Indian Property Review » kanu

Our Country will have its own housing index too

kanu — Fri, 06 Mar 2009 10:03:34 +0000

A technical advisory group (TAG) set up by the Reserve Bank of India (RBI) has recommended the creation of a Housing Start-up Index (HSUI) to be based on newly-built residential units in urban India and compiled on a quarterly basis. The central bank is likely to launch the index, work out the computation methodology and monitor its evolution.

The number of housing starts during a period indicates the demand and supply situation as reflected in conversion of building permits into actual starts. Housing starts are considered lead indicators of economic activity due to their strong forward and backward linkages with other sectors.

The TAG said the HSUI would be confined to newly built residential units in urban India, whose construction is authorised through the issuance of building permits. The start-up co-efficients should reflect the recent experience of converting the housing permits into housing starts and the number of permits issued during the past two years. The group made its recommendations after studying the practices followed in Canada and USA.

Post liberalisation, RBI has been largely looking at equity prices to keep a check on asset price inflation. The significance of real estate in the economy has increased substantially in the recent years, compelling the central bank to also look at real estate prices. The RBI had, in fact, made it more expensive for banks to lend to real estate as a counter-cyclical measure.

The Case-Shiller Home Price Indices are a useful tool for measuring the movement of nominal house prices in the United States. The index indicates the price direction by using sales data for the same house over time.

The HSUI will be initially based on co-efficient matrices constructed for the six metros.

Hamptons International now targetting Indian Residential Market

kanu — Thu, 05 Mar 2009 11:06:13 +0000

Hamptons International is one of the premier international residential agents offering an extensive portfolio of properties across the globe. It has announced a strong focus for the Indian market. Recently, it has established a leadership presence in india through its wholly-owned subsidiary – Hamptons International India. Already, it has established a strong base in markets of Delhi & NCR and Mumbai, and is also expanding marketing of select projects on a Pan-India basis.

Hamptons International in India is headed by Shruti Gupta, who is one of the most reputed professionals in the areas of real estate and investment. Hamptons India is set to provide world-class services such as sales, corporate leasing, residential develoment consultancy, lettings, global asset management and investments, etc,. Hamptons International is owned and operated as a subsidiary of Emaar Properties, one of the world’s largest real estate companies.

Emaar Properties PJSC is present in India through a joint venture with MGF Developments Ltd. It commenced operations in India in February 2005. Its primary business is development of properties in residential, commercial, retail and hospitality sectors. In addition, it has also identified healthcare, education and infrastructure as business lines for future growth. Its operations span across various aspects of real estate development, such as land identification and acquisition, project planning, designing, marketing and execution.
Some of its projects include Commonwealth Games Village 2010 (Delhi), The Meadows (Gurgaon), Boulder Hills golf and country club (Hyderabad).

Reserve Bank of India decides to cut its key rates

kanu — Thu, 05 Mar 2009 11:00:41 +0000

The Reserve Bank of India’s (RBI’s) decision to cut its key rates — repo as well as reverse repo — has renewed India Inc’s hope of fresh round of lending rate cuts by banks. Industry hopes this will spur demand from consumers, at least in interest rate-sensitive sectors such as automobile, real estate and retail.

Investors expect the stock markets to respond positively in anticipation of lower borrowing cost for companies and a possible revival in demand.

“This move is in the right direction, as financing has been our biggest concern. We hope to see the cut translating into lower finance rates because until that happens, the auto sector will continue to be under pressure,” said Pawan Goenka, president, Mahindra & Mahindra (automotive sector).

Demand for passenger and commercial vehicles has been slowing as economic growth has stalled and access to finance is becoming difficult. Car sales in January dropped by about 7 per cent to 137 ,000 units. “We can expect some cut in lending rates but it won’t be sharp,’’ said Ravi Sood, CFO, Hero Honda. “Private financiers account for only 20-25 per cent of our business while 55-60 per cent comes from public sector banks.’’

“Despite the repo rate cut announced today, I can expect our growth to settle at only 7-9 per cent in the first quarter of the next year,’’ Sood said.

