Indian Property News on 'August, 2010'

TCIL Plans Exit from Real Estate Business

Transport Corporation of India (TCIL) will demerge its real estate and warehousing divisions in next three months and expects to create greater value for shareholders through the hive-off. After the demerger, the company would focus on the core activity of providing logistic services, according to a report published in Financial Express.

“Our board approved the demerger in April this year while shareholders have just given their nod to the proposal. The matter is with the Andhra Pradesh High Court at present. We are expecting a green signal in next 2-3 months,” (TCIL) executive director Vineet Agarwal, said. “The logic in the demerger is that we want to create value for shareholders by focusing on our core activity. The development of real estate and warehouses will be done by the new company,” he added.

The company has 15 real estate properties with a book value of Rs 55 crore. It has engaged a slew of consultants to ascertain the best use and market value of the properties. “Some of these properties may be developed as commercial real estate,” Agarwal said.

As per the demerger scheme, a holder of 20 shares of Rs 2 each in TCIL will receive one share of Rs 10 in the new company. The earning per share (EPS) of the company was Rs 5.9 at the end of March 2010 against Rs 3.9 a year ago. TCIL aims to take it to Rs 8 by the end of 2011-12.

Agarwal said his company is also exploring the possibilities of setting up multimodal logistics parks along the dedicated freight corridor being developed by Dedicated Freight Corridor Corporation of India (DFCCIL). DFCCIL has planned four such zones in Haryana and Gujarat in public-private partnership mode.
DFCCIL will provide only land for the zones while the development investment will have to be put in by partner companies.

Realtors Express Satisfaction on Tax Exemption in Housing Loan Segment

Realty firms and consultants have expressed satisfaction on the proposal to retain income tax exemption on interest up to Rs 1.5 lakh a year on housing loan, but said the government needs to enhance the limit. “It is a very good thing that the government has retained the exemption. It will have a feel-good sentiment in the market,” said Anuj Puri, country head, Jones Lang LaSalle Meghraj (JLLM).

He said the move will not dishearten the low and mid-income group from going ahead with their buying decisions. The first draft of Direct Tax Code (DTC) was silent on exemption on interest paid on housing loans. However, after adverse feedback from various quarter, the second draft proposed to retain this exemption, which is also incorporated in the bill.

Commenting on the development, the country’s largest realty firm DLF Group executive director Rajeev Talwar said: “It is good that the exemption has been retained. However, the industry was expecting enhancement of the limit. “I think, in future the government has to consider increasing the limit to include more people in the bracket.”

Consumer Affairs Ministry Gives Green Signal to 49% FDI in Multi-Brand Retail

The Consumer Affairs Ministry has given the green signal to allow 49 per cent FDI in multi-brand retail. It has written a letter to this effect to the Commerce Ministry. India currently allows 100 per cent FDI in cash-and-carry operation and 51 per cent in single-brand retailing. Foreign investors are barred from investing in multi-brand retail. Additionally, the Ministry also sought that a model law be first put in place at the State-level to protect mom-and-pop stores from the impact of the ‘Big Boys’ of retail.

“Multi-brand retail should be permitted with a cap of 49 per cent. A significant chunk of investments should be spent on back-end infrastructure, besides logistics and agro-processing,” the Consumer Affairs Ministry had said in response to the discussion paper floated by the Department of Industrial Policy and Promotion in June on allowing 100 per cent FDI in multi-brand retail.

A senior government official said the Consumer Affairs Ministry has sought the enactment of the National Shopping Mall Regulation Act to regulate the fiscal and social aspects of the retail sector, besides allowing mom-and-pop stores to become franchises of multi-brand retailers. “This will help grow not just the business but also in setting up back-end infrastructure which is much needed for the evolution of the retail sector,” the official added.

According to an ICRIER study, commissioned by the Commerce Ministry in 2007, “the retail business, in India, is estimated to grow at 13 per cent each year from $322 billion in 2006-07 to $590 billion in 2011-12. The unorganised retail sector is expected to grow at about 10 per cent a year from $309 billion 2006-07 to $496 billion in 2011-12.”

Hoteliers Planning to Increase Room Tariff by 10-15%

In an attempt to cash in on the peak winter season and the improved economic scenario, “Hoteliers are planning to increase the average room rates (ARRs) by 10-15 per cent from September 2010 as they expect tourist traffic to improve,” says a report by domestic brokerage Angel Broking.

Although, the report didn’t talk about their plans for the upcoming Commonwealth Games, it is expected that tariffs will increase from October 3-14 on the back of strong demand. Last two years proved dull for the hotel companies as they were forced to slash average room rates by 25-30 per cent due to terrorist attacks in the country that led to lower occupancy levels as people were apprehensive to travel, the report said.

Hotel industry, which is inextricably linked to the tourism industry and its growth, increases rates before the crucial winter season every year. Reflecting a sign of improvement over last two seasons the hotel industry is inching closer to the benchmark 2008-09 levels in terms of booking volumes. Although, demand in the leisure travel segment may take longer time to revive but demand from the business segment, besides local tourists, is likely to push up occupancy rates.

