Indian Property News on 'April, 2008'

Realty Bites Tech Hubs in Bangalore, Chennai

The stock of unoccupied properties with real estate developers in the main technology hubs of Bangalore and Chennai is mounting and indications are that their problems will only get worse as software companies head towards greener pastures.

In Bangalore’s Whitefield suburb, once a magnet for IT firms, supply outstripped absorption by 300,000 sq ft in 2007 and about 8% of the developed area remained vacant, data from real estate consultancy Cushman & Wakefield (C&W) show. Prices are stagnating and the situation is deteriorating. In the first three months of 2008, the demand-supply mismatch was more than a million sq ft.

If Whitefield is in a bad way; the Old Mahabalipuram Road (OMR) technology cluster on the outskirts of Chennai is deep in the doldrums, with just nine deals in the whole of 2007. Of the four million sq ft that came into the market last year, only 1.7 million sq ft were absorbed even as rentals fell by 18% and the vacancy rate was up to 11%, again according to C&W data. Most of the more than half a million sq ft that entered the market between January and March have gone a begging.

Property developers’ greed must take a major portion of the blame for the current plight, even insiders say. “The key factor contributing to the oversupply is the consistent overpricing of projects in both micro markets. Developers who priced projects at Rs 4,000 per sq ft were unknowingly killing their golden goose in a sense,” Shriram Properties managing director M Murali said.

Whitefield and the OMR cluster, where IT and technology-enabled services firms occupy most of the office space, could be delivered another blow when a government scheme which provides tax incentives to companies in so-called “technology parks” comes to an end next year.

“STP (Software Technology Park) units and business parks in both locations will take a beating in rentals with the sunset clause (for the Software Technology Parks of India scheme) ending in March 2009. Firms will now increasing look towards Special Economic Zones (SEZs), rendering a number of buildings vacant,” Mr Murali said. And a prolonged downturn in the US will only add to the misery. The OMR cluster also faces a peculiar problem: the Tamil Nadu government does not permit IT parks and STP units to lease space to non-IT firms.

“A number of developers of STP space in Chennai have started offering a variety of attractive terms such as free car-parks, incubation space while the project is under construction, lower deposits and rent-free periods so that they do not have to bring down the base rent. Given the competition, a number of them are also appointing exclusive marketing agents to market their IT parks,” Ramesh Nair, the MD of Jones Lang LaSalle Meghraj said.

The silver lining for property developers could be the interest from start-ups and mid-sized firms as rentals fall. Nearly a third of the transactions in both the OMR cluster and Whitefield involved small- or mid-sized firms.

Sub-Prime Shadow on Indian Realty

The turmoil in the global financial markets has cast its shadow on India’s largest real estate deal. Delhi-based developer BPTP Ltd, which was banking on overseas institutions to fund the acquisition of 94 acres of prime land at Noida for Rs 5,006 crore, has sought an extension to pay the first installment of the money.

On March 12, BPTP Ltd, promoted by entrepreneur Kabul Chawla, had bagged the rights to develop the land. The deal required it to pay the first installment of around Rs 1,251.5 crore (25 per cent of the bid amount of Rs 5,006 crore) to the Noida authorities within 30 days. That deadline expired earlier this month and the company has now sought a 60-day extension.

It now has 60 days to pay the amount with an additional 14 per cent interest impost. The extension request has been granted, said a senior BPTP executive. “We will pay the money before the 60-day period ends,” he added.

The executive, who requested anonymity, added that BPTP had almost closed a deal with some foreign banks to raise the required money. But the banks, caught in the sub-prime crisis, went through a management overhaul and the loan to BPTP got stuck.

India’s real estate developers, especially the mid-sized ones, have been facing a liquidity crunch since last year. Developers can no longer tap the external commercial borrowing route, while domestic borrowing costs have gone up on account of tight-fisted monetary policy, which is likely to harden further in days to come.

In addition, the stock market has taken a beating with real estate stocks falling off their recent highs. Other sources of funding for instance — the London Stock Exchange’s Alternate Investment Market or listing real estate investment trusts abroad — are also not feasible in current market conditions.

The tender that BPTP won, beating bigger players like DLF and Omaxe, has an “exception clause” that allowed the company to seek an extension to pay the first tranche.

Failure to make the payment within the extended deadline would result in the award being scrapped and a fresh tender being announced, Noida officials said. The earnest money amount of Rs 100 crore will also stand forfeited.

