Residential property prices to fall 8-10% more in 2009

Despite popular belief, residential property prices are expected to fall by another 8-10% in 2009 till they stabilise in 2010. Residential property rates declined by 18-20 per cent in March this year, from the highs in the first half of 2008. Despite this drop, home buyers adopted a 'wait and watch' policy, and this trend is likely to continue through 2009, as per the latest report by CRISIL Research.

Owing to improved affordability, steady economic growth and greater liquidity, the residential segment will witness a speedier recovery compared to the retail and commercial segments. Lease rentals are not expected to stabilise till another two years. Mr. Sudhir Nair, Head, CRISIL Research says, “Demand in the commercial and retail segment is likely to remain under stress for the next two years owing to excess supply and weak off take.”

Amongst the 10 cities covered by CRISIL Research, Pune, Bengaluru and Mumbai have witnessed the steepest correction in capital values compared to the highs seen in the first half of 2008. Capital values in NCR had already started stabilising during the first half of 2008 even as the upward trend continued in other cities. Hence, capital values in NCR declined by only 18 per cent, which is relatively low compared to other cities. The report covers more than 400 areas across 88 micro markets in 10 cities--Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai-MMR, NCR and Pune.

It is believed that lower home loan interest rates as well as better job security would help to revive demand in the residential segment. Hence, capital values are likely to stabilise in the first half of 2010, and increase during the second half of the year.

Indian HNIs prefer realty investment in India than abroad

The Indian HNI (high net worth individual) is being aggressively wooed by foreign developers. With the balance of economic power shifting towards Asia, and with India projected to be the world’s third largest economy by 2050, and a subsequent increase in the number of wealthy individuals , property consultants from across the globe are making a sales pitch, and also getting the HNI segment interested enough to buy.

HNIs are people with net financial assets (liquid assets) of at least $1 million, excluding primary residence and consumables. Data from consultants like Cap-Gemini and Merrill Lynch suggests that India has the youngest HNI population in the Asia-Pacific region, with the club having even 28-year-olds on their rolls.

Strong GDP growth, robust figures in industrial and service sectors, high market capitalization , and steady FII inflows are some factors contributing to the rise in HNI wealth. In 2006, India’s HNI population crossed the 1 lakh figure, which made it the second-fastest growing HNI segment in the world, after Singapore, where the growth was 21%.
If one were to analyze the asset allocation of Indian HNIs, data suggests that while equities make up the greatest portion of India’s HNIs’ portfolio at 31%, 17% of their investibles are in real estate.

“If you were to look at the total pie of investment by Indian HNI, only 2% of the investment from Indian HNIs is going in overseas real estate ,” says Samantha Jerath, a director at Jerath Properties, Delhi-based real estate consultant having a portfolio of many HNIs. He adds, “Barring Dubai and London, I do reckon (investment taking place in) any other place due to cultural differences, unfamiliarity with local laws, language issues.”

Also accessing and monitoring one’s investment becomes so much more difficult when it is an overseas investment, as there is paperwork involved, making payments from time to time, and with many real estate investment options available back home with even better appreciation profiles, Indians any day prefer their home country.

Vikram Baidyanath, a HNI, says out of all global property destinations, London is most attractive to him. “I’ve spent more than six years in London and it is more of a second home. Besides , it gives a comfort level to be in London and see our products displayed in famous stores. The Asian community has a strong presence and English is understood and spoken by all, so even language is not a barrier.”

Though well travelled, he feels he would not be exactly tempted to invest elsewhere - “To invest in a foreign real estate, either one has to have business interest in a place that makes you travel frequently to that country or be really attached to that place. Also, the appreciation in property is not all that phenomenal to attract anyone to casually invest in any and every global locale.”

Lack of awareness about foreign projects and foreign laws is another deterrent for HNIs from investing in foreign real estate. According to Sandip Sen of Calcutta Skyline who has a good network of HNI clients in the eastern part of the country, “We have found that Indians are not investing a lot in foreign markets, if at all they are investing, it is restricted to UK and the Middle East. Primary constraints in making overseas property investments include unfamiliarity with local laws of that country, fear of being stuck in litigation in another country, plus lack of awareness in general. Also there are regulatory issues.” As per RBI regulations, the maximum limit allowed in investments outside India is $200,000 per year. For any higher investments , RBI needs to be approached.

Dubai has been a popular choice with Indian HNIs and that is corroborated by Dubai-based real estate consultant Mansoor from Spring Rose Real Estate consultants, “A lot of Indian, especially HNIs from South India are investing in retail, while HNIs from Delhi and Mumbai are purchasing apartments from well established brand names in real estate. As a matter of fact, HNIs from India, Pakistan and Bangladesh like to have a foothold in Dubai due to citizenship , tax rebates etc.”

With recession, property prices have depreciated globally. But this has not translated into attractiveness towards overseas properties. On the contrary, according to Dr Devinder Gupta, CEO & CMD of Century 21 India, “Due to the global meltdown and uncertainty in realty sector, many projects have become unviable. Even bankers are not willing to lend. All this has led to Indian HNI being wary of investing overseas.”

There are enough accounts of developers being faced with credit crunch, globally, who have stalled construction work, delaying most of their projects in the pipeline. Developer’s cash flow problems and credit crunch has in turn impacted delivery deadlines of projects.

Samantha Jerath sums it, “Real estate investment is all about perception, trust, and ease of accessing and monitoring projects.

DLF won't sell core assets as credit begins to flow

India’s largest real estate company DLF has decided against selling core assets — residential, industrial and commercial plots — which it had put on the block.

The company will now sell only the hotel plots, which are non-core to its business. DLF executive director YK Tyagi told ET that the company has pulled back these assets from the market over the past 2-3 weeks, considering that banks lending to the real estate sector has started to ease.

A few prime properties in Gurgaon’s Cybercity and Udyog Vihar areas, which have been on the block for sometime now, have been pulled back. DLF had recently told ET that it planned to raise Rs 10,000 crore by selling land parcels, treasury investments and real estate projects in the next 2-3 years.

There has been a change of heart for DLF. “The decision to pull back these core assets from the market was taken considering the fact that banks have become more liberal in lending to real estate companies,” said Mr Tyagi. He also pointed out that after the recent stake sale by the promoters of the company, the company was in a comfortable position.

DLF promoters had sold a 9.9% stake in the past month to raise Rs 3,980 crore, which has put the company in a comfortable position. Capital Group picked up close to 5% in DLF, while HSBC, GIC and Fidelity bought smaller stakes. Following the open market transaction, the promoter group now holds a 78.6% stake in DLF.

Mr Tyagi pointed out that the company will continue to sell its non-core assets, including hotel plots and its wind power business, which would help them reduce their debt by half. DLF’s debt stands at around Rs 14,000 crore.

“We expect to sell all of the hotel plots by the end of the year,” he said. The company had said earlier that they do not want to exit the entire hotel business. “We expect to sell all of the hotel plots by the end of the year,” he said.

The company had said earlier that they do not want to exit the entire hotel business. While looking at hotel properties and plots just as an investment, DLF would like to retain the Aman brand. DLF has a number of hotel plots located in Mumbai, Kolkata, Bangalore, Gurgaon, Baroda, Lucknow, Kasauli (Himachal Pradesh) and Sikkim among others. According to sources, DLF has managed to sell hotel plots in Sikkim and Baroda.

A number of core assets—commercial, residential, industrial plots—were on sale by the developer, some of which it managed to sell over the last few months. The company recently sold its 66% stake in Hindoostan Spinning and Weaving Mill in central Mumbai for Rs 310 crore.

Sobha Developers plans QIP of 3cr shares:

One sector on which alarm bells are ringing today is real estate. Although stocks are having a rough session, the money raising continues. Sobha Developers is planning a QIP of three crore shares reports CNBC-TV18, quoting sources.

The book is open for Sobha Developers is what we understand for the QIP (Qualified Institutional Placement). Three core shares are what they are offering in the QIP book and the floor price is going to be Rs 227 which is a two-week average. So given the floor price, the total fund raising plan is Rs 680 crore. Only yesterday in the EGM (Extraordinary General Meeting) the company got an approval to raise up to Rs 1,500 crore via various means including QIP. So in the first tranch as I understand now they have opened the book to investors and they are looking at raising Rs 680 to 700 crore via this QIP issue.

In terms of dilution, it means that the promoters’ holding will come from 83% to close to 62–63%, so there is going to be a good amount of dilution from the promoters through this QIP issue. But I do know from investment banking sources that the QIP book has opened today with three crore shares and the floor price is Rs 227.

States, PEs queue up for Nano homes

Tata Housing Development Company, a subsidiary of Tata Sons, which recently announced low-cost housing project Shubh Griha, is learnt to be in talks with various state governments for developing similar projects. The houses are priced at around Rs 4 lakh.

Managing director & CEO of Tata Housing Brotin Banerjee confirmed the news. “There have been some proposals from state governments offering us partnerships for affordable housing projects, but we have no announcement to make now,” he said. It is believed that the company may adopt the public-private partnership (PPP) route with the state governments by year-end. It was not possible to ascertain which state governments have approached Tata Housing for these projects. The company is also believed to be in talks with private equity players for its forthcoming projects, which could cost anywhere between Rs 1,500-2,000 crores.

Meanwhile, it’s also learnt that the company would soon announce three more projects with an investment of around Rs 300 crore around Mumbai and Pune. A senior official in the company told ET, “We have the option of 16 land parcels in Mumbai where we can start the projects. Some land deals will be an outright purchase while we will go in for a JV with the land owner in the case of the others,” the official added.

