Latest Property News on 'Banking and Finance'

RBI hints at another CRR cuts

March 06, 2012

The Reserve Bank of India (RBI) has hinted at another reduction in the Cash Reserve Ratio (CRR) of banks to ease the severe liquidity in the system but ruled out a cut in the statutory liquidity ratio or SLR, saying that such a move will not create any additional cash flow.

“Space for (more) CRR cut still exists as we need to see significant fall in aggregate deficit,” RBI deputy governor Subir Gokarn told reporters.

He did not indicate any timeline for the cut. Gokarn, however, ruled out any cut in the SLR saying, “Reducing SRL will not create any additional capacity in the system at this point of time, because of there is surplus. If SLR is close to the limit, then a reduction is possible, and may have created capacity. But given the situation all instruments are on the table.”

On January 24, RBI had cut CRR by 0.5 percentage points to 5.5 per cent, releasing Rs 32,000 crore into the system. Since then, the fund crunch has only worsened. Last Thursday, the strain on the system rose to high of Rs 1.02 lakh crore. And going forward it will only increase as by March 15 companies will have to make advance tax payments which will drive out Rs 60,000 crore from the system.

Another Rs 12,000 crore is likely to go out of banks due to the ONGC auction last week, and a similar amount will be, drained out on account of excise duty payment by companies. Stating that liquidity deficit is partly structural and partly temporary, Gokarn said, “Current call rates suggest that things are relatively stable (since) there is arbitrage in the market.

“Banks which have surplus SLR can borrow at the LAF (liquidity adjustment facility) and lend through call (money) market to banks which do not have excess SLR. So, the fact that SLR is skewed is not a cause of concern.”

Part of the liquidity crunch is temporary, and partly structural and the reason why RBI conducting open market operations consistently is to address that, Gokarn said.

“Part of the structural problem has arisen due to currency operation of the past three months…some of that has been offset by OMOs but it is structural and we are conscious of it,” he said.

When asked about his outlook on liquidity as advance tax payment is nearing, Gokarn said, “We are conscious of the advance tax payment-related stress on the liquidity system.”

Even though he expressed the hope that crude will not climb too much given the general slowdown in the global economy, he said that rising oil prices will pose added risk to inflation projections.

“Oil prices going up poses a potential upside risk to inflation. On the other hand, growth has slowed — it is likely that producers don’t have the pricing power which they had earlier,” Gokarn said.

He also said that inflation management is the primary driver of monetary policy and that growth is not the core driver of monetary policy.

Source: http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=19190&cat_id=2

PE funds use mezzanine debt route for realty investments

Foreign private equity funds which have invested in real estate and infrastructure sector and find themselves caught in a policy row between the Reserve Bank of India and the government, are lining up a bevy of ‘mezzanine funds’ for the Indian market. These funds, which are typically debt-dominated instruments with an equity “sweetener,”provide medium-to-long term capital to promoters without significant ownership dilution, reports Financial Express.

The RBI, which has taken the firm view that equity instruments with in-built options will be considered external commercial borrowing (not allowed in realty sector), is open to mezzanine funds. Foreign direct investment (FDI) is allowed in specified real estate projects, but not in realty firms.

While from the lenders’ perspective, mezzanine funds offer a measure of downside risk protection, these funds are widely predicted to favour mid-cap Indian firms, where promoters would not like to cede considerable shareholding while raising funds.

Mezzanine debt route is being charted out by the PE firms to mainly sidestep ‘put option’ route. Six out of every 10 private equity deals in the real estate sector have put and call options built into them. The confusion stemmed from a policy announcement by the department of industrial policy and promotion (DIPP) in the ministry of commerce and industry in the beginning of October 2011, which said that “equity instruments issued/transferred to non-residents having built-in options or supported by options sold by third parties would lose their equity character and such instruments would have to comply with the extant ECB guidelines”. But after a huge amount of negative feedback on the subject, DIPP later on October 31, 2011, deleted the clause. The RBI, however, continues to question deals that had in-built options, saying such investments will be considered debt. Mezzanine funding in India is moving beyond the periphery and getting into the mainstream. Niche mezzanine funds are coming in the investment fray and companies, too, are preferring these over pure equity investments.

Ajay Relan who garnered the reputation of having a midas touch with CVC International and now with his own firm, CX Partners is on road to launch a niche $500 million mezzanine fund. “It will be a separate fund with a separate team based out of Mumbai. We are looking at first closure in six months,” he says.

