Monthly Archives: August 2008

Start-ups Grab High Networth Persons’ Fancy

Indian high networth individuals (HNIs) seem to have caught on to a new asset class to invest in — start-ups.

Though the risk with start-ups is much higher than other asset classes such as real estate, equity, mutual funds, commodities and sometimes even art funds, HNIs are betting on the opportunity of considerably higher returns associated with start-ups . Mohit Goyal has been a serial entrepreneur all his life.

He was the founder of IIS Infotech, which he sold to Xansa. Since he sold his second venture Scicom Technologies last year, Mr Goyal has been investing in start-ups as a part of the Indian Angel Network (IAN). Around 80 HNIs are part of this network today, up from about six when they started in 2006. In the recent past, the angel community has grown considerably in India. A typical investment by an HNI in a start-up falls in the range of Rs 10-50 lakh and the exit duration is usually between 4-7 years. The returns, on the other hand, can vary from 400% to even zero if the investment goes bad.

Investments in other asset classes, on the other hand, might carry a short-term risk but will never go down to zero. Take for example real estate. Historically, this asset class has never fallen to below 50% of its value. “Equity, futures, mutual funds are practically risk free,” says Yogesh Raichandani, associate vice-president at Money Bag, a wealth management company. Equity returns average around 18-20 % per annum.
So inspite of the risk, why are HNIs so keen to invest in start-ups?
“It is a very exciting and maturing asset class, which is getting professional by the day. There is huge opportunity here,” says Mr Goyal when quizzed about why he decided to invest in start-ups in the first place. A big company might grow at 15-20 % a year but a good start-up has the potential to grow at 300-400 % a year, he adds. “Start-ups are the seeds in a growing economy.”

“As a rule, returns and risk are directly proportional. So if the return on investment expectation in the stock market is 15%, venture funds should return twice that return and other investments would come somewhere in between,” says IAN VP Padmaja Ruparel. But higher return is not the only motivation for these HNIs.

A number of HNIs are looking at diversifying their investment portfolios. “HNIs are looking at investments, which are not run of the mill and have low correlation to equity markets. Most have invested heavily in Indian equities and are now willing to diversify their exposure into different asset classes,” says Religare Macquarie CEO Vikas Agnihotri.

Also, most of these HNIs are first generation entrepreneurs who have gone through the grind and today see start-ups as an opportunity to give back. Mr Goyal feels that investing in mutual funds or equities is a very impersonal act. “In a start-up , you interact and participate. Here, I get a chance to mentor and give strategic guidance as well,” he explains.

Another HNI Rehan Yar Khan, who is the CEO of explains that the quantum of money being invested in a start-up by an HNI might be low but the quantum of time spent is much higher than with other investments. “This is an excellent way to utilize the knowledge you have accumulated through your life. He calls it knowledge investing,” says Khan.

These HNI-turned-mentors also get an opportunity to actually see their investments being used in the right way, sometimes with a little hand holding. But still there is risk.

The gameplan while investing in start-ups has to be to spread your risk, across 10-15 start-ups and a few different segments –- IT, retail, entertainment, content, education — which offer good opportunities. You’ve got to do enough of them to manage your risk. If you invest in 10 start-ups and even just one of them is a huge success, the exponential returns provided by that one could cover up for the losses from others and you could be looking at an average return of over 30%.

“I would like to invest in 10 start-ups a year and with time, spread my risk over many ventures ,” adds Khan.
“People who are familiar with start-ups have the flair to mitigate risks. They often pick the right kind of start-ups to invest in,” says Morpheus Venture Partners partner Nandini Harianniah.

The risk though is that there are no external agencies helping you to analyse the risk associated with a particular start-up. “You have to manage your start-up portfolio on your own. There is no historical analysis available. We look at the passion of the entrepreneurs, their idea and take the gamble,” says an HNI.

State Government Granted SEZ Status To JSW Steel Plant Project

KOLKATA: The state government has granted to a proposal for granting SEZ status to the JSW steel plant project at Salboni with specific pre-conditions, in addition to which it has approved the acquisition of 3500 acres for Aerotropolis project containing a private airport and real estate at Andal.
The Cabinet sub committee on industry agreed to the proposal of granting SEZ status to the steel project on condition that the total area would be used for manufacturing and processing area. The investor would also sell in the domestic market enabling setting up of downstream area.