Tata Housing’s Shubha Griha project will come up at Boisar, which is about two-and-half hours by train from Mumbai. This project will be ready in two years. “For the new projects, we would give preference to those who did not get their home in Boisar,” the official said. This project is often referred to as the Nano housing project. The company had earlier said that around 16,000 forms were sold for this project with 5,500 people having applied. Eventually, 1000 houses would be allotted through a random selection of forms or a lottery system.

Earlier, Tata Housing had announced that they would build a total of 16,000 houses within the next two years across the country. Referring to the option of bringing in private equity money, the official said, “In the affordable housing project the return is anywhere between 20% to 25% which is lesser than what normally prevails. We are in talks with PE players who would not mind lesser but secure returns,” the official added.

Tata Housing recently tied up with Micro Housing Finance Corporation (MHFC), a microfinance institute, and intends adopting the same model going forward. “Our customers belong to low-income groups who can buy a house but may not have documents required to obtain a housing loan. The MFIs and other financial institutions we have tied up with understand this and provide loans without these documents,” added Mr Banerjee.

Real estate developers homing in on residential projects

While the sudden rise in demand for affordable residential housing in the last couple of months has given the much-needed relief to real estate developers, commercial and retail segments continue to face the heat of oversupply, combined with declining rental rates and lower demand from investors.

As a result, developers have deferred a majority of the ongoing commercial and retail projects, which were scheduled for completion in 2009-10, and are instead focusing on the residential market. In fact, according to real estate consultants Cushman & Wakefield, developers will be forced to defer 41 per cent of the projected office space supply in 2009.

“Out of 76 million sq ft of commercial (office) space projected across eight cities by many developers, only 45 million sq ft is expected to be completed in 2009. In the retail segment, out of the 14.5 million sq ft of projected space, only 3.6 million sq ft is expected to enter the market,” Cushman & Wakefield’s Executive Director Kaustav Roy said.

The supply overhang in commercial and retail segments is expected to continue for another 12-18 months, feel experts. At the same time, a sharp decline in the price of residential units — in terms of per sq ft rate as well as size — has resulted in a sharp increase in demand. As per conservative estimates, 60 million sq ft of residential space has been lined up for launch in 2009.

One of the key reasons for this poor demand in commercial and retail segments is the non–availability of Real Estate Investment Trusts (REITs), which could not take off because of complex legal hurdles and the sudden crash in the stock market in 2008.

While many of the real estate companies — such as DLF Asset Ltd, Unitech, Indiabulls Real Estate and Purvankara, among others — were planning to raise resources through REITs’ listing, only Indiabulls successfully raised $286 million by listing its REITs on the Singapore Stock Exchange. The failure of REITs to take off has affected the financial position of developers and, in turn, further delayed the completion of ongoing retail and commercial projects.

“In the past one year, everything has been against the commercial real estate. Private equity vanished from the markets, while the government increased risk rating on the real estate sector. The failure of REITs to pick up added to the financial crunch of the developers,” commercial real estate services company CB Richard Ellis’ Chairman and Managing Director Anshuman Magazine said.

“Developers are not in a position to complete their commercial projects due to a lack of funds, a demand-supply mismatch and falling rentals,” he added.

The country’s largest developer, DLF, has already received an approval to denotify four of its SEZs. In addition, it has also temporarily stopped construction work on nearly 16 million sq ft of office and retail mall space out of the 62 million sq ft of planned construction.

Mumbai SEZ in danger of being scrapped

The country’s largest special economic zone (SEZ), promoted jointly by Reliance Industries Chairman Mukesh Ambani and his confidant Anand Jain, is in danger of being scrapped. The zone was being set up by a company called Mumbai SEZ Ltd in the Raigad district of Maharashtra.

The threat to the SEZ follows the Supreme Court’s refusal to stay the land acquisition process that otherwise has to conclude by Monday, June 8. A Bench headed by Justice B Sudarshan Reddy dismissed Mumbai SEZ’s plea challenging a Bombay High Court interim order that refused to stay the land acquisition process. A stay by the Supreme Court would have made the deadline redundant.

The company has spent Rs 600 crore on land acquisition but the process had stalled following protests in 22 villages. The state government then held a referendum on the project among villagers last year but has not yet released the results.

Mumbai SEZ had filed a writ petition last month before the high court, seeking a direction to the Raigad district administration to speed up the land acquisition initiated under the provisions of the Land Acquisition Act, 1984.

Land acquisition for SEZs has to be completed within two years from the date of approval.

The Mumbai SEZ project, which was to come up over 10,000 hectares at an investment of Rs 40,000 crore, was approved in June 2005 and the deadline has been extended twice.

A Mumbai SEZ spokesperson declined to comment when asked about the company’s course of action.

Senior Maharashtra government officials, however, said the project’s future appeared bleak, given that the state was headed for Assembly elections in October. Land acquisition for industrial projects is a highly emotive issue and no government wanted to do anything that was perceived as being harmful to the villagers' interests.

Sources familiar with the developments, however, said there was hope for Mumbai SEZ. One, the Supreme Court simultaneously issued a notice to the Maharashtra government on another plea by the Mumbai SEZ, seeking to transfer its petition pending before the Bombay High Court.

Last year, the apex court had transferred a number of SEZ cases to itself from various high courts. All the writ petitions, some by land owners and some in public interest, challenge the validity and procedure of land acquisition in various states for building SEZs. The Supreme Court is yet to hear those cases.

J P Dange, the state’s additional chief secretary (revenue & forests), said the government would take a decision on granting an extension to the land acquisition process only after receiving a specific request from the company to that effect.

Convener of the People Against Globalisation, Ulka Mahajan, who headed the anti-SEZ agitation, welcomed the apex court’s decision and said, “The decision has strengthened our belief that even mighty corporations can be forced to eat humble pie using peaceful and democratic means of agitation.”

The state government will need to carry out detailed consultations and study the legal provisions before deciding what to do with the land the company has already acquired from farmers, Dange said. If the project is scrapped, one option available to the state government is to return the land after taking it over from the company. However, the state government can also use it for other public purposes. A Supreme Court judgement in the case involving the Kerala government allowed such a change of purpose, an official said.

Global property consultant RE/MAX to expand network

RE/MAX, a US-based international property consultant, is expanding its network of franchisees in India to offer a range of real estate transaction services.

Mr Samir Chopra, who is part of a consortium that operates the master franchisee for India, said RE/MAX brings into the real estate agents business a high degree of organisation and professionalism. RE/MAX brings into India a working style that has helped it spread its presence in 74 countries and over 7,000 offices.

Mr Chopra who was in Chennai to sign up the RE/MAX owner for Chennai region, said the company has earlier tied up with a owner for the Mumbai region. It would spread this franchisee network in stages across the country. In each region – in major cities such as Mumbai there would be over 100 offices.

RE/MAX’s system provides for a 2-3 per cent commission on transactions and the maximum share of the commission goes to the field-level staff. The personnel who actually effect the transactions and the broker office share over 90 per cent of the commission equally, 7 per cent goes to the region owner, 2.1 per cent to the India master franchisee and 0.9 per cent to the RE/MAX international.

The operators in the RE/MAX network get the benefit of the international network through a referral system, support systems such as training and region-centric advertisement campaigns.

RE/MAX will handle property transactions across the entire gamut of real estate business covering residential, commercial and industrial, including plantations.

Parsvnath gets approval for La-Tropicana project

New Delhi, June 2 Parsvnath Landmark Developers, a subsidiary of Parsvnath Developers Ltd, on Monday said it has received approvals to commence construction of premium luxury project La-Tropicana in Delhi.

The approvals include sanction of the building plans by the Municipal Corporation of Delhi.

The company is eyeing a realisation of about Rs 1,300 crore in three years from the project.

The land and construction cost would add up to Rs 700 crore, the Parsvnath Chairman, Mr Pradeep Jain, said, adding that 1.2 million sq ft (of the total 2 million sq ft) of residential space, had already been booked.

Work started

“The excavation work at the site has already been completed and now we shall be deploying equipment and manpower to take up construction in full swing and complete the project within the time frame,” he said.

Bangalore realty market showing positive signs

After months of lull, the real estate market in Bangalore is showing signs of revival. The real estate market is now growing by 15-20 per cent compared to last year.

Though the rental and capital values in most of the micro markets witnessed a downward trend in the last 6-8 months, for the end-users or investors the secondary market has been a lucrative option in comparison to the primary market.

But now demand for residential spaces is looking up again, and a few frontline developers have been successful in improving their sales. Though demand for commercial and retail spaces has not caught on, those in the sector feel it could just be a matter of time before things improve.

While sales has been impacted due to current economic scenario coupled with prevalent job insecurity, revival of the economy in the coming months, stable government at the Centre and positive rulings by regulatory authorities will give the much needed impetus to the realty sector, says Mr Sandeep Trivedi, Director – Development Consulting, Cushman & Wakefield India, a real estate services firm.

“Coming to terms with reality, there are positive signs in the market. New projects are being announced and residential construction is picking up; slow, but sure, signs of a change for the better,” says Mr Sridhar Kulkarni, Head – Marketing (Karnataka and Andhra Pradesh), Shriram Properties. In pockets such as Bangalore North and South, there is a sign of increase in demand now, he adds.

Sales Push

Mr Trivedi says in the last few months, developers have also been offering cash discount or providing additional room for the same cost to push sales in the primary segment.

“The State Government’s recent amendment in the registration cost is another positive factor for the residential sector.”

The residential demand is up 30-40 per cent in the mid-to-low income segments since March for residential apartments priced below Rs 30 lakh, says Mr Kulkarni.

In the commercial segment, leasing has picked up 5 per cent in volume terms in the first quarter of 2009-10.

