Indian Property News on 'May, 2008'

Carrefour may Opt Parsvnath for India Foray

Carrefour, the world’s second largest retailer, is considering the franchise model to initially expand its presence in the country and may announce a local partner in four weeks, people involved in the development said.

The French retailer, which has held talks with as many as 50 domestic business houses including Mumbai-based Wadia group and Mukesh Ambani-led Reliance Industries and real estate companies, such as DLF, in the past five years, may choose Parsvnath, a New Delhi-based real estate company, as its partner.

“Parsvnath has emerged as the strongest option for the franchise partner,” a source said. A person familiar with the development at Carrefour gave the same timeline for the announcements. Parsvnath has almost five million sq ft of retail space under its belt and plans to increase it to six times in the next five years.

The retail giant’s negotiation with other domestic houses and companies failed as they wanted greater control over the business.

Carrefour is exploring the wholesale cash-and-carry format and front-end retailing options in the country. It has already formed Carrefour WC & C India and Carrefour India Master Franchise Company for the respective business formats.

“We are likely to announce our retail partner in three to four weeks,” Pradeep Jain, Carrefour’s chairman in India said. Under current government guidelines, foreign direct investment is allowed in the wholesale cash and carry model but it is not allowed in the multibrand retail stores. In single brand retail stores, it is limited up to 51 per cent. However, multi-brand international retailers can operate through the franchise route where an Indian partner would own the operations.

Carrefour SA Chief Executive Officer Jose Luis Duran had said last month that it was worth investing in India before the limits on overseas companies’ ownership of local stores were lifted. The company was talking to potential Indian partners to start a wholesale business and may announce the winner in the coming “weeks or months”.

“We still haven’t zeroed in on a partner as it is all in the early stage,” said Somesh Dayal, marketing head for Carrefour India.

It is Carrefour India Master Franchise Company that would give its Indian partner the licence to do front-end retailing with using the French retailer’s brand name. Carrefour would also manage the whole-supply chain and provide the logistic support to the retail firm.

“Franchise is the best option,” said Jain. “Today franchise can operate the company and tomorrow when FDI is allowed the international retailer can increase its stake,” he said explaining the business model under discussion.

PE Money coming in Full flow into Indian Realty

The private equity (PE) graph in India’s real estate sector is growing as high as its skyscrapers. The first five months of 2008 has PE commitments in Indian real estate companies surpassing the total PE investments committed in the whole of 2007—that is $3 billion.

Experts say PE funding in the second half of the year will be even more. This is a good time for PEs to invest as there is a liquidity crunch and valuations of many real estate players are down. PEs also expect a further lowering of valuations, somewhere in the tune of another 20%. Even as private equity money comes into the market, there are concerns among investors about the execution capabilities of many of developers.

The months since January haven’t been too conducive for the real estate market in India. For one, real estate stocks plummeted as the stock market crashed January onward. “Many real estate players have been feeling the liquidity crunch and this is where private equity funds have an opportunity to cash in. This is a good time to close deals and scout for more at lower valuations,” says real estate expert Ankur Srivastava.

A lot of the deals that were closed this year may have started negotiations sometime last year, said Infinite India Investment Management director Jagdeep Pahwa. They closed a $150 million deal with Maytas Properties in February 2008 but the negotiations were on since the third quarter of last year. “Earlier, people could tap debt as well as the public market, both of which have dried up today. PE is today more available versus the other two. Deals that are happening today have a higher component of preferred returns which offer a form of downside protection to the investor,” he explains.

What is interesting to note is that most PE funds are expecting a further dip in valuations, even at the SPV level. “A number of developers are reluctant to accept that the valuations are down even at the SPV level. PE’s are seeing deals at much lower valuations even at project level,” says Srivastava. Developers though deny that SPV level valuations have been hit at all. “The overall valuations of the company might be down 50% over the last 5-6 months but SPV level valuations has not been hit. In fact it has increased,” said Omaxe MD Rohtas Goel.

Kotak Realty Funds ED S Sriniwasan feels that though there has been some correction, valuations haven’t corrected enough. “Expectations of developers haven’t gone down yet though some of the more practical guys have recognized that circumstances have changed today,” he adds.

Many funds today are getting more choices. “With the real estate sector witnessing rationalization, developers are more realistic on valuations of their projects. FIRE Capital Fund is today getting wider choices at attractive valuations and with a range of developers who are looking at a value add in terms of development expertise in addition to capital infusion,” said FIRE Capital Fund CEO Om Chaudhry.

