Indian Property News on 'June, 2009'

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.

Demand Drives Developer’s Focus to Small Houses

Amid the ongoing economic recession, the real estate market is opening up in case of smaller units. Investors are betting on small residential options like houses, flats and plots, which offer better returns and minimise the risk. Since affordability of these units is one of the factors generating demand, real estate developers in tricity are offering wider options with a focus on small budgets. National developers, who launched projects in the tricity banking on luxury apartments, are now restructuring these units into smaller and affordable houses.

“Affordability factor translates into demand for small-sized property in the residential sector. The supply, especially from private colonisers and builders, till recently was primarily of bigger, luxurious apartments,” Manoj Kashyap, regional director, Jones Lang LaSalle Meghraj, a global real estate services firm, says. “The demand in the small budget segment also translates into better returns for the investor.” Since the budget of majority of buyers is of one-bedroom and two-bedroom apartments, the demand is high. “Considering my budget, I booked a two-bedroom apartment in Gulmohar City, a project by Raglan Infrastructures Limited, at Dera Bassi for Rs 13.31 lakh in May this year,” Rajesh Arora, who lives with his family in Jammu, says. “Since I belong to Jalandhar, I wanted to settle near the area, and Chandigarh was a good option.”

Another advantage in case of smaller units is the comparatively cheaper home loan rates, recently reduced by banks. For example, the interest rate on home loan up to Rs 5 lakh, for a maximum period of 20 years, will not go beyond 8.5 per cent in the first five years. In this category, even the loan value has been increased. Now, a borrower can get a loan up to 90 per cent of the value of the house. The interest rate on loan up to Rs 20 lakh, for a maximum period of 20 years, has been fixed at 9.25 per cent and the margin has been reduced to 15 per cent. “The middle class might aspire for luxury houses, but exorbitant real estate prices make them go for smaller houses. Developers are also offering discounts to sell these units,” Ashok Pradhan, an army officer posted in Punjab, says. “I recently invested in a one-bedroom studio apartment in Shakun Suncity, Baddi, through a bank loan.”

CRDAI Demands Tax Relief to Encourage Affordable Housing and Slum Development

With the countdown to the Union Budget having started, the real estate industry body, Confederation of Real Estate Developers’ Association of India (CREDAI), has put forth recommendations on the twin themes of affordable housing and slum redevelopment. According to a press release quoting its President, Santosh Kumar Rungta, President, says, “CREDAI appeals to the government on the impetus to create and facilitate affordable housing. We are optimistic that our recommendations to the Central Government will be evaluated with utmost importance and will put affordable housing’ at the centre of public policy.” According to the release, the real estate sector alone can add 1-1.5 per cent to GDP if efforts are made to reduce the shortage in urban housing while moving towards a slum-free urban India.

CREDAI’s first recommendation is on offering fiscal incentives for encouraging “affordable mass housing” in the 300-600 sq.ft and up to 1,000 sq.ft segments, by providing subsidy in interest payable by the homebuyer. The Eleventh Plan has estimated an urban housing shortage of 24.7 million units, and almost all of which is in economically weaker sections (EWS) and lower income group (LIG) categories. “Home ownership is critical for this segment not only for economic reasons, but also for the health of the nation from a social perspective in terms of stability, law and order, education and employment.” The second recommendation pertains to slum redevelopment, wherein CREDAI advocates exemption of direct and indirect taxes to boost the ‘slum redevelopment’ initiative. The recommendation gains relevance as the Government intends to make urban India slum-free in five years. There are around 80 million urban poor living in substandard or unsafe housing conditions under the continuous threat of displacement.

CREDAI also recommends increasing deduction on interest paid on self-occupied residential house property, currently restricted to Rs 1.5 lakh a year.. Besides, it wants deduction under Section 80C for repayment of principal portion of housing loan for self-occupied residential house property — in addition to the present composite deduction up to Rs 1 lakh, a separate limit of up to Rs 2 lakh deduction is being demanded to encourage affordable housing sector and enhance the disposable income in the hands of the middle class. “This impetus is required keeping in mind that amounts were fixed six years ago and real estate prices have catapulted since then,” says Rungta in the release. The industry body also believes that incentives should be given to senior citizens for purchase of flats for themselves and also to children who purchase residential units for their aged parents. CREDAI also wants 100 per cent interest deduction on home loan taken by senior citizens or by their children if they opt to buy a second home in the joint name of parents who are above 55 years old; and no capital gains should be payable by the senior citizens/their children on sale of these residential units.

