Indian Property News on 'May, 2010'

Mumbai Real Estate Gearing Up- JLLM

Anuj Puri, Chairman & Country Head, Jones Lang Lasalle Meghraj (JLLM), shares his views on Mumbai real estate. Let me take sector wise and let’s begin with the office sector. In the office sector, we saw 2007 as the best year in terms of demand. We are about 32 million square feet of Grade A office space leased out in 2007.

Since then, we have only seen a decline. So 2008 would come down to 28 million and then 2009, we were as low as 21 million. On the other hand, the supply which is the new real estate office just gathered momentum and there was a lot more supply on office space that was being built out in India compared to the demand which was going down. 2010, we have seen a gearing up of demand and from 2009 of about 21 million square feet, we are looking at 28-29 million square feet of demand, still lower than what it was in 2007 of 32 million square feet.

A lot of this demand is coming in from telecommunications sector, from infrastructure companies, from pharmaceutical, from a lot of Indian corporates who wish to consolidate and that is largely coming into Delhi, Bombay and Bangalore. If we were to move into the residential sector, again these three cities have led the race from middle of last year on the demand as well as the pricing across the residential sector. In a city like Bombay, we are almost reaching peak value of pricing which had gone down by 25-30% during the downturn and quickly we have come back not only on the demand but also on the pricing.

The rest of India is not following the same tone in increase in the demand and the pricing on the residential sector. The retail still remains weak. There is demand that is coming up from some of the new Indian corporates who have got into the retail sector, the existing retailers, some of the foreign retailers who are looking to expand in India but still remains lacklustre compared to the supply that is going to hit this year and next year.

Godrej Properties Looking at Residential Project Launch in Gurgaon

Godrej Properties is eyeing redevelopment projects in Mumbai suburbs this fiscal even as it is looking at raising money through equity dilution in next 18-24 months. Adi Godrej, chairman, said, “At present the promoter holding is at 84 per cent and going forward we need to raise further capital. We are open to qualified institutional placement and private equity at the parent level also.” The company last year delivered 3.9 million sq ft and booked 1.89 million sq ft. Total income during the last fiscal was up 53 per cent at Rs 456 crore.

It is at present executing projects with a margin of 25-30 per cent and has 54 million sq ft in ongoing development while a total 82 million sq ft has been firmed up. Godrej is also looking at residential project launch in Gurgaon and surrounding areas and is scouting land for it. Milind Korde, managing director, Godrej Properties, said, “We are looking at NCR Gurgaon region. We will also launch two townships in Kalyan and Pune. The Kalyan one is extension of our old project for which we are acquiring over 100 acres and in Pune we are consolidating around 200 acres.”

The company will also launch projects in four new cities this fiscal — Kochi, Mangalore, Chennai and Hyderabad with a residential portfolio of 80 per cent. Though management did not disclose the area, it will launch 700 units in each project with an average size of 1100 sq ft. The second phase of its most ambitious project, the Ahmedabad township project, will be launched in the first quarter. It has already sold 1.3 million sq ft in the first phase. It wants to strengthen its presence in Mumbai, Bangalore and NCR.

Though the company did not disclose the amount paid for the land acquisition and joint development rights, analysts expect the debt to equity ratio of the company to go up significantly. Godrej said, “The debt portion will go up but we will keep a check on what is the comfortable ratio for us. The present debt cost is 10.5 per cent while debt to equity ratio is 0.54.” The company’s net profit rose by 64 per cent at Rs 123 crore due to substantial increase in its other income through stake sale to private equity investors in various projects, which is close to Rs 182 crore.

Jaypee Group to Enter into Healthcare Industry

Infrastructure behemoth Jaypee Group, with revenues in excess of Rs 10,000 crore, is set to enter the healthcare industry. The diversified group, with presence in power, cement, hotels and education verticals, will soon be launching its flagship hospital in Noida, Uttar Pradesh, DNA has reported, citing industry sources. The multi-speciality tertiary care hospital will be titled Jaypee Medical Centre Noida.

“It is a part of the group’s ambitious township project called Wish Town, spread across 1,162 acre, in Noida’s Sector 128. Featuring 415 rooms (500 beds), the medical centre will offer advance healthcare facilities and latest diagnostic services,” said a source. Industry sources said the healthcare foray is a logical extension of the company’s realty business, which mainly comprises large township developments in north India. The group’s ambitious infrastructure projects include the Yamuna Expressway (formerly Taj Expressway), a six-lane (extendable to 8-lanes) access-controlled road that is expected to reduce travel time between Delhi and Agra, connecting them via Mathura.

