Monthly Archives: December 2008

Check before investment

Is this the right time to invest in real estate sector? Besides ones personal situation, the external factors that influence this decision are real estate prices and interest rates.

On the interest rate front, market signals are positive. Most public sector banks have cut their benchmark prime lending rates by 0.75% to 12.5% effective January 1, 2009. The country’s largest mortgage finance company HDFC has also cut its lending rates by 0.5%. Even lending rate for loans below Rs 20 lakh for both from state-owned banks and HDFC are cheaper. However, there is still an uncertainty over the real estate prices. Builders are doling out freebies such as free registration, stamp duty waiver, free parking area or even a flat in another locality. But the rack rates have not come down.

“If there is indeed a genuine need for a home and the current market changes have resulted in the required affordability, one should go ahead and buy now. If the interest is more investment oriented, waiting till March 2009 might bring some better deals — however, this is a risk, since many add-on offers may no longer exist by then.” says Anuj Puri, chairman & country head, Jones Lang Lasalle Meghraj. A couple of years ago buyers were scrambling to buy a house as prices rose every month. Now, the tide has turned. Buyers are waiting in the sidelines expecting the real estate prices to fall. “Prices will fall further in historically over-priced pockets until demand picks up. The rationalization process should reach a peak towards mid-2009.” Mr Puri says.

So either the same house will be cheaper tomorrow or you can step up your budget so as to afford a bigger house. For those buying a house on borrowed money, it would be difficult to reconcile to a fall in real estate prices.

“For example, if the property value drops to Rs 75,00,000 from Rs 1 crore (at the time of purchase) then you have to pay a difference in the home equity to the bank. Otherwise the bank has a right to take the possession of your house,” says Swapnil Pawar a financial advisor and director Park Financial Advisors.

At the same time, lenders are now demanding that home buyers come up with a higher margin if they want a loan. “Property prices have been overpriced in the recent times. So there is scope for significant correction. Similarly, even the pay cuts and the prevailing uncertainty over jobs and pay hikes have necessitated extreme prudence in the lending business,” says a private sector banker.

Taking a speculative wait-and-watch stance should be a game of experts, who are also willing to risk a loss if they time their move wrongly. Genuine buyers should buy as soon as prices are affordable. After a particular phase in a career, the growth in income stabilizes at 10-15%. That’s the best time to gauge the borrower’s affordability to buy a house. At times, couples often miscalculate their affordability.

Rs 1 trillion fund for infrastructure sector advocated

The Associated Chambers of Commerce and Industry (Assocham) has urged the government to set up a Rs.1 trillion ‘revolving fund’ to assist infrastructure firms to weather the global meltdown.

‘Several expansion plans in steel, auto, fertilizer, refineries and oil and gas exploration sectors currently face severe capital shortages,’ said the industry body, adding that the proposed fund could help developers complete these projects with their internal accruals.

A revolving fund is a fund or account whose income remains available to finance its continuing operations without any fiscal year limitation.

In its mid-year economic review, the Assocham said the fall in corporate profitability has already affected the flow of savings into capital market.

‘The effect of this is compounded by global financial crunch that has led to withdrawal of $13 billion from foreign portfolio investment,’ the report said.

The chamber further welcomed the ‘political will’ the government demonstrated in parliament last week by tabling the insurance and other bills, expediting economic reforms.

According to the report, the area of concern is the manufacturing sector where the fall in demand and export orders has combined to bring down output growth to a negative level for the first time.

The mid-year review also expressed concern on the employment situation in the wake of the downturn.

‘Service economy already accounts for some 52% of the GDP (gross domestic product). It should not be allowed to flounder in the wake of global downturn and loss of domestic output,’ Assocham said.

Against this background, ‘reports that some sectors like public sector banks are planning to expand their hiring programs are welcome,’ it added.

‘At the same time, individual industrial units should be enabled to fine tune their staff requirements to changing demand patterns and rapidly changing technological compulsions. Otherwise, the increasing number of sick units would only defeat the objective of maintaining and expanding high levels of employment,’ the report said.

Home buyers can expect a better deal in the New Year

The year 2009 will lift the gloom in the real estate market as the property market turns buyer friendly with the cuts in property rates and home loan rates. Developers for their part would benefit as they will focus on creating volumes at affordable price points.
The government move to boost home loans will definitely rejuvenate the low-segment borrowers borrowing loans upto Rs 20 lakh. Public sector banks have made their loans cheaper and private banks and HFCs are expected to follow suit. “The important thing now is for the supply side to catch up with the increasing demand in this segment,” say experts.
According to Sanjay Dutt, CEO Business, India, Jones Lang LaSalle Meghraj, the thrust given by the Central Government to bring the economy to its full momentum is encouraging. The correction in real estate prices supported by lower interest is a trigger that would lead to many positive things.

JAL approved the merger

The board of directors of JP Associates Ltd (JAL) has approved the merger of four of its arms operating in hospitality, cement and other related business into JAL. The merger will be effective from 01 April, 2008.
The share swap ratio for the merger will be:

  • One share of JAL (face value Rs2) for every ten shares of Jaypee Cement Ltd (FV Rs10). JCL is exploring opportunities to set/acquire cement plants in India.
  • One share of JAL for every 11 shares of Gujarat Anjan Cement Ltd (GACL; FV Rs10). GACL is setting up a 4 million tonne per annum cement plant in Gujarat by FY2010.
  • One share of JAL for every one share of Jaypee Hotels Ltd (JHL; FV Rs10). JHL owns Jaypee Palace Hotel (Agra), Jaypee Vasant Continental (New Delhi) and Jaypee Siddharth Hotel (New Delhi).
  • One share of JAL for every one share of Jaiprakash Enterprise Ltd (FV Rs10). JEL owns 15% stake in Jaypee Power Ventures. Jaypee Power Ventures in turn owns power assets of Vishnuprayag hydroelectric project, Siddhie and Karcham Wangtoo.