While occupancy rates are expected to rise to 70 per cent during the upcoming season (October 2010-March 2011), thereby providing opportunity to hoteliers to firm up their average room rates. On an average, the room tariff in a premium hotel in metros hovers around Rs 8,000-Rs 10,000 per day. But from September, you may have to pay in the range of Rs 9,200-Rs 11, 500. And going by the government estimates, in December, which is the peak tourist season, rates often go up to USD 500 (around Rs 23,300) in the five-star category hotels in Delhi.

Commenting on the tariff hike Taj Group of Hotels Senior Vice-President (Sales and Marketing) Ajoy Misra had said:”The tariffs will go up marginally…Fortunately the hotels industry has seen occupancy going up in the last two quarters…With demand going up now,from September onwards there will be an upward revision in hotel charges.” The Indian hotel industry had witnessed a tremendous growth in 2008. Experts feel that this year, the hotel industry will make a comeback after the sluggish performance last year, driven by the boom in the overall economy and high growth in sectors like information technology, telecom, retail and real estate among others. Besides, rising stock market and new business opportunities are also attracting foreign investors and international corporate travellers to look for business opportunities in the country.

State Govt Prohibits Use of Petrol Pump Land for Real Estate Purpose in Mumbai

Fascinated by the lure of real estate, owners of fuel refilling centres in the city have long started dreaming of giving up their current business and jumping into the land development bandwagon. Some of them, in fact, have already got the civic body’s permission to change the usage of the land. However, the state government has recently issued a directive to Brihanmumbai Municipal Corporation (BMC) not to allow petrol pump owners to change the designated use of the land. Out of the 257 petrol pumps in the city, 40% are on lease land.

“Although the civic body had earlier decided not to extend the lease, with this government order it would now extend the lease on the condition that the owner would not change the land’s usage,” said a civic official from the Building Proposals department. To cash in on the rising property prices petrol pump owners have been submitting development proposals to the BMC. But what is worrying is the huge disparity in the ratio between petrol pumps and number of vehicles in the city limits.

Many social organisations had also requested the government not to allow any change on petrol pump land. The Mumbai Taxi Association had filed a writ petition in the Bombay high court on the same issue. It is, in fact, following the judgment on the writ that the government decided that the land of petrol refilling stations should be used only for the designated purpose.

Federation of All Maharashtra Petrol Dealers’ Association president Ravi Shinde said that the demand was only for Mumbai, but the state government issued the notification all over the state. “Only Mumbai is facing acute shortage of land and the land prices are booming. In other cities there is no such situation. So, the government should rethink on it,” said Shinde.

6 Chennai Projects Get Top Ratings from CRISIL

Six real estate projects in Chennai have got top ratings from Crisil, which has, for the first time, has come out with a product to provide city-specific all round assessment of real estate projects.

Addressing a gathering got up to announce the award of 7-Star rating to Abode Valley and 6-Star rating to Central Park — couple of projects promoted by Lancor Holdings — Lodd Rajendra, Head of Business Development, Crisil Ratings, said Crisil was now working on two more mandates from the realty sector. He said Crisil had thus far rated 21 real estate projects.

Detailing the salient features of the two Crisil rated projects, Mallika Ravi, CEO, Lancor Holdings, said that Lancor was “committed to quality and transparency in our dealings with our stake holdings.” Of the six Crisil-rated real estate projects in Chennai, two are promoted by Lancor. The remaining are by Akshaya Group. According to Mr. Rajendra, the rating will address two critical needs in the realty sector — improved transparency and objective bench-marking of projects.

Crisil Real Estate Star Rating (CREST), a product launched early this month, is intended to help flat buyers benchmark and identify quality projects within a city. Such ratings, it is claimed, will provide a comprehensive evaluation of all project-specific risks, which could impact the quality of the project.

Global Commercial Real Estate to Touch $300-bn Mark

Reflecting improved investor confidence, investment in commercial real estate globally is expected to witness a “healthy” growth of 40-50 per cent to $300 billion in the current year, says a report. According to the report by global real estate services firm Jones Lang LaSalle, the first half of 2010 saw investment worth $130 billion in the commercial real estate globally and is likely to touch $300 billion in the full year, representing an increase of 40-50 per cent from 2009.

“The first half of the year showed that confidence has improved and momentum has increased. While markets across the globe are strengthening, the last few weeks have shown that regional markets are moving with different dynamics,” the report noted. In the commercial real estate market, the quickest recovery was seen in the Asia Pacific. Europe lagged behind, where the investors still seem more hesitant, due to sovereign debt and austerity packages concerns, followed by the US, which had a slow start to 2010, but investment markets are picking up with the stabilised market fundamentals.

While, the rental markets are still to catch up in Asia with the improved market sentiment, the rental growth is expected to make a comeback in few European markets over the second half of 2010 and 2011.

