Developers Reconsider Luxury Housing

As demand trickles back into the property sector, particularly in the affordable housing space, bringing back buyers and pushing up sales, developers such as QVC Realty, Lodha Group, Unitech Ltd and Ajmera Group are trying various ways to revive their so-called luxury projects in Bangalore, Mumbai and Delhi. So while some are adding cheaper homes alongside villas to boost sales, others are re-launching their high-end offerings in the hope that there will be demand for them. Prakash Gurbaxani, chairman and managing director of QVC Realty doesn’t think so, which explains his company’s decision to launch the smaller houses: “Given the current market dynamics, we recognized the need for a lower ticket size product. Buyers are eager to see prices for homes come down and this time it is end-users, and not speculators, driving the demand.”

The Rs150 crore project is the first development of Bangalore-headquartered QVC Realty Pvt. Ltd, the country’s first venture capital-funded realty firm, backed by IL&FS Investment Managers Ltd. Still, other developers remain hopeful about the prospects of their re-launched offerings. Lodha Aria in Mumbai’s East Parel area, a high-end residential project, was launched by the Lodha Group in March 2008. It was a limited soft launch, primarily for investors and the firm closed a couple of deals. In July, the project was launched again, this time for buyers. The project has 30 three-bedroom apartments, two on each floor, at 2,100 sq. ft each, with prices starting at Rs3 crore. “It’s a good time to launch now after a dry spell last year because buyers’ interest is rising,” said R. Karthik, vice-president marketing, Lodha Group.

The launch, he added, was triggered by rising demand at the company’s other Mumbai project, where an 1,800 sq. ft apartment costs Rs3 crore. “What worked for us was the various sizes of apartments that buyers could pick from.” Analysts second Gurbaxani’s assessment of the market and say demand is yet to return to the “luxury” segment of the real estate market and that there are several reasons why developers are re-launching such projects. “First, luxury projects aren’t selling as much as affordable ones, so many projects have been reclassified from luxury to ‘upper middle class’. Developers are repositioning projects by cutting the size of apartments,” said Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, a real estate advisory.

And demand has returned to this segment in Mumbai, Puri added. “Developers rationalized prices by reducing size of apartments by 25-45% and by offering price protection to buyers by telling them that if prices came down, they would be given the benefit of the price drop,” Puri said. A Bangalore developer has chosen to go the other way. In a recent auction of nine premium homes for Rs5.5 crore each in the Century Avalon project located at Jakkur in north Bangalore, not a single residence was sold. The builder, Century Real Estate Holdings Pvt. Ltd, has now decided to sell only two to three homes in the project and sell the rest once they are ready. Houses that are ready to move in typically fetch a higher price. The developer is changing part of the master plan to make the houses bigger and is offering customized interiors.

Unitech recently redesigned its luxury project Unitech Grande on Noida Expressway. From penthouses and duplexes, the firm now plans to re-launch the project as an integrated township with high-rise apartments, villas and developed plots. Unitech Grande was planned on 347 acres acquired by Unitech for Rs1,582 crore in May 2006 in what was then the largest land deal. Initially, 12 towers were planned, with 36-45 floors each, including duplexes and penthouses. Waning demand for luxury apartments propelled Unitech to redesign the project. This May, the firm launched residential plots, called The Willows, at the site. Around 200 plots have been sold, a company spokesman said. “There is demand in the market but the pricing and the positioning of the product are important,” said Alexander Moore, managing director, L.J. Hooker India, a real estate agent that conducted the auction.

At the Ajmera Infiniti project in Bangalore’s Electronic City, the developer is now selling cheaper homes in the Rs20-27-lakh category three years after the project’s launch. After initially trying to sell houses for Rs.40-72 lakh, the developer is revising the plan for the remaining part of the project and will now build 250 two-bedroom and 180 three-bedroom flats. “We have seen huge demand in other projects in the same price category. We have got lot of enquiries since we made the change,” said Bandish Ajmera, the Ajmera Group’s managing director.

High Vacancy Levels Pose Problems for Asian Office Space Market

Floors of office space in key business districts of Delhi and Mumbai are awaiting occupants, although rentals have gone down and business confidence is said to have returned, according to a study that tracks Asian market. “The Bandra Kurla Complex and Kalina districts of Mumbai, for example, saw overall vacancy levels rise to 29.4 per cent, while vacancy levels in Noida in the National Capital Region hovered at around 40 per cent,” real estate consultancy CB Richard Ellis (CBRE) said in its Asia Market View Q2-2009. The report said the election of a new government and falling interest rates improved local business sentiment during the second quarter in India.

However, despite small signs of improvement, cities like Mumbai, Delhi and Bangalore witnessed a slide in office rentals due to an exodus of occupants from the CBDs as corporates moved to alternative locations as a cost cutting measure. “While the second quarter of 2009 observed some improvement in the office-space market with levels of enquiries going up, vacancy levels continued to remain high.” CBRE Chairman and MD (South Asia) Anshuman Magazine said. “The fall in capital values has encouraged more companies to explore and evaluate opportunities for buying rather than leasing the required office space,” he added. He said there is an improved level of activity in the sector but the markets are expected to remain soft in the short to medium term.

“Although the rise in demand for less costly premises bolstered office sub-markets outside the CBD, landlords of buildings in secondary office destinations struggled with the consequences of speculative overbuilding and were forced to increase incentives to recruit tenants,” the report said, adding, that this led to the rise in level of vacancy. CBRE said the overall Asian market has started showing signs of stability in the second quarter of 2009 but companies remain focused on reducing costs and tightening their real estate expenditures. “Most Asian cities either recorded a smaller negative net absorption or a mild increase in office requirements. Overall vacancy for Asian cities rose 60 basic points quarter-on-quarter to 12.5 per cent in the second quarter, but the rate of increase slowed from 120 basic points in the previous quarter,” it said.

Overall, the Asian leasing markets were sluggish during Q2 and office rents remained caught in the down cycle. “Overall office rents in Asia fell 6.7 per cent in the second quarter, decelerating slightly from the 8.1 per cent decline witnessed in the previous quarter as most cities underwent a milder rate of rental reduction,” it said.

