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Govt may scrap 3-year lock-in for FDI in real estate

Nayantara Rai / CNBC-TV18 — Mon, 23 Nov 2009 16:03:00 GMT

New Delhi: To boost foreign direct investment (FDI) in real estate, the government may remove the mandatory three-year lock-in period for overseas investments in the sector.

The department of industrial policy and promotion (DIPP) has proposed this move, with a draft cabinet note on the proposal being circulated for inter-ministerial consultations. Doing away with this lock-in period has been a long-standing demand of Indian developers as well as foreign investors.

The government had permitted 100% FDI in the sector in 2005. However, this was subject to certain conditions such as a minimum capitalization of $5 million by the foreign investor and non-repatriation of the original investment for a minimum period of three years.

The liberalization of the real estate sector led to FDI inflows increasing from $151 million in 2005-06 to $2.03 billion in 2008-09. DIPP now argues that no sector, except defence, has a lock-in period. “Based on experience, this condition no longer seems necessary,” a DIPP official said on condition of anonymity.

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Indian investors cheated out of land in England that never was

Shabana Hussain and Abhishek Prabhat — Fri, 20 Nov 2009 00:35:00 GMT

New Delhi: The promise of a plot in the idyllic English countryside near London, with an assurance that its price would rocket once regulators rezoned it as residential land, proved too hard to resist for at least 400 investors from India.

Unfortunately for them, it was a promise that was too good to be true.

The investors, some of whom squandered away their life’s savings on the scheme advertised last year, are from among at least 4,500 people who paid a collective £69 million (around Rs514 crore now) to UKLI Ltd, a UK-based land banking company that has since become insolvent and is unable to meet liabilities, according to Deloitte and Touche Llp., the audit company appointed as its administrator.

Besides India and the UK, UKLI had attracted investors from Pakistan, Georgia, South Africa, the US and Canada, and a small number of investors “based in Japan and European countries such as Greece, Sweden and Holland”, Deloitte said in an email reply to queries from Mint. Deloitte said it wasn’t able to provide an estimate of the money invested by Indians alone.

In April, the Financial Services Authority (FSA), Britain’s financial regulator, ordered UKLI to wind up its business “for operating as an illegal collective investment scheme and denying its investors protection for their money”.

By then, UKLI had sold 1,000 acres of agricultural land in 13 sites carved up into 5,000 plots. The land, on freehold ownership, was going cheap because it was not developed. The company promised that it would “lobby” to secure all necessary approvals required to build houses there. Once the approvals came through, the land price would zoom up, it told investors.

Just an illusion: The brochures advertising the plots.

What UKLI did not tell them was that 11 of the 13 sites on offer were in the so-called green belt where no development is allowed under English law, according to a transcript of a creditors’ meeting held on 24 June by the administrator, which is available on UKLI’s website (Uklandinvestments.com). The two not in the green belt—Paddock Wood and Darmans Lane—had “onerous restrictions” in place with little prospect of development being allowed, the transcript said.

FSA is armed with an interim freezing and restraining order against UKLI to protect its assets for creditors, including investors. But FSA warns that UKLI operated an illegal scheme, meaning the investors aren’t entitled to complain to the financial services ombudsman or claim compensation from a statutory fund.

Dream to nightmare

For those who took UKLI’s promise at face value, the dream of owning a piece of English property is turning into a nightmare.

Like the 54-year-old widowed mother of two who invested Rs26 lakh, her life’s savings, to buy two plots after she saw newspaper advertisements in March 2007 promising high returns on land purchases in the UK. The ads were released by UKLI Real Estate Pvt. Ltd, the Indian branch of the UK-based land banking company.

“I approached their office on seeing the advertisement,” said the woman, a resident of New Delhi who declined to be named. She said she chose two plots—400 sq. m in Canary City which, according to UKLI’s website, is within the administrative area of Bromley in south London, and 200 sq. m in Borehamwood, a town in southern Hertfordshire outside London.

“I had saved that money for my kids,” said the investor, who has two children aged 16 and 21. She said she would have to depend on her sisters for help if she doesn’t see the money again.

She said she had approached UKLI’s India office in Gurgaon seeking a refund in August 2007. “They said I will get back my money in 14 days. But I am yet to receive it.”

UKLI’s Indian arm, which ran its operations from an office in Gurgaon near Delhi, has since closed.

The sole shareholder of UKLI is Baljinder Chohan, according to the transcript of the creditors’ meeting. “We believe that Baljinder Chohan is now residing in Dubai, but are not in a position to confirm his fixed whereabouts,” Deloitte said. Phone calls to Chohan or his private assistant, Carrie Lynch, on their Dubai numbers were not answered.

Duped: Raj Kumar Sharma paid Rs5 lakh to UKLI. Ramesh Pathania / Mint

The directors of UKLI Real Estate have distanced themselves from the insolvent parent. Prominent among the directors was Samta Khinda, daughter of Baba Hardev Singh, head of the Nirankari sect, according to some investors. Khinda did not take calls from Mint reporters. Her husband, Sandeep, however, said: “We never had anything to do with UKLI.”

Samta Khinda’s lawyer in Delhi, who requested anonymity, however, said: “She used to be a shareholder in the company (UKLI Real Estate) but has (now) discontinued.” The lawyer did not specify when she had ceased to be a shareholder.

Another company director rejected this claim. “Baljinder Chohan cannot directly open his company in India because he is a UK citizen and so he co-registered the company in Samta Khinda’s name,” said the director, asking not to be named. He, however, said UKLI management based in the UK was taking care of the dues it owed to employees and clients.

“They are sending emails to creditors and employees to settle dues. There is pressure from Babaji to clear the dues,” he said, referring to Hardev Singh.

Profit motive

Greed motivated investors. But some were lucky—or wise—enough to limit their losses.

Raj Kumar Sharma, a resident of Gurgaon, who himself deals in real estate in India, wanted to buy 50 plots in Borehamwood and New Addington. “I was interested in reselling them at a profit,” said Sharma. He paid Rs5 lakh to UKLI as a security deposit. “I wanted to personally verify the property before paying the full price.”

In January this year, Sharma visited the UK. He went to the land registrar’s office in Croydon, the borough under which New Addington falls. The land registrar, who hails from Haryana himself, advised him to stay clear of UKLI. “The registrar told me that in the UK, it is not possible to lobby for land conversion,” said Sharma, who has since been writing to UKLI seeking a refund of his investment.

Another investor, Harkawal Setia, said he figured out the “fraud” when UKLI stopped taking his calls. He had made an initial payment of Rs3 lakh by then.

Property scams are not uncommon in India, where cases of unscrupulous developers running away with money collected from homebuyers are a frequent occurrence. But this is probably the first time such a case involving property purchases abroad by domestic buyers has surfaced.

In the UK, large land banking companies such as Land Heritage (UK) Ltd and United Land Holdings went bust in 2006. These companies had also sold farm land to investors by telling them that the plots will gain permission for housing some time in the future.

“More than the need to own a home, it is greed and the desire to see their money grow which makes people invest in such schemes,” Sandeep Singh, director, capital markets, Cushman and Wakefield, a real estate consultant said. “This kind of thing could have happened even within India. People should do a due diligence and use common sense before investing money in these schemes.”

Employees’ plight

Not only investors, UKLI packed up its business without clearing the dues of several employees and vendors also. Even before the India office closed in June, the company had gradually started easing out people, said a 37-year-old former employee of UKLI requesting anonymity. “I was a junior accounts executive and was working in the company since October 2007. I did not receive any notice prior to the termination of my services nor have I got my relieving letter yet.”

