Indian Property News on 'March, 2009'

Slump in Retail Sector Expected for Another 12-18 Months

The organised retail sector in the country has witnessed an 11 per cent decline in sales in 2008 and the slowdown is likely to continue for the next 12-18 months, says global consultancy firm KPMG. The report prepared by KPMG stressed that the government incentives such as increased spending in infrastructure could help the retail sector. “Falling footfalls and poor conversion ratio has lead to a decline in sales growth to 11 per cent in December 2008 compared to 35 per cent in December 2007,” the study said.

According to the report titled ‘Indian Retail: Times to Change Lanes’, the current slowdown is expected to last for 12-18 months “conditional on government incentives in increasing spends on infrastructure, development initiatives and other activities to stimulate the economy”. “Slowing sales resulting in lower inventory turnover and increasing working capital requirements to fuel growth have resulted in liquidity pressures for many domestic retailers. Companies have been trying to reduce the inventory and shorten working capit al cycles,” KPMG India National Industry Director Consumer Markets, Mr Ramesh Srinivas said. The report said that around 70 per cent of the retailers have reported a decline in footfalls or number of visitors and customers in the stores.

Delhi Convention Centre Project Dumped

The mega convention centre to be built by real estate firm, DLF in New Delhi, has been scrapped as the government is unwilling to let the company seek a foreign equity partner for the project. Speaking on the matter, DLF group chairman KP Singh said, “We are ready to revisit the project if we are allowed to rope in foreign partners for funding, including private equity players.” The Delhi convention centre is one of four state-of-the-art facilities announced in Union Budget 2007-08. Singh said that unless Delhi Development Authority (DDA) allowed a special purpose vehicle for the project to include additional equity players, the project was unlikely to take off. DLF bagged the development, being the sole bidder, in July 2007. Its financial bid was Rs 901.8 crore, against a reserve price of Rs 900 crore.

Spread over an area of 14 hectares, the mega convention centre was slated to come up at Dwarka, near the city’s airport, and was billed as one of DDA’s most ambitious projects. The complex was to have an integrated built-up area of 1.83 lakh sq m, comprising an 86,400-sq m convention and exhibition complex, a 60,000-sq m built-up area for a hotel complex, and 36,600 sq m for a commercial complex.

Discussing the government’s role in real estate and urban development, Singh said it should play the role of an enabler and facilitator. “It is not possible for developers to acquire huge tracts of land. As a result, the government should play an active role in acquiring land for developments,” Singh said. DLF’s township in Dankuni, West Bengal, has been shelved because the state government was unable to acquire 4,840 acre of land. The company subsequently offered to scale down the project to 500 acres. But the state government failed to acquire even this smaller tract of land. The proposed township was originally estimated to cost Rs 40,000 crore and was to be DLF’s biggest project in eastern India.

SBI Launches Green Home Project at Lower Rates

State Bank of India has introduced a new home loan product that will make other banks go green with envy. By launching ‘Green Homes’, the country’s largest bank wants to support rated environment friendly residential projects by offering concessions – reduced margin, softer interest rate, and zero processing fee – on home loans to discerning buyers. In case you are planning to buy a house with a loan from SBI in an environment friendly residential project, which has been rated by the Indian Green Building Council (IGBC), then the bank is willing to woo you with concessions. The concessions: the upfront margin that you will have to stump up will be lower at 15 per cent of the loan amount instead of the normal 20 per cent; interest rate on the loan will be 25 basis points lower than the card rate; and no processing fee will be charged.

A ‘Green Building/ Home’, according to the IGBC, is one that uses less energy, water and natural resources, creates less waste and is healthier for the people living inside compared to a standard building. The council is a part of the Confederation of Indian Industry – Sohrabji Godrej Green Business Centre. “As part of our endeavour to promote rated eco-friendly residential projects, we have announced easy loan terms for prospective home buyers. Our move will also encourage builders to come up with such projects,” said a senior SBI official. The bank, which introduced the ‘Green Homes’ product a couple of months back, is currently supporting ‘green’ residential projects by Tata Housing and Mahindra’s.

“Today, home buyers are ready to shell out extra money towards amenities such as swimming pool, club house and joggers’ park. Frankly, these are only ‘theoretical’ benefits which a majority of the residents hardly use. In the case of eco-friendly homes, owners will actually realise tangible as well as intangible benefits. Hence, buyers should shed their reluctance to pay that extra, which can be recouped in 2 to 3 years, for buying a house in an eco-friendly project as they stand to gain via savings in terms of energy and water,” the official said. Owners of ‘green homes’ can hope to reap tangible benefits in the form of 20-30 per cent energy savings as the apartments are designed in such a manner that they can enjoy ample natural light throughout the day.

