Thursday, May 31, 2007

Why expect property prices to decline?

Q&A/ Pradeep Jain
Siddharth Zarabi & Nayantara Rai / New Delhi June 1, 2007
Pradeep JainThe 1978 Yash Chopra film Trishul was all about Vijay (Amitabh Bachchan) coming to a big city and struggling to become a construction baron. The plot was melodramatic and full of twists and turns.
Real life for construction magnate Pradeep Jain, 42, has been equally interesting. Starting off as a property broker with a 45-square foot office on the ground floor of Arunachal Bhawan on New Delhi’s Barakhamba Road, Jain has today moved into the big league, although he has his office in the same building.
With 152 million square feet under development, the earthy Jain is an angry man today. His ire is particularly reserved for the recent interest rate hikes, which he believes are squeezing supply and hurting buyers as prices are actually hardening due to continuing robust demand. Excerpts from a free-wheeling conversation with Siddharth Zarabi and Nayantara Rai:
After all the controls put in place by the government, what is happening to the real estate sector?
The government in its wisdom has decided to increase the interest rates for home loans. Domestic borrowing for developers has also become very expensive. External commercial borrowings have been banned.
All these measures to suck out liquidity will work. But, at the same time, it will put a constraint on the supply side. Once that happens, obviously property prices will increase. It is basic economics.
You are saying prices will go up. Everyone is talking about a cooling down of property prices.
Show me one property whose price has actually fallen. Everyday, the media discusses a cooldown — some quote a 15 per cent decline in prices, others 25 per cent. I went to buy a Mercedes Benz recently. The salesman who knew me was telling me about increasing interest rates and how that must have impacted my sales. I asked him how many models of Mercedes he had sold in the last quarter and how that compared to the previous nine months.
He admitted the number of cars sold in the quarter outnumbered his sales for the previous nine months — and this at a time when car financing has also become expensive.
I explained to him that if I have lived without a Mercedes till now, I can afford to carry on with my life without this luxury. But buying a house is a totally different ballgame — it is a necessity. Think about it, how long will you want to live in a rented house?
And even if the real estate market had gotten so overheated, it was obviously because people were ready to buy properties at those prices. We did not force anyone to buy. But now the government is trying to curtail inflation and property prices by coming up with all these steps. Tell me, have the prices of onions and potatoes come down? If they have not, why are you expecting property prices to decline?
Like I told you, the liquidity crunch will impact the developers’ ability to execute projects. Input costs have also been steadily rising.
Could you elaborate on the increasing input costs?
Real estate development supports around 240 ancillary industries. If the product cost of these industries as well as interest rates keep rising, obviously my margins will be impacted.
Along with that, salaries have gone up manifold. Manpower costs have gone up roughly 300 per cent over the last two years. We have to keep pace and pay higher salaries. Any employee, who knows his value today, cannot be shortchanged. If I know I can get up to Rs 50,000 a month, I would rather stay home than work for someone at Rs 40,000.
There is also a basic shortage of contractors in the country. Their order books are full, several times over. Contracting profits have gone up from 7 per cent to 20 per cent. That also adds to developers’ costs.
Two Delhi-based companies have forged joint ventures with foreign contracting companies. Is that the solution?
I have seen all the hype around these joint ventures. The question is: does it make any business sense? I don’t think so. Firstly, you have to pamper these foreign partners. Just to meet them, you have to pay for a business class ticket and put them up in fancy hotels. Even if you consider that to be trivial, such a business arrangement eats into your profitability. They may have the technological know-how, but certainly not the local infrastructure to reduce costs.
In Dubai the construction cost is 400-500 dirhams per square foot, which works out to Rs 6,000-7,000. In Singapore, the average cost of construction is S$400-500 per square foot, or around Rs 18,000.
Compared to that, the cost of construction in India is Rs 1,500-2,000 per square foot. And the average sale is less than Rs 6,000 per square feet. How will a foreign partner make construction more viable?
What about private equity and foreign direct investment?
Please note, large developers do not favour private equity. Debt at today’s interest rates is still cheaper than private equity. For private equity, you not only have to give up an equity stake in your project or at the holding entity level, but also share up to 25 per cent IRR (Internal Rate of Return). Why would I want to give 25 per cent of my yield to another party?
Is that the only option left for developers that do not have deep pockets?
The days of fly-by-night operators are over. With the real estate boom, everybody wanted to become a developer. Even your paanwaalas were fancying themselves as brokers and builders.
There will be a weeding out process. Large developers will buy out the land and projects of small players. These small builders know that today they will not get funding. Banks will not lend to them. And private equity will not touch them.
What steps are you taking to ensure cost-cutting?
We at Parsvnath never buy land from the secondary market. We acquire land directly from the farmers. For 20 years, before I became a developer, I was a broker. I used to buy land for some of the biggest realty firms in existence today.
That is where my original expertise lies. I know how to acquire land cheaply and legally. Given our foresight, Parsvnath purchased land two years ago in Chennai and Sohna Road (Gurgaon) for rates which are rock bottom by any standards.
What about special economic zones?
We are small SEZ developers. We have planned 16 zones and have got formal approvals for four and in-principle approval for eight. Our largest SEZ is a 2,500 acre multi-product one at Chennai.
If the government were to remove some concessions, we will still benefit. We can always convert the entire area of our proposed SEZs into a real estate development project. And obviously, if the government gives more concessions, we will carry on benefiting. There is an upside for us either way. - A Strong Community of Indian Realtors Launches Location Maps

(OPENPRESS) May 31, 2007 --, a Free Community based Real Estate Portal system enables local dealers, developers, buyers, sellers, owners and tenants to build and maintain their own pool of information and interact, providing local residents with access to information about properties in the area.

Once the site was built and made online in 2004, the promotion began. They did some heavy research on search engine promotion, reading as many articles on the subject. Then they fine tuned the portal based on their learnings. They have also run ads in local newspapers, magazines and purchased banner advertising on other sites, and set up reciprocal linking agreements around the Web.

The portal site was launched way back in April 2004, and by July it was almost receiving 500 unique visitors everyday. The property portal now generates some amazing amounts of page views and user trust," according to Mr. Sagar Kumar, the Portal Manager. "The portal also serves as a great marketing vehicle for other local business websites. All clients are given free text and graphic listings", he added.

In the 37 Months since the portal's launch, it has been responsible many property deals in India and Overseas. "We are definitely using as part of our sales strategy for acquiring new clients for," says Mr. Kumar. "We use it as part of our internet marketing portfolio, to show prospective clients our capabilities and the quality of our work."

"We are very keen to increase the number of organizations using the community portal, and have recently released locatin mapping facilities and another free portal system ( to address other areas of free community based services like forums, blogs, classifieds, jobs, matrimonials etc." says Mr. Kumar.

"We are building a Web engine that can create personalized user experiences across dozens or hundreds of Web sites. Resources can let visitors know about the neighborhoods, whether a house roof can support a second floor, price, location map, what amenities are included and agent contact information" he added.

DLF arm may go the parent’s way

NEW DELHI: Another DLF company may hit the capital market over the next one year. DLF Group subsidiary DLF Assets may go public next year or get converted into Real Estate Investment Trust (REIT). It is at present awaiting Sebi’s guidelines on REITs. DE Shaw, the leading US hedge fund with over $30 billion in assets, has recently invested $400 million in DLF Assets.

Senior executives from DLF group said DLF Assets could also invest in properties in India and abroad. Till date, DLF Assets has only bought property assets from the DLF Group. The company would soon start buying large block of properties in India from other parties. “We would buy full complexes and buildings. Currently, we are not interested in buying floors or spaces in commercial or residential complexes,” a senior executive from DLF Assets said. The conversion of the asset company into REIT, apart from mopping up funds for the company, would also allow small investors to invest in real estate thus increasing their exposure.

REITs, common in several developed countries, are generally open or close-ended companies/trusts that hold, manage, lease, develop and maintain properties for investment purposes. They are often, but not necessarily, traded on an exchange. The value of units/stock allotted to investors is computed on a NAV (net asset value) basis, as the market value of assets minus liabilities. REITs invest in real estate directly, through properties or mortgages, or indirectly through subsidiaries.

Valuation blues for realty funds

Lack of uniform valuation and disclosure standards could dampen the enthusiasm of investors in real state mutual funds (REMFs) once they are launched in the country.

Experts tracking the performance of Real Estate Investment Trusts (REITs), the equivalent of REMFs abroad, feel the lack of standards could put downward pressure on the scheme in the country.

“Worldover, REITs are being traded 5 to 10 per cent below their asset value due to improper valuation in some cases. In India, they could see additional discounts since there are some problems with valuation,” said Graham F Chase, president of The Royal Institution of Chartered Surveyors (RICS).

Chase believes that accuracy of land valuation is the most critical element in the market performance of realty firms and REITs. “Do not assume that you will get market capitalisation above your asset value. Markets take a realistic picture of the assets and if they think that your valuation is bloated, the share prices will definitely be impacted,” Chase said.

India could see the first REMF by the end of this year as the Sebi sub-committee is in the final stages of preparing detailed guidelines for the same.

REITs are basically set up to reduce tax burdens which otherwise have to be borne by individual entities. Corporate tax and capital gains tax are not levied on it since it acts as a trust.

In REITs, at least 90 per cent of the profits are distributed as profits through dividends and shareholders will then pay tax on dividends as if they were rental income.

REITs were first started in the US in the 1960s and since then REIT-type vehicles have become popular in countries such as the Netherlands, Luxembourg, Spain, the UK, Japan, South Korea, Singapore, Hong Kong, and Australia.

