Indian Property News on 'July, 2009'

Western Names New trend in Residential properties

What’s in a name, you may ask. Lots, if you believe the nation’s property developers and go by the latest trend in the real estate industry as well. Gone are the days when residential properties in India used to have names in Hindi or other Indian languages, such as Ekta Garden, Dhruva Apartment and Tara Apartment . Now more than 80% apartments and residential towns, basically those built by builders, have western names such as Hamilton Heights, C a s a Essenza, Mayfield Garden and Panache Homes, among others.

So, is this just for the sake of name change or is there more than meets the eye? Industry experts believe this shift is apparently more by design than just for the sake of changing names, primarily to reflect western lifestyle and modernity.

Brotin Banerjee, CEO and MD of Tata Housing Development Company Ltd, thinks along similar lines. According to him, consumer aspirations and psychographics in India have, over the years, undergone a seminal change. With increased consumerism and other cultural changes, India is also changing – from Hindi to Hinglish, from ethnic wear to fusion dressing, from joint families to nuclear ones, from arranged marriages to arranged ‘love’ marriages, to name a few.

“In the real estate sector, this is depicted through western-sounding names and to a large extent in the design and architecture of various residential , commercial and retail spaces. Depending on the type of property, the project name is developed. For premium properties, since the design and master planning is primarily done by international architects , project names also need to reflect and compliment the same,” he says.

Citing an example, Banerjee says, “Our premium residential property in Gurgaon is developed on the theme of ‘art and culture’ and that is the reason for it being named ‘Raisina Residency’ , as it is located on the foothills of Raisina ridges.” Palnitkar agrees. “The names of residential projects today also tend to align with the architecture of the building which are rendered in a more westernized manner, ie, tall apartment blocks with spires, arches, alcoves etc, or low height villas based on Spanish, Venetian, Italian themes,” he says.

This is, however, just the beginning and many new trends are likely to be witnessed in the future. For instance , the concept of branding or brand associations with a name is prevalent in the international real estate market – for instance, ‘Donald Trump Residences’ is a brand associated with luxury housing, which could be franchised by the brand owner to a developer for a franchisee fee.

“A similar trend is imminent in the Indian real estate with celebrity endorsements already catching up in the construction industry. We could even expect a transformation in names associated with the ‘parts’ or ‘blocks’ in a building. Hence, a trend of a block simply identified with an alphabet or numeral ‘A , B, C’ or ’1, 2, 3′ being replaced with the names of international cities/ towns/flowers is fast catching up,” says Gupta.

Uniform Valuation Standard for Real Estate to be Effective Soon

In a few months from now, a uniform real estate valuing method will be put in place across the country. For that, the National Housing Bank (NHB) has prepared a draft of real estate uniform valuing methods. Speaking at a Banking Conclave organised by Federation of Indian Chamber of Commerce and Industries (FICCI) on Wednesday, Sridhar said, “Like uniform accounting standard, we also need a uniform valuation standard for real estate properties. We have already prepared a draft and are now discussing with valuers and bankers. Once, it is finalised, a uniformity will emerge in real estate valuation.”

Sridhar said NHB was scouting for a partner for the proposed Indian Mortgage Guarantee Company, where NHB owns 43 per cent stake. “AIG, which had proposed to take 41 per cent stake in the company, withdrew itself due to financial difficulties in October 2008. We are now searching for an alternative partner,” he added. Asian Development Bank (ADB) and International Finance Corporation (IFC) are the other partners of the company with eight per cent stakes each. Sridhar, chairman and managing director (CMD), said that some stakeholders/partners of Housing Finance Company had expressed interest in it. If they finally leave, Central Bank is willing to pick up their stakes, which would in turn strengthen Central Bank’s exposure in housing finance, he said. Hudco, UTI, NHB are the other partners in Central Bank’s housing finance company.

