New Land Acquisition Act to disallow states to acquire land on behalf of private sector

By Vipin Agnihotri

It has come into the notice of The India Street that acquiring cheap land by piggy riding on government’s shoulders, thanks to the Land Acquisition Act, 1894, is set to end soon. In addition, private sector companies will now have to shell out higher prices as a new Act will ensure hiking circle lands by almost 10 times.

If experts are to be believed, the new overhauled Land Acquisition Act proposes to disallow states to acquire land on behalf on the private sector. Apart from that, it also seeks to tighten the definition of public purpose for which the state has the power to compulsorily acquire land from owners-by limiting it to just a handful of sectors.

Other issues including fixing compensation packages for the displaced because of commercial and public projects will also be tackled by the new Act. When the India Street asked government official about the new Act, he said, “There are plenty of issues related to acquisition of land to be dealt with that it may not be possible to address all through amending the existing Act. The government is, therefore, seriously considering replacing the existing Act with a new one.”

At this moment of time, state governments have their own definition of what constitutes public purpose. The ambiguity may go. The new Act is expected to define public purpose narrowly by including just strategic purposes related to defence and other work pivotal to the state and public infrastructure such as electricity, mining and public facilities. Initial signs are that the list may be expanded after interministerial discussions.

In my opinion, the new Act is going to be tough on the private sector. Not only will companies won’t be able to secure government assistance in acquiring land for industrial projects, market value of the land would be suitably increased by increasing the circle rates that are at present low. “Land prices may increase up to ten times once the new rates are fixed,” pointed out government official.

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Lowering of Real Estate Prices in the Suburbs Likely

Speculators exiting the market

By Dr Suvrokamal Dutta

Excess supply coupled with rising interest rates would lead to lowering of realty price in the suburbs. It is worth mentioning in this regard that plenty of the projects, which were launched in 2005 and 2006, are likely to be finished in the next six months in Gurgaon and Noida.

The pivotal factor here is that as interest rates have shot up to around 12 percent per annum, the holding cost of these apartments after taking the possession would be very uneconomical. Because of this, these investors would like to sell and exit from the project. On the other hand, if investor holds the project for one more year, he will have to pay an interest cost of around 12 percent.

In case if investor liquidate the investment and deposits the money in a bank, he will get a return of around 10 percent. In theory, as the appreciation in the property prices in the coming years is not in the sight, holding the property for one year, is likely to cost him around 20 percent.

In my opinion, to cut loss, such investors would like to sell the property in the market. This is likely to increase the supply of real estate in the market. It has come into the notice of The India Street that the activity levels in mid-range projects in Gurgaon, Noida and Ghaziabad have diminished. If experts are to be believed, speculators have almost exited from the market. In addition, end users are also not very interested to purchase a house at this point of time because of rise in the prices and interest rates.

Taking this into consideration, one can safely say that the increased supply in the secondary market from the projects that are getting finished will push the prices downward. “The high end market has also seen some downward pressure. NCR suburbs including corridors such as the Sector Road and Expressway in Gurgaon and Noida have been very active in the last year or so,” pointed out Kadambari Murli of Sunshine consultant.

There is no doubt in my mind that increased demand based on changing demographics, rise in disposable incomes and aspirations of the upper middle class has given a much-needed confidence to developers such as DLF and Unitech to come up with new high-end projects.

DLF Looks to Conquer Bangalore and Global Airports

Dhruva Jyoti Chowdhury, Kolkata, India

With the DLF venturing into the Real Estate sector in Bangalore, the metropolitan’s realty market is set to get ‘red’ within the next few months. According to the DLF plans more than 10,000 residential apartment units in the city can be expected to come up within the next few quarters of the year. The real estate major is also focusing on coming up with a mall on a huge 2 million sq ft in the state capital.

DLF has dashed into Bangalore with a planned investment of about 3,000 crore rupees in developing the apartments stretched over 100 acres and has also possessed 80 acres of land on Bannerghatta Road and 20 acres in Electronics City. The project is proposed to get set go in the next three to four months, while the first set of apartments would be ready by two years.

Work on the mall, which is coming up in Whitefield, has already begun and will be open for commercial use in about 18 months from now. The mall is likely to be one of the biggest in the country.

