Indian Property News on 'May, 2009'

Housing Projects- Back with a Bang

Top real estate developers are trying their best to make up for lost time. Buoyed by encouraging response from home-buyers for their marked-down properties, companies such as DLF, Unitech, HDIL and others have lined up housing projects of over 60 million square feet — all in the current financial year. Presentations by these companies to analysts show that Unitech is leading with 27 million square feet of new launches. DLF’s tally is 15 million square feet, roughly the same as last year’s. Puravankara and HDIL follow with 6 to 9 million and 8 million square feet respectively.

Mid-income housing is the flavour of the year and accounts for around 90 per cent of the projects. After a prolonged lull in the property market in 2008, which saw sales declining 70 per cent from their peak, the big developers moved into the mid-income segment and cut prices 20 to 30 per cent to generate liquidity. With their apartments selling quicker than expected, liquidity constraints easing with debt roll-overs, the stock market rally and improved bank credit, realtors are now planning more such launches. “We have sold 2,500 units in three to four projects in the last one-and-a-half months. The company has decided to go aggressive with new launches because we are quite confident of selling quickly,” said a spokesperson of Unitech, the country’s second largest developer.

DLF will launch 8 to 9 million sq ft of city-centre projects in Chennai, Kochi, Delhi and Gurgaon and around 5 to 8 million sq ft of mid-income housing projects in the National Capital Region (Delhi’s suburbs) and southern cities, DLF Vice-Chairman Rajiv Singh told analysts recently. “We have met with good response for our projects wherever we have launched. If the product is good and price is right, it will sell irrespective of market conditions,” said Rajeev Talwar, group executive director , DLF. The company sold 1,356 apartments at its Shivaji Marg (better known as Najafgarh Road) project within a day in early April as the price was nearly 25 per cent lower than the existing market price.

Aditi Vijayakar, executive director-residential, Cushman & Wakefield, said most developers were making good sales as they have cut prices. “The new projects are certainly attractive for home buyers,” he said. Unitech added the cut in prices was inevitable since it’s clearly a buyers’ market. So a lot of marketing and sales efforts went into selling space. The efforts, he said, were worth its because the company was selling more flats now that what it sold even during the peak of 2007. Unitech has cut its home prices by roughly 25 per cent and reduced ticket sizes. Currently, the average size of apartment is 700 to 800 sq ft against 1,500 sq ft a couple of years ago.

Analysts, however, said developers had taken huge hits on their margins. Mid-income apartments have a margin of 25 to 30 per cent versus 50 to 70 per cent in premium housing. For instance, DLF’s EBITDA (earnings before interest, tax, depreciation and amortisation) margins have been falling continuously. “The days of 70 per cent margins are over. They have to be happy with 20 to 25 per cent margins now since liquidity is the bigger issue than profits today,” said an analyst from a Mumbai-based brokerage. Apart from sales in the mid-income housing category, several other factors have also given developers confidence to move ahead, the primary being relief from immediate debt payments. All the top developers have rolled over their short term liabilities by 12 to 18 months after the Reserve Bank of India (RBI) allowed commercial banks to restructure their debt.

Unitech has cut debt by Rs 2,000 crore and DLF, the country’s biggest developer, has repaid Rs 1,700 crore of loans in the past year. Between them the top three realtors — DLF, Unitech and HDIL — have restructured as much as Rs 4,100 crore worth of loans with commercial banks and mutual funds. Developers have also benefited from the recent surge in the stock market, which has given many of them the opportunity to tap institutional investors to reduce debt and investing in new projects. After Unitech raised Rs 1,625 crore from a qualified institutional placement (QIP) in April, DLF’s promoters sold 9.9 per cent in the company for Rs 3,860 crore and Indiabulls Real Estate raised Rs 2,656 crore through a QIP. Now, smaller realtors such as Sobha, Puravankara and Parsvnath have lined up QIPs to raise money.