He said there were 20-25 people in the Gurgaon office when it closed. Another former employee, who also did not wish to be identified, said UKLI was forced to shut operations because the sales did not take off as expected. “Huge targets were set by the company which were not met,” she said. “In the end, they had to cut down on the expenses and so they started to cut down the staff.”

“Landlord, housekeeping staff, security, etc., had to beg the company for their own money...the company did not have the funds to pay them while some people in the management were very highly paid,” she said.

Tej Singh, who was providing housekeeping services to UKLI at Gurgaon, said he has not been paid since April. “I got an email from the company asking for a scanned copy of the bills due, but I have not heard from them since.”

Unsecured creditors

Meanwhile, FSA in Britain is continuing its investigations and trying to work out a method to repay or improve the value of the investors’ land, according to information on UKLI’s website. “It is their (investors’) land...they can either return the land to the administrators or hold on to their plots in the hope that the land will receive planning permission,” said Keith Porter, one of the persons handling UKLI investor queries at Deloitte’s UK office. “If they return the land, they will become unsecured creditors and the administrators will then pay them dividend payment in return for the land.”

The administrator plans to refund investors’ money by selling some sites that UKLI still owns. According to Porter, UKLI owns 25% each of the 13 sites that it had sold to investors. “Once we sell that there will be a large pot of money left to be distributed among creditors,” Porter said.

Investors will, however, not get a refund of their entire investment. “Investors will get a lot less than what they invested...probably 2-3 pence to £1 invested,” Porter said. “We are still working out the refund scheme.”

Few investors from India have got in touch with Deloitte, said Porter. “The records of UKLI are not accurate...some of the addresses of investors are not updated though we have got most of them.”

“It will be necessary for the company’s secured debts to be settled in full, and for preferential claims such as those of employees to be paid, before any distribution of funds can be made to unsecured creditors and investors,” said Keily Hedger, who is dealing with investor queries at Deloitte’s UK office. “It is expected that there will be a small dividend paid to unsecured creditors of the company. However, it remains to be proved that the investors of the company are true creditors. This matter will be addressed when we have the funds to do so.”

UKLI has, meanwhile, shifted base. It is now called UK Land Investments International (UKLII) and has offices in Dubai and Saudi Arabia. “UKLII is solely for international clients based in the GCC (Gulf Cooperation Council), Middle East, Canada and Asia,” says the company’s website (Uklii.com). “The products of UK Land Investments International are not to be marketed to persons in the UK or the USA and as such does not fall under the jurisdiction of FSA, OSC (Ontario Securities Commission) or SEC (Securities and Exchange Commission),” says a disclaimer at the bottom of the website.

shabana.h@livemint.com

Affordable housing coupled with quality land bank make Brigade a strong realty play

Mark to Market | Manas Chakravarty and Mobis Philipose — Wed, 18 Nov 2009 16:05:00 GMT

Bangalore-based real estate developer Brigade Enterprises Ltd’s move into the affordable housing segment will accelerate revenue growth through faster monetisation of its properties.

BEL will now offer apartments in the Rs10-26 lakh price range, which will provide greater visibility in the residential segment where it has been a premium player in the Rs50 lakh and above segment. In fact, corporate real estate players’ entry into this segment is a trend visible since the real estate sector bottomed out around six months ago. Unitech Ltd. recently announced “Unihomes” in the lower-end residential market, while DLF Ltd too is reckoned to be considering the same.

Why the shift to lower value-added segment? Given that the time taken from concept to completion of a project is less than in the premium segment and that they are more need-based purchases, a recovery in real estate could translate into faster revenue accretion. In other words, such projects churn out better cash flows for a company. According to a senior BEL official, “the value home component will comprise 20% to 25% of our product mix over the next 4-5 years, as against effectively 0% now.” The company has a land bank of around 30 million square feet (sq ft). The move will also add to the company’s brand presence in a wider range of offerings.

An analyst from an institutional research and broking house explains that BEL’s strength over its peers is its excellent quality of land bank, with roughly 40% percent of the gross asset values (GAV) accruing from two premier projects (Gateway and Metropolis) in Bangalore. Both these projects are close to completion with around 80% of the apartments already sold. Unlike most of its industry peers, BEL has not raised funds through the QIP route to repay debt. It has a healthy debt:equity ratio of 0.6 (FY09).

However, its plans to sell a stake in its wholly owned subsidiary which is in the hospitality segment is yet to fructify. The plan is to raise around Rs 350-500 crore which will be used to refurbish and construct its hotels in various cities. BEL’s strong brand visibility in the corporate realty segment and relatively smaller scale of operations compared to DLF and Unitech, will see faster accretion to revenues and profits. During FY09, its net revenues had fallen to Rs395 crore from Rs507 crore in the previous year. Revenues for the quarter ended September 09, grew sequentially by 28% to Rs84 crore, although it was down from the year ago period.

BEL will ramp up delivery capabilities from 2.5 million sq.ft. per year to around 4 million sq. ft per year. Revenues from the hospitality business, too, will come in from FY10 which will give a fillip to the consolidated income. Company guidance is that revenues should touch Rs1,000 crore by FY2012. Operating profit margins which had dropped to an all-time low of around 15% in 2009, should double in FY10 and improve further over the next two years. A report by Motilal Oswal Financial Services Ltd indicates a 32% growth in revenues and 25% growth in net profit over the next two years. The stock trades at around Rs135 on the National Stock Exchange. Given the robust balance sheet, revenue expansion will imply direct improvement in net profit, makingit a safe bet to ride an upswing in realty.

Write to us at marktomarket@livemint.com

Property registration to be at flat 1%

PTI — Tue, 17 Nov 2009 10:02:00 GMT

Mumbai: Revenue department has approved a proposal to levy a flat 1% charge on property registrations with immediate effect, doing away with the Rs30,000 ceiling.

Revenue minister Narayan Rane lifted a stay on an earlier order of the government.

The decision on the 1% property registration fee was taken by then revenue minister Patangrao Kadam early this year but was stayed ahead of elections.

Rane cancelled the cap of Rs30,000 for the registration fee, an official in the revenue minister’s office said, adding the measure is expected to earn the state exchequer Rs250 crore.

According to the new order, if the ready-reckoner value of a property according to the government is Rs1 crore, the registration fee to be paid will be Rs1 lakh, which earlier stood at Rs30,000. The revenue department has also cancelled its earlier decision of waiving stamp duty on transactions carried out by stockbrokers from other states.

“It was observed that many local brokers evaded stamp duty by listing office addresses outside the state. This decision will yield Rs1,185 crore as revenue towards stamp duty,” the official said.

Ramesh Prabhu of the Maharashtra Societies Welfare Association has said his organization will challenge the decision to remove the Rs30,000 cap on property registration in court.

“It is not a source of earning revenue, but a service to society,” Prabhu said.

Ask Mint | Loan eligibility mainly depends on borrower’s repayment capacity

On Real Estate | Renu Sud Karnad — Sun, 15 Nov 2009 15:47:00 GMT

To help readers keep pace with what’s happening in the real estate sector, Mint’s Q&A appears every other Monday.

One of the leading banks has sanctioned me a loan of around 70% of the agreement value. In case I give additional collateral in the form of my insurance policies and a small property of about 250 sq. ft in Goa, will it increase my loan eligibility?

Loan eligibility is essentially determined on the basis of the repayment capacity of the borrower. A number of factors are taken into account when assessing the repayment capacity such as income, age, qualifications, work experience, number of dependants, job profile, spouse’s income (if any), assets, liabilities, continuity of occupation and savings history.

Since you have been sanctioned 70% of the agreement value, it could be primarily based on your repayment capacity. You need to understand that providing additional security such as insurance policies and other properties at the loan application stage may help, but only to a minimal extent. It may not have a substantial impact in terms of enhancing your eligibility, if according to the bank your repayment capacity allows you only up to 70%. However, you may want to approach the bank again to clarify and, maybe, request them for a possible increase in the loan amount if repayment capacity is not the issue.

