Indian Property News on 'April, 2008'

Blackstone Makes First Indian Real Estate Acquisition

Blackstone Group LP’s property unit has made its first purchase in the Indian real estate market by paying $18 million for a minority stake in Synergy Property Development Services.

Blackstone’s property unit is buying the stake in the Bangalore-based property management and construction company, the newspaper reported. Blackstone was one of the most active private equity firms in India last year, concluding five deals valued at about $800 million.

Synergy has more than 500 staff and has operations in Dubai and Kuala Lumpur, the FT said. Synergy manages about 100 million square feet of real estate, the newspaper said. The acquisition will give Blackstone a platform to make other investments in India’s property market.

Super luxury apartment complex planned in Kochi

Dewa Projects Private Ltd., a venture promoted by a group of NRIs based in Kuwait, will build a super luxury apartment complex on Marine Drive in Kochi. K. Venugoplan Nair, chairman of the company, said the project would set new benchmarks for residential property.

The apartments will have a 10-year warranty. Kitchen, bathroom fittings, doors and other fittings would be provided by top companies in Germany, Italy, Australia and Canada. The complex will have six towers comprising 400 apartments surrounded by four acres of landscaped garden. It will have a quake-resistant structure. The price of a three-bedroom apartment will be more than Rs.3 crore.

The company has substantial real estate holding in major cities including Bangalore, Chennai, Thiruvananthapuram and in the Andaman & Nicobar Islands. The company was investing Rs.3,000 crore for the Kochi project. , which would be completed by 2011. It had conducted a study which revealed that Kochi had high potential in the real estate sector. Luxury apartments were in short supply, Mr. Nair said

Delhi hot favorite retail destination in India

With the Indian retail industry poised to become a $637 billion sector by 2015, the capital city is emerging as the largest consumer market in the country consisting of a booming middle class. Delhi has the highest concentration of households with an annual income of $110,000 and per capita income more than double the national average.

“Delhi is a destination for shopping across India besides its own consumption appetite. It is the principal business and commercial centre in northern India, well complemented by industrial areas in the National Capital Region,” Minister of State for Industry Ashwani Kumar said at a symposium organized by the Confederation of Indian Industry (CII) here. Being the biggest consumption zone in northern India, Delhi has also emerged as a distinguished centre for trade, he said.

“A family in Delhi spends Rs 210,000 per annum on an average, while it saves Rs 50,000. As people prosper further, the savings will further go up, which will result in bigger retail industry,” the minister said underlining the importance of the industry in creating employment opportunities.

A New Reality For Realty Mutual Funds

At last, the decks have been cleared for the launch of Real Estate Mutual Funds (REMFs) in India, with the Securities and Exchange Board of India (SEBI) notifying amended regulations for such products last week. For mutual fund investors, this may mean a welcome relief from the stream of new equity fund offerings, playing on every imaginable theme, that have clamored for attention over the past three years. But don’t hope for this to happen too soon!

It may be some time before fund houses queue up to offer REMFs with the same enthusiasm that they now display for equity funds. Though SEBI’s recent notification clarifies some of the grey areas in REMF regulations relating to valuation and disclosures, getting such products off the ground may prove to be quite a challenging exercise for the existing fund houses.

Investors confused about which equity fund to go for, usually benefit if they go by the pedigree of the fund house launching the scheme. For equity funds, factors such as the investment team’s experience and track record in managing Indian stocks are key to a new fund’s performance. But the opposite may be true for REMFs.

Companies active in the real estate space, rather than those used to managing equity or bond investments may be better placed to get REMFs quickly off the ground in the Indian context. That SEBI has stipulated a five year track record for realty players seeking to launch REMFs is a positive, as only seasoned players will then enter the fray. Real estate, as an asset class, is not familiar ground to India’s mutual fund companies, given that their current asset base is dominated by debt, equity or, at best, combination products. This being the case, their entire investment team and security selection process has been built around selecting the best stocks and bonds for their fund portfolios.

That the real estate sector has been a relatively recent entrant to the listed stock market universe, also suggests that limited expertise may have been built by mutual funds in evaluating real estate markets and factors that drive it.

A key factor that distinguishes Indian realty markets from the stock or debt markets is its relatively localized nature. Trends in the Chennai realty market, for instance, may bear no resemblance to those in the Mumbai market. Yet it is knowledge of these trends that may help potential investors identify the best investment opportunities in real estate. Unlike stocks and bonds where assets can be acquired for one transparent and common price, realty assets are priced to a large extent on a case-to-case basis and tend to be very region and location specific.