The merger process will result in the issue of 14 crore new shares of JAL, which amounts to an equity dilution of 11.3% to 138.1 crore shares.
However, if the company decides to extinguish the shares under cross holding (around 12.8 crore) then the dilution will be only to an extent of 1% and will have a marginal impact on the earning per share (EPS) estimates for FY2010.
Nonetheless, as per reports and our interaction with the management, the company is likely to transfer the 12.8 crore shares under cross holdings to a trust and possibly use it to generate the required funds for its infrastructure and real estate businesses.

Unitech plans to merge all its telecom arms

Real estate company Unitech is planning to merge all its eight telecom subsidiaries to consolidate and better manage the telecom business.

Each subsidiary typically has licences for three to four circles and together, they cover all 22 telecom circles in the country.

“We do not intend to form a holding company for our telecom venture, but will instead merge all telecom subsidiaries,” Unitech MD Sanjay Chandra said, adding that the merger was likely only after the services are launched. Unitech plans to roll out telecom services by the middle of 2009. It has already been allotted spectrum for 16 circles.

The company struck a deal with Norway-based telco Telenor two months ago to offload 60% stake in its telecom venture for Rs 6,120 crore.

As per this deal, Telenor was to get 60% stake in each of the eight telecom subsidiaries, but a merger will mean Telenor will hold 60% stake in the entity formed after the consolidation of business.

The stake sale has got delayed as Telenor has not raised funds for the transaction till now and Unitech is yet to comply with two key conditions as per its agreement with the Norwegian telco. The first tranche of fund, slated to come in by December, may now probably be received only in January.

The deal is contingent on the completion of tower-sharing agreements between Unitech and other service providers and conversion of all eight subsidiaries into private limited companies.

“Five have already been converted, while three will turn into private limited companies soon,” Mr Chandra said adding that the agreement with other service providers for tower sharing is also close to completion.

In order to keep its capital expenditure low, Unitech had decided not to erect any of its own towers but share the existing infrastructure. Unitech is expected to a pay an average rental of around Rs 25,000 per tower.

Promoters stock up in fall season

The year 2008 may have been a forgettable one for equity investors, but it offered a golden opportunity to many promoters to raise their holdings at dirt cheap prices. Promoters have been on a stake-raising spree for most part of the year, primarily due to attractive valuations, and in some cases, as a desperate measure to stem the slide in share prices.

The recent Sebi move hiking promoter holding limit to 75% from 55% under creeping acquisition guidelines has widened the scope for raising stake to an extent that promoters feel confident of warding off takeover attempts, analysts said.

Data filed with stock exchanges show that promoters of a host of companies, including GMR Infrastructure, Gitanjali Gems, Kesoram Industries, Larsen and Toubro, Mastek, NIIT, Patel Engineering and Praj Industries, have been accumulating shares from the open market in large quantities. Analysts believe that the biggest advantage of buying in the current market is the lower cost of acquisition. The stocks of these companies have fallen between 60-85% from their respective peaks.

GMR Infrastructure is one such example where the key promoter, GMR Holdings, acquired 42.3 lakh shares between December 15-18, subsequent to which the latter’s stake rose to 74%.

Similarly, Mehul Choksi has bought about 33 lakh shares of Gitanjali Gems from the market since the beginning of October. The shares account for about 4% of the company’s equity capital. The promoters of NIIT acquired 17 lakh shares while the Chaudhari family of Praj Industries purchased 21 lakh shares. L andT CMD AM Naik has bought about 2 lakh shares of the company.

However, Mr Naik, a professional manager, is not regarded as a promoter of the company. Deccan Chronicle promoters — T Venkattram Reddy, T Vinayak Ravi Reddy and PK Iyer — acquired close to 52 lakh shares from the market.

Analysts feel that this is the right time for promoters to go for creeping acquisitions and reaffirm confidence in their companies. “It makes sense for promoters to buy shares from the market, as this would give comfort to investors that liquidity position of promoters is strong,” said Indiabulls Securities CEO Divyesh Shah.

Interestingly, it is observed that promoters of many real estate companies have bought shares from the market in the past few months. In some cases, the percentage, or number of shares, bought may not be enough to provide any substantial support to the stock price. But such transactions could help build confidence among investors, say brokers.

Ansal Housing, Anant Raj, DLF, Kamanwala Housing, Kolte Patil, Orbit Corporation and Prime Property are a few real estate and construction companies witnessing creeping acquisitions by their respective promoters.

Unitech in talks with PEs to raise $500 m via debt issue

Unitech is planning to raise $300-500 million through an issue of convertible debt instruments to multiple private equity investors.

According to a person with direct direct knowledge of the company’s plan, Unitech, which is desperately looking for a cash infusion to repay a debt of Rs 2,700 crore in three months, is holding negotiations with a host of global PE players, including TPG Axon, Carlyle, Och-Ziff, Sun Apollo and IL&FS funds.The realty firm is looking at issuing debt instruments that will be converted to equity in the next 18 months or so.

