Indian Property News on 'December, 2009'

Poor Retail Demand may lead to Fewer Mall Construction in 2010

Mall supply this year fell short by 60%, as only 5.7 million sq. ft of space was delivered across major cities in India, according to the annual retail report by real estate consultant Cushman and Wakefield Inc.

Around 9 million sq. ft of expected mall supply for the year was deferred to the future, due to poor demand from retailers, says the report. Of the proposed 44 malls at the beginning of the first quarter (January-March), about 18 were delivered by the year-end. The overall vacancy rates for the major cities as of December was 17% compared with a 16.7% vacancy rate in December last year.

Mumbai had the largest share of this year’s mall supply at 1.8 million sq. ft, followed by Hyderabad (1.1 million sq. ft) and the National Capital Region (NCR) (0.9 million sq. ft). Bangalore saw the highest mall supply deferment with 80% less mall supply than what was expected. “This slowdown in mall construction need not be viewed as a negative growth indicator for the retail real estate segment,” said Jaideep Wahi, director, retail agency, Cushman and Wakefield India Pvt. Ltd. “The current pace is in fact expected to help in maintaining a healthier supply to demand equation, especially for oversupplied micro-markets.”

Hyderabad was the only city which saw more than 90% of its anticipated mall supply for the year becoming operational. Kolkata, with a supply of nearly 0.7 million sq. ft, saw about 65% of its expected mall supply become operational by year-end. In the fourth quarter (October-December), the highest vacancy was seen in NCR at 27% and Pune at 16%, while the lowest vacancy levels were seen in Chennai at 1% and Bangalore at 3%. Mumbai has seen vacancy decline from 10% to 8%, despite a 25% increase in its mall stock in the year to December. While mall rentals stabilised after the first half of 2009, they continue to remain under pressure due to weak leasing activities, the report said.

Micro markets in NCR, Bangalore and Mumbai saw a 40-53% decline in rentals in the fourth quarter of 2009 over the same period last year. Bangalore’s prominent streets such as Brigade Road and Commercial Street were the only micro markets to post a 10% rise in rentals over last year.

2010 can be brighter for Retail Sector

The year 2009 has been bad for the real estate sector, particularly for the retail sector. While residential real estate picked up in the last two quarters, retail has been seeing very low demand. According to a report by Cushman & Wakefield, of the 44 malls proposed at the beginning of the first quarter of 2009, just about 18 were delivered by the year end. A number of developers postponed mall projects in 2009 but with a revival of demand in the end of the year, 2010 is expected to see a number of mall projects getting back on track.

“The outlook for the retail sector in 2010 is looking brighter. The festive season has been good and has seen a lot more footfalls. As the market picks up, there will be a revival of demand for retail spaces again,” says Rajeev Talwar, executive director at DLF. Year 2009 saw fresh supply of 5.7 million sq ft of mall space. Approximately 9 million sq ft of mall space was deferred to the future, which is a reduction of 60%. Almost 80% of new mall space in Bangalore was postponed which meant the city saw a vacancy of only 3%.

“I see retailers being cautiously optimistic in 2010. They will expand but with caution unlike earlier,” says Jaideep Wahi, director, retail agency, Cushman & Wakefield. Most large developers had postponed their projects as it was hard for them to lease retail space, he says. In the early part of 2009, developers also faced a credit crunch which slowed down mall plans. This slowdown in mall construction need not be viewed as a negative. The slowdown has helped in maintaining a good supply demand equation, especially for markets which were staring at an oversupply situation.

Delhi-based developer Omaxe launched its mall in Patiala a month back and the response has been good, says Rohtas Goel, CMD, Omaxe. The company though had decided to postpone its 1.5 million sq ft mall Connaught Place in Greater Noida because of lack of demand in 2009. “The retail segment is seeing renewed demand over the last 4-5 months. We are seeing new leasing activity start at our mall in Greater Noida where construction will start in early 2010,” says Goel.

Across the major cities, rentals hardly saw any upward movement since the markets crashed late 2008. Mall as well as main street rentals (except a few locations) continued to remain below the average rental rates of the fourth quarter of 2008, says the report. Some micro markets in the NCR, Bangalore and Mumbai saw a 53%-40% decline in rentals in the fourth quarter of 2009 over the same period last year. Bangalore’s prominent high streets (Brigade Road and Commercial Street) were the only micro markets to post an approximate 10% rise in rentals over last year, indicating the existing demand for premium retail precincts over emerging locations in the city.