BPTP Ltd had a turnover of around Rs 1,100 crore and a net profit of Rs 220 crore in financial year 2007-08.

Indian Real Estate targeting Canadian NRIs

Real estate developers and agents in India are now offering more solution to market properties to Non-Resident Indians (NRIs) and international real estate investors. Their focus now is geared to target the burgeoning and lucrative market of prospective Canadian buyers.

The latest report by ‘Statistics Canada’ says that South Asians have now surpassed the Chinese as the largest visible minority group in the Greater Toronto Area. “The 2006 Census enumerated an estimated 1,262,900 individuals who identified themselves as South Asian, a growth rate of 37.7 percent from 917,100 individuals in 2001. For the first time, the South Asian community has outnumbered the vast Chinese population in the Greater Toronto area,” says the report. Pair this with the World Bank’s new report: `Migration and Remittances Factbook 2008′: NRIs (primarily in North America) sent over $27 billion in foreign remittance to India in 2007, making India the highest recipient of remittances in the world ($27 billion = INR 108,000 crores). A significant portion of this amount went into Indian real estate. Indian realty is growing at a whopping 30 percent with the $15 billion market expected to reach $90 billion within the next 8 years. Huge demand and access to capital have been the key drivers for propelling the Indian real estate market into overdrive as more and more money is pouring in.

all of the above elements come together in an exciting and unprecedented business opportunity in Canada. According to Kam Rathee, President Canada-India Business Council, “The latest Canadian census report shows South Asians have taken over the Chinese as the largest ethnic community in Canada and Indians have a lion’s share of the population and wealth among them.

This Indian wealth, which is becoming legendry on account of their foray into business, trade, investment and executive positions, has and will see its way into India’s real estate market not only on account of the returns it brings but also in satisfaction of the emotional pull to invest in the motherland. Further, as the earth is flattening, the Canadian dollar, like water, is bound to find its way away from the low return in Canadian real estate to a robust return from India’s realty.”

Deepak Obhrai, Member of Parliament for Calgary East and Parliamentary Secretary to the Minister of Foreign Affairs and to the Minister of International Cooperation concurs with the sentiment, “The South Asian community is establishing deep roots in Canada and can proudly claim to be a successful and dynamic segment of the Canadian population. Its influence can now widely be seen in all facets of the Canadian mosaic. Having established themselves, this community is playing a vital role in the real estate market. In Canada, for example, this community’s influence is spread across all neighborhoods. I would say that the South Asian community is now expanding their real estate interests from Canadian shores to India, some looking to buy a home in the country of their birth and others with the idea of setting up a base for their commercial ventures.

The Confederation of Real Estate Developers’ Associations of India (CREDAI) and Maharashtra Chamber of Housing Industries (MCHI) are the Presenter of Buy Indian Properties Expo 2008 being held in USA and Canada. Toronto, ON – May 31 & June 1 at International Convention Center, Mississauga Houston – June 4 & 5 – Stafford Centre Performing Arts Theatre & Convention Center New Jersey – June 7 & 8 – New Jersey Convention and Exposition Center, Raritan Center.

Indian Restaurants Expanding Overseas

If realty bites, Indian restaurant owners seem to be biting off more than they can chew offshore. Skyrocketing real estate prices in India are forcing homegrown restaurateurs to take wing abroad with investments in the UK, the US, Dubai and the Far East. And this is no curry-in-a-hurry when veteran restaurateur Anjan Chatterjee is livid about the investment returns ratio in India.

“Yes, the prices that we have to pay in Mumbai and Delhi are exorbitant and we would rather invest in New York and Leicester. Not only do we have to invest less in real estate there, but the returns are much higher than what we get in India,” says Chatterjee, promoter of Speciality Restaurants.

Restaurant owners believe that real estate prices in south and central Mumbai is higher compared to prices in the UK, the US or Dubai, while prices in Noida, Gurgaon and other areas are either on a par or more than those in the Far East and Europe.

“In South Mumbai, we have to pay around Rs 400 (per square feet) for a rented place while for the same price or rather a little less, I would get a fantastic space in Dubai High Street. We are investing in the Gulf and are on the verge of starting Oh! Calcutta in Singapore. We are also in talks to enter the US market,” says Chatterjee.