Under these circumstances, the current mutual fund sponsors may have to partner with external consultants from the domestic realty business or set up separate investment teams from scratch- who is specialized in the property markets, before they line up their first REMFs.

Indian arms of global asset management companies which already manage such products in other markets may have an edge on the processes used to select realty investments, but even this may not obviate the need to have a local team which closely tracks Indian property market trends. While Miffs have actively outsourced functions such as accounting and customer service o third parties, investment management has hitherto been strictly an in-house function.

There are also other operational aspects to these funds that may be tricky to navigate in the beginning. The stipulations which say that REMFs will be required to maintain a minimum 35 per cent investment in direct real estate assets, with not more than 30 per cent in one city and no more than 15 per cent in one project, are designed to avoid concentration risks in REMFs.

However, this suggests that fund houses may have to get developers to specifically tailor projects to their requirements or may have to collaborate with other investors, to make sure their funds adhere to the stipulations. REMFs may also require a much longer window to deploy the funds raised, and thus a much longer gestation period, than is the case with their current debt or equity fund offerings. The daily NAV disclosures and listing requirements of such funds may also face a few challenges. Though NAVs of such REMFs are to be disclosed on a daily basis, it is unlikely that they will capture blips in property prices on a daily basis, as do the NAVs of existing equity or debt funds.

This is because the valuation of REMF’s property portfolios is bound to be a periodic, rather than a daily exercise. The regulations stipulate that every asset that finds place in a property fund’s portfolio will be valued by two independent valuers, once in every 90 days, to determine its fair price. This suggests that material changes to the NAV may occur only at 90-day intervals, depending on when assets are acquired.

Given that REMF units are to be listed and traded on the stock exchanges, however, the market prices may be influenced by the market’s assessment of how a fund’s portfolio is actually faring and may not strictly lag the NAV, as with other closed end funds. Will this subject listed REMF units to speculative blips on the market? We may have to wait and watch on that.

Madurai Real Estate Hots up

Famous for its temples, Madurai has always been on tourists’ radar and gets a steady flow of visitors round the year. But that’s not the only claim to fame for the second largest city in Tamil Nadu. The IT boom has touched this temple town too, with Honeywell’s Research Lab (tied to the Thiagarajar Engineering College) and the TCS Disaster Recovery Centre being instrumental in IT development.

Spread over an area of 130 sq km, Madurai has a population of approximately 1.3 million. Domestic flights connect the city to state capital Chennai, Bangalore and Hyderabad. International connectivity from Madurai airport, located 13 km from the city centre, is also expected to begin this year. In fact, according to a Cushman & Wakefield (C&W) report, real estate development is increasingly moving to the southern and western parts of the city, mainly around the airport, Rirupparankundram Road and By-pass road. This is due to a scarcity of land in the CBD (Chinnakadai).

The city has witnessed encouraging commercial development over the last three-four years. The state government has transferred two land patches — 29 acres at Ilandhaikulam and 213 acres at Vadapalanji — to ELCOT for SEZ development. Sify, HCL, TCS, Wipro and CTS have booked their space for campus developments in the SEZ. Upcoming developments in Madurai include three IT/ ITeS/ SEZs, covering a total area of approximately 128 hectares.

This apart, the Tamil Nadu Housing Board proposes to set up several office and commercial complexes in five prominent places in Chennai and Madurai to meet the demand for commercial space, according to a recent state policy note. Typical rentals in CBD are in the range of Rs 32-35/sq ft/month. Further, the commercial space in newly-developing areas could fetch a rental of Rs 24-28/sq ft/month, according to data available with C&W.

The residential space in Madurai, like all other small towns, is largely skewed towards independent homes culture. However, the apartment culture has picked up due to an increasingly investor population that’s now driving the demand for residential apartments and villas. This has attracted many national and international developers such as ETA star, Hiranandani Constructions, Sahara City Homes and ETL Infrastructure to develop properties in Madurai. Sahara has acquired approximately 125 acres to develop 15,000 unit apartment complex, while Arihant has close to 21 acres earmarked for an integrated township.

The existing and established retail precincts include the surroundings of the famous Meenakshi Temple in Chinnakadai Area, Anna Nagar, KK Nagar and the By-pass Road. There is no mall culture at present, but the few proposed ones such as Vishal Mall (165,000 sq ft) and Milan Mall (85,000 sq ft) will house an Inox multiplex and will open early next year. The city has quite a few stand-alone formats on the By-pass Road and in areas like Anna Nagar and K K Nagar. Rentals in the CBD are about Rs 50 per sq ft/month.