Feel good factor coming back into real estate: CREDAI

BANGALORE: The "feel good factor" is coming back into the real estate sector with enquiries for both commercial and residential space slowly picking up, Karnataka Confederation of Real Estate and Developers' Association (CREDAI) said.

"The feel good is coming back", Raj Menda, President, CREDAI-Karnataka told reporters while announcing a two-day realty Expo from August 15, showcasing 150 properties of 32 leading property developers.

"In the commercial space, where corporates were zeroing in on office space, there has been a demand for 30 lakh square foot office space in Bangalore," he said.

Suresh Hari, Secretary, CREDAI, Karnataka, said: "Since April 2009, people have again started their quest for homes. More people are looking to stretch their hand as far as they can reach right now instead of foreseeing income rise in the future. This has resulted in the resurgence of affordable homes in the bracket of Rs 20 lakh to Rs 50 lakh. Banks have also opened out in reducing home loan rates".

The realty expo would have 2500 houses that would be ready in the next six months and 18,000, which would be completed in one-and-a-half to three year period, indicating that developers were optimistic of sales picking up, Raj said.

There has been a 60 per cent growth in the March 09 quarter over the December 08 quarter, he said.

Need realty regulators in states: Parekh

MUMBAI: Housing Development Finance Corporation (HDFC) chairman Deepak Parekh has said there is a compelling need to have real estate regulators at state level to deal with issues concerning the housing sector. “There is a compelling need for state-level real estate regulators,” Parekh said in an annual report of the company sent to shareholders.

Discussing various aspects of real estate, he said, "It would be a missed opportunity if the government were not able to lay out an institutional framework for a real estate regulator".

According to Parekh, regulators’ role would be to monitor the affordable housing agenda, promote real estate reforms and ensure transparency especially by mandating that flats be sold only on carpet area and act as a platform to protect buyers from real estate fraud.

Referring to the affordable housing, Parekh observed that affordable housing is not about box-sized , budget homes in far-flung places where there is no connectivity to work places and little surrounding infrastructure. "Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to work place", he said.

About challenges being faced in rural housing, he sid challenges of rural housing are vastly different from urban housing and key reform like permitting the mortgage of agricultural land for residential purpose was needed. Parekh has also criticised tendency of state housing boards to make profits by selling lands.

He said,"many housing boards have shifted their focus to merely selling land for profit and sitting on cash surpluses. Such profits should be mandatorily ring fenced and deployed only for affordable housing," he said.

Project Delays Mainly Caused by Diversion of Funds by Major Developers

The prime reason behind project delays in Delhi-NCR has been the diversion of funds by all the major developers. During the boom time, they had over-booked their projects and then failed to deliver their commitments. In fact, the immediate impact of the global slowdown on the Indian residential real estate market was most visible during the second half of 2008. And then, many under construction projects got delayed due to a sudden and rapid contraction in demand. This was accompanied by a significant drop in the residential real estate supply statistics across India as many developers adopted the cautious approach and deferred their plans for any new launches for the rest of 2008.

By early 2009, many developers had adopted the obvious strategy of price correction in existing projects to clear mounting inventories and lure the consumers back into the market. During this period there was another paradigm shift that occurred as many developers understood that the market had converted from an investor driven one to an end user dominant one. Recognising that the end users were seeking homes that were affordable the developers altered their product portfolio and launched affordable housing across India to revive demand by the end of the first quarter of 2009. The Affordable housing concept coupled with reduced home loan rates put the residential real estate market on the path to recovery.

While this interesting phenomenon was emerging across India, PropEquity began a research on 36 cities in India to study the overall impact of this shift and rank the city that holds the highest potential of future growth, provides maximum investment potential and has demonstrated the healthiest absorption values during this dynamic phase of real estate development. Over 10,000 apartment and villa projects of 3000 developers in 36 cities were analysed during the course of the study for the first two quarters of 2009 to rank the top 10 leading real estate destinations in India. DELHI-NCR

Our study has revealed some of the startling facts like the four cities of the National Capital Region (NCR) are amongst the top 10 cities ranked on absorption. Noida has emerged as the leader in NCR. Noida and Faridabad have demonstrated high absorption primarily due to launch of affordable projects. The recent projects of Jaypee (Aman) in Noida and BPTP (Elite Floors) in Faridabad were primarily driving the high absorption values in these cities with developers commanding more than 70 per cent of the market share for the period of Jan 09 to June 09. Only 3 cities namely Gurgaon, Ghaziabad and Faridabad of the NCR appears in the list at low rankings of 5th, 7th and 8th

The gap between the first (Mumbai) and second (Pune) ranked cities is 21 per cent. However this gap doubles (51 per cent) between the cities ranked 2nd (Pune) and 3rd (Noida). Thereafter the rank differences are marginal. Mumbai witnessed the highest absorption of 17,689 units during the period of Jan 09 to Jun 09. Pune which had recorded low absorption levels till Dec 08 witnessed a healthy absorption of 13,899 units during the first half of 2009 and was ranked 2nd in the category. Mumbai and Thane representing Mumbai Metropolitan Region, together lead the total absorption at 22, 049 units, followed closely by NCR at 20,275 units.

The southern region has the second largest share in the unsold supply category that stands at 31 per cent of the total. The eastern region has witnessed lowest absorption levels As compared to the rest of India. Kolkata represents the eastern region and has the lowest unsold supply at 9,672 units and is 10th in the overall ranking.

Peninsula Land to mop up Rs 500 cr through QIP

Real estate company Peninsula Land is planning to raise a qualified institutional placement (QIP) of Rs 500 crore for acquiring land in Mumbai.

Peninsula Land has already identified five plots in Parel, Lower Parel, Kanjurmarg and Thane, said Rajeev Piramal, the company’s executive vice chairman

“The capital, if raised from QIP, will be used towards acquisition of new properties, as we will complete our current projects of 4 million sq feet in Mumbai within the next 18 months and need to find fresh projects to replace those,” Mr Piramal said.

The company currently has a board approval to raise up to Rs 750 crore and will decide on the final amount to be raised in its annual general meeting that will be held on August 10.