But experts believe that REMFs can bring more liquidity and transparency in India’s real estate sector, which is largely unorganised.

Said Sourav Goswami, MD, Walton Street Capital: “The major challenge for the introduction of REMFs in India is the lack of yield-generating assets of institutional quality into which REMFs can invest. Also the methodology for valuation of REIT has not been decided yet. However, the good thing about REMFs is that they provide viable options for developers and funds to exit the projects and create additional funds.”

John J Kriz, MD, real estate finance, Moody’s, said “For emerging markets like India, REITs could help bring more liquidity, transparency and foreign investment in real estate. Since a significant part of wealth comes from property in India and the sector is capital hungry, REITs can help increase the extent to which public equity is raised.”

He added: “Most of the real estate firms focus more on housing development and less on long term investment. REITs are famous for long-term goals”

The net asset value (NAV) of REITs is calculated in different ways in different countries. Various factors taken into consideration which include valuation of property, individual assets they own, cash-flow measures, occupancy and rentals achievable, interest rates and so on. Those with mortgaged properties are valued less compared to those which do not have mortgaged properties.

In the US, where nearly 200 REITs are operational, NAVs are calculated on the historical value of the asset. In countries such as the UK and Hong Kong, external valuation is done once in 4 years and internal valuation in between. Then markets decide whether they would be traded at at premium or deficit to the NAV.

Wednesday, May 30, 2007

Godrej realty arm in talks to raise Rs 200 cr

NEW DELHI: Godrej Properties, the real estate arm of the Rs 7,500-crore Godrej group, is learnt to be in talks with private equity investors to raise Rs 200 crore for its two realty projects in Hyderabad and Kolkata. The company is looking to dilute 49% stake in both the projects to PE investors.

“Talks are on with several investors for diluting 49% stake in two of our projects in Hyderabad and Kolkata. The final decision is yet to be taken,” Godrej Properties chairman Adi Godrej told ET

Mr Godrej declined to comment on the valuation of the two projects. Sources in the industry say the deal size for both the projects together is in the range of Rs 180-200 crore. The two projects may be set up as a special purpose vehicle in which the majority stake will be retained by Godrej Properties.

Sources close to the development say the company has been in discussions with about 7-8 investors and is learnt to be in advanced stages of discussions with two of them including the London-based real estate fund Trikona Capital.

Mr Godrej however declined to name the investors he is in discussion with. “I can not disclose the names,’’ he said. An e mail sent to Trikona did not elicit a response. Trikona raised nearly $500 million at London Stock Exchange’s AIM market last year to invest in the real estate market in India.

The Godrej group is focusing heavily on its real estate business and expects it to be a major revenue generator. Currently, the group’s real estate business accounts for 8-10% of its total revenues. The group expects this could go up to 20-25% over the next five years. An IPO is also on the cards for Godrej Properties to fund its expansion

Realty MF norms on cards

Likely to suggest quarterly disclosure of NAV.

The guidelines for real estate mutual funds (REMFs), which are being worked out by a panel appointed by the Securities and Exchange Board of India (Sebi), are likely to suggest quarterly disclosure of net asset value (NAV), besides putting an investment ceiling based on individual projects, developers and even locations.

The quarterly disclosure of NAVs is a step-down from the regulator’s earlier stand that REMFs should disclose their NAVs every day.

Sources said the domestic market could see the launch of the first REMF by the end of this calendar as the sub-committee is in the final stages of preparing detailed guidelines for the purpose.

“The guidelines could be out by the end of the third quarter,” a top mutual fund executive said.

He added that even though the launch has been delayed following recent policy changes, all newer issues, including land and property valuation and other regulatory disclosures, will be addressed in the final guidelines.

Last June, the Sebi board had cleared the basic norms for REMFs, stipulating that such funds would initially be close-ended and units compulsorily listed on stock exchanges.

The Sebi committee is also of the view that valuation of properties should be done by qualified experts such as chartered accountants.

Analysts point out that valuation of property will be a key issue before launch of REMFs. “For valuing assets such as property, no value parameter is available. That has to be set up by creating a comprehensive database.

They even have to accommodate recent Sebi guidelines on realty IPOs,” said Ajit Krishanan, partner, Ernst and Young.

The committee is also discussing investment regulations that will spell out per project investment limits, location specific limits and developer specific exposures. These norms are on similar lines as those specified for equity-oriented mutual funds.

Globally, REMFs are known as Real Estate Investment Trusts (REITs). “Globally, REITs are being traded 5 to 10 per cent below their asset value since they are not properly valued,” says Graham F Chase, president of The Royal Institution of Chartered Surveyors (RICS).

This will also be the case in India owing to the illiquid nature and close-ended structure of the funds, a local fund manager said.

DLF upbeat on earnings, sees no price bubble

MUMBAI (Reuters) - Property developer DLF Ltd., which is relaunching an initial public share offer to raise up to $2.4 billion, said on Tuesday there was no property price bubble and its earnings would be a pleasant surprise.

Vice Chairman Rajiv Singh said the company, which had cancelled a planned listing last year, expects strong earnings growth and steady real estate prices.

DLF's offering, India's biggest-ever IPO, was priced at 500 to 550 rupees, which Singh said is an attractive level when compared with the likely earnings in the current fiscal year.

"We have priced it to the benefit of the investors ... It will be seen as an extremely reasonable offering," he told Reuters.

The offer price values DLF at over $23 billion at the upper end of the band and places its above India's top private bank ICICI Bank, valued at $20.6 billion; Wipro Ltd., $19.5 billion; and top lender State Bank of India, $17.1 billion.

DLF is selling 175 million shares, or 10.27 percent of the company. Subscription is open from June 11 to 14.

"I think when our next year results are seen, it will be an extremely pleasant surprise and put things in a totally different perspective than what's being thought of today," Singh said.

The company is upbeat about India's real estate sector although several analysts and fund managers say property prices, may drop up to 40 percent in the short to medium term.

"I don't think there is any bubble, neither will it burst," Singh said.

India's booming market has seen property prices double in the last two years as the economy, growing at more than 9 percent a year, boosted demand for shopping centres, offices and homes.

However, demand for homes has slowed after a sharp rise in interest rates. Singh said he expected prices to mostly hold at current levels, with some variation depending on location.

New Delhi-based DLF, which has developed 220 million square feet of property, expects to spend 35 billion rupees ($864 million) from the IPO to buy land, Singh said.

DLF's IPO would rank comfortably above those from India's top software firm Tata Consultancy Ltd., state-run utility NTPC Ltd. and energy firm Cairn India Ltd., all of which had raised just under $1.2 billion.

Last year DLF scrapped plans for a public offer after a stock market meltdown and some disputes with minority shareholders. At that time the IPO was expected to raise up to $3.5 billion.

Rival Unitech Ltd reported on Monday that its earnings for the quarter ended March jumped more than 10 times as it sold more properties and expanded into new markets.

Unitech is currently India's most valuable listed real-estate firm, with a capitalisation of $12 billion.

Kotak Mahindra and DSP Merrill Lynch are the lead arrangers for the issue, with Citigroup, Deutsche Bank, ICICI Securities, Lehman Brothers, UBS and SBI Capital Markets.

Ansal Properties enters into MOU with India Realty Ltd and Noor Capital

Ansal Properties & Infrastructure Ltd has announced that a Memorandum of Understanding (MOU) has been entered between the Company, India Realty Ltd (IRL) having experience of real estate developments in India, and Noor Capital, PSC, UAE, with head quarters in Abu Dhabi, (NOOR), for bringing in foreign direct investments (FDI) from Gulf Cooperation Council Countries. The FDI is initially proposed into the approx 500 acres of township in Agra Project of the Company, and a Group Housing Project in Ghaziabad, one of the joint ventures of the Company, both in U.P. The projected turnover for both these Projects is around Rs 3000 crores over the next 7 to 8 years.

The MOU records the broad terms and conditions as regards investment through NOOR and also includes NOOR along with IRL agreeing to identify other project/s for joint developments with the Company. NOOR shall bring its international expertise of funding in real estate projects, in India, in compliance of all legal requirements and / or with the requisite approvals, to complement the business of the Company in real estate development.

NOOR is an investment Company licensed and regulated by the Central Bank of the United Arab Emirates with an authorized capital of AED 1.2 Billion and a paid-up capital of AED 342.9 Million. One of the key strengths of NOOR is its diverse and multinational shareholder base, which includes the UAE, Kuwait, Kingdom of Saudi Arabia, Qatar and Bahrain.

The stock closed the day at Rs.330.85, up by Rs.7.55 or 2.34%. The stock hit an intraday high of Rs.336 and low of Rs.322.05. The total traded quantity was 266262 compared to 2 week average of 185871

Xansa inks pact for real estate property sale

New Delhi: Leading outsourcing and technology firm Xansa said on 29 May it has entered into an agreement with Alpha Tiger Property Trust Ltd for sale and leaseback of the company’s real estate interests in India for Rs190.87 crore (about 35 million Euro).
The agreement appoints Alpha Tiger, which invests in and develops Indian real estate, as Xansa’s preferred provider in India, the UK-based company said in a filing to the London Stock Exchange.
This agreement is conditional on local and Central government approvals, including Special Economic Zone (SEZ) notification and is expected to be completed in phases.
The proceeds of the transaction, which are expected to be up to 35 million euros before expenses and taxes, would be used to reduce Group Net Debt, it said.
The agreement would enable Xansa to crystallise the value inherent in its real estate portfolio in the country and establish a strategic relationship with a local real estate partner.
“We have developed our own properties in India over the past ten years. This outsourcing arrangement with Alpha Tiger will provide an excellent solution to our current and future real estate requirements in India, whilst freeing up capital and resource to focus on the further development of our core business,” Xansa chief executive Alistair Cox said. Xansa employs over 8,000 people in the UK and India.

