Indian Property News on 'November, 2009'

DLF Signs Deal with DE Shaw

The founding family of India’s largest real estate company has reached a deal with DE Shaw to buy out the hedge fund’s stake in DLF Asset (DAL), an important step presaging transactions that could lead to a Singapore listing for the DLF affiliate in the first quarter of 2010. DE Shaw will get a little less than $500 million from KP Singh and his family and privately-held DAL will most likely become a majority-owned subsidiary of listed property developer DLF, two persons directly involved in the transaction said. DAL, which buys completed commercial assets from DLF, was set up as a Real Estate Investment Trust (REIT) controlled by the Singh family. A Singapore listing for DAL, which was to have happened in 2008, was shelved following the crash in the global equity markets.

The integration of DAL with DLF, which is expected to be completed by December, is being done to give the property developer access to the former’s revenue stream. KP Singh and his family have bought DE Shaw’s minority stake for around Rs 2,300 crore ($500 million). The hedge fund had invested $400 million, equivalent to Rs 1,600 crore, in early 2006. Cash-strapped DLF, whose sales fell by over 50% to Rs 1,810 crore during the quarter ended September, has set itself a target of nearly halving debt to Rs 6,500 crore this fiscal year. Revenue from DAL, which at one time accounted for over a third of DLF’s sales, has dried up.

DLF expects to get Rs 4,500 crore through the sale of non-core assets and has already raised Rs 1,064 crore in the first half of the current fiscal. DLF has been working on the integration of DAL with itself for some time, a person with knowledge of the development said, adding the valuation will depend on the report of a panel of independent directors. A DLF spokesman said the company “does not comment on market speculations.” Since 2006, DAL had acquired commercial assets valued at over Rs 11,000 crore from DLF. It has raised some Rs 5,000 crore ($1.05 billion) from hedge funds and owes DLF around Rs 2,000 crore. In May, the Singh family mopped up Rs 3,800 crore by divesting a 9.9% stake in DLF to buy out the investment by DE Shaw. But the deal got delayed due to a tax hitch: since DAL was not a listed entity, the hedge fund was required to pay capital gain tax on the profit. This issue has now been resolved.

After the exit of DE Shaw, a DLF subsidiary will finalise the purchase of the promoters’ entire holding in DAL through a complex share swap deal. The deal is being routed through a subsidiary as the promoter holding in DLF is above 75% and any issue of fresh shares to promoters is not allowed under listing norms. This effectively means that DLF will issue fresh shares of its subsidiary to the Singh family, said one of the officials. A source said that the value of DAL would be around Rs 9,000 crore. After adjusting for DAL’s liability to DLF, loans from banks and the investment by Symphony Capital in the form of preference shares, the net value would be around Rs 2500 crore against which the shares of a subsidiary company will be issued to the Singh family.

London-based hedge fund Symphony Capital has invested $650 million in DAL through convertible preference share in two phases. The company has started discussions with overseas investment banks for DAL’s Singapore listing, a banker said.

Pune Witnesses Rise in Commercial as Well as Residential Real Estate

The price of real estate in the city, which was on a low for most of last year, has stabilised and in fact posted a bit of a rise in select locations, if recent research by real estate advisory firms are any indication. Importantly, commercial real estate including retail spaces which took a bigger hit in the wake of the economic slowdown, is also showing an upward trend as demonstrated by the plans of some major world bands to enter the city, the reports said. The trend is in keeping with developments witnessed nationally. The realty scene in major cities in the country has seen higher levels of activity after the early signs of an economic recovery both in India and internationally, said the quarterly report of realty research and advisory firm Cushman & Wakefield (C&W).

The report for the third quarter of the year (July-September) observed that the market was characterised by a positive sentiment and increased activity was witnessed. “The city witnessed the launch of various residential projects in the third quarter across many micro markets in both mid- and high-end segments. Capital and rental values appreciated across the city in the third quarter,” the report observed. However, values are still below their all-time highs by about 10-30 per cent in Pune, the report said.

Aditi Vijayakar, executive director of residential services at C&W said, “The price and the buyer’s sentiment are critical in the current market as key parameters influencing sales. Capital values in select locations in Pune are likely to see growth in the coming months. However, if prices increase too much too soon, there is a likelihood of them correcting again shortly after; the ideal graph representing recovery should be gradual and in line with the demand that calls for a period of considerable stabilisation before the hike.”

According to Vijaykar, the Pune residential market has started to regain momentum in the past quarter with all locations witnessing marginal increase in rental and capital values by September 2009. Demand has started to move upward largely driven by end users. Pune is highly price sensitive and the current upward trend is largely a result of the correction in values that was witnessed in the last few quarters which have made the values more affordable. Also noticeable is that the large part of the transactions are happening in the newly-launched projects which offer more competitive values.

