Indian Property News on 'August, 2009'

Chennai Realtors Using Illegal Guns

The recent shooting of ship captain Ilangovan and his wife Ramani has brought into focus the fact that a number of Chennai-based realtors are procuring guns from Madhya Pradesh, Uttar Pradesh and Bihar, and using them only to threaten others during land deals. The gun that was used on the couple was a country-made pistol and that is probably what saved Vasanthi, their daughter-in-law, when the gunman Rajan turned the pistol on her. Police said country-made guns are not effective and often do not have sufficient range. “Regular guns have a firing range of 50 to 60 yards, but country-made guns have a range of less than 15 to 20 yards. Even, if a person targets the chest, the bullet pierces only the thighs or legs,” sources said. Chennai, or even Tamil Nadu, does not have a hub for manufacturing lethal country-made weapons, but the guns are being brought in from the north.

“In case of the Neelankarai shooting, the accused may have been standing on the extreme right of the room after shooting the couple. He aimed at Vasanthi, who was running away from him, and she was probably out of his range. That is the reason why she did not sustain grievous injuries,” a senior police officer said. “Chennai and Tamil Nadu is not known for manufacturing illegal arms due to the effective policing and intelligence network here, when compared to other states in India. Recently, the illegal manufacture of rocket launchers by Maoists from Andhra Pradesh was busted in Ambattur Industrial Estate,” another senior police officer said.

Due to setting up of many IT companies in Chennai and TN, land value has risen rapidly and real estate is a booming business. “Many youth have entered the real estate business under various banners. The young men procure illegal guns from states where they are easily available and threaten rival gangs,” police said.

Singapore Arm of Realty Major Indiabulls Plans to Raise Rs 676 cr

The Singapore-listed Indiabulls Properties Investment Trust, which is part of realty major Indiabulls Real Estate, is planning to raise up to 200 million Singapore dollars (about Rs 676 crore) through a rights issue. The proceeds would be used to pay debts of the company. Indiabulls Properties Investment Trust (IPIT) in a filing to the Singapore Stock Exchange has said it is looking at a rights issue for the purpose of “raising up to 200 million Singapore dollars of gross proceeds, for the primary purpose of repaying and/or pre-paying part of the borrowings”. Indiabulls Property Management Trustee Pte, the trustee-manager of IPIT, has submitted an additional listing application for the planned rights issue to the Singapore Exchange Securities Trading Ltd.

“Under the rights issue, new units will be offered to all existing unit holders (including Indiabulls Real Estate Limited, which is the sponsor of IPIT) on a renounceable and underwritten basis,” the firm said. According to Monday’s filing, the trustee-manager has not taken any firm decision in relation to the rights issue including the price. “The trustee-manager will make these decisions at a later stage depending on the financial requirements of IPIT and the prevalent market conditions at the material time… There is no assurance that the rights issue will proceed,” it noted. The filing noted that the trustee-manager is always in the process of evaluating various funding sources for IPIT.The Singapore-listed Indiabulls Properties Investment Trust, which is part of realty major Indiabulls Real Estate, is planning to raise up to 200 million Singapore dollars (about Rs 676 crore) through a rights issue.

Indiabulls Properties Investment Trust (IPIT) in a filing to the Singapore Stock Exchange has said it is looking at a rights issue for the purpose of “raising up to 200 million Singapore dollars of gross proceeds, for the primary purpose of repaying and/or pre-paying part of the borrowings”. Indiabulls Property Management Trustee Pte, the trustee-manager of IPIT, has submitted an additional listing application for the planned rights issue to the Singapore Exchange Securities Trading Ltd. “Under the rights issue, new units will be offered to all existing unit holders (including Indiabulls Real Estate Limited, which is the sponsor of IPIT) on a renounceable and underwritten basis,” the firm said.

According to Monday’s filing, the trustee-manager has not taken any firm decision in relation to the rights issue including the price. “The trustee-manager will make these decisions at a later stage depending on the financial requirements of IPIT and the prevalent market conditions at the material time… There is no assurance that the rights issue will proceed,” it noted. The filing noted that the trustee-manager is always in the process of evaluating various funding sources for IPIT.