Mr Piramal said demand for commercial projects will take at least six months to revive. “We’re moving away from the commercial model for our projects outside Mumbai for three years now,” he said.

Peninsula Land has decided to convert its plans of developing commercial projects on 30 acres in Hyderabad and 100 acres in Pune to residential.

The company will also develop residential projects on its Nashik and Goa properties. Peninsula Land has plans to launch 7 million sq feet of residential projects over the next three years. The company’s stock closed down 1.15% on Friday at Rs 70.80.

Andhra Pradesh real estate growth continue to rise

Andhra Pradesh, the “Rice Bowl of India”, is a state in southern India. The state is bordered by Maharashtra, Chhattisgarh and Orissa in the north, the Bay of Bengal in the East, Tamil Nadu to the south and Karnataka to the west. Andhra Pradesh is the 4th largest state in India by area and population. It is the largest and most populous state in Southern India.

Hyderabad: Like many other Indian cities, Hyderabad has witnessed a remarkable growth of the real estate industry. As like other IT cities (Chennai, Pune, Gurgaon, and Mumbai), here also, the city is forced to improve their infrastructure, residential, commercial and mall segments. Better quality of life, Industry friendly government, low crime rate, quick availability of connectivity, shorter commuting distance within the city as compared to other metros has attracted investors and common man alike. With the development of a township with sate -of the-art facilities called HITECH City in Hyderabad, the place has emerged as one of the places for property investments. With more and more IT companies are setting up, the city had bagged a dream project – Fabcity. To create a model city, the state government has taken number of steps. The government has already initiated the project involving an investment of Rs 27,000 crore for development of metro rail, flyovers, roads, and drainage system. Common haunting problems of every metropolitan city are traffic and pollution. To tackle with this problems, the state government is implementing the MRTS, which will have cost around Rs 8760 crore. The rates have not only been increased in and around HITECH city but other areas like Begumpet, Malkajgiri and certain areas in Secunderabad , which shows the over all development of the city. The expansion of the city has not been restricted to western suburbs like HITEC City, Madhapur, and Gachbowli, area the upcoming international airport, Fabcity, Hardware Park and those on Warangal and Vijayawada highways are also turning into hotspots. In Gachowli, around 80 per cent land has been dedicated to international banks, financial institutes, and mutual funds to set up their operations. Gatkesar is another hotspot for middle-class buyers. Prices are still affordable and are likely to shoot up given the road expansion work going on as part of the Prime Minister’s Golden Quadrangular Road Project. The road has been developed till Singapore City. Assured of green space given the reserved forest area between Medipally and Nampally, the stretch is turning out to be preferred destination for employees. But here too, IT industry is a main reason to hike in the rates. A Gartner report predicts that by 2010, Hyderabad and Chennai will replace Bangalore and Mumbai as the favored Indian destinations for IT outsourcing. The study has evaluated and categorized on various factors such as infrastructure, skill availability, skill retention, access, cost of living, political support and quality of life. A recent survey report from Jones Lang LaSalle says six million sq ft of Grade A office has been occupied by IT/ ITES sector alone. The demand has been estimated at 30 million sq ft by the 2010 if the current trend in absorption level is any indication.

Rentals take a nose dive; corporates moving into furnished office

Bustling Gurgaon is witnessing a furious rush by many small and even big companies to shift to other new places. Reason? They are getting space in nice buildings at far cheaper rents. As if this were not enough, they are getting fully furnished office space.

According to realty experts, rentals have touched the nadir during the last couple of months. Many IT companies or those who had far bigger spaces than their requirements are moving to compact offices.

Many buildings of DLF, including their Cyber City, and commercial buildings near Golf Course in Gurgaon have seen a crash in rentals, by up to 45-50 %. The space that was not available even for Rs 110 sq feet is now easily available for Rs 50-55 per sq feet, says Rajat Mahajan of Integrated Pan Realty Solutions.

Naturally, in order to cash in upon the situation, many companies are ready to shift to new places, even sacrificing their deposit of lock-in-period .

Devender Gupta of Century 21 India says that despite loosing the money of lock-in-period , many companies are shifting to other places. That clearly proves the point that rentals in Gurgaon are witnessing a big nose dive.

The best thing is that apart from cheaper space, companies are also getting fully furnished offices at almost half the rates compared to what they were paying.

Harish Kumar, an estate manager of a US-based IT firm, says that they too shifted their office as cheap space was available . "I informed the ground reality to my office in America. They were fully convinced with me that in times like this when it is tough for IT firms like us to spend huge money on rentals, we should find ways to save overheads."

He was, however, specifically told by his US-based IT firm to ensure that the new office is fully furnished. Harish did not find it difficulty to find a cheaper as well as furnished office for his company as a large number of companies had shifted to other places.

On the issue of growing demand for fully furnished office space, SVP group CEO, Sunil Jindal, says that as far as their Opulent mall and other commercial places in Ghaziabad are concerned, they give options to their clients.

If they ask for furnished offices, naturally in that case they charge more rent. The other option is that they can sign an agreement for some kind of revenue sharing. Sunil Jindal said that now many companies prefer fully furnished office space, which they can readily occupy and start operations.

Meanwhile, the demand for furnished office space is on the rise in the capital as well as in all the major towns of the country. Companies prefer to start their office in furnished offices rather than starting them in bare commercial place.

Alimuddin Rafi Ahmad of ILD group says it is certainly a new trend in the commercial rental market. Companies in order to save their money and time, settle for furnished office space rather then totally bare or semi-furnished offices.

This trend has really taken epidemic proportions. Now, there are hardly any corporates going in for absolutely bare office. Experts say furnished offices get tenant easily and they always remain under the constant monitoring of realtors. The moment an occupant vacates them, another fills in no time. This is especially true for office with floor areas in the range of 700 sq feet to 2000 sq feet.

S K Menon, one of the senior estate managers a leading tyre company, says companies go for furnished office with partitions, cabins, flooring and modern furniture. They know that they would occupy the office for only three to six years. After that they vacate them. And, since, they have to leave the space after some time, they are extremely reluctant to furnish them in a big way.

