Monthly Archives: October 2008

Scenario of Real Estate Industry After Festive Season

October 31, 2008 – 5:53 am

With the festive season of Diwali just past us, developers are going hammer and tongs at wooing prospective homebuyers with more and more special offers. However, if sources are to be believed, these discounts and gifts have only come about because the real estate market is heading for correction in a big way. Sources say developers are finding themselves stuck in a liquidity crunch and are therefore offloading some spaces at lower margins.

On the one hand, most of the big names in the real estate industry today are putting up a brave front. This is because they feel nothing will change significantly because of the year-long slowdown in the market that has been brought about due to a meltdown global finance, the US subprime crisis and the crash on the Indian stock market. On the other hand, right from global property consultants to local estate agents, talk about the correction occurring at ground level has led to a reduction in transactions, an increase in lucrative offers and discounts negotiated with those who are ready to deal in this rough weather. Some unusual offers by a few developers have made ripples in the market.

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DLF eyeing Luxottica franchisee

October 30, 2008 – 4:02 am

The country’s largest real estate developer, DLF, is set to sign a franchisee agreement with Italian group Luxottica to retail its premium and luxury eyeware brands, including Oakley, Ray-Ban, Chanel, Dolce & Gabbana, Donna Karan, Prada, Versace and Polo Ralph Lauren.

Euro 15 bn Luxottica group is a leading designer, manufacturer and distributor of prescription frames and sun-glasses in the premium and luxury segment. The group owns 10 premium eyeware brands, including Ray-Ban, Oakley, Vogue and Revo. Luxottica has licence agreements with 20 top brands, including Burberry, Prada, Tiffany and Salvatore Ferragamo.

DLF will open over 100 Sunglass Hut stores over five years, under the franchisee agreement, which is initially valid for seven years, according to a source. The first store is likely to be opened in New Delhi next month. Luxottica currently operates over 2,000 Sunglass Hut retail stores across the globe. In all, the company has over 6,000 optical and sun retail stores across Asia, China, South Africa, Europe and America.

Luxottica has been operating in India since 1999 when it purchased the ailing Ray-Ban from its then owner Baush & Lomb. The company has lately started distributing its other eye-ware brands through a wholly-owned subsidiary in India. The company also has a local manufacturing facility. But now, DLF will take over entire distribution and retail of Luxottica’s products.

The eyeware market has been rapidly growing in India. Besides several leading global brands, the domestic eyeware makers, too, have exploded on the scene trying to access different segments of the market.

For DLF, the tie-up with Luxxotica is significant as it will give the realty firm a toe-hold in accessory space and help it build a strong retail portfolio. The real estate giant has been looking at tying up with several high-end brands in each category to launch itself in the domestic market as a major retail player.

It has already tied up with premium fashion brands Armani, Dolce & Gabbana and Salvatore Ferragamo. The company is also eyeing multi-brand retail and has been in talks with some major foreign retailer for a partnership, although a deal has not been finalized yet.

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HCC’s new townships on hold

October 25, 2008 – 2:56 am

Given the current turmoil in the market and subsequent impact on real estate, Hindustan Construction Company has decided to put on hold its planned townships in Pune, Nasik and Thane. Land acquisitions for these projects have been deferred for now given the high interest rates and low liquidity in the market.

HCC will focus more on government projects in power and water sectors and will look to bid for PPP projects with caution.

Ajit Gulabchand, chairman and managing director, HCC, said while the Lavassa and IT park in Mumbai is on schedule, the company has decided to go slow on the township projects in Pune, Nasik and Thane given the current market environment.

“One will have to wait and watch how the situation unfolds. Lower interest rates, greater liquidity and confidence building measures are needed,” Gulabchand said.

He said the company is looking at the possibility of joint development of townships where land owners and the company get together to develop projects. “It will help us save on cash outflows,” he remarked.

Land required for these proposed townships was around 200-400 acres and senior officials at HCC said only 40-70 acres of land in each project has been acquired so far.

“The total investment so far has been to the tune of Rs 40 crore,” officials stated.

However, the deferment of the projects comes as the company expects land prices to see a correction due to market conditions. “We expect prices to come down; as a result the cost of land acquisition will become much more viable,” officials added.

