Monthly Archives: October 2008

SRA scheme is in doldrum due to realty slowdown

The much-hyped slum rehabilitation authority (SRA) scheme of the Maharashtra government is in doldrums. This follows a steep slump in the real estate market. One of the biggest players in SRA schemes said, “I have decided to pull out completely. It just doesn’t make sense to get involved in these schemes anymore.” With many SRA projects in limbo, it will be many more years before the city would be able to rid itself off its slums. As many has 1,100 schemes have been sanctioned by SRA in recent months.

However, CEO of SRA Shrikant Singh, said there was no cause for alarm. There is a down-slide in all sectors and SRA is no exception. “But if the demand for flats picks up, those under SRA will be the first ones to be sold as they are cheaper than the ready reckoner rates,” he added. Ready reckoner rates are the rates for flats as determined by the state government and vary for each municipal ward.

Under SRA, a builder had to obtain the consent of at least 60% of occupants in a slum, relocate them in transit camps and then give them pucca flats measuring 300 sq-ft for free. In the space thus vacated, he could build flats for sale in the open market with additional floor space index (FSI). Said Ashutosh Rane, who has undertaken several SRA projects: “The entire economics of these schemes was based on the profits to be made from the free-sale component. With property prices on the downslide and a general freeze in demand for flats, there is absolutely no incentive to go in for SRA projects anymore.”

He said it cost at least Rs 4,000 per square feet on an average to put up an SRA project. “As free-sale SRA flats sell at prices less than those prevailing in non-SRA projects, there is hardly any profit to be made anymore,” he said. Also in view of the banks’ reluctance to give housing loans, there is no way a purchaser can even buy a SRA flat.

It takes four years on an average to implement an SRA project as obtaining the consent of slum-dwellers and building transit camps takes time. Only after this, a builder would be able to start constructing free-sale flats and during these four years, he would have to borrow finance at interest rates of over 25%. The fall in property prices is acting like a big speed-breaker for SRA developers.

For example, Sahana Builders, which is in the process of implementing a mega SRA project at Worli since the past four years, has built several flats with various accessories to house hundreds of slum-dwellers and spent a few crore rupees to build a nullah according to a BMC requirement. The firm is still to start building free-sale flats and it will be a few years before it starts getting returns.

Real estate slump may pull prices by 20%

With a slump in the Indian real estate sector due to excessive credit crunch and demand slowdown, home buyers can expect a further correction in real estate prices in the range of 15% to 20% in next six months. There are several factors working against the Indian real estate sector that can bring about such a price correction.

With the Reserve Bank of India (RBI) tightening money supply and increasing interest rates to fight inflation, the developers are facing liquidity crunch. Banks are getting jittery over loan disbursals to real estate developers. Even if the developers manage to get loans from banks, they are hard-pressed to keep more collateral with the banks.

“With debt market getting dried up, developers facing the heat of liquidity crunch and PE funds shying away from real estate investments and speculative investments at an all-time low, we can expect a 15-20% correction by the first quarter of 2009,” Jones Lang LaSalle managing director Anuj Puri said.

The global credit crunch which has affected the Indian market has taken the sheen off large property firms like DLF and Unitech. The two are seeing their market cap eroding almost completely and their fund raising plans hitting a rut due to unavailability of funds. To further aggravate the situation, the property market has also been witnessing a drop in PE fund flow.

PE investors, who had been happily picking realty deals earlier this year, appear to have tightened their purse strings now, with September witnessing only two transactions worth just $12 mn compared with August, when PE funds pumped in $427 mn into Indian realty sector.

According to data compiled by Grant Thornton, while the number of deals during January-September was higher at 45 against last year’s 39 deals, the average ticket size of the transactions has come down substantially in the first three quarters of 2008, reflecting softening valuations across the crisis-ridden real estate sector.

The rate of interest on home loans has drastically shot up from around 7.75% in 2004 to around 12.75% now. Almost 90% of home buyers opt for loans to buy homes. With interest rate on home loans on a rise and the severe liquidity crunch in the banking sector on the back of the global financial turmoil, fuelled by real estate crises, banks are unwilling to lend.