ED Suspects Russian Land Mafia Behind FEMA Violation In Goa

The Enforcement Directorate(ED), the agency responsible for investigating economic crime in India, has sought information from the Goa government on all companies that bought properties in the state between 2000 and 2007, as it investigates the role of a suspected Russian land mafia.
The agency suspects that some Indian companies that bought large plots in the state could have acted as fronts for Russian owners acquiring land in violation of the Foreign Exchange Management Act, or Fema, said a top enforcement official, who spoke on the condition of anonymity.
The directorate, which has been probing suspicious land transactions, has had little success in tracking such deals.
“Most of these cases are unreported due to the reluctance of state authorities to cooperate with our investigations,” the same official said. “We have asked the Goa government to find out the names of big companies that have bought land for promotion of tourism in Goa.”
Goa chief minister Digambar Kamat declined to comment on the issue in a telephone conversation. He also said a comment through email or fax would take time, citing the state assembly session that’s under way.
Goa, famous for its beaches, tropical biodiversity and a strong Portuguese influence on its culture and architecture, attracts a large number of foreign tourists every year who find it easier to blend in with the diverse local population than in any other Indian state. But parts of Goa have also acquired a reputation as a haven for drug dealers and land mafia.
Last year, CNN-IBN television news channel reported that the Russian land mafia had been throwing out small landholders and farmers, and grabbing prime land in fraudulent deals. Following reports of foreigners buying land in Goa in violation of Fema, the state government handed over details on 21 companies owned by Russian nationals to the directorate and the Reserve Bank of India, or RBI.
According to Ashutosh Limaye, associate director at the property consultant Jones Lang LaSalle Meghraj, increased vigilance over land deals by the police, forest laws and rules relating to coastal regulation zones have stalled land transactions in Goa now.
“The deal makers want to play it safe and are waiting for resolution of the ongoing issues,” he said.”The number of land transactions in Goa has definitely come down as a fallout of the land scam. Many deals, that were at the negotiation stage, have been stalled.”
Still, the “significant decline” in the number of land deals hasn’t led to a sharp fall in prices, which have remained stable, he said.
In May, the directorate issued notices under Fema to the promoters and directors of two companies—True Axis Resorts Pvt. Ltd and Artlibori Resorts Pvt. Ltd, owned by Russian citizens Leonid Beyzer and Valiulin Rashida, respectively, asking them why they should not be penalized. The other directors in True Axis are Pramod B. Walke and Fransico D’Souza, both from Goa.
Beyzer, who still lives in Goa had, in 2005, bought 25,000 sq. m of land, including 19,906 sq. m of prime agricultural land in Morjim, North Goa, for constructing a resort. He was in India on a tourist visa, according to the directorate.
Mint was unable to contact True Axis and Artlibori Resorts because their addresses weren’t readily available.
The directorate also sent notices to directors of another resort firm, Oriental Ambers Pvt. Ltd, only to find later that there was no office at the registered address. It has not been able to trace the local owners of Oriental Ambers either.
According to the enforcement official, under Fema, foreigners can buy land in India if they hold a business visa and have lived in the country for 182 days at a stretch in the previous financial year. Such individuals should also possess documentary evidence of either long-term employment or business or vocational pursuits in India.
Foreigners with business visas can purchase properties in the name of Indian entities registered with the registrar of companies and the local branch of RBI. They can buy land for personal use if they can prove their intention to stay in India for an indefinite period of time. Even then, they are not allowed to buy agricultural and plantation land.
According to the directorate’s investigations, Beyzer founded True Axis and infused capital in the firm as foreign direct investment, or FDI, under the automatic route of RBI available for non-resident Indians. The Indian central bank raised objections later on the source of money.
Under the automatic FDI route, RBI’s prior approval is not required. However, the firm should notify RBI about the transaction within 30 days of inward remittances for clearance.
“We found that True Axis was not using the money for construction of the proposed resort. Now, we have attached the commercial property of True Axis in Morjim and are waiting to hear from the promoters on the show-cause notice,” the same official said.
“We fear that a number of big companies owned by Russians have followed the same route to grab land in Goa,” he added. “The modus operandi of such individuals is to float a company with an Indian partner, who acts as a front to register the firm in Goa. The company then pumps in foreign investment for real estate deals. Once the firm buys the land, it splits from the Indian partner.”
The directorate is investigating more than 400 cases where foreigners from the UK, France and Russia have bought land in Goa under tourist visas.
“Many of them are retired foreigners who are peacefully living in Goa and are harmless, but the real threat is from Russian companies who are illegally acquiring land,” the enforcement official said.
The agency recorded statements of individuals in 100 cases and issued 15 so-called show-cause notices to some of them under Fema last month. According to the directorate, the number of cases of misuse of property laws in Goa can go up to 2,000.

HDIL Will Buy Land To Relocate 80,000 Slum Families

Housing Development and Infrastructure Ltd (HDIL), India’s third largest developer by market value, plans to raise Rs1,000 crore within a year to buy land and relocate 80,000 slum families for the Mumbai airport modernization project. The project will entail the country’s single largest rehabilitation exercise, even bigger than the Dharavi project, which will relocate 55,000 families.
With a land bank of 2,500 acres (valued at Rs21,000 crore in 2007), HDIL, which started off as a finance firm, is now one of the largest landowners in Mumbai, with residential and commercial projects in Pune, Kochi and Hyderabad.
The company’s forte, though, is slum redevelopment. After getting the state government’s approval this May, HDIL became the rehabilitation agency for the airport project in which 20,000 slum families will be shifted in the first go.
HDIL has bought a 53-acre plot in suburban Kurla, where the earlier Premier Automobiles Ltd factory was located, for Rs1,900 crore. The remaining 60,000 families would be moved in two phases, 30,000 families in each.
“We have some land reserve for the resettlement but, we will raise Rs1,000 crore through debt to buy more land in the vicinity of the airport to relocate the remaining people. We will buy land which is within 1Km from the airport,” said Sarang Wadhawan, managing director of HDIL.
HDIL, which has completed about 28 million sq. ft of construction, follows a business structure in which it acquires large tracts of land, develops the infrastructure and sells it to other developers. Out of the 276 acres of encroached land in the airport project, HDIL’s share is 106 acres.
“We are looking at a hospitality venture along with commercial space there. We will also develop and sell a portion of this land,” said Wadhawan. The remaining 170 acres will have to be handed over to the Mumbai International Airport Pvt. Ltd for commercial development, a joint venture between the GVK-SA consortium, which is developing the airport, and the Airports Authority of India. HDIL said it expects to earn Rs15,000-18,000 crore of revenue from the rehab programme.
HDIL is also planning to further expand its new businesses oil and gas, and media. It plans to set up a 150MW power plant on the Fiat land in Kurla which will have 40 residential towers to house the slum dwellers. HDIL is already building a coal-fired power plant on its 2,300 acre, multi-product SEZ in a Mumbai suburb, and a port there.
“The objective of expanding our power business is to facilitate our core business which is real estate. We are also looking at more acquisitions in the power sector,” said Wadhawan. The firm has bid for several oil blocks under India’s new exploration and licensing policy that will speed up oil exploration in the country.
HDIL’s most recent expansion plan is in the media and broadcasting space where it has picked up a stake in Sri Adhikari Brothers Media and Techocraft Media, that runs the Marathi channel Mi Marathi and news channel, Live India. Under HDIL Entertainment, a subsidiary of HDIL, it also plans to launch three multiplexes in suburban Kandivali, Goregaon and Bhandup in the next one year.
Akshaya Kumar, chief executive officer of Parklane Property Advisors, a Mumbai-based property consultancy firm, says that real estate developers stepping into new businesses is a fairly recent phenomenon. “Historically, only DLF had cement and power businesses which it later exited. Now, in a tight real estate market, many developers are attempting at new sectors with good potential by hiring expertise and using their network.”

