Indian Property News on 'July, 2010'

Mahindra and Mahindra’s Real Estate Arm Clocks 39 Pc Rise in Net Profit

Mahindra and Mahindra’s real estate development arm, Mahindra Lifespaces, clocked a 39 per cent rise in net profits to Rs 14.48-crore in Q1 of FY 11, driven largely by good performance in the residential segment. The company’s net profit in the corresponding period last year was Rs 10.42-crore. The operating income of the company also registered a 44 per cent increase, rising to Rs 67.93-crore as compared to Rs 47.26-crore the year before.

“The growth in the commercial real estate has been subdued over the last year, but we have concentrated on residential real estate to compensate for it which has led us to good numbers,” company Chairman, Arun Nanda, said addressing shareholders at the firm’s annual general meeting here.

Consolidated sales of residential units stood at Rs 92-crore in the April-June quarter as against Rs 21-crore the previous year.

To further consolidate its hold on the residential market, the company has recently bought a 10-acre land parcel in Hyderabad which has a potential of 1 million square feet, Nanda said.

On the integrated townships front–under which the company develops a mix of commercial and residential property–the company has begun acquisition process for a 3,000-acre world city near Pune and 1,000-acre world city in Chennai near the port to focus on manufacturing units, Nanda said.

Credai Plans Action against Proposed Goods and Services Tax

Real estate developers apex body Confederation of Real Estate Developers’ Association of India (Credai) plans to file a case against the proposed Goods and Services Tax (GST).

“Currently we are collecting it from our customers which we don’t want to. Soon we will file a case at the national level,’’ the Credai National Vice-President, Mr Prakash Challa, told reporters on Tuesday.

He said the service tax would only escalate cost (to customers). Developers collect money either by charging 4.12 per cent of the construction cost or by collecting 10.3 per cent from the overall saleable value.

“We have spoken to our members (in this regard) and will soon file a case at the national level,” he said. He said the Government should refrain from introducing the Model Real Estate (Regulation of Development) in the present format as many clauses in it would affect the common man. “We welcome the Bill but not in the present format,” he said.

Upswing seen in Demand of Luxury Homes Signals

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 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, who had focused on affordable housing space, too plans to launch a few luxury projects to target high-end home buyers. Unitech spokeswoman 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 2 crore, in tier-II cities they can be around 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 3-7 crore in Lucknow, in Gurgaon they are launching villas in Esencia township in the bracket of 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 4 crore each in central Delhi. Besides , it also launched at least three highend 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.

RBI Likely to Raise Key Policy Rates

Faced with the menace of double-digit headline inflation, the Reserve Bank is likely to increase key policy rates by at least 25 basis points in its first quarterly review of the monetary policy on Tuesday, say bankers.

“I think there could be a small hike in the repo and reverse repo rate of say 25 basis points,” HDFC managing director Renu Sud Karnad told PTI.

High inflation rate may prompt RBI to tighten money supply by raising both short-term lending (repo) and borrowing (reverse repo) rate on July 27, say bankers.

“There is a clear bias for policy rates to move up for the reason that inflation is still very high and inflationary expectation is to be contained. The bias is going to be upward,” Union Bank of India chairman MV Nair said.

“At that point in time, if the funding cost goes up, then the base rate will also go up. During the year, there is a clear bias for interest rates to move up,” he added.

Punjab National Bank chairman KR Kamath said whatever decision RBI takes, the banks will respond accordingly. Kamath further said if RBI raises the cash reserve ratio, that would put pressure on cost of funds.

Earlier this month, RBI had raised the repo and reverse repo rates by 25 bps to tame inflation. Inflation is still in double-digits, led by high food prices and stood at 10.55 per cent in June. But food inflation eased marginally to 12.47 per cent for week ended July 10 from 12.81 percent previous week.

RBS managing director and head of markets Ramit Bhasin said RBI is likely to hike its short-term lending rate by 0.5 per cent to 6 per cent and short-term borrowing rate by 1 per cent to 5 per cent through 2010. “As we go forward, there would be higher capital inflows and the current liquidity crunch will ease much sooner than expected. According to our estimates, RBI is likely to up repo by 0.5 per cent and reverse repo by 1 per cent by December,” Bhasin said.

Kotak Mahindra MF’s Lakshmi Iyer said it is widely expected that RBI is going to hike rates by 25 bps.

Echoing similar view, Crisil chief economist DK Joshi said the focus for RBI in the near term would remain curbing inflation. “We expect RBI to hike the repo and reverse repo rates by 25 bps at on July 27,” Joshi said.

SEZ Developers Urge Govt to Retain SEZ Act

Special economic zone (SEZ) developers are peeved over the continued uncertainty created by the direct tax code (DTC) drafts, released by the union finance ministry, over tax benefits prescribed by the SEZ Act.

