ITS RAINING DISCOUNTS AS REALTORS COME TO GRIPS WITH REALITY

With A liquidity crunch and meltdown fears likely to further hit purchase decisions, real estate developers are offering 30 per cent discounts to clear inventories and start new projects. You can expect more discounts, as realtors come to grips with the reality of oversupply and high margins and lose market stamina.

For genuine buyers with money, they are willing to enter into “exclusive talks” to finalise deals with special discounts. Prices in Delhi, Bangalore have crashed by up to 50 per cent.

Developers like Oberoi Constructions and DB Realty are offering new projects at 30 per cent discounts. Oberoi is offering new project at Goregoan east in western Mumbai for Rs 7,500 per sq ft against Rs 12,000 in ready flats.

Similarly, DB Realty has started a new project at Kandivali west with an opening price of Rs 5,500 per sq ft against the prevailing market rate of Rs 8,000 in the area. In south Mumbai, prices have also crashed substantially.

Developers are blinking due to complete halt in transactions in the last six months as buyers stayed away from the market due to high realty prices.

“Now banks should lend up to 80 per cent of the cost of flats. Home loan rates should be cut to 7-8 per cent. This would create demand,” said Niranjan Hiranandani, managing director, Hiranandani Constructions. “If construction activity stops, 10 lakh construction workers will be without job in three months.” Rajni Ajmera, president, CREDAI who has asked developers to slash prices said, “Now buyers can get best possible rates. We want to do business and are willing to sacrifice profits.” In a buyers’ market and developers have no choice but settle for less. “If you have money, negotiate. You will get your rate,” said Anuj Puri, chairman, Jones Lang LaSalle Meghraj, the Indian arm of global realty consultancy JLL.

Source : shail01.weblog.com

India’s Expanding Hospitality Industry Bears the Brunt of Attack

The hospitality industry will, doubtless, bear the brunt of the terrorist attacks, with two of the country’s most prestigious hotels being under siege. The damage caused by the firing and blasts inside the hotels will only form a small portion of the overall cost the industry will have to bear. Analysts expect travel advisories to be issued soon. Tourists as well as business travellers are expected to arrive in much lower numbers as a result. But it’s important to note that the Indian hospitality industry has already begun witnessing a slowdown in growth, even before the attacks. With economic activity slowing down across the globe, business travel as well as tourist arrivals have already been hit. Foreign tourist arrivals grew by a healthy 13.8% in July, but the growth rate slipped to 2.8% in October. The terrorist attacks and its negative impact will only make matters worse.

That this comes at a time when the industry has been expanding capacity may only make things worse. One positive factor that may offset some of the negative impact is the sharp depreciation in the rupee. Since luxury hotels charge in foreign currency (primarily US dollars), the depreciation in the rupee results in higher revenues and profitability. But in a scenario where revenues and occupancy rates are expected to decline, that’s little compensation. The negative impact of the slowdown has already been priced in by the markets, with the share price of Hotel Leela Venture Ltd down 77% from its peak, The Indian Hotels Co. Ltd down 73%, and EIH Ltd having 63% of its value from its 52-week high. EIH has fallen the least because rumours of a stake sale by its promoters has buoyed the stock. While Indian Hotels now trades at about eight times trailing earnings, Hotel Leela trades at less than six times trailing earnings. These stocks are expected to correct further to reflect the impact of the terrorist attack, when markets open on Friday.

Source : www.indianrealtynews.com

Attacks can Result into 25-30% loss in Hotel Business

Hotel in india may see a 25-30 per cent drop in bookings by foreign in-bound tourists, following the terrorist strike on luxury hotels and blasts in Mumbai, which claimed more than 100 lives and left over 250 injured. The attack comes at a time when the hotel industry is already suffering from weak demand. Thanks to the credit crunch, companies have decided to curb overseas travels and move to low-cost alternative accommodation. “As a result of the economic slowdown, cancellations were already happening. The terrorist attack will now lead to substantial losses. We expect cancellations to go up by 25-30 per cent,” said SP Jain, president (western region), Hotel and Restaurant Association.

Even though the terror attacks occurred in south Mumbai-based Trident and Taj hotels, tourists in Delhi’s Le Meridean , Shangri La and Taj Mahal were seen cancelling scheduled events. “In the short term, the impact of these attacks on the Indian hospitality industry will be quite visible,” said Manav Thadani, managing director, HVS International-India, a hotel consultancy firm. The flow of foreign tourists has dropped 10-15 per cent in the past few months, most of whom come from the US and the UK, according to Thadni.

The English cricket team, which is touring the country, has already announced the cancellation of the remaining tour on security concerns. Hotel industry expert expect embassies and companies to issue travel advisories warning its citizens and officials against travelling to India. Authorities of Great Britain, Australia and Canada have advised their citizens visiting India not to travel to Mumbai. Daiichi Sankyo, Japan’s third-biggest drug maker, and Germany’s Merck KGaA have warned its officials to stay away from Mumbai. “The attacks will impact the travel plans of international travellers. It is normal for people to feel unsafe at this hour. Business is expected to slow down up to a fair amount”, said, Heinz Egli, general manager, Novotel Mumbai. Novotel is a brand owned by the European hospitality giant, Accor Hospitality. India saw an influx of about 5 million foreign tourists last year, which was in line with the average growth of 10-12 per cent recorded in the last few years.

However, company executives of hotel companies fear that it will be difficult to match that level this year. Julian Groom, COO and executive director, DB Hospitality, said, “This is the peak season for the hotel industry and such attacks will negatively impact the business. The result of this will only be felt in the forthcoming week when we can see corrections happening in bookings”. Globally, terrorists have been attacking luxury hotels, especially patronised by international tourists, to gain international attention and mileage out of the events, which has hurt business of these hotels. “The income has already slowed down and this is close to a death blow to the business. The international tourist inflow will be impacted for sure specially the luxury segment,” said Lalith Seth, managing director, Sree Raj Travels.

Source : www.indianrealtynews.com

Property transactions to take a hit

Property transactions in Mumbai and across the country will be affected in the wake of the terrorist attacks on key places in India’s commercial capital, industry experts said.

The terror strikes, which started late Wednesday and had not been fully controlled nearly 48 hours later, left over 125 dead and injured more than 250.

“The attacks will have a ripple effect on the volumes across the Mumbai city and the country,” said Pranay Vakil, chairman, Knight Frank India.

Developers are saddled with large amount of unsold properties in the country as the current credit crisis roiled markets across the globe, squeezed availability of money and caused investors to lose money. Earlier, the Reserve Bank of India’s (RBI’s) move to raise benchmark interest rates to control inflation had already slowed down purchases of homes by individuals.

The terrorist attacks come amid weakened sentiments about the future outlook as India’s economic growth is expected to slow down to less than 7 per cent compared with a five-year average of over 8 per cent. Indian software makers, who have been on an expansion spree and account for a substantial proportion of property transactions, have had to curb their businesses as the US and Europe witnessed a downturn.

The attacks are “going to add fuel to fire and will keep the sentiments subdued for a longer time,” said Anshuman Magazine, chairman, CB Richard Ellis.

Property transactions in Mumbai have dropped to a tenth of the earlier level, said Vakil. If a builder was selling 40 flats a month some time ago, the same establishment is selling only 4 now, he added. Similarly transactions in Delhi and its neighbouring regions and other cities including Bangalore, Gujarat and Chennai have been severely hit as the country’s economic growth slowed and the global impact led to job losses.

“Home buyers look for stability and if they see uncertainty they will postpone their decisions,” said Vakil. Several migrants who were planning to buy a home in the city are brooding over their decision. Migrants comprise about 40 per cent of Mumbai’s 19 million people.

Transactions by multinational companies are likely to be the most hit after the latest terrorist attacks. Several of the hostages in the plush Taj Palace and Trident hotels were overseas visitors.

“In the short term, there will definitely be a decline in business visits to the financial capital,” said Anuj Puri, chairman and country head, Jone Lang LaSalle Meghraj.

Source : www.business-standard

Modern Retail the Next Hot Sector of Indian Economy

As India’s middle class grows and disposable incomes rise, “modern” retail is becoming the next hot sector of the Indian economy. Hundreds of millions of new consumers will join this retail revolution, venturing into supermarkets, department stores and air-conditioned shopping malls for the first time. But instead of just window shopping, many of them will be serious buyers with money to spend. To cater for their needs, established players in the modern retail sector such as Biyani, Raheja and Goenka are being joined by the big names of Indian business – Reliance, Birla, Bharti, Tata etc – who plan to spend billions over the next few years rolling out supermarkets, big-box outlets and specialty stores. At the same time, property developers are getting on with the “malling” of India, and looking for high profile anchor tenants to lure customers.

On the sidelines of this Indian retail revolution are big overseas players such as Wal-Mart, which already has a tie-up with Bharti to provide much-needed “back office” support. But what Wal-Mart really wants is the right to set up its own stores in India. The same goes for Tesco, Carrefour, Metro and other international players.While the macro outlook appears bright, the problems are astronomical for India retail industry. There is no reliable cold chain, transport logistics are appalling, there is a huge lack of managerial talent, there is no consistency for quality and quantity of supply, there is political opposition from groups such as market middlemen, the mom and pop “kirana” corner stores have to be catered for, as do the farmers who grow the produce that is integral to a successful retail revolution. How well will these disparate players cope with the various pressures of a dynamic and fast-moving industry?

Source : www.indianrealtynews.com

Mumbai Terrorist Attacks are a Blow to India’s Retail Industry

The attacks in Mumbai struck at the core of the fledgling luxury-goods industry in India, threatening to dampen the vibrant growth of one of the sector’s key developing markets. Mumbai’s Taj Mahal Palace hotel, the epicenter of the attacks, is the most coveted retail address for luxury goods firms that are tapping into India’s growing numbers of wealthy individuals. European brands Louis Vuitton, Bulgari and Fendi all have boutiques in the hotel, which was the target of various explosions, hostage-taking and a fire. The Oberoi Trident Hotel, which was also hit, houses luxury brands including Salvatore Ferragamo. Some of Ferragamo’s employees were being held hostage, the Italian fashion house said.

Any prospective slowdown in the promising Indian market would come at a bad time for the industry. Luxury goods companies have been relying on new markets such as India, Russia and China to counter sluggish growth in Europe and the U.S., where the global financial crisis has drained appetites for expensive goods. Most experts don’t anticipate a long-term impact from this week’s attacks. And the Indian market is still small in terms of how much it contributes to overall sales at most companies. “Even if [the Indian market] comes down, it’s not significant,” says Neelesh Hundekari, principal at AT Kearney Inc., a management consulting firm in Mumbai. Still, India is important symbolically for many luxury-goods brands, so companies may become more cautious about investing there if the fear of further terrorist attacks intensifies.

Moreover, even before this week’s terrorist attacks, India’s high-end spenders were showing some early signs of vulnerability to the global financial crisis. Indian high-end retailers — which are generally lower-priced than big European names — have been offering new products at lower prices. October sales at Ensemble, a retailer for top Indian fashion designers, fell 20% year-on-year, said Tina Tahiliani-Parikh, Ensemble’s executive director.

European labels said yesterday that they remain committed to the Indian market. Mr. Hundekari, who advises Louis Vuitton in India, said that as new mall space is built across the country, exclusive hotels such as the Taj Mahal and the Oberoi will become less important retail addresses for high-end brands. Last night, as enforcement officials worked to secure the Taj Mahal hotel, its boutiques remained closed. Louis Vuitton said all of its employees were safe, and Bulgari, whose store is operated by a local franchise partner, was trying to establish the safety of its employees. The Fendi store had been closed for renovation and is scheduled to reopen within the coming weeks. Tikka Shatrujit Singh, an adviser to Louis Vuitton in India, said he hoped the fashion house’s boutique would reopen within days. India, he added, “is a market for the future and we want to reinforce our position.”

Source : www.indianrealtynews.com

Parsvnath gets environmental clearance for Delhi project

Leading real estate player Parsvnath Developers received environmental clearance for the construction of office-cum-commercial “Corporate Tower” at Netaji Subhash Place Metro Station, in New Delhi.

The project spreads over an area of 19,400 sq mt and has a total developable area of 2,50,000 sq ft. The project is strategically located with an easy accessibility on the ring road catering to the shopping needs of public travelling by metro and road. The project having multiple pull factors, will offer product mix that will attract footfall across all the age groups, a company statement said.

Parsvnath Developers is developing 114 mega projects spanning 211.32 mn sq ft in 51 cities and 18 states. For the year ended March 31, 2008, the company recorded consolidated revenues of Rs 1837.12 crore and net profit of Rs 424.39 crore.

