Monthly Archives: December 2008

Real estate stocks do well

Shares of real estate companies were up, but gave back a portion of early gains, as investors booked profits in choppy trades. Analysts said the spurts of strength in realty stocks in recent days can be attributed to hopes of further cuts in interest rates.

“Most of the strength in selective stocks is due to hopes of interest rates going down. Since last few days, we have witnessed a series of rate cuts by banks due to pressure from the government. At this point of time, concern about lending to real estate sector is still weighing on majority of institutional investors,” says a real estate analyst.

At 12:30 PM, BSE Realty was at 2,237.35 points, up 1.4% from the previous close, but off the day’s high of 2,291.21.HDIL, Indiabulls, Unitech and Parsvanath, which were up over 2%, were leading the pack of realty gainers.

Investors are hoping that the cut in interest rates would spur demand for property, but analysts said that is not enough. It is believed that realty players should cut prices significantly to revive demand from prospective clients, which will also ease the burden of these companies.

Expectations of a sustained strength in property prices had led to builders buying lands at exorbitant prices through borrowed money. But, with sales drying up following the sharp rise in interest rates, these highly-leveraged companies are under great deal of pressure.

Housing ministry’s offer for small home buyers

The housing ministry has offered a veritable bonanza for first-time house buyers in the low and middle income groups, suggesting tax breaks, cap on prices and freeze on interest rates. It has also suggested a one-time debt-restructuring for realtors.

Keeping the middle class vote bank in view, the government wants to benefit the urban lower income groups and also open up supply of low and middle income housing.

The housing ministry, headed by Kumari Selja, has recommended to the PMO that the government should encourage dwelling units between 1,000-1,200 square feet that cost a maximum of Rs 1,000 per square feet.

For those wishing to take a housing loan, the ministry has proposed an additional deduction of Rs 50,000 under section 80C of the IT Act. The section already provides for deduction up to Rs 100,000 for investments made in specific areas including housing loan. The relief would be applicable only on loans taken for the first house. If approved, the benefit will be available for the next 2 fiscal years.

The ministry has also recommended that for loans up to Rs 7.5 lakh taken for houses of 400-1,000 square feet, interest rate be maintained at 8%. The government may ask the National Housing Bank and HUDCO for a refinance window to ensure the low rate if banks do not lower their rates, the ministry suggested.

For realtors and builders, the ministry has proposed one-time debt-restructuring, a demand that the real estate sector has been making since the business hit a demand trough. The government will consider asking RBI to provide a restructured debt scheme for a period of one year.

This has already been done for the manufacturing sector, and could see funds flowing smoothly for ongoing projects.

In an effort to bridge the housing gap for lower and middle income groups, the ministry suggested that income tax deduction under section 80 (1) B of the IT Act, which was available in respect of exempting 100% profit from building residential projects for LIG/MIG houses, may be restored for two years.

However, the ministry wants a rider that projects to be built under the concession should not have houses above a carpet area of 1,500 square feet and atleast 15% are below 260 square feet.

“This would encourage construction for the targeted beneficiaries by those builders who have land already available,” said an official.

The package could also grant permission for 100% FDI under automatic route for integrated township projects up to 5 acres in which at least 15% houses are for EWS and 10% for LIG/MIG ranging from 400 square feet to 1000 square feet carpet area.

Investment in Asian real estate sector to benefit India

India may get benefited from the increased fund allocation to Asian real estate sector by global investors. Even as total amount raised by private equity real estate funds between January and November 2008 fell by a third to $57 billion from a year ago, the allocation towards Asian markets increased to 28% from 19%. As a result, the funds available for investment in Asia has increased marginally from $15.9 billion last year to $16.2 billion.

But dealmakers say this need not necessarily mean immediate deployment of such funds in India as the property prices have still not corrected enough and demand remains weak.

As per the data collected by New York-based Private Equity Real Estate magazine, Asia and rest of the world (28%) edged ahead of Americas (25%), Global (24%) and Europe (23%) in terms of geographical allocation by investors for all new real estate funds closed in 2008.

India and China are top two contenders for Asia-focused funds, says Cushman & Wakefield director (capital markets) Sandeep Singh. “Funds with short-term horizon may not come to India as downside risks remain. Property prices have fallen, but not enough. Besides, demand is still weak,” he said.

After having seen a five year bull run ending in 2007, the Indian real estate sector is now faced with a tough market with sales flagging and debt unavailable.

Several developers have been seeking private equity funds, but deals have been few and far between over the last 6 months. “There are a number of foreign and domestic funds sitting on cash, but no one is willing to invest immediately. All funds have slipped into wait and watch mode as global economic situation worsens,” says DTZ investment advisory director Ambar Maheshwari.

PE players are seeking higher returns and are willing to wait for valuations to come down. Some of them are even exploring distressed assets.

Lately, fund raising has become a big challenge for private equity players as limited partners or actual investors seek more time following the global economic turmoil which has eroded their wealth and made them cautious of investing. This has delayed the final closure of some major funds, including twelve billion dollar Morgan Stanley Real Estate.

Much of the funds this year were closed by August, after which the global economic scenario deteriorated sharply. Only two funds totaling $533 million were closed in September, while just one $2.7 billion Merrill Lynch Asia fund was closed in October.

