Indian Property News on 'July, 2010'

No Change in Home Loan Rates for Now

Retail bank customers need not worry about any rise in the equated monthly installments (EMIs) on their home loans with banks expected to absorb the rate hikes by Reserve Bank of India. The special home loan rates of banks will continue for now. OP Bhatt, chairman and managing director of State Bank of India, said their special home loan rate of 8 per cent is open till September 30. “We will take a call at that time,” Bhatt said.

Private banks, which had a special home loans scheme of 8.25 per cent, may continue for a while as CEOs of all large banks agreed that raising lending rates is not immediate on their agenda. If banks keep their rates static, housing finance companies like HDFC and LIC Home Finance will also follow suit to keep the rates at present levels.

“Home loan rates will not be impacted immediately. Everything will depend on what action banks take on the pricing of their retail loans. Our special schemes are on till the end of August after which we will take a call depending on the interest rate situation at that time,” VS Rangan, executive director of HDFC, said. HDFC has a fixed and floating rate product that keeps interest fixed at 8.25 per cent for the first year and 9.25 per cent for the second year and from the third year onwards it reverts back to the prevailing rates of interest.

Axis Bank, which is active in retail loans, is also unlikely to inflict any change in lending rates. Shikha Sharma, chief executive officer and managing director of Axis Bank said deposit rates would rise faster than lending rates. “Retail and corporate loans are expected to post robust growth in the coming quarters and lending rates will rise but not immediately,” said Aditya Puri, managing director of HDFC Bank.

Chennai-based Oriental Hotels Ltd Plans Expansion

Chennai-based Oriental Hotels Ltd is planning to expand its footprint by adding more hotels. The company will add two more properties to its existing eight in the next two years, when its total room inventory will be 1,250.

Currently, the company’s eight properties are managed by Taj. The proposed properties in Coimbatore and Bangalore will also be managed by Taj. While the Coimbatore property, which is likely to be up and running in the next few months, will have 180 rooms; its property in Bangalore will have 200 rooms and will come under the ‘Gateway’ — the mid-market brand of Taj. Besides, Oriental Hotels is also in the process of renovating and upgrading its hotels in Chennai — Taj Coromandel and Taj Fisherman’s Cove.

The company has invested Rs 178 crore in the last of couple of years for the ongoing renovation and expansion and has committed another Rs 160 crore over the next two years. Recently, the company acquired a 126-room property in Thiruvananthapuram as part of its upper upscale category hotel. Over a period of time, the company also has accumulated six acres in Sriperumbudur near Chennai, four acres in Mysore and six acres in Gundu Island off Kochi, and two acres in Coonoor. “This lends immense potential and flexibility to our growth plans. We will unlock this at an opportune time,” says D Varada Reddy, Managing Director. The company posted a turnover of Rs 48.27 crore for the quarter ended June 30, 2010 against Rs 36.94 crore in the corresponding previous year period.

Sobha Developers Reports Whopping 170 per cent Hike in Q1 Net Profit

Real estate firm Sobha Developers has reported a whopping 170 per cent jump in net profit for the first quarter of the current fiscal at Rs 34.3 crore, on the back of a 78 per cent increase in total income.

The Bangalore-based firm had reported Rs 12.7 crore net profit during the quarter ended June, 2009, it said in a release. Total operating income of the realty firm increased to Rs 318 crore during the reporting quarter compared to Rs 178.6 crore in the corresponding quarter last fiscal.

Property Market in Developing Economies Outperform Europe, UK and US

Property markets in the more dynamic economies of South America, Asia and Eastern Europe are outperforming those in the United Kingdom and Eurozone, according to the RICS Global Commercial Property Survey for the second quarter. The Survey suggests that real estate performance in the United States has shown a marked improvement while in Latin America the commercial property market continues its bull run.

Respondents in Peru and Brazil were most upbeat, topping all in the Americas for both rental and capital value expectations. Survey respondents in Canada currently view the market as stable. “The real estate world continues to be split, broadly speaking, between the emerging and developed economies,” said RICS chief economist Simon Rubinsohn. “Strong growth in many of the former, including the likes of Brazil, Hong Kong and India, is continuing to boost demand for new space from occupiers as well as encouraging investment activity. Meanwhile in many of the latter, fiscal retrenchment allied to bank deleveraging continues to place significant obstacles in the way of a meaningful recovery in the commercial property market.”

Occupier demand is rising in the majority of countries across the globe with the notable exception of the UK and Eurozone countries where the tough measures that have been taken to reduce fiscal deficits appear to be having a more pronounced impact on the appetite of businesses to take up new space. Significantly, France is bucking the negative Eurozone trend with more material signs of an upturn in sentiment towards real estate reflecting, in part, the relatively resilient performance from the domestic economy. Property professionals in the United States reported a rise in tenant demand across all three sectors for the first time in three years.

