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January 3, 2007

Indian real estate boom of 2006 to further roll in 2007

Filed under: News — admin @ 6:25 am

New Delhi, January 03, 2007 - The real estate boom of 2006 is set to multiply itself in 2007 to get India a foreign capital of over Rs. 8000 crore with leading international investors establishing their presence in its richly rewarding real estate development, providing new employment opportunities for over 2 lakh skilled and unskilled workforce, according to estimates made by The  Associated Chambers of Commerce and Industry of India (ASSOCHAM).

According to ASSOCHAM, overseas real estate giants such as Royal Indian Raj International, Blackstone Group, Goldman Sachs, Emmar Properties, Pegasus Realty, Citigroup Property Investors, Lee Kim Tah Holdings, Salim group, Morgan Stanley and GE Commercial Finance are likely to bring in a collective capital of US $ 80 billion investments to suitably reward  them benefits with India’s opening up of its real estate sector to 100% FDIs.

The ASSOCHAM  estimates point out that the US-headquartered investment bank Morgan Stanley already forayed into India’s booming real estate sector in March 2006 through its real estate investment arm Morgan Stanley Real Estate investing Rs 300 crore (around $68 million) in Mantri Developers Pvt Ltd, a Bangalore-based real estate developer. Morgan Stanley plans to invest more than $1 billion over the next 4-5 years in the Indian real estate sector.

It also points out that Tishman Speyer’s tied up with ICICI Bank to invest $1 billion in the country, while Kotak India Real Estate Fund closed its domestic tranche raising $100 million and this trend will continue to lure many more such investors to retain their interests in domestic real  estate business.

The Chamber is of the view that as the government allowed 100 per cent Foreign Direct Investment in real estate, an efficient regulatory framework, simpler tax regime and proper regulations are imperative to boost public-private participation and bring in managerial and technical expertise.

According to findings, the biggest US pension fund, CalPERS, hedge fund Farallon Capital Management, US-based developer Tishman Speyer and NRI fund Trikona Capital too have drawn plans to invest in the booming market. Domestic funds including Kotak Realty Fund, HDFC India Real Estate Fund, Pantaloon Retail’s Kshitij Real Estate Fund and UTI Venture Fund were also very active.

The two most active investor segments were High Net Worth Individuals (HNIs) and Financial Institutions. Both these segments were particularly active in commercial real estate. With the rules related to investing and repatriation relaxed to a large extent, an estimated 25 million Non Resident Indians (NRIs) living across 125 countries are investing in immovable property in India. NRIs have been keener in investing in residential properties than commercial Properties.

Strong economic growth, rising income levels, growing middle class, increasing urbanization and improving transparency brought resurgence for the Indian real estate sector in 2006 which will continue to grow further in 2007 with easy availability of financing facilities growing still further.

The Chamber forecasts that real estate growth will go from $12 billion in 2005 to $90 billion by 2015. Greater integration with the global economy and the increase of domestic as well as foreign investments are encouraging demand for real estate. Despite ill found doubts of a bubble, foreign investors are lining up.

While HDFC introduced real estate mutual fund in its sector specific mutual funds, Industry major Parasvnath Developers Limited came up with Initial Public Offer, DLF decided to bring IPO, Global big names such as Morgan Stanley, Lehman Brothers, HSBC and ABN Amro queued up to pick up stake in local realty firms, Year 2006 truly belonged to Realty.

Though criticized as an opportunity for the builders to grab land, Special Economic Zones offered tremendous opportunity for the Industry both for the commercial sector as well as for the industrial and logistics sector. The government finalized the guidelines for the development of social infrastructure, besides setting criteria for developers. The Reserve Bank of India directed commercial banks to treat exposure to Special Economic Zones as lending to commercial real estate sector. “However, there is case for relaxing the guidelines for the sector”, stated ASSOCHAM President, Mr. Anil K Agarwal.

According to Chamber, emergence of IT and ITES sector and organized retail are the major growth drivers. Growth of IT and ITES created vast demand of office space and appearance of malls all over the country tendered huge scope for land development. Analysts peg the total demand for commercial office real estate in Bangalore, Chennai, Delhi-NCR, Mumbai, Pune, Hyderabad and Kolkata alone to be over 25 million sq ft in 2006.