Government plans another package for real estate

Government is planning another round of home loan package to make purchase of a house within the reach of middle class. PSB announced a home loan rate-cuts for homebuyers, a week ago. But, it was found that the package was far from expectations of both the public and developers. In that package, home loan up to five lakh rupees will be available on an interest rate of 8.5%. Loan beyond five lakh rupees and up to twenty lakh rupees will be available from PSB at 9.25%.
But, there is least possibility of any house available for up to twenty-five lakh rupees in big cities. Builders and developers feel the scheme would not fetch the desired result in fighting the slowdown.
The country is facing one of the worst industrial slowdowns in the last fifteen years. It is felt that the economy might get affected badly. To avoid such a situation, government is planning to adopt concerted strategies to arrest the slowdown. The government feels that it can play a vital role in turning around the sentiment.
It is felt that making funds affordable for end users could play an important role. Therefore, the government is planning to increase the present limit of twenty lakh rupees for the concessional rate to thirty lakh rupees. This will meet the requirements of a huge number of buyers in the cities of NCR, in Mumbai, Bangalore, Pune, Chennai and Hyderabad. If the limit is raised to thirty lakh rupees, one can buy a house up to thirty-five lakh rupees with the cheap loan.
Besides, it is learnt the government is also planning to increase the tax rebate on payment of interest on home loan. At present, an interest amount up to Rs 1.50 lakh paid on the home loan taken to buy a house for self-use is deducted from the taxable income.
The limit is likely to be increased to two lakh rupees. This will help reduce the cost of fund further. At present, if one takes a loan of thirty lakh rupees at the concessional rate of 9.25%, the interest payment in the first year comes to around Rs 2,77,500. Out of this, you can take a tax benefit on Rs 1.50 lakh only, which will be deducted from your income, enabling you to save a tax outgo of Rs 45,000. Which means, net interest one pays in the first year is only Rs 2,32,500. This brings down net interest rate on loan to 7.75% from 9.25%.

Housing trust members threaten to go on hunger strike

MUMBAI: “We do not want charity. We will construct our own houses”. Repeating this refrain, crusaders of middle income housing are pushing their demand of implementing the government rule (GR) of 1983 that promises allotment of plots for construction of affordable group housing. According to the GR, the state enables housing societies to construct homes as per their requirements and spending capacity by providing them land at low rates. Members of the Brihan mumbai Nivara Abhiyan (BNA) have threatened to go on a hunger strike from Wednesday at Azad Maidan if this rule is not implemented at the earliest.

According to activists of the cause, over 3,900 applications of housing societies, each having 25-30 members, are pending to avail of the scheme for the past eighteen months. “Successive governments in Maharashtra have failed to implement the GR that was issued in 1999. After these housing societies were formed two years ago to avail of the scheme, we wrote to then chief minister Vilasrao Deshmukh and there were regular follow-ups. But there was no response,” said Vinayak Joshi, trustee of BNA.

The agitation that started in 1981 by Nagari Nivara Parishad (NNP) ended in 1992 when possession of 62 acres of land in Dindoshi, Goregaon (East) was given to it. NNP had resorted to a week-long Gandhian hunger strike in 1987 and then president of India, Gyani Zail Singh intervened and accepted the demand of NNP. After a wait of five years, NNP got possession of the land and constructed 6,152 buildings subsequently.

Now, people say that the same should be extended to the applications that are pending. Each member of the housing society has even deposited Rs 10,000 in the bank so that the sum can be used to construct homes when they get the go-ahead. According to them, the financial meltdown that has led to the real estate slump has failed to bring cheer to those seeking affordable housing. “Due to limited supply of small flats and holding capacity of the builders, middle and low income house buyers continue to find the prevailing prices beyond their reach,” alleged Joshi.

This, coupled with the repeal of the Urban Land Ceiling Act (ULCA) adds to the problem. “While repealing the act, the state had claimed that there would be an increase in affordable housing by unlocking Mumbai’s urban land bank. But this is not true,” said Mrinal Gore, former MLA and trustee of BNA. “Those who can afford to pay an honest price for a flat and pay all taxes are being shunted out of the city,” she added.

Unitech to raise up to Rs 5000 crore via issue of securities

Real estate company Unitech Ltd said on Monday that it plans to raise up to Rs 5,000 crore through issue of securities. The company said this is an “enabling resolution”, and follows the expiry of a similar resolution earlier. But it did not give out details of fund raising.
Unitech Ltd shares ended nearly 3.4% higher on BSE, at Rs 45.75 on Monday.
The company, in a notice to BSE, said besides the raising of additional long-term funds, the Board of Directors had also given the nod to increase authorized share capital of the company from Rs 500 crore to Rs 1,000 crore. Unitech has convened an Extraordinary General Meeting (EGM) on January 19, 2009, to seek the shareholders’ approval on the proposals.
“It is an enabling resolution that we would like to keep at any point so whenever we need, we can raise funds. At this point, there are no specific plans and the markets too are not favorable, but things could improve over the next one year,” a senior company official said.
It may be recalled that Unitech Ltd is hoping to mobilize up to Rs 4,000 crore through the sale of some assets and equity in order to repay part of its Rs 8,400 crore debt by March, 2009.
This would be achieved through transfer of about Rs 1,200 crore loans to Unitech Wireless; raising about Rs 1,200-1,500 crore through a sale of hotels and office properties; and Rs 1,000 crore from private equity funding into residential projects.

