Real estate firms blaming rising costs for low performance:

It is a fact that most of the major real estate firms have experienced a downfall in the net profit in the June quarter. The management has been blaming the operational environment including high input costs and increased interest rates as the major causes for the poor performance. According to figures the net profit of DLF ltd. decreased by 13 %, HDIL by 21.5 %, Parsvnath Developers by 19 %, Unitech Ltd. by 45 % and DB Realty by 33.5 %.

According to real estate analysts the construction costs have gone up by 30-40 in the very first quarter of 2011-12. This hike can be attributed to increase in the cost of labour and raw materials. The borrowing costs of the developers have been increased a s a result of the increase in lending rates by the central bank. According to Suman Memani, real estate analyst, PINC research, the developers are most likely to experience lower profits in the second quarter due to rising interest costs and slow sales growth. The first quarter’s revenue is a mixed story, wherein DLF and HDIL have showed profits in the year on sales while the other major real estate firms showed a dip in net profits. Also the deliveries by these firms were not upto the mark.

Increasing rates will affect not only the customer but auto and real estate agents too:

Mumbai: While affecting individual buyers, the increased rates are affecting the auto and real estate sectors too where the demand is directly proportional to the cost of funds for individuals. A 50 basis point increase will consequently change the equated monthly installment on a 20 year home loan of Rs. 20 lakh by Rs. 342.

Now when the inflation is rising close to double digit, there are chances that it can further rise in future. Whereas some bond dealers are of the view that the decision by the US Fed to keep the rates near zero and considering the sustained slowdown in the west, Reserve Bank of India (RBI) may alternatively choose to pause. This view of the government is clearly reflected in the prices of the government bonds.

Banks these fays which are lending at 8% in the interbank market are investing in a 10 year bond with a yield of 8.2%. A uniform yield clearly indicates that the banks are expecting a slowdown. As the banks are uncertain with regard to the demand for loans as a result they are not increasing long term deposit rates which means the interest for the short as well as long term are at par.

Hotels chain Hilton to set up 50 new hotels in India:

New Delhi: Lenny Menezes, chairman of the Hilton Worldwide in India is facing a tough task these days; he has been assigned with the job of opening new hotel in India in every 45 days. He has been assigned this job to benefit the most of the booming hospitality sector in the country and to expand the Hilton Worldwide in India. Around hundreds of hotels with a total of around 1, 55,000 rooms among which 65,00 will be branded ones will be added in the next five years. But he feels that this figure won’t be able to satisfy the growing demand and will be falling short.

Hilton itself will be setting up 50 new hotels in the country and 6 hotels are currently operational in New Delhi, Chennai and Mumbai. Whereas Hilton Garden Inn and Hilton already are launched in the country, the company is all set to launch its new luxury brands Waldorf Astoria and Conrad along with upscale brand Doubletree and the mid market, Hampton. According to Menezes, the mid scale brands Hampton Hotels and Hilton Garden Inn will expand the growth of the company in India specifically in the secondary and tertiary cities. Hilton hotels will operate through a management contract route.

SAT to take up plea of Sahara against SEBI on Tuesday:

Mumbai: Petitions filed by two Sahara group companies, Sahara India Real Estate and Sahara Housing Investment Corp. challenging Securities and Exchange Board of India (SEBI) order which was passed against them , will come up at the Securities Appellate Tribunal (SAT) on Tuesday. The union ministry of corporate affairs will also appear as a party in the aforesaid case. The tribunal is expected to hear the matter on a continuous basis as Supreme Court has already ordered that the petition be disposed within five weeks and a week has already passed.

According to sources Sr. Advocate Arvind P Datar is appearing for SEBI, while DSK Legal Advisors are expected to represent Sahara. On July 15, the apex court had already directed the Sahara group to approach the SAT to appeal against SEBI, according to the order the group had to return money collected by issuing debentures to the public. The court had given three weeks to the Sahara group to appeal against the order and thereafter five weeks to the tribunal to pass an order. SEBI found the scheme of the Sahara group illegal and had ordered to return at least Rs. 6,588 crore collected under their debenture schemes to investors. The 99 page order of SEBI by Sh. M.K. Abraham found the Sahara group promoter and three directors jointly liable for the alleged scheme and was directed to make the refunds.

