Indian Property News on 'January, 2008'

FAR- A Major Concern for Real Estate India

Floor Area Ratio (FAR) has always been a matter of concern in the real estate sector, its one of the major determinant of a country’s development. But unfortunately FAR in India is low and is considered a hurdle to construction activities. While the real estate sector has been demanding an increase in FAR, the major point of worry is the fact that whether an increase makes sense without improving the overall infrastructure in the country.

FAR essentially means the limit that is imposed on the amount of construction in a certain plot of land or location. The parameters differ from state to state and are governed by the respective city development authorities.

According to Anuj Puri, chairman and country head, Jones Lang La Salle Meghraj (JLLM), “FAR restrictions are necessary in heritage zones featuring monuments, and wherever higher FAR would destroy the urban fabric of a particular area. “This has been the primary area of contention. Lower FAR implies higher horizontal growth, which is positive in terms of environmental sustainability but negative in terms of available supply.”

Bangalore-based real estate consultancy firm Asipac Projects chairman Amit Bagaria feels that horizontal development definitely has its disadvantages. “The world realised over 50 years ago that horizontal development is expensive. Horizontal development has its negatives — infrastructure is collapsing, fuel consumption too is growing leaps and bounds,” he asserts.

Most of the experts believe that several advantages can accrue to the sector if FAR is increased. But what about the infrastructural bottlenecks that act as a major hurdle? “Typically, doubling the FAR shall reduce the per capita cost on development infrastructure; however this is not a direct proportion relation. In India, our infrastructure is yet to cater to current requirement and hence doubling FAR instantly would put an additional strain on infrastructure,” says Sanjay Dutt, deputy managing director, India, Cushman & Wakefield.

It’s a Catch 22 situation. What is the solution out of this unending cycle? Experts suggest identifying select areas that have the capacity to accommodate a higher FAR. “There are a lot of areas where land is not being utilised and is lying vacant. These can be optimally utilised. Ideally, infrastructure should be allowed to develop first whereas developers feel that a zone or centers of excellence can be created within which, the FAR can be increased.

Build Houses- Minister Urges Real Estate Developers

Speaking at the inaugural ceremony of FAIRPRO 2008,’ Chennai’s biggest property fair ,Chief Secretary L.K. Tripathy requested the real estate developers to step into the shoes of the prospective buyers to realise their dream homes.

The minister also added that the real estate developers have the additional responsibility of creating a beautiful neighbourhood along with beautiful houses for all sections.” They should commit themselves to creating beautiful cities.

According to Mr. Tripathi, the State has a bigger vision of making Chennai, Madurai and Coimbatore beautiful cities.

He asked the developers to use the services of architects and allot space for every utility in the right proposition.

DLF’s Big Gamble

An astounding land holding of almost 750 million square feet around the country, about 20% more than its next-biggest competitor, DLF’s unarguably rules the India Real Estate Market.

DLF Ltd. has dominated the extraordinary building boom in India. Now, the country’s biggest property company is making a big bet on a hot new market: houses for the middle class.

But the challenge is not that simple, the company is taking on a tough challenge in meeting its growth goals while counting, in part, on a relatively unknown and unpredictable market — residential developments for India’s growing number of middle-income families.

DLF has long been involved in commercial projects, has seen its shares soar as part of an Indian real-estate rush. Now it plans a big push into residential housing for increasingly affluent Indian families.

Reliable data on the number of new residential properties being built aren’t available, raising the potential for overbuilding. Other challenges include the rising price of steel and a tight market for skilled labor.

But DLF is quite positive in its approach, the company says that it has taken steps to thwart the challenges, including buying raw materials in greater bulk and luring expatriate workers in the Middle East back to India. Executives also argue that demand remains strong despite credit conditions.

Sustainability, Quality and Transparency – Key Drivers for Real Estate 2008

Latest report by Real Estate Consultants Jones Lang La Salle reveals that Sustainability, good quality construction and transparency will be the key drivers of the GCC real estate market over the next year.

The report also predicts that these regions will be the prime investment targets for International investors. According to the managing director of Jones Lang LaSalle, international investment in the region is currently only served by companies in the GCC or Pakistan and India.

