Low Cost Homes – A Boon For Real Estate Developers

The earnings of DLF and Unitech in this quarter were better than the June quarter as sale of low-priced homes brought in hopes of revival, But this may fizzle out if developers keep raising prices. During the current fiscal, Unitech and DLF have sold over 7 million sq ft and 4 million sq ft of space, respectively, from their new launches.

Source : indianrealtynews.com

Residential realty prices moving up

Residential real estate prices are going up. In the last three months, prices of affordable apartments have appreciated by around 10%
across the country.

“With improvement in the sentiment in the economy, transactions in the affordable range of residential real estate have gone up. This has made developers to increase prices by 5% to 10% in the last three months,” said Anshuman Magazine, MD of real estate consultancy firm CB Richard Ellis, South Asia.

The developers had cut prices by around 30% in first two quarters of calendar 2009 to revive the demand of residential units, which plummeted to a low due to the global financial crisis. Magazine said the price cut led to some recovery in demand. Enthused by the partial recovery, he said, the developers, who had sold a substantial portion of their projects at hugely discounted prices, decided to increase them marginally in the next phase.

According to an IIFL report, in Mumbai, prices are up 25%-40% from the bottom in early 2009, while in NCR, the corresponding figure is 15-20%. ‘‘Constrained supply and a revival in demand drove up prices in Mumbai, and NCR,” the report said.

In Mumbai, the prices of apartment in Metropolis, being developed by HDIL appreciated by 38% since March to Rs 10,500 per sq. ft. Similarly, the project, Planet Godrej, has become 20% costlier to Rs 25,000 per sq ft in the last six months. In NCR also, many developers like DLF, Unitech, Jaypee Greens, Mahagun and Amrapali among others, have increased prices by around 10% from the launch prices in March-June. In the premium segment also, there is revival in demand, said Vibhor Gupta, senior official of Jaypee Greens. However, the prices have not witnessed any escalation in the premium segment. Similar trend has been noticed in cities like Bangalore, Pune and Chennai.

“The current trend of price escalation can not be sustained as it will affect the demand,” said Aditi Vijayakar, ED of Cushman and Wakefiled, adding, as the demand has revived following interest rate cuts by banks, many developers have announced projects in the affordable range. This will increase the supply and will put pressure on the price rise.

At the same time, another consultant said the financial condition of the developers has not improved to a level that they can hold a project for long. They need cash flow to service the debt, which they have taken to buy lands. The source said the money from other sources like dilution of equity is still not easily available. This has forced developers to depend on the sales proceeds to service debt.

Source:http://timesofindia.indiatimes.com/business/india-business/Residential-realty-prices-moving-up/articleshow/5103968.cms

Property prices could get costlier this Diwali

If you are a homebuyer looking for some hefty discounts to come your way this festive season, you are in for some bad news. Real estate companies across the country are all set to increase prices this season in a bid to improve investor sentiment. CNBC-TV18’s Priyanka Ghosh reports.

Traditionally, the Diwali season has great offers for homebuyers. Developers shell out free parking, price-offs and in some cases even a Mercedes Benz to kick in bumper sales. But such offers may be hard to come by this time around. Analysts rule out a further price reduction as prices have already corrected by 30-35% since last Diwali. In fact, a price increase seems imminent.

Says Anuj Puri, Country Head of Jones Lang Lasalle Meghraj, “If the schemes have done well, you’re going to see some price increase. I think where the developers are coming in, they want to provide confidence to the buyer who had bought may be three-four months ago to say: look, when you bought it, it was at x price but today it is 5-7% higher.”

In the past few months, the real estate sector has seen a sharp price increase led by mumbai and the NCR market. An IIFL report says Mumbai has seen a price recovery by 25-40% from the bottom of early 2009. Prices in the NCR market has revived by 15-20% from March-April levels. Take a look at a few projects: HDIL has revised prices upwards by 38% along with Peninsula Land. Godrej Properties too has increased prices in its Planet Godrej project by Rs 5,000 per square feet.

In the NCR region, both Unitech and Indiabulls Real Estate have revised prices by 18% and 23%.

A slew of real estate companies are set to hit the primary market in the next six months. A price revival boosts cash flow income — that’s vital for the valuation these companies are vying for. There are projects where volume has been kicking in — both DLF and Unitech have doubled transactions in the first five months of this financial year compared to FY09. However, analysts caution that growth of income could soon fail to keep pace with the indicative price increase.

Source : http://www.moneycontrol.com/news/cnbc-tv18-comments/property-prices-could-get-costlier-this-diwali_417525.html

Genuine demand still hasnt returned to realty market

SO IS the demand for homes getting real again It seems to be a mixed bag so far. While developers are aggressively talking about a spurt in demand, industry experts and buyers attribute this revival to the strong nexus between developers and intermediaries .
SundayET spoke to a cross section of developers, bankers, buyers and realty brokers to assess the ground situation. In fact, the demand in the residential segment for Q3 of this calendar year remained marginally higher than the previous quarter. However , leading developers said that the growth has been optimistic and some even claimed a 30% rise in demand in these three months.
Last month, Indias largest real estate developer DLF claimed to have sold 1,250 flats in two hours in the second phase of its Capital Greens project in Delhi. Rival Unitech too said that they had a sale of 3,500 apartments across cities between July and September . Similarly, BPTP sold nearly 2,100 apartments in the same quarter.
For Delhi-based realty firm Omaxe, Q3 got a sale of Rs 300 cr, up 50% from the previous quarter . And according to Niranjan Hiranandani , MD of Mumbai-based Hiranandani Developers, there has been an overall industry sale of 10,000 units in the Mumbai region in these three months.

These figures, no doubt, look impressive. But there is a catch. Industry experts and buyers say that this business is mainly the result of a strong developer-intermediary network. To some extent it is artificial hype but it is not completely a false story. Around 35-40 % of such stock goes to end users and 50-60 % goes to brokers or investors who want to sell it off later, says Pankaj Jain, executive director of Realistic Realtors, a North Indian real estate consulting firm.
Jain is not the only one echoing this view. Other reputed brokers in the industry also have a similar take. Rajesh Arora, vice chairman of Arora and Associates Realty, puts it this way, It is not practical to sell 2,000 or 3,000 apartments within a few hours. They would have sold it to middlemen or agencies. The demand in the sector has remained the same as in the last quarter and though the prices in Mumbai have increased, in Delhi they are at the same level.
Businessman and prospective buyer, Anil Dhawan, says that such claims by developers do not hold any meaning. Financiers take up most of the stock. End users would possibly make up only 10% of the buyers in these cases. Dhawan says that although the time is conducive to buy right now, he would mainly look at a ready to move in property over an under construction one to avoid delivery hassles.

Developers, however, are upbeat about the housing demand. DLF is basking in the glory of good demand. We have launched the second phase of Capital Greens project. We are selling one flat per pan card and buyers cannot sell the property within a year. So I am sure that end users are the buyers right now, says Rajeev Talwar, group executive director, DLF.

The demand is robust, says CMD of Omaxe, Rohtas Goel. There has been a 30% increase in this quarter. We had a sale of Rs 300 cr in these months as against Rs 200 cr in the last quarter.
Many also are of the view that the fear of increased prices later is propelling more number of buyers to come forward right now. That is leading to increased enquiries as well as conversions. People think that is the best time to buy as prices may go up later. The price band of Rs 15-Rs 40 lakh is doing quite well. We will be launching more projects in the affordable segment. Our target is to launch 30 million square feet in residential space by the end of this Financial Year, reveals a Unitech spokesperson.
Home loan offtake too bears out increased demand statistics. The management of HDFC is upbeat about 20-25 % growth in the home loan disbursement. Also, according to a senior official from Indian Bank, the demand of home loan remained the same as it was in the previous quarter. The demand for loans between Rs 15-20 lakh is more than the rest, said the official.

Source:http://lite.epaper.timesofindia.com/getpage.aspx?edlabel=ETD&pubLabel=ET&pageid=3&mydateHid=04-10-2009

Yesterday once more: Realty firms start raising prices

Mumbai: DLF, the country’s largest property developer, will soon conduct a poll among property brokers to decide the pricing and number of apartments to be offered in the second phase of its Capital Greens project in West Delhi.

Yesterday once more: Realty firms start raising prices

It’s a novel experiment, but property brokers in Delhi say the company is trying to test the waters in view of the vastly changed situation in the real estate market.

Though DLF’s spokesman said the company is yet to fix a final price, feedback from brokers suggests the company is exploring the option of charging around Rs 7,000 a square foot (sq ft). At this level, the price is 56 per cent more than Rs 4,500 a sq ft it charged in the first phase of Capital Greens, when DLF had sold 1,356 apartments in a single day in April this year.

Developers such as DLF, Unitech, Omaxe, Parsvnath and HDIL were among those that cut property prices or forayed into mid-income housing, which were 25 to 30 per cent lower than prevailing prices, in the last quarters of 2008-09, as the economic slowdown and fears of job losses impacted home sales. Property sales fell 50 per cent from their peak in 2007-08 (when prices had more than doubled froom 2004-05) as buyers stayed away.

Those days are rapidly becoming a distant memory, with many developers increasing prices 15 to 30 per cent the moment they became sure of demand returning.

Take Mumbai-based Lodha Developers. The developer has increased prices 30 per cent in its premium housing project, Lodha Primero in South Mumbai, since its launch about four months ago. It has already sold 90 per cent of the apartments. For its mid-income projects, Lodha has increased prices 12 to 14 per cent.

Neptune Group, another Mumbai-based property developer, has increased prices in its Neptune Flying Kite project in Bhandup 26 per cent, from Rs 4,691 a sq ft a couple of months ago to Rs 5,900 a sq ft.

The national capital region (NCR) is not far behind with housing prices in Gurgaon having moved up to Rs 3,200 a sq ft from Rs 2,800 a sq ft six months back, brokers in the locality say.
Unitech, the country’s second largest developer, which is mostly focusing on mid-income housing projects under the Unihomes brand, is also considering a minor price rise in its home prices, a company official says.

“Markets are looking up and this is prompting developers to come up with increased prices for their Navratra launches. Prices are up by 15 to 20 per cent in the secondary market,” says Anil Singhal, a property consultant based in Connaught Place, Delhi. Navratra, a Hindu festival, is considered auspicious for property buys and developers generally launch new projects in the 10-day period.

Developers say the move to increase prices is in tune with rising demand from home buyers. “We are not hoarding our property. When the market was down, we were quoting low prices. Since it has moved up, we have increased prices. We sell according to the forces of demand and supply,” says Nayan Bheda, chairman and managing director of Neptune Group.

Adds R Karthik, senior vice president of marketing at Lodha Developers: “It is a standard way of operating projects. It is a strategic as well as tactical move so as to offer value for those who have bought properties.”

However, the move to raise housing prices has had its fair share of criticism. Analysts warn that property sales may fall again if developers increase prices sharply since the economic recovery is hardly complete.
“Demand is coming back with much difficulty. It does not make sense to increase prices now. They have to hold prices steady till demand comes back fully,” says Anuj Puri, chairman of Jones Lang LaSalle Meghraj (JLLM), an international property consultant.

According to a recent CII study, the Indian real estate market is expected to recover only in 2010-11. However, the government growing fiscal deficit is expected to impact the sector negatively with increases in the cost of funding and falling return on investments through exchange rate variations.

Some have been once-bitten-twice-shy and have avoided raising prices. Parsvnath Developers Chairman Pradeep Jain says he doesn’t see any scope to increase prices for the next couple of months. “We have to concentrate on selling properties and generating internal accruals first. We are planning to sell properties with attractive discounts in the festive season,” says Jain who is also president of NCR chapter of the Confederation of Real Estate Developer’s Associations of India (Credai).

Going by the trend in property prices in recent weeks, few of his counterparts in other real estate companies agree with Jain.

Source:http://news.in.msn.com/business/article.aspx?cp-documentid=3229249

Affordability trap

Before the great economic doom caught up with the economy in general and the real estate sector in particular, life for developers was relatively cushy. High-priced houses were being hawked as if there was no tomorrow. But when tomorrow did come, there were many lessons to be learnt. The foremost among them being this: a residential project should appeal and target the majority to be successfully sold out. Real estate developers learnt this concept of ‘affordability’ only after a large number of their premium and luxurious residential projects failed to take off and many others had to be tweaked in order to cater to a wide spectrum of end-users.

Over the last one year, developers of all hues have announced residential projects in the affordable category. These projects, which were launched in different parts of NCR (national capital region) reported quick sales within days of their official announcement.

Consider this: DLF sold its phase-I of the Capital Greens project located in the heart of Dehi within two days of the launch, Jaypee sold its residential project Aman in Noida within a day of the official launch. BPTP reported brisk sales for its Park Floors project in Faridabad. Similar has been the case with residential projects launched by Omaxe.

The developers claim that the end users have finally come out of their hibernation. Sales figures provided ballast to their claims.

Yet doubts remains about the timely completion of projects. Many affordable projects which have been launched and successfully pre-sold, do not either have the mandatory environmental clearance or have not received orders for the change in land usage required for residential development.

“Many developers miscalculated the time lag between the soft launch, and actual delivery. Some of the projects monitored by us are already delayed by a year or so,” Ajay Dabas, director of Gurgaon-based consultancy Certes Realty, told FC Estate.

The developers do not wish to delve too much on these aspects. They concede, however, that mandatory clearances are a matter of concern for them. “A project’s delay does affect our reputation. But as these clearances are given by various governmental agencies, which take their own time, there is very little a developer can do to ensure speedy clearances,” admitted an NCR-based developer on conditions of anonymity.

However Tanuja Pradhan, national head of the global real estate consultancy Cushman & Wakefield, holds a divergent view. “The affordable projects have been launched by the same developers who have various stalled projects in their kitty. They are under pressure to complete them.” She added that it would be too early to say that the projects are being delayed: “Even if delay takes place, developers are willing to compensate with a penalty amount payable on per sq ft basis.”

In fact, a closer look reveals that similar factors lie at the roots of the present-day crisis in real estate.

Circa 2004: Project after project was being launched albeit in the premium category with a price tag of Rs 1 crore plus. ‘Income levels are increasing at a fast pace’, ‘the average age of the home buyer has come down drastically’, ‘NRIs will be our target customers’, were some of the rationales doled out while launching these projects.

This was also the time when Rs 1 crore became the base value while talking about the price of a house. Ironically this was also the time when real estate deals started happening only between reckless investors (read speculators).

These projects too did not have the mandatory clearances. People were lured to invest money in realty projects to make a fast buck. Prices were appreciating within a matter of weeks. But as this appreciation was bereft of any real buyers, be it resident or non-resident Indians, the developers soon felt the pinch. The weeks after collapse of the erstwhile Lehman Brothers saw developers of all hues being gripped by a severe financial crunch.

Intense analysis and introspection into what went wrong followed. Dwelling deeper into the causes the sector soon found the mantra of all ills, affordable housing!

