennore and large special economic zones being planned, northern Chennai, often considered an industrial backyard, is expected to witness a spurt in real estate activities in the commercial and residential space..

The boom in IT and manufacturing sectors has driven real estate growth in southern part of the city, while northern Chennai, which houses a few industrial clusters, did not see any major realty development over many years. Sanjay Chugh, associate director, Jones Lang LaSalle Meghraj, says for long, northern Chennai remained under-developed due to lack of infrastructure.

This led many property developers to stay away from exploring opportunities in the area. However, there has been renewed interest in this area in the recent past and many developers have acquired land parcels for development.

“Land prices have already gone up in several areas of north Chennai, owing to the demand for warehouses and container yards. Large logistics companies and private warehouse operators are driving this demand. Apart from conventional warehousing, the requirements for storage space for perishable and non-perishable food items would also go up in the near future,” says Rajesh Babu, chief executive, RECS Group, a real estate consultancy company.

At present, land prices are estimated to be about Rs 50 lakh a ground, along the main roads such as Tiruvottiyur High Road in northern Chennai, against Rs 25-30 lakh two years ago.

However, compared with the southern part, the appreciation is not substantial. After the expansion of Ennore Port and the proposed SEZ there, land prices are expected to shoot up in coming years.

In Ennore, along the main road, the prices are estimated at Rs 75,000-100,000 lakh per acre for buyers of large tracts i.e. between 50 acres and 100 acres, while the price is Rs 30-35 lakh per acre if the land is a little away from the main road.

Chugh pointed to major infrastructure initiative undertaken by the government to connect north Chennai to western and southern parts. “Due to this connectivity, we hope to witness hectic real estate activities in this region. Apart from warehousing and commercial activities, there would be a spurt in residential projects as well,” he says.

However, Babu feels that though infrastructure is good, there seems to be no big market for IT space or corporate offices. Only logistics companies or clearing and forwarding agents would set up shop there. Traditionally, many companies have looked at north Chennai as an industrial area and the same perception continues even after the envisaged port expansion activities.

However, there is a good potential for retail activities in the areas such as Thondiarpet and Thiruvotriyur, he adds. “Of late, there has been a demand for good quality housing due to factors such as growing industrial activity and higher affordability,” says Chugh.

This has prompted developers such as Emmar MGF and Arihant to develop residential projects in north Chennai. Unitech also plans to develop a large residential complex on the erstwhile Binny’s property in Perambur.

Chennai Port Trust, a major player in container and car exports business, intends to invest Rs 3,000 crore over the next three years in upgrada tion and modernisation of the port. As a part of this plan, a new container terminal is being set up. A 18.3-km long dedicated elevated expressway from Chennai to Maduravoyal on NH-4 that would connect Chennai Port-NH-Bangalore and the industrial hub of Sriperumbudur, is being implemented. Similarly, another road project connecting Chennai and Ennore Ports is also being taken up.

A number of automotive majors including Nissan, are reportedly looking at setting up facilities or “caryards” in the area. Ennore Port, the first corporatised port in the country set up as a satellite port to decongest Chennai Port, has chalked out plans to invest Rs 2,700 crore during the 11th five-year plan. It has already undertaken Rs 1,140-crore worth of projects. S Velumani, chairman and man aging director, Ennore Port, says thai the proposed container terminal project would be the biggest terminal on the east coast.

The expansion projects at Ennore Port are expected to boost trade and trigger rapid development of the hinterland, he notes. With Tamil Nadu attracting huge investments in manufacturing the Chennai and Ennore ports hold immense potential to facilitate large-scale exports not only for automotive sector but also for number of other sectors.

CHD Developers’ new projects

The Delhi-based real estate company CHD Developers Ltd has announced its plans to invest Rs 1,400 crore in the next five years to set up housing projects across the northern region.

“We have lined up an investment of Rs 1,400-crore on developing various real estate projects which would take five years to complete,” its Chief Financial Officer, Mr Vishal Rajpal, said here. The company is coming up with four lifestyle housing projects for retired persons in Karnal, Rishikesh, Mathura and Neemrana (in Rajasthan).

“We have proposed to inject Rs 1,200 crore in this project and we intend to float a special purpose vehicle for it in which some other companies may also acquire stake for funding purposes,” he said. Besides, it has signed a joint venture agreement with a land owner for developing a group housing project in Haridwar.

Builders and Brokers join hands to form a ‘Real Club’

Realtors like Akruti, Kalpatru, K. Raheja, and Nirmal Lifestyle have joined hands with about 200 brokers to form ‘The Real Club’. According to Mr. Sandeep Sadh, realty consultant and founder-coordinator of the club said, “People associated with this industry are not looked upon favourably. Our attempt is to bring professionalism in this industry and offer good services.” But housing activists have dubbed this move as a form of cartel to resist lowering realty rates. “Their aim is to form a pressure group so that realty rates are not lowered,”said an activist. However, Mr. Sandeep Sadh remarked that it is ‘purely a business network’.

Developers now concentrate more on construction than buying land

These days, all is not well in the real estate market as property sales have gone down severely. The implications of the slowdown have resulted in developers facing a shortage of capital and plans to buy more land or come up with new projects have been put on hold until some recovery is shown. According to Mr. Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj,”It has its advantages. The builder has paid the acquisition cost and the debt has been incurred. With soaring inflation and increasing cost of steel and cement, the cost of construction is bound to increase. If the developer concentrates on the delivery of the project on time, cost overruns will be in check and he will stand to earn sooner – as the product hits the market.” However, Mr. Niranjan Hiranadani, Managing Director, Hiranandani Group, disagrees with the notion that the liquidity crunch and the resultant slowing down of acquisition of land will bring down property prices. “If it continues, lesser housing stock will be constructed, which will result in property prices not coming down,” he added.

Developers rooting for NRIs seeking to come back home

Higher rate of returns in real estate investments in India, projects that comply with international standards, greater affordability, apart from emotional reasons like ‘owning a piece of homeland’ were driving the NRI segment growth in the real estate sector in the India. Today with more and more Indians looking at returning home and relocating themselves given better employment opportunities in India, NRIs are now looking at investing in the real estate in the country with a view to make India their future homes. Those who were making the transition from overseas to India, want to ensure that the transition is smooth, especially for their children, many of whom India would be a new living experience. A lifestyle match is what these people are looking for when investing in property here. While some preferred contemporary designs, others were searching for homes that were nostalgic and brought back memories of childhood or times spent in courtyard of a village, where just-rolled out papads lay toasting in the sun, or those ethnic porches where the family sat together enjoying the little ones tumble and roll at play.

Milestone`s Rs 600 cr PE Fund on anvil

Milestone Capital Advisors, the real estate venture capital fund promoted by Ved Prakash Arya, is planning to launch a private equity fund with a corpus close to Rs 600 crore. The announcement will be made in a few weeks.

The PE fund, the first from Milestone’s stable, will focus on sectors such as education and infrastructure. “Right now, I am bullish on these two sectors as there is lot of scope for companies to expand and reach a mass base,” said Ved Prakash Arya, managing director, Milestone Capital Advisors.

Its fourth real estate fund — Milestone Domestic Fund Part-II — has raised Rs 430 crore and will close shortly. The fund house is proposing to raise Rs 500 crore from this fund. Despite the rough market weather, the fund house’s track record and investment strategy have helped in getting investor commitments, Arya said.