Indian Hotel Industry Witnesses Growth

According to the world travel and tourism council, the growth in the hospitality industry is pegged at 15% every year, and with 2,00,000 rooms (both luxury and budget) needed in the country, the segment is poised for a stupendous growth. While the high influx of foreign tourists has ensured huge footfalls for the sector over the years, internal tourism too has, off late, begun offering great potential. With travelers taking new interests in the country, players in the hospitality sector have had to offer the best of services, at affordable prices. Also, with the USD 23 billion software services sector pushing the Indian economy skywards, more and more IT professionals are flocking to Indian metro cities, thus signaling a boomtime for the hotel and hospitality segment. Several other factors such as Commonwealth Games in Delhi are fueling the need further.

The Indian hospitality industry is projected to grow at a rate of 8.8% between 2007-16, placing India as the second-fastest growing tourism market in the world. Initiatives like massive investment in hotel infrastructure and open sky policies made by the government are all aimed at propelling growth in the hospitality sector. “Hotel and hospitality industries are among the biggest employment generators in the country. Towards propelling its growth, while the government should confer infrastructure status to the hotel industries, several taxation issues also need to be rationalised. Further permits and licenses required for the hotel operations need to be rationalised by offering a “single window” mechanism,” says Sanjay Gupta, CMD, Neesa Leisure Ltd – the Group which boasts of providing state-of-the-art facilities and services at its hotels.

Be it Cambay Sapphire – the elegant 3 star business hotel at Ahmedabad or The Cambay Grand – the upcoming 5 star hotel in Ahmedabad that takes contemporary luxury to new heights with opulent rooms and suites, exotic spa, virtual golf, and multi cuisine fine dinning, redefining luxury is the perennial mantra in each of Cambay’s hospitality projects. Some of the Group’s forthcoming ventures include The Cambay Spa & Resort at Neemrana, Rajasthan – a proposed five star business hotel boasting of one of the largest conference and convention facilities, another venture of Neesa Leisure Ltd in Dahej (SEZ) to have 100 rooms including apartment and conference facilities and Cambay Sapphire, Jodhpur – a business hotel. Exclusive and innovative initiatives like the Cambay projects certainly focus on ensuring a bright future for the Indian hotel industry.

The government’s decision to substantially upgrade 28 regional airports in smaller towns and privatization & expansion of Delhi and Mumbai airport has improved the business prospects of hotel industry in India. Also, the upgrading of national highways connecting various parts of India has opened new avenues for the development of budget hotels in India. Couple this with the availability of qualified human resources and the hospitality sector has already got great growth prospects! A focus on quality, behaviour-based evaluation, market choice and market response has predominantly shaped the State’s hospitality industry. Increased competition and increase in demand has consolidated the hospitality segment, whilst opening up a plethora of opportunities. Fierce competition has led to innovative ideas by hotel majors, thereby delivering impressive hospitality products and services. This has, in turn, also prompted them to generate new lines of revenue with creative approaches, be it by reducing transaction costs, increasing productivity or promoting traditional Indian values.

A pioneering initiative, herein, is the concept of mixed-use developments, wherein the real estate typically includes an apartment block of a commercial block along with a hotel. Still in its nascent stages in India, the concept offers inspiring potential. Also, the entry of multinationals and Indian hotel chains expanding internationally only reinforces the segment’s untapped business potential. Combining unparalleled growth prospects and unlimited business potential, this industry is certainly on the foyer towards being a key player in the nation’s changing face.

Improvement in Commercial Real Estate Rentals

Mumbai continues to be the second costliest city in Asia Pacific in terms of prime rental rates. With rent of about USD 800 per sq metre per annum, Mumbai is ahead of the likes of Tokyo (USD 750 per sq metre p.a.) and Singapore (USD 625 per sq metre p.a.) as per the latest report of real estate consultancy firm Jones Lang LaSalle. This is despite a 40% drop in rentals from its peak values. Delhi comes fourth in the ranking with USD 725 per sq metre per annum. With GDP growth expected to bounce back in 2010, India and China would outperform the global markets with a 7-10% growth rate. The early signs of recovery are visible in Delhi and Mumbai markets. Having dropped by 24% in March’09 quarter over the preceding quarter, Mumbai’s decline in June’09 was well below 10%. Delhi followed with an 8% decline, which was half of what it was in the quarter before.