Parsvnath Developers COO Dr BP Dhaka feels the slowdown in real estate can be seen as the maturity in the sector. “Any sector that is transparent and professional is attractive to PEs,” he explains. It is then obvious why PE investments in the first 5 months have matched total investments of the previous year, said research and consulting firm Four-S Services CEO Satyendra Shukla. What many developers are trying to do today is to replace these by longer-term investors. Sriniwasan has a slightly different view on this. He feels end product prices still have to come down. “The correction will be confirmed only when we see volumes pick up at those corrected prices,” said Dhaka.

Non-Enforcement of Provisions of Tenancy Act in Goa

This article is to remind the government, the agriculture, revenue and panchayat departments, the block development officers (BDOs), the village panchayats and the gramsabhas about their statutory role clearly laid down since June 1975 and responsibilities regarding the agricultural land assets. The gramsabhas may continue to agitate against mega projects, tourism, mining and other issues but it is their duty to make their own panchayats work to enforce the statutory directives under the agricultural tenancy act, 1964.

It is the duty of every gramsabha to verify the enforcement of the directives to be followed by tenants in cultivating lands held by thema issued by revenue department on 13 June 1975 and published originally in the official gazette, Series II, No. 12 dated 19 June 1975. If the government authorities, the BDOs, the respective village panchayats and the gramsabhas fail in enforcing these simple, common sense directives then there needs to be a judicial cognizance of such failure. These directives were made in the right spirit of agricultural advancement and for bringing certain discipline in agricultural operations. Otherwise what was the purpose of the agricultural tenancy act, 1964? On careful scrutiny of the traditional farming operations under the communidades and the work undertaken by the serious farmers, I found that there was nothing extraordinary about these directives. The government only provided strong statutory support in the interest of enhancing the agricultural production. So why these simple directives are not given wide publicity every year? Why are these not enforced scrupulously?

The government issued these directives under rule 15A of agricultural tenancy rules, 1965. Section 15A, subsections 3, 4 specify the mechanism of enforcement and subsections 5 and 6 specify the procedure to be followed for non-compliance of the directives. These clauses should be publicly read in each gramsabha meeting and be translated and explained in Konkani. But what our BDOs and village panchayats are doing? They are actively encouraging indiscipline. That’s one of the reasons for agricultural decline and diversion of tenanted lands for real estate projects. Instead of vast lush green rolling carpets of paddy and beds of local and exotic vegetables, flowers we see dance floors, scrap yards, farmhouses, hotels, garages, buildings sprouting from tenanted agricultural lands.

Villagers have become addicted to the subsidy culture. Tenants associations are looting and plundering Goa khazan belt but no gramsabha would be able to ask them about compliance of the above-cited directives. To illustrate, let me quote the directive ii) (a), In case of Khazan lands marginal to river banks and subject to inundation of saline water, preliminaries of cultivation such as ploughing or digging, de-silting of drains, maintenance and repairs to the protective bundhs, shall be completed, latest by the end of may to ensure better desalinisation of fields with the first monsoon showers and to prevent wind and water erosion. Remember, this directive was issued 33 years ago and has never been enforced after the Congress party captured power. Let us look around in villages dominated by the Khazan lands.

You would see only illegal pisciculture in progress abetted by the ecologically insensitive taluka mamlatdars in gross violation of the Supreme Court directives in the Jaganathan case. Such utter lawlessness has ruined Goa ecology and rural economy. It has created artificial rural unemployment, culture of subsidies and political patronage. All social and environmental activists can treat the above-cited directives as a test case. There are thousands of well-trained local youth willing to take to intellectually satisfying modern agro-horticulture. But they have no land because of the absentee cultivators and their refusal to comply with the government directives.

At the heart of the whole issue lies the future of Goa agricultural lands and farming operations. The word tenant has lost its meaning after the Fifth Amendment. All tenants are now deemed as cultivators. So naturally, it is their duty to cultivate the lands held by them as per the rules in force. Otherwise the gramsabhas, if they really mean business, should make a list of these absentee cultivators and recommend invoking of section 36 of the tenancy act, 1964 enabling the government to assume the management of these uncultivated lands. I underline here that more than 20 thousand hectares of good, fertile agricultural land is being deliberately kept uncultivated, but no political party or government has shown the will to invoke section 36. Such sensitive issues are conveniently kept aside by the gramsabhas because absentee cultivators do not care for agricultural progress “they just want to grab the piece of potential real estate, a source of their perceived future windfall income and sit idle without growing even a blade of grass in their lands. This according to me is a far bigger and serious issue than foreigners purchasing land in Goa. Ever since the foundation of Goa gaunkaris or village communes, there was no system of private land holdings. All the land and the natural resources belonged to the people.