Internal sources within the DLF has also informed the India Street that the company is also attempting a fresh foray into airport modernization and has associated itself with Germany’s Fraport AG Frankfurt Airport Services Worldwide, the owner and manager of Frankfurt Airport, as its partner.

A special purpose vehicle, ‘DLF Fraport SPV’, has been set up to focus on the development and management of airports in India. The shareholding of DLF and Fraport in the special purpose vehicle (SPV) will at least be 26% each.

Fraport is already present in India through the consortium it formed with infrastructure conglomerate GMR Group and the India Development Fund to bid for the modernization of the Mumbai and Delhi airports. GMR-Fraport eventually won the modernization bid for the Delhi airport in early 2006.

The SPV it has formed has agreed to jointly bid for the Chennai airport. The combined entity also plans to bid for developing and managing Greenfield airport projects including one in south Gujarat and the dedicated general aviation airport in Delhi (a general aviation airport handles private aircraft, helicopters and charter flights, apart from small cargo planes).

The two companies will also look at the upgrading and modernization of non-metro airports. There are around 35 non-metro airports in India.

DLF has been eyeing, without concrete results, airport re-development for some years. In July 2004, it tied up with the Malaysian Airport Holding Bid to bid for the privatization of the Delhi airport.

This joint venture was, however, terminated in April 2005. Later, in the year, DLF joined the consortium led by Bharti Group and Changi Airport of Singapore for the modernization and upgrading of the Mumbai and Delhi airports.

DLF also has a 50-50 joint venture with UK’s infrastructure and construction group Laing O’Rourke to execute DLF’s mega infrastructure projects. The joint venture with Laing O’Rourke will, however, not overlap with the company’s SPV with Fraport, said a DLF spokesperson.

The company which is set to raise as much as Rs9,650 crore in what will be India’s single-largest initial public offering, said it plans to sharply curb expenditure on land acquisition, down 54% to Rs3,000 crore from a previously proposed Rs 6,500 crore.

DLF owns or holds development rights for 10,255 acres, unchanged from January. Profit in the year ended 31 March rose tenfold.

DLF and its subsidiaries own 11.3% of the land reserves, they have sole development rights for 44.6% of the total. They have agreements to purchase or letters of acceptance for 35.9% of the land while the rest are joint developments with partners.

DLF owns 3.5 million sq. ft of space in completed buildings in New Delhi and its suburbs, including Gurgaon and Noida. It also holds plots of about 7.2 million sq.ft that do not form part of its land reserves, DLF said.

The National Capital Region, which comprises New Delhi and adjoining areas, accounts for 51 % of DLF's land reserves.

The real estate major has also entered into an agreement for floating a joint venture with Ranbaxy group company, ‘Fortis Healthcare’ to set up hospitals across the country with about Rs 6,200 core of investment.

Fortis will have a majority holding with 74% stake and the rest will be with DLF in the proposed joint venture.

The Joint Venture plans to set up a chain of 200-450 bed hospitals in 31 cities in India within three to five years. While the joint venture will mark DLF’s foray into the healthcare segment, for Fortis the move is a part of its strategy to become a Pan-India player in the healthcare segment and resolve real estate problems for setting up new hospitals. The planned investment of Rs 6,200 crore would go toward meeting cost of land, construction and medical equipment. The JV plans to build hospitals in cities where DLF has a presence. Already DLF has a land reserve of 10,255 acres in 31 cities.

Earlier, DLF had forayed into hotel business by tying up with US-based hospitality giant Hilton Group to set up a chain of 50-75 hotels and service apartments in India under the certain brands of the international major. The company had also entered into an agreement with US-based Prudential Insurance to set up a joint venture company to sell life insurance products in India.

Top India Banks may Accelerate Loan Pay Backs from Consumers

By Dr Suvrokamal Dutta

It’s all going downhill for housing loan customers. It has come into the notice of The India Street that if you have opted for a house loan, you may have to repay part of your borrowings or suffer very high Equal Monthly Installments (EMIs). You may ask: Why is it so? The answer is there is a scurry among banks to get rid of bad debts following successive interest rate hikes in the last two or three months.

