Despite signs of the real estate market beginning to overheat, prices continue to rise in most areas, with smaller cities beginning to outstrip larger metropolitan areas. The Indian government continues to adapt and make reforms, such as lifting bans on hi-tech city projects and dematerializing sale deeds, allowing developers to continue initiating large-scale projects, keeping the interest of investors.
Policy/ Market News:
1. Real estate prices to grow in India: Ansal (Press Trust of India, August 17)
2. Gurgaon shows the way to keep a lid on slums (Hindustan Times, August 16)
3. Ghaziabad's hi-tech cities project okayed (Hindustan Times, August 13)
4. FIIs help in realty stocks’ resilience (Business Line, August 17)
5. Centre to push for online realty sales (Times News Network, August 19)
6. Commercial realty loans turning costlier (Business Line, August 16)
Corporate News:
1. DCM Shriram gets Rs 837.50 cr for land sale to DLF (Times News Network, August 16)
2. India's Sobha Developers plans 50 bln rupee township project in Kerala (AFX News, August 20)
Policy/ Market News:
1. Real estate prices to grow in India: Ansal (Press Trust of India, August 17)
CHANDIGARH: Real estate developer Ansal Housing and Constructions Ltd today said that real estate prices in the metropolitan cities will grow between 10-15 per cent while 20-25 per cent in small cities of the country during next 1-2 years.
Ansal Housing forecasted this growth despite the claims that property market in India is overheated.
"The real estate prices in Delhi, Mumbai and other metro cities will grow by 10-15 per cent and on the other hand, the prices in smaller cities will increase by 20-25 per cent," Ansal Housing & Constructions Ltd, Director, Kushagr Ansal told reporters here on Friday.
Although the overall scenario of prices in the country tends to remain bullish yet there are certain pockets in which the market has shown sign of overheating, he opined. "There are some places like Gurgaon where the real estate market has reached its peak but in other parts of the country the prices will grow," he said.
"During the development of real estate in Agra and Indore by our company, we observed that the real estate prices in these areas have increased by 20 and 30 per cent respectively," he said.
Meanwhile, Ansal Housing & Constructions Ltd on Friday announced to develop residential township in Karnal at a land of 99 acres which involve an investment of Rs 150 crore.
The company has also plans to develop such townships in Zirakpur, Jammu, Kurukshetra, Panchkula and Yamunanagar in the near future, he said. Having posted a turnover of Rs 200 crore during last year, the company expects an increase in total turnover by 60 per cent in this fiscal.
2. Gurgaon shows the way to keep a lid on slums (Hindustan Times, August 16)
Boom in the construction sector has led to the mushrooming of a large number of slum clusters in Gurgaon. Occupied by construction workers and their families, some of the slums are still there, despite an end to the construction activity in certain areas.
A resident of F Block in Richmond Park, D LF City, said, "The ugly sight of slum clusters near modern condominiums are a scar on the reputation of this upcoming city. We do not know which government agency would handle the matter. I think the developers must do something about it."
While most construction workers continue to live in sub-human conditions, reputed real estate developers have started providing dwelling units for their workers, including pucca, make-shift rooms or dormitories, drinkable water and medical facilities, mobile toilets, canteens, cr?ches and play schools.DLF Laing O'Rourke (India) Limited, which is coming up with 15 projects in Gurgaon, Noida, Delhi and other cities, has set up a model colony for its 1,200 workers on its 37-acre IT Park site off NH 8.
"Cemented family huts and dormitories, equipped with cots, mattresses, fans and light, brick roads, a 24X7 canteen with subsidised food rates, open platform for cooking, a huge open air walled basin for washing clothes, separate toilets with bathing areas equipped with septic tank and soak pit, a small playground for children, mobile cr?che, art and crafts and medical attention two days a week are some of the facilities that we provide for our workers," said Brian Emerton, Managing Director, DLF Laing O'Rourke (India).
Brian said the company has also tied up with a professional housingkeeping firm for the upkeep of the workers' colony. "Construction workers are valuable inputs and it becomes important for us to retain quality workers with our projects for longer periods," said V. K. Sehgal, Executive Director (constructions), Ansal API.
