Indian Property News on 'April, 2007'

Landmark Group to Foray into Indian Hotel Industry

Making rapid strides within short period, the hotel industry in India is the next common hunting ground for major retail players. The trend is to be set by the Dubai-based Landmark Group, planning to invest over Rs. 500 crore in development of 12 budget hotels across India.

The group will operate its hotel chain in India under its value brand – CityMax and may opt for contract management route eventually.  Landmark envisages coming up with 20 hotels across India by 2009.

The group has already begun buying the land in Indian metros and tier –II cities.  Each CityMax hotel will have 150-200 rooms.  The chain is likely to become operational in the next one year. As far as rentals of these hotel rooms are concerned, they will range somewhere between Rs 2,000 to Rs. 4,000.

The hotel chain will not offer standardized room tariffs across country, says Ravi Saxena. MD of CityMax Hotels India. The group also has plans develop 20 family entertainment centres in India by the name of FUN CITY.

At present, Landmark is running 11 Lifestyle Stores and five Lifestyle Home Centres in India. The group will put the future investments in expansion of its retail, hypermarkets, leisure, and hotel businesses in India.

Landmark’s value retail offering — Max — currently runs eight stores in India and is expected to grow to 50 stores over the next four years.

RBI Bring a Time to Rejoice for Property Developers

The RBI’s latest stand on the risk weightage for sub – 20 lakh loans has given a push to a number of real estate stocks which has resulted into a sharp upswing in prices. A number of property developers are seeing a rapid increase in their realty stock prices which are believed to move by 4-9%. The rise is witnessed by Ansals, Mahindra Gesco, Parsvnath, Sobha and DS Kulkarni.

Real estate developers are largely benefited from the reduced risk weightage as it will allow banks to increase their exposure to the sector on the same capital base. The profits will be limited to small towns and cities as there are many home loan borrowers looking for the loan exceeding the amount of Rs 20 lakh. The reduced risk weightage may lead to any significant reduction in the interest costs for the consumer.

The capital adequacy ratio of Indian banks is believed to be around 9%.  This signifies that the bank requires a capital of 9% of Rs.75 for every Rs.100 lent to the housing industry.  However, the scenario is no same now.  The capital requirement has been pull down to Rs 4.5 for the same amount of lending – for sub Rs. 20 lakh loans.

The lower capital adequacy will not result into any significant impact on the borrowing cost. It will just allow the banks to further extend their exposure to retail loans in the housing sector without raising any fresh funds. This helps the real estate developers to emerge as the winners.

No Reduced Risk Weightage Benefits for Home Loan Borrowers

The Reserve Bank of India (RBI) has brought a drop in risk weightage on residential housing loans up to Rs. 20 lakh to 50 per cent from the existing 75 per cent.

Since the bankers seem perplexed regarding passing the benefits of lower risk weightage to consumers, there are no signs of relief for home loan borrower.

However, they can expect to avail some of the benefits if not all, says Vishakha Mulye, group, chief financial officer, ICICI Bank.

He further sheds light on the concept of risk weight saying that it is a significant component of return on equity. Lending rates are a function of cost of funds and return on equity. The reduction in the risk weight will certainly help to save on capital to a great extent, thereby bringing benefits for the entire banking system.

Now, it is banks’ turn to take individual decisions. Of late, the hike on the interest rates was substantial. But the consumers were not passed the entire cost. For that reason, some modifications have been done before taking a final decision, explains Sangeet Shukla, chief general manager, personal banking, State Bank of India.

Then comes the perspective of Union Bank of India which claims of not having exceeded the interest rates on loans up to 20 lakh. This is why; they see no case for any further reduction in rates.

Lehman to Invest $300m in R&D SEZ

One of the leading US based investment banks and global financial services, Lehman Brothers is all set to carve a niche for itself in Indian real estate. The firm will make its first move with a handsome investment of $80 million in a Bangalore based 404 hectare research and development of SEZ Gandhi City.

ILFS Investment Managers, the private equity arm of IL&FS is also drawing plans to co-invest $20 million in the SEZ along with Lehman Brothers.

The project will not be the limit for the company. It is just to set on course to pave the ways for more investments and a step to gain substantial position in Indian property market, say sources.

Lehman Brothers may eventually make investments up to $300 million in the SEZ, in two tranches. However, the company’s plans to utilize the remaining $220 million are not known yet.

Lehman will take the SPV route and both sides are thinking to sign the term sheet in the coming months. Lehman’s exact stake is not known. However, the sources say about the investment banking outfit to acquire the major stake in the SEZ.