Mr Koshy Varghese, Managing Director, Value Designbuild, feels that pricing is still soft.

“The natural path will be increase in demand due to lower prices leading to firmer prices. If the credit flow improves and builders can complete construction, a firming of prices will happen.” He adds that there is a firming of prices on ready units “where the seller is not desperate”

Rebound in realty? Developers say so!

Nearly a year after the demand slowdown, the property market sentiments seem to be improving, according to real estate companies. Builders across the market segment are claiming that the last two months have witnessed a surge in bookings and interest, ending months of anxiety on cash flows that had led to project delays, and left customers fuming.

Adding to the cheer in the market is also the institutional interest in real estate space. A slew of realtors, including HDIL and Parsvnath Developers, are following the footsteps of Unitech and Indiabulls Real Estate to line-up QIP issues in a bid to ease the debt burden.

Analysts watching the real estate space, however, say that with each macro market behaving differently, it is difficult to generalise the mood in the property market. While they admit that buyer interest in certain projects in specific locations seems to be back, they also believe it is too early to term it a “demand revival”.

“We will wait to see the cash flow situation of listed real estate companies at the end of the quarter before cheering the market,” they say. Also, there seems to be unanswered questions on who is really picking up residential inventory.

An industry insider pointed out that in specific cases in North India it is not unusual for brokers to drive-up the demand by cornering housing inventory at steep discounts from players. These brokers then offload the inventory to end-users. “That trend may still be there. So one has to wait and watch before declaring that the end-user demand is indeed back in the property market,” the person said.

Realtors, however, feel that the general sentiments are lifting.

Earlier this week, two realty firms — BPTP and Jaypee Greens — said they received “overwhelming” response to their affordable housing projects in Delhi NCR. BPTP said its bookings were nearly four times more than the number of flats on offer at Faridabad where it is selling ‘BPTP Park Elite Floors’. “Launched on May 9, with an initial target of 1,000 units, booking had to be closed within 15 days due to the heavy demand. By the closing date of May 26, the company had received a booking of 3,700 units,” BPTP said.

Jaypee Greens (a real estate division of Jaiprakash Associates) too said its 3,300 apartments were booked within 24-hours of the launch of its residential project Jaypee Greens AMAN at Noida-Greater Noida Expressway.

And similar sentiments are being echoed in other parts of the country as well. For instance, in its Cosmopolis project in Bhubaneswar, Assotech says that it has signed up 100 booking in the last 45 days alone. The price tag for the project is Rs 27-46 lakh. The company said the demand for its other projects in Gwalior and Rudrapur too are looking up.

“Yes, things are improving. While it is still difficult to gauge the medium-term outlook, the elections and the clear mandate coupled with some improved buying sentiments have resulted in a flow of bookings. Customers in smaller markets, who need a house for their own requirements, are willing to take the plunge. The investors will come in at a later stage,” says Mr Sanjeev Shrivastava, CMD of Assotech Group.

A senior official of Lodha Group — a builder with presence in and around Mumbai and upcoming projects in Hyderabad and Pune — feels that the “hype” about slowdown had been overblown, and that there has been a turnaround post-December 2008.

The company claims that it has sold 2.5 million sq. ft of residential space in the last five months against a third of that level during July-December.

“The demand-supply mismatch still exists, and so there cannot be a prolonged recession in demand for rightly priced homes,” says Mr Abhishek Lodha, Director, Lodha Group.

In April, DLF said it got bookings for 1,356 apartments (2 million sq.ft) in a single day in its project Capital Greens at New Delhi. A presentation by Unitech to its investors earlier this month, put the area sold by the company between April 1 and May 15, at 2.5 million sq.ft.

The company said that the overall sale value of the properties which had been booked will add up to about Rs 850 crore. Unitech has already outlined plans to launch 40 projects across 15 cities, including Delhi NCR, Mumbai, Kolkata, Mohali/Chandigarh, Chennai and Lucknow.

Real estate companies have discovered the market sweet-spot in the affordable and mid-income housing space, and are tuning strategies accordingly, a senior Unitech official recently told Business Line. Though the claims of the real estate companies point towards some recovery in the market, analysts are waiting to see how events unfold in coming months.

Tata Realty to raise $1 Billion

Tata Realty and Infrastructure said it plans to raise a $1 billion (Rs 4,700 crore) infrastructure fund to support projects worth Rs 20,000 crore that will be executed over the next three years. TRIL is a wholly-owned subsidiary of Tata Sons.

The company will invest Rs 11,000 crore in real estate, Rs 5,000 crore on road projects and Rs 4,000 crore on other infrastructure projects, said Mr Sanjay Ubale, Managing Director & CEO, at a news conference here on Wednesday. Around 20 per cent of the company’s earlier offshore fund of $700 million has been deployed, he said. Separately, the company will raise Rs 1,400 crore in debt, said company officials.

Some of the larger projects won by TRIL include three SEZs – one a 25-acre SEZ at Chennai for Rs 3,800 crore, the other two being IT SEZs in Ahmedabad and in Pune. A 7-lakh sq ft residential complex in Amritsar is under development, and a 35-acre residential and mixed-use project is being evaluated at Gurgaon.

Although the real estate market is still sluggish, this is not an inappropriate time for developing SEZ projects or malls, said Mr Ubale: “Real estate is cyclical and our projects will probably be ready as the markets pick up. In addition we do stand to benefit from lower commodity prices.”

Roads, metro and mono-rail and airport projects are also under consideration: TRIL has tie-ups with Mitsubishi for bidding for metro projects; with Grandi Stazioni of Italy for redevelopment of New Delhi Railway station; with Changi Airports for Amritsar and Udaipur airports; and with Atlantia spA of Italy for roads and highways.

A recent win has been the four-laning National Highway Authority project of a 110-km Pune-Solapur stretch at Rs 1,400 crore, in tie-up with the Italian company. The SPV, which will undertake the project, will be a 50:50 joint venture between TRIL and Atlantia, each putting in Rs 280 crore, with debt requirement for the project at Rs 970 crore.

More realty cos firming up fund-raising plans

With recent qualified institutional placements (QIPs) of Unitech and Indiabulls Real Estate raking-in over Rs 4,000 crore, market watchers believe that more than a half a dozen real estate companies, including Parsvnath Developers, Omaxe and Sobha Developers, could be next in line for fund raising.

Housing Development & Infrastructure Ltd (HDIL) on Saturday sustained the fund-raising momentum in the realty space when it announced plans to raise over Rs 2,800 crore from sale of shares.

Delhi-based Parsvnath Developers is also mulling various options, including a QIP, to raise overall Rs 500-800 crore in the current quarter. According to a person involved with the plans, Parsvnath would use the funds for ongoing projects and lowering its debt obligations, that are currently pegged at Rs 1,600 crore.

When contacted, the Parsvnath Chairman, Mr Pradeep Jain, declined to comment on the company’s plans but said that the market sentiments were strong. “There is an investor appetite for real estate stocks and also valuations at the current level are attractive,” Mr Jain said.

Similarly, Omaxe is looking at fund-raising options such as QIP or a preferential placement although just how much it would look to raise, could not be ascertained. Omaxe’s total debt currently stands at Rs 1,600 crore and the company hopes to trim this to Rs 1,000 crore by the fiscal-end. Hence, in case of Omaxe too, part of the money raised could go into retiring debt and the balance into new and existing projects, a source pointed out.

An e-mail sent to the external communications agency of Sobha Developers went unanswered. Macquarie analyst Mr Unmesh Sharma said that there could be two rounds of capital raising in the realty pack. “In the first round, we will see companies raising capital to repair their balance sheet, and in second phase some companies will go for share sale to opportunistically purchase assets,” he said.

In April, Unitech’s QIP issue of Rs 1,625 crore lifted the flagging sentiments in the real estate sector; this was followed by a stake sale by DLF promoters, and a QIP issue by Indiabulls Real Estate.

According to a Unitech official, nearly 95 per cent of Unitech’s QIP issue was placed with FIIs such as HSBC, Prudential, Orient Global, Sandstone Capital and Och-ziff.

Earlier this month, promoters of DLF Ltd offloaded 9.9 per cent stake in the company to institutional investors, for Rs 3,860 crore. Capital International Fund bought the largest chunk of DLF shares, while other investors were HSBC, Fidelity and T Rowe Price. Indiabulls Real Estate too raised Rs 2,656 crore through issue of shares on institutional placement basis.

Realty stocks witness renewed interest

As things start to look better for the economy and capital markets, brokers’ outlook for real estate sector stocks have also taken a positive turn.

The BSE realty index surged 40.89 per cent in the last week as against 15.7 per cent rise in the Sensex.

These scrips are also among the most traded.

While most of the index heavyweights in the Sensex such as Reliance, L&T, SBI and ICICI Bank saw a two-week average traded quantity between 9.5 lakh and 36.3 lakh shares; DLF’s two-week average traded quantity was 2.29 crore shares, while Unitech saw an average of 2.2 crore.

On the NSE, DLF and Unitech figured in the most traded list on Thursday. A total of 6.7 crore Unitech shares exchanged hands today and 2.05 crore of DLF.

Marketmen said that realty stocks were among the most beaten down in the market fall.
Good recovery

“From their peak, the values of the realty stocks have fallen by 95 per cent and from the lows these stocks have recovered quiet well,” said Mr Vishal Goenka, Chief Executive Officer at Kantilal Chhaganlal Securities. “People might feel that the corrections in these stocks were over done and there could not be much downside from here on,” Mr Goenka said.