The construction material used in such homes ensures adequate thermal storage mass for retaining heat energy thereby keeping the interiors cool despite the heat outside. Further, water savings, anywhere between 30 and 50 per cent, can be made on account of rain-water harvesting and recycling.

Real Estate Slump Affects Poor Workers in the Construction Sector

The real estate sector, once a flourishing business avenue, has literally been grounded by the global economic slump. And with it the woes of poor migrant construction workers too have increased. Many new flats and deluxe houses are waiting for buyers and several developers and builders have been forced to stall their future projects. “No survey has been done so far to estimate the exact number of unsold flats. But looking at the effect of global economic recession in the city’s real estate market, the figures could be in hundreds,” said Raj Menda, president of the Confederation of Real Estate Developer’s Associations of India (CREDAI). CREDAI is the apex body of organised real estate developers and builders across India. “As there is no business, there is no work. Thousands of construction workers are jobless now,” Menda added.

Most of the skilled and unskilled labourers in Bangalore’s construction industry come from Tamil Nadu, Orissa, Rajasthan, Uttar Pradesh, West Bengal and Bihar. Moreover, thousands of people from the north Karnataka region, including Raichur, Bidar and Gulbarga districts, migrated to the city to work in the once booming industry. This led to the mushrooming of labourer colonies on the periphery of construction areas in the city’s northeastern, eastern and southeastern parts. “But slowly these labourer ‘ghettos’ too are disappearing from the city’s landscape,” said R.M. Palanna, director of Outreach Onsite, the only NGO working for children of migrant labourers in Bangalore. According to an estimate by Outreach Onsite, Bangalore until recently had 500,000 migrant construction workers. “But in the last six months, half of Bangalore’s construction workers have left the city as there is no work for them,” he said.

Santosh Suna, 35, a migrant worker, said: “We are jobless. Nobody is ready to give us work. They say real estate business is down. “I have been without work for the last two months. I have no money to take care of my house rent and food. I will soon go back to my home,” said Suna, a native of Muribahal village in Orissa’s Bolangir district, known for acute poverty and starvation deaths. “Back home also there is no work. We have no land to till. I have the responsibility of taking care of my aged parents. I came to Bangalore to earn money and send it home,” lamented Suna, who shares a dingy room with two of his other friends. Echoing similar views, Suna’s roommate Bhola Singh from Bihar says: “There is no work in my village and I have been working in Bangalore for the last six years and earning enough to send money for my wife and three children. But as there is no work in Bangalore, I am planning to leave the city soon.”

Panipat- Goldmine for Real Estate Developers

Around 90 kilometers away from the nation’s capital Delhi, the city of Panipat has its own colourful history. Known for the three key battles fought in the past, the city is also known internationally for its handloom production. Now, the city is fast changing to adopt forward-looking outlook. Real estate experts believe that the city is a goldmine for developers as well as investors. Even in the recession time, the property prices in Panipat have been on rise. Primarily, a commercial hub, the city has been experiencing a continuous development with major companies opening their offices. However, the government of Haryana is on the forefront to give the city the best possible infrastructure, it’s the private builders who are playing lead roles in brining the city on the global map of real estate development.

The city, witnessed a high growth in real estate sector during the last few years, with a number of construction projects, both in residential as well as commercial segments. Already the mall culture have zoom the outlook of the city with the influx of modern shopping and living experience in the forms of shopping mall, multiplexes, retail stores, apartments, duplexes and penthouses. Some of the city’s renowned structures include Fun City Mall, Raheja Expo Mall, Mittal Mega Mall, DAP Angel Prime Mall, Saraf Mall and Reliance’s Retail Hyper Mall. Parsvnath Developers, a leading realty company, is developing a township near the Devilal Choudhary Park in sector 38-39, which will have all the facilities including schools, multiplex, shopping malls. With an investment of over Rs250 crore, this township will also have plots and group houses.