According to the C&W report, high end areas such as Koregaon park or Bund Garden have shown an 8 per cent rise in prices while elsewhere the rise is 2-6 per cent. Satish Magar, President of Credai Pune (Confederation of Real Estate Developers’ Associations of India) and chairman and managing director of Magarpatta city Development Corporation, told TOI that the rise in residential prices is not very remarkable and in most cases it restricted to Rs 100 per sq ft. Commercial segment on the other hand, has been active again as enquiries from IT firms have gone up.

“IT firms are back in expansion mode and have started hiring, which has triggered the activity in this segment,” Magar said, adding that the retail segment too is warming up again as consumer confidence returns and a new kind of leasee-lessor relationship evolves. “From a flat rental agreement, we are now on a fixed plus floating rental basis where a leasee pays a minimum guaranteed rental and shares revenues with the developer. This has reduced the initial burden on the retailers easing their liquidity problems.”

“From a near flat level till June this year, we have leased over 4 lakh sq ft space in Magarpatta City till now,” Magar said. Anand Dutta, head (retail) Pune for real estate consultancy Jones Lang LaSalle Meghraj, said retail transactions have picked up noticeably, following a marked upsurge in shopper sentiments and a generalised correction in retail real estate rentals. “An increasing number of retail landlords in Pune’s malls and on key high street locations have opened up to the minimum guarantee and revenue-sharing models. The general stance now is that if a retailer is making money, landlords are willing to offer reductions on rentals if the retailer is willing to share his topline.

UBI seeks Capital Infusion from govt to meet future credit growth

State-owned Union Bank of India today said it has sought financial assistance to the tune of Rs 1,800 crore from the government to meet credit growth in the coming years. “We have requested the government for the capital infusion,” Union Bank of India Chairman and Managing Director M V Nair told PTI on the sidelines of India Economic Summit here.

Asked about the quantum, Nair said that it was about Rs 1,800 crore as the bank intended to have a credit growth higher than the industry average. The bank has adequate capital to meet the credit growth for current fiscal, he said adding that the capital assistance was required for business expansion in the coming years.

It is to be noted that the government has decided to give financial assistance to public sector banks with an objective to enhance capacity to lend to productive sectors. The World Bank had committed USD two billion (about Rs 10,000 crore), with 30 year maturity, that is expected to help select public sector banks expand credit for infrastructure development, small and medium enterprises, and the rural economy. Talking about interest rate, Nair said there is no immediate plan to cut deposit rates.

Developers in Bangalore Plan to Target Middle and Upper Middle Segments

After almost a year of lull due to the economic downturn, the real estate sector in the country’s IT capital is slowly picking up and is all set to focus on the middle and upper middle segments, where it envisages huge potential. Customising their offerings, builders are keen to capture these segments, which are witnessing increasing demand. For Mantri Developers Pvt Ltd, “the recession for all practical purposes is over as far as the real estate sector in the city is concerned”. The Bangalore-headquartered group, which has been in the business for over 10 years, admitted that there was “slackening in demand from October 2008 to 2009. Prices had hit rock bottom and customers were holding back, anticipating further slash in rates”.

But post-April, there has been a surge in sales in the industry as customers realised that “there would be no further decrease in prices”, an official of the firm said on condition of anonymity. The firm, which is looking at the upper middle class and high-end segments, sees a rise in demand in both, more so in the upper middle category. “However, despite the slowdown, demand never slackened in the high-end segment”, the official said. The firm’s two ongoing projects, one in the high-end (ranging from Rs one crore to Rs 10 crore) and two in the upper middle class segments (priced at Rs 35-70 lakh) will be completed in another six to eight months. “Thanks to the slowdown, it is the genuine buyer who is coming forward now instead of the investor. These buyers want the reassurance of reputed brands which are cash flow positive and the pace of progress is visible”, the official said.

The firm, which has also taken up projects in Chennai and Hyderabad, rates the Bangalore market as the “best”, compared to Hyderabad where is it is “reasonably good” and Chennai where it is “picking up”. Shahwar Pasha, Assistant General Manager, Business Development, Prestige Group, echoed similar sentiments about a resurgence in the market. “It is the end-user, the actual buyer who is ready to buy now”. The Group, which was earlier targeting only the luxury market (Rs 75 lakh- Rs six crore) is now “seriously looking at the middle and upper middle segment as enquiries are for affordable homes”. Pasha, who feels the “demand for the high-end is a little less”, hopes the market will be vibrant by the middle of next year.