They paid land revenue to the kings. The Indo-Portuguese historian, Dr Pissurlenkar work on Luso-Maratha relations leave no doubts about the mess which the Portuguese, created with the land tenure ship in Goa. Large fertile parcels of land got fragmented. Consequently, agricultural production began to decline from the middle of 19th century. The first serious note of Goa agrarian tragedy was taken by famous political economist Francisco Luis Gomes “who wrote a critical essay on Goa land management problems. Then, self taught commodity economists like Kashinath Damodar Naik also wrote a series of well researched essays on the agricultural decline in Goa. The last real scholarly and serious work was done immediately after liberation by J C Almeida. The two volume Portuguese-English tomes (1967) chronicled the traditional agricultural economy in minutest details with voluminous statistics. Goa could never complete the process of land reforms after 1964 because the ruling parties only created vote banks and never addressed the fundamental ecological and economic issues. Now Goans are paying the price for this blunder.

Record Breaking Realty Deal by Indian

Mr. Mittal, Britain’s richest man, is understood to be in negotiations to buy the property in Kensington Palace Gardens, one of the most prestigious addresses in London.

When the deal goes through, the house will be the magnate’s second property in the tree-lined private avenue near the Royal residence that was home to Diana, Princess of Wales.

Mr. Mittal is close to an agreement with the owner, Noam Gottesman, a 47-year-old Israeli-American financier with a reputation as one of the most formidable traders in the City.

Yesterday, both men were saying nothing about the transaction, but it is predicted the property will change hands for £117 million, achieving a British record. The previous highest price for a residence was reached in March this year when a flat in nearby St James’s Square sold for £115 million.

Mr. Gottesman’s detached residence is next to the Israeli embassy on Palace Green, an extension of Kensington Palace Gardens. The four-storey house has at least five bedroom suites plus extensive servants’ quarters and is described as an institutional neo-Georgian building typical of a type built from the 1920s onwards.

It is being sold furnished and with an art collection. “It is the limited opportunities to acquire such a house as this, the rarity of these houses coming on the market, that makes it so expensive,” a property industry insider said.

The house is thought to be for Mr. Mittal’s son Aditya, 32, the chief financial officer of the world’s largest steel company, Arcelor Mittal. Lakshmi Mittal is the majority owner.

It is believed Aditya wants to be near his father, whose fortune has been estimated at £27.7 billion and who lives in another property in Kensington Palace Gardens. That home was bought for £57 million from the Formula One boss Bernie Eccleston in 2004.

Saffron aims Leading Place in Realty Funding

India-focused real estate private equity firm Saffron Group today said it has chalked out a two-pronged strategy to become a leading player in the burgeoning market staying put for a minimum of five years in upcoming properties and buying out assets with assured rental income.

The Group, a brain-child of Ajoy Veer Kapoor and his peers from the banking fraternity, is the promoter of Euronext listed Yatra Capital, an India-focused real estate fund. It has also launched Saffron India Real Estate Fund-1.

“Our strategy is to be a leading player in the field. We don’t have any short-term view. The industry is growing and it will yield better results for another 10-15 years,” Kapoor said.

Yatra Capital has already raised Euro 220 million through two public offers and has invested almost 75 per cent of that in the Indian real estate market.

The Saffron India Real Estate Fund I, launched in February 2008, is raising a $350-450 million unlisted fund, with a hard cap of $500 million. It has done a first close on April 3, 2008 with an anchor investment of $75 million from Standard Life UK. It is expected to close by the end of 2008.

Following the closure of the fund, Saffron would come out with more funds and invest in real estate and related areas like infrastructure, logistics, warehousing, hospitality and healthcare.

Enticing Buyers with Freebies

Stung by the bearish realty market, which is reeling under a price correction, real estate developers are now unleashing discounts, freebies and innovative schemes to lure buyers into residential space. Consider these: TDI is offering a free international trip for its Kingsbury Luxury Apartment buyers; Ansal Buildwell has advertised an inaugural discount on its project Florence Abode; scores of players are offering an ‘EMI holiday’ till possession on specific projects; while yet others are willing to waive prime location and such other charges or throw-in complimentary club memberships for new homeowners.

