Indian Property News on 'September, 2007'

Wal-Mart India to Meet Its New Challenges

The world’s largest retailer Wal-Mart is seeing issues securing property and talent, but the company is confident to open its first cash and carry store in the country by 2008-end.

Recently, Wal-Mart and Bharti Enterprises have signed a 50:50 joint venture agreement that had been awaiting the government’s nod for a long time. With the venture, Wal-Mart announced a foray in India.

Called Bharti Wal-Mart Private Limited, the joint venture is soon to come up with its first store which will sell groceries, consumer appliances, and fruits and vegetables to retailers and small businesses, by 2008-end.

Bharti Wal-Mart will open around 10-15 cash-and-carry facilities over the next seven years.

Another challenge before the venture is to scout for talent and to retain it, given the Indian economy which is showing bullish signs. It already has a team of around 100 employees and is likely to recruit 350-400 more people by 2008-end, excluding store employees.

Hard Times for Domestic Retailers in India

India is stepping up its efforts to bring greater transparency in real estate by making the sector a little organized. This first and foremost step is to think about the ways to prevent large domestic players from displacing traditional grocery stores.

In reply to a question on when India will pave up the ways for FDI in it’s over 330-billion dollar retail market to foreign investments, Kamal Nath, the Commerce and Industry Minister on the first Pravasi Bharatiya Divas New York 2007 says that the issue is actually regarding large realty players versus small retailers and not the FDI.

Is the statement really alarming for large retail players in India? Or does it mean that retailers require preparing themselves to close shop anytime, Nath said that this is a matter to be better handled by the Consumer Affairs Ministry.

The government envisages promoting incremental growth in the retail sector. However, it is difficult to calculate the number of small retailers that have been displaced by big corporates.

There is no restriction on foreign investments for creating logistics or providing back end operations in an area where the government allows 100% FDI. The US retail giant is confident of getting more B2B for its back end operations in India than retail customers in other countries where it has its operation centers.

Wal-Mart has recently entered into a joint collaboration with Indian conglomerate Bharti Enterprises for the latter’s retail venture.

It’s Biotechnology after IT to make Headlines in Indian Realty

Close on heels of IT industry is fast flourishing bio-technology sector to bring another boom in Indian property market, according to the data showcased by real estate consultant, Jones Lang LaSalle Meghraj.

The biotechnology industry will need around 100 million sq ft of space, says the report. The real estate is believed to benefit a lot by the development of biotech parks and manufacturing units, says the report.

At present, there are six biotech parks in India and around 19 are to be developed. Indian realty is growing at fast pace and also attracting large investments. Its market size is currently a $12 billion (Rs 47,880 crore). The biotechnology industry is giving a push to the demand for quality commercial spaces. The estimated demand from the technology sector alone is likely to be 150 million sq ft of space by 2010.

The overall investment in the sector has grown from mere $ 137.2 million in 2003 to $366 million in 2006.  A large part of investment in the biotechnology sector goes towards setting infrastructure facilities and development centers. The majors in the field are planning to tap the potential of cities like Hyderabad, Bangalore, Chennai, Mumbai, Pune, and National Capital Region.

India has become one of the most sought after destinations as far as real estate investments are concerned. Next, it is to become a hub of biotechnology industries, adds the report. It is among the Top 6 upcoming biotech leaders in Asia-Pacific alongside Singapore, Taiwan, Japan, and Korea.

Mumbai CBD to add considerable space

The Mumbai Metropolitan Region Development Authority (MMRDA) is all set to double the Floor Space Index (FSI) for commercial properties in Mumbai’s Central Business District (CBD) of Bandra Kurla Complex (BKC).

The MMRDA has ruled out the objections raised by some environmental groups and corporates over its proposal, and intends to raise the FSI to 4 from the current levels of 2.

