Monthly Archives: July 2009

Price correction supports realty

Photo by wilhei55
The real estate market is encouraged by price correction and low interest rates after few months of slump. The improvement is visible in residential sector, especially in low to mid-end housing segment. Level of enquiries went up and transaction velocity increased marginally as compared to first quarter of this yeaer. Most developers deferred plans for launching any new projects, the focus being on deploying the scarce resources on completing projects in hand.

Cheaper loan for hotels

Royal London Hospital
Photo by suburbanslice
As per the draft guideline released by RBI, bank loans to entrepreneurs for acquiring real estate for their business would not be classified as commercial real estate (CRE) exposure. Currently, bank loans to companies for acquiring real estate for hotels and hospitality are treated as CRE exposure and attract a risk weight of 100 percent. Depending on the risk weight, banks are required to set aside capital for loans. Under RBI norms, banks’ capital-adequacy ratio, a measure of financial strength expressed as the ratio of capital to risk-weighted assets, is 9 percent. This means that for loans carrying 100 percent risk weight, banks need to set aside Rs9 worth of capital for every hundred rupees they lend. If these projects are not treated as CRE, their risk weights would vary according to the ratings of the borrower or the ratings of the project for which the loan would be given.
Param Desai, a research analyst with Mumbai-based brokerage Angel Broking Ltd, said, “These guidelines, if implemented, will make it easier for borrowers to get construction finance for a larger variety of projects. Construction finance has been a major concern for most developers during the downturn because most banks are cagey to lend to projects, unless they have a definite action plan and deadline to finish.”

Realty revival lifts home retail

Roofline / Streetsville, Ontario
Better times are gradually returning to the home retail segment, among the categories worst affected by the slowdown. The segment, which saw a decline of 15-25% in sales, is witnessing a spate of revival, hand-in-hand with the returning stability in housing market.

Leading players in this segment like the Future Group, Godrej Interio, Welspun Retail and HomeStop are hopeful of the trend gaining  further momentum, with the festive season right around the corner.

Confirming the trend, Retailers Association of India CEO Kumar Rajagopalan said, “With the housing sector slump, home sections of retailers found themselves in big trouble. But now that there are signs of a recovery in the housing market, home retail is also picking up. Both hard and soft furnishings have shown an increase in sales of anything between 10-15 percent over the past quarter. This segment had seen sales decline by 20 percent.”

Godrej & Boyce, which runs 50-odd ‘Interio’ furniture stores, has been witnessing a revival from May. Mr. Subodh Mehta, senior GM (home business), Godrej Interio said, “While some home retailers may have been downtrading by giving massive discounts, we restricted ourselves to normal promotion. Even though sales are yet to reach the 30-35 percent growth rate as in the pre-slowdown days, it is still growing at a double-digit rate”.

HomeStop, the home concept format owned by Shopper’s Stop, expects sales to grow from September-October onwards. Shopper’s Stop executive director & CEO Govind Shrikhande said, “Though we did not experience a steep decline in sales, our expectations are that sales will again reach its peak in the last quarter”.

Future Group, one of the largest players in home retail with multiple stores like Home Town, Collection-I and Furniture Bazaar, has been reporting a negative same store growth in this segment since the slowdown hit India. The group reported a 10% drop in same store sales till March, slumping further to 28% in April and May, and 34% in June. Group officials feel the fall in same store sales has bottomed out last month.

Commercial realty back to its position

NYC - Midtown - 1 Penn Plaza
After long time of stagnation in the commercial real estate market in Mumbai, there is finally some revival. First off the block was the 10.3-acre Finlay Mill property for which there have been bids from Lodha Developers and Indiabulls Real Estate. On July 31, NTC will put the 16-acre Kohinoor Mill-1 property also on the block, for which the base price will be Rs 1,200 crore. Both these properties are in central Mumbai.
In the case of Finlay Mill property, the last day for the submission of bids was Thursday. Lodha Developers and Indiabulls Real Estate have put in their bids. The base price for this property, which has a buildable area of 4.20 lakh square feet, is Rs 708 crore with Lodha’s bid at Rs 657.9 crore and Indiabulls’ at Rs 520 crore. The property was put on block twice earlier.
It is learnt that property consultant Jones Lang LaSalle Meghraj has been mandated for the sale of the Kohinoor Mill-1 land. This is the first time that this land is being put on the block. The Kohinoor Mill-1 property is different from that of Kohinoor Mill-3, which was bought by Manohar Joshi and Raj Thackeray for Rs 421 crore in 2005.

DLF to sell more land and wind power business

Delhi Properties - Real Estate India - Unitech Grande
Debt-ridden realty player DLF said that it will sell more land and wind power business this financial year to raise Rs 1,900 crore and lowered the sales figure for flats.