Though not a budgetary wish-list, developers are looking to both the Centre and States for measures that would help revive the real estate industry. Most of them want the I-T exemption raised above the current Rs 1.5 lakh a year. The Centre should also look at giving full income-tax benefit for projects priced below Rs 2,500 per sq.ft irrespective of the size/area of the apartments, says J. C. Sharma, Managing Director, Sobha Developers. He wants the Karnataka Government to reduce the value-added tax from 12.5 per cent now to 4 per cent, and scale down stamp duty and registration charges on the resale of apartments to 1 per cent of the total sale value. “This would bring in more revenue as the number of transactions would go up,” he says. Koshy Varghese, Managing Director, Value Designbuild, a Bangalore-based real estate developer, says that the Central Government should reduce excise duty on materials such as cement. “Most importantly, the housing sector must be given the status of an industry thereby allowing access to cheaper credit and easier access to loans. Bank finance is still very expensive,” he adds.

State Governments should look into further reducing stamp duty and cess. The fee payable on obtaining sanction of plans should also be reduced, which “has become prohibitive,” says Varghese. The immediate need of the hour is for the Government to take measures to ease the credit crunch situation and help the developers meet their credit needs at least till they come out of the current cash crunch situation, feels Sandeep Trivedi, Director, Development Consulting, Cushman & Wakefield India. “There is also a long-term need of rationalisation of interest rates to bring down the cost of credit to both developers and end-consumers. The government needs to provide more impetus for up-gradation of infrastructure and undertake major reforms in land and urban-planning segments. This will help in removing supply-side bottlenecks that are preventing us from sustaining our growth,” he says. According to Sridhar Kulkarni, Head-Marketing (Karnataka and Andhra Pradesh), Shriram Properties, the Government’s quick action in providing clarity on service tax, and necessary aids for home finance institutions to reduce home loan interest will go a long way in reviving the real estate market.

SC Decision can Turn Things Around for SEZs

The Supreme Court, or SC, will hear together at least half a dozen cases in July that could change the contours of India’s policy on SEZs, or special economic zones, and even require a change to the SEZ Act of 2005. Leading the clutch of petitions is one against Mumbai Special Economic Zone Ltd, or MSEZ, promoted by billionaire industrialist Mukesh Ambani and his business associate Anand Jain. Experts say the outcome of the hearing could set a precedent for SEZ projects, irrespective of which way the court’s decision goes. There are also petitions, such as Kuldeep Bishnoi and Others versus The Union of India, that raise questions about the acquisition of farmland for SEZs in Haryana. Mint could not obtain specifics of other petitions that have been tagged together by SC.

SC has not yet announced a date for the commencement of the hearing. Some of the cases challenge specific SEZ projects while others, such as the public interest litigation against MSEZ by half a dozen farmers from Raigad district and led by the Maha Mumbai Shetkari Sangharsh Samiti (MMSSS), a regional farmers’ activist group, question the constitutional validity of the SEZ Act itself. Last year, the apex court had transferred these cases to itself from across various state high courts to be able to hear the issue in its entirety. Lawyers and experts agree that the cases will test the SEZ Act as well as the government’s will to stick to its legislation.

“This is a test case. There are other petitions, too, but nothing like this that puts the law to test,” said Sunil D. Dighe, a lawyer for MMSSS, who represented the group in the Bombay high court. Mumbai-based independent SEZ consultant C.S. Sanghavi said the legal process will tread new ground as nothing like it has come up before the Indian courts yet. “It will be a trial by fire (for the act) since you are questioning the basic law itself,” he said. MSEZ counsel Shanti Bhushan admitted the lawsuit is crucial but said he didn’t think the arguments of the SEZ Act violating Constitutional provisions would stick. He added that this argument seemed to be targetted at delaying the development of a “very important SEZ”.

Nationally, 568 formal approvals have been granted for SEZs; of this, 315 have been notified, meaning the projects have been able to acquire land needed, according to data from the “SEZ(s) in India” website. The site is maintained by the department of commerce. Maharashtra and Andhra Pradesh have the most formal approvals, at 109 and 101 SEZs, respectively. The MMSSS petition is ambitious, going beyond opposing the 10,000 hectare project and questioning the very rationale behind SEZs. The group has alleged that the SEZ Act is “discriminatory, arbitrary”, and wants the court to declare it as “illegal, unconstitutional and null and void as being (in) violation of Articles 14, 19 and 21 of the Constitution”. Article 14 of the Constitution guarantees every person “equality before the law or the equal protection of the laws within the territory of India”, while Article 19 provides citizens freedom “to move freely throughout the territory of India…(and) to reside and settle in any part of the territory of India”. Article 21 provides “protection of life and personal liberty” to all Indians.