Marketmen also attributed the rise in realty stocks to a string of good news that has come for the realty sector.
QIP placements

“The successful qualified institutional placements (Unitech) and stake sales of some key real estate companies (DLF) have led to investors thronging to these counters,” said an official with a US-based investment bank.

“These are very liquid counters and are also very high beta stocks, and with the markets all pepped up these are the stocks which will see major action ,” said Mr Hardeep Dayal, Managing Director at Centrum Realty and Infrastructure.

Broking firms have become positive towards the realty stocks now.

Macquarie had recently upgraded its rating on DLF from “Underperform to Neutral”.

“DLF has now come out of ‘the boy who cried wolf’ phase with this capital raising. The de-leveraging story is clearly under way. From an operating cash flow perspective, initial signs are encouraging,” stated the report.

Enam Securities has upgraded Unitech and HDIL from “Underperformer to Neutral”.

Indiabulls Real Estate and DLF are among the real estate scrips on Motilal Oswal’s “Buy” lists.

Unitech sells office complex for Rs 500 Crore

In a boost to the company’s plans to lower debt obligation, real estate firm Unitech Ltd has sold an office complex in Saket, New Delhi, to an high networth individual (HNI) for about Rs 500 crore. The company is hoping that the latest transaction, alongwith the recent sale of the Marriott Courtyard, and other assets currently on the block, would enable it to raise Rs 1,000 crore by the end of the quarter.

Sources close to the development said that the office complex - which was initially intended for Unitech’s use till a cash-crunch prompted it to put-up the property in the market - has 2.10 lakh sq ft of space.

The source refused to divulge the identity of the new owner, but said that the money from the current transaction would come by June-end.

This is the second asset sale by Unitech.

Earlier this year, the realtor sold-off its hotel project in Gurgaon for Rs 235 crore to Mr Roop Madan, Managing Director of the Delhi-based Sanya Motors.

Of the total proceeds from that sale, Unitech has already received 45 per cent of the payment, while balance 55 per cent is expected to flow in this month, sources claimed.

The company is also scouting for a buyer for its serviced apartment project - Marriott Executive Apartments; and has also put on the block yet another hotel property in Gurgaon.
Serviced apartment project

The serviced apartments project is located in Gurgaon near the Unitech Cyber Park and the Unitech Greenwood City on 3.39-acre of land; the serviced apartments along with an office block has been designed by the Seattle-based Callison Inc and will be operated by Marriott as Marriott Executive Apartments.

Unitech’s current debt is pegged at Rs 7,800 crore and it has stated its intention to reduce the debt position to Rs 6,000 crore-6,500 crore by the end of the current financial year.

As part of the asset sale strategy, the company is also looking to sell plots (hospitals and schools) in its townships.

Secura Investment launches Shariah-compliant real estate VC fund

Secura Investment Management India Pvt Ltd has launched its first real estate venture capital fund. The fund aims to ensure flow of investment in real estate and infrastructure development sector, thereby creating opportunities for organised investment in the field.

Secura India Real Estate Fund is the first venture capital fund in Kerala and is registered with SEBI. The company, headquartered in Kozhikode, makes its investments in accordance with SEBI guidelines. The fund operates in accordance with the Shariah laws and regulations, Mr M.A. Mehaboob, Managing Director, Secura, said.

Secura is jointly promoted by the hi-lite group, a major real estate player in the State, and professionals from the investment management sector.

The initial corpus of the fund will be Rs 50 crore and the company, which is to concentrate in the State real estate market, is targeting Rs 1,000 crore in the next 2-3 years, he said.

The primary objective is to carry out the activity of a venture capital fund and for raising resources to make available venture capital assistance to portfolio companies in the real estate and allied sectors. The fund is mid-term growth-oriented one and investment will be made in promising development projects, he said.

The investment collection, usage and distribution of the fund will be monitored by an independent trustee to ensure investment security.

The Mumbai-based IL&FS Trust Company Ltd, a subsidiary of Infrastructure Leasing and Financial Services, is the trustee of the fund.

The Shariah advisor of Secura is the Taqwa Advisory and Shariah Investment Solutions Pvt Ltd (TASIS). TASIS ensures that the conditions and the fund investments are in accordance with the Shariah regulations, Dr Shariq Nisar, Director, TASIS, said.

The working of the fund has to be reported to the SEBI and TASIS once in every three months and IL&FS will check the report every month as well. The annual auditing is carried out by Deloitte Haskins and Sells, he added.

Tata Housing launches low-cost project

Tata Housing Development Company has launched a low-cost housing project at Boisar, which is about 80 km from Mumbai.

The company said the model, offering apartments of 283 sq ft, 360 sq ft and 465 sq ft, in the price band of Rs 3.9 lakh-6.7 lakh, would be replicated across tier I and II cities.

Shubh Griha project

Announcing the launch of the project, Shubh Griha, of about 1,200 units, Mr. Brotin Banerjee, Managing Director and Chief Executive Officer, Tata Housing, said, “We observed that since most of the people in the low-income bracket live away from their families to earn a livelihood in the big cities, there is a large percentage of migrant population living in either rented or company provided accommodation. Our study shows that around 48 per cent in the lower segment are currently staying in rented accommodation. As a real estate company, we are sensitive to the need of providing this segment with their own home along with a community life. We believe in empowering them and giving them the pride of owning a house.”

Community concept

He said though it was priced at an entry level, the ‘neighbourhood and community’ concept would change the conventional residential choice available for this segment of consumers today.

With a balanced mix of buildings and open spaces, the projects would be constructed under the guidance of Indian Green Building Council.

The low-cost housing units at Boisar would be built on about eight acres of a total of 63 acres, which will also have homes in the affordable segment, besides shopping, hospital, schools and other amenities, in subsequent phases.

Mr Banerjee said revenues from the sale of low cost units alone would be over Rs 80 crore, while declining to furnish the total project cost. The units would be delivered in two years.

Booking Process

Applicants can purchase application form costing Rs 200 from select SBI branches across Mumbai. The bookings should be made with an initial booking amount of Rs. 10,000 at the bank branches.

The first list and the waiting list will be declared after scrutiny of applications. The allottees would be intimated by Tata Housing along with payment schedule.

Builder offers compact homes in Bangalore

If this developer manages to set a trend, homes in Bangalore could well go the Mumbai way – small and compact. And in these times of recession, when a genuine buyer is not able to loosen his purse strings for that prized home, a product in the Rs 4 lakh to Rs 19 lakh category is indeed a blessing. At least that’s what this new real estate developer hopes it would be.

CSC Constructions has launched three projects in Bangalore – at Attibele near the Electronics City, Devanahalli, and Sarjapur Road – hoping to make “home buying within the reach of one and all.”

All the projects will have apartments in the studio, single bedroom, two bedroom and three bedroom categories. The target customers include senior citizens, ex-Servicemen, young couples, first-time buyers, government employees and all those who would want to move from rentals to EMIs without any difficulty.

Mr P.C. Sukanand, Managing Director, CSC Constructions, said, “We cater to all income levels. We would provide what other developers have been providing all these years, but at realistic prices. We have cut down on our margins instead of loading our profits on to the cost of construction.”
More projects

The company also plans to launch six more projects in the city in the next six weeks. “Depending on how we do here, we plan to go to Mumbai also,” he said.

The company would be investing about Rs 20-35 crore in each project towards development, with the landowner being the joint developer.

“We are not over-exposing ourselves to a single location, and we are going across multiple locations, thus offering customers a choice of location,” said Mr Rohit Chugani, Executive Director of the company. The company is also in talks with private equity players for funding for future projects.

“We hope to close in on few deals soon,” he added.

CSC Belle at Attibele will have 1,400 units ranging from 253 sq ft to 850 sq ft, with prices starting at Rs 4 lakh. Phase 1 of this project would see 860 units developed. CSC Boulevard at Devanahalli would have 480 units ranging from 290 sq ft to 1,000 sq ft, with prices starting at Rs 5 lakh. CSC Belva at Sarjapur Road would have 840 units in the 350-950 sq ft range, with prices starting at Rs 5 lakh.

“There will be no compromise on quality or cutting short of amenities in our projects,” said Mr Sukanand.

The residential complexes will come with amenities including swimming pool, kids’ play area, a Hospice centre, crèche, 24-hour security, supermarket/shops, gym, party hall, club house, etc.

ASK Real Estate Special Opportunities Fund - Portfolio I (ASK Realty Fund)

ASK Real Estate Special Opportunities Fund - Portfolio I (ASK Realty Fund) is a real-estate private equity fund floated by ASK Investment Holdings (of the ASK group which is into wealth management). This fund, which seeks to collect about Rs 500 crore, would predominantly invest in residential real-estate projects in the top seven cities in the country.
Objective

The fund, open only for resident Indians, aims at providing diversification across various regions and business segments within real-estate without the hassles of owning and maintaining such estate. It would seek to provide compounded annual returns of 25 per cent over the five-year tenure of the fund.

The realty fund has a minimum ticket size of Rs 25 lakh, with additional investment allowed in multiples of Rs 5 lakh. The fund has a drawdown period of 24 months; in other words it would gradually deploy funds in projects across this period. There is an entry load of 2 per cent for investments up to Rs 5 crore.

Some of the unique features of the fund include staggered collection of funds to ease the burden of investors and also avoid unnecessary holding of cash by the fund. The fund would collect 20 per cent on application and the remaining (over every quarter or half-year) amount over the next two years.

Further, even as the there is a lock-in period, the fund would provide a liquidity window at the end of three years to allow investors to cash-out 10 per cent of their capital contribution. This provides an opportunity for those investors looking at liquidity. The fund would not also make any reinvestments. In other words, once a project is complete, the fund would return the distributable surplus to investors (in the form of dividend or capital gains) and would not redeploy the same.