Auto component makers, who have been among the worst hit because of the slump in demand, aren’t as confident. “This is a small welcome step. Banks have started financing and re-financing companies but not consumers the way they used to,’’ said Surinder Kapoor, chairman and managing director, Sona Koyo Steering Systems.

The real estate sector is optimistic of the cut translating into lower lending rates. “We believe the rates will come down and the housing demand will improve. But banks must release this liquidity to the borrowers and not invest back in government securities, which they have done in the past,’’ said Pradeep Jain, chairman, Parsvnath Developers.

Home sales have fallen nearly 70 per cent from last year’s levels as buyers are deferring purchases. Net sales and profits of most real estate companies fell 70-90 per cent in the December quarter. Property developers are cutting prices of properties, which has impacted their margins.

“The government should bring down home loan rates to 6 per cent, only then will the demand get a boost,” said Rohtash Goyal, managing director, Omaxe Ltd. “The government should have brought the repo rate down by 100 basis points and the reverse repo rate by 200 basis points.”

“This will give incentive to commercial banks to lower rates at least for short-term borrowings such as commercial papers. Since we do use short-term borrowings, it will help us,” said Govind Sankaranarayanan, CFO, Tata Capital, the non-banking finance company of the Tata Group.

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Property brokers taking advantage of the slowdown..

kanu — Thu, 05 Mar 2009 10:51:58 +0000

Property brokers are taking advantage of the slowdown in the residential real estate market by increasing the commission they charge from developers. As house and apartment sales sag, brokers, who typically charged 2-5% of the value of the property as commission, are demanding as much as 8-9%.

“The slump in sales is so dramatic that developers are willing to pay a higher commission,” says Sanjay Sharma of Gurgaonscoop.com, a website on the real estate market in Gurgaon, a New Delhi suburb. “Earlier, an 8-9% commission was given by weak or smaller developers… Now the trend is even developers of large luxury projects are giving 8-9% commission.”

According to Sharma, developers are willing to pay double the usual commission if the broker has a ready buyer. “It is not a seller’s market anymore,” says Sharma. “Buyers have the upper hand and real estate agents who can get a buyer are asking for higher commissions.”

Developers are struggling as potential homebuyers stay away from property. Slowing economic growth—estimated to drop this year to the least in six years—and more expensive bank loans have dented apartment sales and values. In New Delhi and its suburbs, for instance, inventories of unsold homes are piling up as buyers wait for prices to drop further.

A broker with a buyer who has ready cash to invest can negotiate a higher commission from developers, says Rajat Mahajan, national vice-president, commercial leasing and business development, at Century 21 India, a real estate brokerage firm.

“Real estate transactions are down by 60-80%,” Mahajan said. “So, anyone who manages to get a buyer is in a better position to negotiate.”

In the boom time between 2005-07, the housing market was so hot that some developers had even decided not to hire real estate agents to broker deals, says Sharma. “A few developers had tried to marginalize brokers and deal directly with the buyers,” he said. “In south India, developers can sell without brokers but here it is not possible… Developers have realized that and even those who ignored brokers earlier have now started to engage them.”

There is uncertainty and fear among developers and brokers, says Priyankar Bhikshu, associate director, consulting and research, DTZ India. “When the market was good, payment from developers was forthcoming,” he said. “However with payments to brokers becoming an issue, maybe brokers are demanding higher fees to cover their credit risk.”

Bhikshu says that in a way the higher commission also shows the desperation of developers to sell property. “In today’s market even the sale price is negotiable,” he said.

Real estate transactions have come to a virtual standstill, especially in New Delhi and its suburbs of Gurgaon, Noida and Greater Noida.

“While enquiries are being generated, deals are not maturing,” said Vishal Saxena of Hindustan Real Estates Pvt. Ltd, a real estate agency. “Buyers are taking a feel of the market and are waiting for prices to go down further while builders are not mentally prepared to drop prices because they think it’s a temporary phase.”

Earnings of real estate brokers have come down substantially, says Saxena. “Brokers are just sitting idle… There are no customer walk-ins or phone calls from buyers,” he said. In the last three-four months, Saxena has closed just two-three deals in the residential segment and they were all at a higher commission slab.