According to the Joint Metropolitan Commissioner of MMRDA Milind Mhaiskar, the step is necessary to ease out the overheating property prices and rentals in this prime most commercial real estate in Mumbai. He reasoned that the prices of commercial realty in Bandra-Kurla Complex of Mumbai are even more than the commercial properties in New York and such unrealistic price levels have to be corrected with effective intervention.

Meanwhile, the sources told that a detailed report in this regard would soon be submitted to the state government. As a matter of fact, once the MMRDA will get approval of doubling the FSI, the sale of the additions in space will raise no less than Rs 25,000 crore.

Earlier, it has been alleged that the MMRDA has come up with this idea for benefiting Reliance Industries Limited that had expressed its intentions to acquire about 75,000 sq. meter of space to build a huge convention centre at the BKC.

Commercial rentals on top, due for correction

After being the subject of incessant rally for the past few years, the commercial rentals in nearly all the major cities of India have touched the rooftop, says the recent report from international real estate advisory firm DTZ.

The absorption levels of commercial properties in India are steeping down due in most commercial hubs of these cities such as Delhi, Mumbai, Bangalore, and Hyderabad.

Resultantly, the supply of new office space is far exceeding the levels of demand and since the interest from the side of buyers and tenants is reportedly falling, the vacancy levels at the new commercial property projects are quite high.

The vacancy levels in Central Business District (CBD) of Bangalore at MG Road is recorded at 5-7 levels, however the commercial area of Whitefield in the city has been witnessing shivering 35 per cent vacancy rates. The reason is obvious-No takers for the new office space.

Similar is the scenario with Delhi. Only 0.54 million of newly-constructed space was taken up in the second quarter of this year, against the total supplies of 0.81 million sq. ft of area.

However, there is an astounding difference between the average rental values of CBDs in Delhi and Bangalore. The same at Delhi is hovering at Rs 300 sq. ft whereas in Bangalore the same is at Rs 90 sq. ft.

Commercial properties in Pune are also projected to suffer a huge gap in supply and absorption levels by the end of 2007. By the end of the year, Pune real estate will add some 9.7 million sq. ft of space however the demand is estimated to be in the range of 5-6 million sq. ft.

Real estate Chennai also just managed the absorption levels of 0.47 million sq. ft against the huge supply of 3.4 million sq. ft.

In view of such scenario, the markets are most likely to head for correction in the near future.

Blackstone to Join Hands with Nagarjuna for Realty Projects

The Blackstone group, a leading global alternative asset manager and provider of financial services, is planning to foray into Indian real estate with Nagarjuna Construction Company (NCC).

Currently, NCC is working on a 13 million sq ft real estate project while Blackstone may invest $1 billion in Indian realty over the next few years.

Both the companies are scouting for excellent real estate prospects to make it really BIG, says a senior NCC official. Nothing has been finalized as for now, he adds.

Several foreign players have entered into the Indian property market, which have pushed the incoming investments to the mark of $2 billion in the last one year.

One of the factors attracting global players towards the sector is its potential to yield healthy returns. They are around 20-30%, one of the highest in the world property market. NCC Urban has already completed over 12 large scale residential and commercial property projects in cities including Hyderabad, Bangalore, and Kochi.

Blackstone holds 14.5% stake in NCC, which the former picked for Rs 615 crore last month. NCC would use the money for making additional investments in public-private infrastructure projects to expand its capital base.  The company was involved into irrigation projects and has also stepped into power, oil, gas, and metals.

Walton Street Bullish on Indian Retail

US-based property fund Walton Street Capital is eager to make investments in Indian retail sector, one of the fast flourishing real estate segments in the country.

The fund is also looking forward to Indian hospitality industry.  It has already committed a whopping investment of $3.5 billion in around 150 separate transitions in the US and other international property markets.

At present, Walton Street Capital does not own any India-focused fund. The company’s global fund VI recently raised $2.5 billion from the international market. Of this, a part has been earmarked for Indian property market.

Close on heels of real estate, the Indian hospitality and retail sectors are also yielding attractive returns on investments. Walton Street Capital is evaluating different investment prospects in these sectors, says company MD Sourav Goswami.