Rajasthan Tops Investment Chart 2008-09: Assocham

Rajasthan has emerged as the leading state in the northern region for attracting the largest planned investment in 2008-09, industry body Assocham said on Wednesday. “Rajasthan has cornered planned investments worth Rs 69,052 cr from India Inc in 2008-09 for upgrading and modernising its infrastructure in nine areas among nine northern states,” the chamber said.

Haryana and Uttarakhand stood at the second and the third position with Rs 52,852 cr and Rs 36,059 cr planned corporate investments, respectively, in the last fiscal. Top sectors that attracted investments for Rajasthan include real estate (Rs 40,945 cr) , energy (Rs 19,400 cr), hospitality (Rs 6,388 cr) and cement (Rs 1,537 cr). Uttar Pradesh secured the fourth place followed by Delhi, Punjab, Himachal Pradesh, Jammu & Kashmir and Chandigarh in that order, it added.

While Uttar Pradesh attracted Rs 35,343 cr of investment during 2008-09, Delhi received Rs 11,758 cr. “In Delhi, hospitality sector cornered the largest planned investment, amounting Rs 6,328 cr followed by real estate, healthcare, telecom and power,” s aid Mr D S Rawat, Assocham Secretary General.

IIREIF Collaborates With IIMT to Produce Next Generation Real Estate Professionals

An association between International Institute of Real Estate Investment and Finance (IIREIF) and Institute of Integrated Management & Technology (IIMT) to produce next generation Real Estate Professionals. It gives us immense pleasure to introduce ourselves as – one of the leading Institute in the meadow of International standard Education in Real Estate, Investment and Finance domain. IIREIF now offering Real estate Management in association with IIMT. IIMT is an ISO 9001: 2008 Certified Autonomous Management Institute & Institutional Member of Lucknow Management Association (Affiliated LMA of AIMA) established in the year 2007 by J B Groups, an organization registered by Govt. of India. J B Groups is dedicated for the cause of social and educational development. IIMT is offering MBA in many special Specializations like Retail Management, Real Estate Management, Supply Chain management, Disaster Management. IIMT is Offering MBA in Real Estate Management in association with IIREIF. It offers various placement opportunities with companies like Parsavnath, Immaculate Group, Piyush Group, Century 21 and many more.

IIMT is backed by J B Groups which has an association with International Institute of Real Estate, Investment, & Finance for Real Estate Related Courses. IIREIF is a unit of Immaculate Ltd known as Immaculate Solutions LLC in USA & Imaculate Business Solutions Pvt. Ltd. in India. Immaculate Group have business dealings with Fortune 500 Companies & have business interest in 12 countries such as India, USA, UK, UAE, Singapore etc. All our courses have been designed in INDIA & U.K., the courses have been structured to equip students to excel both in domestic & International markets. Our courses of Real Estate Management, Mall Management, wealth Management are Certified by Zaskin College U.K. IIREIF program is rigorous and prepares candidates for challenging careers. It will equip the candidates with a diverse range of skills and knowledge. IIMT provides entire course material for self study and web support system for resolving queries. This study material deepens conceptual understanding and enhances practical application skills required by a management professional. IIREIF & IIMT exposure to globally accepted mode of education having its roots in Indian ethos.

Luxury Housing will Regain Demand

Flip through the pages of any newspaper today and there will be umpteen advertisements of low-cost housing projects vying for your attention. What is more, there are even reports of some realty majors tweaking their high-end projects into townships or ‘budget’ homes. It goes without saying that faced with liquidity crunch, affordable housing is currently in for realty majors. But does that imply that luxury housing, which once fuelled the realty boom in this part of the world, is out — once and for all?