Unitech profit jumps 10 times, bonus issued

The net profit of Unitech, India’s largest listed real estate company, jumped 10 times to Rs 357.09 crore in the quarter ended March 2007 from Rs 35.46 crore in the corresponding period of the previous year. During the period, its revenue increased by more than four times to Rs 848.71 crore from Rs 208.05 crore.

For the full financial year 2006-07, the company’s net profit increased by 13 times to Rs 983.56 crore from Rs 69.65 crore in the previous year. Its revenue increased almost four times to Rs 2,599.64 in crore 2006-07 from Rs 674.75 crore in the previous year.

The company’s consolidated profit increased nearly 14 times to Rs 1,305 crore in 2006-07 from Rs 87.65 crore in the previous year. During the year revenue increased by 255 per cent to Rs 3,388.3 crore from Rs 954.5 crore in 2005-06.

Unitech also announced a 1:1 bonus. This is the company’s second bonus issue in the last 12 months. The Unitech scrip rose by Rs 48.85, or 8.9 per cent, to close at Rs 595.90 on the Bombay Stock Exchange. The board announced a 25 per cent dividend for the financial year ended March 2007.

Unitech has decided to invest Rs 10,000 crore over the next four years in the hospitality and retail sectors. The investment will be funded through a combination of internal accruals and debt. The company would roll out 28 hotels with a cumulative 4,900 rooms in the first phase, said Sanjay Chandra, managing director Unitech. “We have identified 28 hotels sites and construction in a majority of the sites has started,” he added.

Chandra further said Unitech would not manage any of these hotels. “We are going to enter into brand-cum-management contracts with leading hotel chains for managing these properties,” he added.

“If we get good value for these properties we might explore the option of exiting from some of the properties. As a pure-play real estate developer, we are not going to be sentimentally attached to any of our properties,” Chandra said.

Chandra said Unitech owned around 11,000 acres of land. “We will start consuming around 10-12 per cent of our land bank every year. This will deliver around 30 million sq ft of built-up area. At the same time, we will continue to acquire land in 15 cities of the country where employment opportunities are going to increase tremendously,” he added.

Big Landlord Close to Deal for a REIT in India

The real estate company that bought two prominent apartment complexes on Manhattan’s Lower East Side is trying to make another major acquisition in the New York market.

The company, Tishman Speyer Properties, has joined with the investment bank Lehman Brothers and was close to a deal last night to buy Archstone-Smith Trust, the second-largest public apartment owner in terms of market capitalization and asset value, for more than $20 billion, people involved in the talks said.

The deal, which could be announced as early today, would be one of the largest privatizations of a public real estate investment trust.

Still, people involved in the negotiations cautioned that the deal was not completed and it was possible the talks could collapse or be postponed.

Under the terms, Tishman and Lehman would pay more than $14 billion for Archstone-Smith and assume about $6.3 billion in debt, according to people involved in the negotiations. Exact terms could not be learned last night.

For its part, Lehman may create a fund that will allow its clients and high-net worth investors to invest in the real estate market.

At the end of March, Archstone-Smith, which is based in Englewood, Colo., owned or had an ownership position in 344 complexes, representing more than 86,000 apartments, including units under construction.

The REIT calls itself the largest public owner of apartments in Manhattan, including the Key West, a 207-unit, 13-story high-rise on Columbus Avenue near 96th Street, and the 627-unit Archstone Clinton on West 52nd Street between 10th and 11th Avenues.

Some 57 percent of the REIT’s portfolio is in the New York metropolitan area, Southern California, the San Francisco Bay Area and Seattle.

The news of the possibility of an impending deal stunned the industry. Though there had been speculation in recent weeks that private equity firms were about to begin focusing on apartment REITs, most industry analysts did not expect a company the size of Archstone-Smith to be in play.

Archstone-Smith, second only to Equity Residential Properties in size, is regarded as well-managed with prime buildings in cities like New York, Washington and Los Angeles, where it is difficult to add new supply.

The equity firm, the Blackstone Group, paid $23 billion for Equity Office Properties Trust in February, and has sold large pieces of the REIT.

But at least one analyst said that Archstone-Smith had been increasingly seen as a potential buyout target for its high-quality assets and its presence in crucial markets.

Robert M. White, the president of Real Capital Analytics, a New York research company, said that although a few apartment REITs have been taken private, the sector had largely been bypassed during the wave of acquisitions that have swept through the publicly traded office and hotel companies.

One concern, Mr. White said, was that when the condominium conversion trend halted about a year ago, many new apartments would be dumped on the market and the inventory would vastly exceed demand.

“A lot of people thought it might be the beginning of the end,” he said. But those fears proved unfounded, he said.

Barry Vinocur, the editor of REIT Wrap, a daily newsletter, said apartment REITs have been trading at a large discount to what the buildings are actually worth.

In fact, he said, “their earnings growth have been the best of any sector in the REIT space.”

In early May, Archstone-Smith announced earnings of $1.27 a share for the first quarter, up from 58 cents in the quarter a year ago.

Keven S. Lindemann, the director of real estate for SNL Financial, a research company in Charlottesville, Va., said that the deal made sense for a company like Tishman Speyer, which seeks high quality real estate.

“This is such a collection of top-notch assets,” Mr. Lindemann said, “and it would take a lot of time and probably more capital to assemble a portfolio like this on a piece by piece basis.”

The Archstone acqusition would add to Tishman Speyer’s international inventory of commercial properties, which includes Rockefeller Center and the Chrysler Building in Manhattan, the CityPoint building in London and the LumiĆ©re office tower in Paris. It also owns developments in Latin America and has lately begun investing in India and China.

In October, Tishman bought Stuyvesant Town and Peter Cooper Village for $5.4 billion — 80 acres of prime Manhattan land along the East River that included 110 buildings and 11,232 apartments. Less than three weeks after putting the headquarters of The New York Times Company in Times Square on the block, Tishman sold the building for $525 million, three times the $175 million it paid in November 2004.

Analysts say the apartment sector tends to do well during a housing slump. And with the housing market cooling rapidly across the United States, stocks of apartment real estate investment trusts such as Archstone-Smith have performed strongly on the belief among some investors that former homeowners will once again turn to the rental market.

Last year, Archstone-Smith’s stock rose 44 percent. This year, however, rising concern that rental prices may have peaked has caused the stocks of some apartment REITs to stagnate. Before a run-up last Friday on takeover speculation, Archstone-Smith’s stock had fallen nearly 11 percent this year.

The chief executive of Tishman Speyer, Jerry I. Speyer, also plays a leading role in the civic and cultural life of New York. He is vice chairman of the Museum of Modern Art, an owner of the New York Yankees, a member of the Council of Foreign Relations and chairman of the Federal Reserve Bank of New York.

He has been able to raise billions for real estate investment from pension funds, insurance companies and wealthy families like the Crowns of Chicago and the Agnellis of Italy.

Dubai-based real estate firm to develop $923 million IT township in India

ETA STAR Properties Ltd, an offshoot of the Dubai-based real estate developer, ETA Ascon, has signed a Memorandum of Understanding with the Tamil Nadu State Government in India, to set up an Information Technology dedicated Special Economic Zone (SEZ) and an integrated township in Kancheepuram district at an estimated cost of $923 million.

The agreement for the joint venture was signed between the group’s Managing Director, Syed M. Salahuddin and S. Ramasundaram, Chairman and Managing Director, Tamil Nadu Industrial Development Corporation (TIDCO) in the presence of the Tamil Nadu Chief Minister M. Karunanidhi.

Syed M. Salahuddin said, “We are definitely looking at India as a big opportunity to grow our businesses and our latest investment in Tamil Nadu is part of our regional expansion plans. In particular, we are delighted to further strengthen our relationship with the Tamil Nadu Government and hope to contribute to the growth of the booming Information Technology sector in India.”

The IT township project would be implemented over a three year period by ETA Star Tech City Pvt. Ltd. to create space to an extent of 17.5 million sq ft for apartments, row houses, bungalows, shopping mall, car park, hospitals, schools, hotels and service apartments in an area of about 350 acres. This includes a SEZ for IT and IT enabled services (ITES) in an area of about 50 acres and would provide employment to approximately 50,000 people. The entire land for the project had been privately purchased by the ETA Group. The project work is expected to start in August 2007.The group company is also involved with other infrastructure projects in India including metro rail, ports, power and roads

Old Lane-JM Fin fund in talks to buy stakes in two realty projects

MUMBAI: Real estate fund Infinite India, floated by JM Financial and Old Lane — The New York-based India-focused hedge fund — are in advanced negotiations with textile firm Wearology to pick up majority stake in two real estate projects.

Wearology is in the process of developing over 500 acres of land in various parts of Mumbai. The company is also developing another 100 acres of land owned by its subsidiary Gopi Resports at Karjat, a Mumbai suburb. The firm is focusing on residential real estate development in Karjat area.

When contacted, a senior Wearology official said, “We are in negotiations with various funds for our real estate projects. Some agreements will be signed early next month. Currently, we cannot divulge any specific names.” If the talks materialise, these funds will be investing approximately Rs 200 crore in Wearolgy’s real estate projects.