Gulabchand said while the current financial scenario is grim, the company will be focusing more on bidding for government projects in water and power sector in an attempt to insulate itself as far as possible.

“We believe in these times government will step up its direct investments in infrastructure which we will bid for,” he said.

On PPP projects or BOT, Gulabchand said that the company will move cautiously given that interest rates are high and concession periods are short. “Until factors like interest rates and concession periods improve, we will remain cautious about participating in infrastructure projects,” he said.

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Real estate developers frustrated over credit policy

October 25, 2008 – 2:49 am

Real estate developers and consultants expressed disappointment over the RBI’s credit policy announced today and has asked the apex bank to infuse more liquidity into the system and to the property sector.

“It’s disappointing but understandable,” global real estate consultant Cushman and Wakefield Managing Director (South Asia) Sanjay Verma said.

He noted that though inflation has begun sliding, it is still in double digits, so there is always a fear that additional liquidity can stoke a price rise.

“For me, the availability of credit to developer should be the bigger priority. Demand is there, someone needs to supply,” Verma added.

The liquidity situation is bad enough to delay construction and this condition is worse than the high interest rate regime, he said.

“There is disappointment as the financial markets and the entire productive sector were expecting some relief from the credit policy as it was anticipated that RBI would reduce the bank repo rate and CRR,” Parsvnath Developers Ltd Chairman Pradeep Jain said.

The policy has shaken the confidence of investors to the extent that the Sensex fell to its lowest since 2006, he said.

Suncity Projects Director Ashok Bansal too expressed unhappiness over the policy. “We were expecting some relief from RBI but that did not happen. We are disappointed,” he said.

Amit Sarin of Anant Raj Industries said: “We are disappointed. The RBI should take some bold decisions to bring back positivity in the market”.

The apex bank today announced the credit policy keeping repo rate unchanged at 8% and CRR at 6.5%.

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Parsvnath says festival sales down by half

October 24, 2008 – 8:39 am

Sales at Parsvnath Developers’ in the festival season of Diwali are down to half from a year ago, but the real estate developer does not plan price cuts to boost sales, its chairman said.
High interest rates on home loans and central bank rules forcing banks to assign a higher risk weight to real estate loans have dented property demand in India.
“There is a substantial fall, 40-50%” in Diwali sales, Pradeep Jain said on the sidelines of an industry conference.
“Liquidity is a large concern. Banks have frozen everything. The indirect message to financial institutions is not to lend.”
Analysts say property prices are still high and need to correct some more before demand picks up. But Parsvnath has no such plans, Jain said, citing rising input costs.
“We’re not going to cut prices. There is no softening of prices, the end-user demand is still there,” he said, but declined to comment on the firm’s expected sales in the fiscal year to March 2009.
Parsvnath would focus on reducing costs by reducing salaries and firing “non-performing staff,” and would speed up projects to improve cash flows, Jain said.
“We are not abandoning any project and not considering to do so,” he said. The cost cutting measures would come in within a month, Jain said.

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Freebies fail to attract home buyers

October 23, 2008 – 5:38 am

Home buyers appear to be waiting for a ‘crash’ in realty prices. Offers such as, waiver of stamp duty and registration charges, free lifestyle home or modular kitchen and free parking, have failed to boost home sales.

Unless developers are willing to reduce prices by at least 25-40% to affordable levels, home buyers are likely to stay away. This was the message emanating from a four-day property exhibition organized by the Maharashtra Chamber of Housing Industry (MCHI) at the Bandra-Kurla complex despite the huge response.

“We are highly encouraged by the overwhelming response to the exhibition. The attendance of quality home seekers on all four days and their interest in the property shows the rising demand for housing in Mumbai and the state,” said Pravin Doshi, president of MCHI.

However, it does not seem that the response was matched by conversions. Although 800 properties by 85 real estate developers were put up for sale and 15 housing finance companies were also on hand to provide funding, it is estimated that the conversion rate was below 10%. It must be kept in mind that such exhibitions are not really the point of sales for something personal like a home.

The gloomy state of the sector is quite apparent. For genuine home buyers, there was the possibility of further negotiation at the site office of the project. An analysis of the under construction or newly-launched projects shows that the majority of supply is likely to come from Mulund, Thane, Navi Mumbai and Bandra to Borivali.