Gandhi City will be the first major investment of the firm and will be lead by a team of real estate professionals and entrepreneurs holding vast experience in the industry. It includes the name of Giri Devanur, the founder of Ivega Corporation, ex-Infocisian Manohra Nagaraja, Arjun Valluri – CEO of Intelligroup.

The city also boasts of creating a large pool of job opportunities for around 10,000 people. In addition to attracting big ticket investors looking to locate R&D facilities, the shift will serve as an incubator for new ventures.

Other renowned names who will be forming the management team of the proposed SEZ are Sunil Khairnar, Sunil Khairnar, Shiv Dayal, Bhaskar. G, Sanjeev Rao and Madhura Nath. The SEZ has received a nod from the board of approvals which clears the SEZ applications, says the commerce ministry’s website.

Investor’s Dreams Turn Sour with Falling Property Prices

Property prices are seeing a sharp fall in their prices. With such a prevailing scenario in Indian real estate, private equity players are pondering over whether to strike deals in India or not. A real baffling situation for property enthusiasts.

Prospective investors who were earlier bullish on making large investments are experiencing jitters in a cooling market. They are off-loading stock at as much as 25% lower than what property developers have to offer the buyers. For that reason, it makes sense for any residential property seeker to buy a flat on re-sale value with a sizeable discount.

However, squeezing real estate prices can invite big investments from global private equity players. The next few months may witness more private equity deals being struck in the country’s property market. Builders are bringing the property prices to affordable levels as they are left with no other sources of funds.

Private Equity Funds are also feeling pressure to deploy funds after arising large money from their investors in 2006. Builders see value in roping in a private equity partner. There are great chances of private equity to emerge as the most sought after source of capital offering long term benefits.

Noida Development Authority Nod to Reliance SEZ

With the Centre revising the norms on SEZs, there are no more obstacles for Noida’s biggest information Technology Special Economic Zone (SEZ) and a multi-product SEZ of the Reliance Group that is planned to come up along the Noida-Greater Noida Expressway.

The land has been allotted to nine IT companies and the Reliance Group for development of the SEZ Project. With these allotments falling under the legal purview of the Centre’s recently revised policy, the SEZs will be registered soon.

Noida Development Authority has earned a whopping amount of Rs. 90 crore in the last financial year from the SEZs. The IT SEZ alone is expected to provide job seekers with a large pool of active job opportunities.

The new SEZ policy framed by the Centre has put a limit on maximum land allotment for the development of SEZs at 5,000 acres. Noida Development Authority claims to have complied with all the rules regarding the maximum allotment and others. The land allotted was earlier acquired at the government prices of Rs. 500 per sq mt.

The nine IT companies acquiring 25 acre plots each on the Noida-Greater Noida Expressway in sectors 143 and 144 includes the names like: Hindustan Dorr-Oliver Limited, IVCRL Infrastructures and Project Limited, Aachman Limited, DLF Commercial Developers Limited, Century Avenues Private limited, Logix Techno Park, Unitech Hi- tech, and Tata Consultancy Services (TCS) Limited. BPOs and KPOs will form the main business area here.

Noida SEZs will be strategically located along the Noida-Greater Noida Expressway. The location will offer fast connectivity to major places like Agra and Delhi through under construction Taj Expressway. 100 km radius area around SEZs accounts for 4.8% of country’s total Net Domestic Product. Per capita income here is Rs 21,000, one of the highest in the country and almost 22 per cent higher than country’s average.

Hotel Prices Push Demand for Serviced Flats in Bangalore

As a substitute for highly prized hotel rooms, builders in Bangalore have come up with a new trend – ‘Serviced Apartments’ which promise to offer cost effective accommodation solutions. The concept sounds good for business travelers coming to the city.

Like hotels, these apartments will offer short-term stay and cater to the demanding requirements of corporates, businesspeople, tourists, and expatriates. Although, the city already has 600 to 800 serviced apartments, but there seems an extra need for the same. For that reason, another 800 to 1,000 serviced apartments are to come up soon. The work is in progress, says a property consultant.

At present, serviced apartments in Bangalore are operated by the builders or apartment owners who generally offer the apartments featuring 3 bedrooms or studio units or shared apartments.

As far as the rental is concerned, serviced apartments in Bangalore boasts of offering an array of facilities in the prices less than hotel rooms. The money can range between Rs. 1,500 per day for one bedroom/studio units to Rs. 6,000 plus per day for a 3-bedroom apartment.

The data compiled by Cushman Wakefield sheds greater insight on recent trends of serviced apartments in Bangalore. The city currently has 15 professionally operated serviced apartments including Homestead, Chalet, Sterling Suits, and Halcyon.  They are located in some of the major up market residential areas such as Indiranagar, Lavelle Road, Langford Town, Brunton Road, Vittal Mallya Road, and Airport road.

