Non-resident Indians are remitting more money in India

By Vipin Agnihotri

As expected by many of the experts, it’s official that Non-resident Indians (NRIs) are remitting more money back home. The India Street has been informed that individual remittances from Indians working abroad have surged 50 per cent at $8.6 billion in the first quarter of 2007-08, as compared to $5.9 billion in the year-ago period.

In my opinion, healthy NRI remittances have played a prominent part in offsetting the increasing current account deficit of $4.7 billion during the first quarter ended June this year. It is worth mentioning in this regard that although the US has seen a slowdown, Europe and West Asia have shown strong growth as a source for remittance into India.

Point to be noted here is that West Asia is riding on peak oil prices, also giving rise to a construction boom. In terms of statistic, OPEC exports touched $649 billion last year and the oil boil shows no sign of cooling.

According to sources, the inflows are surging by the day. As a matter of fact, during January-June 2007, remittances by the Indian diaspora almost touched $17 billion.

I spoke with Reserve Bank of India officials and they were of the view that during April-June 2007, NRI deposits saw a net withdrawal of $447 million, which by the way is one of the highest outflows in 12 quarters.

Initial signs are that plenty of this money is used by the relatives to invest in number of assets in the local markets as the NRI ends up earning a higher return.

It’s not really surprising that NRIs are very much interested in jumping onto the India growth story. Real estate sector has been a huge hit among them. In my opinion, majority of NRIs are buying land both as an investment and also to secure a pad for possible return home.

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Shrachi group to come up with housing complex for non-resident Indians (NRI)

By Vipin Agnihotri

It has come into the notice of The India Street that Kolkata based Shrachi group has joined hands with two non-resident Indians for a housing complex designed for Non Resident Indians and their parents living in India.

Termed as the Rosedale Garden, initial signs are that it would be a 50:50 joint venture project between Bengal Shrachi Housing Development and NRIs Santosh Mukherjee from the Infotech sector and S K Sarkar, a pharma expert. According to sources, the complex would give fully furnished apartments and promote the 'plug-and-live' concept.

In my opinion, NRIs are interested in apartments that are equipped with all electronics, modular kitchens and bathrooms in place so that they can move in without the hassle of purchasing and shifting everything to a new house. And that is where, this Rs 300 crore (Rs 3 billion) project is expected to hit the bulls eye.

The project being built on 16 acres in Rajarhat will be finished by 2010. Company has already decided that around 75 per cent of the apartments would be reserved for NRIs and their parents living in India. On the other hand, the remaining 25 per cent may be sold to resident Indians. Architect Stephen Coates of aCTa International has designed the complex. For the benefit of elderly people, the complex would have a low-rise tower with large elevators to take in equipment such as wheel-chairs as well as a separate nursing station.

Interestingly, company is not interested in bringing shopping malls or multiplexes within the complex because they are of the view that NRIs are particular about privacy and may not want to live in a complex with plenty of visitors inside the complex all the time. In addition, the complex would house convenient stores and small pharmacy stores but not any big shopping malls or multiplex. In theory, the six towers would comprise G+25 floors and 504 apartments, of which 335 have already been sold.

Furthermore, it would have apartments with up to four bedrooms and star apartments with more than four bedrooms and a swimming pool. Prices would be in the range of Rs 50 lakh (Rs 5 million) to Rs 1.30 crore (Rs 13 million) per unit. If company sources were to be believed, Rosedale would house a business centre, travel bureau, a medical unit with ambulance, office spaces, cafeteria and sports facilities.

The 800 crore Shrachi Group of Companies is involved in businesses as diverse as agro-machinery, engineering, real estate, information technology and medical services. In terms of experience, Shrachi Group has around 10 years of experience with proven track record in delivering top-notch real estate solutions. The group has constructed wide array of reputed residential and commercial buildings - Shrachi Gardens, Shrachi Abasan, Shrachi Ushabas, Shrachi Manor and Shrachi Niket, to name a few.

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Indian Banks Not Playing Fair with Home Loans?

By Dr Suvrokamal Dutta

Amidst hardening interest rates and rising defaults, it has come into the notice of the India Street that Indian banks are inserting new clauses in their home loan agreements to protect balance sheets.

If experts are to be believed, while few have stopped giving fixed rate loans beyond a few years, a number of them have set an early reset clause while others are putting in a lock-in period within which fixed to floating and floating to fixed switch cannot take place. In my opinion, all these changes will make life difficult for borrowers, who are already coughing up higher EMIs.