Centre has power to denotify SEZ

Goa Chief Minister Digamber Kamat said that the Centre has a power to denotify Special Econimic Zone (SEZ) if they are not operational within stipulated period of time.

Kamat told the State Legislative Assembly on Tuesday, “During my talks with union Commerce Minister Kamal Nath, he said that SEZ projects should be complete within a particular time or else the Centre had power to denotify them”.

The Chief Minister said that the State Government’s stand on SEZs is very clear and there is no change in it.

Goa has scraped 12 SEZs while three zones are pending denotification. In all seven SEZ developers have filed cases in the Bombay High Court against the State Government-run Goa Industrial Development Corporation’s (GIDC) move to issue show cause notice to them seeking to revoke allotted land.

Earlier, Leader of Opposition, Manohar Parrikar participating in the discussion on the floor had alleged that government was not seriously applying its mind over getting rid of SEZs.
Parrikar said that he does not doubt government’s intention but feels that it is not serious on implementation.
Replying to the contention, Kamat said that there will be no laxity in defending the cases against SEZs in the Court.
He said, “We will engage best of lawyers in the country”. Kamat also added that he would examine the possibility whether GIDC can take back the land from SEZ developers under lease agreement.

Goel Ganga Group To Deliver Ten Thousand Flats Within Next Three Years

After delivering more than 11,000 residential flats and a number of commercial establishments in Pune, Goel Ganga group is on a major expansion mode.
The group is all set to deliver 10,000 flats within next three years in prominent cities like Bangalore and Mumbai along with Pune at an estimated investment of Rs 5,000 crore.
The group has also entered hospitality sector with three hotels coming up in Pune and Bangalore.
Goel Ganga Managing Director Atul Goel, while addressing a press conference on Friday said, “Over next three years, we will deliver 5 million square foot of residential and commercial space in Bangalore, Mumbai, Nagpur and Pune together. We have recently completed 25 years in real estate sector and now, we have major expansion plans in hospitality business as well.”
The group has announced three residential projects in Pune namely Ganga Bhagyoday, Greater Ganga Panama and Ganga Skies, which all will deliver more than 600 flats each along with commercial complexes and a 6-screen cinema multiplex.
The group’s ambitious project in Bangalore will deliver 40 super luxurious villas worth Rs 5 crore each.
“We are setting up Eastern Randezvous hotel in Pune while The Lemon Tree hotel is already operational in Bangalore. Construction of a 10 lakh square foot shopping mall in Nagpur too is going on,” he added.
Goel stated that the group plans to invest Rs 5,000 crore over next three to four years in its various projects.

Major Realty Firm Now Bids For National Highway Project

Three large realty firms have placed bids to build and operate stretches of national highways that have come up for auction this year as part of expanding their portfolio to offset a slump in their core business. Unitech Ltd, DLF Ltd and Omaxe Ltd are among several infrastructure companies bidding for the right to build and operate national highway stretches that are currently being offered by the National Highways Authority of India, or NHAI, the regulator for inter-state highways.
The projects they are bidding for are part of the national highway development programme, or NHDP, which aims to upgrade more than 33,000km of highways, according to an NHAI official, who didn’t wish to be named.
The real estate sector in India has seen a slowdown in recent times as it has become expensive for developers to borrow money, with Reserve Bank of India raising the repurchase rate overnight lending rates to banks to a seven-year high of 9% last month.
In the past three years, property prices in some markets such as Gurgaon in Haryana and Noida in Uttar Pradesh adjoining the national capital have jumped by 100-200%, deterring home-buyers from investing in properties. As a result, realty firms are finding it tough to sell residential properties that typically contribute 50-70% to their revenues. DLF, Unitech and Omaxe have a large chunk of their residential and commercial projects in these places.
The Union government estimates that India needs at least Rs20 trillion in infrastructure investments in five years, at least a third of which it expects to come from private firms.
While DLF, the country’s biggest realty firm by market capitalization, announced an infrastructure development partnership with Gayatri Projects Ltd earlier this year, Omaxe partners with Hyderabad-based GVK Industries Ltd and Nagarjuna Construction Co. Ltd on a project-to-project basis.
Unitech, which has built highways on a turnkey basis (building roads for a fee), is now bidding for projects that allow the concessionaire who wins the bid to operate and derive revenues from the highways for a specified period. Its revenue from the construction business was Rs213.01 crore for the year to March.
A concession agreement, which governs national highways, doesn’t allow developers to commercially exploit land along the highways they operate, although such land is considered prime property.
Some analysts say, for real estate companies, bidding for national highway projects could be a way of building their portfolio so they would be able to bid for state highways or the so-called ring roads around cities, many of which have land development components.
“You don’t need a land development component. If you know how to execute your project well, then you can make money upfront, rather than wait for toll revenues,” said Amrit Pandurangi, who heads the infrastructure practice for consulting firm PricewaterhouseCoopers.
Calling investing in infrastructure the latest fad, Subhash Bedi, director at Red Fort Capital Advisors Pvt. Ltd, an India-focused real estate fund, said infrastructure investments made sense for real estate companies because of a “synergy of skill sets, construction skills and project management skills.”
“What real estate companies are beginning to understand is that land is not a store of value. In the case of a lot of real estate companies, they are asset-rich and not cash flow-rich… In infrastructure projects, you get a steady cash flow,” said Ashish Kalra, managing director of Trikona Capital Plc., which manages over Rs4,300 crore in infrastructure and real estate assets in the country.
“We have project management expertise and have done highway construction contracts in the past,” said Unitech’s executive vice-president M.K. Aggarwal. “When totally unrelated industrial groups are bidding, why can’t we?”

