Indian Property News on 'January, 2009'

Banks Urge Developers to Reduce Property Prices

After the government, it is now the turn of banks and private equity funds to urge developers to reduce property prices. According to bankers, the demand is still there in the housing segment, but the soaring property prices are keeping customers away.

“Despite an industry bailout programme and the relaxation of lending rules, constructors are refusing to cut the inflated property prices,” said Deepak Parekh, chairman of mortgage lender Housing Development Finance Corp Ltd (HDFC). Parekh, also the chairman of a high-level task force on affordable housing set up by the ministry of housing and urban poverty alleviation, added: “There is nothing more incorrect than saying that people are not buying houses because of economic slowdown. The demand has not fallen, it’s the home prices that have not fallen enough.”

However, realtors said it was difficult to get funds for new projects as banks and private lenders were coming up with fresh conditions. “Apart from slackening demand and a liquidity crisis, banks and private lenders are now putting up new terms and conditions for funding,” said Rohtash Goel, chairman and managing director of real estate developer Omaxe Ltd. Major developers such as DLF, Unitech, Sobha, Omaxe, Parsvnath and Housing Development and Infrastructure have approached the banks to restructure their loans.

Latest home loan rates

After a long and painful wait of about three to four years, banks and housing finance companies have finally started reducing the interest rates on housing loans following the economic stimulus package given to them by the Union government as well as several cuts in key policy rates by the Reserve Bank of India. Although the fall in lending rates is not as significant as cuts in policy rates, still something is always better than nothing. We are also not sure how long this party is going to last. Therefore, it is better to make hay while the sun shines.

List of latest home loan rates for your reference:

1) State Bank of India SBI’s Interest Rates On Housing Loans w.e.f. January 1, 2009FLOATING RATES LINKED TO SBAR:

a. For Loans Up To Rs 30 lakh For new loans up to Rs 30 lakh sanctioned on or after 01.01.2009, the bank is charging 9.75% pa for loans up to 5 years, 10% for loans above 5 years & up to 15 years, and 10.25% for loans above 15 years & up to 25 years.b. Loans Above Rs 30 Lakh and up to Rs 75 Lakh

For loans above Rs 30 lakh and up to Rs 75 lakh, the bank is charging 10.25% pa for loans up to 5 years, 10.50% pa for loans above 5 years and up to 15 years, and 10.75% for loans above 15 years & up to 25 years.c. Loans Above Rs 75 Lakh

For loans above Rs 75 lakh, the bank is charging 10.25% pa for loans up to 5 years, 10.50% pa for loans above 5 years and up to 15 years, and 11% for loans above 15 years & up to 25 years.FIXED RATES – RE-PAYMENT UP TO 10 YEARS (w.e.f. 01.01.2009)

a) For loans up to Rs 30 lakh: 11.25% b) For loans above Rs 30 lakh: 12.25%

Indian Economic Slump Affects Jobs and Investors

After five years of runaway growth, India’s economy is slowing down, as the global financial crisis begins to take a toll on emerging economies. The economic meltdown is affecting everyone – from young people waiting to enter the work force, to investors hit hard by the huge decline in stock market. The drying up of job opportunities has come as a rude shock in a country where industries were on an aggressive hiring spree for the last three years. From the booming information technology sector to a nascent retail sector, skilled employees were in huge demand. Companies handed out massive pay hikes to prevent employees walking off to rival companies, as tens of thousands of new jobs were created.

But, as the chill winds from the global financial crisis begin to blow across India, profits of many sectors – from financial to real estate – have dipped, prompting them to lay off staff. There are worries that more jobs may be lost, as industries downsize or halt plans to expand. Economist Saumitra Chaudhuri, a member of the prime minister’s Economic Advisory Council, says such concerns are triggered by fears that the high growth witnessed in recent years has been hit by the global economic crisis. “I think the government has some concerns that the cumulative effects of slowdown elsewhere and the depressed market sentiment will adversely affect investors and consumers in a way where growth may actually tank [collapse],” Chaudhuri said.