Economic slowdown has taught this big lesson to companies cutting across sectors. According to one rough estimate , it costs around Rs 4,000 for one sq feet for furnishing. Alimuddin says they too have changed according to the changing times. Now, for the sake of their clients, they have started providing fully furnished commercial space.

This was hardly a trend in the past. Earlier, tenants used to spend lot of money in furnishing their offices. "The current position is that if your office space is bare, then the chances are it would not get any tenant for a very long time. That will inflict huge losses upon you, a situation nobody likes to face," Alimuddin concludes.

Top nine listed real estate firms post a 76% dip in profit and 57% fall in sales

India’s struggling realty industry may have sprouted some green shoots of late, but the top nine listed real estate firms posted a 76% dip in profit and 57% fall in sales in the June quarter, prompting the segment leader to observe that the industry is not “completely out of the woods”. Analysts said the revival in demand could improve things, especially in light of a government subsidy for loans taken for affordable housing, but warned that a possible price war between players sitting on huge inventories could spoil the scene. “The recovery of the sector will depend a lot on the sustenance of demand,” said Shailesh Kanani, a real estate analyst with Angel Broking.

Rupesh Sankhe, another real estate analyst with Centrum Broking, felt low-priced homes will continue to drive up demand , even though it may not be, “anywhere close to what we saw in 2006 and 2007”. DLF, India’s largest listed real estate developer, sold 2.5 million sqft of home space in Delhi and Bangalore in June quarter and wants to launch another 16 million sqft of residential space this fiscal. DLF reported a 79% decline in profit and 57% slide in sales for the June quarter.“There has been a reasonable revival in demand for homes not just in low-cost or mid-income , but also for high-end ,” DLF vicechairman Rajiv Singh told an analyst conference call on Friday. His immediate competitor, Unitech, reported 63% decline in profit with sales down by half. “Property prices have come down and so has the interest rate. That’s why home buyers are again looking at the property market ,” said R Nagraju, head of corporate planning at Unitech. The firm is targeting to sell a total of 30 million sqft of space this fiscal. Other realty players Indiabulls Real Estate, Parsvnath, Omaxe, HDIL, Akruti, Sobha and Purvankara too have reported decline in profits up to 95% for the June quarter. Parsvnath chairman Pradeep Jain said the worst was over for the sector and demand had started picking up. But the pick-up in demand hasn’t really erased all concerns as DLF’s Rajiv Singh said the sector was still not “completely out of the woods.”

Much of the new bookings received in residential projects have been in what developers call ‘affordable’ category or homes priced between Rs 20-35 lakh. Encouraged by the response , more developers are readying to launch homes in this segment. The tax benefits announced recently by the government for smaller homes is likely to act as additional incentive for projects in the category. “Supply is likely to increase faster than the demand in the residential market, as many developers, who had been postponing their launches for a long time are now launching new projects ,” says another analyst with a Mumbai-based brokerage firm, who didn’t want to be named. He says prices may correct further as new supplies hit the market.Mr Sankhe of Centrum believes the scope for price correction in low-price segment is limited, but high-end homes can still see property prices drop at least 10%. Some developers such as HDIL and privately held Lodha developers have claimed that prices have already started firming up in Mumbai. But analysts as well as some developers, including DLF and Unitech, say price hike would hit demand and not be good for the sector at this stage.

Hiranandani Developer to Collaborate with Maharashtra Govt for Affordable Housing

Real Estate Developer Hiranandani Constructions is looking to enter the affordable housing segment and may enter into a public private partnership (PPP) with the Maharashtra Government for the same, a top company official said. “We are certainly looking at opportunities in cluster/rental housing. Although we haven’t started talking to MMRDA (for public private partnership) for low-income housing, internally we have started making plans,” Hiranandani Constructions Managing Director Niranjan Hiranandani told reporters on the sidelines of a conference here. The company is also exploring the markets of Bangalore, Nashik, Panvel, Thane and Pune among other cities for the affordable housing project, he added.The State Government is focusing on the rental housing model and aims to have three lakh flats/tenements ready in the next three years through the PPP model, Government of Maharashtra, Additional Chief Secretary and Mumbai Metropolitian Region Development Authority (MMRDA), Metropolitan Commissioner, Ratnakar Gaikwad, said.Hiranandani said he does not foresee real estate prices picking up at least till about a year. “I don’t see prices rising in the next 3-12 months. Housing demand is expanding rapidly but prices right now are stagnant,” he said. Prices may increase steadily after a year as the market takes away ready products, he said. “In five years, there would be a 100 per cent jump in demand over that which existed during peak times before the meltdown,” Hiranandani added.