Of the 5.7 million sq ft of fresh mall supply in 2009, the largest share of the supply — 1.8 million sq ft came up in Mumbai, followed by Hyderabad (1.1 million sq ft) and the NCR (0.9 million sq ft). Kolkata saw fresh supply of 0.7 million sq ft. Retailers are now very cautious about signing up new space. “It has been a learning for both developers and retailers. The retailer is now asking a lot more questions and is very cautious,” says V Muhammad Ali, head, mall operations, Forum, Prestige Group’s mall division. They area asking questions about the location, about anchor tenants. Ali recalls that during the boom time, no one was asking these questions. “LoI’s were being signed at conferences at that time.”

Bank’s Retail Lending Declines

The tightening of credit norms for unsecured loans is showing. According to data, flow of personal loans declined 0.1 per cent in the year up to October 2009, as against a 15 per cent rise a year ago. The Reserve bank of India’s (RBI’s) definition of personal loans includes loans for housing, credit card outstandings, consumer durables finance by banks, education loans and advances against fixed deposits. Over the last five years, this segment, termed as retail lending by banks, was the main growth driver for most entities.

While lower unsecured lending was part of the strategy adopted by banks following the credit crisis, the demand for housing loans dropped over the last 18 months as buyers deferred purchases due to high real estate prices and uncertainty over income. While RBI India has not disclosed the latest numbers for credit cards and consumer durable loans, Deputy Governor Shyamala Gopinath said the contraction in these segments was continued. When RBI had last released the disaggregated data, in the year up to August 2009, credit card outstandings were lower by 14.3 per cent. Similarly, consumer durables loans had declined 16.7 per cent. During the year up to August 2009, the personal loan segment had seen a 2.3 per cent rise.

According to data published in the RBI Bulletin, at the end of October, the credit card base had dropped 21 per cent to 21.1 million, as against 26.7 million a year ago. The outstanding had declined by 12.13 per cent to Rs 5,660 crore at the end of October 2009, from 6,442 crore a year ago. In the year to October, the overall bank loan growth slowed to 9.9 per cent from 29.4 per cent in the previous year, when demand had peaked as the credit crisis intensified. Gopinath said that credit flow (y-o-y) to agriculture grew 19.9 per cent (23.4 per cent during the year ended October 2008), followed by industry (14.8 per cent as against 37.4 per cent) and services sector (6.3 per cent as against 35.5 per cent).

But two sectors on which RBI maintains a close vigil were not as severely impacted by the overall credit slowdown. Loans to real estate and non-banking finance companies continued to record a high growth of 21.2 per cent (44.2 per cent in October 2008) and 20.8 per cent (60.5 per cent), respectively, Gopinath said. The deputy governor said that Indian companies had funded a large part of their investment in the on-going long capital expenditure cycle from retained earnings. RBI data showed that during the year ended October 2009, of the incremental non-food credit, 61.2 per cent was absorbed by industry, while 15.8 per cent went to the services sector (compared with 28.4 per cent a year ago).

There was a 0.2 per cent decline in incremental flow towards personal loans as banks were culling credit cards and stopped financing consumer durables. Within industry, a bulk of incremental credit was absorbed by infrastructure (70.6 per cent), basic metal and metal products (16.9 per cent), textiles (4.1 per cent) and construction (2.9 per cent). The shares of infrastructure, basic metal and metal products, beverages and tobacco and paper and paper products in total incremental credit to industry increased in October 2009 from its level a year ago.

SBI Confirms Stability in Home Loan Rates

The State Bank of India (SBI) does not foresee any immediate change in lending rates. SBI chairman .P. Bhatt, who was in the city today, said the bank’s initiative in the home loan segment had helped both customers and real estate developers.

“We reduced the home loan lending rates to 8 per cent per annum and as a result developers and customers started returning to the market. Other banks were also forced to follow our footsteps,” Bhatt said.

He claimed there was enough liquidity in the market and credit growth had not yet picked up. “I don’t see any hike in lending rates of the bank in the next six months. There is enough money available in the market and banks are not facing any difficulties in providing credit to customers at this point of time,” said Bhatt.

Factors that Drive Real Estate Prices in India

What drives real estate prices in India? The factors vary from city to city. In most countries, the construction of a noisy airport may be reason for residents to flee, but in India, the prospect of Mumbai’s second airport coming up near Khargar is driving up prices. According to Gulam Zia, national director—research and advisory services, Knight Frank, the Navi Mumbai area — from Vashi to Panvel — is likely to grow faster than other locations in Mumbai.

This is primarily due to the expectation that the new airport could come up here in the next 6-7 years in addition to the trans-harbour link. The entire look of Navi Mumbai could change in the coming few years, as Kharghar and Nerul record multi-fold growth. Noida and Ghaziabad are coming up well due to the metro projects shaping up in the vicinity. There are plans to extend the metro network to Manesar as well. These are the areas that are emerging quite fast and good growth is expected here.