“Now the time has come when you have only genuine buyers for a property. Speculators who believed in short-term investments in properties have completely vanished from the scene. Therefore, to help genuine buyers , developers will have to cut prices,” real estate consultancy realty verticals head Rajan Ahuja said.

On further price correction in real estate, Unitech MD Sanjay Chandra said: “The prime issue is of affordability. It’s not about per sqft rate, but about the overall price tag of a house. We are reducing ticket size. We now offer three-bed room flats, which is much smaller in size than we earlier used to sell, thereby bringing down the price of a flat.”

According to a report on the Indian office market by CB Richard Ellis, a global real estate consultant, seven major Indian cities, including Delhi, Mumbai, Kolkata and Bangalore, showed a marked decline in demand during the quarter ending September. The report also said leasing of office space had slowed down in the first two quarters of the year.

Unitech to announce telecom stake sale next week

Indian real estate firm Unitech Ltd will make an announcement regarding a stake sale in its telecoms business next week, Managing Director Sanjay Chandra told.

Unitech was in talks to sell a stake in the telecom venture to Norwegian telecom group Telenor.

Unitech is scheduled to announce its second quarter results on Oct 31.

Chandra said the firm expected revenue and profits to grow “upwards of 20 pct” in the financial year 2008/09.

Reat estate investment trust offers better investment opportunity

The Indian real estate market has undergone palpable transformation in the last few years. This change has been led by rapidly rising demand for residential, 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 urbanization 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) spell 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 under-performance 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.

30-35% Drop Expected in Residential Price in Mumbai

Centrum Broking Pvt Ltd today shared findings from its research report on the Mumbai Real Estate Sector. It expects a 30-35% fall in India’s residential prices from the peak, with the Mumbai Metropolitan Region (MMR) estimated to witness the lowest fall of 20-30% until April 2009. Residential demand in Mumbai is estimated at 66mn.square feet vs 55mn.square feet supply The report says that the decline in real estate prices in Mumbai will bring back affordability and is expected to boost demand. The factors that are likely to result in a lesser price drop in MMR include.

The favorable demand supply equation shields against steep correction in Mumbai – Owing to its geography and high population density, Mumbai has limited land area and demand for quality properties tends to far outstrip supply, resulting in high prices. Slum rehabilitation, redevelopment unique business opportunity in Mumbai provides opportunity to real estate players participating in the highly lucrative slum rehabilitation and development business considering that half of Mumbai’s twelve million population lives in slums.

Strong cash flow visibility for Mumbai focused property developers – Stable cash flow of Mumbai focused developers will help these companies tide over the liquidity crunch. Mumbai suburbs to witness huge supply – The trend for suburbanization is likely to continue with suburban locations capturing demand for small to medium format spaces. Redevelopment of properties – Mumbai offers huge opportunities for developers in the redevelopment space. According to a survey done by the Maharashtra Housing Area Development Authority (MHADA) in 2006, Mumbai has 19642 dilapidated buildings that are more than 40-100 years old.

Property price could become stable

A two-day real estate conference, Build Up 2008, which started in Bangalore on Tuesday, bore the grim realities of the global financial crisis and its impact on Indian real estate. Neither of the two major speakers — Union urban development minister S Jaipal Reddy and CM B S Yeddyurappa — turned up.
The other prominent speakers painted a somewhat sombre picture. “We are feeling the ripples of the global slowdown.
There’s a 30% drop in new projects compared to a year ago,” said Kumar Gera, chairman of the Confederation of Real Estate Developers Association of India. However, he added pent-up demand will manifest itself once markets stabilize.
Irfan Razack, CMD of Prestige Estates, said, “Prices in the primary market are expected to stabilize. People are not going to make the profits they did before.”
J C Sharma, MD of Sobha Developers, said, “Going forward, people could see a softening in land prices.”