Brazil is leading the way with the net balance of property professionals reporting a rise in occupier demand moving from 70 percent to 85 percent with markets in Peru and China also performing well. By way of contrast, demand in the UK turned negative for the first time in a year with the net balance falling from a positive 14 percent to a negative 4 percent while the net balances in Spain, Germany and Greece are all in negative territory.

Indicators in China remain strong despite measures introduced by the Chinese government to address the property boom. Indicators for occupier demand, rental expectations and the number of investment bidders per property all remain firmly in positive territory. Elsewhere in Asia, the latest numbers from India suggest a strong showing from real estate in the second quarter despite the increase in interest rates.

Looking forward into the third quarter of 2010, sentiment toward capital values is particularly strong in France, Peru and Brazil while property professionals are most optimistic on rental increases in Brazil, Hong Kong and Peru.

DLF Records 3.78% Rise in Consolidated Net Profit

Aided by higher sales realisation, India’s largest real estate company DLF Ltd on Wednesday recorded a 3.78 per cent increase in its consolidated net profit for first quarter of the current fiscal at Rs 411 crore. The net profit was Rs 396 crore in the year ago period. According to a DLF statement, the sales and other receipts were up nearly 23 per cent Rs 2,028.53 crore.

The DLF board has also approved issue of equity shares by its wholly owned subsidiary DLF Brands to a promoter group company, subject to shareholders’ approval. Following the approval, DBL will cease to be a subsidiary of DLF. “The move is in line with the strategic objective of DLF to exit the non-core business,” it said, but did not give further details of the transaction.

A 37.5 per cent increase in ‘other income’ at Rs 132 crore (Rs 96 crore) also helped improve the bottomline. The growth in net profit was despite an increase in finance charges and higher tax expenses. The finance charges for the quarter under review increased 35 per cent to Rs 388.44 crore (Rs 287.3 crore). Tax expenses grew 69.5 per cent to Rs 167.86 crore (Rs 99.3 crore).

RBI to Consider Prudential Provisioning in November

Subir Gokarn, deputy governor of the Reserve Bank of India, spoke with DNA on the state of monetary affairs. He said he doesn’t see a realty bubble now, but the central bank will consider prudential provisioning in November – though it does not rule out an early clampdown if the situation rises. We are back to, if not above, the 2007 peak in real estate prices. What’s the RBI’s position on realty prices? We haven’t seen you beginning to stamp down using provisioning.

Just two aspects on that — one is that from a monetary perspective, the only way to deal with real estate prices is to reign in liquidity, to raise interest rates, to make borrowings more expensive – in short, make money less attractive. We have started doing that. Now we have broken up the cycle — into half-yearly ones where we take monetary and policy-related actions, and the quarterly cycles where we take only monetary actions. So, the provisioning issue would typically be done in either the April or the October-November policy.

Obviously if we feel there is some crisis growing we can act any time. but we assessed the situation and decided that there wasn’t enough evidence of runaway price increases that warranted an out-of-schedule action. If the situation becomes prominent as we prepare for the November 2nd review, we will certainly take this into consideration and as we have done in the past, the issue of prudential regulation may well be the right instrument to do it. But, at this point of time, it is difficult to say — it is possible that liquidity constraints may act to moderate realty prices.

We’d like to add a corollary to that question. You have increased policy rates, but banks aren’t likely to move on lending rates soon. For example, take the special home loan schemes that continue. Are banks lending into, or helping build, an asset bubble?
I am not to get into the specifics of sectoral lending. But the broad issue is that when you are in a situation of excess liquidity it’s relatively easy for the banks to continue to lend in the same way.

We are not in that situation any more.It is important to recognise that what you have seen for the last six months – that liquidity scenario has changed. We are watching on how quickly and to what extent banks are going to respond to this. That they will have to respond is quite clear because if they are to hold on to rates in the face of both credit and liquidity demand, they will be squeezing their margins. We expect the scenario in the second half to be different from what it was in first half because of this transition in liquidity. I cannot answer on asset price bubble.

On the mid-quarterly review decision, does it mean faster baby steps? It means two things. One is that if we had to express will towards smaller steps and calibraated actions, the trade-off is that we had to do it more frequently so in that sense we think giving ourselves more flexibilty in acting on schedule rather than having a quarterly action and taking actions mid-cycle. We wanted to give ourselves that flexibility. We are actually formalising a process that was already exists informally — that is, in the middle of the quarterly cycle we do take a review and based on that we took action in March and July. It gives us flexibilty and predictability. This is not to say that every review will result in an action but this will give an opportunity to communicate what we will see in the six-week period.

