Indian Property News on 'November, 2009'

Govt has approved 190 New FDI Proposals this Year

The government today said that the country has received as many as 238 Foreign Direct Investment (FDI) proposals so far this year. “During the year 2009, (up to November), 238 proposals were received,” Minister of State in the Ministry of Commerce and Industry Jyotiraditya M Scindia said in a written reply to the Lok Sabha.

Out of the 238 proposals, the government has approved 190, while 13 were rejected and 6 were withdrawn or closed. Around 29 proposals are either listed for consideration or to be listed in the fourth session, the minister added. During the last three years, Foreign Investment Promotion Board (FIPB) has received a total of 1,102 FDI proposals, out of which 286 were received in 2006, 393 in 2007 and 424 in 2008, he added.

Citing a study instituted by the government through the National Council of Applied Economic Research (NCAER) titled “Growth linkages of FDI in India”, the minister said the country has received around USD 90 billion during April 2000 to March 2009. The sectors that cornered the major portion of the FDI inflow are — services, telecom; real estate; construction; automobile; power; metallurgical industries; petroleum and natural gas and chemicals among others. Mauritius was the main source, followed by Singapore, the US, the UK, the Netherlands and Japan.

Vatika looks to Raise Rs 125 cr from Real Estate Investment Firm Brahma Capital

Delhi based real estate and hospitality company Vatika Group, which raised Rs 1,000 crore from a group of international financial institutions such as Goldman Sachs, Baer Capital and Wachovia Bank in 2007, is in talks to get fresh funds from real estate investment firm Brahma Capital, a person familiar with the matter told ET.

When contacted, Pritam Chivukula, principal-real estate, Brahma Capital, said: “While we are active and looking at a couple of deals in the northern capital region, this is a mere speculation.” Although the exact deal size could not be ascertained, a senior executive in the private equity space said it is likely to be in the range of Rs 100-125 crore.

Vatika, which has interests in housing, hospitality, commercial complexes, IT parks etc, plans to use the fund to step up construction work in its up coming hotel project under the Westin brand on the Delhi-Jaipur expressway.

Low Rentals Boost Commercial Real Estate Sales

Following the correction in commercial realty rates in metros by 20% to 40%, top builders expect sales to improve by 50% in Q3 and Q4 of 2009-10. In the first two quarters of the fiscal, sales of office space rentals grew 10% to 15%. To tap the growing opportunity, large builders in various metros are offering ready-to-possess offices, shops and commercial plots, and under-construction offices at 15% to 20% discount. The correction in commercial real estate rates comes at a time when the general sentiment is buoyant. There is ample cash flow in the market. However, the correction in the office space rentals is 15%— lower than that of the residential real estate sector.

According to Harinder Dhillion, vice-president (marketing) of Delhi-based Raheja Builders, “New Delhi followed by Gurgaon and Noida have witnessed 15% increase in sales of commercial space since the second quarter of this fiscal. As a result, we are planning to offer price discounts of up to 10% to 15% on office space rentals through our commercial properties based in Gurgaon.” Mumbai-based Royal Palms India has recently launched ready-to-possess offices, shops and commercial plots as well as under-construction offices for corporates at 3,999 per sq ft at Goregaon East, Mumbai. Royal Palms has a total of 4 lakh sq ft of office space/plots. Depending on the need of the buyer, the company can offer offices or buildings ranging from 400 sq ft to 80,000 sq ft.

Says Dilawar Nensey, joint MD, Royal Palms India, “The land on which these properties are located was acquired over 26 years ago at negligible cost and hence, even at these rates we will make reasonably good profit.” Royal Palms has sold over 1,600 offices so far with top names like Topsgroup, Monarch having their business HQ at Royal Palms. There are industry experts who believe that rentals do vary according to specific occupier profiles. Says Pawan Swamy, managing director (markets, West India) of Jones Lang LaSalle Meghraj, “Office space rentals in the metros have corrected by up to 40%, which would mean that they are now back to the 2005-06 levels, which is when the economic up-cycle began.”