Zuri brand of hotels in India

Phoenix Group Global, a promoter of luxury resorts, on Tuesday announced the launch of its own brand of Zuri luxurious hotels and resorts in India. The first five-star hotel will open at Whitefield in Bangalore in January next year, said Priti Chand, media officer of the business group. “We are acquiring land for five other hotels in Ahmedabad, Visakhapatnam, Kochi, Chennai and Nagpur and will be investing around Rs 10.5 billion for these projects,” Chand said.
Phoenix Group Global, a multinational conglomerate based in Dubai has interests in the hospitality, real estate and floriculture sector and owns and manages hotels under the franchise of Carlson Hotels Worldwide. At present it has two hotels in Goa (Radisson White Sands Resort and Country Inns and Suites) and one in Kerala (Radisson Plaza Resort and Spa, Kumarakom). The Indian arm is managed by brothers Aditya and Abhishek Kamani. “All our hotels will be under the Zuri brand,” Chand said.

TDIL’s scheme for customers

TDI Infrastructure Ltd (TDIL) has announced a scheme for customers who wish to build their homes by offering subsidized construction and assured rentals.

A first of its type scheme, Build and Earn, will enable plot owners of TDI City, Kundli, to build their dream house while enjoying a rebate of about 20-25% on the overall construction cost. Kamal Taneja, managing director, TDIL, said, “Thus, if your plot measures 250 square yards, then you will get a rebate to the tune of Rs 2,50,000 on construction”.

Intended to relieve customers from construction-related worries, the scheme will also offer them rent for a period of 22 months post completion of construction, subject to the customer’s approval. Under the scheme, the company will build the house at an agreed price and handover the premises to the customer.

The company is offering two schemes – ‘Assured rent for 22 months post construction’ and ‘Gross Adjustment in the construction expense’. Various options under both the schemes are offered to customers so as to fit their pockets. The construction time spans between 10 and 12 months in either of the scheme. The plot owner will make the entire payment in four equal installments starting from the day of registration.

Taneja said, “Quality housing at an affordable price has always been our motto. With more and more people signing for this scheme, this will bring life to TDI City, Kundli – the new New Delhi.

Further he added, “We have received an overwhelming response to the scheme. We will immediately start the construction work. We will continue to launch such innovative schemes that will boost confidence of our customers, who have been associated with TDI for long”.

Slowdown hits demand for prime office space in cities: CBRE

NEW DELHI: Office space absorption in the country has gone down by 41.11% cumulatively in the three quarters ended September this year, as a fallout of the global economic slowdown.
The total office space take up between January and September this year stood at 5.3 million square feet as against 9 million square feet in the corresponding period last year, according to global commercial real estate services firm CB Richard Ellis (CBRE).
“The global economic slowdown has started to show early signs of impact on the offices market. The third quarter of 2008 has seen some decline in the office space take up across the country. Going forward, this is expected to keep office rentals under check,” CB Richard Ellis Chairman and Managing Director (South Asia) Mr Anshuman Magazine said.
In its quarterly ‘India Office Market View’ report, CBRE covered seven cities and found that the cities showed a marked slowdown in demand and office space leasing that had moderated in the first two quarters of the year.

Raheja Prices Villas At Rs 6 Crore

Real estate entrepreneur Vijay Raheja has lined up a raft of projects in Mumbai and Bangalore for the next six months to a year—braving a slump in the property market after splitting the family business with his brother in July—and started with a development targeted at the rich.
His company, V Raheja Design Construction launched its first project post the split on Dussehra—the Verena luxury villas spread over five acres in east Bangalore’s Whitefield neighborhood where each unit has been priced at Rs 6 crore.
“There are 40 villas, and all will be sold by invitation. Other residential and commercial projects will be launched gradually,” said a senior official at the company who manages the Bangalore operations, but did not want to be identified.
Raheja is working on projects including an IT park, Gigaplex, a residential project, Buena Vista, and a commercial property, Raheja Chambers, in the city.
In Mumbai, an information technology park is under construction.
Raheja and his younger brother, Deepak, split the 56-year-old B Raheja Builders between themselves and founded their own companies, ‘Mint’ reported on 7 July. The properties and projects of B Raheja Builders were divided between the brothers, with V Raheja Design taking over the construction of the new JW Marriott hotel at UB City in Bangalore.
“A Rs6 crore villa is overpriced where builders are unable to sell Rs3 crore houses in the same area,” Naresh Dandapat, regional director (south) at property consultancy Knight Frank India, said of the Verena villa project. But the official defended the pricing, saying, “They are exclusive and contemporary, and have been priced accordingly.”