A restaurateur reasons that Starbucks cancelled its India plans owing to northbound realty prices. “Even for a moderate 700 square feet space in Linking Road, we end up paying Rs 500 as rent. The rates demanded for property in Mumbai and New Delhi are really not feasible for us and so we too are planning to invest in Dubai,” says Roger Narula, CEO, Dish Hospitality Ltd. Dish is a Wadhawan group venture that also runs the food retail chain Spinach.

In cities like London and Kensington, one would get an excellent place at Rs 90,000 per square meter. It is understandable that an Indian developer would prefer to buy land and develop a project in an English suburb rather than contend with the steep land rates in a city like Mumbai.

“The rate of return is also higher in the UK than in Mumbai and New Delhi,” says Anuj Puri, head of Jones Lang Lasalle Meghraj. Experts say that the rates in Dubai would be anywhere between Rs 30,000 and Rs 50,000 per square foot, which again is quite lower than that in South Mumbai and New Delhi.

Restaurateurs also point out that the concept for specialty restaurants is not quite popular in India and so their returns get restricted. Besides, Indian consumers are price sensitive and would rather opt out than spend a little extra on food.

Says Siddharth Thaker, associate director of HVS Real Estate Consultant, “Internationally, cost to property amounts to around 20-25% of the total cost, the same is around 50-60% in India. So these days, many restaurant owners are planning to invest abroad than in India.”

In Mumbai, say real estate consultants, Cuffe Parade is one of the costliest areas and the prices quoted here are around Rs 90,000 per square feet, depending on the building and exact area. That means to buy a moderate restaurant in this area, one would end up in shelling Rs 9 crore (,1000 sq ft). While the prices are not as high in New Delhi, a similar area in Noida, Gurgaon and South Delhi would cost over Rs 5 crore, say experts.

Now take the case of Kwality Group, which runs Gaylord restaurant in Connaught Place, New Delhi and in central London. “We are investing in London and the Middle East as it makes more sense, not only in terms of the prices but the returns as well,” says Dhruv Lamba, executive director, Kwality Group.

We are starting our fresh food restaurants in Canada and the US in about a month. Though I cannot reveal the exact amount pumped in the ventures, I can tell you that it is only around 70% of the sum that we have ended up spending in Mumbai or New Delhi for a similar project,” says KP Sareen, adviser business development, Bikanervala Foods Pvt Ltd, which owns Angan Restaurants in the Karol Bagh area of the capital and is expanding overseas.

ICICI to tie up with British Realty Firm

UK’s real estate firm Dandara is likely to tie-up with ICICI Bank to woo high networth individuals in India for investing in UK’s real estate market.

The £200 million UK-based company is in talks with the largest private sector bank of India to endorse Dandara’s properties and market them to ICICI customers.

“The due diligence process is going on and in next 2-3 months we expect the deal to close. As per the agreement we will be able to reach the customers of ICICI Bank, which has a wide network in the country,” Dandara Holdings group investment sales director Seamus Nuget said on Wednesday.

Multiplexes & Malls opening up at Chandigarh

Starved of multiplexes and malls, residents of the tricity can now look forward to at least three such complexes in the next couple of months and double the number by the end of the year.

City Beautiful, which currently has just one multiplex to boast of, will get a second this week. DLF’s DT Cinemas will open at the Rajiv Gandhi Chandigarh Technology Park (RGCTP) on Friday with Saif Ali Khan-Kareena Kapoor starrer Tashan.

Spread over 1, 90, 000 square feet, the mall (retail brands) will be formally inaugurated on May 1 and Nicknish will be its anchor store. Though nearly fifty-five national and international brands, including French brand Axsara, Lee Copper, Levis, Numero Uno, John Players, Madame, Woodland, Reebok, Turtle and Meena Bazaar, will occupy retail space in the mall, there is little diversity in the retail mix which is mainly apparel.

Café Coffee Day has already been roped in and the food court will be completed within a month’s time. Tie-ups with restaurants are being worked out, DLF officials said.

The mall will have parking space for 250 cars while the three-screen multiplex, projectors for which have come from Christie’s, will have a total of 786 seats. Movie tickets will be delivered at home and people can also reserve tickets through phone, Internet or by sending an SMS.

Also in the pipeline is Uppal’s Centra Mall at Industrial Area-Part 1, which has applied for completion certificate to the Chandigarh Administration and will be operational within three weeks. Spread over 1.25 acres, the mall has a 344-feet glass façade frontage, four state-of-art-auditoriums and a 53-ft high atrium. Uppal Group MD Maneesh Uppal said Café Coffee Day, Reebok, Adidas, Hues, Liliput, Gini and Jhonny and several fashion clothing brands will set up shops in the mall. It will have no anchor store and the group has tied up with PVR for a four-screen multiplex with 1,000 seats.