Rs 13 cr Decline in Sobha Developers Q1 Profit

Realty major Sobha Developers has seen its net profit nosedive for the first quarter ended June 30, 2009, at Rs 12.7 crore, against Rs 50.5 crore for the same period in FY09. Income from operations stood at Rs 177.1 crore (Rs 346.8 crore). Sobha, which bore the aftershocks of the global economic slowdown, has seen a revival in fortunes in the first quarter compared with the fourth quarter ended March 31, 2009. Net profit in the first quarter increased 76.4% to Rs 12.7 crore from the fourth quarter, while total income was sequentially up 15.6% at Rs 178.6 crore.

“The real estate industry has seen clear signals of revival in demand during the first quarter. With the Indian economy growing at 6-7% and expected to achieve a higher growth rate in the next couple of years, real estate infrastructure industries are poised to play a more significant role. It will be a domestic-driven industry, growing at a much faster pace,” a company filing made with the bourses added. On its part, Sobha Developers has realigned debt, brought on board a private equity partner, besides successfully completing a qualified institutional placement (QIP) raising Rs 500 crore.

These steps, the filing goes on to say, have added the much-needed comfort in operations and have helped the company focus on progress in various projects across key cities, including Bangalore. The company intends to focus on debt reduction and cost optimisation and believes it is well-equipped to capitalise on the early revival in the Indian economy. As of June 30, 2009, Sobha Developers has completed 50 residential / commercial in-house projects and 146 contractual projects covering 31.9 million sq ft of built-up space.

Sobha Developers has currently 31 residential / commercial ongoing projects totalling 9.2 million sq ft. The company has contractual projects in several states like Karnataka, Kerala, Andhra Pradesh, Orissa, Tamil Nadu, Punjab, Haryana, the NCR, besides Maharashtra. On the bourses, the Sobha scrip was down 1.2% at Rs 219, with 3.5 lakh shares changing hands on BSE.

43% Drop in Foreign Direct Investment

India received $2.2 billion foreign direct investments (FDI) in May this year, department of industrial policy & promotion (DIPP) secretary Ajay Shankar said. There is a 43% drop in the FDI inflow in May 2009 compared to $3.9 billion received in the same month of the previous year. The inflow of foreign capital into the country will improve now, as the country’s industrial output in June looks “promising,” Mr Shankar said on the sidelines of a seminar by Confederation of Indian Industry (CII). “We think, with liquidity improving and confidence in the economy rising, these (FDI) numbers should pick up,” he said. The government had scaled down the FDI target by $5 billion from $35 billion last fiscal.

In April 2009, FDI inflow had fallen by 38% to $2.34 billion from $3.74 billion a year ago. In the calendar year 2009 up to April, FDI inflow into the country slipped by nearly 46% from the year-ago period to $8.5 billion, as per the latest figures released by DIPP. Inflow of foreign capital dried up as foreign investors were reluctant to put their money in risky emerging markets but India’s 6.7% growth in 2008-09 when developed countries struggled with recession is expected to bring foreign investors back. In the first six months of 2008-09, FDI inflow was $27.3 billion compared to $24.5 billion in 2007-08. Cumulative FDI inflow from April 2000 to March 2009 was about $90 billion, as per DIPP data.

The department collects data on foreign investment from the RBI and releases monthly updates. Mauritius, with which India has a double taxation avoidance agreement, is the largest contributor of FDI into India, followed by Singapore and the USA. Services sector attracts the largest share of foreign capital, followed by computer software and hardware, telecommuniation, housing and real estate. Mr Shankar expressed confidence that there would be “continuous improvement” in industrial output. Official data released earlier this month had shown industrial output rising for the second straight month in May, fueling hopes of faster economic growth. Led by the consumer durable sector, the Index of Industrial Production (IIP) rose by 2.7%, its biggest increase since October 2008.

Pride Group of Hotels Plan Expansion

Pride Group of Hotels, promoted by S.P. Group of companies, has embarked on a Rs. 800-crore expansion plan to open more five-star hotels, resorts and business hotels in a span of six years. The group, which at present has 1,000 luxurious rooms, will be opening more luxurious hotels, resorts and business hotels. Addressing presspersons here on Tuesday, S. P. Jain, Chairman, said the group had five-star hotels at Pune, Nagpur, Ahmedabad, Chennai and Bangalore. It would be opening luxury hotels in Goa this year and in Mumbai, New Delhi, Hyderabad and Alibaug in 2010.