Booming hospitality with the booming economy brought additional reasons to cheer for the Real Estate developers. Tier II cities such as Nagpur, Ahmedabad, Vadodara, Indore, Raipur, Jaipur, Agra, Siliguri and Kochi emerged as investment destinations in the current real estate scenario. The development of suburbs such as Navi Mumbai also generated immense opportunities.

“With stock market being highly volatile, investment in real estate has begun to look attractive and competitive with typical yields being 20-25 per cent per annum. Real estate will offer a good investment alternative to stocks and bonds over the coming years” added the President.

Markets also welcomed real estate with a cheer. The public issues of Parsvnath Developers and Lanco Infratech was oversubscribed by more than 50 times and 10 times, respectively. Parsvnath Developers Ltd. made a debut at 80 per cent premium to the offer price of Rs 300 on the BSE. The stock opened at Rs 540 on the BSE. The initial public offering of Sobha Developers Ltd was also subscribed 108.51 times on the bourses.

Eredene, a private equity fund raised $ 100 million earlier this year followed by another private equity fund Trinity Capital, which raised $500 million through AIM. Ansal Properties & Infrastructure Ltd, garnered Rs 681.75 crore through QIP, the overall book was subscribed by over two times. IVRCL Infrastructures & Projects Ltd raised Rs. 555 crore in a private placement via QIP route. The issue was oversubscribed multiple times. IVRCL is the first infrastructure construction company to raise equity through the QIP route.

January 2, 2007

ICICI Bank raise home loan interest rates

Filed under: News — admin @ 6:21 am

Mumbai, January 02, 2006 - ICICI Bank, India’s largest private sector bank, has raised home loan interest rates by half a percent across all tenures with effect from December 18. Other lenders have not yet followed suit.

ICICI Bank’s floating reference rate (FRR) has been increased to 10.75 per cent from 10.25 per cent. For disbursements already availed on or before December 17, 2006, the change in the rate of interest will be effective from the next reset date i.e. from January 1, 2007. Existing fixed rate customers whose loans are fully disbursed, will, however, not be impacted by the increase and their contracted rates will remain unchanged, the bank said.

The increase in rates will apply to existing customers while new borrowers can still get a loan at the old rate. Here is what ICICI Bank says in a FAQ on its website;

I am an existing customer, why is the rate of interest higher than the new customers?
The rate of interest depends on the prevailing rate at the time of disbursement. It could also be different because of special schemes offered by ICICI Bank from time to time.

Are you an existing customer and appalled by your bank’s treatment of existing customers? Let your displeasure be known to your bank and ultimately vote with your wallet.

January 1, 2007

Government forms company for land acquisition in West Bengal

Filed under: News — admin @ 6:24 am

Kolkata, January 2007 - The West Bengal government has floated a company ‘West Bengal Land Holdings’ to acquire acres of land required for industrial projects and SEZs in the state.
The company will be a subsidiary of WBIDC. The state of West Bengal in Eastern India is required to acquire 44,000 acres of land for approved projects such as the Tata Motors car project in Singure (997 acres) and Salim Group of Indonesia’s multi-product SEZ (22,500 acres) amongst others.

Land acquisition has become a political hot potato, with protests by those being dispossessed of their lands and a number of political parties opposing large-scale acquisition. The formation of a company to create a large land bank will allow the State to make good on commitments to the investors it wishes to attract.

RBI seeks improved system for realistic valuation of properties

Filed under: News — admin @ 6:23 am

Mumbai, January 2007 - The Reserve Bank of India has written to all commercial banks asking them to put in place a system/procedure for realistic valuation of fixed assets and also for empanelment of valuers for the purpose. Specifically, RBI has asked that banks should have a Board approved policy in place for valuation of properties including collaterals accepted for their exposures.
RBI has observed that different banks follow different policies for valuation of properties and appointment of valuers for the purpose. The issue of correct and realistic valuation of fixed assets owned by banks and that accepted by them as collateral for a sizable portion of their advances portfolio assumes significance in view of its implications for correct measurement of capital adequacy position of banks.