The fall in real estate transaction has hurt brokers more than the drop in real estate prices, says Bhikshu. “Brokers are the most impacted among all the stakeholders in real estate,” he said. “A broker who has already incurred overheads and has a shop to maintain is badly impacted.”

Not every agent, however, agrees that brokers are winning higher commissions. Kumud Girdhar, a real estate agent, says that there has been no change in the commission slabs.

“The only thing that has changed is that buyers now get a higher discount on cash down payments,” Girdhar said. Cash down payments are upfront payments for a property which is usually up to 95% of the total price of the apartment. “Earlier, the discount given was 7-8% and now this has gone up to 15%.”

Economic outlook for real estate in 2009 – Savior Group

kanu — Tue, 03 Mar 2009 08:07:37 +0000

The swearing-in ceremony of US president Barrack Obama was most watched event on television. Those eagerly looking for the new president’s taking his term included business houses and market leaders alike. Even though it is early to say what the new policies exactly look will like, there is a sense of positive optimism.

Even in India business houses are keeping their fingers crossed, hoping for a new round of economic boosters. One of the most affected sectors in the present economic meltdown has been the real estate industry.

The Indian real estate is eagerly waiting, not only for the US economy to pick up, but also for positive steps to boost the sector from the Indian government.

So what is the industry look out for 2009?

“Due to international market crunch, the market in India was also affected. But now the worst time is over especially for Real Estate. Year 2009 has started giving positive results and we hope to see the brighter part very soon. Overall 2009 should be fruitful for Real Estate.” Says the Director Mr. Sanjay Rastogi of Saviour Builders who are building a green housing project called GreenIsle in Crossings Republik, Ghaziabad. The optimism also comes from the recent measures like rate cuts. With interest rates coming down, there has been improvement in sales as compared to last year.

“There is no doubt that the Govt. has taken preventive measures and is planning very attractive scheme for different sectors. NHB has also played a great role. The cut in rate of interest in the recent past has a welcome note. Such kind of lucrative and beneficial schemes can prove wonders to the real estate industry. The rate cuts have not only made Saviour GREENISLE, but the entire Real Estate industry attractive investment,” says Mr. Iqbal Singh Sodhi, the Chairman of Saviour group.

However the government steps alone can’t revive the sector to the heights it saw in previous years. The builders too have to pitch in in a big way, cutting the prices but not compromising in quality. With sales down, many realtors have cut down the price, but the quality of homes hasalso come down with that.

This is where a good builder separates from rest. Says said the Director Mr. Sanjay Rastogi “In the buoyant market, all developers do well. It is in the downturn that the natural selection and discernment process starts and it is then that a professional developer with industry-best standards and practices benefits and gains more recognition and trust from buyers.”

“We boast and say that we don’t compromises in quality. We have considered every possible norm of building a high rise tower. We only use UPVC for doors and windows. Besides, it provides with all the day to day necessities & luxuries simultaneously like swimming pool, health club, golf course, fountain parks, jogging track, spa etc. And the most important thing is that GreenIsle is situated right next to the golf course and the lake”

Other than quality homes, builders are also pitching in with new and unique features so that their property becomes more attractive. The Saviour Group are promoting their GreenIsle project as Eco-friendly homes. “We stress more on beautification in terms of plantation of trees and plants. The greener is around you, the more eco-friendly you are. The special features of being eco-friendly is that besides the fun zones and play stations, 73% of the total Project has been left open with maximum greens around the apartments,” says Director Mr. Sanjay Rastogi.

NRI realty investments dropping….

kanu — Mon, 02 Mar 2009 12:04:49 +0000

The NRI season is now at its fag end. Despite undertaking tours to the US, the UK and Middle East and doling out freebies and discounts,realtors have been unable to catch the attention of this cash-rich community. The result: NRI investments in India-based properties dropped by over 50% this season, with the four metro cities and “NRI-heavy” mirco markets in states like Gujarat and Kerala being among the worst hit.

“Compared to last year, the drop in NRI interest in India-based properties has been almost 50% in all sectors. The metros showed a sharp drop in demand, largely owing to the steep prices”, says Sanjay Dutt, CEO – business, Jones Lang LaSalle Meghraj (JLLM), a global real-estate consultancy firm. “Very few luxury homes have been sold as compared to last year”, he adds.