Akin to the phoenix rising from ashes, developer after developer began announcing projects in the affordable category. So even as a couple of years earlier ‘premium’, ‘luxury’, ‘exclusive’ and ‘Rs 1 crore’ were the catch words, they have been replaced by ‘inclusive’, ‘affordable’ and ‘Rs 1 lakh. How times change!

The transformation and change of heart has been often been touted as a learning curve for the real estate sector. The sector has found its place and would emerge stronger in a short time, has been the argument. In fact, a recent Knight Frank survey points out that it is the average tenant households staying in their current residence for the last two-and-a-half years who are driving the demand for affordable houses. These buyers perceive Noida, Ghaziabad and Gurgaon as the most favoured destinations for living.

A large number of affordable projects have indeed been launched in these cities. Interestingly, with inevitable delays, the affordability of projects are also at risk. “Projects were launched with the popular tag of “affordable” but the hidden costs and delays would amount to over-runs for the end buyer in many cases. Coupled with the fact that many developers insisted on a lock-in period and no cancellation for 12-15 months, consumers are not very happy too,” argued Ajay Dabas.

The Knight Frank survey also revealed that the developers have to pay external and internal development charges to the government which ultimately, are passed on to the consumer thus increasing the overall cost of a house. “The EDC and IDC costs coupled with the high transaction cost and stamp duty can go as high as Rs 350-400 per sq ft which are transferred on to the end user by the developer,” says the report.

Counters Dabas: “Many developers who had priced their projects at high rates were forced to re-launch with a lower price tag. That signalled the increase in demand. ”

However, most are really not affordable owing to the many hidden costs and spiralling charges of external and internal development charges, parking etc, which constitutes nearly 25 per cent of the base price.” He further adds that there is hardly any project which has been launched in the recent past in the truly affordable gross cost of Rs 20-22 lakh.

Yet another concern which warrants attention is the diversion of funds which have been garnered from the investors for a specific project to other incomplete projects of the company. The developers remain tight-lipped over the issue of fund diversion towards completion of other projects and only say that their affordable housing projects will be completed on time.

However, a couple of years earlier, funds were diverted towards purchase of land and building land banks.

So if the developers divert the funds mopped from their ‘affordable housing’ projects towards completion of earlier projects and miss on the deadlines promised in their brochures, the sector would fall into a deeper mess than at present.

Industry body Assocham had recently mooted the idea of having an escrow account, which can ensure that payments received from the buyers is utilised towards the construction and development of the said project.

“Very few projects are funded through deposits into the escrow accounts. In its absence, the buyer would remain at the mercy of the developers, till the validity of the lock-in and payment commitments,” said Dabas. He added that payments made against project “A” can legally be used by the recipient for other purposes too, since it is legitimately accessed.

However, R Nagaraju, general manager corporate planning of Delhi-based developer Unitech, said that an escrow account for all projects will make it difficult to simultaneously manage various product portfolios of the company. He further reasoned that subsidising a low-profit project with that of high profit projects is a commonly accepted business practice.

Nitty-gritty aside, the end-user who puts in his hard-earned money into buying a house would want to move in it as promised by the developer.

Whether the delay happens due to governmental apathy or the lack of business acumen on the part of developer, the sufferer ultimately remains the end-user.

Source:http://www.mydigitalfc.com/real-estate/affordability-trap-171

Unitech Unihomes Kolkata : Unihomes Kolkata : Affinityconsultant.com

Unitech Unihomes Kolkata Project

Unitech Developers now moving in Kolkata presenting new stylesh affordable residential apartment Unihomes at Kona Expressway Kolkata. Unihomes offers 1 & 2 bedroom apartments that is suited for contemporary urban living. A desirable and contemporary place within the reach of your hard earned money. Apartments Price Starting at Rs.18 Lakh & above. You get all details on Real Estate website Affinityconsultant.com.

Unitech Unihomes Kolkata Location

Unitech Unihomes is located at Kona Expressway Kolkata. Just few K.M from Santragachi Railway Station, a hub of the South Eastern railway network. Lake Land Country Club and Botanical Gardens and much more away from few km.

Unitech Unihomes Kolkata Common Amenities
Gated community, Round the clock security, Convenience Shopping, Fire Safety Provisions, Limited Power Back-up, Landscaped greens Garden, Clubhouse, Banquet Hall, Swimming Pool, Gymnasium, Games Room, Sewerage Treatment Plant, Water Treatment Plant.

Type Size & Price
Types——-Size(sq.ft)—-Price INR(sq.ft)
1 BHK———562————–2190
2 BHK———800————–2190

About Unitech Developer
Unitech Group is one of the major township planning and real estate development companies in India. Unitech entered civil engineering in 1974 with its sights firmly set on the future. It has an impressive mélange of heavy construction, leisure and entertainment projects, hospitality business and development of mini cities/townships construction of residential and commercial complexes, including shopping malls and various types of dwelling units. Unitech commands strong brand equity as also a pan India presence with focus on residential development – the most profitable real estate segment.

About Affinity Solutions (P) Ltd
Affinity Consultant is a Real Estate Consultant in India operating since last 10 years. Affinity Solutions have a team of dedicated professionals with more than 10 yrs of experience in real estate services handling the entire project in India. Affinity Solutions (P) Ltd. is a paramount name among Indian real estate consultants and service providers with all leading brands likes DLF, Unitech, Jaypee, Ansal, BPTP, Parsvnath, Mahagun, Omaxe, Emaar MGF, Eldeco, Indiabulls, Amrapali, Mantri, Lodha, Indu, Kolte Patil, Ramprastha, TDI, Uppals etc.

http://www.bignews.biz/?id=814208&keys=UnitechUnihomesKolkata-UnitechDeveloperKolkata-UnitechKolkata-UnitechKolkataProjects

Changes in Indian Real Estate Affairs

Real estate in India has always been the playing field for entrepreneurs. This industry has witnessed unprecedented highs and frightening lows over the years. One is often left dyspnoeic with the continuous shifts in this sector. Due to rise in demand in the IT/ITeS sector and significant increase in FDI, the commercial and retail real estate markets experienced tremendous growth in the first quarter of 2008. Land deals accrued around Rs 23,000 crore with additional deals worth Rs 10,000-crore in the pipeline. The highest recorded land deal was Mumbai’s Bandra-Kurla Complex. However, it has not been an easy journey for all in the property market. Last year, the global property collapse exacerbated by the credit bubble burst resulted in reduced finance and business activity. Equity markets also remained lacklustre and raising money through IPOs proved to be difficult. Both real estate giants, Unitech and DLF, delayed the plans to raise money through REIT issues after witnessing unfavourable initial response.

Consequently, lack of funds forced developers into high interest loans. High credit amounts proved to be detrimental for property companies. Most companies borrowed a large portion of their land-development outlays up front and relied on advance sales to repay these loans. However, poor sales led to delays and massive cost overruns. According to industry estimates, around Rs 8,000 crore worth of projects had faced considerable delay by June 2008. The collapse of Lehman Brothers, in September 2008, was perhaps the most significant event that spiflicated an already floundering property market in India. It triggered a shockwave that rippled through the liquidity centric commercial and retail real estate markets leaving a trail of defaults, delays, and losses. Even though property prices have corrected by 22-42% in major cities over the last few months, 10-15% downside is further expected. Commercial real estate demand has languished as corporate firms deferred expansion plans to deal with the credit situation.

Negative absorption rate aggravated by falling rentals led to decreasing margins. Companies like DLF, with 40% of its portfolio in the commercial and retail space, reported 29% y-o-y decline in 2009 revenues while its net profit plummeted by 43%. Similarly, the top line was also distorted for companies like Ansal (-26%), Parsvanath (-60%), etc. Timely and synchronised measures taken by central banks and governments around the world restored balance and prevented a total collapse of the financial system. Thus, markets saw a mild recovery. According to Rajeev Rai, vice-president of Corporate Assotech Ltd, “To counter decreasing demand and to gain confidence of all stakeholders of Indian real estate, associations like NAREDCO and CREDAI decided to bring down prices of various properties by reducing overheads and marketing costs.

In some cases, ticket size of the property was reduced with reduction in size of apartment to make it more affordable for the masses.” As per a report by Grant Thornton, the total number of PE deals announced during the first half of 2009 stood at 93 with a total announced value of $2.89 billion with the highest proportion invested in real estate and infrastructure management worth $1.61 billion. Bhim Yadav, CEO, Falcon Realty Services Pvt Ltd, reckons, “A higher FAR not only brings in more supply to the market, it is also vital for creating room for more affordable housing and control the steep rise in prices, ultimately benefiting the common man.” The Mumbai real estate saw a sharp price correction. Average peak rentals fell 40–60%. While there was a slight mismatch with excess supply, (supply of over 30mn sq ft over 2008–10E vs expected demand of 22mn sq ft), the demand in Mumbai has been healthy.

Unlike Mumbai, commercial and retail space in NCR is expected to languish due to weaker absorption rate. As per Centrum, the average vacancy rate in malls across India was about 9% in Q408 and NCR had the highest vacancy rate of around 25%. According a study by Knight Frank India, average rentals in Gurgaon was down from Rs 120/sq ft to the Rs 51/sq ft while rents in Noida dropped from Rs 90/sq ft to Rs 44/sq ft. In conclusion, as market conditions stabilise, the financial markets will slowly pick up resulting in an improved liquidity scenario, stable government, and affordable prices. This may well serve to bring back the shine to this lacklustre sector.

Source : http://www.indianrealtynews.com/real-estate-india/changes-in-indian-real-estate-affairs.html

For those too busy to manage properties

Property management services are fast catching up, with a host of companies lining up to offer their services to high net worth individuals and real estate companies. Among those vying for a pie of the sky are Sahara Care, Neat Space, TTK Enterprises, Settlers India and Sai Associates, to name just a few. What makes these services so special is the convenience they provide to owners, in so as they do not need to personally supervise and maintain their real estate assets.

The spectrum of services provided is impressive: housekeeping, both manually and mechanised, tenant management or finding a suitable tenant, collection of rent, negotiating rent agreements with changes in market prices, other legal and maintenance requirements.

“The primary benefit is that property asset management (PAM) allows for better expense planning as far as maintenance of a property is concerned. This maximises the asset value, since a better-managed property fetches a higher price than one that is not — both in occupier rentals and in outright sale of the asset,” said Ashutosh Beri, managing director, property and asset management, West Asia, Jones Lang LaSalle Meghraj (JLLM).

JLLM has more than 1.2 billion sq ft of property and corporate real estate assets under management that includes clients in the real estate space such as Hiranandani, RMZ and Unitech.

“Since the economy is reviving we are witnessing that many clients are willing to avail these services,” Ashutosh said.

At the moment though, markets for such services are localised and cluttered with small companies and real estate brokers, Amit Mookim, director, strategic & commercial intelligence, KPMG said. “Profess­ionalism of service is still in its nascent stages, but there is a good future for property management in India, which being a developing economy has witnessed dynamic appreciation in real estate prices, making investment in real estate a risky albiet profitable venture over the long term,” he said.

“It has become imperative for owners to ensure that their assets are managed holistically so as to optimise expenses and ensure greater value for users and investors of such assets,” explains Sushant Mutreja head, property and asset management, Sahara Care.

The charges for these services differ from company to company and also on the size of the property of the clients. Some company charges between Rs 2.50 to Rs 4 per sq ft while another one takes a commission of between six to 10 per cent on the annual rental value of the residential properties.

Simit Thakur, chief executive officer, Neat Space Property and Asset Management Services, which handles more than 30 clients with an asset base of 10 billion square feet, said that her clientele has a majority of corporate houses and HNIs or people with net financial assets of at least $1 million. These people build vacation houses on the outskirts of their city of residence or far off tourist cities in India,” she said.

She said the clients view these properties as investment as well as a vacation home for a few weeks in the year. “For the rest of the year they put it up on rent, the task of which can be assigned to a property manager in the local market. The property owner has to provide a notice of two to three months mentioned in the agreement, when they want to come back,” Thakur said.

“NRIs from countries such as Australia, UK, also form a large chunk of the customer base for our services. Living abroad they do not have everyday control on their property, the management of which are outsourced,” Thakur added

Source : http://www.mydigitalfc.com/real-estate/those-too-busy-manage-properties-046

Realty Estate Developers Showing Interest in Land Acquisition

Following a slew of new launches in the affordable housing segment in the past few months, real estate developers in the country are once again showing interest in land acquisition. They are now also expecting “some price escalations” for residential properties, with easier liquidity and overall positive market environment in the second half of the year. “We believe developers’ appetite for land has increased, given easier financing conditions and availability of prime land parcels (which many developers do not have) at reasonable rates. Increase in both off-takes and unit prices has improved developers’ confidence to purchase new land, in our view,” J P Morgan analyst Saurabh Kumar said in a note to clients.

In recent deals, Indiabulls Real Estate won the four-acre Mantralaya modernisation project in Mumbai with a bid of Rs 1,376 crore. DLF Ltd, the country’s largest realtor, won a 350-acre plot in Gurgaon for about Rs 1,750 crore after two other bidders — Unitech and Bharti — were disqualified on technical grounds. DLF, however, still wants the government to ease policies to ramp up deals. “The overall demand is certainly firming up. All the developers have reduced property prices in the past so I don’t think any price hike can be expected in the near future,” DLF’s group executive director Rajeev Talwar told DNA. However, if demand continues to build up and supply gets restrained, the situation may lead to prices moving northwards. I think the government should ease the policies on giving clearances faster as that creates unnecessary delay in executing the projects,” he said.

Realty analysts and consultants are skeptical about the plan due to developers’ high debt. “That (price revival) is something skeptical to talk about right now. Most developers have raised money through capital markets by either a qualified institutional placement of shares or they are lining up an initial public offering. Companies which are heavy with debt or those who have reduced debt by raising capital should not look at purchasing land outright. However, if they have a fair debt position they can look at it,” Ambar Maheshwari, director-investment advisory at DTZ, told DNA. Omaxe chairman and managing director Rohtas Goel is optimistic of a price hike early next calender. “We have seen projects being launched at rock bottom prices off-late. The same projects are selling at a premium in the re-sale market, so you can expect developers to launch new projects at a higher price, we would also be looking at acquiring some key land plots,” he said.

Nitin Idnani, research analyst with Enam Securities, said, “Developers are still ready to buy land which can be monetised and [as for] those parcels located in tier 2 and tier 3 cities, developers still want to sell them off as it would be difficult to get returns on that land bank.” New Delhi-based developer Anant Raj Industries is also looking to buy distressed land from developers reeling under high debt and has started acquiring land in Maneswar and Bhagwandas. The company has allocated Rs 450 crore for land, on which it plans to build affordable homes. “We are negotiating for many land parcels, which we can get at discounted rates in the current market,” Amit Sarin, director, Anant Raj said.

Source : http://www.indianrealtynews.com/real-estate-developers/realty-estate-developers-showing-interest-in-land-acquisition.html

Want to buy a home? Shift to a less costly city

A  study of households with an annual income of Rs 3 lakh (Rs 300,000) to Rs 10 lakh (Rs 1 million) in seven cities shows substantial variations in the type of houses they can afford to buy.

