Indian Property News on 'January, 2009'

Govt Asks for Home Loan Data

The government has asked state-owned lenders to submit data on home loans sanctioned by them since December 15. On December 15, the public sector banks had announced lower interest rates on home loans up to Rs 20 lakh following government intervention to boost demand. Bankers acknowledge that despite a reduction in interest rates to 9.25 per cent for loans up to Rs 20 lakh and 8.5 per cent for home loans up to Rs 5 lakh, the response has been lukewarm. Interest rates under the package are fixed for five years and the loans come with a free property insurance cover. “The flow of home loans has not picked even after the special package as there is a perception that real estate prices will fall further. Banks have explained this to the finance ministry, but it has asked for fortnightly data,” said a senior executive at a public sector bank.

Mukherjee is filling in for Prime Minister Manmohan Singh who had to undergo heart surgery over the weekend. While the agenda for the quarterly meeting with bank chiefs has not been circulated, source said that it will include a review of credit flow and the status of implementation of the packages announced for boosting economic activity. The meeting comes days before the Parliament session and barely a month before the election process starts. The public sector banks have also been asked to submit the details of all incremental lending and borrowing activities, not only for recent months but for the last three years. “The meeting will analyse the cost of funds after the measures announced by the Reserve Bank of India over the last four months as the government is trying to push for another round of rate cut. So, they have asked for detailed data,” a bank executive said.

According to the latest data on sectoral credit deployment by banks released by the central bank on Monday, on a year-on-year basis the growth in the total flow of housing loans dropped to 8.8 per cent at the end of December 19, 2008, from 13.9 per cent at the end of August 2008. The year-on-year non-food gross bank credit growth also fell from 26.8 per cent at the end of August to 24.8 per cent in mid-December. But data also revealed that public sector banks have seen a 28.6 per cent rise in credit flow for the year up to January 2, 2009, as against 19.8 per cent in the year up to January 4, 2008. In contrast, the growth in credit flow from private and foreign banks has dropped sharply despite demand shifting from equity and overseas markets to the Indian banking system.

Union government can Change Foreign Ownership Rules

The Union government plans to change foreign ownership rules in the real estate sector by scaling down the minimum area requirements for residential and commercial projects that have overseas investment. Current foreign direct investment (FDI) norms set the minimum area for serviced housing plots with such overseas ownership at 25 acres and, for construction development projects, a built-up area of at least 50,000 sq. m. The government is considering reducing the mandatory norms to 10 acres and 10,000 sq. m, respectively, according to a policy note reviewed by Mint. “The proposal is under discussion stage.

It has not been sent to the cabinet yet,” a senior commerce and industry ministry official confirmed. New Delhi’s move marks the third effort in recent times to change foreign ownership rules in three different sectors. The first has been in insurance, where the government is seeking to increase FDI to 49% of a company’s equity. The second is in airlines, where it is considering a similar ceiling. The current cap on FDI in insurance is 24%, and no FDI is allowed in airline firms.

In 2005, the government relaxed FDI norms in the real estate sector by allowing up to 100% such investment in companies. Until then, only non-resident Indians (NRIs) and persons of Indian origin were allowed to invest in the sector. Foreign investors, other than NRIs, were allowed to invest only in development of integrated townships either through a wholly owned subsidiary or through a joint venture in India along with a local partner until the 2005 decision. After that change, 100% FDI was allowed under the so-called automatic route in townships, housing and construction-development projects.

Real estate executives and consultants believe the proposal to reduce the minimum area for FDI, if it is approved, will have a positive impact on the real estate sector, but only in the long term. “I don’t think it will have a short-term impact on the sector because given the current market conditions,” said Gaurav Bhalla, executive director of Gurgaon-based real estate developer, Vatika Group. “However, this will surely send a positive signal to investors and will make the entry barriers for foreign investors less restrictive.”