Best Group, a local realty company, is developing a 10 acre-mini township with the name of Golden Gate, which will highlight 15 towers featuring independent floors with three bedroom units and blocks of two and three bedroom flats. Another developer, Shivam Realtors is developing ‘City Mall’ in Sector 12, HUDA, which will be spread in an area of over 2500 sq. mt. plot and will feature food courts, entertainment zone, ample parking space, and other facilities. The leading realty company of the country, DLF is also developing two exclusive shopping malls in the city. Panipat is also developing several industrial parks making space for leading corporates. The industry fortune-tellers, who are certain about their calculation about Panipat, say that the city will come out as the next Gurgaon in the near future. With the government’s regular initiatives, the city has improved amenities like drainage and sewage systems, roads, power supply, street lights and social infrastructure, such as medical facilities, schools, parks and entertainment and cultural centres. The real estate in Panipat is in receipt of comprehensive management for stable growth, which is certainly an indication of vivid future.

Govt to buy Flats from Emaar MGF

The government will buy up to 1 billion rupees ($20 million) worth of flats from real estate firm Emaar MGF Land, the Business Standard newspaper reported on Sunday, citing a senior ministry official. Emaar MGF, a joint venture between Dubai’s Emaar Properties and India’s MGF Developments Ltd is developing the Commonwealth Games village project to be held in 2010 in New Delhi, and planned to use proceeds from selling these flats to finance the construction, the paper said.

M. Ramchandran, secretary at the Ministry of Urban Development, has asked the Delhi Development Authority to examine the possibility of allowing it to buy flats to provide liquidity support to the firm, the paper reported. The amount is a third of what the real-estate firm initially sought, and a committee set up by the ministry is analysing the actual price of the flats, the paper said, citing Ramchandran.

Real Estate Crisis Badly Hits Retail Sector

The impact of recession in US economy has badly hit Indian real estate market along with sectors like retail, steel, cement, hospitality and logistics. Till October 2008 the real estate industry was a very booming industry in India. Also the high net worth of individual investors especially those involved in retail and IT had created a very fast pace of demand in Indian real estate sector which have gain a very high impact image of investing in India. But the downturn produced shocking waves in the real estate market, which further impacted sectors like retail, cement and iron. The result is unavoidable.

Relating only retail to real estate, the scene is bad. Its pace is equivalent to zilch today. In the time of recession, no retail company wants to buy exorbitantly high priced spaces, neither they want to pay highly charged rents. While just a year ago, the retail industry was the next big hope for India’s economy. Stores were opening everywhere, with sprawling malls and tony boutiques holding glitzy launch parties across the country. Retailers bought up every inch of space in India’s largest cities, sending real estate prices through the roof. Even India’s small towns caught mall-mania . But as India’s economy feels the impact of the global recession, Indian consumers are cutting back on spending, and retailers are facing a major slowdown and hence, real estate. For a deeper insight into the industry, Financial Times sought comments of people on – “Are retail real estate blocked funds nowadays ?”

Recession being a worldwide phenomena, has affected every trade and industry. The change in corporate’s business strategy to relocate from high cost to lower cost locations with a similar slow down in the IT-ITES industry has seen vacancy levels going up in the retail / office space, as most of the stock was created in anticipation of the demand. I don’t fully subscribe to the view that retail real estate are blocked funds nowadays as the buyers still have an option of offering reduced rental costs to the retailer. If a comparison of ROI is made in today’s market, the return from retail real estate market is pegged at somewhere in-between 11% to 15% depending upon the location of the property, whereas banks seldom offer return of more than 10% per annum. India ‘s favourable demography, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the retail real estate property downturn from being protracted.

Parsvnath Decides to Sell Hotel Projects Due to Severe Cash Crunch

Realty major Parsvnath Developers has put its four hotel projects on the block as it is facing severe cash crunch due to a slowdown in the real estate sector, people familiar with the matter said. These projects, spread over Hyderabad, Goa, Ahmedabad and Lucknow, are currently under construction. A spokeswoman for Parsvnath Developers denied any plan to sell hotel projects. “There is no such initiation of talks on any hotel projects from Parsvnath Developers,” she said. But people familiar with Parsvnath’s plans said the Delhi-based realty firm is looking for buyers for its projects as it doesn’t have enough cash to continue construction and it also needs to raise funds to continue operation and pay salaries. The company is sending feelers to potential buyers for selling hotel projects, they said.