ASK Realty Fund has chosen Mumbai, Bangalore, Chennai, Pune, Delhi, Hyderabad and Kolkata (in that order) to deploy its funds. According to the management, the fund does not see much opportunity at the “land buying” stage as enough land has been aggregated by developers in the last two-three years.

The fund, therefore, sees opportunities at the development stage in those residential projects where the plan approvals are in place and the construction is about to start. Another key strategy of the fund is to enter projects at “asset level” rather than “holding company level”. That is, the fund would invest only in specific projects and not in a real-estate company.

This strategy, according to the fund, would provide easier exit opportunities, as such projects are self-liquidating once the units are sold; investing in a company would entail waiting for right exit opportunities such as exit at the time of an IPO.

The fund would not look at investments in special economic zones or townships as these tend to have longer gestation and would not suit the fund’s five-year tenure. As to its strategy of concentrating in residential projects only in the top cities, the management feels that 50 per cent of the top spends in infrastructure under the Jawaharlal Nehru National Urban Renewal Mission would be in these top seven cities.

Further, given the talent pool available in these cities, creation of jobs on an economic revival can be expected to be faster in these cities. The fund also prefers to invest in projects of developers in these cities, whose capabilities, quality of work and scale may be far superior to builders in smaller towns.

While 70 per cent of the funds would be deployed in residential projects of the nature mentioned above, the fund may also invest the remaining 30 per cent in completed fixed-income generating office space. The fund will not invest in commercial space that is under construction or not occupied.

This investment is expected to deliver more regular returns over the tenure of the fund. The fund may also explore more specific opportunities such as redevelopment projects by housing societies (such as those in Mumbai) or sale and leaseback of old buildings located in Central Business Districts, after some renovation is carried out. Such renovation may be done with a view to improve the working conditions/amenities in the building, thereby improving rental yields.

Drop in office space rentals

Office space rentals have dropped five to 20 per cent across cities in the first quarter of 2009 as compared to the last quarter.

Global real estate service provider CB Richard Ellis’ office space review report says this is due to sluggish demand and the tendency, especially by the financial and IT sectors, to postpone real estate initiatives.

NCR

Connaught Place saw enhanced levels of second-hand space with tenants relocating to cost-effective destinations. With more malls becoming operational in the Saket District Centre, basic infrastructure was stretched.

Supply released in the last quarter (about 0.22 million sq.ft) was not absorbed, leading to a vacancy of around 35 per cent. Gurgaon continued to be slow with the IT and financial sector facing the heat of the economic downturn.

Average rentals at Connaught Place for March were Rs 240 a sq.ft a month compared to Rs 280 a sq.ft in December.

Rentals at Nehru Place were Rs 180 a sqft against Rs 225 in December. IT space in Gurgaon averaged Rs 45 a sq.ft against December rentals of Rs 55, and at Noida it was Rs 38 a sq.ft, against Rs 40 a sq.ft in December.

The central business district of Nariman Point witnessed a significant correction in rentals over the last 6-9 months.

Mumbai

With additional secondary stock added, the vacancy level rose to 15 per cent.

Average office rentals were around Rs 350 a sq.ft in March as against Rs 400 seen in December.

The alternate business district of Bandra Kurla Complex and Kalina has a ready supply of about one million sq.ft of office space, with an additional 0.5 million sq.ft supply expected in the next quarter. Rentals were at Rs 300 a sq.ft, compared to Rs 350 in December.

The secondary business district comprising western and eastern suburbs saw a sharp correction. Andheri, Ville Parle and Jogeswari dropped to Rs 150 a sq.ft in March as against Rs 175 in December last.

Bangalore

Most transactions in the central business district of MG Road, Richmond Road and Residency Road were in the small- and mid-sized segments.

A spate of relocation activity is expected as reducing cost, particularly real estate related, drives a number of companies to identify cheaper real estate solutions.

Rentals at MG Road and Residency Road averaged Rs 75 a sq.ft a month in March as compared to Rs 85 in December. Those in Koramangala and Indira Nagar were Rs 50 against Rs 60 earlier. Rentals at Whitefield and Electronic City were down to Rs 25 per sq.ft compared to Rs 27 earlier.

Chennai

The central business district, which includes areas of Anna Salai, T Nagar, RK Salai, Alwarpet and Nungambakkam, saw a lower level of demand in the March quarter.

However, overall vacancy levels remained low at about 5-6 per cent.

Average rentals were down to Rs 70 a sq.ft in March as compared to Rs 76 in December 2008.

The suburban business district that includes Velachery, Perungudi and Mount Poonamallee Road saw an absorption of about 0.2 million sq.ft, compared to 0.75 million sq.ft a year ago. Rentals were around Rs 38 a sq.ft, while it was Rs 41 in December.

Vacancy levels at the micro market – Perungalathur, Sholinganallur, Siruseri, Ambattur and GST Road – were 18-20 per cent. Here, rentals were Rs 25 a sq.ft compared to Rs 29 in December.

Hyderabad

Leasing in the CBD micro markets of Begumpet, Somajiguda and Banjara Hills witnessed a slowdown in the quarter ending March 2009 and vacancy levels rose near 10 per cent. Rentals were lower at Rs 55 a sq.ft in March compared to Rs 60 in December.

The IT corridor of Hitec City Madhapur, Kondapur, and Gachibowli dipped to Rs 35 a sq.ft from Rs 40 a sq.ft.

Pune

Like the last quarter, the micro markets of MG Road, Kalyani Nagar, Koregaon Park and Bund Garden continued to see demand for smaller format office spaces.

Further, softening of prices is providing an opportunity to occupants of Grade-B premises to relocate to better spaces.

The peripheral business district – Hinjewadi, Kharadi, Hadapsar, Talawade and Kharadi – remained the choice for large IT office requirements.

Rentals at Shivaji Nagar, Bund Garden Road and Koregaon Park were Rs 70 a sq.ft in March compared to Rs 90 in December. At Hinjewadi, Kharadi and Hadapsar it was Rs 35 a sq.ft in March, compared to Rs 42 a sq.ft in December.

Kolkata

Demand in office space leasing market in the central business district of Chowringhee, BBD Bag, Park Street and Camac Street was extremely low, leading to high discounts on quoted prices. Rentals were at Rs 100 a sq.ft in March as compared to Rs 120 in December.

Available supply in the secondary micro market, including EM Bypass, Kasba-Gariahat and Sarat Bose Road, was vacant. Vacancy levels were around 30 per cent in Kasba.

The peripheral market of Salt Lake and Rajarhat has been hit with high inventory pile-up and low demand. Rentals were at Rs 45 a sq.ft in March as compared to Rs 55 a sq.ft in December.

Heera Constructions unveils 3 new projects in Thiruvananthapuram

Heera Constructions, one of the leading property developers here, has announced the launch of three premium apartment complexes in the city.

Dr A.R. Babu, Managing Director of Heera Constructions, said here on Tuesday that all the three projects were fully ‘vaastu’ compliant and would feature fully air-conditioned lobby, reticulated gas connection, biometric sensor entry, video door phones and superior finish.

One of the projects, Heera Goldenhills, overlooks the Kanakakunnu Palace and the zoo. Another project, Heera Highlife, is located near Belhaven Gardens, Kowdiar, and will feature a car-lift to help park the vehicles in the second floor. The third project, namely Heera Dreams, is located at Sreekariyam, which is about 5 km from Technopark and 7 km from the airport.

RBI cuts rates again!

The Reserve Bank of India (RBI) has cut the repo and reverse repo rate by 25 basis points each. The repo rate has been cut to 4.75 percent from the existing 5 per cent while the reverse repo has been cut to 3.25 per cent from the existing 3.5 per cent.

The CRR has been left untouched at 5 per cent in the annual policy review on Tuesday. The repo rate is the rate at which the central bank lends to banks while reverse repo is the rate at which it absorbs excess cash from the black money markets. The central bank last cut interest rates in early March.

Sobha Developers gets FIs’ nod to restructure debt

Real estate major Sobha Developers has received in-principle approval from most of the financial institutions for restructuring of its debt. Mr J.C. Sharma, Managing Director, Sobha Developers, said that the company is “through with most of the banks, mutual funds and institutional investors for restructuring of our debt.” “They have looked into our revised cash flows and accordingly agreed to give us time,” he added.

Mr S. Baaskaran, Chief Financial Officer, said that the company now has extended the payment date by 12-18 months, for debts that were scheduled to be paid in the next 12-24 months.

“The ones that were scheduled to be paid after two years have not been restructured,” he clarified. The average interest rate is about 13 per cent, he said.

The company, which is in the process of restructuring its Rs 1,900-crore debt, plans to raise about Rs 900 crore through preferential equity, SPV-level equity and also through sale of a part of its 3,000-acre land bank. “We are looking at various options before us, and things are progressing well,” said Mr Sharma.

Mr Baaskaran said that the company hoped to raise about Rs 300 crore through preferential allotment, about Rs 300 crore through SPV-level funding, and the rest through sale of land. Through these measures, the company hopes to bring down the current leverage of 1.65 to less than 1 by March 2010.

He said that the company is also “planning two SPVs currently for our large integrated township projects at Pune and Kochi”. The Rs 1,000-crore project at Pune would see a development of 5.5 million sq ft spread over 110 acres, while the one at Kochi would see 38 million sq ft development spread over 450 acres at Rs 5,000 crore.

