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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.

Developers Lure Doha NRIs to Invest in India

Indian property developers called upon potential buyers in Doha to take advantage of recessionary trends in the global economy and make investments in the real estate sector of growing economies like India. The two-day Indus Property Exhibition 2011 was held in the city recently, where Indian real estate developers showcased their properties. In a joint statement issued on the occasion, the participating companies said that “with India beginning to resurface itself as a formidable economic system, backed by strong foreign exchange reserves, healthy GDP growth rates and expanding foreign direct investment, conditions are ideal to buy properties in the country’s major cities”.

The Indian real estate market, they said, continued to be on the upswing and for NRIs, it was the right time to invest in properties back home. They pointed out the entry of a number of international real estate houses in India showed foreign investors’ increasing confidence in the Indian market. They noted that 100 per cent FDI was allowed in India’s real estate sector. The companies showcased apartments, independent houses, bungalows, luxury and premium villas, farm houses, commercial properties, beach resorts and plots. More than 100 properties from New Delhi, the National Capital Region, Mumbai, Hyderabad, Vijayawada, Nelloor, Chennai, Coimbatore, Bangalore, Tiruchirapalli, Ooty, Hosur, Gurgaon and similar locations were showcased at the exhibition. The exhibition was jointly organised by Apex Business Solutions and Indus Events and Exhibitions.

JLL to Foray into Sri Lanka Real Estate Market

Jones Lang LaSalle yesterday announced plans to enter the real estate market in Sri Lanka. “Jones Lang LaSalle is opening a full-fledged operations branch in Sri Lanka. It is the first IPC to venture out into this lucrative country, based on its findings that Sri Lanka is a real estate boom unfolding even as we watch,” said Alastair Hughes, CEO of Jones Lang LaSalle Asia Pacific. “Apart from an immense market for organized commercial, residential and retail real estate services, Sri Lanka’s progressive market policies give it an incredibly business-friendly environment that is very favourable to investment and economic growth. We see it as one of the most attractive investment destinations in the Asia-Pacific region.”

The announcement was given at the firm’s annual Global Executive Committee which was held in India for the first time since 2007. At the meeting Jones Lang LaSalle also announced the launch of Jones Lang LaSalle Residential Private Limited, a specialized services division to cater specifically to the Business to Consumer (B2C) market segment. “We are launching a dedicated B2C residential services wing in India, which will build on the success of its existing residential business operations in the Asia Pacific region,” said Mr. Hughes. “The primary purpose is to sharp-focus on the broader opportunities of the residential business within the APAC region, particularly China, Singapore and India.”

As part of this realignment, this business line will now be an integral part of the parent brand – Jones Lang LaSalle – as a separate business entity, in order to boost business synergies and address diverse customer needs within the Asia Pacific region, from both the brand and operational perspectives. Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, offered a snapshot of the Indian real estate market. “We are seeing high levels of new supply in the commercial space segment, and the absorption of this space is equally strong,” he said. “Approximately 24 million square feet of office projects have been completed in this year to date,” Mr. Puri added, going on to state that though there is still an overall vacancy rate of 19 per cent, the Indian office space sector is poised to grow by around 17 per cent year-on-year between 2011 and 2013.

In 2011, office absorption will surpass the 2008 peak of 33 million square feet, with Information Technology driving most of the demand. “There is also strong demand from the industrial and manufacturing sectors. Interestingly, the banking and finance sectors are now focusing on outright purchase,” said Mr. Puri.

US Billionaire Sam Zell’s Equity International Plans Entry into Indian Real Estate

Billionaire Sam Zell is entering the real estate markets in India and Columbia in the next two weeks as he continues to favor international investments over US property deals. Zell, chairman of Chicago-based Equity International, will invest in real estate in Colombia and will eventually move on to residential projects, he told Bloomberg Television. In India, he plans to open hotels.

“In India, we’re doing a hotel/motel program like Residence Inn at Marriott and we hope to build a chain across the country,” he said. Zell, through Equity International, which he co-founded with Gary Garrabrant in 1999, has invested in real estate- related companies around the world, including in Brazil, China and Mexico. His involvement in the US property market is “minimal” amid low interest rates and inflation that he estimates to be as high as 6 per cent, Zell said. Equity International’s first deal in Colombia is a $75 million investment in Bogota-based Terranum Development, a closely held real estate company, according to a statement.

Reason why Indian Real Estate Lures US NRIs

The favourable exchange rate and the US Federal Reserve’s attempts to tackle a rapidly-weakening economy by freezing shortterm interest rates for two years are two factors that encourage NRIs across the US to divert their investments into more profitable avenues such as property here. According to Chandru Bhambhra, a realtor based in the US in the bay area, in addition to the exchange and interest rates, the need to have a property in India as well as the high appreciation in value influence an increasing number of NRIs to invest in real estate here.

