Latest Property News on 'NRI'

Puravankara Targets Overseas Market; Plans Project in Sri Lanka

Real estate developer Puravankara is eyeing the overseas market for expansion. The company’s maiden project in a foreign soil is coming up in Sri Lanka. The company had invested on the land some years back, but postponed development as the situation was not congenial for promoting mega projects. “We were waiting for the right time to develop it,” a senior official of the company told Business Line.

Stating that Purvankara would make an announcement about this upcoming project before the end of the current calendar year, the official said “the site is located en route to the airport from Colombo city. It is a 25-acre plot and we have the necessary approvals in place from the respective authorities.” The real estate development major also owns another piece of land within the city limits, but would look at developing the same at a later date he said, referring to the land holding in Colombo.

“The project would comprise apartments and mid-segment dwelling units,” he said without disclosing more details about the company’s overseas venture. In India, Puravankara is planning to reach out to 22 cities over the next five years. The company is planning to moot projects in Tiruchi, Salem, Madurai and so on among other locations.
The company, meanwhile, has expressed its intent to hike the price of ‘Purva Bluemount’ – a project under construction at Singanallur in Coimbatore, from November 21. The project is sitting on 16.86 acre, with a planned layout of 1,116 units, comprising two and three bedroom apartments ranging from 1,352 sq feet to 1,872 sq feet. Construction is under way, work commenced around May 2011.

Decision on FDI in Multi Brand Retail Next Week

The Government’s long awaited ‘big ticket’ reform — of allowing foreign direct investment (FDI) in multi brand retail — is likely to see the light of day soon, with the Union Cabinet likely to take up the issue next week. The case for increasing the current 51 per cent cap on FDI in single-brand retail is also likely to be considered at the same time, Business Line reported, citing sources. Allowing FDI in multi-brand retail would open the door for giant multinational retail chains such as Walmart to enter the Indian retail sector. Currently, Walmart has a joint venture with Bharti for wholesale ‘cash-and-carry’ stores.

The move had been delayed by strong political opposition from some quarters, which feared that the entry of foreign retail chains would kill the small Indian retailer. According to sources, the plan is to issue the necessary orders within a month of the approval by the Cabinet. “So now you can expect a New Year gift for the foreign investors”, a person familiar with the development said. But the “gift” is likely to come with several strings attached. Sources confirmed that the Cabinet nod was likely to come with several modifications to the recommendations made by the Committee of Secretaries (CoS) on the subject.

For example, the final guidelines for the FDI may ask for 30 per cent mandatory sourcing from small and medium enterprises (SMEs). The definition of the SMEs may include domestic and global firms. It may be recalled that the CoS, in its meeting on July 22, said, “The condition that 30 per cent of value of manufactured items may be procured from the domestic SME sector, was not agreed to.” The Government is also likely to stipulate that in the case of agricultural produce, 60 per cent of the sourcing should be from low-income, resource-poor farmers.

Such farmers will be defined as those who are having less than 10 hectares of land. The final guidelines may retain the recommendation of the COS regarding self-certification by the company in regard to 50 per cent of the total FDI proposed by an investor in back-end infrastructure, but with a condition that the Government may go for surprise checks.
The final proposal is also likely to give some detail about the definition of ‘back-end infrastructure.’ It may say that cost of land and the building for a retail store will not be taken as investment in the back end infrastructure. Earlier, it was not clear what could be considered as back-end infrastructure.

To soothe the concerns of the electronics sector, the final guidelines may impose a condition such as, “for the purpose of investment in the back end infrastructure, any investment made in the processing, manufacturing or distribution would be counted.”
A senior Government official said that an increased FDI limit in single-brand retail may come with some riders. One of these could be mandatory 30 per cent sourcing from small and medium enterprises, as soon as the FDI limit exceeds 51 per cent. The Government allowed FDI in single-brand retail in February 2006. Till May this year, a total of $92.1 million was approved, but actual inflow has been just $69.26 million.