Comparing the investment potential of private equity vis-a-vis mezzanine funds, Relan says PE has no caps on upsides and structure of investments are much simpler, whereas in mezzanine fund, investments are more structured with assurance of certain fixed returns essentially in the range of 18-22 per cent with limited upside, and is a much stable product. For the new fund, Relan is approaching a different set of LPs who are looking at assured and structured returns.

Mezzanine funding looks at a preferred return of between 20 to 30 per cent IRR. Most transactions provide for a water fall structure wherein a large part of the available cash flow first goes to the PE investor and then the promoter receives the remainder or a significant portion of the remaining cash flow.

Ashish Joshi, managing partner, IL&FS Milestone Realty Advisors said the assured returns percentage depends on the risk appetite of the fund house and the viability of the project. If the market is overheated the assured return variable goes up. Essentially it is in the range of 20-24 per cent. The collateral backing these deals varies from equity shares, land and project. Such deals of late are becoming the flavour of the market, especially in the real estate sector.

Many private equity firms in India and globally are today focusing on debt financing and mezzanine funding. In September KKR Asset Management (KAM) raised KKR Mezzanine Partners I, a billion dollar fund to invest in mezzanine opportunities globally. In April Eight Capital launched Eight Capital Mezzanine and Special Situations Fund a $ 250 million fund to provide mezzanine capital to mid-cap high growth companies. As per reports, International Data Group is also floating a $400 million mezzanine fund for India. ICICI Venture was one of the first movers in Mezzanine funding in the Indian PE industry when it raised $51 million in 2007.

Source: http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=19191&cat_id=2

PEs on a fund raising spree for realty ventures

Private equity funds flowing into the real estate market in India appears to be on a rebound going by number of real estate funds being launched to provide equity support for real estate projects. ArthVeda Fund Management, which launched its second realty fund ArthVeda Star in December is already looking at attaining first closure next month, reports Financial Chronicle.

“Any fund takes about 5-10 months to attain close depending on the size. But the STAR fund, which we launched in December, will attain the first closure of Rs 100-150 crore by March. The second closure would be complete by May or June by when we would have raised about Rs 200-300 crore. It indicates the confidence of investors in the real estate market in India,” says Bikram Sen, CEO, ArthVeda Fund Management, to Financial Chronicle. The fund would invest in real estate projects in tier II and III towns.

Kotak Mahindra Bank’s Kotak Realty Fund recently raised Rs 523 crore from domestic investors to invest primarily in residential projects. ICICI Venture Funds too is about to attain closure for its second real-estate fund, the India Advantage Fund Two, with a size of Rs 750-1,000 crore. The fund would invest in residential projects of mid-sized developers in top-tier cities like as Delhi-NCR, Mumbai, Pune, Bangalore and Chennai.

Piramal Healthcare’s subsidiary Indiareit Fund Advisors has also announced its plans to raise $500 million through an offshore fund that would invest in real estate developments in the metros.

The boom in real estate market in the Tier II and III markets over the past few years has resulted in most housing finance firms setting up new real estate fund management subsidiaries or launching new funds to invest in projects.

“There is an increasing need for equity for successful financial closure of projects. The portfolio investments of our LICHFL Urban Development Fund would be made in mid income housing projects and income yielding infrastructure assets like IT parks and warehouses,” said AK Sharma, CEO, LICHFL AMC.

The income levels of middle income group is rising in across the country and that is an important factor driving the real estate growth in India, Sen says.

Private equity funding in realty projects was up at $1.3 billion in 2011 as against $1.1 billion during 2010, according to VCCircle.

Source: http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=19102&cat_id=2

Haggle for your home loan

We as Indians, never feel satisfied with any purchase unless there is a bit of bargaining. Be it with the local vegetable vendor or the electronic goods salesperson, the sale is complete only after we are done with our share of bargaining.
What about the probably the biggest purchase of our life; the housing loan? Do we bargain enough to squeeze out the best deal? For some first time buyers, the anxiety and eagerness to claim their first house soon may lead to a mild attempt or none at bargaining. For those who do bargain, the rigid stance shown by the lenders leads to accepting defeat soon.

We refer to the housing loan as the purchase and not the house, for the house is considered purchased only after the last EMI is paid, whereas the loan is considered ‘purchased’ the moment we sign the dotted line.

Come to think of it, for example the difference between a 10 per cent and a 10.25 per cent loan for R20 lakh over 20 years will result in a differential outflow of over R85,000. So why not haggle over it?!

