Indian Property News on 'January, 2008'

PE Investment to Benefit Real Estate India in the Next Two Years: ASSOCHAM

With a profit margin of around 35% to 50%, PE landscape in India is one of the best beneficiaries of the Real Estate Sector of the country.

Within the coming two years Private Equity (PE) overseas firms investment in Indian market is likely to touch US$48bn. More than 400 such firms are operating in Indian market whose number would further scale up by another 69 or 70 by 2010, according to reports by The Associated Chambers of Commerce and Industry of India (ASSOCHAM)

According to estimates made by the ASSOCHAM in its yet to be published paper, Private Equity–The Money Tree real Estate sector is predicted to be the best beneficiary of PE landscape in India which would give them profit margins, varying anywhere between 35% and even 50%.

In 2007, India attracted the highest PE investments, the valuation for which is estimated at US$17.14bn from emerging economy including China. As compare to India, China attracted less than 50% of PE investments in 2007, the estimates for which are at US$8.3bn.

RBI’s Decision may hit Real Estate Companies

The Reserve Bank of India’s (RBI) decision not to cut interest rates has spooked real estate companies facing the brunt of a housing industry slowdown caused by the high cost of mortgage financing. RBI, on Tuesday, decided to keep interest rates unchanged in its third-quarter monetary policy review. Real estate companies were expecting a cut, especially in the backdrop of slowing home sales in major cities in the past few months.

Buyer resistance and a series of interest rates hikes last year put the brakes on home sales last year. Middle-class households put off purchases after seeing prices break all records in most major metros. ET’s report, on Tuesday, cited RBI data to show that home loan sales fell 39% in April-November 2007 while loans to developers eased by a fourth to Rs 12,563 crore.

Real estate shares fell after the policy. Lower rates help the real estate industry by spurring consumers into buying houses. Realty stocks like DLF, Puravankara Projects, Indiabulls Real Estate fell marginally at about 1%. The hardest hit were companies such as Unitech, HDIL and Omaxe whose shares fell down 5.59%, 5.47% and 2.12% respectively. Sobha Developers on the other hand, closed at Rs 772.75, up 2.02% from the previous close.

Jones Lang Lasalle Meghraj, chairman & country head, Anuj Puri said as the rate remain stagnant, high levels in interest rates will continue and the impact will be felt mostly in the residential sector. This may also force developers in some areas to sell their products at lower rates.

“Because of the subprime crisis in the US, US Fed (the Federal Open Market Committee) reduced the interest rates by 75 basis points. This naturally has created a wide gap between US and Indian interest rates, leading to arbitrage opportunities in the economy. US investors not only get the currency appreciation returns, but also higher interest income,” he said.

He added that if it happens, there will be substantial addition to liquidity in the Indian economy. This may in turn fuel further currency appreciation, hurting exports. Thus, this was a strong case in favour of curtailing interest rates.

Source: http://economictimes.indiatimes.com

Rising rates hit home loans growth

Rising interest rates have hit banks’ consumer finance business, particularly the housing loan segment. The dip in growth is led by a slowdown in housing loan portfolios of banks. Interest rates on home loans have increased to over 10 per cent, affecting demand. The rising real estate prices have also had an impact on the loan growth.

Credit flow to the real estate sector has also seen some drop. Despite the dip in credit growth to the sector, the Reserve Bank of India (RBI) views the 33 per cent growth to be high.

In the personal loan segment, consumer durables loans saw negative growth. The major financier of consumer durables such as GE Money exited the business with margins coming under pressure.

The consumer durables finance business has become unattractive and competitive for finance companies as large retailers are now running their own financial schemes through their own subsidiaries.

The rising defaults in the small-ticket personal loans have forced players such as ICICI Bank to exit the business. Citifinancial and HDFC Bank are also going slow in this business.

RBI is convinced that non-performing assets (NPAs) for some banks in the consumer credit, housing and real estate segments have risen, but this has no systemic implication either in terms of solvency or liquidity.

Source: http://www.business-standard.com/

Red Fort Capital Plans Rs 2,700 cr Investment in Indian real estate

Private equity firm Red Fort Capital plans to invest about Rs 2,700 crore in the Indian Real estate. The firm plan to do this by 2009, the plan is also inclusive of an acquisition of 2,500 acres of land in over 20 cities across the country.