Real Estate FDI Worries may continue this Year

The level of foreign direct investment (FDI) in the real estate sector, which was at a low in 2010-11, is unlikely to show a quantum jump this year, courtesy a slow GDP growth rate, high debt levels of the real estate developers, labour shortage, economic crisis in the US and Europe — according to experts. A recent industry report shows that FDI in 2010-11 was the lowest in the last four years. According to the FICCI-Ernst & Young real estate report, the FDI in the sector declined to 6 per cent of the total direct investment coming to India in 2010-11 —the lowest in four years. Housing and real estate attracted 8.9 per cent of the total FDI in 2007-08, 10.3 per cent in 2008-09 and 11 per cent in 2009-10.

Real estate attracted just $1.6 billion worth of FDI in 2010-11, against $4.1 billion in 2009-10, $3.8 billion in 2008-09, and $3.1 billion in 2007-08, the government estimates show. The total FDI inflow into India was $27 billion in 2010-11, $37 billion in 2009-10, $37.8 billion in 2008-09 and $34.8 billion in 2007-08, as per data provided by the ministry of commerce and industry. “Foreign investment inflow in the Indian real estate sector will only deteriorate if the economic problems in Europe and the US persist longer,” says R R Singh, Director General, National Real Estate Development Council (Naredco).

According to Kaustuv Roy, executive director of global real estate consultancy firm Cushman and Wakefield, a lot will depend on the bookings this season. While the developers have pinned their hopes on festive season sales, Roy argued that people may hold on to the funds in the midst of a weak global economy. In India, real estate sales have been hit due to the high interest rates too. “The debt situation of majority of real estate companies is bad,” notes Singh. “Since the growth outlook is not being very optimistic, foreign investors are getting discouraged to invest in the sector.”

Exit route not being easy is another reason deterring the foreign direct investors, points out Sanjay Sharma, managing director of real estate consultancy firm Qubrex. “In three years,” he says, “if an investor is not able to exit where a venture is not profitable, it discourages the foreign investors.” Adds Roy: “The lack of confidence in the market for tying up with developers is discouraging foreign investors. Things will start looking up if the Land Acquisition Bill is passed in the winter session (of Parliament).” Small developers, however, are still getting foreign investment at a predetermined high interest rate of 25-30 per cent, according to Singh. “The debt-free small developers with small projects have clear accountability, compared to a big developer.”

With delays in delivery becoming a common phenomenon in the sector, investors are going to look at the execution of the projects, says Sharma. “Once a delay happens, it affects the cost and the price of the project”. And it all comes back to the domestic economy. Adds Singh: “With inflation persisting at over 9 per cent despite the efforts of RBI, and interest rates touching the roof, the demand for property will fall, ultimately affecting the foreign investment.” However, the FDI level could move up if the economy grows at 8-9 per cent and the demand gets a boost, he notes. The economy grew just 7.7 per cent in the April-June quarter of 2011-12. RBI last month went for a rate hike— its 12th since March 2010. With inflation still stuck at over 9 per cent, economists expect more hikes to come.

No FDI in Real Estate Consultancy Firms: GOVT

The government has decided not to allow foreign direct investment (FDI) in real estate consultancy firms, given the perception that this route is used as a conduit for investing in real estate. The Foreign Investment Promotion Board (FIPB) has articulated this view, while rejecting a proposal by the French consultancy firm AOS Studley Group for starting real estate consultancy services through a subsidiary. “The Department of Industrial Policy and Promotion (DIPP) does not support any proposal (for FDI in real estate) even if that is in the area of consultancy,” the FIPB said.

