Friday, November 30, 2007

Local investors turning to Indian property market: Keppel Land

The property market in India is fast gaining popularity with Singapore investors, according to developer Keppel Land.
Home prices in India have risen by as much as 40 per cent in recent years.
Industry players expect prices to head even higher, as more investors jump on to the India bandwagon.
According to Keppel Land, property values across India have surged some 25 to 40 per cent in the past three to five years, piquing investor interest.
This momentum is expected to continue because non-resident Indians (NRIs) have been looking back home for investment options, Keppel Land said.
"The economic boom in India has rekindled interest for NRIs to look into investing in India," said Ang Wee Gee, Keppel Land's Regional Investment Director.
"The returns that the NRIs can achieve from investing in properties in India is quite attractive too, relative to other countries.
"Another reason why NRIs are buying is because the quality of homes developed in India has improved over the last few years."
Demand for properties in India has traditionally come from the West, but based on the increasing number of inquiries Keppel has been receiving, the developer said regional interest is growing fast.
Some customers here have even tried to purchase units in projects which have yet to be launched.
Apart from home-buyers studying prospects in India, more foreign developers are also heading there, with Keppel Land being one of the first.
"India's real estate market is fundamentally strong," explained Ang. "Demand is strong. We see acute shortage in supply. There is still quite a lot of catching up to do for the Indian real estate market. So as a foreign developer, Keppel Land feels there is an opportunity for us to capitalise."
He also said that India might capitalise on the potential slowdown in the US economy next year.
That, according to Keppel Land, may push NRIs working in the US to return to India.
Returning NRIs will boost demand for homes and also potential earnings for developers.
Keppel Land currently has two projects in Bangalore and one project in Calcutta.


Schools add value to townships

WITH RESIDENTIAL units getting pricier than ever, real estate and township developers are looking for a new USP (unique selling proposition). Schools seem to be high on their radar and many of them are planning tie-ups with education-providers. Guaranteed school admission has always been a big draw for property buyers.

While alliances between schools and property developers have been common from the early 1990s, real estate funds and other education-providers have spotted this opportunity now. They are scurrying to get a piece of the action. ‘We want to acquire property and provide intellectual property to the Trust that runs schools’, says Shanatanu Prakash, chief executive officer of Educomp Solutions. Law permit only Trusts to manage schools.

Prakash is targeting about 100 such Educamp-branded schools in three years. The company says it will buy real estate for the school from the developer and also provide the intellectual property for running it .This includes Educomp’s digital content library, training manuals for teachers, lesson plans and books which would guide the Trust in running the schools.

“Without schools, it will be difficult to sell the property within townships” says Pranay Vakil, chairman of Knight Frank India, indicating the potential for the education business. Data from Knight Frank indicates there are around 100 integrated townships in various stages of development across the country. And many developers plan to tie up with more than one education provider. “Depending on the size of the township, we are looking at the possibility of tying up with a number of schools, says Pradeep Jain, chairman of Parshvanath Developers.

The executive director of Shriram Properties, SS Ashokan says that while he is in talks with various institutions, no commercial modalities have been worked out as yet. Branding will be the key aspect in deals between developers and education providers .In Mumbai, examples of such a branding exercise abound .In the early 1990s, the Rahejas got Bombay Scottish to set up shop at their Powai complex. Similarly the Hiranandanis got the principal of Cathedral and Sir John Connon School to head their Powai School. The Hiranandanis also have two schools in Thane Township.

Funds that invest in the real estate sectors are also looking at the education space. “There will be education providers who want to capitalize on this opportunity but they may not have the capital to buy the property”, said the Head of a Real Estate Fund. So while property developers may have already negotiated a number of individual deals, education as a business is set to assume significance within these townships what with the Real Estate Funds set to join the action.


Virtual Map for Chennai

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Windfall awaits real estate czars in Mumbai

The repealing of Ulcra is likely to open up around 17,000 acres of land for development in the Mumbai alone. As many as 330 private firms, including large corporate houses such as Godrej, Wadia, Birla and Wadhawan, stand to benefit from the release of large tracts of prime real estate in the country’s financial hub.
Industry sources estimate that various corporates and trusts — including Godrej group firms such as Godrej Industries and Godrej Consumers, Wadia group’s Bombay Dyeing and various Wadia trusts, Birla-owned Century Textile and Wadhawan-owned Housing Development and Infrastructure (HDIL) — hold around 6,000 acres of developable land in Mumbai.
“It will free up a lot of land for development. We believe that the move could free up 15,000 acres to 17,000 acres. Some 338 private land owners, including many corporate houses, are sitting on large tracts of developable land,” said Pranay Vakil, chairman of real estate consultancy Knight Frank India.
Though some of these lands are facing slum encroachment problems and other legal issues, in the next three to five years, around 4,000 acres to 5,000 acres of land will be available for development in Mumbai, he said.
As the news trickeled in, stock prices of real estate firms soared on BSE, with HDIL gaining more than 8%. Among others companies that witnessed a jump in their share price include Godrej Industries, Akruti City, Century Textiles and Bombay Dyeing.
“Apart from the fresh land that will be made available for development, developers will be able to get on with their construction work, without losing any time. Normally, a no-objection certificate (NoC) from the government under Ulcra is required for any kind of development in the city.
NoC takes up to three months. With the removal of the Act now, we can save a lot of time,” said HDIL managing director Sarang Wadhawan. He, however, refused to divulge the size of the land bank that his company is sitting on. Industry sources pegged the size of land held by HDIL under Ulcra at around 500 acres.
Godrej group chairman Adi Godrej sounded optimistic too. “It is an extremely good move for Maharashtra and will help develop and use a lot of properties. Most of the states had already abolished the Act and it is time Maharashtra did too. The move will help free a lot of land in Mumbai and Pune for development purposes,” he said.
Analysts believe that the move would primarily help companies that own land but could not sell because of the restrictions. Apart from Mumbai, thousands of hectares of land will be released for development in other crowded cities such as Pune and Nagpur.


What's God got to do with a realty fund?

One of the favourite selling points for advocates of real estate investment across the globe is that "God stopped making any more land." The press conference to launch the ING Global Real Estate fund ended with this cliché, too.

Blocked Ad

The ING Global Real Estate Fund, an open-ended fund of funds scheme for Indian investors, closes on December 14, 2007.

This will be India's first open-ended real estate fund and the first fund to offer Indian investors access to global property markets. The scheme will primarily invest in the Cayman Islands registered ING Global Real Estate Securities fund, which seeks to provide investors with diversified returns consisting of income and capital appreciation over time.

But, must one invest in this fund just because God stopped making any more land? Think of it, what all has God stopped making, since and well before the dinosaurs! No matter how scarce the supply of a commodity, without enough demand, its value is unlikely to go anywhere.

Real estate anywhere in the world, or for that matter any other asset class, is bound by this economic principle. The current buzz in the Indian real estate space is not to be seen in say the US, since the demand-supply cycles are at different stages.

Real estate development is typically concentrated in pockets where there is a confluence of three important factors - skilled manpower to develop projects, adequate infrastructure that aids such development and the purchasing power to support such projects.

Therefore, one might notice a lot of vertical development in places where all these three factors are abundant. Skylines in New York, Shanghai and our own Mumbai are a product of the confluence of these factors. So, it is imperative for the fund to identify such pockets and put its money in.

Since the ING Global Real Estate fund will act as a feeder fund for the Cayman-registered real estate fund, which is sub-advised by ING Clarion Real Estate Securities, a part of ING Real Estate, the portfolio will be decided in accordance with the requirements of global investors, read Americans.

With Americans staring at a slowdown, any return in double digits will be Christmas cake for them. But, for an Indian equity investor, it may look like chicken.

The mother fund has a large allocation to the Asia-Pacific, followed by North America & Europe. In selecting investments for the fund, the investment manager seeks out firms that derive at least 50 per cent of their total revenues or earnings from owning, operating, developing and/or managing real estate. The fund will not invest in properties, but in real estate investment trusts and real estate operating companies.