While this may seem to be the case at a superficial glance, industry observers think otherwise. “The days of luxury housing projects aren’t over. Both these segments of the market, in fact, have their own demand and what varies across the segments is the quantum of demand. These two categories cater to different income segments and customer profiles, and hence, are not a substitute for each other,” says Mona Chhabra, associate director, real estate practice, Ernst & Young. Neeraj Bansal, associate director of KPMG, explains, “The luxury segment was primarily targeted for the elite, the corporate honcho, high net worth individuals (HNWIs) and non-resident Indians (NRIs). The fact is HNWIs and NRIs are still being pushed and lured with fancy freebies. Exotic location along with the minimalist and international look still continue to attract interest.”

It is only that luxury housing — for obvious reasons — is currently not as much in demand as it was earlier. No wonder, with this segment not picking up much in the past few months, developers have shifted the spotlight to ‘affordable housing’ — to push up volumes, more than anything. With the target audience being the enduser and not investors and the price bracket reducing by as much as 20-30%, ‘affordable housing’ is fast gaining acceptance amongst the large and medium-sized developers. Bansal says, “With the changing business climate, the once ‘in-demand’ luxury apartments — centrally air conditioned, equipped with splash pools, terrace gardens, Jacuzzis, and state-ofthe-art building automation systems — are failing to attract as many buyers as they did 18 months ago.”

Developers are, therefore, finding it difficult to push the highend apartments, villas and stand-alone bungalows, with enquiries dropping by over 40-50%. The past few months have, thus, seen a paradigm shift in the customers’ attitude, who now prefer the ‘basic’ rather than the ‘luxury’. What is more, while the demand from domestic buyers has dried up, even non-resident Indians (NRIs), who constituted a significant market for luxury real estate developers, are now rethinking and re-evaluating their plans. With the US real estate market gone through a correction, NRIs expect it to be reflected in Indian real estate market as well and hence are deferring/delaying buying decisions. The sentiment has been further dented with poor investment climate, low liquidity/salability concerns, expectation of fall in property prices, liquidity crunch of developers causing delays in project delivery, uncertainty in timing and rate of return on investment, fuelling a crisis of confidence and consequently low deal flow.

The drubbing in the luxury-housing segment is also being attributed to excess supply and speculative demand. “Initially, there was pent-up demand for this segment. However, as prices began rising rapidly, speculative demand built up. This led to an increasing number of me-too products being launched. Hence, it has been in a way a classical case of super-normal profits leading to more players entering the segment leading to excess supply to be followed by a consolidation phase,” says Chhabra. The good news, however, is that luxury and super luxury housing segments have already started showing signs of revival in some parts of the world. For instance, agency reports suggest luxury real estate sales continue to remain exceptionally strong in Punta del Este, the renowned South American getaway, despite global crisis.

Similarly, Hong Kong too has witnessed a 2.1% increase in the luxury housing prices in the first quarter of 2009 as compared with that of 2008, rising from HK$8,773 per sq ft earlier to HK$8,958 per sq ft at present. In India, too, lots of luxury projects are still on or are being planned. For example, Gurgaon-based MVL Ltd plans to develop MVL Golf Links, a luxury home-cum-spa and golf resort of international standards, which will be launched in two phases. Similarly, the Supertech group is developing ‘34 Pavilion’, comprising 3 & 4 bedroom luxury condominiums, in Noida, priced at Rs 1.15 crore onwards. Besides, Lodha Luxuria and Casa Essenza by the Lodha group are also among the various luxury projects slated to come up in the near future. It would, thus, be wrong to say that the future of luxury housing in India looks bleak. According to the Confederation of Real Estate Developers Association of India, the premium residential segment would pick up once customer confidence returns and that could happen in the next six months. Some property experts are also of the view that most of the luxury home buyers are currently sitting on the fence, in the hope of getting the ‘best bargain’ deal, and once they are able to get that, no one can stop them from lapping up the luxury projects again!