Realty funds have been finding it difficult to raise funds from high networth individuals (HNIs) and institutions owing to a credit crisis in the US, the impact of which has been felt in India as well.

Rising interest rates and curbs on external commercial borrowings have added to the woes of real estate companies as well as funds. A correction in the real estate sector has further soured the mood of investors like PE funds towards this sector. The company currently manages four real estate funds worth Rs 2400 crore.

AP Govt invites expression of interest for township project

New Delhi: The Andhra Pradesh Government is looking for an international partner to design and develop 800-hectare integrated township at Kadapa district in the state.

The integrated tourism and township project will be developed by the Andhra Pradesh Tourism Development Corporation (APTDC) under the public private partnership (PPP) mode, the corporation said while inviting expression of interest (Eol) from global infrastructure companies.

The global company will be required to design, finance and construct the integrated township. The Andhra Government has already appointed Infrastructure finance company IL & FS Infrastructure Development Corporation as the advisor to the project.

The other responsibilities of the selected bidder would be to operate, manage and maintain the proposed project, the APTDC said, adding the interested parties could send their bids by September 12.

The proposed township will be developed around Gandikota, on the banks of Penna river, situated amidst the historic Gandikota fort and would be within 350 km of important south Indian cities such as Hyderabad, Chennai and Bengaluru.

The interested parties, as per the EoI notice, should have networth of at least Rs 500 crore and annual turnover of Rs 1,000 crore.

APTDC is already developing new projects in Hyderabad, Visakhapatnam and many more states. A Tourism Plaza including a 80-room star hotel and Anantagiri Hill resort are among several new projects taken up by APTDC.

Emaar MGF to float mega project in north Chennai

Emaar MGF, one of the leading builders in India, is planning to set up a mega housing project at the northern part of Chennai. The project, to be called as Esplanade, is the first such major project to be developed by any leading developer in the northern part of the city and also claimed to the largest housing project to be developed within the jurisdiction of Chennai Metropolitan Development Authority (CMDA).

Spread over a stretch of 14 acres of land at Tondiarpet, the project will consist of 536 apartments with an average size of 1,500 sq ft each. The project will have three different types of apartments and will be set up in 24 towers.

The apartments will have an integrated security systems, centralised gas pipe connections, 1,000 MV generator back up power for each apartment, sewage treatment and reverse osmosis plants.

According to William Rattazzi, chief executive officer, ‘Esplanade’ is one of the first redevelopment projects in Chennai. While most of the old projects and the new developments are focused towards southern Chennai and Old Mahabalipuram Road (now Rajiv Gandhi Salai), Esplanade leads the way in providing customers best in class apartments.

When asked to comment on the project cost, he declined to divulge the same. However, he said that ‘Esplanade’is one of our first few projects planned for the southern region and hence it assumes significance for the company. The project will be partly funded by internal accruals and the remaining will be generated through sale of apartments.

The per sq ft cost has been fixed at Rs 3,400 and the project has been targeted at businessmen as well as middle cass people, he said. This project will be a reflection of the company’s commitment to bring a residential development that integrates modern design, amenities and facilities, he added.

Second Homes Offer Big Money For Both The Builder And Buyer

Condominium projects promise big money not only for builders but also for buyers. These condos offer the buyer the facility of owning a property in a prime weekend spot along with maintenance support and a rent out facility. Sterling Construction Systems (SCS) offers buyers a 6 percent annual rent-back option. As per the understanding, the owner can choose to have his property leased out when unoccupied. The lease allows a buyer 6% of the original cost of the property annually. The scheme is for an agreement period for 10 years with an exit option after five years. This prospect has had 70 percent of Gurgaon-based Royal Palms Piccadilly condo buyers sign up for the company’s 8 percent annual rent back scheme. The 686 condos, which cost between Rs 23 lakh and Rs 25 lakh, are being termed as the perfect city-based weekend retreat. In fact, over the last three years, 45 percent of Royal Palms’ five-phase Piccadilly condos have been bought by Mumbaikars looking for a second home.

Shobhana Subramanian: Indian builders need Chinese rules

It’s now quite evident that real estate companies are in for some difficult times. CRISIL not only foresees a delay in many planned and ongoing projects, it believes several players are over-leveraged and that the combination of sluggish demand and rising costs will lead to a shakeout. In particular, residential complexes, funded largely by customer advances, have been severely hit by the slowdown in bookings, which means it will be a while before the projects are completed. So it’s going to be a long and painful wait for buyers who have paid up. Much of this pain could perhaps have been avoided if the government kept an eye on builders and subjected them to more scrutiny. Indian laws, it would appear, are far too lenient. In China, for instance, developers can pre-sell a residential property only when one-third or two-thirds of the construction is complete, depending on which province they’re in. It’s a far easier world out here where builders are free to pre-sell property even before they’ve started digging. Those who want to own a home of their own, and who doesn’t, often have little choice but to play along. Buyers also have very little idea about how their hard-earned money is being utilized by the developer. In China, we’re told, mortgage payments have to be utilized for a specific project. Maybe that’s the way it should be done here too; builders would then not be able to divert customer advances for other purposes. Conditions in the real estate space in China today are pretty similar to those in India. Property markets there too have weakened and buyers are biding their time. A big difference, however, is that property prices in China are still considered affordable whereas back home even a modest home remains out of reach. That’s the main reason why there have been so few transactions. It’s time we changed some of the rules, home buyers deserve better.

Omaxe to sell pie to PEs in mass-housing project

Omaxe Ltd, the New Delhi-based realtor, is in “advanced talks” to raise funds for its ambitious affordable housing project from private equity investors, a source close to the development said.

However, the financial stake sale plan could not be ascertained immediately Omaxe did not immediately comment on the issue. “Omaxe is in talks with some PE players to raise money to partly fund its affordable housing project,” a source on condition of anonymity told DNA Money.

“You can expect something new to happen by end of August,” the source said. Citi Group, Lehman and two smaller private equity funds are in talks with the realtor for the investment, according to the source.

In May, Omaxe said that it would build 10 lakh affordable homes for low-income consumers in tier-II and -III cities. Industry estimates put the total investment of Rs 80,000 crore for the complete project.

“They need to dilute significant proportion of their; stake in the project… at least much more than Rs 1,500-Rs 2,000 crore according to my estimates,” an analyst with an international brokerage said on condition of anonymity. The analyst has a “sell” rating on the BSE-listed stock.

Another source close to the development said the firm is in “serious talks” with the state governments of Punjab, Uttar Pradesh, Madhya Pradesh and Rajasthan for the project. “I am expecting affordable housing policy by at least one state government in one-two months… and then some equity investment would follow,” the source said. The realtor may also look at raising funds from agencies like National Housing Board in the project.

Indians may buy £15-bn worth London realty by 17

London: Globe-trotting Indians could spend as much as Rs 128,000 crore or £15 billion on residential property in the UK in the next decade, one of the world’s leading real estate companies has predicted in the first tabulation of its kind.

The estimate of 21st century Indians’ buying power comes from Jones Lang LaSalle Meghraj (JLLM), the Indian wing of the multi-national property management firm named by Fortune and Forbes magazines as one of the world’s 100 and 400 best big companies.