Bangalore-based real estate companies are looking to expand commercial properties in the city’s central business district. According to LS Vaidyanathan, executive director, Nitesh Estates, “Commercial office segment is another vertical we are looking to expand in the coming years. These re likely to come up predominantly in Bangalore ‘s central business district and in its surrounding areas.

Faced with Recession Blows Real Estate Companies Hiring Smartly

Recklessness seems to have been thrown out of the window. Faced with severe blows in recessionary times, real estate companies are now taking the flight to safety particularly when it comes to taking more people on board. Not only are they keen on recruiting the right candidates for multiple vacancies, they also want to ensure that hiring is in sync with their broader gameplan.

Many of the leading real estate companies including Unitech, DLF, Omaxe, Vipul and Raheja Developers that SundayET spoke to said that they were back in the hiring mode albeit differently. Omaxe, for instance, is more open to hiring people from diverse educational background and experience who are equipped with skills for challenges in multiple establishments.

Says Rohtas Goel, CMD, Omaxe, “Last year, for a particular opening we had hired people on the basis of their experience in a similar sector. But this year we are more keen on bringing in talents of diverse industry background for different positions. Also, there was a dearth of talented and competitive people last year. With the reviving economy, people now are more comfortable to switch over from their existing work place. This has also been another reason which made us hire people at this time.” Omaxe hired 274 employees over the last five months and is looking to add more by the end of the financial year.

In fact, Prashant Bhaskar founder of human resource consultancy PlugHR adds that the slowdown in some of the other sectors seems to be helping real estate companies find good talent. “Not only have we seen a larger number of people showing interest in moving from sectors like banking and financial services to real estate, there is also a considerable talent pool that is available in companies which are involved in services around real estate,” says Bhaskar.

Similarly for Vipul and Unitech, the hiring this time round has been far more ‘need-based.’ In the last few months, Vipul has hired around 27 professionals and is in the process of hiring approximately the same number at present. “We have set targets for our various developments and the hiring is linked with these plans. Majority of the hiring will be for engineering while some will be for the marketing department,” says Punit Beriwala, MD of Vipul. Similarly, Unitech, which started fresh hiring post March ‘09 also claims to have hired over 350 people over the past few months. The spate of fresh hiring, however, was triggered by the launch of their affordable housing projects which needed a strong sales push. A Unitech spokesperson adds that the majority of their appointments have taken place in project execution, sales and marketing.

Background screening of employees also seems to have become a priority amongst many developers. Raheja Developers is looking to add more niche employees this year. “We are not looking at candidates with generic profiles. Rather they need to be more specialised to suit a particular role,” says Manash Chakravarty, VP — HR of Raheja Developers which will add close to 35 associates this financial year. Astronomical salaries are also out of the question this time. “We have realised that one has to pay the right salary to the right person. The kind of people that you hire is important. So while earlier, we would not step back in doling out astronomical salaries, this time that is not the case. Proper screening of the background and paying the right amount has become necessary,” feels Vidur Bharadwaj, director of The 3C Company, a Delhi-based real estate firm. The company will add 30-40 people in the middle to high management levels over the next 2-3 quarters.

Real estate giant DLF had also announced plans to hire people to match the growth of the company, though numbers haven’t been disclosed. HR experts feel that over the last few years, there has been a greater interest on the part of employees in the real estate sector given the fact that it has largely become corporatized. “While there is a fear given the mass-layoffs that realty companies undertook last year, there is a level of confidence that has built up over the fact that companies have emerged with stronger plans and raised money in the market via IPOs,” says Mr Bhaskar.

