Indian Property News on 'December, 2009'

8th Pravasi Bharatiya Divas to Focus on Foreign Investment

At the beginning of the year 2010, the Indian government has planed to woo its diaspora spread across to globe into the mainstream of its emerging economy. A three-day redesigned gala event – 8th Pravasi Bharatiya Divas – is being organised by the Union Ministry of Overseas Indian Affairs in partnership with the Delhi government and the Confederation of Indian Industry from January 7. The forum would afford an opportunity not only for the Indian diaspora to take investment decisions in the country but also to resolve the issues relating to their private property.

The newly formed Prime Minister’s Global Advisory Council of Overseas Indians will meet for the first time on January 7. The body headed by the Prime Minister, Dr Manmohan Singh, consists of the minister for external affairs, SM Krishna, minister for overseas Indian Affairs, Vayalar Ravi, principal secretary to the prime minister, TKA Nair, secretary in the ministry of overseas Indian affairs, A Didar Singh and other notables like Nobel Laureate, Dr Amartya Sen, Prof Jagadish Bhagwati, Karan F Bilimoria, Swadesh Chatterjee, Ela Gandhi, Rajat K Gupta, Lord Khalid Hameed, Dr Renu Khator, Kishore Mahbubani, PNC Menon, LN Mittal, Indra K Nooyi, Vikram Pandit, CK Prahalad, Lord Bhiku Chotalal Parekh, Sam Pitroda, Tan Sri Dato Ajit Singh, Neville Joseph Roach, Prof Srinivasa SR Varadhan, Yusuffal MA. Indian government’s finance and foreign secretaries will participate as special invitees.

Two seminars one on Nano-technology and the other on property-related issues of overseas Indians are scheduled on January 7. The nano-technology seminar will bring together scientists, technologists, policymakers and entrepreneurs from India and abroad on a common platform. The focus of the seminar will be on applications of nano-technology in agriculture, energy and healthcare. The seminar on property related issues of the overseas Indian community will discuss institutional arrangements to safeguard their properties in India as well as the modalities for credible investment avenues in the real estate sector. The conference will be inaugurated by the Prime Minister, Dr Manmohan Singh on January 8 and Lord Khalid Hameed of Hampstead CBE DL will be the chief guest.

“There will be three plenary sessions and six concurrent sessions. In the nano-technogy seminar about 141 have so far registered as participants and in the property related seminar about 177 have so far registered as participants. We expect 1000 participants from over 40 countries for the entire Pavasi Bharatiya Divas programme, including 20 participants from the war-torn Sri Lanka ,” said the Union minister for overseas Indian affairs, Vayalar Ravi. In the first plenary session the delegates will have an opportunity to interact with key Indian ministers and policymakers like law and justice minister, Veerappa Moily, road transport and highways minister, Kamal Nath, advisor to the prime minister, Sam Pitroda, President of ICCR, Dr Karan Singh. The finance minister, Pranab Mukherjee will deliver the keynote address.

This session will discuss issues relating to economic recovery, good governnance, technology and innovation and infrastructure development. It would seek to articulate the role the Indian diaspora can play in India’s race to join the league of developed world. The second plenary session will have a panel of ministers and political leaders of Indian origin from different countries like Harinder Takkar from Canada, Mahendra P Chaudhary from Fiji, Dr S Subramaniam from Malaysia, Vasant K Bunwaree from Mauritius, Dr Vivian Balakrishnan from Singapore, Leny K Saith from Trinidad and Tobago. The Indian external affairs minister, SM Krishna will deliver the keynote address while the Indian commerce and industry minister, Anand Sharma and Dato Seri S Samy Vellu from Malasia will be the guests of honour. This session will deliberate on the issues of concern to overseas Indians residing in different parts of the globe.

The third plenary session will be addressed by chief ministers from 14 states and one deputy chief minister and they would focus on the role the diaspora can play in skill development an area of critical importance given the forecasts that India is likely to be confronted with significant skill gaps in a couple of decades if we do not act now. The six concurrent sessions are on themes like returning to 9% growth, leveraging knowledge network, diaspora philanthropy, diaspora women in cross-cultural environments, Indians and the Gulf countries, Future of Pravasi Bharatiya Divas and the road ahead.

For the first time, the Pravasi Bharatiya Divas will be webcast in an interactive modeon the websites www.moia.gov.in and www.overseasindian.in This will enable overseas Indians from across the world to not only witness the proceedings of the Pravasi Bharatiya Divas Convention, session-by-session, but also interact and express their opinion. An annual `Distinguished Global Indian Oration Series’ will be launched and the first lecture will be delivered by by Prof Jagadish Bhagwati of Columbia University on January 8 on the role of the Indian diaspora. The President of India, Pratibha Devisingh Patil will deliver the valedictory address on January 9 and conferPravasi Bharatiya Sammam Awards-2012 to distinguished overseas Indians.