The study on affordable housing, done by property consultants Knight Frank, says the Rs 8-10 lakh (Rs 800,000-1 million) income category in Chennai can afford houses up to Rs 45 lakh (Rs 4.5 million), while the same group can afford houses up to only Rs 38 lakh (Rs 3.8 million) in Mumbai [ Images ] and Rs 37 lakh (Rs 3.7 million) in Bangalore. The same category in Hyderabad, Kolkata [ Images ] and Pune could afford between Rs 40 lakh (Rs 4 million) and 43 lakh (Rs 4.3 million).

In terms of apartment sizes, the Chennai households can afford up to 1,200 square feet, while those of Pune and Mumbai can only afford 800 sq ft and 950 sq ft, respectively.

In terms of affordable rates per sq ft, Pune can afford up to Rs 5,900 a sq ft and Bangalore only Rs 3,600 a sq ft, the study said.

“Mumbai’s high cost of living, coupled with the generally higher maintenance lifestyle, has adversely affected the affordability of households in the city. For instance, middle class households in Kolkata, Chennai and Hyderabad can afford houses valued at Rs 14-45 lakh (Rs 1.4-4.5 million), whereas households of similar stature in Mumbai can afford houses valued at Rs 12-38 lakh (Rs 1.2-3.8 million),” the study said.

“Affordable rates are higher if sizes are smaller. If buyers can compromise on size, they can afford higher priced apartments,” said Samantak Das, national head, research, Knight Frank.

The study assumes significance, as top real estate developers such as DLF, Unitech and Parsvnath have shifted their focus towards the Rs 20-60 lakh (Rs 2-6 million) income category in many cities, with the premium housing segment seeing sharp decline in sales after the economic slowdown and stock market decline impacted home buyers.

The report states that not all of the so-called affordable housing projects in the country are really affordable; they are way beyond the means and preferences of buyers.

“Although preferred unit sizes are less than 1,200 sq ft, many projects are offering greater sizes that are unaffordable. Based on consumer preferences, house property beyond Rs 5,900 a sq ft would be unaffordable across all cities covered,” it said.

The consultancy thinks it is premature for developer to raise prices now.

“It is too short a period for developers to increase prices. It is just euphoria after elections and a stable government and not supported by fundamentals,” said Gulam M Zia, national director, research and advisory services, Knight Frank.

Source : http://business.rediff.com/report/2009/aug/13/shift-to-a-less-costly-city-to-buy-a-home.htm

Developers relaunch, resize luxury housing

Old projects are being tweaked; new and smaller homes at lower prices to attract buyers are being introduced font size

Bangalore/New Delhi: It has sold just around one in three villas in a project it launched in Bangalore late last year, so QVC Realty Pvt. Ltd has now introduced new, smaller homes in the same project at lower prices to attract buyers.

New packaging: A sketch of high-end residential project Lodha Aria launched by Lodha Group in Mumbai’s East Parel in March 2008.

The villas are still available for the asking—for Rs1.5-3.4 crore—but the new houses will cost far less, between Rs72 lakh and Rs94 lakh.

As demand trickles back into the property sector, particularly in the affordable housing space, bringing back buyers and pushing up sales, developers such as QVC Realty, Lodha Group, Unitech Ltd and Ajmera Group are trying various ways to revive their so-called luxury projects in Bangalore, Mumbai and Delhi. So while some are adding cheaper homes alongside villas to boost sales, others are relaunching their high-end offerings in the hope that there will be demand for them.

Prakash Gurbaxani, chairman and managing director of QVC Realty doesn’t think so, which explains his company’s decision to launch the smaller houses: “Given the current market dynamics, we recognized the need for a lower ticket size product. Buyers are eager to see prices for homes come down and this time it is end-users, and not speculators, driving the demand.”

The Rs150 crore project is the first development of Bangalore-headquartered QVC Realty Pvt. Ltd, the country’s first venture capital-funded realty firm, backed by IL&FS Investment Managers Ltd.

Still, other developers remain hopeful about the prospects of their relaunched offerings.

Lodha Aria in Mumbai’s East Parel area, a high-end residential project, was launched by the Lodha Group in March 2008. It was a limited soft launch, primarily for investors and the firm closed a couple of deals. In July, the project was launched again, this time for buyers. The project has 30 three-bedroom apartments, two on each floor, at 2,100 sq. ft each, with prices starting at Rs3 crore.

“It’s a good time to launch now after a dry spell last year because buyers’ interest is rising,” said R. Karthik, vice-president marketing, Lodha Group.

The launch, he added, was triggered by rising demand at the company’s other Mumbai project, where an 1,800 sq. ft apartment costs Rs3 crore. “What worked for us wasthe various sizes of apartments that buyers could pick from.”

Analysts second Gurbaxani’s assessment of the market and say demand is yet to return to the “luxury” segment of the real estate market and that there are several reasons why developers are relaunching such projects.

“First, luxury projects aren’t selling as much as affordable ones, so many projects have been reclassified from luxury to ‘upper middle class’. Developers are repositioning projects by cutting the size of apartments,” said Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, a real estate advisory.

And demand has returned to this segment in Mumbai, Puri added.

“Developers rationalized prices by reducing size of apartments by 25-45% and by offering price protection to buyers by telling them that if prices came down, they would be given the benefit of the price drop,” Puri said.

A Bangalore developer has chosen to go the other way.

In a recent auction of nine premium homes for Rs5.5 crore each in the Century Avalon project located at Jakkur in north Bangalore, not a single residence was sold. The builder, Century Real Estate Holdings Pvt. Ltd, has now decided to sell only two to three homes in the project and sell the rest once they are ready. Houses that are ready to move in typically fetch a higher price. The developer is changing part of the masterplan to make the houses bigger and is offering customized interiors.

Unitech recently redesigned its luxury project Unitech Grande on Noida Expressway. From penthouses and duplexes, the firm now plans to relaunch the project as an integrated township with high-rise apartments, villas and developed plots.

Unitech Grande was planned on 347 acres acquired by Unitech for Rs1,582 crore in May 2006 in what was then the largest land deal. Initially, 12 towers were planned, with 36-45 floors each, including duplexes and penthouses. Waning demand for luxury apartments propelled Unitech to redesign the project. This May, the firm launched residential plots, called The Willows, at the site. Around 200 plots have been sold, a company spokesman said.

“There is demand in the market but the pricing and the positioning of the product are important,” said Alexander Moore, managing director, L.J. Hooker India, a real estate agent that conducted the auction.

At the Ajmera Infiniti project in Bangalore’s Electronic City, the developer is now selling cheaper homes in the Rs20-27-lakh category three years after the project’s launch. After initially trying to sell houses for Rs40-72 lakh, the developer is revising the plan for the remaining part of the project and will now build 250 two-bedroom and 180 three-bedroom flats.

“We have seen huge demand in other projects in the same price category. We have got lot of enquiries since we made the change,” said Bandish Ajmera, the Ajmera Group’s managing director.

Source : http://www.livemint.com/2009/08/11215029/Developers-relaunch-resize-lu.html

Props for affordable housing

After an “uneventful” Interim Budget and the Union Budget 2009-10 for real estate, the Finance Minister surprised home buyers and builders while replying to the debate on the Finance Bill, 2009, in the Lok Sabha earlier this week.

Relief came in the form of interest subvention of 1 per cent for home loan borrowers in the affordable housing segment, and a one year extension of tax holiday to housing projects approved in FY’08.

Mr Rajiv Talwar, Group Executive Director of DLF, says the Government has sent out a clear message to builders — “give us smaller affordable houses and you can have benefits”.

These incentives will certainly lift the market mood, he says.

The Finance Minister has talked about an interest subvention of 1 per cent for a year on all housing loans up to Rs 10 lakh to individuals, on houses not exceeding Rs 20 lakh. The sunset clause for the Industrial Park scheme was extended up to March 2011.

Prior to this, Section 80-IA (4) (iii) of Income-Tax Act provided for tax holiday on profits from development, operation and maintenance of an Industrial Park completed before March 31, 2009.

On tax holiday for profits

Moreover, the Centre has also decided to amend Section 80IB(10) of I-T Act to allow the tax holiday for profits derived from projects approved between April 1, 2007 and March 31, 2008, and completed before March 31, 2012. The tax deduction to developers under this section was initially available for projects approved before March 31, 2007. The Finance Minister has now extended these benefits by another year.

Spur for demand

Builders are all considering affordable housing projects and the latest measures are expected to fuel the demand for houses priced in the Rs 12-14 lakh range.

Dewan Housing Finance Corporation Ltd (DHFL) — where loans up to Rs 10 lakh account for nearly 65-70 per cent of the loan portfolio — sees the scheme coinciding well with the current thrust on low-cost housing projects at the periphery location of cities. “We are awaiting the detailed guidelines to be issued by National Housing Bank, the nodal agency. But back of the envelope calculations peg the savings for a borrower at about Rs 8,000, for a one-year period,” says Mr Kapil Wadhawan, Managing Director of DHFL.

A senior Unitech official says, the interest subvention will drive demand for affordable housing. A 1 per cent interest subsidy may not seem much, but it can spur those waiting for the home loan rates to come down, he says. Unitech recently launched a new home brand, ‘Uni Homes’ for affordable housing projects where the units will be priced Rs 10-30 lakh. The company feels the bulk of its projects under this category would get a leg-up from the scheme.

However, reactions are somewhat mixed when it comes to the incentive pertaining to tax holiday under Section 80 IB (10). Some feel that its impact may fall short of expectations, as the benefits are restricted to projects approved within a specific timeframe. “The provision comes with a retrospective effect, and so the industry cannot initiate any action. Only those projects that were approved in the given timeline could be speeded-up,” says an industry watcher, adding that it will not significantly increase the fresh supply in the market.

Omaxe’s Chairman and Managing Director, Mr Rohtas Goel, points out that the conditions under this section (built-up area, as well as the plot sizes) were meant to encourage the construction of houses for low and middle-income households.

“Just how many projects approved during that period will actually fall within the definition of affordable housing? Remember, the thrust then was not so much on affordable projects.”

CREDAI Disappointed

Our Chennai Bureau adds: The Confederation of Real Estate Developers Association of India (CREDAI) has welcomed the subsidy on home loan interest rates and extension on tax holidays but feels these are inadequate. The incentives should at least be doubled, it says.

A release quoting Mr Santosh Rungta, President, CREDAI, says that extending the tax holiday under Section 80IB (10) for just one year to projects approved by March 2008 will will create an imbalance. Most developers would be affected since projects approved after March 2008 will not be entitled to draw any benefits.

The Government should extend the dateline to March 2012 irrespective of the date of approval. This will encourage developers to take up new projects and expedite ongoing projects.

CREDAI feels even the proposed interest subsidy of 1 per cent to home loan borrowers up to Rs 20 lakh is small.

The government should take into account the escalation of construction cost subsidise at least 2 per cent for houses up to Rs 30 lakh.

http://www.thehindubusinessline.com/iw/2009/08/02/stories/2009080250701500.htm

Budget housing offers lifeline to Indian developers

NEW DELHI, India: ‘No frills, Simple homes’ reads the banner hanging in the Delhi headquarters of Unitech, India’s leading property developer.

It’s a mantra that has been taken up by realtors across the country with a new-found passion for affordable housing that owes little to their social conscience and everything to their bottom line.

The global economic downturn ended a four-year property boom in India that had largely been driven by the luxury housing segment and saw a near three-fold increase in residential prices in major cities.

Now developers are turning their attention to middle and lower income buyers and low-cost housing that offers lower profit margins but enjoys much greater demand.

‘We made a mistake by only focusing on the top two-three percent of India’s population,’ acknowledged Unitech vice president Vikram Datta.

‘Now we have to reach the masses by entering into budget and affordable houses,’ he said.

According to a May 2009 survey by the Associated Chambers of Commerce and Industry of India, there is a nationwide housing shortage among lower and mid-income families of around 20 million units.

With luxury housing projects struggling to find buyers, that kind of demand suddenly seems more attractive.

Unitech has committed to constructing 20,000 affordable houses at a cost of 17 billion rupees (340 million dollars) by 2011 across the country, and others are following suit.

‘India desperately needs budget houses. Constructing and selling them is the only way for real estate companies to survive,’ Rajiv Dash, a senior official at Tata Housing Development Co., told AFP.

In May, Tata launched a low-cost housing project on the outskirts of India’s financial capital Mumbai, constructing 1,000 studio apartments which sell for as little as 7,800 dollars.

The targeted buyers are primarily factory workers and small shopkeepers.

By building on cheaper, suburban land and bulk-buying raw material, developers can turn a per-unit profit of around 15 percent which is half the return on luxury houses.

‘But less profit is better than no profits,’ said Sanjay Verma, managing director for real estate consultancy Cushman & Wakefield.

In the last five months more than 65 property developers across the country have announced new projects in the affordable housing segment.

For 32-year-old Amar Singh, a commodity trader living in rented accommodation in New Delhi for over a decade, the new trend has enabled him to realise his dream of buying a home.

‘I am now the proud owner of a small, two-bedroom apartment,’ said Singh, who hopes to move in to his still under-construction home by 2010.

Singh managed to procure a loan from a private bank and arranged the down payment by selling some of his wife’s gold ornaments to seal the house deal.

Situated on the outskirts of New Delhi, his affordable housing project with 120 apartments will provide parking space to all residents, a play area for children, a power back-up and a small cafeteria.

Such amenities do not feature in the low-cost sector, where the developer’s priority is to maximise the number of units.

‘The low-cost houses are just like boxes with a door and few windows, there are no value additions,’ said Verma.

But while they may be spartan in the extreme, they do provide basic amenities such as water, sewerage, drainage and street lighting which is a major step up for low income settlers living in shanty towns.

The newly-elected Indian government announced a housing scheme in its recent budget as part of a plan to promote a slum-free India in five years.

Such an ambitious target, analysts say, can only be realised with massive private sector involvement.

‘Indian property developers should consider themselves fortunate,’ argued Verma. ‘They have a new market to do business. The faster they make small houses, the more money they earn.’

Source : http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/business/08-budget-housing-offers-lifeline-to-indian-developers-ts-01

Real Estate Developers have stopped Discounts on Properties

Developers in India have stopped offering discounts on properties and in some cases are even increasing prices as demand rises.

Rising sales are also prompting some developers to return to the luxury end of the real estate market which had stalled in the economic downturn.

‘Prices are likely to inch upwards in the coming months in some markets,’ said Kumar Gera, chairman of the Confederation of Real Estate Developer’s Association of India.

But he added that even an increase in prices will still leave many developments cheaper than they were at the peak of the market a year ago. He estimated that the property crash saw prices fall 25 to 30% but proposed increases in coming months would be around 10 to 15%.