As of now, IT professionals form a major segment of the buyers. Those who are keen on relocating look at cities such as Bangalore as the chances of a job in the IT sector appears better. Whether it is a temporary assignment or a permanent shift in their own organisation, a number of NRIs feel owning a home away from home is a viable proposition both in terms of price appreciation and rental returns. There are two types of prospective NRI property buyers. One is the first-time buyer who is invariably a recent immigrant with a definite period of stay in the US. The second is the investor who is invariably an established professional or successful entrepreneur who has made his fortune during his sojourn abroad.

“The first-time buyers prefer their hometown. Many choose Bangalore for its top class housing and amenities where prices are dictated by market dynamics. A large number look for options in the range of Rs 50 lakhs to Rs 75 lakhs, says Khanderao, Founder, Global Indian Technology Professionals Association, in the bay area in California. There are some looking for a smaller investment. The over-riding priority here is a site. This is mainly a hedge against inflation. MNCs planning to expand their existing operations are looking at commercial spaces. “In addition to the existing MNCs, I expect new companies in the social and cloud computing space to look for expansions in Bangalore,” says Khanderao. MNCs are drawn to Bangalore due to its large talent pool tuned to the same professional culture as in the US.

“Around 70 per cent of the NRIs seek a home loan from the housing finance companies and banks in the US to fund their home purchase in India. This is because they require a longer repayment period and at the same time are keen on closing the loan much earlier than the scheduled period. The intention is to have minimal cash outflow every year in the initial years,” says N Raghavendran, President, Bharathi Tamil Sangham, California.

US Based Caesars Entertainment Corp Plans Entry into Indian Hospitality & Entertainment Sectors

Caesars Entertainment Corp (CEC), a Las Vegas-based gaming company, is planning to enter entertainment and hospitality sector in India through Caesars Global Life, which it recently set up to develop branded luxury hotels, restaurants and other lifestyle amenities in resort destinations around the world. Neera Chanani, South Asia head, Caesars Entertainment Hospitality, said the company management sees exciting opportunities across multiple sectors in India. “We are looking forward to partnering with world-class developers,” she told DNA.

Caesars will develop non-gaming presence and build a range of luxury hotels in South Asia with entertainment and retail as integral components, the company said. According to a company statement, Caesars plans to launch multiple brands from its portfolio in addition to a new lifestyle brand that is under development. However, it is not clear whether Caesars will take equity positions or focus on management contracts in India.

“Caesars will be focusing on major top-tier cities, as well as resort and holiday destinations,” said the company, which manages properties under the Harrah’s, Caesars and Horseshoe brands, about India plans. Caesars that operates over 50 casinos, hotels, and seven golf courses under several brands is the third casino-gaming company to foray into India after MGM Mirage Hospitality and Thunderbird Resorts Inc.

Realty Stocks Meander to 2008 Lows

Real estate stocks on Tuesday meandered close to the territories seen after the Lehman collapse in September 2008, even as the sensex, which opened firm in the morning, closed 108 points lower. While most realty are down, there are some which are trading much above the levels seen during the peak of credit crisis in 2008 and 2009. The real estate index of the BSE was the worst hit, down 5.4% from its Friday’s close.

Rising costs, tightening of fund flows from banks to the real estate sector by the banking regulator, and rising housing finance rates have started hurting real estate companies. Stocks of leading developers like DLF and Unitech are deep in the red when compared with the prices on October 27, 2008, the day the sensex had crashed below the 7,700 mark in intra-day trade. While Unitech is down 35% since that late-October 2008 lows, DLF is down 4.6%. For Unitech, non-core issues like the company’s involvement in the telecom sector and also the alleged 2G spectrum scam is weighing on the stock, market players said.

On the other hand, the gainers included Sobha Developers and Parsvnath Developers, with both the stocks now trading at levels which are more than double of what it had touched then. One of the main reasons for the slide in the stock prices of leading developers like DLF and Unitech is the rise in interest rates in the economy. Since March 2010, the RBI has hiked policy rates 11 times, pushing up lending rates for banks. “Mortgage rates have gone up, while developers’ costs have also risen. These have had their impact on the real estate sector,” said Anshuman Magazine, CMD, CB Richard Ellis -South Asia, a leading real estate consulting firm.

Since the stock market investors look at the future prospects of companies while investing in stocks, the same does not look very bright. “We need to see how the next 3-4 months go… if interest rate rise hits the market too much,” Magazine said. Broking house analysts also said that several projects are getting delayed because of rising costs and lower demand. And since demand for high-end properties is on the decline, some of the developers are also concentrating on projects which are either on the mid-segment or even at the lower-end, thus compromising on margins.

While there is no data to show that as an investment option, market players also said that the rally in gold prices is attracting more money from high networth investors than it used to earlier. This in turn is leading to cut in investments into the real estate sector. Compared to losses in some of the top developers, the smart gains in the others could be explained by the strategy some of the developers followed in charging the right price at right locations, industry experts said. They said that some of the projects had started ahead and have now completed, and these developers are on a better wicket now.