Amidst Global Uncertainty JP Morgan Positive on India

JP Morgan is positive on India despite the global environment being quite uncertain, JP Morgan Asset Management’s Investment Manager and India Country Specialist, Rukhshad Shroff, told reporters here. JP Morgan Asset Management is a leading global asset management company providing world-class investment solutions to clients. “We are positive on emerging markets. We remain very positive on India and if you take a slightly medium-term view, there are ample reasons to be cheerful and optimistic on the Indian market,” Shroff said.

India has achieved an eight per cent GDP growth despite the global economic uncertainty. The country also attracted FIIs inflow this calendar year of around $11-12-billion till date, in an extreme risk-averse global environment, he said. In the short-term, there may be volatility and hiccups but, generally speaking, “we have got all the ingredients for a reasonable market in place,” he said. Shroff pointed out that the BSE Sensex remained positive in 23 out of 31-years and gave 60 per cent returns in five-year period. It has given 30-60 per cent returns in 7- years and registered a 50 per cent decline in only one-year.

Indian corporates’ fundamentals and earnings are good, though valuations may be slightly on the higher side of long- term averages but that was the case even six-months ago and the markets held up, which means the markets digesting these valuations allowing earnings to come through, he said. Accelerating investment in infrastructure, industrial and real estate sectors are expected to drive growth in FY 10 and the EPS could double in next 3-4-years period, Shroff said.

In fact, JP Morgan expects equities to provide better returns than other asset classes over the medium-term. “We expect equities to provide better returns than other asset classes over the medium-term, but are tactically cautious near-term, waiting for a better entry point,” JP Morgan’s Vice-President, Head of Investment Services, Geoff Lewis, said. The global stock markets retreated in May and June, but bounced back strongly in July. The emerging market economies have recovered quickly from the global recession, showing a surprising degree of resilience and economic decoupling, he said.

Commenting on the outlook, Lewis said, the US growth will moderate towards sub-par but positive levels, rather than dip back into recession. Disinflation not deflation in the US economy is the most likely outcome in 2011, he said. Global equities offer sizeable risk premia over Government bonds. Investors should be overweight with a strong bias towards emerging markets, Lewis said

Godrej to Fully Focus on its Property Arm

The $2.5-billion Godrej group plans to make its property development arm Godrej Properties (GPL) the largest business within the group in 5-10 years. “This is the fastest growing and capital intensive business and does not entail competitive pressures as other businesses have. In turn, most of this company’s growth will be from the affordable housing segment,” group chairman Adi Godrej said.

Godrej Properties will be raising Rs 500-1000 crore within two years through a qualified institutional placement. “The promoter holding in the company is around 83%. We can dilute up to 10% equity to raise money depending on project requirements,” he said. The company, which has a debt-equity ratio of 0.6:1, had raised around Rs 550 crore in January through its initial public offering.

The company has lined up residential and commercial projects in Ahmedabad, Bangalore, Mumbai, Hyderabad, Chandigarh and Kolkata. In Hyderabad, it will develop 7.5 million sq ft in the outskirts of Moosapet and Patencheru, targeting the affordable housing and the retail segments. It is currently developing properties of around 90 million sq ft across 25-30 projects. GPL is also developing residential property of around 15 million sq ft. “Affordable segment, what we define is an apartment costing less than Rs 25 lakh, has better growth propositions as it is easily accessible to the larger parts of population,” he said.

The group is also looking at inorganic growth options in the FMCG segment and may acquire companies in the haircare and household insecticides segment, which contribute to a chunk of the FMCG business. Recently it had acquired a household product company in Indonesia, a soap company in Nigeria and haircare company in South America. “Our first choice would be India. However we are open to buyouts internationally too,” Godrej said.

He further added that interestingly, the per capita sales in Indonesia, Argentina and South Africa is higher than in India. On the other hand, the group hopes to chart a 25-30% growth, of which organic growth would contribute 15-20% and the rest from the inorganic route. “While we haven’t earmarked any funds, we would use funds in the cash reserves and then go for debt or equity,” he said.

ITC to Launch 60 New Hotels within the Next 3-4 Years

ITC on Tuesday said it expects to have up to 60 new hotel properties operational in the next 3-4 years as it expands to tap the growing potential of the Indian hospitality sector.

The company, which currently has about 40 hotels at various stages of construction, will start work on another 15-20 new in the next one year.
“So in the next 3-4 years ITC will have up to 60 new properties operational,” ITC chief executive of Hotels Division, Nakul Anand said.
“Room capacity will vary from 40-60 to up to 600 depending on the type of property,” Anand said.

ITC would prefer to invest in high-end, seven star super luxury hotels.
ITC operates its hospitality business under the brands — ITC Hotels Luxury Collection, WelcomHotels, Fortune Hotels (budget hotels), and WelcomHeritage (chain of palaces, forts and havelis.