In addition to the above deals, there were more inducements like Sunil Mantri Realty offering Rs 100 per square feet discount on one of their projects. Vinay Unique Constructions was giving away a 10-gm gold coin and Kohinoor City was offering a waiver on club membership and floor rise as well.

Despite these baits, affordability continues to be the main concern. It was observed that flats with an area of 550-800 square feet and costing Rs 35-60 lakh saw huge customer interest.

In the wake of a rise in interest rates, subvention on home loan rates was a new discount offer made by developers like Mayfair Housing, Ekta World and the Dosti group. Under the offer, the customer pays a low fixed interest rate of 8.75% for a fixed tenure of two to three years, while the balance interest is borne by the developer.

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PEs Move Concentration From Real Estate Sector

October 22, 2008 – 5:18 am

Uncertainty in the equity market seems to be paving the way for newer investment opportunities. Private equity (PE) players have been quick to recognize these. Of late, their attention seems to have shifted from the most-talked about sectors like real estate and financial services, which were the flavour of the season till some time ago, to sectors like education, healthcare, defence, logistics, warehousing and infrastructure.

These ‘not so talked about’ sectors are now attracting big private equity players. Though some of these are the very basic sectors of the economy, it is only recently that investment interest has found a place in them.

The key reason is the underlying growth potential of these sectors. As compared to developed economies, India has been lagging far behind in the development of basic sectors like education, health-care and basic infrastructure. If the Indian economy is to grow at the rate of 9%, the government will have to focus on these key sectors. Hence, it makes good business sense for investors to catch them when they are young.

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Real estate has grown during the last five years

October 22, 2008 – 5:17 am

The real estate sector in India has grown 30% to 35% during the last five years, reflecting the rapidly-increasing demand for office, commercial and industrial space, as well as bigger homes now considered within the range of India’s prospering working classes. But the economic juggernaut has been slowing since earlier this year due to double-digit inflation, a severe liquidity crunch as fallout of the U.S. sub-prime crisis, and now, the possibility of economic activity shrinking as part of a global slowdown. The country’s growth estimates of 9% at the beginning of the year have been revised to well below 7%, and the effect is directly visible on the realty sector. “No one’s buying any more,” says Ashwani Shukla of New Delhi-based Triveni Associates, “Two years ago, 25-year-olds earning fat pay packets from [multinational corporations] were buying high-end apartments. Now, there are no takers for flats selling at 20% markdowns. Estate agents are finding it difficult to even meet daily overheads.”

Shukla himself has branched out of real estate and started selling insurance six months back, “to pay the bills.” According to various estimates, sales in cities like Mumbai and Chennai are down 30% to 40%. Hoping to induce buyers at Diwali, realtors are advertising cash discounts of 5% to 10% for down payments, and as much as 25% discounts if buyers are willing to wait two to three years before taking possession of the property. “But there is no liquidity with the end user,” says Arvind Nandan, director of consultancy at real-estate consultants Cushman and Wakefield India, “Home-loan rates have hit the roof, and people’s investments have lost value at the stock market. No one has the money to buy.”

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Indiabulls leads ‘A’ group

October 22, 2008 – 5:09 am

Real estate developer Indiabulls Real Estate soared 27.65% to Rs 136.90, as realty stocks extended gains on hopes cut in lending rates will spur demand for residential properties. The scrip topped gainers in BSE’s ‘A’ group shares.

The Reserve Bank of India, on 20 October 2008, cut the repo rate, by 100 basis points to 8%, with immediate effect. The repo rate is the rate at which the RBI provides funds to banks against the collateral of government bonds for a day to three days.

E-learning solutions provider Educomp Solutions spurted 23.97% to Rs 2,066.40. It was the second biggest gainer in A group. The stock extended gains for the second session in a row, on acquiring 51% stake in Takshila Management Services, which specializes in setting up schools in cities across India. The acquisition is aimed at Educomp’s plan to set up twenty-five schools over the next two years.

Infrastructure Development Finance Company, which finances infrastructure projects, galloped 20.82% to Rs 62.10. It was the third biggest gainer in A group.