The easiest bargain

Probably, the easiest bargain in a home loan is the processing fee. The fees vary from lender to lender, but the decision to reduce it can be taken even by the local sales manager and hence it is easy to get a good rate and sometimes even a waiver. The best part of this bargain is that you can feel the satisfaction of having saved immediately. 1 per cent on a R18 lakh loan is R18,000 saved.

Interest rate

The biggest expense, irrespective of the amount borrowed is the rate of interest charged. To get a good deal on this you could follow one of the following strategies:

1. You can use online loan comparator tools to find out the various rates being offered by lenders, which will help you to compare many lenders and give you an indicative interest rate pricing for them.

2. Given the current interest rate scenario and tough competition, most lenders quote their best rates only. Hence getting a discount on the actual interest rate is not going to be very easy as the maximum leeway that the lender has will be in the range of 0.25-0.5 per cent. But then, as discussed earlier this could mean a saving of over R85,000 in the long run.

3. A good way to get this discount is to try to apply for the loan during the month end or quarter end, when most of the sales people will be under pressure to deliver results and might show a little leniency to get your account.

4. Employees of big corporates are given some extra discounts on loans provided their company has a tie-up with the lender. Enquire with your employer for any such scheme and utilise it to the maximum.

Eligibility factors

To ensure you are in a good position to bargain, invest a little bit of effort in shoring up your finances. This can help in getting a better rate as well as a better tenure.

Some of the things that can be done to achieve this are: roping in a co-borrower or a guarantor, adding your father or spouse with a good income as a co-borrower etc.

Credit score matters

Keep a strict tab on your credit score. Wise use of credit cards or a good repayment track record of a past loan can increase your negotiating power with the bank as you have already established your credibility in terms of handling credit.

Judicious timing

After several hikes last year, interest rates are at last cooling off and a downward trend is expected in the next few months.

Before this actually happens builders might provide discounts and banks could also be a bit lenient, understanding that most will favour waiting and watching. This may work in your favour, especially when you land a good home deal and use your bargaining prowess well.

A word of caution: Always clarify that there are no riders attached and do a check on their service levels, track record and other charges levied. It is always advisable to go with a lender who has a track record rather than a new player just for getting better rates, as this is going to be a long-term association.

Source: http://www.financialexpress.com/news/haggle-for-your-home-loan/919276/0

A few costs you should keep in mind while buying a resale property

Here are three costs you should keep in mind while deciding on a resale property

Buying a house isn’t an easy task. There are a million things to look into and this stands true not just for new properties but also for properties on resale. Here are three costs you should keep in mind while deciding on a resale property.

Lawyer charges

Resale real estate market is full of cases where a single property is sold to multiple buyers at the same time. For this it is advisable to run a check on the property title before you enter into an agreement. For the job, you can hire a property lawyer who would check records of the past 12 years verifying the authenticity of the seller. For this, he would charge you between Rs. 5,000 and Rs. 10,000. The lawyer would also help you complete other paperwork related to property registration and stamp duty.

Repair and renovation cost

Rarely would you find a resale property that does not need some amount of repair or renovation work from your side. There could be a leaky roof, or pealing paint that needs to be fixed. At times, you may need to renovate the entire house, from scratch.

Structural engineer’s cost

Properties on resale are sometimes old structures. While the structure may look strong from outside, only a technical expert like a structural engineer would be able to confirm its stability. Keep in mind that getting a good report card from the structural engineer is important, especially if you are taking a loan to fund the property purchase. Usually, the lender ensures that it recovers this cost somewhere or the other via your loan. If you plan to buy the property with your own funds, you will have to pay for this survey cost out of your own pocket.

Pending dues

Make sure that the past owner of the property has paid all bills. These could be electricity charges, water tax, property tax, society charges, parking space charges and the like. If the previous owner hasn’t paid any of these bills, you have no option but to settle the same once the house is in your name.

Other costs

Some residents’ associations charge a hefty sum to transfer the ownership of a property. So do include this cost as well.

The real estate agent who helped you locate the property will need to be paid once the entire transaction has gone through. This could be a percentage of the buying price of the property.

Source: http://www.livemint.com/2012/02/29214814/Did-You-Know–A-few-costs-you.html

Residential rentals continue to rise

According to industry estimates, developers are going slow on execution of real estate projects

There is bad news for those who live on rent assuming they save some money and tide over high interest rates cycles by not availing a home loan. A number of localities across cities have witnessed significant rental rate appreciation in 2011 due to rise in demand for rental accommodation, according to latest data available with property portal 99acres.com. And that is not all as the trend seems to be sustainable. “Residential rentals may keep on moving upwards. Initial trends coming in indicate that rentals may rise this year too,” says Vineet Singh, business head, 99acres.com.