Source : www.business-standard.com

Indian Real Estate Market has Enormous Potential Feels Middle East Developer

India’s real estate market could reach a value of $60 billion by 2010, and become an “enormous” economic power, a Middle East developer has said. Abdullah bin Abdulaziz Al Majed, vice chairman of Tanmiyat Group, was speaking ahead of the firm’s participation at property show Cityscape India 2008. Tanmiyat is among a group of international firms expected to make a move in the Indian market when it recovers from a current slump. Al Majed pointed to statistics showing the market will grow from $16 billion to a possible $60 billion in two years, with 21 million new units needed. Al Majed said: “Cityscape India 2008 will shed light on the development of residential units for the poor, who form 70 per cent of the population, along with its main concern of the development of units for medium-income people.

“This draws a clear picture of the future of real estate investments and available opportunities.” He said his company’s presence at the show meant it could “take a detailed look” at everything related to the Indian market. Cityscape India 2008, to be held at the Bombay Exhibition Centre from December 8 to 10, is expected to attract more than 350,000 property professionals and international investors.

Source : www.indianrealtynews.com

Property prices may go further south

MUMBAI: The terrorist attacks on Mumbai are likely to further pull down the sagging property prices in the city, especially in South Mumbai. South
Mumbai, the most expensive property market is expected to face a dip in value across all segments, including rentals, in the next six months, feel industry experts.

“It’s is too early to say anything now. However, the attack would definitely be a dampener to the sentiment, at least in the initial few months. The attack may also create a ripple effect on the property prices in the suburban market,” Pranay Vakil, chairman of Knight Frank India said.

Militants armed with grenades and rifles stormed into two South Mumbai hotels — Taj Mahal Palace and the Oberoi Trident complex — at around 10 pm on Wednesday. They also attacked the CST railway station and Metro cinema in South Mumbai.

Many property consultants had already assumed that South Mumbai property prices would further appreciate, though marginally, in the second half of the year due to demand-supply mismatch. With the government taking measures to attract more foreign business in recent years, there has been consistent interest in establishing and expanding operations in India, thus leading to an obvious pressure on real estate, especially in South Mumbai.

Price is usually a function of demand and supply. The excess demand for properties had been pushing up the prices in this part of the city till recently. “The attacks would spread negative sentiments in the property market. New property deals will be very negligible in the next few months,” said a senior official with Birla SunLife’s real estate division.

Source : Economictimes.com

House Prices Dip By 10% In Orissa

Even as the real estate sector in Orissa is stated to not have been affected by the meltdown as in the metros and other parts of India, the builders in the State under Confederation of Real Estate Developers Association of India (CREDAI) have announced a rate cut in house prices by 10 per cent. The rate cuts would be affected in all upcoming projects of developers under the confederation with immediate effect. And with prices of raw materials and land coming down coupled with lowering of interest rates by RBI, the price cuts could even be extended to 20 to 25 per cent in the ensuing days.

Talking to mediapersons here on Tuesday, president of CREDAI Orissa Md Moquim and Secretary D.S. Tripathy said prices of steel have begun to come down from Rs 40,000 per tonne to Rs 26,000 while cement has reduced by Rs 20 to 30 a bag and sliding. Due to the slowdown of economy and the resultant hesitancy of big building companies to enter the fray in Orissa, the price of land has begun to fall by 10 to 15 per cent and is further expected to go down to 20 to 25 per cent. Along with that, the comprehensive development plan (CDP) for Bhubaneswar is expected to come into force from early next year, which will open up new land regions for development thus creating more opportunities, they said.

Source : www.indianrealtynews.com

Government plans interest sops to ease home loans

The government is considering a proposal to make home loans cheaper for consumers through interest subsidy, aiming to stimulate demand in the realty sector which has a spin-off effect on many industries like cement and steel, said a senior government official, who declined to be named.

The proposal will also include providing loans at below market rates to real estate developers. But the loan disbursed under this will come with a number of conditions like an upper ceiling on selling price of flats and individual homes.

The threshold limit for loans is likely to be around Rs 10 lakh, as it was estimated that nearly 75 per cent of the housing loans were below Rs 7.5 lakh. Only developers who have land in their possession or already in the middle of a housing project would be eligible for the government subsidy. Individual planning to construct homes on their own would also be eligible, said an official.

The panel of secretaries headed by Finance Secretary Arun Ramanathan has advised the urban development ministry to prepare a note in this regard and present it to the apex committee headed by Prime Minister Manmohan Singh.

The final decision on the proposal will be taken by the apex committee.

“Discussions were held on this proposal which includes making available loans at around 8 per cent interest rate, which could remain fixed for a period of around five years. The government will pay for the balance interest amount,” said a senior government official.

Interest rate charged by commercial banks in India has risen sharply in the last one year, with prime lending rate of certain banks increasing above 14 per cent as against around 9 per cent a year ago. This has dissuaded many home buyers to postpone their home purchases and also increased loan repayment amount.

To avoid a repeat of sub-prime like crisis in India, credit worthiness of borrowers would be scrutinised as in normal loans.

This measure is being mooted to ensure that the demand in the economy does not slow down. “If the housing sector does not kick off in the next two to three months, it could have a domino effect. Currently, most housing projects are stuck because of the liquidity crunch. A boost to this sector will mean additional demand for cement, steel and other material, which is likely to stimulate the economy. Moreover, it would also ensure that jobs in the sector are not lost,” the source added.

According to analysts, nearly 80 per cent of the total real estate demand originates from the housing sector. By 2010, nearly 530.5 million square feet of residential space will be developed in the premium category alone in seven major cities, which translates to the supply of 200,000 units per year in the middle income group (MIG) and high income group (HIG) segments.

Indicus Analytics estimates that between 2008 and 2015, 17 million additional dwelling units will be needed.

Source : www.business-standard.com

Lodha Group launches luxury villa project

Mumbai-Based realty player Lodha Group is now entering the residential seg­ment in Hyderabad. In spite of the ongoing slump in the real estate sector, the compa -ny is eyeing a turnover of Rs 900 crore from its first luxury villa project ‘La Bellezza’ in the dry.

The company also plans to expand into commercial and retail space in. two years. It has acquired land in the city to establish what it claims to be South India’s largest mall, which is expected to be launched in six months. Company officials however declined to share further details.

The company has tied up with HDFC, which will have a 40% share holding in the residential project.

“There is a huge appetite for dif­ferentiated projects for the top notch target audience. The down­trend in the realty sector will not affect us as our target audience comprises authentic buy­ers,” said R Karthik, senior vice-president (marketing), Lodha Group. The real estate developer acquired 12.9 acres in Cy-berabad in the city for Rs 280 crore in a government auction last year.

The first phase of the project will be complete by 2011-end. The initial phase includes 150 villas spread out across multiple towers of 45 floors each. A single villa of 4,761 sq ft, is likely to cost over Rs 2 crore. However, bookings for these villas are only by invi­tations. “We have done groundwork on the potential buy­ers that includes top level officials in Hyderabad.

The project is all about giving the best of socially interactive neighbours,” said Karthik. The Lodha Group has a land bank of 27 million square feet cur­rently under development in the country. The group has so far con­structed office spaces, IT campuses, weekend retreats, townships and SEZs in and around Mumbai.

Source:  The Economic Times

Fall in demand for purchasing property: Assocham

High cost of borrowing has resulted in nearly 35 per cent fall in demand for purchase of properties in most of Tier II and Tier III cities during the first half of the current fiscal year, according to an assessment by The Associated Chambers of Commerce and Industry of India (Assocham).

Assocham assessment reveals that over 2 crore people in about 25 Tier II and Tier III cities are the claimant for buying of dwelling units who are unable to make purchases as higher borrowing cost have compelled most of real estate developers to defer their projects.

The buyers of dwelling units have also not been able to make payments as higher interest rates  and higher inflation have come on their ways to partly dampen their enthusiasm and eroded their budget.

The assessment has been arrived at the Chamber in its latest exercise about as to what has been happening in purchase of properties in Tier II and Tier III cities in first 7 months of current fiscal in which the properties purchases had registered a growth of over 25 per cent between April-October in the last year.

The analysis of Assocham is based from the feedback received from  well known real estate members like Parsavnath Developers, Omaxe, DLF, Unitech, BPTP among others that are developing real estate projects in number of tier II and tier III cities which include Meerut, Bulandsahahr, Muradabad, Bhiwadi,  Dehradun, Rudarpur, Chandigarh, Sonepat, Panipat, Manesar, Pune, Nasik, Bhopal, Indore and many other such cities and towns in Southern and other parts of the country.

Source : www.business-standard.com

Future Group Postpones Hotel Plans

Kishore Biyani-led Future group, is believed to have postponed its hotel project to future with two of the projects that were to start in Kolkata and Thiruvananthapuram a couple of months ago already  put on the back burner.

The work on both the projects, clearances for which had been received from authorities, according to a report, has been put on hold. Same goes for setting up a chain of four or five star hotels in Bangalore, Hyderabad, Mysore, Mumbai, Chennai, Bhubaneswar, Ahmedabad and Pune.

The decision to hibernate is perhaps the result of financial meltdown resulting in bankruptcy of Lehman Brothers who is believed to have promised an initial contribution of $100 million to the $200 million fund created by the company for the project.

The economic slowdown resulting in downturn of travel and hospitality industry is believed to be another reason for delaying the project.

Kshitij Investment Advisory, which manages the fund for hotel project has, reportedly denied the news of hotel project being put on hold. Brushing aside the apprehensions of delay, Shishir Baijal, CEO of the Advisory has reportedly said, “These things take time. We are still talking and evaluating options.”

The fund was looking for plots of 1 to 1.5 acres on which 65,000 to 150,000 sq ft of built-up area would have been developed.

Industry experts say the hospitality industry, like every other sector, is facing a downturn. “The crash of the real estate market is bound to leave an impact on the hospitality sector. Builders are going slow on their projects. Funding issues are also adding to the problem.

Source : www.indianwineacademy.com

Indiaproperty.com launches a new category for Affordable Housing

With more than 70% of Indian populationlooking forward to realizing their dreams in the Affordable Housing category, Indiaproperty.com, India’s No.1property portal from Consim Info (formerly known as Bharat Matrimony Group) hastoday announced the launch of its exclusive section on Affordable Housingcategory on their portal. Being the first property portal to launch thisconcept online, it offers a unique opportunity for builders across India –Mumbai, Pune, Delhi, Hyderabad, Kolkata, Bangalore, and Chennai to showcaseprojects in the affordable price band exclusively to get quicker response frompotential buyers. The consumers can also identify their dream houses accordingto their budget and city of choice with an experience of never before ease andconvenience.

According to a Planning Commission Report, theurban housing shortage is expected increase to 26.5 million by 2012. With theeffect of economic slowdown playing tough, Interest rates being high and an adverse sentiment playingagainst the sector, real estate developers envision a huge demand, especiallyin the affordable housing category and are increasingly tailoring theirstrategies to cater to the demand in this segment.

Explaining the objective behind the initiative, Mr. Murugavel Janakiraman, Founder &CEO, Consim Info, says “The demandfor affordable housing has always thrived in the Indian real estate market.Builders are now increasingly concentrated on tapping this emerging market forimproving their business prospects. Internet as a business model is certainlysuited to these builders in the affordable housing category because of itsreach and penetration across different market segments.”

Mr.S. Ramakrishnan – CEO Real Estate, Marg Ltd says, “Thereis a clear shift from high end housing to affordable housing. This is clearlyvisible with home loan disbursement being maximum in the price range of 15 to25 lakhs. Customers are looking at value for money and a great investment at aaffordable price which is not probable in the city due to high land cost andhence new cites like Marg Swarnabhoomi emerge. Online as a medium ofcommunication reaches the masses across the globe and is a great tool formarketing the affordable homes category”

Please visit http://affordablehousing.indiaproperty.com/for more details

About IndiaProperty.com

IndiaProperty.com,part of Consim Info Pvt. Ltd. (formerly BharatMatrimony group), providesin-depth information on buying, selling and renting out properties in India. Theportal provides an ideal medium for independent owners, real estate agents andbuilders to advertise their listings on the Internet and for potential buyersto search for properties in a private, hassle free environment. With thegroup’s partnership with Yahoo, IndiaProperty also powers Yahoo’s propertychannel in India.Recently IndiaProperty.com was ranked, the Best Indian Real Estate Website byPC World.

About Consim Info Pvt. Ltd

Formerlyknown as BharatMatrimony Group, Consim Info Pvt. Ltd is India’s leadingInternet Company. The company, established in 1997, has developed expertise andsuccessful business models to provide an array of world-class servicesincluding Bharat Matrimony.com, India Property.com, IndiaAutomobile.com, ClickJobs.com, Listings and SMS services. With over 15 millionusers worldwide, the group has established itself as an undisputed leader inthe Indian Internet space.

Source : www.indiaprwire.com

Realty demand drops 35% in small cities

The demand for real estate in smaller cities and towns has plunged nearly 35 per cent in the first seven months of the current fiscal, as many realtors deferred their projects owing to higher borrowing costs.