Tier 3 Offers Good Real Estate Opportunities

Despite the global economic downturn eating into India’s real estate markets, Jones Lang LaSalle said the country’s third tier markets would provide attractive future returns. The real estate services firm added that Ahmedabad, Chandigarh, Kochi, Jaipur and Nagpur were among the most attractive. The investment case for India’s third tier cities is still strong despite the financial turmoil being felt in the country, according to property services firm Jones Lang LaSalle. India’s economy has suffered amid the global deleveraging with general repricing across real estate markets and predictions the country’s gross domestic product will fall from an average rate 8.9 percent to 6.2 percent for 2008/2009.

However Jones Lang LaSalle said in their “India30 Real Estate Opportunities in Tier III Cities” report, that the country’s tier three cities are well placed to weather the storm. Highlighting 30 cities, the firm said these locations would “set the benchmark by which other [tier three] cities will be measured.” Assessing the investment potential of the cities by “size, market reach and connectivity”, Jones Lang LaSalle said the most attractive investments would be found in Ahmedabad. Chandigarh, Kochi, Jaipur and Nagpur. Anuj Puri, chairman and country head of Jones Lang LaSalle Meghraj said these cities “offer the strongest real estate potential combined with the lowest market risk.”

According to the report: “The [30 cities highlighted by the report] still account for a relatively small proportion of real estate activity (21 percent of modern offices and 34 percent of shopping malls), but with 41 percent of the country’s wealth, the potential of these tertiary markets is clearly evident” “Domestic players continue to expand rapidly into tier three cities, and whilst foreign players are currently adopting a cautious approach in today’s uncertain global economic climate, over the longer term we anticipate the India30 will offer new opportunities for both domestic and foreign real estate investors, developers and occupiers,” he added in a statement.

Understand Social Responsibilities- Banking Experts to Developers

In a brainstorming session on ‘Opportunities and Challenges in Finance and Banking for Real Estate Sector’ on Wednesday, banking experts told real estate developers to realise their social responsibility of providing affordable housing to the masses. Held under the aegis of the Gujarat Chamber of Commerce and Industry (GCCI) and Gujarat Institute of Housing and Estate Developers (GIHED) at Hotel Grand Bhagwati, stress was also laid on providing cost-effective housing for the low income groups, as this had remained largely unexplored.

According to GIHED vice-president Suresh Patel, a developer, this was because in the boom period of the last four years, majority of big players had worked towards meeting the needs of only top 12 per cent of the market. He felt affordable housing at lowest rate was possible. He wondered how ‘board room analysis’ by bankers born in the 1980s could decide the fate of a 50-year-old sector. The good repayment figures shown by these bankers to prove their banking prowess could not be taken at face value because of limited exposure, he said.

Vijay Shah, a prominent real estate developer, lamented that banks were reluctant in extending project loans to developers. He said developers also felt difficulty in sourcing down payment of loans lately. Shah pointed out that banks had reduced valuation of assets for credit from 80 per cent to 60 per cent. S Srinivasan, chief executive officer of Kotak Real Estate Fund, was optimistic about the real estate scene of Ahmedabad. He said it was much better than other cities like Mumbai and Bangalore. He said nowhere else was any developer able to offer a price of Rs 1,500 per square feet, but in Ahmedabad. He said if a buyer called a price of Rs 2,000 as unaffordable, it was a matter of mindset.

According to him, developers had capital in the past and yet had the luxury of saying no to new investment in the last one year. That was time of excessive commitments and it would take time to correct that situation in the real estate sector. Srinivasan wondered over the abysmally small number of developers who could declare business size in excess of Rs 150 crore. “Most developers have not built their balance sheets over the years, though they borrowed a huge amount of Rs 72,000 crore from banks… this calls for hard thinking. For, you have no choice but to prepare your balance sheet if you want to build your business in the long run and if you do not want to confine yourself to relationship banking,” he said.

Srinivasan said the Reserve Bank of India was often cursed for enforcing restrictions on banks’ lending parameters, but it should be remembered that this cautious approach was in the developers’ interest. He felt that banks must first be able to build confidence in the lending activity to build up stable banking operations. He also advised developers to work closely with the planning authorities, especially when planning shopping complex after complex in a close range. “There is a disaster waiting to happen in terms of viability and lessons must be drawn from what happened in places like Gurgaon,” he said. HDFC general manager Irfan Kureishi also spoke on the occasion.