The board has also stated that no future proposal for FDI in real estate consultancy will be entertained. FDI is barred in real estate companies. The DIPP is the nodal agency for FDI policymaking. However, it is not clear whether the new measure will impact global real estate consultancy firms such as CB Richard Ellis, Jones Lang La Salle Knight Frank and Cushman and Wakefield, which are currently offering advisory services in the country. The clarity on whether the rule will be applicable on existing firms is expected in March next year when the FDI policy is up for half-yearly review. Reflecting the concern of global real estate consultancy firms, Jones Lang LaSalle country head Anuj Puri said, “As on date, the advisory services business is a R1,000-crore industry. It would be a retrograde step on the part of the government if the ban applies retrospectively.”

Angshuman Magazine, head of the Indian subsidiary of US-based CB Richard Ellis, said, “We are only present in service entities and not into developing or building and construction-related areas. Therefore, the government’s new move would impact our business in India apart from eventually hitting the overall realty business.” The FDI ban has been mooted by the DIPP because it feels that real estate consultancy firms may get into buying and selling properties through the backdoor. The current policy prohibits FDI in real estate companies but allows 100% foreign investment in projects of the real estate firms, such as construction and housing development subject to riders. AOS had sought government nod for undertaking valuation, intermediating and appraisal services in real estate assets in India apart from project and facilities management services for its clients.

HDFC Plans to Raise $600mn from Overseas Investors for Residential & Commercial Projects

Housing Development Finance Corp., India’s largest mortgage lender, plans to raise its fourth property fund from overseas investors, said two people with direct knowledge of the matter Housing Development will seek to raise $600 million for residential and commercial projects in India’s largest cities, starting with an investor roadshow in Singapore from November, said one of the people, declining to be identified before a public announcement. A Mumbai-based spokesman for HDFC declined to comment, and said he couldn’t be named due to company policy.

Property demand has weakened in India’s biggest cities as the country’s central bank has raised the benchmark interest rate 12 times since March 2010 by a total of 350 basis points. That’s the fastest round of increases since the Reserve Bank was established in 1935, Bloomberg data show, and it’s left developers with a shortage of cash and expensive debt.

Raising money shouldn’t be difficult for Housing Development, given its credentials, Pranay D. Vakil, chairman of real-estate agency Knight Frank India Pvt. Ltd. said. “The more difficult problem these days is deploying money in the right kind of assets. A lot of funds have deployed money and not all of them are successful.”

Housing Development will mainly tap investors from the Asia-Pacific region and the U.S. for the private equity fund, said one of the people. The Mumbai-based company aims to invest about 40 percent of the fund in residential projects on the outskirts of India’s largest cities, and as much as 30 percent in commercial developments, said one of the people.

Govt May Consider 100% FDI in Single Brand Retail

The government is considering opening fully its single-brand retail sector to foreign direct investments, the industry secretary said on Monday, a possible boon to the government’s reform programme which has appeared on the backburner. India currently allows 51% foreign direct investment ( FDI) in single-brand retail and 100% in wholesale operations. The government has considered allowing foreign firms such as global retail giant Wal-Mart to invest in supermarkets, but lack of political consensus and concerns of the small-shop owners have so far prevented the move.

In the absence of supermarket reform, Prime Minister Manmohan Singh’s government may free up the single brand sector to send a positive signal about the country’s investment climate . “It is under consideration ,” RP Singh told Reuters by phone, but declined to provide a time frame. A slew of corruption scandals in the Congress party-led coalition have sparked huge street protests, rattled investors and stymied policy making in recent months, smothering hopes that Singh’s government would press ahead with a reform agenda.

Key economic policy changes, from tax reform to lifting investment caps in the banking and insurance sectors , are seen as crucial to maintaining the momentum of one of the world’s fastest growing economies. The industry secretary had last week dismissed the talk that supermarket reform was on the backburner, saying that it was moving “very fast” although fears of job losses in the unorganized retail needed to be addressed. Foreign retailers such as Wal-Mart , Carrefour SA, Tesco Plc and Metro AG see India’s 1.2 billion population as one of the world’s last largely untapped markets. The move is seen by many in government as crucial to tame high food prices, but the plan has not yet been approved by the cabinet, with job-loss concerns ahead of state elections next year and a general election in 2014 slowing policy.