Besides, though the fund is overweight on the Asia Pacific region with an allocation of 43 per cent, it will not have any allocation to Indian real estate, which has been seeing a lot of activity. This is because the fund manager believes Indian real estate companies are overvalued. Also, he is not very comfortable with the land bank-based valuations.

The North American markets are beginning to see slower growth in rentals and UK real estate seems to have peaked, the fund house says, justifying its Asia Pacific overweight strategy.

Vineet K Vohra, managing director and CEO, ING Investment Management India said, "This fund opens up a new asset class for Indian investors. It aims to offer an investor returns that are better than a fixed income product, but with lower volatility than an equity fund. It is the right time to bring such a product to India, as in today's volatile markets it potentially helps lower an investor's portfolio risk due to its low correlation with Indian equity and bond markets."

The fund will invest across 21 countries and invests in commercial properties such as offices, shopping malls, healthcare facilities, hotels, apartments etc. As on date, the fund does not have any exposure to the US subprime housing sector, the fund managers said.

ING Clarion, the sub-advisor, manages many real estate strategies, one of them being the ING Global Real Estate fund, which was recently awarded a 5-star rating from Morningstar out of 231 funds, based on its above-average performance and below-average risk for the 5-year period ending November 30, 2006.

The fund is being positioned as a diversification play, but there seems to be an overlap of geographical and asset class diversification. Investors would be better off buying a global mutual fund for geographical diversification and some land near their ancestral home for asset class diversification instead of confusing both.

God might be long done with real estate, but the Indian mutual funds have just begun. The best is yet to come with SEBI hinting at introduction of new products. Wait for the REIT time.


Land sale electrifies TVS Electronics

TVS Electronics spurted 19.90 per cent to Rs 50.30 on reports it has put on block its 6.18 acre land at Nandambakkam near Chennai airport. Real estate consultant JonesLang LaSalle has been entrusted with the task of identifying the highest bidder for the Chennai land, reports suggest.

The net profit rose 800 per cent to Rs 0.27 crore on 25.1 per cent fall in net sales to Rs 51.14 crore in Q2 September 2007 over Q2 September 2006. The company makes IT peripherals and uninterruptible power supply devices.


Growth pangs: too many firms, not enough architects around

Chinmaya P., a 25-year-old designer-architect at Srushti Associates, is on a roll. His annual salarywas Rs60,000 when he joined the profession in 2004. In the last three years, his salary has risen to Rs2.4 lakh and he’s been chased by at least four other firms.

India’s changing urban landscape—dotted with glistening buildings and towers of concrete—has spawned a shortage of architects.

Builders cashing in on three years of galloping real estate values are creating developments that have moved beyond stand-alone commercial blocks and residences—they are converting vast swathes of land into townships.

And that’s set off a race for architects and fattened pay packets. Some say, however, that not even well-wadded wallets are enough to attract talent, and even with a doubling of salaries almost every year, there just aren’t enough specialists going around.

In part, that’s mostly because the construction industry in India, helped by a booming economy, is growing at about 30% a year while the number of architects that join the industry is growing by just about 10% each year, said Prashant Karwe, chief architect, Rustomjee Group.

There are 86 architecture schools in the country, from where 3,000-4,500 architects graduate every year. This is barely sufficient to meet the demand. What’s alarming, according to a survey conducted by E2e Business Solutions, a people management company, is that architectural firms in India are having a hard time stemming attrition. The survey estimated an attrition level of close to 50% in firms at the entry level, especially over the last three years.

According to a report published by Cushman & Wakefield in October, foreign developers are showing an interest in the realty industry in India. Some of the prominent multinational developers present in India are Tishman Speyer (US), CapitaLand Ltd and Ascendas (Singapore), Salim Group (Indonesia) and Emaar Group (the United Arab Emirates).

Traditional Indian construction companies and Indian conglomerates have also indicated their keenness in real estate. Some of the prominent construction and diversified corporates venturing into real estate include Shapoorji & Pallonji, GMR Group, Lanco Group, Reliance Industries Ltd, Pantaloon Retail Ltd, Godrej Industries and the Tata group.

The Indian real estate was pegged at $16 billion (Rs73,584 crore then) in 2006-07 and is likely to reach $60 billion by 2010, growing at a compounded annual rate of 30%, according to an Ernst & Young report.

The rush for buildings has also led to consultants escalating salaries and poaching staff, leading to a never ending cycle of job-hops and attrition.

“The growing pains of Indian architectural and consultancy firms are not new, as they have been experienced in many markets around the world in similar boomcycles. Our advice to the India construction world is not to be fooled by the hype andbuild for the long term,” said Jeffrey M. West, director, project management services,DTZ India.

The rush for talent is so acute that firms are getting in architects from overseas— from locations ranging from nearby Singapore to far-off North America, if they can afford it.

“We have tied up with Hok, a leading architect company in the US. This has helped create newer designs, in terms of space management in our forthcoming SEZ (special economic zone) venture in Chennai,” says S.S. Asokan, executive director, Shriram Properties Ltd.

Others have joined the fray.

Unitech Ltd, the country’s second largest real estate developer by market capitalization, behind DLF Ltd, has just assigned one of India’s most expensive commercial buildings that will come up in Mumbai. The complex will be designed by Skidmore, Owings & Merrill Llp., which designed Burj Dubai, which is currently under construction in Dubai, United Arab Emirates, and will be the world’s tallest building when it’s finished in 2009. It is also Unitech’s first commercial project in Mumbai.

While hiring well-known overseas firms is possible for well-established, top rung firms, it’s mostly the middle level firms that are facing a crisis, because salaries are getting pushed through the roof.

Irfan Razack, chairman and managing director, Prestige Group, explains, “The challenge lies in trying to retain good talent. This may not be difficult for leading names, but smaller ones are busy training newcomers and this is anongoing process.”

As a result, smaller firms are facing a problem. Projects are getting delayed as they try to juggle training architects and hiring new ones almost as soon as the trained ones leave for bigger and better offers.

“Leading construction companies are even willing to pay Rs4 lakh per month to hold on to skilled professionals,” explains Subrata Kumar Ghosh, chief architect, Ansal Housing and Construction Ltd.

Successful construction firms are also doubling the numbers of architects they employ year on year, for the last few years.

“This places enormous strain on firms to maintain quality and achieve growth. Unless there is a very clear and conscious attempt to stay focused and small (in terms of employees), the long-term survival of the firm gets somewhat difficult,” says Yeshasvini Ramaswamy, a director at E2e.

Karun Varma, local director, Jones Lang LaSalle Megraj, a real estate consultancy, says that one of the ways of dealing with the shortage of architects is by ensuring that the quality of teachers in architecture colleges is maintained.

“With good teachers, the standard of education is high, thereby the calibre ofstudents is also good,” says Varma. Easier said than done though.


Thursday, November 29, 2007

Launch of luxury real estate project announced

Real estate and infrastructure development company, Marg Constructions Ltd, on Thursday announced the launch of its luxury real estate project 'Tapovan', 80 km from the city.

Addressing a press conference here, G R K Reddy, Chairman and Managing Director, Marg said the villas would cost a whopping Rs 1.30 crore initially.

He said 'Tapovan'- a signature project of Marg was an exclusive project spread over 77 acres at Pavanjur, 80 km from Chennai. The gated community will have 90 villas, each coming up on half an acre of land with a covered area of 6,000 square feet and a built up area of 2,275 square feet, he said.

Reddy said the project would be ready within a year.

The facilities management of the villas would be done by Heiligen Worldwide Services, Reddy added.

Also, a 'Vedic village,' conceived and promoted by Ojas Foundation would come up over 10 acres in the project area and would be a centre for holistic treatment for mind, body and soul, the CMD said.

The Vedic Village will have traditional styled cottages, a Fine arts Centre, Vedic patashala, goshala, herbarium, Ayurvedic therapies and ayurvega-a speciality restaurant to offer vedic treatment, Tatwamasi Dixit, Founder, Ojas Foundation said.