Golden Gate Bets On Low-Cost Housing

Citigroup-backed Golden Gate Properties plans to invest close to Rs 2,000 crore over two years in affordable housing projects, a senior official said. The projects will be funded primarily through customer sales, apart from banks loans to the tune of Rs 500 and equity, Golden Gate managing director K Pratap said.

The Bangalore-based developer on Thursday announced plans to start construction on four township projects in Bangalore and Hyderabad, all grouped under the brand name Commune. A significant portion of each development will comprise low-cost housing units with an area of 995-1122 square feet.

“A large section of society is unable to own homes owing to spiraling real estate costs. The Commune has been conceived to fulfill this need-gap. The starting price for the affordable housing units will be around Rs 19 lakh. These properties will be on a par with premium developments in terms of quality, treatment and amenities,” he said.

Citigroup has invested Rs 150 crore in Golden Gate and Deutsche Bank $70 million. Golden Gate plans to expand to several southern cities with affordable housing projects.

Earlier this week, Bangalore’s Puravanakara Group also outlined plans to develop low-cost housing. The Housing Ministry estimates the shortage of homes in India at 24.71 million, most of it among economically weaker sections and low-income groups. Golden Gate’s first project, comprising 2,500 apartments on 30 acres, is located some four km off the road link to Mysore while the second will come up in the Sarjapur area on the city’s periphery on 100 acres.

In Hyderabad, the company has acquired land in Tallapur and Secundrabad. “Each project will be developed in a phased manner. The Bangalore model will be replicated across cities with some modifications to suit local tastes,” he said. The company hopes to drive down costs by acquiring land on the outskirts of cities and using modern construction techniques to bring down labour count by 75%.

Investors Can Scale Operations With DLF

Investors who want to take advantage of growth in the domestic real estate sector can draw strength from DLF’s impeccable delivery record and scale of operations.

A prominent player in the National Capital Region (NCR), DLF is the largest listed realty company in India. Besides being present in homes, offices and shopping mall segments, it has added hotels, infrastructure and special economic zones (SEZs) divisions to its portfolio.

With land reserves of over 16,000 acres spread across 32 cities, the company has delivered 224 million square feet of completed development since 1949. While residential projects contribute around 65% to its revenue, retail and commercial projects account for the remaining 35%.

After dominating the luxury housing market, the company has now shifted its focus to mid-income housing projects. DLF plans to shift the focus of its product portfolio from residential to commercial and retail projects. Around 46% of future development is expected to take place in metros (Chennai, Bangalore and Kolkata) and another 33% in super metros (Delhi and Mumbai). This will help in maintaining its premium pricing policy.

DLF has shown phenomenal growth in sales, as well as profit. With the real estate industry growing at 30%, DLF has been one of the star performers in this sector. Its sales have witnessed a compound annual growth rate (CAGR) of more than 95% over the past three years, while its net profit has seen an over threefold growth during the same period. However, it needs to be noted that sales growth is largely on account of increasing receivables.

The company has a strong asset portfolio with accruing leasing income. Tax sops in IT SEZs make them most lucrative for builders. DLF is expected to benefit significantly, as it has more than 20 million square feet under IT-SEZ construction. Also, the company will not be able to maintain its premium price when more projects come on stream in the NCR, its core region of operation.

Foreign players find it worthwhile to buy small stakes in individual projects of large developers in India, rather than buying out companies. DLF has managed to secure Rs 1,675 crore of private equity (PE) in seven of its group housing/township projects. Around 49% of its stake was diluted in favour of Merrill Lynch and Brahma Investments in the beginning of this year.

This came at a time when the real estate industry was going through a bad phase. Though small developers are still finding it difficult to finance their projects, DLF seems insulated from this risk by its sheer size in the industry. The company also plans to list its real estate investment trust (REIT) in financial year 2009 and raise funds to finance DLF Assets (DAL)’s purchases.

The trend in the real estate industry has changed from amassing land banks to exhibiting delivery capability. DLF has entered into several strategic tie-ups with international companies. The list includes Lang O’Rourke for construction, WSP for design and engineering, Feedback Ventures for project management, and Dubai-based Nakheel for SEZ development.

A key catalyst for the company will be DAL’s ability to consistently raise funds to buy commercial assets from DLF. With the shift in the company’s focus to commercial and office segments, this can also be made available for listing through a REIT, once DLF gets regulatory approval.

The company currently has large projects under execution. Timely delivery of these projects will be a key concern. Moreover, on the financials’ side, the company has a high level of receivables that may impact its cash flows, which are stretched as of now. Also, delay in raising funds for DAL can impact DLF’s topline in future.

MPC Energy Buys Equity In Phoenix Mills SPVs

MPC Energy, a JV between Germany-based MPC Capital and Switzerland-based Synergy Asset Management, has invested Rs 1,300 Crore in the purchase of equity in special purpose vehicles floated by Phoenix Mills, a real estate developer. 70% of the investment is expected to be used for fifteen projects that are in development stages, while the remaining 30% will be used for six additional projects that are in the pipeline.

The purchased equity stakes that range from 10% to 49% in value will be picked up 21 projects promoted by Phoenix Mills and its subsidiaries, Entertainment World Developers and Big Apple. Each project is foreign direct investment (FDI) compliant and a separate corporate identity (SPV). The developments will be located in tier I and II cities like Mumbai, Chennai, Bengaluru, Jabalpur, Udaipur, Raipur, Chandigarh, Pune and Indore.

This is second largest FDI in the Indian real estate market. A considerable portion of the investment will be utilised to develop four luxury hotels under the Phoenix brand. As reported earlier, two hotels in Mumbai and Chennai will be Shangri-La properties.