At a time when the domestic demand in micro-markets in Tier-I, II and III cities began to slump in the third quarter of this financial year, the developers were hopeful that the demand from the NRIs will pep up the sentiments in the realty markets.

However, the global slowdown and the resulting slump froze the bullish sentiments among NRIs. “Though a far-from-spectacular number of transactions have indeed taken place this season, generalised job insecurity and a desire to conserve available cash among IT employees abroad has curbed investment demand for high-end properties, Mr Dutt said adding that the response was “significantly muted” from the NRI community this season.

The sharp corrections seen in some larger cities has also led to an “acute wait-and-watch attitude among NRIs who – just like everyone else – are now very price sensitive”, he explained.

Home Loans schemes not performing as expected….

kanu — Mon, 02 Mar 2009 11:51:27 +0000

Two months after lower interest rates were announced for home loans up to Rs 20 lakh, public sector banks (PSBs) have cleared only 28,000 proposals and disbursed Rs 1,550 crore under this special scheme.

For instance, India’s second-largest public sector bank Punjab National Bank (PNB) has approved only 35 loan proposals and disbursed Rs 1.70 crore under the scheme, according to data compiled by industry bodies and the government. At the other end of the spectrum is State Bank of India (SBI), the country’s largest lender, which has cleared around 6,500 applications (see table).

Under the special loan package, pushed by the government to boost real estate demand, public sector banks decided to freeze interest rates on home loans up to Rs 5 lakh at 8.5 per cent for five years. For loans between Rs 5 lakh and Rs 20 lakh, the rate was frozen at 9.25 per cent. SBI went ahead and dropped the rate further to 8 per cent for a year and others such as Central Bank of India have also responded in the same manner.

Further, borrowers can avail themselves of a loan of up to Rs 5 lakh by paying 10 per cent upfront and in case of home loans of Rs 5-20 lakh, the upfront payment has been fixed at 15 per cent compared to 25-30 per cent for other loans.

But with buyers expecting real estate prices to fall further, many are deferring a purchase for the moment, said bankers.

Up to Rs 5 lakh
Top 5 Bank	No. of loans	Amount
SBI & associates	6,970	260.57
Oriental Bank of Commerce	993	37.59
Syndicate Bank	1,528	33.68
Union Bank of India	1,228	30.15
Bank of Baroda	710	25.57
Bottom 5
Punjab National Bank	18	0.36
Indian Bank	41	0.84
IDBI Bank	65	2.14
Indian Overseas Bank	79	3.00
Uco Bank	160	3.39
Total for PSU banks	15,294	493.31

“Real estate firms are grappling with a sharp drop in demand and mounting debt repayment. They will have to reduce prices substantially to clear inventory. Once that happens, we may see some improvement in response,” said a senior public sector bank executive.

Though prices have dropped by around 30 per cent in certain pockets, buyers are more worried about the equated monthly installments (EMIs), which would come down if real estate prices dropped more, bankers said. “Interest rate is a smaller worry,” said a bank executive.

Rs 5-20 LAKH
Top 5 Bank	No. of loans	Amount
SBI & associates	4,414	375.76
Syndicate Bank	1,579	118.14
IDBI Bank	723	83.50
Bank of Baroda	659	67.35
Union Bank of India	691	67.06
Bottom 5
Punjab National Bank	17	1.34
Indian Bank	52	3.28
Uco Bank	159	9.70
Punjab & Sind Bank	129	12.30
Indian Overseas Bank	108	12.34
Total for PSU banks	12,829	1,056.90

“With the economic slowdown, many buyers are preferring to stick to rented accommodation instead of purchasing their own apartment,” another executive said.

Besides, many banks are not pushing home loans under this scheme as they are worried over their cost of funds. With funds raised at higher costs, public sector banks would see pressure on their spreads if they hawked the special scheme too aggressively, said an analyst at a Mumbai-based brokerage.

Apart from the cost of funds, banks also have to bear the cost of providing life insurance cover to the borrowers. Also, they are not allowed to charge any processing fee, which adds to the overall cost.