Shamsher Singh a construction worker at a DLF site on NH 8, lives with his wife and three children in one of the dwelling units set up by DLF Laing O'Rourke (India) Limited. "I earn more than what I used to as my wife also works with me, and the children are being taken care of at the day boarding facility available here. This was not the case earlier," said Samsher. Another construction worker, Ram Prakash, who joined the project on June 13 said: "I now feel like an employee who is given perks and other facilities, which is why I feel like working with more enthusiasm."
3. Ghaziabad's hi-tech cities project okayed (Hindustan Times, August 13)
Lucknow, Varanasi, Kanpur, Mathura and Agra are other cities where private developers had obtained licences to develop high-tech cities. The decision has come as a shot in arm for hundreds of investors who had invested money in the proposed townships in various pre-launch schemes announced by the builders. The Mulayam Singh government had imposed a ban on any pre-launch schemes announced by the developers, and most investors thought they had lost their money when the Mayawati government decided to review the projects almost immediately after assuming power in the state.
According to the new policy, the developers will now have to make a capital investment of at least Rs 1,000 crore to develop a township on 1,500 acres of land. "The new policy makes sure the developers put their own money," said a senior government official.
4. FIIs help in realty stocks’ resilience (Business Line, August 17)
Among the 19 equity indices of the BSE, the 12-stock Realty Index was the only one to survive today’s volatile session and finish in the green, courtesy gains in the index heavyweight Unitech (index weight 28.36), as also Sobha Developers ( weightage 2.05 per cent and Ansal Properties & Infrastructure ( weightage 2.09 per cent).
According to analysts and industry insiders, local buying and relatively lower selling by the foreign players helped the sector stocks stand out somewhat.
Mr Shailesh Kanani of Angel Broking said that over the last 15 days the real estate stocks have been under a sledgehammer.
Vis-À-vis the Sensex, the price fall of the realty counters have been pretty significant.
The stocks on average have already witnessed over 15 per cent correction.
Value buying
“I feel that some value buying had come in today which has helped the Realty index to stay in the green”.
In the first flush of sell-offs by the likes of hedge funds and certain FIIs in the past fortnight, property related stocks were not spared in their effort to partly make up for the losses in other markets and a liquidity crunch.
FIIs holding on to them
Mr Ashish Gupta, Senior Manager of the international property consultancy firm, Jones Lang LaSalle Meghraj, told Business Line that one of the obvious reasons for realty stocks faring relatively well today was FII restraint towards selling of the sector stocks.
“The Foreign Institutional Investors generally held on to their positions”.
The overseas institutional investors, who have made equity investments in emerging markets including in India, have generally been sellers in the last couple of weeks, Mr Gupta said.
But, in the case of local realty stocks, which are fairly recent (only a few months of listed life) phenomena, the value appreciation potentials have not really played out in full in a short span of time.
“Thus, as part of a sensible market strategy, foreign investors seem to have adopted a measured unloading strategy keeping long-term interest in view”, he explained.
5. Centre to push for online realty sales (Times News Network, August 19)
NEW DELHI: Forget stock markets for a moment, 'demat' could be the next buzz word for India's realty deals. In what could turn out to be a major step forward in making real estate sales far more transparent, Rajasthan government has taken an innovative approach to dematerialise property transactions.
Once dematerialised, all property deeds will reflect the authenticity of the land titles, payment of property tax and dues to banks etc., which in turn, will ensure that no buyer is duped in property transactions. What’s more, there could be online transactions of buying and selling of properties in future with the use of demat accounts.
When contacted, urban development secretary M Ramachandran said that the Centre would like to push for all innovative reform measures on the sector if they help the consumers. “Let me make it clear that the real estate is a state subject, and hence, we can’t dictate terms to the state governments.
Rajasthan has already shown some initiatives in dematerialising sale deeds. It will bring in transparency, and we would like other states to follow such models,” Mr Ramachandran said. Pradeep Jain, chairman, Parsvnath Developers said that it would prevent frauds and help genuine players in the sector.
