Indian Property News on 'June, 2008'

Actis buys Vaishnavi Project Stake

Bangalore-based real estate developer Vaishnavi Infrastructures has received an investment of $25 million from private equity investor Actis for its Rs 350 crore Bangalore project, an investment bank official said.

The proceeds of the investment will fund the construction and development of approximately 925,000 square feet of high-end residential and retail space at Yeshwantpur, a Bangalore suburb.

This is the first investment by Actis India Real Estate Fund, a $300 million fund sponsored by Actis.

“Actis has taken a significant minority stake in Vaishnavi’s Bangalore project as it is situated at the perfect location. With current realty market conditions … private equity players prefer to invest in projects as they can get the right valuations,” T R Srinivas, director at o3 Capital told DNA Money from his Bangalore office.

Srinivas added that, for further funding, Vaishnavi would take the “debt route” rather than sell more stake in the project.

With the current turmoil in the real estate market, it is becoming increasingly difficult for realtors to raise debt from banks. Industry experts believe many developers are paying interest of around 30% for new loans.

To address the problem, developers are hunting private equity investors to sell stake in their projects.

Recently, the New Delhi-based Unitech said it would sell a 50% stake in the first phase of its Mumbai project (near Bandra-Kurla complex) to Lehman Brothers for $175 million.

However, another Delhi-based developer Parsvnath Developers said it has no liquidity issues for its current project.

“I have Rs 300 crore in fixed deposits and over Rs 500 crore is unutilised and sanctioned debts available with us. I do not see any liquidity issues and am in a comfortable position,” Parsvnath’s chairman Pradeep Jain said. He added that the average cost of the funding is around 12% for Parsvnath.

Realtors Parsvnath to Expand into Retail

Real estate major Parsvnath Developers Ltd is looking for expansion into retail business, the company chairman said here Friday. “Retail is going to be the next focus area for the company. By the end of this financial year, we will have 5-10 retail stores operational,” Pradeep Jain, chairman of Parsvnath Developers, told reporters here.

“Initially, we will come up with retail stores in Delhi and Mumbai, followed by other cities. We are already looking for partners for our retail venture,” Jain added.

“These stores will be in different formats, including hypermarket, convenience stores, food joints and one larger version of hypermarket on lines of Mustafa, the 24-hour shopping mart in Singapore,” he said.

Parsvnath had last year formed a subsidiary, Parsvnath Retail Ltd, for its retail business and has acquired 5.5 million square feet of space across the country.

Star, Era Group in talks for Multiplex Biz

Star TV and engineering and construction major Era Group are reportedly in talks to enter into the multiplex management business.

Era will see the construction and management of multiplex properties while Star will lend its name, says a PTI report.

Era Group reportedly has major plans of installing 120 screens by next three years. So far, it is running a few screens in Meerut and Agra in Uttar Pradesh.

“We are talking to media group for the business. While the cinemas will be branded as Star, we will invest and run them,” said Era Group chairman H S Bharana to PTI. “About half of the properties will be constructed and owned by us while the rest would belong to other real estate companies.”

Era is also planning to strike long-term deals with major real estate players which are developing malls and multiplexes to run all the screens coming up in their projects.

Builders Pull out of Hotel Ventures as Profits Dry up

Leading property developers are pulling out of proposed deals with hospitality majors, including Royal Orchid Hotels and Ramada Worldwide, as cash flows in the real estate sector are slowing. Realtors are reconsidering plans to enter the hospitality sector, according to sources.

Real estate developers with presence in National Capital Region (NCR), Bangalore, Chennai, Pune, among others, are opting out of four and five-star hotel projects. According to sources, a five-star hotel in Pune shelved its plans recently as its developer pulled out of the commitment.

“The return on investment in a hotel will not be as high as it will be in putting the land to commercial use. Committing to the hospitality sector means waiting for five or more years (till the hotel becomes operational) to get returns,” says Shivaram Malakala, executive director of Habitat Ventures, Bangalore.

“Developers are looking at realising their money through any alternative means and are thus in the exit mode,” he says.

However, Wyndham Hotel Group International, which is promoting Royal Orchid Hotels and Ramada Worldwide, has denied any such development.