The average decline for India in June’09 was 8.3% as against 19% in the quarter prior to that. This showed that the rate of decline in rentals has also slowed down in the June’09 quarter as compared to March’09 quarter. It is believed that rents in these cities have bottomed out. Pune outperformed with just about a 4% decline. This trend is likely to improve by 2011 when the absorption rate would overcome the supply. With 57 million sq feet of office space expected to be operational by the end of 2009, vacancy rate would continue to be high at 27% in 2010 till it comes down to a little above 20% in 2011.

Talking city wise position, Bangalore is expected to relatively outperform other cities with a low vacancy rate as it has received good response for pre leasing properties. Companies form telecom and pharma sector seem to be fast taking advantage of the low rentals and expanding their geographic reach. For example recently Aircel and Telenor Unitech wireless signed more than 50000 sq feet of real estate space. As rents become more affordable, we could see more companies scaling up their expansion plans.

Bangalore Based Developer Plans Alliance with Mexican Housing Company

Realty major Puravankara Projects is in talks for an alliance with Homex, a Mexican company that specialises in affordable housing. The idea is to give a boost to its affordable housing subsidiary Provident Housing. Ashish Puravankara, director, Puravankara Projects, said, “We are holding discussions with Homex as they have build a large number of affordable homes. They like our business model and are very keen to tie up.” He did not divulge the nature of the alliance. Homex is vertically integrated home development company focused on affordable-entry level and middle-income housing. It is also the largest home builder in Mexico, based on the number of homes sold, revenues and net income. It has so far delivered around 270,000 homes.

Its affordable entry-level housing ranges between 452 sq ft and 818 sq ft in size and its middle-income apartments are typically 818-1,851 sq ft. Homex has operations in 32 cities located in 20 Mexican states as of December 2008. Homex integrates aluminum moulds into its construction process. With this method, the shell of an entire home can be constructed from concrete poured into as many as 1,000 interconnected pieces of aluminium moulding for an affordable entry-level home. Once the concrete hardens, the moulds are disassembled for use on another home. Each mould can be used as many as 2,000 times. The method also generates less waste, reducing materials cost. Most importantly, the mould system reduces the average time of construction.

Provident Housing has roped in SBI Capital and Housing and Urban Development Corp to raise funds for it affordable venture. The firm is currently at an advanced stage of talks with private equity investors for diluting stake on a project level and hopes to close the deal soon. It has already launched two projects in Bangalore and Chennai and is in the process of launching its second project totalling 6 million sq ft in size in Bangalore with an investment of around Rs 900 crore. The project is expected to have 6,000 apartments. It is currently waiting for sanction to kick start the project. The real estate player will invest Rs 1,900 crore by 2010 on three affordable housing projects in Bangalore and Chennai. The three projects, slated to be ready by 2010-11, will house 15,000 units. The one, two and three bedroom flats will be priced at Rs 10 lakh, Rs 15 lakh and Rs 20 lakh respectively spanning from 750 sq ft to 1,100 sq ft. Provident Housing will also roll out the concept to other cities like Hyderabad, Coimbatore and Mysore in the Phase I. In Phase II it will set up properties in Delhi, Kolkata, Kochi, Jaipur, Pune and Nagpur.

Indiabulls Bags Mantralaya Makeover Project

Indiabulls has bagged the city’s biggest redevelopment project. Gagan Banga, spokesperson for the group, said the Mantralaya venture was the most expensive project in the country. “At Rs 344.12 crore per acre, it is also the most expensive per acre deal in the country and probably Asia. This will allow us to build a world-class structure for the state -an iconic building of 7-star category which will surely change the skyline of Mumbai,” he declared.

Some top developers in the city, under condition of anonymity, `alleged’ that the state government had not publicised the tender process adequately. “It is surprising that there were only three short-listed bidders for such a huge contract when many more could have participated,” said one of them. Indiabulls has much to be happy about-the company will get a generous floor space index (FSI) of 4, and could end up getting as much as 44,000 square feet per acre in the free sale component. It plans to construct one high-end residential tower in the area where flats in the nearby NCPA apartment are reportedly being quoted at 80,000 to 85,000 per square foot. PWD minister Chhagan Bhujbal said the proposal was now before a committee headed by chief minister Ashok Chavan for approval.