Like many other realty companies, Parsvnath, too, had entered the hospitality sector when the real estate sector was booming. It aimed to build 100 hotels in seven years with an inventory of 10,000 rooms, as per company’s website. The website says the company has finalised 20 hotel and service apartment projects across the country under different star categories in standalone and mixed use model. The hotel projects at Hyderabad, Ahmedabad and Goa have received government approval and obtained five-star rating, while the project at Lucknow is rated four-star. The construction work has already begun on these projects, but lack of liquidity has held back much progress. The company has tied up with ITC’s subsidiary Fortune Park Hotels to manage its proposed 50 hotels, including these four properties. Parsvnath, as many other real estate firms, have put on hold construction on several residential, commercial, hotel and SEZ projects.

The company reported a 77% decline in profit to Rs 5.3 crore and 60% decline in net sales to Rs 85.74 crore during the quarter ended December 2008, amid a downturn in the real estate. The company has a total debt of Rs 1,800 crore on its balance sheet and has been seeking rescheduling of Rs 300-400 crore loan. It is expected to repay Rs 50-75 crore by March-end. Several real estate developers had entered hospitality sector in the past few years, but a cash crunch is forcing them to exit. “Some of the developers will continue to build hotels, while some have stalled construction and others are looking to exit,” said Cushman & Wakefield executive director (hospitality) Akshay Kulkarni.

Given the economic downturn and terror strikes that have slowed arrival of tourists and business travellers in India, the hospitality sector has started looking not so attractive. The occupancies and room rates have been falling in most cities impacting revenues of hotel companies.

Mumbai to Conduct Property Exhibition in April

The Maharashtra Chamber of Housing Industry (MCHI), the association of real-estate builders and developers are to conduct Property 2009, touted as the largest property exhibition of the season in Mumbai between April 9 and 12. According to a press release from MCHI, the fair will offer the best opportunity for every home buyer. This mega exhibition will be on at the MMRDA Grounds, Bandra Kurla Complex, between 11 a.m. to 8 p.m. Property 2009 will be a one-stop destination offering a wide range of affordable properties to suit all budgets. Lifestyle residential properties, budget homes, second homes, commercial properties ranging from Rs 5 lakh to Rs 5 crore along with various home loan options from leading financial institutions, the release said.

Property 2009 is an ideal option to reach out to the end-users all across Mumbai with properties from Island City, Western/Central Suburbs and beyond, including Thane, Mira Road, Vasai, Virar, Kalyan, Dombivli, Navi Mumbai, Panvel, Karjat, Pune, Lonavala and other cities such as Bangalore, Nagpur, Nasik and Goa, the release said. MCHI was formed in 1982 brings together real-estate developers to address issues facing the industry. Members of MCHI account for 80 per cent of new residential accommodation in Mumbai and its vicinity. With over 400 member builders and developers, MCHI is affiliated with leading industry associations such as FICCI, IMC and CREDAI.

Suburbs in Mumbai continue to see significant development with new areas set to take centre-stage in the real-estate market. The international property consultant Jones Lang LaSalle Meghraj points to the prevailing trends. In Mumbai’s real estate scenario, the suburban landscape has its stars as well as bit players that are gearing up for centre-stage. Among the stars, in Bandra (W), the rates range around Rs 15,000 to 45,000 a sq.ft in the area which has been an attractive destination, thanks to its high-end properties, sea link connectivity, good shopping and lifestyle embellishments such as restaurants and recreation facilities, and schools and colleges

Kandivali (W) costs around Rs 4,000-6,000 a sq.ft; Kandivali (E) Rs 5,500-7,000 and Borivali Rs 4,000-6,000. These areas are increasingly favoured because of their pricing and the convenience of shopping malls, educational and healthcare facilities and train connectivity. Mulund and Vikhroli are also budget locations that are relatively less congested than areas of Mumbai. They have the advantages of good road and rail connectivity to the hinterlands and also town-side, as well as a suitable bouquet of shopping malls and hospitals. Rates per sq.ft: Mulund — Rs. 4,500-7,500; and Vikhroli — Rs 5,500-7,500.

Thane ranks high on general infrastructure, affordability in terms of properties by reputed developers, and the fact that it is its own workplace catchment on many levels. The rates: Rs 3,000-6,000/sq.ft. Navi Mumbai is a planned city with good infrastructure and its own distinct culture and lifestyle. Property rates are favourable, and there is a good range to choose from. Vashi — Rs 3,500-5,500/sq.ft; Kopar Khairne — Rs 3,000-3,500; Airoli — Rs 2,500-3,500; Sanpada — Rs 3,000-4,000; Nerul — Rs 3,000-4,000; Kharghar — Rs 25,00-40,00; Kalamboli — Rs 2,000-2,400; and Panvel — 2,000-3,000. Mumbai’s suburban growth potential does not end with the currently established locations. The area beyond Panvel is developing rapidly, with a hallmark being Reliance’s Maha Mumbai mini city project.