Financial uncertainties result into real estate sector woes:

Mumbai/New Delhi/Bangalore: the global financial turmoil have downgraded the US rating and also left an impact on Indian real estate sector by putting a freeze on the real estate office rentals as well as on foreign capital. While India’s real estate market is handling its own internal issues like soaring rents, high property prices, banks restricting lending, etc there arises external issues creating a havoc over the Indian real estate sector.

According to Mr. Chintan Patel, partner real estate practice, Ernst and Young, the impact of the US and Europe economy on Indian real estate sector can be related to the panic experienced during the first days of the Lehman Brothers Holdings Inc. Bankruptcy which took place in 2008-09 slowdown. The only factor which lies in favor of the market is that due to this impact the affordable housing demand won’t be affected much unlike the demand for luxurious projects. The earnings in the June quarter of many developers have been dismal, most of it in Mumbai and the National Capital Region (NCR). DLF has a debt of Rs. 21,500 crore, Unitech Ltd. of Rs. 5000 crore, Emaar MGF Ltd. of Rs. 4000 crore and Parsvanath Developers Ltd. Rs. 1,200 crore.

Quest to find actual price of property

It’s a challenge for real estate agents and buyers to set up the actual price of the property. The agents’ advice people who want to buy property to believe in the data record in respect to the property. The selling of a property is determined by its price only, therefore the price of the house is the most important factor responsible for its mortgage but pricing a house correctly is a difficult task for the real estate agents. Experts believe that the retails sell the property by previous price of the house only. Nowadays there is lot of competition in the market and between the agents and investors. Their main motive is to make large transactions in short period of time.

The prices of homes are not affected by short sale in market but on the other hand foreclosures have large impact on the market. It’s not just about pricing homes at correct price. The home values in many markets have been dragged down by short sales. In urban areas of developing countries people price their homes at a very high rate than of the market. The condition of the property is very important aspect of the real estate industry, and the impact of the house is determined by the present condition of the property.

Real estate developer Omaxe expects net debt to fall:

Mumbai: The real estate developer, Omaxe Ltd. has expected that their dues will fall to 8.80-8.90 billion rupees by March’2012 as it has planned to repay the debts from its operations. According to Sumit Arora, Vice President, investor and strategic relations, Omaxe Ltd, effectively they will be paying off around 200-250 crores in the next nine months. Till June end the company’s net debt was around Rs. 10.50 billion. The company also has a gross debt of Rs. 14.77 billion which it expects to cut to Rs. 12.50 billion by the end of this very financial year.

In April-June the sales were around 2.62 million square feet, whereas the sales in July wasn’t much aggressive, however he still expects it to rise to 2.2-2.6 million square ft. He also said that many of their projects are awaiting approval from the authorities, once they get approved, they’ll help a long way to clear debts. For the upcoming financial year the company is expecting to sell 9-10 million square ft as compared to 9.76 in the previous financial year. An amazing irony lies in the fact that property prices have more than doubled over the past 18 months in the country’s major cities, but sales have experienced a major downfall during this period as a result of high prices and high interests on loans.

Godrej and Jet Airways sign a deal for development of Plots in BKC, Mumbai:

Mumbai, Maharashtra- Godrej Properties Limited, the real estate leg of the Godrej group recently announced that it has entered into a development agreement with Jet airways limited, to develop its property situated at Bandra Kurla Complex (BKC) in Mumbai. Godrej Properties Limited (GPL) is planning to develop a one million square feet office building expected to be completed in next three years. GPL will take an amount of Rs. 360 crores debt obligation which Jet airways has on the property and consequently will pay a sum of Rs. 135 crores as a compensation for the expenses incurred by them. Also GPL has agreed over 1,60,000 sq ft or carpet area Jet for the development costs. This space will be utilized to develop a hi-tech new headquarters for Jet airways. It has been unanimously that both the parties will share the profits equally.

