Real estate

At long last, India's overpriced real estate market could come back to earth with a thud. Developers trying to sell costly property cannot find buyers, who in turn find themselves squeezed out of the market by rising mortgage costs and inflated property prices. Inventory, jargon for built-up homes that haven't been sold, is piling up. Fittingly, a full 25% of total units remain unsold in Mumbai , where real estate rates are the least realistic; Chennai and Pune follow with 19% units unsold, 16% of units can't be sold in Delhi and its surroundings, followed by Bangalore and Kolkata.

Developers who find themselves unable to sell built units cannot pay back loans and find it hard to raise capital for new projects. Sensible economics suggests that if they can't sell at high prices, they should cut rates and find buyers. But most builders would rather hold on, hoping for gullible buyers to buy dream homes at prices dreamt up by the sellers. Anecdotal evidence suggests that many builders are selling land holdings to finance loans, rather than cut prices. This too is good, because it will bring more land back into the market, creating further pressure for property prices to fall. For many years, India has not seen a property crash, so many people still believe in the phrase 'safe as houses.' But globally, property has been prone to long cycles of price appreciation and decline.

To some extent, the Indian real estate market has been immune from price cycles because of the prevalence of cash transactions in this sector. But with almost all regulators, including the RBI, tightening screws on the property market and trying to trace money trails for high value transactions, it's just become harder to do cash trades. For salaried professionals , cash was never an option, so the easy money, low interest rate regime earlier was a good time to get cheap mortgages and buy homes. But with interest rates hardening , these people have become cautious about what prices they're willing to pay for real estate. This too is welcome: it'll force builders to build homes that buyers can afford, rather than try and peddle overpriced merchandise . All markets have gone through corrections, it's time real estate also got its reality check.

Govt procides 50% cut in recently raised jantri rates

After a stir by real estate developers in Gujarat over the recent revision of Jantri rates, the Gujarat government on Thursday further announced a 50 per cent reduction in them. The state government had recently revised the rates by 300 to 400 per cent in different zones, inviting the ire of real estate developers and buyers alike. The government issued a statement on Thursday announcing a revision in the proposed Jantri rates. Jaynarayan Vyas, state health minister and government spokesperson informed that the decision of partial rollback in the revised Jantri rates was made taking into consideration the interests of individual citizens and farmers alike.

Moreover, the agricultural lands which were under the earlier Jantri rates had seen a hike in premium rates which will be now reduced by 50 per cent. This will enable farmers to easily transfer the agricultural land with a premium of 25 per cent as against the earlier revision of 50 per cent, Vyas added. The government has decided to charge only 40 per cent premium on non-agricultural (NA) certification on lands used for educational, residential, health and industrial purposes as against the proposed 80 per cent earlier.

The concessions given under the Jantri Policy 2011 will continue to remain as it is while the government additionally informed that in a bid to make land transactions more transparent and control flow of 'black money' in the system, the government decided to allow an individual buying an asset to ascertain the stamp duty available on the transaction under the proposed policy. With the industrial development taking place in the state, Vyas added that farmers have been benefiting due to increased land transactions and appreciation of land prices.

Price hike of City's housing sales

The health of the city's residential real estate market is looking a little uncertain, with home prices rising slightly but the number of transactions dipping in the first quarter, according to a new report released Thursday. The average city home price in the quarter stood at $732,000, up 4% from the first quarter of last year, according to the report, which was conducted by the Real Estate Board of New York and tracks quarterly sales of condominium, cooperatives and one- to three-family homes. Prices, however, were down 1% from the previous quarter. Meanwhile, there were 8,999 home sales during the first three months of the year, down 12% from the same time a year ago. The total value of sales in the city in the first quarter hit $6.58 billion, down 7% from a year earlier.

“There is a hint of uncertainty that is permeating in the market,” said Michael Slattery, a senior vice president at REBNY, adding that sales activity was inflated this time last year due to pent-up demand. “People believe it is a good time to buy now, but they are a little nervous about the economic recovery.” Brooklyn was the only borough in the city where the number of home sales did not dip. There were nearly 2,281 total home sales in the first quarter, up 1% from the same time last year. The average price of a home rose 3% to $469,000 in the first quarter. Even the condo market in Williamsburg—once the poster-child neighborhood for recession-stalled developments—rebounded. There were 205 condo sales in Williamsburg in the quarter, more than double the number from the same period a year ago.

“Activity picked up in that area when the market thawed. People got their bearings and prices were lowered,” Mr. Slattery said. “It's a good sign.” Average home prices in Manhattan, the borough that continues to represent more than half of the sales volume in the city, rose 4% to $1.4 million in the quarter from the same period a year ago. Meanwhile, Queens and Staten Island recorded modest gains of 1% to $397,000 and 2% to $415,000, respectively. The number of sales dropped in all three boroughs. In Manhattan, the number of sales fell 11% to 2,645. Similarly, in Queens, there were 2,592 sales, down 18%, and Staten Island had 999 sales, down 17%.

