MUMBAI: World Bank group company IFC said it will extend $85 million in loan to Dewan Housing Finance for affordable and energy-efficient housing.
Of the total loan, given with the support of Canada government, IFC will provide $70 million through external commercial borrowing, a press release issued said, adding that the remaining USD 15 million will come from the IFC-Canada climate change programme to financing green mortgages.
The green loan to Dewan will reduce 6,200 tonne carbon emissions per year, the release claimed.
“By demonstrating the benefit of green homes, the project is expected to help home buyers in low and middle income segments buy affordable energy-efficient homes,” Serge Devieux, IFC director for South Asia said in the release.
Commenting on the development, Dewan Housing Chairman and Managing Director Kapil Wadhawan said the investment will demonstrate the viability of offering housing finance to low and middle income clients.
IFC, in 2003 also provided a loan of around $12.5 million to Dewan Housing Finance. IFC also co-invested in Aadhar Housing Finance, a company jointly promoted by DHFL Group and IFC, which provides affordable home loans to low income borrowers.
In his first full-fledged review of the monetary policy, Reserve Bank of India (RBI) Governor Raghuram Rajan stuck to the continuing hawkish stance of inflation control first, which has seen the repo rate go up by another 25 basis points. The repo rate is the rate at which the central bank lends money (liquidity) to the financial system, and is the key policy rate. After the RBI action on October 29, it stands at 7.75 per cent.
The most rate sensitive sector that always watches the central bank’s action closely is real estate. Equated monthly instalments (EMIs) are the biggest expense for a typical household, and with the floating interest rate regime, any increase in the policy rate has a potential effect of pushing EMIs upward, although it is banks that take the final call.
This time, the RBI’s review of the monetary policy has coincided with the festive season an important period for the real estate sector, for most home buyers seal the agreement for purchase typically during the second half of the calendar year, which is when most festivities take place.
The real estate sector is saddled with huge inventories, stretching up to four years — that is the time it would take to offload all those apartments at the current absorption rate.
“Pan India inventory is now well above the comfort level of 14-15 months. Mumbai has an inventory of close to 48 months, Delhi of 23 months and Bangalore of 25 months. These are close to the levels of 2007, when the residential real estate market inventories were at an all-time high,” says Santhosh Kumar, CEO-Operations, Jones Lang LaSalle India.
Projects are routinely delayed and funding is starved as the cost of liquidity is high. As a recently released report by global property consultant Knight Frank put it, “The ailing real estate developers have been caught in the trap of ambitious expansion, decelerating sales, hardening interest rates and weakening cash flow.”
Given this already bleak scenario, what is the likely impact of the latest inflation control measure of the central bank? As most industry players put it, not very good.
“Prospects for the real estate industry are already muted due to high interest rates and high cost of construction. This is acting as a dampener on consumer sentiment in the run-up to the festive season,” says Brotin Banerjee, managing director and CEO, Tata Housing.
“Since the mid-quarter review in September, global economies have shown firming up of activities and as a result, Indian exports have shown an upward trend. Additionally, the exchange rate has shown stability and agricultural output is expected to improve even further, in the coming months. Keeping this in view, the central bank could have adopted a wait and watch approach by deferring the repo rate hike. This could have helped various sectors including real estate to capitalise on the positive consumer sentiment ahead of the festive season to propel growth,” says Samantak Das, chief economist & director-research, Knight Frank India.
According to a just-released research report by global property consultant Cushman & Wakefield, during the six months from January to September, 1,32,084 residential units were launched across the country, which is a 5 per cent increase when compared with the same period last year. When compared on a quarterly basis, however, the three months ended September have witnessed a fall in launches by 7 per cent. As against this, the net absorption for the first six months have dipped 15 per cent across the country. For Mumbai the figure is negative 28 per cent and for NCR it is negative 41 per cent.
The fall in absorption levels are complemented by price levels that are trending towards moderation. The latest instalment of the Residex of the National Housing Bank that track home prices across 26 cities has shown that prices have moderated in key metropolitan markets while some tier II cities have shown a drop.