Mumbai Bets On A Realty Cheque

It’s an initiative that could lead to a facelift for Malabar Hill, Mumbai’s toniest address, as well as Nariman Point and other areas in South Mumbai. The city collector has proposed to free government-owned land, which is currently locked in lease agreements, by selling it at market rates.

However, a section of the state administration feels that conditions in the realty market may upset the government’s dreams of generating several thousand crores of rupees by selling these properties.

The Maharashtra government is sitting on vast tracts of land in one of the most expensive real estate markets in the country. These properties, in many cases, have become a liability for the state, since it earns paltry revenue from them. Most of these properties are locked in lease agreements.

“We earn around Rs 20 crore from 955 land leases in Cuffe Parade and Churchgate and Rs 25 crore from Backbay Reclamation and Nariman Point. Most of these lease agreements are over. Instead of renewing them, we would want the government to consider outright sale of these properties,” Mumbai district collector IA Kundan said.

Of the 955 land lease agreements in Cuffe Parade, Churchgate and Marine Drive, 458 agreements ended long ago. In the Backbay area, where the business district of Nariman Point is located, more than half of the 316 lease agreements have expired. Some of these agreements were signed for 99 years. “The rent the state government receives from these properties is ridiculously low,” Ms Kundan said.

The Maharashtra government had, in 1999, proposed to free itself from these lease agreements, but its plan to sell the properties landed in court. Now the issue has been settled, and the revenue ministry has asked the city collector to put up a formal proposal to sell the leased properties. “Accordingly, we have submitted our plan. This will now be discussed by the state cabinet,” she said.

New Homes For India

An entire township of nearly four thousand new homes is being built in Southern India, dubbed a “mega project” for the country’s building boom.
Sahara Prime City, the real estate arm of Sahara India Pariwar, is building the project in Coimbatore as part of what it says will be a vast chain of townships in 217 Indian locations.
Covering 1113 acres, Coimbatore will soon be home to 3,846 new residential units and will feature high-rise and mid-rise apartments, houses and independent bungalows.
Sushanto Roy, head of Sahara’s real estate operations, said, “The township has been planned to set a new standard of luxury and style. The brand Sahara City Homes is intended to provide quality lifestyle with its range of amenities and facilities.”
The township will be fully air conditioned and is also designed at one level higher than the applicable seismic zone as an extra safety measure to guard against earthquakes.
Other Sahra townships have already started taking shape with development and construction underway in the cities of Lucknow, Nagpur, Indore, Ahmedabad and Gwalior. Work is going on also at sites in Jaipur, Aurangabad, Solapur and Jodhpur.

Realty index slips 3.7%

With the domestic bourses taking cues from global markets, the realty stocks on Wednesday dipped 3.70% as bearish sentiments gripped the market.

The realty index opened at 2,720.59 points and touched an intra-day low of 2,701 points in the first few minutes of trade. It was later quoting at 2,716.17 points, down 3.16%. Led by Indiabulls Real Estate, which plunged by over 11%, sto cks of all major realty firms fell in the range of 3% to 11% in the morning trade on the BSE.

Indiabulls Real Estate touched an intra-day low of Rs 108.70, down 11.63%. Marketmen said that weak sentiments have gripped the market as a whole, which is pulling down all the sectors and realty is no exception to that.

Shares of the country’s largest realty major DLF, whose share buyback would commence from October 17, on Wednesday dipped 3.09% to touch an intra-day low of Rs 301. It was later trading at Rs 306.20, down 1.42%. Over 1.38 lakh shares got traded in the market.