Throwaway Real Estate Prices in US Luring Indian HNIs

The throwaway real estate prices in the US have been attracting high net worth Indians in a big way. And now it seems, there’s more reason to look at investing in America for HNIs. The Obama administration has recently extended the regional centre investment programme, which is part of the permanent residency, EB-5 category by three years. Simply put, this programme allows investors a fast-track to US green cards and permanent residency. Under the scheme, investors who put in $1 million (about Rs 5 crore) into designated regional centre real estate projects and create at least 10 jobs in the US, are entitled to green cards along with their families. If they are willing to put money into a business carried out on in a designated backward area, the investment required is even lower at $500,000.

The EB-5 programme is attracting a large number of hospitality entrepreneurs from Gujarat who are keen on setting up shop in the US. Many of the Gujarati hotel entrepreneurs also have strong family links in the US. “The falling dollar has increased the number of applications in the EB-5 category in addition to access to branded hotel deals that are trading at 30-40% discount. This is definitely the time to buy as the US real estate market is slowly recovering,” says Sachin U Patel, managing principal of real estate development company American Life Inc, which operates the EB-5 regional centres in Seattle, Tacoma, and Everett. The regional centres are diversified funds or private business development projects that allow EB-5 investors to infuse the required funds and in return acquire a small ownership interest.

Most immigration experts are seeing a growing interest in the EB-5 category of visas. Says Mumbai-based immigration attorney Sudhir Shah: “This is certainly a good time to apply for the EB-5 programme. There are several schemes on offer wherein you merely have to invest money and in return you get a green card without having to actively participate in the business. For those who are looking at moving to the US to run a motel or store there, the reduced property prices are a big attraction too, as they can get more value for their dollar investments.” US-based immigration lawyer Heena Kampani, too, agrees. “This option is very good for the entire family and children are able to live, study, work and settle down in USA. EB-5 investors have the freedom to live anywhere in the USA and this is a great time to apply as the programme just got extended for another three years, thus providing a bigger window of opportunity to find a quick and legal route to settle in the US,” she says.

The EB-5 scheme, though proving to be very attractive, is however not without glitches. Proving that the funds available for investment are from lawful sources can be a challenge for some Indian investors. “In the case of agricultural income, this problem becomes a big one, since it is not subject to tax in India and in many cases there is no documented record. Land records, in many cases, continue to be in the name of ancestors, which makes it difficult to prove ownership. Therefore, when the land is sold resulting in an amount that could potentially be used for investments as a EB-5 applicant, it is difficult to prove the lawful source of money,” says Mumbai-based immigration lawyer Poorvi Chothani.

Affordable Housing- Supply Outstrips Demand

After the euphoria, “affordable” realty developers are faced with the reality of excesses. In May this year, property developer Jaypee Greens put the sold-out sign within hours of launching its affordable project Aman on the Greater Noida expressway. The 3,000-odd apartments were priced at Rs 2,100 per square feet. Another Jaypee Group company, which was offering flats along the same expressway for Rs 4,500-6,000 a sqft, was finding the going tough.

Developers are now having to deal with a situation where they have to carry forward the stock as supply has far outstripped demand. As a result, in Hyderabad, almost two in every three sub-Rs 30 lakh apartments that came into the market in the 12 months ended October 2009 remained unsold. In Kolkata, Bangalore and Gurgaon, the situation is only marginally better with one in every two houses yet to find a buyer. It’s an all-India trend. Data collated by real estate research firm PropEquity shows that developers who had rushed to launch affordable housing projects are sitting with over 40 per cent unsold stock.

While demand for sub-Rs 30 lakh apartments went up in Mumbai, Gurgaon, Noida, Thane, Bangalore, Kolkata, Hyderabad and Pune, supply grew at a faster pace as realtors rushed into the market to improve their cash flows at a time when there were few takers for upper-end dwelling units. As a result, of the 105,637 units that entered the market between November 2008 and October 2009, only 57 per cent (60,464 apartments) found buyers, the PropEquity data revealed. In Hyderabad, where around 8,200 sub-Rs 30 lakh dwelling units entered the market during the 12 months ended October 2009, a little over a third of the stock found buyers.