In Chennai, it’s the OMR — which is short for Old Mahabalipuram Road — that is turning out to be the city’s IT corridor. The IT industry is the economic growth driver in the region. Further up, the area around Mahindra World City is also seeing a lot of development. Industrial growth in this region is a huge contributing factor. Overall, a balanced mix of growth is being witnessed in this corridor.

Disruptions over Telangana aside, for Hyderabad, the major growth areas have always been Gachibowli, Madhapur, and Shamshabad. Again, IT is the key driver for growth. A huge amount of supply of real estate can be seen in Hyderabad. “Overall, the city is not as attractive for investment as other southern cities at the moment, or for that matter other cities in our top 10 list,” says Mr Zia. In Bangalore, locations which provide good enough growth from the IT angle include, Sarjapur and the Ring Road junction area. A peculiar aspect to note is that around the Electronic City and Whitefield area, good development is being seen, but these two localities are struggling for infrastructure.

However, these two areas will see good growth in the next two years. The other localities to watch out for include the area around the road connecting the new airport and Hebal, as they are likely to grow considerably in the coming years. In the East, Kolkata is the only city that figures in the top 10 list of cities that are expected to see substantial growth. “Kolkata is also banking on the IT story. Several projects are expected to come up in Rajarhat and Salt Lake. Other emerging locations include Mahesh Tala and Tara Tala. Many new townships are being constructed in Tara Tala, gradually transforming it from an industrial zone to a residential township. This will be a promising area in the future,” informs Mr Zia.

Unitech’s Plan to raise USD 700 Million in Convertible Bonds Overseas Runs into Trouble

Real estate firm Unitech’s plan to raise USD 700 million in convertible bonds overseas has run into trouble with financial regulators opposing a waiver of a three-year lock-in for such investments, a newspaper said on Tuesday. Despite the opposition from the Finance Ministry and the central bank, the Foreign Investment Promotion Board, responsible for approving such investments, would review the issue at its next meeting, the paper said citing a government official familiar with the development.

Unitech officials could not be immediately reached for comment. Unitech has argued the convertible bonds should be treated as debt until they are converted into shares.

NAREDCO Elects New Panel of Members

National Real Estate Development Council (NAREDCO), elected its new panel of members in an annual general meeting, held last week in the Capital. NAREDCO, an regulatory body established under the aegis of Union Ministry of Housing and Urban Poverty Alleviation claims to be committed to work for the development and promotion council for housing, real estate and allied sectors in India.

Rohtas Goel, CMD, Omaxe Ltd has been once again elected as the president of NAREDCO for the second consecutive time. During his last tenure, he undertook initiatives to extend the NAREDCO family in the states of Haryana and Punjab and in the closing run to mark footsteps in Karnataka, Andhra Pradesh and Madhya Pradesh.

With the economic slump in motion, NAREDCO also played a key role in restructuring debts of developers and making credit available at reasonable interest rates. The apex body also took initiative to make easy credit available to home buyers, especially in the range of Rs 5 lakh – 20 lakh at a reduced rate through RBI and banking system. Addressing the newly elected committee Goel said that, “With a vision to build real estate as the most promising sector, we are committed to carry forward the objective with which NAREDCO was formed a decade ago.”

The organisation is said to have taken a constructive initiative for providing fiscal concession to developers for undertaking affordable housing at reasonable prices. NAREDCO under the vision of Goel is also a key player in providing inputs to the guidelines of Rajiv Aawas Yozna and regulatory bills and today is an active member to all significant government committees. NAREDCO’s debate on affordable housing have gained national acceptance and various state governments have initiated action towards the roadmap.

Goel is elected president of NAREDCO for next two years term. Sanjeev Srivastava, MD, Assotech Ltd is elected as senior vice president, while K J Arora, CMD, Arora and Associates Realty Ltd, is elected as member finance, amongst various other positions. The new office bearers promised to work in synergy for the growth of the real estate sector and NAREDCO.

NAREDCO, was established in the year 1998 under the aegis of Union Ministry of Housing and Urban Poverty Alleviation (previously Ministry of Urban Employment and Poverty Alleviation), Government of India for the development and promotion of housing & real estate sector in India. As the nodal agency for housing and real estate sector in India, NAREDCO’s activity ranges from legislative , legal and regulatory issues to commercial issues in the realty sector.

NRIs and Home Loan India

Indians living abroad are equally eligible for housing loans from banks in India, but with some riders. Christmas and New Year see an influx of Indians based abroad. This year is no different. This time, though, the non-resident Indians (NRIs) are taking a closer look at real estate here. The correction in property prices has induced many, who aim to return to India in the near future.