“Borrowers who have taken home loans on floating rates of interest have seen them increase by three to four percentage points in the last 18 months to around 10-12 percent,” pointed out Saddia Abid, home loan expert. There is no doubt that with rising rates, new borrowers are looking at taking fixed-rate loans while existing borrowers are thinking of a switch from floating to fixed rate loans despite the higher rate. Though, point to be noted here is that banks are designing the loan documents to discourage this.

It is worth mentioning in this regard that a fixed rate loan is aimed at protecting the borrower against the risk of rising interest rates. But a reset clause will enable banks to charge a higher rate at the time of the reset in the event interest rates move up.

Theoretically speaking, state owned IDBI Bank and Union Bank of India do not offer fixed rate loans above five years. Some of the bank officials feel that the fixed and floating rate concept is slowly losing its relevance. “In the last two occasions, we have not raised interest rates for existing floating rate customers, which means their loans have been at a fixed rate of interest even as interest rates have moved up in the system,” pointed out MV Nair, Chairman of Union Bank of India.

Plenty of other banks are giving a long-term fixed rate option with a reset clause. Not so long ago, Bank of India minimized its reset option on fixed-rate home loans from ten years to five years.

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Editor Musings – India High Net Worth Individuals, New Videos and Other Updates

Starting this week we will be starting a couple of new things I’d like to share with our readers. First, our series of video interviews that are meant to be entertaining yet educational yet maintaining our purpose here which is to give you information to make intelligent investment decisions. Second, like the Robb report in the US, we want to start offering a look at how Indian high net worth individuals spend their money inside of India and around the world. We’ll start slowly, but we want to better examine the habits and spending activities of India’s super rich. Speaking of India’s super rich, KP Singh became India’s third rupee trillionaire after DLF’s stock rose sharply after the IPO. Incidentally, the other rupee trillionaires are Mukesh and Anil Ambani.

India Telecom Industry

India’s telecom industry’s profit is ahead of the US, Japan, France, Australia, Switzerland and a lot of other Western countries. The latest Merrill Lynch report gives high marks to the Indian Telecom industry management.

NRI’s and the Stock Market

NRI’s are starting to put more money into India Stocks. As NRI’s inherit money or land from their relatives, they are selling the land off and buying stocks. That may explain some of the recent performance of the stock market, but here we tend to believe it’s just good fundamentals. It appears NRIs are largely investing in IPOs (which we cover extensively here) and buying shares in the market. These investments have increased from over $350 million in 2000 to over $6 billion in April 2007.

Interestingly, the largest amount of money goes into bank stocks calculated at $3 billion at the end of 2006. The RBI data shows 3% of the remittances by the NRI are invested in stocks and 54% is used for family care. The remaining amounts are spent on other assets like real estate, bank deposits, and other investments.

Private Equity Deals Top China

According to Thomson Financial, in the first 6 months of 2007 India saw nearly 30 Private Equity deals worth 2.5 billion (USD) compared with 68 deals totaling 2.3 billion for all of 2006. India ranks 16^th globally in terms of completed private equity deals and above all of the BRIC countries (Brazil, Russia, India, China) – That in itself is an amazing statistic given our belief that China has a 10 year start on India. The globe is voting and India is the preferred destination for Private Equity deals.

Why did Starbucks postpone their plans of Entering India?

I do not know whose idea it was to reject the application for Starbuck’s entry into India, but I can tell you that it will hurt India not help it. How, you might be thinking can one rejection hurt India? Well when politics are involved (Starbuck’s application was rejected by the Foreign Investment Promotion Board and Commerce Ministry on account of unclear proposed equity structure for India operations). Other foreign retailers watch these political decisions and put their India plans on hold. If you want further proof, ask Harley Davidson why it took so long to get Harley’s into India. It took an Indian mango to break the impasse.

Starbucks is working with partner New Horizons, however, the Joint Venture supposedly violated FDI norms as Starbucks was not an equity partner in the Joint Venture. Speaking from experience, this is a load of bunk and in my opinion the delay is meant to allow homegrown coffee chains like Barista and Café Coffee Day to further gain market share. As a Starbucks chain will really hurt the domestic chains due to their much more efficient supply chains and management structure. Politics is clearly in play and should be immediately sidelined. Do you honestly think the Starbuck’s India attorneys didn’t advise Starbucks of FDI norms prior to their submittal to Foreign Investment Promotion Board?