Says Sunil Mathur, director (international development), Indian Ocean Region, Wyndham Hotel Group, “All our projects are doing fine. They could be delayed by a month or two but none of them have been shelved.”

While Bangalore is said to have around 10 such properties up for sale, NCR has over five properties. Last year, over 20 four-star hotels were slated for construction in Bangalore, of which six properties have begun operations.

According to a Mumbai-based hospitality consultant, the developers are facing cash crunch and have either put the property (unfinished buildings in some cases) on sale or have asked the hotel companies to find them partners who can invest in the venture.

Properties that were worth Rs 30 crore, for instance, are being sold at a discount of over Rs 25-50 lakh. To be sure, players in the field believe that this slowdown could benefit the big players in the market and hoteliers will look to acquire land in areas where it was otherwise difficult for them to make purchases.

“If the real estate market slows down and there is still demand for hotel rooms in that micromarket, a developer might want to mitigate his risk of holding on to unsold inventory by considering lower immediate returns in a hotel project,” says Shreenath Shastry, national director (hospitality and leisure), Knight Frank (India).

In 2007, over a dozen global chains, including the Hilton, Accor, Marriott International, Berggruen Hotels, Cabana Hotels, Premier Travel Inn and InterContinental Hotels group, announced plans to set up over 350 five-star, four-star and budget hotels and 50 villas in India.

Most of these chains joined hands with real estate developers. The plans would roughly translate into 65,000 additional hotel rooms a quantum leap, considering that over the past decade the total number of hotel rooms in all categories only grew by 10 per cent to about 92,000 rooms.

The slowdown in the real state sector can, however, soften the occupancy rate of hotels in the metros and leisure destinations, say analysts.

The occupancy rate in metros at present is between 75 to 80 per cent, which could go down to around 70 per cent in the next few months as the off-season will begin. “If the off season is weaker than usual, there could be a down grading of hospitality stocks,” said an analyst.

“Builders could be putting the land to commercial use as the land rates (FSI cost) are too high (more that 50 per cent of the cost of the project for a hotel), and the commercial market is bullish. Also, a particular micro market may see many hotel rooms coming up, as a result of which a non-hotelier developer may develop cold feet.

Feasibility studies to that effect have a tendency to scare a developer as it is easy to predict supply and difficult to predict demand for hotel rooms,” adds Shastry.

Old Havelis, Palaces making way for Apartment Complexes

Regarded as the most ancient living city in the world, Varanasi evokes exotic and spiritual feelings. The fact that the city is a maze of narrow lanes and bylanes makes the real estate sector follow its own typical pattern.

The traditional mindset of the people here has resulted in only the properties in established and old areas witnessing a surge in prices. Buyers are still reluctant to move to new areas. “People do not prefer to invest in new areas that are being developed due to the age-old mindset of the people,” said VN Singh a prominent property developer and investor.

The city, well known for zari-zardozi work, weaving and Banarasi sarees, is flush with funds leading to property prices being comparatively higher than other large cities in Uttar Pradesh.

The commercial hubs are Sigra, Mahmoorganj, Ardali Bazaar, Lanka, Gadaulia and Lahurabir. Lease rents for an office space in Sigra range from Rs 40-50 per sq ft a month; Mahmoorganj Rs 30-40 and Lahurabir Rs 25-30. While the lease rent could go much higher — by about 20% — in these areas if the property is located on the ground floor with good frontage. Commercial property rates for outright purchase in these areas range between Rs 3,000 and Rs 5,500 per sq ft.

Availability of commercial spaces for sale is less as owners tend to hold on to their properties only offering it on rent. But all this is set to change with malls such ad IP Mall and JHV Mall. The traditional city of lassi and kachaori-jaleebi is embracing the burgers of Mac Donalds and even the Italian and Israeli cuisine.

The huge tourism market — domestic and foreign visitors — has been a big boost for the top luxury hotel chains in the city. The thriving hotel and restaurant industry is another driver of the real estate market in the city. The luxury hotels are mostly located in the Canttonment, Assi, Lahurabir-Jagatganj areas. Many old palaces are being converted into heritage hotels to woo tourists.