The company also expects to have “very comfortable cash flows for 2009-10”, thanks to its efforts to prune unnecessary costs and manpower, said Mr Baaskaran. While the company has adopted 10 per cent cut in salaries, there are also plans to downsize staff, if the situation warrants. “Things will improve from the third quarter of the next financial year. Prices won’t go up, but we will see better volumes; and with better volumes, the cash flow would be better,” he said.

The company’s contractual business is paying off well now, with 40 per cent of its revenues coming from this vertical.

“We plan to do business worth Rs 350 crore from this vertical in 2009-10, which would be 25 per cent higher than 2008-09,” he said.

Brigade Group to take up new realty projects

Real estate developer Brigade Group is looking to launch new projects, including hospitality developments, in the next nine to 12 months. In all, the company hopes to develop 10 million sq. ft. at a total investment of Rs 1,500 crore, said Mr M.R. Jaishankar, Chairman and Managing Director, Brigade Group.

For this, the company hopes to raise about Rs 1,000 crore through private equity, debt or a combination of the two.

“We are evaluating options,” said Mr Anil Kumar, Chief Financial Officer, Brigade Group. It is also looking at the special purpose vehicle-level funding for projects, he added. Brigade Group has opened its Mercure Homestead Residences, which will be managed by the Accor Group.

The 126-residence apartment has seen an investment of Rs 90-100 crore, according to him. The rack rate for a studio apartment would be Rs 11,500 a night, but the special opening rate would be Rs 6,500 a night. The average room size is 750-800 sq. ft.

Mr Vineet Verma, Chief Executive Officer, Brigade Hospitality Services, the hospitality arm of Brigade Group, said the company’s five-star hotel project with the Sheraton Group would be operational by 2010.

There are also two more projects — Holiday Inn with the InterContinental Group at Devanahalli at an investment of Rs 125 crore, and another with the Sheraton Group in Mysore at Rs 175 crore (both excluding investment into land) — that would be opened in 2012.

Reverse mortgage a necessity

Banks should not be hasty in cutting down property valuations in the current downturn, according to Mr Arun Ramanathan, Finance Secretary, Government of India.

In the context of the reverse mortgage scheme that supports the financial needs of the elderly, he said banks need to be careful on valuations which are done once in five years. In the current economic situation re-evaluating property could be a setback, especially for the elderly. While India has the demographic advantage with nearly half its population below the age of 25 years, the number of people over 65 years equals the population of Canada. The “numbers are large and disquieting” and India needs social systems that support the aged.

Barriers to scheme

Reverse mortgage supports the elderly by allowing them to use their house property to raise a loan to meet their financial requirements. But social barriers and mindset prevent the scheme from taking off in a big way.

Addressing a seminar on consumer issues in housing and housing finance, he said the Government was looking at a number of guidelines and regulation for the housing sector, including an ombudsman. The National Housing Bank has drawn up the guidelines which are under consideration. Minimum benchmarks of service are also needed for builders and lenders, he said.

Mr S. Sridhar, Chairman and Managing Director, National Housing Bank, said that the bank was trying to develop a uniform standard for valuations. A committee, including the Indian Banks Association and the School of Architecture and Planning, New Delhi, are drawing up the norms. Valuations based on these standards would soon be essential for transacting with public sector banks.

The National Housing Bank as a regulator of housing finance companies is looking at various measures of consumer protection, which include creating a common forum of banks and housing finance companies which would eventually evolve into a self-regulatory organisation. Later this year, the first batch of independent mortgage counsellors would earn their diplomas in home loan counselling. These counsellors who would have gone through a curriculum framed by the NHB would advise potential home loan borrowers in making an informed decision on various schemes of home loans available in the market.

Public sector banks have cut down on home loan interest rates to sustain flow of credit and even housing finance companies that have a higher cost of funds have managed to pare home loans, he said.

Easing credit flow

Mr M. S. Sundararajan, Chairman and Managing Director, Indian Bank, said public sector banks have done their best to ease the flow of credit to home loan borrowers. Indian Bank has seen a 25 per cent growth in home loans in 2007-08 and expects to see 20-22 per cent in 2008-09. If there is a drop in disbursements it is only because customers are ‘sitting on the fence.’ The banks have eased and speeded up the process of home loan disbursement. Home loan off-take is more a function of service than interest rates.

Banks are now competing to disburse home loans and now offer value-added services such as insurance linked home loans and restructuring of home loans to support those hit by the downturn, he said.

Citigroup Property defers investments in Nitesh Estates

Citigroup Property Investors, part of Citigroup, has deferred almost 85 per cent of its $360-million investment into a key real estate developer in India, signifying its waning interest in realty projects because of the global economic crisis.

Citigroup will, however, go ahead with its financial commitment for the developer’s $125-million Ritz Carlton hotel project. The Ritz-Carlton is part of the world’s largest chain of hotels and resorts, Four Seasons, and Bangalore will be the first city in India to have the property.

“Citi had signed for $360 million, out of which the Ritz Carlton is $55 million… Citigroup Property Investors, our joint venture partner for the Ritz Carlton project, is going ahead with its commitment of over $55 million equity in this project. Citi has deferred the rest of the money due to the global crisis,” Mr Shetty said.

The real estate developer has on its board of directors, former SEBI chairman, Mr G.N. Bajpai, and former ONGC chairman, Mr Subir Raha, among others.
financial partner

The company is also on the lookout for a financial partner for its other prestigious project, a mixed-use development in Chennai, as “Citi’s $100 million is not on for this project due to the economic crisis in the US,” he added.

Mr Shetty said a financial closure on debt has also been completed with a consortium of four banks — State Bank of India, Punjab National Bank, Central Bank and Canara Bank — for a total of Rs 300 crore.

The Ritz Carlton project is on in full swing, he said. Construction of the property is progressing well “after initial hiccups with rock on site”, he added. In fact, according to Mr Shetty, the company has drawn down a sizable portion of the Citigroup’s $55 million funding in the last one month.

The mock-up rooms are ready, and “we will be opening the hotel in December 2010,” he said. When opened, the hotel will have 281 rooms, three restaurants and a spa, and high-end retail, he added.

In all, the company has about 20 joint venture projects, at a total value of Rs 2,500 crore.

Mr Shetty said that his company was also developing a large-sized corporate housing project for ITC Ltd, which will be delivered in April this year.

Besides, its high-end residential project — Nitesh Buckingham Gate, where condominiums are priced at over Rs 8 crore — on upscale Lavelle Road in Bangalore will be will be ready in 45 days.

For the 7.5-lakh-sq-ft retail project — Nitesh Mall — coming up at Indira Nagar, Bangalore, the company will have HDFC Property Fund as its partner at an SPV level, where the development would also include a 150-room serviced apartment to be operated by Marriott. The company is also building high-end villas in Goa, said Mr Shetty.

HUL to sell Coonoor property

Hindustan Unilever Ltd (HUL) plans to sell a 2.05- acre plot in Coonoor, a popular hill resort. According to the international property consultants Jones Lang LaSalle Meghraj, the exclusive marketing agents, the reserve price for the property is fixed at Rs 6.1 crore. The site is at Bedford in the heart of Coonoor town. It offers an opportunity for hospitality and retail projects, particularly because of flat topography - which is rare in the hills.

According to the property consultant, the property is free hold property with a clear title and single ownership of HUL. The last date for the bid is April 16. Coonoor's economy is predominantly based on tea plantations, tea trade and tourism, which has underpinned the development of the hospitality industry. - Our Bureau

Rework Kerala’s master plan asks Indian Institute of Architects

The Indian Institute of Architects (IIA), Kerala chapter, has called for revision of the State master plan prepared two decades back.

In view of certain serious land development issues facing the State at present and considering the minimum land available for development, especially in towns and cities, we have no other option but to go for vertical development, says the IIA in a representation to the State’s ministers and the departmental heads concerned.

In the representation, the the IIA Chairman, Mr Jose K. Mathew, points out that it is time the State emulated cities such as New York, Singapore and Tokyo, where the situation is very similar. Like in Kerala, the land for development is scarce and the density of population is high.

The representation was made in the backdrop of the State Government’s move to amend the Kerala building regulations and FAR (floor area ratio) calculations. It is pointed out that unlike its neighbouring States, Kerala is very different.

“Considering the topography of the land, we have to protect and conserve our backwaters, our forestland, our coastlines, our paddy fields, our wetlands and marshy land, which makes Kerala unique and God’s Own Country,” the representation said, adding that the land available for the development after protecting Kerala’s unique features is comparatively low compared to other neighbouring States where there is vast expanse of land for development.

Besides, the density of population in the State is very high.

It is hard to find 100 acres of land in one stretch. Meanwhile the State cannot afford to ignore and abandon the existing road network and its width, and design new roads to match the road widths of the neighbouring States, notwithstanding the fact that there is need to improve the quality and width of the existing roads and, the infrastructure.

Meanwhile, the market demand and the market forces cannot be ignored, says the representation, adding that “if we make a policy decision to develop horizontally, what we need to protect and conserve will be covered by buildings before long, irrespective of whatever rules or regulations or amendments we make.”

In view of these facts, the representation urges the Government to increase FAR in Kerala similar to Singapore and New York, but with adequate infrastructure development, both physical (roads, communication, sewage, drainage, electricity, etc.) and social (schools, hospitals, public facilities, etc).

“Otherwise, going vertical will be disaster,” the IIA cautions.

Road width

Regarding road widths, the representation suggests additional setbacks, in addition to the mandatory setback of land abutting the streets if the roads do not meet the required width, so that these can be used to widen the existing roads.

Some of the factors that should be considered while making changes in building regulations include the rapid advancement in building technology, scarcity of natural and man-made building materials, spiralling fuel and power supply costs which warrant accommodation in close proximity to workplaces, effective waste management, and eco-friendly, green buildings and towns.