Bankers also said that even for normal home loans, demand has slowed down in anticipation of further reduction in real estate prices. According to the Reserve Bank of India data, the growth in housing loans dropped to 8.8 per cent for the year up to December 19, 2008, as against a year-on-year rise of 14.8 per cent in the period up to December 21, 2007. Banks sanctioned home loans of Rs 21,989 crore in the year up to December 19, 2008, as against Rs 31,780 crore in 12 months ended December 17, 2007.

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Facing a liquidity issue…

kanu — Mon, 02 Mar 2009 11:44:28 +0000

Another subsidiary of Ceylinco Consolidated is facing a liquidity issue due to the increased number of withdrawals of depositors’ funds in that company. Finance & Guarantee Company Limited of Ceylinco Group is a company which is involved in financial services including leasing, hire purchase, housing loans, personal loans, educational loans, business loans, accepting fixed deposits and savings accounts, real estate development & property development and housing construction. In the wake of concern by depositors of Golden Key Credit Card Co. Ltd., the investors of F&G have also started to withdraw their funds since December 2008.

F&G Co. Ltd. heads the Finance & Guarantee Group of Ceylinco Consolidated, along with its own subsidiaries. Ceylinco Consolidated took over in far back 1980′s the original Finance & Guarantee Company at the behest of the Central Bank of Sri Lanka, since it was marked for liquidation 20 years ago. Since its resurrection, the financial institution was however well on its way to success. It is an approved finance company by the Central Bank of Sri Lanka.

Apart from F&G Co. Ltd., F&G Real Estate Company Ltd. and F&G Property Developers (Pvt) Ltd. have been also involved in accepting fixed deposits as a ‘Return on Investment’ (ROI) scheme. F&G Real Estate Company Ltd. and F&G Property Developers (Pvt) Ltd. are not registered as financial institutions under the Central Bank of Sri Lanka.

When spoke to the key officials of the F&G Group they said that they have been accepting funds from people on the strength that both F&G Real Estate Co. Ltd. and Property Developers Ltd., related entities, are operating mega scale apartment projects and real estate projects which have been a solid investment opportunity for the last 20 years. “We offered an extra 2% to 3% per annum more than a registered financial institution’s interest rate as we had a higher return on investment in our real estate projects on sale. “ Deputy Chairman, F&G Group of Ceylinco Consolidated, Mervyn Jayasinghe told adding that investors of such projects were offered an interest payment annually based on their invested value. He went on say that company is strong enough to payback depositors on a timely basis as both subsidiaries have assets more than the deposit portfolios in all three companies.

“In all three companies the total investments of depositors are valued at Rs. 10 billion and there are approximately 6,000-7,000 depositors. We can definitely pay them back. We are not going to runaway from this country or companies. But if every investor comes to get their refund at the same time, we cannot sell our assets overnight ;not even a registered bank in the world would be able to dispose their assets immediately” Mr. Mervyn Jayasinghe said.

The official noted that there is a trend in global markets where the real estate market value comes down in every 20 years. “Now we are facing the same situation when considered the present market context. Real estate prices come down but this is the best time for real estate investments. According to Mr. Mervyn Jayasinghe the F&G Group’s real estate investment portfolio is approximately 60% of its investments.

One of the depositors’s (who did not wish to be identified) of the F&G Real Estate Co. Ltd said that the company has failed to pay the interest payments since December 2008. “They did not pay interest for deposits even at maturity. On 17th February all the depositors (approximately 200) were invited to the head office to pay back the interest payment but when the officials of the company did not do so, we encircled them and blocked their way. Later on Deputy Chairman of the F&G Group came and told us that they have three plans to overcome the issue in the company. He convinced us that one of them is to bring the F&G Real Estate Co. Ltd. and Property Developers Ltd. under F&G Co. Ltd. and regularize it under the Central Bank supervision. “The other option is to settle the depositors investments via a foreign fund worth Rs. 65 billion from a European country which is still in the negotiating process with Ceylinco Group according our sources. “ Mr. Chalaka Sanjeewa Perera of F&G told us that they are receiving some foreign funds from Vatican since last December. When we questioned whether European countries were interested in investing in companies with difficulties, the officials of the F&G were of the view that European Countries are interested in developing countries such as India, Pakistan and Sri Lanka.” Our source said that “The third option of the repayment plan is to dispose of all the assets of company “. When questioned whether the Sri Lankan ex-cricketers and cricketers have signed up for mortgage bonds against the mega assets of the company as a security for their large scale investments in F&G Group, the Deputy Chairman, F&G Group of Ceylinco Consolidated, Mr. Mervyn Jayasinghe said that “Though we have some of such cricketers signed up for mortgage bonds, the company has the authority to sell those assets and repay them their interest.”