Mahindra and Mahindra Limited Will Invest In Real Estate And It Sector

Kolkata: Although bullish about the investment opportunities in the state, Mahindra and Mahindra Limited does not have any immediate plan to invest here through its regular brands. Any investment here will rather be in the real estate and IT sectors, Mr Anand Mahindra, vice-chairman and managing director of Mahindra and Mahindra Limited said.
He was speaking on the sidelines of a programme organised by the Ladies Study Group at a city hotel.
“Investment in IT and real estate through our group companies like Mahindra Life Space and Mahindra World City will probably be our flagship ventures in the state,” he said.
While Mahindra Life Space deals mainly with developing residential areas, Mahindra World City Developers Limited focuses on setting up SEZs.

PBEL City In Hyderabad Development Corridor

Mr Anand Reddy, Director of PBEL Property Development India Pvt Ltd, an Indo Israeli joint venture, poses with a model of PBEL City, a township comprising thirteen residential and two commercial towers of nineteen storey each on a twenty eight acre area situated in Hyderabad development Corridor in Rajendranagar mandal.

PBEL, an Indo Israeli joint venture real estate company, has pronounced the launch of the first phase of the One thousand two hundred crore rupees PBEL City, a residential-cum-commercial venture, on the border of the city.

The phase-I would have two towers, housing five hundred flats with a cost tag of Rs 41-52 lakh.

Addressing a press conference, Mr Anand Reddy, Executive Director, said the project was expected to be completed in 18-36 months.

Stating that the project was aiming people in the age group of 25-40 and working in information technology, IT-enabled services, banks and airports. Situated near the second exit of the upcoming Outer Ring Road (ORR), the project would have a total of thirteen residential and two commercial towers.

The company had united with L&D, a Malaysian interior design solutions provider, to provide modern interiors. “The buyers, however, could opt out and have their own furnishings,” he added.

After Hyderabad, the company drew plans to take up projects in Chennai and Mysore.

Prestige Group Gives Indian Malls The 5-Star Treatment

IN the great malling of India, few developers are as well equipped to talk about retail success as Irfan Razack, the man behind Bangalore’s The Forum mall.
Razack heads the Prestige Group, built The Forum in 2004 and while there may be bigger and glitzier malls across India, it continues to set the retail standard, voted India’s best shopping centre in 2008 and best mall in 2007.
Razack said,“It is not just about putting up a building”. Further he added, “Developers don’t always understand that retailers have to have their cash registers ringing. So you need sustainable rents and the right mix of tenants”.
It helps, too, to have the right timing. Three straight years of 9% economic growth from 2005 to 2007 gave a huge boost to Indian consumer confidence, though the gloss is coming off rapidly in 2008 as the economy cools and inflation rises.
Still, shopping malls of all shapes, sizes and themes – be it gold, electronics, cars or weddings – continue to dazzle property developers who have hitched their star to India’s consumer boom.
Favourable demographics – more than half of India’s population is under 25 – along with rising incomes and the ready availability of credit cards have created what looks like a consumer sweet-spot for the mall crowd.
The air-conditioned shopping centre, replete with designer brands, cinema multiplex, food courts and multi-level car-parking, is a new phenomenon for India. Just a decade ago, there were no real malls, and modern or organised retail had a miniscule 3% share of consumer spending.
By 2006, when India’s total retail market was worth $US330 billion ($375.5 billion), there were 90 malls across seven cities and modern retail was on a roll.
Research by the India Retail Forum last year estimated that mall numbers almost doubled in 2007 to 179 operational malls. By 2010, that figure could jump to 412, and reach 715 malls by 2015, covering 350 million square feet of retail space. By then, Indian retail spending will top $US700 billion, and modern retail’s share will be around 20%.
But real estate experts believe the quality of planning, construction and mix of stores in many of India’s malls is poor. “We assess that over 90 per cent of the current and planned shopping mall stock falls below international standards in terms of specification and design,” property agency Jones Lang LaSalle Meghraj noted last year.
And 2009 is widely seen as the crunch year for mall developers, when the weak will go to the wall.
None of this bothers Razack. He has nine malls in the works – in cities such as Chennai, Mysore, Cochin, Mangalore, Hyderabad and three in his home town of Bangalore.
One of his biggest developments is in UB City, a massive commercial and retail complex that Prestige Group is building in partnership with the flamboyant liquor and aviation tycoon, Vijay Mallya, on the site of one of Mallya’s old breweries in the heart of Bangalore.
UB City includes a three-level shopping arcade that Razack expects will be fully operational by October, featuring brands such as Louis Vuitton, Dunhill, Tiffany, Armani, Estee Lauder, Christofle and Rosenthal.
“It is positioned totally as a luxury mall,” says Razack. He says this centre, along with rival developer DLF’s Emporio Mall in Delhi, will dictate the speed of luxury expansion in India. “These malls should succeed. I am certain the buying power is there,” he says.
Razack is a great believer in Bangalore, even though he says its infrastructure falls short of the expectations that come with its status as India’s global technology city. “We should always benchmark to the best in the world,” he says.
Part of the problem is that Bangalore has grown from a city of 1.5 million in 1970 to more than 7 million today. It rose to prominence in the 1990s as the global IT boom gathered speed, and home-grown companies such as Infosys and Wipro emerged as cost-effective, high quality providers of IT-enabled services. But the city’s infrastructure across power, transport and water services is woefully inadequate.
Razack said, “I was born and bred in Bangalore, so I can feel the change”. Further he said, “Once, this was a sleepy old retirees’ town. Now, it is bursting at the seams. It is blessed with a good climate, hospitable people, good social infrastructure in terms of hospitals and schools. Now, it has good housing and office space. But infrastructure is the key. There is no doubt it is falling short”.
Though Bangalore’s star has waned a little as cities such as Chennai and Hyderabad expand their reputations as technology centres, Razack is upbeat about his city’s future: “The need for IT and BPO (business process outsourcing) is not receding in business, it only keeps increasing. It is more and more an integral part of our lives”.