They want the central government to retain the SEZ Act, as passed by the Parliament, as they fear linking it with the proposed DTC regime, to come into force from April 1 2011, will eventually dilute the prescribed tax benefits. The second draft of the DTC, released on June 15, 2010, limits benefits under income tax, minimum alternate tax (MAT) and dividend distribution tax to only those units that exist or come into existence in SEZs by March 31, 2011.

Following the footsteps of SEZ developers in Andhra Pradesh, who successfully got chief minister K Rosaiah to take up their cause with finance minister Pranab Mukherjee, their counterparts in Tamil Nadu have now petitioned chief minister M Karunanidhi to plead their case before the centre.

In a memorandum submitted to Karunanidhi, Tamil Nadu Association of SEZ Infrastructure Developers (Tasid) has requested him to take up the matter on a “very urgent basis” and suggest the centre “not to implement the provisions or incorporate any provisions that will be detrimental to the growth and sustenance of SEZs”.

It pointed out that the recession had already significantly impacted “investment interest” of foreign investors even as the DTC uncertainty over the past year too had played havoc. “Any more delay in not removing the DTC uncertainty will only lead to more and more loss of investments as also jobs, export revenue and forex earnings,” Tasid said in its submission.

“The SEZ Act was passed by Parliament to bring in stability and offer a firm commitment on certain benefits to both domestic and foreign investors to make India a global destination for manufacturing.

Any attempts to tinker that commitment will impact the image of Brand India among global investing community,” said Sunil Rallan, president, Tasid.

“Our only request to the union government is to retain the SEZ Act in its present form and not to link it to the direct tax code. This will eventually lead to dilution of the SEZ benefits, thereby putting off prospective investors,” said NNR Sharavanan, vice president, Tasid.

Tamil Nadu and Andhra Pradesh are the two prominent states, besides Karnataka, Maharashtra and Gujarat that together account for a majority of notified SEZs in the country.

Tamil Nadu alone has 57 SEZs, of which 20 are operational, with an additional six set to join the league by end of December this year.

Unlike most other states, state-owned entities like Elcot and Tidco are in the forefront of promoting SEZs in Tamil Nadu through the JV and public private partnership route. In fact, Elcot alone is in the process of promoting eight SEZs, of which six of them are in tier II cities and it is likely to be impacted with the lack of assured tax benefits.

There are 574 formally approved SEZs across the country, of which 350 were notified as on February 26, 2010, and 111 were operational as on April 30. There are 2,761 units approved for operations in these SEZs as on December 31, 2009.

Chennai-Based Developer Sterling Springdale comes up with Pool Villas in Chennai

The Chennai-based developer Sterling Springdale Properties has come out with an exciting project offering independent pool villas amidst lush greenery less than an hour’s drive from the city. The project is being promoted as a good opportunity to invest in a farmhouse. The company is targeting the high-end executives working in and around the Sriperumbudur industrial cluster that houses automobile, telecom and electronic hardware companies.

“Under this project, we are offering 40 independent villas, with each villa coming with an exclusive swimming pool. We are the first in Chennai to come up with such a concept and that too so close to the city,” said R Sundaravelu, CMD, Sterling Springdale Properties.

According to him, the project is a gated community, with seven feet solid compound wall surrounding the project area, with an additional three feet barbed wire fencing, offering complete security to the households. The project is coming up at Ulundhai village, close to Hyundai EP, and is located just off the Chennai – Perambakkam road, close to Mannur junction, where the Sriperumbudur -Thiruvallur road crosses. “Each villa comes with a minimum land area of around 4,300 sq ft and a minimum built-up area of around 2,700 sq ft. The maximum area for land and building can go up to 8,000 sq ft and 4,000 sq ft based on individual requirement,” Sundaravelu said.

Each Italian designer villa will have two regal bedrooms with attached bath, two guest rooms, one living room and a kitchen, besides a gym with sauna and steam, as well as a designer car porch. In addition, the villas come with 2,000 sq ft landscaped gardens with fruit bearing trees and foliage.

“In spite of the salient features and high-end specifications, which include a four CC camera monitoring system for every villa, we have priced it at an affordable Rs 1,790 per sq ft. An executive can live happily in a peaceful environment amidst nature in our villa, where the cost per villa starts around Rs 69 lakh,” Sundaravelu added.

Transport Corp Plans to List TCI Developers Limited

Transport Corporation of India (TCI) will list the property development arm in 2010-11 after demerging. After getting the approval from the board and shareholders, TCI now awaits the Andhra Pradesh High Court nod for formalising the demerger.
“After we get the court nod, we will go to stock exchanges for listing TCI Developers Limited,” said Vineet Agarwal, executive director, TCI.

TCI had decided to carve out a separate entity by demerging the prime properties it has — worth Rs 50 crore — in major cities to develop them commercially.
“We could not use them for the logistics business, hence the decision for the demerger. Apart from developing existing properties, the new company will buy more land to build multi-modal logistics parks and truck terminals,” he said.

After the demerger, shareholders would receive one share in the new company for every 20 shares they hold in the parent company. While the face value of the scrip of the parent company is Rs 2, the shares of the new company would be at Rs 10 a piece.