My wife owns a plot of land. I want to take a home loan in my name and construct a house on that plot. Is that possible? Can I claim tax benefits on it?

Yes, several lenders do provide loans for construction of residential premises on a plot of land. However, in your case, since your wife owns the plot, you will get a housing loan for the construction only if your wife is a co-applicant to the housing loan. The tax treatment would be similar to that of a normal housing loan. However, we recommend that you consult your tax expert with regards to tax planning.

Renu Sud Karnad is joint managing director, HDFC.

Readers may write in with their queries and comments to askmint@livemint.com

Real estate firms express concerns over regulatory Bill

Priyanka Ghosh / CNBC-TV18 — Thu, 12 Nov 2009 17:49:00 GMT

Mumbai: Real estate companies are ambivalent about a proposed regulatory Bill for the industry. While the idea of a regulator for the industry is welcome, companies are wary about the extent of government intervention in their day-to-day operations.
“The concern is on the shape and form the regulator will take and I think those concerns are justified...in terms of how much the interference will be on your day to day operation,” said Rajeev Piramal, vice-chairman of Peninsula Land Ltd.
A clause that mandates licences for real estate firms has aroused concerns that it may be a throwback to the so-called licence raj of government controls.
Indian real estate companies are already required to obtain more than 50 permissions for a project which takes them more than a year to secure. A singe-window clearance system has been the sector’s key demand for a long time.
Licensing will lead to “not regulation but strangulation,” says Niranjan Hiranandani, chairman, Hiranandani Constructions Ltd.
“The bureaucracy or government can delicense a developer because he has done some mistake which means if the state government does not like a developer, they can fault-find a developer and delicense,” he added.
The requisite permissions are issued by state governments. Almost all major developers have a pan-India presence. Some companies wonder how a common regulation can be enforced across the various markets.
“The regulatory Bill is trying to put a regulator in place for the real estate sector as of now, but the problem is that every city and town in this country has a different development control regulator,” says Sarang Wadhawan, managing director of Housing Development and Infrastructure Ltd.
While these may be valid concerns, banks and fund managers say regulation is essential as it will increase vigilence.
It has been a common practice for developers to use funds for aquisitions meant for construction.
The introduction of a regulator in the sector is expected to plug this and ensure transparency, which in turn, stands to benefit consumers.
cnbctv18@livemint.com

Bangalore realty sector fails to benefit from low-cost housing

Madhurima Nandy — Wed, 11 Nov 2009 16:57:00 GMT

Bangalore: Bangalore’s real estate market continues to groan under the burden of unsold property and sluggish demand, even as a revival in property sales in other cities has encouraged developers to launch a slew of projects.
Nearly one in every five homes scheduled for completion by the end of this year remains unsold, according to a report released last week by DTZ International Property Advisers Pvt. Ltd and Indiareit Fund Advisors Pvt. Ltd, a private equity fund. For projects scheduled for possession in 2011, this figure jumps to 56%.
DLF Ltd, Unitech Ltd and Housing Development and Infrastructure Ltd have started launching projects in Mumbai and New Delhi, particularly in the “affordable category” that has residences priced under Rs30 lakh.
The recovery may take longer in Bangalore, the country’s third largest realty market, where big technology firms such as Infosys Technologies Ltd and Wipro Ltd are headquartered.
“Bangalore has continued to witness a correcting trend as the investor community hasn’t quite revived activity yet,” said Aditi Vijaykar, executive director, residential services, at property advisory Cushman and Wakefield.
While the growth in Mumbai and New Delhi is driven by multiple sectors, growth in Bangalore is largely dependent on the technology sector, she pointed out.
Interestingly, lower prices, to the tune of 25-30%, hasn’t pushed up demand in the city, both developers and analysts said. For instance, Whitefield, a suburb in east Bangalore and close to a prominent information technology (IT) hub, saw sluggish sales even after prices corrected by nearly 30%.
“The affordable concept didn’t work as much in Bangalore as it did in Delhi or on Mumbai’s outskirts,” said Prakash Gurbaxani, managing director of QVC Realty Ltd, a property developer. “Prices in Bangalore are lower but home sales and office sector take a direct hit when IT firms stop expanding and the sentiment is negative.”
Unlike Bangalore, where prices are still falling, realtors in Mumbai, New Delhi and Gurgaon have already raised prices between 5% and 10% on the back of rising sales.
Starting July, Lodha Group increased prices by 10% and Unitech by a flat 2% after the latter sold 4 million sq. ft in three months and Lodha’s mid-income flats got good customer response.
“Restricted supply has boosted demand in Mumbai in the past months, price checks and mid-income projects by big developers have worked for Delhi,” said Kumar Gera, chairman of Confederation of Real Estate Developer’s Association of India, an industry lobby. “Bangalore will see a revival only by 2010.”
Bangalore also has a problem of over supply, which doesn’t bother metros such as Mumbai and Delhi. According to the Indiareit-DTZ report, there are around 51,470 residential units across 193 projects coming up in east and south Bangalore, where 66% of under-construction projects are located, which would take the total stock to 122,431 homes by 2011.
Besides a few low-cost projects, larger developers in Bangalore such as Sobha Developers Ltd and Puravankara Projects Ltd have stayed away from fresh launches and are focusing on selling inventory.
After a hiatus of 18 months, Sobha is only now planning to launch a residential project in the next two months, and Puravankara doesn’t have any Bangalore launch in the pipeline after launching its mid-income project in Chennai.
Growth corridors such as areas near the new international airport also haven’t really turned out as expected. Although most developers have picked up land parcels in the area, few projects have been launched.
Tangible effects of the slowdown in construction activity would be visible in 2010-11, the report said.
madhurima.n@livemint.com

Tata to extend affordable housing project to more cities

PTI — Fri, 06 Nov 2009 09:35:00 GMT

Munnar: Upbeat over the good response to its affordable housing venture in Mumbai, Tata Group is planning to extend the scheme to other major cities across the country.
The group is looking for housing projects in Kolkata and Bangalore in the next phase, Tata Group chairman Ratan Tata told reporters here.
Tata was here to attend the silver jubilee function of the company-run High Range School.
He said the company’s affordable housing projects in Mumbai had evinced keen interest from all parts of the country and some foreign countries as well.
Tata said the government of Maldives had also shown interest in the company’s housing project.
Tatas had in September this year announced the launch of its affordable housing project under the name of ‘New Haven’ at Boisar in Mumbai.
The company is building 1,300 apartments, including 2 BHK and 3 BHK homes, prices of which starting from Rs12.73 lakh.
On the company’s much-touted small car Nano, Ratan Tata said the company had plans to market localized versions of the low-priced vehicle in European markets.
Asked about the group’s expansion plans in plantation sector, he said the a proposal to take up oil palm plantations in Indonesia was under consideration.