Delhi-based realty firm Vatika raises Rs 1,000cr

Vatika Group, a Delhi-based realty firm, has divested 10.75% to raise $250 million (Rs 1,000 crore) from Wachovia Bank, Baer Capital and Goldman Sachs. This takes the valuation of Vatika to Rs 9,300 crore.
The disbursement of funds has already commenced and the complete infusion will be completed by the end of the first quarter of 2008.
"The present infusion of funding into the company will help us in adding value to our existing projects, further consolidation of our land banks and acquisition of new projects at other locations in the country," said Gaurav Bhalla, director, Vatika Group.
The group’s diversified real estate portfolio, with an estimated valuation of Rs 8000 crore, comprises group housing, corporate office complexes, IT parks and SEZs, retail complexes and integrated townships in Gurgaon, Ambala and Jaipur spread over approximately 2000 acres.
The company also expanded its hospitality business by recently partnering with Starwood Hotels and Resorts Worldwide Inc for their super luxury 5 star brand - Westin. Having just opened the luxury Westin Spa and Resort at Sohna which is built on 35 acres, the group proposes to add another 1000 rooms under the Westin brand in Gurgaon, Jaipur and Bangalore between by 2010.
The hospitality operations of the company include business centers in Gurgaon, Hyderabad and Pune - with more to follow in Bangalore, Chennai and Noida.
The company is planning its maiden public issue in 2009.


Mumbai Summit to Showcase How Companies Intend to Address the Impending Talent Shortage in Corporate Real Estate

Organizers of the 2008 CoreNet Global Asia Summit today announced that the decision to focus on 'talent management in corporate real estate' as the main theme for its next conference is generating record interest from pre-registered conference attendees. The summit is being held in India on March 3-5, 2008, at the Grand Hyatt Mumbai. Now in its sixth year, the CoreNet Global Asia Summit is expected to convene more than 400 corporate realty professionals from across the globe to review how the industry can address this impending talent shortage, and to explore how developing and retaining corporate real estate talent can positively impact a company's success and growth. "From the Corporate Real Estate viewpoint, there is an increasing demand from the business for improved performance, solutions and results. This is creating competition within the industry's already shallow labour pool for the best talent," comments Mr. Mike Zamora, CoreNet Global's Asia Regional Chair. "Attracting qualified individuals, as well as developing and retaining the current workforce have consequently become priorities for today's Corporate Real Estate Organizations," he continues. "This conference is thus designed to discuss strategies for recruiting the right people, including approaches for developing your team and holding on to outstanding employees." To do so, Mr. Zamora explains that the summit will offer comprehensive coverage on how companies are attracting and retaining talented staff via a diverse conference programme that includes knowledge sharing workshops and educational tracks, plus the presentation of case studies and real life perspectives from Corporations, Real Estate and Human Resource experts. In keeping with the summit theme, the agenda will also explore key topics including, "Are staff management issues different from city to city in Asia, meaning Singapore and Hong Kong compared to Beijing and Mumbai?" Mr. Zamora adds that, "Fifteen years ago to attract and retain staff, all you had to do is offer money. Today, employees are also looking for career advancement, professional development, challenging work, along with working in a team which promotes this type of environment. Gone are the days where one person can do everything thus how people work together as a team is even more crucial." Mr. Zamora points out that this is the second time India has been chosen as the host nation for a CoreNet Global summit, with Mumbai once again selected given the spiraling demand from within the local real estate sector for a stronger, more creative talent base. "Similar to other locations in Asia, corporations in India are recognizing that competitive advantage is becoming increasingly dependent on having a talented workforce and a corporate culture that enables them to innovate at a greater rate than the competition," expresses Mr. Zamora. "Subsequently, people are the leading drivers of economic prosperity," concludes Mr. Zamora. "Companies therefore not only face the challenge of building a dedicated team of professionals, they also need to think about how they can support the creativity, innovation and needs of the people who work for them." Interested parties can register for summit by contacting Ms. Eleanor Estacio on (1) 404 589 3217 /, or Ms. Jennifer Gao on (8621) 6122 1251 / Alternatively, please visit for more details. About CoreNet Global CoreNet Global is the world's premier association for corporate real estate and related professionals. Headquartered in Atlanta, Georgia, USA, the global learning organization is the industry thought and opinion leader, plus the only professional real estate group that convenes the entire industry. Today, CoreNet Global's members manage US $1.2 trillion in worldwide corporate assets of owned and leased office, industrial and other space. With nearly 7,000 members representing large organizations around the world, CoreNet Global operates in five global regions: Asia/Japan, Australia, Europe, Latin American and North America. For more information, please visit the CoreNet Global website at .


CoreNet Global to Host Symposium on 'Corporate Real Estate Design for Profit and Productivity' at Guangzhou Design Week

Global Real Estate Experts To Share Design Strategies And Ideas Atone Of The Most Prominent Events On The International Design Calendar GUANGZHOU, Nov. 27 /Xinhua-PRNewswire/ -- CoreNet Global is pleased to announce that it will host a symposium on "Corporate Real Estate Design for Profit and Productivity" at this year's Guangzhou Design Week scheduled to take place at the Guangzhou Baiyun International Convention Centre from November 29 to December 4, 2007. The symposium, which will be held from 9.00 a.m. to 6.00 p.m. on November 30 will bring together commercial property experts and thought leaders from around the globe for a day of information exchange, networking and discussions on issues pertinent to all aspects of corporate real estate (CRE) design. Co-organised by the Government of Guangzhou, the International Council of Interior Architects and Designers (ICIAD) and City Expositions Guangzhou, the forum is considered timely given the dynamic economic growth of the Pearl River Delta area and escalating demands across the region for commercial property ranging from manufacturing facilities to office space. The event will therefore not only provide audience members with a unique opportunity to learn more about a sector of crucial importance to the development of the Southern China region. More significantly, delegates will also benefit from insight into facility planning, strategy, management and methodologies, plus how best practices in corporate realty design can create value for their organizations. According to Mr. Alex Lam, CoreNet Global's Managing Director for Asia Pacific, identifying future commercial real estate design trends and creating business models to maximize return on property investments is integral to the success of Chinese companies operating in the Pearl River Delta area. Mr. Lam comments, "CoreNet Global is thus very proud to partner with the ICIAD and City Expositions Guangzhou to host an event dedicated to introducing the concept of corporate real estate design and why it is important for Chinese corporations to embrace CRE as part of their strategy for business success." The opening address for the symposium will be provided by Mr. Weiguang Guo, Vice Director of the Economic and Trade Commission of the Guangzhou Municipality who will set the scene for the one day programme by defining the economic outlook for Southern China, and the important contribution the real estate industry is likely to make towards the region's development and growth. The symposium will also feature engaging presentations from representatives of organizations including Motorola, Standard Chartered Bank, Cisco Systems, Siemens, Jones Lang LaSalle, DEGW and the International School of Beijing. In addition, subject areas to be discussed will range from 'Design Trends in Global Business,' and 'Corporate Design Standards,' to 'What Makes a Good Real Estate Investment' and 'Why Design is Important to Business Success.' About CoreNet Global CoreNet Global is the world's premier association for corporate real estate and related professionals. Headquartered in Atlanta, Georgia, USA, the global learning organization is the industry thought and opinion leader, plus the only professional real estate group that convenes the entire industry. Today, CoreNet Global's members manage US $1.2 trillion in worldwide corporate assets of owned and leased office, industrial and other space. With nearly 7,000 members representing large organizations around the world, CoreNet Global operates in five global regions: Asia/Japan, Australia, Europe, Latin American and North America. For more information, please visit the CoreNet Global website at .
Contact Details For more information, please contact: CoreNet Global Jennifer Gao Tel: +86-21-6122-1251 Fax: +86-21-6122-1481 Email: Facility Media Janet Middlemiss Tel: +852-2857-3832 / +852-9195-7829 Fax: +852-2840-1284 Email:


Global fund eyes $500m

The Global Investment House’s (Global) Buyout Fund said on Monday that it has received aggregate commitments in excess of $500 million at its initial closing. In a press release, Global said “the Fund aims to take majority-controlling equity stakes in established private and listed companies in the Middle East and North Africa (MENA) and in Turkey, China, India and Pakistan.” The overwhelming response in the initial closing further reinstates its belief in the success of the Fund’s strategy, the statement said. Global’s Executive Vice President for Corporate Finance and Treasury Omar El-Quqa said the fund has attracted participation from institutional investors and pension funds from the region and around the world.