As part of the redevelopment-which has its share of critics-the main Mantralaya building, as well as the new administrative building opposite it, will be completely torn down, as will the 50 charming row bungalows opposite, which currently house judges and ministers. In place of the bungalows, Indiabulls plans to construct four clusters which will include apartments for judges and ministers as well as a new building for the state headquarters. “We will make sure this is the best building in the country and showcase it as such,” said Banga. Of the Rs 1,376 crore offered by Indiabulls, Rs 276 crore is for the corpus for upkeep and maintenance of the new buildings. The project is to be completed in three years’ time.

LIC Plans Housing Venture Capital

Life Insurance Corp of India (LIC) and its associates will hold a majority stake in the real estate venture capital fund to be floated by LIC Housing Finance Ltd, says a top company official. “The majority stake will be with the LIC group. However, the actual percentage and other details as to the joint venture partner are yet to be decided,” LIC Housing director and chief executive R.R. Nair said. The venture capital fund’s initial corpus size is expected to be around Rs.500 crore, though Nair said there will be more clarity on the project Aug 29 when the board meets. The new company’s name will depend on the partner chosen for the venture, he added.

LIC Housing, which funds home purchases, finds floating a venture capital fund a natural extension of its business. “The real estate venture capital is a step towards widening our income basket. Currently, we get interest income from the housing company and fee-based income from the financial services outfit. The venture capital fund will provide income from shares,” Nair said. The real estate fund will invest in companies operating in the field such as developers and construction companies.

LIC is the second largest real estate owner in the country after the Indian Railways. According to officials, foraying into venture capital segment is not connected with the restrictions faced by LIC under the Insurance Regulatory and Development Authority’s (IRDA) investment regulations on investing in unlisted companies.

Lower Home Loan Rates Push Residential Demand

Demand for residential projects in major cities is picking up on lower home loan rates, property price cuts by developers and job market recovery, a study by Religare Capital Markets Ltd said. Indian real estate saw demand for housing collapse from 2008 amid a global credit crunch and buyers fearing job losses. “Now that property prices have climbed down and the risk of job layoffs has diminished, the service class is likely to participate actively in property absorption, leading to a strong recovery in residential demand,” Suman Memani, associate vice president, Religare Capital Markets, said on Monday, while releasing the report.

Correction of home loan rates from levels of 13 percent in early 2008 to around 8 percent now has also helped spur demand, he said. But prices in the residential segment, that make up about 70 percent of the real estate market in India, may only move up in 2 months, Memani said. “Rising demand for residential projects may spruce up prices only after October.” Religare expects residential prices in the premium and luxury space to rise 10-15 percent as valuations have bottomed out in a few locations with property registrations in cities like Mumbai and Pune rising about 20-22 percent in April-June quarter over January-March quarter, Memani said. Indian real estate developers like Ackruti City Ltd, Anant Raj Industries Ltd, Omaxe, Parsvnath Developers and Sobha Developers, saw a sales slump following the economic downturn. Their margins were also squeezed as many launched cheaper housing to boost unit sales.

Fund raising through the institutional placements route would help realty firms restructure thier balance sheet and many have focussed on execution of projects rather than creating a land bank, which is positive for the industry, Amitabh Chakraborty, president – equity at Religare Capital Markets, said. In April, the country’s second-largest listed developer Unitech sold shares worth $325 million to institutions, while founders of bigger rival DLF raised $780 million by offloading 10 percent. Third-ranked Indiabulls Real Estate sold shares worth $550 million in May and at least 9 more realty firms have got shareholder approval to sell shares worth more than $2 billion, according to Thomson Reuters data.

“This has helped us give positive ratings to real estate projects like Unitech, Puravankara Projects and Anant Raj Industries,” Chakraborty said. However, the commercial sector would see vacancy rates rising as much as 25 percent in 2009/10 with oversupply of about 30 million square feet of space in seven cities and IT companies showing slower employee growth of 2.5 percent, Memani said. Although rental values have started correcting from February 2008, capital values of the commercial properties have not eroded so far, he said. “We expect some correction in the commercial property valuations with deals going through post-October,” Memani said.