The pivotal factor here is that private sector banks such as ICICI Bank and HDFC bank, who followed quite an aggressive strategy in the home loan segment during the low interest rate regime two years ago, are now focusing on tools like part repayment of loan or increased EMIs. They are implementing this route so that borrowers meet their liabilities before they retire.

If experts are to be believed, the bank has managed to absorb the effect by enhancing the tenure, which in large chunk of cases are limited to the active service age. However, it is worthwhile pointing that those in their late 30s or 40s will face pressure to repay part of the loan in advance.

When I contacted three prominent private sector banks (wherein the interest rate rose 4 per cent in the last year), I came to the conclusion that they are finding it difficult to manage potential defaults and have more or less resorted to asking debtors for prepayment of some part of the loan or agreed to enhanced EMIs.

In an ideal scenario, borrowers take a loan for a time period of around 15-20 years. And that is where a further enhancement in the tenure will mean that borrowers in their late thirties would have to pay monthly installments for a few years beyond the retirement age.

“The move to enhance EMI or repay a part of the loan will play a prominent part in assisting borrowers to repay the complete amount before the retirement age,” pointed out top official at ICICI bank.

When one takes a closer look at the home loan trends in last five years or so, you realize that home loan rates started moving northward sharply since October last year as the Reserve Bank of India raised short-term lending rates and the cash reserve ratio more often in order check demand and of course ease inflation. Therefore, unless the situation eases, the accelerated EMI situation may get worse before it gets better.

Cashing in on India’s retail sector

By Dr Suvrokamal Dutta

While there is no doubt that investment in Indian retail sector is not for everyone but there are ways for investors to cash in. Theoretically speaking, a budget of between Rs 30-50 lakh buys you into the rampaging retail roller coaster.

If experts are to be believed, malls are the formats that grab all the headlines- and earn the highest ROI- but you can safely forget about getting a piece of the action if you do not have a disposable nest egg of at least a crore to play with. Moreover, it is worthwhile pointing that large chunk of mall developers prefer to lease out rather than sell space within their malls.

“High-street shop space in the city centre is out too, since capital rates in Mumbai’s retail intense localities like Linking Road, Breach Candy, Churchgate and Mahalaxmi range between Rs 25,000-80,000 per square foot,” pointed out Rahil Nandan, retail expert.

Though, when you take into consideration the fact that the space ATMs occupy in flourishing market areas like Linking Road, Colaba Causeway, Bandra and Lower Parel technically qualify as retail space. While ATMs see a plenty of activity in almost any residential or business area, people need ready cash most often in retail-intense areas.

In my opinion, investing in space large enough to warrant the presence of a major bank’s ATM in such a locality is an economical option within the above-stated budget. In general, ATM occupies around 174-250 square feet. Since ATMs are small spaces, they also give rents higher than the average high street store. “Any bank that leases such a space to locate an ATM in will pay the usual interest free security deposit for 6 to 12 months,” pointed out Kadam Ali, noted business journalist based at India.

The pivotal factor here is that this money will earn you interest in the bank in addition to your future rental earnings. Once such a space has been obtained, one can approach major banks with an ATM-specific lease proposal.

In case if one’s option in South Mumbai are limited to 100 square feet or thereabouts, the scope enhances vastly if one considers the suburbs or Tier II/III markets. You may not believe at first but in a budget of Rs 40-50 lakh, one can purchase a retail space of up to 700-1000 square feet there. In my opinion, this can turn out to be extremely lucrative in both the short and long terms, since there is a definite scope for appreciation.

As is the case in any property investment, make sure that the property has a clear title and is free of encumbrances. A lawyer’s services are highly advisable in this regard.

India now has over 100,000 Millionaires

In just a few short years, India has surpassed the 100,000 mark for millionaires. In fact, India is producing millionaires at a record rate with no let up in sight. Most interesting is that almost 7% of the millionaires are under 30 years old and have almost $300 billion in assets.

Thanks to the increases in the SENSEX and Nifty, with additional help from Indian Real Estate gains, India is now on pace to have 1,000,000 millionaires within a decade. According to the 11th annual world wealth report compiled by Capgemini and Merrill Lynch, India, Indonesia and Russia are believed to have the highest growth in High Net Worth Individuals.

