Indian Property News on 'June, 2009'

CREDAI Seeks Stimulus to Pump up Affordable Housing

The real estate developers in the country are banking on affordable houses to come out of the current crisis which has worsened with a slump in demand from the IT sector. The Confederation of Real Estate Developers Association of India (Credai), the apex body of the builders in the country with over 4000 members, has sought incentives and tax relief from the government in the forthcoming Union Budget for affordable housing sector to encourage builders to take more such projects. According to Credai chairman Mr Kumar Gera, who was here for the formation of Kerala chapter of the association, the price for affordable housing sector in the has been found to be Rs 2700 per sq ft., which would include cost of land, construction, services and infrastructure. “ If we can construct houses 300 to 400 sq ft. then it be would affordable to a vast sections of people in the tier 2 and 3 towns at this price ,” he said.

The association has asked for special concession and tax relief for houses up to 1000 sq ft. and to provide the status of infrastructure developer for builders going for special residential zones in more than 20 acres for facilitating access of finance. Raising the tax relief limit to Rs 3 lakh, is another demand, which Mr Gera feels has elicited good response. Decline in the growth in IT sector from a level of 23 % to 17 % has been one of main causes for the meltdown in the realty sector, Mr Santosh Rungta, Credai president said. But in the last two months some positive signals have emerged with a rise in the demand for office space from telecom sector, he told ET.

Mr Rungta said residential properties which are rightly priced are still saleable even during this difficult period. To maintain the right price, however, the government should rationalize the stamp duty, which at 15.5% is the highest in Kerala when the national average is 5 to 8 %. The National Housing policy has recommended the states to bring it to 2 to 3 %.

25% Upswing in India’s Housing Market

Activity levels are gaining traction in the near moribund housing market as a flurry of interest rate cuts, price drops and the building industry’s focus on affordable housing start to lure buyers back into the market. A cross section of banks, property developers and real estate consultancies that SundayET spoke to confirmed that the rise in activity levels since the start of the year had picked up momentum in the last three months, with some in the sector saying that sales were up by as much as 25-30% since April, after witnessing a growth of 10-15% during the first quarter of 2009. India’s property market started showing signs of serious trouble nearly a year ago with first the American sub-prime crisis and later the Lehman bankruptcy playing havoc. The overpriced projects by builders found few takers which was worsened with the IT industry facing a major setback.

Builders were stuck with high-end apartments which had no takers. There was a severe drop in sales with people wanting to conserve resources. As a result, property prices too fell 30-45% since peak of 2007, according to industry estimates. But today the scenario is different, with builders getting a mix of mid end and affordable housing into their portfolio. Raminder Grover, CEO—Homebay Residential, Jones Lang LaSalle Meghraj, says the revival in sales has been, conservatively speaking, to the tune of around 25% across the mid-to-high income segments, according to his company’s sales records. Rohtas Goel, CMD of Delhi-based Omaxe too says there has been a 30% increase in sales thanks to factors such as a reversal in general economic sentiment after the elections and more options available in affordable housing.

Statistics too would appear to bear this out. India’s largest real estate developer DLF says it has sold almost 1,500 flats in various cities since April, notably some 400 flats in its mainstay market Gurgaon, 700 in Bangalore, 100 plots in Indore, 200 flats in Hyderabad and 50 in Cochin. Rival Unitech has managed to sell more than 4,000 units in the last two and a half months in the National Capital Region, Chennai and Mumbai. Omaxe has also sold almost 500 apartments in its Omaxe Eternity project in Vrindavan. Niranjan Hiranandani, MD of Hiranandani Developers says there had been a sale of 7,000 apartments across the industry, mainly in Mumbai suburbs, over the last 60 days. Despite indications of improving demand, builders don’t seem to be in a hurry to raise prices. They are conscious that demand was up due to price cuts and the affordable housing strategy. Builders are loathe to do anything that could incipient recovery.

“We will not be looking at a price increase,” says DLF’s group executive director Rajeev Talwar. The company says it has cut prices by up to 30% from peak levels of 2007. Others point out that the demand is coming from the low-end housing segment comprising houses prices under Rs 25 lakh. “Buyers have come out of the waiting mode…By December, the situation is expected to become much better,” said Mr. Goel of Omaxe. Mr. Hiranandani of Hiranandani Developers also agreed that affordable housing was selling the most right now, saying that while the overall market had improved, this particular segment was doing really well as buyers realised that the market has bottomed out. Bank officials SundayET spoke to also confirmed the trend of rising demand, and noted an increasing demand for home loans.