With city expanding to the north, it is to embrace new centers that are to be developed in other major areas like Whitefield, Bellary Road, and Hebbal. The trend will surely bring a plethora of opportunities for prospective investors. Encouraged by the same, global names like Oakwood, Marriott and Shangri-La are in a look out for local partners to set up serviced apartments. This may lead to greater competition and bring extra improvements in product quality.

Citigroup to Invest $400 mn in Indian Real Estate

The real estate investment arm of Citigroup is planning to invest around $400 million of equity from a recently raised fund in India and $600 million in China. The fund envisages developing hotels, technology parks, and housing estates.

Citigroup property investors closed a $1.29 billion Asia opportunities fund in February. Of this total amount, 40% was allocated to the real estate projects it has already begun.

India is attracting a various forms of other investments. There is an outstanding market for every segment of the real estate including residential property, commercial property, and retail sector, says the unit’s Asia head, David Schaefer, adding that he travels to India about once a month.

Citigroup has joined hands with seven Indian property developers including the prominent names such as Nitesh Estates for the development of a $100 million luxury hotel in Bangalore, and Gera Developments, for a $125 million housing complex in Pune.

The fund also looks towards taking up the construction of serviced apartments with US based Portman Holdings and India’s biggest mortgage lender Housing Development Finance Corp, and Technology parks in Bangalore and in Noida.

With the borrowing at on average 50% of a project’s value, and including equity from joint venture partners, the Citigroup fund would share its presence in around $2 billion worth of real estate projects in India, adds Schaefer.

RBI Refuses FII Status to FDI in Real Estate

Foreign Direct investments (FDI) received by property developers through private placement of equity has been denied the FII status. And the government has no issues with such a decision of the Reserve Bank of India.

Since an element of discretion was present in pre-IPO private placement, it cannot be regarded the same as other portfolio investment and must comply the FDI norms. Also, the Department of Industrial Policy and Promotion (DIPP) in the commerce and industry Ministry has decided to go with the RBI’s view.

All the real estate companies bringing FDI through private placement require following the guidelines of DIPP.

Most real estate companies, which want to make a killing on the investors’ increasing craze for real estate stocks, have been looking forward to FII status for their pre-offer placements to give a push to their construction projects that do not meet tough FDI norms.

Both the Finmin and RBI are trying hard to put a cap on the exposure of banks to property market, which continues to woo credit.

State owned banks have been asked to re-balance portfolios and moderate credit growth to what the RBI calls high risk sectors like commercial real estate. Also, SEBI has also tightened the norms for real estate IPOs.

Discount Malls Trend to “Take-off” in Small Cities

Undoubtedly, Indian retail industry is turning milestones into stepping stones. The mushrooming mall culture has embraced another trend of discount malls. The renowned realtors and local retail chains are taking large interests in constructing shopping malls in regional boroughs, specifically to sell premium branded goods at the rates less than the maximum retail price (MRP).

Around 50 malls are likely to come up in the next two years across the country, targeting middle to premium end of the market. The famous Royal Palms is soon to construct one of the largest discount malls, Orchard Road Mall in the western suburbs of Mumbai. The project is likely to be over by Diwali this year. The project will feature 3 lakh sq ft of mall space for factory outlets and the remaining will be dedicated to private labels.

As the name signifies, discount malls will certainly be the cheaper than prohibitive premium malls. Moreover, the international brand will also be 30 per cent to 40 per cent low than their MRP.

Orchard Road Mall will have a number of branded outlets including the prominent names like FCUK, Welspun, Provogue, Calvin Klein, Louis Philip, Adida, Nike, and Kouton as anchor tenants, says Dilawar Nensey, joint managing director, Royal Palms.

Close on the heels of Royal Palms is Aakruti Nirman, another big ticket developer, which is drawing plans for its soon-to-come discount malls in Kanjurmag, Ghatkopar, Mumbai, and Thane as ‘Cityworld’.

The company envisages establishing its substantial presence in tier II and tier III cities. In addition, these cities provide the benefit of cheap land thereby cutting the entire cost of development to a great extent.

There are plans to bring a multitude of discount malls with an area of 1 to 3 lakh sq ft, compared with 6 lakh sq ft of malls in the metros, says Hemant Shah, Chairman, Akruti Nirman.

People are bullish on shopping from factory outlets being famous for offering the quality commodities in low prices. However, these discount malls are believed to take proper care regarding the sales to get impacted by the factory outlets.