The petition claims that the area approved for MSEZ will be a “sovereign island” under the Act, “having special economic laws, civil and criminal laws empowering them with special powers…in respect of running and managing such SEZ, which is unconstitutional”, and adds that such enclosed zones have restricted entry, violating the spirit of Article 19. The petition also alleges that special provisions under the SEZ Act effectively deprive workers in SEZs of the protection and equality in wages and service conditions available to workers outside SEZs. An emailed questionnaire to an MSEZ spokesperson about the status of the project and the allegations against it remained unanswered. Earlier this month, SC set aside a special leave petition from MSEZ asking for a stay on the land acquisition deadline that was set to expire 8 June. The project, envisaged with an initial investment of Rs40,000 crore to create at least 2 million jobs over the next decade, was approved in June 2005 and has had its land acquisition deadline extended twice. An industry official familiar with developments at MSEZ, who declined to be named because the matter is before the court, said that since notifications on land acquisition for different villages had been issued at different dates going as far back as August 2007, the two-year deadline varied for each location.

CMDA Puts MBS on Fast Track in Chennai

Hot on the heels of hastening the planning permission mechanism for small buildings, the Chennai Metropolitan Development Authority has initiated steps to put the approval process for multistoreyed buildings (MSB) also on fast track in the Chennai metropolitan area. Only recently, the regulatory agency had done away with the necessity to obtain seven out of 13 no-objection certificates (NOCs) from various government agencies, hitherto mandatory for issuing the plan approval for MSBs. It was CMDA that used to communicate with agencies like the Fire and Rescue Services and the Chennai Metrowater Supply and Sewerage Board for obtaining NOCs after the builder had submitted the application and detailed plan for clearance. Going one step forward, CMDA has now permitted builders themselves to apply for NOCs and submit them along with the detailed plan for the agency’s approval.

“Our objective is to speed up the approval procedure in every way possible. It takes a lot of time for our staff to communicate with other departments. On many occasions, delay in getting NOCs used to hold up issue of planning permission,” said a CMDA official. By allowing builders to apply and obtain NOCs, the official said, much of the delay could be avoided. “We have also introduced an 18-point checklist for builders, while applying for permission for MSBs. Hereafter, applications will get scrutinised in totality and deficiencies will be informed to the promoter through a single communication. Those who rectify deficiencies will be issued planning permission within 75 days. In case the builder fails to set right the inadequacies, the applications will be rejected and the promoter will have to start the whole process again. Earlier, our officials used to point out deficiencies piecemeal and files were kept pending for even two years,” said the official.

The regulatory agency has also decided to accept land for road widening as well as open space reserve (OSR land is used for setting up parks) directly from the builder. CMDA will, in turn, hand them over to local bodies. Until now, the builder had to hand them over to the local body (corporation or panchayat) through a registered deed and it used to be a time-consuming exercise. Yet another significant development is the willingness shown by CMDA to delink scrutiny of title documents from building plan. It means the promoter can submit property documents to CMDA for scrutiny as and when land is purchased and can ascertain the scope for development on the plot much before the building plan is readied.

“Many things have changed in CMDA in recent times and a greater part of that change has been for the good of developers and builders. It is good news that CMDA is aggressively working toward faster approval,” said Sandeep Mehta, MD Jain Housing. “In a turbulent market, our members will pass on every benefit accrued from faster approvals of projects to customers,” said Prakash Challa, president of the Tamil Nadu chapter of the Confederation of Real Estate Developers’ Association of India.

Real Estate Company Unitech Raises $ 575 Million via Private Placements

Real estate major Unitech raised $ 575 million (Rs 2,800 crore) on Friday through placing shares with overseas private equity funds at Rs 81 per share. This clearly indicates the rising interest of foreign investors in the Indian real estate market. The company had a plan to raise only $200 million but as the demand from investors was huge, it decided to increase the issue size. According to a source, the total demand in the auction was for over $1 billion.

