This would be separate from its equity contribution in the JV firm Emaar MGF. Emaar holds 41% in Emaar MGF while the domestic JV partner MGF Group has 56%. The remaining equity stake is with private equity (PE) firms and other investors.

The Dubai-based group will pick equity in separate special purpose vehicles (SPVs) which will develop two retail and one office property in Gurgaon and Mohali. The injection of funds is particularly significant for the company, as it has come at a time when raising funds has become extremely difficult for real estate firms.

Debt has become very expensive and is largely unavailable. Emaar MGF, which withdrew its Rs 7,000-crore IPO in February after having failed to elicit investors’ response due to poor market sentiments, is looking at stitching 2-3 private equity deals in the coming months to fund its commercial projects.

Most realty firms have been looking forward to private equity players to fund their projects. However, PE firms too have turned cautious now and are driving hard bargains in the changed circumstances. Unitech too has recently obtained $175 million equity funding from Lehman Brothers’ real estate fund to develop a commercial property in Mumbai.

Slackening demand has multiplied real estate companies’ woes, restricting their cash flows. India’s central bank, battling a double-digit inflation, has hiked interest rates, prompting potential home buyers to defer their purchases. The signs of a slowing economy and expectations of a further fall in property rates have led corporate and retailers to postpone their space booking.

Emaar MGF, which is currently present in 26 cities, has a number of projects across residential, commercial, retail and hospitality sectors. It recently launched Boulder Hills residential project in Hyderabad and an integrated township in Mohali. The company is also executing the 27.7 acre commonwealth games village project in Delhi.

The company plans to develop over 200 hotels over the next 7-9 years. It has two equal joint ventures with Accor and Premier Inn for its hospitality ventures.

Reliance Retail, which has expanded rapidly in the past two years since its launch, is learnt to be “biding time”. The company is not looking at booking new space for the next few months, by when it thinks retail rentals would have fallen to a reasonable level. Other retailers, including Arvind Brands, Vishal Megamart and the Wadhawan group, which runs Sabka Bazaar, Spinach and The Home Store, Wills Lifestyle and many others are also going slowly.

This, however, has no impact on retailers’ plans to open new stores in places where they have already booked space. J Suresh, CEO, Arvind Brands said, “There is a clear trend towards decline in retail rentals. We are in no hurry to book space. We are able to book new space at a lower rate and also renegotiate rates for properties that we booked earlier”.

Adds Wadhawan Food Retail director Gaurav Modwel: “It’s only prudent that we become selective. It’s a buyer’s market now. We are booking only those spaces, where we get it really cheap.” The rentals have fallen in some markets in the past few months by 10-20%. And the correction in rentals has made retailers hold back on their real estate decision.

Wills Lifestyle CEO Chitranjan Dar said, “The mad rush to expand is now over. We are more cautious now. The rentals must come down to a level where an average retailer can make money”.

Retail rentals have doubled in the past three years, eating away on average 22-24% of retailers’ revenues. Internationally, rentals comprise 7-8% of retailers’ revenues.

The euphoria led by a booming economy and new-found opportunity in retail had prompted retailers, old and new alike, to expand rapidly even at the risk of lower earnings. Several retailers blamed higher rentals for their lower earnings last year.

But a double-digit inflation and RBI’s monetary measures to slow down demand have made retailers cautious. And this increased sense of hesitation has spread across all segments of retail and product categories. The signs of tough times are already visible in the market, where retailers are being forced to offer unseasonal discounts to push sales.

Another significant development is varying retail rentals in the same micro-market. Cushman & Wakefield India director (retail) Rajneesh Mahajan said, “Earlier, most malls in the same micro-market had similar rentals. However, as they become operational, rentals have started to get aligned with revenues and footfalls, and, therefore, we are also seeing differential pricing within the same micro-market”.

Mr. S Sriniwasan, CEO, Kotak Real Estate Fund, said, “Real estate developers face a double whammy of slowdown in the overall growth and hardening of interest rates, while the perceived risk-reward equation for India is going down”.

Take a pension fund in the US, which has the option to invest in the real estate in India or other markets. As the level of information is better in other markets, investors find it easier to take a call there.

According to a real estate expert,”These are existing assets, so there’s no development risk unlike in India. Also, if they are investing at home, there’s no currency or political risk compared to here. As they can make a return 18-20% in the US, they are wondering if it is worth going to India for an additional 5%”.

Investors feel that the marginal higher return is not commensurate with the higher risk investors have to take here. These are early days yet, but this is reflected in the slowdown in decision-making for investment in India.

In April, Citi Venture and AIG put off plans to invest Rs 1500 crore in Mumbai-based real estate developer Akruti City.

Experts say PE majors are delaying decision because they are not sure. There’s lag effect, but developers are beginning to accept the reality, and offer better terms. This is evident in the financing terms they are accepting these days.