Expressing a slightly different view, Pradeep Jacob, Marketing Manager, Confident Group said “demand for apartments has bottomed out in the last nine months. The demand for apartments is flat now”. The four year-old group, he says, has been successful because they have focused on plots, townships and low-budget (Rs 17-20 lakh) and middle category flats (Rs 30-40 lakh). “Our low budget and middle segment flats’ sales have been good because they are within a 10 km radius of IT companies”, Jacob said. The group, which has catered to a “diversified segment,” including the high-end in the form of villas, says it has “not witnessed any decrease in demand for villas”.

Suresh Goel, who handles marketing for Salarpuria, the Kolkata-headquartered firm which has been in Bangalore for the past 19 years, says the firm intended to take more projects for the middle segment as it sees “a growing demand” there. The firm, which has two middle category projects in Bangalore North has witnessed “maximum sales in those”, he added.

Indiareit Raising Domestic Real Estate Fund of Rs 500 Crore

Indiareit Fund Advisors Pvt Ltd, a real estate venture capital fund manager promoted by $1.8-billion Piramal Enterprises, is in talks to pick up stake in a residential project of Pune-based realty major Panchshil. Talking to FE, Ramesh T Jogani, chief executive officer and managing director of Indiareit, said: “The company is currently raising a domestic real estate fund of Rs 500 crore. The scheme, which was opened in the first week of November with a ticket size of Rs 50 lakh, will have its initial closure by end-January. Indiareit is the process of identifying three real estate projects in Pune, Mumbai and Bangalore to utilise this fund.”

Indiareit will invest around Rs 150 crore of the Rs 500-crore domestic corpus in a real estate project promoted by Panchshil in Pune through a special purpose vehicle (SPV). Panchshil, which is primarily in residential and commercial realty sector, has constructed 9-million sqft in the past six years. Panchshil is currently developing projects covering 22 milion sqft (including already completed 9 million sqft), Jogani said. He said Indiareit would invest the remaining Rs 350 crore in two ventures–Rs 100 crore to promote a residential project in Bangalore and Rs 250 crore in a project involving slum development in Mumbai. He, however, declined to disclose the details about new projects and partners.

According to industry sources, Indiareit is in talks with Bangalore-based Skyline Constructions to fund expansion of the latter. Indiareit was committed to invest up to Rs 225 crore to develop a few projects promoted by Skyline in Bangalore and Mysore in 2007. However, Jogani has not ruled out the possibility of a second round funding to Skyline. He said, “Skyline is one of our able partners. If they come out with good schemes, Indiareit will definitely consider.” Indiareit has a corpus of Rs 1,850 crore raised through three real estate funds, two domestic and one offshore.

Home Buyers Keen but Cautious

The residential property market has firmed up in the last few weeks and consumer demand has picked up, say real estate consultants, who claim that buyers (end users) are back because of the confidence in the economy, a resurgent stock market and low interest rates. But there’s a note of caution: if builders start jacking up rates, there will be resistance.

“The residential market, including the premium segment, has rebounded quicker than expected. We are seeing 2007-level prices again and a robust demand for houses in the $1 million range (under Rs 5 crore),’’ said Anuj Puri, chairman of Jones Lang LaSalle Meghraj (JLLM). However, a real estate source said that in the premium segment buyers were not interested in properties priced over Rs 25,000 a sq ft.

According to property consultant Ashok Narang, more than investors, there is a lot of demand from actual users. “Projects in the Parel-Worli belt are doing very well, and in the suburbs, buyers have started flocking to even under-construction projects where bookings are taking place. Earlier, banks were reluctant to lend to buyers for incomplete projects,’’ he said. However, he warned that if prices spurted too fast, the market would slow down once again. Aditi Vijayakar, executive director of Residential Services at Cushman & Wakefield, concurred. “The ideal graph should be gradual,’’ she said.

SEZ Exports Doubles in First Fiscal despite Contraction in World Trade

Despite a contraction in world trade, exports from India’s special economic zones (SEZs) have maintained the high growth levels of the pre-crisis period. Commerce ministry data shows SEZ exports more than doubled in the first half of this fiscal, when the country’s total exports dipped 18.6%. After the 2006-07 implementation of the SEZ policy, exports from these tax-free zones have increased by over 50% annually. “SEZ exports stood at Rs 1,01,265 crore in April-September this year as against over Rs 48,000 crore in the corresponding period a year ago. This clearly shows that export growth this year would be significantly higher than the initial estimate of 15%,” said DK Mittal, additional secretary, department of commerce. Total exports were at Rs 3,78,196 crore in H1.