The RBI’s own findings in its ‘Macroeconomic and Monetary Developments’ for the second quarter also point towards this trend. The RBI’s house price index for the first quarter of the current financial year (April-June) was lower at 0.89 per cent at the all India level, when compared with the preceding quarter. For Delhi, the index stands at 0.79 per cent lower, when compared with the previous quarter, a steep fall for the index stood at 6.18 per cent in the December-March quarter of 2012-13. For Mumbai, the index is lower by 0.28 per cent.
Given this scenario, the latest increase in the policy rate would make the prospective home buyer adopt even greater caution.
“For the realty sector, the upward revision in repo rate by the RBI is likely to increase pressure on developers, who are already struggling to raise funds for construction amidst reduced lending from banks. From the consumers’ perspective, this revision will also affect the sentiments, as retail loans may become costlier. Because of subdued sentiments, sales have already dropped across regions. This will impact the new prospective buyers too, as uncertain economic conditions have made them cautious. As a result, these buyers are already taking longer time to decide on a particular investment,” says Sachin Sandhir, MD, RICS South Asia.
This festive season has seen subdued consumer sentiments overall. Footfalls at malls have fallen and crowds at markets have reduced to a trickle. Given the latest salvo from the central bank, enquiries at sales offices would drop further. For the consumer, it is once again wait-and—watch on interest rate and prices.
The developer, tough, is at the crossroads: freebies and discounts fail to entice if prices are high, and that can work only if the customer shows up, which in the current environment is more unlikely.
That time could stretch further for all eyes are on the moves by the banks. Thus far, there have been no indications that loan rates would go up. “The increase in repo rate will hopefully not result in an increase in home loan interest rates. Even a small rise at this point could dampen the festive sentiments of home buyers and will not auger well for the industry,” says Anshuman Magazine, CMD – South Asia, CBRE, a property consultancy.
NEW DELHI: Real estate has emerged as a hot investment destination with banks, as projects in other sectors of the economy have faltered, prompting banks to rush to fund commercial realty despite slow demand and inventory pileup.
Of the 173 projects of Rs 250 crore or more each that came for bank funding in the first half of 2013-14 , 53 were real estate projects that are estimated to cost nearly Rs 62,000 crore, which is almost one-fifth of the project cost. In terms of project cost, the sector lags only iron and steel, where the cost of 11 projects is around Rs 63,700 crore. But in terms of loans sanctioned so far, it tops the chart, accounting for a little under a quarter.
Funding for commercial real estate is in addition to home loans given by banks, which rose 19% to almost Rs 5,000 crore by Augustend , 2013 compared to August 2012.
Coming as it does in the midst of a slowdown, analysts send out a cautionary note. “If real estate exposure of banks is going up, then we need to take note. The market demand seems to be slowing down and the market risk is perceived to be higher. It’s a sector where there have been several ratings downgrades. But several projects are covered through lease rentals, which helps reduce the risk,” said ICRABSE 1.02 % managing director Naresh Thakkar. An executive at another rating agency warned of higher risks in lending to the National Capital Region, where a bulk of the projects seeking bank funding are coming up.
Bankers and real estate consultants, however, play down the concerns. “RBI has already put in several safeguards and with funding against rentals, things are much safer for banks. Besides , the sector offers them the possibility of earning a higher spread compared to telecom or pharma,” said Amber Maheshwari, managing director (coroporate finance ) at Jones Lang LaSalle, a leading real estate consulting firm. Bankers believe that funding real estate is not as risky as is made out to be.
“The funding requirement is much lower, at around 10% of the project cost, and the disbursement will be over the next five-seven years. In addition , it helps steel, cement and employment,” added Oriental Bank of CommerceBSE 0.47 % CMD S L Bansal.
MUMBAI: Real estate firm Hirco has defaulted on payments to lenders for its two large Rs 1,000 crore-plus townships in Panvel and Chennai, casting a shadow on the future of the projects.