India has virtually no exposure to the mortgage-backed securities that spawned the current financial crisis, but its economy has not been spared. Credit has become tight, the local currency has plunged and stocks have lost more than half their value in the last year, as foreign investors have pulled their money out. The stock market crash has hit hard tens of thousands of middle class investors. “For a retired person, specially, it has come has a very serious blow in the sense that while the capital values have come down, the incomes from dividends, et cetera, has also come down very rapidly. So it has really affected your income in a large way,” Mehta said. The government is reassuring people that the problems will be temporary. Former Finance Minister P. Chidambaram says the economy may not grow as rapidly as in recent years, but it will still expand at a faster rate than in Western nations.

“While we will be affected by the global meltdown, in the case of India, it will only amount to a slowdown and not a recession,” he explained. “Given what is happening in the rest of the world, a growth rate of between seven and eight percent should be satisfactory.”

Yellow Pages for NRIs to be Launched Soon

Overseas Indian Affairs ministry and Confederation of Indian Industry (CII) have decided to launch an exclusive yellow page, listing prominent NRI entrepreneurs who are on the look out for Indian partners in their bid to launch joint ventures in the country. The yellow page, which will reach out to about five million Indians living outside country, will feature Indian businesses willing for tie-ups and NRI entrepreneurs as well.

To be made available in print and through an internet edition, the yellow pages can also be obtained from Indian High Commissions and missions abroad. “Our role as a business facilitator will be greatly enhanced by the listings in the yellow pages. At NRI meets like ‘Pravasi Bharatiya Divas’, we received queries for Indian tie-ups in areas like marketing of products and services, commodities and for even real estate business in the country,” said CEO of the ministry of Overseas Indian Affairs’ Facilitation Centre (OIFC), Harmit Singh Sethi. In business meets like ‘Vibrant Gujarat’, the OIFC also received requests from Indian businessmen seeking NRI partners. “These are healthy developments and fortunately the government and many state governments are taking the right step to enhance the investment environment,” Sethi said.

Govt to Consider Second Relief Package for Realty Sector

The government is considering a second relief package for the real estate and housing sector, which is crumbling under liquidity crisis and a slowdown in demand. Apart from giving real estate an infrastructure status, the measures being looked at include reduction in interest rates from 9.25% to 7.5% for home loans up to Rs 30 lakh, an official in the department of industrial policy and promotion (DIPP) has said. The ministry may also consider a proposal for doubling of income tax rebate on home loan interest to Rs 3 lakh from Rs 1.5 lakh and raising of income tax exemption on rentals from 30% to 50%. Finance secretary Arun Ramanathan is learnt to be finalising a note on required measures for easing liquidity in the housing and real estate sector for the consideration of the Committee of Secretaries (CoS).

“The finance ministry is considering demands of the real estate industry which could not translate into reality in the first fiscal package of the government,” a senior DIPP official told ET. The official added that in the meeting of the CoS on economic crisis, held last month, Mr Ramanathan had pointed out that the recommendations made by real estate industry body Confederation of Real Estate Developer’s Associations of India for stimulating the real estate sector, including the housing sector, need to be considered. The recommendations made by the association were forwarded by the urban development ministry to the CoS.

Cabinet secretary KM Chandrashekhar had observed that construction activities need to be stimulated as this sector has considerable employment potential. The first stimulus package had left realtors unhappy. They complained that the existing stock of unsold homes cost much more than Rs 20 lakh, so that the interest rate concession on loans up to Rs 20 lakh would not help their sale. Public sector banks are now offering homes loans up to Rs 5 lakh at a rate of 8.5% and up to Rs 20 lakh at 9.25%. Urban development minister Jaipal Reddy has also urged Prime Minister Manmohan Singh for taking steps to rev up the real estate sector. He sought an equal commitment from the sector in the form of price-cuts. “The commitment from the realty sector may include lowering of prices for houses and more and more investments in affordable housing,” Mr Reddy had written to PM.