At the current market capitalization, $300-500 million would equate to 22-36% of the company’s equity stake. The promoters, Ramesh Chandra and family, own 74.5% stake in the company. According to an investment banking executive, the conversion price could be in the range of Rs 60 a share, but it couldn’t be independently verified.

Unitech is also looking at raising about $200 million from its various residential projects through special purpose vehicles. UBS is advising Unitech on its entire fund-raising effort. Unitech MD Sanjay Chandra said, “Multiple funds have shown interest in investing in the company as well as its projects. We are evaluating the proposals.”

Unitech’s board approved the proposal to raise Rs 5,000 crore through the issuance of securities. However, there are doubts about the Gurgaon-based company’s ability to find an investor at an attractive price. An analyst with a Mumbai-based domestic brokerage says it won’t be easy for Unitech to raise funds and no institutional investor will be willing to pay a huge premium for investing in the company.

Unitech shares declined by 7.5% on BSE to close at Rs 42 on Tuesday. Fitch Ratings on Tuesday downgraded Unitech’s long-term rating to ‘BBB(ind)’ from ‘A-(ind)’. The downgrade reflects the ongoing delay in the completion of asset sales, and its impact on Unitech’s ability to service its short-term debt obligation, according to Fitch.

On December 11, Singapore-based securities broking group Kim Eng came out with a report on Indian realty in which it mentioned that Unitech has to raise Rs 1,800 crore over the next three to four weeks to stay afloat.

Meanwhile, Unitech’s Gurgaon hotel deal may get delayed over the valuation. While Unitech has been expecting a valuation of Rs 270 crore, the potential buyers — four businessmen who separately run Dilbagh, Vimal, Pan Bahar and Rajshree gutkha companies — are not willing to pay more than Rs 210 crore, said a person who is leading the discussions. While hotel chains like ITC and Accor have also evinced interest, a source said Unitech will have to considerably lower its asking price for a deal to go through with the hotel companies. A Unitech executive said the deal may not go through as the gutkha players lack funds to back the deal.

RBI nod to foreign VCs, but sectors limited to 10

The Reserve Bank of India recently started approving applications from foreign venture capital investors (FVCI) that were kept on hold for a considerable period of time. While this led to some excitement among the applicants, it was short-lived.
In what has surprised the venture capital firms, the approval letters issued by RBI to FVCIs provide for a new clause that significantly curtails the investment horizons for such entities to a narrow band of 10 investible sectors. These include infrastructure, biotechnology, information technology, nanotechnology, research in new chemical entities in the pharmaceuticals sector, dairy and poultry industry, among others.
The sectors prescribed are similar to those provided under section 10 (23FB) of the Income Tax Act, 1961, for availing tax pass-through treatment for domestic VC funds.
The intention behind introducing the FVCI regime was to provide such investors a favorable investment environment in India, in comparison with foreign direct investment (FDI), as envisaged by the KB Chandrasekhar Committee Report of January 2000. The report emphasized the importance of sectoral flexibility for FVCIs and noted sectoral restrictions for investment by VC funds are not consistent with the start-up ventures that are built on innovation and technology and can emerge in any business.
Then, the sectoral restrictions prescribed are likely to create unnecessary obstacles and hamper the growth of VC activity. Further, it seems that the regulators do not wish to promote VC investment in several other sectors, including manufacturing, media, outsourcing, among others, many of which are still in a growth phase, have dearth of capital, and have high employment generation capabilities.
If FVCI investment in the real estate sector was indeed a concern to the regulators, we believe that the same is unfounded as RBI has been disallowing applicants from investing in real estate since 2006. To our understanding, it has not cleared any real-estate-focused FVCI applications.
The regulator may have intended to bring the investment opportunities open to FVCIs on the same footing as domestic VC funds, but effectually this is not the case. In fact, this has led to the creation of more disparity between offshore and local funds since domestic VC funds are allowed to invest in all sectors, except a small negative list of sectors.
Some of the offshore funds have been sector-specific and target a few industries. Had such funds known at the time of making the application that such restrictions will be prescribed, they may not have continued with the applications, assuming they do not focus on the sectors prescribed by the regulators. However, several other funds have been sector agnostic and typically spell out broad investment horizons as their investment strategy. The intent being to invest in sectors that provide growth opportunities and the VC is able to provide a value addition through management support, and to take the investee entity to the next level. It is highly unlikely that these funds alter their sectoral focus based on the regulator’s move.
Specifying sectors without any definition ascribed to them further adds to the investors’ woes. While infrastructure is recognized as a crucial input for economic development, lack of clear definition leaves it omnibus and deters investors who are unclear about what it includes and, critically, excludes.
Globally, there is a fight for capital and given the present scenario in financial markets, it is imperative that VC investors be encouraged as they bring long-term capital to portfolio companies. The new restrictions may discourage foreign investment in India by sending negative signals in terms of consistency of the regulations and the regulators’ willingness to attract foreign investment.

Mauritian firms to buy 60% in Forum Ventures

Mauritius-based Landmark Special Opportunities Company (LSOC) and Landmark Real Estate Fund (LREF) are picking up around 60% stake in Kolkata-based realty company Forum Ventures for close to Rs 100 crore, a person involved in the transaction said.

The transaction involves issue of 10 crore fresh equity shares and transfer of the same to the two Mauritius companies. While LSOC would invest a little over Rs 88 crore in the Forum Ventures, the other foreign equity partner, LREF, would pump in close to Rs 11.7 crore.