TOI has learnt that JLL is among a growing band of high-end property companies in the UK and elsewhere to believe Indians will regard property as their main investment asset even as their disposable income rises. On Monday, British property company, The Berkeley Group said it was soon to launch two of its most exciting new developments at exhibitions in Mumbai and Delhi next month.

This, it said, was a first for it but JLLM’s “specialised local knowledge” made it “the ideal time to tap into the opportunities in the Indian market, by bringing the product directly to them”. Paul Vallone of Berkeley Group, which has an annual turnover of more than £1 billion, said, “As the Asian middle class grows, more of them are looking abroad for sound investment opportunities.

Parents choose an apartment that they can pass on to their children when they go to university, while business travellers will often buy a lock up and leave’ flat that they can use during regular trips to London”.

The perceived level of Indian purchasing power can be gauged from the starting prices of £235,000 or Rs 2.006 crore and £399,950 or Rs 3.424 crore quoted for The Berkeley Group’s India launch of two developments barely three weeks from now.

The betting among property companies in metropolises such as London is that Indians’ growing spending power and heightened engagement with the world, not least through an overseas education, will make foreign property acquisition an increasingly attractive option.

The new research points out that London increasingly becoming the international hub for higher educational learning and the number of Indian students studying in the British capital has quadrupled since 2005 to nearly 20,000.

This trend can only continue, it predicts, with an increased thrust towards collaborative programmes between Indian and London universities.

International Real Estate transactions dip 46%

Credit crunch and economic uncertainty have taken their toll on the global property market, with transaction volumes falling by 46 per cent in the first quarter, according to a property report.

Investment throughout Asia and other emerging markets continued to grow, as sales of major commercial properties globally totalled $154 billion (Dh565bn) in first quarter against $283bn of property that changed hands in first quarter of 2007, New York-based Real Capital Analytics said in its latest report.

Property sales figures for April and preliminary results for May show sales in Asia have started to weaken and drop in sales in the United States and Europe have become more severe.

The United Kingdom has led price declines with the United States following behind. Since September, the initial yield on acquisitions of commercial property has increased by more than 25 basis points in the Americas and by almost 40 basis points in Europe.

Cap rates in Asia have continued to fall, reflecting both the growing wave of capital and expected upside for its emerging markets.

Acquisition of land and development rights in Asia has totalled almost $29bn so far this year, making it the most popular target for investors.

Office properties in Europe are a distant second with just under $20bn of transactions, followed by offices in the Americas and Asia with each recording between $15bn and $16bn of transactions through April.

Developable land in Asia posted not only the greatest growth in transaction activity but also the largest gains in pricing in the first quarter. However, all other property types in Asia except apartments recorded gains in both volume and prices. Prices fell lower for all property types in Europe, but several did manage gains in volume. Conversely, no property types posted higher sales volume in the Americas although average prices in the industrial, retail and hotel sectors did increase modestly. Sellers in the United States in particular are opting not to sell at discounted prices, causing volume to plunge while prices for the few transactions that are successfully completed appear rather resilient. However, land prices in the US are falling quickly and have experienced the greatest decline in value so far this year.

Nearly $56bn of major commercial property sales were completed throughout Europe, Africa and the Middle East in the first quarter. In a significant turn of events, Europe surpassed North America as the most active marketplace for property transactions. However, since this status was achieved while suffering a 40 per cent drop in sales compared to the 70 per cent decline experienced in North America, this victory could be considered pyrrhic. It may also be short-lived, as property sales in Asia are not far behind and are growing fast. Additionally, property sales in Europe are off to a very weak start in second quarter by plunging 71 per cent in April when compared to a year earlier.

Virtually all property types and most countries within Europe have recorded a sharp decline in transactions this year. This decline has been much more severe for large deals, including portfolios. Comparing the first four months of 2008 to 2007, the number of deals of more than $1bn dropped from 13 to just five while portfolio activity dipped 63 per cent and entity level deals have been slashed by 89 per cent.

Retail and hotel transactions experienced the sharpest drops, each down around 60 per cent. Sales of office buildings, Europe’s most actively traded property type, decreased by 48 per cent, while industrial sites and apartment properties plunged by 41 per cent and 55 per cent, respectively.

Despite the slowdown in 2008, Britain still retained its status with the largest volume in Europe. Overall volume decreased by 61 per cent but activity in London was off just 42 per cent.

Germany, Sweden, Belgium, Denmark and Ireland have all posted even greater declines in property sales than Britain. France, Russia and Poland have faired slightly better with sales off by 40 per cent to 50 per cent compared to a year ago.

Finland, the Netherlands and Italy saw sales volume decline by 15 per cent or less while Spain, Turkey, Romania and Bulgaria were among the largest of the few countries in Europe that recorded a gain in transactions. Totals in Spain were elevated due to PropInvest’s acquisition of the Boadilla del Monte Financial Complex on the outskirts of Madrid for more than $2.8bn, making it the largest single property transaction ever recorded.

In the retail sector, Italy’s volume increased by 78 per cent in the first four months of 2008 over the same period in 2007, thanks to ING and Government of Singapore’s Investment Corp joint purchase of the Roma Est Shopping Centre for $594m. Several emerging markets have posted significant gains recently. Office transactions increased in Poland and Bulgaria by 39 per cent and 198 per cent. And of course, land – the driving force of emerging market property investment – is up 325 per cent in Eastern Europe.

ASIAThe region, which includes Australia and New Zealand, posted largely positive trends in the first quarter but is starting to lose some of its momentum. Sales of major commercial properties in Asia totalled $48.3bn in the first quarter, a 27 per cent increase from a year earlier.

The Asia investment market is also being weighed down by the economic uncertainties and adverse credit markets that have caused property sales to plummet in other regions of the globe.

The gains in the first quarter mask a gradual slowing in activity that has become evident. In 2007 the average monthly volume was about $19bn; in the first four months of 2008 it was about $14bn. Volume reported in March represented a 25 per cent decline from a year ago and April’s totals were even weaker. Less than $10bn of property sales were reported in April throughout Asia, a decline of 42 per cent.

Global market factors are certainly contributing to the slowing market, but new regulations on land deals instituted by China are also partly responsible, the report said. From October through January, auctions of major land parcels in China totalled more than $10bn each month, but since the new regulation, the monthly volume has sunk to $3bn.

There are still several dazzling growth stories in the first quarter of 2008. Property acquisitions in India and Vietnam in the first quarter were multiples of levels posted a year ago. Activity doubled in Malaysia and grew by 50 per cent in Japan. The office sector in Japan was very active in the first quarter culminating with the $1.55bn.

Despite the recent fall in land sales, total volume in China was still up 70 per cent in first quarter to equal $21bn. Sales in Hong Kong were flat in the first quarter, but a strong April has caused its market to be up 21 per cent year-to-date.

On the contrary, the sales volume in Australia and New Zealand has seriously decreased, by 47 per cent and 24 per cent, respectively. Both countries did poorly in almost every sector as a number of major listed property companies struggled with the high debt levels incurred from a binge on property in the United States, the United Kingdom and Japan in 2007.