Speaking on the same he said that it is quite amazing how few global investors are active in these projects – few of the global 100 real estate investors are here. But 2008 will be the year that the world discovers the importance of GCC real estate.

He further added that factors such as greater transparency, better quality construction and greater access to local debt markets would spur more international investment.

Sustainability is also expected to become a major market influence this year. “We believe that the UAE can lead the world on this issue where, free fro the legacy of decades of un-environmental developments, a framework for sustainability can be conceived and implemented that leads and surpasses global best practice.”

LIC Plans to Consolidate its Real Estate Portfolio

Life Insurance Corporation of India (LIC), the largest insurance firm of the country revealed its plans to consolidate its real estate portfolio across the country. In an advertisement the company said that Expression of interest is being invited from professional consultancy organizations for consolidating our real estate portfolio.

The consultancy involves feasibility study, including techno-economic viability assessment of expected growth potential, and investment opportunities in sectors such as commercial, housing and retail for fresh acquisition, it said.

LIC is also planning to develop existing vacant plots and redevelop old properties besides making fresh acquisitions of land. The Insurance Firm is interested in acquiring properties in tier I and tier II cities for own use and for investment purposes. For development of unencumbered plots at places such as Kolkata, Jaipur, Chennai, Kanpur and Ahmedabad, some new locations might be added in future, the advertisement said. LIC had ventured into real estate business in 2005, in a bid to get more returns from its properties.

The last date for submission of bids is 25 January. LIC, which was formed in 1956 with the Union government contributing the capital, had valuation surplus of Rs15,127 crore for the year ended 2006-07. The state-run insurer has more than 2,040 branches and offices in Fiji, Mauritius and the UK.

Israel firm Enters into Indian Real Estate venture

India seems to be the hottest destination for Israel Real Estate Developers. BSR Engineering and Development Ltd, a firm from Israel ha signed a memorandum of association with Lehman Brothers Real Estate Partners to set up a joint venture to buy land in India for the development of residential and commercial projects. A BSR Engineering subsidiary will build projects with Lehman Brothers financing.

Within three years from the signing of the final documents, the companies will invest $55 million in the joint venture: BSR Engineering will provide 36% of the financing and Lehman Brothers will provide 64%.

The joint venture will set up special project vehicles for each project, and will own at least half of each project’s shares. BSR’s subsidiary will also be allowed to invest independently in each project, to own up to one half of it.

Real Estate Major AIG Plans Entry into India

One of the largest real estate developers of the world AIG group is planning its entry into the Indian Real Estate Market. AIG Investments is setting up a portfolio management service (PMS) through which it will invest in the Indian real estate market.

AIG possesses core expertise in the real estate sector, since the last 14 months a small team is already investing in Indian real estate market and now they are all set to wrap it up into a fund and invest through PMS route.

The Company has also filed an offer document with the regulator for an offshore fund that would invest in precious metal mining firms.

According to Mr. Saurabh Sonthalia, chief executive officer of AIG Global Asset Management Company (India) Pvt Ltd the fund would mostly invest in gold mining companies across the world.

Currently AIG Investments in India is managing assets of around Rs 3500 crore and it expects to mop another Rs 1500-2000 crore through this new fund offering.

Developers Fear Immense Price Hike in Mumbai Real Estate

Real estate developers fear a whopping hike of 30% to 50% in demand as well as prices of property in Mumbai, Pune, Nasik, Chennai and Bangalore, compared with the ongoing steady demand and prices in Delhi and the NCR region from March 2008 onwards.

As per Industry experts the demand for residential properties is expected to rise by 30% from March 2008.

Speaking on the same Mr. Abhinandan Lodha, director, Lodha Group said that the commercial property rates in Mumbai are expected to rise by about 50% with more premium buildings getting constructed. The growing popularity of India as the hottest destination for premium commercial establishments also provokes builders to set up huge number of commercial buildings in one location.

Property prices have already touched the roof since the past two years when the booking for Ashoka Towers started at Rs 4,000 per sq ft. However, now the prices have shot up by an additional Rs 18,000 per sq ft. As a result, home buyers have started eyeing Pune, Nasik, Chennai for setting up second homes instead of buying a second home in Mumbai for weekends.