Slowdown In IT And ITeS Office Space n Gurgaon and Noida

Economic slowdown in the US is expected to temper demand for IT and ITeS office space in Gurgaon and Noida during the second half of 2008, a global realty consultant has said in its report.
In its latest report for second quarter 2008, Jones Lang LaSalle Meghraj said that though Indian office markets have continued to post growth over the past few years, the last few quarters have seen a polarization in the office markets in terms of growth in demand across the country.
It has categorized the office markets across six major cities Mumbai, Delhi NCR, Bangalore, Chennai, Hyderabad and Kolkata in three broad segments.
First segment includes markets which are likely to be “susceptible” in terms of retarded demand growth for the remaining half year of 2008, the report said.
The consultant has put Gurgaon and Noida (Delhi NCR suburbs), whitefield and electronic city (Bangalore suburbs), OMR (Chennai suburbs), Thane and New Mumbai ( Mumbai suburbs) and Rajarhat (Kolkata suburbs) in the “susceptible” category.
“In case of the susceptible markets, demand from occupiers in the IT/ITES segment, could be rationalized on the back of economic slowdown in the US.
“This coupled with the strong supply pipeline in many of these markets could lead to a potential consolidation in the respective markets, leading to relatively higher vacancies,” Jones Lang LaSalle said, adding that this might not lead to any immediate rental consolidation.
The Consultant, however, cautioned that “if the global economic slowdown sustains, we foresee the vacancies to rise in these micro-markets due to strong supply volumes. This might put pressure on the rental values next year”.

Realty Slowdown Delivers Late Punch To Buyers

Realty slowdown is delaying delivery of homes. Several developers have postponed execution of their housing projects as funds become scarce, demand softens and raw material prices rise. While some others are deliberately delaying projects in order to reduce supply as demand weakens.

Several projects across the country are getting delayed as developers aren’t able to generate enough cash to continue construction work. Projects are delayed by as much as 6 months to over a year. “Funding is largely unavailable. Those developers who can access funds are also shying away from it since it has become very expensive. In addition, income from sales of housing units has declined with the softening of demand,” says Cushman and Wakefield executive MD Sanjay Verma.

All developers are facing the heat on account of high interest rates, which the country’s central bank has been hiking in order to tame inflation. Mid and small developers are faring worse as banks have almost shut their door on them.

“It is a tough time for real estate firms. A weak demand is affecting cash flow. Moreover, the cost of debt and construction has risen. How can one continue construction with the same pace in this environment,” says a senior executive at Omaxe.

Some developers cite usual reasons such as delayed government sanction and unavailability of men and material for the current unusual delays. “Till the last month, steel was difficult to procure even at a very high rate delaying execution of projects,” says Gaursons joint MD Manoj Gaur.

Not all delays are forced by just funding or material constraint. Says Sanjay Verma of Cushman & Wakefield, “Some developers are not minding delaying projects as they feel a reduced supply of homes will help them sustain prices in the face of slowing demand.”

In such cases, early buyers in the project are surely going to suffer as they will have to wait for a much longer time for delivery of their dream homes. Verma feels the scenario in real estate is unlikely to improve for at least one year as interest rates are expected to remain high.

A Delhi Based Real Estate Company Is In Debt

A Delhi based real estate company, which claims to have transformed the dreams of several of its customers to reality, is being trampled by a leading Mumbai-based NBFC.

The promoters of the real estate company had pledged its shares with the NBFC and accepted a funding of Rs 300 crore to meet its short-term working capital. But as a result of the prolonged bearish phase and constant pounding of realty shares, the promoters are unable to meet margin calls that are triggered when share prices slide.

If market sources are to be believed, the company is not in a position to even meet the interest due on its borrowings. Fearing that the loan would end up as bad debt, the NBFC has started dumping the shares of the real estate developer, triggering a further slide in the stock price.

The stock is already down 80% from its peak price seen some months ago. But market circles feel the hammering is not yet over, and the stock may test new lows in the coming days.

Two Wadala Plots For 375 Crores

The real estate sector may be experiencing a slump at present, but that has not stopped the Mumbai Metropolitan Region Development Authority (MMRDA) from offering two huge plots for long lease. The two plots are sited within the Wadala truck terminus opposite the IMAX multiplex.

The agency, undertaking multiple infrastructure projects in Mumbai, hopes to draw top notch developers and companies for the bid as the plots are well-connected by rail and road.

The MMRDA on Tuesday called bids for the two plots, meant for commercial complex and a movie multiplex respectively, for a lease of eighty years.

While the plot for the commercial complex has a permissible construction area of 24,000 square meters, the one for a cinema complex has a built up area of 13,500 square metres, said officials. The MMRDA has fixed a reserve price of Rs 240 crore for the commercial plot and Rs 135 crore for the movie theater complex. The successful bidder would have a free hand to design, finance, built and operate the commercial and movie multiplex plots, said officials.

“Nobody else has such big plots in the Wadala area. The MMRDA plots would set a benchmark in real estate rates in this central area of Mumbai,” said an official from MMRDA’s town planning department. “MMRDA strongly favours offering the commercial plot to financial institutions such as banks, insurance companies, housing finance agencies, merchant banks, asset management companies or mutual fund groups. We would prefer renowned FIs to bid for the plot. Corporate developers catering to financial institutions or IT/telecom companies would also be a good option,” said officials.

Asked if the time is right to put the plots under sale, MMRDA officials said the brisk pace of infrastructure development along the Wadala Truck terminus would definitely attract big names in real estate and FIs. “The recently sanctioned monorail line between Jacob Circle and Chembur would have a station at the Wadala terminus. Moreover, MMRDA would soon invite bids from developers to construct the Inter-state Bus terminus nearby,” said the official.

The plots, argue officials, is well connected even with the existing rail and road network. “It’s just five minutes from the Guru Tegh Bahadur (GTB) station on the harbour line. There is a flyover connecting the plot to the Eastern Express highway also,” pointed officials.

He was quick to add that the area already has a strong presence of residential homes. “People staying in Sion-Koliwada, Everard nagar, Bhakti Park are a stone’s throw from this plot. Anyway, moviegoers all over Mumbai know of this area because of their visit to IMAX Adlabs,” add officials.