Work on the firm’s project in Panvel, outside Mumbai in Raigad district, has been stalled for the past few months. The project has a mix of commercial and residential properties and is spread over 300 acres. More than 1,000 apartments are believed to have been sold in Panvel.
Hirco claims to have more than 66 million sq ft of development in the two township projects being built by its subsidiary, Hiranandani Palace Gardens. Following the default, the residential township outside Chennai, the Hiranandani Palace Gardens, is under threat of a takeover by the lenders, TOI has learned.
HDFC had advanced around Rs 500 crore in two tranches to the Chennai project jointly promoted by Niranjan Hiranandani and his daughter Priya. (Both have since stepped down from the Hirco board.)
It is being built in three phases on an over-200 acre sprawl.
The lender has already classified the first tranche as an NPA (non-performing asset) and will classify the second tranche similarly. It plans to send a notice to the firm for repayment under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI).
If Hirco fails to pay up, HDFC will attach the Chennai property estimated to be worth several times the loan. The property would then be auctioned off. Market sources said one of the Hiranandanis may bid for it.
“Because of a family dispute, neither family member is willing to bring in the fresh capital required for the project. With RBI norms becoming stricter on project lending, there cannot be any progress unless promoters bring in money,” said sources familiar with the development.
Early this year, Tata Finance Capital Services dragged the company to court for a term loan default of Rs 76 crore, and demanded the company’s liquidation for non-payment.
Hirco’s chief financial officer, Samir Shroff, did not respond to text message and phone calls seeking comment.
A Hiranandani Constructions spokesperson said, “Niranjan Hiranandani resigned from Hirco Plc around 22nd December 2010. This knowledge is in public domain. Hence the details of the companies, which you are seeking now, is not available with us.” It is learned that Hiranandani has made an offer to buy out the company.
“It’s a mismanaged company,” said a senior executive who resigned more than a year ago. “A 1.75 million sq ft commercial building in the Panvel township is 75% complete. It could easily fetch Rs 500 crore.”
Hirco, listed on the London Stock Exchange’s Alternative Investment Market, was set up in 2006 to invest in residential and commercial complexes.
On June 27, chairman David Burton said in the company’s half-yearly statement that progress on the developments appeared somewhat subdued with only moderate progress over the last 6 months. The company had said in its annual financial statement in September 2012 that the completion of both the Chennai and Panvel projects remained at least a decade away.
“While information flow on the projects remains unsatisfactory and we have no real clarity over who is really in control of the projects, what does seem clear is that completion will need substantial further investment of both equity and longer-term debt,” Burton had said.
BANGALORE: Bangalore-based real estate developer Embassy Property Developments is in talks to raise Rs 800 crore in debt to fund its planned acquisition of an IT park in the city, a person with direct knowledge of the development said. “The builder is in talks with banks and financial services companies including HDFC LtdBSE 0.36 % and Indiabulls to raise the debt,” this person said. “Earlier, Embassy and Blackstone were jointly expected to buy the 2.1-million sq ft Vrindavan Tech Park, but now the PE fund will enter when 100% stake in the park is bought by Embassy. “Chairman and MD of Embassy Group, Jitu Virwani , refused comment for this story. An HDFC Ltd spokesperson denied the development , while Indiabulls said it was not aware of any such development.
Embassy Property plans to fund the Rs 1,951 crore acquisition through . 900 debt and . 1,100 crore equity, the person quoted earlier said. “There is Rs 315 crore debt on the project from a public sector bank that has turned NPA. The IT Park is also involved in arbitration with Citigroup, which provided mezzanine financing to the project,” he said. Post the acquisition, Embassy and Blackstone will not only get the 2.1 million sq ft of lease space but will also get hold of 75 acre of undeveloped land within the IT Park.
Some of the tenants in the IT SEZ include Cisco , Sony, Nokia and KPMG. “The builder may also decide to sell some space to Blackstone ,” the person quoted earlier said. Blackstone bought 50% stake from Embassy Group in Embassy Office Parks, which comprises three commercial properties totaling 19 million sq ft, for Rs 1,015 crore last October.