Meanwhile, Global’s Fund Groups and Private Properties Branch President Shalish Dash explained the success of Global Buyout Fund is due to the team’s successful track record as reflected in the impressive return on investment achieved by the other private equity funds that are being managed by the team. The Fund is well positioned to meet this challenge, as Global has firmly established itself as one of the largest investment companies in the MENA with region-wide presence and strong local partnerships, the statement noted. The initial closing of the Global Buyout Fund brings the total funds currently under management of the Private Equity team to over $1.5 billion, the statement added.
Salhia Real Estate Company reported that it had signed contract to buy land with an area of 5,119 square meters along with Bahrain Gulf Company, a company operating in Bahrain to purchase land and establish Complexes and  commercial towers.  The value of the land is expected to exceed 125 million dollars. The land is located on the north-eastern coast of the city of Manama. SREC is a Kuwait-based company established on Sept 16, 1974 and is engaged in various real estate activities.  It owns, rents and manages commercial properties and hotel accommodation within Kuwait, and is involved in operating care homes in Germany through its subsidiaries Al Haddia Holding GmbH, Sarec GmbH, Dana GmbH, Dana Ambulante GmbH and Gredo GmbH. The Company also owns 50 per cent of Drawbridge Securities Limited, which deals in property development in the United Kingdom.
Kuwait Stock Exchange (KSE) announces that the general assembly meeting of Aayan Real Estate Company was convened on Monday, Nov 26, 2007, The Governing Council approved recommendation to increase the capital of the company by 80 percent from KD 17,995,450 to KD 32,395,450. this increase will be implemented by issuance of 144,000,000 shares at a nominal value of 100 fils plus premium of 130 fils per share.  The company’s shares will be issued with effect from Tuesday, Nov 27, 2007. Aayan is a Kuwaiti shareholding company closed established on Oct 23, 1976 with a capital of KD 7,300,000. The activities of the company includes the acquisition of real estate properties and merchandising, rent, rental and trading of construction materials and the sale and purchase of shares of Kuwaiti and foreign established parks, tourist villages and the preparation of studies and construction in the areas of real estate property management and others relating to the areas of real estate in addition to the many non-traditional real estate activities.


Infrastructure & Policy: Lending support to retail sector

All eyes are on the retail industry as the boom in the organized segment of this sector is expected to be the next big story, currently in the making. After the software and telecom sectors, organized retail is deemed to provide a big boost to the domestic economy. Being the second largest employer, after the agricultural sector, it will result in creation of considerable incremental employment, fueling of consumerism and the developing of real estate, amongst many other benefits.
According to an HSBC Global Research report, the Indian retail industry is expected to touch $550 billion by 2012, supported by rising disposable incomes and favorable demographic factors. To take the sector from around $300 billion at the end of 2006 to the predicted levels entails a growth of around 10 to 11 per cent per annum. Interestingly, of this future business pie, organized retail is estimated to corner 15 to 16 per cent of the total retail market, i.e. $85-90 billion in value terms, by 2012. To get there from the present share of 4 to 5 per cent means that it will be growing at a CAGR of 35 per cent.
Real estate - all geared up
There is no getting away from the fact that the organized retail sector is inextricably linked to the real estate sector - it’s all about the right location, size and décor, over and above the products that are available. So, naturally, real estate developers are playing their part and are all set to meet the increased demand for retail space.
As per Knight Frank, a property consultant, over 100 million square feet of new retail space will come up all over India by end of 2008. A bulk of this additional space that will be made available for organized retail will come from closed mill lands, rehabilitated slums, greater FSI (Floor Space Index), etc.
Many retail and real estate companies co-operate with municipal authorities. Explains Vinita Saxena, senior manager, retail advisory services, Jones Lang LaSalle Meghraj, “Though infrastructure is the biggest challenge, some conscientious developers do attempt to trade off their area for road widening. Many are working in sync with municipal authorities to help improve their vicinity, which contributes to some extent. But there is a long way to go yet.”
Policy initiatives by the Government
FDI in domestic real estate: The Government has been doing its bit to support the efforts made by organized retail and real estate companies. For instance, in a significant move, the government allowed Foreign Direct Investment (FDI) in the domestic real estate in 2005. This move resulted in a number of global players displaying increased interest in the domestic market. A natural corollary was the foray of foreign players and joint ventures with domestic players.
Over the years, India has emerged as one of the most attractive organized retail markets in the world. This has also led to large number of private equity funds launching India dedicated funds. Annual investments in real estate through domestic and overseas real estate funds is pegged at around $7 to 9 billion. Of this around $4 to 5 billion is likely to come though the FDI route.
Allowing international retail brands: Further, policy makers have also permitted single brand retailing in joint ventures with Indian firms, to the extent of a 51 per cent partnership through the FDI route. Not surprisingly, the domestic organized retail sector has attracted many multinational companies such as Wal-mart, Metro AG, Shoprite Holdings, Marks & Spencer, Tesco, Starbucks, Target, etc.
These and many others are venturing or planning to venture into India through various routes such as strategic tie ups or joint ventures, etc., or already have a presence through the franchisee route. For instance, Wal-Mart has entered into a tie-up with Bharti, while Woolworth has entered into a joint venture with the Tata Group. What’s more, Liberty International, UK and CapitaLand, the world’s largest retail developers and mall managers, have also entered the domestic real estate and retail market.
Freeing of locked land: In June 2005, the Government of India cleared the SEZ Act to promote industrialization and develop more cities. Though currently it is topic of intense debate among various stakeholders, the Act would go long way in developing real estate and organized retail in future.
The repeal of the Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) by Gujarat and Goa is another significant development on the policy front. Maharashtra is also considering following other states to free land in cities for real estate development.
Lastly, development of mill lands, like that of the National Textile Corporation, has ensured availability of suitable locations for organized retail.
The western region leads the way
At present, the west region dominates in terms of number of malls and organized retail space as well. In terms of organized retail space, western region - that is three states of Goa, Gujarat and Maharashtra - accounts for close to 40 per cent. This region has played a key role in pioneering the concept of organized retail in India. Right from India’s first mall – Crossroads that was set up in Mumbai way back in 1999, the west region has always taken a lead in introducing new formats and setting newer benchmark.
For instance Reliance Retail launched the country’s largest hypermarket called Reliance Mart located at Ahmedabad in August 2007. The hyper mart, with shopping space of 1.65 lakh square feet, is designed to offer 95,000 products under own roof. The region has been continuously improving its business models and bettering the economics that goes behind running new age retail formats too. And, more often than not, it has had the support of the Government.


NRIs/PIOs can savour Indian realty, too

This is normally the time of the year when the diaspora, as it were, makes its annual pilgrimage to the motherland. And during the course of my discussions with some of these visitors, one point that comes across very strongly is that a vast majority of them is keenly interested in the real estate space — either they are looking to buy property in India or sell property that they owned before becoming non-resident Indians or inherited during the time that they were abroad.

This article is meant for NRIs and their relatives in India who manage their financial affairs. In fact, the article stems from discussions with a NRI client, though the key points would be of interest to NRIs at large.

No limit

There is a perception amongst some NRIs that they can buy a maximum of two houses in India. Well, this is not true — NRIs can freely purchase real estate in India.

There is absolutely no restriction whatsoever on the number of houses that an NRI or even a person of Indian origin (PIO) can buy or sell — only agricultural land remains out of bounds.