Recently, in a separate deal, the Wearology had entered into an agreement with Israeli developer Alony Hetz and LJCB Investments for the development of another 500 acres in Karjat. Alony Hetz plans to build a $160-200 million 450,000-square meter second home holiday house project in a JV with Wearology at Karjat.

Demand for large office complexes, malls and residential properties has fuelled a demand for land, which has also attracted large foreign companies and funds to invest in the Indian real estate sector. The robust trend has also prompted several companies to develop their real estate assets and to realise gains from the on-going boom.

National Housing Bank estimates the overall housing shortage at 31.1 million units. It is estimated that India needs an investment of $60 million to meet the demand. Old Lane has a $500-million India opportunities fund, which is in the process of investing in the infrastructure and real estate projects.

Infinite India has also launched a $400 million real estate fund focusing on residential, commercial & retail sectors. Old Lane has teamed up with RR group of Chennai to develop a 2million sq ft IT and ITeS park. It has also tied up with HDFC and Sterling group in Bangalore. Old Lane has already invested about 40% of its $500 million India fund.

Tuesday, May 29, 2007

Hindujas consolidate realty business

MUMBAI: The Hinduja group has consolidated its real estate assets under one entity and plans to rope in overseas firms for developing over 30 million sq ft of property in different parts of the country.

Aasia Properties Development, fully owned by the Hindujas, will be the holding company for all the group’s real estate ventures. Its 100% subsidiary, Aasia Realty Ventures, will implement all FDI related ventures while Ashok Leyland Properties will focus on development planning, project management and design.

Aasia Properties Development owns 88.5% of Ashok Leyland Properties while 11.5% is held by Ashok Leyland, group companies and individuals. Aasia also owns the 33% stake in JW Marriott through Juhu Beach Resorts.

Sources said Gulf Oil, Hinduja TMT will enter into joint development of excess land near their factories and offices with Aasia Properties. The land will be jointly owned by the companies and Aasia, and revenue will be shared. The actual development, property management will be left to Ashok Leyland Properties. Cushman & Wakefield have valued the 30 million sq ft at Rs 4,200 crore over four years.

The Hinduja group is also looking to rope in overseas property management firms into buying a 20-40% stake in Ashok Leyland Properties. Group sources said that two firms are in talks with the group and that a transaction will be concluded in a month’s time.

The Hinduja group’s move comes at a time when the real estate market in the country is going through rapid growth phase and booming demand but is also under regulatory glare due to concerns of a bubble

Realty firm Unitech Q4 net rises 10 fold

NEW DELHI (Reuters) - Unitech Ltd., India's most valuable listed real-estate firm, said on Monday its quarterly profit rose more than 10 fold as it sold more properties and expanded to new markets.

Unitech is diversifying from residential projects into hotels and malls, and said it would invest $2 billion in building 28 new hotels and 7 malls.

Managing Director Sanjay Chandra told reporters the company, which had an EBITDA margin of 62 percent in 2006/07, was hopeful of maintaining margin growth in the financial year that began on April 1.

"Margins will be sustainable. They could expand a little," Chandra said.

Indian property developers have had robust growth as an economy growing at over 9 percent a year fuels demand for shopping centres, offices and homes.

"We were selling seven or eight projects rather than one or two projects in our earlier days," Chandra said.

Unitech, which has a market value of almost $11 billion, said net profit for the January-March quarter rose to 3.57 billion rupees from 0.35 billion a year ago.

Unitech shares closed 8.9 percent higher at 595.90 rupees in a Mumbai market that rose 0.4 percent.

Net sales quadrupled to 8.49 billion rupees from 2.08 billion in the corresponding quarter last year.

For the full year 2006/07, the company reported a net profit of 13.05 billion rupees on sales of 33.88 billion.

The company's board also approved an issue of one bonus share for each share held.

Unitech competes with DLF Ltd. and a host of other real estate developers. DLF is planning a public issue that could raise up to $2.4 billion, and would surpass Unitech as India's largest listed real estate firm.

After a boom that saw prices double in major cities over the past two years, many analysts think a combination of higher interest rates and oversupply in some centres could lead to a price slide of as much as 40 percent.

"India's real estate market is in pain," Citigroup said in a report this month.

"Transaction volumes are drying up, higher interest rates and prices have damaged affordability, developers are suffering regulatory and capital markets squeeze, supply is impending."

Citigroup has "sell" recommendations on a number of real estate firms, including Unitech and Parsvnath Developers Ltd.

But Chandra said the company expected growth in demand, mainly driven by new markets like Chennai, Hyderabad and Kolkata.

"We will do well," he said. "The end user demand is huge."

Electra Real Estate closes giant acquisition in Holland and Germany

Electra Real Estate (TASE: ELCRE) today revealed the biggest deal it's ever made, which is also its first in the Netherlands.

Together with partners, the company - which is controlled by Gershon Salkind - has agreed to buy a portfolio of 10 yield-generating properties in Germany and Holland for 278 million euros (NIS 1.5 billion).

Electra Real Estate's share of the deal is 70% or NIS 1.05 billion, it advised the Tel Aviv Stock Exchange today.

The company has been a busy bee. From the start of the year, it's closed more than NIS 5 billion worth of transactions, and that's its share of the transactions alone.

All the assets in the present deal are office space. Their total area is 103,600 square meters plus 1,700 underground parking spots, Electra Real Estate said.

In Holland, four of the sites are near Schiphol airport in the Netherlands and two are at the centers of Rotterdam and the Hague. The total area of the Dutch properties is 47,700 square meters.

Moving onto Germany, the total area is 55,900 square meters. One of the sites is in central Berlin, another is in central Dortmund, and two others are in Hanover and Munich.

The assets in both countries are leased to different tenants for different terms. Tenants of note include PwC, the Dutch communications company KPN, the Dortmund municipality, Kyocera, and the Dutch bank IDM.

The ten assets make 17.7 million euros a year in rental income, Electra Real Estate said, linked to the consumer price index in the respective countries.

Two foreign banks are providing Electra Real Estate with non-recourse loans totaling NIS 1.45 billion, or 269 million euros, backed by the assets themselves. Most of the sum is for five years and bears fixed interest of 5.4%.

Most of the deals Electra Real Estate closed this year are in Britain, India, the U.S. and Germany.

Electra Real Estate managing director Shlomo Sherf commented: "The present portfolio expands the company's inventory of quality assets in western Europe and extends the company's geographical span by entry into Holland."

He added that the company is examining additional investment opportunities in Europe, North America and eastern Asia.

Last month Electra Real Estate reported netting NIS 51.1 million for the first quarter of 2007 on revenues of NIS 192.4 million.

For the year 2006 it had reported netting a record NIS 288 million after adopting IFRS (international financial reporting standards), ahead of the time the Israeli regulator would have forced it to.

Hilton Hotels plans to open 300 new hotels in India

SINGAPORE : Hilton Hotels, one of the world's largest hospitality chains, plans to add 1,000 new properties outside North America over the next 10 years.

Of these, 300 hotels will be in the Asia Pacific, mainly in China and India.

Hilton wants to tap into the burgeoning growth in the travel industry in this region.

Hilton presently runs two hotels in Singapore - the Conrad and the Hilton.

And the company says its expansion strategy for the region will be similar to how it operates here - that is, it will manage the hotels but will not own the actual properties.

Hilton plans to add 300 new hotels in the Asia Pacific region over the next decade.

Koos Klein, Area President - Asia Pacific, Hilton Hotels, said: "The advantage is that we can grow much faster if you don't have to own. We operate about 3000 hotels at the moment, worldwide in 80 countries - 500,000 rooms. We've got about 800 in the pipeline, and growing very fast. And for any hotel company in the world, it's impossible to own all the real estate themselves."

Asia Pacific international tourist arrivals grew 7.6 percent last year, compared to 4.5 percent globally - while tourism is forecast to add US$110 billion in sales for the region over the next three years.

Hilton is targeting China, India, Japan and Australia as its key growth markets.

It does not have immediate plans for new projects in Singapore, but says it expects to introduce some of its other hotel brands here in the next few years.

Mr Klein said: "We think the potential for Singapore is quite large. There's a very active government approach here to promote tourism, with the integrated resorts and all the other initiatives being taken. Room rates are on the up a bit - they were traditionally very low, and actually on the low side for an investor to develop a new hotel and go through the cost of constructing a new hotel.

"We're now getting into a situation where there are almost not enough hotel rooms, and where the room rates are going up so it's starting to become viable to build new hotels."

Hilton also owns hotel brand names such as the upscale Doubletree chains, and the economy Hampton Inn chains. - CNA/ch

Monday, May 28, 2007

Real estate developers and investors eyeing property markets in India

REAL estate players, including developers and property consultants, are benefiting from the growing globalisation of the property market with a free flow of investment and a boost in building opportunities.

Real estate has played a big role in spurring the economic growth of vibrant cities in China, India, Vietnam and the Middle East.

It is increasingly accepted as a popular investment tool and asset for many international investors, including Malaysians who have invested in real estate overseas.

Spreading their wings overseas will spur greater earnings growth for developers and give them an opportunity to break out of their comfort zone.

It is no wonder that Malaysian developers and consultants are making a beeline offshore to get a piece of the action in the robust regional property markets and, in the process, shoring up their image as international players.

Abundant opportunities await those who seek out the adventure of partaking in the buoyant markets of India, China, Singapore, Thailand, Vietnam, Cambodia and the Middle East.