The total volume in Singapore was down 36 per cent in the first quarter mainly due to the 85 per cent volume decline in the apartment sector as investors expect further weakness in housing; volume in the office sector still grew 18 per cent to reveal the strong demand of Class-A office.

Developed countries have seen property transactions fall by 25 per cent this year while acquisitions in the emerging markets are up a healthy 68 per cent. Emerging countries accounted for $102bn of property sales, representing 45 per cent of total volume in Asia.

AMERICAS More than $50bn in significant commercial property transactions took place in North and South America in the first quarter. This is the first time in the last five quarters that volume in the western hemisphere has not topped $130bn.

Much of the story in the Americas over the past nine months revolves around the fallout due to the credit crunch. In the United States, certain sectors (office, retail) are down by as much as 80 per cent in volume from the year earliert, and all sectors across the board have suffered. Property markets in the Americas are clearly split between the developed North and the emerging South.

The United States clearly remains the single biggest national property market although deal flow is off almost 70 per cent comparing first quarter to one year earlier. The situation is similar in Canada with volume down more than 70 per cent over the same time period. However, prices in these two states have not dropped as sharply as volume has. Buyers and sellers remain locked in a battle of wills over who will blink first on prices. The pricing gap between buyers and sellers may be as wide as 15 per cent.

Further South, the outlook is much brighter, with Brazil, Mexico and other developing economies beginning to realise some of their great potential. Mexico is one of the most vibrant emerging economies in Latin America with total volume up more than 400 per cent in first quarter. South America showed substantial volume increases and total volume has quadrupled with land acquisitions leading the way. Through the first four months of 2008 commercial property sales in Argentina and Chile have exceeded their total volume for 2007.

With markets in Latin America maturing, certain office sales in major markets are fast approaching first world size. The Ventura Tower I in Rio de Janeiro ($237m) and Centro Bancomer in Mexico City ($235m) are examples.

As these markets continue to blossom, investor interest will continue to bloom. Buyers can expect more competition and rise in prices causing some investors to expand into new markets.

Baby Donald Trump Launching an Indian Real Estate Fund

Donald Trump Jr. is planning a real estate hedge fund focusing on luxury properties in India.

The son of famed real estate developer and media personality Donald Trump will raise as much as $1 billion for the privately-held fund, Bloomberg News report. Analysts expect property prices in the subcontinent to drop by about 20%, creating opportunities for the hedge fund.

“The fund will be for acquisitions of real estate in the high end, and across the spectrum,” Trump told Bloomberg. “The marketplace is beginning to understand and appreciate luxury, so there is a great opening for us there, as well as in resorts.”

The Wharton School graduate did not give specifics about how he will raise the money, except to say that an Indian family is among his investors.

Housing Development and Infrastructure Ltd (HDIL) enters oil and gas exploration business

Real estate company Housing Development and Infrastructure Ltd (HDIL) has diversified into the high risk energy sector by floating a subsidiary, HDIL Oil & Gas Pvt Ltd in tie-up with a foreign collaborator, whose identity has not been disclosed.

The company has already diversified into hospitality and SEZs but is diversifying in to other sectors due to the the slump in the real estate market.

Under the New Exploration and Licensing Policy (NELP) VII round HDIL Oil & Gas will bid for 10 blocks for which the government had extended the deadline for the placing the bids to 30 June.

In the seventh round of bidding 57 blocks were up for bids of which 29 are on land, 19 in deep water and 9 in shallow water. However, the company’s name does not figure in the winners of successful bidders in NELP VII.

As one of the largest real estate firms, HDIL was ranked the fastest growing real estate company in India in October 2007 by Construction World, National Institute of Construction Management and Research.

The company’s turnover and profitability grew by more than 100 per cent in 2007-08 from the previous year, with the company having maintained more than 100 per cent growth in the last three years.

In October 2007 HDIL was awarded the contract from Mumbai International Airport Limited (MIAL) for rehabilitation of approximately 85,000 slum dwellers under expansion and modernisation of Mumbai airport. For this project the company has bought 110 acres of land to rehabilitate the slum dwellers at an approx cost of 22 crores per acre. Construction work is already underway on 15 million sq ft at Kurla, for the rehabilitation project as also some commercial development. The first phase of rehabilitation is to be completed in 2 years.

MIAL had awarded HDIL the contract to redevelop 96 acres of land over five years. The company expects to generate 60-70 lakh sq ft of saleable area from the airport project.

It had acquired industrial plots for redevelopment in Navi Mumbai, Mulund and Bhandup aggregating close to 35 acres during November 2007 to February 2008. It is opening two malls this year at Kandivli and Bhandup and plans to open 200 malls across the country.

The company plans to put up 20 broadway screens by the year-end and is also open to buying other theatres, which are up on sale.

IVRCL Infra to sell costly land, buy low-cost plots

City-based construction firm IVRCL Infrastructure and Projects has plans to sell its high-priced pieces of land, including the 25-acre information technology special economic zone (SEZ) plot in Noida, and purchase low-cost property in the light of the downside in real estate business in the country.

“With the real estate being what it is now, our first priority is selling high-cost land and filling our land bank with low-cost lands. We will also go for low-cost housing,” Chairman and Managing Director of the Rs 4,200-crore company, E Sudhir Reddy said.

IVRCL currently has 120 acres in Noida, about 1,000 acres in Bangalore, 400 acres in Pune and 200 acres in Panvel (Navi Mumbai), besides large extent of land in Hyderabad, Nagpur and Visakhapatnam. The market value of these plots was estimated at over Rs 4,000 crore.

On a pre-qualification basis, IVRCL has been allotted 120 acres in Noida a year-and-a-half-ago. This includes 25 acres meant for setting up an IT SEZ. While the SEZ land was allotted at a rate of Rs 7.5 crore per acre, the remaining 95 acres were allotted at about Rs 12 crore per acre.

As the rules do not allow sale of SEZ land, IVRCL proposes to raise unfinished structures and dispose off the property. “The cost of the shell construction will be Rs 2,000 per sft. I will trans­fer this built-up area to the purchaser at the same cost. However. I will get a premium on the land cost,” Reddy said adding that while the company purchased SEZ land for about Rs 17,000 per square metre, the minimum upset price fixed by the government for bidding in that area now stood at about Rs 25,000 per square metre.

Though the disposal of the SEZ property essentially means sale of constructed area, land cost will be added in the transaction. In view of the rising interest rates and increasing input costs, the company had also decided to go in for low-cost housing. “We are currently building 9 million square feet of low-cost houses spread over 3,000 acres in different cities. The highest price we are charging is Rs 2.200 per sft,” he said.

MDLR plans biggest hotel project in NCR

The Rs 2,500 crore Murli Dhar Lakh Ram (MDLR) Group has plans to construct the biggest hotel project over 11 acres in Gurgaon. According to its CMD, Gopal Goyal, it is making its debut into hospitality with back to back three hotel projects. He added that these hotels will have a tie-up with an international brand for marketing and are being targeted in the luxury segment with luxury villas, commercial complex, spas, etc. Informing about his second project, Goyal says, This project is coming up in the Manesar IMT located in the heart of the industrial model township with an elite neighbourhood with boutique fashion bars and lounges and a suspended glass pool, scheduled to have a soft launch in November 2008. The third project is coming up in sector 14 of Gurgaon which will be a high rise luxury hotel. MDLR has over the years expanded their activities from real estate development to high value construction areas. It has its business interests in commercial and residential real estate development, farmland development, facility management, shopping malls, resorts, hotel, multiplexes and restaurants. It even launched short-haul airline operations in few sectors starting from Chandigarh.