The sharp decline in demand for property was witnessed in Tier II and Tier III cities including Pune, Chandigarh and Bhopal.

“Nearly 35 per cent fall in demand of purchase of properties in most of Tier II and Tier III cities has been noticed in the first half of current fiscal due to high cost of borrowings,” industry body Assocham said on Wednesday in a report.

These cities had witnessed a 25 per cent surge in property demand in the first seven months of last fiscal year.

According to the report, more than two crore people in such cities are unable to buy property since higher borrowing costs have compelled most of the real estate developers to defer their projects.

The buyers of dwelling units have also not been able to make payments as higher interest rates  and also still higher inflation have come on their ways to partly dampen their enthusiasm and eroded their budget, Assocham noted.

The report has been prepared on the responses from real estate firms based in tier II and tier III cities such as Meerut, Bulandsahar, Muradabad, Bhiwadi, Dehradun, Rudarpur, Chandigarh, Sonepat, Panipat, Manesar, Pune, Nasik, Bhopal and Indore.

“… not only the cost factor has compelled, the promoters of property makers to indefinitely defer their real estate projects but non-availability of inputs such as bricks, cement, steel and availability of quality power and delays in obtaining water connections have caused inordinate delays for developers to stick to their schedules,” the report said.

Source : profit.ndtv.com

Meltdown heat on housing FDI

KOLKATA: The global meltdown has cast a shadow over what could have been the state’s first FDI venture in real estate.

Having blocked $8 billion for the Eden Lakeside project since 2006, the London-based REIT Asset Management — FDI partner for the Rs 340-crore housing township at Bonhooghly — has now pressed the panic button. It wants the state government and its partner, Eden Realty, to spell out whether the project is on.

Unfortunately, no answer is forthcoming.

The sprawling Eden Lakeside township project off B T Road — launched in 2006 in collaboration with the state refugee relief and rehabilitation (RRR) department — would have been a one-of-a-kind public-private-partnership (PPP) involving rehabilitation of some 800 families living in slums spread over 18 acres.
Had the project taken off, each poor family would have got a 645 sq ft flat (registered in their own names) free of cost. While 12 acres were marked for the housing township, the apartments for the poor would have covered the remaining six acres.

Ironically, even this project faced stiff political resistance. When the RRR department served eviction notices to the slumdwellers last year, only 160 families moved out. The rest moved high court. The state government won the case on July 31 this year, but couldn’t stop the agitations backed by Trinamul Congress and a section of CPM supporters. The aggrieved parties again moved court on September 27 — around the time the global meltdown happened.

“We were keeping our FDI partner posted on the developments. They knew about the first court case and the agitations backed by local political leaders. They are aware of the new case that has been moved.” Eden Realty managing director Sachchidanand Rai said.

“Even after the Tatas called off their Singur project, our FDI partner showed immense faith in the state government and continued to be upbeat. But now, faced with the global meltdown, they have decided that the funds can’t be left unused indefinitely. We have no answer for them. The project seems to have hit a deadlock.”

REIT India chairman David Cohen, who is also the chairman of Eden Infrastructure, the special purpose vehicle (SPV) floated for the project, made the companies stand clear in a recent communiqué sent to its Indian partner.
In the current context, the FDI partner’s impatience is but natural. As per India’s FDI guidelines, a foreign investor must capitalise within six months of a project’s launch. So the first dollars for the Bonhooghly project came in December 2006. By June, 2007, the entire amount had been deposited. But the project couldn’t take off. The agreement couldn’t be clinched either because the state government couldn’t give Eden Infrastructure the possession of the land. The RRR department had first to vacate the 18 acres occupied by the unauthorised occupants.

Reena Venkataraman, secretary, RRR department, said, “This was one project which didn’t have anything to do with agri land. It will be very unfortunate if the state were to lose it.” That’s understandable. Had the project taken off, the cash-strapped Buddhadeb Bhattacharjee government would have received an upfront payment of Rs 22 crore and another Rs 29 crore as guarantee money.

Source : Timesofindia.com

Banks turn lenient with home loan borrowers facing crunch

Mumbai: Ashish Wagh, a senior executive with a foreign investment bank, recently approached his mortgage lender for a lifeline after his company started cutting jobs and trimming salaries.

Wagh had taken an Rs80 lakh home loan earlier this year to buy an apartment in Bandra, a Mumbai suburb, repayable over 20 years at an annual floating interest rate of 11.75%.

Rising charges: An apartment complex. Interest rates on home loans have increased from 7.50% in 2003 to 11.75% in August, putting pressure on borrowers who had taken loans at floating interest rates. Ramesh Pathania / MintWagh is now considering selling his ancestral property in Pune so that he can immediately repay nearly half the loan amount and avail a two-year moratorium—a legal authorization to delay payments.
He declined to name the mortgage firm because he said that could hurt his negotiations with it.

As interest rates surged earlier this year and companies started laying off staff and tightening employee costs, recovery teams of banks and housing finance firms have, in the past few months, been busy offering at least half a dozen easy repayment solutions to a growing number of borrowers who have been hurt by the slowdown.

Lenders are open to offering easier terms to existing borrowers because they want to prevent an increase in the proportion of non-performing assets (NPAs) on their books and the worth of their collateral—the houses—has declined sharply this year with falling real estate prices.

Banks have extended home loans worth about Rs2.69 trillion as on 29 August, but growth in home loans between 1 September 2007 and 31 August slowed to 13.9% at Rs32,792 crore, from 17% in the previous year, according to the Reserve Bank of India.

Interest rates on home loans have increased from 7.50% in 2003 to 11.75% in August, putting pressure on borrowers who had taken loans at floating interest rates.

For instance, if a person had taken a Rs20 lakh home loan repayable over 20 years, his monthly repayment would have increased from Rs16,418 in November 2004, when the interest rate was 7.75%, to Rs21,674 now.
Housing Development Finance Corp. Ltd, or HDFC, the oldest mortgage lender in the country, is offering its existing borrowers the more common options of stretching the term of the loan without raising the interest rate, or increasing the equated monthly instalments after closing other debts such as personal or auto loans.

“In case a customer is servicing multiple loans such as a housing loan, vehicle loan, personal loan, and has to make the choice to repay, it is advisable that the customer evaluates the loans and decide to repay the loan based on its cost and impact on cash flows,’’ said HDFC’s joint managing director Renu Sud Karnad.

For additional collateral, some lenders are willing to allow borrowers to “balloon” the loan to the end of the tenure or make a large payment towards the end.

Borrowers can also choose to make large payments, or so-called bullet payments, every year so that the term of the loan is trimmed.
Depending on an individual’s future cash flow, Axis Bank Ltd is even allowing borrowers to pledge savings instruments in return for easier repayment terms.

“Depending on the customer’s need we take a three-pronged approach, which includes increasing the tenure of the home loan, keeping the interest rate constant for a limited time frame, and balloning up the loan towards the end of the tenure,” said a senior official at ICICI Bank Ltd, India’s second-largest lender.

“(But) we do not encourage customers to opt for the option of deferring the payment towards the end of the tenure of the loan as it increases the debt burden on the customer. The chances of default also increases,” he added, asking not to be identified because he isn’t the bank’s official spokesman.
Another reason for borrowers seeking a restructuring of their home loans is delays by builders for various reasons.

“Some builders are finding it difficult to complete the housing project on time (and are) hence delaying the possession of the flat. In such cases, banks have seen many customers come to them and ask for a reschedulement of the loan,” said a senior official with Axis Bank.
“All the major real estate developers are seeing a time overflow, hence this is a very common request we are getting from customers,” added this official who wished not to be identified.

Source : www.livemint.com

SBI organises loan mela

Srinagar, Nov 26: The loan mela, organized by the State Bank of India (SBI) here, received a good response with scores of customers visiting the mela on Wednesday.

According to SBI Regional Manager Ajay Gupta, the mela organized in the main branch at Residency road, aimed at making people aware of the facilities being provided by the bank to its customers.

However, the main objective of the mela, which was organized in collaboration with Jamkash Vehicleads Pvt Ltd, was to sanction spot car loan to customers.

The latest models of Maruti vehicles were also displayed at the mela site.
Gupta said besides car loan, the bank offers housing and other loans to its customers.

Gupta and the bank’s Chief Manager B L Jalali said the SBI was also offering complete financial services, including insurance, mutual fund and gold coins.

Jalali said conventional deposits and loan facilities for commerce; industry and agriculture are also available in the bank.
He said the bank pays 10.50 per cent interest on deposits for 1,000 days. However, for senior citizens the rate is 11 per cent.

Source : www.greaterkashmir.com

Affordable Homes From NBCC

The National Building Construction Corporation will launch its first residential project in New Delhi, probably at Mehrauli, and NCR by 2008-end. Land is now being acquired for the purpose in Delhi, Gurgaon and Noida.

Sources say that the houses in New Delhi are expected to cost between Rs 20 lakhs and Rs.-40 lakh. The priority of NBCC is to provide quality houses at affordable prices but that will depend on factors like the cost of land, according to Ajay Garg, Finance Director. The organization doesn’t strive for huge profits but the costs will be kept sustainable, he stresses.

Source:  http://www.realtyplusmag.com

Developers Feel Falling Rupee will Woo NRIs

City’s real estate developers are hoping that the falling rupee would help woo NRI customers and prop up the market here. Stung especially by dropping of sales by about 80% in Mumbai, real estate developers are now going to the UAE in a bid to hardsell to Non Resident Indians (NRIs). The Maharashtra Chamber of Housing Industry (MCHI) is holding its property fair from November 27 to 29. While the MCHI has been organising the property fair in Dubai since 2002, this year holds special significance. The rupee has depreciated from the Rs40-mark a few months ago to the Rs50-mark against the dollar last week, a fall of over 20% in a span of a few months. So, a 2-BHK flat which earlier cost Rs1.25 crore, an NRI will now have to shell out only Rs1 crore.

And if developers offer the NRI discounts such as stamp duty and free parking that they gave at the MCHI Property Fair that concluded two months ago at Bandra Kurla Complex, then buyers could be get benefit of about 40% and the flat could be available for as low as Rs95 lakh. “Prices too have begin to decline. NRIs can get a good deal now and we intend to highlight this,’’ said Zubin Mehta, CEO of MCHI, adding that the rupee depreciation against the US dollar would be a major selling point to NRI buyers. Mehta said the main reason for targeting UAE NRIs was that they were mainly working-class people who have gone to Dubai and other places in the UAE with the aim of earning a living and buying a home in India. “They are not permanent residents like in the United States or the United Kingdom. They primarily earn their living in the UAE and buy a home in India,’’ Mehta said.

Source : www.indianrealtynews.com

Hotels feel the pinch, forced to review plans for expansion

Pune: Slowing growth and declining business travel are forcing several large hotel chains such as Hotel Leela Venture Ltd to review their plans for Pune, which in recent years has emerged as a magnet for expansion in the hospitality sector.
At least Rs6,000 crore was supposed to be invested in the city from hotel groups that had announced some 30 properties to add 7,000 rooms over the next three-five years.
The rush to open hotels in the city, which had a shortage of 3,000 hotel rooms across categories, came on the back of some Rs6,000 crore plus of investment announced by auto makers such as Daimler AG and Volkswagen AG. In addition, Pune has also enjoyed a boom in the information technology sector which caused room rates to soar to Rs15,000 a night.
The global markets meltdown, which has dented international business travel, caused a widepsread credit crunch and put the brakes on India’s economic growth, also seems to have scuttled hotel building plans here, as they have elsewhere.

But Pune will feel the impact more because it has a much smaller base than larger cities such as Mumbai and Delhi, said Saurabh Gupta, associate director, HVS International, a hospitality services consultancy firm.
“Much of this has happened because real estate players entered the market without understanding the nature of this business, hoping to make a lot of money because of the huge shortage of rooms,” he said. “They have no idea that the hotel industry does not give huge amount of cash inflows in the early stages. In fact, they call for a lot of cash infusion for interiors in the final stages. Now that funding has dried up, these players are putting their hotel ventures on hold and concentrating on finishing their residential and commercial properties which not only generate immediate cash but also attract penalties if not delivered on time.”

The Leela group had acquired around 14 acres of land on the Pune airport road where it was to build a 225-room hotel-cum-urban resort at a cost of Rs180 crore. The project has been postponed “at the moment,” said Rajeev Kaul, vice president at the firm, as also a proposed development in Hyderabad.
“We will complete our ongoing projects in Udaipur, Chennai and New Delhi and later see how the plans for these two cities go,” Kaul said in a recent interview.
Marriott International Inc.’s 250-room JW Marriott property in Pune has been postponed for two years. “There is a slowdown in the sector and we are postponing the launch from 2010 to 2012,” said Atul Chordia, chief executive of Panchshil Realty, which is building the property. Panchshil, however, is on schedule to build four other Marriott properties in the city, he said.