In the deal, the company will issue 342 million shares, which will expand its equity base by around 16.7%. This will bring down the promoter’s stake in the company to around 43%. However, following the conversion of warrants, subscribed by the promoter in May at Rs 50 per share for Rs 1155 crore, his stake will increase to 49%. The company had raised $325 million in April by selling 421 million shares to private equity funds at Rs 38.50 per share. A senior company official said that this was the last dilution of capital base of the company. The money raised on Friday will be partly used to repay the high cost debt of and partly to launch affordable houses in various regions of the country. At present, the company has a loan of Rs 7,800 crore.

The share rice of Unitech on Friday closed flat at Rs 82.35. A senior merchant banker said that the current round of fund raising will help the company tide over slowdown in the real estate sector. Unitech had announced its plans to build 20,000 affordable houses at an investment of Rs 1,700 crore. It is also aiming to sell 15,000 flats in 2009-10. It is converting some of its premium projects into affordable housing. As there is huge demand in the affordable housing segment, construction of low cost houses will increase the cash flow of the company. Due to high interest rates and global financial crisis, the demand for houses had almost evaporated in the second half of 2008. As developers sifted their focus on the low cost housing, activities have again picked up.

Sluggish Growth in Real Estate Coimbatore

Laxity in promoting Coimbatore as next IT destination after Chennai,time-consuming approval process, speculative land prices, conservative nature of people and lack of political clout are some of the key reasons identified behind the sluggish growth in real estate in the techcity. Speakers at a forum organised by Confederation of Indian Industry (Coimbatore) and Jones Lang LaSalle Meghraj (JLLM) here on Tuesday. However, believed the realty sector has enough potential and it is poised to pick up growth in about six months to one-year.

In his presentation on Coimbatore Edge, Ramesh Nair, managing director of JLLM, Chennai and Hyderabad regions said branding Coimbatore, as a single entity is very important for the growth of the city. Also, the city has the capabilities to be promoted as a highly promising alternative IT/ ITES and a biotech destination. “There is a huge potential for local, national as well as international developers in the real estate sector in Coimbatore,” Abhishek Kiran Gupta, Head – Research, JLLM said. He cited high literacy rate, more number of people graduating out of many renowned colleges and the city’s contribution to the growth in the per capita income of the country.

“Coimbatore is a self-made city and we haven’t had a trigger point yet. If only the city had got an IT park five years ago when Chennai got it in 2000, it would have propelled a greater growth today,” said Ashok Bakthavathsalam, managing director, KG Information Systems. D R Sekar, chairman, Builders Association of India (BAI), Coimbatore Chapter added that getting approvals for land and buildings have been a difficult and laborious process in Coimbatore and whole of Tamil Nadu.

“Compared to other neighbouring states, the approval process takes a long time in TN and therefore all promoters are shying away from investing in the state,” he said, adding a single window system is the need of the hour. Rajesh B Lund, vice president of Confederation of Real Estate Developers Association of India (TN) said, apart from the delay in approvals, the market fell when the new projects were about to take-off. “It led to a lull in the construction industry,” he added.

Of the proposed seven SEZs in Coimbatore, only three including Tidel Park are under construction now. Likewise, many companies evinced interest to build malls in the city but today only two projects – Brooke Fields and Fun Republic are getting ready. “The lack of night life in Coimbatore and the delay in IT infrastructure has led to slowdown among retail mall developers,” said A Sridharan, managing director, Covai Propery Centre. “Coimbatore is not a modern city and it is also conservative and not used to mall culture. But, after these two malls start operations, people will get used to it,” added Mr Sekar. Also, with the new generation starting to work, the city is bound to catch up with experiencing a new culture”, he said.

On land values, Mr Rajesh Lund said though prices have dropped drastically compared to the all-time high in 2007-08, the landowners still stick to the high prices and are not willing to sell lands. About the city attracting big investments, he added, once infrastructure falls in place investments would automatically flow in. He also hoped that non-resident Coimbatoreans would return to the city and invest here. Mr Ashok added that with the opening of the Tidel Park and the IT-SEZ in Keerenatham village, nearly 16,000 seats would be created in another 1 to 1.5 years time. “If these new professionals are to come to the city, then there would be huge demand for affordable housing and also serviced apartments,” he added. Already leading promoters in the city have planned to construct budget houses costing Rs 15 lakh to Rs 20 lakh each.

HDFC branch head S Ramesh Kumar expected the market to pick up since the costs have come down. “Also with the fall in interest rates, a large number of people would be attracted to real estate now,” he said, adding the future trend also points to a reduction in interest rates.