“We'll need to see a steady and broad-based increase in prices and transactions year to year and quarter to quarter to erase the uncertainty about the recovery,” said Steven Spinola, REBNY president, in a statement. For the first time, the citywide report provided sales data for 13 Bronx neighborhoods. The neighborhoods of Riverdale and Parkchester recorded the highest number of sales for the quarter, 81 and 79, respectively. In the Bronx, the average home price was $351,000 for the quarter. Mr. Slattery said the report will also include sales activity in Staten Island neighborhoods later this year.

Emaar seizes Stock of Indian Assets

Emaar Properties PJSC, Dubai's largest real-estate firm, has asked consultants and investment bankers to value its Indian joint venture Emaar MGF Land Ltd's assets. The move may be in preparation for its exit, two people familiar with the development said. Emaar Properties, the developer of Dubai's Burj Khalifa, the world's tallest tower, is reviewing and taking stock of its assets in India, and is in talks with investment bankers, said a third person directly involved with the negotiations.

"We are having discussions with them," said this person, adding that no final decision has been made yet. The firm and its local partner said such valuation exercises were routine, and it was not a move to break up the assets. Emaar Properties has a 43.86% stake in New Delhi-based Emaar MGF, a joint venture formed in 2005 with the Guptas of MGF Developments Ltd, who own the remaining stake. Shravan Gupta is the executive vice-chairman and managing director of Emaar MGF.

"Emaar MGF, on a regular basis, values its assets for banking or allied purposes," the company said in an e-mail response. "Emaar Properties, as an investor, also gets similar valuations done across its investments and business, in various geographic markets, including India. There is no move to split the asset portfolio of Emaar MGF." But the company may be exploring sales options, too.

Separate mandates or assignments have been given to property consultants for sale prospects of various components. Emaar MGF's asset portfolio is estimated to be at least 50 billion rupees, property consultants said. The Dubai company has appointed Standard Chartered Bank in India to put value its holdings, and oversee the entire process, which may take three-six months to conclude, the two people familiar with the development said. A Standard Chartered Bank spokeswoman declined to comment.

"Once the valuation is done, they (Emaar Properties) will discuss and identify potential buyers with their investment banking team," said one of the persons familiar with the development, adding that the Dubai company is looking to eventually exit from India. "Options include selling to the joint venture partner, who has the first right of refusal, or selling to a third person." Emaar MGF has 11,340 acres of land and 44 (residential, commercial and hospitality) projects in over 20 cities. Emaar Properties has total assets of $17 billion, of which international assets are valued at $6.12 billion.

In 2010, Emaar Properties posted a net operating profit of $826 million, 31% higher than the corresponding figure of $633 million in 2009, according to a company statement. Its retail and hospitality subsidiaries contributed significantly to the revenue. In India, however, Emaar has put its multi-crore hospitality and retail plans on the back-burner, focusing more on residential projects.

Emaar MGF has been exiting some of its hospitality projects and partnerships. Recently, the developer sold a seven-acre property in Kolkata, where it had planned to develop a Marriott hotel, for 2.50 billion rupees to a consortium of developers, including Kolkata-based Mani Group and Bangalore-based Sattva Group. The latter is now pursuing the hospitality project, said a person involved in the process.

Bijay Agarwal, Sattva Group Chairman and Managing Director, confirmed the deal, but didn't comment on the price. "As part of its financial and business strategy, the company raises funds from various sources, including monetizing assets held for a longer term," Emaar MGF said in a statement. "The Kolkata hospitality project was part of such an initiative. The company continues to look at such opportunities from time to time." Last year, the U.K. budget hotel chain Whitbread Plc bought the 50.1% stake held by Emaar MGF in their joint venture. Whitbread is now developing hotels under the Premier Innbrand in India on its own.

Emaar MGF is also in talks with a few private equity funds to raise money for projects through a special purpose vehicle. The move comes after three aborted attempts by the firm to raise money from the equity market. It filed a draft red herring prospectus for the fourth time on Oct. 4, slashing the amount it wanted to raise to 16 billion rupees from a 70 billion rupees target in 2008. The money will be used to repay loans, pay development charges and redeem preference shares. The developer's debt, as of Feb. 28, stood at 46.74 billion rupees.

"Emaar MGF has refiled its [prospectus] with the (Securities and Exchange Board of India), and we are awaiting clearances from the regulator," the firm said. While the real estate market has stabilized and prices are no longer rising, the capital markets remain a good option. "The question is when and how," said Ajit Krishnan, leader of the real-estate practice at Ernst & Young. "The credentials of the developer and its execution record would determine" the share sale's success, he added. Emaar MGF was criticized for the construction of the 2010 Commonwealth Games village in Delhi, and received a bai-out package of 7 billion rupees from the Delhi Development Authority.