However, with access to liquidity getting squeezed and land acquisition proving a problem certain developers are having a rethink on their SEZ plans. The board of approval (BoA) that met here on Thursday under the chairmanship of commerce secretary Rahul Khullar allowed 10 developers to exit. The proposed 5,000-hectare Maha Mumbai SEZ is among the projects facing problems over land acquisition. The BoA on Thursday asked developers—RIL chairman Mukesh Ambani and his associate Anand Jain have stakes in the zone—to re-apply through the state government.

Gujarat Positra Port Infrastructure Ltd, which is developing the zone, had asked for an extension of its “in principal approval” status as it is yet to complete its land acquisition. “They will have to fill in the relevant forms and take approval from the state government,” Mittal said. According to the original proposal, the Maha Mumbai SEZ was to be a 10,000-hectare zone. ‘Steps have also been taken to acquire land by consent of landowners and the developer has been able to execute agreement for sale with payment of full consideration with the permission of state government to the extent of Rs 4,800 crore,’ Gujarat Positra had said in its application to the BoA, which had already extended the in-principle status twice.

Going by the latest figures, SEZ exports account for nearly 26 % of the Indian exports basket. Exports form Reliance Industry Ltd’s SEZ-based refinery in Jamnagar accounts for a substantial portion of the rise in exports from these tax-free industrial zones. At the moment, there are 725 SEZs under different categories of approval, where investments of Rs 1,25,950 crore have taken place in the past three years.

SBI’s 8% home loan offer to Continue Till March 2010

The prospective homebuyers, who are looking to cobble together funds to buy an attractive property, now have every reason to cheer. The country’s largest lender State Bank of India on Friday decided to extend its 8 per cent home loan scheme till March 31, 2010, just a day before it was due to expire. The move is sure to further intensify the already heated competition in the home loan market. In the past few days banks like Axis Bank and Bank of Rajasthan have launched special scheme for home loan borrowers. Axis Bank came out with a special 8 per cent scheme for the first year and Bank of Rajasthan too dropped home loan rates to 7.5 per cent w.e.f. from November 9 and Punjab National Bank extended its 8.5 per cent scheme till December 31.

The bank, which offers the special scheme under ‘My Home Campaign’, gives 8 per cent fixed interest rate for 5 years for loans up to Rs 5 lakh, with a maximum tenure of 10 years. These are clear signs of banks renewing focus on the growing home loan market in the country. With low credit off-take worrying the banking industry, the banks’ continued aggression in the retail space is not surprising especially in the absence of signs of strong demand from the corporates. Credit off-take dropped to single digits recording 9.6 per cent growth as on October 23. In fact, both the disappointing credit growth numbers and SBI’s move has already got other players thinking of extending their schemes too.

“Such schemes should be continued as it is not a time to withdraw schemes,” said MV Nair, chairman and MD of Union Bank of India. SBI’s aggression may also force bigger private sector players to relook at their strategy for the fear of losing market share. The customers however are all smiles as the party continues.

CREDAI Shares Issues to be Discussed at NATCON 2010

The Confederation of Real Estate Developers‘ Associations of India (CREDAI) shared today, an outline of the key issues to be discussed at India’s premier real estate development conference NATCON 2010 – its 9th National Convention. NATCON 2010, which will commence on and from January 23, 2010 at Dubai, will continue till January 25 and will witness wide participation by industry leaders from India’s top developer organisations, finance institutions, fund managers, bankers, researchers, real estate professionals and reputed international experts who will converge at this prestigious convention to discuss on ‘Affordability’ which is the new paradigm for the Indian Real Estate.

The Convention will also aim at understanding the dynamics of affordable housing in India, the issues involved and probable solutions in the presence of the Chief Guest at the Convention, Mr. Deepak Parekh, Chairman of Housing Development Finance Corporation Limited (HDFC), who also headed the high level task force formed by the Government of India on ‘Affordable Housing for All’. Mr. Parekh will be sharing his valuable insights and knowledge on the scenario of affordable housing in India and the way forward in this sector.

The phenomenal demand for affordable housing to the tune of 25 million housing units in Indian Urban areas alone make affordable housing a focused market for real estate developers. With the government’s steady emphasis on addressing the critical housing needs of the country, CREDAI, which is committed to serve the industry at large is thus organising NATCON 2010 aiming to bring in the stakeholders of the real estate industry from all over India who will put in their views and opinions, discuss and debate and work towards solutions to address critical issues such as costs-technologies-escalations, financing to customers, markets, effective systems of post possession maintenance, building volumes without diluting quality and many such issues which all lead to the growth of affordable housing in India. NATCON 2010 seeks to be a melting pot of opinions and views regarding critical aspects of the industry. Through debate, research findings and solution-oriented discussions, NATCON 2010 seeks to take stock of recent developments and outline directions for the future of real estate.