Both LSOC and LREF would make investments in Forum Ventures through their Mauritius-based subsidiaries, LSO Subco and LREF Subco, respectively, the person said. Forum Project Holding, a development company owned by the Forum Group, holds around 37% in the Forum Ventures.

Forum Project Holding is engaged in development of real estate, lease rental, property management and related activities.

While LSOC has invested around $75 million in various real estate projects in India, LREF has a total exposure of $ 9.3 million in Indian real estate sector. Forum Ventures would act as a holding company and use the foreign funds from the Mauritian investors for making downstream investments in the real estate sector including investment in Forum ETA Realty. Forum Ventures holds 26% stake in Forum ETA, which is planning to set up a information technology hub near Kolkata.

The investment by LSOC and LREF comes at a times when the real estate sector is facing fund crunch with buyers and investors shying away. Backed by large landbanks, the real estate sector commanded very high valuations till some time ago. However, the valuations of listed players have fallen drastically, following the crash in the stock market. Lower valuations have made PE players and international real estate funds more cautious with their investments in the realty sector.

Interestingly, some international real estate companies and funds have shown interest in small unlisted companies. Israel’s construction company U Dori Group is picking up a 50% stake in residential project in JV with Hyderabad’s Surana Group for Rs 125 crore.

Understanding real estate

There are many ways to invest. But the investor should be prudent enough to select a proper area, which is safe and secure with assured reasonable returns. Few years ago, bank deposits, stocks, mutual funds, insurance policies and bullion, were the most opted field. With increased business, globalization of economy has unfolded many more areas. Investment has become very complex, which has led to the emergence of specialized investment advisers.

Bank deposits, insurance policies and mutual funds have become unattractive because of low returns and failure of many companies. Stock market is always unpredictable. These investment avenues are for short-term investments, and need close monitoring too. These days, real estate has emerged as a safe and high yielding investment opportunity. Investment in real estate is a long-term investment and needs considerable amounts.
The yield in the realty market has to be calculated on the capital invested and annual rental returns, less property tax, income tax and annual maintenance charges. This return varies according to the type of property. There are certain determining factors, which play a crucial part in the property investment.

Investment in real estate needs higher amounts and the minimum entry level will be in multiples of lakhs, for residential, and much more for office and commercial space.

The sale of property requires a long time to find a suitable purchaser and comply with the legal requirements. Further, the appreciation of capital value of the land is slow but certain and stable, unlike in stocks and shares.

The realty investment calls for more discretion and involves complicated process like title verification, land use according to local laws, floor area ratio, restriction on sale for some period, and many more laws, rules, etc, depending upon the political environment.

Uncertain tax rules and rates, which vary every year, need to be considered. Property tax is an annual commitment which is being increased every year by self-assessment or capital based assessment. Rental income also attracts income tax to be paid annually; sale of property attracts capital gains and purchase invites stamp duty and registration charges. Property tax and stamp duty vary from state to state.

As stated earlier, the type of property is also very important. It may be residential, commercial or office space. The demand and supply position of each sector needs to be carefully examined. Real estate sector offers two types of returns.

This is monthly form of returns in the form of rentals, or the returns on the lease amount invested in bank, securities or in business. The other type is returns on sale of the property. The amount to be invested also depends on the mode of returns expected. Generally, leasing of property is attractive only for business people.

Lease amount does not attract interest. While commercial property and office space yield high returns to the extent of 15%, residential property yields about 8%.

Investors ask Satyam to call off acquisitions

India’s fourth-largest IT services provider Satyam Computer Services was forced to reverse yesterday’s decision to diversify into real estate and infrastructure following strong shareholder protests that saw its stock price fall 30% on BSE.
Satyam had proposed to acquire Maytas Properties and Maytas Infra, companies controlled and run by the promoter family, for $1.6 billion (around Rs 7,680 crore).
Satyam Chairman B Ramalinga Raju expressed surprised at the market reaction to this decision but said the board “decided to call off these actions in deference to the views expressed by many investors”. The promoters hold 8.7% in Satyam.
Yesterday, institutional holders had strongly objected to the fact that the decision, which the company conveyed to the BSE after trading hours, was not communicated to shareholders first and that the company did not choose to give the money earmarked for diversification to shareholders.
The larger concern for the investor communityis that this action might impact Satyam’s core IT business. Industry sources said six to eight clients with long-term engagements with the company are seriously re-valuating their IT outsourcing contracts “since they are not satisfied with the intent and focus of the company”.
The analyst community, too, is riled. “Though it has retracted the decision, it shows the weakness of the management. It will do little to restore confidence in the company,” said Deven Choksey, managing director, KR Choksey Securities.
“While their intent gets exposed it also shows that they do not know how to use the cash. Besides, there is no guarantee that a similar action will not be taken again, since the management has said it will work out an investor-friendly deal,” he added.
“Today’s announcement to reverse the decision is the right move. However, it will take quite a while for the company to regain its credibility,” said Harit Shah, research analyst (IT and telecom) at Angel Broking.
Meanwhile, Satyam chief financial officer Srinivas Vadlamani today said, “It’s a judgement call. We did a lot of background work on the buyout plans which were part of our overall diversification strategy.”
He added that “the characteristics of Maytas acquisitions are like any other buyout”.
“We followed everything under the spirit of the law. But we had not anticipated this situation. We don’t want everything to go down the drain. We are working together to address the volatile reaction in the right way and restore our shareholders’ confidence,” he added. Voted India’s Best Real Estate Website for the Year 2008 has been voted India’s best real estate website for the year 2008. The Website of the Year awards are the largest annual ‘people’s choice’ website awards and have organized since 2004 by MetrixLab, an independent online market research agency, in association with Neilsen Online. Over 1.5 million Internet users from India participated in this year’s poll. A total of 12 websites were nominated in the real estate section. Complete results of the poll are available at

Although recently launched, has risen above all the real estate websites present in the market and became the most popular real estate web portal. The qualities that make different are its ease of use and unique features.