Real estate: bumpy road ahead

Mark to Market | Vatsala Kamat and Ravi Ananthanarayanan — Tue, 03 Nov 2009 16:46:00 GMT

The recovery in the real estate market will continue at a gradual pace for a few more quarters before it translates into more robust growth in revenues and profits.
The past six months have seen a recovery in the sector, as prices recovered and buyers started coming back. Analysts are convinced that the market has bottomed out and that prices will steadily improve. But changes in the product mix to more affordable homes and stricter funding norms may lead to some bumps on the road to recovery.
Property developers have priced their new projects attractively, leading to good bookings. Some of them— DLF Ltd, Purvankara Projects Ltd, Unitech Ltd and Lodha Developers Ltd—have also raised residential property prices after the initial launch period by around 5-15% in some areas.
This is reflecting in their September quarter performance, with revenues of 18 realtors rising by 23% on a sequential basis, according to a report on the real estate sector by Citigroup Global Markets Inc.
Graphics: Yogesh Kumar / Mint
Still, sales have declined by 41% over a year ago.
The trend was similar for operating profits, which dropped by 50% year-on-year but rose 27% sequentially. Operating profit margins (OPM) have been improving from the quarter ended March.
The Citigroup report indicates a rise in OPM from 14.2% in the March quarter to 46% in the three months ended 30 September. But rising cost of construction and employee costs may result in this level not being sustained.
Until early this fiscal ending March, most of the frontrunners were highly leveraged. The turnaround in earnings coincides with a series of equity issues meant to retire high-cost debt.
For example, Unitech has raised $900 million (Rs4,230 crore) since April by selling securities to institutional investors.
Similarly, Indiabulls Real Estate Ltd and DLF, too, raised $550 million and $770 million, respectively, through the same route.
Real estate companies raised nearly $3.2 billion through qualified institutional placements and preferential allotments.
Since companies repaid debt with these funds, interest costs have fallen significantly and contributed to improved profits. On a sequential basis, the adjusted profit after tax for the sector during the September quarter is higher by 48%.
Going forward, the pace of project execution will determine sales and profit growth.
In the residential market, revenues accrue in stages depending on construction progress, with most revenue being booked closer to completion. Most projects are due for completion only in the second half of the fiscal ending March 2011. This implies upfront investment in operational costs such as employees, labour and construction, and may lead to a drop in operating profit margins in the interim.
Also, many developers have changed focus to concentrate more on mid-market residential projects rather than luxury ones. The changed mix could lower sales realizations and affect revenue growth rates in the near term. The Reserve Bank of India’s move to rollback provisioning norms from 0.4% to 1% for commercial real estate loans also signals more expensive loans.
These factors will hurt sentiment and may prolong the awaited rerating of the sector till the end of fiscal 2010.
Write to us at marktomarket@livemint.com

Realty funds explore new investment areas

Madhurima Nandy — Tue, 03 Nov 2009 14:55:00 GMT

Bangalore: After investing in four mid-income and low-cost housing projects in the past one year, Indiareit Fund Advisors Pvt. Ltd, promoted by the Ajay Piramal group, wants to refocus its strategy on projects with potential for higher returns.
Planned look: The Empyrean project in Bangalore is being developed by a special purpose vehicle called FIRE Luxur Developers Pvt. Ltd.
Indiareit will now look at deploying most of its new Rs500 crore domestic fund announced in October in redevelopment and defunct textile mills projects.
“There are some 25 mills coming up for development and we want to either bid independently or through a special purpose vehicle,” managing director and chief executive Ramesh Jogani said.
“Redevelopment projects, particularly in Mumbai, also have great potential from an investment perspective,” Jogani added.
Indiareit’s revised strategy echoes the sentiments of many private equity (PE) funds with a focus on real estate in India. Funds that had zeroed in on the emerging, affordable housing segment as a demand driver during the economic slowdown believe that with the sector reviving, they should look at other growth areas.
Among such funds are Kotak Realty Fund and Saffron Advisors, which have lined up about $400 million (Rs1,880 crore) and $140 million, respectively, for investments.
Saffron Advisors’ founder and managing director Ajoy Veer Kapoor said his company will seek value in two sectors—warehousing chains and niche, city-centric developments in Mumbai or New Delhi.
“We are not really looking at low-cost real estate projects because it’s still at a very new stage in India and not many developers have the bandwidth to pull it off,” said Kapoor.
The affordable housing story is a recycled version of the integrated township story in India, which never really took off, said V. Hari Krishna, chief investment officer at Kotak Realty Fund.
The fund last October picked up a 50% holding in an affordable housing project of Janapriya Engineers Syndicate Ltd, a Hyderabad-based builder. “Such projects are mostly large, and so by the time you recover your money, it takes a long time,” he said.
A 50-60-acre affordable housing project would typically be sold and developed in phases and take about five-six years to complete.
In the past 8-10 months, PE firms had reacted to what was then the need of the hour—financing developers to complete projects and funding projects that would sell quickly. Developers have since raised funds from other channels and the liquidity crunch has turned less severe.
In 2009, till October, realty funds invested in 20 projects worth $867 million in special purpose vehicles and property companies, according to Venture Intelligence, which tracks PE and venture capital deals in India.
More than half of these were in mid-income and affordable housing projects.
Two investment bankers, who advise real estate clients on raising capital, said that with fresh capital flows into new real estate projects still being tight, developers depend on PE funds to raise equity for their ventures.
Funds are looking at investing in short-term, small-format projects that will not take more than three-four years to finish, said Vinod Menon, head (real estate, investment banking) at o3 Capital Advisors Pvt. Ltd, adding that investors are also keen on offering last-mile funding.
“Unlike execution capital, this is to fund the last leg of a project where the final interiors, etc., need to be finished,” he said.
Upbeat about the rebound in the sector, PE fund Red Fort Capital Advisors Pvt. Ltd says it is ready to put its money in greenfield projects right from the land acquisition stage, on account of lower land valuations now.
Red Fort, which wants to invest Rs1,000 crore in the coming year, has in the past two months invested Rs150 crore in an office development project along with a developer.
First Indian Real Estate (FIRE) Capital Fund Ltd, with a target investment of $100 million by end-2010, wants to partner small developers or entrepreneurs with no real estate background for large housing projects.
Developers who have raised money from realty funds recently are hopeful of seeking their investments again.
Mumbai-based firm Orbit Corp. Ltd, which raised about Rs175 crore from a PE fund for its 100-acre gated community project in Mandwa, a beach location close to Mumbai, is now in talks with two-three funds for large-format projects in the Mumbai metropolitan region, said Pujit Aggarwal, Orbit’s managing director.
“Most developers need money now for investing in fresh projects or who want a cashout from a current project to get into a newer one. We want to raise funds for a few mid-income and low-end housing projects and are positive about the response,” said Nayan Bheda, managing director of Neptune Developers Pvt. Ltd, which got funding from Indiareit Fund for a low-cost housing project in Mumbai last November.