“The group has five land parcels at various locations on the Yamuna Expressway development. These land parcels will largely be used for residential and commercial developments and are very likely to have education and healthcare facilities,” said the source.

State Bank of Patiala to Extent its 8 per cent Home Loan Scheme

State Bank of Patiala has extended its teaser rate scheme of 8 per cent on home loan till 30th June, 2010. Under this loan scheme, SBOP offered fixed rate of 8 per cent for the 1st year and 9 per cent for 2nd and 3rd year and thereafter prevailing rate linked with BPLR/ Base Rate. The maximum tenure is 25 years.

New projects worth Rs 160 crore to boost Haryana industry

Haryana State Industrial & Infrastructure Development Corporation Limited (HSIIDC) organised a business contact programme at its Delhi office on Tuesday. Rajeev Arora, managing director of the corporation informed that 17 term loan proposals worth Rs 80 crore were contemplated during this meeting. When implemented, these projects are likely to catalyse an investment of over Rs160 crore besides generating valuable employment and revenue for the state exchequer.

With an objective to provide term loan assistance and to disseminate information regarding financial and other services of the Corporation to the entrepreneurs, HSIIDC organised business meet which received an overwhelming response and representatives of a various companies discussed their financial assistance proposals. Many prospective entrepreneurs and prominent industrialists were invited for discussions with their proposals to avail financial assistance from HSIIDC to part finance their existing / new projects by way of general term loans, corporate loans, equipment finance and working capital term loans, industrial infrastructure development loan etc.

Arora informed that the interaction with entrepreneurs also provided a platform to HSIIDC to get required feedback which helped the Corporation to recast its policies & strategies to match the growing requirements of industry. The business meet is necessary to understand the changing needs of the industry and the problems faced by them besides providing services to entrepreneurs at their door steps, he added. The Corporation regularly holds such business meets from time to time to help entrepreneurs to meet their financial requirements expeditiously.

Govt to Implement Kochi IT Project

Kerala chief minister V S Achuthanandan said his government will implement the Smart City IT project in Kochi if its promoters, Smart City Dubai, do not do so. “They are having financial problems but they are not admitting that. Anyway we have decided to give a bit more time to them. And if they do not come forward, then we are committed to take forward the project,” he told reporters on the fourth anniversary of his government.

The chief minister had laid the foundation stone for the Rs 1,500 crore Smart City Kochi project just before the first anniversary of his government. Since then, there has been no progress in the project as the two sides are at loggerheads over freehold rights for the developer over 12 per cent of the land allotted to the project. Smart City Dubai wants the government to stick to the agreement providing 12 per cent freehold rights (around 30 acres of land out of the 246 acres). The government is adamant it will not allow any real estate dealings on the land.

Fisheries minister and chairman of Smart City Kochi S Sarma said if the promoters were expecting to do real estate business then they were mistaken. “The delay in going ahead with the project is baffling and there is suspicion they are purposely delaying. This endless wait is not going to be accepted,” said Sarma.

Ansal Expecting Sales of Rs 1,700 cr from Gurgaon Township

Ansal API, the New Delhi-based real estate player, is looking at launching a 112 acre township in Gurgaon, Delhi, with expected sales of Rs 1,700 crore, a senior official said. The company would invest up to Rs 1,300 crore to build the township in phases and would fund the investment through customer advances, the official said. It has already invested Rs 400 crore for the land acquisition. The developer has received sanctions of Rs 125 crore from HDFC Bank. “This is the first township to be rated as a green project by GRIHA, which is promoted by the ministry of new and renewable energy, and we expect all our new projects to be rated by them.

The costs do go up by 5-7% as you use more expensive technology like solar power, etc, but project gets more credibility and are environment friendly,” Ansal API managing director Pranav Ansal said. The units in the luxury project would be priced between Rs 50 lakh and Rs 5 crore, and includes villas, flats, apartments and plots. Ansal has a debt equity ratio of 1:1 and the company believes it is at a comfortable position to service debt from regular business operations and is not immediately looking to raise funds through equity dilution or qualified institutional placement of shares.

Ansal is also looking to launch 1 million square feet of commercial and retail space in Lucknow and would invest Rs 200 crore to construct it. “We have seen rentals stabilising in the last 6 months, and in areas such as Delhi and Gurgaon they have increased by 10-15% in the last quarter. We have over 10 million sq ft of commercial and retail space in the Delhi region alone, and we have couple of commercial projects coming up this fiscal,” a senior Ansal official told DNA. The developer is currently working on 19 townships focusing on the residential sector, which includes two mega townships – the 1,765 acre Sushant Golf City, Lucknow and 2,504 acre Megapolis Dadri, Greater Noida. It has received Rs 410 crore as advances from sales in its Sushant City project and has bought land for the first phase in Megapolis. The townships are expected to clock in sales of Rs 330 crore in fiscal 2011 and Rs 400 crore in fiscal 2012.