FKCCI Opposes FDI in Retail

The blood of 160 million Indian families will be on the Centre’s hands if it allows foreign direct investment (FDI) in the multi-brand Indian retail market, corporate consultant and economist S Gurumurthy has said.

Addressing the Federation of Karnataka Chamber of Commerce and Industry (FKCCI) on the dangers of FDI in retail market at a city hotel on Tuesday, he said the West was trying to hoist a failed system on India, which had strong familial and savings culture helping it withstand the recent economic turbulence caused by the ‘consumerist America’.

He said India had about 125 lakh retail (kirana) shops, which sustained 16 crore people. The proposal to allow FDI in the retail space was a great tragedy-in-waiting, he said. “The US economy based on heavy borrowing and virulent consumerism has collapsed. They desperately need to prop up their retail trade in overseas markets, especially India, where retail trade has grown 9.13% annually, higher than the GDP growth of 7.68%,as per the Central Statistical Organisation (CSO),” he said.

While India, like Japan, might resist the new move thanks to the prudent spending habits of the people, it might take away the 5-6% of the premium retail market that caters to the higher echelons of society. “This in itself is a big loss,” he said. The FKCCI has, in its position papers released on Tuesday, decided to take up a strong stance against the FDI in retail in the interests of the Indian economy. Federation president NS Srinivasa Murthy said that retail trade, the second largest employer after agriculture in India,ought to be protected against the onslaught of transnational companies.

Presenting the retail scenario, Gurumurthy said even Goldman Sachs had come to the conclusion that the Indian retail market was geared up for phenomenal growth. He said the western traders were smacking their lips in anticipation of exploiting this market that, if permitted, would deny 160 million families a source of living. If FDI was allowed, only about 4,4000 people would get jobs in the Walmarts. Indian retail sector was a homegrown enterprisethat evolved in the social andcultural setup characterised by familial bond and saving habits, he said.

Mid-Cap Real Estate Firms Expected to Post Mixed Trend in June quarter

Mid-cap real estate firms are expected to post a mixed trend as spiraling prices hit affordability and new launches tapered in the April-June quarter. A Reuters’ poll of brokerages estimates Anant Raj Industries to post a 47.79 percent fall in net profit, Housing Development and Infrastructure a 49.26 percent rise and IndiaBulls Real Estate a 114.44 percent rise.

“There would be a year-on-year growth, because of the low base (of previous year). Secondly, margins will go down as product mix has changed, with lot of sales happening in mid-income sector, where margins are lower…,” Param Desai, analyst at Angel Broking, told Reuters.

Apartment registrations in Mumbai fell by 25 percent month-on-month in May to 5,337, the lowest in last 11 months. The decline is largely due to high property prices, which adversely affected affordability, he said.

The National Capital Region, the other large real estate market, also experienced a similar trend, a Mumbai-based analyst, who declined to be named, said. Prices were higher by 15-60 percent in Mumbai during the quarter from that a year ago, while prices in NCR were higher by around 35-50 percent during the quarter, he said. Traditionally, April-June is a “subdued” quarter with no new launches due to the rainy season, Angel’s Desai said.

Property absorption in India’s key metros registered a mixed trend in April-June. The quantum of new launches tapered down in comparison to that in second half of FY10 and the same quarter last year, Religare Capital Markets said in a note to clients. In Mumbai, absorption declined month-on-month, as spiralling prices hit affordability, whereas southern cities and places like Gurgaon registered an uptick in absorption, it said.

Companies like HDIL, Lodha Developers and Anand Raj Industries had key launches during the quarter. “We believe that our real estate universe may deliver some negative surprises in Q1FY11, given the absence of significant new launches and overall low construction activity because of the heat wave in north India,” Religare Capital said. It expects Phoenix Mills and Indiabulls to “surprise positively”.

A Mumbai-based analyst said that developers were focusing on execution of projects, which have been pre-sold. This would help in bringing in revenues, based on a percentage of completion method, in the quarter. “With a robust economy and job market, we expect prices to remain robust and underlying demand steady (quarterly variations not withstanding)…,” Edelweiss Securitied said in its outlook for 12 months.

There is an increase in construction activities, while non-resident Indian investors and speculators are returning to property markets, it said. Stability in residential prices is expected (with an exception in certain markets) and an up-tick in commercial segment is expected by FY’11-end, Angel Securities said in its note.

DLF, Unitech, Emaar & Ansal Gearing up to Launch Plush Homes

Yet another piece of the real estate market appears to be getting back in shape. After realtors focused on the affordable housing space, where demand remained reasonable when market prices crashed two years ago, they are now launching luxury homes as the segment is witnessing early signals of an upswing in demand. Sensing this turnaround, a host of property developers including DLF, Unitech, Emaar MGF and Ansal API are gearing up to launch plush housing projects, where a single unit costs upwards of Rs 2 crore, over the next six months.