Secondary Real Estate Market- Profitable Venture

With most developers trying to revive the sagging realty market by offering discounts and affordable housing, its the best time to go for your dream home. But it’s not just the primary market that can fetch you great deals. In fact, the secondary real estate market too can offer you a good bargain. A correction of 15-20% or even higher has taken place in the secondary market, according to experts. But don’t rush in. Make sure that a thorough check has been done before the property gets transferred in your name.

While buying from this market may be profitable right now, there are certain aspects that one must be wary of. Raminder Grover, CEO (Homebay Residential) of Jones Lang LaSalle Meghraj (JLLM), highlights some significant pointers that need to be kept in mind. He says that firstly one must understand that since it is a secondary market, one is talking of older structures which usually bring with them inherent problems in terms of maintenance, overall stability etc. Obtaining a home loan may be a problem if the building is too old as many banks do not grant home loans for units older than 15 years, while certain financial institutions grant mortgage loans of only 50% of the property value. Secondly, he warns against encumbrances on the property in the form of services or utilities dues, via a mortgage or personal loan, and other financial liabilities as not everyone will disclose such faults.

The legal status of the property may have also been compromised. The title may not be clean and adequate. It thus becomes necessary to check the legalities involved. Lastly, there is a complete lack of accountability for flaws detected at a later stage. One, undoubtedly, has to be more vigilant when buying from the secondary market. So how lucrative is it to buy from the secondary market in the present context? Are there any lucrative deals that have been driving the sales in this market? JLLM offers a citywise snapshot. According to JLLM, in Mumbai the secondary market is buoyant in Bandra, Khar, Santacruz and Andheri and there are some good bargains available currently. In Bangalore, the secondary market does not presently offer much to a window-shopping buyer — investors dealing in the secondary market only deliver good offers on the negotiation table to those who actually show a firm commitment to buy.

In Delhi NCR, Gurgaon, Indirapuram and Noida are rife with secondary market opportunities, while developers in South Delhi are making some good offers on building floors. In Kolkata, there are resale homes available throughout the city. However, there is now a rather significant secondary market in Rajarhat and along the Eastern Metropolitan bypass. These previously promising areas were driven by investors, who had blocked numerable apartments over the past two to three years and are now looking to offload them.

Organised Retail May Realign in 2009

2009 is expected to be a year of consolidation for Indian retail sector. As a result of adoption of best practices and restructuring of business models by the retailers, organized retail is expected to realign itself to the market conditions and create new areas of growth in 2009. Given the market malady being faced by developers and retailers alike, it is possible that partnership models of growth through mechanisms such as revenue sharing would become more prominent.

More deals are going to get renegotiated as priced drop in over-priced locations. The process of rationalization should reach its peak by March, 2009. In 2009, it is anticipated that the supply pipeline may witness further stalling Most players’ expansion plans for 2009 will slow down considerably. However, Projects that are planned well (incorporating approaches like proper zoning, optimal tenant mix strategies), implemented with high quality standards and incorporating appropriate mall management practices are anticipated to be successful. In 2009, premier brands will look at Tier II cities, but certainly not Tier III. Luxury brands will stick to metros.

Pan India mall developers will look at more practical rentals in 2009.High streets may see consolidation with a high possibility of a revenue-sharing model in terms of the overall cost-to-retailer on many high streets. For 2009, Jones Lang LaSalle Meghraj has seen a decisive upscale in transactions in the hypermarket category. However, the demand is clearly higher for stand-alone high street locations rather than mall-based locations.