Chordia says the slowdown could be a blessing in disguise for the hotel industry. “By 2010 we would have had a major glut of hotel rooms in the city . All of us would be fighting for the pie and we would have to cut prices to remain in business. Now that there are delays and cancellations, the situation is not likely to be so drastic,” he said.

Soruce : www.livemint.com

VC investments pour into India, China in Q3

NEW DELHI: The global economic downturn notwithstanding, venture capital investments have continued to flow into India and China, with both
countries witnessing a significant surge in the third quarter this year.

According to a study by research firm Venture Intelligence, venture capital investment in India grew 36 per cent at 290 million dollars for the third quarter ended September 30.

Meanwhile in Mainland China, VC investments grew 22 per cent to 964 million dollars at the end of the third quarter, as per the data by Dow Jones VentureSource.

“It’s clear that venture capital investors are still eager to put money into the emerging marketplace and, in many areas, they’re actually accelerating the pace of their investments,” Dow Jones VentureSource Global Research Director Jessica Canning said.

The increased investment by existing players and the entry of new funds contributed to the growth this quarter, the Venture Intelligence study stated.
“The pace of VC investments in India seems to be accelerating despite the turmoil in global financial markets,” Venture Intelligence Founder and CEO Arun Natarajan said.

Meanwhile, as the number of VC deals nearly doubled in India to 49, China witnessed a saw the number dipping to 59 from 73 in the same period last fiscal.

“Larger deals drove investment in the third quarter as the median size of a venture deal in China remained at USD 10 million, which is the highest on record and the most out of any region we track, including the US,” Canning said.

However, the venture capitalists shied away from investing in the Information Technology and IT-enabled Services (IT & ITeS) industry in China, the sector remained favourite among the VC firms invested in India.

Source : Economictimes.com

Atria Group plans several hotel properties pan India

Bengaluru-based Atria Hospitality Management Services is planning projects in Bengaluru, Delhi NCR, Chennai, Mysore, Coorg and Hyderabad. It will launch a 270-room five-star luxury hotel ‘Atria Grand’ in Whitefield in mid 2009. This boutique hotel will have a swimming pool, two specialty restaurants, a coffee shop, two banquet halls and all the rooms will have a sauna. It is also planning a spa spread over 14,000 sq ft which will be managed by their in-house team. It will offer various therapies and massages for its guests. Just behind this property, the group has another ten acres of land where another 230-room property will be set up. Work on this project will commence after the completion of Atria Grand.

It will also launch a hotel-cum-entertainment city spread over ten acres in NCR Delhi in mid 2009. This property will have a 330-room hotel, a serviced apartment and an indoor entertainment centre. This centre will have facilities for various indoor games such as skating and entertainment shows. Its 100-room property in Mysore will face the Brindavan Gardens and will be ready by mid 2009.

Source : www.hospitalitybizindia.com

Mumbai, Delhi office market costs slip further

Mumbai : While Mumbai’s Nariman Point dropped to 5th place ($170.85 per sq ft per annum), London’s West End ($248.66) and Moscow ($234.73) remain the world’s two most expensive office markets, respectively. Hong Kong’s CBD and Tokyo’s Inner Central District round out the top five, according to CB Richard Ellis Group Inc (CBRE) Research’s semi-annual Global MarketView/Office Occupancy Costs survey. Mumbai, which was second in November 2007, fell to fourth place in May 2008.

New Delhi’’s CBD — which was placed at number eight in May 2008 — dropped to 13th place ($122.18) in the report. The report tracks world markets with the highest as well as fastest-growing occupancy costs for the 12 months ended September 30, 2008. The average rate of growth for office occupancy costs among the 172 markets monitored in the survey was 8 per cent, almost double last year’s world Inflation rate.

Anshuman Magazine, chairman & MD, CB Richard Ellis South Asia, says, “India’s office market slowdown is reflective of the global economic slowdown as a majority of the occupiers of quality office space are multinational companies. Office supply too has seen a substantial increase in the past few years. In spite of this, Mumbai and New Delhi continue to be in the top 15 world’s most expensive office markets.”

“Our current perceptions are greatly affected by the current economic malaise and we tend to forget how fast rents and occupancy costs were rising over the last 12 months,” said Raymond Torto, CBRE’s global chief economist. “Clearly the rate of change is generally slowing, and in some markets the pricing direction is down. The turn in rent trajectory will provide some relief to occupiers and angst to owners. However, unlike previous downturns, which have occurred simultaneously with extensive overbuilding, the real estate market globally today is in a stronger position to weather the difficulties than in the past.”

Source : www.indianexpress.com

Sega may land deal for India re-entry with DLF

NEW DELHI: Global gaming and theme park leader Sega Corp, a subsidiary of the Tokyo Exchange-listed Sega Sammy, is in talks with DLF for a possible
India entry. A visiting delegation of the Japanese company met with DLF officials recently.

The talks are focused on developing indoor gaming complexes — a rage among all age groups in Western and South East Asian countries. Sega theme parks, Sega World, are popular in the UK (Piccadilly), China (Shanghai) and Australia (Sydney).

DLF group executive director Rajeev Talwar has confirmed talks with Sega. “We had talks with Sega last week when some of its senior executives were in India and have understood their business models across different geographies. However, no decision has been taken on what we would do with Sega in India and our business model,” Mr Talwar said.

Interestingly, it is learnt that Sega Corp had made a foray into India back in 1994 with late Manu Chabria-promoted Shaw Wallace Electronics. However, the company shut down its operations as the gaming business did not take off.
According to sources, the two companies have shown interest in indoor theme parks — a model which hasn’t yet taken off in India.

They say DLF is likely to offer its land and Sega will bring its domain expertise on the table. DLF has the largest land bank in the country. FDI up to 100% is allowed through the automatic route in theme parks and amusement parks projects in the country.

Recently, Dubai’s Emaar Properties and Sega Corp have tied up to develop theme parks in the Middle East, North Africa and South Asia. The parks will promote Sega games while providing entertainment based on its licenses.

The Japanese company is active in five business segments through its subsidiaries and associated companies across the world. The game machine segment is engaged in the development, manufacture, sale and maintenance of Japanese slot machines, peripheral devices and designing of game halls.

The amusement machine segment develops, designs and sells game machines for amusement facilities. The other segments deal with development and sale of gaming software, toys and entertainment content. The holding company Sega Sammy posted net sales of $3.5 billion for the period March-December, 2007.

Source : Economictimes.com

PE groups step in to fill gaps as investors desert firms

Bangalore / Mumbai: In October 2007, Bangalore-based developer Nitesh Estates tied up with Citigroup Property Investors, the real estate private equity (PE) arm of Citigroup Inc., to set up shopping malls worth around $300 million (about Rs1,180 crore then) in Thiruvananthapuram, Chennai, Kochi and Bangalore over the next three-four years.

Now, Nitesh Estates is looking for another partner or investor for the shopping mall venture, a senior company official said on Monday on condition of anonymity, because the decision to tie up with another entity hasn’t yet been made. Citi received a bailout on Sunday under which the US government agreed to protect the largest US bank from hundreds of billions of dollars in toxic assets and infused $20 billion of fresh capital.
“Citigroup was on a mandate that it will get us an investor or will put in its own money, either of which hasn’t happened. Things are taking their own time, but we may bring in a different investor,” said the executive.
Umpteen opportunities such as this, where the existing investor is not able to honour its commitment because of the global financial market turmoil, seem to be cropping up for PE investors that are on a firmer footing.
More chances seem to be arising for PE companies in firms where an existing fund is seeking partners It’s not just Citigroup, the US bank that fell into trouble in its home market because of overexposure to mortgage-backed securities, but also others such as Lehman Brothers Holdings Inc., which filed for bankruptcy in September, and whose Asia-Pacific operations have now been taken over by Japanese firm Nomura Holdings Inc.

Mint had reported on 4 November that a fund sponsored by Lehman Brothers, which had invested $200 million (Rs1,000 crore today) in DLF Assets Ltd, a firm owned by DLF Ltd, India’s largest realtor by market value, had divested its stake to a unit of its co-investor, London-based Symphony Capital Partners Ltd.

In India, PE groups are not used to buying stakes from other PE firms in what are called secondary transactions. According to Venture Intelligence, a firm that tracks the PE and venture capital industry, there have been seven such transactions this year, and eight all of last year.
But that’s probably about to change, with the redrawing of the investment banking industry in the US amid the global financial tumult. Other investors says they these entities that are trying to weather the crisis are not selling from the third-party funds they manage, but are putting some investments done with their own money, especially in listed entities, up for sale.
“We are seeing a lot of companies from which some existing institutional investors want to exit,” said Nainesh Jaisingh, managing director of Standard Chartered Private Equity Advisory (India) Private Ltd, the PE arm of the UK-headquartered bank. He declined to name the entities in exit mode.
Enquiries by Mint show that investment banking entities with PE arms, such as Merrill Lynch and Co. and Goldman Sachs Group Inc. are also in an exit mode. Both Merrill and Goldman declined comment.

Data from Venture Intelligence estimates that Goldman Sachs has done a total of 16 investments worth $900 million in India on the PE front. This excludes real estate. The companies in which it has invested include Bharti Infratel Ltd, National Stock Exchange of India Ltd, Mahindra & Mahindra Ltd and Sigma Electric Manufacturing Corp.

Merrill Lynch, meanwhile has stakes in 6 companies, estimated to be valued at $200 million at the time of the transaction. Lehman Brothers has 11 portfolio companies in its PE arm, the combined value of the stakes being $300 million at the time of investment, according to Venture Intelligence estimates.

Some of the investments were done with their proprietary funds and some with funds raised from third-party investors. Apart from buying stakes from exiting investors, more opportunities seem to be arising for PE firms in companies where an existing fund is seeking partners because it isn’t able to provide additional capital.
“We are seeing a large volume of very high-quality companies where their existing investors are looking at additional funds to complete their fund-raising needs,” said Harsha Raghavan, managing director, Candover Advisors India Pvt Ltd, the Indian arm of European PE group Canodver.

Source : livemint.com

Chennai scores over Mumbai

Mumbai, Nov. 25 Chennai has displaced Mumbai as the most preferred destination for ITeS and BPO companies wanting to set up delivery centres in India, according to a study done by Dun & Bradstreet.

At fiscal-end 2008, 14.1 per cent of the delivery centres in India were located in Chennai, closely followed by Bangalore with 14 per cent and Mumbai with 13.3 per cent.

Dun & Bradstreet’s study for the previous year saw Mumbai as the most preferred BPO location while Chennai was second in that list. “The growth rate in Mumbai in terms of number of delivery centres has plateaued whereas Chennai has registered a steady year-on-year growth of around 14 per cent ,” Mr Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet – India, told Business Line in an e-mailed statement.

Positive factors

The comparative affordability of Chennai (vis-a-vis Mumbai), availability of talent, and a robust academic ecosystem appear to be driving this trend.

Chennai is a much more cost-efficient city than Mumbai; moreover, it produces an equally good talent pool as Mumbai, according to Mr Amar Chintopanth, Chief Financial Officer & Executive Director, 3i Infotech.

The people-intensive outsourcing sector in India is facing immense margin pressure due to the global financial crisis. This has prompted these companies to reduce costs on every front, analysts say.

“House rentals in Chennai are 40-50 per cent cheaper than Mumbai. Moreover, real estate (for outright sale) in Chennai is 30-40 per cent cheaper than like-to-like property in Mumbai,” said Mr Chintopanth.

In terms of concentration, the top five cities – Chennai, Bangalore, Mumbai, Pune and Gurgaon – account for 55.9 per cent of the total delivery centres of ITeS-BPO companies. Like the previous year’s study by Dun & Bradstreeet, the current one too shows that Tier-II cities are making their presence felt in the ITeS-BPO industry.

Soruce : www.thehindubusinessline.com

Baring sees more PE deals in India after market tumble

NEW DELHI (Reuters) – Baring Private Equity Partners expects more Indian firms to tap private equity as markets and economies deteriorate further, limiting firms’ ability to raise funds for expansion, a partner at its India unit said.

Subbu Subramaniam told Reuters in an interview the credit crisis was also giving private equity firms bargaining power, enabling them to target listed and larger firms.

“I can see that there is more pain to come in U.S. and because of that here also,” Subramaniam said.

“(Private equity’s) future is bright … If the stock price goes off, the promoter does not like it. But anybody who has got money and likes the business, he will be happy to buy. We think we are in that position.”

Indian companies have in recent years embarked on ambitious expansion plans, bolstered by plentiful cash and low interest rates as the economy grew nearly 9 percent annually.

But the global credit crunch has taken its toll and with the stock market falling more than a half, many firms have deferred share issues.

“Where is the option? It’s a choice among no choice. I am just at the right place at the right time as a private equity investor with money,” Subramaniam said.