According to RBI’s guidelines, the valuation should be done by professionally qualified independent valuers i.e. the valuer should not have a direct or indirect interest. Also, banks should obtain minimum two independent valuation reports for properties valued at Rs.50 crore or above.

Banks should have a procedure for empanelment of professional valuers and maintain a register of ‘approved list of valuers’. Banks may prescribe a minimum qualification for empanelment of valuers. Different qualifications may be prescribed for different classes of assets (e.g. land and building, plant and machinery, agricultural land, etc.). While prescribing the qualification, banks may take into consideration the qualifications prescribed under Section 34AB (Rule 8A) of the Wealth Tax Act, 1957. Banks may also be guided by the relevant Accounting Standard issued by the Institute of Chartered Accountants of India.

In addition to the above, RBI has asked the banks to keep the following aspects in view while formulating policy for revaluation of their own properties.

i) The extant guidelines on Capital Adequacy permit banks to include revaluation reserves at a discount of 55% as a part of Tier II Capital. In view of this, it is necessary that revaluation reserves represent true appreciation in the market value of the properties and banks have in place a comprehensive policy for revaluation of fixed assets owned by them. Such a policy should interalia cover procedure for identification of assets for revaluation, maintenance of separate set of records for such assets, the frequency of revaluation, depreciation policy for such assets, policy for sale of such revalued assets etc. The policy should also cover the disclosure required to be made in the ‘Notes on Account’ regarding the details of revaluation such as the original cost of the fixed assets subject to revaluation and accounting treatment for appreciation / depreciation etc.

ii) As the revaluation should reflect the change in the fair value of the fixed asset, the frequency of revaluation should be determined based on the observed volatility in the prices of the assets in the past. Further, any change in the method of depreciation should reflect the change in the expected pattern of consumption of the future economic benefits of the assets. The banks should adhere to these principles meticulously while changing the frequency of revaluation/method of depreciation for a particular class of asset and should make proper disclosures in this regard.

Bangalore apartment on sale at Rs 15 crores

Filed under: News — admin @ 6:19 am

Bangalore, December 24, 2006 - Bangalore-based Century Group is offering ultra-luxury apartments in the posh Palace Orchard area priced at between Rs.12 to 15 crore per apartment. The project will be launched next month and is to be completed by mid-2008.
“The plush apartments will boast the best-of-breed in each category - Poggenpohl kitchen solutions, Dornbracht bath fittings and Gaggenau home appliances,” according to Ravindra Pai, Director, Century Group. The four bedroom apartments will come up in a complex containing 8 apartments on 20,000 sq.ft. The company is also planning to develop another similar project in Koramangala.

The company has reportedly signed up New York based Handel Architects for the ultra-luxury apartments project.

The Century Group is planning to develop part of its land bank and is working on various other projects including a 650-apartment project on 8-acres in Mysore road, an 80-room hotel on Race Course road and a retail complex on Tumkur Road. The Group is also looking to open eight service apartments under the Century Nesters name by mid-2007.

Century Building Industries, a real estate arm of the Century Group, had earlier in October launched their first residential project - Century Corbel, offering 2 and 3-bedroom apartments on a 2-acre plot on Bellary Road.

December 1, 2006

Mumbai property prices keep on rising

Filed under: News — admin @ 6:48 am

Mumbai, December 2006 - According to a recent news report, an apartment in Cuffe Parade in Maker Tower B was recently sold for a rich Rs.73,000 per square feet. Some even expect prices to touch Rs.80,000 per square feet for prime South Mumbai apartments.
Areas of Mumbai such as Walkeshwar and Peddar Road see transactions upwards of Rs.50,000 per square feet. Prices in Navi-Mumbai are at the levels that were prevalent in Andheri a few years ago. In Juhu, you would need over Rs.1.5 crores to close a deal on a 2 bedroom apartment. And with prices on the upswing, sellers are literally putting prices up by the week.

Many real estate sources indicate that the number of transactions in the secondary market has come down 8% to 25% versus a year ago. Primary market sales continue to hold strong. What fees realtors are losing in transactions, they are making up in higher value as well as a booming leasing market.