It is pretty obvious looking at the situation that GPL will develop the building to its level best including all the facilities to ensure that highest standards of design and construction. A leading architectural firm has been hired which has apparently designed the world’s tallest building in Dubai, Burj Khalifa. The building so proposed is seen as a leading commercial building in future in whole India.

A new bill on land acquisition:

As a response to the last year farmers agitation over the faulty land acquisitions and poor compensations as in the Tata-Singur failure in West Bengal, Posco in Orissa and the recent one going on in Noida over the UP government land acquisitions- the department of government concerned, which is the ministry of rural development is planning to introduce a new bill as a replacement to the older Land Acquisition Bill, 1894. It has drafted the new bill pertaining to land acquisitions by the name of National Land Acquisition and Rehabilitation and Resettlement Bill, 2011 and has put it in the public opinion till 31^st August for comments. If this new bill is passed it will replace the earlier bill. This draft has come up with specific provisions but there’s no standardization of land prices which may lead to lesser compensations than what is deserved.

Prodipta Sen, VP, Alpha Gcorp, a Delhi-based real estate firm says that though the bill is a first step towards regularizing land acquisition but government has to do more in order to ensure checks and balances for fair evaluation of the land price. The basic drawback of the proposed bill is that there is no standardization on estimating the property value.

JP Iscon Plans Gujarat’s Biggest Mall

JP Iscon, an Ahmedabad based real estate developer announced plans to construct a mall with over one million square feet of retail space, the biggest in Gujarat so far. It is expected to be operational in two years. Sources say they have acquired land in Ahmedbad.
JP Iscon is known to have developed over 35 lakh square feet of residential and commercial space in Gujarat. Though the location is not yet decided, it could be in suburban Ahmedabad, located either near South Bopal or Gota, locations close to Ahmedabad on the Sarkhej Gandhinagar Highway.

JP Iscon already operates a mall in Surat and Ahmedabad, with two in Rajkot. The success at these malls seems to have spurred the developer to go in for the mega project. According to the developers, retail space with an area of 1200 sq. ft sees a business of Rs. 2500 to Rs. 3000 per square feet per month. Ahmedabad is a promising destination for malls with a growth rate of around 20 percent according to the developers.

London’s Trinity Capital PLC exits Bandra Project

Trinity Capital PLC is in the news again. First it sold its holdings worth Rs. 90.3 crores in Mumbai based Keystone Realtors and now it has again sold its stake back to Keystone in a Bandra based housing project. Trinity committed an investment of 20.5 million pounds to Rustomjee Constructions Pvt Ltd but finally invested only 3.6 million pounds through its Mauritius unit TC15. TC15 had a 49% holding in Rustomjee, balance held by the developer. Trinity holds a 45% stake in TC15, the rest held by SachsenFonds Holdings GmbH of Germany through Immobilien II. Trinity hopes to gain 2 million pounds from this sale. The reason given for the exit is that the project is not making any progress with the promoter still negotiating agreements with housing societies.

While Trinity has 45 per cent stake in TC15, the rest is held by German investor SachsenFonds Holdings GmbH, through Immobilien II. Trinity Capital is expected to get £2 million ($3.27 million) from this sale.SachsenFond’s case in a Mauritius Court of Civil Appeal against Trinity Capital have been dismissed.

Tata Realty and M3M Developers Compete to Acquire DLF’s Gurgaon Plot For Sale At Rs. 400 Crore.

As a part of its plans to sell off developed assets and hotel business in order to generate Rs. 7000 crores in two years to address debt issues, DLF, the prime real estate company of India, announced its intention to sell off a 27.4 acre plot in Gurgaon at an asking price of Rs. 400 crore. It has already sold off 400 plots in Garden City in Gurgaon’s sector 91-92. It plans to sell two IT buildings in Pune and Noida as part of its fund raising plan. It has a gigantic debt burden of Rs. 24000 crores. The divestment is part of its drive to reduce risks associated with developing residential complexes and getting rid of non-core assets.

The plot in question carries all necessary permissions and approvals to set up a residential project, the built space being 2 million sq. ft. located in sector 70A, close to the new southern peripheral road in Gurgaon, connecting National Highway 8 with MG Road.