Coming soon is Paras Downtown Square mall-cum-multiplex spread over 1,50,000 sq ft (the largest so far in Punjab) at Zirakpur. It will have two anchor stores – Big Bazaar and Pantaloons, four-screen multiplex by Adlabs, hypermarket, food court, children’s entertainment centre and a business hotel with gym, spa and coffee shop. Liberty, Reid and Taylor, Nike, Woodland, Provogue, Madura Garments and Jumbo Electronics are likely to set up their outlets here. The project is Delhi-based Paras Group’s realty venture. The group, which has a turnover of Rs 750 crore from its dairy business, has diversified into healthcare, processed water and real estate. Multiplexes are also planned at the sites of Jagat and KC theatres while proposals to convert some of the other theatres are in the pipeline.

Realty Deals Bring Rs 23,000 cr during January-March

Slowdown in the real estate market notwithstanding, land deals in India are thriving. According to a recent study, the total value of such deals, in the first three months of 2008, have touched around Rs 23,000 crore, while another Rs 10,000-crore worth deals are in the pipeline.

A study by top brokerage JP Morgan shows that Delhi-based developer BPTP’s Rs 5,000- crore land deal in Noida was the largest deal in the January-March period, while the Mumbai Metropolitan Region Development Authority’s land auctions in Bandra Kurla Complex had fetched around Rs 4,000 crore.

The deals in the pipeline include the Indian Railways’ 50 acres worth Rs 10,000 crore that is scheduled to be auctioned later. Also, a Rs 115-crore deal between the Balaji group and Prestige group is likely to be completed soon.

In Mumbai, a Rs 250-crore deal by Hindustan Composites is in the final stage, in which developers such as DLF, Kalpataru and K Raheja Corp are the lead bidders. The JP Morgan report comes at a time when it is expected that a tightening in global liquidity and a slowdown in the economy, could put the brakes on the real estate sector which witnessed a sharp rising growth in the past two years.

As a reflection of this slowdown, developers’ plans including malls, complexes and residential projects are all being kept under wraps. Property prices and rentals have been falling which was also seen in the loss of investor interest and an erosion in the market capitalization of large listed players such as DLF and Unitech. The slowdown is also aided by the fall in stock markets as there is now a lack of capital among investors to invest in real estate projects.

Industry officials said that given the limited avenues of fund raising, a number of developers raised funds through instruments such as primary equity offerings and through foreign currency convertible bonds.

All leading developers have also scaled up their development plans as well as made fresh land reserve acquisitions. “The fundamentals of Indian real estate are very strong. More and more global funds are entering India,” said real estate consultancy Jones Lang LaSalle Meghraj chairman and country head Anuj Puri.

Royal Group,GTC in Race to Buy 26% in Raheja Group’s Engineering SEZ

Royal Group of UAE and Netherlands-based GTC Real Estate are in the race to acquire 26% stake in the Delhi-based Raheja group’s engineering SEZ in Gurgaon for Rs 500 crore. It has been learnt that the Raheja group may ink the deal with either of the two groups in the next few weeks.

Raheja Developers MD Navin Raheja declined to comment on the development, but said his company was in talks with some investors to sell equity stake in its SEZ. The 257-acre SEZ project is being valued at Rs 4,500 crore with the land component accounting for almost half of it, according to sources. The foreign investor will initially take 26% stake in the SEZ for around Rs 500 crore and May later bring in more funds towards construction cost, sources said.

The Royal Group, led by the royal family of Abu Dhabi, is a conglomerate of 30 companies engaged in several sectors such as media, real estate, trading, services, construction and technology. The other likely investor GTC Real Estate is a Netherlands based firm, listed on Tel-Aviv Stock Exchange. Dutch-Israeli investment fund The Kardan Group, which holds 64.3% stake in GTC Real Estate, is mulling the latter’s merger with itself.