One of the major factors contributing to the immense price hike in Mumbai is the fact that out of 90 lakh homes in Mumbai, only 30% homes have been built so far. For example, investors have bought many flats in Kharghar, where 70% of the buyers have still not resided.

In Chennai and Bangalore, dual income families have started spending more on EMIs on buying big homes. Although currently Chennai is not considered a very active property destination, with the mixed used development under construction by Hirco (15 mn sq ft), Chennai will also see boost in prices and demand as well. Besides, there is already overbuilding been happening in Bangalore. Hence, the huge demand. On the contrary, NCR region and Delhi has already seen developments of this size. /

Unitech to Raise $700 mn through Singapore Stock Exchange

Unitech, a big name in the Indian Real Estate Industry has won regulatory approval to raise $700 million through a public offer in the Singapore Stock Exchange. Unitech will list its subsidiary in Singapore as Unitech Office Trust (UOT), a real estate investment trust (REIT).

Banking majors like Deutsche Bank, Lehman Brothers, JP Morgan and UBS have been appointed as bankers for the proposed offering. The fund raising process is likely to be complete by March 2008. The company also plans to raise $1-1.5 billion through the QIP route, which is expected to be closed by the end of this month.

The Unitech Singapore REIT will acquire some of the IT parks and SEZ projects of the company in India, which are under-construction. According to industry sources six IT Park and SEZ projects being developed by the company will initially offer three to the REIT. A reliable source revealed that these will have a combined leasable area of about 10 million sq ft.

The company has already divested 60% of its stake in the six IT parks and SEZs to another subsidiary, Unitech Corporate Parks (UCP). UCP had raised about Rs 3,000 crore from the London Stock Exchange’s Alternative Investments Market (AIM) in December last year.

As told by Unitech executive, the company is working with the clear strategy of monetising its stake in commercial properties just before construction is started and recycling the capital for future land acquisitions and developments.

Following Unitech are biggies like DLF, touted as the countries largest real estate company DLF is awaiting regulatory approvals to raise $2-2.5 billion from the Singapore market, for listing its subsidiary DLF Office Trust.

Real estate in the country is already attracting investments from Singapore-based companies. Recently, Singapore-based developer Ascendas, raised a REIT of about $500 million to invest in the Indian commercial real estate market.

It has already invested in four IT park projects in India: Maharashtra, Chennai, Bangalore and Hyderabad. CapitaLand is another Singapore-based REIT with an India focus, and has invested $ 100 million in a residential project in Mumbai.

Operations of a REIT in the property market is similar to what mutual funds provide on stock investments. Last year, market regulator Sebi had made a policy announcement regarding real estate mutual funds in India. However, the policy is yet to be notified.

Excess reliance on foreign funds in realty not good: HDFC

HDFC has cautioned the Government against the plentiful flow of foreign capital into the Indian property market. Speaking on the same, HDFC Chairman Deepak Parekh said that the government should allow pension and provident funds to invest in real estate sector.

Citing the example of South- East Asian Crisis, he further said that the Government’s key role must be to ensure a diverse source of funding for the real estate sector. New funding sources like provident and pension funds be encouraged, so that India never faces such a crisis. These funds account for a substantial part of financial savings of the household sector and are long term in nature.

He also added that the primary objective of these funds is to provide social security. It has been a long-standing demand that a portion of the resources from the pension and provident funds should flow towards investment in the housing.

There has been a deluge of funds flowing into the realty sector and regulators have rightly been cautious on various funding mechanism, especially where undue advantage has been taken on account of loopholes in the system, Parekh said.

Even though the real estate sector has a capacity to absorb huge amount of funds, he said the industry must be cautious in over-reliance on foreign funds.

He also said that housing finance lenders are important players who provide long-term loans for housing sector. It would be appropriate for the government to treat bonds of housing finance companies with good rating as eligible investment for provident funds.

Stating that provident funds crave for diversification of investment avenues, Parekh said the benefits of the housing sector having access to provident and pension funds are manifold as it would allow the lenders to raise tenor of home laons to up to 30 years.

Increasing the tenor was necessary in view of the rise in real estate prices, he added.