It is the era where people need everything on internet. So it is very much crucial task to maintain the information in the way that it can reach to the people in the way they need. has understood this and developed the site accordingly. A person can view pictures as well as video of property with complete details. A property is described with the help of pictures, floor plans, video, map, nearby landmarks, and a detailed description.

Due to its large number of the features, their appropriate execution and the ease of use, is a perfect online destination for everyone interested in Indian real estate. Sellers interested in advertising their properties for sale or rent can logon to for a simple 2 minute registration (optional for buyers).

About offers the most broad and user friendly property advertising services free of charge for buyers and sellers in India and overseas. has been developed over a period of two years by its parent company Efextra eSolutions Pvt Ltd (an IT company) after an extensive exposure working with international real estate portals. The site has been developed from the ground up with ease of use and web standards in mind. Within a period of 8 months of its launch, has become top real estate websites in terms of traffic and search rankings.

About the organizer
MetrixLab is a global Online Market Research company that specializes in the areas of New Product Development, Brand Communication, E-Business Performance and Satisfaction Research. Over the past 9 years MetrixLab has emerged to be one of Europe’s leading online market research companies with offices in Rotterdam, London, Paris, Hamburg and Madrid.

NBO to launch housing index by March’09

The Reserve Bank of India (RBI) has asked a government agency that collects statistics on the country’s housing construction activities to launch a housing start-up index by March 2009, to help it assess the impact of fiscal and monetary stimulus offered to revive the sector.

The index, to be launched by the National Building Organization (NBO) under the ministry of housing & urban poverty alleviation, will offer reliable data to RBI and other government agencies, facilitating speedy decision making.

A senior NBO official, who asked not to be named, said the index would be released on a quarterly basis. It will be made available on a monthly basis later. The base year of the index is 2003-04.
All major economies use similar indices to assess economic activity using demand and supply data on the housing sector. As housing is a sector with high forward and backward linkages, the proposed index will be useful in assessing demand and supply situations in other sectors, such as cement and steel.

An advisory committee constituted by the central bank will meet by the year-end to review the implementation of its directive, said the NBO official.

DR Dogra, deputy managing director with credit rating agency CARE, said that lack of a reliable database on housing hampered decision making in the country. The data for the proposed index would be collected on the basis of building permits issued by local authorities.

Real estate cos hope govt help will revive demand

The Union government’s recently announced stimulus package, coupled with the Reserve Bank of India’s (RBI) move allowing banks to provide special treatment to the real estate sector are likely to change the fortunes of Indian real estate sector, which has been struggling to survive for the past six months. Monday’s interest rate cut on housing loans up to Rs 20 lakh could further improve the sentiment, industry officials said.

“It’s a good beginning. At last, government has recognized housing as a priority sector. They have also realized that the construction and housing sectors are the largest employment generators in the country. But, whatever measures have been announced now, is a great relief to the industry,” Niranjan Hiranandani, chairman, Hiranandani Developers said.

Priority sector status to low-value loans, restructuring of loans taken for commercial property and a reduction in the excise duty on inputs like steel and cement are expected to reduce the cost burden on developers significantly.

Many developers said that changes are very visible now. “Number of enquires are increasing. Strong sales are being registered in some of our new project launched last month,” Sandeep Runwal, director, Runwal group, said.

Till some time ago, companies were in the race to amass huge land banks. They were intent on outdoing each other by bidding for costly land parcels. The financing was done through internal accruals and large-scale bank borrowings. This had sent property prices to new highs.

Things started to change when the stock market crashed and investors were deprived of their surplus cash, which could have been used to buy property. It also caused a decline in demand so such an extent that developers were not registering any bookings. Faced with the same fate, property prices also started falling.

“The government’s policy initiatives come at a time when the industry was reeling under a major liquidity crunch. This would certainly prove to be beneficial for companies that are facing working capital shortage.” Ram Yadav, director finance, Orbit Corporation, said. The credit crunch has put the developers in a fix. New launches were coming down drastically. Completion of projects under construction became difficult.

“There have been no new launches in the recent times but the ongoing projects are running on schedule. Being the largest player in Mumbai, HDIL cannot be insulated from the impact of the slowdown. Since our business model does not require us to amass a huge land bank, we have been able to continue,” said Hari Prakash Pandey, deputy general manager, finance, HDIL. Many companies have retrenched staff from projects due to a delay in launch. Reports hint that some of the north India-based developers like Omaxe, Parsvnath and DLF have cut their workforce.

Realty stocks in demand on special home loan plan

Realty stocks gathered momentum Monday on media reports that state-run banks will unveil special home loan plans as part of the federal government’s stimulus package.

Under the package to be announced by the Indian Bank Association, housing loans up to Rs 500,000 will be priced at 8.5%, and borrowers in the 5-20 lakh category will have to pay 9.25% interest, it said. The interest rates across all price segments currently exceed 10%.