How high can Mumbai property prices go? If one takes the prevalent sensationalism as an indicator - one sale at a high price driving prices in the neighbourhood upwards - it does seem very much like bubble behaviour. Many industry sources privately believe that a correction might be indeed be around the corner. Y.V.Reddy, Reserve Bank of India governor, told the Financial Times about the Indian real estate market “We don’t take a view as to whether there’s a bubble, but there is slight discomfort that asset prices have been moving too fast.”

According to real estate services firm CB Richard Ellis, Mumbai and New Delhi now occupy 7th and 11th place in a global ranking of the most expensive business locations. They were at 15th and 36th position a year ago. This is most certainly not a record to be proud of.

With high real estate prices eroding Mumbai’s competitiveness, it is only a matter of time before measures are put in place to correct this situation. We are already seeing additional supply through redevelopment of mill land and the rise of new cities/townships such as Navi Mumbai. Reform of the Urban Land Ceiling Act is also being talked about.

According to the same news article, a resident in Maker Tower B paid an additional Rs.7 crores to move from a lower floor to a high floor in the same building. When the price differential between floors of the same building in Mumbai is alone more than the cost of a bungalow in Pune or Chennai, buyers can only be advised to tread cautiously.

Citigroup Property Investors looks to invest $1 billion in India

Filed under: News — admin @ 6:47 am

Citigroup Property Investors, a unit of Citigroup, is planning to invest over $1 billion in Indian real estate, attesting to the opportunities seen by global investors in this market.
According to an article in the Economic Times, Citi is looking at hotel projects in Mumbai, Bangalore and Chennai, and IT parks in Noida for its investments.

The group is reportedly close to signing deals involving a commitment of $400-500 million.

Citi’s strategy is to partner with leading developers and institutions. As reported by INRnews earlier in the year, Citi had inked a joint venture deal with Pune-based Gera Developments for residential real estate project in Pune valued at USD 125 million.

CRR hike may lead to increase in home loan interest rates

Filed under: News — admin @ 6:44 am

An expected Rs.13,500 crores is expected to be soaked up from the financial system with the RBI’s 50 basis points CRR hike starting December 23. With a tight liquidity situation, experts indicate that it could be only a short while before banks tweak upwards lending rates.
Loans to the commercial real estate sector are expected to rise. Home loan rates may rise too as early as next month. Some nationalised banks may however decide to wait and watch on any rate increase.

With rising real estate prices and potentially higher interest rates on the horizon, the prospective home buyer is in for a tough time. It remains to be seen what impact any rate increase may have on the real estate market. Past rate increases have not led to a significant slow-down in Indian real estate.

Delhi and NCR commercial real estate rentals increase

Filed under: News — admin @ 6:27 am

New Delhi, December 2006 - With little new supply of office space in the prime districts of Delhi and high demand, rentals in the capital and suburbs have increased in the third quarter of 2006 and are projected to rise further until the demand-supply imbalance is addressed.
According to a report by global real estate services firm Jones Lang LaSalle, Delhi’s prime commercial area (CBD and SBD) is a landlord’s market, with high rentals and low vacancies. There has been no new supply of Grade A office space in the CBD in the last few years. As a result, vacancy levels here are zero.

With lack of supply in the CBD, the SBD market has expanded and now includes Nehru Place, Jhandewala and Munirka. Jones Lang LaSalle reports that transactions totalling 38,580 sq ft was recorded in 3Q06 in the SBD market. Vacancy level in the SBD was 5.6% in the third quarter. Robust construction activity is observed in the SBD, and with new supply of 610,000 sq ft slated for completion in the Jasola District Center rental prices may ease.

Rentals have grown by 7% versus the previous quarter and capital values by 8.3%. Investment yield is around 11.5%.

Demand for office space in Gurgaon and Noida continued to be strong, driven by the IT and ITES sectors as well as the movement of some corporates from the CBD to the suburbs. The total net take-up for 3Q06 was approximately 870,000 sq ft of which United Cyber Park had the largest share.

New supply continues to be added. Significant completions in the third quarter include 450,000 sq ft in DLF Building 8, 410,000 sq ft in Vatika Towers, and 62,000 sq ft in Golfview Tower A. Vacancy levels were 2.4% in Gurgaon and 2.6% in Noida and this is likely to rise in 2007 when 8.3 million sq ft of new office space is to be added.