Though the flat culture is slowly catching up in the city it is preferred mostly by the service-class people, majority of whom have shifted from other places. Old havelis and palaces which dot the city are making way for apartment complexes and realty majors have slowly started taking an interest in the city’s development.

Devang Dhawan of Dhawan Property and Real Estate Agents said: “Development and marketing of properties, both residential and commercial, in the city is mostly dominated by the local builders, some of whom have executed large projects and have acquired credibility among the locals. Big names like Unitech, Ansals and Sahara Housing have now started initiating housing projects.”

However, the influx of population in the city due to its thriving business and tourism activity is leading to real estate growth on the outskirts of the city in a well planned manner. The new growth areas are Shivpur, Sarnath, and Rohania.

Kolkata stays Hot Amidst cooling Realty prices

The real-estate market in Kolkata has been largely unaffected by the soaring inflation and the US economic crisis, developers and experts say. While the sales and price figures in other metros and cities have shown signs of cooling down, the prices in Kolkata have increased by 7-10 per cent over the last four months.

In their opinion, the city has managed to avoid a crisis because prices here had never reached ‘unrealistic’ proportions. Kolkata’s real-estate market is also relatively stabilisedsince the number of speculative investors here is much less compared with end-users.

The proportion of end-users vis-À-vis investors is 70:30, says Mr Sanjay Chowdhury, Regional Head, Emaar MGF. “Prices in some other cities had to undergo a correction because they were inherently over-priced. Prices in Kolkata never appreciated so much and have always been realistic in nature,” he says.

Rentals for office space “Rental values for office space are appreciating as much as in the previous years and even the central business district (CBD) is witnessing a higher growth over the period by virtue of non-availability of Grade A offices vis-À-vis the rise in demand,” Mr Abhijit Das, Regional Head, Jones Lang LaSalle Meghraj, says. Rentals at the CBD are currently in the Rs 80-130 per sq.ft per month range. The Life Insurance Corporation of India, which is planning to build a 50-storey office building on the bypass, a non-CBD area, expects to get a rent of Rs 150-170 per sq, ft when it comes up in a couple of years, Mr D. K. Banerjee, Chief Engineer of LIC, said.

“Real-estate prices in Kolkata saw a steady rise rather than a sudden boom and bust which most other States witnessed in the first quarter of 2008. Prices at New Town, Rajarhat, were ranging between Rs 1,200 and Rs 1,700 per sq.ft when development started there a couple of years ago. And then the price gradually saw an upward movement towards the Rs 2,700-3,000 range with national level players (such as DLF and Unitech) entering the market, says Mr Rahul Todi Managing Director, Shrachi. The nature of development — forming joint sector companies with the Housing Board — has also ensured that there is appropriate regulation in controlling volatility in prices, he adds.

“Kolkata has been witnessing a steady growth in prices even in a phase of a downturn elsewhere. We have seen a growth of 7-10 per cent rise in prices over the last couple of months,” says Mr Pradeep Sureka, President, Confederation of Real Estate developers’ Association (CREDAI) Bengal. The rise in property prices over the last six months was 20 per cent as against 100 per cent over the preceding two years, according to Mr Todi. In the past six months developers have seen an average monthly sale of 10-12 units vis-À-vis 25-30 units being sold over the last two years, he adds.

Boom and bust elsewhere Some other regions have not been as lucky, according Mr Pradip Sen, Group Vice-President, Jain Group. “The worst hit States are Maharashtra, Delhi, and other national capital regions (NCRs) comprising Noida and Gurgaon. The sudden boom followed by phases of high inflation rates and crashing stock markets sparked off the domino effect on buying power, severely affecting the real-estate market there,” he says.

A property expert based in Hyderabad predicts that the real-estate market in India is going to face a downturn of 30 per cent over the next 18 months. Sale of residential houses has decreased by 25-30 per cent in Hyderabad over the last three months, he says. Sale of old houses has also seen a decline since people are more inclined to hold on to their property rather than sell at lower rates. “The prices in Kolkata are expected to go up by 20-25 by the end of this year,” Mr Sushil Mohta, Director, Merlin and South City Project, says. His own project, the South City at the Prince Anwar Shah road, will see a rise in price by 15-20 per cent by year-end, he says. The prices of apartments at South City have doubled since its sales began in 2004.