Recession's positive effects on Indian realty sector

Arti Khanna, a senior executive with a leading MNC, equates recession with the medicine that people initially complain 'is bitter' , but in the end, come out far healthier and are better off for it. More cautious spending and greater saving by consumers, more prudence by lenders, shift in focus from premium to lower- and mid-end segment of housing by developers, is exactly what our economy needed for its long-term health and recession is having the desired impact. Arti reminisces how they saw bad times during the dot-com bubble in 2001, and yet how the younger generation continues to be over indulgent, leading a hedonistic way of life and not paying heed to saving money. Arti says, "In many ways it brings the much needed discipline to people's way of life, while for corporates across various sectors, there are many positive ripple effects - for instance it allows people to analyse and identify their core competencies. It also helps in rebuilding focus, pruning tangential activities to achieve cost controls, which help in creating more effective systems and processes. And, it forces people to come up with innovative ways of handling problems, something mandatory for survival." Among the three most affected - end users, investors, developers - surely , the end user has benefited the most during this period. The end user has benefited as, finally, the supply chain started addressing the real demand in market - mid-end and affordable housing. Earlier, developers in their greed to garner higher profit margins, focused primarily on premium housing. But now, suddenly, the supply is shifting where the demand is. Even well known developers like Unitech, DLF, Raheja, Jaypee and Omaxe, primarily engaged in raising high-end homes, have begun talking of affordable options. Recession has also been a time to introspect for everybody. "It has been a good learning experience, though not a pleasant one," says Samir Chopra, CMD of RE/MAX India, (RE/MAX is a global network of real estate agents operating in 70 countries). "There have been things to learn, relearn and unlearn for all the three - end users, investors and developers. Consumers have become more vigilant in transactions , and they are more thorough about both the market situation and their own needs. They are beginning to learn how to investigate and research before spending their lifelong savings. Investors have also become more conscious. They are more careful about spending huge sums of money in development and are looking for other avenues for investment in the real estate sector. They have become more delivery oriented, innovative and price conscious in this volatile market . They have learnt from the difficult times, reduced prices, and learnt to make more beneficial offers to consumers ." While at a superficial level investors may seem to be winners with recession giving them an opportunity to pick investments at more realistic prices, recession has also seen them investing less. According to investor Shalabh Bhasin, director of Kshitij Portfolio Services Pvt Ltd, "The recession period has seen me investing less in property market because the previous prices where unduly inflated and even now it can't be said with surety that the prices have bottomed out. Also, most of the investors were already stuck with loads of investment at higher prices, so there was not enough liquidity for further purchases." Citing examples, he says he had invested in Parsvnath Panchkula flats at Rs 3,250/sq ft and Parsvnath Dharuhera flats at Rs 1,800/sq ft, but there is no buyer in these projects and three years on, the builder is yet to start construction. But on the upside, the investor is now carefully assessing a project and is no longer fooled by lucrative promos and advertising of the property. As for developers, on the face of it, they may seem to be the biggest losers with the fund flow nearly stopping and sales drying up. But recession has been a blessing in disguise as it has forced them to innovate to cut costs, improve sales and raise funds. Recession has seen developers changing their product and strategies. According to Mohammad Asif, chief operating officer of High Street Capital, "The shift in strategy is in terms of market focus, product size, pricing and promotion. In residential sector, they have started focusing more on affordable and mass housing. Today's market is customer driven and developers are offering suitable payment plans and other freebies like sharing of stamp duty and housing loan EMI burden to ensure transactions . In commercial segment, the decline in demand from IT/ITeS sector has forced them to look at other business sectors such as logistics, biotechnology , hardware, pharmaceuticals, tourism and education. In the retail segment, instead of fixed rentals, revenue sharing model is becoming a common practice. Developers have also been forced to work out an optimal tenantmix strategy and work on new project design to reduce operating costs. In hospitality sector, the focus now is more on budget hotels and services apartments." Overall, recession has been a time to innovate. In a price sensitive market, the effort has to be to reduce cost, and to achieve this, both the construction cost and land cost have to come down.

FOCAL POINT

Recession helps in rebuilding focus, pruning tangential activities to achieve cost controls, which help in creating more effective systems and processes The end user has benefited as the supply chain started addressing the real demand in market - affordable housing. Well known developers are now catering to this demand

New Delhi Retail Rentals continue to decline

Country’s capital New Delhi continued to witness a decline in retail rentals of 25 per cent and ranked 69th in rentals among the list of major cities across the world during the first quarter of 2009, according to global real estate consultancy CB Richard Ellis.

Prime retail rentals continued with their downward trajectory worldwide during the period which saw New York maintaining the top slot among cities with high rentals despite a 10 per cent annul decline. New Delhi ranks 69th globally with an average rental of $109 per sq ft each month.

“Demand for retail space has declined in most markets across the world as consumers cut back on spending and unemployment continues to rise in many countries. New Delhi in India saw a 25 per cent decline in a six month period,” CBRE said in its report ‘Global Retail Rents Market View Q1′.

The report said since the end of last year, most major economies barring India and China, have seen significant economic decline. “Rentals in Delhi NCR have corrected further when compared to the beginning of 2008. Retailers feel that rentals have corrected to sustainable levels and are using this period judiciously to take up positions on favourable terms,” CB Richard Ellis Chairman and MD Anshuman Magazine said.

Magazine said rentals are being renegotiated to make retail operations financially viable. “Another trend witnessed during this time is that of developers adopting a renewed stance towards revenue share agreements, as opposed to earlier, when the demand situation was more favourable,” he added.

Among other Asian cities to figure in the list are Hong Kong (ranked number 2 globally), Tokyo (5), Guangzhou (14), Singapore (18), Shanghai (29) and Beijing (35). Globally, New York retained its top slot among the most expensive retail destinations.

“Despite a 10 per cent year-on-year rental decline, New York remains the world’s most expensive retail destination, with rental values totaling USD 1,800 sq ft per annum,” the report said. Buenos Aires (Argentina) saw the largest annual decline in retail rents year-on-year with a drop of 37 per cent, followed by Warsaw (Poland) with a 33 per cent decline and Washington DC with a 26 per cent decline.

Real Estate and Infrastructure PE funds worthwhile

With risk appetite of high net worth customers increasing, wealth managers are recommending private equity investment of 5-10 per cent of one’s portfolio with special focus on real estate and infrastructure sectors. The ticket size of such investment varies between Rs.10 lakh and Rs.25 lakh, depending on customer’s risk profile.

Managers expect to generate returns of 18-25 per cent CAGR on such investments. HNIs earlier refused to take wealth managers’ call to invest in PE funds. The current market rally supported by better than expected Q1 results and positive global cues has now prompted HNIs to take higher risk and take to PE investments.

“Discerning customers who foresee stability in global economy coming are currently looking at India and China. They expect both the countries to participate in the recovery first. If this is a year of consolidation, there is also a little bit of optimism that results in higher risk appetite,” mentioned Vikas Agnihotri, CEO, Religare Macquarie Private Wealth.

“Supported by improved sentiment on the back of equity market rally, interest in PE is picking up. What work in favour of PE deals are the cheaper valuations available as compared to 2008,” said Shiv Gupta, head of Private Banking, ABN AMRO India.

Wealth managers are identifying real estate and infrastructure PE funds worthwhile for investment in addition to education and healthcare that are considered to be recession proof. They are however recommending such funds only to moderately aggressive investors to very aggressive investors with a lock-in period of 3-7 years. Two major criteria before such recommendations are higher risk appetite and liquidity of a ‘matured’ investor who according to the yardsticks set by wealth advisories has to have total assets of around Rs. 2.5 crore to Rs 5 crore.