However, commercial rentals have fallen in the same time frame. Rentals across premium office spaces have declined in some prominent markets, according to a report by property consultant Cushman and Wakefield.

Why moving up

According to industry estimates, developers are going slow on execution of real estate projects. As a result, there is a drop in supply of residential apartments in most prime markets. Therefore, new emerging residential areas are still not able to meet the huge housing demand. “The rental rates have moved up significantly during 2011 because of two key reasons. First, the expected supply of residential properties announced in early 2009 has not been able to reach the market yet due to delay in construction. According to estimates, around 500,000 units in key markets that were to come in the market by end of 2011 are delayed by another year. Second, there has been an increase in lateral hiring by corporates. With job scenario getting better for most in the country, people have more to spend,” says Singh.

Also as new emerging areas lack the necessary infrastructure, they cannot be used for living.

What it means for you

While renting may be cheaper than buying, owning a property at any stage makes sense. “You should not time your investment with the market while buying a property. If you can afford to buy and bear your monthly expenses, rent along with the equated monthly instalments, you should enter the market any time,” says Ganesh Vasudevan, vice-president and business head, , a Chennai-based property portal.

“While residential rental yield in India is around 2-3%, gains from capital value appreciation is much more than the yield on that property. This gain usually beats the rate of inflation. So it makes sense to buy,” added Vasudevan.

Also, with indications of interest rates softening and no correction in property prices, it is time you think of investing in a property.

Source: http://www.livemint.com/2012/02/26203312/Residential-rentals-continue-t.html

Romancing with financial planning

On the occasion of Valentine’s day last week, our entire workplace was caught in a discussion about a remark made by a colleague who said that financial planning is the most romantic thing for a couple to do together.

The discussion turned serious when another colleague narrated the example of a couple who wanted to create a financial plan, and in the process of creating one, got into an heated argument that threatened to show no signs of ending anytime soon. This discussion reminded me of another incident, where a couple started the process of collecting data and after 4 hours started blaming each other for increasing credit card bills. The worst thing that happened here was that they refused to agree on goals after this argument.

These two incidents led us to think, is financial planning actually romantic? And does it harm a couple more than help them?

I have seen that financial planning compels couples to tackle issues that may be present but are never spoken about. A couple may not ever discuss issues like “How do you plan to take care of your ageing parents?” or “What do you want to do after your retirement?” The financial planning process helps them to:

1. Become self-aware about their individual expectations

2. Understand their partner’s expectations

3. Arrive at a common conclusion/ decision on how they jointly envision their life ahead.

I once met a couple who were totally unaware about each other’s financial decisions or how those decisions were impacting them. There were a lot of shocks and surprises. “Oh, groceries are so expensive?” “You give the child pocket money?” “My laziness in not packing your lunch is costing so much?” They seemed to be rediscovering their partner all over again. It also appeared that they started respecting and appreciating each other much better after the exercise.

Some people might perceive that the absence of arguments and disagreements is the indication of a strong and healthy marriage. However, the absence may also be due to the fact that the couple never actually discuss the problems at hand. Disagreements on how money is managed go a long way in the way couples deal with each other and in some cases even value each other.

When two people are together in a union like marriage, it is important that they align their dreams and goals. Often couple do not do this prior to marriage. Hence, it becomes all the more important that they do it at least now that they are married.

It is always advisable for young couples to start financial planning before they get married. When two people plan to live together for a long time, it’s important that each of them understands their spouse’s perception about money.

Getting in touch with one’s deepest concerns, sharing it openly with the spouse, dreaming of a happy and secure future, looking forward to growing old together in each other’s arms – sounds so romantic.

Financial planning is one of the best things anybody could do. If you didn’t do it this Valentine’s Day, then do it now. After all the season of love doesn’t have to be restricted to one day,right?

Source: http://www.financialexpress.com/news/romancing-with-financial-planning/914117/0

Home buyers be prepared to pay more on home loans

Mumbai: Home buyers will now have to arrange 20 percent to 30 percent of the property value on his own before seeking loan from a bank as per the new guideline issued by the Reserve Bank of India.

Stating that banks have been found overstating value of houses they finance by adopting practices like including stamp duty and other charges in the cost, the RBI last week directed lenders to refrain from such practices.

“It has been brought to our notice that banks adopt different practices for deciding the value of the house property while sanctioning housing loans.

“Some banks include stamp duty, registration and other documentation charges in the cost of the house property,” the Reserve Bank said in a circular.

It said this leads to overstating of the realisable value of the property as stamp duty, registration and other documentation charges are not realisable and consequently the margin stipulated gets diluted.