Milestone Capital to invest Rs.1,000 crore in Maharashtra

Milestone Capital Advisors, a management venture fund house has decided to invest up to Rs.1,000 crore in real estate projects in Maharashtra. Of the total investments, around Rs.300 crore will be invested in commercial projects in Pune and Rs.300 crore will be invested in affordable housing projects in other cities such as Nagpur, Nashik, Pune and suburban towns/districts of Mumbai. In addition, Milestone is also actively considering a few investment proposals from Nashik. The company has earmarked Rs.200 crore for development of logistics parks across Maharashtra and will also invest over Rs.200 crore in warehousing in Mumbai.

Getting real about real estate

“Buy land, they are not making it any more,” said Mark Twain a long time ago, surely not in India or anywhere else for that matter. But the asset bubble seems to have burst. Blindly investing in real estate thinking that land is finite in supply might not be advisable at the moment. While there will be corrections and recoveries and even growth in certain properties, the time for secular growth is behind us. Therefore, the need to be careful while investing in real estate is important. Now, you could choose the direct method or a via media through several private funds available in India and overseas. But the critical factor to remember is that transparency in India, for real estate deals, is still dismal. The 2008 Jones LangLaSalle transparency index made on a few key factors, namely, performance measurement, market fundamentals, listed vehicles, legal and regulatory environment and transaction process was recently released. While Indian players may have chosen to boost their egos over the fact that our tier 1 cities have shown some improvement, further scrutiny in the matter shows us where we truly stand. While agreeably transparency in these cities have increased over the last two years, where we rank in the world, or even among other BRIC or Asian countries leaves a lot to be desired. If you are investing in funds that are focussed on real estate, you might be presented with some amazing valuation numbers. A lot of land and property is being valued by future expected sales derivative modules. A property worth two crore will often be valued at 50, says an industry observer. If the supply were to improve and meet requirements like it has the potential to do so, the norms ease up and become more practical and sensible, transparency were to improve, which in turn will bring in larger investments, one might finally see the real estate sector coming to some sort of global standards. In a country where archaic laws, land banks, disappearing builders, high interest rates, ridiculous taxes, and swinging prices rule the roost, treading carefully in the world of real estate is advisable. So the need to be careful while transacting becomes important. Transfers through the ‘power of attorney’ route are increasingly common, and is another used trick by investors. This too only adds to the already opaque nature of our real estate markets since even tracking deals has become a challenge. In India, one never knows till the fat lady sings, if a property deal is finalised or not, says a real estate guru, not wanting to be named. Buyers very often invest money on undeveloped and developing projects of builders, as they are able to acquire the property at a cheaper rate, then when the project is complete. While this is essentially a punt taken by many investors, in the current scenario doing so is ill-advised. A multitude of approving agencies for planning permission also boosts costs and adds time to development. While this is one of the reasons to be careful, more importantly in today’s real estate scenario, there are major changes taking place. With these changes, most of the smaller and medium-sized developers will be sidelined and may all together be eliminated.

Actis invests in Vaishnavi group

Private equity (PE) major Actis has sealed the first investment in India’s real estate sector. The UK headquartered fund is investing $25 million into Bangalore-based Vaishnavi Group from its $300-million India-dedicated real estate fund. The investment will go into Vaishnavi’s special purpose vehicle (SPV) developing a one million sq ft mixed use project in the city suburb, Yeshwantpur. 03 capital advised Vaishavi on the private equity transacion. Last year, Actis set up its first real estate-focused fund for tapping into the rapidly growing sector. Actis has been active in ploughing investments into domestic services and consumer space, which has led to buyout of supermarket chain Nilgiris and taking 50% stake in Sterling Hospitals. The decade-old Vaishnavi has over one million sq ft of completed projects mostly in Bangalore, and has over 3 million sq ft under development. The Yeshwantpur project, involving residential and retail space, is one of the biggest standalone projects for the group.

Sobha plans 3 projects in Mysore

Sobha Developers, a Bangalore-based real estate developer, is foraying into Mysore realty market with three projects this financial year. The company has lined up a villa project on 14.5 acres at Jattihundi village and 500,000 square feet each residential and commercial project on seven acre plot in Belvatha grama near Mysore. Sobha Developers’ presence in Mysore for the last couple of years has only been through a contractual project for IT major, Infosys Technologies. They plan to take up 12 million square feet of development this financial year (2008-09) spread across six cities with a budget of around Rs 2,200 crore. This involves their entry to Mysore, Chennai and Gurgaon realty markets. The investments for these will be through customer advance, internal accruals and debt. Sobha Developers during financial year 2007-08, took up a similar scale of development (12 million square feet) of which 90 per cent was residential. Presently, the company has 28 ongoing projects and forthcoming are 20. In commercial development ongoing is three projects aggregating 1 million square feet and forthcoming is 20 projects aggregating 16 million square feet.

Malaysia’s UEM upbeat on infra projects in India

Bullish about the Indian infrastructure sector, United Engineers Malaysia (UEM) Builders, the wholly owned subsidiary of Khazanah National Berhad, an investment arm of the Malaysia government has evinced keen interest to invest in infrastructure projects such as expressways, real estate and bring in their expertise in waste management. UEM has already made investments of over Rs 300 crore since its presence in India for the last 18 years.

UEM has completed over 700 km of roads with an investment of over Rs 2,300 crore in UP, Karnataka, Kerala, Bihar, West Bengal, Gujarat, Andhra Pradesh, Tamil Nadu and Maharashtra.

“The Indian market is very important for UEM as we see a huge potential in this market. India is a key driver for UEM’s overall growth and we have always been committed towards this market. The company is committed to supporting India in building an advanced infrastructure, suited to its growing business and social requirements. India is one of the top three global markets for the group,” Tan See Yin, senior director, UEM International (East Asia) said.

PLUS Expressways Berhad, a subsidiary of UEM group, is actively participating in pre-qualification bids for NHDP-III and V. As Asia’s largest toll concessionaire, the company is keen to share its experience and expertise, and to play a significant part in India’s road infrastructure growth, Yin said, who was in India to get a sense of the progress of the company’s several initiatives said.

“The group has so far invested in excess of Rs 300 crore to build up its team and resources in India, and will be continuing to invest in expanding our resources in terms of financing, manpower and equipment in line with the expected growth in our order book. India is a focus country for our international expansion and we are committed to contributing in India ‘s infrastructure needs,” Yin said.

UEM plans to become one of the top 20 infrastructure companies in India with a market share of 2%. UEM India aims to become $1billion company in India by 2012. The company is looking at acquiring small and medium size Indian companies with relevant expertise and is open for partnerships with players who provide local knowledge, network and complementary capabilities.

UEM currently has over 10 branches and site offices in India, including presence in major cities such as Delhi, Mumbai, Bangalore, Chennai and Chandigarh and it plans to further broad.

LIC housing to enter venture funding

LIC Housing Finance, the mortgage arm of Life Insurance Corporation of India (LIC), is set to foray into the venture capital arena and intends to start a Rs 500 crore real estate fund by the end of this financial year.

