Indian Property News on 'June, 2007'

JP Morgan to Invest $100 mn in Prestige Group

Real estate arm of JP Morgan is reported to be planning to invest heavily in Bangalore based real estate developer Prestige group. The capital is believed to be $100 million and the infusion could be through equity placement or debt financing in the flagship company Prestige Estate & Projects.

The proceedings of the investment will be used for project development across south India, as Prestige is considering its expansion outside Bangalore. The company has several real estate projects in its pipeline which include a shopping mall in Hyderabad, a residential project in Kochi, a technology park in Chennai, and exclusive villas in Goa.

JP Morgan continues to make large scale investments in real estate in the Asia Pacific where it showed a portfolio of around $22 billion in 2007. The group may source the investment from its property fund, JP Morgan Asset Management.

Recently, Prestige has entered into a joint venture with Chennai based Vijaya Productions for development of a mega mall cum multiplex at Vadapalani in Chennai.  The project will involve an investment of Rs 380 crore, including land cost.

The project is to come up over a large area of 1.48 million sq ft. It boasts to feature a nine screen multiplex and a 0.3 million sq ft. commercial space. It will also accommodate a multi level car parking with a space for 2000 cars. The retail and the multiplex space will face the Arcot Road. The Union Ministry of Environment and Forests has already given a nod for the project.

Property Owners Queue up to Sell Shares in Asian Trusts

Asian property owners are considering to sell shares in around 15 real estate investment trusts (REITs) within the coming year, says Michael Smith, head of Asian real estate investment banking at Goldman Sachs Group Inc.

There is a large capital inflow coming into the Asian real estate, adds Smith.

Jakarta-based Lippo Group, a US$12 billion banking conglomerate operating in the US, will sell $5 billion of assets to new real estate trusts.

Some renowned property owners are like the Embassy Group, plans an initial public offering (IPO) in Singapore.

Most property owners are taking the route to Reits to raise capital amid increasing demand for real estate from investors. REIT raises money from equity investors to buy properties.

Property funds of Morgan Stanley have posted annual gains of more than 20% since the year 1991. Investments are largely coming from the public REIT market, big realty players in China and India, and private equity funds, says Smith.

This renowned global financial services firm recently made the headlines regarding raising $8 billion in the world’s largest property fund which will further park about half money in Japan and 25% in other countries.

Real estate funds including REITs may raise a whopping $69 billion globally in 2007, says the data showcased by Private Equity Intelligence Ltd.

Goldman Sachs, a full-service global investment banking and securities firm drew $4.07 billion for property fund.

Small Property Developers Selling to Big Players

Most small time real estate developers in India are looking out to liquidate their land by selling them to larger developers or equity players. In an effort to rescue themselves from the liquidity crunch, they are even ready for lower cost.

Property rates are believed to undergo major price corrections soon. Therefore we thought of being secured rather than be at risk”, says a property developer.

Prominent players such as Parsvnath have 5 or 6 such deals to be finalized. The small time developers are offering land that they had acquired earlier.

Runwal Group also informs to have received similar proposals, primarily from Pune and Nagpur. The company has not fixed any deal yet but is working on.

Small developers are short of capital and funds in the market are drying up. Selling incomplete projects to big developers is the only productive option left with such developers, says Pranay Vakil, Chairman, KnightFrank India, a premier property consultant. Home sales have fallen down to 70%, he adds.

Reducing demand for properties in India may force the developers to cut on prices in near future. The trend is apparent in several suburban markets.

The residential property market remains stagnant for the past few months but has started loosing the potential again, especially in Mumbai’s suburban markets and tier II and III cities. The sales are believed to drop by 70-80% in the last two months.

Also, the finance ministry is trying to restrict flow of foreign funds in the market. The authority says to curb all the foreign funds raised by Indian companies, through the issue of partially convertible preference shares, would be regarded as debt and be subject to norms applicable for external commercial borrowings (ECBs).

Now, the situation has become difficult for small developers who were largely in need of foreign funds to complete their real estate projects as ECBs are allowed only in large property projects. Add to that, the guidelines are more stringent than FDI.

Real Estate Agents Form New Organization

Real estate agents in India are largely coming forward to form a national association in an effort to bring international expertise and quality services to organize the fragmented sector. The move will also help the agents to self regulate their business.

The association will be known as the National Association of Realtors India (NARI). It would be registered as a non profit organization under the Registrar of Societies Act. To work in collaboration with US based National Association of Realtors, NARI is determined to bring revolution in Indian real estate in terms of greater transparency.