SBI Overpowers ICICI to Become the Countries Largest Retail Lender

State Bank of India (SBI) Chairman O P Bhatt’s strategy of regaining market share has led to the bank decisively becoming the largest retail lender, overtaking ICICI Bank, which in the private sector had created a culture of mass retail banking over the past decade and held sway. ICICI Bank, the country’s second largest lender by assets, has now paused expansion of its loan book, particularly on the retail side, as it corrects its funding sources, leading to its retail loans being staggered over the last two years. ICICI Bank’s retail loans outstanding shrank to Rs 1,06,200 crore at the end of March 2009 from Rs 1,27,689 crore at the end of March 2007. SBI, the country’s largest lender, adopted an aggressive lending strategy while the rest of the industry froze on its tracks. It saw its retail loan portfolio grow past its immediate rival’s to Rs 1,06,950 crore.

A senior SBI official, who did not want to be identified, said “the lead now is marginal but we will continue to march ahead. We will continue to be an aggressive lender to individuals, particularly with the extension of our 8 per cent home loan scheme till September 2009.” SBI’s home loan portfolio at the end of March 2009 was Rs 54,063 crore. According to Chanda Kochhar, Managing Director & CEO of ICICI Bank, the bank would sustain a policy of capital conservation and raising of deposits while being moderate on loans. SBI has seen a significant increase in its deposits as depositors found safety in the largest bank, while taking in a shift of home loan borrowers away from costlier lenders as it dropped interest rates.

Affordable Housing Segment Attracts PE Players

The new wave of launches in the affordable housing segment is attracting the attention of private equity (PE) players, which had for more than a year shunned the real estate sector struggling with diminishing sales, tight credit and clouded economic forecasts. Although PE firms are yet to strike any fresh deal in the realty space, which hit a downturn last year, funds such as Red Fort Capital Advisors and Kotak Realty Fund are scouting for opportunities in low-cost and mid-income housing projects. “The top-end category in the real estate space is saturated. Several firms are coming up with affordable housing projects ranging from Rs 3 lakh to Rs 10 lakh across India and we are keen to invest in them,” said Red Fort Capital Advisors director GB Singh. The firm plans to invest 75% of its Rs 400-crore corpus in affordable housing over the next two years and is close to clinching two deals in the NCR region.

Red Fort Capital’s current portfolio includes investments in Prestige Group (Bangalore ), Godrej Properties (Kolkata) and Indu Group (Hyderabad). Kotak Realty Fund CEO S Srinivasan is looking to close some deals in low-cost and mid-income housing projects over the next few quarters. Mr Srinivasan, who manages $800 million in asset, struck his last transaction 16 months ago. “Now the valuations have come down and the gap between developers’ and our expectations has narrowed,” he said. The four-year realty boom ending in 2007 saw demand for houses, offices and mall spaces surge as companies expanded and consumers, encouraged by rising incomes and easier access to credit, bought homes. A strong demand also saw home prices going up almost three times and developers shifting focus to high-end homes lured by higher margin.

But a downturn, caused by poor investor sentiment, sky-high property prices and high interest rates, has forced developers to focus on low-priced homes. “Private equity players are interested only in affordable housing these days. No one wants to invest in high-end housing projects or commercial projects these days,” says Unitech MD Sanjay Chandra, who has been negotiating with a couple of PE funds for middle-income housing projects. Recently, Tata Housing’s launch of low-cost residential project near Mumbai received tremendous response. Many other players, including Raheja Developers, Unitech, Omaxe, Gaursons and BPTP have either launched low-cost housing projects or are in the process of launching them.

Demand High for Affordable Housing

The possibility of an affordable home not only eludes the vast middle class in the private sector, but also the Central public sector employees across the country, reflecting the gross shortage of houses. Huge deficit between demand and supply, especially in metro cities, has forced the Central government real estate firm National Buildings Construction Corporation (NBCC) to revise its estimates for creation of housing units meant for government employees. For a scheme launched by NBCC for 800 ‘affordable’ flats in Delhi NCR, it received around 20,000 applications — 25 times the number of flats up for sale. NBCC had targeted its housing scheme at the beneficiaries of the pay commission award, which raises the salaries of Central public sector employees by around 30 per cent.