Navi Mumbai And Andheri Have Similar Realty Rates

The satellite city of Navi Mumbai is giving realty jitters to Mumbai. The City Industrial and Development Corporation sold seven plots of land between nine thousand square feet to sixty thousand square feet. Ravji Enterprises quoted a whopping ten thousand rupees per square feet to emerge as the successful bidder for fifty thousand residential-cum-commercial plot on Palm Beach Road in Sanpada.

The company’s bid was nearly four and a half times more than the base (estimated) price of Rs22,000 per square feet fixed by the Cidco. Kesar Group picked up another plot of over sixty thousand square feet in Sector 19, on the same stretch for Rs 82,521 per square meter. A quarter ago, the same plots had been sold for Rs 32,500 to Rs 43,000 per square meter.

The high bids are giving real estate experts the jitters. Mr. Joy Sanyal, head of lands department with Trammel Meghraj, an international real estate consultant, said, “Apart from a common man finding it difficult to own a flat, Tuesday’s bid has equalized land prices being quoted at Andheri and Navi Mumbai”.

Realty experts say that property prices in certain parts of Navi Mumbai have appreciated over 250% in the last three years. Arvind Goel, a trustee of the newly-formed Navi Mumbai Chamber of Housing (NMCH) said, “Property prices are skyrocketing because of Cidco’s deliberate policy against releasing all plots in one go. Cidco should rethink its land disposal policy”.

Malls Creating Pollution

Behind the glitz and glitter, muck and toxic smoke. A recent study has shown that mall mania in Kolkata may not just be burning holes in pockets it could be blasting a bigger hole in the ozone layer in the city skies.

Waste generated by malls is a major cause of air and soil pollution in Kolkata, says a study conducted by R K Pachauri’s Tata Energy Research Institute. Together with the booming real estate industry, malls and the consequent jump in traffic pollution (thanks to the lakhs of vehicles clogging nearby roads) account for a shocking 30% of all the pollution in and around the city.

S P Gonchoudhuri, managing director of West Bengal Green Energy Development Corporation (WBGEDC), said malls were polluting the environment in two ways. “First, the stores give out the purchases in plastic bags, which are an environmental hazard. The malls also use up a huge amount of electricity and generate greenhouse gases. We are working with the urban development department to make the green rating system mandatory for all commercial buildings in the city. This will help us gauge the extent of pollution and find ways to save energy,” he said.

The plastic waste that piles up in and around malls and other commercial establishments is a major cause of pollution, the study found. The state plastic management committee under the environment department recently issued directives for better management of plastic waste. State environment secretary M L Meena, also the committee chairman, has issued a circular to all municipal authorities in the state to comply with the directives by August 31.

The circular says that by August 31, all municipal bodies will have to issue directives to malls and restaurants within their jurisdiction on the proper collection of plastic waste. The authorities will also have to submit a compliance report to the environment department by September 15. The malls and fast-food centers will have to send the plastic waste to authorized recycling units and the state pollution control board (PCB) will monitor the process.

The environment department wants civic bodies in the state to liaise with the PCB to set up new plastic recycling units within their municipal areas. “More such recycling centers are required in the districts as malls and other commercial establishments are coming up in semi-urban areas as well,” said a PCB official.

To address the problem at the source, WBGEDC is working on a plan to introduce jute- and fibre-based carry-bags at malls. “We are requesting mall developers to urge store-owners to use these eco-friendly bags instead of plastic ones. We have already received positive responses from some owners. The idea is to check pollution and save energy,” said Gonchoudhuri.

Mall developers said they would comply with the norms to keep the surroundings clean. “A private agency has been appointed to dispose of waste materials. We would be happy to follow all pollution control norms,” said Bengal Ambuja managing director Harsh Neotia, who has set up City Centre in Salt Lake.

“A private operator having a KMC licence is already doing the job to keep the mall surroundings clean. We would definitely follow government norms to keep the environment pollution-free,” said Sanjeeb Mehra, vice-president (mall operations), South City mall.

Real Estate Firms Delay Plans

Most Indian developers have hit the brakes on fresh land acquisitions as a slide in the stock market, rise in interest rates and aggressive demands of the private equity investors have limited funding options.

After five years of boom, real estate firms in India are grappling with tepid sales and cash crunches as inflated property prices and interest rates at near-decade highs scare away buyers.

“The aggression for acquiring land has disappeared. Deal volumes are down 35% to 40%, though prices still haven’t moved significantly,” said Anuj Puri, who heads property consultant Jones Lang LaSalle Meghraj.

“My land division guys are crying.” This is a sharp turnaround from as recent as a year ago, when property firms, flush with funds from public offers or advance bookings, rushed to bid for land parcels, even at distant locations in metros, and in second-tier towns.

Even mid-size developers in India say they hold land reserves of 60-100 million square feet, sufficient for projects planned in the next 3-4 years. But slumping demand could drive down land prices soon, leading to some distress sales, officials say.

“We have not acquired an inch of land in 9 months. I think by December-January, land prices should soften,” Vyomesh Shah, Managing Director of Akruti City told last month. Analysts say that shortage of cash has also forced developers to put off new project launches and delay work on current projects. Some planned projects may not even materialize.

“Developers normally did construction through booking advances for planned projects. Sales are down, so obviously there are delays,” said an analyst at a Mumbai-based brokerage that has revised downward target price on sector stocks by 15% to 25%.

Rising inflation and an expected slowing of the economy will only worsen the situation, say analysts, who are now reviewing their target prices on these stocks. An analyst at a domestic brokerage said it had recently changed valuation methodology to net-asset-value basis, which had led to some downward revision in target prices. The new method values companies based on current assets rather than future cash flows, he added. CLSA lowered its net asset value estimate for HDIL by 29%, citing higher costs on account of rising interest rates.