The prices increases vary. Unitech has increased prices marginally, by some 2% in its Gurgaon projects but Mumbai based developer Lodha Group has upped prices by 10 to 15%. A Lodha spokesman confirmed that prices had gone up in luxury projects launched in March. ‘We have marginally increased prices every month for these projects since their launch. But the market is in a good spot and the response is still good,’ said director Abhisheck Lodha.

Bangalore-based firm Brigade Enterprises cut its prices by 15% in April but has now increased them by 3 to 5% and said that it plans to continue doing so at regular intervals. ‘We are hoping that in one year’s time, prices will be back to the peak levels of 2007 to 2008,’ said chairman and managing director M.R. Jaishanker.

However, discounts through brokers have not yet disappeared from the market. Developers have increased the commission offered to brokers from 3% maximum to 5 to 6%. Brokers in turn are offering a discount of 1.5 to 2% on the price of property to buyers.

‘These are the same measures developers and brokers adopted to create a price bubble during the boom years. Demand has not risen to an extent that it can fuel a price increase,’ said S.G. Maheshwari, a Mumbai-based property consultant.

Aditi Vijayakar, residential executive director at property consultants Cushman and Wakefield is not convinced the market will carry the price increases. ‘Right now it is a fairly confused market. Rates have more or less bottomed out but there needs to be substantial amount of sales before buyers are convinced price increases are justified. I think the real estate market will be flat for some time,’ she said.

Source : http://www.indianrealtynews.com/real-estate-india/real-estate-developers-have-stopped-discounts-on-properties.html

Housing projects are back with a vengeance

DLF, Unitech, HDIL & Puravankara line up 60 million square feet of new launches.
 
Top real estate developers are trying their best to make up for lost time. Buoyed by encouraging response from home-buyers for their marked-down properties, companies such as DLF, Unitech, HDIL and others have lined up housing projects of over 60 million square feet — all in the current financial year.

This is more than double the sales bookings in the past financial year.

Presentations by these companies to analysts show that Unitech is leading with 27 million square feet of new launches. DLF’s tally is 15 million square feet, roughly the same as last year’s. Puravankara and HDIL follow with 6 to 9 million and 8 million square feet respectively.

Mid-income housing is the flavour of the year and accounts for around 90 per cent of the projects. After a prolonged lull in the property market in 2008, which saw sales declining 70 per cent from their peak, the big developers moved into the mid-income segment and cut prices 20 to 30 per cent to generate liquidity.

With their apartments selling quicker than expected, liquidity constraints easing with debt roll-overs, the stock market rally and improved bank credit, realtors are now planning more such launches.

“We have sold 2,500 units in three to four projects in the last one-and-a-half months. The company has decided to go aggressive with new launches because we are quite confident of selling quickly,” said a spokesperson of Unitech, the country’s second largest developer.

DLF will launch 8 to 9 million sq ft of city-centre projects in Chennai, Kochi, Delhi and Gurgaon and around 5 to 8 million sq ft of mid-income housing projects in the National Capital Region (Delhi’s suburbs) and southern cities, DLF Vice-Chairman Rajiv Singh told analysts recently.

“We have met with good response for our projects wherever we have launched. If the product is good and price is right, it will sell irrespective of market conditions,” said Rajeev Talwar, group executive director , DLF.

The company sold 1,356 apartments at its Shivaji Marg (better known as Najafgarh Road) project within a day in early April as the price was nearly 25 per cent lower than the existing market price.

Aditi Vijayakar, executive director-residential, Cushman & Wakefield, said most developers were making good sales as they have cut prices. “The new projects are certainly attractive for home buyers,” he said.

Unitech added the cut in prices was inevitable since it’s clearly a buyers’ market. So a lot of marketing and sales efforts went into selling space. The efforts, he said, were worth its because the company was selling more flats now that what it sold even during the peak of 2007.

Unitech has cut its home prices by roughly 25 per cent and reduced ticket sizes. Currently, the average size of apartment is 700 to 800 sq ft against 1,500 sq ft a couple of years ago.

Analysts, however, said developers had taken huge hits on their margins. Mid-income apartments have a margin of 25 to 30 per cent versus 50 to 70 per cent in premium housing. For instance, DLF’s EBITDA (earnings before interest, tax, depreciation and amortisation) margins have been falling continuously.

“The days of 70 per cent margins are over. They have to be happy with 20 to 25 per cent margins now since liquidity is the bigger issue than profits today,” said an analyst from a Mumbai-based brokerage.

Apart from sales in the mid-income housing category, several other factors have also given developers confidence to move ahead, the primary being relief from immediate debt payments.

All the top developers have rolled over their short term liabilities by 12 to 18 months after the Reserve Bank of India (RBI) allowed commercial banks to restructure their debt.

Unitech has cut debt by Rs 2,000 crore and DLF, the country’s biggest developer, has repaid Rs 1,700 crore of loans in the past year. Between them the top three realtors — DLF, Unitech and HDIL — have restructured as much as Rs 4,100 crore worth of loans with commercial banks and mutual funds.

Developers have also benefited from the recent surge in the stock market, which has given many of them the opportunity to tap institutional investors to reduce debt and investing in new projects. After Unitech raised Rs 1,625 crore from a qualified institutional placement (QIP) in April, DLF’s promoters sold 9.9 per cent in the company for Rs 3,860 crore and Indiabulls Real Estate raised Rs 2,656 crore through a QIP. Now, smaller realtors such as Sobha, Puravankara and Parsvnath have lined up QIPs to raise money.

Source : http://www.business-standard.com/india/news/housing-projectsbacka-vengeance/359299/

REITs may Lead to Overall Recovery of Real Estate Sector

The marked improvement in the performance, in recent months, of Real Estate Investment Trusts (REITs), including those set up by Indian developers, is being seen as a pointer to an imminent revival in the property market. Indian property developers’ overseas-listed REITs such as Ascendas, Hirco, Unitech Corporate Park and Ishaan have nearly doubled in value from a year ago, even as the FTSE Global Real Estate Indices for Asia, Europe and the US have appreciated by 50% since March 2009.

The improved market conditions could also pave the way for the REIT listings of DLF and Unitech, which have been put on hold. REITs are entities that own and manage a portfolio of real estate properties. Anyone can invest in a publicly-traded REIT, which is seen providing the advantages of liquidity and diversity because it invests in a portfolio of properties. REITs are currently not allowed in India, but the Securities and Exchange Board of India has rules for its implementation.

Source : http://www.indianrealtynews.com/real-estate-developers/reits-may-lead-to-overall-recovery-of-real-estate-sector.html

Pay later, it’s okay, say developers

Cash-starved real estate developers are leaving no stone unturned to improve cash flow. For example, Unitech, Omaxe and Raheja Developers are waiving penalty on late payments so that customers do not quit.

“These are tough times for customers as well as developers in terms of cash generation. We are focusing on increasing cash flow from all directions and are making sure that no customer defaults or feels disheartened on not being able to pay his instalment due to unavoidable problems,” said an official from Unitech.

Most developers charge 18 per cent annual penalty from defaulting customers.

A recent report by IDFC said Unitech had seen delayed payments by customers for already booked properties. The receivables of the company increased to Rs 1,000 crore in fiscal year 2009, compared with Rs 750 crore in FY08.

Over the past year, a lot of people have lost jobs and taken salary cuts. Many of them had booked their first homes on instalments. The past six to nine months have seen a number of them defaulting on payments.

“The move to waive penalty on late payment is a smart move. This will provide customers the much-needed cushion at a time when a lot of them may want to back out due to their financial condition,” said a Mumbai-based real estate consultant.

Omaxe Ltd, which charged 18 per cent penalty for the first two months of default and 24 per cent after that, is offering a waiver to customers with a good record. “We are not offering the scheme to all our customers and are giving the waiver to only those who have made all their payments before their first default,” said an Omaxe spokesperson.

The debt of all real estate firms has risen over the past year and they do not want to lose an opportunity to gain cash from potential customers by insisting on penalty.

“We keep in mind the financial position of our customer. If someone has lost his job or faced some other financial problem, we allow him/her to start paying his EMI without caring about the penalty,” said Naveen Raheja, managing director, Raheja Developers.

Source : http://www.business-standard.com/india/news/pay-later-it/s-okay-say-developers/358033/

Developers find JVs attractive in realty market fall

Cash-strapped property developers, who had leveraged aggressively between the boom years of 2005-2008 to fund land buying, are now increasingly opting for joint ventures (JVs) with owners to save cash while developing land, developers and consultants said.
 
Developers who are launching new projects are opting for this route, as they need not pay the entire amount in one lot and owners need not forego the potential rise in value. As much as 70 per cent of land deals in the country take place through this model now, against 40-45 per cent a couple of years earlier, say property consultants.

If some developers return built-up space to land owners for their contribution, others share a percentage of revenues with owners. The model changes depending on location, price and potential.

Unitech, the country’s second largest developer, has developed 1.5 million sq ft of space in JVs with local companies in Chennai and has launched an office property project in Mumbai in a JV with the local Omkar group.

Delhi-based Raheja Developers, which has 100 acres of land under joint development, is planning to launch an 18-acre luxury residential project in Gurgaon in the next six months under the JV route, wherein they are giving 30 per cent of the apartments to land owners. Mumbai-based Sunil Mantri Realty, which entered into eight JVs in the past year, gives 10-50 per cent of built up area to the land-owners depending on the project.

Tata Housing, a unit of Tata Sons, recently launched a Rs 100 crore low-cost housing project in Bhoisar, in the Mumbai outskirts, in a JV with a local company, wherein Tatas share a certain percentage of revenues with the latter. Tata Housing plans to follow a similar model in other cities and is talking with state governments for public-private partnership agreements, said Brotin Banerjee, managing director.

“The downturn and drying up of bank funds has forced developers to work out this option. A plenty of such options are available today, where developers need to take care of only development and construction cost,” said Sunil Mantri, promoter of Sunil Mantri Realty.

Analysts say developers are in a difficult situation today due to leveraged balance sheets and fall in cash flows, which is forcing them to look at new options.

“Aggressive land acquisition through leveraging the balance sheet was the mantra during FY 2005-08. Real estate companies hit the equity markets and raised funds to build up a land bank, with the additional intention of reducing debt from operations. However, the with economic slowdown from January 2008, cash flows dried up significantly,” said stock brokerage Emkay Securities in a recent report.

Developers say the fall in stock and property markets, coupled with slowdown in the economy, is also forcing land owners in places such as Mumbai to opt for JVs with realtors. “Earlier, this concept was popular in the north and south. Now we are getting proposals from cities such as Mumbai too, as land owners are exploring different options to raise money,” Mantri said.

Adds Anshuman Magazine, chairman and managing director of property consultant C B Richard Ellis: “Terms are in favour of developers when markets are down. It depends on the profile of a developer in such agreements.”

Though the concept is getting popular, some developers and consultants have apprehensions about the model. “Though we are not averse to joint development, we prefer outright purchase, as one gets full control of the land and avoids dealing with land owners later,” said Rajeev Piramal, executive vice-chairman, Peninsula Land.

Says Mantri: “It is fine as long as the deal is structured properly. If the sharing is unreasonable, then it will put both developers and land-owners in trouble.”

Source : http://www.business-standard.com/india/news/developers-find-jvs-attractive-in-realty-market-fall/358561/

Housing sector shows signs of Life

India’s housing sector is showing stirrings of growth with a marked increase in the number of transactions for the last quarter of 2009, as the interest rate cuts on housing loans announced by various banks begin to take effect.

The number of residential transactions went up 12-15% for the quarter ended March 31, 2009, over the previous one, according to global real estate consultancy Jones Lang LaSalle Meghraj (JLLM). Leading realty players that SundayET spoke to confirmed there indeed was an uptick in demand in the last couple of months, especially in March.

DLF, India’s largest realty player, managed to sell all 1,400 apartments in its upcoming project in West Delhi within 24 hours at a discounted price, says Rajeev Talwar, group executive director, DLF.

Unitech, which launched two of its affordable projects last month in Delhi NCR and Chennai, too saw an enthusiastic buyer response, according to a company spokesman. The developer sold off 750 apartments in Uniworld Garden II in 45 days of its launch. Another project, Ananda, launched in Chennai and priced at Rs 20 lakh onwards saw 500 apartments being sold off in 10 days, claims the Unitech official.

In Mumbai, more than 2,500 apartments have been sold in the last 40 days, according to Niranjan Hiranandani, MD, Hiranandani Developers.

Reflecting this market movement, banks too confirmed increased activity in the home loan segment. Leading banks that SundayET spoke to said that business from this segment clocked an estimated growth of 10-15% in Q4 against the previous quarter.

Source : http://www.indianrealtynews.com/real-estate-india/housing-sector-shows-signs-of-life.html

Slowdown heat melts realty prices in Mumbai

MUMBAI: The heat of global financial slow down seems to have melted the real estate prices in the financial capital of the country, as the developers slashed the prices of properties to a record low.

During past few years, the real estate prices had swelled up to the maximum levels in metros and several other cosmopolitan cities. However, according to experts the price rise was artificial and temporary. The boom in the real estate sector caused immediate spurt in the prices of the construction related commodities including cement, steel and ceramics. But with real estate prices cooling off in recent times, the cascading effect was seen in the construction related commodities.

However, in the wake of the general election, the government infused huge funds for infrastructure development projects in the country. This gave some strength to the falling commodity prices, but the government support could not give a hold to the falling realty prices in the metros.

In an exhibition held at Mumbai by Maharashtra Chamber of Housing Industry (MCHI), the developers were offering apartments at 25-35% lower prices than the peak price. More interestingly, few developers were also selling residential apartments at 30% lower than the peak prices which were nearing completion.

In the commercial office space as well, few developers were offering at price points which were 25% lower than the peak prices.
There was a consensus that in the last 2 months volumes have improved due to new project launches at competitive prices. However, we believe this could be called a trend reversal (in terms of volumes and not pricing) if such encouraging volumes continue for the next few quarters as well.

However, developers opined that there had been better response than the in October 2008.

Amongst the listed space, DLF, Unitech and HDIL have launched residential projects at competitive prices in the last two months. With loan restructuring for most of the companies now over, investors will focus on the interest servicing capabilities of the companies.

However, leading realty stocks witnessed a steady rise in the stock prices. DLF Ltd and Unitech Ltd gained by over 40% during past one month, while HDIL Ltd surged by whopping 53% from its monthly low of Rs.63.45 during mid-March to Rs. 137.65 recently.

Source : http://www.commodityonline.com/commodity-stocks/Slowdown-heat-melts-realty-prices-in-Mumbai-2009-04-14-16883-3-1.html

Interest rate cuts, offers bring first-timers to housing market

Renu Sud Karnad, joint managing director of HDFC, the country’s largest mortgage player, said she saw “increased interest” from first-time house buyers, courtesy the correction in property prices, interest rate cuts and developers introducing affordable housing by resizing the offered areas.

Property developers agree.

Consider this:

- HDIL Ltd launched a housing project at Kurla, a central suburb of Mumbai, in February, at a price 30 per cent lower than market rates. More than half its sales came from first-time home buyers. Of the 756 units on offer, the developer has already sold 575.