Besides the big names such as IGB Corp Bhd, IJM Corp Bhd, Sunway City Bhd and Mulpha International Bhd, the list of the other emerging offshore players is growing longer.

Across the causeway, the Sentosa Cove development has attracted much attention from developers from around the world, including Malaysian players such as YTL Corp Bhd, IJM and IOI Properties Bhd.

To promote greater international participation in developing Sentosa Cove into a marina resort and waterfront housing enclave, project developer Sentosa Development Corp has invited established developers worldwide to partake in the development process.

The presence of so many established Malaysian developers highlights the attractiveness of Singapore's hot property sector, which could get a further boost following the country's decision to develop two integrated resorts.

Sunway City Bhd (SunCity) senior managing director Datuk C.K. Wong said going offshore was a good opportunity to enhance earnings and growth potential for local developers.

“Armed with the right skills and experience in designing and building quality projects, our developers will be able to value add and enhance the development potential of the overseas living environment,” he told StarBiz.

Wong said the developers partaking in projects abroad, such as in Sentosa Cove, also got the opportunity to benchmark against other international players by coming out with world-class products.

SunCity, which has ventured into India and Cambodia, expects a boon to its overseas earnings when its project in Hyderabad starts in the near future, marking a critical growth dimension for the company's overseas expansion.

“The company is also working with landowners and property developers to seek out good development sites in other high-growth areas in Hyderabad, Bangalore and Pune,” he added.

Ireka Corp Bhd executive director Lai Voon Hon said that although Malaysia, with its growing global status, was still a good market for the company, there was significant growth potential in high-growth countries like Vietnam, China and India which Malaysian companies should not miss.

“Ireka's venture overseas is very much a part of its vision to be a globally focused company. We believe that with the experience we have developed over the years in Malaysia and abroad, we are now poised to further export our expertise,” Lai said.

The company will explore various other high-growth regional markets to expand its development business.

Mah Sing Group Bhd president Datuk Leong Hoy Kum said the company was conducting in-depth studies on several opportunities, evaluating risks and returns before making its foray overseas.

“We are exploring high-growth countries, including Vietnam, China, India, the Middle East and Indonesia, which have a healthy appetite for property,” Leong said.

Meanwhile, real estate agents are also doing brisk business representing Malaysians shopping for properties abroad.

S.K. Brothers Realty chief executive officer Charlie Chan said Malaysians had become more affluent and were looking for foreign properties with good returns in countries with stable socio-political climates.

Popular countries to invest in include Australia, New Zealand, Britain and Singapore while properties in demand are those with good yields such as high-end luxurious condominiums, hotel condominiums or apartments, student accommodation and even resort developments.

“I don't see these investments affecting (adversely) our local property market. Malaysians are still buying properties here to stay in and foreign buyers are also investing in our properties. Everything balances up,” Chan said.

Global Link Properties chief administrative officer (overseas properties) Norman Sia said the company had introduced over 500 projects in Australia and New Zealand to Malaysians in the last 10 years.

Sia's advice to prospective investors: “It is important to look for properties in good locations for better rental income. Another factor to consider is the management of the properties. A well-managed property will garner higher returns.”

DAMAC Enters Booming India Real Estate Market !

(MENAFN - Arab News) JEDDAH, 28 May 2007 � Dubai-based DAMAC Properties Co. LLC, which has a track record of $30 billion real estate projects, has entered the booming Saudi market with its first project on the Jeddah Corniche.

"Al-Jawharah is the Kingdom's first iconic project, a residential tower in the Kingdom located on the Corniche alongside the Red Sea," Peter R. Riddoch, chief executive officer at Dubai-based DAMAC Properties Co. LLC, told a press conference at the Jeddah Hilton yesterday.

"The spectacular 40-story tower has beautiful landscaped surroundings, a grand reception area with double-height lobby, a guest lounge designed by one of the top-most interior designers, luxurious five-bedroom penthouses and apartments ranging from one to four bedrooms, and a multi-level car park," Riddoch said.

"All apartments and penthouses feature wide balconies that offer private access to the magnificent outdoors and also stunning views of the Corniche and the Red Sea," he said, adding that the SR800-million project will have around 300 units.

The project provides a superior living environment with every conceivable modern facility, including advanced smart home devices that ease home management. In addition, the project has a lift lobby with multiple smart elevators, smart home technology with electronic access system, concierge services and 24-hour residents' services, and camera surveillance covering multiple floor parking.

DAMAC Propereties also recently opened a state-of-the-art sales lounge for its customers in Riyadh. The company currently has three sales offices in the country located in Jeddah, Dammam-Alkhobar and Riyadh.

"This is just the beginning and our ambitious plan for the Kingdom that includes a number of real estate ventures will be unveiled within the near future. Saudi Arabia is a very important market for us and unlike any other developers in the UAE, we are showing our commitment to the Kingdom by launching our state-of-the-art Al-Jawharah project and also by establishing a strong local presence in a number of cities in the country," Riddoch said.

In addition to the Kingdom, DAMAC Properties is pursing projects in Egypt, Qatar, Jordan and Lebanon with future schemes being considered in Turkey, Oman, Morocco, Tunisia, India and Pakistan among other countries.

DAMAC recently launched yet another luxurious masterpiece � The Signature Series in Dubai. This will be the most expensive penthouse in the Middle East. Each penthouse will be in the range of SR35-40 million. This private world of select apartments is just one each on floors 67 to 75 in Ocean Heights � the 82-story award-winning marvel in Dubai Marina and Lotus Heights in the bustling Business Bay.

DAMAC Properties, part of DAMAC Holding, was established in 1996 and has grown into one of the most successful residential, leisure and commercial developers in Dubai and the Middle East. The company's portfolio of 52 towers is worth over AED15 billion. DAMAC Holding, with Hussain Sajwani as chairman, has now grown into a global conglomerate with more than 7,000 employees in 18 countries. Being the first private sector company to make a commitment to Dubai's real estate market, DAMAC Properties has become the market leader with a strong sales record to its credit.

"By 2012, DAMAC Properties, the largest private sector master developer and luxury lifestyle provider, aims to be the most admired luxury property services company in the world. Saudi Arabia will be an integral component of our expansion strategy and thereby also be part of the company's global vision," he said.

By partnering with world-renowned architects and designers, DAMAC Properties aims to develop schemes that include residential, commercial and leisure facilities that will create an integrated community.

Real estate tightrope

Most, if not all, observers of the real estate sector would be inclined to agree that recent price increases have shown signs of being a bit of a bubble. The upward pressure on prices has been caused in part by large inflows from abroad, both directly in the form of external commercial borrowings (ECBs) and indirectly by way of equity investments in real estate companies. Given that a significant chunk of real estate transactions are funded by borrowing, a collapse in prices does have implications for the health of the financial sector. The magnitude of foreign inflows also gives the situation a balance of payments dimension, which links it to the fundamental macro-economic problem of the day: how to accommodate the huge inflow of foreign exchange while keeping a lid on both domestic inflation and rupee appreciation.

While it is usually futile to try and solve macro-economic problems with solutions geared to individual sectors, in the current scenario the thinking clearly is that every little bit helps. The government recently imposed curbs on external borrowing to fund real estate development, which, on the face of it, simultaneously addresses the sectoral problem of a price bubble and the macro-economic problem of excessive inflows. Now, it has been reported that the second channel of external funding, i.e. equity, will also face restrictions, with a view to further squeezing the flow of resources to this sector.

While there is visible logic in the government’s pursuit of these dual objectives and the instruments being used, it must be emphasised that the long-term consequences of these measures may well be adverse and the realisation of benefits from them will largely depend on the perception that they are strictly temporary. Who can argue that significant investments in real estate are not critically needed, whether in housing or in commercial properties? The recent sealing drive in Delhi has highlighted just how short the city is when it comes to commercial space. As tighter enforcement of zoning regulations spreads across the country, other cities will begin to experience similar pressures. Nor is the state able to do very much about this; it is barely able to keep pace with the surging demand for basic infrastructure services, let alone build and maintain real estate. There is really no alternative to the private sector; given this, one also has to accept that developers will seek the lowest-cost sources of funds, whether both domestically and abroad. A squeeze on funds goes against this imperative and in fact could make the pricking of the real estate bubble a self-fulfilling prophecy.

A second issue relates to the appropriateness of alternative ways in which to deal with a bubble. Although there is no firm consensus on the subject, a practical view is that it is better to impose higher provisioning requirements on institutions that are exposed to the underlying assets than to precipitate a price crash with the use of blunt instruments like a funds squeeze. The Reserve Bank of India has certainly been following this approach with respect to real estate exposures, but the view now appears to be that this is not adequate. However, there is only a thin line between managing asset price inflation and precipitating a crash. In increasing the dependence on blunt instruments, the risks of falling off the tightrope increase.

Islamic Nations to Boost Investment, Trade for Growth

May 28 (Bloomberg) -- Muslim countries will this week call for greater foreign investment and trade between Asia-Pacific and the Middle East to help safeguard economic growth and jobs.

Malaysian Prime Minister Abdullah Ahmad Badawi and his counterpart from Kuwait, Sheikh Nasser Al-Mohammad Al-Ahmad Al- Sabah, will join investors from companies including United Arab Emirates-based Abraaj Capital Ltd. and Kuwait & Gulf Link Transport Co. at the World Islamic Economic Forum in Kuala Lumpur to discuss projects and investments to facilitate that.

