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.