Baring closed a $550 million fund targeted towards Indian mid-sized companies in March and has already committed a tenth of it, Subramaniam said.

Source : in.reuters.com

‘Core sector funding will be met’’

NEW DELHI: Even as he sought to reassure industry that the government would do its bit to boost domestic demand by enhanced spending on
infrastructure, FM P Chidambaram on Monday reiterated his earlier stance that the onus is also on India Inc to cut prices to spur growth.

Speaking at the Economic Editors Conference in the Capital, Chidambaram said though he was open to any suggestion from the industry on fiscal and monetary measures, he did not think cuts in excise duties or withdrawal of service tax from the housing and construction sector were called for at this stage.

Trying to allay fears that the current economic crisis might derail the government’s investment plans, the FM insisted that the planned $500 billion investment in infrastructure during the next five years would still be met. Of this, he said, $400 billion would be raised domestically and the rest would come from abroad.

Conceding that there was likely to be a shortfall during the current year in the quantum of foreign capital flows, Chidambaram said the government was in talks with the World Bank to double its lending to India from $3 billion to $6 billion this year. The domestic savings rate, he maintained, would remain at around 34% despite the economic crisis.

Investments won’t be a problem as the government was capable of raising fund both in the domestic and market abroad, Chidambaram said. “Following a record $32.4 billion of FDI received in 2007-08, the momentum continued with $19.3 billion received up to September 2008,” he added. Even the exports rose by 30% in dollar terms in the first six months of this year as against 29% growth in 2007-08.

Reacting to industry demands for fiscal incentives, Chidambaram argued that excise duty and service tax slabs are already on the lower side and any further cut would not really benefit industry since it would correspondingly reduce the duty drawback they get.

FM again asked for price cuts despite plea made last week having been rejected by most sectors as unrealistic. Asked whether he expected private banks to lower housing loan interest rates, the FM refused to give a direct answer but revealed his mind quite clearly. “The PSU banks have reduced PLRs by up to 0.75% on all loans to consumers.

Source : Timesofindia

Piramal fund buys Rs 300 cr stake in realty co Neptune

MUMBAI: Ajay Piramal-promoted real estate fund Indiareit has acquired about 15% stake in Mumbai-based developer Neptune group for around Rs 300  crore. The deal assumes significance as the fund has chosen to invest in the company, rather than the usual practice of investing in individual projects.

Neptune group chairman Nayan Bheda confirmed the deal, but refused to share the details, including the amount involved. “We have expanded our operations across India and the money will be invested in upcoming projects,” he added.

Neptune’s presence in multiple areas of realty business and its association with companies of global repute — Foster+Partners are project architects for Neptune’s corporate park at Kurla — might have prompted Indiareit to strike an equity deal with it, said sources close to the deal.

“It is heartening to note that even in troubled times, investors are reposing faith in the realty industry by making enterprise-level equity investments,” said Shashi Kumar, CEO of the real estate advisory division of Birla Sun Life Asset Management. “This is also an indication of the potential of the domestic property market.”

In the past few years, Neptune has grown into a pan-India player with projects in Pune, Hyderabad, Chennai, Vishakhapatnam, Kochi and Nagpur, among others.

“It is for the first time that we are investing in the entity-level. The deal will help us get a pan-India presence as Neptune is expanding operations across India,“ said Indiareit Fund Advisors CEO Ramesh Jogani. Set up in March 2006, Indiareit initially came out with a $200-million offshore fund, wherein private equity major 3i had invested $40 million.

Indiareit is looking at investments in excess of Rs 200 crore in properties in Mumbai and Hyderabad. It had invested Rs 225 crore in Bangalore-based Skyline Constructions & Housing last year.

Neptune’s projects in an around Mumbai include a business park in Kurla, a one million sq ft IT park in Thane and a 5 million sq ft residential complex for low and middle-income groups in Kalyan. The company is also developing a residential complex admeasuring one-and-a-half million sq ft in Hyderabad, a 4 million sq ft residential project in Kochi and another 3 million sq ft residential project in Chennai

Source : Economictimes.com

Banks To Provide Home Loans Below Rs 25 Lakh

Good news for those who are looking to buy their dream home. All those banks, which were going slow on home loans till recently, are now planning to focus more on home loans below Rs 25 lakh. The bankers are also expecting an increase in demand for home loans, especially in the middle and small income segments, and are taking steps to woo the customers with speedy procedures and attractive offers. “There is a 57 basis point reduction in the interest rates on home loans. This will drive the demand,” Mr. R. S. Reddy, Chairman and Managing Director, Andhra Bank said. The bank would focus more on home loans between Rs 10 lakh and Rs 15 lakh as it would ‘definitely help profitability,’ he added.

Source : The Hindu Business Line

Realty Market Recovery Hinges on Lower Rates

Recovery in the Indian property market in the next six months hinges on lower home-loan rates to entice first- time buyers.

“Mortgage rates in India are at 12 percent to 13 percent, about twice what they are in China. That is unrealistic,’’ Rajiv Singh, 49, vice chairman of DLF, said in an interview. “If rates are cut, the domestic demand itself will carry the country through this difficult period.’’

DLF lost four-fifths of its market value this year as the highest interest rates in seven years sapped demand for apartments and homes. Finance Minister Palaniappan Chidambaram said this week there is scope for lower borrowing costs after two reductions in a month failed to unblock credit markets.

“It’s tough to say if a cut in interest rates will change the sentiment,’’ said Hugh Young, who manages $2 billion for India Opportunities Fund as the managing director at Aberdeen Asset Management Asia Ltd., in Singapore and holds DLF shares. “In the current environment, people in India will be wary of buying property and stretching themselves.’’

Real estate, automobile and steel companies have cut output and deferred projects to cope with a drop in demand in the world’s second-most populous nation. India has relaxed overseas borrowing rules and initiated a process to allow higher foreign ownership of domestic insurers to ease a credit crunch and infuse confidence.

DLF and Emaar MGF Land Pvt., the Indian unit of the Middle East’s largest real-estate developer, are also cutting prices to revive demand. Goldman Sachs Group Inc. this week forecast some property prices in India will drop 30 percent. Singh said some of the fall has already taken place.

India faces a shortage of about 25 million houses, a figure that may rise to almost 27 million by 2012, Housing Development Finance Corp. estimates.

HDFC, the nation’s biggest mortgage provider, plans to increase lending more than 20 percent this fiscal year, Managing Director Keki Mistry said this week.

DLF is focused on completing projects that need to be delivered and holding back spending on those that have yet to be built, Singh said.

The company has raised 20 billion rupees ($400 million) and plans to borrow another 10 billion rupees in the year ending March 31, securing funds against lease rentals from its office and retail space, he said.

“It is a safe form of financing because you basically discount your lease rentals,’’ said Singh. “We have been quite successful, firstly in generating an operational surplus and raising long-term money.’’

Singh is following a similar strategy for DLF Assets Pvt., whose investors include D.E. Shaw & Co. and Symphony Capital Partners. DLF Assets is majority owned by Singh and his family and buys commercial space from DLF Ltd. About 37 percent of DLF’s second-quarter sales came from DLF Assets, according to India Infoline Ltd. analysts Bhaskar Chakraborty and Param Desai.

DLF Assets may raise about 40 billion rupees by July against assets that yield lease rentals, Singh said.

It is also considering selling shares through an equity placement to raise about 25 billion rupees by the middle of next year, he said. It has appointed JPMorgan Chase & Co. to advise on the sale, he said.

“DLF Assets will be in a position to meet a large portion of its commitment to DLF Ltd.,’’ said Singh. “Hopefully, sooner by equity placement, or by debt raising against the assets it has.

Invest in real estate by getting home loans in India

The loans that actually exist seem to be a far cry when a potential borrower is bound by the constraints of income. But, in reality procuring such loans is not that difficult as it seems.

Right after the green signal for cent percent FDI in the real estate sector from the Indian government there has been a sea change in this sector in India. As such, FDI in the real estate sector has gone up from 4.5% in 2003- 2004 to 16% in 2005-2006 and it has been increasing since then.

This liberalisation of the Indian economy has led to the emergence of many lenders in the country. As such, this trend has brought about a favourable change for the potential borrowers as well i.e. the changes in the payback terms and conditions. Moreover, with the application of the information and communication technology procuring a loan has become much easier. All these factors have led to the elimination of the time that was required earlier to procure a loan and the processing fee.

There are various types of businesses within the domain of Real Estate. A large number of people earn their living with such businesses associated with Real estate. Such businesses may be professional valuation services, mediator, broker etc., between two parties in the business pertaining to real estate. There are also businessmen who do construction works on a land and management of these constructions and the real estates. There are also professionals who deal with the sales and marketing of this sector.

In order to procure a home loan in India an employed borrower must furnish documents pertaining to employment status and the salary slips of around last six months. When the borrower is a self employed man, he is generally required to furnish a balance sheet, profit and last account of at least three years etc. Further, an individual must have attained 18 year of age, possess permanent residential proof like PAN card, Voter ID card etc. In addition, a bank statement would put a client on an advantageous position.

A home loan in India can be utilised to construct new building, reconstruct already existing building and for various other purposes pertaining to house construction. Such loans are available in two different forms which are secured and unsecured. When it is a secured loan the prospective borrower should pledge an asset as security against the loan sought. Due to the involvement of the security the rate of interest of secured loan many reasonably be less and the debtor may bear the loan for a longer period. The debtor may also be in an advantageous position to bargain for more loan amount. Similarly, this security puts the lender also at the advantageous position by lowering the risk on his part to lend loans.

On the contrary, when it is an unsecured loan the prospective debtor need not pledge any security. Thus he may not be in a position to bargain for himself. Owing to the insecurity the client may need to bear higher rate of interest and shorter repayment period. Moreover, the credit amount may also be relatively smaller.

Home loan in India is offered by a number of banks like Punjab National Bank, HDFC, SBI, ICICI. These banks deliver the loans at relatively easy EMIs and decrease the burden on the borrower to pay of the credit.

Home loans are also very helpful in purchasing real estate property in India. It is because the population of the country is more than hundred corers and purchasing a real estate property here is definitely a big deal since the majority of the population of the land are not sound enough to purchase a real estate without the support of home loan in the country.

Source : www.loftyvistas.com

DLF’s Mumbai projects get delayed

DLF, India’s biggest realtor according to market capitalisation, has delayed its Mumbai projects, including development of a mill property at Lower Parel and a hotel project, as a severe downturn puts the real estate sector in distress.

According to sources, the retail-cum-entertainment centre at Mumbai Mills property, which marked DLF’s entry into the financial capital three years ago, has been delayed by two years. The project, announced in June 2005 and slated to be completed in December 2009, is still at the excavation stage.

DLF chairman KP Singh said two days ago that the company had deferred some of its commercial, retail and hospitality projects.

A source said, “The Lower Parel project is now delayed by two more years and DLF is paying the backlog cost very dearly. Even its hospitality project at Prabhadevi (Dadar) has been delayed.”

A spokesman for DLF, however, said, “We are not going to defer any commercial project, which has already been pre-leased, or housing projects where money has already been taken from buyers.”

Regarding the Lower Parel project, he said, “We are going to develop this property as high-end commercial and retail project and if we give any timeline it would be very speculative. The project’s plans have changed from its earlier projection to include retail with commercial office space.”

Ramesh Sanka, CFO, DLF, had told DNA Money in October this year that the Lower Parel project would be completed by December 2009. The company expects to generate average rental of more than Rs 200 per sq ft, including the rentals for its mall. The Lower Parel property was being developed by Jawala Real Estate Pvt Ltd, a subsidiary of DLF Retail Developers Ltd, the retail wing group of flagship DLF Universal Ltd.

Sources said DLF’s five-star hospitality project in central Mumbai, which it is developing through a joint venture with Mumbai-based Akruti City, has also been delayed. According to them, DLF will now take up the hospitality venture, planned on an area of 5 lakh sq ft, only if it is able to strike a private equity deal and get an advance.

Vimal Shah, managing director, Akruti City had told DNA Money in June, “The total cost of the project is estimated at Rs 2,000 crore and construction would begin by November this year.”

Sources said the project was a part of DLF’s deal with Hilton Hotels to develop 75 hotels pan-India. DLF, however, denied that the Mumbai hotel project was part of the Hilton venture.

The hospitality JV with Akruti is for developing commercial and hospitality projects across the city through various special purpose vehicles. DLF holds 66% stake in it, while Akruti holds the rest.

The DLF-Akruti JV is also developing a commercial project on slum area.

The first project, coming up at Andheri MIDC, was to be handed over by the first quarter of calendar 2009, but will now be delayed. DLF holds 75% in the Andheri MIDC project, with Akruti holding the rest.

An analyst with a local brokerage said, “If the joint venture is building a 200-key hotel, then they need more than Rs 200 crore to put up the project with the land cost. As of now, every developer wants to stay liquid, so there is no question of construction unless the money comes in. Also, the Andheri project is running at a good speed and it is expected to complete in the next one and a half years.”