Builders revive stalled commercial projects on early signs of recovery

Madhurima Nandy — Mon, 02 Nov 2009 16:16:00 GMT

Bangalore: Realty firms, encouraged by early signs of a revival in the market, are dusting off shelved or deferred projects and testing their financial viability to gauge which of these can be resurrected.
Solid foundation: A commercial complex under construction at DLF Cybercity, Gurgaon. Developers who had shifted focus from commercial projects to residential sales during the slowdown are restarting them. Rajkumar / Mint
DLF Ltd and Unitech Ltd, India’s top two developers by market value, which had suspended most of their commercial projects earlier this year, said they are in the process of redeveloping them because of a return in demand.
Unitech, which is more upbeat about the potential of commercial development, said on Monday that it has started developing many projects which had been suspended before. DLF, however, plans to remain cautious and wants to launch only in selective markets such as New Delhi and Hyderabad that it thinks have revived faster than others, a senior DLF official said on condition of anonymity.
Large developers such as Housing Development and Infrastructure Ltd (HDIL), Orbit Corp. Ltd, Ozonegroup and Prestige Estates Projects Pvt. Ltd are also launching or firming up plans to build offices and shopping malls.
“This is a good time because most of us have repaired balance sheets and can afford to start construction and can hold on if needed,” said Hari Pandey, vice-president of finance and investor relations at HDIL. “We are also observing a rise in interest from healthcare, financial services and IT (information technology) companies.”
HDIL, the country’s third largest developer by market value, in September and October launched 3.5 million sq. ft of commercial and retail development projects in two Mumbai suburbs that were initially scheduled for a 2010 launch. HDIL’s capital outlay for these projects is Rs600-700 crore over the next four years.
Improved cash flows from sales and a rise in the so-called transfer of development rights (TDR) rates, too, propelled the company’s decision to start building these projects. Slum TDR is a tradable paper issued by state governments in exchange for free development of slums by builders. They, in turn, use the paper to develop other sites.
Analysts, however, remain sceptical and say the commercial and retail segments, unlike residential housing, may be far from a turnaround. Real estate consultancy Cushman and Wakefield said in a 27 October report that the estimated absorption of office space in the first three quarters of 2009 was 4 million sq. ft and is expected to be 5 million sq. ft for the entire year—a 50% drop from the 10.36 million sq. ft sold in 2008.
Developers had shifted their focus from commercial, retail and hospitality projects to residential sales during the slowdown. DLF and Unitech led the way, saying they would concentrate on mid-income homes, and suspended other projects. While a Unitech official said on condition of anonymity that the company has changed its stand and gotten back to commercial development, DLF is also developing about 2.5-3 million sq. ft of commercial space.
Overall, DLF is trying to clean up whatever commercial space was launched by beginning construction as well as delivering what was promised, said a DLF official, who also did not want to be identified.
“The revival of the commercial sector will be a slow process, and the initial trends emerging after the lull include the gradual return of demand from non-IT companies as well as from investors,” said Anshuman Magazine, managing director at property advisory CB Richard Ellis.
Bangalore-based Ozonegroup is back at the drawing board, deliberating the format of its Urbana project—a 162-acre sprawl in Bangalore. The company, which had earlier considered building an IT special economic zone (SEZ) here, may instead build a large IT park with retail spaces.
Similarly, Orbit, after turning its premium commercial projects into residential formats, plans to launch two commercial projects in the coming months in the Bandra-Kurla Complex and Andheri, both Mumbai suburbs.
“The launches are in anticipation of demand picking up as companies begin to expand again,” said Pujit Aggarwal, managing director of Orbit.
India’s retail property market has recorded the highest correction in the world, according to a 22 September report by Cushman and Wakefield. The biggest fall in rentals globally was in Colaba Causeway, a high street in Mumbai, where rentals fell by 63.5%.
In the past couple of months, many mall developers have restarted projects they had given up on.
A Bangalore-based developer, requesting anonymity, said he is redesigning a 2 million sq. ft mall off Bellary Road in north Bangalore, which he had shelved late last year. “We had even dissolved our entire retail team but now we are again at it, though we have to rethink our mix of retailers, etc.,” he said.
From the complete silence that reigned in the retail sector in the past two quarters, sign-ups have started though retailers are more demanding this time, said two retail analysts.
“The current set of mall developers are long-term players and are more cautious because retailers want to see that construction has begun, unlike earlier,” said Susil Dungarwal, founder of Beyond Squarefeet Advisory Pvt. Ltd, a mall advisory.
Retail investors, too, are hopeful of seeing more movement in an otherwise dull sector. Ivanhoe Cambridge Investment Advisory (India) Pvt. Ltd, a Canadian retail-focused fund, is close to signing a joint venture with a leading developer, almost a year-and-a-half after it announced its India plans.
“We see India as a long-term strategy, and the recent economic downturn has not impacted our interest in investing in quality shopping centre projects with competent local partners,” said Phil McArthur, senior vice-president, India, Ivanhoe Cambridge.

Unitech gradually improving, aided by residential market

Mark to Market | Manas Chakravarty, Ravi Ananthanarayanan and Vatsala Kamat — Sun, 01 Nov 2009 18:09:00 GMT

The results of Unitech Ltd for the second quarter toed the line of most real estate counterparts. The quarter saw a drop in revenue and net profit, but the relief was a big saving in interest cost.
Income from operations on a consolidated basis fell 48% to Rs509 crore from the year-ago period. Nevertheless, the recovery in the residential property market has undoubtedly led to an improvement in bookings. From March to September, Unitech initiated project work on around 21 million sq. ft of property and pre-sold around 8.5 million sq. ft. The impact of the recovery will be felt on revenue from the second half of fiscal year 2010, as construction activity picks up.
The operating profit for the quarter fell by around 51% to Rs297.8 crore from Rs611.4 crore during the year-ago period, since the revival in the real estate market has also brought with it an increase in construction costs and employee costs. Besides, analysts say that Unitech’s increasing focus on the mid-segment housing segment instead of the premium segment could lead to a fall in operating profit margin (OPM). In fact, during the September quarter, the company’s OPM dropped to 58.5% from 62.2% in the year-ago period.
Like most real estate firms, Unitech too cashed in on the buoyancy in stock markets. Since April, it raised nearly Rs4,400 crore through two qualified institutional placements (QIPs). It also sold asset and land parcels worth around Rs1,000 crore. The funds were used to repay high-cost debt, reduce the firm’s interest burden and improve its financial health.
The upshot has been a reduction in interest cost, which fell by 55% to Rs60.3 crore from Rs134.1 crore in the year-ago period. There has also been a substantial reduction from the previous quarter. But with expansion in construction activity and deployment of equipment, depreciation costs grew by around 2% year-on-year.
Net profit fell by around 50% to Rs177.9 crore from the year-ago period. On a sequential basis, though, it grew by around 12% from Rs157.8 crore, corroborating the gradual recovery in the current fiscal. The firm’s equity capital expanded from Rs324.7 crore in the second quarter of fiscal 2009 to Rs477.8 crore, thanks to the QIPs.
The share price has steadily inched up from around Rs35 in April, and now quotes at around Rs85. The dismal quarterly results are not really a guide to the stock’s potential, though, because the improvement in its financial position and the initiatives it has taken now will show up in the profit a few quarters down the line.
Write to us at marktomarket@livemint.com

Ask Mint | A pre-approved home loan valid for a particular period

On Real Estate | Renu Sud Karnad — Sun, 01 Nov 2009 16:18:00 GMT

To help readers keep pace with what’s happening in the real estate sector,Mint’s Q&A appears every other Monday.
I work as an executive in a well-known consumer goods company in New Delhi. In May, I had approached a housing finance company to check how much home loan I would get. They evaluated my case and approved a loan of around Rs45 lakh. At that time I had not finalized which property I would buy, which I had clearly communicated to them. But now I have selected the property and will be buying a 1 BHK flat by mid-November. I hope I will not be required to go through the approval process all over again. Will the loan approved in May still be applicable to me?
A pre-approved home loan refers to the lender granting an in-principal approval to home loan borrowers who may or may not have identified a property yet. This is, however, done after a thorough examination of the credit worthiness of the borrowers and the approved amount depends upon several factors including age, income, savings history, credit score, etc.
However, the loan approval is valid for a particular period, which could vary from lender to lender, generally around six months. If you approach your lender at this point, you do not have to go through the entire process again but you may have to submit a copy of your latest salary slip just for the purpose of reconfirmation of your eligibility. The idea behind this is to only ensure that the customer is able to repay the loan comfortably.
Another crucial point, which you should, however, note is that the lender would disburse the loan only after verifying the property documents and that they meet the approval criteria.
A bank checked my income documents and has approved a loan of Rs40 lakh about three weeks ago. In the following week, it has sent a sanction letter to me specifying the amount. I contacted the loan appraiser specified in the letter and confirmed that I want only Rs20 lakh as the rest I could manage from my own sources. The bank has completed the legal and technical appraisal but I have not taken the disbursement yet. Though I had said that I want only Rs20 lakh, I would need additional Rs4 lakh due to a medical emergency in the family. Is it possible to increase the loan amount to Rs24 lakh now?
You could place a request for increase in your loan amount and generally there should be no problem in getting the additional Rs4 lakh.
Renu Sud Karnad is joint managing director, HDFC. Readers may write in with their queries and comments to askmint@livemint.com