The special package will also offer a free loan insurance cover, waiver of pre-payment penalty and lower margins, the paper reported.

Banks may accept a margin of 10% for a Rs 500,000 loan and 15% for a Rs 20 lakh loan while the borrower will have to make an upfront payment of 10% and 15% respectively of the purchase value.

The package is aimed at boosting growth, and will be available only for new home purchases and not for refinancing existing borrowers, the paper said citing bankers involved in working out the details.

The special package will only be offered by state-run banks as per government directives, the paper said.

At 10:45 am, Unitech climbed 11.66%, Peninsula Land rose 10%, Sobha Developers surged 9.66%, HDIL was up 9.04% and DLF gained 4.7% taking the BSE Realty Index up 6%.

Orange properties offers buy 1 get 2 free

If October was the Month of Buy 1 , Get 1 Free!!!. December is the Month of Buy 1 and Get 2 FREE. Yes this is the Tagline by the Desperate Orange properties of Bangalore. This time around they are offering 2 pieces of land for FREE one near Devanhalli and other near Tumkur on booking an apartment in Electronics City. The cost of Apartment as advertised by Orange Properties is Rs 20.26 lakh.

Rate-cut campaign in full swing

The clamour for a fresh round of interest rate cuts has begun. Spooked by a sharp and sudden fall in industrial growth, industrialists and bankers said the time had come to cobble a credible stimulus package that would put the stuttering economy back on the rails.

“Now is the time to immediately release the second stimulus package. To bring the Keynesian multiplier into full effect, a third stimulus package must be planned from now and released in mid-January to return the economy to a sustainable growth rate above 7%,” said Ficci secretary-general Mr. Amit Mitra.

Sajjan Jindal, president of the Associated Chambers of Commerce and Industry (Assocham), said the government would have to give a couple of booster shots to stressed sectors such as manufacturing, real estate, steel, cement, textiles, leather and automotive components.

“Assocham reiterates its demand that another stimulus package of Rs 70,000 crore is urgently called for to provide relief to corporate India, including a reduction of another 200 basis points in the cash reserve ratio (CRR),” he said.

The cash reserve ratio is the amount of total deposits that banks must park with the RBI. It currently stands at 5.5%.

Assocham also wanted the statutory liquidity ratio — the amount of deposits that banks must invest in approved securities such as government gilts — to be lowered from the current level of 24-20%, which would leave them with more lendable resources.

Last week, the RBI slashed both its repo (its short-term lending rate) and reverse repo (the overnight rate at which it borrows from banks) rates by 100 basis points each, signalling lower interest rates.

“The central bank could have gone a step further by cutting CRR and statutory SLR rates to send a stronger signal of liquidity support to companies,” said Ficci.

Bankers in Mumbai were certain that the central bank would act quickly to jump- start the economy.

“The RBI is certain to bring down key rates again. But it should also ensure that banks pass on the benefits of these reductions,” said one economist with a public sector bank. “We expect the IIP to continue to be weak till the end of the first half of the next fiscal,” said D. K. Joshi, principal economist of Crisil.

It might become positive, but will not recover till the end of this fiscal,” predicted D.K. Joshi, principal economist of Crisil.

Joshi expected the RBI to announce additional interest rate cuts. “The government has to realise that an increase in spending alone will not help in reviving industry,” he said.

On Wednesday, commerce minister Kamal Nath said another fiscal stimulus package would be announced next week to prevent a further deceleration in India’s growth rate. “The package will be directed at employment-intensive sectors. It could include sops for engineering and textile sectors as well as refinance for exporters,” Nath had added.

The first tranche of the stimulus package, worth at least Rs 30,000 crore, was announced last Sunday. The package included a 2% subvention in interest rate for export credit to labour intensive sectors like textiles, handicraft and leather, an across-the-board cut of excise duty by 4%, and increase in public expenditure by Rs 20,000 crore.

Puravankara in big ‘affordable’ push

The government’s thrust on affordable housing has created opportunities for developers across the country. Rolling back its earlier plans to halt new launches, south-based builder Puravankara Projects has decided to invest Rs 1,900 crore by 2010 for three affordable housing projects in Bangalore and Chennai.
Ravi Ramu, director, said the company would launch two of the projects in six months and the third in 2009.
The recent stimulus package announced by the government has given a great boost to the sector, he said. “The package seems heaven-sent for our affordable housing project,” Ramu added.
The government has said that public sector banks would shortly announce a package for home loans borrowers in two slabs – up to Rs 5 lakh and Rs 5 lakh-Rs 20 lakh. This is meant to stimulate demand for homes, which has dropped by 45-50% across India.
Puravankara, which has a land bank of 125 million square feet, said its fully-owned subsidiary Provident Housing and Infrastructure would launch the affordable housing projects. The firm is currently waiting for an approval from the government. The three projects will have a total of 15,000 units and are expected to be ready by 2010-11.
Despite tight liquidity conditions in the market, Puravankara is optimistic it would get funding for these projects. Ramu said the funding for the first phase of the projects will be through debt and customer advances. The real estate firm has book net worth of Rs 1,300 crore and plans to leverage on it to raise funds. Its debt-equity ratio is 0.58.
“Depending on the amount raised through customer advances, we will go for loan. We have land and we don’t need immediate cash flow at the moment,” said Ramu.
Puravankara already has 105 acres in Bangalore which it would use for the project. Ramu also expects construction charges to fall by 10% due to steel and cement price cuts.
In these projects, the price points will be Rs 10 lakh, Rs 15 lakh and Rs 20 lakh, respectively, for one-, two- and three-bedroom houses. The two- and three-bedroom houses will span 750 square feet to 1,100 square feet, with one-bedroom homes being smaller.
Under phase I, Puravankara will cover Bangalore, Chennai, Hyderabad, Coimbatore and Mysore, while in phase II, it will go to cities such as Delhi, Kolkata, Kochi, Jaipur, Pune and Nagpur.