Underscoring the demand potential of real estate sector Rajesh Saluja, CEO, ASK Wealth Advisors, said, “counter cyclical opportunities are available in this sector. There is a requirement of 27 billon housing in India and whereas only 3/4 billion are existing. Prices have corrected to reasonable levels. Time is ripe to invest in PE funds in residential housings.”

Price corrections have also helped PE investors to negotiate with the cash strapped developers and the returns are good.

In March, ASK launched a 500 crore real estate fund to supplement its exiting wealth management business. According to industry sources, Religare Macquarie might take exposure in ASK Real Estate Fund. Further, Religare Macquarie itself runs a PE fund on education and healthcare in association with Mileston Capital Advisors.

The wealth management arm of ABN AMRO is currently eying IDFC Infrastructure Fund, sources said. However, ABN’s Gupta refused to comment. Wealth managers from Karvy Private Wealth, wealth management - Axis Bank too are advocating for PE investment in infrastructure and growth focused PE funds.

Hrishikesh Parandekar, CEO, Karvy Private Wealth, said: “We are looking at largely domestic funds on infrastructure sector and growth focused PE funds. We are in touch with investment bankers to track good PE investment opportunities.”

“HNIs who were averse to taking any risk through PE investment, are now willing to listen to our recommendations,” said Sonu Bhasin, President – Retail Financing Services, who also heads wealth management.

Govt should appoint real estate regulator

Industry body Assocham today said the government should appoint a real estate regulator to help expedite the redressal of consumer grievances. ” There is a need for an efficient and focused regulatory body to overlook functioning of the real estate sector in order to insure the industry development and safeguard of consumer interests in line with international benchmark,” the chamber said.

The real estate regulator would ensure that the consumer grievances against developers, development authorities, real estate agents and financial institutions are addressed without any delay, it said. The chamber further said that opening of an escrow account for real estate players should be made mandatory to ensure transparency in real estate transactions. The real estate industry maintains an escrow account for development of a project, purchase of real estate units and honouring property charges.

” This facility needs to be encouraged by asking project developers to open an escrow account,” It said, adding that such accounts are also maintained for honouring property charges, insurance liabilities and maintenance charges on regular basis.

Hindustan Construction bags Rs.229-crore power project

Engineering and infrastructure development firm Hindustan Construction Co (HCC) Tuesday said it has been awarded a Rs.228.79-crore contract for a hydel power project in Maharashtra.

The 4x6 MW Gosikhurd Hydel Scheme, is being built on the Wainganga river near Nagpur, the company said in a statement. The contract has been awarded by the Vidharbha Irrigation Development Corp.

HCC will be responsible for all engineering, procurement and construction work as well as supply, installation, testing and commissioning of electromechanical plant and hydro-mechanical components including generating units.

The project has to be completed in 36 months followed by operation and maintenance for 24 months.

'HCC is proud to have built the Gosikhurd Spillway and is currently working on the Godazari branch canal. The Gosikhurd Hydel Scheme further demonstrates our EPC (engineering, procurement and construction) expertise in the hydel power development sector,' said HCC president and chief operating officer Vinayak Deshpande in a statement.

HCC is currently executing nine hydro-electric power projects - four in Jammu and Kashmir, two in Himachal Pradesh and one each in Uttarakhand, Sikkim and West Bengal.

Realtors may not gain from tax benefit extension

The government’s decision to extend the time limit for claiming tax exemption on profit earned from projects may not give the desired benefits to real estate developers. Instead of giving benefits to ongoing projects, the government chose to extend a tax waiver to ‘affordable’ housing projects that were approved till March 31, 2008.

“A change in any regulation with retrospective effect doesn’t seem to address either the pricing or the supply issue in the real estate sector,” said Kumar Gera, chairman, CREDAI, a builder’s association.

The current provision is unlikely to have any impact on the prices or on the sale of stock. Had it been an exemption for ongoing projects, it would have been an incentive for developers to build more such projects.

Though there is a shortage of 24 million dwelling units in India, there is not enough supply, especially in bigger cities that cater to middle-income segment. “Such an announcement would have no impact on the overall sector,” said E Sudhir Reddy, chairman, IVR Prime, a south-based developer.

Since projects are already under construction, we will check their eligibility status only when tax is due, said R Nagaraju, corporate strategy planning head at Unitech. For developers, project completion is more important than the checking whether it will benefit from any regulatory change.

As per the new regulation, all projects which were approved by March 31, 2008 against the earlier deadline of March 31, 2007, would be eligible for the benefits of Section 80 IB (10). This section provides tax waiver for a project, which is on a minimum one-acre plot of land and the residential unit, and has a maximum built up area of 1,000 sq ft in Mumbai or Delhi and 1,500 sq ft at any other place. Besides these, there are certain other criteria that need to be fulfilled.

“Most builders preferred large units during April 2007 to March 2008, as they were in high demand at that time,” said A Shyamsunder, executive director, marketing agency Disha Direct.

All big builders, such as DLF, Unitech, Sobha, Omaxe and Parsvnath, had launched their luxury projects those days. One of the few listed players that had launched mid-housing projects during that time was Indiabulls Real Estate and DLF.

However, experts say that this relaxation could benefit a few developers, but not the entire industry. “The overall effect of the announced provisions will only be noticeable in smaller cities, where homes costing below Rs 20 lakh are still procurable. In larger cities such as Mumbai, a flat of 1,000-1,500 sq ft can by no yardstick be considered affordable,” said Anuj Puri, chairman, real estate consultancy firm Jones Lang LaSalle Meghraj.

Assocham advocates greater transparency for realty industry

NEW DELHI: To bring transparency in the realty sector, Associated Chambers of Commerce and Industry of India (Assocham) has suggested that it be made mandatory for real estate developers to open escrow accounts.

Escrow accounts offer a safe avenue to buyers of property since payments for purchase of an apartment or similar real estate are deposited in them and paid to the developer only after the project is complete and the possession handed over. 'It will ensure that loans granted to developers for development of real estate projects are utilised for the purpose for which they are granted,' said Assocham president Sajjan Jindal, commenting on the recommendations that have been handed over to the government. The chamber said such accounts can also be used for payment of property charges, insurance liabilities and maintenance charges on a regular basis. 'Mistrust towards all key stakeholders continues to hamper real estate growth,' Jindal said.