M3M Developers and Tata Realty are vying with one another to acquire the land at Rs. 2000 per sq. ft.

DLF has shows a 12.81 % decline in consolidated net profit for the quarter ended June 30, amounting to Rs. 358.36 crores. The company held high input costs and escalating interest rates responsible for the lackluster performance. However, revenues increased to Rs. 2503 crores compared to previous year’s figures of Rs. 2161 crores.

SEBI to Scrutinise Alternate Investment Funds

SEBI, the prime regulator of the Indian capital market proposes to bring about radical changes in the way private capital funds are formed and used in local investments. This includes private equity and real estate funds. They propose to categorise the funds in nine categories covering social ventures, SME, PIPE, real estate, venture capital funds, PE funds, debt funds, infrastructure funds, social venture funds and strategy funds. The proposal seeks to raise the investment bar in PMS to Rs. 25 lakhs and in other alternate investment funds to Rs. 1 crore to prevent risky investments. There is no clarification on the future of private equity investments in Indian firms listed on the stock exchange. Funds need to be close-ended with a minimum tenure of 5 years to be fixed at the time of registration, with a permissible extension of 2 years when approved by three-fourths of the beneficiary.

An alternate investment fund cannot change its category after registration and paying Rs. 6 lakhs in all, including Rs. 1 lakh as the application fee.

The objective is to create a new regulatory framework for all private capital pools to channel them without risk and in a regulated manner.

An Infrastructure Fund will have to invest at least two-thirds in equity or equity linked instruments of infrastructure companies or special purpose vehicles of infrastructure projects. It is allowed to invest one third of the corpus in debt instruments

Real Estate Funds will have to invest 75% of the corpus in real estate projects or constructed properties. They can also invest in SPVs involved in real estate projects and 25% in allied real estate sectors.

SEBI is waiting for opinions of interested parties to proceed forward with the proposed changes.

In Tier II and III cities Hypermarkets Will Grab The Maximum Retail Real Estate Space

FDIs have entered the Indian retail sector in a big way, skyrocketing demand for real estate space, adding fuel to the already feverish pace at which this sector is growing. Unlike top real estate projects that are confined to metros, retail penetrates even tier II and III cities that have low development of such retail centers. Growth in these cities is expected to reach 35% in the next three years. Real estate developers in these cities are bound to get on to the bandwagon and push retail real estate space.

The giants in this segment like Wal-Mart, Big Bazar and Tesco will account for the highest space in these cities. They are likely to focus on cities with a population of more than a million in the first two phases, taking into account logistics and infrastructure.

This will have a decided influence on the cost of the land, the main component in retail real estate. Prices are expected to go up and it remains to be seen whether developers focus on this or the more lucrative residential projects that have an equally high demand, if not better. These giants will absorb ailing retail players and then when they expand, land prices should really climb by about 30% in three years’ time in the face of more demand.

CHD City, Karnal, to Expand on 23 More Acres of Land

CHD city is the pride of CHD Developers Ltd and offers a far better living space and life style to residents of the township. The township is spread over 123 acres.
According to Mr Gaurav Mittal, Managing Director, they will develop an additional 23 acres of plotted development and will go on expanding till they reach the targeted figure of 300 acres.
The township already boasts world class facilities and the ultimate in luxury facilities for its residents, with special emphasis on landscaping and architecture. It has parks, schools, health care centers, entertainment and virtually all requisites of a township with easy access. The center of attraction is the 5 acres of Central Park with water bodies and lush foliage. A temple is under construction to meet the spiritual needs of residents.

This proposed expansion will give residents of Karnal to buy into some exotic property. The township also plans to set up a modern Millenium School for high quality education. Also planned is a 200 bed multispeciality hospital and a food court. The announcement of expansion offers an opportunity to be a part of this wonderful township.