Leela Group all set to Sell Leela Resorts Kovalam for Rs500cr

The Leela Group is set to sell its marquee property in Kovalam, a famous beach on the outskirts of the capital of Kerala, as part of an ongoing exercise to ease its debt burden. The property, Leela Resorts Kovalam, is being sold for 500 crore to NRI Ravi Pillai, said Leela chairman CP Krishnan Nair. The deal, however, will not result in Leela exiting the property completely. It will enter into a management contract with Pillai to manage the property for 30 years, reports Economic Times.

Pillai confirmed the deal with the Leela Group will be finalised soon but declined to provide details. The trigger for the sale of the property, which was originally developed by state-run ITDC and has a commanding view of Arabian Sea, was the need to reduce debt. Leela Venture, a listed company, had accumulated debt of 3,830 crore at the end of FY11 owing to capital expenditure of over 4,000 crore, which is currently underway. This includes 3,200 crore on new hotels in Udaipur and Delhi. The company also expects to spend 1,200 crore on building a hotel in Chennai, which is scheduled to open in December.

The company has been looking to sell properties across the country to cut its debt which, at close to 4,000 crore, is more than double its market cap of 1,782 crore at Wednesday’s closing price. In March, the company announced plans to sell an IT park in Chennai for 950 crore. Hotel Leela Ventures’ debt is the highest compared to peers such as Indian Hotels Company, part of the Tata Group, which had debt of 2,500 crore as on March 31, 2011.

ATS Group to Develop Two Housing Projects in Gurgaon

Real estate firm ATS Group today said it would develop two housing projects in Gurgaon with an investment of nearly Rs 550 crore. The Noida-based company would develop 924 housing units in both these projects over the next three years. “We are foraying into the Gurgaon real estate market with two group housing projects. The first project, spread over 12.2 acres, will be developed in joint venture with land owner Chintels Group,” ATS Group Managing Director Getamber Anand told reporters here.

ATS would develop the second housing project over 14.59 acres of land, out of which 10.5 acres have already been acquired by the company. This project would be launched early next year. Asked about the investment, ATS Chief Executive Officer Soumik Bandyopadhyay said the company has invested about Rs 140 crore on land acquisitions and another Rs 400 crore would go towards construction. On funding the proposed investment, Anand said the financial closure of the projects has been achieved.

“We have raised funds from HDFC Portfolio Management Services for the second housing project,” Anand said, but refused to give further details. The company has so far delivered 2,150 housing units covering 4 million sq ft and is presently developing 5,300 units in 12 million sq ft of area in Noida, Ghaziabad and Dera Bassi near Chandigarh.

FDI in Multi-Brand Retail to Open Millions of Employment Opportunities: Experts

The Opposition may be asking the United Progressive Alliance government how foreign direct investment (FDI) in multi-brand retail would help generate employment, but the industry has already begun crunching numbers. At the first sign of the sector opening up, human resource consultants, body shoppers and recruitment agencies are scouting for opportunities and, of course, talent to serve the promising industry. Experts said the industry would need additional manpower of 15 to 30 million in 10 years, if reforms do happen. The industry currently employs 35 million people.

Retail consultancy firm Technopak Advisors’ managing director, Arvind Singhal, said there would be a requirement of an estimated 25 to 30 million additional people by 2020. Elixir Consulting, a recruitment process outsourcing firm, put the additional manpower requirement in the next 10 years at a modest 12-15 million. Nitin Sethi, practice leader (consultancy), Aon-Hewitt, said, “In 12-24 months, the manpower requirement would be up by 27 to 50 per cent.” Richie Madan, executive director, Elixir Consulting, said, “Once the government gives its nod for FDI in the retail sector, jobs will not be generated in this industry alone, but also in related areas like real estate and construction.”

The growth would be seen in Tier-I cities and would extend its footprint to Tier-II and III towns. Prospects of job creation would increase with time, as more and more investment came to the sector, he said. Jobs are expected to be created across front-end and back-end operations, store operations, merchandising, logistics and distributions, marketing, procurement, purchase and corporate services. Currently, store operations employ 75 to 80 per cent of the retail workforce, merchandising five to eight per cent, marketing five to eight per cent, and others around 10 to 15 per cent, estimates show.

Elixir said the maximum demand originated from companies into convenience retail, while luxury and lifestyle retail still had limited audience. Retail companies have always had a preference to hire from fast moving consumer goods (FMCG) companies. The gap in the retail sector could be filled with talent from other industries like telecom and pharma, besides FMCG, it said.

In its feedback to the Department of Industrial Policy & Promotion, French retailer Carrefour had said the chain would create “significant employment opportunities” for people of India, whether direct or indirect and both in urban and rural area. Carrefour India’s managing director, Jean Noel Bironneau, had said, “If Carrefour starts its retail operations in India, in about 10 years, we would provide direct and indirect employment opportunities to approximately 20,000 people in the stores itself.”

But there are concerns over how to get quality manpower for the sector. “There has not been adequate investment in talent development and preparedness in this area. It’ll be difficult to get qualified manpower, and companies will have to invest in training significantly,” said Thiruvengadam P, leader, human capital advisory services, Deloitte. Pinaki Ranjan Mishra, partner at consulting firm Ernst & Young, said talent crunch was a reality and brands must invest in upgradation of skill sets.