DLF plans to make affordable homes

Shabana Hussain — Fri, 30 Oct 2009 17:03:00 GMT

New Delhi: India’s largest developer by market value, DLF Ltd, will now build apartments worth Rs30-50 lakh, a senior official said.
The realtor plans to launch 3-4 million sq. ft of what it called value housing in the current fiscal to March, Saurabh Chawla, senior vice-president, finance, told analysts on a conference call on Friday.
The projects will be located in Chandigarh, Gurgaon on the outskirts of New Delhi and on the fringes of Bangalore, Chennai and Hyderabad.
“Pricing will depend on the location and city, but we are largely looking at this price band (Rs30-50 lakh),” the company executive said on condition of anonymity. “You can’t compete in the market if your products cater only to a certain segment,” the official said, referring to DLF’s product portfolio that largely comprises houses in the Rs50 lakh plus range.
“Value housing will offer a smaller sized unit at prices lower than the premium segment of housing,” said its vice-chairman Rajiv Singh. “It is a lower extension of premium housing... We expect reasonably good money from this segment even when compared with premium housing.”
DLF’s rival Unitech Ltd recently launched a new brand, Uni Homes, which will offer homes in the Rs10-15 lakh range. Other developers such as Puravankara Projects Ltd also have separate brands for so-called low-cost housing.
DLF expects to make a margin of 25-30% from value housing, compared with 30-40% from its other projects.
“Some of the larger developers, who are sitting on land bought at an historical cost, have a competitive edge in the market, which offers them the flexibility to develop products according to the market needs,” said Anshuman Magazine, managing director of real estate consultancy firm CB Richard Ellis.
DLF expects to launch 12 million sq. ft of residential space, including lower priced housing in the second half of this fiscal. In the first half, the firm had launched around 5 million sq. ft of homes.
According to a presentation available on its website, DLF’s net debt has increased from Rs11,686 crore in the three months to June to Rs12,135 crore. In the September quarter, DLF repaid Rs394 crore and borrowed Rs183 crore. The firm added Rs165 crore of debt due to consolidation of land.
DLF Assets Ltd, which buys and holds completed commercial assets of the developer, still owes around Rs2,500 crore to DLF, Chawla said. In the second quarter, DLF Assets would have contributed around 10% to DLF’s revenue, he added. Till December last year, DLF Assets was contributing around 40% of the firm’s revenue.
Tejeesh N.S. Behl contributed to this story.
shabana.h@livemint.com

Home prices may hold despite tighter norms

Shabana Hussain and Madhurima Nandy — Tue, 27 Oct 2009 18:41:00 GMT

New Delhi/Bangalore: Home prices may not rise sharply despite an increase in provisioning norms on loans to the real estate sector by the central bank, reversing a stimulus measure and seeking to nip the formation of another asset bubble in the bud.
Back in business: A DLF construction site in Gurgaon, a Delhi suburb. Due to improved sales in the last quarter, real estate developers in Mumbai and Gurgaon increased prices of residential properties by 5-15%, signalling that the drop in prices seen during the slowdown had been arrested.Rajkumar/Mint
Shares of property companies slumped, with the Bombay Stock Exchange Realty Index, which has risen 78% this year, dropping 6.24% on Tuesday compared with a 2.31% decline in the benchmark equity index, the Sensex.
The Reserve Bank of India (RBI) increased the provisioning for real estate loans to 1% from the earlier 0.4% at its quarterly monetary policy announcement on Tuesday. In November, RBI had reduced the provisioning requirement to 0.4% from 1% to boost the real estate sector, which saw residential sales fall as much as 50% during the downturn amid the global financial crisis.
In April-May, this year, the sector started to see an improvement in sales as developers launched homes in the affordable Rs15-30 lakh range and interest rates on home loans came down.
In the last quarter, however, due to the improved sales, developers in Mumbai and Delhi suburb Gurgaon increased home prices by 5-15%, signalling that the price drop seen during the slowdown was over.
“There is no asset bubble in the making but the market has turned around so significantly that the RBI is saying that last year we reduced provisioning norms in the interest of developers, so now that they are pricing products high, why should we give them leverage,” said Shobhit Agarwal, joint managing director, capital markets, Jones Lang LaSalle Meghraj.
Developers say that while the tighter provisioning norms will impact margins, they will hold prices.
DLF Ltd, India’s largest developer by market value, said the changed provisioning norms will not lead to an increase in the prices of homes, though an increase in the risk weightage for real estate will send out a negative signal to the sector.
“This is perhaps not required so early in the economic revival process,” said Rajiv Talwar, group executive director, DLF.
Agarwal agrees that the impact on the sector will not be significant. “This policy will impact developers, which we have seen in the way realty stocks have gone down, and not so much home prices,” he said. “There might be some developers who may want to increase home prices but the increase in provisioning is not so significant that home prices will shoot up.”
Not everyone is so sure. According to Mumbai-based Housing Development and Infrastructure Ltd (HDIL), the third largest developer by market value, home prices may increase depending on the liquidity levels of companies.
“The new provisioning norm will make lending more expensive for developers, squeezing their profitability, and so those in need of cash flow may pass it on to buyers, leading to a rise in prices,” said Hari Pandey, vice-president, finance and investor relations, HDIL.
HDIL has in the past one year borrowed Rs400 crore from banks, at an average lending cost of 12%. The company has repaid about Rs200 crore to banks in the same period. DLF shares fell 6.4% to Rs401.70 each at the close on Tuesday, Unitech Ltd fell 7.71% to Rs85.60, HDIL fell 8.8% to Rs339.45 and Parsvnath Developers Ltd fell 7.61% to Rs114.20.
RBI’s signals favouring a tighter monetary policy could have a knock-on effect.
“Interest rates may also go up, and then the cost of lending will move up and developers will be affected,” said Pandey. That may not happen until the end of the fiscal, according to banks.
“I do not see any change in the interest rates till March. There is no liquidity problem in the system and credit offtake is less than expected,” Corporation Bank executive director Asit Pal told PTI.
M.V. Nair, chairman and managing director, Union Bank of India, told Reuters that he doesn’t expect rates to change in the near future. “There is a concern of low demand from industries,” Nair was cited as saying. “We expect demand to pick up from the second half of the (fiscal) year. The cost of funding for banks is coming down and lending rates have also come down over time.”
M.D. Mallya, chairman and managing director, Bank of Baroda, agreed with his colleague. “I don’t see any change in rates at this point of time. I think stable rates will prevail for the time.” Home prices are largely dependent on the demand-supply situation in the sector and the RBI measure will not affect them, said Pujit Aggarwal, managing director of Orbit Corp. Ltd, a Mumbai-based real estate firm.
“Considering that bank loans to the real estate sector are already expensive, at a premium of 150-300 basis points, it is likely that banks themselves will absorb this cost,” he said. Orbit’s consolidated debt (from bank borrowings) is about Rs450-470 crore.
Developers such as the Bangalore-based Ozone Group also said that new projects that have not tied up funds for construction finance and have not received a commitment from banks are the ones that will be directly affected.
“Just when the sector was heading for a complete turnaround, this comes as a setback to the overall sentiment,” said K.S. Sudarshan, chief executive of Ozone Group. “It has to be seen how banks react to this change and shoulder it themselves or changes interest rates.”
shabana.h@livemint.com

GMR Infrastructure pulled down by interest burden

Mark to Market | Mobis Philipose, Ravi Ananthanarayanan and Vatsala Kamat — Tue, 27 Oct 2009 17:26:00 GMT