Investments in realty attractive option for NRIs

At a time when the global financial crisis is impacting the real estate sector across the globe, NRIs are invariably in a dilemma about where to put their money in real estate.

The local accommodation laws in countries like Dubai have compelled thousands of expatriate Indians to send their families back home due to soaring housing costs.

This is why it makes sense for expatriate Indians abroad to invest in Indian real estate to meet any contingencies. Barring Dubai, West Asia does not encourage expatriate investments in housing.

Anyway, not all NRIs can afford to invest in local housing. There are different kinds of NRI investors looking for investments in real estate back home.

What is ideal for one group may or may not fit in to the investment category for others. However, a cursory glance at the options will enable them to take a pragmatic approach to the investment exercise.

The government regulations prohibit investments in categories like agricultural land, farmland/farmhouse and plantation properties. Those who have inherited such property from relatives can retain them.

But to dispose them off, one needs to follow certain ground rules laid down by the authorities. For NRI end users who are planning to eventually return home, investments in residential property would be the best option.

As NRIs have been accustomed to living in places with good infrastructure facilities, investments in housing should be in cities which have educational, health and reemployment opportunities.

NRIs could plan well to invest in greenfield projects which will reduce upfront payment liability. Home loans are available and banks have branched out to several countries to extend facilities to NRIs.

Premium charges for small houses reduced

The Pune Municipal Corporation has announced 50% reduction in premium charges for small housing units.

Municipal commissioner Mr. Pravinsinh Pardeshi said that to promote low cost housing, we have decided to offer 50% reduction in premium charges for housing units with an area of less than 50 square meter. For units with area between fifty to eighty square meter, the concession would be around 25%. The reduction would be applicable from next month. Further he added that there are no changes in development charges.

These days, the premium charges range from 100-200 rupees per square feet, depending on the locality.

The municipal corporation has been directly and indirectly bearing the brunt of recession, Pardeshi said. “The civic body gets an annual income of 250 crore rupees from development charges and premium charges. But, for the last few months, very less construction proposals are coming for permission.” He added that the average income from development charges has dropped from twenty crore rupees per month to ten crore rupees per month.

Real estate business is suffering from recession and there is no demand for big housing units. Many projects, which are already started, are struggling to attract customers. There are no new proposals. We hope that the concession in premium charges will give a boost to construction of small housing units for customers who couldn’t afford big houses,” Pardeshi said.

Mr. Pardeshi further said that the developers who have already submitted plans could alter their proposals and propose small housing projects to get benefit of the concessions.

Hotels focus on value play to beat slowdown

Hotel room rates have dropped by 25% this month following an equally sharp fall of 35% in occupancies across all the premium business hotels. To salvage business volumes, premium hotels like Hyatt, Leela, Marriott, ITC, Four Seasons, the Lalit (previously InterContinental- the Grand) are sharpening focus on segments unaffected by the tough business environment.

Traditionally, hotels compensate low-business volumes in December by leisure travel. However, the economic slowdown and the terrorist attack in Mumbai have played havoc to both business and leisure travel this year.

“We have begun focusing on ‘guaranteed’ business segments like cabin crew, extended long-stay programmes and companies in the FMCG and oil rig space to tide over the ongoing economic slowdown,” said Anurag Bhatnagar, GM of Le Royal Meridien. Hotels have started introducing special packages and value rates for rooms for the coming holiday season to boost business volumes. Hotels expect the business travel to pick up from the first week of January, sources said.

Most premium hotels raised room rates in October this year by 15-20% as October-January is usually a peak season for the sector. However, these hotels are unable to do business at the contracted room rates owing to the global economic slowdown.

Customers, who earlier contracted rates for a particular room, are downgrading within the premium business hotel category, the sources said. However, resort destinations like Goa, Kerala are faring better as compared to premium business hotels,” said Vivek Nair, VC and MD of Mumbai-based Hotel Leela Venture.

Hospitality sector is now seeking a relief package in the wake of the slowdown and massive room cancellations. Also, the industry is currently threatened with a large number of non-performing assets (NPA), as many hotels paid high prices for real estate to meet the shortage of 1.5 lakh rooms for the 2010 Commonwealth Games.

Hotels also seek a 5% reduction in luxury tax rate to give a fillip to business, the sources said. Currently, the luxury tax is being charged by various states ranging from 5% to 15%.

Also in some states, luxury tax is charged on the services provided by the hotels like spa treatment, meeting room rentals. Hotels have to follow the practice of charging luxury tax only on the room charges, the sources said.

PropertyWala Crowned As The Best Real Estate Website Of The Year has been voted India’s best real estate website for the year 2008. The Website of the Year awards are the largest annual ‘people’s choice’ website awards and have organized from last four years by MetrixLab, an online market research agency, in association with Neilsen Online. More than 1.5 million Internet users from India participated in this poll. A total of twelve websites were nominated in the real estate section. Complete results of the poll are available at

Although recently launched, has risen above all the real estate websites present in the market and became the most popular real estate web portal. The qualities that make different are its user-friendliness and unique features.