An NRI is an Indian citizen, holding a valid Indian passport and staying abroad for employment, business or vocational purposes. According to the Reserve Bank of India and the Income Tax Act, an NRI can buy real estate in India and avail housing loans on residential properties from banks. They are only denied purchase of agricultural land, farm house or plantation property in the country. Calculation of eligibility and interest rate for NRI loans is not very different from that of the Indian residents.

However, there are some pre-requisites for an NRI loan: checking of the qualifications, their current job profile, past experience, the probability of continuing abroad for the loan tenure, the probability of servicing the loan with an extended tenure in case of return to India, and so on. The loan-to-value (LTV) ratio for NRIs varies from one bank to another, though the calculation is same as in case of a regular home loan. The down-payment for NRI home loan is permitted through direct remittances from abroad through normal banking channels or from deposit accounts in India, including a non-resident ordinary rupee (NRO) account. The income taken into account for calculating the home loan eligibility is the repatriable income, plus any income in India.

There are some additional documents that they need to submit with the application form. These include a copy of the passport and visa and general Power of Attorney (PoA) in favour of a local person as drafted by the bank and duly attested by the Indian consulate at the place of residence. Most banks require the PoA to ease the process of dealing with the borrower. A copy of the appointment letter and contract, salary certificate (in English) specifying name, date of joining, designation and salary details and bank statements for the last six months, both domestic (NRE/NRO/FCNR) and international, and a copy of local income tax returns filed in the country of residence will be needed.

As an NRI, one can enhance loan eligibility by taking a joint loan with a relative. However, for credit reasons, banks allow only a select list of relatives to become joint owners of the property. Repayment of home loans for NRIs is permissible through specific sources, such as remittances from abroad through recognised banking channels or from any deposit accounts maintained validly in India or through a specified close relative. Tax deduction benefits on home loan repayments cannot be availed unless the returns are filed in India.

Realty Estate Companies Hopeful of Growth in 2010

The Year 2009 has questioned the vulnerability of real estate investments. The belief that land is out of production and will never lose sheen was challenged. Not to mention that the global economic events had their fair share of impact on our markets as well.

The euphoria of the boom days had led many developers to scale operations to unsustainable levels, taking aggressive positions on the back of significantly high debt levels. The rapidly changing economic environment also put pressure on business margins and their ability to honour commitments both to lenders and customers alike. Several developers had to restructure businesses and exit non-core areas of business to keep liquidity concerns at bay.

However, in the last quarter there has been an increased activity by both investors and occupiers. While the final verdict on economic revival may still be pending, the uptake in housing sector has definitively shown signs of recovery. Confidence from the institutional investors — reflected in multiple successful QIPs — and domestic demand suggest that we may be out of the bottom for now. External factors like softening of interest rates and improving employment outlook have helped in making the outlook sanguine.

With the changing global environment there will be increased interest in green buildings. Though it may seem only as an additional cost burden today, carbon credits and improved operational efficiency will go a long way to keep the investors’ interest intact by being a standard of preference by occupiers.

Growing by the strength of fundamental and sustainable demand, positive GDP growth forecast and general improvement in investment climate, one can say that 2010 will be a favourable period for investors. Also, at current price levels and from a long-term standpoint, the real estate sector does appear to be an attractive asset class. From a risk standpoint, one has to keep a tab on a few factors such as continued sluggishness of global economy, execution risks in the local market and overall liquidity situation. It is, however, important for investors to remain focused on personal investment objectives at all times. Timing is everything in investing and one must cherry pick the right stock/assets at best values. With infrastructure playing a pivotal role in India’s growth story, great opportunities lie in new growth corridors as an investment opportunity.

Property worth More than Rs 250cr Destroyed Over Telangana Issue

As Andhra Pradesh boils over the Telangana issue, public and private properties worth over Rs 250 crore were destroyed by protesters in all the three regions of the state so far, government sources said. Adding the loss caused to businesses because of the seemingly unending spate of shutdowns in Telangana, the figure could be a few hundred crores of rupees more.

Of the total loss to properties, about 80 per cent was caused in Telangana region alone where people demanding a separate state have been more “violent,” the sources said. As many as 52 public and 28 private properties were burnt while 62 public and 114 private properties were damaged in the violence that broke out in Telangana region from November 29 to December 9, after TRS chief K Chandrasekhar Rao began his indefinite fast demanding separate statehood for Telanagana.

The agitations supporting a united state recorded 37 public properties and 11 private properties being burnt and 46 public and 47 private properties damaged between December 10 and 23, statistics compiled by the police reveal.