It is the way the real estate agents in India work that requires be improved, says Farook Mahmood, foundering president of NARI. Also working as a managing director of Bangalore based Silverline Realty, Mr. Mahmood further comments on the associations’ motto that would be focused on to evolve a uniform code of ethics for the members. It would also have several provisions for disciplinary actions.

Whether it is about kinds of services or charges, there are no definite standards in Indian property market. Although, there are number of regional associations formed in past years in major cities to resolve such critical issues but not up to the success, explains according to Abdur Ravoof, secretary of the association.

The Association will offer certification course which would be mandatory for all its members.  The course will contain real estate mathematics, code of conduct, and other segments shedding considerable knowledge on Indian real estate issues. The preliminary version of the course material contains 500 pages.

Real estate agents are coming together across different cities including Delhi, Mumbai, Chennai, Pune, and Hyderabad to participate in the national level association. The plan is to attract participation from ten cities by the end of first phase pf operations.

Real estate Boom Shifts to Tier II & Tier III cities

After making a mark in glimmering cities such as Delhi and Mumbai, the real estate has shifted its gears towards smaller cities which are fast emerging as good investment destinations. Although, these cities are at the threshold of real estate boom, they have been successful in attracting large interests of prospective investors.

Some upcoming cities that are turning to ‘growth centers’ include Guwahati, Nagpur, Bhuvaneswar, Ludhiana, Surat, Kochi, Indore, Vishakhapatnam, Mysore, Coimbatore. They are making rapid strides in real estate sector with prominent property developers being bullish on to harness the prospects.

These cities are characterized by low real estate costs, availability of large chunks of land for development, and untapped manpower, as per the data showcased by Knight Frank.

The trend is also wooing big real estate players like Hiranandani group, Godrej properties, DLF, Omaxe, Parsvnath, and Ansals API. Availability of productive land at low costs is the only factor encouraging these builders to look forward to tier II and tier III cities. For example, the rates at Mangalore’s City Centre, a prime locality, is hovering around Rs 2,200 per sq ft.

Another factor is the quick growth of IT/ITes sector which is expanding its operations mainly in these towns in a bid to stay ahead of competitors. The report lists some key reasons for real estate boom in smaller cities which are no other than increasing manpower, low risk factor, plaguing attrition levels.

IT/ITes sector accounts or 80% of total commercial space, a fact which undoubtedly positions it as driving the demand. Growing urbanization can also be seen as a driving force facilitating real estate growth in the mentioned emerging cities.

17mn sq ft Commercial Space Makes Way for Bangalore

Commercial property in Bangalore is zooming away in the wake of high growth, with supply likely to cross a mark of 17.4 million sq ft. It will include three million sq ft. supply spillover from 2006.

Of the total supply of office space earmarked for the year 2007, around 14.1 million sq ft. of space is likely to be for IT/ITes sector, with the areas located in suburban and central locations.

As far as the remaining part, it will come in off CBD locations which will primarily cater to the non IT sectors.

Rentals have been stable in Whitefield and the southern peripheral areas in the last 1 year. Increased rental activities are likely to result in marginal escalation by end of the current year. Staying in step with the trend, others areas are expected to stabilize by early 2008.

There is a large dearth of fresh supply in the CBD and vacancy levels are believed to be below three per cent. The central locations are likely to see additional supply of 2.59 lakh square feet. Talking about suburban locations, CV Raman Nagar is to lead the race with an extra supply of 7.86 lakh square feet in the third quarter.

Next in the line are peripheral locations which will account for a fresh space of 3 lakh square feet in 2007. It includes the areas like Hosur Road corridor and Electronics City.

The south-eastern corridor along the Outer Ring Road would see a fresh supply of 3.5 lakh sq ft and the Whitefield area about 6 million sq ft.

Extended Suburbs in Mumbai bring new Prospects for Developers

Property developers in Mumbai are now eyeing ‘extended suburbs’ for acquiring land to develop residential property and establishing exclusive cum affordable apartments.

Around 5 lakh acres of developable land is largely available for which the flat prices hover between 1,000 sq ft. to 2,000 sq ft. Extended suburbs have come up as excellent alternative to high priced locations in metros to provide housing to masses at down to earth rates, says Anuj Puri, chairman and country head, JLL Meghraj.

Taking extended suburbs on the western suburb of Mumbai, they include the areas beyond Vasai, Virar, Dombival along with Thane on the eastern belt, and Panvel on the harbor route.