RE/MAX Expands Operations in Mumbai

RE/MAX is now making inroads in Mumbai and other parts of Maharashtra. The U.S headquartered real estate brokerage franchise is currently identifying franchisees and real estate agents in Mumbai, Pune, Nasik & Aurangabad who would operate in the local, national and global real estate network of RE/MAX. RE/MAX is also promoting Franchise India’s Franchise & Retail Opportunity Show (FRO) which is going to be held in Mumbai on May 22nd-23rd 2010.

RE/MAX, among other things, brings the network support needed for real estate transactions by selling franchise offices to provide a variety of real estate services. These franchise offices would further appoint real estate agents and provide them with network, training, technology, real estate referral system and marketing support. RE/MAX has already expanded its footprints in Chandigarh, Delhi NCR, Rajasthan, Gujarat, Madhya Pradesh, Vidarbha, Punjab, Karnataka, Kerala, & Tamil Nadu. RE/MAX is an international network of independently owned and operated offices offering a variety of real estate services; Based in Denver, Colorado, RE/MAX has presence in about 80 countries and has around 7000 offices, with 1,00,000 real estate agents across the world. RE/MAX has entered in India in April last year to join the league of many International Property Consultants who are trying to bring some organization in the highly compelling but unorganized Indian Real Estate Brokerage Market.

Mr. Samir Chopra, Executive Director, RE/MAX India said – “Through RE/MAX, we are trying to bring many educated and professional people in the lucrative business of real estate transactions and connect them with our national network of about 50 Offices across the country and 7000 offices across the globe.”

RE/MAX in consultation with Francorp is also planning to introduce an autonomous curriculum on real estate education which will blend classroom learning and practical experience to create career opportunities in the field of real estate education.

Manan’s quote – “RE/MAX is looking to appoint 200 Franchisees and 2000 real estate agents across Maharashtra, we are on a lookout for the best people to represent the World’s No. 1 Brand in Real Estate, we are looking for good administrators with a rock-solid local network. To find the right people, we found FRO as the best Launchpad possible as it provides brands like RE/MAX with an opportunity to showcase the Business opportunity to thousands of prospective entrepreneurs at a single point and in turn helps these individuals to make an educated decision.”

Franchise & Retail Opportunity Expo (FRO), to be held in Mumbai at Nehru Centre on May 22nd- 23rd, 2010, comprises of a comprehensive exhibition and multiple conferences and workshops on franchising, retailing and licensing covering the dynamics of SME sector, drawing thousands of business visitors not only from Maharashtra but from all over India along with the neighbouring countries. Over past 6 years, the show has been registering 30% repeat footfalls over two days with rest 70% being the unique count each day. Supported by Indian Franchise Association and organized by Asia’s largest integrated franchise and retail solution company, Franchise India, FRO Mumbai displays Indian and global brands giving a broad perspective on franchising within the prominent SME sector highlighting the leading concepts and know how in franchising comprising the entire fraternity under one roof.

If you want to learn a new way of doing a business through franchising then RE/MAX brings a far-fetched platform by introducing a unmarked concept of real estate franchising. All can be experienced during FRO Mumbai show so be a part of it.

Fund Flows into Housing Space

Fund flows to the real estate sector is more in the residential segment than in the retail and commercial space. This indicates a half-baked recovery for the industry than a complete turnaround. “As a matter of strategy, bankers are not bullish on the commercial segment of the real estate industry due to higher surpluses in the segment. Today, it is perceived as a high risk exposure due to the slow pick up for leased out property,” H S Upendra Kamath, executive director, Canara Bank said.

Canara Bank, which has less than Rs 2,500 crore exposure to the commercial real estate sector, has funded most of the projects in the residential space, he added. He also said that as demand was sound in the residential space with a good advance flow in the housing loan segment, banks were more willing to lend to this vertical. A top executive of a housing finance company echoed similar sentiments. “As inventory level is high in commercial space and retailers are yet to be back on expansion mode, lending to these segments has a risk factor attached to it,” he said.

According to property monitor DTZ research data, Bangalore developed around 11 million sq ft of commercial space in 2009 but absorption was just 4 million sq ft which is 60 per cent lower than in 2008. DTZ predicts vacancy levels across six major cities are likely to rise during the first half of 2010 and is expected to stabilise in the second half of the calender year. Also, as per ‘India Organised Retail Market’, a report based on a seven-city study by property advisory Knight Frank India Pvt Ltd, space in the retail space is expected to touch 21 million sq ft in the next two years.