The Indian government has taken several steps to woo overseas Indians like formulation of the Overseas Citizenship of India scheme, establishment of Overseas Indian Facilitation Centre, conceptualisation of an University for the benefit of overseas Indians, formation of the Prime Minister’s Global Advisory Council of People of Indian Origin, setting up of the India Development Foundation to attract investments from overseas Indians, enabling Overseas Indian professionals to practice in India and launching of the Global Indian Network of Knowledge (Global-INK).

Developers to Shift Focus on Developing Affordable Housing

Over the last 60 years, a lot of development in India has taken place to meet the essential needs of people such as roti, kapada and makaan. Even during the British regime, India did not have slums. Rich people were able to live lavishly and poor people were at least able to own their homes, although small ones, at cheap rates. However, now the paradigm has changed.

Amidst this scenario, public-private partnerships are happening in urban development, including large infrastructure projects where there is a huge allocation of funds by the government of India to the tune of Rs 3 lakh crore. The government is also developing metro projects such as the Andheri-Ghatkopar line, apart from the sea-link project connecting Haji Ali with south Mumbai. The Mumbai Metropolitan Region Development Authority has come up with schemes for rental housing, creating small tenements of 160 sq ft each. It thus becomes imperative for the government to focus on providing affordable housing.

The slowdown of 2008-09 impacted the Indian economy in terms of a liquidity squeeze and business losses to real estate and infrastructure companies. As for the key lessons in terms of costs and resources, I feel real estate companies should not leverage over-debt positions. If they do, they will not be able to face recession. Company debt has to be in proportion to the business. One should learn to manage a business within one’s means. What we at Hiranandani Constructions have done is to understand customers’ needs and fill gaps by making money available through the banking system. Even foreign investors are looking at India with great interest.

Real estate companies can build on their strengths during the revival by being conservative in borrowing and spending funds only on projects that are saleable even in a recession. This is in terms of selling it completely or being leased out. By doing this, developers will be able to make equity suitable for the customer. The stock market is always full of surprises and the extent of a cyclical expectation is not known to anybody. Rather than being dependent on stock market sentiment, developers should be ready to focus on evolving affordable housing concepts.

Pearls Group Opens Four-Star Resort in Goa

Real Estate Company Pearls Group has launched its four-star resort at Colva Beach in South Goa. The 50-room four-star resort is set up on an old property, which was completely re-designed at the cost of Rs 30 crore by the firm, which has its hold over businesses like real estate, infrastructure, education, tourism, fast moving consumer goods and media.

Jyoti Narain, Executive Director, Pearls Oceanique Resort said, “The Group already has properties in Himachal Pradesh, Masoori and Gold Coast in Australia. With this the Group has made its foray in Western India. Although we have ventured late in the season, the bookings will be high in the season to come.” Narain added that mid sized budget to higher end tourists will be targeted for the resort, which will provide tailor made service for each guest.

Goa tourism officials said the state has witnessed 30 per cent decrease in the tourist arrival since last year, largely due to economic recession that severely hit tourism. Narain said that the slowdown does not bother them as the Goa property has 70 per cent bookings. The Group is also planning to tie up with chartered flights.

FDI India 2009 Hit by global Financial Crisis

The global financial crisis that spilled over into its second year choked flow of foreign direct investments into India in 2009, forcing the government to loosen rules for investments but it kept multi—brand retail off—limits to foreigners. In the first nine months of 2009, FDI dipped by 26 per cent to $21.4 billion from $29 billion a year ago. The total FDI inflow into India since 2001 crossed the $100 billion mark.

Although fund inflow was few and far between, FDI became the cause of confusion over ownership of seven Indian lending institutions, including ICICI Bank and HDFC Ltd. But the banks have maintained that they are Indian as they are controlled by Indian banking regulations, Indian Board and Management. While the Centre simplified norms aimed at attracting more FDI, it has yet to get the Insurance Bill approved by Parliament.

The Bill seeks to raise the FDI cap in the insurance sector to 49 per cent from 26 per cent. The year also saw the Organisation of Economic Cooperation and Development (OECD) and global firms including retail giant like Wal—Mart asking India to open the lucrative multi brand retail sector for FDI. However, it does not appear likely to happen in the near future.

Commercial Real Estate can Bounce back in 2010

Commercial real estate is hoping for a bounce back in 2010. For 2009 though, the year is ending with a 29% decline in space absorption compared with last year, according to the annual year-end report by real estate consultancy Cushman & Wakefield. The total absorption of commercial space across major Indian cities stood at 26.3 million sq ft in 2009, compared with 37 million sq ft in 2008. This dip was primarily because of a conservative leasing approach by the IT/ITeS sector which accounts for majority of commercial office space taken up (60%) in the country.