More Incentives for Home Buyers

Generally, in a buyers’ market things are advantageous to the buyer, whereas in a sellers’ market the advantage is for the seller. What is the status of the real estate market now? “Currently we are in a buyers’ market hence it is the best time for a buyer to be out there, looking for the best deal and closing it out,” advises Mr Kumar Gera, Chairman of CREDAI (the Confederation of Real Estate Developers Association of India).

He concedes that the slowdown in the economy has lead to significantly reduced velocity of sales from August-September 08 onwards. The mood, therefore, among CREDAI members at present is one of reviewing strategies, adds Mr Gera, during a recent email interaction with Business Line.

“Many new projects that were to be launched are still on the drawing board, and where projects are being launched the focus is on lower total price of the units being offered in the market. This lowering of prices is being done by way of reduction of size of units and or reduction of the ‘frills’ and amenities in the project.”

Union Govt Plans Change in 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.” Kabul Chawla, managing director of Delhi-based firm BPTP Ltd, also believes that given the global economic slowdown, FDI interest in investing in the real estate sector has come down.

“I think looking at today’s real estate scenario, especially under such prevailing financial mess, the FDI hunger is totally dried up,” he said. “Due to distressed opportunities available in the developed world, the return expected from India is too high, which cannot be met out of projects.” Still, consultant Cushman and Wakefield (C&W) predicted a huge impact on constructed properties, especially in city centres. Sandeep Singh, ED (investment services) at C&W India, said, “The minimum built-up area requirement is so large at present that to build such projects, you would need 6-7 acres of land and you don’t get that kind of land within the cities.” Prakash Gurbaxani, founder and chief executive officer of Bangalore-based real estate company, QVC Realty, echoed this view. “If the minium built-up area requirement is reduced, it could lead to redevelopment of the old parts of the city,” he said. If this proposal comes through, it will be a part of the several measures that the government has taken in recent times to stimulate the housing and commercial real estate demand.

The government has permitted external commercial borrowings for the development of integrated townships under the automatic approval route, reversing a May 2007 decision of the Reserve Bank of India (RBI). In December, RBI also pared the short-term lending rate to 6.5% from 7.5% and the overnight rate at which it borrows from banks to 5% from 6%. The central bank also recently allowed banks to restructure loans taken by developers for commercial real estate without classifying them as non-performing assets.

Real Estate Companies Take Over IT SEZ Space

At least 12 out of the 16 proposals approved so far in Gujarat for setting up as many Special Economic Zones (SEZs) in the IT segment have been bagged by real estate companies that have scarcely little to do with IT or related areas. The implications are obvious against the background of DLF Ltd, India’s largest real estate developer, successfully getting its IT SEZ in Delhi de-notified by the government even after its in-principle approval as an IT SEZ project. This would now enable the company to use 25 acres of land that the government provided for the IT SEZ, for real estate development.

With 16 already approved, IT SEZs will corner the largest chunk of the total 60 to come up in Gujarat. Some instances: One of the IT SEZs is to be set up by the Raheja Group on an area of 27.85 hectares at Koba, Gandhinagar through its developer company Aqualine Properties Pvt Ltd. This is how the group describes itself on its website: “K Raheja Corp is a success story spanned across decades and continues to achieve higher targets relentlessly for quality performance and service in diverse fields of real realty business, hospitality sector and retailing outfits…”’ The group’s vice president A D Prabhu declined to comment on the issue when contacted and suggested talking to its marketing director, who remained unavailable.

Brokers Eye Rental Market to Stay Afloat

With property sales plummeting by around 50 per cent, real estate brokers have begun looking at the rental market to stay afloat. “Eventually, we are depending on the rental market to keep our business going,” said Atul Khanna of brokerage firm Khanna Properties, who joined the business in 2004 when the realty business was in full swing. “Last year we used to have at least 10 bookings a week, but now it’s a big deal if we manage 10 bookings a month,” Khanna added, explaining the current focus on rentals.

Confirming the trend was Pankaj Renjhen, managing director of the north Indian operations of real estate services and money management firm Jones Lang LaSalle Meghraj. “The rental business has seen a major surge in recent times. In fact, the rental business has a great potential in India as there is a huge middle class population that cannot afford a house,” Renjhen told reporters. According to Sashikant Arora, president of the Association of Certified Realtors in India, the real estate brokerage business is the “worst-hit” because of the realty slowdown.