``There's a surplus of liquidity in the Gulf which is looking for investment avenues,'' said Salman Younis, head of Kuwait Finance House, the Persian Gulf's largest Islamic investment bank, in Malaysia. ``So it's a very important time for the Middle East to form a bridge with Asia.''

As easing growth in the U.S. damps demand for exports, Asia's developing economies such as Indonesia and Pakistan may need to turn to oil-rich nations in the Persian Gulf. Emerging Asia will expand 8.4 percent this year, easing from 8.9 percent in 2006, and further slow to 8 percent next year, the International Monetary Fund said in April.

Business opportunities in the emerging markets of Asia have lured international corporations to invest in the region. Some of the biggest Persian Gulf investors, including property developer Emaar Properties PJSC and Saudi Prince Alwaleed bin Talal, are investing in Asian companies and real estate from Pakistan to China.

Golf Courses

Malaysia Prime Minister Abdullah Ahmad Badawi today called for greater innovation and collaboration among Islamic economies to boost growth.

``We need to pool our resources to jumpstart innovation,'' Abdullah said in a speech to mark the opening of the three-day forum. ``Nations who don't have the ability to innovate risk being left behind. The world is becoming more globalized.''

Emaar Properties, the largest Middle East property developer, last September said it will invest $43 billion in Pakistan to develop the Bundal and Buddo islands over 13 years. It comes after an $18 billion deal to build homes and golf courses in Karachi.

The 57-member Organization of the Islamic Conference, or OIC, the world's biggest grouping of Muslim-majority countries, last November sought to speed up the establishment of an Islamic free-trade area and an economic union.

Exports Double

The OIC, which includes Saudi Arabia, Egypt and Malaysia, aims to increase its share of global gross domestic product to 20 percent from 6 percent. The group accounts for 19 percent of the world's population, 6 percent of its income and 7 percent of global trade, Pakistan's Prime Minister Shaukat Aziz said last November.

``The economic and financial linkages between Asia and the Middle East are growing,'' Malaysian central bank deputy governor Mohd. Razif Abdul Kadir said May 14. Trade between the regions grew an average 24 percent between 2001 and 2005, and Asia has ``surpassed the Euro region'' as the second most popular investment destination after the U.S., he said.

Middle East exports to Asia hit $281 billion in 2005, more than doubling from 2002, said the World Trade Organization. Imports into the Gulf states will grow 18 percent this year to $376.1 billion from $317.9 billion in 2006, the IMF said May 13.

Gulf states, including Saudi Arabia, which control 40 percent of the world's oil, may earn $24 trillion from crude exports over the next 20 years, Samba Financial Group said on May 3. Growth in the 19 economies in the Middle East and North Africa accelerated to 6.2 percent in 2006 from 5.9 percent in 2005, the World Bank said last month.

High-Worth Individuals

``Asia is the fastest growing region,'' said Deepak Sharma, the Singapore-based chief executive officer of Global Wealth Management International at Citigroup Inc. ``Middle East investors are proactively building business ties and networks in many parts of Asia. Private equity and real estate feature prominently in the investment behaviors,'' of the wealthy in the region, he said.

Personal wealth in the Middle East is expected to increase to $1.8 trillion by 2010 from $1.2 trillion in 2005, according to a June report by Merrill Lynch & Co. and Capgemini Group. The region's high-net-worth individuals increased to 300,000, a 9.8 percent rise between 2004 and 2005, the report said.

Islamic nations such as Malaysia, Sudan and Lebanon are seeking to tap this wealth. Investible wealth in the Muslim world is ``estimated at $1.5 to $1.7 trillion worldwide, the majority of it in the Gulf and also in Switzerland,'' said Baljeet Grewal, chief economist and head of research at Kuwait Finance House (Malaysia) Bhd.

Wealth Management

Malaysia's government is giving tax breaks and incentives for Islamic financial products to lure investors such as Kuwait Finance House and Dubai Holding LLC. About three-fifths of Malaysia's 27 million people are Muslim, the second-largest in Southeast Asia after Indonesia.

Prime Minister Abdullah in March said the government will allow overseas investors to own 100 percent of Islamic financial institutions conducting foreign currency business. Singapore's central bank prefers the island's private lenders and wealth- management companies to create products that comply with Islamic principles, Teo Swee Lian, deputy managing director of the Monetary Authority of Singapore, said on May 15.

Turkey's $400 billion economy benefited from a record $19.8 billion of foreign capital inflows in 2006. The secular state attracted $11 billion in the first three months of 2007, a tenfold increase from a year earlier, Finance Minister Kemal Unakitan, who will be attending the conference in Malaysia, said April 25. Economic growth averaged 7.2 percent a year since 2002.

Real Estate

The 1,000 delegates at the conference, including HSBC Holdings Plc., Singapore's DBS Group Holdings Ltd. and Telekom Malaysia Bhd. will be discussing ways to facilitate banking, energy, infrastructure and telecom investment.

As much as $100 billion from the Gulf have found its way for investment in Asia over the past year, compared with about $200 billion over the five years before that, according to Professor Rodney Wilson of the Institute of Middle Eastern and Islamic Studies at the U.K.'s University of Durham.

Istithmar PJSC, a Dubai government-owned investment company, will spend $250 million buying real estate in the Asia-Pacific region, Richard Johnson, managing director for real estate, said in an interview May 17.

``We like the growth stories we see in India and China,'' he said. ``The two countries in the long-term offer fantastic prospects for investors.''

China, the world's fastest growing major economy, imports crude oil from Saudi Arabia, Oman and Kuwait. Its GDP expanded 11.1 percent in the first quarter, from 10.4 percent in the previous three months.

Rent tax: Exemption for revenue-sharing

PUNE/MUMBAI: Retailers, who share a portion of their earnings with landowners, may take it easy. Chances are there they will not have to absorb the new service tax on rentals of properties let out for commercial use by landowners. This means their tax burden will not rise any further.

“We have received the government notification recently and have plans to approach the court. We are in discussions with various organisations like Multiplex Association of India and other real estate developers associations. All these associations will be meeting next week to take a final decision,” said Gibson G Vedamani, CEO, Retailers Association of India.
“A landowner entering into a pure revenue-sharing arrangement with a retailer is set to be exempted from service tax. He will not have to pay service tax if the terms of his contract cover only revenue or profit-sharing. Tax will, however, be charged in contracts where the property is rented or leased out to the retailer,” said a senior revenue department official.

Service tax is generally charged on the service provider who, in turn, passes on the burden to the service user. Here, the property owner is the service provider and the retailer is the service user. If the retailer pays a rent for using the space, such rentals will attract service tax. This will push up their rental costs.

The decision to impose a service tax on commercial rentals was announced in this year’s budget and will come into force from June 1. Landowners who rent, let out, lease or license immovable property for commercial use will have to pay the 12% service tax on the rentals.

It could also dent their profits which are already under pressure due to the high rentals in an overheated real estate market. So a couple of them are planning to pass on the burden to the consumer.

Tax officers will examine the terms of the contract between property owners and developers and compare it with the legal provisions, said sources. The fine print says that service tax will be charged on renting of immovable property and this includes “renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course of furtherance of business.”

According to a senior official, it is only logical to exempt a pure revenue-sharing contract — without a rental component — from service tax. This is because lawmakers have gone by the principle of Ejusdem Generis — a Latin word “of the same kind” used to interpret loosely written statute. In this case, the phrase “similar arrangement” will cover activities like renting, leasing, letting out or licensing of immovable property.

Some tax experts, however, feel that getting a service tax exemption may not be that easy. “Even in revenue-sharing arrangement the use of the property is definitely for use in the course of furtherance of business or commerce. Whether this arrangement is covered by the expression ‘renting of immovable property’ as defined is arguable,” said TR Rustagi, former joint secretary in the finance ministry.

“Revenue-sharing arrangements between developers and retailers are popular in countries such as the US. McDonald, for instance, has such an arrangement in many cities in India. But the concept of a pure revenue-sharing is yet to catch up in a big way here as there are risks involved,” says Lalit Kumar Jain, president, Promoters and Builders Association of Pune (PBAP).

Currently, most modern formats are leased by retailers. Several lease agreements hold a clause which states that any additional tax or levy will have to be borne by the lessee. “For contracts entered in the past, service tax will be paid by the lessee.

In future contracts, the amount be included as part of the rentals,” said a realty developer. Rentals are expected to touch over 15% of sales from around 7-8% in the previous years, and retailers are worried over the eroding margins. Globally, rentals constitute just 3-4% of sales for retailers, according to industry analysts.

Sunday, May 27, 2007

Global property warnings also apply to India!

Take heed of the warnings about cooling global real estate markets that have now reached Spain and India. Meanwhile, there were 4.2 million unsold homes in the US at the end of April, and the annualized rate of second-hand home sales fell by 2.6 per cent to 5.99 million in April, enough to worry the Wall Street bulls.