“Largely the demand is coming from the sub Rs 30-40 lakh category. Resale market is also showing high growth. However, there is lesser demand for new projects as well as in yet to be completed ones,” said Kamlesh Rao, senior vice president at Kotak Mahindra Bank. “While during January-March, there was a growth of 10-15%, now it is around 15-20%.” He is not alone. Officials at UCO Bank, Axis Bank and the country’s top mortgage lender HDFC too agree that an improving sentiment had helped drive housing sales. “We are witnessing an increased interest from our clients. The condition has definitely improved over the last 3-4 months,” says Sujan Sinha, senior VP and head of retail assets at Axis Bank. An HDFC spokesperson felt the growth is up month on month mainly due to decline in interest rate and the growth of affordable housing. “We are confident that we will achieve the 20% annual target growth,” he said.

Downturn Hit Realty Majors Betting Big from Forthcoming Budget

Having been hit the hardest by the economic downturn, embattled realty majors are betting big on the forthcoming Budget, to be presented on July 6, in a bid to revive the sector’s fortunes. Experts say the sector needs government support as well as further stimulus to get out of the current slump. While the government with a clear mandate has provided the requisite stability to the economy, it now needs to focus on retrieving the sluggish real estate which is now facing a severe financial crunch. This is important in view of the fact that real estate in India is the second largest employer next only to agriculture, and growth in the sector has a direct impact on ancillary industries such as steel and cement. “In the backdrop of its importance to the growth of the Indian economy, it is vital for the government to nudge growth in the sector, through fiscal stimulus, to newer heights which would also help make affordable housing a reality and within the reach of the proverbial ‘aam aadmi’,” says Nandita Tripathi, associate director, KPMG.

As a first step, the government should accord ‘infrastructure status’ to the housing sector and appoint a regulator to act as a single window for overseeing and monitoring the affordable housing agenda. “After being hit by the global financial meltdown, real estate developers have now recognized the growing demand for affordable housing. To provide further impetus to this direction of development, the government should consider reinstatement of the tax holiday benefits under Section 80IB-(10) for affordable housing projects,” says Tripathi. Brotin Banerjee, MD & CEO, Tata Housing, is also of the same view. “We seriously believe that the housing sector should be delinked from real estate and be accorded infrastructure status. This will enable easier access to low-cost institutional funds as also allow the sector to tap long-term funds,” he says.

Further, for affordable and low-cost housing, “we at TATA Housing believe that loans for such projects should be made available at lower rates and also qualify for stamp duty and fee waiver. Development and approval charges should similarly be done away with or at least subsidized,” says Banerjee. Moreover, increase in the limit of interest on housing loan from the existing Rs 1.5 lakh to Rs 3 lakh and a corresponding increase in the tax deduction limit for the principal loan amount would also go a long way to enhance the common man’s appetite for home loans by lowering their tax outflows and, hence, making their dream home a reality. Besides, “tax benefit should be given from the year the loan is taken from banks, rather than after taking the possession of the house. This will help in providing stimulus to new launches,” suggests Neeraj Bansal, associate director – advisory services, KPMG.

In the current economic slowdown, real estate mutual funds (REMFs) could provide the necessary financial support to the cash-starved housing sector. However, since their introduction a year back, REMFs have not found any takers due to unclear regulations and absence of guidelines for their tax treatment. “Recognizing the need for REMFs as an important capital contributor for the sector, the government should consider aligning the regulations to global best practices, including providing a tax pass through status for registered REMFs,” says Tripathi. Separately, outdated and draconian provisions such as Section 50C need to be repealed as they result in an unfair basis for taxation. In today’s times, where real estate transactions are governed by market dynamics, applying a notional basis for taxation causes undue hardship to the taxpayer, according to industry experts.

Also, large-scale developments such as SEZs and industrial parks are the answer to India’s next round of industrial growth. The existing law, however, provides unequal tax structures for SEZs and industrial parks. No wonder, despite the latter being granted ‘infrastructure status’, restrictive and stringent application of tax incentives coupled with delays in timely clearance of applications has seen far and few takers for development of industrial parks. Therefore, “tax incentives similar to SEZs should also be granted to industrial parks. Given that such large developments are a key factor to growth of India’s industrial/ commercial sector, there is definitely a case for extending the tax holiday benefits for industrial parks, which expired in March 2009, to March 2015 and relaxing the tax holiday provisions,” says Tripathi.

Among other measures, rationalization of stamp duty across all states, encouraging states to release land for low and middle-income housing schemes, and debt restructuring where the government along with banks need to create a more friendly repayment mechanism in terms of payback time period so that the developer is left with enough to plough back into the project, should be considered. Experts believe that in the backdrop of the above wish-list, it would be a tough balancing act for the finance minister, still real estate needs some ‘real’ boost given that till now the stimuli given to the sector through fiscal and monetary measures have been inadequate to steer clear of the current crisis.