“Loans for new office space and retail have become more expensive over the last 18 months and has resulted in a drag on the flow of funds to the verticals,” Goutam Chakra-borty, regional director, Colliers International. Looking at the high inventory levels, both in commercial and retail space, even private equity funds are taking a safe bet in residential segment. “With quick returns and better yield on investment, most PE funds are putting their money in residential space than in commercial or retail segment,”S Baaskaran, chief financial officer of Bangalore based Sobha Developers said.

PE funds, which eye a return of 25-30 per cent on their investments, don’t want to invest in commercial space due to the long gestation period, he added. Referring to a change in the pattern of fund flows in future, he said, “Fund flows will be more to the residential segment in near term without any possible indication of change in the long term for the commercial and retail verticals.” However, some of the developers have a different opinion on this issue. “Lenders are selective about funding not from the vertical point of view but as per prospects of a specific project. So, there is no specific pattern of funding to any of the verticals of the real estate sector,” Anil Kumar, chief financial officer of Bangalore based Mantri Developers said. He also said that developers with sound lease rental securitisation deals were attracting enough funding from institutional lenders.

BPTP comes up with Real Estate IPO

With Nitesh Estates’ IPO and subsequent listing confirming the deep downtrend India’s realty sector is facing in the capital markets, and with many of the bigger pending realty IPOs like EmaarMGF & Lodha Developers getting indefinitely postponed, the prospects of BPTP that recently received Indian market regulator SEBI’s nod for a Rs. 1500 crore IPO has turned dimmer.

Domestic and foreign investors in the country’s capital markets have been literally hunting to find a real estate firm that can be comparable to India’s bellwethers in corporate governance like Infosys or TCS, but with no avail. One by one, most of the already listed and soon-to-be listed real estate companies have failed to live up to their expectations, right from industry leaders DLF & Unitech to smaller players like Nitesh Estates. The problems include their non-transparent accounting, overvalued land-banks, mounting customer complaints, confusing demand-supply situation, reluctance to address mass housing, colossal debt levels, and silent but massive levels of equity dilution.

BPTP’s IPO proposal has been a singularly problematic one in these regards, as a Central Minister of India had clarified in Parliament’s Upper House that market regulator SEBI had received complaints regarding non-disclosures in BPTP’s offer documents.

However, despite all these factors, many of these listed and unlisted realty firms have been very successful in attracting foreign institutional investments. BPTP’s case is a typical example.

When first generation entrepreneur Kabul Chawla led BPTP, an NCR-Delhi based realty firm goes for its IPO shortly, all eyes will be on how the firm’s substantial overseas equity partners will act to maximize their returns. The company has a significant exposure to foreign equity that includes 10-12% equity at the corporate level and ranging from 17-50% at the SPV level.

BPTP has a pan-NCR portfolio of 57 projects of which 17 have been launched or are in the ongoing stage. Of these, 31 projects belong to the Project Parklands integrated township at Faridabad Properties. BPTP projects are spread across such NCR hubs like Gurgaon, Noida, Greater Noida, & Real Estate Faridabad.

36-year old Kabul Chawla is known for his quick moves in the industry, examples being the stake sale to key international investors like Citigroup, JP Morgan Chase, & Merrill Lynch. However, such rapid moves have often invited trouble too with the most infamous being undertaking the largest land deal in the country at Noida for over Rs. 5000 crore, even overtaking DLF, but only to back off months later as the property bubble burst and BPTP was unable to raise the required funds. Finally, BPTP retained only 25% of the land – around 21 acres – for a now criticized figure of Rs. 1300 crore. The now announced IPO is for Rs. 1500 crore.

The firm is known to dip in profits in sync with the industry, but to recover quickly too, using quick rate cuts that drive sales. Once known for their luxury and commercial projects, as well as SEZ plans, BPTP is now focusing more on the affordable sub-25 lakh homes for the middle income segment, so as to maintain cash flows.

The IPO proceeds would go towards completing some ongoing projects, and repaying part of its high-interest loans. With a debt equity ratio of 0.73:1.0, BPTP seems a reasonable bet, but of course everything will depend upon the final issue price. But after the Nitesh Estates debacle, investors are not willing to count even on a seemingly low price. Investors have lost around 28% from Nitesh Estate’s IPO pricing, as of today (May 19th).

Though the IPO will provide an exit route for the foreign investors who hold a substantial stake, it is known that such a move won’t be imminent as there is a lock-in period of 1 year. This should present a favourable post-listing scenario for the short-term, provided the issue is completed successfully. At the same time this can present problems for serious investors and funds looking at long-term growth or tax benefits on capital gains.