The representation says that it is time the Government constituted an expert committee consisting of town planners, practising architects, sociologists, environmentalists, etc., and brought out a relevant master plan of Kerala, which will be in tune with the times.

Lodha launches affordable home project in Mumbai

Breaking the sub-Rs 2000 per sqft price barrier in Mumbai, realty major Lodha Group has launched a 6,500 unit affordable home project at Dombivili, 50 km away from the city, at Rs 1,998 a sq ft.

The integrated township project, to be built in two phases at a cost of Rs 950 crore, will be spread over 125 acres with 3,500 residences being developed under the first phase. The residential development will comprise 11 clusters. The project has been planned with 86 per cent of open space with units of one, two and three BHK priced at Rs 11.7 lakh, Rs 14.9 lakh and Rs 24.3 lakh. The first phase is scheduled for delivery in 2011.

The promoters intend to pump in 20 per cent of the project cost as equity. The balance is expected by way of 20 per cent bank funding and 60 per cent internal accruals.

Mr Abhisheck Lodha, Director, Lodha Group, said, “It will be a mini city with all conveniences and utilities available within an integrated residential township. It is the largest initiative by the Lodha Group and will see planned development of 9,000 acres. The township will be a complete self-sustaining eco-system with a residential and commercial hub and world-class amenities and infrastructure.”

This residential project will be part of the 9,000-acre land expanse that the Lodhas intend to develop at Dombivili. From playschool to international universities, medical centres to multi-specialty hospitals, gardens to golf courses and small business offices to SEZ, the promoters intend to encompass all within the large land holding. The entire 9000 acre development will take 10-15 years, said Mr Lodha.

Good response

Mr Hardeep Dayal, Managing Director, Centrum Capital, said the Lodhas had got a good response for their affordable range projects in Thane and going by that they have taken this call.

On pricing and prospects, he said there was a likelihood of PLR being pared further and if it happened soon, it would be a win-win situation for the developer and customers, more so as the project was in the sub-Rs 20 lakh range.

Mr Dayal said Dombivili was well connected, both by road and rail, and as such the basic and social infrastructure was in place with a sizable populace already living there.

Inflation at 7-year low

Inflation figure for the week ended February 28 declined to 2.43% from 3.03% the previous week. This fuelled speculation that RBI may further cut key rates. Will RBI respond so quickly? Will banks lower their lending rates? I doubt because only last wednesday it cut both repo and reverse repo by 50bp. Banks are not able to match RBI's response in cutting their lending rates because cost of funds is still high. The economy is going through bad times, companies are declaring bad results quarter after quarter and western powers are showing even worse signs. Interesting thing to note here is that even though crude prices have increased in the last two months, inflation has actually dropped steeply. This indicates just how bad the market is - very poor demand and consumption. Unless the economy recovers I doubt banks will be able to lower their rates so quickly.

The downturn in India's main export markets and slackening domestic demand have prompted Indian firms to cut production and lay off hundreds of thousands of workers, especially in the garment and jewellery sectors.
And the slide in inflation from a 13-year high of 12.91 percent last August has prompted concern the price fall is too rapid and could lead consumers to delay purchases in expectation costs will keep falling. Such an event is bad economic news as the resulting sales downturn makes growth harder to achieve.

DLF to invest Rs 2,500 cr in projects near Chennai

Chennai, March 4 The DLF group is planning invest Rs 1,200 crore in a residence project meant for the mid-income group near Siruseri on the Old Mahabalipuram Road, south of Chennai, the company’s Executive Director – Southern Region, Mr J Subrahmanian told journalists here today. The group has acquired 100 acres of land for this purpose, he said.

The project is one of the several that DLF is planning to put up near Chennai, the total value of which works out to around Rs 2,500 crore. While a few of the planned projects are yet to be taken up for implementation, a few others are underway. The biggest among them is the IT Park at Manapakkam in the city, where it is constructing 7.2 million sq ft of space. The project cost Rs 1,500 crore, of which Rs 450 crore is yet to be spent.

Mr Subrahmanian said that the first phase (2 million sq ft) was fully occupied. The company is giving finishing touches for the 2.5 million sq ft second phase, which is getting occupied. Construction has already begun for phase-3. The entire space is leased out. The going rate is about Rs 40 a sq ft a month. Hence the company earns Rs 8 crore a month from Phase-I.
The other projects are: a Rs 175 crore shopping mall on a property leased from the Madras Race Course, Guindy, by DLF Retail Developers Ltd, and three residential projects. One of them is a luxury apartment block in the city, at a cost of about Rs 500 crore. Another is a 2,500-unit bungalow-type project at Sriperumbudur, expected to be completed over the next 3-4 years. The third is a Rs 1,200 crore residential project for mid-income customers, for which DLF has acquired 100 acres of land. In addition to these, a joint venture of DLF and Hilton is planning to put up a Rs 150-crore, 300 room business hotel in the SIPCOT IT part at Siruseri, on the Old Mahabalipuram Road.

RBI cuts rates again

RBI announced 50-basis-point cuts in repo and reverse repo rates. After the Reserve Bank of India announced a 50-basis-point cuts in repo and reverse repo rates on Wednesday, at least three public sector banks announced a reduction in lending and deposit rates. However, private sector banks such as ICICI Bank and HDFC Bank are yet to take any decision.

The banks that cut lending rates on Thursday include Bank of Baroda, Union Bank of India and United Bank of India. BoB and Union Bank of India lowered the prime lending rate by 50 basis points to 12 per cent with effect from April 1. The Kolkata-based United Bank of India cut the PLR to 12.5 per cent with effect from March 5. BoB also reduced deposit rates by 50-75 basis points, across various maturities. United Bank of India cut deposits rates by 25-50 basis points across various maturities effective March 6. Canara Bank said it will cut interest rates on home and vehicle loans. The bank will also cut deposit rates by 25-75 basis points with effect from March 11.

A lower PLR will lead to a cut in the rates for all loans, including home and auto finance. Naturally, real estate developers have welcomed this move of rates cut by RBI in the hope that home loan rates will come down further and demand will go up.

Deflation in Japan
Deflation in Japan started in the early 1990s. The Bank of Japan and the government tried to eliminate it by reducing interest rates, but this was unsuccessful for over a decade. In July 2006, the zero-rate policy was ended. There were several reasons for deflation in Japan which are explained below:
1. Bust of Asset price bubble: There was a rather large price bubble in both equities and real estate in Japan in the 1980s (peaking in late 1989). When assets decrease in value, the money supply shrinks, which is deflationary.
2. Insolvent companies: During the boom time (1980s) Japanese banks lent aggressively to companies and individuals that invested in real estate. However, when real estate values dropped, people were not able to pay back these loans to banks. The banks tried to collect the collateral (land or properties), but this wouldn't pay off the loan because their prices had fallen significantly. Banks delayed their decision to foreclose these loans hoping asset prices would improve. These delays were also allowed by national banking regulators. This continuing process is known as maintaining an "unrealized loss", and until the assets are completely revalued and/or sold off (and the loss realized), it will continue to be a deflationary force in the economy. Improving bankruptcy law, land transfer law, and tax law were suggested by leading economists as methods to speed this process and thus end the deflation.
3. Insolvent banks: Japanese banks had a larger percentage of their loans as "non-performing" i.e. they were not receiving any interest payments on them, but have not yet written them off. With high non-performing loans or assets, they were unable to lend more money; thus, their earnings declined significantly and risk of insolvency increased many a fold.
4. Imported deflation: Japan imports Chinese and other countries' inexpensive consumable goods, raw materials (due to lower wages and fast growth in those countries). Thus, prices of imported products were decreasing with the rise of economy of scale in China. Domestic producers had to lower their prices in order to remain competitive. This decreasing in prices of domestic products over a period of time led to deflation.
5. Fear of insolvent banks: Japanese people were afraid that banks might collapse so they preferred to buy gold or (United States or Japanese) Treasury bonds instead of saving their money in local bank accounts. Thus less money was available for lending and therefore economic growth. This meant that the savings rate depresses consumption, but did not appear in the economy in an efficient form to spur new investment.

Deflation alarms in the US?
With the fed fund rate at a historic low (0.00-0.25%), there is a growing fear of deflation in the US. Many economists believe that USA could face short term period of deflation. With the bust of housing bubble, acute shortage of credit and falling consumption, USA has more or less similar conditions that were prevalent in Japan in early 1990s. However, I believe there are some basic yet crucial differences.

Firstly, Japanese companies were far more dependent on commercial banks for financing than are today's U.S. multinationals, which have stockpiles of internal capital as well as broader access to capital markets. Moreover, US Treasuries are still considered as the safest investments in the world. This keeps the flow of money into the US economy.

Secondly, Bank of Japan’s exceptionally poor monetary policymaking was a big reason for the country's protracted problem. The central bank's failure to lower interest rates in the early 1990s ultimately drove the economy into a deflationary death spiral. They were just too slow and conservative to react to the situation. However, US Fed has been quite aggressive and proactive in taking sound monetary decisions and ensuring that they do not repeat those mistakes. In 1992, for example, amid negligible inflation and a comatose economy, the Bank of Japan's key interest rate was still nearly 4%. In contrast, after the tech bubble burst in the USA, the Fed quickly slashed its benchmark rate to 1 %. Also, the current fed rate is between 0.00-0.25%.