But the outlook for the coming year is positive. “With the gradual recovery of the economy, the demand for office space is likely to increase by the second half of 2010,” said Sumit Rakshit, executive director, occupier services at Cushman & Wakefield. Corporates have been cautious about expansion in 2009, both because of the recession and also falling office space rentals. Across India, there has been about 4.6 million sq ft of pre-commitments for space due to be absorbed over the next two years. Of this, Bangalore alone accounts for 2.7 million sq ft. This indicates the revival of the IT/ITes segment, which is the mainstay in Bangalore. IT companies are starting to get new contracts which is pushing them to commit to new real estate costs.

Most micro-markets across the country witnessed 15-25% decline in rentals in 2009 over last year. The last quarter though has seen rentals stabilising, except in few locations such as Mumbai’s Lower Parel which saw the highest fall in rentals by 40% in the past year. Even Delhi saw a rental decline between 3-26% during the year. Because of an acute over supply situation, Gurgaon is expected to see a further fall in rentals. Though 2009 saw a drop in expected supply, major cities recorded 51.8 million sq ft of new office space supply. With corporates starting to relook at leasing large spaces, this new supply is expected to be absorbed in the coming year. “Clients are starting to talk positive,” he added. Cushman & Wakefield sees a revival of rentals across all markets.

“Corporates, too, are realising this. This is the right time to buy or lease property as rentals and capital values are still at their lowest,” he said. On the developer’s side, the positive news is that stalled commercial office projects are being restarted. “2009 was a tenants market. In the coming year, things will start to turn.”

Real Estate Firm Ackruti City Ltd Receives Rs10 Billion Funding

Real estate firm Ackruti City Ltd has received a funding of 10 billion rupees for 15 projects and is in talks to raise funds for another 3-4 projects, a top official said late on Wednesday. “We have achieved financial closure of around 1,000 crore rupees (10 billion) from various banks and financial institutions. The funding has been received for 15 commercial and commercial projects in Mumbai, Thane and Pune regions, Ackruti Chief Financial Officer Bharat Mody told Reuters.

The real estate firm received funding from State Bank of India, Union Bank of India, Canara Bank, Bank of India, Indus Bank, Indian Overseas Bank and IFCL, he said. Ackruti is building 12 million square feet of residential and commercial properties, of which 3.5 million is in Pune and the rest in Mumbai and Thane regions.

The company is in talks with various banks and financial institutions for raising funds for another 3-4 projects, Mody added. Ackruti is also lining up another 6-7 residential and commercial projects for the next quarter, he said. On Monday, Ackruti City Managing Director Vyomesh Shah had told reporters the company would look at private equity funding for its projects that would cost over USD60 million to USD150 million.

Significant Decline in Funds Raised by Realty-Focused Private Equity Firms

Funds raised by realty-focused private equity firms declined significantly by 70 per cent so far this year as investors exercised caution for making fresh investment commitments. A total of 93 funds reached a final close in 2009, receiving commitments of $40.5 billion. In 2008, 228 funds raised an aggregate $134.3 billion, according to global research firm Preqin. As the credit crunch sent property prices into a downward spiral throughout 2009 many investors turned extremely cautious about committing money in the asset class.

Also declining returns of many real estate funds made it difficult for managers to raise funds in 2009. “Fund raising to date in 2009 has reached its lowest point in recent history. 2009 has also seen an increasing number of funds closing below original target, with a number of them closing with less than half the capital they were initially targeting,” Preqin said. Of all the funds that have closed during 2009, 77 per cent have closed below their original target size. While in the corresponding period in 2008 the figure was 46 per cent and in 2007 just 21 per cent of the funds fell short of their fund raising goals.

The report said in contrast to 2008 when fund raising never dropped below $20 billion in a single quarter, no quarter in 2009 to date has raised this amount. According to Preqin, the second and third quarter of 2009 saw fund raising levels continuing to fall, with only $6.8 billion being raised in Q3, representing the lowest fund raising total since Q3 2004. To date in Q4 2009, 15 funds have raised $6.8 billion. “2009 has been a challenging year for the private equity real estate industry. After years of uninterrupted success, the industry has hit difficult times; fund raising is down and fund managers have struggled to raise capital,” it said.

However, the report noted that despite the declining trend in investment in 2009, the outlook for 2010 remains brighter. The report said that despite declining returns over 2009, many investors did not lose confidence in the long-term benefit of investing in private equity real estate. In fact many PE real estate investors, including some rather prominent institutions, decided to delay investing in the asset class until the markets had settled. Some delayed until Q4 2009, whilst others suspended programmes until 2010 or later. “Despite (and in many ways because of) the global recession, real estate enters into the new year with a significant amount of funds on the road seeking large amounts of capital.