Real Estate Still a Good Investment Option

The real estate sector plays a significant role in India’s economy. Almost 5% of the country’s gross domestic product (GDP) is contributed by housing alone and an unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times the increase in expenditure. According to Dun and Bradstreet Corp., a provider of credit information on businesses and corporations, the total value of real estate development in India was estimated to be around $14 billion (Rs67,480 crore), growing at an annual pace of 30%. This growth is fuelled by the growth in realty development in organized retail, followed by housing and information technology and information technology-enabled services.

While such statistics are praiseworthy, it is also relevant to remember that the ongoing slowdown had started with a bursting of a bubble in US real estate, driven by reckless demand and supply conditions. Real estate in India has been characterized by an increasing presence of a large number of public companies, along with the opening up of this sector to foreign direct investment (FDI) and private equity firms. This has increased the discipline and accountability of businesses undertaking large-scale real estate developments. On demand, Indians have an innate propensity to own homes. This, with rising income levels following India’s rapid growth, has resulted in a phenomenal increase in the demand for homes.

Moreover, the country has started viewing property as a preferred investment option, given that returns are pegged between 11% and 15%, compared with bank deposits, which seldom offer returns over 10% a year. Prices of homes, therefore, have increased at a steady pace in the past decade. In recent times, real estate has been seeing a plunge in demand with retail shying away from exorbitantly priced spaces or paying high rentals. Reduced consumer spending has also translated into a retail slowdown. Many firms have also decided to relocate from high to lower cost locations, leading to vacancies going up in retail and office space. Interestingly, a careful look at the performance of the sector reveals that the pace of activity has been shifting to smaller cities. Several reasons could cause this shift. First, speculative investments in real estate, which have been largely confined to the metros, resulted in greater price volatility in these cities.

Secondly, the high price of real estate in large cities has caused a number of offshore companies setting up operations in India to expand into smaller cities, resulting in a substantial increase in demand. Thirdly, builders and developers have mainly focused on high-end housing projects in large cities. The recent economic slowdown has meant large stock of unsold inventory. They have, therefore, shifted focus on developing projects aimed at medium-income, middle-class households. Lastly, the special economic zone policy has also resulted in a shift of activity from large to smaller cities. So, where are we headed? The advent of the private sector in real estate and the government’s proposal to offer fiscal concessions and creating an enabling environment for housing development have led to rapid growth in private investment in housing, with the emergence of developers mainly in metropolitan centres and other fast-growing towns. The growth has been fuelled by rising business opportunities in new and emerging enterprises, increasing income levels, low interest rates, employment generation and demographic changes.

The real estate market has also been boosted by a proposal to permit 100% FDI in the sector. Also, a significant factor that drove the growth of the housing market was easy availability of bank finance at affordable interest rates. Finally, it is important for policymakers to be vigilant and track the pace and economics driving the evolution of the sector. There should be adequate supervision to prevent reckless credit growth to fund its expansion. India’s favourable demography, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the retail real estate downturn from being protracted. The fundamentals of the sector are good and its growth should continue in the foreseeable future.

Mumbai Developers Look to Increase Property Prices

Real estate developers have begun to increase property prices in some pockets of Mumbai like Ghatkopar, Thane and Andheri, after emerging unscathed from a severe liquidity crunch. “I think the correction (in real estate price) has almost bottomed out. In fact in some places I find that real estate developers have started increasing the rates as their cash flows improve,” said R R Nair, chief executive of LIC Housing Finance, a subsidiary of Life Insurance Corporation (LIC).

The government had ensured easy flow of credit to the real estate developers. Banks increased their exposure and also extended repayment period of loans to developers during 2008-09 to help them tide over liquidity crunch. “The demand for real estate has started picking up as people who had deferred their buying decision are now coming forward to buy homes,” said Nair.

Reliance Retail Plans to Purchase Henkel India’s Soap Brand

Mukesh Ambani’s Reliance Retail has put in bids to acquire two of Henkel India’s soap brands, a sign of the big ambitions it has in the fast-moving consumer goods (FMCG) business. Any deal for the male deodorant soap Aramusk and Moloy sandalwood soap, put up for sale late last year, is estimated to be worth about Rs 10 crore. The Henkel brands are unlikely to generate significant revenues at the national level, but they are attractive buys locally, especially in the eastern part of the country. Reliance Industries (RIL), the parent of Reliance Retail, has identified the FMCG sector as the next big growth area, and is planning to set up two or three subsidiaries to manage the business. What started as a private label initiative for Reliance Retail has now grown into a large business idea, said two persons close to the development.