PE Players Show Exit Route to Developers

Several private equity (PE) players, global and domestic, whose lock-in period in real estate investments are to end soon, are pressurising developers for an exit route. While some PE players are asking developers to go for an IPO at an SPV or a portfolio level, developers who are wary about going public are approaching other investors or even buying back stakes themselves.

Biren Parekh, Partner, (Real Estate), Ernst & Young, said, “Some developers delayed projects to get higher valuations in the booming market. Many PE players, especially at an SPV level, now want to exit and are asking developers for an exit route.” A fund manager with a US-based PE fund agreed, “While some developers delayed projects, time has been running out for us. Some clauses that formed the agreement allow us to persuade developers and ask them to give the returns agreed upon.”

India’s real estate sector witnessed fund inflows of more than $16.5 billion from PE players since 2007. While 2007 witnessed 86 real estate deals, this number stood at 78 in 2008 and just six this year. Kaustuv Roy, executive director, Cushman & Wakefield, said, “Some developers are negotiating with PE players as the former are wary of going public. The IPO would be a big risk. But PE players have their limitations and thus one may see some activity in the sector soon.”

There is talk that a Mumbai-based real estate player is looking to go public due to a serious fund crunch. Another New Delhi-based budget hotel chain, which invested heavily in building its property and had sold stakes to some leading private equity players, is also under pressure to go public.“A number of PE players are driving a lot of strategic and operational initiatives within their investee companies. They are reworking debt, relooking at marketing strategies and day-to-day management,” said industry tracker Anckur Srivasttava. In another development, a large unlisted real estate firm, which is present in south and central Mumbai, has decided to return the funds invested by a PE player.

Ozonegroup Plans Residential Project in Chennai

Real estate firm Ozonegroup is all set to commence its Rs 2,500 crore residential project in the city on 42 acres of land. The project, ‘The Metrozone’ at Anna Nagar, would have 1,600 apartments across 29 towers. “This is our flagship project in city and the total project cost is Rs 2,500 crore”, Ozonegroup Managing Director Mr S Vasudevan told reporters here. He said the project would have three basement levels to park 6,000 cars and a piped gas network. As part of promoting ‘Green’ power, the project would have solar lighting and the rainwater storage systems, he said.

The residential units range between 1,555 square feet for double bedroom apartments (Rs 95 lakh) to 4,818 square feet for penthouses (Rs 1.5 crore), he said. The first phase of the project is likely to be completed by 2011. “Construction is expected to begin by June 29 and the entire project should be completed by 2013-2014”, he said. Mr Vasudevan said the Metrozone would have 15-17 screen multiplexes and one lakh square feet area had been allotted for food and entertainment. “We are talking with the multiplexes and will be signing agreements on this very soon”, Ozonegroup Chief Operating Officer Mr K S Sudarshan said.

The group is also constructing two residential projects in Bangalore at a total cost of Rs 400 crore, he said. “About 1,000 apartments are likely to come up in both these projects and the minimum price of an apartment would range between Rs 26 – Rs 28 lakh”, he said. The company also planned to set up a leisure project in Goa on 180 acres, he said, but declined to divulge further details.

Indian Residential Market can Turn Positive in 2010- Crisil

Demand in the Indian residential market is expected to turn positive in 2010 due to improvement in affordability, steady economic growth and greater liquidity, says a Crisil research report on the real estate sector. However, the decline in the currently overpriced capital values of all three real estate segments of residential, commercial and retail will persist through 2009. Commercial and retail markets will continue to see erosion of lease rentals in the next two years, it says.

The report is an analysis of over 400 areas across 88 micro-markets in Ahmedabad, Bangalore, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai-MMR, National Capital Region and Pune. Mr Sudhir Nair, Head, Crisil Research, said: “Accelerated growth of Indian economy, recovery of global economy, improved liquidity and expected fall in interest rates are key factors that will signal demand revival in the residential segment. This segment is likely to see a much faster revival due to a strong underlying demand for housing and supply coming at attractive price points.”

The demand in the commercial and retail segments is likely to remain under stress the next two years owing to excess supply and weak offtake, he added. The report says capital values for residential sector and lease rentals for commercial and retail properties had substantially corrected till March due to a slowdown in both the domestic and global economies, and also due to real estate becoming unaffordable. Kochi, Chandigarh and Pune, which have greater investor presence as against end-users, saw a greater fall in capital values compared to other cities. The situation is expected to continue through 2009 and 2010, particularly in the commercial and retail segments. However, Crisil Research believes that demand for houses will improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth in the economy.