It is the era where people need everything on internet. So it is very much crucial task to maintain the information in the way that it can reach to the people in the way they need. has understood this and developed the site accordingly. A person can view pictures as well as video of property with complete details. A property is described with the help of pictures, floor plans, video, map, nearby landmarks, and a detailed description.

Due to its large number of the features, their appropriate execution and the ease of use, is a perfect online destination for everyone interested in Indian real estate. Sellers interested in advertising their properties for sale or rent can logon to for a simple 2 minute registration (optional for buyers).

About offers the most broad and user friendly property advertising services free of charge for buyers and sellers in India and overseas. has been developed over a period of two years by its parent company Efextra eSolutions Pvt Ltd (an IT company) after an extensive exposure working with international real estate portals. The site has been developed from the ground up with ease of use and web standards in mind. Within a period of 8 months of its launch, has become top real estate websites in terms of traffic and search rankings.

About the organizer
MetrixLab is a global Online Market Research company that specializes in the areas of New Product Development, Brand Communication, E-Business Performance and Satisfaction Research. Over the past 9 years MetrixLab has emerged to be one of Europe’s leading online market research companies with offices in Rotterdam, London, Paris, Hamburg and Madrid.

Investor angst takes its toll on Satyam

Investor angst takes its toll on Satyam; shares down 30% shares of Satyam Computer were at the receiving end of investors’ angst over a planned deal to enter the real estate business.

Satyam opened down 16.1% and extended losses to 30% as investors reacted negatively to a plan to pay $1.6 billion for control of a related construction and a real estate firm. Satyam abandoned the deal after its shares fell 55% in New York.

“Satyam’s decision to call off the Maytas deal is welcome. The stock, however, may still get bruised as in the conference call to justify their acquisition of Maytas, they had painted a gloomy picture of their IT prospects. The FIIs and the non-management shareholders should get together now and buy the 8.5% shareholding of the management and sell that stake to an established player, either Indian or foreign,” said VK Sharma of Anagram Stock Broking.

Tuesday’s unusual turn of events began after the close of India’s stock markets when Satyam said that it planned to enter the depressed construction industry by buying all of privately held Maytas Properties for $1.3 billion and 51% of builder Maytas Infra for $300 million.

Satyam founder and Chairman B. Ramalinga Raju and other insiders hold 36%in Maytas Infra and 35 percent in Maytas Properties. percent of builder Maytas Infra for $300 million. The two are builders that work on infrastructure projects including highways, ports and water treatment systems. Satyam helps develop software for other businesses.

Analysts questioned the motives of Satyam’s top executives, saying there was a potential conflict of interest because they hold stakes in both companies. They also said the acquisitions made little sense at a time when technology outsourcing companies are preserving cash to help weather the global economic slowdown.

The company’s stock recovered some of its losses after Satyam withdrew the offers, climbing 50% in after-hours US trading. But analysts said that Satyam may not be able to win back the confidence of investors.

Rate cut may not prop up metro realty

The move to reduce interest rates for home loans up to Rs 20 lakh by public sector banks may induce some buying in the property market and prompt developers to build more low-cost homes. However, according to developers, this may not be enough to provide a major boost to the residential property market immediately. Some property developers say the rate cut will not help their existing projects in metro cities as current prices are way above the loan limit set by banks.

“The rate cuts will revive demand, which had cooled off in the past couple of months,” DLF CFO Ramesh Sanka says. He says some of DLF’s projects in New Gurgaon and Chennai, which offer homes for about Rs 28 lakh, will benefit. Prompted by a huge demand in the Rs 20-25 lakh category and incentives extended by banks, India’s largest listed developer plans to have ‘many’ launches in the coming quarters in this category.

Smaller developers, which have been building budget homes, expect more large developers to join them. “Developers are already reducing the size of apartments and offering fewer facilities to bring down the cost of dwelling units,” says Gaursons joint MD Manoj Gaur, who has sold several budget homes in Ghaziabad.

Many developers and analysts feel the impact of rate cut will be limited. “The rate cut is not going to help us. At present, we are not building houses priced close to Rs 20 lakh. And, who has the money to purchase cheaper land now to start a new project for cheaper homes?” pointed out Omaxe chairman Rohtas Goel.

Rupesh Sankhe, a real estate analyst with brokerage firm Centrum, says: “A home buying decision depends on prices, interest rate and the sentiment. Prices still need to come down by another 15-20% even in Tier II and Tier III cities to increase the affordability.” Home buyers in smaller cities also have a lower income level and, therefore, would buy only when prices come down further, he adds.

Anshuman Magazine, property consultancy firm CB Richard Ellis’ South Asia MD, feels the sentiment is the most important factor at present. “There is a crisis of confidence right now. If people are afraid of losing jobs, they are unlikely to buy homes.”

The average home loan size in India is estimated at Rs 7.5 lakh. So, the rate cuts for loans up to Rs 20 lakh can potentially have tremendous impact. However, developers and experts beg to differ. Property prices have risen by three fol d in most markets and an average home costs upwards of Rs 50 lakh in Delhi or Mumbai and Rs 25-30 lakh in tier II cities. Therefore, the government’s move is aimed at addressing the need of home buyers mainly in smaller cities besides some metropolitan suburbs.