According to the managing director of the firm the firm will be investing Rs 2,700 crore in development projects in Indian real estate by 2009, about 70 per cent of which will into acquiring 2,000-2,500 acres of land in suburbs of metros and Tier II cities.

He further said that the company will develop properties worth Rs 12,000 crore adding that the respective developers will also invest their share of the remaining equity amount on a project-by-project basis.

DLF Sells Stake to India Bulls Real Estate

India’s biggest real estate developers, DLF Ltd. Has sold its stake in Kenneth Builders and Developers Ltd. to its equal partner in the venture, India bulls Real Estate Ltd.

The two companies came together in 2006 to develop high-end residential apartments at Okhla in New Delhi. The unit bought its only holding, 35.8 acres (14.5 hectares) of land, for 4.5 billion rupees ($114 million) from the Delhi Development Authority in the same year.

In a telephonic interview Sanjey Roy, a spokesman for the New Delhi-based DLF said that buying and selling land is a continuous process of the company, he confirmed the transaction but refuse to give any details on the same.

According to the Economic Times DLF sold its stake for 5 billion rupees, but the relevancy of the information is still not clear. DLF shares traded 4.3 percent lower at 884.2 rupees at 2:16 p.m. on the Bombay Stock Exchange. The company, founded and mostly owned by billionaire Kushal Pal Singh, raised $2.3 billion selling shares in June last year.

India bulls Real Estate, partly owned by Goldman Sachs Group, and Merrill Lynch & Co., was spun off from India bulls Financial Services Ltd. last February. It traded 6.2 percent lower at 728.5 rupees while the key Sensex index was down 1.5 percent.

India bulls, the nation’s fourth-biggest developer by market value, is developing 1.12 million square feet of residential and office space in Gurgaon, adjoining New Delhi, and also 150 acres of land at Sonepat, 51 kilometers north of the Indian capital.

Postal Dept Considers Real Estate to Overcome Financial Loss

Undergoing severe financial debacle, the postal department is all set to discover new areas for revenue generation, which even includes commercial use of huge real estate at its disposal to guard against any debt trap.

The sector is witnessing an annual loss of more than Rs 400 crore which is the major factor for the shift over of a chunk of postal business going to private competitors. At present the government is taking serious steps and is working on different proposals including commercial use of land, to make this over 100 year’s old institution financially viable.

The department has huge properties in each circle including some ream areas like Nariman Point in Mumbai. The land is either lying vacant or is leased out at a meager rent, senior officials said, adding these would now be used for commercial purpose to earn revenues.

It is very possible that the government will create a Special Purpose Vehicle (SPV) to bring the postal department out of losses and earn revenues. This is for the first time that Communication and IT Minister A Raja has taken a view on the issue.

As per officials a Cabinet note for creation of SPV would be moved soon. Asked by when the department would place the matter in the Cabinet, officials said the matter would be taken up within a month.

The department is also working on innovative schemes like instant money order, air transfer of logistics and computerisation of main centers. These efforts would help India Post become self-sufficient in the coming years, they said.

Speaking on the same, General Manager J Samuel said “we are expecting a revenue of about Rs 550 crore for the current financial year, up from about Rs 450 crore.”

REBI Plans India’s First Property Shops Chain

REBI is prepared to make things and transactions in Real Estate transparent for both buyers and sellers. This win-win formula comes as whiff of fresh air as REBI has already commenced its operation in Karnataka, Kerala, Tamilnadu. Now expands to Andhra Pradesh and are planning to get all over India very soon. Rebi has also started its overseas operations in Sri Lanka and is targeting countries like Dubai, UK, USA, Singapore, Malaysia and Australia in the next phase.

REBI is relying on the Franchisee model to give shape to its plans, within the next three years it is likely to set up 3000 franchisees all over India. In Andhra Pradesh alone, it is expected to set up 40 franchisee outlets. It has already pumped about Rs 5 crore in this model and expects to chip in another Rs 25 crore in next one year. REBI envisions to provide a single window services for a customer in real estate industry. The services offered by REBI include Brokerage Services, Financial Services, Database Services and Relocation Services.