Indian Hotels hike money and prefer to cut debt than expand

Indian hotel chains are raising funds but prefering to use the cash to clean up their balance sheet and complete existing projects than draw new plans. Indian Hotels, the Tata group firm that owns the Taj chain, and Oberoi brand owner EIH raised funds this month, while Hotel Leelaventure is on course to sell equity and a land parcel. "Most of the funds they have raised or will raise will be used for debt reduction in the high interest rate scenario," said Rashesh Shah, an analyst with brokerage ICICI Securities.

Most Indian hoteliers have been struggling with mounting debt since the global slowdown of late 2008 that forced a reality check on the exuberance of previous years, when they bought land at astronomical prices and borrowed generously, hoping to recover money quickly in a booming economy. The hotel industry has slowly recovered since, with occupancy and room rates improving, though still below the peak of 2007/08. According to brokerage Sharekhan, occupancy rates for the current quarter is about 70-75% in metros against 76-81% the same quarter in FY08. Similarly, average room rates are about 15% lower now.

ICICI securities' Shah said that companies would start considering significant expansion only after occupancy and average room rates become really attractive and that is almost a year away. "Overall demand is growing, but is still not healthy," he said. Most hotel chains are therefore rationalising and cleaning up their account books as interest rates soar in the time of high inflation.  "Right now the strategy for hotel companies is to finish projects that were on hold, rather than think of any greenfield projects," said Kaustubh Pawaskare, an analyst with brokerage Sharekhan.

EIH plans to use 9 billion rupees of the total 11.78 billion rupees raised through a rights issue to reduce its outstanding debt of 15.5 billion rupees at December-end. Hotel Leela is in talks with private equity investors to raise 6 billion rupees to slash debt of about 38 billion rupees. Indian Hotels unit Roots Corp that runs the Ginger brand of budget hotels has approved the sale of minority stake to raise up to 2.5 billion rupees. Shares in Indian Hotels, EIH and Leela have lost 20-34% in value in six months.

Rate pressure; foreign connection India's Reserve Bank of India (RBI) raised interest rates earlier in March for the eighth time since last March, signalling to lenders funds needed to be scarce and expensive. "Interest rates in India are among the highest in the world right now. And that is going to make life difficult for some of the potential projects that were out there," said Manav Thadani, Managing Director at hospitality consultancy, HVS India. This, though would not significantly impact capacity addition in the short to medium-term, as some projects underway get completed and many international chains strengthen their presence, analysts say. The sector is expected to see an incremental demand for 10,000 rooms over the five years to 2014/15, but will still lag supply pegged at 12,000 rooms over the same period, Ajay Dsouza, head of Crisil Research, said.

"We do not expect large investments in the hotel industry from what has already been planned," he said. However, projects at attractive locations and in 2-3 stars category may still attract investors, said Rajiv Sahni, a partner who oversees transactions in the real estate and hospitality at Ernst &Young. Besides major hotel chains, India has many realty firms and wealthy individuals owning bunch of properties they are happy to let out to be managed by professional chains. This is where top international brands such as Marriott, Intercontinental Hotels and Starwood Hotels & Resorts benefit. International chains, who have been expanding in India and prefer not to own properties and limit themselves to management contracts, get to partner these realty firms and wealthy individuals.

Sahni of Ernst &Young said an association with international chains could ease funding for Indian entrepreneurs. "Even though we haven't seen many private equity deals in the Indian hotel industry of late, there are many international funds which have enough cash and are comfortable investing in projects associated with bigger brands," Sahni said.

Infosys leads shows India Sensex has Biggest Weekly Jump in 20 Months

Indian stocks rallied, with the benchmark index posting its biggest weekly gain in 20 months, as speculation that global economic recovery will be sustained spurred gains in equities across Asia. Software makers jumped. Infosys Technologies Ltd., the nation’s second-largest software-services provider, climbed 5.3 percent, the most since July 2009. Asian stocks increased, tracking a rally in U.S. equities, after U.S. initial jobless claims data signaled the labor market in the largest economy is mending. Wipro Ltd., the third-biggest, advanced 3.7 percent. Tata Consultancy Services Ltd., the largest, added 2.4 percent.

The Bombay Stock Exchange’s Sensitive Index, or Sensex, surged 464.90, or 2.5 percent, to 18,815.64 at the 3:30 p.m. close in Mumbai, the highest level in two months. The guage jumped 5.2 percent this week, the most since the period ended July 17, 2009. The S&P CNX Nifty Index on the National Stock Exchange rose 2.4 percent to 5,654.25. The BSE 200 Index increased 2 percent to 2,310.58. “Investors are expecting Indian software companies to benefit from the recovery in the U.S. economy,” R.K. Gupta, managing director of Taurus Asset Management Ltd., said by phone from New Delhi. India’s biggest software exporters get about half of their revenue from the U.S.