GMR Group firm GMR Infrastructure Ltd reported a 24% drop in its profit before tax for the September quarter although operating profit rose by a smart 54%. Blame a 150% jump in interest cost for this outcome. Finance charges rose as new projects started, which were funded mainly by debt.
The company had attempted to raise funds earlier this year by selling securities to institutional investors who were not willing to subscribe at prevailing prices. The company is now set to raise Rs1,000 crore through an issue of preferential shares. Part of the funds raised will be used for ongoing projects and some of it used to retire debt.
GMR’s consolidated revenues grew by 41% year-on-year and operating profit margin improved by 2.6 percentage points to 31.8%. This rise in profitability is partly due to a reduction in employee costs, which fell by 30% over the year-ago period. This relief is largely due to retiring of employees in the Delhi airport project. The company had an agreement to employ them for three years.
With India moving out of a slowdown, the company’s airports business has done well. Passenger traffic has increased by around 20-22% in the three airports it operates. Revenues from the power sector grew 21% and that from roads by 60%, although the latter has benefited from a relatively low base.
A key concern is the company’s high appetite for tapping funds. In a report released last month, Nomura’s analysts said: “The company has revealed plans to raise Rs7,500 crore over FY10-12 even as medium-term requirement for projects under development is only Rs2,850 crore, as per the company’s estimates. The plan envisages a separate listing of segment holding companies with a view to unlocking value. We see this as a negative for the parent company as one would now attribute a holding discount to GMR, since investors can pick and choose segments in which they would want to invest.”

Realty index slumps after policy review

Reuters — Tue, 27 Oct 2009 08:58:00 GMT

Mumbai: India’s real estate index slid almost 8% to a two-month low on Tuesday, after the central bank withdrew some liquidity measures and raised banks provisioning requirements for commercial real estate exposure.
Real estate firms, who were propped up by easing guidelines by the central bank last year, are now benefitting from a stock market rally and ample liquidity, prompting developers to raise prices and spark concerns of an unsustainable boom.
“The central bank is trying to curb the formation of an asset bubble - in other words, trying to control the asset prices for end users,” said Shobhit Agarwal, joint managing director at property services firm Jones Lang LaSalle Meghraj.
By 2.18pm India’s top listed developer DLF was down 5.6% at Rs406, rival Unitech fell 8.3% to Rs85.05 and Indiabulls Real Estate slid 4.9% to Rs250.80.
The BSE realty index was down 6.56% at 4032.45 after losing almost 8%, its lowest since 24 August. The Reserve Bank of India in its quarterly policy review on Tuesday increased provisioning for commercial real estate loans to 1% from 0.4% for standard assets, and also raised the statutory liquidity ratio by 1%.
The move may make it difficult for banks to access loans, increasing the cost of debt, a key worry for the sector, said analysts.
“For the sector overall, this is a negative. The cost of loans will go up, but since most developers have already restructured bank debts, the immediate impact may be marginal,” said Adhidev Chattopadhyay, analyst at Centrum Stock Broking.
“But unlisted firms which depend more on debt funding should be impacted more,” he added.
COMMERCIAL VS RESIDENTIAL
Industry experts said the central bank move will put more pressure on commercial and retail segments, which have not seen as much of a recovery as the residential segment.
Real estate firms reacted cautiously, hinting at passing on additional costs to the end-users.
“The sector is just recovering and this will definitely affect developers,” Sarang Wadhawan, managing director, Housing Development & Infra, said.
“On projects which were under execution, now we will have to increase prices to compensate for this cost which is going to be incurred.”
Others ruled out any major impact and said the move will, in fact, benefit the larger, listed developers.
“Because of more caution the better quality developers will stand out and be valued more by banks for lending purposes,” Puravankara Projects director Ravi Ramu told Reuters.
“This fact will benefit us and the track record will ensure that we will get cheaper loans.”

Realtors make a cautious comeback

Madhurima Nandy and Shabana Hussain — Sun, 25 Oct 2009 20:01:00 GMT

Bangalore/New Delhi: When Mumbai-based developer Sunil Mantri launched a project in south Bangalore in September, he knew he had to get the strategy right.
His firm had bought the land in early 2008, the approvals were in place and it did a quick market survey before launching the project, its comeback in Karnataka after a decade.
It priced the apartments at Mantri Royal at Rs2,500 per sq. ft, Rs500 lower than the market rate, and sold about 40 units in a month. Upbeat, Mantri started selling a second project, Mantri Primero, on Sarjapur Road, at Rs22-25 lakh an apartment, again less than the market price.
Having burnt their fingers from investing in large-scale, pan-India projects that failed to take off, developers such as Mantri, DLF Ltd and Unitech Ltd are cautiously launching projects in new markets, after a forced sabbatical of 8-10 months during the downturn when they focused on their core areas of operation.
Analysts say the time is right for expanding although the market has not revived fully and buyers are still hesitant. Flush with money raised through qualified institutional placements (QIPs) and private equity (PE) deals, many builders are eager to cash in on the return of demand.
They are cautious, however, and have modified their business models to sidestep risks. For one, they are entering new markets with so-called affordable housing after many of them, during the boom, over-stretched themselves by buying land at steep prices for projects they later withdrew from.
“Developers who have land in various cities need to monetize them, after waiting for nearly a year for the sector to improve, and this is a good time considering demand is inching back and the right project will bring in sales,” said an analyst with DSP Merrill Lynch (India) Ltd, who didn’t want to be named.
New Delhi-based Unitech, for example, India’s second biggest listed developer, is expanding as there is limited demand in the national capital region (NCR)—which includes Delhi’s suburbs—and it needs to explore markets where it has land, the analyst said.
Realty firms say they are trying to do things differently in a more challenging, post-downturn scenario, where the right pricing and apt projects are key to good sales.
The pan-India strategy of Gurgaon-based DLF, India’s largest realty firm by market value, is to build on acquired land, execute the projects fast and work on reduced profit margins, said a company executive.
The firm plans to launch residential projects in Chennai, Hyderabad, Kasauli and Goa in the coming year after recent launches in Kochi and Indore. These are in contrast with its township projects such as those in Bidadi in Karnataka or Dankuni in West Bengal from which it had to withdraw earlier this year because of the slowdown.
“We are doing large projects of 100 acres, etc., in cities such as Chennai but we are not depending on the government to acquire land,” the executive said. “The projects are being developed on land bought by DLF.”
When DLF withdrew from the Bidadi project, it blamed the state government for delaying land acquisition.
“A lot of developers are not looking at acquiring new land parcels in cities they are expanding into,” said Anshuman Magazine, managing director, CB Richard Ellis, a real estate consultancy. “Developers are building on land that they had already bought as their liquidity situation is improving.”
Mantri, chairman and managing director of Sunil Mantri Realty Ltd, which has 1,400 acres of land across India, agrees.
“Though we have the land, we will go slow and study the responses from each new project before launching a new one,” he said. The firm has earmarked Rs600 crore as initial investment for projects in Karnataka and Madhya Pradesh.
Hiranandani Upscale, which thrives on building large townships, is raising Rs800 crore through PE funds for multiple projects both in smaller cities such as Pune or growth corridors in tier I cities.
“Mumbai places constraints in terms of high rent and land value while Bangalore and Chennai have evolved as a suitable substitute,” said Neha Hiranandani, director, Hiranandani Upscale, which has projects in the three cities. “For us, this is a chance to expand into these markets and capture the opportunity.”
The affordable housing concept too has pushed developers out of familiar territories. Unitech, which bought land nationally in the last five-six years, has launched projects in Lucknow, Mumbai, Kolkata, Chennai, Bhopal, Rewari and Mohali in the past six months, several under its affordable housing brand Uni Homes.
Even for its recently launched premium project in Worli, south Mumbai, Unitech slashed rates by at least 30%. In a pre-launch aimed at investors, it sold nearly 150 out of about 300 apartments in the project within a month, analysts said. Unitech is focusing on developing its existing land parcels, said R. Nagaraju, general manager, corporate planning and strategy. But the risk in expanding into other cities is in setting up a large team in each region to undertake the projects with enough freedom to operate, he said.
Bangalore-based Puravankara Projects Ltd plans to go pan-India through its affordable housing subsidiary Provident Housing Ltd. Encouraged by recent project launches in Chennai and Bangalore, it’s now aiming for Kochi, Hyderabad and Coimbatore.
“These are early days and we first want to build in the southern cities because it’s a market we know and then venture beyond that, both in the west and east,” said Ravi Ramu, chief financial officer, Puravankara Projects.
madhurima.n@livemint