The company, which posted a turnover of Rs 394 crore in the first quarter ended June 30, 2010, is targeted to achieve a growth rate of 15-11 per cent in turnover and 20-30 per cent in profitability for 2010-11.

In 2009-10, Transport Corporation reported a turnover of Rs 1,455 crore and net profit of Rs 44 crore.

DLF to Buy Property Arm of Dubai World

DLF is buying out the property arm of Dubai World, its foreign partner in the 50:50 joint venture to make Bidadi Knowledge City. A wholly-owned arm of DLF will buy out the stake owned by Limitless Group, which is a part of Dubai World, for around Rs 200 crore, the Economic Times reported, citing sources with direct knowledge of the transaction.

DLF will buy the 50 per cent held by two Limitless Group entities for a price less than the net worth of the shares, as per the deal. The discount would amount to Rs 10 crore for the entire block of shares held by Limitless. Dubai World is the investment vehicle of the Dubai government.

One person with knowledge of the development said Limitless is likely to be paid around $42.8 million, compared with its investment of $50.5 million. Limitless will get less in dollar terms, due to change in forex rates during the past three years. In rupee terms, however, it would be paid almost the same money it had invested.

The Bidadi project was to come up in 9,178 acres. The project that was to have office complexes, shopping malls and entertainment space, besides housing facility for over 7-lakh people, never took off. On getting access to the land, the JV was to start construction work during the first half of 2008 and complete it by 2016 end.

The Karnataka government was to secure the land for the project, but, couldn’t initiate the acquisition process and last year returned the Rs 400 crore that was funded equally by the two partners. The JV then tried to acquire land on its own, but failed and that prompted the exit of Limitless.

According to the report, post this transaction, DLF can use the funds for other projects. However, one stumbling block could be the three-year lock-in clause for foreign investment in real estate sector. Foreign direct investment (FDI) norms do not allow repatriation of original investment up to three years from the time of minimum capitalisation of realty projects, but foreign investors have a window of exiting before the lock-in period ends if the Foreign Investment Promotion Board (FIPB) allows it.

DLF Limitless Developers has approached FIPB, the nodal body for clearing FDI in the country, for getting a green signal for the proposed transaction, one of the persons with knowledge of the development was quoted as saying.

UAE Based RAK Properties Looking for Investment from Indian HNIs

RAK Properties, a public joint stock company of Government of Ras-Al-Khaimah, UAE, is wooing Indian businesses and high net worth individuals to invest in three major real estate ventures it has taken up including a $3.67-billion Mina Al Arab project, which has both commercial office and residential space. Other projects include RAK Towers Marina and Burj Abu Dhabi, the latter coming up with an outlay of $200 million.

The director of sales, RAK Properties, Ralph Chkaibane, said that about 20 per cent of the property buyers in RAK are of Indian origin and the company is keen on tapping into this segment. The RAK Free Trade Zone has over 11,000 companies and every day new companies come in. They need support facilities and residential area, which RAK can offer.

Addressing a press conference on Wednesday, he said, “The company is holding road shows here to attract some new investments in to these properties now under various stages of execution. With good facilities, we hope to attract some of the companies looking to make RAK their hub to service the market opportunity in the region.” “As a part of our promotion initiatives, we have tied up with National Bank of Abu Dhabi, HSBC and Bank of Baroda, the latter has agreed to extend up to 95 per cent of loan required for housing facilities,” he said.

The Mina Al Arab is spread over 43 million square feet of area with waterways, wetlands and beaches constituting commercial space, and residential area including a shopping district. It will have six five-star hotels when fully completed, he added.

Brigade Enterprises Seeks shareholders’ Approval to Raise Rs 750 crore of Additional Funding

Bangalore-based real estate company, Brigade Enterprises has sought shareholders’ approval to raise Rs 750 crore of additional funding. The money will be raised through various instruments such as global depository receipts (GDRs), American depository receipts (ADRs), foreign currency convertible bonds (FCCBs) or via placement with qualified institutional investors.

In a note to shareholders, ahead of the annual general meeting on July 23, the company said, “The money will be used to fund the construction cost of ongoing and new projects, acquisition of land, repayment of debts, augmentation of working capital, investment opportunities and for other general corporate purposes.” “We will take resolution of Rs 750 crore but will only raise around Rs 350-400 crore in the first tranche,” said R J Shama Sunder, general manager, finance, Brigade Enterprises.

The realty firm, which primarily focuses on development of residential units in South India, is also seeking shareholder approval to list its stock on the London, Singapore, Luxembourg and New York Stock Exchanges. “We have an option of looking to raise money from the international market by listing the company on foreign stock exchanges,” said Sunder.

Shareholders will be called upon to approve the appointment of KR Srinivas Murthy as one of the directors of the company. Murthy is currently on the boards of CMC, National Stock Exchange of India and Himatsingka Seide.