“Now that the job market is looking up, consumers are once again regaining the confidence to put money in swank projects,” said Shravan Gupta, executive vice-chairman and managing director at Emaar MGF. The Delhi-based property developer plans to launch around 2,000 upscale units over the next six months across cities such as Gurgaon, Hyderabad, Punjab, Bangalore and Kerala.

Unitech, the country’s second-largest builder, which had focused on affordable housing space, too plans to launch a few luxury projects to target high-end home buyers. Unitech spokesperson said it has a few projects in the works in the luxury housing segment located in the national capital region. Luxury homes are targeted towards high net worth individuals and the price range of such apartments varies from city to city. While in metros such as Mumbai and Delhi, the cost of such high-end houses can begin from Rs 2 crore, in tier-II cities they can be around Rs 1 crore and above.

Builders in this category focus on fully-embellished apartments, which can be further customised to the individual buyer’s preferences. Pranav Ansal-led Ansal API plans to launch a mix of high-end villas and apartments in Lucknow and NCR by the end of 2010. While they are coming up with a golf course property in the price range of Rs 3-7 crore in Lucknow, in Gurgaon they are launching villas in Esencia township in the bracket of Rs 6-7 crore.

Anil Kumar, deputy MD & CEO at Ansal API said the rising aspiration levels of consumers in India is the major factor propelling growth in the luxury realty segment. “More than expensive and stylish interiors and fittings, today consumers are looking for more environmental-friendly features which are becoming luxuries for a better quality life and they are ready to pay for them,” he said.

India’s biggest realtor DLF recently sold super luxury flats in the price range worth Rs 4 crore each in central Delhi. Besides, it also launched at least three high-end projects in Gurgaon including Park Place and Golf Links, which too were reportedly sold off within days of launch.

Anurag Mathur, MD at real estate services firm Cushman & Wakefield, said: “Prices of luxury homes in general has touched the peak level of 2007, while in some places such as Gurgaon and Mumbai, they have exceeded the 2007-prices.” As per estimates of Cushman & Wakefield, over 8,000 residential units in the luxury segment are expected to be ready by 2013. The total supply expected this year will be 85,000 units of which about 14% will be luxury projects.

Real Estate Regulation Act can Increase Housing Prices by Rs 300 per sq ft- CREDAI

The Confederation of Real Estate Developers’ Associations of India has expressed reservations about the proposed Model Real Estate (Regulation of Development) Act in its present form, saying it could lead to an escalation of prices of housing stock in the country by Rs 300 per sq ft. The bill would be placed before Parliament soon.

Terming it a draconian bill aimed at strangulating developers alone, CREDAI vice-president Prakash Challa told reporters on Tuesday, “We are not opposed to having a legislation to regulate the real estate sector. But the proposed legislation, in its present form, would be detrimental for the industry. If the cost of projects go up, the sufferers will be the end customers. Real estate is already an overly regulated sector. The best way to make housing affordable to all is to liberalise the sector by introducing a single window clearance system for projects, clubbed with a rationalized tax system. The very concept of affordable housing will be a failure if cost escalates by roughly Rs 300 per sq ft on account of introduction of the regulatory bill.”

Challa said the bill would lead to multiplicity of procedures, which would result in enormous delay in starting residential projects, leave alone completing them. He said even after the builder obtains all statutory approvals from the existing regulatory agencies like the Chennai Metropolitan Development Authority, the Directorate of Town and Country Planning and the environmental department (for big projects), the proposed bill says the builder will have to get clearance from a new regulatory authority. It would only delay works, he said.

Listing out major factors in the proposed regulatory bill that would add to the cost of projects, CREDAI Tamil Nadu president T Chitty Babu said, “As a case study, if we look at a project spread over three years, which costs Rs 2000 per sq ft for construction and Rs 1000 per sq ft towards land cost and other approvals, the delay in commencement of construction would increase the cost by Rs 38 per sq ft, necessity to provide a bank guarantee of five per cent of the project cost would add Rs 40 per sq ft and increase in cost on account of payment of additional stamp duty (The buyer ends up paying two registration fees as per the new bill) at the time of booking an apartment is Rs 108. The bill also wants the builder to open an ESCROW account and maintain the entire funds required for construction of the project in that account.”

Challa noted that while the bill prescribed imprisonment for the builder who is not able to provide basic services like power, water and sewerage connections on time, it was silent on what punishment would be meted out to the service providers like TNEB and Metrowater Board if they delayed giving connections. “If the bill is implemented in the current form, even for the service providers’ fault, the builder can be imprisoned,” he lamented. Also, the bill does not prescribe any penalty for the delay caused by the regulatory agencies (CMDA and DTCP for example) in giving approvals for the project, he added.