REBI to Reach out to NRI’s

Bangalore’s Real Estate Bank International (REBI) plans to reach out to NRI’s an investment of Rs. 250 million. REBI currently has offices in the US, Sri Lanka, UAE, Singapore, Malaysia and Australia that enable easy real estate service information. It is expected that REBI’s domestic network will be expanded to 3000 franchises over the next three years. REBI offers brokerage, financial and relocation services to sellers and purchasers of property.

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RBI working overtime to minimize liquidity in the face of relentless forex inflows

It has come into the notice that the Reserve Bank of India (RBI) and the government are working on new methods to minimize liquidity in the face of relentless forex inflows without only relying on instruments such as the cash reserve ratio (CRR).

In its recent currency and finance report, released last week, RBI said there is a requirement to explore further instruments or options for liquidity management, particularly in the context of a move towards fuller capital account convertibility.

“The government and RBI are looking at new options to counter liquidity,” pointed out a official at RBI. He also added that RBI would prefer using a ‘series of approaches with existing instruments’ without shutting off any one option completely, the source said.

Theoretically speaking, RBI has number of options to take into account and it can use a combination of measures to tackle forex inflows and liquidity. According to experts, these include diversifying a part of its foreign assets into non-sovereign assets like China has done, enhancing substantially the incremental CRR, go for a freer float of the rupee or even look at a disguised Tobin Tax to discourage the inflow of short-term hot money. It is worthwhile remembering that Tobin Tax is a levy on currency trades across borders to discourage short-term speculation in currencies.

The pivotal factor here is that last month; China’s new state investment agency invested $3 billion of its forex assets in US private equity firm The Blackstone Group. If experts are to be believed, these are unusual times, such unusual options can be looked at. But fact remains that such a proposal is fraught with risk since sovereign funds parked in such vehicles would expose RBI not only to currency risks but also to equity risk. “The list of entities that RBI can invest in can be expanded to accommodate not just sovereign debt but triple-A securities,” pointed out Kadar Khan, noted analyst based at India.

In my opinion, RBI can look at hiking CRR on incremental flows, rather than total deposits, as suggested by SS Tarapore, chairman of the committee on fuller capital account convertibility. In an ideal scenario, incremental CRR prescribes a reserve ratio based on the extent of growth in deposits. “The impact of this is in stemming excess liquidity in banks showing high growth without penalising the entire system,” pointed out official at finance ministry.

While there is no denying the fact that commercial banks are not needed to presently maintain incremental CRR, in the past they were required to maintain a 10% incremental CRR on non-resident deposits to reduce the liquidity created by flow of funds from NRIs. “The option of using dollar swaps to manage liquidity becomes limited as the rupee gains strength. RBI will not close the CRR option. It will look at augmenting its existing instruments to tackle inflows and liquidity, “ pointed out highly placed source at RBI. For instance, a slew of auctions will be conducted this week. This normally does not happen often.

Besides, with a 60% appreciation in the ECB limit from $14 billion to $22 billion in a single year, it significantly contributed to forex inflows. Whatever the options are, the time is now ripe for RBI to experiment, given that inflation is under control at 4.68 percent.

Source: The Economic Times.

Indian government all set to introduce a lock-in for NRI real estate investors

by Vipin Agnihotri Indian government is planning to plug another potential source of foreign funds for the real estate sector. It has come into the notice of The Indian Street that Non-resident Indians planning to invest in real estate projects ahead of initial public offers could face a three-year lock-in along with foreign institutional investors (FIIs). Talking exclusively to The India Street, one government official said that Indian government is planning to introduce a lock-in for pre-IPO FII investors in realty companies in bid to prevent a possible real estate bubble. In addition, the restrictions are also aimed at checking sudden flight of capital. "By putting a lock-in period for NRIs, the government could also effectively discourage the promoters' own funds coming into the company through the NRI route," pointed out Sadrnagi Parkash, CEO of Sadrangi associates. The pivotal factor here is that Indian promoters are generally known to use NRIs as fronts to get their own money abroad invested in their companies. And that is where a lock-in period might act as a deterrent for promoters bringing such funds through the NRI route. According to experts, the Indian government is likely to amend the Foreign Exchange Management Act to make all pre-IPO investments face a three-year lock-in. Though, the other conditions such as minimum capitalization and area of development will be limited to foreign direct investments. It is worthwhile remembering that real estate companies, which are planning to hit the capital market, will have to tweak their plans to meet the proposed norms, expected to be notified shortly. Few of the real estate companies that have sought permission for making pre-IPO placement to FIIs have been told to wait till the government finalizes the foreign investment norms for the real estate sector. "Up to 100% FDI is allowed in realty projects with certain conditions like a three-year lock-in on investments, minimum capitalization of $5 million and development of at least 10 hectares of land. These conditions are applicable on all foreign investors, including NRIs," pointed our Kangana Rawat, real estate expert. Not so long ago, there were differences between the Department of Industrial Policy & Promotion and the finance ministry on the treatment of pre-IPO placements. In theory, DIPP had favoured treating pre-IPO placement to FIIs as portfolio investment. Though, the Reserve Bank and the finance ministry were of the opinion that pre-IPO investments by FIIs cannot be treated as portfolio investment and the FDI norms be adhered to. Point to be noted here is that nearly half of the over $4-billion foreign investments, which came in real estate sector in 2006, was through private placements.