Significantly, the Centre has been pushing for urban reforms under Jawaharlal Nehru National Urban Renewal Mission (JNNURM), and according to the programme, performing cities will receive Central grants much faster than the rest.
“Though various states have taken up reform initiatives on their own, we will shortly organise workshops to make people aware of our reform agenda. Under reform initiatives, Gujarat too has passed a legislation on public disclosure which will bring in transparency,” secretary pointed out.
6. Commercial realty loans turning costlier (Business Line, August 16)
The credit squeeze is still some distance away, but banks, particularly, those in the public sector, have pushed up lending rates to commercial realty above the current benchmark prime lending rates (BPLR).
Bankers said PSBs were pricing their loans to commercial realty upwards of 13 per cent. PSBs currently have BPLRs ranging between 12.75 and 13.5 percent. The move was taken to safeguard banks’ bottom lines. The bankers said the asset risks were on the rise, with escalating non-performing assets in the sector. Currently the NPAs in the realty are about 3.5 to 4 per cent of gross advances to the sector.
Bankers said the repricing to above BPLR was done to factor in the mounting risk element in realty sectors. Part of the risk, bankers said, was on account of the real estate developers contracting big ticket loans. The developers had transacted the loans in the hope of selling apartment blocks in urban clusters at sizeable profits. However, with banks tightening retail home loan disbursals and more stringent due diligence, developers have been unable to find buyers. Consequently, bankers said that there was fear of mounting delinquency on the commercial realty loans front.
The rate hikes for commercial realty loans were also in view of the high riskweightage assigned to the loans. Risk weightage on commercial realty sector is 125 per cent, and this would rise further after migration to Basel II. The banking sector is expected to become Basel II-compliant between March 2008 - 2009. Consequently, big ticket loans implied that the provisioning impact on the balance sheets would dent profits.
Subsequently, banks have pared their lending to realty sectors along with retail lending. This was also part of the portfolio rebalancing exercise prompted by the Reserve Bank of India and the Union Ministry of Finance early this year. Commercial realty loans are now barely 10 of the overall lending portfolios of banks.
Retail lending was only 18 per cent compared to about 30 per cent of the overall advances till last year.
Only the private sector banks were still continuing to expand their retail portfolios, in anticipation of lower lending risks. The preference for retail loans by private sector banks was largely driven by the low delinquency rates. In fact some of them have delinquency rates of less than one per cent in the retail loans. Moreover, the retail loans, bankers said, also helped defend the current net interest margins. Besides, under Basel II guidelines, retail loans had lower risk weightage of 75 per cent. Currently retail loans are risk weighted at 100 per cent. The bankers said, a reduction in the risk weighing of retail loans from next year, would enable some of the banks to unlock capital.
Corporate News:
1. DCM Shriram gets Rs 837.50 cr for land sale to DLF (Times News Network, August 16)
MUMBAI: DCM Shriram Consolidated Ltd has approved the sale of the company's 50% rights, titles and interests in SBM Land Redevelopment Project. The company signed binding agreements with BES Buildcon (P) Ltd, a subsidiary of DLF Ltd, to this effect.
The land is situated in West Delhi, about 10 km from Connaught Place.
The total project has been valued at Rs 1,675 crore. DCM Shriram has received Rs 837.50 crore “immediately” as consideration for the sale.
“We intend using the cash realized from this transaction to part fund our expansion plans and new initiatives while simultaneously enhancing the quality of our balance sheet,” Ajay Shriram, chairman & senior managing director, and Vikram Shriram, vice chairman & managing director, said in a joint statement.
2. India's Sobha Developers plans 50 bln rupee township project in Kerala (AFX News, August 20)
This is part of a public private partnership initiative with the government of Kerala, the company said in a filing to the Bombay (OTCBB:BBAO) Stock Exchange.
It added the project, which will be called Sobha Hitech City, will create an integrated city with focus on research & development, knowledge dissemination, electronics, information technology and pure & applied sciences.
Sobha Developers said it expects to create 75,000 direct jobs, both in the technology sector as well as other non-technology sectors. The project is expected to take 8-10 years to complete after receiving necessary approvals, it added.
Courtesy of the USIBC
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