Discussing the kind of services that will be there Mr. Lakshmi Narayanan said under Brokerage services we extend help in buying, selling and leasing property. These services are offered off-line, through an extensive network of franchisees and on-line, through the internet. A Real Estate Helpline is offered Toll Free Service to the customer. Deals are processed through this network are backed by extensive research. Under Database Services, exhaustive information of properties will be showcased to the customer, he informed.

The present boom in the Indian real estate is a well known phenomenon; the industry is the only sector in the country witnessing a whopping track record of 30-35% growth per year in terms of investment. Currently the size of the industry is put at 16 billion US Dollars, expecting to be 25 and 50 billion and 102 US Dollars by 2010 2015 and 2017 respectively. The main growth thrust is coming due to favorable demographics, increasing purchasing power, existence of customer friendly banks & housing finance companies, professionalism in real estate and favorable reforms initiated by the government to attract global investors. Indian real estate has huge potential demand in almost every sector especially commercial, residential, retail, industrial, hospitality, healthcare etc.

RREEF Joins Hand with Golden Gate Properties

Since its entrance in the booming Indian Real Estate sector in 2007, Deutsche Bank investment unit RREEF has made its first investment of $70 million in Indian real estate firm Golden Gate Properties.

Speaking on the alliance MR Kishore Gotety, head of Deutsche’s Asset Management’s real estate and infrastructure investment advisory services in India said that the Golden Gate brand for construction is well-established in India in the middle and upper-middle class income segment which it targets

Though the size of the stake that RREEF will own has not been disclosed but it is generally thought it is a significant minority. RREEF will have the right to nominate two directors on the board of Golden Gate and will enjoy all minority protection rights typical to such investments.

The investment was driven by Golden Gate’s plans to acquire land and develop projects, say sources close to the deal.

Emaar MGF Starts $1.8 Billion IPO

Emaar MGF Land Ltd., one of the biggest Real Estate Developer of the Middle East started its initial public offering in India today amid the biggest plunge in equities in almost four years.

Speaking on the same Shravan Gupta executive vice chairman and managing director at Emaar MGF said that the market may go up, or come down, but there are fundamentals of a company and the long-term investors will look at that.

In a statement he company revealed that it is seeking 70.8 billion rupees ($1.8 billion), in what would be the second largest IPO by an Indian real estate company. The developer will offer 102.6 million shares at 610 rupees to 690 rupees apiece.

India’s Sensitive Index had the steepest move among global benchmarks today on concern the U.S. will enter a recession and as investors placed funds in Reliance Power Ltd.’s record IPO. DLF Ltd. had its biggest fall since completing a record share sale by an Indian real estate company in June.

Housing Sector Affected by Rising Home Loan Rates

The housing sector has been severely affected by rising home loan rates. The sector has witnessed a massive fall of 26.6 per cent in 2006-07 from 29.1 per cent in 2005-06 and is expected to slow down further to touch between 17 and 20 per cent in the current fiscal.

In a study named ‘Impact of rising home loan rates’, by ASSOCHAM revealed the fact. The study also points out that the real estate market has already seen a drop of 60 per cent in sales. Its impact could further worsen if reversal in rising interest rates for housing is not addressed urgently.

Prior to fiscal 2005-06, the preceding three fiscals had seen the housing sector record a year-on-year rise of 49.5 per cent, 73.9 per cent and 48.6 per cent respectively. Since no suitable corrective measures to contain the interest rates on housing segment have been effected, nearly 60 per cent of home aspirants are staying away from the pre-launch sales.

According to the study several projects are being delayed from the developers end because of the hesitancy shown by the buyers end in depositing advance amount at the time of pre-launch bookings. Referring to differential between EMIs, the study says the approximate change in EMI for housing loan of Rs.10 lakh works out to be Rs.3,250 and puts an additional burden of Rs.39,000 per annum on end-users.

The study also says that speculators play a significant positive and negative role in pushing the prices of property by more than 20 per cent and rise in interest rates helps speculators to dictate the prices.