Off-CBD locations could attract rents up to Rs 35 per sq ft/month, according to C&W estimates. Traditional prime locations like P T Rajan Road, Old Natham Road and TPK Road attract prices ranging from Rs 2,000-2,600/sq ft. New supply is largely concentrated towards south/south-east Madurai. In terms of rental, the new built-up villa in CBD and off-CBD could attract as high as Rs 15,000 and for apartments between Rs 3,000 and Rs 5,000.

60 Acres may be freed up for Real Estate Development in Bandra

With Mumbai grappling for additional land for expansion, the city’s western suburb Bandra could see availability of close to 60 acres of real estate for development. The residents of the Maharashtra government’s employee staff quarters have suggested that government redevelop the colony spread across 96 acres. The residents association has suggested the government to redevelop the land on the build operate and transfer basis.

According to the proposed plan, the redevelopment project is expected to cost Rs 1,686 crore with estimated revenue of Rs 1,899 crore. It also makes provision for construction of government offices for the suburbs. The Maharashtra government constructed the colony in 1958-60 on a reclaimed land. Madhukar Vichare, advisor, Government Quarters Residence Association, said, the relocating of existing staff in the multi-storey buildings will require 25-30 acres of land while the government can exploit the rest for further development.

The project will also fetch additional revenue to the government that is spending Rs 15-20 crore on annual maintenance. When contacted D B Deshpande, secretary, public works department, Maharashtra government, said that he could not comment on the proposal since the house is in session. The government colony, which houses around 5,000 families, is strategically located on the western express highway and is close to Bandra-Kurla Complex developed as the city’s second business hub.

If approved the project will release a significant supply of real estate at Bandra (East), which has attracted corporate houses to set up new offices in recent years. According to the industry experts, the real estate rates at Bandra-Kurla Complex have jumped 100 per cent in the last three years.

Currently, Bandra (East) is commanding Rs 30,000-40,000 per sq ft for luxury apartments while residential rates are hovering around Rs 14,000 per sq ft. The rates for office spaces at Bandra-Kurla Complex are been quoted at Rs 350-375 per sq ft. Sanjay Dutt, deputy managing director, Cushman & Wakefield, said, the additional of piece of land will have huge impact of the areas realty considering the strategic position of the colony. The specific assessment is not possible as the project will take time to come up if approved.

The residents maintain that colony is living on a borrowed time and the July 2005 deluge has severely damaged the buildings, with 5-6 feet water entering the houses. Vichare said, the staff has already paid the cost of the houses through the HRA deductions and it is impossible to buy new houses at such high realty prices.

Mahindra’s Jaipur SEZ to become partly operational from July

The Special Economic Zone being developed by Mahindra’s at Jaipur will become partly operational in July with first group of clients moving in, a top official said on Friday. Mahindra Lifespace Developers, the real estate and infrastructure development arm of the USD 6 billion Mahindra group, has also started buying land at Karla, near Pune, for an SEZ project, Arun Nanda, vice-chairman of the company told reporters while releasing financial results here today.

The company has managed to get a premium of 20 to 40 per cent over the current market rate for some of its residential projects in Mumbai and Faridabad, he said. The company has an estimated land bank of 35 million sq ft across the country and expanding to new places like Nashik and Nagpur, he said.

Nanda said that earlier people were talking about the long gestation periods faced by the company. But now onwards, “the company will see far more accelerated growth. The story is now unfolding. There will be unlocking of profits,” he said.

The company has 1.5 million sq ft of space under construction at present. Referring to the SEZs, he said the company has the distinction of promoting the first successful SEZ in private sector at Chennai, now known as Mahindra World City. The second SEZ at Jaipur is progressing well and the first group of clients, which includes Infosys, will move in July. It would take couple of more years for the entire SEZ to become operational, he added.

Double Whammy for High-End Luxury Realty Market

THE high-end luxury real estate market is facing a double whammy. The demand from domestic buyers has already dried down and now even non-resident Indians (NRIs), who constituted a significant market for luxury real estate developers, are developing cold feet. “With the US property market witnessing a correction due to subprime crisis, the NRIs are expecting the same to happen in India and are holding back on their purchases,” says Delhi based real estate firm Omaxe CMD Rohtas Goel, who recently launched a luxury project in the National Capital Region (NCR).