Technorati : Lock In, NRI, Stocks, investors, real estate

Chennai Tops Real Estate

By Dhruva Jyoti Chowdhury

Kolkata, India: In the last decade, when the realty all over the country witnessed a major boom, the price rise of land in Chennai did not rise as sharply as they did in the other metros. That reputation, of being a relatively sober market, has taken a U turn now.

The realtors believe that nearly 1,000 medium and large residential housing projects are coming up within a short span and importantly the buoyant interest rates on housing loans have not dampened the market spirit. That’s the reason for which developers are now occupying even the industrial wasteland which extends from the northern to the western part of Chennai.

SSI Limited has acquired one of the oldest industrial landmarks of Chennai, the Buckingham and Carnatic Mills in Perambur, for a real estate project. SSI is building 5,000 apartments on a 70-acre plot. The 1,000 crore rupees project, with landscaped grounds is projected to change the face of the area which was once a working class suburb. Further SSI expects to build 1,000 apartments, priced between Rs.30 lakhs and Rs.40 lakhs, every year for the next five years. Integrated townships along the GST Road, on the Tambaram-Velachery Road, at Valasaravakkam, Sriperumbudur, Vandalur and at Siruseri is also on the planning list of SSI.

Added to this is the government's move to open up Foreign Direct Investment in the sector. Moreover, the Securities and Exchange Board of India (SEBI) has approved guidelines for the Real Estate Mutual Fund, a scheme to facilitate investments in real estate property which will cause prices to spiral out of control.

Growing economy, participation of foreign investors, younger age groups dominating in population and growth of service sectors have made a positive impact on the scenario of Chennai properties. A large number of NRIs have also contributed in the real estate in Chennai. In order to provide a further impetus, both the Centre and the State government has coughed up 200 crore rupees in initiating building a six lane Chennai bypass Phase II, a cloverleaf structure close to the airport that will directly connect the city to different National Highways by 2008.

The average age of prospective clients now has dropped to 28-35 years as compared to about a decade ago when planning to purchase a house was done on the verge of retirement from services. For travelers who combine business and leisure several up-market hotels have been built in recent years. Feeling the heat, international players such as Courtyard Marriott, Radisson, Hilton and Le Royal Meridien have a visible presence in Chennai while another cluster of international hotels are in the queue.

The rates of land being acquired vary between considerable ranges. The land on the lower side consisting of areas in Mogappair East and West is between 1500 to 1700 hundred rupees per sq.ft while the higher side is 3500- 5000 rupees per sq. ft. in areas like Besant Nagar, Nungambakkam and Mylapore.

Feeling the heat Hiranandani group a Mumbai based builder has already invested more than 2000 Crore in the last few months. Besides the ETA group, DLF and several others have already crossed the 400 Crore mark in the city. This elite group includes Chennai-based realty developer Arihant Foundations in joint venture with J P Morgan. Jain Housing and Constructions Limited have more than 3,000 dwelling units covering more than 2 million sq ft. Its current projects involve another 2.5 million sq ft apart from the other national players in realty including Ansal Properties and Infrastructure limited, K. Raheja Group, Bengal Ambuja Housing Development Limited Prestige Group.

The Non-Resident Indians are the most important property buyers in the city. This NRI constitutes the core of the ‘high value’ market in the real estate sector.