Green Real Estate Project

Falcon Realty Services Private Limited (FRSPL) is dynamically involved in Land acquirement and Land consolidation in India for more than twenty years. It is launching a real estate project named Global Eco-City on Expressway (NH-8) in Delhi – NCR. The project to be spread over thirty-five acres in the initial phase. It promises to be India’s best ever green real estate project till date.
The project encompasses a judicious mix of executive homes, weekend homes and premium villas. The company is pumping in an investment of three hundred crore rupees towards the project.
Mr. Bhim Yadav, CEO, FRSPL says “Our in-depth understanding of a consumer’s requirements and what should be offered to him has helped us in visualizing the largest Secured, Gated and Master Planned Community Development on Expressway, NH-08, in Delhi-NCR which will provide Self Sustainable, Energy Efficient Green Developments, Luxurious and Affordable Housing, Dynamic Location and a great investment growth plan.”
Global Eco-City will showcase the living trends that will come in to vogue. The roof top of the houses will be designed by fitting solar heating systems into homes which is an efficient way to combat increasing energy costs.
All Walls of the houses will be formed to create insulation to keep the home cool in summers and warm in winters. Global Eco- City shall maintain low density housing as well. Each plot has been also designed to have open space in all directions. All residents of Global Eco-city will also have the benefit of getting farm fresh organic fruits and vegetables.
Mr. Yadav said, “Global awareness is the need of the hour. It has been identified that buildings alone are responsible for 25-40% of energy consumption, 30% to 40% waste production and 30% to 40% green house gas emissions globally. There are innumerable benefits of going green that one can talk about. Though in a nascent stage, the concept is very dynamic and fast catching up. The benefit of green concept is reduced environmental impact through energy efficiency and a reduced carbon footprint, without making a commercial compromise”.

Residential developers offering discounts

Rising property prices and increased interest rates, coupled with a demand-supply mismatch has brought down the overall affordability of residential properties in the country today forcing developers to resort to offering feebies and early bird discounts to arrest fall in sales, according to a recent report.

The economic slowdown which has mainly affected suburban and non-metro locations has led to some developers coming up with innovative schemes like “Book Now and Pay Later on Possession” as well as home loan installment payment for the initial two years, a report by Cushman and Wakefield said.

A few high-end residential projects in Chennai have also marketed their property with unique concept of an unlimited and unconditional complete structural guarantee against leaks and cracks and a lifetime warranty for standard fixtures.

However, established developers with substantial cash reserves have up till now remained insulated from this trend.

The current short-term stagnation in commercial and residential activity in India has led to an overall reduction in the number of land transactions with developers deferring their decisions to occupy additional land reserves.

However, the economic slowdown is not expected to affect reputed developers as much as small time operators, even leading to consolidation of the industry by bigger players.

Private Equity (PE) funds have adopted a cautious approach towards the kind of projects they pick up and there is an increased emphasis on the reputation of developers, making it difficult for lesser known players to raise funds. This has led to availability of suitable investment terms for funds.

This year investments have diversified across asset classes, with the highest share going to the residential (41%) and township (21%) sectors with the quantum of investment in the range of Rs 128,600 million.

With the market conditions changing over the first half of 2008, investors have become cautions and have chosen to remain in tier one cities where market trends are more definite. PE investments in tier three cities were estimated to be about 40% of the total quarter four of 2007. However as of mid August the tier three cities recorded nil PE investments.

As a result there is marked reduction in investors interest in projects across tier two and tier three cities.

Bangalore and Hyderabad have been able to attract maximum “SPV” deals followed by Mumbai and Delhi NCR.

Region wide distibution of PE deals shows that western (37%) and southern (32%) accounted for almost 70% of the investment followed by northern region at 26%. South Zone has seen the maxiumum number of deals (24) and the avreage size of deals being 2,800 million.

The report also states that commercial supply superceded demand. During the first six months of 2008, the seven major cities in India witnesed commercial office space supply over and above the space uptake, validating a temporary slump in the economy and in the realty sector at large.

However there were also instances like Chennai and Bangalore where the first half of 2008 saw an increase in demand over the same period last year.

In order to ride over the economic slowdown, several corporates have deferred their expansion plans. Some small time and medium players in select cities have been selling their projects to big developers to tide over.