Home loan interest cut won’t help flat buyers of mumbai

Home buyers looking for flats on the outer fringes of Mumbai and other cities like Nashik and Pune will benefit the most from the reduction in the interest rates by public sector banks on Monday.

Public sector banks announced that home loans up to Rs 5 lakh would be given at a maximum interest rate of 8.5%, while those between Rs 5 lakh and Rs 20 lakh would be offered at 9.25%.

“The Mumbai market will not be affected by this decision as no flat in the city is below Rs 20 lakh. For larger metros, the limit should have been set at Rs 50 lakh,” said Boman Irani, chairman of the Rustomjee Group, which is setting up middle-income housing projects in Virar and Thane.

According to him, more than 50% loans given out by banks are for homes less than Rs 20 lakh. “This decision is for the entire country. But it would have given a bigger boost if housing projects in the metros had benefited,” he added.

Said Anshuman Magazine, chairman & managing director, CB Richard Ellis, South Asia: “This shows some effort by the government to support the housing market. Although this is expected to have some impact on the market, it won’t be a significant one as the overall confidence level of consumers to invest has to improve.”

However, he added that this reduction won’t have a significant impact on the real estate market. “It would have made a larger impact if the limit had been increased to Rs 40 lakh. Besides, confidence levels are lacking and consumers are waiting for prices to correct. The overall sentiment is down,” he added.

Mumbai-based developer Pujit Agarwal said over the past four years when the market was booming, most developers had stopped catering to the lower income group and were only concentrating on high value products. “The interest cut will lead to a flurry of developers catering to this segment now. Developers are already going back to the drawing board to make smaller flats.”

Chairman of Maharashtra Chamber of Housing Industry (MCHI) Pravin Doshi said EMI were becoming unaffordable because of high interest rates and this decision will help ease the burden. “It will benefit consumers in Dahisar, Mira Road and Virar. But in Mumbai it will not make any difference,” he said.

Pravin Banavalikar, CEO of Tanaji Malusare City, which is setting up a low-cost housing project in Karjat, said the reduced interest rates have come as a big boost. “We are constructing flats costing between Rs 2 lakh and Rs 7.5 lakh. This comes as a big relief for clients in the lower income group,” he said.

Market awaits policy cues to tide over slowdown

With shrinking industrial production (IIP) numbers for November intensifying fears of a sharper economic slowdown in India, investors are awaiting suitable policy responses. There is an anticipation of second tranche of fiscal sops from the government and additional interest rate cuts by the central bank.

In addition to domestic triggers, investors will keep a close watch on the extent of rate cuts in the US, comments on the interest rate outlook by the Federal Reserve on Tuesday and a likely bailout package for the troubled automobile giants. The Fed is expected to cut the benchmark rates by 50 basis points to 0.5% as part of its attempts to revive consumer spending.

Analysts said the US is unlikely to allow auto giants, including General Motors and Ford, to fail as this will have severe implications on an already-sagging economy. The resurgence of the US is considered to be critical for most emerging markets, including India as it consumes roughly 15% of the world’s exports.

Back home, analysts believe that any measures taken by the government and RBI to protect India from a global recession will assuage nervous investor sentiment only temporarily. There will be no immediate impact on India’s weakening economy.

Vital documents for co-operative societies

Co-operative societies should ensure that they get the following documents from the builder, soon after the society is formed.
These should be handed over to the managing committee members by the builder. Ledger abstract of the property i.e. 7/12 abstract Order issued by the competent authority as per the provisions of the Urban Land Ceiling Act Registered Development Agreement executed by the developer with the land owners, Copies of the Power of Attorney given by the owners in favor of the developers along with the copy of the registration receipt, Intimation of disapproval from the Bombay Municipal Corporation Authorities, Occupation Certificate Building Completion Certificate Approved plan of the building Chain of documents through which the vendor acquired the right, title and interest in the property Non-agricultural assessment order Non-agricultural tax paid receipts Title Clearance Certificate from the vendor’s advocate Search report for the last three decades with the search fees paid receipts Original documents of title to the property Architectural and structural drawing of the property .
(This file should include electricity power supply, cables layout, water supply connection , underground tank to overhead pump drawings, sewerage and drainage drawings) File of deposit receipts like electricity, water and deposits to municipal authorities, Name and address of all the contractors with the unpaid bills, advance paid to the contractor appointed by the builder whose contracts have not yet expired with regard to the building being managed by the developer till handing over the charge of the affairs of the building.
File of various contracts as well as for warranty of various goods like water pump, lift contract, Separate files for water bills, property tax bills, electricity bills, telephone bills Co-operative Societies registration files which shall contain various applications, forms, undertakings, bye-laws , details of the bank account
opened in the name of the bank Audited statements of accounts for the amount collected by the builder, List of incomplete works, List of parking stilt as well as open parking allotted by builder.

DLF cuts target by a third due to property slump

DLF Ltd has cut its current fiscal deliverable targets by about 33% following the deterioration in the housing and commercial property market.

The company is now expecting to deliver 15 million square feet against a guidance of 22-24 million square feet at the beginning of this fiscal. It has completed about 7 million square feet as on date.
“We will deliver 15 million square feet of constructed space by the end of this fiscal. We have deferred some projects, which have been already reported by media. In any case, 22 million square feet also included some plots which were not constructed properties, and that was the earlier target,” DLF’s financial chief Ramesh Sanka said.