Promoters of Hotel Leela Increase their Stake to 55%

After a period of falling revenues, thanks to the economic slowdown and resultant fall in corporate and leisure travel, the hotel industry is witnessing the first signs of a revival. The occupancy levels are once again rising, thanks to attractive room rates, and hotel lobbies are once again full of foreign tourists and corporate executives rushing in from one meeting to another. The rising business confidence in the sector, it seems, has enthused many promoters to raise their stake in their companies. Promoters of Hotel Leela Venture recently increased their stake from 52.5% to 55%, demonstrating their faith in the company’s business prospects.

The market responded positively to the development and the stock was up 2.5% on Wednesday. In the past one year, the company’s stock has given around 140% returns, while the Sensex has given 73% for the same period. This is a second major development for the company in this year. Earlier FMCG major ITC, through its 100% subsidiary Russell Credit, had increased its stake in the company to 5.11% in the September quarter. It held a 4.17% stake in the company in the June quarter. Interestingly, ITC is also in race to acquire a controlling stake in East India Hotels.

It remains to be seen where Hotel Leela Ventures features in the ITC grand plans to emerge as the undisputed leader in the Indian hospitality industry. Meanwhile, the company is planning to redeem the outstanding €51.4 million (Rs 345 crore) foreign currency convertible bonds (FCCBs) and will decide on funding options by January 15. These bonds are due in September 2010. The company could choose between external commercial borrowings or internal accruals. The company has two series of FCCBs; the other series is for $100 million (Rs 470 crore), which will be due only in March 2012.

As on March 31, 2009, the hospitality company bought back and cancelled 23.7% of the outstanding €51.40-million bonds amounting to €12.20 million. It also bought back and hence cancelled $33 million worth of bonds constituting a third of its total dollar-denominated bonds. The amount of bonds outstanding, after this repurchase, is €39.20 million and $66.6 million, respectively. At the end of FY09, the company had total debt outstanding of around Rs 2,500 crore on its books. The stock is currently trading 36 times its trailing earnings and nearly five times its book in FY09. This makes it one of the most expensive stocks in the sector.

UBI Comes up with 8% home Loan Scheme

The city-based state-run United Bank of India (UBI) has launched an eight percent home loan scheme available till March 31 next year, a release said here on Tuesday. The bank would charge eight percent interest on home loan for the first year and nine percent for the second to fourth years. From the fifth year onwards, it would charge interest on a floating basis, which would be two percent less than the benchmark prime lending rate (BPLR) prevailing at that time, the release said. Under fixed rate, the bank would charge one percent less than the BPLR and the interest rate would be revised every five years, it said. ‘United Bank of India announced reduction in interest on ‘Car Loans’ by one percent on the card rates up to December 31, 2009, and to add to the toppings, it also announced waiver of processing fees on car loans during the period,’ the release added.

Delhi Based Developer Ansal API Plans to Raise Rs 650 cr via QIP

Delhi-based real estate developer Ansal API will raise around Rs 650 crore through a qualified institutional placement (QIP) in February, 2010, a banker involved in the process told FE. The company has mandated IDFC-SSKI as its lead banker for the slated QIP. In June, the board of directors of Ansal API had decided to seek the approval of shareholders to issue equity shares, to qualified institutional buyers to raise up to Rs1,500 crore. The company had informed the same to the Bombay Stock Exchange (BSE) as well.

Now, after weathering the slowdown and assessing its financial requirement, the company has decided to go ahead with a QIP of just Rs 650 crore, a company official said. The realty firm is also planning to increase the limit of foreign institutional investors’ (FIIs) in the company to 49% from the present limit of 24%. When contacted a company spokesman said, “We do not comment on market speculation.”

The funds raised through the QIP would be mainly used to retire the company’s debt of Rs 1,000 crore and fund its Rs 2,000 crore megapolis project. This QIP will also be used to partly fund and support the two large hi-tech integrated townships consisting of hotels, buildings, shopping malls, IT parks and group housing in Lucknow and Dadri. Ansal API, which has built Ansal Plaza, Delhi’s first mall owns majority of commercial real estate in Connaught Place. The promoters of the company feel that via QIP they will be able to mobilise funds faster as there are fewer formalities with regard to rules and regulation, as compared to other rights issue.

Reeling under acute cash crunch, a host of real estate companies are now resorting to QIP and preferential allotment of warrants to promoters to strengthen their cash balance. Realty firms like Unitech, Parsvnath, Sobha Developers, HDIL, Puravankara, Anantraj Industries, Akruti City and Orbit Corp are looking to raise additional long-term funds through sale of shares, mostly through QIP, where shares are sold to institutional investors.