Mr. Mervyn Jayasinghe concluded that with repayment scheme will be published in the newspapers and all these activities will be conducted in a transparent manner and that with the blessing of state financial institutions and Central Bank, the company will take immediate actions to regularize its non registered two subsidiaries. In the wake of the general scenario among Ceylinco subsidiaries and depositors’ dilemmas, the question still remains how far this ‘viral behaviour pattern’ amongst depositors affects the Ceylinco Group’s assets and subsidiaries and whether they are going to get their return back soon.

Industry status for realty sector: CII

kanu — Sun, 01 Mar 2009 21:13:24 +0000

The Indian realty sector should be accorded an “industry status” and the integrated township development activity an “infrastructure status”, the Confederation of Indian Industry (CII) has said in a report submitted to the government.

“With strong backward and forward linkages with more than 250 industry sectors including cement, steel, brick, timber, building material, the real estate and housing sector has played a catalyst role in India’s growth story,” CII said in a written statement.

“This sector has been operating under unfavourable policy and taxation environment, which has resulted in its growth potential not being fully realised,” the report said.

Industry status would bring about a major transformation in terms of outlook of the industry, stimulate investments and inculcate corporate culture and industry discipline, which will immensely benefit both economy in general and consumers in particular.

The industry status will also help the sector access bank lending at a competitive interest rate at low collateral values as against high risk rates prevailing at present.

One of the reasons of high cost of real estate and housing in India is the cost of finance.

A major part of the housing loans constitutes loans to individuals in the higher income group. Only 5-7 percent of the loans disbursed by the housing finance companies reach to developers.

In the absence of loans available from financial institutions, most of the developers access funds from private sources of finance at high interest rates, which ultimately leads to higher real estate prices.

CII in its report has also sought infrastructure status for “integrated township development”, as developers would need incentives for creating infrastructure in the country, it added.

Expressing concern over the growing shortage of houses, which is expected to cross 26.5 million dwelling units by 2011, the CII report cited availability and cost of land as the single most crucial factor affecting the cost of housing in India.

The report also strongly recommended structural reforms such as increase in the municipal limits of the existing cities, simplification of process of conversion of land from agriculture to residential and relaxation of floor area ratio (FAR).

Vishal Retail resizes stores

kanu — Sun, 22 Feb 2009 20:36:51 +0000

Retail giant Vishal Retail has capitalised on the real estate slump and successfully renegotiated store rentals for five lakh sq ft in the past three months, resulting in savings of Rs 30-lakh per month.

“On an average, we have been able to renegotiate rents by 20-25 per cent. In some cases, we have obtained up to a 40 per cent downward revision,” Vishal Retail Group’s President, Mr Ambeek Khemka said here.

Besides renegotiating rentals, the Delhi-based retailer plans to cut costs and optimise efficiencies, either by closing down, relocating or re-sizing some stores, Mr Khemka said.

Besides Delhi, re-sizing of stores into smaller, viable ones has been done primarily in Tier II and III cities such as Ranchi, Jalpaiguri, Raipur, Dhanbad, Surat, Jorhat, Aurangabad, Bareilly, Guntur, Meerut and Kolhapur, he said

“We have relocated a store in Karnal, Haryana and are doing the same for a Kolkata store,” he said. Vishal Retail has a presence in 106 cities pan-India and spread over three million sq ft, including hypermarkets and small-format stores.

It has 170 company-owned stores and 15 stores under the Franchisee-owned Franchisee-operated (FOFO) model, he said