Green Building: A New Success Matra

There is a new mantra among builders. They are chanting it with the fervor of cheerleaders: green architecture. The flag bearer of green construction is the Indian Council of Green Building (ICGB). An organization formed by the Confederation of Indian Industry and the Sohrabji Godrej Green Business Centre, the ICGB is calling eco-friendly architecture a movement.
At the recently held Green Building Congress 2008, speakers from various industries tried urgently to tap into the zeitgeist of environmental concern, arguing that green construction is the only way to build without polluting. All manner of purportedly energy-efficient devices from power-saving bulbs to eco-friendly carpets were advertised. However while green construction appeals to builders and many architects, critics think it’s little more than a fashion statement.
The ICGB has been actively promoting the concept of green architecture for three years and offers builders Leadership in Energy and Environmental Design (LEED) certificates. Developed by the US Green Building Council, LEED is a rating system that lays down a set of standards for sustainable architecture. The ICGB holds its own office in Hyderabad as an exemplar of green construction. It has courtyards that allow cross-ventilation thereby reducing the building’s dependence on air-conditioning and skylights that let in enough natural light, precluding the need for artificial light. S Raghupathy, a senior director at ICGB says the building uses about 30% less energy than an ordinary building of similar proportions. Completed in 2003, it is India’s first LEED-certified building. Five years later, 320 buildings that have been registered for LEED awards. Raghupathy predicts that by 2010, there will 1000 LEED-certified buildings in the country.

FIRE Capital To Invest In Affordable Housing

As affordable housing is becoming the new mantra for real estate developers, the concept is attracting a lot of attention from the real estate funds fraternity. The $250-million First Indian Real Estate (FIRE) Capital Fund Ltd is making its first deal in the segment.
According to industry sources FIRE Capital is currently in the due diligence stage with the affordable housing investment. “The deal should get concluded within 2-3 weeks,” said the source in the know of the deal.
While, the name of the real estate developer is being guarded by the realty fund, DNA Money has learnt that it is a firm operating out of the eastern region of India. “In most likelihood, the affordable housing project is being developed in West Bengal,” added the source.
The ticket size of the project will be between Rs 8 lakh and Rs 15 lakh across various permutations and combinations of apartment sizes.
Gautam Vashisht, executive director (investments), FIRE Capital Fund, said, “The intent is certainly there in the affordable housing segment in India, particularly in Tier II and Tier III cities.” However, he denied making any comment on the possible investment in affordable housing project in east India.
Fire Capital launched its first fund in 2006 with a corpus of $250 million and has already committed over $150 million across seven investments. Focusing on residential and mixed-use developments centred on residential use, its first investment was in the Indore-based M Jhaveri Group’s 137-acre township. Other investments are also in township projects in Jaipur, Bangalore, Nagpur, Chennai, Ahmedabad and Dehradun.
The venture fund typically makes investments ranging from $5 million to $30 million.
Now with close to 80% of the corpus being deployed, the venture capital fund is planning to raise another fund next year. The amount to be raised is rumoured to be in the region of $500 million. While the primary investors will be from the US and European markets the fund will also look at raising some part of it from the Middle East.
The second fund will also target real estate projects in residential and mixed-use developments (including hotels), and the focus will be on Tier II cities in the country.

NCR Faces Fall In Real Estate Projects

New housing project launches in the national capital region (NCR) slumped by 20% during January-June 2008. This is explained by the slowdown in demand due to appreciation in real estate prices and rising interest rates for borrowers.

The first half of this year also saw a marked shift in developers’ strategy towards mid-income houses, as the high-end segment witnessed increased resistance from buyers.

Project launches in the high-end category fell by two-third to just 5, while mid-income housing project launches rose by over 20% to 37.

As per a report by international property consultancy firm DTZ, the absorption of mid-income houses in July at 76% had overtaken that of high end houses (68%). This means that high end houses are selling at a slower pace than the mid income segment. The report says that the share of mid-income housing in the overall residential supply is expected to rise to 62% in three years, compared to 22% currently.

This translates into a CAGR of 131% for mid income housing units.

Home Rates May Drop Upto 12%

Last week, at Mumbai’s Grand Hyatt Hotel, leading city-based real estate developers were closeted in an hour-long meeting. The agenda: to discuss ways to counter the slump in home sales which has persisted for almost an year now.

The outcome: The bitter realization that the Indian developer has limited options before him to attract buyers. The builders unanimously agreed to allow customers to have a greater say in price negotiations — in other words, they decided to cut home prices.