Source : sify.com

A 30 per cent drop in prices needed to spur realty sector growth: Goldman

A minimum 30 per cent drop in prices will be required to spur the Indian real estate market back into action, according to global financial services major Goldman Sachs.

And this may not be accomplished without a drop in home loan rates as well, the firm said in a report on Indian real estate.

”Our India Real Estate Team believes that prices may have to fall by up to 30 per cent in some geographies for affordability to catch up,” Goldman Sachs said in its report.

The report by the global financial institution comes close on the heels of statements issued by finance minister, Mr P Chidambaram asking industry to reduce prices in order to boost consumer demand.

The ruling prices, at least in the suburbs of Mumbai and Bangalore, are so high that they have to decline by up to 30 per cent to boost demand, Goldman Sachs pointed out.

”Although prices over the past three years have gone up in line with other economies globally, they have not corrected substantially, unlike its global peers,” Goldman Sachs said.

A drop of 30 per cent, however, will have its negative implications for the country’s it warned.

But, it said, demand for houses would anyway be pushed down if the ongoing economic slump continues and the demand for commercial real estate would also be adversely affected due to the slowdown in the IT and Business Process Outsourcing (BPO) sectors.

”Demand for real estate is largely driven by income growth, demographics, interest rates, and inflation, but also people expectations of future prices. As the economy continues to slow due to the knock-on effect of the global financial crises, income growth will come off, thereby reducing demand for housing,” the report said.

Source : www.domain-b.com

Realtors don’t budge on price

Mumbai: Developers have been howling from the rooftops for a government bailout, but most of them are unwilling to take the first step and scale down rates.

In Mumbai, despite being in financial hot waters, they are plain unwilling to make housing affordable. Realty sector analysts say this is because developers have formed a cartel to the detriment of prospective customers.

Posing as home buyers, DNA enquired at 18 prime properties in Mumbai, the National Capital Region of Delhi and Bangalore.

The story that emerges is that builders in the south and the north are offering price cuts of between 10% and 20%, but those in Mumbai are not ready to budge an inch.

An analyst with a foreign brokerage, who requested anonymity since he is not authorised to speak, blamed the situation on cartelisation.

“Without reducing their card rates, they ran to the government for a bailout. Not a single developer has said he has cut prices. The fact is developers are unable to sell flats and have huge loans to repay. This needs to be cleared this year itself and banks are not ready to give any extension on repayments,” he said.

“Reducing property rates will mean their ability to repay banks gets reduced, which is why they are chary of cutting prices,” he added.

He may not be far off the mark. Of the 10 properties surveyed in Mumbai not a single developer was willing to offer a discount. Even on projects where possession would be only after November 2009, there was no room for bargaining.

Nirmal Lifestyle was offering a discount —- a mere 1% or Rs 76,000 on a flat costing Rs 76 lakh.

The sales officer at Orbit Corporation, which focuses on redevelopment of dilapidated buildings, said the going rate for Orbit Arya, a project on Napean Sea Road, is Rs 60,060 per square feet.

“We have already reduced the price from Rs 72,000 three months back,” the official said, claiming seven of 11 flats have been sold.

RBI steps not a certainty to banks increasing lending

Some time back, real estate analysts had warned buyers not to put money into under-construction projects since realtors were facing a severe financial crunch. The projects DNA contacted were all ready for possession.

“It’s almost as if developers are taking advantage of the situation —- if you don’t invest in under-construction projects, there will be no reduction in the prices of ready flats,” said an industry source.

But the north and the south are a different story.

Companies such as DLF, Unitech, Parsvanath, Omaxe and Raheja Developers are all offering a minimum 9% to a maximum 17% in places such as Gurgaon and Noida on upfront payments with room for further negotiations, DNA’s enquiries revealed.

Most of these apartments are large, between 1,600 sq ft and 3,000 sq ft.

Unitech’s ambitious project in Noida, Unitech Grande, which was expected to generate a revenue of Rs 15,000 crore, has excellent discount offers.

The sales officer said there is 15% discount on upfront payments for flats costing Rs 2-3 crore; “We can negotiate further,” the official said.

That’s twice the discount Unitech’s competitors are offering for similar projects.

A spokesperson for DLF, India’s largest realtor, said the company will not cut prices as it is offering “affordable” apartments starting at Rs45 lakh.

On Thursday, Rohtas Goel, president of Naredco, the government body for realty players, requested its members to cut prices by 1-5% on present projects, nearly 10% on future projects and 10-15% for affordable housing flats costing Rs3-20 lakh.

Bangalore-based Sobha Developers has already announced an 8% cut in rates on Friday on “immediate and upfront” payment for its Rs 1.5-2 crore luxury project that will come up in two years.

Jai Mavani, infrastructure and real estate head of audit giant KPMG, says realtors have no choice but to cut prices in one stroke. “Otherwise there is no way they can stimulate sales. It is a Catch-22 situation for them. They need to bite the bullet if they want money to come into their pockets,” Mavani said.

Source : Sify.com

Property rates to fall further in ’09

Domestic property prices are set to fall by a quarter in ’09 as the global economic crisis saps homebuyer confidence, adding to problems of
capital-strapped developers. A property market boom has been waning for a year, with land prices falling 15% from a mid- ’07 peak. But analysts predict tougher times ahead. “We’re expecting a horrible ’09,” said Anshul Jain, CEO for property services firm DTZ in India . “Prices have already shown signs of coming off, and chinks in the armour are surfacing.”

Property prices doubled in the two years after rules were eased in ’05 on investment in the construction industry, sparking interest in home-building among foreign funds. Developers, often in league with funds run by the likes of Morgan Stanley, Citigroup and Merrill Lynch, snapped up land. Realty majors like DLF and Parsvnath Developers launched huge IPOs to fund new projects. But the sharp rise in prices and interest rates slowed home sales. The global crisis has added to the gloom. “We expect a 20-25 % price correction,” says Anurag Mathur, joint MD at Cushman and Wakefield.

FIIs are now unlikely to jump into the Indian market. But the funds already raised, somewhere between 75 and 100 of them, are waiting for developers to drop their pricing for JVs, so they can get the 30% internal rates of return they hanker for, even in a bad market. Developers are hoping that as inflation softens, falling mortgage rates will make homes affordable again . But financing deals will not happen until developers get a better grasp on how far the market will fall, Mr Jain said.

Source : Economictimes.com

LIC Housing shifts focus to loaning builders

MUMBAI: While the frozen liquidity lines have checked the real estate boom, LIC Housing Finance is disbursing more loans to builders/developers who constitute 6 per cent of their business as against individuals which make up 94 per cent of their business.

“We are supporting the builders and developers by funding their upcoming projects to support individuals to afford real estate properties. This will, in due course, result in escalating business in our home loan segment,” said R.R. Nair, director and chief executive, LIC Housing Finance.

Ground reports suggest builders are now negotiating prices with buyers, although they still refuse to reduce property prices officially. LIC Housing aims to convince builders to bring down prices to a reasonable level by offering easy and hassle-free loans to builders (for new projects).

The idea behind the shift in focus is to encourage individual buyers to book properties. The intention is evident in the loan disbursement target set by the company for the current fiscal. The company plans to disburse Rs 8,000 crore in home loan segment and Rs 2,000 crore loan to builders by the end of the current fiscal, as against Rs 5,900 crore and Rs 1,200 crore respectively in the last fiscal 2007-08.

As of today, LIC Housing has disbursed Rs 5,000 crore, of which Rs 500-Rs 600 crore went to builders. Moreover, it has already approved Rs 6,000 crore loans for which disbursement is due.

In the words of Mr. Nair, this strategy can be coined as “loan on tap”. “When we give loans to builders, we also make soft approach to their buyers to take home loans from us. The builder himself shows the way, although it is not a compulsion for the buyers,”he explained.

LIC Housing is funding builders in all projects sizes–big, medium and small. According to the sources, it has allocated funds to real estate projects of Rajeha Builders, Sheth Builders and is also in the process of loaning money to Sriram Builders. However, Mr. Nair refused to comment on these developments.

In disbursing loans in this distressed economic situation, LIC Housing is however taking certain precautionary measures. The company is now funding estate projects mostly in consortium with other financial institutions like HDFC, SBI, Punjab National Bank, Axis Bank, Central Bank. “This strategy was framed to distribute the risk factor, especially in this downturn market. In a big project of Rs 2,000 crore, if all institutions contribute partly, the risk factor is mitigated on pro-rata basis,” Mr. Nair said.

The company also ensures that the asset value of the securities given by the borrower as collateral is twice the loan value. Thirdly, it meticulously examines the cash flow of the builders in respect of the current depression. LIC Housing also studies the neighbourhood to determine the rationale for pricing a property.

Source : Economictimes.com

Right time to buy a flat

Suddenly, owning a house has become a lot easier. After reigning high for a couple of years, property prices have fallen considerably in the last six months bringing cheers to those planning to buy a house or plot. Realty experts say this is the right time to buy flats and houses since the prices are ‘lucrative’.
To attract middle-income customers, real estate companies are offering discount schemes. Firms that developed layouts in city outskirts have reduced prices of property to give tough competition to rivals.

Fall of steel prices has also helped realty firms to rationalise prices of property. Steel prices which touched a high of Rs 50,000 per tonne have now come down to Rs 32,000 per tonne. This has brought down the cost of construction by around Rs 70 per sq ft, bringing cheers to both realtors and buyers. There is hope construction cost would get reduced again with inflation and oil prices coming down in a couple of months. Karvy Relaty India Limited, which has conducted a study on the current real estate scenario, said that it was the right time for the investment because of the ongoing ‘correction’ in the market. ‘Almost all the companies have reduced prices to around Rs.200 per sq ft for flats,’ said Mr Sarath Babu Sakhamuri, regional head of Karvy Realty India Limited. ‘Plot rates have also been stabilised.’

Indu Projects, which had has taken up ‘Indu Fortune Fields and Indu Aranya,’ said that big companies had never been too affected by the pricing system. ‘We always fix the prices of properties based on the construction cost,’ said Mr Mahender Basani, chief marketing officer of Indu Projects. ‘So, we never jack up the prices even if there is higher demand. That is the strength of our organisation.’ JSR Real Estates, which has developed ‘Sai Lakshmi Residentia’ on the Bengaluru Highway, said the there was still huge demand for projects developed around the new international airport at Shamshabad.

‘Buyers are still coming forward to invest in good projects which have got approvals from Hyderabad Metropolitan Development Authority,’ said Mr J. Narayana, managing director of JSR Real Estates. ‘Earlier, buyers used to purchase plots without verifying the growth potentiality and approvals of civic bodies. Now, they are very careful.’ AP Builders Forum which has studied the latest market trends felt that Hyderabad would witness a fresh boom very shortly. ‘It is better to book flats now; otherwise the rates of properties may go up again once the demand increases,’ said Mr C. Sekhar Reddy, president of the forum. Builders are also urging the government to reduce taxes and the interest rates of home loans to 8 percent from 12 percent per annum to help customers. At present, the builders are paying around Rs 600 per sq ft as taxes and fee.

However, financial experts say the reduction in home loan interest rates can only be undertaken after the global economy stabilises. ‘Indian real estate sector has also been affected by the recession in US economy,’ said Mr K. Narasimhamurty, IDBI director. ‘The Union government may take steps to boost the realty sector which creates huge employment all over India.’

Source : www.pr-inside.com

NRI Home Loan: A friend for the non-residents

Are you residing abroad and thinking of investing in a residential property in India then NRI home loans are the best option for you. Usually NRIs are doubtful whether they can invest in a residential property in India or not. They are not aware if they can dispatch funds from abroad under the current foreign exchange regulations to make any such purchase in India.

NRI can easily buy any immovable property in India through a number of options. But again the question arises that if an NRI want to invest here and he does not have sufficient funds then what should he do? Under such circumstances an NRI has a ready-made option of NRI home loans in India.

NRI home loans are loans available to Non-Resident Indians for the purposes buying houses that are under construction or for sale. They can also be availed to buy a plot of land or to renovate/improve an existing property. For extending such a loan all banks and housing finance companies go by the definition of NRI as given by RBI – “An Indian citizen who holds a valid Indian passport and who stays abroad for employment or for carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a NRI.”

NRI home loans can be availed by any NRI with as much ease and convince as any resident would avail a home loan. However some difference between the two kinds of loans exists in terms of tenure, documents, repayment etc. The home loan rate charged by an NRI does not differ much by the interest rate charged by an Indian for his home loan but the tenure for such loans differs to a great extend. NRI home loans are extended for much shorter period as compared to the normal home loan. The loans tenure for NRIs extends from 7years up to a maximum tenure of15years where as the maximum tenure for a resident is from 25 to 30 years. Also an NRI cannot opt for a loan tenure that exceeds beyond his retirement age or 60years, which ever is earlier.