Speaking on NATCON 2010, Mr. Kumar Gera, Chairman, CREDAI said, “Affordable housing today is the most effective possible solution available to address the crucial housing needs of the country. For the long-term success of affordable housing, issues need to be viewed not just from the objective of planning and execution, but from the points of sustainability and ownership as well. This is the time for us – developers, financers, technical experts and policy makers – to educate ourselves, debate over the problems and understand the opportunities waiting for us while we face the challenge and overcome all the hurdles in promoting affordable housing.”

NATCON 2010 will also touch upon important facets such as technological solutions for building affordable houses, financing, and valuable learnings and case studies from stalwarts representing the banking and financial institutions like Ms. Chanda Kochchar, Managing Director and Chief Executive Officer, ICICI Bank and others.

Mr. Santosh Rungta, President, CREDAI, stated “CREDAI is relentlessly advocating the need of affordable housing in India and at NATCON 2010 this objective is only to be re-emphasized upon to usher more sustainable economic growth of our country. By organizing NATCON, we wish to provide a platform to all the stakeholders of the real estate industry and bring in the best minds together from the sector to debate on practical initiatives and find solutions to the hurdles we face in creating home for everyone in our nation.”

Demand for Commercial Property will remain Low: ASSOCHAM

Even though the present situation of the sector is significantly better than later half of previous fiscal, financial condition of developers has not improved to a level that they can hold project for long time. Notwithstanding RBI’s concern over bubble in real estate sector, financial performance of realty majors during first half of current fiscal shows grim picture of the sector with a decline of 56% in net profit; dampened by 51% rise in financial charges and interest cost, according to an ASSOCHAM Financial Pulse Study. The ASSOCHAM Financial Pulse (AFP) Study titled “Reality check in Indian Real Estate Sector” analyzed financial performance of ten top real estate companies. As per the Study’s findings, total income of realty majors declined by average 40%; in line with the fall in net profit whereas the total expenses of sector registered an average decline of 35% despite a staggering increase of 51% in interest cost.

“The increased provisioning for real estate sector loans by banks from the earlier 0.4 per cent to 1 per cent is likely to shrink the liquidity of the sector by bringing additional burden to banks in lending to developers. The tightening of interest rate on home loans would also reduce the demand significantly going forward” said Mr. D.S. Rawat, Secretary General, ASSOCHAM. The Study stated, “the demand for commercial property is likely to remain in doldrums for remaining period of this fiscal unless business confidence improves heavily while tightening of the policy rates in next year will significantly impact demand for housing sector with an increase in interest rate for home loans”. Even though the present situation of the sector is significantly better than later half of previous fiscal, financial condition of developers has not improved to a level that they can hold project for long time. They need cash flow to service debt, which they have taken to buy land and for its development.

Despite decelerating overall credit growth rate, bank credit to the sector has grown at a considerably higher pace. For one-year period till August-end this year, banks lent Rs 283.53bn toreal estate sector, up 41.5% in comparison to same period last year. In stark contrast, home loans amounted to Rs 146.68bn, up by only 5.4% over the same period last year which contradicts a housing bubble scenario in India as the demand-supply mismatch is unlikely to trigger a boom-bust situation due to tight regulation by the RBI, said the ASSOCHAM report. The Study also found that sentiments in the sector which was faced with severe liquidity crunch and slackening demand due to global financial meltdown have improved remarkably during reference period. The price correction has led to demand rising by 20-25% in last two quarters after falling significantly in previous quarters.

The developers had cut prices by around 30% in first two quarters of the calendar year 2009 to stimulate demand of residential units, which tumbled to a low due to global financial crisis. But since the last quarter, prices of affordable apartments and residential real estate prices appreciated by around 10 percent across the country. During last quarter, real estate majors including DLF, Unitech, Indiabulls real estate, Parsvnath, Sobha Developers and Omaxe made effective use of bull run in stock market through the QIP route to fuel their liquidity position amid revival in demand. Supplementing it with growth inreal estate sector lending by banks, overall liquidity situation of the sector remains robust but it has to be accompanied by a strong push in demand to create a bubble like situation. Among analyzed real estate companies, India’s biggest real estate company, DLF, registered a major drop of 78 percent in net profit during the first half of FY ’10 as compared to the same period of the last year, whereas its financial charges increased by a whopping 430.43 percent during the same period. Among other realty companies that witnessed a major decline in net profit while registering a healthy rise in interest cost included Ansal Properties & Infrastructure, CHD Developers Limited, Ackruti city Limited and Omaxe Limited.