Currently, up to 40% of India’s harvests rot because of inadequate cold storage and supply bottlenecks, a situation some economists say foreign money in supermarkets will help resolve. A committee of top civil servants, of which RP Singh was a member , in July agreed to recommend to the cabinet allowing foreign firms to take a 51% stake in multi-brand retail operations.

Global Investors Interested in Indian Real Estate: Cushman & Wakefield

The current global scenario might be one of gloom, with markets in the US and in Europe on the brink of a double dip recession, but interest in Indian real estate is still high among global investors, said Carlo Barel di Sant’ Albano, chairman of the board of global property advisory firm Cushman & Wakefield.

“If a private equity player with a good track record comes up with a project in India, he will still find capital,” he says. Of course, the time taken to raise money has increased, as many international investors are averse to investing at the moment. “But it is clear from all the investors we speak to that they are trying to figure out how to put money in this part of the world, even today,” he adds.

Today Asia is a very critical part of any corporate or investors’ strategic plan. For Albano, India is at the centre of that strategy, alongside China because of its size and growth prospects. “If you look at the growth prospects in other parts of the globe, given what is happening in the US and in Europe, Asia is clearly an important driver for growth in the future,” says Albano.

Over the next few years, investor confidence in India is expected to improve, as transparency and regulation improve. “This will push more capital into real estate,” he says. In India, foreign direct investment in real estate already ranks fourth among other sectors, which is a fairly high position considering the regulations that exist for FDI in real estate. When one talks about investments, a comparison between India and China is inevitable.

Albano points out that China is ahead in terms of investment in infrastructure and India has some catching up to do in terms of infrastructure. “This scale in different cities in China provides extra flexibility and a bigger canvas for investors.” India, on the other hand, is ahead in terms of availability of human capital.

FDI in Multi Brand Retail will Increase Investment Opportunities in Organised Retail Sector

The introduction of FDI in multi-brand retail will lead to increased demand, which in turn will catalyse more investment opportunities in organised retail. A key differentiator of the retail sector is that it penetrates beyond the top seven cities, into areas where there is a significant shortage of well-planned, well-developed and professionally managed shopping centres. In other words, the organised retail real estate market will spread more uniformly and more lucratively for all concerned.

The increased demand brought about by the opening up of new business avenues by increased FDI in Indian retail will lead to higher commitment to and absorption of shopping centre space. It can reasonably be expected that this increase will be to the tune of 10-15 per cent in the first year and up to 35 per cent by the third year. Thanks to FDI in multi-brand retail, the organised retail sector in India will increasingly catch the attention of real estate development companies and investors, including private equity firms and fund managers who have so far been very cautious about the retail space.

Geographic impact The spread of organised retail’s geographic footprint is a factor demographics that retailers, depending on their product categories as well as short term and long term business objectives, will target. Hypermarkets such as Wal-Mart, Tesco and Big Bazaar will absorb the highest amount of retail real estate in tier-II and tier-III cities. Among these, they will focus on the top 35 cities — those with populations bases of one million or more – in the first and second phases. Though the spread will happen in all regions, it will take place in clusters since available retail logistics and infrastructure play a significant role.

Impact on the cost of retail real estate The main ingredient of real estate costs is land, which continues to remain stable and in fact is appreciating in most markets. This needs to be coupled with the cost of construction and cost of capital. There is also a challenge by alternative and much more lucrative investment opportunities in the form of residential projects. Supported by stronger-than-expected demand for retail brought on by the opening up of FDI norms, this may actually accelerate land prices and the cost of space in shopping centres. This will not happen immediately upon introduction of FDI in multi-brand retail. The reason is that there are a lot of non-performing retail assets on the market that will be absorbed in the first phase. By phase 2 of the growth cycle, which will come around by 2013, valuations are likely to move up by at least 30 per cent.