DLF was earlier planning to launch close to 35-40 million square feet of real estate projects across its different verticals such as residential, commercial and retail in the current fiscal. In the third quarter, DLF launched projects only in the mid-income housing segment. It launched mid-income housing in Bangalore, Kochi and Gurgaon.

The realtor is expected to launch 6-7 million square feet of new projects in the rest of this fiscal including projects such as Sriram Mills in New Delhi, Panchkula, Bangalore, Hyderabad and Indore.

Early this week, DLF said it will build a commercial property on its 25-acre plot, which it bought from Sriram Industries near Delhi’s commercial hub Connaught Place, instead of IT SEZ.

Realty sector not heading for a meltdown

During the real estate boom period in US, there was euphoria all around and excessive, speculative investments being made in real estate, oversupply in the market, lenient lending covenants followed by banks- all of which were common practice in Indian boom period as well. While the former precipitated into a sub prime crisis what is it that prevented what could have been a major Prime crisis in India.

There are certainly some inherent strengths in the Indian system which have prevented the slowdown to convert to a meltdown.

For one, Reserve Bank of India had put in place very strict risk management practices, specially concerning lending to real estate, says Mohammad Asif, Vice President – Anand Rathi Real Estate Fund.

He adds that as opposed to US where there was oversupply of real estate, we in India have shortage of millions of housing units.

“The question is more of affordability. There is a latent demand which would translate into sales if the prices fall to realistic levels. Mortgage institutions in India too have been much more circumspect in providing loans. So, while there surely will be defaults in housing loans due to higher EMIs and banks and housing finance institutions will have higher NPAs, the crisis would not be comparable in scale and in magnitude as we are witnessing in US.”

One of the significant strengths of our situation has been the policy interventions. The RBI saw an excessive expansion in bank credit to contain credit growth, they hiked the repo rates, believing that this should have a sobering effect on demand.

Now with the current hike in interest rates, all developers are forced to build smaller and the policy measure is having its desired impact.

The other significant positive is our banking system which is conservative in determining loan eligibility.
According to Balaji Raghavan, Business Head-Home Loans, ICICI Towers, “The situation in Indian housing loan markets is significantly different from that in the US. We look at the customer’s current income and the loan eligibility is a comfortable multiplier of that. We ensure that after servicing all the obligations, the customer will have enough funds at his / her disposal. Secondly, the average loan to value ratio which we offer is conservative where we expect the customer to invest a significant amount of his own funds in buying the property unlike US where it could be more than 100%. Thirdly, we are still predominantly a vanilla home loan market where we take equal installments from the customer and do not do structuring wherein we project future income and recover small amounts in the early stage of the loan and more later.”

Raghavan says, “These kind of products are fairly prevalent abroad. Fourth, having a traditional banking system which has not followed the route of large scale portfolio securitizations, the originating entity (Home loan Company) of the loan and the holding entity are the same most of the times. This makes us more conscious of the kind of quality of portfolio that we build, hence the default risks become lower.”

IL&FS raises 895 million dollar

Indian private equity firm IL&FS Investment Managers Ltd has raised $895 million for a new realty fund, tapping global investors despite the global financial turmoil and falling property markets.

The firm, one of India’s oldest private equity players, is also pulling money together for the first tranche of an Asia infrastructure fund, which it hopes to close in about a month, Archana Hingorani, chief executive said.

The realty fund, the second IL&FS fund focused on the real estate sector, exceeded its initial target of $750 million. It has commitments from two sovereign wealth funds, U.S pension funds and university endowments, she said.

“The current market situation and capital scarcity provide valuable opportunities,” she said. “We are of course leaning towards residential and office space. We are not bullish on retail at the moment.”

Real estate demand in India has slackened, first due to high interest rates and prices, and then as tightening credit and an economic slowdown hit demand for homes and office space, while a supply glut has hurt retail.

“We expect to deploy the funds over the next 18 months,” Hingorani said, adding the real estate sector may take longer than 18-24 months to emerge from the slowdown.

IL&FS has already made four commitments worth between $25-50 million each in residential and industrial projects, she said.

Only significant price cut will work as a catalyst

Global real estate consultants and experts feel that the only real catalyst that could pep up the NRI spirit during this lean period is a significant price cut as it is the homecoming season for them. The price cut is expected to happen in the next three to four months.

The fact that prices are falling in the Indian real estate market has sparked off a new wave of interest among NRI residential property rates, prompting increased NRI participation in real terms, reported Economic Times. Sanjay Dutt, CEO- Business, Jones Lang LaSalle Meghraj said, “The promise of a correction in key metros and tier II cities has revived NRI interest in the residential market. We expect a number of scheduled transactions to happen by the end of the first quarter of 2009.”

NRIs are also expected to stay away from investing in retail projects and other property segments in unfamiliar and historically over-speculative tier II and tier III cities. The NRI preferences are also undergoing a market sea-change, where they are picking up only existing, and fully-leased assets by reputed developers.

The seeming lackluster approach of the NRIs has also influenced the business plans of some of the developers like Ganesh Housing. This Ahmedabad-based developer who is targeting NRIs with its luxurious villas and apartments in a 500-acre project has delayed the official launch of this project and is also thinking of a rejig.