Three-four years ago, there were only a few big developers into the game of building luxury homes. But the higher margin in the business prompted many others to join.“The developers entered the luxury segment without a proper assessment of the market. Now they are faced with a major supply-demand mismatch. In Punjab, Delhi NCR and Mumbai suburbs, the supply far outstrips demand,” says real estate consultancy firm Jones Lang LaSalle Meghraj India chairman Anuj Puri, adding that the exit of speculators and investors has impacted these markets, where the supply exceeds demand by 25-35%.

Adding to this is the near absence of NRI buyers, who constitute around 20% of the luxury home buyers, according to property consultants estimates, “The price correction in the US has prompted NRIs to evaluate buying properties in their local market, where they can easily control and manage them, unlike in India, where managing property has been an issue with them,” says Cushman & Wakefield Director (residential) Aditi Vijayakar. She also points out that Indian developers carry a wrong notion that every NRI is a billionaire and can afford a Rs 2-3 crore property. Besides a demand problem, the competition among developers has intensified as they are wooing the same segment of NRIs. Says Ansal Properties and Infrastructure, president (marketing) Kunal Banerjee says, “The NRI market is a bit too crowded these days. Therefore, we are looking at attracting PIOs (person of Indian origin).”

PIOs are second or third generation people across the world, whose forefathers had migrated from India during British Raj and settled abroad. There is a good population of PIOs in Africa and Australia. The recent attempts by the Indian government to renew ties with PIOs by hosting Pravasi Bharatiya Divas may also have a positive push to the marketing efforts of developers such as Ansals.

Besides targeting a new segment, developers are also offering freebies to woo NRIs. “Firms are offering free tickets to potential NRI home buyers to visit India and take a look at their property. This is done in association with banks, which maintain a list of high net worth individuals,” says Knight Frank India chairman Pranay Vakil.

23 big firms eye Thatipur realty project in Gwalior

As many as 23 big real estate firms are eyeing the Thatipur project in Gwalior, Madhya Pradesh. Reliance, DLF, Parsvnath and Gammon are in the fray to bid for the mega project, of which the bid submission will end on May 7. The MP government has not set a reserve price for the project. The bidders have been asked to quote speculative prices. The state government has roped in India Infrastructure Initiative Facility of IDFC and Feedback Ventures as project advisors for selecting the developer of the project.

After the bidding is over for the Central Business District project in the prime business locality of New Market in Bhopal, Thatipur will attract mega investment under the “re-densification scheme”. Unlike the Bhopal project, which fetched Rs 338 crore from Gammon India for infrastructure development on 15 acres for a lease period of 30 years, the winning bidder will be awarded the Thatipur project on 95 years’ lease and will be asked to develop residential and commercial complexes on 50 acres in an integrated manner.

“The state government will lease the land for 95 years. Infrastructure will be developed on the basis of public-private partnership,” said Suresh Kumar, chief operating officer, Infrastructure Initiative Facility. “The investor will have to construct houses for government employees on 20 acres,” Kumar said. The project is expected to be completed in nine years. The India Infrastructure Initiative offers a “no-cost” solution to the governments or government undertakings to go through the process of project preparation and partner selection for the identified infrastructure projects.

Commercial Development of Vacant Railway Land

The Ministry of Railways have set up Rail Land Development Authority (RLDA) by an amendment to Railways Act, 1989 (Amendment No. 47 of 2005) for commercial development of vacant railway land for generating revenue. So far 115 sites, covering a total area of 1139 hectares (approx) have been entrusted to the Authority for commercial development at different places. In addition, 26 stations located in metropolitan cities and important centers have been identified for redevelopment as world class stations through Public Private Participation (PPP) by leveraging the real-estate potential of the land around and the air space above the stations.

As per current thinking Railway land is to be given to developers for commercial development through transparent bidding process on long term lease basis for development work without any budgetary resources. The work of redevelopment of identified 26 stations into World Class Stations are planned to be undertaken through PPP basis.

No funds from Railway Budget are envisaged to be invested except to the extent of meeting requirement of viability gap funding in exceptional cases of development of stations as World Class Stations.

The 26 stations identified for redevelopment as World Class Stations through PPP are : Nagpur, Pune, Carnac Bunder (Mumbai), Howrah, Lucknow, Anand Vihar (Delhi), Bijwasan (Delhi), Amritsar, Chandigarh, New Delhi, Varanasi, Chennai, Thiruvananthapuram, Secunderabad, Tirupati, Ahmedabad, Patna, Bhubaneshwar, Mathura, Bangalore, Gaya, Jaipur, Agra, Bhopal (Habibganj), Kanpur and Guwahati.