A lot of India’s domestic wealth creation in the past few years has been poured back into domestic real estate investments. The India Street believes this response has helped push values up in most of the Tier 1 and 2 cities.

"Robust growth in the Indian economy and a booming stock market were the key wealth drivers,'' said Pradeep Dokania of DSP Merrill Lynch. “Over the last three years, we have seen a steady rise in the number of professionals being added to the HNWI population as against entrepreneurs.''

Some of India’s recent rich are now making investments outside of India thus increasing their returns and mitigating risk. Some foreigners are even calling on the new India wealthy class to fund their investments in the US and Europe.

What does this mean for you?

With an ever expanding wealth base in India, luxury products and services will be a necessity. Currently, very few foreign luxury products exist in India due to protectionism and an ever-present Nehru socialist philosophy. Smart businesses will recognize the need for the new wealthy class to underscore their wealth by buying status symbols. High priced cars, apartments, houses, clothes, purses and other items that easily distinguish the individual from everyone else. This is human nature (especially in a rapidly emerging capitalistic country) and will eventually sweep the country as more have access to higher paying jobs and wealth creating opportunities.

The following is a list of Indians by net worth. According to the Forbes magazine, India is home to the largest number of billionaires in Asia. The following data from the Forbes World's Billionaires 2007. There are 36 Indians (inclusive of non-resident Indians) on the list.

As of 2007, the following were the 40 richest Indians according to the Forbes magazine.

Rank	Name	Net Worth (US$ bil)	Age	City	Main Source	Industry
1	Lakshmi Mittal	33.7	56	London	Arcelor-Mittal	Steel
2	Mukesh Ambani	20.1	48	Mumbai	Reliance Industries	Diversified
3	Anil Ambani	18.2	46	Mumbai	Reliance Communications	Diversified
4	Azim Premji	17.1	60	Bangalore	Wipro	ITES, Software
5	Kushal Pal Singh	10.0	74	Delhi	DLF Universal	Real Estate, Construction
6	Sunil Mittal	9.50	48	Delhi	Bharti Airtel	Telecommunications
7	Kumar Mangalam Birla	8.00	38	Mumbai	Aditya Birla Group	Diversified
8	Shashi and Ravi Ruia	8.00	62	Mumbai	Essar Group	Textiles, Steel, Shipping
9	Ramesh Chandra	6.40	n/a	Delhi	Unitech	Construction, Real Estate
10	Shiv Nadar	4.00	60	Delhi	HCL	Consumer electronics, ITES
11	Tulsi Tanti	3.70	47	Pune	Suzlon	Wind Power
12	Pallonji Mistry	3.30	76	Mumbai	Shapoorji Pallonji Group, Tata Group	Textiles, Construction
13	Anurag Dikshit	3.10	n/a	Gibraltar	PartyGaming	Online gambling
14	Paul Brant	2.30	63	Mumbai	Godrej Industries	Diversified
15	Anil Agarwal	2.10	52	London	Vedanta Resources	Mining
16	Dilip Shanghvi	2.70	50	Mumbai	Sun Pharmaceuticals	Pharmaceuticals
17	Naresh Goyal	1.90	56	Mumbai	Jet Airways	Airlines
18	Indu Jain	1.70		Delhi	Bennett, Coleman & Co. Ltd	Media
19	Venugopal Dhoot	1.60	52	Mumbai	Videocon	Consumer durables
20	Malvinder & Shivinder Singh	1.55	NA	Delhi	Ranbaxy	Pharma
21	Rahul Bajaj	1.50	67	Pune	Bajaj	Diversified
22	Jindal family	1.40	NA	Delhi, Mumbai	Jindal Steel	Metals
23	Baba Kalyani	1.20	56	Pune	Bharat Forge	Metals
24	Brijmohan Lall Munjal	1.18	83	Delhi	Hero Honda	Automotive
25	Yusuf Hamied	1.15	69	Mumbai	Cipla	Pharma
26	Sanjay Kirloskar	1.10	49	Pune	Kirloskar Group	Engineering, Construction
27	N. R. Narayana Murthy	1.05	59	Bangalore	Infosys	IT, ITES
28	Uday Kotak	1.00	46	Mumbai	Kotak Mahindra	Finance
29	Vijay Mallya	0.95	49	Bangalore	United Breweries Group	Beverages, Airlines
30	Subhash Chandra	0.90	55	Mumbai	Zee	Entertainment
31	Vikrant Bhargava	0.87	33	Gibraltar	PartyGaming	Online gambling
32	Habil Khorakiwala	0.80	63	Mumbai	Wockhardt	Health
33	Ajay Piramal	0.77	50	Mumbai	Nicolas Piramal	Pharma
34	Nandan Nilekani	0.74	50	Bangalore	Infosys	IT, ITES
35	Kiran Mazumdar-Shaw	0.71	52	Bangalore	Biocon	Biotechnology
36	S Gopalakrishnan	0.70	51	Bangalore	Infosys	IT, ITES
37	Ramalinga Raju	0.67	50	Hyderabad	Satyam	Computer Services
38	Narendra Patni	0.65	63	Boston, Mumbai	Patni Computer Systems	IT
39	Karsanbhai Patel	0.64	61	Ahmedabad	Nirma	FMCG
40	Akshay Jari	0.62	24	Delhi		Telecommunications