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Home prices may fall in first quarter of 2009

October 21, 2008 – 2:10 am

Potential home buyers, who have been deferring their purchase decisions, may have to wait till April-May to get a good deal.
The ripples of the ongoing financial crunch, coupled with mounting pressure from various other circles, will peak between January and March. That’s when many developers will be forced to sell the unsold stock at a much cheap price.
Anuj Puri, chairman and country head of Jones Lang Lasalle Meghraj said, “The signals are very much visible. Developers are already offering lots of freebies. I feel, they will hold on to prices till the end of the festive season. If sales are not happening in the current quarter, the Jan-March quarter will see a price crash in some pockets, and in the first quarter of the next fiscal, developers will be forced to sell homes at a much lower rate as their loan repaying capacity will be under challenge”.
He added that in the current market scenario, if developers want to bring some cash flow into their company that will happen only by selling their residential and commercial properties. “All other routes are drying up,” he said.
India’s property market has been among the hardest hit by the global financial turmoil as high interest rates and gloomy economic prospects have driven out buyers and squeezed funds for real estate developers.
Through this year, property prices have already declined more than 10-20%, though in cities like Mumbai and Delhi, prices are still too high for a middle class consumer. Developers like Orbit Corporation have already cut prices by 20% from Rs 26,000 to Rs 21,000 at Parel in Mumbai.
Broking firm Edelweiss Securities in its recent report on real estate said property prices are likely to decline by 10% in the current calendar and another 15% by the end of the current financial year.
“I feel, by the end of the year, developers will feel the real pinch of the current financial crisis. They have to cut prices to keep the wheel rolling. It would happen early next year,” said Pranay Vaikil, chairman of Knight Frank India.
Industry official said, though the rate cut by RBI will improve the confidence level of consumers, it will not reverse the ongoing trend in the market as most buyers will prefer to wait and watch.
“While the repo rate cut signals the reversal of the interest rate cycle, it might be too early to conclude on its impact on the real estate. With liquidity remaining tight for India Inc, home loans rates might see some softening by select players, as the uptake at current rates for residential borrowers is dwindling. Such a move could revive the demand in residential real estate market, that has seen sudden drop in recent times,” DTZ director Ambar Maheshwari said.
According to industry officials, many realty companies were banking on the stock market and foreign investors for new projects. As those sources dry up with the global meltdown, they will be forced to cash out, even if it means selling existing stock at a lower price.

Deloitte Haskins Sells partner Jayesh Kariya said, “Those with a strong financial background would still be able to hold on to the inventory but the ones with leveraged positions will give in to the pressure. The picture would be much clearer by the end of the current year. This period beginning from late December ’08 to March ’09 could provide a good buying opportunity for homebuyers”.

Developers are admitting that there aren’t too many transactions taking place. The festival season between Dusshera and Diwali has traditionally been the time when most families choose to move into their new homes. “Though enquiry levels are increasing, it is not translating to actual deals. Consumers are still hesitant,” said a Mumbai-based developer.

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Parsvnath Gets Rs 29.5 Crore Contract

October 17, 2008 – 5:31 am

Real estate firm Parsvnath Developers on Friday said it has bagged an Rs 29.5-crore order from Delhi Metro Rail Corporation for constructing station box at the upcoming Dhaula Kuan metro station.

“Parsvnath is proud to strengthen its association with DMRC through the construction of station box at Dhaula Kuan. The project reinforces the confidence of DMRC in our execution capabilities,” company Chairman, Mr Pradeep Jain said in a statement.

As per the contract, Parsvnath would construct a station box in the upcoming Dhaula Kuan station, which would be on the DMRC’s Connaught Place-International Airport route.

The company is already developing shopping malls in 13 metro stations across the city, Jain said. The project is scheduled to be completed within a period of 15 months, the company said.

The capital-based realty firm is currently developing 114 projects, spread over 211.32 million square feet across 51 cities.

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TDI Infrastructure To Invest Rs 300 Crore