In some cities, the unsold stock is so huge that it would take 4-16 months to sell the entire stock of housing units even if no new supply is added in the next couple of months. For example, Gurgaon, where the average absorption of units is 326 a month between August 2009 and October 2009, it would take at least 16 months to clear the stock. Kolkata would take eight months and Bangalore six months to clear their inventory. The number of months is calculated by dividing the unsold stock at the end of October 2009 by average units sold in the last three months.

A number of property developers such as Unitech, Omaxe, Tata Housing, Puravankara, Lodha Developers and Ansal have announced projects in the sub-Rs 30 lakh category in the last one year following the economic downturn, coupled with fear of job losses and salary cuts that slowed sales of premium projects. PropEquity founder and CEO Samir Jasuja said a lot of developers took the plunge as it was the only segment that was doing well. And since unit sizes were small, more houses were built in a given piece of land. Supply has overshot demand and, therefore, we are seeing a piling up of inventory,” said Jasuja.

Pankaj Kapoor, Chief Executive of Liases Foras, another real estate research firm, said in recent months many developers increased rates sensing signs of normalcy in the market. “The impact of the price rise has been in all segments, but since the sub-Rs 30 lakh segment was selling the most, sales were hit maximum in this segment,” said Kapoor. HDFC Chairman Deepak Parekh agrees. “Products are selling wherever their developers are quoting realistic prices. But where prices have gone up sharply, they may be unable to sell,” he said. Parekh, however, felt the inventory pile-up may not be an all-India phenomenon since a company he knew could not get 100 apartments it wanted to buy in Mumbai recently.

That argument has many supporters. “There could be a long pipeline but good products at the right price always sell. We are getting very good response for our New Haven in Boisar,” said Brotin Banerjee, managing director and CEO of Tata Housing. The company has sold around 500 of the 1,500 apartments on offer since the project was launched in September, 2009. The apartments are in the Rs 12 lakh-25 lakh category. But this is in sharp contrast to May 2009 when Tata Housing had managed to sell 1,500 apartments in the sub-Rs 6 lakh category in Boisar within a month of its launch.

Govt to Pass Real Estate Regulatory bill in Winter Session

To bring the Indian property industry on par with the global real estate sector, the Indian parliament is gearing up to pass the much talked about real estate regulatory bill in the winter session. The industry is keenly watching out for this one as the first draft was found to be faulty and rather lopsided , excluding the government bodies from its purview. So while the experts feel that it is time to have a single-point regulatory body on the lines of SEBI or TRAI, which would prove beneficial in the long run to the endusers and developers, there is also a cry for bringing total objectivity and professionalism in the workings of the body, to truly achieve its goal. Developers also point out the dangers of overregulation in an industry that already faces several stumbling blocks.

The bill seeks to grant approvals to projects on certain parameters and also expedite all the approval processes mandatory for projects to take off. It is expected to help improve transparency in the sector by rating developers on their financial strength in terms of turnover, liquidity and profitability, scale of operations, intellectual expertise based on the qualification and experience of the management team, and past performance. According to Ashutosh Limaye, associate director (Strategic Consulting), Jones Lang LaSalle Meghraj, “The stock market has SEBI to provide guidelines, define conduct and processes, provide a redressal system for both buyers and sellers and install necessary consistency and standardisation. The proposed real estate regulatory body intends to do the same for the Indian property market, which currently presents a rather under-organized picture.”

Deepak Parekh, chairman of HDFC, had expressed the urgent need for a real estate regulatory body, which should play the role of a monitor for promoting and overseeing real estate reforms, ensuring transparency in sales and protecting buyers from a fraudulent case, if any. Parekh recommended that the state housing boards should also be brought within the ambit so that there is complete transparency in its working mechanism, the checks and balances are well achieved from every quarter.