Besides an NRI can only get 85% of the loan amount and the remaining 15% has to be brought himself by the borrower. This amount can be paid by the borrower through direct remittances from abroad via the normal banking channels, the Non-Resident External (NRE) account and /or Non-Resident Ordinary (NRO) account in India. The loan amount depends on the individual’s gross monthly earnings. This amount is normally up to 36 times of the gross monthly income but there is also a maximum limit on this amount.

Also the documents needed to provide for availing a home loan by the NRIs are different from the residents. They are required to submit additional documents, like copy of the passport and a copy of the works contract, power of attorney etc.

The repayment for an NRI home loan is done through EMIs that includes interest and principal amount calculated on the monthly basis. The borrower can pay the EMIs by issuing post-dated cheques from his (NRE)/ (NRO) or Non Resident (Special) Rupee Account (NRSR) in India or any other account approved by the Reserve Bank of India (RBI). Also for security purpose, banks stress on keeping the first mortgage of the property in their name and if the property is under construction then an additional security such as guarantee of third party is required. This third party can be both a resident and a non-resident of the country.

Home loans are eligible for tax rebate but NRI cannot claim this benefit on home loans in India as they are eligible to pay tax in the country in which they reside and work.

An NRI who wishes to avail a property back in India can accomplish his dream by relying on an NRI home loan. The aspects covered above would have cleared doubts about the sanction and availability of such a loan.

RBI makes it easier for banks to lend

Over the past few years, banks went all out to expand their home loan portfolios. In the present scenario of increasing interest rates and squeezing  liquidity, the default rates are expected to increase. Bankers feel that home loan defaults could rise in the light of the economic slowdown. The delay in receipt of EMIs impacts the quality of loan assets of banks negatively. The Reserve Bank of India (RBI) had mandated strict guidelines for provisioning of loan assets of banks.

The RBI has extended guidelines on restructuring, that are currently available to industrial units, small and medium enterprises (SMEs) etc, to encompass home loans given by banks. This would benefit the banks.

The RBI has said banks can now avail of the special regulatory treatment relating to asset classification on restructuring of home loans. Previously, the RBI had prescribed a ceiling of 10 years on the repayment period of restructured advances, thereby making housing loans, which have a tenure ranging between 15 and 20 years, not eligible for the special treatment. Home loans can be restructured either by extending the repayment period or by giving a moratorium on interest payment for a certain period.

According to the RBI circular , the ceiling of 10 years on the repayment period of restructured loans would not be applicable, subject to compliance with all other terms and conditions prescribed by it. The board of directors of the banks should prescribe the maximum period for restructured advances keeping in view the safety and soundness of advances.

According to the RBI, the restructured housing loans should be risk-weighted with an additional risk weight of 25 percentage points to the risk weights prescribed. Previously, banks had to assign a risk weight of 50 percent on loans up to Rs 30 lakhs and 75 percent on loans of Rs 30 lakhs and above. This will prevent banks’ home loan assets from being downgraded once they are restructured, and help in improving the bottomlines of banks. Banks can book interest, but need not provision for bad or potentially non-recoverable loans.

When the amount due to a bank (present value of principal and interest receivable as per restructured loan terms) is fully covered by the value of the security, charged in its favour, the bank’s due is considered to be fully secured.

While assessing the realisable value of a security, primary as well as collateral securities would be reckoned, provided such securities are tangible securities and are not in intangible form like guarantee etc of the promoter or some others. However, for this purpose the bank guarantees, State Government guarantees and Central Government guarantees will be treated on par with tangible security .

restructured account is one where the bank, for economic or legal reasons, relating to the borrower’s financial difficulty, grants to the
borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance, which would generally include alteration of repayment period, repayable amount, number of instalments , or rate of interest.

This easing of pressure on banks would enable them to go a bit easy on home loans – both in terms of disbursals and new approvals. The banks were increasingly becoming reluctant because of the stringent provisioning requirements. In case of defaults or delays, they were required to make an appropriate provision in their books. This affected the financials of banks. The new guidelines provide greater leverage to banks. They will now have greater flexibility to provide home loans for long tenures.

Source : Economictimes

Margins too low to slash prices: State realtors

Ahmedabad : Realtors across the country may be finally resigned to the idea of a price cut by 5% to 10% to kickstart the realty sector, but
developers in Gujarat have refused to bite the bullet citing thin profit margins.

It was only on Thursday that Confederation of Real Estate Developers’ Association (Credai) had appealed to its 3,500-odd member developers to lower prices. The move came following finance minister P Chidambaram’s plea to realtors to drop prices in order to infuse demand in the sector.

Talking to TOI, Credai (Gujarat) president Mukesh Sheth said they had conveyed to Credai their decision that they will not drop prices since Gujarat realtors operate on very thin margins.

“Unlike realtors in other parts of the country, Gujarat developers can’t afford to drop prices since their profit margins are not more than 5 to 10 per cent. Any reduction in prices will make the business unfeasible. Secondly, demand for realty in the state has not been hit as badly as in other states. One can say this since demand still outstrips supply and realty is still affordably priced,” Sheth said.

According to Sheth, the average realty prices in Gujarat range from Rs 900 per sq ft to Rs 1,300 per sq ft in smaller towns. Prices in bigger cities like Ahmedabad range between Rs 1,500 per sq ft and Rs 2500 per sq ft.

“As compared to this, average realty prices in cities like Pune, Mumbai or Bangalore range from Rs 3,800 per sq ft to Rs 6,500 per sq ft, which is why realtors there can afford to reduce prices by 5 to 10 per cent,” Sheth explained.

Interestingly, Credai (Gujarat), which was known as Fredag, accounts for nearly 40 per cent of Credai’s member association base with 22 member associations from 18 towns and cities.

Suresh Patel Credai Gujarat secretary and vice-president of Gujarat Institute of Housing and Estate Developers (GIHED), a Credai Gujarat member said that Credai Gujarat had also urged the Centre to implement certain measures to revive the decreasing demand.

These steps include, directing banks to drop interest rates on housing and project finance loans, re-introducing income-tax exemptions to realtors building houses of less than 1,500 sq ft under Section 80 (IB) of the Income Tax Act and reducing diesel prices in line with plunging international crude prices to lower input costs.

Patel said Credai (Gujarat) had also appealed to the state government to give special permissions for affordable housing projects offering homes in the range of Rs 10 to 15 lakh near cities through means of additional FSI.

Source : Timesofindia

Trying hard to stay afloat

Once the fastest growing property market in the country, Pune has defied all calculations of real estate industry. Property prices in Pune have
plummeted over the past three months.

Earlier dubbed as a passé, 1BHK flats are back in action and this time with a sugar-coated name — compact housing. Interestingly, unfazed by the slowdown, super premium category of housing (Rs 3 crore upwards a unit) continues to grow as builders have announced new projects.

Driven by the booming IT business, Pune’s property prices had shot up to exorbitant levels over the last four years as builders sold flats at up to thrice the rate prevailing earlier. Following the slowdown, demand suddenly dropped and property prices fell by up to 30%. Though builders refuse to accept, they are now open to negotiate with serious buyers.

A source said, “Customers have postponed purchases hoping that prices and interest rates will drop. With reduced demand, and thus shortage of funds, builders are postponing schedules of handing over possessions and launching new projects. Some have even stopped work due to lack of funds to source raw material.”

However, the niche market of super premium apartments is growing at its pace in Pune. Marvel Realtors, Swapnali Bhosale Constructions (SBC) and INC Developers develop high-end apartments (measuring 3,500-7,500 sq ft. Swapnali Bhosale, director of SBC, said, “The high-end market has not been hit, though growth has been a little slow. The clientele for this segment is unaffected by the slowdown. The demand for such high-end apartments will increase as the middle class and the high income class is growing.” The slump in prices and erosion in demand is also evident from the builders’ marketing campaigns. Their advertisements from January to August this year focused on intangible attributes like posh amenities, royal living, luxury, etc.

From mid-September, the advertisements changed radically, this time down to tangibles like area, rates per sq ft etc. Builders have brought up enterprising ideas to attract buyers, all of which, experts believe, are meek attempts to salvage a crumbling market. Belvalkar Housing, a company with projects underway in western Pune, has said it would refund the money with interest, if at the time of possession the customer thought prices have reduced. Wadhwani Constructions offers a car with a 3BHK flat and two-wheeler with a 2BHK flat. Kubix Realities offers 2 kg gold or luxury car on a Rs 2.75-crore bungalow.

The slowdown has brought back the 1BHK flats that sold like hot cakes till around six years back. Lalitkumar Jain, president of the Promoters and Builders Association of Pune, has sent letters to the members of the association asking them to include 1BHK flats in their projects, expecting that to keep the sales moving. Sources claim that 1BHK flats would now comprise 60% of the sanctioned projects, which earlier made up to barely 10%, with 12,000 units expected to come up next year.

Source : Economictimes

Slowdown? Home loans grow 20-25%

NEW DELHI: Contrary to popular perceptions that the Indian housing market is in the doldrums, the home loan market is exhibiting surprisingly Home loan: Should you prepay? positive trends.

SundayET spoke to a cross-section of bankers and came out with the conclusion that the home loan segment is quite robust. During the last three months, the segment has witnessed an average growth of 20-25%, largely due to small-ticket buying.

And with real estate developers planning to announce major discounts in the coming days, housing finance companies are getting ready to meet an increased demand as they expect more first-time buyers to come to the market. Bankers say the demand never evaporated from the market, it just changed hands from speculators to genuine home buyers.

Says Uday Sareen, country head, retail banking, ING Vysya Bank: “It’s all about perception. We have seen a growth of over 40% in the home loan segment in the recent quarter against the year-ago period. This shows that genuine buyers still exist in the market.”

“With developers now offering good deals, we expect the demand to further go up in the coming days.” The bank’s average loan ticket size is Rs 20-25 lakh.

LIC Housing Finance is not far behind. The housing finance company saw 33% growth in October, year-on-year, in comparison to 29% growth last October, year-on-year. “It shows that the end-user is still persistant. In fact, the average loan size has also grown from Rs 10.6 lakh to Rs 13 lakh. We are very much on track to achieve our growth target of 30%. We have witnessed maximum growth in Chennai and Hyderabad among metros,” he said.

Bankers believe that the interest rate cut alone can not prop up demand in the Indian housing market, unless it makes sense for all the stakeholders, customer, builder, and financier.

“It’s a tall order. It’s not going to help in the long-term. Interest rate. property price and income improvement create demand for housing. Reducing interest rate alone can’t solve the problem, there has to be a genuine cut by realty players in property prices to prop up the demand,” feels Mr Nair.

Agrees Kapil Wadhawan, vice chairman & managing director of Dewan Housing Finance. “There is a genuine need for a rate cut,” he said. The company has registered a growth of around 17% over the six month period, and the average loan size in their case has been Rs 6 lakh. “We have set ourselves a realistic target of 20% growth this financial year,” he said.

Shravan Gupta, executive vice-chairman & MD, Emaar-MGF believes that today’s market is experiencing greater end-user participation. “It is a good time to buy property for your own use. The consumer needs to make prudent decisions based on his value perception of a product from a developer with a proven track record that seamlessly addresses his requirements. Only price should not be the determining factor as it clearly needs to be reasonable and feasible enough for the developer to execute his project,” he said.

Mr Nair has an optimistic view on the overall macro environment. “The temporary perception of liquidity shortage should disappear soon. The fact is that genuine user is still buying, only his expectations have reduced in line with affordability,” he believes

Source : Economictimes

No fall in Kolkata realty prices

KOLKATA: Never mind the predictions. If you expect apartment prices to nosedive in Kolkata soon, you are barking up the wrong tree. The reason is
simple: Local builders and realtors have rejected the clarion call by Real Estate Development Council (NAREDCO) and Confederation of Real Estate Developers’ Association of India (CREDAI) the two major clusters of builders for reducing prices to boost demand.

“I don’t think a 10% cut in the price of an apartment which is selling for Rs 5,000-8,000 per sq ft will make any difference to buyers. Nor will a 5% slash in apartments priced at 2,500-4,999 per sq ft act as a stimulant. What’s required is a 25-30% reduction, which would widen the threshold and broaden the customer base in apartments priced at 2,500-3000 per sq ft. And that is not going to happen in Kolkata, as prices here are already reasonable,” said Sumit Dabriwala, Riverbank Holdings managing director.

Builders also say that the mini correction in new projects will be on account of the recent reduction in building material costs. While prices of three primary inputs steel, cement and bricks have escalated 100% or more in the last two years, price of TMT bars went down from Rs 45,000 per tonne to Rs 35,000 for the same amount last month. Cement prices were also revised marginally from Rs 230 a bag to Rs 215.