Mumbai rental market hit hard

The global economic meltdown has hit the once-booming commercial lease rental market in Mumbai. Rents have dropped by 20% to 25% on an average in the last quarter of 2008. In some prime commercial properties in the erstwhile mill land enclave of Central Mumbai, the drop is 50%.

It was barely six months ago that the London headquartered Barclays Bank shook the commercial lease rental market when it paid a record-breaking rent of Rs 725 a square feet per month for a 15,000 square feet office space in Worli’s CeeJay House, whose landlord is aviation minister Praful Patel. It was the highest commercial rental deal in India.

But in the past couple of months, all the prime commercial business districts (CBD) like Nariman Point, Bandra-Kurla Complex and Parel have been affected. In fact, Nariman Point, considered to be India’s premier CBD, has seen vacancy levels in grade one buildings rise to 11%, said sources tracking the rental market. Till recently, the vacancy level was just 2% in this area. Uptill 2005, 30% of offices here were empty.

The lease rentals in Nariman Point are currently hovering around Rs 375 to Rs 400 per square feet a month in premium buildings as compared to Rs 475-Rs 500 nine months ago. Rentals in grade C buildings hardly command Rs 250 a square feet, according to market sources.

Said Kaustuv Roy, director Transaction Services of global property consultancy firm, Cushman & Wakefield, “Since September 2008, the overall economic conditions have been rather volatile and with a visible decline in demand for commercial space across the city. Many corporates have postponed their expansion decisions. This has affected traditionally strong markets like Nariman Point and Central Mumbai where we have noticed a drop of 20% and 13% respectively.”

Real estate sources pointed out that a developer of a commercial project in Parel, which was leasing out office space at the rate of Rs 300 to Rs 350 a square feet a month four months ago, is now struggling to sign deals as low as Rs 150 to Rs 190 a square feet. “Several big companies and corporates that had taken office space in this complex at high rates have now renegotiated the price with the developer and brought them down substantially. The developer is getting jittery and is ready to cut down on its margins,” a source revealed.

Pranay Vakil, chairman of Knight Frank India, said rentals have fallen and that there have been few transactions in this segment. “The gap between the asking rental and the final rental has also gone up. Somebody may demand Rs 300 a square feet and settle for Rs 225. Earlier, there was a spurt in demand. But we are back to the rental prices seen two-and-a-half years ago,” he said.

In the Bandra-Kurla Complex too, there has been a drop from an average of Rs 400 a square feet six to nine months ago to Rs 275-Rs 300 a square feet at present. But, according to Roy, the largest fall is noticed in Andheri where the drop has been 25%. “This is attributed to a possible over supply scenario that this micro market seems to be heading towards. With an expected supply of 4 million square feet in the next 6-12 months, the location is feeling the heat current of suppressed demand. We will continue to see this trend well into the early 2009,” he said.

A property expert, not wishing to be identified, claimed that desperate developers putting up commercial buildings, are now willing to sell their projects outright instead of giving them out on lease as has been the trend so far.

Explaining the high rentals that the city witnessed between 2006 and mid- 2008, the expert said rentals were equally high during the 1994 property boom. But, subsequently, not many companies could afford them and were forced to move out, he said.

Dubai is showing symptoms of acute financial strain

Dubai, Asian realty’s Promised Land, is showing symptoms of acute financial strain, causing big property developers like Nakheel to lay off hundreds, tycoons like Donald Trump to delay multi-million dollar projects, and average property buyers to balk at regulations that fail to shield investors from global fluctuations.

The oil-rich Gulf region, many had expected, would be spared the financial turmoil enveloping the rest of the world.

But crude oil prices fell from a peak of nearly $150 per barrel to less than $50, weakening Dubai’s financial backers and leaving the emirate, with little mineral wealth, in the doldrums.

“Unlike any part of the world, guys like me can’t walk out of a mortgage here,” says Abhy, a part-time property investor from Kochi, who wanted to protect his full identity. In July, Abhy, who works as a business consultant, invested 15% in cash in a 1,200 square feet flat that cost Dh 1,700 per square feet, in addition to getting a mortgage. His plan was to sell the flat in 2010 at a much higher rate. Today, he’s not sure he’ll get Dh 1,400 per square feet even if he is lucky enough to find a buyer.

Abhy also had to give his bank an undated cheque for Dh 3.5 million, which the bank would cash in case he defaulted on his mortgage payments. That cheque would bounce, Abhy says. And most unsettling, his bank considers a change of job a default. A slowdown in Dubai’s economy
could mean a fall from grace.

A recent report by UAE property assessment agency RichVille blames Dubai for doing little to protect investors such as Abhy.

Govt to miss indirect tax collection targets

The Government today said it will not be able to achieve the indirect tax collection target of around Rs 3.20 lakh crore for the current financial year on account of duty cuts and economic slow down. “We will not meet the indirect tax collection target due to sops given and the global slow down,” Commerce Secretary G K Pillai said here.