LIC Housing Finance is reportedly scouting for a banking partner for raising capital and will soon approach the Securities and Exchange Board of India (Sebi) to set up an asset management company. To invest in listed companies, companies usually register with Sebi. “This is an opportune time to enter, considering the demand. We will form a separate asset management company to manage this fund,” a senior LIC Housing Finance executive told Business Standard.

Based on the response to the real estate fund, the company will decide on whether it will expand its presence in the venture capital space.

“We are yet to finalise the deal structure, but will definitely be the majority shareholder in the fund. We want to launch the fund in this financial year. But we have to shortlist a banking partner,” the executive added.

Sources said there are at least three major banks in the fray for a tie-up and a memorandum of understanding will be signed soon. While LIC Housing Finance would be the promoter of the real estate venture fund, LIC could also be one of the internal contributors of the fund.

In a recent interview to Business Standard, LIC Managing Director Thomas Mathew said the insurer has no plans to directly enter the private equity or venture capital businesses.

The fund proposed by LIC Housing Finance will be used to finance real estate development and 50-60 projects are likely to be funded over 12-18 months.

A large number banks and finance companies have recently entered the venture capital space and the existing players are expanding their footprints.

Market slowdown to affect hotel development

With real estate stocks being hit adversely by the market slowdown, the phenomenon is expected to have a spiralling effect on hospitality development in India. Most real estate majors with a series of hospitality developments in their portfolio are affected by this trend. This may lead to a stall or delay in the completion of projects as well as a revision of the project expenditure. Over the past few months, real estate stocks have seen a major downfall, with an average of 60 to 65 per cent drop in the share prices during 2007-‘08.

“There is not only a slowdown in the market, but also an alteration in project costs with the configuration of interest rates,” says Prem Subramaniam, Head, Infrastructure Development Finance Company (IDFC).

While financial market analysts expect the decline in real estate stocks to continue in coming months, they also speculate that hotel projects will be stalled due to lack of liquidity and equity funding in the markets. On the contrary, hospitality consultants feel that projects that are already secured with funds will not be affected.

“The projects which have already tied up for debt or with equity fund providers will not suffer, but the ones that are seeking funds may see a three to four month delay in completion of the projects,” says Amitabh Devendra, Strategic Advisor – India, Molinaro Koger.

Akshay Kulkarni, Director – South Asia, Cushman Wakefield Hospitality says, “It may be wiser for developers to complete projects that are currently in progress, rather than shelve them for completion at a later stage. Projects that are being developed with realistic assumptions will continue to be viable. However, those projects undertaken on the basis of hyped operating figures will suffer.” Consultants also feel that listed developers will need to stick to their delivery dates — otherwise, it might affect their market valuations further.

Industry experts also agree that though funding agencies are available, the firms will be cautious to invest in hospitality projects. This affects the debt raising capacity of the entire real estate sector (including hospitality projects). “Lenders will be more conservative to invest, and a lot will depend on the credentials of the developers and the promoters,” feels Homi Aibara, Partner & Consultant, Mahajan & Aibara. Although market analysts speak of the lack of liquidity in the market, capital investors are being more vigilant of their real estate partners before jointly partnering projects.

“Presently, the market is observing a rationalisation in  pricing. We have the capital, and are looking to fund developments. However, the delay seems to be on the developer’s end,” says Vishwas Bhatia, General Manager – Hospitality Division, Future Capital Holdings.

The industry has already been affected by inflation and increase in the prices of construction raw materials. Also, the ongoing political situation and the unstable Union Government have an impact on financial markets of India. They in turn affect the stocks. “The industry is experiencing a double whammy, and with the cost of funds going higher, the hospitality companies’ promoters will be forced to dilute their equity or look for partners for their original assets,” adds Subramaniam.

Industry experts also believe that an overall slowdown of the economy may lead to a price correction across the markets.

Red fort plans $600m infrastructure fund

New Delhi : After infusing money into real estate projects, Red Fort Capital Advisors is now planning a new infrastructure fund with corpus in excess of $600 million by 2008-end.

Red Fort Capital which manages three active funds under its aegis including an offshore and a domestic fund for Indian real estate market, as well as a hedge fund for listed Indian entities is already in talks with some of its existing investors for floating the new fund, which would invest in infrastructure projects in the country. It may also rope in new investors to the proposed fund.

Growing infrastructure

“The new fund is likely to be over $600 million and will focus on projects such as ports and power, amongst others. In fact, some of our existing investors approached us for a fund in the infrastructure, a sector whose risk profile is very different than the real estate segment. Globally, the returns for infrastructure projects are in teens whereas in India it averages at about 20 per cent,” Mr Subhash Bedi, Director and Partner, Red Fort Capital Advisors, told Business Line.

He said that in future, the investments in infrastructure projects could also find synergies with the projects that Red Fort has funded in the real estate sector. “For instance, there could be synergies between port projects and development of warehouses,” he pointed out.

In the kitty

Red Fort Capital has already stitched seven deals worth $200 million in the Indian real estate market during the first six months of 2008 and expects to infuse another $300 million by the end of the calendar year. In comparison, the company had pumped-in $300 million into six projects in 2007.

It has an exposure to projects in Delhi, Mumbai, Chennai, Bangalore, Hyderabad and Kolkata and takes positions in affordable housing projects as well as office space projects.

“A lot of PE investors who were aggressive early last year, are now staying away from the real estate market, and we feel that only the serious players who believe in the 10-year growth story of the realty sector are now left in the fray,” he said.

Red Fort Capital, which counts Government entities, Pension Funds and Life Insurance companies amongst its investors, feels that realistic expectation by the developers on project valuations could lead to more deals for the fund this year.

“In the first six months of 2008, we surpassed the total number of deals inked in the whole of last year. We expect to be able to close 2008 with about 10-12 deals in our kitty,” Mr Bedi added.

Trump Jr. Plans $1 Billion Fund for India Property

Donald Trump Jr., whose father built a multibillion dollar fortune in real estate, plans to set up a fund of as much as $1 billion to buy property in India, betting on the nation’s growing wealth.

Trump may create the privately held fund with investors including an Indian family, he said in a telephone interview from New York yesterday. He didn’t give specifics on how he’ll raise the money, or when the first investment will be made.

Trump would join Deutsche Bank AG and Lehman Brothers Holdings Inc. in amassing funds to invest in a market that recorded the world’s highest growth in millionaires last year, fueling demand for luxury homes. The highest borrowing costs since 2002 have ended India’s five-year property boom, curbing valuations of projects and developers.

“The real estate market is in a downturn now,” said Ritesh Vohra, director of investments at Mumbai-based Saffron Asset Advisors, which manages more than $400 million in two property funds. “There’s some more pain left over the next two years or so, and that could be an opportunity to invest.”

Property prices in India are likely to drop by about 20 percent to 25 percent, Sarang Wadhawan, managing director of Housing Development & Infrastructure Ltd., India’s third-biggest developer by market value, told reporters yesterday. His comments echo statements made last month by Keki Mistry, vice chairman of the nation’s largest mortgage lender, and other developers.

‘Appreciate Luxury’

“The fund will be for acquisitions of real estate in the high end, and across the spectrum,” said Trump, 30. “The market place is beginning to understand and appreciate luxury, so there is a great opening for us there, as well as in resorts.”