Indian Real Estate in 2009

CBDs markets are likely to face vacancies in 2009, as the first impact of the global recessionary economy is being felt by the financial and other fore-runner organizations. The vacancy may be further fuelled in CBD areas by the consolidation moves of many organizations. We will also see a reversal of the trend witnessed over the last two expansionary decades where large organizations moved from owned to leased assets. Given the drop in prices and availability of choice properties, this will be a good time for surviving organizations to announce their new leadership positions through trophy purchases. Jones Lang LaSalle Meghraj is currently transacting in many such mandates. This CBD vacancy rate, if triggered, can add significant pressure to the upcoming/newly developed premises in upcoming front-office districts such as Lower Parel in Mumbai and Nehru Place in Delhi.

While the sentiment in the US and Europe towards outsourcing is positive in the long term, as the corporations there realize its need more than before, the active decision-taking for expansion by BPOs is totally suspended for the moment. We do not expect this to change in the 2009. Hence, the pressure on upcoming and announced projects -especially SEZs – will continue in 2009. In 2009, IT SEZs will also experience further pressure from the fact that the STPI concessions may be extended for another couple of years. While these concessions are important for IT companies’ survival during the recession, they will adversely impact SEZ developments.

In 2009, the peripheral areas of metros as well as the Tier II/III cities will need to compete with the central or secondary business districts for the same set of talents, thus dissolving the clear segmentation which was emerging and separating various micro-markets over the last couple of expansionary years. Newly developed or announced projects are especially going to suffer and may see continued vacancy in 2009. However, 2009 will also see practices in the real estate business become more organized and professional, as they did in the late ‘90s and early 2000s with the introduction of FIs, foreign money and the creation of Government-supported large development formats. This time around, a similar professional approach may reach warehousing land acquisitions.

A look into Indian Commercial Property Market

Property markets in India are today subject to not one, but several cyclical influences of different periodicity. Corporate sector is facing a demand downturn, financial sector is confronted with liquidity (confidence) crisis and capital markets see depressed sentiments.

All this has moved our property cycle where weak demand, excess supply and credit contraction are converging. This report is an attempt to analyse the downtrend in the Indian property sector and prognosticate as regards the likely timeline (quarter) for commercial real estate revival in six key cities. It also presents a detailed analysis of the behavior of residential prices this year, and provides their expected future path.

Indian Developer Plans Mega Home Project

A housing project with 2,000 properties up for grabs is to become the third mega-project to be built by an up-and-coming Indian developer. Indu Projects Limited announced Indu City in Bachupally, Hyderabad, would also be designed and built by American real estate giants Belt Collins. It follows similar huge housing schemes called Indu Fortune Fields, in Kukatpalli, and Indu Aranya, built at Nagole.

The company also revealed the development would be a fusion between real estate and natural terrain, providing a balance between “nature and high quality living”. Indu projects said: “The proposed gated community is planned for 1,715 apartment units ranging from 750 sq ft to 3,150 sq ft, and a range of 318 villas ranging from 325 sq yards to 600 sq yards.” In line with a current drive towards more affordable housing in India, the developer also said units would be available to suit all real estate budgets.

On-site benefits will include a swimming pool, club house, and creche, with an international school also on a five acre plot of land. Funding will be part-provided by Red Fort Capital, a private international Real Estate fund which has already put over US$ 1 billion into several schemes across the country. Housing and commercial real estate in Hyderabad has become more popular as the city’s business sector continues to grow, with many IT and technology firms setting up home in the local area.

Property Magazine Gives Real Estate Excellence Awards

To acknowledge the extraordinary contribution of various developers in the real estate sector in the year gone by, Realty Plus, the leading magazine for all real estate needs, announced the winners of Realty Plus Excellence Awards 2009 at New Delhi on Friday evening.

“Developer of the year” award in residential category was awarded to HIRCO Group, while Magarpatta Township Development got the award in Commercial category. Hafeez Contractor was selected as the “Architect of the year” in residential category and RSP Corp. in commercial category.

The Awardees were chosen after a rigorous selection of developers and architects on pan-Indian level. The 14 different categories that were awarded were spread across – Developer of the Year Awards (Residential, Commercial and Retail), Architect of the Year Awards (Residential and Commercial), Regional Developer of the Year Awards (North, East, West, South), and select achievement Awards and category awards.