“Accordingly, banks should not include these charges in the cost of the housing property they finance so that the effectiveness of Loan to Value (LTV) norms is not diluted,” the apex bank said.

Concerned over excessive flow of banking funds to the real estate sector, the Reserve Bank of India (RBI) had in 2010 issued guidelines directing the lenders to provide loans only up to 80 per cent of the cost of property.

In order to check speculation in the real estate sector, the central bank had made it tougher for banks to provide high value loans for properties costing more than Rs 75 lakh, besides raising the provision requirement for loans provided at ‘teaser rates’.

However, in case of small value housing loans of up to Rs 20 lakh, banks can provide loans up to 90 per cent of the property value, the central bank said, adding such loans are part of priority sector advances.

In absence of any LTV norms, banks have been providing liberal loans for buying homes, going up to 90 per cent of the asset value.

Sebi wants 500 violators blacklisted

Capital market regulator Sebi has decided to share with the Ministry of Corporate Affairs the names of about 500 companies that allegedly garnered money from investors in violation of its Collective Investment Scheme (CIS) rules.

Sebi (the Securities and Exchange Board of India) would also give the names of the directors of such entities to the ministry so that necessary action can be taken to prevent these companies and persons from associating with any new company, a senior official says.

The Collective Investment Schemes, where an entity pools in money from investors for certain pre-specified purposes and later distributes the profits or income, come under Sebi’s ambit.

In some recent crackdowns, Sebi had barred companies including Rose Valley Real Estate, Sun-Plant Agro and Pearl Green Forest from raising public money and from launching any new schemes.

Many of these entities and their operators and directors tend to restart similar business under a new name and numerous investors are taken for a ride before they come under the Sebi scanner, the official says.

Sebi has requested the ministry to circulate the names of defaulter CIS entities and their directors among all the Registrars of Companies (RoCs) in the country to prevent them from being associated with any new company. Sebi is also of the view that an overhaul of the current CIS regulations is needed, as loopholes in the existing rules allow investors to be taken for a ride.

Sebi will take up the issue of these regulatory gaps at a meeting of the Financial Stability and Development Council chaired by the Finance Minister. The council includes top financial sector regulators such as the RBI Governor and the Sebi Chairman.

While hundreds of companies have engaged in CIS activities in the country, just one such entity is registered with Sebi to undertake such business. According to Sebi data, more than 100,000 investor complaints are pending with it in connection with such schemes, and the matters have been sub-judice for long in most cases.

While Sebi is the regulatory authority for such schemes, a number of other government agencies and departments also govern similar investment products and a lack of clarity in this regard comes in the way of bringing the guilty to book.

Source: http://business-standard.com/india/news/sebi-wants-500-violators-blacklisted/464121/

Standard Chartered Bank lends Rs 250 crore to Bangalore realty firm, DivyaSree Developers

Standard Chartered Bank lends Rs 250 crore to Bangalore realty firm, DivyaSree Developers

BANGALORE: Standard Chartered Bank has lent 250 crore of construction loan to DivyaSree Developers for developing a mixed used project in Bangalore, said more than one person with direct knowledge of the development.

The mixed-use residential project, DivyaSree Technopolis, is being built on the Old Airport Road in Bangalore.

DivyaSree Developers refused to comment on the transaction. Standard Chartered could not be reached for a comment.

The Bangalore-based builder is also in talks with private equity funds, including the PE arm of Standard Chartered to raise $30 million by selling a stake in its residential development in Bangalore.

“The company plans to raise around $100 million in the next six to nine months in three tranches across different residential projects and to buy land,” said a Divyashree executive, who did not wish to be named.

So far, the company has developed seven million square feet of commercial space, and has around three million square feet under construction that is slated for completion in the next eighteen months. The company is also looking at selling around 2.7 million sq ft of income producing office space for 1,600 crore in different developments in Bangalore and Hyderabad.

DivyaSree has a total debt of 750 crore.

The IT capital of India has been attracting large PE deals, in the largest real estate this year, PE major Blackstone in June picked up 37% stake in Manyata Tech Park for over 1,000 crore ($200 million).

In a similar instance Maple Tree has acquired 2 million sq ft from Assetz Global Technology Park in a deal valued over 800 crore and Baring Private Equity Partners invested 450 crore in RMZ Corp for acquiring 6 million sq ft of office space in Bangalore.

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/standard-chartered-bank-lends-rs-250-crore-to-bangalore-realty-firm-divyasree-developers/articleshow/11817108.cms