According to him, this mistrust depresses consumer confidence and delays purchase decisions, while also limiting the entry of major international players to bring competition and best global practices to the industry.

'Therefore, there is a need for an efficient and focused regulatory body to oversee functioning of the real estate sector in order to ensure industry development and safeguard consumer interests in line with international benchmark,' he said. In addition, the chamber also suggested that developers and other stakeholders including consumers adhere to the norms laid down for real estate funding and credit by Reserve Bank of India and National Housing Bank. Assocham also requested the authorities to ensure that all development charges are used for the projects for which they are collected.

Commercial realty market on upswing

MUMBAI: The commercial property market, which had seen one of the biggest falls till May, is slowly reviving as higher government incomes and an improving economy are prompting customers to invest in such asset classes. Developers who had slashed prices of their commercial projects by 40-50% due to slow demand, say there are now more enquiries from retail investors, while institutional buyers have closed some deals.

Many developers, instead of trying to sell off properties are signing rental deals with customers and institutional customers. In one recent deal, global consultant KPMG signed a deal with Lodha Developers for renting out a 130,000 sq ft property at Mahalaxmi in central Mumbai, for a monthly rental of Rs 160 per sq feet.

“This is one of the biggest deals in the commercial property market this year, not just for us but also for the sector,” said Lodha Developers director Abhisheck Lodha. “Though rates have fallen in the past three quarters, there is now a lot of interest from customers.” The company has five commercial projects in Mumbai, in areas such as Parel, Worli and Thane. Recently, Lodha also bid Rs 710 crore for National Textile Corporation’s (NTC) 10.3-acre Finlay Mill land in central Mumbai.

Similarly, in a recent transaction in the commercial property space, investor C Sivasankaran acquired a 66% stake in a commercial property SPV from DLF for Rs 310 crore. Ackruti City is the other investor in the SPV.

Explains Ambar Maheshwari, director investments at DTZ, an international property consultancy firm, “While commercial property rates have been at an all-time low, customers are slowly returning. Many prominent developers are going for lease rent discounting, which not only helps them raise liquidity but also helps them sell the property at a later stage for better valuation.”

Under lease rent discounting, developers borrow from financial institutions on the basis of an agreement between the owner and the tenant. The rent from the tenant is then directly deposited with the lender and not with the owner. Industry observers say several realty players who have commercial projects, have adopted lease rent discounting. Market leaders such as DLF and Unitech are known to favour such a model. Both firms had almost stopped work on their commercial property developments in Mumbai. However, according to people familiar with these companies, work has restarted through lease rent discounting.

Said a Unitech executive: “Commercial properties give better returns, but there is lot of risk as rates are volatile. But our company is now better placed to manage these risks as far as funds are concerned.” Rates on commercial properties are more sensitive to market conditions than those of residential units, as they depend on returns or rentals. So when rentals in India dropped, so did the rates for commercial properties

Like the office-cum-commercial Bandra Kurla Complex in Mumbai, which enjoyed a premium tag for commercial market. Rentals here were around Rs 450-500 per sq feet last year; now for the same property, the rates are at around Rs 250 per sq feet.

Though even as the revival in the commercial property is still beginning, a majority of developers are still cautious. Says Kamal Khetan, chairman, Sunteck Realty: “Capital values of commercial properties are dependent largely on rentals. We believe rents have bottomed out and are already seeing upward movement. A number of investors have started picking up commercial property as it makes good investment sense; it gives a rental return as well as capital appreciation when the markets pick up,” he added.

Real estate looking up, people start buying once again

The booming real estate market that received a jolt during the slowdown last October-November seems to be recovering. People are slowly purchasing, but only for personal use. Not for investment purposes.

"In the last few months the real estate market has undergone major changes. The slowdown that migrated from the US has got corrected in India now. The prices have got corrected. And whatever pent up demand was there in the market has started getting converted into business," Santosh Rungta, president Confederation of Real Estate Developer's Associations of India (CREDAI), told IANS.

With 4,000 members, CREDAI is the apex body of the organised real estate developers and builders across India, representing pan-India associations of real estate and housing developers. People were virtually not buying during the slowdown as the real estate price was high and insecurity gripped buyers. "The government made an appeal to us that the prices should be brought down and we (CREDAI) made an appeal to our fellow developers that they should try and bring down prices, and they acted accordingly," Rungta said. The pan-India price reduction was to the tune of 15-35 percent depending on various categories and geographies, he said.

"Today flats are being sold, but the pace could be better. Generally things have reversed. In Mumbai also, rightly priced projects have been sold. The major contributor to this is the government policy to generate demand. It brought in stimulus packages, ensured availability of liquidity to the home buyers, interest rates softened," he said.

Another real estate player Indrajit De, chairman of Eden, also said housing loan lending rates cut may attract a few more buyers into the market. "If the lending rate falls further by 50 basis points, the sales figure will climb up," he said, adding, "Certainly the market is looking up now. Sales have also improved. "We are selling around 25-30 units (flats) per month. But it was much higher in the range of 55-60 units per month before the recession actually hit India."

Harshavardhan Neotia, chairman, Ambuja Realty Group, told IANS, "Sales have picked up in the last two-three months. There is more offtake now than what it was six months back. But now the buyers are genuine users and not just investors. These are the people who really need housing. They are lot more quality conscious and they look for the right products." He said there was a drop of 10-15 per cent in the price during the recession period. In the last two-three months the company has sold around 200 flats, he said.

Reacting to the recent announcement by union Finance Minister Pranab Mukherjee on interest subsidy on new home loans and extension of deadline in tax holidays on projects approved by March 2008 if they are completed by March 2012, Rungta said, "One must understand that extending the tax holiday under 80 I B (10) for a mere one year to projects approved by March 2008 will fail to create a significant positive impact on the real estate market. It will only benefit a few micro markets with a handful of projects."