The developers have welcomed the move too, but not in its current draft form. Kumar Gera, chairman of CREDAI, India, says, “The intention is good but a lot of thought needs to go into formulating the role of the body, otherwise the effect can be counter-productive . Two main intentions are stated in the preamble : protection of consumers’ interest and speeding up the clearances to facilitate the smooth development of real estate. There are enough provisions to achieve the first objective , but I haven’t seen anything regarding the second. It needs inclusion of processes. In the present form it is likely to create more processes and hence obstacles. The Urban Land Ceiling act was also formulated with a noble intention, but the outcome was disastrous.”

R Vasudevan, MD of Vascon Developers, has a similar view: “I think the intention is very good if followed in its spirit with modification to include the process of speeding up approvals. It will revamp a sluggish and a beleaguered system. In fact, no reputed developer would want a short cut to achieve his end, as his intention would be to become a long-term player. It is not in his interest to delay projects and offer bad products, as it will tarnish his image and his brand. Hence this is welcome but only if it fulfils its intent. A professional approach is the need of the hour now for all of us.”

Sunny Bijlani, director, Supreme Universal, which has projects in Pune and Mumbai, says, “It is fine with us to have a regulatory body, which helps bring in transparency to the customers . We are more than happy. But they have to bring more changes in the rating system to actually do proper justice to the customers, by doing a complete financial analysis of the developers, and not just by collecting some data. Secondly, it should be a single point for all clearances and NOCs so that the project starts on time. Most delays are caused by non-availability of clearances from the government authorities.” Real estate is a major contributor to GDP growth and employment generation. The minister of urban development acknowledges this fact and feels that a single regulatory body at the state level is most needed, for faster approvals , besides faster delivery of projects, accountability of the project developers, professionalism and finally loan acquisition to make affordable housing a reality.

16 Real Estate Firms to come up with 9000cr IPO in Three Months

At least 16 real estate firms are set to come with their initial public offerings to raise Rs 9,000 crore in the next three months. “Going by the DRHPs submitted by the 16 real estate companies, they are planning to raise at least Rs 9,000 crore. This is going to be raised in the next three months,” Knight Frank India Chairman Pranay Vakil said on the sidelines of a Ficci-organised summit here. Vakil said that among the 16 issues, five-six are from the Southern India and a few from Northern India. Informed sources said that Sahara plans to raise Rs 3,450 crore through the IPO, Lodha Developers Rs 3,000 crore, Godrej Properties Rs 600 crore, DB Realty Rs 1,500 crore and Kumar Builders Rs 450 crore among others. Emmar MGF has also filed the DRHP with the SEBI and plans to raise Rs 3,850 crore.

Hoping that the issues would be reasonably priced, he said, “Hopefully, people will now realise that you can’t take away every single money from the market and they will keep something from the investors”. The Knight Frank Chairman said that there was ample liquidity, both from domestic and international sources, for the issues to sail through, but in case, one or two fails, it would be a disaster to the entire market. Vakil said that the banking sector lending to the real estate sector was going to be limited now as the apex bank raised provisioning norms. RBI had on November 5 proposed to increase the provisioning requirement for advances to the commercial real estate sector from 0.40 per cent to one per cent.

Stating that the Indian real estate industry is on the path of recovery, Vakil said that developers would do well to keep in mind the lessons learnt from the slowdown, which has proved beyond doubt that the liquidity and the consumers are the kings of the business. “We have also learnt that an investor is a fair-weather bird. When the industry is down, investors may look away from the developers,” Vakil said.

Real Estate Sector is Recovering- Ernst and Young

Driven by price corrections, softening of interest rates and improved liquidity, the real estate industry is on the path of recovery on the back of improved demand in the residential segment. “After a rough phase that lasted for over a year, the Indian real estate industry is on the path of recovery. The residential real estate segment, which is leading the recovery, has witnessed a revival in demand, primarily due to improved affordibility,” a Ficci – Ernst & Young report said. The two-pronged strategies of the developers- improving balance sheets and focusing on developing self-funded projects – are now bearing results and helping in the recovery of the industry with a revival of demand in the residential sub-segment.