Bhavin Mehta, the business development head of the firm said, “NRIs have become increasingly cautious while investing in property. They may invest as inflation lowers further next year. But for the time being the earlier euphoria is missing and people want to see the project before investing.”

After the fall-out of the sub-prime crisis in the U.S, NRI investors have woken up to the potential there. However, they are also aware that the meltdown has created attractive opportunities in India, as well. NRIs invest in India for more than just financial reasons- for them; there is a large component of sentimental value attached to owning a home in India. Many NRIs plan to repatriate at some point in time – and this fact is ensuring that India remains a priority investment choice for this segment.

Citigroup downgrades Indian Hotels to ‘hold’ from ‘buy’

Citigroup has downgraded Indian Hotels to ‘hold’ from ‘buy’ rating with a target price of Rs 47. The downgrade is based on lower earnings estimates to take into account the recent terror attacks in Mumbai, which will lead to temporary shutdown of the company’s flagship property in Mumbai and likely lower occupancy of the company’s other properties in India.

Indian Hotels is the largest hotel operator in the country and is looking to enter the budget hotel segment through its new brand ‘Ginger’ . It already operates 11 budget hotels and plans to add 35 such hotels in the next few years with an investment of Rs 400-600 crore. Indian Hotels also plans to foray into the adventure business with wildlife lodges.

The company is looking to expand overseas through acquisitions/management contracts. There is limited upside from current levels, given the unfavorable outlook for the hotel sector in India. The target price is based on 10x (versus 13x earlier) FY10E P/E as Citigroup builds in concerns of slower earnings growth, given expectations of lower occupancy, economic downturn and upcoming room supply.

Banks told to assess builders’ fund needs

India’s troubled realty firms may soon be thrown a lifeline, with the Reserve Bank of India indicating that banks consider providing support to large real estate companies.

Recently, the regulator wrote to select banks telling them to assess the financial support given to builders and to finalize a workable solution, a senior banker said. The realty sector has been one of the worst hit after RBI raised interest rates last year to combat rising inflation.

The tightening of interest rates, coupled with the economic slowdown, has resulted in a slump in home sales and commercial property development. Earlier, realty firms had raised money from the capital markets and through private equity, but since the start of the downturn, their funding sources have been choked.

Many banks have been reluctant to lend to this sector, given the risks involved. However, considering the knock-on impact that a slump in the real estate industry has on allied sectors such as cement and steel, the government is worried.

Early last month, RBI had collected data from various banks relating to their funded and non-funded exposure to various real estate firms. This was followed by letters to lead banks of select real estate companies. Although RBI has not told banks explicitly to provide support to real estate companies, it has asked them to revisit the status of some of the projects.

In a letter to some banks, RBI has said that “the assessment should comprehensively bring out the financial vulnerability of the company and suggest possible ways to address this issue.” Justifying its stance, RBI has said the exercise is aimed at understanding the status of major real estate companies through the medium of lead banks.

RBI has requested banks to assess a company’s financial and discuss with the firm’s officials its current and prospective position. The regulator has said that the assessment should cover the real estate company’s indebtedness, exposure and commitments that are due.

More importantly, RBI has told banks to assess the real estate companies project funding requirements and how they can be met.

A senior banker said that almost all large real estate companies are included in the RBI list. These include DLF, Unitech, Sobha, Omaxe, Parsvnath Developers and Housing Development and Infrastructure among others. This is the first time that the central bank has directly written to banks telling them to assess loans given to specific companies which is facing a liquidity problem.

A number of banks have already began discussions with real estate companies mentioned in the letter by RBI. Lenders are now in the process of submitting the report to the central bank.

According to bankers, RBI’s move follows regular complaints from real estate companies that demand for homes have been sluggish due to the high interest rates charged by banks. Their grouse is that there is resistance among banks to finance the realty sector.

Recently, RBI had taken measures aimed at encouraging banks to disburse loans in this sector at lower rate. RBI reduced standard provisioning for real estate loans from 2% to 0.40%, bringing them on par with other sectors such as cement, steel and pharma.

However, bankers say that even as they have reduced interest rate on home loans in the last fortnight, they have not witnessed any demand. They strongly feel demand for home loans will pick up only after real estate companies slash prices. “A buyer’s first consideration will be the price of the property and then only will he look at interest rates,” a senior banker said.

Indiabulls Real Estate gets HC nod to merge subsidiaries

Indiabulls Real Estate announced that the High Court of Delhi has sanctioned the scheme of amalgamation of Indiabulls Power Services (IPSL) with Sophia Power.

Both IPSL and Sophia Power are subsidiaries of the company. The company further said that it would be allotted equity shares in Sophia on the basis of share exchange ratio as per the approved scheme and in consideration of its existing equity holding in IPSL. Post such allotment, the company would hold 71.43%, FIM would hold 17.86% and LNM India Internet Ventures would hold 10.71% of the equity of Sophia.

Indiabulls Real Estate, engaged in the business of real estate, was separated from Indiabulls Financial Services on Dec. 21, 2006 following the de-merger of the company.

Affordable housing in India is not sub-prime

Thanks to a variety of witty presentations explaining financial woes afflicting the US via e-mails, everyone today is an “expert” on sub-prime;everyone is risk-averse and everyone who is not affluent is seen as “high risk” and deemed by most as “sub-prime.”