BAR ON OVERSEAS (ECB) LOANS FOR REALTY PROJECTS MAY GO

Sanjiv Shankaran, New Delhi

Mint

The government will revisit its recent decision to stop companies borrowing abroad for real estate infrastructure projects in July because it expects to get a better sense of whether the central bank’s inflation-fighting efforts are working by then. The government decided to block the ECB route for real estate infrastructure projects to help the Reserve Bank of India slow down the growth of money supply, which took inflation to a two-year high.

“A high-level committee on external commercial borrowings will take a look at the policy in mid-July. It’s a temporary measure (the decision to block ECB route for real estate infrastructure),” said a senior official of the finance ministry who did not wish to be identified.

In a few weeks, the government would get a better sense of inflation levels and interest rate trend, which would help it, decide if ECBs should be opened for realty companies again, the official added.

Final data on ECBs comes with a lag of more than a month. When the high-level committee meets next month, it would also be able to access accurate data on the extent of overseas borrowing in there cent past for real estate, the official said.

ECB inflows surged in 2006-07 on the back of investment demand, touching $9.1 billion between April and December 2006. In 2005-06, ECB inflows were $2.72 billion.

Realty companies were allowed to raise money through ECBs provided the end-use was restricted to the development of integrated townships spread over at least 100 acres.

Data on the extent of ECB inflows to realty companies is not available and a senior executive of a realty company, who did not wish to be identified, said “it was not so much.”

“Not much money came in through the ECB route from pure lenders,” said Avinash Narvekar, partner at audit firm Ernst & Young.

Guidance value ups Bangalore land rate by 50%

Anil Kumar M[ 19 Apr, 2007 0125hrs ISTTIMES NEWS NETWORK ] BANGALORE: Bangaloreans, prepare for a shock: Starting Thursday, the guidance value — official cost of land — in the city will go through the roof. As per a final notification issued by the government on Wednesday, the cost of residential sites has been increased by 50%, commercial properties by 60% and industrial properties by 25%. The justification given for this is: the unprecedented growth seen by the IT city and the proportionate increase in the value of land. According to property developers, the hike means the registration duty paid to the government will go up. Farooq Mahmood, a real estate developer, said: “The hike encourages undervaluing of properties. Most formalities during registration of properties will take place backdoor. The price rise is a disadvantage to both land developer and buyer.’’ The central valuation committee (CVC) of stamps and registration department has specifically also looked at posh flats and apartments. Flats with roofed car parking facilities will have to shell out an additional Rs 70,000,while those sans roof will pay Rs 50,000. “Guidance value for flats with facilities of open terrace, garden area and executive usage areas has been hiked to 25%,’’ a revenue official explained. If that’s not enough, there’s a shocker to shopping malls too: with malls mushrooming, government has decided to hike land rates by 30%. And prized corner sites have to pay an additional 10% over and above the hiked rates. Officials maintained that such a hike was long pending. “We have taken every care while revising values. It is done according to the merit of the properties,’’ sources said. A few months back, the government had upwardly revised the guidance value for Bangalore Rural district.