Moreover, since the RBI has given a general permission in this regard, there is no requirement of notifying any authority or filing any paperwork for your real estate transactions.

Just the one restriction applies — a PIO, i.e. an NRI who is a foreign citizen, cannot sell his house to another NRI or PIO — he has to necessarily sell the property back to a resident.

When property is sold, depending upon the holding period, you will either earn short-term or long-term capital gains. If you sell the property after 3 years of purchase, the gain will be long-term, else it will be short-term.


In either case, once the tax is paid, the money is freely repatriable. A certificate from a chartered accountant (CA) needs to be submitted to the bank. There is a specific format for such certificate, which the bank can provide. Once the CA certifies that the tax has been provided for, the net sale proceeds can be repatriated.

Here, it must be noted that repatriation is restricted to a maximum of two properties in a life time. To put it differently, NRIs can buy or sell any number of properties, but repatriation is restricted to just two. This is a major issue that has to be considered carefully before you buy property in India.

If you intend to purchase more than two properties, then to maintain repatriation rights, the third property onwards must be bought in the names of your other family members. This way, husband and wife can buy four properties — husband, wife and two kids can potentially buy eight properties and still maintain 100 per cent repatriation rights.

Capital gains tax

As mentioned before, when you sell property after 3 years, you earn long-term capital gains. Tax on this can be saved if you so desire — by doing either of the following two things:

Invest in specific capital gains tax saving bonds. These bonds are currently being issued by the National Highway Authority of India and the Rural Electrification Corporation. If the capital gains are invested in these bonds, the tax is fully exempted. There is a lock-in period of 3 years for the bonds after which the money (invested in the bonds) can be remitted abroad, too.

The other way is to invest the capital gain amount in another property. You have two years from the date of sale to identify the property and invest in it. Till such time, the money has to be deposited in a special account known as the CGAS — any withdrawal from CGAS should only be for payments to be made in relation to the new property.

Income tax

The first property that you buy is exempt from income tax. However, the second property onwards, even if you keep it locked, a notional rent value based on the market rental value will be taken as your notional income from the second property

To put it differently, even if you earn no income whatsoever from the second property, it will be taxable as if you have put it out on rent. Therefore, it would be advisable to actually rent the second property since anyway you will have to pay tax on an assumed rental value.

Also, it makes sense to buy property using mortgage finance. Tax breaks are available on the interest payment. For the first property, interest payable is tax deductible up to Rs 1,50,000. However from the second property onwards, the entire interest without any limit, is tax deductible Now, one may think the tax break is meaningless since one doesn’t have any Indian income.

That may be so now, however, this tax break can be carried forward for all of eight long years. So, assuming you return to India in the interim or do start earning Indian income, cumulative interest paid for the past few years would be sitting pretty for you to knock off against your Indian income. Therefore, even if you do not have any immediate use for the tax break — it makes sense to avail of it anyway.

Remember, however, to file your tax return in time — the aforementioned tax break cannot be carried forward if the tax return hasn’t been filed in time.


Centre to tighten screws on exotic debt

A new set of restrictions could be in store for the realty sector, which has been under intense regulatory scrutiny following heavy capital inflows. The government may impose restrictions on compulsory convertible debentures (CCD) with a put option.
The department of industrial policy & promotion (DIPP) and Reserve Bank of India (RBI) are set to discuss the exact nature of capital raised through this route in the realty sector.
Government sources said some CCDs, usually considered similar to equity, are structured in a manner that makes them akin to debt. This is because in many cases there is a contractual agreement allowing Indian realty players to buy back shares from foreign investors at a fixed price after conversion. In other words, the foreign investor has a put option. Thus, for the foreign investor, CCD is similar to a debt instrument with a fixed rate of return rather than an equity investment.
Real estate companies are barred from tapping debt through external commercial borrowings (ECBs). On the other hand, there is no restriction on pure equity investment, subject to certain conditions such as minimum capital requirement and a three-year lock-in. Sources said the government is concerned that many realty companies have been issuing CCDs with a buyback option to foreign funds at a price that is fixed when the deal is struck.
There is a view in sections of the government and RBI that this is overseas debt masquerading as FDI. CCDs are treated as FDI, so essentially there is nothing that contravenes the regulations. But what has rung alarm bells is the underlying structure (put option) as this makes it similar to debt.
“There have been cases in the Indian real estate sector where companies have issued such instruments which, if scrutinised, come out as pure debt. The government may not take stern steps immediately, but this practice needs to be looked into,” an official told ET.
Companies began opting for this route after the government clamped down earlier this year on raising ECBs, partly and optionally convertible debentures and preference shares.
However, some experts say these instruments are linked to achievement of milestones in a project. Foreign investors impose such conditions on companies when they invest.
“Conversion of debentures on the basis of pre-committed options with no linkage to project performance is a potential case for scrutiny. Companies indulge in such practices, but there are companies who only invest after putting in a clear conversion formula based on project performance. In the latter case, it is not seen as debt.
Of late, investors have been stressing on project performance. Any action to examine the instrument would only help crack down on unscrupulous practices of some players in the real estate sector,” real estate consultancy DTZ India MD Ankur Srivastava said.
Realty companies feel such a move would help genuine players. “Compulsory convertible debentures are good instruments for raising funds. If the government is thinking of removing the put option, it would benefit genuine investors. Investors who invest for short periods would be disincentivised,” Ansal API CEO Anil Kumar said.
The government and RBI’s concern on real estate stems from the fact that the sector witnessed a huge quantum of inflows in the first four months of the current fiscal, surpassing total inflows for the past two years. FDI inflows in April-July 2007 stood at $627 million, compared to $38 million in FY06 and $467 million in FY07.


Moguls of Real Estate Book Launched

The business biographies of 5 top Indian real estate developers---K.P. Singh, Niranjan Hiranandani, Sushil Ansal, Shapoor Pallonji Mistry and Irfan Razack---have been featured in a new book, Moguls of Real Estate, authored by Manoj Namburu of Bangalore.

“I found there were no books at all on Indian real estate and felt that this gap could be filled by recording for posterity the business biographies these real estate moguls,” says Mr Namburu, who is also the CMD of the Alliance Group, one of the fastest growing real estate developers in the country.

Published by Roli Books, the 270-page book, is not only a biography of these barons of real estate, but also traces the recent explosive growth of the Indian real estate market, he said. It is a well-researched and informative book on the lives and entrepreneurial adventures of these veritable stalwarts of this industry. And it caters as much to the avid book lovers as to those specially interested in the real estate industry.

It will help fellow real estate developers in India to learn from their success and highlights the significant contributions they have made to the growth of the industry.

KP Singh, has had such an eventful life that his bio almost reads like a script from a blockbuster. His chance meeting with those-in-power and newsmakers like Rajiv Gandhi, Jack Welch and management practitioners like George Hoddy, gave him a distinct advantage in the real estate industry. KP Singh’s business acumen and his ability to take right decisions at the right time are some of the hallmarks of his long career.

Niranjan Hiranandani, as a young boy saw and met many rich and famous patients of his father, the world renowned ENT specialist Dr L. H Hiranandani, which triggered the urge in him to emulate them. That’s how he decided to delve into the real estate industry. His desire to work on a large canvas saw him creating India’s most beautiful, elegant and prestigious township called Hiranandani Gardens, in Powai, Mumbai, a landmark in its own right. Today, after numerous ups and downs, he has realized his dreams and emerged as a powerful spokesperson for the Indian real estate industry!

With the backing and sound counsel of his father Chiranji Lal, who was a reputed contractor in Delhi, Sushil Ansal has firmly established himself and the Ansal brand by constructing several landmark buildings in the heart of New Delhi, as also the Capital’s first mall, ‘Ansal Plaza’, and residential and commercial complexes in Gurgaon and NOIDA. The bio of this ‘mogul’ reflects in many ways the growth of the Capital as well as of the National Capital Region (NCR).