United Arab Emirates: Saturday, May 26 - 2007 at 14:43
'The consensus view is almost unanimous that property prices are set to fall. Transaction volumes are drying up, higher interest rates and prices have damaged affordability, developers are suffering a regulatory and capital markets squeeze, supply is impending,' wrote Citigroup about the market in India. However, the same global economic forces that are impacting property markets in countries as diverse as the US, Spain and India are present in Dubai where most of the remarks made about India by Citigroup could also be applied. Dubai real estate agents report lower transaction volumes this year, with higher prices and higher mortgage costs impacting local affordability. Developers have also been finding it more difficult to raise capital, although the success of the Deyaar initial public offering might encourage others into the local equity market.
And the impending oversupply of the Dubai real estate market is generally acknowledged by market experts like EFG Hermes and Standard Chartered Bank. It is only a series of construction delays that is holding back supply from the market, and this is not likely to be an indefinite phenomenon. Indeed, there has been a worldwide boom in property prices driven by the slashing of interest rates in the early 2000s to counter the impact of the US dot-com crash. But interest rates have now swung back to more normal long term average levels, and the very high levels of property prices are no longer supported by low borrowing costs. Typically higher interest rates slow and then reverse a property boom, and this cycle of expansion on the back of easy credit and then a correction after credit becomes tighter is one of the most easily understood capital cycles in the global economy.
Higher interest rates
However, the reaction of the market to higher interest rates does carry a time lag as it takes a period for investor enthusiasm to calm down and for them to appreciate the change in circumstances. All the same, the Dubai property market is only five years old and judging what will happen in a downturn in such a new market is particularly difficult as there is no local precedent to follow. Indeed, it would be fair to conclude that the Dubai property price boom first reflected a degree of catching up with rival foreign markets, and that only the second phase is perhaps out of kilter with changing global economic circumstances, i.e. higher interest rates. For a large Dubai villa can still cost less than a one-bedroom apartment in London, despite the high tax-free salaries for some expatriates in the emirate these days, and the arbitrage between these anomalies may not yet be done.

Gateway to confusion?

Ravi Teja Sharma / New Delhi May 26, 2007
It may be hailed as the 'Gateway to the Gods', but there’s something unholy about real-estate development in Haridwar.

The look and feel of a boom town is missing when you enter Haridwar. You go to the holy ghats there and it’s business as usual (religious business, that is) — but are no signs whatsoever of a real estate boom. However, if you’ve been tracking ads in newspapers in the last year, you would guess that a boom is surely building up.

There have been pre-launches galore from various builders, most of whom one hasn’t ever heard of (except in the last year, on the radio, newspapers and across big hoardings). This is the story of Haridwar, “Gateway to the Gods”.

The concept of apartments is alien as yet to local residents. Most locals, as in other smaller towns, stay in individual houses, though there were some builders like the Ansals who cashed in on the opportunity of providing studio apartments to outsiders.

Frequent travellers to the holy city lapped up these 1- and 2-room apartments which they could use when they travelled to the city, or to give out to friends and relatives.

The new wave, though, is very recent, the State Infrastructure & Industrial Development Corporation of Uttaranchal (SIDCUL) at Haridwar being one big catalyst.

With over 250 industries being set up in the complex, there will be a huge demand for housing in the near future. An estimate by a local expert (a conservative one, he clarifies) puts the demand for housing in Haridwar at 2,000 units at the least.

Most new developments in the city are happening either around SIDCUL or towards Baba Ramdev’s Patanjali Yogpeeth on the Haridwar-Delhi Road. According to a local property agent who did not want to be identified, over the last two years, while the cost of land in the city has doubled, land near Patanjali has seen a four-fold jump in prices.

Take a drive down the Haridwar-Delhi road till Patanjali and even beyond and you will see numerous new projects being planned. Who are building these? The same little-known builders we were talking about at the start.

At the moment though, nothing much is on the ground — only blank spaces with large hoardings and perhaps a few site offices where you’d be helped with brochures of upcoming projects. Ask those at site offices and no one has an idea about how much land the project will cover, let alone how much land has been acquired.

One local property agent puts it aptly: “I am not too interested in selling these new projects, even though the brokerage being offered is very attractive. The reason is simple — I have no idea about the antecedents of these projects. Selling pre-launches could be dangerous for local agents like us. If a company runs away with the money, it will ruin our name. We still have to do business in the city.”

Most of these developers are selling plots and apartments in pre-launches, which according to the Supreme Court is now illegal.

One has to hear the kind of brokerages being offered to believe it. One developer is offering a 5 per cent commission and a Santro car to agents who sell 15 flats. The deal becomes more lucrative if you sell more flats — 6 per cent and a Ford Fiesta for 30 flats and 7 per cent and a Honda City for 50 flats and above. Even with these goodies, the agent is obviously worried about his reputation.

When Bharat Heavy Electricals Limited (BHEL) was set up at Haridwar (just next to it now is SIDCUL), a new residential area called Shivalik Nagar was developed to satisfy the demand created by BHEL.

An official at a large plant under construction at SIDCUL says that the new industrial area has fuelled a second wave of construction at Shivalik Nagar, where most one-storied houses are adding another floor to let out to the large inflow of construction personnel.

When the industrial area finally settles down in a few years, Shivalik Nagar will have a decent supply to handle most of SIDCUL. Within SIDCUL, there are about 900 apartments being developed at Deep Ganga by Delhi Apartments builders. There is also a plan for a mall, two multiplexes and a star hotel as well.

On the stretch towards Patanjali, there are boards on projects like the Tridev City by Alka India, Santoor City, Vian Haridwar and Arun Dev City by Arun Dev Builders. All these projects haven’t yet seen ground breaking though there are a couple along the way which have started construction — one by Vardhaman Developers and the other called Gitanjli Residency, just next to Patanjali.

Brokers have doubts about whether the ones that haven’t started construction yet have the requisite permissions and land to develop such large projects. A senior at Vian Haridwar himself agrees that out of the 3,000 bighas they are looking at, only 700-800 have been acquired as yet. Local agents too are sceptical about land holdings by these companies.

A glance at the brochures of some of these is enough to get a picture of their ambitious plans. Vian Haridwar plans to have five-star deluxe hotels, an IT park, plots, villas, apartments, service apartments, shopping malls and multiplexes and even a mini golf course in the project.

Surprisingly though, the brochure does not mention exactly where the project is located — there is no address except that it is close to Patanjali.

Are there enough buyers who can invest in properties in Haridwar? A senior official at Vardhaman Developers says they are looking at the higher staff at SIDCUL factories.

About 30 per cent of their project is already sold, of which most buyers are local, and they are also in talks with the likes of ITC, HLL and M&M, which have set up plants within the industrial area. Vardhaman has been getting enquiries from Roorkee, Dehra Dun and even Gurgaon and Delhi.

Vardhaman Developers are building villas, apartments, a mall with a multiplex as well as a five-star hotel on a 35 acre site at a project cost of about Rs 500-600 crore.

Surinder Ghei, director, Gitanjli Residency, has a slightly different take. They are getting several buyers from Haridwar city itself. “Many people are selling their plots in the city for a hefty price and getting a house on the outskirts for half the price,” he says.

One would imagine that properties developed in the holy city would have some spiritual bearings. There is not much on display in any of these projects, except in their brochures which never miss shots of the holy ghats of Haridwar.

But the whole business of real estate in Haridwar, from the looks of it at the moment, seems to be pretty unholy.

Punjab govt initiative to boost real estate in Amritsar

AMRITSAR: Amritsar, the holy city of Punjab is on a roll with the whopping master plan announced by Punjab Chief Minister Parkash Singh Badal which is expected to revamp real estate sector in the city and as well in the state.
The city is well on its way to have a rapid action to become up coming commercial hub of the state rather than just have a destination for the pilgrims.
The biggest measure of this lies in the price of real estate in the city that has gone northward at a fast pace in the last two years. Land prices have appreciated by huge 50 to 60 percent in the civil areas and almost doubled on the outskirts. But his boom faced a plateau, even a downturn, in the last few months. The sudden stagnancy had both realtors and builders worried.
Residential property process in even the so-called unimportant localities like Ranjit Avenue, Medical enclave, Green Avenue and Rose Avenue have sharply risen to Rs 25,000 per sq yard, while the commercial rates for property in last two years in this area varied between Rs 40,000 and Rs 80,000 per sq yard. On the Main GT road land prices have gone up from Rs 40 lakh per acre to Rs 1.5 crore per acre in a year. Other residential areas too have witnessed an increase in property prices from Rs 10,000 per sq yard to Rs 18,000 per sq yard in the last year.
Besides this the commercial areas in Amritsar like Lawrence road, Mall road and court road that are witnessed a sharp hike in prices of over Rs 50,000 per sq yard. Leading developers from across the country have lined up along with local players to be a part of the expansion plans.
A local realtor informed that in the last three years, the real estate scenario has undergone a drastic shift. Land prices have almost doubled. In some places, the figures have even crossed the Rs 10 million per acre or Rs 50,000 per sq yard mark. But in the past few months, the market is in its correction phase.
A series of townships in villas, luxury apartments, service apartments and penthouses are being planned in keeping in with the commercial ambitions. The Delhi-based developer Advance India projects Ltd has planned a 115 acre township with a focus on service apartments and penthouses with a plethora of luxurious amenities. the Noida based Nitishree group will soon launch an elite Shourya NRI city on the Jalandhar-Amritsar Highway for NRIs. The city will comprise two and three bedroom independent bungalows, plots and split-level, hi-tech, wifi villas.
Amritsar Global city is another prestigious project coming up about 200 acres of land on the NH-1 and is being developed through a joint venture between city-based developer Sharma and Gangaher builders and colonizer and Delhi based Tewari Global infrastructure Limited. Local developers like The Heritage Group and Impact properties Pvt. Ltd have also planned a series of residential projects for the city. Alpha G Corp and Ansal API have announced their plans to develop massive projects in Amritsar.
Punjab Chief Minister, Parkash Singh Badal has declared that a separate Amritsar development Authority will be set up to create world class infrastructure in and around the city. The authority will be responsible for the planning, execution and supervision of all the development activities in the city. The CM stated that the government is committed to provide best possible facilities as required while preserving the historic character of the holy city.
A local realtor informed that with the announcement of a new series of developmental initiatives, one can expect the market would bounce back in the near future.
Meanwhile Badal has also announced that the elevated road to the Golden Temple would be completed by December 2008. Unfolding the development bonanza for the city, he said that the ambitious projects require an investment of Rs 2,567 crore for the urban transportation and road network. Besides, this Rs 312 crore has been earmarked for strengthening the water supply system, solid waste management and setting up of a sewerage treatment plant. Keeping in mind the amp-le scope for improvement of tourist facilities in the city Rs 105 crore has been set aside for the task.
The government also plans to set up three thermal plants in the state, of which the first one would be set up within the city limits. Along with this, a multi product Special Economic Zone (SEZ) is on the anvil at Goindwal Sahib industrial complex. In a positive move, no power cut period for the complex has been extended from 2010 to 2015.