The developers agreed to give a 10-12% reduction for all consumers, albeit couched in schemes such as ‘bearing’ 2-3% of the interest cost, flexible rates for parking and floor rise pricing. “Don’t be rigid on rates; allow the customer to have his say,” was how one participant who is involved in large housing projects in suburban Mumbai, described the conclusion of the meeting.

The developers’ move also assumes significance as a sharp correction in Mumbai home prices would have a ripple effect across the country. Though residential prices are down 20-25% across India, developers in Mumbai have been unwilling to cut prices, citing a huge demand-supply mismatch.

“This quarter was crucial for us,” said a developer who was present at the meeting. “Demand is still robust as far as residential markets are concerned. What we want is to convert the demand into actual deals. If pricing is hampering sales, we are willing to compromise on that,” he added.

Till now, developers were not ready to accept that demand at high prices would weaken. In fact, most developers were currently holding out and did not offer discounts. They could afford to do so, since they were sitting on huge profits accumulated over the past two years of bull run in realty market.

“But the same developers have realized that demand is unlikely now at the prices seen two years back,” said an analyst with Kotak Securities. “We believe demand can only come back if prices correct.”

Some of the developers who were learnt to have attended the Grand Hyatt meeting were Akruti City, Nirmal Lifestyles, Kanakia Builders, Evershine Builders, Rahejas and RNA.

In Delhi, several developers in the National Capital Region have started offering deeper cash discounts and have increased their marketing efforts. Developers are banking on more ‘genuinely-priced’ products, a good cash discount and more advertising to lure buyers. “We didn’t offer any discount during the festive season last year,” said Raheja Developers chairman Navin Raheja. “But this time, everyone is giving it, since market conditions have changed.”

Raheja Developers is offering an outright discount of Rs 200 per square feet or around 6-7% at its soon-to-be-launched high-end project in sector 109 in Gurgaon. Aiming to lure government employees — beneficiaries of the Sixth Pay Commission recommendations — the developer is offering them an additional discount of Rs 100/sq ft, which is over and above the Rs 200 discount offered to all.

This quarter, developers are caught in a pincer-grip of falling sales, dropping rentals and tight liquidity conditions. Developers said they have also asked industry associations and their officials to help bring back investors and buyers’ confidence in the real estate sector. The overall quantum of sales dropped over 60% in the past quarter due to rising interest rates and additional pressure on household budgets.

Developers across the country have now pegged hopes on the upcoming festive season, offering to pay stamp duty and gifts like a car or free home furnishing.

For instance, Mumbai-based Sunil Mantri Realty has waived stamp duty (5% of property value) for buyers at its Mantri Park project in Goregaon (East) in Mumbai and is also offering 5% discounts at its Bangalore and Gwalior projects.

The Citigroup-backed Golden Gate Properties has offered a car for every customer booking a flat at the Golden Palms project on Hennur-Banaswadi road, some 30 minutes from Bangalore’s new international airport. “We are offering a Skoda Fabia to every customer who books a flat at the Palms,” said Sanjay Raj, executive director at Golden Gate Properties. “For those who already own a car, we are providing a discount equivalent to the value of the car,” he added. Golden Palms comprises 450 apartments measuring 1,400-1,800 sq ft and is priced at Rs 2,600 per sq ft.

However, industry observers say that cutting prices alone may not bring in buyers, as sales have touched an all-time low and steep interest rates have put off many prospective buyers. “Home sales are at an all-time low. Pricing is a crucial factor, but it has to be supported by required policy support to revive the market,” said Pranay Vakil, chairman of real estate consultancy Knight Frank India.

After RBI raised interest rates, commercial banks have increased lending rates by 50-100 basis points. This has led to a sharp drop in pre-sales for property developers, their main source of project funding. Developers have also been hit by the falling stock markets, increased lending rates and bar on external borrowings which have limited their cash flows and execution capabilities.

Parsvnath Expects Rs 2.10 Billion Revenue From Haryana Project

Real-estate firm Parsvnath Developers Ltd said on 30 september that it expects revenue of 2.10 billion rupees from a new housing project it launched at Dharuhera in the northern state of Haryana.

The project, spread over thirteen acres, is likely to be completed by 2011, the company said in a statement.

Earlier in the day, Parsvnath said it expects revenue of 400 million rupees from its just-launched housing project in Pune.