HCC Infrastructure to turn over 14.5% of its stake to US Based Xander Group

HCC Infrastructure is a major civil engineering and Construction Company and the news that it plans to let in the US based Xander Group for Rs. 240 crores, giving it a 14.5 % stake, comes as a minor surprise but may be part of the company’s overall expansion plans. For Xander this is the second deal in India, the first being a Rs. 400 crore investment in Sadbhav Infrastrucure Project, involved in roads and highway development. Xander is known to invest heavily in hospitality, retail, real estate and infrastructure and this investment, for them, is in line with their vision of investing USD 1.8 billion in equity across India, in these sectors.
HCC is stretched with investments of Rs. 650 crores and will need additional fund injections to the tune of Rs. 350 crores and this move may be one in the right direction. It already holds six National Highway Authority of India concessions totaling Rs. 5500 crores. Five are toll roads and one is an annuity project.

India is on a development spree, building up better infrastructure and roads and will need USD 1.7 trillion in this decade according to Goldman Sachs. Xander and other similar groups are moving actively into India to take advantage of this thrust sector.

real estate deal

Property purchases for new buyers in the whole country will become more transparent with the signing of an historic agreement between the Confederation of Real Estate Developers Association of India (CREDAI) and the National Association of Realtors at the third annual convention of NAR India held in Hyderabad in the last week of July. Andhra Pradesh Realtors Association, the local arm of the national body of realtors, organized the convention at HICC.

Mr P S N Rao, chairman of NAR-India, laid special emphasis on the importance of brokers or real estate agents who are now more sophisticated and educated and will play a more important role in helping property buyers. With over 13000 members in 20 states, NAR India is set to play a key role in the coming years with the agreement now in place. The code of conduct will make deals more transparent for buyers and brokers will be trained to provide a uniformly high level of services, according to Mr Lalit Kumar Jain, president of CREDAI. Buyers can expect clearances of all papers within three weeks through a proposed single window clearance system. The agreement paves the way for improved quality of services from the real estate agents with prospective customers placing more trust and confidence in them.

Middle Level Developers Having A Good Time Buying Distressed Projects

The recent economic downturn and global recession led to many builders abandoning their projects midway. They were in a situation where they could simply not proceed. Such unfinished projects or land lying unused are up for grabs and middle level builders are having a good time buying such distressed projects at lower valuations. The small builders are the hardest hit and the recent hike by RBI does nothing to give them hope.

It is likely that small builders will sell off more such unfinished buildings and land. Banks have tightened the screws still further with stricter terms. Such builders simply do not have the money to complete their projects and have no buyers for their commercial spaces or residential complexes.

For cash heavy middle level builders this comes as a windfall as they have access to a number of prime properties at discounts of 25 to 30% of the current market values. ]

Patel Realty India Ltd, the Salarpuria Sattva Group and Ajmera Realty and Infrastructure Ltd are said to be very active in acquiring such properties. They are advantageously placed since the properties have clear titles, enabling them to get off to a running start. Such deals are in active progress in Mumbai, Bengaluru and even in smaller cities like Pune and Ahmedabad.

AIG To Divest from Indian Realty for USD 450 million

AIG Global Real Estate (AIG GRE) is said to be in talks to divest its holdings in two Projects in Bangalore and will gain about Rs. 2000 crores from the deal. AIG GRE is a global group with total investments ranging USD 9.4 billion in various real estate projects around the world.

The AIG-GRE group jointly with RMZ , a Bangalore based company, invested a sum of USD 350 million in Bangalore, Kolkata and Hyderabad through a SPV. Their aim was to promote commercial buildings in metros and also enter the hoteliering area. The downturn in global real estate led to reconsiderations.

Negotiations are now going on for the bid invited for its stake in the projects. AIG-GRE expects USD 450 million or close to Rs. 2000 crores. When the deal is finalized, it will mean the exit of the global conglomerate from India. RMZ has offered to buy out AIG-GRE’s stake in Hyderabad and Kolkata projects but so far no one from AIG has given a response to the offer. Earlier, RMZ had acquired AIG-GRE’s Bangalore SPV stake. It seems AIG is waiting for other offers in an attempt to tip the negotiations in its favour with RMZ. Officials of RMZ did not confirm so we are left guessing about the actual status.