The fund is making rapid progress in international hospitality sector. In 2005, the company together with Merrill Lynch acquired the 293-rooms Prague Marriot Hotel and BH Centrum office and retail complex in 2005.

Walton Street is entering into a joint venture with Shriram Properties for the development of 20-million sq feet of residential, retail, office and civic infrastructure in Uttarpara, West Bengal.  It will involve an investment of Rs 5,000 crore.

An Analysis of Factors Affecting Indian Realty

K.P Singh, the Chairman of India’s largest real estate company DLF Ltd. sheds light on factors affecting the pace of Indian real estate. According to him, it’s stringent monetary policies and subsequent high mortgage rates.

Prices of residential property in India would only begin to fall in a fast flourishing economy with an increase in supply, says Mr. Singh. He also adds that property prices will take a slip only if pushed by increased supply and not mere monetary policies.

The Reserve Bank of India (RBI) raised interest rates five times since March 2006. The authority has also lifted banks’ reserve requirements to curb rising inflation and credit growth.

This created a need for commercial banks to raise lending rates including those on home loans by more than 200 basis points.

Another factor affecting Indian property market is increasing interest rates on home loans. However, growth in home loans may slow to 17-20 per cent in the current fiscal, as per the data showcased by the Associated Chambers of Commerce and Industry.

Mortgage loans have risen by 26.6 per cent in the last financial year. And it was lower than 29.1 per cent in 2005-06. And, the sale of residential property in India has seen a sharp downslide by over 70 per cent in May-June 2007.

Reliance Retail Sees Rs 11-cr loss

Reliance Retail Limited (RRL) has posted a net loss of Rs 10.99 crore on total earnings of Rs 259.85 crore in the first year of its commercial operations. The loss was on a total income of Rs 259.85 crore.

RRL is still in the roll-out phase and plans to establish around 5,000 stores by 2009-end. The company made large investments in the initial phase of operations and profits were quite less, which leaded to such a heavy loss.

Reliance Industries Limited (RIL) has plans to establish multi-format retail outlets across India. The chain will include convenience stores, hyper markets, especially stores and super markets. The development will be done in more than 1,500 cities and towns.

There are over 300 Reliance Fresh outlets open to customers. RRL holds capital worth Rs 4,051-crore capital with negative reserves of Rs 10.90 crore. The company invested Rs 365.18 crore as on March 31, 2007.

‘Ranger Farms’ is the latest B2B initiative of RRL. It has been launched to cater to the small retailers in Hyderabad. The company introduced its private label in the staples category under the ‘Reliance Select’ brand name.

LEELA Hotels plan Rs 2200-cr Investment; Launching New Projects

The Leela Group of Hotels will invest a whopping Rs 2,200 crore in the next three years to develop six hotel projects in different Indian cities.

The company will come up with five new hotels and service apartments by 2010. It will bring the hotel in cities including Hyderabad, Chennai, Udaipur, Pune, and Delhi whereas service apartments will be developed in Gurgaon.

“We have already invested Rs 1,100 crore,” says Leela Group chairman Capt C P Krishnan Nair.

The Hyderabad hotel will have 275 rooms and may complete by 2010. On the other hand, the hotel to come up in Chennai will have 365 rooms and is scheduled to be completed by 2009.

And, the Pune hotel will have 220 rooms and be operational by 2009 while Udaipur hotel will be operational by 2008.

The company plans 86 service apartments in Gurgaon. More rooms will be added in present Leela hotels in Goa and Kovalam. Around 30 rooms will be added to the existing 182 rooms in its Goa hotel.

Likewise, there will be an addition of 70 rooms to the present 192 rooms in Kovalam hotels.

Leela Group envisions accomplishing a turnover of Rs 450 crore in 2007 as against Rs 350 crore last year, says Sanjoy Pasricha, Leela’s vice president, Sales & Marketing.