- About 85 per cent of the 500 flats at DLF Westend Heights in Bangalore have already been sold. The project was aimed at information technology professionals and the flats were priced 24 per cent less than market rates. DLF says about 60 per cent of the buyers are first-time house owners.

- Unitech, which launched Uniworld Gardens–II at Sohna Road, Gurgaon, and cut prices by more than 20 per cent, has sold more than half the flats. It now plans to launch affordable housing projects in the Rs 5-10 lakh range in Chennai, Kolkata and other cities.

Bankers also see a sharp rise in enquiries from first-time buyers, after an 18-month hiatus. Bank of India Executive Director M Narendra said many first-time buyers were coming to the bank for loans as the availability of affordable projects had increased.

Cuts in interest rates and property prices have improved affordability. First-time buyers have been a huge beneficiary of the former. Every 0.5 per cent increase in the interest rate reduces home loan eligibility by about 7 per cent, shows a study by Liases Foras, a real estate rating & research agency. Liases said real estate would attain the 2005 efficiency if home loan rates came down to 7.5 per cent and property prices fall by 5 per cent. The risk spread in the real estate sector would then be negligible.

First-time home buyers have stayed away from the market ever since developers, in a bid to cash in on the market sentiment, focused on launching luxurious projects, bigger in size and priced beyond the reach of average buyers.

Property prices across India more than tripled from 2003-07, owing to rising incomes, mortgage availability at inexpensive rates, higher tax benefits and speculators flocking to the market.

As a result, inventory levels of property jumped to 40 months of equivalent sales, compared with eight months or lower a few years ago, said Pankaj Kapoor, CEO of Liases Foras.

However, some analysts and experts said it might be difficult to sustain the momentum as several genuine buyers were expecting a further drop in prices and uncertainty in the job market might make matters worse.

Source : http://www.business-standard.com/india/news/interest-rate-cuts-offers-bring-first-timers-to-housing-market/353164/

Developers Target the Bottom Segment to Generate Liquidity

Unitech, Omaxe, Raheja, Tata Housing and Ansal API are planning new projects in the suburbs of satellite towns or smaller cities to target the bottom segment, to generate more cash. New Delhi-based Unitech and the Raheja group are planning to build single-bedroom homes in and around Gurgaon. While Unitech is busy conceptualising the project, Raheja has announced plans to construct 10,000 flats in the Rs 5 lakh range at Gurgaon, the satellite town bordering New Delhi. Tata Housing Development, too, is working out the feasibility of a sub-Rs 5 lakh housing project. Unitech plans to launch mid-segment residential projects in the Rs 5-10 lakh range in metros like Chennai and Kolkata, and suburban cities like Gurgaon, over the next few months.

Another developer, Omaxe, is planning a sub-Rs 4-10 lakh project at Peetampur and the Dewas industrial area near Indore to target workers. In the first phase, to be launched in the next 10 days, Omaxe would launch 5,000 flats and in the second phase, 5,000 more flats, the company said. “The inspiration to develop smaller and cheaper apartments comes from the Nano, which is eliciting a tremendous response. I am sure our project will see a similar response, given the fact that we will come up with such low-cost apartments near metros,” said Nagaraju. “Many industries around Udyog Vihar and Manesar are looking for houses for their workers. Our demand survey has shown tremendous interest among such firms to provide houses for their employees in the vicinity of the workplace. The new project will take care of their interest,” said Navin M Raheja, managing director, Raheja Developers.

“Nothing is selling today, as people do not have money. When both large and mid-income projects are not selling, developers have to come up with smaller projects, though they cannot earn the 30-50 per cent margins that they used to make earlier,” said Akshaya Kumar, chief executive of Park Lane Property Advisors. Developers are battling slowing sales since the beginning of 2008. Higher property prices, which more than doubled in metro cities during 2004-07, and high interest rates have made property buyers stay away from new purchases. Despite a nearly 30 per cent fall in property prices and a cut in loan rates from 11 per cent to 8.5 per cent in recent months, property sales have fallen 70 per cent from their peak last year.

DLF, Unitech, Parsvnath and all other major developers have entered the Rs 20-40 lakh segment to generate liquidity, even as their top line fell as much as 80 per cent in the last quarter. But property experts believe sub-Rs 5 lakh projects have few takers, even in smaller cities like Indore. “Even a good wage earner wants to stay in a comfortable home, which costs between Rs 8 lakh and Rs 10 lakh in smaller cities and Rs 18 lakh and Rs 20 lakh in the metros,” said a top executive of a New Delhi-based realty firm who did not wish to be quoted.

“At such as a price (sub Rs 5 lakh), either the houses have to be small or not in a good location. Prices should at least be in the range of Rs 10-15 lakh (per flat) for a project to make profit,” said Kumar of Park Lane Advisors. But developers are still launching projects to generate cash. Ansal API has launched 4,000 apartments in Jaipur, Jodhpur, Agra and Meerut. “We have priced these apartments in the range of Rs 5-10 lakh per unit, keeping in mind customers who are ready to buy small apartments. The size of a one-bedroom apartment is 500-550 sq ft, while a two-bedroom apartment has an area of 850-900 sq ft,” said a company spokesperson. The company will launch another 6,000 apartments in the coming months.

http://www.indianrealtynews.com/real-estate-developers/developers-target-the-bottom-segment-to-generate-liquidity.html

Realtors freeze land acquisitions as values dip

NEW DELHI: There was a time when real estate biggies were literally banking on land. Huge land banks were considered an invaluable asset to flaunt aggressively when selling projects or raising money.

But today things have changed and the benchmark of the valuation of these companies, the land bank, is coming back to haunt them. Leading real estate developers across the country, DLF, Unitech, Emaar MGF, Omaxe, BPTP and Hiranandani Developers, have all put a freeze on their ambitious and aggressive land acquisition spree.

Also, in some cases they are even trying to give back the land they had acquired. The unproductive nature of land banks coupled with erosion in notional value means that the most prized possession of real estate majors is languishing in the slowdown.

SundayET dug out some data on land banks of the top real estate companies and found that the current kitty of DLF stands at approximately 13,055 acres while that of Unitech is around 14,000 acres. Omaxe has 3,700 acres as its land holding while BPTP has 2,000 acres.

According to a real estate consultant, who didn’t wish to be named, value of land prices have dropped by almost 30% since July last year, when they had peaked. By that estimate, assuming a correction of 30%, DLF’s land value stands at Rs 1,272 cr against Rs 1,817 cr standing in its balance sheet in March ‘08. Similarly, Unitech’s land value is priced at Rs 316 cr at current market prices, as compared to its value of Rs 451 cr in March’08.

Most developers, however, are not willing to concede that land banks have lost lustre. Says Sanjay Chandra MD of Unitech Group: “It depends on how you have acquired the land. We didn’t participate in open auctions. Most of our land is directly acquired from either land owners or from government auctions. Hence the cost is on the lower side. We are not burdened with any of the land parcels as the FSI cost of all our land bank is sub Rs 200 per sq ft.”

But denials apart, developers such as DLF, Unitech and BPTP are shying away from mega land deals signed during the real estate boom. This asset class is, in fact, especially pinching those developers who acquired land at various auctions at heavily escalated costs.

BPTP, which hogged the limelight for the costliest land deal in Noida, surrendered a part of the land parcel earlier this month. Last year, the developer had bagged a 95-acre plot at Noida in an auction for a princely sum of Rs 5,006 cr.

However, foreseeing difficulties in executing the project, the developer only retained part of the land. The case is similar with other developers, many of whom have withdrawn from key projects which would have ensured availability of large tracts of land for them. For instance, DLF recently gave up the Rs 5,000 cr Dankuni project in West Bengal and a multi-crore convention centre project in Delhi’s Dwarka.

Others like Omaxe are looking at a shift in strategy of the current situation. “Currently, we have around 3,700 acres of land. Now we are not acquiring more land, so the strategy is to develop the acquired land first,” says Omaxe Group chairman and managing director Rohtas Goel. Valuation of land is not the only problem. It’s also got to do with availability of funds for developing the land.

A senior private sector bank official, who did not wish to be identified, admitted that they had severely cut down on their exposure to the real
estate sector in terms of sanctioning loans. “There’s a high risk involved. And keeping in mind the current situation, we are averse to risk-taking propositions,” he said.

Ganesh Raj, tax partner and leader policy advisory group, Ernst & Young, in fact, feels that substantial landbanking could lead to a cash deficit situation in a downturn for real estate players. “They could easily get stuck in a vicious circle since not only landbanks are non-productive compared to a developed/semi-developed project but also bank funding on the basis of landbanks is a thing of the past,” he said.

According to Mr Raj, large land banks are no longer holding the fancy of investors. And that is the reason why developers with large landbanks are now feeling the pinch of having locked up significant amounts of free cash into such land banks. Economists too hold the view that the erosion of the notional value of land holdings is pulling real estate developers down in a depressed market.

“When the economy is on an upswing, notional value of your asset goes up. Today real estate developers are at the mercy of a bank, if they want to raise a loan or debt against those land holdings. Unlike the boom time, when they were able to raise a much higher amount against land, today the bank decides how much they judge the value of land holdings is,” says Sunil Sinha, senior economist, Crisil.

Though developers don’t outright admit that land is straining their bottomlines, all of them do agree that there isn’t any more land acquisition on the cards immediately. To capture the sentiment in the words of DLF executive director, Rajeev Talwar; “It’s not a good time for business development right now. We are not acquiring more land right now as we already have abundant supply for the next seven-ten years.”

Most of the developers are, in fact, putting up a brave front, agreeing that while land may not be offering them attractive returns at present, it is not acting as a liability either. Niranjan Hiranandani, MD, Hiranandani Developers feels that that it is primarily the mode of financing or excessive debt that has become a “liability” today, not the land acquired.

“Investors may still be interested in cases where a developer has a land bank at a premium location and the valuations are attractive enough. Therefore such developers could focus on premium land banks to generate cash in these difficult times,” says Raj.

Another option for developers, he feels, is to restructure their original plans to launch projects which would have quicker off-take such as low-cost housing.

Source : http://economictimes.indiatimes.com/News-by-Industry/Realtors-freeze-land-acquisitions/articleshow/4167542.cms

Govt plans 100,000 homes in Rs 10-20 lakh range

New Delhi: The UPA Government is working on a major stimulus for India’s flagging real estate market and ancillary industries through a nationwide scheme of affordable housing. The initial plan is to build 100,000 dwelling units, each costing Rs 10-20 lakh, over the next two years.

The scheme, brainchild of the Department of Industrial Policy and Promotion, has the drawing-board title of ‘100 R K Puram Project’. It aims to tap into the huge unmet demand of MIG/LIG housing costing not more than Rs 40 lakh per unit among government and PSU employees, currently incentivised by surplus cash from revised payscales and arrears, and single-digit loan rates charged by government banks.

R K Puram, in south-west Delhi, is Asia’s largest colony of government employees. According to the Department of Industry note, the push to housing is expected to translate into increased production of steel, cement, trucks, tiles, fittings, etc.

Official sources said Cabinet Secretary K M Chandrasekhar discussed the proposal in a meeting with state chief secretaries on January 31.

The scheme has been discussed with real estate majors including DLF and Unitech.

It was expected to find mention in the interim budget, but it is learnt Finance Minister Pranab Mukherjee decided otherwise.

The government is currently working on three options:

* Developers with large landbanks of their own can come out with affordable housing (Rs 12-20 lakh) with state governments helping them with increased FSI to protect their bottomlines. The idea has been discussed with major real estate developers.

* States can give land to developers at concessional rates with caps on size and cost of the unit.

* States can announce their own housing schemes with land being made available to development authorities or cooperative housing societies on a no-profit, no-loss basis.

Source : http://www.indianexpress.com/news/govt-plans-100-000-homes-in-rs-1020-lakh-range/424879/

Banks Suggest Developers to Bring Down Property Prices

Like the government, banks and private equity funds are also urging developers to reduce property prices. Bankers feel that the demand for houses still exists, but soaring property prices are keeping customers away. “Despite an industry bailout programme and the relaxation of lending rules, developers are refusing to cut the inflated property prices,” said Mr. Deepak Parekh, chairman of mortgage lender Housing Development Finance Corp Ltd (HDFC). However, realtors said it was difficult to get funds for new projects as banks and private lenders were coming up with fresh conditions. “Apart from slackening demand and a liquidity crisis, banks and private lenders are now putting up new terms and conditions for funding,” said Mr. Rohtash Goel, chairman and managing director of real estate developer Omaxe Ltd. Major realtors such as DLF, Unitech, Sobha, Omaxe, Parsvnath and Housing Development and Infrastructure have approached the banks to restructure their loans.

Source : indianrealtynews.com

Builders under pressure as buyers press for refund

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

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

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

Investors in DLF’s commercial projects in Delhi and Kolkata have come together with the help of brokers to put pressure on DLF to start construction or refund initial deposits. “DLF is way behind schedule in their projects. It should either start work on the project immediately and deliver in time or return our investment with 15% interest,” says Amit Jain (name changed), a senior executive with an MNC who invested Rs 1 crore each in DLF’s projects in Okhla in Delhi and Kolkata.

Mr Jain says since DLF follows a time-linked payment plan, it has been demanding payments from buyers even without starting construction.

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

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

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

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

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

Source : http://economictimes.indiatimes.com/Markets/Real_Estate/News_/Builders_under_pressure_as_buyers_press_for_refund/articleshow/3970375.cms

Mall retailers start defaulting on realty payments

New Delhi: While retail may have been touted as the safest bet for putting in money by the country’s top bank, defaults are becoming common there as well. Whether its one of your favourite jeans, shoes, bedspreads or the much-needed winter collection, they have all been hit by the downturn. About a dozen leading retailers have defaulted on realty payments for precious mall space that they occupy in leading Tier I and II cities.

Caught in the tentacles of the current economic crunch, retailers are being hit by high credit costs and less liquidity. The outcome is that leading retailers at malls such as Realtech, Advance India, Emaar MGF, Shipraworld, TDI, Select City Walk and Pacific India are refusing to part with pre-determined lease rentals.

According to the 300-member strong Association of Mall Owners of North India (AMONI) including DLF, Parsvnath, Unitech, Omaxe etc, out of the 300-odd retailers operating out of approximately 70 malls in north India, the defaulting players are big names in the organised retail industry, with some of them even listed on the bourses.

Most of these retailers are defaulting on payments from September-October 2008 onwards. These retailers cite a failure in their business model or slowdown in international markets,” an AMONI member said. This is the case even when the Indian wedding season is at its peak.

The situation is no different for other parts of India. “Retailers are trying to renege on contracts and renegotiate rents in Pune and Mumbai, asking for lower rentals or a revenue-sharing model,” said Kumar Gera, chairman of Confederation of Real Estate Developers’ Association of India (CREDAI).