MUMBAI: Blackstone Group LP is in talks to sell out of a New Delhi property investment for about $40 million, two sources with direct knowledge of the matter told Reuters, in what would be its first exit from a property investment in the country.
US-based Blackstone is selling its nearly 30 percent stake in a subsidiary of property firm BPTP Ltd and is in talks with two potential buyers, one of which is BPTP’s controlling owner, the sources said.
At $40 million, a sale would generate a return of about 2.5 times on the investment. Blackstone paid 1 billion rupees ($16 million) for the stake in March 2007, its website showed.
A deal could be announced later this week, one of the sources said.
Blackstone declined to comment, while BPTP did not respond to emails and phone calls seeking comment.
Blackstone, the world’s largest private equity fund, is the most active private equity property investor in India and has spent about $500 million on about 20 million square feet of property assets over the past 18 months..
NEW DELHI: Expressing concern over dip in FDI in real estate, Agriculture Minister Sharad Pawar has shot off a letter to the Prime Minister stating that tinkering of policies and agencies hounding entities receiving foreign funds is creating negative sentiments.
The realty sector has a potential to attract FDI of USD 30-40 billion, Pawar said, adding that the government’s policy should be stable and investor friendly, and “genuine entities” should not be subjected to “arbitrary and coercive actions”.
“Inherent growing demand of housing sector coupled with conducive tax policies of the government had earlier resulted in increased interest of foreign investors in this sector. However, frequent tinkering of the policies and removal of tax benefits midway has definitely affected the sentiments in this sector,” he said in the letter to Prime Minister Manmohan Singh.
Pawar noted that tax benefits to SEZ developers and units were significantly marginalised by introduction of Minimum Alternative Tax and Dividend Distribution Tax on them.
“Midway if the tax laws are changed, it affects the entire viability of the project,” he observed.
Pawar also mentioned the problems being faced by the real estate companies that have received FDI.
“I am also given to understand that the entities that received FDI investment were subjected to intense scrutiny by the Government Authorities/raids by tax authorities. It is said that almost 80 per cent of the developers that received FDI have been subjected to the above,” Pawar said.
“While, there is no denying fact that those who violate the law of the land should be subjected to harsher punishment, we must also honour the genuine entities and avoid arbitrary and coercive actions,” he added.
The Agriculture Minister and NCP Chief also said that the country could have accessed funds from overseas for townships development when the global interest rates were low.
“The township projects require significant capital and long-term debt. We could have accessed foreign debt, when the global interest rates were low. However, only a brief window was opened for external commercial borrowings (ECBs) for township,” Pawar said.
Drawing PM’s attention towards “dwindling FDI in real estate sector”, Pawar said that “the potential FDI in this sector can be approximately USD 30 to USD 40 million provided the government policies are stable and investor friendly. I hope the matter will receive your urgent attention”.
According to the government data, during April 2000 and May 2013, construction development including townships, housing and built-up infrastructure, the country has received FDI worth USD 22.16 billion or 11 per cent of the total FDI attracted by India during the period.
MUMBAI: The real estate fund of Morgan Stanley has abandoned plans to invest nearly $200 million (about Rs 1,240 crore) in an upcoming commercial real estate project in Mumbai after the rupee’s recent plunge against the dollar made the deal unrewarding , three people familiar with the development said.
Morgan Stanley Real Estate Fund was working on the structured finance deal with Mumbai based Wadhwa Group since January to invest in the latter’s 1.6 million square feet office project in Bandra-Kurla Complex. Construction on the project, called ONE BKC, is due to be completed in the next 12-15 months.
The fund has invested about $780 million in Indian real estate so far and the investment in ONE BKC would have been its first in a commercial property in Mumbai. “Returns that were arrived at in earlier negotiations between Morgan Stanley and Wadhwa were shrinking even before concluding the deal,” one of the people quoted earlier said. “The hedging cost for the entire deal would have been huge.”