CREDAI has suggested the centre consider extending the dateline to March 2012 for providing tax holidays to projects irrespective of the date of approval. "This will be of greater benefit to the sector and encourage developers to take up new projects and expedite ongoing projects as well." Rungta further said, "Even the proposed interest subsidy of one percent to home loan borrowers for loan taken for houses costing up to Rs.20 lakh is also not justified."

CREDAI has proposed that the centre increase the subsidy to home loan interest rates by another one percent to two percent and extend the scheme for houses costing upto Rs 30 lakh from the currently proposed valuation of Rs 20 lakh.

Office realty shows early signs of revival

Is there a recovery in sight for sagging office spaces hit by the ripple effects of the US financial meltdown? Market analysts say office spaces have started generating buyer interest from corporates, making developers optimistic about the segment.

But industry experts add a note of caution, saying the supply-demand gap is still huge.

“There is a bit more enquiry for office spaces than a few quarters ago, which is a positive sign. However, the deals are not happening at a good pace and there is at least 18-24 months of oversupply in the market,” Sameer Nayar, managing director and head of real estate finance at the Asia Pacific unit of global financial services firm Credit Suisse told Hindustan Times.

Property consultant Jones Lang LaSalle Meghraj said demand is picking up in cities like Mumbai, Bangalore and Delhi driven, not by traditionally strong IT buyers –which have been hit by the downturn in Western economies – but those from other sectors. “Leasing enquiries have started to show a gradual increase. As the pace of recovery in the global environment improves further, these enquiries are expected to be converted into pre-leases,” DLF mentioned in a presentation made to analysts last week.

“Unlike September-October when demand had hit its bottom, we are receiving enquiries from corporates now,” said Anil Kumar, chief executive officer of Delhi-based Ansal API. Industry estimates suggest rentals declined between 25-40 per cent from their peak values a year ago. Analysts said rentals continued to remain lower than last year whereas developers insist rentals have started moving upwards.

“Lower rentals are a thing of the past, in Connaught Place rentals are anywhere between Rs 150-Rs 300 per square ft whereas a quarter ago it was at Rs 100-Rs 250 per sq ft,” said Pradeep Jain, chairman, Delhi-based Parsvnath Developers.

“Rentals are down significantly from last year and are nowhere close to moving up,” Nayar said.

Inventory clearance sale in real estate

You thought it happened only for shirts and shoes? The glut in the property market and the reluctance of a large number of property buyers to hit the market has now forced real estate developers to clear their built-up inventories at big discounts — something largely unheard of in India.

Royal Palms Estates, a project spread over 240 acres of land in Mumbai’s Goregaon East has announced what it calls “Inventory Clearance Sale” of its ready possession properties at a flat rate of Rs 3,999 per square foot. Brokers say that compares with the going rates in the Goregaon area of Rs 5,000 to Rs 7,000 per sq ft. Prices had any way corrected by 40 per cent from their peak in 2007, but this is probably the first time that a Mumbai realtor is pushing things down by a further 40 per cent.

Like in basement sales, there is a deadline. The offer ends on August 9. And there are freebies like a club membership. A project of Royal Palms India, Royal Palms Estate is offering both residential and commercial properties in this sale. Also on offer are condominiums for weekend stays and corporate leases, shops, villas and serviced apartments. The cheapest offering is a studio apartment of about 340 sq ft available at Rs 13.59 lakh. A three-bedroom, hall, kitchen flat is available for Rs 49.99 lakh.

“The maximum bargain hunters surface during the slack season and take quick decisions if they find a property worth acquiring either for personal use or for investing,” said Dilawar Nensey, joint managing director at Royal Palms India. He said it also made sense for the company to offer discounts than sit on high-cost debt. Analysts say if the offer clicks, other developers may be forced to drop prices amid talk of a property glut.

In March this year real estate research agency Liases Foras said 8 crore sq ft space of fully constructed or projects under execution remained unsold in the Mumbai while there was a stock of 15 crore square feet in the National Capital Region.

DLF in better health, to develop 16 m sq ft of residential space

NEW DELHI: DLF, India’s largest property firm, plans to launch 16 million sq ft of residential space in the current fiscal, even as the company continues to have a cautious outlook. DLF has been able to reduce its debt by over Rs 2,000 crore and has received another Rs 2,000 crore from group company DAL in the June quarter, indicating that the company’s cash situation may be fast improving.

“We are being a bit more cautious than the rest of our colleagues...We will launch not just for selling but for adding value and making reasonable profit,” DLF vice-chairman Rajiv Singh told analysts in a post-earnings conference call, adding that he didn’t think the sector was ‘completely out of the woods’. Mr Singh said he saw “reasonable revival in demand” not just for low-cost or mid-income, but also for high-end homes. The company would launch 8 million sq ft each in mid-income and luxury housing segments across cities this fiscal. On the possibility of a price hike, Mr Singh said the current industry conditions didn’t call for a price hike. A price hike could “reinvite the speculative element in the sector,” he said.

DLF on Thursday announced a 79% decline in profit to Rs 396 crore and a 57% fall in sales to Rs 1,650 crore for the June quarter. The company has reduced its net debt in the first quarter from Rs 14,000 crore to Rs 11,686 crore. It plans to bring down its net debt to Rs 6,000 crore by the end of this fiscal. As part of its deleveraging exercise, the company has received Rs 500 crore through the sale of assets and is close to concluding deals that would generate another Rs 3,000 crore in the second and third quarter of this fiscal. In all, the realty firm expects to raise Rs 5,500 crore, which would be used to repay debt and bring down the company’s debt-equity ratio from the current 0.5 to 0.3 by March-end.

DLF received Rs 2,000 crore from DAL, a privately-held group company in the April-June quarter, bringing down its receivable from DAL to Rs 2,600 crore. Both DLF and DAL are promoted by Rajiv Singh and family, and the two companies have been mulling over an option for the listed firm to take over the privately-held entity. The proposal of DLF taking over DAL is still under deliberation, Mr Singh said. “DE Shaw is showing some interest in remaining committed...We will be able to resolve this soon,” Mr Singh said on the private equity company’s proposed exit from DAL. DE Shaw, which had invested $400 million in DAL two years ago, had expressed interest to exit DAL sometime ago.