For meeting the expenditure, the company will submit shortly the offer document to the Securities and Exchange Board of India for raising Rs. 200 crore through an initial public offering (IPO). Kotak Real Estate Fund has invested Rs. 45 crore and Primary Real Estate Investments, Mauritious Rs. 10 crore in the equity capital of Pride Hotels. The group plans to raise Rs. 300 crore through term loans. The balance would be met out of internal resources, Mr. Jain said.

Interest Rate Subsidy for Mid-Segment Housing- FM

Finance minister Pranab Mukherjee said that the interest rate subsidy for mid-segment housing would be routed to customers through commercial banks and housing companies registered with the National Housing Bank. He said to further provide stimulus to the housing sector, it will be allowed a tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008, if such projects are completed on or before March 31, 2012. ‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector,’’ he added.

The interest subsidy is aimed at mid-segment housing loan borrowers from the lower middle to middle-income groups. Even on Monday, Congress MP from Mumbai (North) Sanjay Nirupam, while speaking on the finance bill, said 42.4% of Maharashtra’s population was urbanized and trends pointed to increasing migration to cities. With home loan rates climbing steeply, there was a case for providing relief to borrowers. Providing an interest subsidy and a targeted tax break also answers in part the demand that the becalmed real estate sector needs a leg up. The government’s message to the real estate developers is to lower prices and make housing more affordable for the aam aadmi.

The housing loan subsidy came with a slew of other concessions such as exempting road repairs and maintenance from the ambit of service tax while extending the sunset clause for tax holidays for industrial parks by a further two years up to March 2011 to boost growth in infrastructure. The FM clarified that service tax on new services and any alteration in the existing services as announced in the Budget would be effective from September 1, 2009. ‘‘It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment,’’ said Renu Sud Karnad, Joint MD, HDFC Ltd.

Real Estate Companies Advanced In Early Trade Ahead of RBI policy

Shares of real estate companies advanced in early trade on the bourses ahead of the RBI quarterly monitory policy review on Tuesday, led by Unitech which surged nearly 5 per cent after the government provided interest subsidy on home loans. Shares of Unitech opened firm on the bourses and gained further ground surging to a high of Rs 92.10, up 4.70 per cent over previous close. Country’s largest real estate developer DLF gained 4 per cent to a high of Rs 428.50 and Indiabulls Real Estate was up 2.06 per cent to Rs 243.

Mirroring the gains in the sector scrip, the 14-share BSE realty index rose 3.30 per cent to 4,037.62 points. RBI in its quarterly monetary policy today is unlikely to tinker with key rates, as either a reduction or increase in rates would disturb the optimum level of liquidity. Explaining the uptrend, marketmen said Pranab Mukherjee’s yesterday’s announcement to support lower and middle income housing was a major boost for this segment. The RBI policy scheduled to be unveiled today has also boosted the sector.

Finance Minister Pranab Mukherjee yesterday said lower and middle income housing deserves to be supported and announced a slew of concessions, including one per cent interest subsidy for lower and middle income housing loans. Other major gainers on the index include Omaxe (2.17 per cent), Ansal Infra (4.53 per cent), HDIL (3.21 per cent) and Parsvnath (2 per cent).

Godrej Properties Plans IPO in Next Ten Months

Godrej Properties Ltd (GPL), the real estate arm of the Godrej group, has planned to come out with its initial public offering (IPO) in next the ten months, a top company official said. “We have filed our Draft Red Herring Prospectus and obtained an approval from the Securities and Exchange Board of India (SEBI) in early June to raise funds through an IPO. The permission is valid for 12 months and we still have 10 months for the IPO. Market conditions are conducive and we plan to come out with our IPO in this period,” Godrej Industries’ Chairman, Adi Godrej, told shareholders here today.