The number of Indians with financial assets of more than $1 million grew 23 percent in 2007, according to a report by Merrill Lynch & Co. and Cap Gemini SA on June 24, surpassing China’s 20 percent and Brazil’s 19 percent growth.

New York-based Trump Organization Inc. also plans a residential and hotel project in Mumbai with a local partner to tap the growing wealth of middle-and higher-income Indians. The city is India’s biggest trading center for stocks, bonds and commodities, and home to some of the country’s largest companies including Reliance Industries Ltd. and State Bank of India.

“Our entry has to be in Mumbai and that’s where everything is going on right now in terms of the high-end real estate,” Trump said. “That’s the place where one is going to achieve the highest prices per square foot. It sets the tone for all of the other future developments.”

Overseas Funds

Economic growth forecasts of more than 8 percent for this year are luring global funds to India, who expect growing incomes and wealth to fuel demand for property.

Lehman’s real estate fund last month bought a $175 million stake, its biggest investment in India’s realty sector, in a Mumbai project under development by Unitech Ltd. Deutsche Bank and other private equity investors last year pledged to invest $425 million in Mumbai-based Lodha Group.

Deutsche Bank’s RREEF unit, the world’s largest alternative investment manager, in April said it plans to invest more than $1 billion over three years in India’s real estate and infrastructure assets.

Real estate prices in India have climbed for five straight years, boosted by a six-year equity market boom and rising incomes.

The rally in property prices may end this year as falling stock prices and rising interest rates slow sales and make it tougher for smaller developers to borrow money. The 14-stock Bombay Stock Exchange Realty Index has declined 63 percent this year, almost double the 32 percent drop in the benchmark Sensex.

“The pendulum has started shifting back a little bit to the point where prices have started to become a bit more reasonable,” said Trump. “It will allow companies such as ours to justify buying land. It’s a good opportunity for us.”

Sureka Group to step up investment to Rs 1,000 cr

Kolkata : The Kolkata-headquartered Sureka Group would develop at substantial investment three million sq ft of residential space in and around the city by next year, according to Mr Pradeep Sureka, Managing Director of the company.

Almost 70-80 per cent of the proposed construction would be undertaken by Bengal Park Chambers Housing Development Ltd, a joint venture between the Sureka Group and the West Bengal Housing Board, Mr Sureka said.

The total investment by the group, he estimated, would be Rs 1,000 crore as against the present Rs 500 crore.

DEMAND-SUPPLY

Referring to the probable demand-supply gap of 18 million housing units in India by 2010, Mr Sureka said the shortage would primarily be in the low income group (LIG) and middle income group (MIG) segments. “We plan to construct 2,000 dwelling units in the State next year, SO per cent of which would cater to the LIG and MIG segments,” he said.

Nearly, 2,000 residential units were currently under various stages of construction by the group.

SUNRISE JUNCTION

Bengal Park Chambers Housing Development, according to Mr Sureka, would set up a housing project, to be named Sunrise Junction, at Krishnamohan in Baruipur (South 24 Parganas) to cater to the the LIG and MIG categories.

The project, estimated to cost Rs 30 crore, would be ready by the middle of 2010, he added. The Sureka group would also invest Rs 300 crore in an integrated township to be set up in and around Kolkata and the process had already started. More than 100 acres of land would be needed, Mr Sureka said.

An additional Rs 200 crore would also be invested to set up a global hospital with organ transplant facility, he added.

Ranchi: Steeling up for Industrial Push

Ranchi, once the summer capital of unified Bihar, is still a favourite destination of many people, especially those in search of peace of mind. The city, with a population of over 15 lakh, still attracts people because of its comparatively pleasant climate and good schools. It has all the indicators of a modern city but it has not lost its traditional flavour, and that is where lies its charm.

The city has seen a phenomenal growth in real estate sector ever since it became the capital of Jharkhand in 2000. There is huge gap in demand and supply, primarily because of unavailability of land in the city area. “Ranchi witnessed huge influx of people from outside after becoming the capital. Many big companies started setting up offices here. All this resulted in a boom in the real estate sector — both residential and commercial,” says S N Singh, president of Jharkhand unit of Confederation of Real Estate Developers Association of India (CREDAI).

The city is also witnessing a retail boom. Big companies like Spencer, Reliance Fresh, Big Bazaar have already opened outlets. Reliance Hypermart will also be ready soon. Besides there are offices of most of the big companies and multinational banks. One multiplex has opened and another four are in the pipeline. This has resulted in a sudden growth in the sector. A few five-star hotels are also coming up in the city.

However, the basic demand comes from sectors like banking, insurance, finance, telecom, coaching institutes etc. According to an estimate, more than 10 million sq ft structure is being created to meet the demand. Also, there is not much scope for speculators as the buyers are those who want to purchase for self use or want to settle in future.

According to a government official, a new capital township — Greater Ranchi — is to be developed for which a global tender ha been invited. “Ranchi has also been selected as one of the Millennium cities, to be developed under the Jawaharlal Nehru National Urban Renewable Mission (JNNURM). All this is expected to give a fillip to the real estate,” he added.

With the state government announcing its rehabilitation and resettlement (R&R) policy, Jharkhand is poised for a big industrial boom. More than 60 companies, including ArcelorMittal, Tata Steel, Jindal Steel, Ispat Industries and Hindalco, have signed MoUs with the state government for setting up steel and power plants. Most of them have set up their offices in Ranchi while the rest are in the process of doing so. This has brightened the hope of developers.

“A majority of the development is taking place within the city. Unlike other cities, people here generally tend to avoid satellite areas because of poor connectivity in terms or road and public transport,” says Mr Singh. At present the concentration of development is in areas like Mahatma Gandhi Road, Circular Road, Ashok Nagar, Bariatu, Ratu Road and Kanke Road, where it is really difficult to get land. A majority of the projects are being carried out in joint venture or collaboration. “But we hope that once the Ring Road project, which is in the execution stage, is complete, the city will have a more defined area. In that scenario, connectivity of peripheral areas will also improve leading to further boom in the sector,” he adds.

According to Singh, the Chotanagpur Tenancy Act which prohibits sale of tribal land to non-tribals has been a major hurdle in the growth of real estate sector. “Due to the Act, we often find it hard to buy land for a project, despite being available in the municipal area. As a result, land prices are high but plots are less. The government must abolish this Act, at least in the urban areas, to facilitate real estate growth,” he adds.

Coming soon: New property tax law

The regulation that will change the way Mumbaikars pay property tax is expected to be tabled before the state legislature in the following week.

The new regulation, based on the capital value-based system, is expected to equalise property tax in the city and suburbs.

“The sole aim is to reduce the difference in property tax between the city and sub­urbs, ” Maharashtra’s minister of state pay a pittance as property tax even though capital values in the island city are very high.

The draft for the new system is ready and will be discussed in the House soon. The joint select committee has proposed few suggestions in the draft which include a tax calculation system, fine collection, percentage of tax etc, the minister added.

“The amendment suggests shifting from rateable value to a capital value-based taxation system to bring about uniformity in the tax structure,” an official said. While the capital value system will not increase tax on new buildings, people staying in old buildings may have to pay a little more. The Brihanmumbai Municipal Corporation will have two systems to choose from, even after the legislature’s approval.