These 800 flats, priced at Rs 1,978 per sq ft in Gurgaon, cost around Rs 30 lakh each. “Apart from 800 flats, we are now looking at acquiring land in Delhi NCR for meeting additional housing requirement for government employees. Keeping our sale prices low does not only give us the advantage of economies of scale but is also leading to price correction in the market forcing private players to follow suit,” he said. Six months ago, similar projects in the area by leading developers were being launched for around Rs 2,500-3000 per sq ft, a real-estate consultant said.

In fact, buoyed by the response, the NBCC chief has written to urban development ministry and the states, requesting land where it could undertake affordable housing projects in a public-private partnership. Housing has been identified by the UPA government as one of the key areas to provide an impetus to the fledgling economy, which has a multiplier effect, and, according to housing ministry, can push GDP growth by one percentage point. Last year, Delhi Development Authority received around five lakh applications for 5,000 flats in the capital city, priced between Rs 15 lakh and Rs 70 lakh. Given the acute shortage, NBCC may even expand such housing schemes for government employees to other cities, Chowdhury added.

Stop Financing Commercial Real Estate: RBI to Banks

The Reserve Bank of India (RBI) on Monday instructed state and central co-operative banks to desist from financing the commercial real estate sector, as exposure in this sensitive area would not be in their interest. The central bank reminded that the primary role of these banks is to lend for activities related to agriculture and rural development. “…State and central cooperative banks should desist from financing the commercial real estate sector,” RBI said in a notification to the banks. The central bank said it has come to its notice that certain state and central cooperative banks have extended finance to the sector. “Further, taking exposure in sensitive areas would not be in the interest of short term cooperative credit structure,” it said.

Regarding the credit facilities already extended to the sector, the apex bank said it should be ensured that such exposures are well secured and adequate provisioning is made according to the existing prudential guidelines. “It may also be ensured that the credit facilities are not renewed,” RBI said. The National Bank for Agriculture and Rural Development (Nabard), which regulates the rural credit institutions, said these institutions have low-deposit base and if, they divert resources to other sectors, the lending to farming and rural sector will suffer. “We will carefully look at such exposure while inspecting the books of these cooperative bodies for FY09. We would also see if they have adequate securities\collateral for exposure to commercial real estate,” official added.

According to the latest RBI data, the balance sheet of state cooperative banks (SCBs) expanded significantly in 2006-07. On the liabilities side, deposits continued to account for the largest share of the resources of SCBs, despite the modest decline in the share during the year. The high growth in borrowings, which outpaced the growth of other components during the year indicates that SCBs continued to rely heavily on outside sources for their expansion. On the asset side, while loans and advances grew at an accelerated pace, investments declined by 12.8 per cent. During the year, the NPAs of StCBs declined in both absolute and percentage terms. The gross NPAs to total loans ratio at 14.2 per cent during 2006-07 was lower than that of 17.0 per cent in 2005-06, RBI said. The improvement in asset quality was also discernible from the decline in “loss” assets and partly due to migration from the lower categories. Thus, there was an increase in the ‘sub-standard’ and ‘doubtful’ assets categories.

Real Estate India Ready to Roar Again

Investors and analysts have begun re-rating the realty sector on optimism that the worst may be over, as the efforts of recent months and a stable global environment will help developers attract funds and boost earnings. Developers in the past year have restructured debt, sold non-core assets and tweaked product mix, helping to push up sales. This has encouraged investors to buy stocks of real estate companies and motivate analysts to revise price targets and upgrade the outlook on the sector. “The stabilisation in the international market improved financials arising out of restructuring of loans and enhanced liquidity from banks have resulted in revision in the outlook for the sector,” said Dipesh Sohani, an analyst with MF Global, an equity brokerage. “The real estate players are better placed now than what they were two-three quarters before.”