When contacted, most of the retailers figuring in the list of 13 defaulting on payments refused to speak on record. The concerns of the retail industry are echoed by the industry body, Retailers Association of India (Rai). “If the mall owners have not passed on the correction in rentals, there may be a possibility that the retailers are trying to re-negotiate the rental. In such a scenario, payments are likely to be delayed,” said Rai CEO Gibson Vedamani. In fact, in most of the cases, retailers are defaulting on mall properties which have come up in the last two years, or where the retailers have signed lease rentals in the last two years. “From second half of 2006 to around March 2008, the rentals were steep, now they have fallen by 30-35 per cent,” Vedamani said.

Realtors may cut prices 30% next year to boost sales

DLF, Unitech and other real estate developers may lower prices by 30 per cent by mid-2009 to nudge buyers out of their “wait and watch” stance, according to experts.

The price cut, if implemented by the country’s builders will also push sales higher, especially of the affordable category, property consultants said.

”Many developers will come down on their asking rates after being saddled with unsold stock beyond their ability to hold on,” added Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM).

Property prices in the key cities have more than doubled in the past few years helped by a boom in the stock market and a spurt in salaries of home buyers. The subsequent measures of the Reserve Bank of India to cool the overheated economy and a subprime crisis coupled with a credit crunch, has tempered growth prospects in the country hurting sales of property developers.

The benchmark sensitive index, the Sensex, has dropped more than 60 per cent from the beginning of the year, eroding much of the investors’ wealth and RBI has increased repo rates by 150 basis points till September this year to curb inflation.

“If you take same time next year, there will be better volumes at lower prices than what they are today. Buyers will be tired of waiting and all the developers realise that price cuts are necessary across the board,” said Pranay Vakil, chairman of property consultancy Knight Frank India.

To boost sales, property developers have been forced to cut prices of real estate but buyers are still adopting a “wait and watch” stance as many feel that even the lower rates continue to be unaffordable.

Property prices in Gurgaon, Noida in the National Capital Region (NCR) have fallen by 25-30 per cent while Mumbai’s distant suburbs have seen 15-20 per cent drop in prices. Now property consultants foresee further price correction of 25-30 per cent in 2009.

“By the middle of 2009, developers will loose holding power and cut prices sharply. Cuts will follow big time after elections,” said Ambar Maheshwari, director of DTZ, an investment advisory.

Experts say that developers are likely to focus on sub Rs 20 lakh flats due to huge demand for such flats and the government’s stimulus package for Rs 20 lakh home loans.

“Earlier, developers thought that there is latent demand for premium homes, but in the current slowdown, that perception has changed. There is always demand for Rs 5 lakh-Rs 15 lakh homes and developers will look towards that,” Maheshwari said.

Source :  http://www.business-standard.com/india/news/property-prices-may-fall-by-30-next-year/12/31/50909/on

Realtors May Have Some Relief

The urban development ministry has drafted a bailout package for the real estate industry, which would be shortly sent to the finance ministry for consideration. The ministry has called for relaxation in norms for foreign loans so that realty companies can tide over the liquidity crunch, urban development secretary M Ramachandran said on Monday. The note has also urged the finance ministry to consider other sops like rescheduling of total debt of the real estate industry and reduction in home loan rates for affordable houses. “We have included some of the demands from the National Real Estate Development Council (Naredco) in the note.

Once the finance ministry clears the package, it will go for Cabinet approval,” Ramachandran said. Naredco has asked for a reduction in the interest rate on home loans by at least 3-4 %. The rate of interest on home loans has drastically gone up from around 7.75% in 2004 to around 12.75% now. Almost 90% of home buyers opt for loans to buy homes. But with the hardening of interest rates, and liquidity crunch in the market, demand for houses has been hit. The council has also asked for rescheduling of bank debt to real estate developers with a moratorium of one-two years. The total debt of the real estate is to the tune of Rs 25,000 crore, a Naredco statement said.

The industry body has also asked for an easing of norms for foreign loans and declaration of ongoing projects as NPAs. Meanwhile, to bring about correction in the property prices, the Naredco has asked its members to cut prices by reducing costs, cutting profit margins, reducing advertising and brokerage costs. Its members include DLF, Ansal API, Unitech, Parasvnath Developers, Sobha developers and several other realty companies. There are several factors working against the Indian real estate sector. Banks are getting jittery over loan disbursals to real estate developers. Even if the developers manage to get loans from banks, they are hardpressed to keep more collateral with the banks. To further aggravate the situation, the property market has also been witnessing a drop in PE fund flow

Source : http://www.indianrealtynews.com/real-estate-trends/realtors-may-have-some-relief.html

Battered realtors may get bailout package soon

NEW DELHI: The urban development ministry has drafted a bailout package for the real estate industry, which would be shortly sent to the finance
ministry for consideration.

The ministry has called for relaxation in norms for foreign loans so that realty companies can tide over the liquidity crunch, urban development secretary M Ramachandran said on Monday. The note has also urged the finance ministry to consider other sops like rescheduling of total debt of the real estate industry and reduction in home loan rates for affordable houses.

“We have included some of the demands from the National Real Estate Development Council (Naredco) in the note. Once the finance ministry clears the package, it will go for Cabinet approval,” Ramachandran said.

Naredco has asked for a reduction in the interest rate on home loans by at least 3-4 %. The rate of interest on home loans has drastically gone up from around 7.75% in 2004 to around 12.75% now.

Almost 90% of home buyers opt for loans to buy homes. But with the hardening of interest rates, and liquidity crunch in the market, demand for houses has been hit.

The council has also asked for rescheduling of bank debt to developers with a moratorium of one-two years. The total debt of the real estate is to the tune of Rs 25,000 crore, a Naredco statement said. The industry body has also asked for an easing of norms for foreign loans and declaration of ongoing projects as NPAs.

Meanwhile, to bring about correction in the property prices, the Naredco has asked its members to cut prices by reducing costs, cutting profit margins, reducing advertising and brokerage costs. Its members include DLF, Ansal API, Unitech, Parasvnath Developers, Sobha developers and several other realty companies.

There are several factors working against the Indian real estate sector. Banks are getting jittery over loan disbursals to real estate developers.

Even if the developers manage to get loans from banks, they are hardpressed to keep more collateral with the banks. To further aggravate the situation, the property market has also been witnessing a drop in PE fund flow.

Source : http://economictimes.indiatimes.com/News/Economy/Finance/Battered_realtors_may_get_bailout_package_soon/articleshow/3781923.cms

Pricing pains hit real estate

It’s an uncertain world out there in the real estate sector. If 2007 was a memorable year for the Indian real estate market as record highs painted the realty canvas, 2008 saw that growth dwindling. Homebuyers have been deferring purchases owing to the growing negative sentiments; developers are finding it hard to get the desired prices. With voices echoing the need for price cuts, the sector is headed for a major price correction. According to a report on Indian real estate by Goldman Sachs, prices may have to fall by up to 30% for affordability to catch up. The report by the global financial institution endorses the views of Finance Minister P Chidambaram, who requested the industry to reduce prices to boost consumer demand.

The industry too has been echoing similar sentiments. The National Real Estate Development Council (NAREDCO) that works under the patronage of Ministry of Housing and Urban Poverty Alleviation, Government of India and its members including leading developers as members such as DLF, Unitech, Ansals, Parsvnath, Omaxe, Assotech among others requested all its members to review their property prices. CREDAI, the apex body of real estate developers in the country with a membership of more than 3,500 plus developers in 18 states across India also urged and advised its members across the country to make every effort in lowering prices to the levels possible.

Price correction imminent

Industry experts are of the view that the correction in land prices was imminent since the beginning. Says Anuj Puri, Chairman & Country head, Jones Lang LaSalle Meghraj, “Land prices in many locations will come down as developers who have been holding on to it for future development release it to the market in order to generate funds for completion of their ongoing projects, or to ease their debt burden. Demand will also sink as the lack of liquidity among potential buyers makes itself felt.” Developers expect a lot to happen in the coming few months. “If Government starts supporting developers in development of affordable housing by working towards controlling high prices of land, price cut will happen,” says Rohtas Goel, CMD, Omaxe. He adds that interest rate on home loans should be drastically cut by at least 3-4% so that cost of borrowings can be reduced for the common man.

Profits in land investments

With builder flats and projects not able to attract buyers at the current or proposed reduced prices, land investments do present a profitable alternative. The market in most known growth sectors will improve within two-three years, so the holding period should be at least that long. “In a growth sector with new market drivers coming in, a plot of sufficient dimensions makes a lot of sense since it has equal potential for developers from the residential, retail, office and hospitality sectors. As an area attains more and more market drivers and begins to saturate, plots increase in value manifold and can be sold in a sellers, not a buyer’s market,” says Puri. According to experts, possibility of a profit is always there, depending upon the availability of liquidity. “Sometimes the best deals happen when the market is down,” asserts Prakash Gurbaxani, founder and CEO, QVC Realty.

Where to invest

Metro cities still seem to be holding the focus when it comes to the ever important question of where to put your money. In terms of residential land, one should consider areas beyond the currently favoured residential zones that are scheduled for residential development in the future. “The NCR region is a good bet, owing to future prospects of industrial and commercial growth. However, the necessary holding period would be a minimum of 5-7 years. Tourist spots such as Goa, Dehradun, Nainital, Mussoorie as well as religious places such as Haridwar are suitable for long-term investment,” suggests Puri. Goel believes that with rising demand and population the sector will also witness scarcity of land with a shift of demand from Tier-I to Tier-II and III cities. “Bhatinda, Lucknow, Jaipur, Nai Raipur, Ludhiana etc should attract attention. We foresee continuous boom in the sector for at least a decade in Tier-II and III cities,” he adds. Vijay Jindal, CMD, SVP Builders believes that cities like Ghaziabad, Greater Noida, Meerut, and Panipat are preferable destinations that can earn lucrative deals for buyers as well. Puri advises investors to judge buying opportunity solely on local demand for the property typology being invested in, the number of units already sold/booked in the project, and market drivers scheduled to arrive in that locality.

Affordable housing an option?

In India about 100 million people live in slums and slum-like conditions without adequate basic facilities such as piped water, sanitation, schools, health, and more. According to the State of World Population Report 2007, these numbers are expected to touch 200 million by 2020. If the current trend continues

the number of urban dwellers will reach almost five billion by 2030. In India, the urban population is expected to reach 576 million in 2030 from the current 328 million. With this rapid urbanisation, one of the biggest challenges will be providing affordable housing to city dwellers, especially the poor.

With increasing difficulty in procuring funds to finish existing projects, developers are turning towards the affordable housing sector. “To counter the pressure on customers of high interest rates, rising inflation, etc and keeping in mind the high demand of housing, affordable housing is the feasible option for now,” says Goel. However, these sentiments are not echoed by all. Gurbaxani finds a market opportunity in affordable housing but refuses to acknowledge it as an option in the current scenario. “Larger developers are not talking about this different market segment,” he adds. The industry patiently awaits tax breaks and reduction in stamp duty to increase affordable housing

Source : http://www.financialexpress.com/news/pricing-pains-hit-real-estate/392262/3

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

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

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

Realty blues hit foreign hotel majors’ India plans

MUMBAI: International hotel chains like Hilton, Accor, Carlson and Starwood are concerned about the viability of their India plans. Many of these
hotel chains have tied up with real estate developers like DLF, Emaar MGF, Unitech and Parsvanath to set up five-star hotels. However, fund-starved developers, who are trying to raise money for their core activities like residential and commercial property projects, are understood to have put the hotel ventures on the back burner. A drop in occupancy and room rates, inflow of business travellers and tourists to India have also raised concerns on the viability of these projects, industry sources say.

“Out of a total of 1.14 lakh proposed room supply, only 58% or about 66,000 rooms, will actually be developed over the next few years. So, we feel many announced projects may not take off as planned,” said Manav Thadani, MD, HVS International, a hospitality consulting firm.

“Now, debt raising is a difficult process,” says Homi Aibara of Aibara Consultants. Lemon Tree Hotels CMD Petu Keswani said: “Only developer-led hotel projects will face a problem as their priorities are different.” However, when contacted by ET, real estate developers insisted that projects were on track.

According to the latest HVS report, cities like Bangalore, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune, where massive new room capacities are planned with real estate operators, are seeing trouble. In Bangalore not more than 60% of the new capacity is likely to come up. The same goes with Chennai, Delhi, Hyderabad, Mumbai and Pune.

However, cities like Agra, Hyderabad, Jaipur and Mumbai saw a negative growth in room supply in 2007-08 as compared to 2006-07.

The last few months have seen a demand-supply mismatch in tier II cities like Bangalore, Pune, Hyderabad and Chennai. Room rates too have fallen steeply in these markets, making it unviable for real estate developers to go ahead with the planned hotel projects. This is happening at a time when there is a severe shortage of branded hotel rooms.

Unitech MD Sanjay Chandra said: “We have management tie-up with the Marriott Group for three projects, and one of them will be commissioned in January. Other two projects are very much on.” Recent media reports had suggested that DLF’s hotel JV with Hilton had hit a rough patch. However, DLF clarified to the stock exchanges that “DLF’s JV with Hilton is on a firm footing and all plans for the development of hotels stand as originally envisaged”. However, industry sources said DLF has put the hotel project on the back burner for at least a year.

An Emaar-MGF spokesperson said there were no change in the hotel plans of the real estate firm and its tie-up with Accor. Says Uttam Dave, president and CEO, Interglobe Hotels and head of development, Accor Hotels India (Accor has tied up with Emaar MGF to launch Formule 1, a budget hotel): “Most of our projects are on track, and so far at least none of our projects have been either cancelled or put on hold, and this includes both managed and investment projects. There have been some delays in the actual development and commissioning of projects, and this has been on account of obtaining development approvals from municipal authorities and not due to real estate values.”

Source : Economictimes.com

Unitech sees cash inflows via PE funds, divestment

Real estate major Unitech is expecting “significant” cash inflows over the next few weeks through private equity funding and divestment of stake in its telecom operations, Managing Director Sanjay Chandra said today.

“About Rs 1,200 crore of debt as well as Rs 770 crore of shareholder loans that Unitech will receive back once we get our partner (telecom) in place,” he said.

Shares of Unitech, which had plunged 50 per cent on Friday on reports that the company has defaulted on land payments to the Greater Noida Authority, bounced back today.

At 1:24PM, Unitech was trading at Rs 36.80 on the National Stock Exchange, up 18.7 per cent.

Unitech is foraying into telecom through a 100 per cent subsidiary, Unitech Wireless.

Unitech Wireless has licences to offer services in all 22 telecom circles in India. Of the 22, the company has been allocated initial spectrum in 13 circles.

On Friday, Chandra had said the company was likely to divest 26-45 per cent stake in its telecom operations and may announce a tie-up with an international telecom company by early November.

He also said the company’s cash position is pretty “comfortable”.

“We are expecting significant inflows from private equity transaction, which we have already worked on, including the fund which we have raised on our own. We are starting to drawn down from that fund early next month,” he said.