“In various markets, despite a slowdown in demand, developers have refrained from reducing rates. Instead some of them have started offering incentives such as club membership, parking lot, and better amenities to attract buyers,” says Ms Shveta Jain, Associate Director (Residential), Cushman & Wakefield India.

Assotech Ltd is giving buyers the flexibility of taking loans on vanilla flats, which incidentally do not include the cost of modular kitchen, shower cubicle and other so-called ‘frills’.

According to the Assotech’s Managing Director, Mr Sanjeev Srivastva, the company allows customers to pay for the ‘frills’ at the time of possession. This means that the buyers’ loan is reduced substantially and they save that much between the time of booking and possession, and can make the balance payment at the end of the purchase cycle. This works out to about 15 per cent of the price of the house — the payment flexibility could be close to Rs 4.5 lakh on a Rs 30 lakh home.

Parsvnath Developers, Parkwood Developers, JMD, and BPTP offer ‘EMI holiday’ schemes, while Ashiana has announced an ‘EMI-sharing’ scheme for its Bhiwadi project. Others like Uppal Group are contemplating similar offerings for their upcoming projects. “Although none of our existing projects has such offers, we are considering introducing them in certain projects which are in the pipeline. In the prevailing market situation, buyers are looking at solutions that make purchases more affordable for them,” says Mr Harmit Chawla, Vice-President, Sales, Uppal Housing Ltd.

Analysts point out that the generous discounts and sops are reflective of the current sluggishness in the Indian property market. “When the market was hot, everything came at a premium — even an apartment facing a so-called park (small lawn) attracted an extra levy in the form of a PLC. In contrast, some real-estate developers are now bundling-in parking charges and club membership as a package deal to catch consumer interest,” they add.

Signs of correction in the residential market are already becoming evident, and residential prices in some pockets are down by 10-15 per cent, while in other parts it has stabilised, says an industry observer.

A report by Cushman & Wakefield points out that both capital and rental values in Bangalore’s residential sector would ‘continue to stabilise’ during the next quarter, across select micro-markets (Whitefield, Kanakpura Road, Outer Ring Road) with a large number of investment-based properties expected to see softening of rates over the next two quarters.

In Delhi, while prices are expected to remain firm in most parts, a correction is expected in the peripheral locations of Manesar and Greater Noida in the short to medium term — even suburban locations of Gurgaon and Noida are likely to see price movements that are project specific.

The report further points out that capital and rental values in Mumbai would continue to stabilise over the next 3-6 months on account of upcoming supply, increasing interest rates and inflationary pressures — all of which will impact purchasing decisions.

Buyers and investors are in a wait-and-watch mode leading to a slowdown situation. As the sales momentum dips, a section of the market could either resort to price reduction or adopt aggressive approach to close deals through sweeteners, at least for a part of their project, to get the cash flows in place, Mr Kumar Gera, Chairman of CREDAI says.

Mr Anshuman Magazine, Managing Director of CB Richard Ellis feels that while demand continues to be robust for premium and even low-end housing, realtors will primarily target the volume segment in the residential market with such sweeteners.

Recently, a Pune-based builder offered air-conditioners and other fixtures at a significant discount to its customers. This whole business of discounts and freebies had started off in the face of fierce competition in the industry, and the trend is likely to accelerate in case the market remains in the slowdown mode.

Ms Jain of Cushman & Wakefield India agrees that certain high-end projects or apartments in prime locations would continue to see strong demand. These projects would not need to join the freebies bandwagon.

So while the residential market braces for a cool-off, it may be a good idea for prospective homebuyers to negotiate that hot bargain!

Lohia Group to Invest Rs 350 cr in Real Estate Projects

Amidst correction in the country’s real estate scenario, diversified business house Lohia Group is planning to invest up to Rs 350 crore in developing three projects in the National Capital and Uttar Pradesh by 2011.

The group’s subsidiary – Lohia Developers Pvt Ltd plans to develop two townships in Lucknow and Moradabad, and a commercial complex in Delhi.

“We have already bought a 10-acre commercial land in Delhi, which will have about 1.5 million sq ft saleable area. In developing the property, we will invest about Rs 150 crore in the next 2-3 years,” Lohia Group Vice-President Ayush Lohia told reporters.

The company is currently awaiting for various administrative clearances to start the construction, he added. Besides, the company has also acquired 100 acres of land in Lucknow and 50 acres in Moradabad to develop two integrated townships there.

Lohia said the company would invest about Rs 150 crore in the Lucknow Township, while the Moradabad project would cost about Rs 50 crore.