Regional Gains

Asian equities rose, with the region’s benchmark MSCI Asia Pacific Index posting its biggest weekly gain since November. The U.S. Labor Department figures showed the number of Americans filing applications for unemployment benefits fell 5,000 to 382,000 last week. Data on the economy, consumption and consumer confidence are due today. Technology exporters across Asia rallied after forecasts at Oracle Corp., the U.S.-based supplier of database software, and Accenture Plc, the second-largest technology-consulting company, topped analyst estimates.

Infosys climbed 5.3 percent to 3,163.05 rupees. Wipro rose 3.7 percent to 455.9 rupees, the most in more than a month, while Tata Consultancy added 2.4 percent to 1,119.65 rupees. “It’s a sentimental reaction on hope that the Indian software firms will get more orders,” said Ambareesh Baliga, chief operating officer of Way2Wealth Securities. The Sensex is the world’s worst-performer this year after benchmark indexes Egypt, Tunisia and Kuwait, as concerns that rising interest rates will crimp economic growth and corporate earnings have dragged stocks lower. Companies on the Sensex trade at an average 17.7 times estimated earnings, compared with 21.5 times in March 2010, after the gauge dropped 8.3 percent this year, according to data compiled by Bloomberg.

‘Attractive Valuations’

“Money waiting on the sidelines is now finding its way into Indian stocks as valuations have come down to attractive levels,” Mumbai-based Prateek Agrawal, head of equity at Bharti AXA Investment Managers Pvt. which managed 4.12 billion rupees ($92.3 million) in assets at the end of December, said by phone. He favors shares of “large-cap software” companies, lenders and automakers. DLF Ltd., the nation’s biggest real estate developer, rallied 6.4 percent to 249.1 rupees, the steepest gain among Sensex stocks. Larsen & Toubro Ltd., the country’s biggest engineering company, gained 3.1 percent to 1598.4 rupees.

Overseas funds bought a net 3.93 billion rupees ($87.5 million) of Indian stocks on March 23, paring their outflow from equities this year to 73.9 billion rupees, according to the website of the Securities and Exchange Board of India. India’s economic expansion and corporate earnings lured foreign investors to purchase a record $29.4 billion of local equities last year and made the Sensex the best performer and most expensive among the world’s 10 biggest markets.

Kotak property arm to hike up to $500 mn for India buys

Kotak Realty Fund, the property investment arm of India's Kotak Mahindra Bank, plans to raise as much as USD 500 million by the second quarter of this year, in a bet on the long term case for property in Asia's third-largest economy, a top official said. The fund intends to raise about USD 150million to USD 200 million from domestic investors and another USD 300 million from global markets, its director, V Hari Krishna, told Reuters in an interview.

"The long-term macro fundamentals are intact. The markets have nearly doubled since 2005 and we have seen a cyclical turn. So, its a good time for investments," he said. Private equity funds, including four domestic and 10 international funds, have invested a total of USD 14 billion in Indian property during the last ten years, according to an industry analysis. Of that, private equity firms have sold Indian property holdings worth nearly USD 2 billion, Krishna said.

Last week, Kotak Realty Fund sold one of its property assets - Peepul Tree Properties - to Tata Realty Fund for Rs 525 crore (USD 117 million). The fund had made an initial investment of Rs 95 crore. "Many of the investors are concerned over exits, but we could demonstrate this as a market where we can make decent exits too," said Krishna.

Investments across cities

The fund, which has about USD 750 million worth of assets under management, plans to invest close to USD 100 million over the next couple of months in major Indian cities, he said. "The investments will mainly be in the residential property assets," he said, citing Delhi, Mumbai and Bangalore as target markets. Private equity investment in India nearly doubled last year to USD 7.97 billion from a year earlier, according to a report by research firm Venture Intelligence.

Companies positioned to benefit from rising spending power in the world's second-most populous country, with an economy growing at about 8.5 percent a year, have been especially sought after by private equity investors. However, rising interest rates and tighter loan approvals could slow near-term growth in the Indian property sector, Harikrishna said. Param Desai, real estate analyst at Angel Broking, said he expects a price correction over the next three to four months of 15% to 20% in Mumbai and 10% to 15% in Delhi, with the satellite city of Gurgaon especially vulnerable. He expects prices to hold up in Bangalore and Chennai.

India's central bank raised key interest rates last week for the eighth time since March 2010. "Its a cycle. We have seen both ups and downs during the last half-a-decade. And we could also witness the revival in demand," Krishna said. Separately, Kotak is raising a USD 300 million private-equity fund to invest in infrastructure projects in the country.