They said the entire business (manufacturing and distribution) will be operated through third parties with Reliance controlling the brand and the technology behind it. The plan is to create consumer brands, acquire them and get into joint ventures with existing companies, a top company official said. Chennai-based Henkel had earlier put four non-core brands on the block, that included Maha Bhringol hair oil and Tuhina skin cream. ET has learnt that Reliance is not interested in acquiring the hair oil brand and Henkel has decided to retain Tuhina as its core brand. The Emami group is also in the race for the Henkel soap brands, but a person close to the deal process said Reliance has bid higher. Mumbai-based consumer goods firm Jyothy Laboratories also considered acquiring the brands, but it couldn’t be ascertained if it is still in the race. Mape Advisory Services is the investment banker for the deal. Aramusk and Moloy were owned by Shaw Wallace India before Henkel acquired them in 1999. Reliance Retail and Henkel India declined to comment.

The FMCG sector has coped with the slowdown better than most others, growing by 18-20% in the past 5-6 quarters, helped mainly by price hikes, increased consumer promotions, new product launches and smaller packs. Though growth slowed down in April and May, FMCG companies are aggressively gunning for volumes, and are optimistic that growth will rebound. For Reliance, the FMCG business is unlikely to attract negative publicity — unlike its retail venture — since it would involve small manufacturers and not compete with them as was the case with its retail unit. FMCG is also a business where overhead costs are low, and outsourcing is common. Reliance plans to enter into agreements with manufacturers and the FMCG business would get a captive audience at the 750-odd Reliance Retail stores and give the retail venture the margins the company would otherwise have paid to a distributor.

Among the categories that Reliance proposes to enter include foods such as staples and snacks, and personal care products including soaps, detergents, shampoos and hair oils. In January this year, Henkel, a 51% subsidiary of German consumer products company Henkel KGaA, had decided to divest its non-core regional brands. Henkel wants to prune its portfolio to focus on flagship brands Henko and Mr White (both laundry care brands), Pril dishwasher, Margo soap and Fa deodorants. Other brands in the Rs 600-crore Henkel India’s portfolio include Neem toothpaste and haircare brands Igora, Bonacure, Glatt and Palette. In addition to deodorants, the Fa franchise includes soap, talcs, shaving cream and after-shave lotions. Furthermore, Henkel introduced its Bref surface cleaners last year.

Housing Rebound Raises Hope for Asian Property Firms

Asian property firms are beginning to see light at the end of the tunnel and several are positioning for an upturn even as the world economy struggles to recover from its worst recession in decades. The mood among US and European executives at the recent Reuters Global Real Estate Summit was glum, but Asian counterparts were more upbeat with some revealing plans for new projects in anticipation of an upturn later this year. For instance, Chinese commercial property developer SOHO said it has built up a war chest of $1.9 billion to replenish its land bank and intends to start new projects in Shanghai and Beijing in coming months. Indiabulls, India’s third-largest listed property developer, aims to launch six to seven residential projects in the financial year ending in March 2010 on the back of an expected recovery in demand.

”The general mood has been cautious, but there is also optimism. Asian companies in general are in much better shape compared to their peers in other regions,” said Ayala Land Chief Financial Officer and Asian Public Real Estate Association President Jaime Ysmael. Spurring the optimism in Asia is a recovery in residential markets, with price cuts drawing buyers in China, Hong Kong and Singapore, where saving rates are high and banks are prepared to lend. The volume of transactions in these places are close to levels seen during the bull market of 2007 and residential property values have begun to edge upwards as developers such as Singapore’s City Developments raise prices. Asian property values did not rise as much as in the US and parts of Europe this decade. In dollar terms, properties in countries such as the Philippines are cheaper than before the onset of the Asian crisis in late 1997.

Interest rate cuts and government stimulus plans are also helping regional property markets recover. Singapore residential prices were supported by mortgage rates that were below rental yields, a Bank of America Merrill Lynch report said this week. ”At the current mortgage rate of around 2.75 percent, our net cost of carry model implies that prices can rise by 30 percent before home buyers enter negative carry,” it said. The bank predicts Singapore home prices will rise 20 percent next year. Singapore’s housing market has been hit hard by the downturn, with home prices plunging nearly 14 percent in the first quarter of this year, the steepest drop in over 30 years, according to government data. Separately, Nomura said unemployment was stabilising in Hong Kong and forecasts home prices and rents in the Chinese territory will rise by 22 percent and 11 percent, respectively, this year.