Rental values rose 31% in Gurgaon and 8.6% in Noida over the previous quarter. Gurgaon rental value increased from Rs.42 per sq ft in the second quarter to Rs.55 per sq ft in the third quarter. Investment yield is around 11.4%.

No sign of bubble in Indian real estate

Filed under: News — admin @ 6:26 am

Chennai, December 2006 - “The boom in Indian real estate industry, which is currently a US$ 12 billion industry growing at a rate of 30% CAGR, is expected to last for the next 10 years, provided the industry becomes a part of the inclusive growth and behaves responsibly to the needs of society,” said Dr Kamalesh Chandra Chakrabarty, Chairman and Managing Director, Indian Bank. He was delivering the keynote address at the inaugural session of the two-day Summit on Emerging Trends and Opportunities in South India’s Real Estate Sector, being organised by the Confederation of Indian Industry (CII) here today.
He said that though there is no sign of bubble in the industry at present, if the return on investment continues to be more than what an equity market would offer, then it would attract speculators.

Dr Chakrabarty cautioned that the industry should not become a playground for speculators and go bust. It is advisable that the serious players have sufficient stake in projects but they should not look for higher returns than what an equity market would offer. “If you are a sincere player in the market, there will be no problem in availing finance but you must ensure that you have sufficient stake in projects and have a survival spirit.

Dr Chakrabarty said that with housing and real estate account for 6% and 7% of GDP respectively, there is a boom in the industry, which is a good indicator of a maturing economy. However, the boom will sustain, only when the industry becomes a part of an inclusive growth, catering to the legitimate aspirations of the people. “If cost of housing goes up, find ways to make low-cost housing a reality and meet society’s needs,” he said.

He said that Indian real estate is at a nascent stage of development and the current price increase appears genuine. The industry should not artificially cut down prices but it should increase the supply, he said and observed that those who are not serious players, they are not serious about the supply side. We must try innovative ideas to strengthen the supply side,” he said.

Dr Chakrabarty urged the industry to welcome regulations and policy interventions which are in the interest of the industry. Governments encourage growth in manufacturing or service sectors but regulate real estate industry for the simple reason that “we don’t have a technology to export real estate” if and when a property becomes unviable in a particular location and the investors are severely affected, when the hard landing takes place.”

Dr Chakrabarty said that formal funding for real estate is encouraged only when an economy matures. In India, banks had never thought of funding a commercial or residential real estate property a decade or two ago. However, as there is liquidity in the market, it has become a legitimate financing activity for the banking industry. The boom in real estate and retail industry is one of the important indicators of a developing economy, which indicates two things: one, the production-oriented activities are getting the necessary support. Two, the population is spending more on leisure and entertainment. He also noted that across the world, real estate boom and retail banking boom go hand in hand.

As for the challenges and bottlenecks, Dr Chakrabarty said that despite ambitious project announcements, the level of deployment is low. There is a need to improve building efficiency and more focus on creating housing infrastructure for the under privileged. Further, archaic legislation, tenancy laws, high stamp duties, high transaction cost and unclear ownership to the titles are some of the major issues the industry is facing with.

In his welcome address, Mr ParasuRaman R, Immediate Past Chairman, CII Southern Region and Chairman, Indian Green Building Council, said that real estate and construction industry is the second largest employment provider in the country. The demand for real estate is on the move and by 2010 the industry is expected to be valued at US$50 billion. He said that India is ranked as one among the 30 emerging real estate and retail markets in the world.

Mr Irfan Razack, Chairman, Estate South 2006 and Chairman & Managing Director, Prestige Estate Projects Pvt Ltd said India’s population growth and economical growth drives the demand for quality commercial and retail space. The Indian Real Estate market is also moving towards transparency and large scale. Mr Ramani Shastri, Co-Chairman, Estate South 2006 and Managing Director, Sterling Developers Pvt Ltd said, finance is available for serious players and it is time for the speculators to side step or adopt a sustainable strategy.

Over 500 delegates representing real estate developers, builders, corporates, financial institutions, architects are participating in the 2-Day Estate South 2006 Summit.

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