Morgan Stanley declined to comment, but Wadhwa Group’s chief financial officer Srinivasan Gopalan confirmed that the proposed deal has fallen through. Gopalan, however, refused to speak on the company’s further fund raising plans.
The rupee has depreciated nearly 27% since April 1 and touched a record closing low of . 68.63 against the dollar on August 28. Another person quoted earlier said the Wadhwa Group is now raising domestic debt of over . 1,100 crore from Standard Chartered Bank for the project. The tenure of the debt is likely to be four years and the deal with the bank is expected to conclude in about a month, this person said.
Standard Chartered Bank refused to comment for this story. ONE BKC consists of two wings — wing A spread over 500,000 sq ft and wing B spread over 1 million sq ft. Under the proposed deal, Morgan Stanley Real Estate was expected to get control of the entire wing A. The developer has already sold half of wing B to buyers that include financial institutions, diamond merchants and companies.
One BKC offers office spaces from 1,000 sq ft to entire floors spread over 80,000 sq ft. While small spaces are aimed at professionals like lawyers and chartered accountants, the floors are meant for medium and large size occupiers. The rupee’s sharp depreciation against the dollar over the past few months has put many earlier offshore private equity investments in a bind. Investors have also turned cautious with transactions and negotiations for on returns, and deal structures are being postponed.
In the last two years, when most of private equity exits were being planned, the currency has slipped 46%. It has almost wiped out foreign private equity funds’ meagre returns from real estate and any exit now will lead to at least 25-30 % loss in dollar terms. Private equity investments in Indian real estate in the first half of 2013 fell 46% over the year-ago period to $276 million. Private equity funds had invested $514 million in the first half of 2012, according to a recent report from Cushman and Wakefield, an international property consulting firm.
Spanner in the Works
Realty arm of Morgan Stanley was to invest in Wadhwa’s 1.6 million sq ft office project in BKC The fund has invested $780 million in Indian real estate so far Construction on the project, called ONE BKC, was due to be completed in the next 12-15 months Wadhwa Group is now raising domestic debt of over 1,100 crore from StanChart for the project. The tenure of the debt is likely to be four years.
The Department of Industrial Policy and Promotion (DIPP) has circulated a draft Cabinet note on relaxing foreign direct investment (FDI) norms for the housing sector, which proposed easing the three-year lock-in period among other things. The draft note has proposed easing the three-year lock-in period for FDI in housing and townships, besides it has sought reduction in the minimum capitalisation to $5 million from the present $10 million for wholly-owned subsidiaries, a senior official in the ministry said. The proposal to ease the FDI guidelines for the sector was mooted by the Ministry of Housing and Urban Poverty Alleviation. The note has also suggested a cut in the minimum built-up area of 50,000 sq mts in case of construction development projects to 20,000 sq mts of carpet area for FDI. The official said there is also a need to define the word ‘completion’ in the current policy on the matter of reducing three year lock-in period.
NEW DELHI: Real estate firm Lotus Greens Developers today said it has raised Rs 365 crore from private equity firm Red Fort Capital for the development of housing projects in the national capital region.
Lotus Green Developers has recently been founded by Nirmal Singh, one of the promoters of another realty firm The 3C and its Vice Chairman P Sahel, who has worked for more than 16 years in realty companies like Jones Lang LaSalle and DLF.
“Red Fort Capital has invested Rs 365 crore in our company in the form of unsecured non-convertible debentures (NCDs). The funds will be utilised for the development of one or more residential projects in the NCR,” Lotus Greens Developers Pvt Ltd Vice Chairman Sahel P said.
The project will be launched in the next few months, he said, refusing to disclose any futher details.
Sahel said Red Fort Capital would not acquire any stake in the company.
To begin with Noida-based Lotus Greens will be coming up with real estate projects, primarily residential, in Delhi NCR region. The group has plans to develop commercial, hospitality, health care and education projects.