The fund will go entirely into Godrej Properties and their will be no sale of shares by Godrej Industries. “It will be new capital going into Godrej Properties. We have permission to do 10 per cent to the public which is the minimum required and 3.5 per cent pre-IPO,” Godrej said. Godrej Industries currently holds an 80.3 per cent equity in Godrej Properties Ltd. The final valuation will be decided a couple of days before the IPO based on the advise of investment bankers, he said. Godrej Properties is one of the leading real estate development companies in India. The company focuses on residential, commercial and township developments.

Global Pension Funds Appreciate India for good Returns

Indian pension fund managers may have recently got the nod to dabble extensively in volatile stocks, but global pension funds from the US and Europe continue to back India for giving good returns. US public pension funds such as California Public Employees’ Retirement System (CalPERS), California State Teacher’s Retirement System (CalSTRS) and European pension funds such as Norway’s Government Pension Fund (Global), Denmark’s LD Pensions, Netherlands’ ABP Funds — all combined — have exposure to over 300 different companies listed in Indian bourses, apart from investments in real estate. CalPERS, the largest public pension fund in the US, has just reported the most severe (23%) decline in assets to $181 billion in fiscal 2009 but yet it believes India is one of the “most promising” investment destinations globally. CalPERS has over $320 million exposure in listed Indian stocks plus $100 million in Indian real estate via India Realty Fund and India Real Estate Fund.

“We believe markets, including India, are perhaps the most promising investment sector in the coming years. Accordingly, our global equity , private equity, and real estate sectors are looking to allocate increasing share of their portfolios-up to 50% — to such countries. India is promising, especially compared with so-called developed US and Europe,” a CalPERS spokesperson said. The fund administers retirement benefits for 1.6 million active and retired state, public school, and local public agency employees and their families. Norway’s Government Pension Fund (Global) — where the surplus wealth produced by Norwegian petroleum income is deposited — has exposure to around 215 Indian listed companies. According to an official of Norges Bank Investment Management, which is responsible for investing the international assets of the fund, emerging markets such as India have been ‘responsible for improvement in the returns’ clocked by international listed stocks portfolio.

Netherlands’ ABP and Denmark’s LD Pensions have exposure to Indian stocks worth over $500 million as per latest figures. These funds serve the needs of nearly 3 million European pensioners.

JP Announces 292% Increase in Net Profit

Beating slowdown in the economy, Jaiprakash Associates Ltd (JAL), a leading infrastructure conglomerate, announced on Sunday a 292% rise in its net profit to Rs 491.2 crore in the first quarter (April-June) of 2009-10 as against Rs 125.2 crore in the same period last year. The company’s turnover went up 77% to Rs 2,117 crore in Q1 from Rs 1,194.7 crore last year. During the quarter, turnover from the cement division registered a growth of 57% to Rs 905 crore as against Rs 577 crore in same period last year. Cement dispatches rose 30% to 24.1 lakh tone as against 18.46 lakh tone in same quarter last year.

Turnover of the engineering division, including wind power, grew by 114% to Rs 1,084 crore from Rs 506 crore in Q1 of last fiscal. Despite slowdown in the real estate sector, JAL managed to increase its earnings from realty by 26% to Rs 95 crore from Rs 75 crore in the same period last year. While cement division acounted for 43% of the total revenue, engineering division contributed 51%, real estate (4%) and the hotel business (2%). The board of directors approved ESOPs of 1.25 crore equity shares of Rs 2 each at a price of Rs 60 per share for employees of the company and its subsidiaries.

JAL executive chairman Manoj Gaur said, “All the businesses of the company achieved a growth over the corresponding quarter of the previous year as well as over the immediate preceding quarter and we expect the same trend to continue in the coming quarters as well.” After capacity expansion in the cement business, he said, the company expects to register strong growth both in terms of revenue and profit in the coming quarters, while in the real estate business, the growth and profitability will be driven by new offerings.