The joint select committee has already approved the capital-based system while exempting flats below 500 sq ft from any property tax hike. The committee suggested exempting flats below 500 sq ft under the capital value-based system and included a provision to revise tax for these flats in five years, he added.

The general tax levied yearly would be 0.1-1 % of capital value. The BMC’s general body will calculate the exact tax payable by each flat owner.

One of the important provisions of the bill is that the deadline for the payment of property tax has been increased from 15 days to three months, while the penalty has been reduced from 20% of property tax to 2 %.

‘Growth of realty prices at over 15% in Bengal’s tier II, III cities’

Real estate prices in the tier II and III cities in West Bengal have been growing at over 15 per cent, largely driven by a spurt of industrial activity, according to real estate developers.

The growth rate, according to them, could be sustained only if connectivity was improved. Addressing a real estate summit organised by the Indian Chamber of Commerce here on Wednesday, Mr Pradeep Sureka, Managing Director of Sureka Group and President of CREDAI, said, “We now see good opportunities for developing integrated townships in the tier II and III cities where land is available.”

The logistical and infrastructure bottlenecks, he felt, could be tackled through public-private partnerships. Pointing out the high rate of urbanisation in the country, Mr Sushil Mohta, Director of Merlin Group, said there would be 2,500 towns within the next 20 years in India, up from 500 towns currently.

“A lot of satellite towns would be merged with the metros, with five-six new towns cropping up in-between them,” he said.

Mr Hemant Kanoria, Director, Bengal Shristi Infrastructure, said, “Prices in the tier II and III cities have been growing at 15-20 per cent over the last 2 years.”

In Durgapur, as he pointed out, property prices shot up from Rs 1,100 to Rs 2,700 a sq ft in past two years. This year the price could touch the Rs 3,000-mark.

A large chunk of demand in these areas came from professionals transferred from other metros, he said. The end users accounted for almost 70 per cent of the demand, while the rest came from investors looking for capital gains, he added.

Ansal API launches India’s largest Green Hi-Tech City

Ansal API has launched yet another landmark project — The Megapolis. The Megapolis is proposed as a world-class township and one of India’s biggest green hi-tech city. The UP Government approved township will be spread over 2,500 acres and is extendable to approximately 9,000 acres.

The township is strategically located in the future lifestyle hub of the NCR, adjoining Greater Noida with easy access from expressways like NH 91 to Aligarh, East-West Peripheral Expressway and Greater Noida 80 m arterial road. The upcoming Taj Expressway as well as the Ganga Expressway are in close vicinity. The township, surrounded by greenery, is in close vicinity of North India’s largest railway terminal coming up at Boodaki, falling on the East-West rail corridor.

Megapolis proposes to enable people lead a life that is free of all modern day hassles. So, whether it is parking woes, lack of schooling facilities or traffic snarls that are the major problems of our over burdened metropolises, Megapolis brings freedom from all such issues.

Located near prime business centres like Delhi, Noida and Greater Noida, Megapolis would be closest to from the proposed Greater Moida international airport making it an ideal choice and a preferred business destination. Megapolis will also be home to India’s first self contained academic township and leverage its tie-up with leading education service provider Edcomp to set up world-class institutes.

Apart from this, the township will also have a global business park, Hi-tech healthcare facilities, a medical zone, commercial centres and an amusement and entertainment zone built with the latest in technology in order to attract the best available business.

Commenting on the township, Sushil Ansal, Chairman, Ansal API said, “Megapolis will be the only township in India to have some of the never before features like an academic township surrounded by five natural lakes, excellent location and connectivity, huge forest area and an 18-hole Nick Faldo golf course apart from Polo and Equestrian facilities, something that people in India only imagined”.

Demand is still rising

Buying a residential apartment in Mumbai is a dream for every aspiring individual in the city. However, rates that have been touching all-time highs in the past couple of years had brought disappointment to aspiring buyers. This scenario may not last long as the market is slowly becoming stable, especially for residential outright transactions.

Due to factors like rising inflation level, slowdown in industrial growth, increase in bank rate and last but not least, liquidity crunch due to stock market correction, there has been a drastic fall in the transactions in the last six months.

There is a great demand in central suburbs covering localities like Mulund, Bhandup, Kanjurmarg, Vikhroli, Powai, Ghatkopar and Vidyavihar, especially LBS Marg connecting all above locations.

These localities due to its connectivity through roads that is LBS Marg, Eastern Express Highway through which people can reach places such as Airoli-Thane-Vashi and South Mumbai, Jogeshwari Vikhroli Link Road which connects to Western suburbs, Bandra Kurla Complex (one of the major business destinations) and the first Metro Rail coming up have huge potential in the near future.

Also, due to commercial property development in these locations over the last two years, many corporates like Citibank, ICICI Bank, Prudential, Colgate Palmolive, HCC, CIPLA, Johnson and Johnson have preferred this destination to house their offices.

Professionals working in these offices prefer to buy apartments close by to save travelling time. Some state-of-the-art projects have already come up and due to the continuous rising demand more such projects are coming up from some top developers in the city.

The rates in these areas vary between Rs 8,100 and Rs 18,000 per sq ft at Powai; between Rs 6,570 per sq ft to Rs 6991 at LBS Marg, Bhandup, and between Rs 8,800 to Rs 9,000 at Vidyavihar, to name a few destinations.

The major demands in these locations come from a large chunk of actual users (mostly middle level managerial class and salaried professionals) looking for 2/3 BHK apartments in the budget of Rs. 60-70 lakh for 2BHK and Rs.80-90 lakh for 3BHK.

However, as per the current rates, the cost of a 2BHK is in the range of Rs.75-90 lakh and for 3BHK it is Rs. 1 crore to 1.25 crore.

These middle level buyers cannot raise their budget directly by Rs.20-25 lakhs. If prices fall by 10-15%, the cost of apartments will fall into the buyer’s budget. There would be more transactions happening in the market and ultimately fulfilling the buyers’ desire to own their dream house. On the other hand, developers will have liquidity of funds and an increase in revenue generation to Maharashtra State government through collection of stamp duty and registration fees.

One interesting thing to note is the demand from investors has substantially reduced due to rates at its peak level, but for the actual users there is an opportunity to buy as fresh supply of investor apartments is coming up for sale in the market.

These investors who have booked apartments at a lower rate at the time of pre-launch booking or on booking, are booking their profits by selling their properties at 10-15% discounted rate rather than the builder’s asking rate. Two major reasons for this are that they foresee price correction and liquidity crunch due to stock market decline.

However, these investors are just 10-15% of the total sales in the complexes. Hence, they should not only target investors’ flats. There will not be a crash in the prices, though marginal correction is definitely inevitable. There should be no comparison between real estate and the stock market. Even if the sensex falls from 20,000 points to 13,000; that should not indicate real estate to fall by 40-50 %. Demand for residential apartments in Mumbai is still enormous.

Considering the overall sce­nario, 10-15% correction in price is definitely required to stabilise the prices at a reasonable rate in such an over-inflated market and hope to see aspiring buyers fulfilling their dream to own apartments in the city. Mehul Ved is Founder, Ace Realtors (Real Estate Transaction Services)