Godrej to focus on real estate

MUMBAI: The Godrej group, with a turnover of Rs. 7,500 crore, is looking at its flourishing real estate business through group company Godrej Properties Ltd. (GPL) to propel it to the next level.
GPL is a 15-year-old company with around 20 million sq. ft. of land under development in Mumbai and surrounding areas, Pune, Hyderabad, Bangalore and Kolkata. It is in advanced stages of negotiations for projects in several other cities.
Speaking to The Hindu, Godrej Group Chairman, A. B. Godrej, said, "in five years, the real estate business will be the biggest business in our group.'' Last year, the real estate business accounted for 8-10 per cent of the group's profits and Mr. Godrej saw this going up to 20-25 per cent in five years.
However, he clarified that this in no way indicates an `either-or' scenario in terms of business mix. "There is no de-focus on other businesses. Our other businesses like soaps, household insecticides, refrigerators, hair colors and furniture are core to the group and will continue to receive our focus. It is just that GPL will grow much faster and overtake our other businesses in its dimensions.''
GPL operates two business models — one as the classic developer buying land, developing it and selling projects and the other as a joint venture partner with landowners where through a pre-agreement with them, it shares either profits/revenues or the project area.
An increasingly important third model is where GPL will enter joint ventures with other group companies. "We have around 100 manufacturing sites across the country — some in prime locations from where manufacturing will move out and so our older plants have an opportunity to be redeveloped. We will have to go through the regulatory procedures but this model will develop considerably in the future.''
Southern India is a focus area for GPL. "The southern States, with IT and BPOs dominating, have a lot of commercial property and the demand for housing is high. We have operations in Bangalore and Hyderabad but among Tier 1 cities, we do not have a presence in Chennai and the National Capital Region (NCR) and will soon tie up projects in both these areas.''
Also on the cards are special economic zones (SEZ) although the Godrej chairman was skeptical about the soundness of the land acquisition policy. "The State government should complete land acquisition prior to announcing the project. We will not go in for an SEZ where we require government acquiring land for us. In fact, we may put one or two of our large projects where we already have land, as an SEZ.''
In keeping with the trend of real estate companies going public, GPL is planning an Initial Public Offering (IPO). "For the next two to three years, we need about Rs. 1,200 crore and this, most likely, will be raised through a debt-equity mix of 1:1. We are taking two steps to raise capital — through private equity and an IPO.'' Two special purpose vehicles (SPVs) of projects under GPL will first take private equity in the next few weeks and secondly, GPL will be listed during this financial year.
Godrej Industries owns 83 per cent of GPL's equity and 17 per cent is with the Godrej family, which also owns 86 per cent of Godrej Industries. At listing, around 10 per cent of GPL's equity will be offered to public.
At the group level, Mr. Godrej said the growth objective was to sustain an annual 25 per cent rate. "Around 20 per cent of our turnover comes from overseas operations and this should go up. We are looking at acquisition opportunities internationally in the FMCG space.''

The new property millionaires

Making money from real estate is no longer the pensioners’ prerogative. Twenty-somethings are today buying and selling homes and offices and booking bumper profits in the bargain. Varun Soni The first time that Sudhanshu Mishra invested in property was when he was 29 years old. He bought a home in Lucknow, which is now occupied by his parents. Subsequently, after relocating to Bangalore, he invested in property by buying two three-bedroom apartments, one of which is in the process of being sold. Bought for Rs 33 lakh, the market rate of the apartment in question today is Rs 65 lakh, giving Mishra a profit of Rs 30 lakh.
The same goes for interior designer, Lavina Khanna. She bought her first property when she was 30 years old in Dwarka, which was just beginning to make a mark on the property scene in Delhi. She bought the three-bedroom apartment for Rs 15 lakh and sold it Rs 30 lakh after four years. “Appreciation was not as fast then as it is today. Now, it does not make sense to hold on to property for more than two-three years,” says Khanna, who has bought two apartments in Gurgaon and one in Greater Noida at Rs 2,200, Rs 2,100 and Rs 1,800 per sq. ft respectively. Earlier, she has sold one apartment for Rs 3,000 per sq. ft., which she bought at Rs 2,100 per sq. ft, two years ago.
The lure of big bucks is too great to resist and if you can perfect the art of garnering them periodically, then why not! Investing in real estate is the new mantra for a lot of people in India today, considering the boom that the sector is witnessing of late. But, the investment bug has bitten the young more and with them they bring in new ideas and values.
The most prominent trend that is being witnessed today is the decreasing period of ownership in property. Most youngsters today— in the age group of 25-35—are buying property and holding it only for two-three years. The reason—they prefer short gains rather than sitting on property for life, and the best way to do this is by buying through pre-launches.
Take the case of Vikas Khokha, a senior executive with Bharti Airtel, who prefers to invest in pre-launches, as it gives him the opportunity to make quick profits as and when the property is launched and the prices appreciate. He bought a three-bedroom apartment on Sohna Road in Gurgaon when the area was just coming up. Bought for Rs 32 lakh, 34-year-old Khokha sold the apartment for Rs 40 lakh after two years. The market rate of the same apartment today is Rs 70-80 lakh.
“In a pre-launch, not only are the rates less, but I also don’t have to pay the entire amount. Payment for pre-launches is usually done in regular installments. As it is banks and financial institutions do not provide loans for pre-launch offers,” he says.
Khokha is a part of a growing tribe of youngsters who are looking for short-term gains, instead of sitting on a property and passing it on to the next generation.
Generation Y wants to partake of the fruits of investment in this life itself, even though it means getting a profit of only a few lakhs. “Whatever profit I get, I again invest a part of it in property,” says Khokha, who has subsequently invested in plots in Faridabad and Agra as well as an apartment in Noida.
In fact, with interest rates rising, a number of youngsters today prefer not to go in for home loans and buy property by putting in their own savings. An example to boot is that of 35 year old media professional Vivek Makkar, for whom investing in property today has become a ‘way of life’. After selling his plush bungalow in West Delhi, Makkar had the cash to spare, which he wisely used in investing in property by buying space in a mall in North Delhi and buying apartments in Gurgaon, Faridabad and Noida. As soon as the property appreciates, he sells it off and makes a cool Rs 15-20 lakh per property, a part of which goes into more investments in real estate.
In fact, a number of investors today are investing in malls. They buy space in a mall under construction (for Rs 200-300 per sq. ft., depending upon the location) and then rent it out to big brands for Rs 450-550 per sq. ft.) and reap the benefits for all times to come.
Another trend that is doing the rounds is that of many mid-level professionals joining hands and buying property together. Even though the property is in an individual’s name, the money put in is that of four-five people. They prefer to invest in Tier II and Tier III cities, which are accessible to the metropolitan areas that they live in. Like advertising executive Atul Arora, 32, has invested in Meerut, Jaipur, Zirakpur and Panipat with four of his friends. “We divide the profit that we get after selling and depending on everyone’s requirements again invest it into property. We choose Tier II cities because being mid-level professionals we cannot afford the high rates that the Delhi NCR is recording these days. Tier II cities fall into our budget and give good returns as well,” he says.
However, if you look at prevailing rates in metros, then investing in property there always fetches you the best possible profit. The present rise in rates is making old time investors laugh all the way to the bank. As is the case with Mumbai-based KK Rajaram, vice president (Finance), Shri Chakra Udyog who bought two flats in Vikhroli in 1993 at the rate of Rs 1,400 per sq. ft, whereas now the value currently stands at Rs 6,500 per sq. ft With plans to sell the properties, Rajaram plans to utilise the profit he receives in buying new property.
But, what is making young professionals invest in property today instead of in shares, apart from good returns? “Liquidity is more in real estate as compared to investing in the stock market. Shares do sell outright as compared to property, but then unlike real estate they also witness a downward graph as well. Even though there is a slight correction happening in the high-end segment, property price never goes down,” says Khokha.
Like Khanna says, the “boom will never go bust.”
—With inputs from Mona Mehta
Tips on investing in property
• The obvious driver is good returns, fuelled by the real estate boom in the country. Property never shows a downward trend unlike shares• It is always better to invest in Tier II and III cities like Nagpur, Coimbatore, Panipat, Indore, Jaipur etc. as they have a much higher scope for appreciation. In terms of buying bulk properties, customers should focus on buying properties outside of metros for investment purposes• Appreciation is faster today than it was a decade ago. It does not make sense anymore to hold on to property for more than 2-3 years• Investing in a pre-launch, though risky, enables you to dispose off the property sooner. Also, you do not have to pay the entire amount as payment for pre-launches is usually done in regular instalments