Kolkata Realtors Shocked Over Vedic Village Arson

City realtors are shocked by the arson at Vedic Village in Rajarhat and fear that unless strong action is taken, investor and buyer confidence would be rattled. Terming the incident unfortunate, Confederation of Real Estate Developers Association of India (CREDAI) national president Santosh Rungta said it had raised basic concerns of how effective the administration is in tackling law and order problems.

“It is baffling how a row over a football match could have triggered such chaos, igniting mob violence. It also points to the poor response time of both police and fire brigade. At a Bengal Chamber of Commerce meeting held a couple of months ago, state home secretary Ardhendu Sen had hinted at a Brihottor Kolkata Police (force for greater Kolkata) that would bring adjoining areas like Salt Lake and New Town under its fold. This incident should hasten the formation of such a force because the regimen of Kolkata Police is definitely more superior than the force in the district,” said Rungta, who has a number of projects in the Rajarhat belt.

Other than Action Area I, the other condominium developments in New Town are isolated. Security is a big concern and a deterrent. Sunday’s incident, close to the pockets of development in Action Area II, has further heightened the concerns. “After what happened at Vedic Village, I will not move in till there is more buzz and activity in New Town. No one in their right mind would decide to stay there now,” said Rajiv Dasgupta, owner of an apartment next to the upcoming City Centre in the satellite township. “The fears are real,” realtor Pradip Kumar Chopra said. “It needs to be allayed with decisive action by the administration. If people don’t feel secure to move into peripheral areas, the city’s growth will stop. The incident has made me very apprehensive about future projects in the area. If it recurs, builders will look at other cities. We cannot do business in an environment of fear,” Chopra said.

Space group director Piyush Bhagat, who was a partner in the Vedic Village project during its initial years, said the incident had already sent wrong signals. “If mob fury can happen in Rajarhat, it can happen in the city as well. It has shaken everyone’s confidence. If faith is not restored in a couple of months, it will be disastrous for the sector,” he said. United Credit Belani Group director Sumit Dabriwala, too, termed the incident disastrous but did not think it was symptomatic of a larger malaise. “It is an isolated incident and should be viewed as such. But the response time of police should have been faster. If this is repeated, it’ll become a huge challenge,” he said. Ambuja Realty managing director Harsh Neotia, who was the first to build a major project on the city fringes and has substantial investments in New Town, said police need to get to the bottom of what sparked the trouble.

“This is the first time something of this sort has happened since the agitation in the 1970s. I have developments in Raichak. Sushil Mohta has Ibiza on Diamond Harbour Road. There is Lakeland by Ram Ratan Chowdhury. Something like this has never happened before. I hope this is a one-off incident,” he said. Realtors are worried about mob psychosis moving from streets to a private property. “We’ve had trams and buses burnt at the slightest provocation. The government and administration must come down heavily on such acts. We’ve been silent for too long,” said NK Realtors director Pawan Agarwal. Neotia felt the mob mentality has deep roots in our psyche, given the agitational politics in a state that has been politically active for decades. “These are deeper socio-cultural issues that need societal addressing. There is no quickfix solution,” he said.

But is it also to do with unequal development that widens the gulf between the haves and the have nots rather than bridge it? “Development always begins in pockets and then spreads out. But there is need for corporate social responsibility in the sector. Every development needs to have a human face, whether it be creating an better access road that helps everyone, providing drinking water and sanitation facilities, schools or hospitals,” Rungta said.

ACC Confident of Real Estate Growth

ACC on Sunday divulged its confidence on market and expecting good results in the current fiscal from the real estate in the major cities “With signs of recovery in the real estate sector, we expect to see considerable improvement by the end of this year with a turn around some time in the middle of next year,” ACC Managing Director Sumit Banerjee told reporters. Hoping healthy figures from the sector, he told that the Ready-mix concrete is the future of cement business.

He said, the developed world is enjoying 80-90% of the cement sales through the Ready-mix concrete route, and India, merely 10-15 per cent. Last year the domestic RMC business segment was ailing due to global meltdown and it was hard to found in the business in Tier-II and Tier-III cities in compare to metros. ACC”s ready-mic concerete subsidiary, ACC Concrete, posted a net loss of Rs 96.81 crore in 2008 though sales volume grew by 37.4 per cent over 2007 and turnover increased by 40 per cent to Rs 514.53 crore.