The demand in the residential segment has witnessed a revival primarily due to improved affordibility and was a result of lower interest rates, decline in property prices and the availability of small-sized affordable apartments. The report, however, said that the commercial, retail and hospitality segments were still struggling due to the subdued demand from the IT/ITeS sectors and multinationals, which are halting expansion plans in the country. “In the aftermath of the global economic slowdown, most reatilers have deffered their expansion plans in India, since the slowdown has resulted in a decline in their revenues and profitability,” the Ficci – Ernst & Young report said.

As developers shifted their focus to self-funded projects due to the liquidity crunch, they deffred and even cancelled hospitality projects that have higher gestation periods. “This has resulted in the widening of the demand-supply gap in hotel rooms in the country,” the report said. Meanwhile, assessing over 60 parameters, the report ranked Delhi, the National Capital, as the most preffered destination for real estate developres and investors. “The key factors that have helped Delhi to retain its number one prositions are the fast-paced improvements in physical infratsructure such as the functional metro railway, modernisation of the Internnational airport, road widening projects and dedicated efforts to make the ring road signal free,” the report said. The financial capital of the country came as a close second, loosing in the infrastructure index to Delhi.

Cash-Strapped Realty Companies Eye Rs 15K-crore mop-up

Cash-strapped real estate companies looking for succour from the capital market are likely to run into headwinds on the pricing front. Market watchers say unless the promoters price their issues a bit more realistically, they are likely to see a tepid response from investors. Some of the high-profile new issues over the past few months were felt to have been priced expensively, resulting in the stocks faring poorly on listing.

Nearly a dozen real estate companies are looking to mop up over Rs 15,000 crore through public offerings in the coming months. Godrej Properties, DB Realty, Emaar MGF, Lodha Developers, Sahara Prime City, Kumar Builders, Ambience, Ashoka Buildcon are among the companies which have filed their draft red herring prospectuses (DRHP) with Sebi. Those in the pipeline, but which have not yet filed their DRHPs, include Nitesh Estates, Prestige Constructions, BPTP and Oberoi Constructions .

The IPO-filings mark the second round of fund-raising in the real estate industry, which had been wracked by the global financial crisis and the resultant drop in demand. Signs of a revival in the residential segment in April-May this year, prompted many to hit the capital market to raise funds. Merchant bankers are, however, sceptical about investor appetite given the huge overhang of paper. “There are serious challenges on the pricing front,” says Nimesh Shah, MD, Fortune Financial. Mr Shah is of the view that there is too much paper on offer at the moment, which is dampening investor appetite.

“And with almost all of the recent quality companies quoting at a discount to the offer price, the prospects look bleak,” he added. Industry experts point out that investors should look at the earnings model of the real estate companies rather than the landbank model because in the latter, prices tend to be volatile. Also, there are concerns that builders are putting value to the whole piece of land where they have partial ownership.

“Investors need to do due diligence as to whether the land bank is agricultural land or non-agricultural land. Currently, valuation of land is being done arbitrarily. If it is agricultural land, one needs to factor in the cost of conversion (property tax & cost to be paid to the government etc),” said a real estate developer on condition of anonymity. Investment bankers believe that this phenomenon is not true of India alone but is also seen in other countries like China. “Real estate companies are quoting at an almost 60% discount to their NAVs,” said a banker with interests in the region.

“Given the overall weakness in the IPO market in the recent months, pricing and quality of promoters will be paramount,” says Munesh Khanna, CEO & MD-investment banking, Centrum Capital. However, JC Sharma, MD, Shobha Developers, believes one should look at the macro picture. “The real estate industry is still not getting proper representation in India. In a developed/developing economy, it constitutes 10% of the market cap of the country. We still have a long way to go,” he told ET.