The comparative stability in the Kolkata market has also helped in countering some part of the losses incurred due to escalating raw material costs in steel and cement, which have increased by 15-20 per cent over last three years, Mr Mohta says. However, going by the overall health of the sector, “Kolkata as a market will continue to remain healthy and it is one of the best markets for investment over a long term of 5-10 years,” says Mr Das.

“We are at the end of a cycle where slowdown is for real. But given the robustness and fundamental long-term nature of demand, we will see the beginning of another cycle some time soon,” is Mr Todi’s take.

Land on Samrala Road fetches Rs 8.38 Crore

More than 100 bidders from Ludhiana, Chandigarh, Delhi and Chennai take part in auction. The live example of property boom was seen today in the auction of the Greater Ludhiana Area Development Authority (GLADA) where the highest bid of a shop-cum-office (SCO) fetched Rs 2.75 lakh per square yard against the reserve price of Rs 1.10 lakh per square yard. The booth measuring 305.25 square yard, which is in Sector 32 on the Samrala Road, was sold off at Rs 8.38 crore.

This SCO has been purchased by Deepak Land and Developers, a city-based real estate dealer. The GLADA had planned to auction more than 40 sites but after looking at the huge response they got from today’s auction, they have put the auction of the remaining sites on hold.

Around 16 sites on the Samrala Road and behind Vardhman Mill were auctioned. The department, meanwhile, earned the revenue of Rs 39.03 crore against the reserve price of Rs 15.52 crore thus registering 151 per cent growth.

A few other booths located behind the Vardhman Mills were also auctioned against the reserve price of Rs 40,000 per square yard. The highest bid offered was Rs 1.38 lakh. Booths with the reserve price of Rs 50,000 per square yard fetched the maximum bid of Rs 1.06 lakh per square yard.

More than 100 bidders from Ludhiana, Chandigarh, Delhi and Chennai took part in the auction. Acting Additional Administrator VK Chauhan, Superintending Engineer RK Sharma, Chief Administrator Manashri and Estate Officer Jeet Ram were also present on the occasion.

Meanwhile, officials maintained that property prices in the planned commercial areas are spiralling. They added that people are interested to invest in the approved areas rather than the unapproved areas ,hence, GLADA got an overwhelming response. The areas near the Samrala Road will see a big commercial boom in the times to come, they said.

Real Estate firms want a Regulator

Builders and real estate developers are not averse to the idea of a regulator in the real estate sector.

Confederation of Real Estate Developer Association of India (Credai) president Kumar Gera said that developers want a regulator to discourage the unscrupulous players from entering the sector.

He said that Credai has made a number of representations to the government in this regard. He said that the real estate development industry is fragmented and there is no pre-qualification, resulting into entry of fly by night operators in the sector.

He said, formation of a regulatory body should not end up creating another layer of controls and licensing, which would promote corruption.

President of National Real Estate Development Council (Naredco) Rohtas Goel concurring with the view said that government should first draft a regulatory act, with the consultation of real estate body. The regulatory act should be adopted by all states. Goel said that in the competitive era, developers while selling their project promises a number of things to its buyers. But some times, he might not be able to deliver those things on time because of changes in the law or delay in getting permission In that situation, there are cases when customer refuse to pay to ask for damages. If there is a regulator, he said, genuine builders can seek redressal in that situation.

Sarovar to Sign 8-Hotel Deal with Phoenix JV

After its five-hotel deal with Vipul Hospitality late last year, Sarovar Hotels & Resorts is now in the process of finalizing a brand new eight-hotel deal with the JV Company of Phoenix Hospitality and Entertainment World Developers (EWDPL).

The eight hotels, says Sarovar Hotels & Resorts executive director Ajay Bakaya, will be set up at tier-II locations of Raipur, Udaipur, Nanded, Jabalpur, Chandigarh, Indore, Ujjain and Bhilai. At many of these places, the plan is to have malls-cum-hotels for which development and construction is already underway.

These eight new hotels will add anywhere between 1,000-1,100 rooms to Phoenix’s hospitality portfolio. Going by an average of Rs 30 lakh a room as development cost, the total cost of these eight hotels could be around Rs 300 crore, excluding the cost of land, says an industry source.