The story of Shapoor Pallonji Mistry, is quite different as he hailed from a reputed 142-year-old family firm involved in the construction industry. How Shapoor has proven himself to be a worthy scion of the Shapoorji-Pallonji family and how he plans to take the company to new heights with ‘Imperial Towers’, at Tardeo India’s tallest residential building, and budget mass housing in Kolkata, is vividly captured in the book.

Irfan Razack, the smart, suave and savvy real estate developer has given a distinct facelift to Bangalore, the IT hub of India, by erecting several beautiful and commercially successful landmarks like The Forum, Prestige Acropolis, Prestige Meridian, Angsana Spa. The innovatively designed UB city is also another of Irfan’s offering to the Bangalore skyline. What efforts and unflinching focus have gone into building Prestige Constructions as the biggest builder in South India are described in detail in the book.

Through the bios of these ‘moguls’, one can view up-close the challenges faced by the Indian real estate industry, its triumphs and tribulations. It would certainly help any reader to have a better understanding of real estate in India while showing the way for the coming generations of entrepreneurs in this industry.


Parsvnath in talks with Carrefour, Casino Group for retail chain

Real estate firm Parsvnath Developers is in talks with French retail giants Carrefour and the Casino Group for setting up hypermarkets in India, reports quoting people close to the development said.

Reports said Carrefour, the world's No. 2 retailer, was also in talks with Parsvnath to appoint the latter as its franchisee in India.

"We intend to enter retail with hypermarkets and supermarkets with a renown international retailer," reports quoted Pradeep Jain, chairman, Parsvnath, as saying. He added an announcement is likely within the next few weeks.

Parsvnath Developers, the country's fourth largest listed real estate firm, owns 14 million square feet of retail space across 50 cities in the country.

Jose Luis Duran, CEO of Carrefour, had earlier said in newspaper interviews that the firm had identified two or three potential partners in India and that he hoped to sign a joint venture in coming months.


Realty claims a third of private bank loans

For every Rs 10 lent by new private banks, Rs 3 was lent to the real estate sector. In FY07, 32% of their loans were to the ‘sensitive’ real estate market, including direct and indirect exposures. This was despite tightening of lending norms during the period.
According to figures available in the latest Reserve Bank of India’s (RBI) reports on Trends and Progress in Banking released, 32.3% of the total loans extended by new private banks were to the sensitive real estate market, up from 29.1% in the previous year.
Exposure to real estate sector is inclusive of both direct and indirect lending, it said. Lending to real estate is a part of the exposure to the sensitive sector, including lending to real estate and commodities. These sectors are considered sensitive since loans can turn bad due to external circumstances that result in a fall in asset prices.
Real estate market exposures, according bankers, include larger home loans, loans to developers and loans against property. These are direct real estate exposure. In addition, it also includes certain indirect exposures like loans to institutional lenders in housing and property as well as investments in mortgage-backed securities. The RBI report, however, does not come clearly on the definition of the real estate market. Even foreign banks had
a high share of 26.3% of its total advances in the market in FY07.
In contrast, public sector and old private sector banks were more conservative in their real estate exposures with shares at 15.1% and 16.6% of their respective total loans in FY07. According to RBI, in absolute terms, the real estate exposure amounted to Rs 3,70,689 crore, up 41% over the previous year’s exposure of Rs 2,62,033 crore, way above the overall non-food credit growth of 28% during the year.
Interestingly, the real estate exposure rose sharply, despite several prudential measures initiated by the central bank during the fiscal year, requiring banks to set aside additional capital. For instance, in May 2006, the risk weight on bank exposure to commercial real estate was increased to 150% from 125%.
The general provisioning requirement for banks on standard advances in specific sectors, which also included residential housing loans beyond Rs 20 lakh and commercial real estate loans, was increased to 1% from 0.4%.
And later in January 2007, RBI increased the provisioning requirement in real estate, among others, from 1% to 2%. These measures were taken in order to contain reckless exposure by banks in the wake of unabated rise in real estate prices.
The regulator also widened the scope of real estate during the year. It has also asked banks to treat loans extended for setting up special economic zones (SEZ) as real estate loans.
Even though prudential measures have failed to curtail growth in real estate exposure, the capital requirements of commercial banks would rise if the current pace and pattern of loans continue. This could be particularly true in the case of new private banks and foreign banks which have been aggressive in areas that require setting aside higher prudential capital.


US investors eye realty here as subprime crisis winds on

The subprime crisis has not had any negative impact on the Indian property market. On the contrary, analysts say, an increased number of American investors are now looking at the Indian property market as a safer investment bet.
“The region is enjoying sound property market fundamentals. To date, the credit crunch has not significantly impacted the markets here. Liquidity levels are still high, and both local and foreign investors have maintained their allocations to real estate,” says a report by real estate consultant Jones Lang La Salle Meghraj (JLLM).
According to JLLM senior manager Abhishek Kiran Gupta, in the backdrop of the sub-prime crisis, many small and mid-sized American funds are looking at the India market. “Some bigger funds, which entered 2-3 years back, are now very comfortable with the Indian market. Their experiences have become an attraction for many smaller as well as some non-institutional investors from the US to put money in the Indian property market so as to minimise risks,” he said.
According to DTZ Investment Advisory director Ambar Maheshwari, the initial reaction of the subprime crisis in India too was that of caution, as the impact was unknown. “Now that the situation is better understood, it is evident there is no negative impact on India.
On the contrary, it is catalysing the interest of many US-based investors towards India,” he said. Interestingly, some of these smaller US-funds are even looking at experimenting with investments in the emerging real estate areas. “Residential, commercial and hospitality have been the evergreen options as far as foreign investors are concerned. Many small and mid-sized investors are now looking at creating logistics and infrastructure funds, with a average corpus size of about $15-20 million,” Mr Gupta said.
The negligible impact of the subprime crisis on the Indian market becomes evident in the recent studies conducted by leading consultants CB Richard Ellis (CBRE) and Cushman & Wakefield. Reports brought out by these firms project Mumbai and Delhi as the fastest growing markets —in terms of office space as well as retail.
Interestingly, CBRE has placed Mumbai as the second most expensive office space market in the world.


Maharashtra scraps land law

India's richest state, Maharashtra, has scrapped a law that controls urban land holdings, potentially freeing up large tracts of prime real estate in the financial hub of Mumbai and sending shares of property firms sharply higher.

A government spokesman said the assembly of Maharashtra on Thursday repealed the Urban Land (Ceiling & Regulation) Act, which developers said could free up to 25,000 hectares of land and attract foreign builders.

Mumbai has emerged as the world's second-most expensive market for office space after London's West End and the third-fastest growing such market, global real estate brokerage CB Richard Ellis said last week.

"It was an age-old regulation and had to be scrapped, though I don't think it will have any impact on the prices in places like Nariman Point," said Vikram Mehta, associate director at Coldwell Banker, a unit of U.S. real estate brokerage Realogy Corp.

Rentals in places like Nariman Point, a business district in south Mumbai, have jumped 55 percent from a year earlier to $189.51 per square foot a year, CB Richard Ellis said.

Analysts and property developers said the law, which has been in place for three decades, had hampered construction of homes and offices and contributed to soaring property prices.

"Physically, it will free up a lot of land for development. Our estimate is that it could free up 15,000-17,000 acres (6,100-6,900 hectares)," said Pranay Vakil, chairman of real estate consultancy Knight Frank.

But he said with some of the land caught up in legal disputes, supply would take time to reach the market.

Shares of real estate firms rose on the news, with Housing Development & Infrastructure Ltd ending up 5.1 percent. The BSE real estate index gained 1.2 percent, while the main share index closed up 0.3 percent.

Some analysts said the move would primarily help companies which had land to sell but could not previously because of the restrictions, and potential buyers may not gain much as property prices were already high.

Critics of the land ceiling law said freeing up land will make way for commercial redevelopment and crucial infrastructure.

"And in terms of the housing market, it will open some opportunities for the lower middle class, as prices should come down in suburbs after the free land is released," Mehta said.