In an earlier investment in India, GTC Real Estate had reportedly agreed late last year to form an equal joint venture with D S Kulkarni Developers to develop 250 acre multi services SEZ at Pune. GTC had reportedly agreed to invest $96 million into the project in a phased manner. Raheja Developers are a privately held firm with a net worth of Rs 1,225 crore. Their engineering SEZ has recently been notified by the government. The total usable area in the SEZ will be 21 million sqft, of which 9.68 million sqft will be used for industrial purpose. An 8 million sqft of space will be utilised for residential purpose, while the rest will be used for commercial, institutional and educational purposes. The SEZ will be completed in phases with the first phase being completed within 3 years, according to Raheja Developers. The company says that it has been approached by several international and national Engineering Companies for taking space in its SEZ.

No Room for Slow Down in the Hospitality Industry

Forget slowdown jitters and dollar decline, Indian hospitality industry registered strong growth in 2007-08. Though hotel occupancies in Bangalore, Hyderabad and Pune dipped marginally owing to over capacity, average room rates (ARRs) for branded hotels across star categories continue to witness robust growth in most cities.

As per hotel consultancy HVS Hospitality Services, Delhi and Mumbai witnessed highest room rates in the country pegged at around Rs 10,200 per night. Bangalore finally saw a marginal correction in room rates. It recorded a room rate of Rs 10,100, marginally lower than Rs 10,545 that it commanded last fiscal.

Occupancy-wise the country’s commercial capital Mumbai performed the best, followed by Delhi and Kolkata. While branded hotels in Mumbai registered an average occupancy of 80%, Delhi was at 78% and Kolkata at 77.4%. “Overall the occupancies in most markets softened while ARRs saw a marginal increase. Going forward, we will see correction in ARRs in next two years. Most of the markets have peaked out in terms of occupancies though revenue wise this was one of the best years for the hospitality industry,” says Siddharth Thaker, associate director, HVS Hospitality Services.

Though occupancies were not significantly higher this year, hotels still managed good revenues due to dearer room rates. Says Raymond Bickson, MD, The Taj Group of Hotels, “Across board we registered occupancy of 75%. The RevPar (revenue per room) for this year has been good. ARRs may soften a bit though overall tourism sector looks strong.”

Most branded hotels, especially in five star categories, though have cause for concern in Bangalore. As unbranded hotels proliferate in India’s silicon city, occupancies are softening. “While Delhi and Mumbai properties performed well, occupancy has decreased for our Bangalore property. The ARR too is not growing. Bangalore will be the focus of our sales and marketing strategy this year and in fact for most hotel chains,”

says Farhat Jamal, COO, The Grand Group of Hotels . The group at present operates seven hotels in the country and has witnessed a growth of 22% over last year. The rupee appreciation, expected to be a dampner on revenue, didn’t make any significant impact after all in 2007-08. “Yields were not impacted primarily as most hotels had started quoting in rupees in the second half of the year,” says Peter Leitgeb, president & CEO, The Claridges Group of Hotels.

Delhi NCR Rents may Stabilize Next Quarter: Report

Rentals in the National Capital region are expected to stabilize in the next quarter as supply is set to increase Gurgaon and Noida, says a report.

According to commercial real estate services firm CB Richard Ellis, rentals are expected to be stable in the next quarter as the supply is set to increase significantly in Gurgaon and Noida.

“However, no significant change in supply is expected in Delhi except in Jasola where an additional 500,000 sq ft is expected to be added in the second quarter,” the report stated.

Rentals rose steadily in the Central Business District Area of Connaught Place in the absence of any new supply in the first quarter of 2008. The report stated that an evident feature in the last quarter was that a number of the older buildings made a noticeable attempt to improve infrastructure in their premises in an attempt to cash in on the low available supply and high rentals.

However, CBRE forecast that there would be no respite in rentals in the near future in the absence of any upcoming supply in the Central Business District of Delhi. The average rent in Connaught Place (Grade A) rose to Rs 340 per sq feet per month in March this year from Rs 325 in December 2007.

While in the peripheral markets Gurgaon and Noida, the rentals are expected to stabilize in the next quarter. Rentals in Gurgaon showed no sign of a meltdown in the previous quarter. However, they are expected to remain stable in the next quarter with additional supply on the MG and Golf Course Road offsetting the corporate demand, the CBRE report said.

Besides, in Noida rentals were marginally higher in the last quarter but are expected to be steady with high supply available especially in the industrial/institutional sectors.

Noida continues to be an attractive destination for IT/ITeS companies primarily for their back office operations. The report said that absorption rates in Noida are expected to rise significantly this year with improved infrastructure and affordable rentals.