Reflecting the positive sentiment, the Bombay Stock Exchange Realty Index rose 58 per cent in the past month, outpacing the benchmark Sensitive index’s gain of 27 per cent. Stocks of Unitech, DLF, Indiabulls Real Estate and HDIL have jumped 65 per cent, 41 per cent , 54 per cent and 146 per cent, respectively. The turning point seems to have been the successful qualified institutional placement (QIP) of Unitech on April 16, at a time when very few companies dared to enter the market. The country’s second-biggest developer raised Rs 1,625 crore from the sale at Rs 38.50 apiece. The stock is now trading at Rs 71.25 on the Bombay Stock Exchange. The renewed faith of overseas investors stems from the series of steps taken by developers to improve their financial position. Unitech has cut debt by Rs 2,000 crore while DLF, the country’s biggest developer, has repaid Rs 1,700 crore of loans in the past year. The two companies together have also restructured as much as Rs 4,100 crore worth of loans with commercial banks and mutual funds, avoiding short-term payment pressures.

Even commercial banks, which were hesitant to lend to developers, appear to be loosening a bit. According to Reserve Bank of India data, loans to real estate companies grew 61.4 per cent for the 11-month period ending February 2009, as compared to 26.7 per cent growth in the corresponding period last fiscal. Home loan disbursements by the country’s top lenders, which signal the actual demand for homes, is also improving. HDFC, the country’s largest home loan lender, saw its disbursals going up by 17.5 per cent in the fourth quarter of FY09, at Rs 12,400 crore. While LIC Housing saw an increase of 42 per cent and 22 per cent in March and Q4 numbers, respectively. “Liquidity has improved and their balance sheets are looking much better now,’’ said Shailesh Kanani, an analyst with stock brokerage, Angel Broking. “They were able to raise money during the current market conditions at lower valuations, which they were unwilling to do earlier.’’ A general softening of interest rates has also helped developers to cut their borrowing costs by as much as 300 basis points. Some of the developers’ average borrowing cost had risen to an astronomical 17 per cent.

“Significant loan restructuring and softening of interest rates have strengthened the balance sheet of real estate companies,’’ said S Subramanian, head of Investment Banking at Enam Securities. Developers have also tweaked their product mix to improve cash flows. A global economic slowdown had halted sale of homes, offices and shops in the past year, creating a severe liquidity crunch for developers, who had relied on excessive debt to expand operations. “Real estate is nothing else but managing cash flows,’’ explains Sohani. The exuberant demand for real estate in the bull-run had swayed developers into offering expensive products, for which there was no demand as the economy contracted.

To rectify the situation, developers have cut prices by as much as 40 per cent in key markets and also launched a series of residential projects, which were in the so-called affordable category. The change in strategy had a suitable impact. DLF, which launched its new housing project in Gurgaon/Noida, sold out almost 85 per cent of its residential units on offer in the first two days of sale. Unitech has sold out almost 2,100 homes in the past two months. Overseas investors watched these developments with keen interest and lapped up stocks of realtors when they entered the market to raise funds. After the success of Unitech’s QIP issue, which was subscribed more than two times, DLF increased shares it had put up for sale by 68 per cent after it got a strong response from institutional investors. Similarly, Indiabulls Real Estate’s $553 million QIP issues was subscribed by only three overseas funds, including HSBC, Texas Pacific Group and Fidelity.