Hiranandani Constructions are considering buying large chunks of land in extended suburbs in an effort to provide economical housing to masses. It will be highly beneficial for customers in terms of various options to choose from. At the same time, developers can also make killing by constructing more volumes of residential units, says Niranjan Hiranandani.

Close by heels is K Raheja looking out for land in South Mumbai and the suburbs to provide quality housing. Land in suburbs is quite cheap than in extended suburbs which is why a multitude of builders have lined up for land acquisition in suburbs.

Akruti Nirman has plans to acquire around 500 acres in the eastern and western suburbs spread across Virar, Vasai, Thane, Dombivali, and Panvel to develop residential property and factory outlets on a lease model business.

Lack of infrastructure in extended suburbs is the major reason for low prices of land here. For that reason, there can be no other good alternative for builders than looking forward to these areas.

Govt. Eases Environment Clearance Norms for builders

The government is drafting easier environmental clearance guidelines for real estate developers that would reduce the time required for getting the plans approved.

The new single window system for environment clearances will relax the procedures for developers who have to separate clearances from the state and the Centre. This would help builders to get their building plans approved within two-three months.

The environment guidelines have been set by the Ministries of Urban Development and Environment and the Planning Commission.

The new norms are likely to cut the cost of operation for developers. Also, tough norms for environment clearance have been one of the major obstacles for foreign direct investments (FDI) in real estate.

Many countries eliminate the need to have environment clearance for developers to set up real estate projects. The examples are the US and UK where builders just need to give banks the guarantee to the state.

However, to replicate the US model in India is highly difficult but the government is taking up initiatives to come up with similar modifications in the existing regulations.

Indian real estate has seen the FDI worth $3.5 billion. The government could go up to significantly if futile regulatory obstacles are stamped out.  The Indian government paved way for 100% FDI in real estate in 2005. The move was decided to spur investment in the vital infrastructure sector. Indian realty attracted $3 billion in 2005-06.

Emaar MGF Plans India’s Largest Mall

Emaar MGF, India’s leading real estate developer, is to strengthen its presence with the construction of India’s largest shopping mall. The project will be announced in the next six months.

On completion, it would be looked upon as the world’s largest mall to be spread over a large area of 5.8 million sq ft being constructed by the company’s partner in Dubai. With this project, Emaar MGF will come ahead of DLF which is to come up with DLF’s Mall of India along NH-8 in Gurgaon to be spread over 3.6 million sq ft.

The mall will be constructed on the same base lines as the Dubai Mall which features 3.77 million sq ft. retail space and the largest walk through aquarium in the world. The mall in India is under planning and the announcement is to be made in the next couple of months.

Following in footsteps of its Dubai partner Emaar, the company is also considering similar real estate projects like the tallest tower in the world, called the Burj Dubai.  The first of all would be a residential cum leisure complex at Hyderabad which will have the largest golf course in India.

Expanding horizons in Indian hospitality sector, Emaar-MGF will be bringing the first Giorgio Armani luxury hotel in India in the next four years.

Real estate projects in India account for around 20-25% to the company’s revenues, a fact alone underlying the importance of the country for Emaar-MGF. The joint venture between Emaar and Turner Corporation, a leading US building services provider, will also foray into Indian real estate, says Amit Jain, chief financial officer, Emaar Properties.

Buying a House in Chennai turn into a Prohibitive Choice

Scouting a comfortable as well as affordable house in booming Chennai is no better than an uphill climb with property prices reaching the skyline in the city.  Full time real estate agents have captured the market and have kicked out part time brokers here.

The task to buy a home has become more troublesome for middle class families who are blaming brokers to earn large profits without investment and taxes.

Contrary to this, small brokers are pointing fingers accusing full time agencies, who are controlling house brokerage operations throughout the city.

Now, these agencies hold IT boom and economic growth responsible for soaring property prices. Such a trend has created a tense situation for poor and middle class who are trying to buy house in some specific locations. Vadapalani is such an area in Chennai.

Brokers are in charge of every house and they have increased the rents by 25% to 50% in wake of increasing demand for rented residential property in Chennai.

House brokers are being touted as excellent bargainers in Chennai. They are known to settle the rents for far better and advanced amounts, says a house owner in the area.  However, this is the case throughout the city, with slight variations in rates.

Big brokers along with local representatives are controlling the entire city. This has pushed the rents to a great extent, as these brokers fix the property prices for a particular area which is almost under their control.

Those in a lookout for rented houses are left with no other option than to accept the prices fixed by the agency.  Experts see factors like increasing population, economic growth, and lack of houses leading to soaring rentals.