“We have just acquired the land in the two cities. We have not decided much about the construction as it is in the planning stage,” he added. On funding the projects, Lohia said it would be a mix of internal accruals and debt, but refused to give details.

In property market, the growth in rentals for office space has slowed down during the first quarter of the current year on account of adequate supply, leading consultant Cushman & Wakefield had said in its latest report.

LIC to Buy Land Worth Rs 2,000 cr

Life Insurance Corporation of India (LIC), which is among the largest property owners in India, is planning to acquire land worth Rs 2,000 crore this year to develop commercial and residential complexes.

This will be in addition to the Rs 1,100 crore it spent last year for purchasing lands across the country. The public sector insurance giant has identified Kolkata, Jaipur, Agra, Vishakhapatnam and Bangalore as possible cities where it may acquire land and develop it.

LIC had hired consultants, which had identified the growth centers in the country and based on the report, the company intends to invest in real estate. “We will evaluate the locations, which earn higher returns when we invest,” a company executive said.

The insurer is next only to Indian Railways in terms of property ownership in the country and, at present, it holds 1,708 properties in the country which are estimated to be worth around Rs 20,000 crore. In the eastern region alone, the life insurer owns 187 properties.

While a part of the real estate has been acquired by LIC in the last five decades of its existence, it also inherited a majority of the properties owned by it at the time of nationalization in 1956. Most of the inherited real estate is in prime location, typically in central business district in most cities, including the metros.

A bulk of the commercial complex developed by LIC is being used to earn rental income, company executives said.

In Kolkata, for instance, the state-owned company is developing around 700,000 square feet of commercial area opposite the Science City, LIC zonal manager R R Dash said.

The company acquired the five acre plot from the Kolkata Municipal Corporation for over Rs 276 crore through a bidding process and is working on a 50-storied commercial building that may be the tallest building in the eastern city. It has already short listed around 10 design consultants for the project that is estimated to cost around Rs 400 crore.

LIC Chief Engineer BK Banerjee said that during the last five years, the PSU’s rental income has increased four folds and during 2007-08, in the eastern zone it stood at Rs 22 crore.

“We expect that in the current fiscal the rental income would be close to Rs 30 crore in the Kolkata region. We would like to double this in the next two years,” Banerjee said.

Aamir Khan Ready to Pay Rs 33 cr for Mumbai Property

Bollywood star Aamir Khan has plans to buy a residential society in Mumbai for his personal studio.

Reports say the actor-director has offered to shell out Rs 33 crore for the society, Vrindavan, in Santacruz.

Aamir Khan Productions has approached the owners of the society to buy the 22-apartment complex.

Aamir’s willing to buy each flat at Rs 1.5 crore. Apart from Aamir Khan, other developers are also eyeing the property.

The society was built by the employees of the State Bank of India 32 years ago. Reports also say Aamir has been negotiating the deal with the owners for six months now.

Agra getting a Massive Makeover

Agra is getting a massive makeover and coming out of the time warp to embrace modernity, replete with marvelous shopping malls, resorts, townships and commercial centers.

Keeping pace with the private sector, the Agra Development Authority (ADA) has charted out an expansion plan with a new 4,000-acre hi-tech township of international standards on the outskirts of the city.

The township would include, among other things, different hubs like an educational hub, a recreation hub, a Sports complex, a world-class auditorium, a medical city, an IT park, a golf course and many more things. In fact, in order to meet the rush of the tourists all through the year, the ADA has also made provisions for the construction of more 3, 4 and 5 star hotels.

Talking to reporters, Anurag Srivastava, vice-chairman, ADA said, ‘‘We have also made a provision of developing 300-400 acres amusement parks within the township. Once we finish acquiring the land we will start auctioning the plots and with a huge demand already existing in this sector, we are sure to make this international city a huge success.’’

Forming part of the famous ‘Golden Triangle’ (Delhi-Jaipur-Agra), this tourist centre is a hotspot for big real estate players. The mad spree among private builders in launching major residential and commercial projects in the city visualizes its future growth.

In fact, the ADA is also not far in following in the footsteps of the private builders. ‘‘Out of the 4,000 acres of the township, a major chunk, say around 1,000 acres would be for residential purposes,’’ said Srivastava.

However, providing proper basic infrastructure has so far been the bane of ADA, with private builders alleging that the government agency is only creating new slum areas without basic civic amenities. But Srivastava said, ‘‘we have big plans for the Taj city.