Unitech had raised $300 million from global investors for an international fund – Unitech International Real Estate Fund – in July.

In June, Chandra had said the company is planning to raise up to $1.15 billion through private equity in the current financial year to March to fund its hospitality business and Mumbai projects.

Reacting to the fall in the scrip’s price, Chandra said,” …People are working in a concerted manner spreading malicious rumours about a couple of companies and creating panic in the market…and possibly with criminal intentions to make short term gains for themselves.”

He also said the company has approached the regulators regarding the fall in the stock’s price on Friday.

“… They (the regulators) have assured they will take whatever action is needed to punish whoever is found guilty,” Chandra said.

No default
In his fourth clarification since Thursday, Chandra said the company has not defaulted on payments for land it bought from the Greater Noida Development Authority.

“Both in Noida and Greater Noida, we have about 10 to 15 properties. In the last one-and-half-years, we have paid over Rs 2,000 crore to the authorities,” he said.

Citing a particular plot of land in Greater Noida, Chandra said, “The government could not give us possession for about 15 months (for that plot). In that particular sector of Greater Noida, they have rescheduled payments for all developers. There was no default whatsoever.”

Chandra also denied rumours that Lehman Brothers is selling its stake in Unitech.

“Lehman is not even a shareholder in Unitech,” he said.

Lehman Brothers Real Estate Partners, a realty private equity fund of Lehman Brothers, has invested Rs 740 crore for a 50 per cent stake in Unitech’s Western Expressway project in Mumbai.

On reports that the company has pledged its shares to Indiabulls in lieu of any loans it has raised, he said, “Only properties have been pledged. As of September 30, our shareholding is still the same.”

According to the shareholding pattern on the Bombay Stock Exchange’s Web site, promoter and promoter group companies hold a 74.5 per cent stake in Unitech as of September 30.

Over the last few months, real estate companies have been pledging their shares to financial institutions as collateral for loans they have raised to tide over the liquidity crunch.

Unitech’s total net debt was around Rs 7,700 crore as of June 30. “80 per cent of that will be secured against land,” he said without elaborating, saying the company is in the silent period as it is close to announcing its second quarter results.

Unitech will announce its July-September results on October 31.

“We were facing some stress on the balance sheet on debt equity for sometime. We expect our gearing to come down significantly once our divestment in telecom operations and private equity transaction is complete,” he said.

Gearing is a measure of financial leverage, reflecting the degree to which a company’s activities are funded by owner’s funds versus creditor’s funds.

A company with high gearing is more vulnerable to downturns because it must continue to service its debt regardless of how bad sales are.

Residential projects
Chandra said the company’s residential projects are fully funded. “All our projects will be on time and are making steady progress,” he added.

Nearly 70 per cent of Unitech’s total land being developed comprises of residential projects.

The company has already paid about Rs 1,400 crore for the land it acquired for its 347-acre luxurious residential project – Unitech Grande – in Noida.

In one of the biggest deals ever, Unitech had paid Rs 1,582 crore for the land it had bought for the Grande project in May 2006.

“Our total acquisition cost including stamp duty etc was around Rs 2,000 crore. We had five years to pay to Noida authorities. We have to pay about Rs 600 crore in another three years,” Chandra said.

Going forward, Unitech is focussing on affordable housing projects.

“We have reduced the ticket size by doing smaller apartments. The demand is still very very large in that segment (affordable housing),” he said.

Source : www.business-standard.com

Realty companies look at alternative funding

With banks reluctant to lend to the real estate sector, developers are looking at alternative instruments of funding such as lease discounting for completing ongoing projects, especially the commercial ones.

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

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

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

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

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

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

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

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

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

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

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

Source : www.indianrealtynews.com

Realtors may need more collateral to raise funds

MUMBAI/DELHI: Real estate companies, the darlings of the India’s capital and financial markets for the past two years, will continue to hog the limelight in the coming year as well, but for the wrong reasons.

The global credit crunch which has affected the Indian market has taken the sheen off large property firms, with DLF and Unitech, two of India’s leading real estate companies seeing their market cap eroding almost completely and their fund raising plans hitting a rut due to unavailability of funds.

The situation has also led many non-banking financial companies holding large equity stakes in real estate companies as collateral. Their shareholding is also likely to cross the crucial 15% limit as most realty firms fail to meet payment deadlines.

“A lot of projects announced may not happen ,” a senior investment banker said. “With significant pressure on companies, they are likely to go for restructuring and focus on selective projects in the short- to medium-term . There will be more tie-ups at the project level. For realty players, these will be testing times that will check whether they are strong enough to weather the downturn,” he added.

However, Unitech MD Sanjay Chandra said: “The disbursal of loans has again begun after a freeze of few weeks. We have very recently got the disbursal of a loan from a public sector bank, although the rate was 250 basis points more than the earlier agreed rate.” He added that the company has not defaulted on any loan or fixed maturity plan. “We will continue to service debt as and when they become due. We would soon make some announcement on a PE deal for our hotel business,” Mr Chandra said.

DLF and Unitech have seen their market capitalisation eroding sharply by 81% and 94% respectively in the past few months.

“Till today, DLF has not rescheduled payment of any loan so far. Banks have still not started disbursing loans. The highest rate at which we have borrowed so far has been at 15%. We are confident of raising funds through private placement in DLF Assets. Our construction is not suffering on account of buyback. We are injecting liquidity in the market by buying back shares.” DLF executive director Rajeev Talwar said.

Last week, credit rating agency IRA downgraded the Rs 100 crore fund raising programme of Unitech from A1+ to A2+. “The rating revision has been driven by the increasingly challenging operating environment that real estate players are currently facing, given the slowdown in the market and the difficulty in raising funds, both through the debt and equity route” said ICRA.

Unitech’s total debt had increased significantly from Rs 3,980 crore to Rs 8,552 crore due to difference in its Real Estate Investment Trust(REIT) listing in the overseas market and increase in land purchases.
With stocks of all listed real estate companies plummeting, jittery non banking finance companies are seeking higher margins in the form of pledged shares from borrowers.

Non-banking finance companies such as Reliance Capital, Indiabulls, GE Capital, ECL Finance are believed to have sought higher collateral by way of pledged shares from the promoters of real estate firm such as Parsvnath Developers, Omaxe, Unitech, Akruty City and Lok Housing. It is learnt that almost all reality companies have borrowed cash from private financiers at steep interest rates of 36-48 % per annum.

“The company has started asking for more fresh shares or equivalent cash in order to maintain the margin. Till date we have not a single pledged share as we always maintain highest margins than what they owed to us,” an ECL Finance official told ET.

Margins are generally defined as the difference in value between the security and loan balance. Finance companies usually stipulate that securities should be double the amount of the loan balance to maintain the margin.

A borrower is asked to make up for the margin, if the stock price of the borrowing company falls. If the borrower fails to meet the margin calls, the finance company has the power to sell off the pledged securities. Industry insiders say if share prices keep falling, a promoter is normally asked to pledge more shares with the lending companies.

Market rumours suggest that GE Capital has been selling Unitech shares in the market where the company had pledged its shares. According to sources close to the development, the funding was done at coverage of about two times. But the massive fall in the stock price is due to media reports speculating default by the company.

According to industry sources, many developers have taken at least Rs 250 crore to Rs 1,000 crore from financiers in lieu of their existing projects in the past few months.

TOUGH TIME

The global credit crunch has taken the sheen off large property firms With stocks of all listed real estate cos plummeting, jittery NBFCs are seeking higher collateral for loans The market capitalisation of DLF & Unitech have fallen by 81% & 94%, respectively.

Source : Economictimes.com

REITs offer better opportunities to investors

The Indian real estate market has undergone palpable transformation in the last few years. This change has been led by rapidly rising demand for resi
dential, office, retail , hotels and now warehousing space. Also, India offers higher average rental yields – 8.5 – 10.5% as compared to 3.5% in Japan, 5.2% in Singapore and 5.7% in Hong Kong. Higher yields and a relatively better spread between ten-year government bonds along with strong economic growth, increasing income levels, growing middle class and widespread urbanisation has helped the Indian real estate market attract large investments.

However , despite the growing attractiveness , the Indian markets have been constrained by certain limiting conditions like absence of transparency and lack of institutionalization and liquidity. The issue of transparency is being taken care by way of reforms being undertaken by the state governments . The most effective way to tackle the other two is by allowing Real Estate Investment Trusts (REITs) to be active in the Indian markets.

REITs are investment vehicles that allow institutional as well as retail investors to partake in real estate ownership, management and development. REITs are already present in a number of mature real estate markets across the world like US, UK, Japan, Australia, Singapore, etc. and are now making inroads in emerging markets like India.

In India, REITs will help fill the financing gap as they would provide access to capital , both debt and equity capital from public and private sources at reduced costs. They will also offer an exit route for the developers to revolve funds and improve their margins . Success of REITs in other markets like USA, Australia, Singapore, etc. is a major case in point for their introduction in India.

For example, in Australia REITs play a major part in the commercial property market , with over 50% of the value of institutional quality commercial properties being held by REITs, supported by an active unsecured debt and commercial and mortgage backed securities market. According to CRISIL, REITs in India have the potential to hold atleast a 5% share (more than US$ 70 billion ) of the total realty market by 2010.

This coupled with higher realty returns that the country offers (average development yields in India vary between 20-25 % while it is lower in the US and the UK) spells a great opportunity for the success of REITs in India. Draft guidelines for REITs in India were issued by the Securities and Exchange Board of India (SEBI) in December 2007 and are likely to be approved and enacted in the near future. However, much ground needs to covered and several issues need to be addressed before REITs can find a footing in the country

The current regulations in India involve high transaction costs, present problems in ensuring clear land titles and prolonged delays in obtaining clearances and approvals. Moreover, at present, there is an absence of a credible database on real estate markets as well as standardized, accepted practices for property valuations . In such a scenario, it is very essential that certain regulatory reforms as well as an enabling framework is brought in so as to facilitate REITs to become an effective tool for institutionalizing real estate in India.

In the absence of a liquid market for income-yielding assets and the credit squeeze which has constrained development plans, many Indian developers have been exploring overseas listings through REIT structures in markets like Singapore. However with the recent fall in the global equities market (S-REIT index has fallen nearly 30% since its June ‘07 peak) and the significant drop in risk appetite for Asian assets together with the underperformance of the India Bulls Properties Investment Trust at the Singapore Stock Exchange has led to the postponement of the REITs plans by other major developers like Unitech and DLF. There is no doubt that it is time that the Indian realty markets start to develop on the back of a research-driven , structured investment approach, which has a long-term perspective and REITs would offer the ideal solution.

Economictimes

PE inflows in realty space dry up during July-Sept quarter

According to preliminary estimates during July-September 2008 period, PE fund flows into the real estate sector stood at $669.7 million

New Delhi: Country’s real estate segment has taken a beating in terms of private equity investment in the third quarter of this year as the inflows into the sector was only $669.7 million, a dip of 73.21% from the second quarter of 2008.
“Realty space is already buffeted by rising inflation, input costs and a tight squeeze by the government on fund inflows into the sector in order to discourage speculation,” research and financial consulting firm Four-S Services CEO Satyendra Shukla said, adding that fall of global investment banks has come as the latest salvo to hit the sector.

According to preliminary estimates during July-September 2008 period, PE fund flows into the real estate sector stood at $669.7 million, down sharply from $1.66 billion during the January-March 2008 and $2.5 billion during the April-June 2008, Four-S Services said.
“We are seeing signs of fund inflows from private equity players in real estate getting affected,” Shukla added.

The various factors that had a negative impact on the PE fund flows include rising capital costs as high as 15-20% increasing input (raw material) costs and tightening fund inflows both domestic as well as global. Accordingly, there has been a sharp hike in the cost of real estate properties, which in turn has dampened demand.

Real estate companies have been increasingly accessing funds from PE players in specific projects by splitting the projects into Special Purpose Vehicles (SPVs), instead of offloading stakes in the mother company.
Four-S Services further said some of the real estate giants like Unitech, DLF Assets, Peninsula Land, Future Group and HDIL are reportedly in trouble after US-based investment bank Lehman Brothers filed for bankruptcy protection. Besides, Lehman is said to have had a total commitment of over $1 billion in the Indian real estate sector.

“Between January and August 2008, investments made in phases in SPVs stood at about $1.8 billion spread across 25 deals, constituting 45% of the overall investments in the sector,” the provider of research, financial consulting and business content services said.

In the domestic market, despite the cut in Cash Reserve Ratio, interest rates are not expected to go down in a hurry, especially since the government is keen on keeping inflation under check, market observers said, adding that the short-term outlook for the real estate sector looks grim and only those players who have significant reserves will be able to survive the current downswing.

Earlier, PE investments in the country witnessed an increase of 55% in terms of value to touch $10.4 million during the first six months of this year, driven mainly by significant deals announced in the realty and infrastructure sector.

Livemint.com

Owing a home seems a distant dream in Kolkata

KOLKATA HAS been known for its rich culture, strong family bonding and a peaceful state.

However, in the last seven to eight years Kolkata has witnessed a radical change in the mood of the young generation.

The mushroom growth of software companies in Sector-V of Salt Lake, which resulted a substantial absorbing of local pool of qualified engineers, as a result there has been a graphic rise in income. Young pass out graduate are more inclined toward private companies rather than public sector as they feel that their aspiration level will be achieved there.

The high disposable income brought a peculiar metamorphosis in the perception of the young generation. The desire to own a flat in a modern complex has become a big necessity and this germinates a great demand for residential complexes.

The private promoters and joint ventures projects has open the doors to welcome these buyers. This leads to the boom of real estate in the city. Area like New Town, South Extension ie EM By pass and Garia has become the most sought after preferred residential area because of better supporting infrastructure and the extension of the proposed Metro station.

Most of the projects were sold at the launching stage giving an apparent indication of more supply. The developers become more adventurous and took calculative risk to launch better residential complexes in large format, which lead to the rise of price of the property. New Town itself has seen a phenomenal appreciation of 40 per cent annually. The projects developed by joint sector companies were sold at launching stage. Seeing this vibrant market scenario national players like DLF and Unitech foray into the Kolkata realty market.

Garia has become a residential destination for the home seeker falling into the middle income group.
Residential complexes of various formats ranging from 50,000 to five lakhs square feet equipped with all modern amenities and facilities were launched. The demand are still growing around 20 per cent, but the price has increased by 30 per cent annually. The recent increase in the cost of raw materials especially steel and cement leads to a substantial increase in the construction cost. To make the scenario more gloomy was the steep increase of lending rate (RPLR) of home loan, which is hovering around 12 per cent per annum.

A common man dream of owing a two bedroom flat for twelve lakhs has shoot to 20 lakhs in just a year and a half and is still increasing. I agree with the view of many consultants and developers that the price is still under control compare to the property price of slow realty market of Bangalore, Chennai, Hyderabad and Bhubaneswar. But Kolkata is witnessing a gradual decrease in the demand of highly priced apartment. Is this a sign of stagnation? Will Kolkatans resist to this price hike or succumb to it.