“Construction cost has gone down by 10%. If prices don’t escalate again, builders can pass the benefit on to customers. But that’s the maximum correction that can happen,” said CREDAI Bengal president Pradeep Sureka.

With construction cost pegged around Rs 1,700-1,900 per sq ft and an average price of Rs 2,500-3000 per sq ft, developers said they could not go in for a major price cut. “If the construction cost comes down to 1,400-1,500 per sq ft, we will pass the benefit on to the customers. But whether that will stimulate the market is doubtful. Only a 2-3% reduction in interest on home loans can catalyze the market,” Sureka said. CREDAI national chairman Kumar Gera had urged fellow developers to cut prices to improve affordability for the end customer and build confidence among home buyers. But realtors in Kolkata ducked the suggestion, saying they didn’t operate with the kind of margins that builders in Delhi, Mumbai or Bangalore did.

Sachin Sandhir, MD & country head of Royal Institution of Chartered Surveyors (RICS), agreed that the Kolkata market didn’t appear to be behaving like the rest of India. “Kolkata is like an oasis in this blizzard. The market is sound and prices are holding firm. The appreciation in the city was never as absurd as Delhi or Mumbai,” he said.

Around the city, the only place where stock is available in bulk is New Town. That’s the only place where the market slump has triggered some distress sale by investors at rates that are Rs 400-500 below the mark-up price. “At other places, prices are steady,” said Abhijit Das, regional director of international property consultant Jones Lang LaSalle Meghraj (JLL Meghraj).

Odd high-end properties in Ballygunge or Alipore, which had seen a fair bit of over-heating, leading to rates of 12,000 per sq ft, have seen prices coming down to Rs 8,000. This segment could see a further correction of 15%, but its impact on the market would be insignificant, as there are hardly any stocks available.

Just outside Kolkata, construction work at Nirvana Country, formerly Kolkata West International City, Logistics Hub and Calcutta Riverside have slowed down considerably, as have projects in New Town, Rajarhat. “If the market revives in two years, there won’t be much stock available. Hence, the confidence among the builders to tide over this crisis,” said PS group director Pradeep Chopra. Projects such as Active Acres and Elita Garden Vista-Keppeland could face rough weather. “There’s nothing wrong with these projects. People are not buying because they aren’t sure if they will retain their job a year from now, or whether the rate of interest will remain the same or go down,” a realtor pointed out.

Das of JLL Meghraj felt prices of new projects could be 10-15% lower than other projects in the neighbourhood, as realtors have realised that margins will be squeezed. “The benefit of national advisory is that the shame of having to reduce prices will disappear. Developers that are overpriced or have weak products now have an opportunity to make a correction,” he said.

In the retail sector, new mall projects Axis City, City Centre 2 and Terminal have been delayed. With no retailers keen to sign at the present moment, delays are inevitable. Haute Street, a proposed mall on the Park Circus connector, looks to be changing character and turning into an office. Realtors, however, expected other commercial properties to hold steady as supply of office and IT space is still in demand. There may be a 10-15% downward revision in rentals, but it’s still better than what developers in the National Capital Region and Mumbai are faced with,” Sandhir added.

Source : Timesofindia

Fast growing retail markets

India has six of the 10 fastest growing retail markets in Asia, with Linking Road in Mumbai the most expensive retail high street in India, according to ‘Main Streets Across the World’, an annual report by Cushman & Wakefield.

The survey, covering 236 locations in 48 countries carried out in June 2008, puts Linking Road, Mumbai, as the fifth most expensive location in Asia, and among the top three locations globally to witness the highest annual growth in rental values.

The press release from Cushman & Wakefield also strikes a note of caution. The third quarter of 2008 was significant for the retail real-estate sector as many established locations saw some decrease in value in mall and high streets.

In the last two years the rentals have grown faster than business potential, which hits rental sustainability. Though the domestic locations are positioned high in global ranking as on June 2008, Linking Road and other markets have felt the market pressure in 2008 and rentals have dropped by about 20 per cent during the third quarter. In the short run, retailers are likely to go slow and rental values could drop further.

India realty expo in Dubai

The Maharashtra Chamber of Housing Industry plans to showcase major real-estate projects in West Asia through the 11th India Realty Expo 2008 to be held in Dubai between November 27 and 29.

A press release from MCHI said the expo hopes to attract NRI investors to look at housing, commercial and retail investment options in real-estate in India. Over 25 developers, including Godrej Properties, Hiranandani Constructions, Tata Housing Development and Sunil Mantri Realty, will showcase their projects spread across cities such as Mumbai, Thane, Navi Mumbai, Panvel, Pune, Bangalore, Goa, and Nagpur.

According to MCHI, it is an ideal time for NRIs to invest in India as the prices are attractive and the depreciation of the Indian rupee against the US dollar will give them 20 per cent more value.

The forthcoming exhibition in Dubai is being attended by prominent developers, who had their projects in almost all the categories such as IT, ITES, Retail, Entertainment, Banking, Financial, Hospitality, Education and residential properties to suit all budgets, ranging from Rs 4 lakh to Rs 2 crore and more. The event is expected to see substantial investments from Indian and overseas companies. —

Source : www.thehindubusinessline.com

Mumbai developers to focus on NRI buyers in UAE

Mumbai (PTI): Real estate developers in the metropolis plan to target NRI buyers, primarily in the UAE, in a bid to push up their sales, affected in recent times by high prices and adverse sentiment, a senior industry official said.

“With the Rupee depreciating via-a-vis the dollar, NRI buyers stand to gain by around 20 per cent. Prices too have begin to decline. NRIs can get a good deal now and we intend to highlight this,” Maharashtra Chamber of Housing Industry’s CEO Zubin Mehta told PTI in Mumbai.

The Rupee had depreciated from the Rs 40 mark a few months ago to the Rs 50 mark against the dollar last week, a fall of over 20 per cent in the span of a few months.

The Rupee depreciation against the dollar would benefit NRI purchasers by around 20 per cent. Besides, prices have declined by 10-15 per cent in the last few days. If discounts by builders are also factored in, buyers could be advantaged to the tune of nearly 40 per cent, Mehta said.

“If a 2 BHK flat in a decent Mumbai suburb costs around Rs 50 lakh, it could be available to NRIs for around Rs 40 lakh. Factor in the price decline and if the builder offers a further discount or says the stamp-duty is for free, then the flat could be available for as low as Rs 35 lakh,” he said.

The MCHI intends to use the Rupee depreciation against the US dollar as a major selling point to NRI buyers. It would be a holding an exhibition in Dubai end-this month where major developers affiliated to the MCHI would be showcasing their properties.

“NRIs in the Gulf primarily look at ready property and these could now be easily available to them,” Mehta said. Mehta said that the main reason for targeting UAE NRIs was that they were mainly working-class people who have gone to Dubai and other places in the UAE with the aim of earning a living and buying a home in India.

“They are not permanent residents like in the US or the UK. They primarily earn their living in the UAE and buy a home in India,” Mehta said.

These NRIs have the money and are the actual buyers but are holding back on purchases hoping that prices would fall.

“Globally sentiments are low but we hope to change this,” he added.

Many MCHI members have already reduced their prices by 10-15 per cent, he said. Though he did not expect any further reductions, individual developers may offer discounts such as parking facilities for free or taking care of stamp-duty among other things, he said.

On interest rates being charged by home finance companies, Mehta said that “the industry would welcome a single-digit interest rate but at this time any reduction is more than welcome. It will help spur demand.”

“With real estate prices declining and interest rates also showing signs of softening, I expect business to pick up January onwards,” Mehta said.

Source : www.hindu.com

Omaxe cuts some prices, other realty cos hold firm

NEW DELHI, Nov 21 (Reuters) – Real-estate firm Omaxe Ltd (OMAX.BO: Quote, Profile, Research) has cut prices of some of its properties for some customers by up to 5 percent, its chairman said on Friday.

Rohtas Goel, who is also the president of the National Real Estate Development Council, said the council had recommended similar cuts to its members.

But member firms said they were not considering any cuts for now.

Demand for real estate in India has slumped on high costs of home loans and on weakening economic activity. Analysts say prices have to come down before demand revives.

“There is a 1-5 percent discount on the basic sale price … from today, depending on the project and location,” Goel said. “It is not in all projects.”

The cuts will be for customers who pay on the basis of the progress of construction at the project, he said. Goel declined to say what percentage of their projects would be sold at the lower rates.

NAREDCO counts among its members India’s top listed realty DLF (DLF.BO: Quote, Profile, Research), Unitech (UNTE.BO: Quote, Profile, Research), Omaxe, Parsvnath Developers (PARV.BO: Quote, Profile, Research) and Ansal Properties and Infrastructure Ltd (ANSP.BO: Quote, Profile, Research).

A DLF spokesman said prices could come down further only if input costs fell.

Parsvnath Chairman Pradeep Jain said he had not received any letter from the council and was not mulling price cuts. “It is a little difficult to say as a forum to any developer to cut prices,” he said over the telephone.

Ansal’s Chief Executive Anil Kumar said the firm had not taken a decision yet. “We may consider it for new projects,” he said over the telephone.

Source : in.reuters.com

Crunch time for players, opportunity for buyers

While we have been living with the credit squeeze for several quarters now, September was a bizarre month in the global financial markets, with every day bringing one financial catastrophe after another. A number of global financial institutions went bankrupt or were forced into mergers or were rescued by governments.

Real estate and financial markets are closely linked the world over, and so, these financial developments will definitely impact the Indian realty market.

None in the real estate sector can be completely immune to the effects of the current situation; developers may have to therefore think hard before deciding on the phasing and pricing of their projects.

This financial meltdown is expected to further lead to a pullback of debt, resulting in lower transaction velocities and cap rate (capitalisation rate is the ratio of net operating income produced by an asset to its capital cost or market value) expansions. In projects where the developer has received funds, there may not be much to worry.

However, in cases where the term sheets have been signed and funds are yet to come, the developers could find themselves in trouble.

The effect of crisis

The events of the last few months will further curtail credit availability and market liquidity, impacting the real estate markets. Already, in the last few months, many private equity funds have started insisting on 25 per cent plus IRR deals.

It is also expected to lead to dramatic reduction of investment sales volumes. Yields are expected to further rise by 50-75 basis points. The credit situation is also affecting lending to corporates, which are increasingly delaying commitments to real estate. Banks and institutional lenders are capital challenged and underwriting will become a lot more rigorous. Loan-to-value ratios may decrease and banking spreads could widen.

Some banks are in a dilemma whether to fund even creditworthy developers given their own fund crunch. This will lead even creditworthy developers to cut back on investing in new projects. Some developers who lack access to new funds could also sell their assets at distressed values.

Many occupiers today are in space and cost control mode and many corporates will ‘renew’ rather than ‘relocate’.

Prices are not, however, expected to drop drastically, as many sellers are still only ‘stressed’, and not yet ‘distressed’.

As development finance and construction costs have increased dramatically, the quantum of construction is expected to marginally reduce. With a number of software companies relying on US financial services firms for business, office demand is expected to come under pressure. After four years of rapid growth, rents across most realty asset classes may slow down.

Changed circumstances

Four years ago, in the Indian real estate market, development was restrained, vacancy across asset classes were low, inflation was low, and most real estate demand-supply fundamentals were strong. Thanks to this environment, we saw record levels of transactions each year from 2003 to 2006. Residential values increased 50-75 per cent a year and yields fell from 12 per cent to 9 per cent. Also, high amounts of low-cost debt and private equity became available leading to significant increase in construction activity across the city.

Over the last five years, entry barriers have been low and a lot of new developers have entered the Indian real estate market. But with the complete change in the macro scenario, developers need to figure out their competitive advantage and differentiation strategy and not diversify into all asset classes where they see a deal.

The ongoing financial pressures may also prompt anxious sellers of real estate to lower their price expectations and complete sales at realistic market prices. From a private equity funds’ point of view, funds dependent on global capital may be forced to renegotiate on the catch up percentage (a higher proportion of profits received during a limited time is called catch-up period), hurdle rate and management fees with their investors.

Funds will also be choosy and look for quality assets which are smaller, more prime and with strong credentials in prominent areas.

Long-term growth

However, no financial trend continues forever. The housing prices in the US markets ought to stop declining sooner or later, thus bringing about some stability. A number of new regulations governing the financial sector are expected to be announced in the US with the elections over.

Real estate is a cyclical market but definitely has long-term underlying growth. Unlike in the US, no significant defaults in home loans, triggering massive fall in property prices, is expected here as a majority of Indians still buy homes for self-use and the banks have stringent lending norms. Also, even as there is a drop in property prices, the prices remain far higher than what they were two years ago.

The brighter side of the crisis is that the current market poses an opportunity for cash-rich buyers to buy assets at reduced prices. Potential buyers need to realise that if one buys and holds for the long term, one isn’t likely to lose. Real estate values have generally gone up in the long run, with very few exceptions.

Source : www.thehindubusinessline.com