“Everyone is on a wait-and-watch mode. Investors are exiting the market and end-users are putting buying plans on hold as they are waiting for prices to be corrected. Eventually the business has gone down by 40-50 per cent,” Arora said. Little wonder then that real estate brokerage firms, including the bigger ones, are trying to tap the rental market.

“This is certainly a difficult time for the brokerage business. So we have to be more innovative and find out ways to keep the business going. As buying and selling activities have gone down by more than 50 per cent, we are focussing on rentals, which earlier was a low priority area,” said Rajesh Goenka, chairman of Axiom Estates, the London-headquartered provider of property services in India. “Also, we have begun offering various services like second-home deals and cost-effective rental solutions for corporate houses as they all are looking at cutting rental costs and are relocating offices,” Goenka added.

Severe Dip in Luxury Real Estate

The luxury sector may have been perceived as recession proof. But there is a visible dip in demand that is now being seen in the SundayET’s survey with global real estate consultancy Cushman and Wakefield (C&W) revealed that average capital values of luxury properties in posh localities across major metros have taken a dip of 10%-20% during the last three months. Residential rental values for the same segment have also been impacted, with some locations witnessing a drop as high as 20-25%.

Take the case of Delhi, for instance, where residential capital values of high-end properties such as Shanti Niketan, Westend and Vasant Vihar, GK I and II and Maharani Bagh have dropped to 10% over the last three months. Rental values have also followed a similar track and have seen a 6% drop over the same period.

Rajeev Talwar, executive director, DLF agrees to the fact that there has been a genuine drop in this segment. “A 25%-30% drop has been seen in capital values for these luxury properties. Luxury buyers also plan their investment cycles, hence it is only natural for them too to cut down on spending. Sales are currently going on even in the luxury sector…no segment is unaffected by recession which is a worldwide phenomenon.”

The case is similar in other swanky localities in metros. Areas in South central Mumbai such as Altamount Road, Carmichael Road, Malabar Hill, Napeansea Road and Breach Candy have seen a drop of 7% in average capital values during the last three months. The impact has been more visible in the rental values in these areas where a drop to the tune of 19% is being witnessed whereas locations in South Mumbai such as Colaba, Cuffe Parade, Nariman Point and Churchgate have seen a drop of 12% in rental values over the same period.

Niranjan Hiranandani, MD of Mumbai-based Hiranandani Developers feels that there has been a temporary respite in demand in this segment. “Demand has not taken a dip…it is a temporary phenomenon. There has been a drop of 10-20% in capital values for luxury buys. People are basically postponing their buying decisions and waiting for liquidity conditions to improve.” Kolkata, however has seen more of a drop in residential rental values in the high-end segment. Areas such as Southern Avenue and Dover Lane in South Kolkata have seen a sharp drop of 20% during the last three months.

While sought after locations such as Ballygunge, Queens Park and Gurusaday Road have seen a drop of 12% during this period. The drop has been slightly more in South West locations like Alipore Park Road, Ashoka Road and Belvedere Road which are seeing a drop of 22% in rental values. Average capital values, though, have not seen much of a change during the same period. On the contrary, down south in Bangalore, it is more of the capital values in the high-end segment that have taken a beating. Sought after areas such as Lavelle Road and Richmond Road in central Bangalore have gone down by 9%. Residential rental values for the high-end properties in the same locations have however not been affected during this period.

Hyderabad is seeing more of a decline in residential rental values in the previous three months. While posh Banjara Hills in central Hyderbad has seen a marginal drop of 4%, other locations such as Jubilee Hills also in central Hyderabad have seen a drop of 5%. Average capital values have, on the other hand, increased by 5% in these locations. Residential capital values for the high-end segment in Chennai have seen a drop of 7% in R. A. Puram in South Chennai while it has been only 1% in Boat Club. There has been no change in rental values for the same period. Similarly, Pune’s capital values have remained unaffected in most desired locations such as Koregaon Park and Bundh Garden in North East Pune.