With a total debt of over fourteen thousand crore rupees to start the year 2009-10, DLF had been doing everything conceivable, including sale of promoters’ equity in the company as also different projects. DLF has sold 2500 flats during 3 months ending June.

Rival Unitech on the other hand has been able to bring down its debt to below Rs 5,000 crore and today it is believed to have some cash surplus.

Both DLF and Unitech shares appreciated by 11.44% and 8.62% to close the day at Rs 330.10 and Rs 70.60 a share respectively.

As part of its management of debt, DLF sold Rs 1,000 crore worth of land during April-June period and is planning to garner 900 crore rupees to part-repay the debt by exiting its wind power business.

Banks suggest no increase in real estate price

Banks in India are suggesting property developers to stop increasing real estate prices as it could stop the market recovery. Developers have been taking advantage of rise in sale but its side effect could put off the buyers.

S. Sridhar, Chairman and Managing Director of the Central Bank of India described the move as short sighted and that the developers are naïve if they think that by increasing prices, they would stimulate demand. Further he said, “It is difficult to generalise but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand”. He added, “If the real estate players revise the prices upwards, it will stall the recovery process. Demand for housing loans has picked up among the banks but the situation is still fragile”.

Central Government to bring in law to regulate Delhi real estate

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The Central Government on Thursday said that it is considering a model legislation on regulating real estate in Delhi.
In reply to a written question in the Rajya Sabha, Minister of State for Urban Development Saugata Roy said that ‘the Delhi Real Estate Management (Regulation and Control) Bill’ can also serve as a reference for other states.
The minister ruled out the constitution of a regulator for real estate sector for the entire country, saying matters pertaining to local governance and land falls in the list of state subject as per the Constitution.

Delhi is the most expensive city

India Gate
India Real Estate Link
The national capital has become the most expensive city in the country for expatriates. Comparing with other metro cities, New Delhi is ahead of Mumbai, Bangalore and Chennai.
However, all Indian cities have witnessed a decline in their rankings in terms of cost of living this year with New Delhi falling to the 65th position from 55th place in last year’s survey, in the global list of 143 cities.
Further, Bangalore has dropped to 133rd rank from the 118th rank in last year’s survey, while Chennai is the cheapest Indian city at 135th rank falling from 117th position last year.
Mercer’s survey covers 143 cities across six continents and measures the comparative cost of over 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. It is a comprehensive cost of living survey and is used to help multinational companies and governments determine cost of living allowances for their expatriate employees.
Overall, a significant reshuffle of cities can be observed in this year’s ranking, mainly due to considerable currency fluctuations.

Hollow budget for real estate

Lots of expectations were to be met. Lots of requirements were to be fulfilled. Industries were waiting for a rescue hand from Mr. FM to fight against recession. Nobody is happy with this average kind of budget. I was watching pre-budget views and I was hoping much more than what is presented in budget.
If we talk about real estate sector, there is no major change. Government made it easy to build multi storey buildings in rural areas. The fact behind is, will any builder invest his money to make a multi storey building in rural area? My answer is simply ‘No’ and I hope most of the builders think the same. If we talk about the raw material used in this industry, there is no deduction in rate. This means, the struggle of a middle class person, to build a home, has increased.
No solid steps are taken to increase foreign investments. No attractive plans for NRIs. This simply means that Government has no concern for foreign investment.

DLF to sell stake in JV to raise fund

DLF is looking to raise Rs 300-500 crore by selling its stake in a JV with Mumbai-based realtor Akruti City for a commercial project in Andheri.

DLF has already scrapped a 5 star hotel project in Prabhadevi in Mumbai with Akruti. DLF was the majority stakeholder in the project. DLF has been looking to monetise its non-core assets to raise funds over the next one year to pay off its debt.

The company had net debt of Rs 13,958 crore, of which Rs 3,591 crore is due for repayment this fiscal. The developer has also put its wind power business on the block and is expecting to collect about Rs 900 crore from it. DLF said it would reduce its outstanding debt by half in this financial year by raising about Rs 5,500 crore through assets sales, plot sales and cash flow from the business.

“Affordable house” or a compromise?

Finding a home in metro cities is not cup of tea for a middle class family. If we talk about affordable house projects, either such houses are in far fringe areas or a result of poor design, cheap production material and lack of space. This simply means that buyers have to do some compromise with their expectations. Many real estate companies are launching houses at 10-20 lakhs. But most of them are not up to mark. If we talk about tier II and tier III cities, those who are working in metro cities cannot move towards small towns for a house.
As per my opinion, there should be some design standards for builders and if they offer affordable house, cost cutting must not affect the design and production material issues.