The latest round of duty cuts announced by the Government includes 4% across the board reduction in excise duty rates to spur economic growth.

In fact, the Government will lose around Rs 40,475 crore of indirect taxes during the year because of duty cuts announced after the budget for 2008-09, Central Board of Excise and Customs (CBEC) Chairman P C Jha had said yesterday.

As per the latest figures, excise duty collections fell by 8.7% in the month of October, while customs duty collection fell by 0.9%. However service taxes provided grace by rising to 18% in the month of September.

“Excise collection in September-October this year has been less compared to last year. This is a very serious thing. If we are to meet the target, we have to maintain a growth rate of 9.3% in excise… We are trying our best to step up collection and meet the target,” Jha had said.

Indian investment property show gets new date

A high-profile investment property show has been re-scheduled for next year following last month’s terror attacks in Mumbai.

Organisers said Cityscape India will be held from December 9 to 11 in 2009 at the Bombay Exhibition Centre.

Cityscape 2008, planned for the same dates and venue this year, was called off after militants killed more than 150 people at key tourist sites from November 27 to 29.

The event, which was to feature Donald Trump Jr as a key speaker, will go ahead next year, officials said.

Transparency in Real Estates is improving

Transparency in real estate sector seems to be improving. According to the Jones Lang LaSalle – 2008 Real Estate Transparency Index, India now holds the 50th position out of 82 markets globally.

Countries are grouped into bands such as Highly Transparent (Tier 1) and Opaque (Tier 5). India has moved up from Tier 4 (Low Transparent) to Semi-Transparent (Tier 3). The number of listed vehicles under real estate has increased in an improving regulatory and legal framework, although India continues to score poorly on market fundamentals and performance measurement.

Unitech is close to finalizing hotel deal

Unitech is close to finalizing a deal with the Ashok Hinduja group for the sale of its Gurgaon-based hotel for Rs 226 crore.

The real estate player has been facing a cash crunch for almost a year. Last month, it decided to sell The Courtyard, its hotel property in Gurgaon, along with five other properties that are in various stages of construction.

The Courtyard is a 198-room hotel built on 1.99 acres. The deal with the Hindujas roughly translates into a price of just over Rs 1 crore per room.

Sources close to the deal said, “We are in the final stages of the transaction. However, we have not reached closure yet.”

The real estate developer was looking at a price between Rs 250 crore and Rs 300 crore for The Courtyard which is to be managed by the Marriott group.

Sources said the price of Rs 226 crore was reached during a series of negotiations between the two promoter groups.

The Ashok Hinduja group, which owns truck maker Ashok Leyland, has been dabbling in real estate for a while now and has a stake in JW Marriott hotel in Mumbai.

It has consolidated its real estate assets under one entity. According to the group’s website, it is planning big real estate projects through the formation of a property trust that will channel investments from government agencies, overseas investors and infrastructure companies.

Unitech is one of the real estate players badly hit by the slowdown in the sector. It has even put its 2-million-square-foot Saket headquarters on the block. Sources said that the sale would take some more time.

Late last month, the company said it expected to raise Rs 1,500 crore through the sale of offices, land and a hotel which would help ease its cash woes. The company has been in talks with private equity players to sell residential properties to raise roughly $100 million. It is also mulling a fresh issue of shares to an investor to mop up another $100 million.

In the full year ended March 31, Unitech had posted net sales of Rs 4,140.4 crore and a net profit of Rs 1,669.19 crore. Its net debt had risen by Rs 1,100 crore to Rs 8,400 crore.

RBI cuts repo to help Real Estate

In order to assist real estate companies tide over the current credit crunch and weak demand, RBI has cut repo and reverse repo rate by hundred bps each on Saturday and allowed restructuring of commercial real estate loans up to June 30 next year. The loans granted by banks to housing finance companies with a ticket value of up to twenty lakh rupees to home buyers will be classified under priority sector. This means a home buyer gets a loan upto twenty lakh rupees at a lower rate even from HFCs, thus getting a wider choice of lenders.

The government said that it was also scrapping import duty on naphtha for the power sector and export duty on iron ore fines, letting a state-run infrastructure firm Infrastructure Finance Company Ltd issue tax-free bonds worth ten thousand crore rupees and cutting a central valued-added tax rate by four percentage points.

Shifting focus to global markets, US stocks jumped on Friday as investors bet that a steep drop in oil prices will boost consumer spending, lifting retail stocks and offsetting government data showing half a million jobs were lost in November.

The Dow Jones Industrial Average gained 259.18 points, or 3.09%, to end at 8,635.42, the Standard & Poor’s 500 Index climbed 30.85 points, or 3.65%, to 876.07 and the Nasdaq Composite Index rose 63.75 points, or 4.41%, to close at 1,509.31.

Asian markets too edged higher Monday with financial leading the charge on hopes of further support measures from global central banks and on lower oil prices. The Nikkei climbed 2.28%, Topix gained 1.44%, Hang Seng surged 5.28% and Straits Times was up 0.94%.

Back home, equities ended sharply lower Friday as traders booked profits after a sharp rally in previous session. Benchmarks underperformed the broader markets as IT and metal heavyweights fell on weak global economic outlook. BSE’s Sensex closed at 8,965.20, down 264.55 points or 2.87%. The 30-share index touched a low of 8914.38 and a high of 9340.69 in the day. NSE’s Nifty ended at 2714.40, down 73.60 points or 2.64%. The index hit an intra-day low of 2701.35 and a high of 2821.15.