Sunil Mittal Gearing up for Big Splash in Real Estate Sector

The goal is to be one of the top three realty companies in India, and Mittal has set up Bharti Realty Ltd as the beachhead to achieve it. Officials at Bharti Enterprises, the group mothership, were not available to share details. Bharti Realty has started work on four projects including three mixed-use developments and a shopping mall in northern and eastern India. While residential developments are not a part of current activity, the management plans to enter the segment too.

Sources familiar with the development said Bharti Realty earlier focused on creating and leasing real estate for the Bharti group’s business operations in Delhi and the National Capital Region. Among some of its existing developments include Bharti Crescent in New Delhi, which serves as Bharti Enterprises’ corporate office and Airtel Centre in Gurgaon. The company’s 5 lakh sq ft mall project — called Pavilion — in the heart of Ludhiana is already underway. The company has also acquired three assets to develop high-end commercial and retail space at the Delhi International Airport Ltd’s hospitality district / Aerocity near the new T3 terminal of the Indira Gandhi International Airport in the capital.

To be christened Worldmark, this integrated development is spread across approximately 1.5 million square foot and will be operational within two years from now. The company has also acquired 6.7 acre on the Golf Course Extension Road in Gurgaon, where it will develop a shopping and office hub offering affordable and futuristic office spaces within an open and vibrant retail arena. Christened Eldorado, this development will follow a mix of lease (for retail anchor tenants) and sale (for office and commercial space) model. In Kolkata, the company is coming up with a 5 lakh square foot of mixed-use development in Rajarhat to be launched as Astra Towers. Sources said Bharti Realty is currently identifying and negotiating for land parcels for similar developments across key Tier I and Tier II cities. In Mumbai, the company is negotiating for a land parcel of around 20-25 acre, which is expected to be concluded in a couple of months.

FDI in Real Estate Sector Lowest in 4 Years

Foreign direct investment (FDI) in the real-estate sector last year was the lowest in four years, but private equity activity gained momentum during the recent months, according to a study by an Indian industry chamber and a global accountancy firm. Between January and June 2011, PE investments in real estate reached $444 million, 47 per cent higher than the investments made in 2010 during the same period. And, most of the investments are coming from realty-focused funds, says a joint report brought out by Ficci and Ernst & Young.

Luxury housing, it notes, has taken a backseat and affordable housing is gaining momentum due to the liquidity tightening by the RBI. between March 2009 and November 2010, developers sold more than 40 million sq ft of mid-income residential property in the National Capital Region alone. “On the residential front,” notes Rajiv Kumar, secretary-general of Delhi-based Ficci, “the sector will face significant shortage of homes for the mid-income group. This has become a priority for the government.”

Property price was to climb further on the back of rising raw material cost, labour shortage and rising interest cost, which is putting pressure on the profit margins of the developers, the report said. The latter increase would not only increase the monthly payment, but also increase the cost of construction, ultimately impacting the selling price of apartments. The industry is grappling with a labour shortage of about 30 per cent. The situation is expected to worsen in the next decade when demand is expected to rise three-fold. “Real estate prices have peaked, exceeding the pre-recession rates in some markets,” says Ajit Krishnan, partner & real estate & infrastructure leader of London-headquartered Ernst & Young.

The report has added that possible FDI in multi-brand retail would lead to increase in rentals. While consumer spending has increased, rentals continue to remain under pressure due to excessive supply. Bengaluru is set to witness increase in rental due to lowest vacancy rate and over-supply, while Noida may not experience an increase in rentals due to high vacancy rates. As per the report, Mumbai and Delhi are the undisputed leaders in all forms of real estate, but due to scarcity of land, rising rentals and capital value, developers and industries are targeting Kolkata, Pune and even tier II cities such as Mysore, Chandigarh and Jaipur. To make malls attractive amid an oversupply market, luxury and theme-based outlets are increasingly gaining momentum.