110 Logistics Parks Are Expected To Be Operational By 2012

Indian logistics industry is expected to grow at 15% to 20% per annum, reaching its revenues of $385 billion by 2015, said a report prepared by Cushman and Wakefield, which term the sector as new powerhouse for the real estate sector in times to come.
As per C&W estimates, the market share of organized logistics players is expected to double to approximately 12% in the same period. The new logistics centers will give big boost to the industrial activities in the country.
The report revealed that 110 logistics parks spread over 3,500 acres at an estimated cost of $1 billion are expected to be operational by 2012. Around 45 million sq ft of warehousing space will be ready in the next four years.
Most of these developments are concentrated in 14 locations. Sanjay Dutt, joint MD, C&W India said, “Since almost one-third of the total realty development in the sector is expected to take place in emerging locations, many tier-2 and tier-3 cities and peripheral locations that offer good connectivity to multiple markets will witness increased activity from logistics players, providing a thrust to the real estate market.” Mumbai has emerged as the preferred location for the development of logistics parks with an investment of approximately $200 million. The city will witness the development of seven to eight logistics parks on 600 acres around Mumbai.
The other cities that fall within the established locations include Kolkata, Chennai and Hyderabad. These locations are characterized by excellent port, rail and road connectivity and are witnessing significant investment in infrastructure, said the report. High concentration of organized retail, established manufacturing hubs and proposed SEZ developments will further augment the attractiveness of these locations.
Besides the established centers, a number of hubs like Nagpur, Vizag and Gurgaon have also emerged. But currently they are lagging behind in support infrastructure. However, due to high ratings on other parameters such as geographic location, existing and proposed manufacturing clusters and SEZs and accessibility, they are promising locations for the purpose.
A number of infrastructural developments are taking place in these locations, which would increase the attractiveness of these locations in the next 3-5 years, said the report. Gurgaon has advantage of being situated on the golden quadrilateral with easy access to the dedicated freight corridor.

High Rentals Hit Retail Expansion Plans

The expansion plans of retail companies have taken a hit due to the rising real estate rentals.
Talking to media persons, K Dasaratharaman, president (specialty retail), Spencer Retail, the retail arm of the RPG group, maintained that the real estate prices are a critical aspect while choosing the location of new stores.”
Dasaratharaman said that while they were planning to open another 50 specialty stores by this fiscal end, the rentals would be a critical element, while choosing the new locations.
Dasaratharaman added, “We definitely want to add another 15 ‘Book and Beyond’ store and 40 Music world Store by this fiscal end but the location of the upcoming stores would be decided keeping the real estate prices in mind. We are in talks with the real estate developers for opening the new stores, but it would be too early to comment about the location of the next store”.
K Dasaratharaman was in Chandigarh to announce the opening of a new vertical of the Spencer retail “Book and Beyond”. This is the sixth outlet of ‘Books and Beyond’, specialty store by the RPG retail group.
Commenting on the new store opened at IT Park, Dasaratharaman said that the store would offer wide selection of reading options and entire gamut of art and stationary related merchandise for home and office use.
The store with a collection of around 35,000 books and magazines would be a part of the initiative to make brands accessible to all book lovers in the city.
The store, besides housing music store for entertainment seeker, would also store academic text book, exclusive Punjabi literature section books on religion and spirituality.

Matheran Realty To Sell Residential Units At Karjat

Property developer Matheran Realty said that it will sell 15000 residential units in its Karjat project at Rs 999 a square feet.

The company is setting up Rs 900-crore mixed-use project at Karjat on 100 acres of land.

Pravin Banavalikar, Chief Executive Officer, Tanaji Malusare City said, “The project will have 10%-15% reserved for commercial purposes which will help us to recover the margin we may loose from selling residential units”.

Tanaji Malusare City is the Special Purpose Vehicle of the Karjat project floated by Matheran Realty and a financial institution.

Banavalikar said that with 3,000 flats, the selling of the first phase of the project would start from tomorrow. Subsequent phases will come up in after every six months.

Expecting huge rush, the company has decided to sell the units through a lottery system and assured that people who would not get flats have the chance of securing one in subsequent phases.

Banavalikar said, “We are scouting around thousand acres of land to develop similar kind of projects in other places within 50-100 kilo-meters of Mumbai”.

Falcon Realty Planning Eco-Friendly Developments In 2-Tier Cities

Falcon Realty Services Private Ltd., which has spent twenty years in the land buying and dealing sector in India, is making its first step into development, the company has reported.

The firm is currently in the planning plans of eco-friendly developments, with the development of infrastructure and support focusing around industrial hubs, it said in a statement.

According to Bhim Yadav, CEO of Falcon, the growth of customers’ interest in environmentally conscious housing and commercial space has led to this new focus. “We have already recognized the land and formulated, conceptualized and designed the eco-friendly master planned communities.” The firm is looking for further space in 2-tier cities to develop commercial, residential and retail projects on a green basis.

India has been a major arena for commercial real estate development of late. Most recently, according to a report by CPN, Hill International won a contract by Smart City (Kochi) Infrastructure Private Ltd. to provide project management services for the Smart City Kochi development in India. Situated at the southeastern Indian coastal city of Kochi, Smart City Kochi will be a technology epicenter. The development, built on nearly three acres and developed as a Special Economic Zone, is expected to become one of India’s biggest business parks.

Jain Housing Launches Residential Projects

South-based Jain Housing and Constructions have launched its two mega residential ‘Carlton Greek’ projects.

Company’s CEO Vijay Kumar Managing Director Sundeep Mehta said that company will construct 1,120 apartments in two phases investing Rs 950 crore.

He said that the project would be completed by 2011. The company’s last year turnover was Rs 280 crore with profit after tax was Rs 120 crore.

Jains’ portfolio includes over 150 residential projects that include 4.5 million square feet of completed project and over 10 million square feet of on-going projects.

Mr. Mehta said “Exuding elegance, grandeur and style, this ultra indulgent residential offering unfolds a refreshing idiom of home design that radiates a pleasing balance of form and function”.