There are also many other developers in the fray, and this area is eventually bound to emerge as a suburb in its own right. Kalyan and Dombivili are increasingly becoming connected to the rest of Mumbai and will figure high on the radar before too long. Bhayander, Nalasopara and the Vasai-Virar region are also ramping up to become extended suburbs of Mumbai. Rates per sq.ft: Dombivali — Rs 2,500-3,200; Kalyan — Rs 2,500-3,200; Bhayandar — Rs 2,200-2,800; Vasai — Rs 1,500-2,500; and Virar — Rs 1,800-2,400.

DLF Slashes Apartment Prices in Gurgaon

After slashing prices in Bangalore, Hyderabad and Chennai, DLF Ltd, India’s largest developer by market value, is offering a discount of 20% on apartments in its New Town Heights project in Gurgaon, on New Delhi’s outskirts, for both existing and new customers. Wooing customers: A DLF project in Gurgaon. The firm said the price cut was to pass on the benefit of lower material costs to the buyers. Harikrishna Katragadda / Mint DLF sent a letter to its customers on Wednesday announcing the price cut. But, unlike the flat cuts on DLF’s projects in the three south Indian cities, the discount on apartments in New Town Heights is structured in a complicated fashion and comes with caveats.

In February, DLF cut prices of some projects under way in Bangalore, Hyderabad and Chennai by about 20-30%. That price cut was for both existing and new customers. Real estate developers are cutting prices to retain and attract buyers after a property market slump in the face of slowing economic growth caused land and apartment valuations to drop sharply, dampening demand. New Town Heights is a 23-acre project consisting of three- and-four-bedroom apartments in Sector 86, 90 and 91 of Gurgaon. The apartment size ranges from 1,760 sq. ft to 2,505 sq. ft, priced between Rs2,250 and Rs2,350 per sq. ft. DLF said in the communication to buyers that the price cut was to pass on the benefit of lower raw material costs to them.

DLF has given a 5% discount on the basic sale price of the property. The company has also said that it will increase the area of the property by around 5% free of cost which would decrease the cost of the apartment by 5%. It is not clear whether the increase in the area would be in the super-area or the carpet area of the apartment. While super-area is the entire area of the building including the common area such as the lobby, carpet area refers to the actual usable area within the apartment. DLF has also promised a 10% rebate on timely payment by customers. This rebate will be on the sale price and will be credited to the buyers’ account in the last instalment if the payments are made on time. The developer has also changed the payment plan for some customers from a time-linked plan, under which customers have to make payments in line with a pre-set schedule. Those who have paid 35% of the sale price would now be allowed to pay the remainder according to progress made in the construction of the project.

Customers who have not paid 35% of the sale price will get the benefit of the construction-linked payment plan only if they pay the balance payment before 25 April, the letter says. “I am not happy with the discount,” says a customer, Rahul Bhambri, 32, who bought a 1,760 sq. ft apartment in the project by making a down payment of Rs42 lakhs in July. “The discount has been structured in a very complicated way…also prices have gone down in Gurgaon by 30-40% and they have only given an effective discount of 5%.” Bhambri is a member of the online forum of New Town Heights buyers on Yahoo Groups. The forum has around 500 members.

Though, unhappy with the discount, Bhambri has decided to stay invested in the project. “I have taken a loan from HDFC and I am paying an interest on that and even if I exit, DLF will charge me a penalty, so I will lose money if I exit,” he says. DLF has, however, steered clear of talking about an exit plan for its buyers. “The deal has been structured with a bias towards compelling people to stay in the project,” says Sanjay Sharma, managing director of Gurgaonscoop.com, a real estate portal on Gurgaon. “What is also missing is explicit terms and conditions for exit… There are lots of people who want to exit but DLF has been non-committal on this.”

DLF is offering buyers other benefits. The developer is giving its customers so-called price protection, which means that if the basic sale price is reduced by the company before handing over possession of the property, existing buyers will get the benefit of the reduced price. DLF has also doubled the compensation in case of a delay in handing over possession of the apartment from Rs5 per sq. ft per month to Rs10 per sq. ft per month. The same amount would also have to be paid by buyers if they delay in taking over possession of the apartment.