Analysts are now becoming more bullish. Many of them have begun re-rating the stocks of real estate companies which have cut debt and infused liquidity in the company either through asset sales or share sales to investors. International brokerage Credit Suisse has changed its rating on Unitech to ‘outperform’ from ‘underperform’, with a revised price target of Rs 80, compared to Rs 26 earlier. Another brokerage, Alchemy, has also revised th price target of Unitech to Rs 80 from Rs 25 it set in December last year. “Stocks were beaten down sharply due to negative sentiments in the market due to fall in realty prices and volumes. Now when momentum is up, I am not surprised if the stocks were revalued by two and two-and-half times,’’ said Ramashraya Yadav, head of strategy at Mumbai-based Orbit Corporation. Analysts are now watching the new year with optimism. “Unlike in the past year, survival of developers is no longer an issue in the immediate future. The focus has now shifted to earnings growth,’’ Sohani said. Adding to the positive sentiment was the return of the Congress-led United Progressive Alliance to power, which meant greater stability at the Centre and positive long-term policy measures. “A stable government at the centre with a decisive mandate would encourage more FDI/FII/ domestic investments in real estate. Continuation of policy measures should also lead to increased buyer confidence triggering a recovery in demand in the second half of FY10,’’ international brokerage Credit Suisse said in a recent report.

The stability factor had a partial rub-off on the Indiabulls Real Estate QIP issue. The sale concluded in a day and some existing investors such as Fidelity and HSBC increased their stake in the company. Taking advantage of the upsurge in the market, some investors such as Fidelity and JP Morgan, who had bought into the sector at higher levels, began partially liquidating their holdings. The FII sold Rs125 crore worth of shares in Indiabulls Real Estate. But a section of FIIs, who are bullish on the India, warn against the move. “The temptation of investors to sell shares in the rally is a mistake. The dramatic re-rating of the Indian market is set to continue,” BNP strategists led by Singapore-based Clive McDonnell wrote in a report.

GOVT Plans Moves on FDI in Retail

Retailers, local and global, as well as private equity (PE) investors are closely tracking the new government’s moves on foreign direct investments (FDI) in retail. In a few weeks, plans are expected to get clearer to pave the way for the next round of fresh retail strategies. Currently, the cash-strapped sector is desperately seeking fresh funding and partnerships with foreign retailers. The sector is growing at around 15% this year, with value retailing bringing in most of the footfalls. The sector is through with its initial round of corrections after the initial euphoria a couple of years ago. Across the sector, companies have focussed on trimming fat where high cost structures and a competitive business landscape hurt bottomlines. Kishore Biyani, CEO of Future Group, is optimistic on this front and keen that the market opens up. “FDI has to happen. That is the next way to encourage big-ticket moves and push consumption in India,” he says.

Favourable demographics, upbeat consumer trends and changing lifestyles saw modern retailers growing at over 40% in the past few years. Initial concerns over foreign retailers having an edge over local retailers have worn off and partnerships seem to be the way ahead. In 2006, the government gave its nod to 51% FDI in single-brand retail and may now okay 100% FDI in single-brand and partial FDI in multi-brand retail, according to government officials familiar with the development. “We are, at the moment, neutral about it. We have a good arrangement with Woolworth. Maybe, the new government will encourage some developments on this front,” said Ajit Joshi CEO of Tata’s Infiniti Retail which owns durable retail chain, Croma.

Industry officials said retailers burnt their fingers in the neighbourhood format space due to high dump rates — wastages in the supply chain — competition from low-cost kiranas and unviable operational costs in a low-margin food and grocery business. Most have trimmed the number of formats and are trying to focus on destination malls or big-box formats where margins are significantly higher. “India is a huge market. Organised and unorganised retail can co-exist and benefit by working out the right partnerships,” said the CEO of a leading national discount format. Currently, traditional retail constitute over 95% of total sales in the country. Organised retail comprises 5% of the total retail business and is expected to touch 10.4% by 2012, as per KPMG estimates. There are no longer any protests from kiranas about modern formats hurting their businesses. In fact, mom-and-pop store formats are not just doing well, but are bullish about their expansion plans. International retail giants Wal-Mart and Tesco have already formed back-end JVs with domestic retailers while France’s Carrefour is in talks with potential partners in India. For the moment though, there is a clear shift to value retailing. Discount formats and hypermarkets like D’Mart and Big Bazaar are reporting brisker sales than lifestyle retailing. Retailers are focusing on the mass end of the market to whip up volumes.