Realty firms likely to report fall in revenues

Shabana Hussain — Sun, 25 Oct 2009 17:57:00 GMT

New Delhi: Second-quarter earnings at DLF Ltd, India’s top real estate developer, will decline from a year ago as improving home sales haven’t been enough to spark a pickup in profit.
Developers will need to see a recovery in the commercial segment to show better numbers, analysts say. The figures, however, are better than those in the preceding quarter, signalling that demand has returned and financial restructuring has helped.
Recovery lags: A file photo of DLF’s Cybercity Phase II construction site in Gurgaon. DLF may see revenue fall 53.86% to Rs1,727.62 crore. Rajkumar / Mint
The real estate sector went into a slump after a liquidity crunch gripped the Indian economy, causing the economy to slow and deterring buyers as access to loans dried up. Real estate developers have launched cheaper homes to revive residential property sales.
DLF is expected to post a 77.11% drop in net profit to Rs442.98 crore and a 53.86% fall in revenue to Rs1,727.62 crore in the three months to September, based on a poll of five brokerages—Edelweiss Securities Ltd, Citigroup Global Markets India Pvt. Ltd, India Infoline Ltd, Motilal Oswal Financial Services Ltd and IDFC-SSKI Research. That would mark an 11.86% increase in net profit and a 4.71% increase in revenue from the preceding quarter.
The drop in DLF’s earnings is mostly due to a decline in contribution from the earnings of DLF Assets Ltd (DAL) due to weak commercial prices, a report by India Infoline said.
DAL, a company owned by the promoters of DLF that used to buy the realty firm’s completed assets, used to account for up to 40% of the listed realtor’s revenues until December. DLF expects to report earnings on 29 October, according to a company filing on the Bombay Stock Exchange.
The recovery in the housing sector has gained momentum, analysts Siddharth Bothra and Mansi Trivedi from Motilal Oswal wrote in a recent report. Average real estate prices have increased 10-15% across metros such as New Delhi and Mumbai, the report said.
Graphics: Yogesh Kumar / Mint
The phase II of DLF’s Capital Greens project in west Delhi was launched at a premium to phase I, analyst Kejla Mehta wrote in a recent report by Prabhudas Lilladher Pvt Ltd.
Also, developers have used the funds raised through qualified institutional placements and private equity either to replace debt or fund execution of projects, the report said.
Developers are executing projects at a quicker pace to improve liquidity positions. Some companies are again looking at acquiring land, which is available at attractive prices, the report said.
In the commercial real estate, there are some signs of recovery, with enquiries increasing sharply and lease transactions restarting, the Motilal Oswal report said.
“We expect the recovery to gain momentum in the third quarter of the fiscal,” Bothra and Trivedi said. The average debt-equity ratio of key real estate companies has declined significantly from 1:1 to 0.4:1, Motilal Oswal’s analysts wrote.
Unitech Ltd, the country’s second biggest real estate developer by market value, may report a 44.81% decline in net profit to Rs198.08 crore and a 36.68% decline in revenue to Rs634.02 crore from the year earlier.
On a sequential basis, profit and sales may have risen by 25.54% and 17.41% respectively. The company is expected to report results on 31 October.
Housing Development and Infrastructure Ltd is likely to post an average net profit of Rs194.8 crore on revenues of Rs380.2 crore in the July-September quarter—a fall of 26.67% and 24.41% respectively from a year ago, show two analyst estimates.
Indiabulls Real Estate Ltd is expected to post revenue of Rs73.4 crore and net profit of Rs9.5 crore, according to estimates by Edelweiss Securities. That represents a 10% fall in revenue and 20.25% increase in net profit from a year ago.
According to Citigroup, Bangalore-based firm, Puravankara Projects Ltd is expected to post revenue of Rs64.4 crore and a net profit of Rs20 crore in the second quarter, a 53.79% fall in revenue and a 60.37% drop in net profit compared with the year ago quarter, while Omaxe Ltd is expected to post a net profit of Rs23.4 crore on revenues of Rs130.8 crore, which means a 14.87% increase in net profit and a 38.72% fall in revenue compared to the same quarter the previous fiscal.

Ask Mint | Maintain the required balance against the cheques you issue

On Real Estate | Renu Sud Karnad — Sun, 18 Oct 2009 15:30:00 GMT

To help readers keep pace with what’s happening in the real estate sector,Mint’s Q&A appears every other Monday.
I have been paying monthly instalments on my home loan through post-dated cheques. The branch manager once forwarded one month’s cheque for clearance a little late, while the following month’s cheque was also forwarded for clearance at the scheduled date. This resulted in one cheque bouncing due to insufficient funds in my bank account. Will I be considered a defaulter now? Will my name appear in the Credit Information Bureau (India) Ltd (Cibil) list and affect me while applying for any loan in the future?
One must always keep in mind that if you have issued a cheque towards any payment then you need to maintain the required balance. The bank may have delayed the presentation of the cheque, but you cannot be excused for not maintaining the balance. You will also have to pay any other cost such as a cheque bounce charges, etc.
Before I answer your specific query, let me tell you a little bit about Cibil. Cibil helps lenders in making fast and objective lending decisions by providing them with credit information/credit history and repayment track record of the loan seeker.
The credit history reflects all banking transactions of the individual wherein details relating to all credit facilities availed including defaults, amount overdue and others are shown. This information is available only to financial institutions/banks that are the members of Cibil.
The records are updated by Cibil on a regular basis. Therefore, it is extremely essential that one is careful with his/her repayments and as far as possible avoid cases of defaults/late payments/cheque bounces.
In your case, assuming that you have now paid, the bank will generally provide your updated details to Cibil and the due updation in your credit history will be carried out in the records by Cibil.
I am getting my house constructed. I have obtained a loan of Rs25 lakh for the construction from my bank, out of which Rs18 lakh has been disbursed in instalments. I had plans to get the ground floor and the first floor constructed. However, with my son getting a new employment and deciding to settle abroad, I have shelved the plans to get the first floor fully constructed as of now. Now, with another Rs 2 lakh, the construction would be complete. I am planning to request the bank to stop the disbursal after this installment and start the EMI. I wish to know how that would affect my income tax benefit on the home loan as I have not taken the full disbursement. I am already paying interest on the amount disbursed to me till date.
You could make an application to your lender for lowering your loan amount and start your EMI. This will not affect your tax benefit claim in any way.
However, please note that since it is an under construction property, you can claim tax benefit on interest payment only once the house is ready and you get the completion certificate from the local authorities.
In case of a self-occupied property, you can claim tax benefit on 20% of the interest paid during the construction stage in the year you receive the completion certificate, and the balance 80% can be claimed over the next four years to the extent of 20% each year, subject to an overall cap of Rs1.5 lakh per year under Section 24 of the Income Tax Act 1961. You are advised to consult your tax expert.
Renu Sud Karnad is joint managing director, HDFC.
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