But, there are fundamental differences, both in the economic situation and the customer segment that constituted “sub-prime” in the US and the segment that needs affordable housing in India.

In US, the housing market was booming and moving only one way — up. With easy and plenty of cheap money available, lenders were increasingly tempted to offer home loans to persons with poor and tarnished credit histories.

They could charge these customers higher interest rates and fees than they would have been able to charge other consumers. Given the rising prices of property, a tidy profit was in store anyway. The idea became popular and large numbers of loans were made to customers who were likely to have problems servicing regular loans even at low rates. While the sun shone, everyone was happy. Then, things changed.

These customers had no way of meeting their repayments and started defaulting on the loans, which led to foreclosures and home sales. As the numbers snowballed, property prices also gave way. Creatively-packaged debt, that was sold as good credit risk, started turning bad. The crisis had begun.

The Indian scenario is not really comparable. True, we’ve had a real estate boom too; but that boom has been limited to the middle and upper income residential and the commercial property market. If we were to use the standard banking benchmark of home loan entitlements being equal to 3.5 times annual salary, this effectively means that over 80% of the Indian population that earns less than Rs 11,000 per month cannot even dream of owning a house, since there has been no supply at all.

The segment earning between Rs 7,000-Rs 15,000 has never been considered significant for home loan offerings. While the prospects of getting a home loan for the formal sector employee do exist, chances for informal sector employees and the self-employed like drivers, NGO staff, small caterers and others are bleak. This is despite the fact that they have marketable skills, steady jobs/incomes and employer/customer recommendations.

These people have the capability and willingness to make a 20%-25% down payment on houses costing between Rs 4 lakh-5 lakh and are happy and able to take on a 15-year loan obligation, at market rates, in order to realize their dream home. Given that in these small-sized homes, the land cost represents a small percentage of the overall cost, the speculative risk is low, with a very low probability of a drop in these property prices.

Thus, labeling the entire segment as sub-prime would be a misnomer. The higher- and middle-income market has already been tapped and it may now be a good time to take a fresh look at the lower middle class. It could represent a new horizon for growth, diversification and de-risking. Some rough arithmetic suggests that the housing market for the Rs 7,000-Rs 15,000 segment translates into a market size of over Rs 5,00,000 crore!

And then there is the huge multiplier benefit — a strong growth in this market will yield a positive spin-off effect on employment generation (the residential housing sector hires a relatively high percentage of low-skilled daily wage workers as opposed to infrastructure projects) and uptake in consumption of commodities, including cement and steel. Needless to add, lives of millions of Indians and our urban landscapes will be transformed.

The handful of niche players that currently service this customer group, are clearly not enough. The question is will the financial sector rise to the challenge and develop this market quickly enough. The real estate players are already sniffing at the opportunity and a positive signal from banks may be just the trigger they need to take off. And, therefore, ironically, the housing segment which was the cause of all ills in the US may just be the answer to all our problems in India.

Package for boosting economic sectors

The government is working on a fresh package of measures to stimulate various sectors of the economy which are facing a slowdown in the wake of the deepening global financial crisis.

The stimulus package is to be announced by the end of this week which is being prepared on the directions of Prime Minister Manmohan Singh.

Apart from easing of key policy rates by the Reserve Bank of India (RBI) to make cheaper bank credit available to the industry as also provide home and car loans at lower rates of interest to boost the real estate and auto sectors, the package is likely to include specific fiscal incentives to help the exporting community and the labour-intensive industries such as textiles, leather, gems and jewellery and other handicraft products.

The nitty-gritty of the package was discussed here on Tuesday late evening at a meeting of the apex group chaired by the Prime Minister. Among others, the meeting was attended by Planning Commission Deputy Chairman Montek Singh Ahluwalia and Home Minister P. Chidambaram who moved from the Finance Ministry to his new assignment on Monday.

According to an official statement here, the apex group at its meeting discussed in detail the measures required to counter the economic slowdown. “Based on his directions, a package of measures is being prepared which will be finalized and announced by the end of the week,” it said.

Malls under construction, developers pray Delhi-like culture sweeps region too

Even as two recently-opened multiplexes fell considerably short of footfalls, as many as 16 new malls and such complexes will hit the tricity in a year’s time.

Against much anticipation among the residents and the developers at the time of the launch, Uppal’s Centra Mall in the Industrial Area and DT Mall at IT Park Chandigarh, are still looking for takers. Maximum number of visitors here comprise of cine-goers.

“The recession in the real estate industry is definitely going to impact the future developments of malls in the region. At the same time, we are hopeful that a lot of potential is there in the tricity to generate demand for malls,” said Pradeep Rai, brand manager, Paras Build-Call Pvt Ltd, Gurgaon. The company is constructing one of the largest malls in Punjab with a built-up area of 3.5 lakh square feet — Paras Downtown Square at Zirakpur.

While developers claim most shops have been sold and leased out both in the existing as well as under construction sites, experts are keen to know how this huge inventory of commercial space waiting to be launched in the tricity will generate demand. The malls, where space is usually available with a mix of lease, rent and sale, the rate varies from Rs 16,000 to Rs 25,000 per square feet, depending upon the floor and the location.