Source : Merinews.com

Real estate giants lure clients with free cars, LCD TVs

New Delhi: As the financial crisis grips world economies, the real estate sector is giving away freebies to lure customers.

Unitech is offering a free LCD TV on booking of property while one can get free Solitaire worth Rs 1.25 lakh on booking of property from Tulip. Another real estate giant, Jaypee Greens, is giving away a luxury car on purchase of property.

So it is raining discounts in the real estate market this festive season. But that is no the only thing luring customers.

Developers feel that this is the best time to invest in realty as the current financial crisis has take property prices down with it.
“For long term investment it is the right time to enter because market prices are low now,” says Moutani Goswami of the Jaypee Group.

“Real estate has a shortage of 24.71 million units in our country. So that market exists in not just metros but other areas too,” Sanjeev Srivastva, MD, Assotech Ltd, says.

Customers are also seeing value investment in these times. Taking advantage of these times are buyers like Devendra Singh, who works for an MNC and has been hunting for a house for some time.

“Economy is going down so obviously prices are coming down. So we thought that this is the good time to buy something,” Singh says.

According to property watchers, prices across the metros have come down in the past six months. In the north, Delhi and the NCR region has seen a fall by Rs 500 to Rs 1700 per sq ft while Mumbai has seen a decline of Rs 800-3000 per sq ft.

Bangalore has seen a drop of Rs 250-1000 per sq ft while in Kolkata there has seen a drop of Rs 900-1000 per sq ft.

But before you make that investment here’s a word of caution.

“Look at the long term and also you can never catch the bottom. So you never know when is right time to buy. Take an informed decision as to why should the prices increase in that area in the near future,” says Anshuman Magazine, MD of property consultancy firm, CB Richard Ellis.

In a downturn, real estate might be a good option to check out this Diwali.

Source : Ibnlive

Realty players face moment of truth

NEW DELHI/MUMBAI: The fresh wave of liquidity crunch is set to worsen problems for the Indian real estate sector. The sector is already facing a cash  crunch on account of diminishing sales, expensive and largely unavailable credit and drying up of private equity funding. And if an economic downturn sets in as feared, many developers may go out of business and others may be forced to drastically cut prices.

Property consultancy firm Cushman & Wakefield estimates that real estate activity in the current fiscal is not likely to be more than half of what it was in the previous year. “If market fears actually come true, we will see a number of small and medium real estate players exiting the business,” says Cushman & Wakefield joint MD Sanjay Dutt.

“SBI has stopped overdraft facility and many banks are not disbursing sanctioned loans. All companies, including those from real estate, will face serious problems,” says DLF CFO Ramesh Sanka. He was also not very sanguine about the prospects of investors shifting their funds from the stock markets to the property market. “Where is the money? Money is getting eroded every day,” he said.

Developers feel liquidity is a must for companies to survive. “RBI had put in restrictions on banks on lending to real estate, fearing an asset bubble. We feel asset bubble is under control and it is time that RBI relaxed lending norms,” says Unitech MD Sanjay Chandra. Adds Mr Sanka: “Ultimately, RBI will have to release cash through relaxation in CRR and SLR.” Parsvnath Developers chairman Pradeep Jain hopes that the RBI will cut repo rate by 150-200 bps.

The biggest challenge for realty firms today is to boost demand for property. And many of them know price cuts are perhaps the only way to do that. “Consumer sentiments are down in the market. We have cut prices by around 20% last week in our two projects. We hope it will revive sales,” a senior executive of Mumbai-based Orbit Corporation said.

At the prestigious Maharashtra Chamber of Housing and Industry property fair, developers offered attractive discounts to woo buyers. While this did lead to the number of enquiries and bookings going up, they were much less compared to the demand that existed last year. “The gloomy news from across the world has made people apprehensive. That’s why, even festive season offers haven’t had great impact on them,” says Parsvnath’s Mr Jain.

Cushman & Wakefield’s Mr Dutt says prices have already corrected by 20-30% in most markets and may see a further correction of 20-30%. As sales refuse to pick up, developers are putting projects on hold and focusing only on a few projects mainly in metro cities, which may over a period of time generate sales.

Sourece : Economictimes

Delayed home deliveries likely as realtors move to time-linked plans

NEW DELHI: Several property firms, including DLF and Unitech, are increasingly doing away with ‘construction-linked’ payment plans and instead introducing ‘time-linked’ payment plans for home buyers. By doing so, buyers become prone to higher risk of late delivery of homes, besides facing an indirect increase in the cost of owning a home.

In a construction-linked plan, a developer gets payment based on certain construction milestones, and is thereby forced to ensure progress in the project. Under time-linked plan, a developer gets assured money from a home buyer in installments but is under no obligation to use that money in the same project to deliver homes in time.
It’s been a usual business practice for developers to divert sales proceeds from one project to another. During the real estate boom of the past five years, builders expanded massively by routinely using the proceeds of one project to purchase land elsewhere.

Times have changed with the global financial crisis and realty firms are now facing major cash crunch, which is likely to worsen. Therefore, if they were to divert funds from one project to another now, there is a likelihood that some projects may get stuck mid-way, leaving home buyers high and dry.

Much of the new launches by DLF and Unitech this year have not offered construction-linked payment plans.
For instance, DLF’s ‘New Town Heights’ and ‘Express Greens’ projects in Gurgaon and Unitech’s ‘Uniworld City’ and ‘Unitech Verve’ in greater Noida do not offer construction-linked payment plan, although they give time-linked plan option.

When contacted by ET, DLF and Unitech declined to comment on why they have replaced the option of construction-linked plan with a time-linked payment plan.

DLF spokesperson, however, said time-linked plan is “not a new introduction” for the company. Many other developers are offering time-linked as well as construction-linked plans.

Traditionally, home buyers have had the choice of either paying the full amount upfront or going in for construction-linked plan. Buyers can avail of a discount — usually up to 10% — in case of upfront payment, while construction-linked plan gives them a sense of security that the homes they have booked is actually getting built as they pay. But time-linked plan offers neither.

While some developers, including DLF and Unitech, have started offering penalty in case of late delivery, many others do not offer any such reimbursement. The penalty itself is generally Rs 5-7 per sq ft per month to the home buyer.

“The penalty amount is far too less compared to the rentals one pays for the same kind of accommodation,” says Raheja Developers chairman Navin Raheja.

Thus, a late delivery imposes additional cost on a home buyer in the form of rentals for the period one has to extend staying in a rented accommodation.

Economictimes

After The Lehman Crash, Realtors Eye PE Funds

Developers such as Unitech, Peninsula Land, HDIL and Future Capital, the financial services arm of the Future Group, are in talks with investors including some leading private equity funds for raising investments for their projects, after the collapse of Lehman Brothers, whose third party fund, Lehman Brothers Real Estate Partners had committed an investment of over $ 1 billion to these companies. Even the private equity players are equally upbeat about property investments. Mr. Bharath Banka, Chief Executive of Aditya Birla group’s private equity division, “The current credit crisis, which is expected to continue for a few more months, opens up avenue for private equity firms to make large investments in the real estate sector. Long term returns will be higher in real estate for investments made during this point of economic cycle.”

Overbuilding promises a kick in the gut for realtors

Demand-supply mismatch in residential, commercial developments intensifies.

MUMBAI: Nipun Sahni, director and global head of commercial real estate at Merrill Lynch Capital, says the number of information technology parks and special economic zones in the 21-km Old Mahabalipuram Road — popularly known as OMR — in Chennai surpasses demand in the entire IT industry in India.

“It will be difficult for builders to raise finances for their other developments and in subsequent phases, projects will also be postponed,” he said at a Ficci seminar recently.
OMR, realty analysts say, is symptomatic of the overbuilding that has happened in far too many pockets.

Two other plum areas that are likely to face the same fate, they said, are Lower Parel in Mumbai and Noida in the National Capital Region, both of which are hotspots for A-grade office space.

They predict high vacancy rates.

Lower Parel has a ready office space of 4.5 million sq ft and will add a minimum 5 million sq ft by 2009, taking the total commercial space to 9.5 million sq ft.

Of this, DLF, India’s largest realtor, alone will add 3.8 million sq ft through office space and a mall.

Indiabulls Real Estate, Peninsula Land and Orbit Corporation are also busy completing their projects in the locality.

To boot, top players such as DLF, Unitech, Emaar-MGF, Akruti City, Puravankara and others have expanded to states they were not present in, and have ended up in close proximity to each other, creating oversupply pockets.

What started as a building boom in 2007 across emerging markets such as Chennai, Hyderabad, Bangalore and Indore is a year later, a very different story thanks to the Reserve Bank of India’s rate hikes, the wealth-depletion effect of falling stock markets and economic headwinds.

The slowdown in the IT industry as a result of the turmoil in the United States has only made matters worse.

“IT companies are not ready to sign long-term lease deals such as for five years. Now, they are signing short-term leases and this trend will continue for the next 18-24 months. This will lead to softening of prices. Deals that were earlier signed for rentals of Rs 275-300 per sq ft are likely to be cancelled,” said an analyst with a local brokerage, who did not wish to be named.

A DLF official said the company would complete its projects by 2009 and look at an average rental of above Rs 200.

In the coming months, oversupply will hit the residential space too, especially in places such as OMR in Chennai, Whitefield in Bangalore and Gurgaon, a recent report by Enam Securities said. The 21-km stretch of OMR Chennai has seen a flood of residential projects by developers such as the Hiranandani Group, DLF and Puravankara.

This led to developers lowering prices to keep the working capital going.

According to an analyst, the stiff rivalry between developers will intensify with oversupply.

But Ramesh Sanka, group chief financial officer, DLF, sees no mismatch. “We haven’t faced residential oversupply yet. Yes, there will be pocket-to-pocket oversupply but that will be at a micro level,” he said.

Kuldip Chawlla, director (asset management) at international private equity firm Red Fort Capital Advisors, says there is a temporary oversupply and it is mainly in the luxury segment in the top seven cities in India.

“Developers have built projects in Delhi that exceed Rs 75 lakh per unit but the demand is in the Rs 25-55 lakh segment. It is the disproportionate demand-supply that is leading to an oversupply in the market,” he said.

The problem isn’t plaguing just metros. Tier II markets are also likely to be hit, says Anuj Puri, the country head of real estate consultants Jones Lang LaSalle Meghraj.
“Top Tier II cities where we are already seeing a slowdown are Indore, Bhopal, Ludhiana, Mohali and Jaipur. These places have also witnessed a steep 45-50% correction in prices,” he said.

Developers offering cash discounts to buyers

The realty market scenario has made buyers hesitant with regard to the purchase of residential property. So, developers are planning to go all out this buying season. Just three months ago, no builder was willing to go on record that they were offering cash discounts to home buyers. The reason: they did not want to give it away that property prices were under pressure. However, falling sales and rising inventory over the last 18 months have forced them to come out and admit that they are looking to offer cash discounts, besides other measures in this buying season.

The home buying season typically starts during the festival season (Diwali) and ends in the month of March and most builders do almost 60 per cent of their business in this period. Most of these discounts are going to be unveiled in property exhibitions that will start just before the festival season. There will be spot discounts for booking flats at the exhibitions. Add these to offers from home loan companies like lower rates or waivers on processing and administration fees and things look much better this year.

The admission of a price cut between 5 and 15 per cent from builders has come right before this buying season. For instance, in Delhi, real estate major DLF has launched a project comprising 36 villas of about 194 sq yard, each priced at Rs 90 lakh, in Manesar, Gurgaon – a far cry from Rs 1.5-crore villas that were being sold a year-and a-half ago. The developer has already made a shift to middle-income housing last year, where it was offering flats between Rs 25 lakh and Rs 35 lakh. Others like Puravankara, Unitech and Omaxe too are planning to go the mid-income way.

The government has also done its bit to ease the matters. For instance, in Mumbai especially, the state government has decided to increase the floor space index (FSI) from 2 to 4. This basically implies that the builder will be able to develop twice as much on the same piece of land. However, if you are going to buy an existing project, do not expect the builder to come out and openly give you a cash discount. Ramani Sastri, the former president of Credai says, “Early buyers will feel cheated, if the developer starts selling the flats at a lower rate.” So if you are eyeing an existing project, negotiate with the builder directly for a good bargain.

The change in ground realities has forced builders to change their minds. Since the last year, many potential home buyers have deferred their decision due to unrealistic prices and spiraling home loan rates. The numbers clearly depict this. Since the start of the property boom in 2003, real estate prices have gone up by as much as 400 per cent, according to various estimates. Also, floating home loan rates have gone up 4.5 per cent (from 7 per cent to 11.5 per cent). Fixed rates today are as high as 14 per cent – equal to what they were a decade ago. This basically implies that considering every 0.5-per cent rise in the rate leads to an increase by Rs 40 per lakh, the equated monthly installment (EMI) on a Rs 20 lakh home loan for 15 years would have increased by almost Rs 1,800.This, along with rise in realty prices, has ensured that buyers stay away. As a result, most have witnessed a drastic slowdown in their businesses. For instance, Delhi-based Parsvnath reported a 17 per cent growth in revenues this financial year as against 135 per cent in the last financial year. Unitech witnessed subdued 26 per cent growth in sales this financial year after a whopping 253 per cent in the previous year.

Unitech not affected by Lehman crisis

Among the many investments Lehman had made in India, Delhi-based Real Estate Developer Unitech had received about $175 million (Rs 740 crore) from Lehman and is very confident of surviving the Lehman crisis. A Unitech spokesman confirmed receipt of the funds. “Unitech has already received the money and closed the deal with Lehman Brothers’ managed real estate fund. We are not affected by the Lehman bankruptcy. Lehman real estate fund is a third party capital managed by the Lehman asset management business.”

In June, the Lehman managed real estate fund bought a 50 per cent stake in the Mumbai project. Lehman picked up stake in one million sqft of space in a project jointly developed by Unitech and its local partner, Western Expressway JV, at Santa Cruz. The project involves 18 million sqft of development estimated at Rs 26,000 crore.

Demand For Houses In Small Towns Falls

Study by the Associated Chambers of Commerce and Industry of India (Assocham) has revealed that housing demand in small towns witnessed a 25 percent fall during February-July 2008 because of higher borrowing costs.

Assocham Secretary General, Mr. D.S. Rawat said, “Approximately 15 million people in about 30-40 tier II and tier III cities were unable to make purchases as higher inflation and interest rate have dampened their enthusiasm and eroded their budget.” The Assocham study is based on results given by affiliated real estate majors like Parsvnath, Omaxe, DLF, Unitech, and BPTP, which are developing projects in small towns. Besides rising cost, non-availability of inputs such as bricks, cement and steel, and power shortage also cause inordinate delays in project completion.

The chamber has suggested that the government introduce real estate investment trusts (REITs) to bring the much needed class of institutional investors to strongly support the domestic real estate market. As per Assocham, REITs can also help develop commercial mortgage backed securities (CMBS) market and create a source of cheaper debt for commercial real estate.