Typically, if a PE major and developer invest in a project in the ratio of 75:25, beyond an internal rate of return 15-16 per cent, the profit-sharing shifts in favour of promoters, in the ratio of 60:40. This hurdle rate has now shifted to about 20%.

Mr. Sriniwasan said, “Real estate is headed for difficult times. The next 12 months could see a lot of turmoil. Inflationary pressures will keep the interest rates high. The deficit financing (oil subsidies) will put a lot of pressure on the economy”.

What this means is that the days of super-natural profits are over, and developers will have to start pricing their end-products at affordable prices. Two, the frenzy for acquiring ‘land bank’ will go away and land prices will start correcting.

The land aggregators, who have been buying land for companies going public, are stuck or running out of money. A correction may not be such a bad thing.

The index comprises forty Asian realty companies listed in terms of market capitalization, an S&P release said on Monday. From a year high of 13848.09 on 8th January 2008, the BSE Realty Index slumped 51.4% to close at 6728.13 on Monday.

On the weak prospects of domestic realty sector, global consultancy firm J P Morgan said in a report in April that this year could be tough for Indian property developers.

A tight monetary policy, coupled with funding constraints and worsening fundamentals, especially in the residential market, are beginning to hurt. Execution too seems to be slipping, thus making it difficult for companies to maintain growth.”

Among the top ten companies in S&P’s realty index, six are Chinese, three Japanese and one from Singapore.

With the US property market witnessing a correction due to subprime crisis, the NRIs are expecting the same to happen in India and are holding back on their purchases.

Three-four years ago, there were only a few big developers into the game of building luxury homes. But the higher margin in the business prompted many others to join.

The developers entered the luxury segment without a proper assessment of the market. Now they are faced with a major supply-demand mismatch. In Punjab, Delhi NCR and Mumbai suburbs, the supply far outstrips demand.

The price correction in the US has prompted NRIs to evaluate buying properties in their local market, where they can easily control and manage them, unlike in India, where managing property has been an issue with them.

Besides a demand problem, the competition among developers has intensified as they are wooing the same segment of NRIs.

PIOs are second or third generation people across the world, whose forefathers had migrated from India during British Raj and settled abroad. There is a good population of PIOs in Africa and Australia. The recent attempts by the Indian government to renew ties with PIOs by hosting Pravasi Bharatiya Divas may also have a positive push to the marketing efforts of developers such as Ansals.

Besides targeting a new segment, developers are also offering freebies to woo NRIs. Firms are offering free tickets to potential NRI home buyers to visit India and take a look at their property. This is done in association with banks, which maintain a list of high net worth individuals.

In the past, a steady growth trajectory of software companies allowed to predict and plan their additional requirement for space. In 2003-07, new hires by the top three software firms like TCS, Wipro and Infosys grew at over 20% each year. For 2008, analysts expect a drop in new hires. Says an analyst with a Mumbai-based broking firm: Hiring will continue to slow down in future if the dollar remains weak. A slowdown in the US economy will worsen things further for software companies in the short term.

Industry experts expect that if the weak market continues to persist, companies may actually slow down their investment in the upcoming SEZs. Companies like Unitech and DLF say that work in all their new zones across the country are progressing on schedule and they are not pulling back yet. The DLF executive, however admits, We will be in no hurry to get approvals for new IT/ITeS zones in the near future.

Software companies read the situation as a positive development. In the last two years, lease rentals in metros like Mumbai, Delhi and Bangalore have shot up nearly 50-60%, forcing firms to move to smaller cities like Pune, Bhubhaneshwar and Jaipur.

This follows Unitech’s decision to put on hold $1.5-billion qualified institutional placement (QIP), and Emaar MGF’s initial public offer (IPO), which was withdrawn midway. Industry insiders say the delay in fund-raising plans is unlikely to have any immediate impact on earnings.

Mr. Vipin Aggarwal, Executive director, Omaxe, said “We are waiting for the market to stabilize before we go in for private placement. We may not get the right valuation in the present situation”. Omaxe had originally planned to raise Rs 1,500 crore by issuing fresh equity to institutional investors.

The company intended to use the sale proceeds to buy land. On that issue, Mr. Aggarwal said, “The stake sold through this process could have been close to 15%”. At this rate, the transactions could have given Omaxe a valuation of Rs 10,000 crore, close to the company’s market capitalization during mid-December.

The Omaxe stock price had touched a high of Rs 613 on December 13, 2007, on BSE. It has lost almost two-thirds of its market cap since then. Omaxe scrip closed at Rs 221.60 on Wednesday on BSE, 5% down from the previous day’s close.

The promoters, Rohtas Goel and family, hold 89.3% stake in the company. Last December, the promoters pledged their 15% stake to Indiabulls for Rs 300 crore.

The company is engaged in developing several group housing, integrated townships, shopping malls, multi-product SEZ and hotels. It has recently won the bid to develop 393-acre township at Naya Raipur, Chhattisgarh, at a cost of Rs 1,800 crore.