This boom is also paving way for the most ultra modern facilities in every nook and corner of the entire city. The developers also seem to be keen on the fact that the owners should get world class amenities and a quality of life that would be virtually impossible in an ‘independent house’. Swimming pools, penthouses, round-the-clock security, landscaped gardens, play areas for children, ATM-banking facility, open-air theatre, shopping arcade, swimming pools and health clubs, ATM-banking facility, open-air theatre, shopping arcade, play areas, swimming pools and health clubs since most of the projects are located on the outskirts, every need of the residents had to be met in order to make it a self-contained township.

Flats are not the only kind of dwelling units coming up in Chennai. For those who have high levels of disposable income, there are builders and promoters who offer "independent" houses, different from the bungalows of yesteryear. For instance, Isha Homes offers middle-class villas with all facilities. The project, located near the nerve-centre of the IT corridor, provides dedicated Internet connections, apart from a common sewage plant, black-topped roads and other facilities on the campus.

Ravichandran, a civil engineer, started his business in 1997 by building in the range of about 25,000-30,000 sq ft per project. In contrast, True Value Homes' Park Villa projects, a "premium project launched two years ago at Perungudi close to the IT corridor is spread over more than 5.25 acres. It consists of 288 dwelling units. Built adhering to the principles of Vaasthu Sastra, the project has virtually created a mini township.

It is now building residential complexes of 1 million sq ft. land prices in the area shot up from Rs.5 lakhs an acre to Rs.50 lakhs an acre since the past project was completed. True Value Homes, like other big property developers, is building an IT Park at MRC Nagar with a capacity of 4 lakh sq ft. The company is also planning a 100-acre satellite township near Tambaram. Experts predict that that the building activity will soon reach Mahabalipuram, about 60 kilometres from Chennai.

Looking at the vast potential of the Chennai market, The Chennai Metropolitan Development Authority (CMDA) plans to implement a `single window' system for processing building plan applications quickly. The idea is to provide a ‘one-stop shop’ for all the approvals for real estate. Even the State government is not lagging in poking its nose to fill up their empty coffers. Recent reports have indicated that Government acquired about 7,000 acres for the establishment of a satellite town outside Chennai estimated over 30,000 acres.

Presently, an apartment in Velchari, Chennai with 28800 sq ft is costing around 10,08,00,000 rupees. These are 2 And 3 Bedrooms with Power Back-up, Lift, Rain Water Harvesting, Three Phase Power Supply, Stilt +Four Floors and Covered Car Parking. A 3 Bedroom deluxe apartment in Harrington Road with 1776 sq ft, is costing around 4500 rupees per sq ft. The apartment consists of large sit out, building with swimming pool, 24 hrs security, covered car park, on the sixth floor (not the top floor).

Thirunmiyur Apartment in Valmiki Nagar is build on 1213 sq ft and is a 2 Bedroom flat on the 1st floor, with a very large bathroom, apartment complex built on 13.8 grounds (33,317sft). Very near to the sea beach is one of the best location of Valmiki Nagar, as per the builders opine. The apartment is being offered for 56 lakh.

Even the commercial spaces are not lagging far behind in this money race. A 900 sq ft basement office space in a good commercial complex in Nelson on Manikam Road is being offered for about 45 lakhs rupees. Near Arumbakkam Spencer's Daily Total 3,795sft land area with 2,876sft Bungalow, 4 Bedroom with servants quarters well designed, in good condition is available for. 1.60 Crores. (Total price for Land and Building).

A 2000 sq ft new apartment for Sale in Alwarpet with 3 bedrooms with balcony in every room, separate dining and drawing room is being offered for about 9000 rupees per sq ft. At present the total area under development is around 32.5 million sq. ft.

Ascendas Industrial Park 1.0 million sq. ft. Mahindra Industrial Park 0.2 million sq. ft. Ambattur 0.2 million sq. ft. City 7.3 million sq. ft. Ramavaram 3.5 million sq. ft. Old Mahabalipuram Road 19.3 million sq. ft.

Areas and Land being developed for Real Estate, at present

After labeling all pre-IPO investment or private placement to foreign institutional investors (FII) in real estate companies as FDI, the government has now decided to bar real estate companies from issuing depository receipts (ADRs or GDRs). The logic of the move is simple. All foreign investment through GDRs and ADRs is to be treated as FDI, which is subject to a three-year lock-in, in the case of real estate companies. A host of restrictions including minimum project size in terms of area and a lock-in period were imposed to keep out speculative foreign capital. They did not take into account the fact that real estate companies could be listed. The FDI norms for the real estate sector framed in 2005 were clearly designed for the simplistic situation of single projects from unlisted companies hence the government is becoming entangled in micro regulation.