October 16, 2008 – 6:13 am

Real estate firm TDI Infrastructure plans to invest Rs300 crore in developing two township projects over the next 4-5 years.
“In the next six months, we will be launching two residential townships in Indore and Meerut spread over 150 acres each. Once all regulatory issues are solved, we will start construction,” TDI Infrastructure Managing Director Kamal Taneja said.
“The company would invest Rs150 crore in each toward construction of the townships,” he added.
On the source of funding for the projects, he said that it would be a mix of debt and equity.
When asked if the company would approach private equity players in view of liquidity crunch in the banking system, Taneja said: “We are not completely closed to PE funding, but in today’s scenario, they are expensive and their expectations are going very high.”
“PE players have become ‘very structured’ these days and TDI would not like to get into such systems,” he added.
“There is obviously funding problem and it is available in a limited way to those developers, who are delivering quality products. It has created little delay in disbursement of loans,” Taneja said.
“To deal with the current situation, the company would not embark upon any expansion, mainly on land bank,” he added.
The company launched a new scheme of construction solutions for the plots in its township in Kundli, TDI City.
Under the scheme ‘build and earn’ the company would offer one-stop-solution for overall constructions of the plots and would offer a rebate of up to 25% to the owners.
“We want to create a new Gurgaon in Kundli. For this we will offer standardized constructions to the plot owners, through which they will be getting a good rebate also,“ Taneja said.
‘TDI City´ is a 1,500 acre integrated township comprising plots, villas, group housing, commercial complex, school and hospitals. It is being developed at an investment of about Rs10,000 crore and is expected to be completed by 2013.
“We will develop about 15,000 apartments and offer 12,000 plots. After developing the plots under the scheme, we may retain some and lease them in future,” Taneja said.
The company has a land bank of about 2,600 acres and it plans to develop the same in the next 6-7 years. Currently, it is developing five township projects in about 2,000 acres of land.

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CRR cut infuses liquidity in Indian market

October 15, 2008 – 12:05 am

Leading real estate players are optimistic about the RBI’s move to cut CRR and believe that this will help the flow of funds in the realty sector, enabling faster execution of projects. The CRR cut can also influence the boost of the realty market, provided there is a decrease in interest loans.
Mr. Pradeep Jain, Chairman- Parsvanth Developers, Mr. Rohtas Goel, Chairman and MD- Omaxe and Mr. Punit Beriwala, MD-Vipul’s Ltd, are all in approval of this step taken by the RBI and feel that it will revive and stabilize the market and are also hopeful that this may impact a reduction in the interest loan.
However, Mr.Parry Singh, MD-Red Fort Capital, says that for the success of this step, the RBI needs to strike a balance between the provision of liquidity and control of inflation, through CRR or SLR reductions.

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GMR Invites Bids For Building Hotels

October 4, 2008 – 12:56 am

Entering the market in possibly the toughest time, the GMR Group has invited bids for building hotels at its proposed 45-acre hospitality district near the upcoming airport in Delhi.

The Delhi International Airport Pvt Ltd (DIAL) had planned to raise Rs 2,750 crore from this district in 2008 when the plan was first floated and then got entangled in a controversy with the government.

But by the time this plan got finally cleared and DIAL goes ahead for inviting bidders now, both the real estate and financial markets are in a crunch. These factors, combined with a deposit from successful bidders for three years and not six as earlier proposed, DIAL now expects to raise about half of the Rs 2,750 crore as security amount. The amount raised from the hospitality district will go towards financing the Rs 9,000 crore Delhi airport phase-I that has to be ready by 2010.

DIAL’s plan for the 45-acre hospitality district include having hotels of all ranges — from budget to ultra luxury. As a result, plot sizes range 1.6 acres (for budget) to a 7.7-acre plot for a huge conference hotel. “A security deposit of three times the average annual lease rental will be charged from successful bidders.

The entire infrastructure will be provided by DIAL,” a senior DIAL official said.
Though a common feature abroad, Delhi’s hospitality district will be first of its kind project in India.

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Omaxe’s Arm Bags Rs 907.1 Million Order From Hindustan Zinc

October 1, 2008 – 7:29 am

Omaxe, one of the largest real estate developers on Oct. 1, 2008 announced that the company’s subsidiary Omaxe Infrastructure and Construction (P) bagged an order worth Rs 907.10 million from Hindustan Zinc.
The order is for the development and construction of township for the new zinc smelter plant at Dariba, Udaipur of Hindustan Zinc.
The township which is spread over an area of 4,50,000 square feet in a 12.5 acre plot consists of G+2 and G+3 houses, hostels, club, shopping centre, guest house, Swimming Pool, surface transportation program (STP), wastewater treatment plant (WTP), Sub-station, Water Harvesting, Internal Services and External Services consisting of Roads, Drainage, Water Supply, Street Lighting, Lawns and Horticulture.

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