Thirdly, though both USA and Japan faced housing trouble and mortgage crisis, Japan's central bank was too slow to act. The country's banks hid their bad loans beneath opaque corporate structures rather than absorb the losses. But rather than write off the loans, Japanese banks extended additional credit to borrowers, allowing them to at least make minimal interest payments. Those made banks look healthier than they were, at the cost of impairing the flow of credit to new businesses. However, American banks have been forthcoming in absorbing the losses on their books and writing off loans. This has given fed a clear picture of true losses and subprime crisis in the economy.

Having said that I believe the US economy may bleed for some time and enter a period of deflation. However, that period would be short lived and not as prolonged as that of Japanese economy in 1990s. As per an estimate, avoiding a long period of deflation and recession might cost the US a staggering $3 Trillion.

Will India face deflation?
Let’s examine Indian economy vis-à-vis Japanese economy of 1990s. In the last five years BSE exchange went up from 5,000 to 21,000, an increase of 400% while real estate prices in Indian witnessed an increase of over 300%. This is phenomenal increase in prices and asset prices looked highly inflated. After the global financial crisis, Indian stock exchange plunged by over 60% and real estate values dropped by almost 30-40% in less than six months. Some welcomed this fall while majority believed Indian global dream is finally over. The mayhem still continues with stock prices and real estate prices further going down.

Compare this with that of Japan - In the five years before its 1989 peak, the Nikkei (Japanese stock exchange) stock average rose 275%. Property prices became so inflated that the tiny spit of land surrounding the Imperial Palace in central Tokyo was briefly worth more than the entire state of California. At the time, Japan's seemingly unstoppable rise inflamed fears among Americans that the United States had slipped into permanent economic inferiority. When the bubble finally busted in late 1989, stock and property prices nose-dived in tandem. In less than three years, the Nikkei stock average fell 63% from its peak of 38,916. It didn't hit bottom until April 2003 and a total decline of 80%. Do these two stories sound similar? Yeah they do!

Inflation figures for the last week was 3.92% which is far less than the peak rate of 12% less than six months back. Are we going into a period of negative inflation or deflation? We are currently in a state of disinflation which is a decreasing value of inflation as the inflation rate is still positive. However, this may lead to a situation where downward price movement continues and we enter a period of deflation. I believe this is highly unlikely because we are a growing economy with very young population. Moreover, we are not an export oriented economy and hence do not depend too much on external demand. Our economy is mostly driven by domestic demand and consumption, which is somewhat insulated from other countries and global events. We still have lot of room to maneuver our policies to regenerate demand and spending. Yet, with the growing globalization we too run a risk of deflation if our monetary and fiscal policies are not handled well.

How deflation can be avoided?
To counter deflation we have to revitalize our growth story, reignite demand and create confidence among people. Compare to the inflation rate, 3.92%, lending rates in India are still close to 10%, which is quite high. Unless lending rates do not come down people won’t buy properties, automobiles or other consumer goods. Moreover, corporate won’t be able to borrow money to launch new innovative projects, spend on infrastructure or build capacity. Thus, to create demand and investments, government as well as RBI has to bring down this lending rate by implementing ways to reduce cost of borrowing funds.

Hence, only monetary policy won’t be sufficient to tackle this menace; fiscal policy too has to play a significant role here. Government has to be more aggressive in implementing reforms and speeding up infrastructure spending. Let us hope better sense will prevail among our political class.

Are we going to face problems of deflation? Part 1

Since nothing is happening much on real estate front, I decided to take a look at things happening at broad macroeconomic level in India and elsewhere. The very first thing that struck me was falling inflation and fear of defaltion everywhere. Nowadays we keep on reading that global economies such as US and Europe will face severe problems of deflation due to recession. Fed fund rate in the US is between 0.00-0.25% or 25 bp (100 basis point = 1%). Inflation in these countries is close to 0. Even in India inflation is down from 12% last august to 3.5% last week. With the falling interest rates in India will we too face similar situation?

Deflation is a “sustained” fall in the general price level of goods and service below zero percent inflation. It results in an increase in the real value of money — a negative inflation rate. It is just opposite of inflation, which is the general increase in the price level of goods and services. When the inflation rate slows down (decreases, but remains positive), this is known as disinflation. Disinflation is a substantial drop in the rate of increase of the price level. Deflation should not be confused with temporarily falling prices; instead, it is a sustained fall in general prices.

Inflation destroys real value in money whereas Deflation creates real value in money.
Real Price ~ Nominal Price –Inflation
With the passage of time, the “real price” of any good or service is characterized by above equation. Hence, if it is positive inflation or normal inflation, real price decreases over a period of time. However, if inflation is negative i.e. deflation, real price increases with time. Alternatively, the term deflation was used by the classical economists to refer to a decrease in the money supply and credit.

Causes of deflation
1. Deflation is caused by the fall in aggregate level of demand i.e. there is a fall in how much the whole economy is willing to buy, and the going price for goods. Because the price of goods is falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity - contributing to the deflationary spiral. (As we can currently see that buyers believe real estate prices will fall further, thus delaying their purchase decisions. This in turn has reduced the demand for the real estate properties which in turn has reduced the construction activities. Thus, general economic activities such as cement production etc are down.)
As demand and economic activity falls, investments fall as well because corporate do not want to invest in increasing capacity as there is no demand. This leads to further reduction in aggregate demand. This is the deflationary spiral i.e. a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price. An answer to falling aggregate demand is stimulus, either from the central bank, by expanding the money supply, or by the fiscal authority to increase demand such as reducing interest rates or giving money to corporate or people at significantly lower rates.

2. In monetarist theory, deflation is related to a sustained reduction in the velocity of money (It is the average frequency with which a unit of money is spent in a specific period of time. Velocity affects the amount of economic activity associated with a given money supply) or number of transactions. This is attributed to a dramatic contraction of the money supply, perhaps in response to a falling exchange rate, or to adhere to a gold standard or other external monetary base requirement. In the present scenario it appears to be one of the prime reasons for growing fears of deflation.

3. Deflation also occurs when improvements in production efficiency lower the overall price of goods. Improvements in production efficiency generally happen because economic producers of goods and services are motivated by a promise of increased profit margins, resulting from the production improvements that they make. Competition in the marketplace often prompts those producers to apply at least some portion of these cost savings into reducing the asking price for their goods. When this happens, consumers pay less for those goods; and consequently deflation has occurred, since purchasing power has increased.

4. Deflation may be caused by a combination of the supply and demand for goods and the supply and demand for money, specifically the supply of money going down and the supply of goods going up. Historic episodes of deflation have often been associated with the supply of goods going up (due to increased productivity) without an increase in the supply of money, or (as with the Great Depression and possibly Japan in the early 1990s) the demand for goods going down combined with a decrease in the money supply.

Indian scenario – Last few years we saw massive boom in all the sectors. There was huge demand for real estate properties, IT services, Cements, Food products etc. Our economy was growing in excess of 9% and mood was upbeat. Everybody thought this growth will continue forever. Hence, corporate invested heavily in building capacity, developers invested billions of dollars in launching new projects etc. Suddenly the boom busted due to financial crisis. People lost jobs, interest rates went up through the roof and demand plunged. There was a huge mismatch between supply (more) and demand(less). This led to price correction - real estate saw over 40% drop in prices, commodities went down by over 70% and so on. Moreover, due to global financial crisis, there is acute shortage of liquidity in the market and hence less flow of money in the economy. People are holding back to their investments as well as consumption; thus, reducing velocity of money. Does it sound like symptoms of deflation?

Effects of deflation
1. Deflation leads to decrease in prices of good and services, increasing value of money. While an increase in the purchasing power of one's money sounds beneficial, it can actually cause hardship when the majority of one's net worth is held in illiquid assets such as homes, land, and other forms of private property.
2. Deflation raises real wages, which are both difficult and costly for management to lower. Moreover, falling prices and demand discourages corporations from investing. This frequently leads to layoffs and makes employers reluctant to hire new workers, increasing unemployment.
3. Deflation often follows a period of nearly zero interest rates. When the central bank has lowered nominal interest rates all the way to zero, it can no longer further stimulate demand by lowering interest rates. This is the famous liquidity trap. When deflation takes hold, it requires "special arrangements" to "lend" money at a zero nominal rate of interest (which could still be a very high real rate of interest, due to the negative inflation rate) in order to (artificially) increase the money supply.

Why deflation is bad?
While shoppers see falling prices as a good sign, economists see it as a threat to the economy or nation. Deflation hurts the economy much more than inflation. In fact a small positive inflation is good for the economy because it suggests growing demand as well as healthy economy. However, in deflationary conditions consumers postpone expenditure, because they think prices will decrease further. This decreases demand in the economy which badly affects firms, who then scale back production and investment plans, leading to job losses, further affecting purchasing power and demand, which leads to a downward spiral in the economy.

I will spend some time to find out the infamous Japanese deflation and impending crisis in the US. Will be back soon.

Exemption from service tax on property sales

The real estate industry has some more news to cheer, as the Central Board of Excise and Customs has issued a circular stating that developers do not have to take up registration or pay service tax on property sales.

The clarification is a step in the right direction, said real estate developers. With banks making interest rates more attractive, construction costs coming down with the prices of steel and cement, and prices also becoming attractive, the timing of this circular is just perfect, they said.

“This decision would definitely benefit purchasers, as they were liable to pay 12.5 per cent tax on 33 per cent of the construction cost, which actually translates to 4.1 per cent of the cost of construction,” said Mr A. Balakrishna Hegde, Former President of Confederation of Real Estate Developers’ Associations of India CREDAI, Karnataka.

The clarification has come after the CREDAI representation to the board that some States insisted that real estate developers undergo registration under the Service Tax Act and pay service tax in respect of residential complex having more than 12 units under the “construction of complex” service. Welcoming the decision, Mr Hegde said: “Our stand has been vindicated.”