A poll of 10 analysts conducted in conjunction with the Reuters Global Real Estate Summit showed China home prices are expected to gain an average of 10 percent between now and the end of 2010. The outlook for Asia’s office market remained negative but most developers said rents have stabilised after falling sharply in the fourth quarter of 2008 and earlier this year. ”There is a risk that this is a bear market rally and the situation could reverse when such liquidity leave the cities or country, or there is new shock to the economies,” said LaSalle Investment Management’s Asia-Pacific head of research and strategy Kenneth Tsang.

SBI Increases Disbursement of Home Loans to Rs 1,500 cr a month

State Bank of India’s disbursements on home loans under its ‘New happy home loan scheme’ have grown at Rs 1,500 crore monthly. This is about Rs 400 crore more than the monthly average of Rs 1,100 crore it did in the first two months since the scheme was announced. “Till March we had done Rs 2,348 crore. Subsequently we are sanctioning Rs 1,500 crore every month,” P. Nandakumaran, Chief General Manger, Personal Banking, SBI, told Business Line.

In the first week of February, SBI had announced that it will offer an interest rate of 8 per cent for one year – the lowest so far in the industry. In the second year, the rates applicable will be the prevailing rates then. The bank’s move was to stimulate demand in the housing market at a time when many buyers postponed their purchasing decisions amid economic uncertainty and fear of job losses. The scheme has now been extended till September. The bank also offers other schemes, which will be valid till the month-end. Under this, it offers a home loan between Rs 5 and 20 lakh at a fixed interest rate of 9.25 per cent a year for five years, after which rates will be re-set.

SBI, which claims to have the highest growth in its home loan portfolio last fiscal, saw its advances swell to Rs 54,063 crore. This is a 21-per cent increase from Rs 44,626 crore in the previous fiscal. During the same period, the bank’s market share grew to 19.74 per cent from 17.48 per cent.

SBI Increases Disbursement of Home Loans to Rs 1,500 cr a month

State Bank of India’s disbursements on home loans under its ‘New happy home loan scheme’ have grown at Rs 1,500 crore monthly. This is about Rs 400 crore more than the monthly average of Rs 1,100 crore it did in the first two months since the scheme was announced. “Till March we had done Rs 2,348 crore. Subsequently we are sanctioning Rs 1,500 crore every month,” P. Nandakumaran, Chief General Manger, Personal Banking, SBI, told Business Line.

In the first week of February, SBI had announced that it will offer an interest rate of 8 per cent for one year – the lowest so far in the industry. In the second year, the rates applicable will be the prevailing rates then. The bank’s move was to stimulate demand in the housing market at a time when many buyers postponed their purchasing decisions amid economic uncertainty and fear of job losses. The scheme has now been extended till September. The bank also offers other schemes, which will be valid till the month-end. Under this, it offers a home loan between Rs 5 and 20 lakh at a fixed interest rate of 9.25 per cent a year for five years, after which rates will be re-set.

SBI, which claims to have the highest growth in its home loan portfolio last fiscal, saw its advances swell to Rs 54,063 crore. This is a 21-per cent increase from Rs 44,626 crore in the previous fiscal. During the same period, the bank’s market share grew to 19.74 per cent from 17.48 per cent.

SBI Increases Disbursement of Home Loans to Rs 1,500 cr a month

State Bank of India’s disbursements on home loans under its ‘New happy home loan scheme’ have grown at Rs 1,500 crore monthly. This is about Rs 400 crore more than the monthly average of Rs 1,100 crore it did in the first two months since the scheme was announced. “Till March we had done Rs 2,348 crore. Subsequently we are sanctioning Rs 1,500 crore every month,” P. Nandakumaran, Chief General Manger, Personal Banking, SBI, told Business Line.

In the first week of February, SBI had announced that it will offer an interest rate of 8 per cent for one year – the lowest so far in the industry. In the second year, the rates applicable will be the prevailing rates then. The bank’s move was to stimulate demand in the housing market at a time when many buyers postponed their purchasing decisions amid economic uncertainty and fear of job losses. The scheme has now been extended till September. The bank also offers other schemes, which will be valid till the month-end. Under this, it offers a home loan between Rs 5 and 20 lakh at a fixed interest rate of 9.25 per cent a year for five years, after which rates will be re-set.

SBI, which claims to have the highest growth in its home loan portfolio last fiscal, saw its advances swell to Rs 54,063 crore. This is a 21-per cent increase from Rs 44,626 crore in the previous fiscal. During the same period, the bank’s market share grew to 19.74 per cent from 17.48 per cent.