Sarovar Hotels & Resorts will manage, market and provide reservation systems for these properties across India for 15-20 years, It would also guide in the design process, says Mr Bakaya. Phoenix, on its part, has the option to choose from Sarovar’s portfolio of Premier, Portico and Hometel brands for these hotels as well as the Park Plaza and Park Inn brands that Sarovar represents in India.

Many of these locations do not have any quality hotels and with these properties, Sarovar and Phoenix would gain a first-mover advantage in these markets. The average room rates that can be expected in these locations is in the Rs 2,000-3,500 range. Since Sarovar itself has an aggressive expansion plan across India, the two are likely to have a non-compete agreement within the same brand (within a 2-3 km radius) in the city.

Apart from the proposed hotels, Phoenix Hospitality, the hospitality arm of Phoenix Mills, is developing nearly 14 hotels across the country. Phoenix has tied up with Hong Kong-based Shangri-La to manage its hotel property in Lower Parel in Mumbai (which opens in 2009) and has also tied up with the Hyatt Group and US-based Marriott International to manage its other hotel properties.

Phoenix, which had picked up a 42% stake earlier in EWDPL, a mall developer based in Indore, was reported earlier this month as planning to raise nearly $450 million (nearly Rs 1,890 crore) from private equity investors to fund its mall and hospitality projects. The company is planning to raise $200 million to fund its retail plans while the $250 million would fund its hospitality projects.

Mega Realty Deals dot Delhi’s Golf Links

The real estate sector might have hit a rough patch of late, but that has not stopped India’s rich and mighty from striking housing deals in Delhi’s elite areas at fancy prices.

Three low-profile but high-value transactions worth Rs 300 crore have been closed in Central Delhi’s posh Golf Links locality, where infrastructure major GMR, a prominent auto dealer, former prime minister IK Gujral’s son Naresh Gujral and a politician have each bought a house in the past two months.

GMR has bought a house for over Rs 70 crore in the Golf Links from McDonald’s India (north and east) managing director, Vikram Bakshi. A privately-held firm of the GMR group is said to have closed the deal with Mr Bakshi, who has been living there for years.

In another deal, a leading Delhi-based auto dealer has reportedly bought a house adjacent to his own in Golf Links for around Rs 100 crore. Naresh Gujral has also reportedly bought a house in the same area. Another politician, whose identity couldn’t be ascertained, has bought a 575 sq yard house in Golf Links for around Rs 50 crore. At this valuation, the buyer may have paid at a rate of around Rs 8 lakh per sq yard, perhaps one of the highest-ever paid in Delhi.

According to property consultancy firm Cushman & Wakefield, the average prevailing rates for Golf Links could be one of the highest in Delhi at Rs 7 lakh per sq yard, marginally lower than Chanakyapuri’s Rs 7.25 lakh per sq yard. Prices in both localities have shot up four-and-a-half times in the past three years and by over 50% in a year.

“Limited availability of properties in the area and rising demand from the rich-getting-richer clientele has resulted in such price appreciation,” says Cushman & Wakefield associate director (residential), Shveta Jain.

Lutyens’ Delhi, including Aurangzeb Road, Prithviraj Road, Mansingh Road, Shahjahan road, and the nearby posh localities of Chanakyapuri, Golf Links, Jor Bagh and Sunder Nagar have long been the preferred locations for India’s rich and powerful.

Besides the strategic location, this area has a certain snob value attached to it. Buying a house here means announcing to the world that one has arrived in life,” says Ms Jain.

The past few years have seen quite a few deals in these localities, one rivalling the other in terms of value. Two years ago, industrialist and parliamentarian Navin Jindal bought a house for around Rs 150 crore on Mansingh Road. In another expensive deal, Bhushan Steel chairman Sanjay Singhal bought a bungalow at Amrita Shergill Marg for Rs 137 crore from the Dutch Embassy.

Bharti Airtel’s Sunil Mittal owns a house in the same locality, which he bought for Rs 40 crore. Steel tycoon LN Mittal, one of the world’s richest, also bought one in Aurangzeb Road a few years ago.