Thousands of hectares of land would also be available for development in Maharashtra's other crowded cities, such as Pune and Nagpur, where there is a high demand for houses and office space.

"I think it's a step in the right direction as it will ease the shortage. Not only domestic builders but international builders can also come now," said Pradip Chopra, an official of the Confederation of Real Estate Developers's Association of India.

Foreign real estate firms have been eyeing the Indian market and Dubai's Emaar Properties, the largest Arab real estate developer by market value, has a 40 percent stake in India's Emaar MGF, which is planning an IPO.

In January, Morgan Stanley Real Estate said it paid $152 million for an undisclosed stake in Indian real estate developer Oberoi Constructions Ltd.

Supporters of the law, particularly the communists, said the move will help builders, not the common man.

"Property prices are no more dependent on the market. In fact, there's a cartel operating and the prices will be what it wants them to be," said Chandrashekhar Prabhu, a former president of Maharashtra Housing & Area Development Authority, who expects property prices to shoot up.


Electra Real Estate and Property and Building are looking at a site in Chennai

A joint venture of Electra Real Estate Ltd. (TASE:ELCRE) and Property and Building Ltd. (TASE: PTBL) is in negotiations to buy a 37.5-acre lot in Chennai, India, zoned for a 426,000-square meter residential and commercial project, for $58 million. The companies expect development costs of the project, including land, to total $400 million.

In December 2006, the two companies founded a Mauritius-registered company to develop income-producing projects in India. The two companies own 90% of the joint venture in equal shares. Electra Real Estate is a subsidiary of Electra Ltd. (TASE: ELTR), controlled by chairman Gershon Salkind, and Property and Building is a subsidiary of IDB Holding Corp. Ltd. (TASE:IDBH), controlled by chairman and CEO Nochi Dankner.


Tuesday, November 27, 2007

SEZs in India: The record so far

For some time now, Special Economic Zones (SEZs) have been touted across the developing world as one of the chief instruments through which a country can achieve rapid industrialisation through exports. SEZs differ from the older and more acceptable concept of industrial clusters, that is industrial zones that bring together different productive units, with good infrastructure facilities and simplified procedures.

This is because they go beyond basic infrastructure provision to what are called “enabling conditions”, such as tax and duty holidays and/or rebates, highly subsidised or even free land, little or no compulsory worker protection, and the like.

It is really these provisions, which exist to greater or lesser degree in the regimes governing SEZs in different countries, which are so potentially problematic and have become so controversial.

Indeed, it is not clear how much such concessions actually matter in attracting investment.

There is very little conclusive evidence in support of the idea that fiscal concessions are particularly helpful in ensuring more investment, despite the threats routinely issued by corporates in this regard.

Major areas of concern

While the gross benefits of SEZs are still open to debate, there is already much concern about the aggregate social and economic costs of this strategy, making the net benefits even more uncertain. There are three major areas of concern: the fiscal costs; the issue of workers rights and net employment generation; and land transfer, dispossession and displacement.

SEZs in India functioned under the provisions of the Foreign Trade Policy from November 2000 to February 2006. But since February 2006, they have come under the Special Economic Zones Act 2005.

Since then, it is the issue of land acquisition that has become the most controversial and raised the greatest political response in India. Of course this is an important issue, but it can be argued that the areas of policy concern relate more to the process of land transfer and the nature of compensation and rehabilitation of displaced persons, rather than to whether there should be a change in land use per se.

Some opponents of SEZs have argued that any transfer of agricultural land to non-agricultural purposes (whether it be for industry, real estate development or other activities) is invalid and should not occur. However, this is clearly an extreme and unjustifiable position.

Shift in land use

The process of development — even the most equitable, broad-based and democratic sort of development — will necessarily require that land use be shifted from agricultural to non-agricultural purposes as economies and societies become more diversified.

This is not only inevitable but even desirable in the long run, as long as food security issues are adequately taken into account.

However, it is absolutely necessary to ensure that those who are affected by changing land use — which includes not just those with land property titles but all those who had a source of livelihood from that land — are adequately compensated and rehabilitated. Since land use is certainly going to keep changing rapidly, and not necessarily only for SEZ development, this is one of the central policy questions of our times.

In the specific case of land appropriation for SEZs, the question of ownership and control is also critical. In India, the current rules require only 25 per cent of the land to be used for industrial processing purposes, allowing the remaining land to be used for any other purpose. This means that real-estate developers can engage in major land grab in the guise of SEZs. Clearly, the rules must be changed to prevent or at least reduce this possibility.

One response to the issue of land grab has been to argue that the state should actually stay out of this altogether. After all, it is the power of eminent domain of the state that allows land to be taken over for national development purposes. However, leaving land use to market forces — or to private developers to engage in transactions with individual landholders — may be even worse. Firstly, it means that there is no chance of compensation of all the other stakeholders who have been adversely affected, such as tenants and agricultural labourers on that land.

Secondly, it allows for the possibility of large purchasers using pressure tactics or other methods to acquire land, in effect making offers that can’t be refused.

In situations of unequal power it also means that small land holders are less likely to receive the true value of the land.

Therefore the government must be involved in this process, but in a way that ensures that all those who stand to lose through the land acquisition are properly compensated.

Another important issue is whether SEZs actually generate more employment than would otherwise have come about, and the whether the terms of this new employment are acceptable and desirable. A major problem with SEZs in many countries is that they propose to relax or even do away with many laws relating to labour protection and even crime, for the purpose of attracting investment into these zones.

The current Indian law does however provide for the same legal structure of labour protection within SEZs as in the rest of the economy, but of course it is necessary to ensure that these are implemented.

Fiscal losses

But the greatest problem with the SEZ Act in its current form is the huge fiscal losses that will occur because of the tax incentives and hidden subsidies being provided to SEZ developers and producers within the zone.

The offer of tax holidays in the SEZs goes beyond generous — providing 100 per cent exemption from income-tax on profits for the first five years of production and 50 per cent for the next five years. Even land developers are to be given tax breaks.

These amount to appalling losses in terms of foregone revenue — the Finance Ministry has estimated that if total investment in SEZs is around Rs 3,60,000 crore, the revenue loss to the state exchequer would be more than Rs 1,74,000 crore.

To give up such a huge amount of government resources is, of course, a major crime given the needs of Indian society today and in future. But once again, what is at stake is more than the revenue losses, enormous as they are. Providing such massive tax giveaways encourages investors to shift their production from other locations to SEZs, in order to benefit from the tax holiday. This means NO net benefit to the economy from additional investment, since it is simply moving from other areas.

Implementation by States

Given recent public concerns about land acquisition, it is worth examining how the SEZ Act has worked thus far in different States. Table 1 provides a summary of the SEZs that have been notified (as opposed to just approved) from February 2006 to October 2007.

It is evident from Table 1 that only a few States — indeed just five of them — have dominated in actually setting up SEZs, whether in terms of the number or the area involved. This is further clarified in Charts 1 and 2, which show the shares of these four States in total area under notified SEZs and total number of SEZs.

Andhra Pradesh and Maharashtra clearly lead the pack in terms of notified and actually functioning SEZs, and have actually given away very large tracts of land for individual SEZs unlike most of the other States. This is interesting to note, given the relative lack of public attention to such land transfer in these States.

It is also worth noting that the compensation given for such acquisition in these States has been well below that offered in some other States such as West Bengal, where there has been much greater and more vocal opposition to very small tracts of land being acquired.

In Andhra Pradesh, for example, just two SEZs in Kakinada and Vishakapatnam account for around 6,500 hectares. In Maharashtra, the Navi Mumbai SEZ alone is spread over an area of around 5,000 hectares, including 1,850 hectares of regional park zone.

It must be borne in mind that the notified SEZs constitute only a small proportion of the SEZs that have already been approved and, therefore, are likely to be notified and come into operation in the near future.

Table 2 indicates that nearly 400 SEZs have been approved as of October 3, 2007, that would cover well above 50,000 hectares of land. However, further acquisition of land for these has been kept on hold until the proposed new national compensation and rehabilitation policy is implemented.

It is evident that once again, the same few States are dominant in terms of the approved SEZs. Only three States — Gujarat, Maharashtra and Andhra Pradesh — account for more than 70 per cent of the land of the approved SEZs, although they account for less than half the number.


India's biggest commercial realty deal at BKC

‘Result too large to display’. As mobile phone calculators flashed this message, over two dozen people assembled outside the sixth floor conference room at the MMRDA headquarters scrambled to make sense of the mind-boggling bids for three plots in the Bandra-Kurla Complex (BKC) on Monday evening.
It took minutes of brain-wracking to finally realise that India’s biggest commercial land deal had just been struck, leaving the Mumbai Metropolitan Region Development Authority (MMRDA) richer by Rs 2,790 crore. TOI in its Monday edition had predicted that these plots would fetch nothing less than Rs 2,500 crore.
The three plots totalling barely six acres in size, are mainly reserved for commercial/office space and a car park. Bidders who won each of the three plots are Mukesh Ambani’s Reliance Industries, the Wadhwa Group and a joint venture between Purnendu Chatterjee promoted-TCG Urban Infrastructure and Hiranandani Group.
But what sent shock waves in the real estate industry was the phenomenal price quoted by the Wadhwa Group for plot no C-70 behind ICICI building in BKC. The less than two-acre land fetched Rs 831 crore or Rs 5.04 lakh per sq m.
This is almost two-and-a-half times the reserve price of Rs 1.53 lakh per sq m set up by the MMRDA. Wadhwa’s bid works out to Rs 46,800 a square foot. Real estate sector experts say this is by far the largest amount per square foot for the purchase of commercial property in the country. In comparison, the current property prices in the BKC for a finished office space is Rs 35,000 a square foot.
To put the stunning price paid in perspective, Wadhwas have paid well over Rs 400 crore an acre whereas Reliance Industries had paid a shade less than Rs 60 crore an acre for the last mega deal at BKC (in January 2006).
‘‘We paid this price because of the strategic location surrounded by garden from three sides. It is a peaceful environment,’’ said Vijay Wadhwa, promoter of the Wadhwa Group, in a late night SMS to this newspaper.
Earlier in the evening, Wadhwa told TOI that he is looking at a profit margin of about 10-15%. ‘‘We already have committed clients including multinationals and diamond merchants, who missed the bus in booking space in the upcoming Bharat Diamond Bourse in BKC. We will sell the building outright once its constructed,’’ he said.
‘‘We are not surprised by these rates. There is tremendous demand for good quality office space in BKC,’’ said Roopesh Kaul, chief operating officer of the Maker Group.


Indian Billionaire Adani May Add $4 Billion to Fortune With IPO

Indian property magnate Gautam Adani may be about to add $4 billion to his personal fortune.

Adani's Mundra Port & Special Economic Zone Ltd. probably will more than double during its first trading day in Mumbai today, according to a survey of five investors who are monitoring the initial public offering. That would boost the value of his family's 81.3 percent stake to $7.8 billion.

Real estate ``has caught the fancy of investors,'' said Jayesh Shroff, who holds property companies DLF Ltd. and Indiabulls Real Estate Ltd. among the $6 billion he helps manage at SBI Funds Management Pvt. in Mumbai. ``We could see many more billion-dollar property tycoons as investors pay a premium to own real-estate stocks.''

India's 10 richest property investors have more funds than Donald Bren, Donald Trump, Samuel Zell and the next seven wealthiest U.S. real-estate investors, Forbes Magazine reported. Mumbai has the world's second-highest office rents after London's West End, according to data compiled by real-estate broker CB Richard Ellis. Rents in Mumbai rose 55 percent in the past year to $189.51 per square foot, almost double the costs in midtown Manhattan, CB Richard Ellis reported.

Adani, 45, is among eight Indian developers whose wealth exceeded $1 billion for the first time this year, Forbes reported. A government plan to spend $500 billion on ports, roads and airports has lured investors to developers focusing on infrastructure.

Infrastructure Spending

Adani's Mundra Port, India's largest cargo terminal outside government control, attracted $52 billion of bids for the IPO, 116 times the stock for sale. Adani declined to be interviewed for this story.

The IPO raised 17.7 billion rupees ($446 million) this month with shares sold at 440 rupees. The shares may debut today at about 1,000 rupees apiece based on off-market trading by investors who missed out on the sale.

Mundra Port is about 70 kilometers (45 miles) from the airport at Bhuj in the western state of Gujarat. The port can cater to companies including Reliance Industries Ltd., which is constructing the world's biggest refinery in the state.

India's per capita income increased 40 percent in the past four years, helping real-estate developers as prices for homes in the southern part of Mumbai almost doubled in the past two years, according to data compiled by Bloomberg. Prices in New Delhi, Hyderabad, Bangalore and Chennai also climbed as more local and overseas companies expand operations.

Housing Shortage

Demand for homes near the capital New Delhi helped DLF complete India's biggest initial public offering this year. The July IPO lifted the fortune of Chairman Kushal Pal Singh, 76, to $35 billion, making him the world's richest property tycoon, according to Forbes.

The government's five-year plan estimates a housing shortage of about 24.7 million units. Almost half of the 210 million households still live in temporary shelters, implying a significant demand for low-income and mid-income housing.

``This is a sunrise industry and we have just started off,'' said Pradeep Jain, chairman of Parsvnath Developers Ltd. who is ranked by Forbes as India's 46th wealthiest person. ``We could see 30 to 40 new billionaires from the real-estate sector next year.''


`Indian realty market may cool off a bit`

The Indian real estate market continues to evolve from being an unregulated and fragmented segment of the economy to a much more focused, growing and regulated segment.

Indraneel Karlekar is a senior vice-president and head of global research & strategy with ING Clarion Real Estate Securities. His eight years of experience as a strategist covering the Asia-Pacific region for the Economist Intelligence Unit and then as AIG Global Real Estate's head of research & strategy gives him a firm grip on the pulse of the global real estate scenario.

As an Indian, he has the added and distinct advantage of offering a unique perspective on the fund to Indian investors. ET Investors's Guide caught up with Mr Karlekar to discuss his views on the Indian real estate market. Here are excerpts from the interview:

How do you view the Indian real estate sector? Where is the industry right now, how has it grown and what lies ahead?

The Indian real estate market continues to evolve from being an unregulated and fragmented segment of the economy to a much more focused, growing and regulated segment. The past few years have seen consolidation within the industry, more strategic holding patterns, improved transparency and of course, in terms of monetisation, there has been a significant increase in the value of Indian real estate over the past four or five years.

There are a number of reasons for this price appreciation, not least of which is the realisation that India's structural reforms have finally entered a phase that will drive economic growth to 8-9%. Moreover, there is tremendous shortage of quality real estate, commercial as well as residential. As a result, the fundamentals of this market will be very strong going forward, both in the short and long term.

But asset classes go through a boom-bust cycle or a correction cycle, so I won't be surprised if the Indian real estate market cools off a bit in select sectors over the next 3-5 years as investors and developers take breath and stock of their investments.

Do you agree with the statement: “The property boom is a bubble”? Is this the right time to buy a house?

The key to this question is the purpose behind the purchase i.e. is the purchase for end use or for investment? If it's for investment, the domestic economy and local demand-supply factors should determine whether you should buy a house or not, fundamentally. On the other hand, if you're looking for a long-term purchase for end consumption, then there's no perfect time to enter the market. You need to figure out your comfort level in terms of affordability and whether you can live with the price valuation changes in the property or not.

End users complain that prices are too high and developers are not willing to reduce prices. On the other hand, developers complain that the regulatory norms are too stringent. How can this blame-game cycle stop?

Consumers will always complain that prices are too high. To some extent, this has to do with supply-demand mismatch, as well as the Indian regulatory set-up, which can be a little challenging. However, this also suggests that the supply shock (from new developments) that the Indian system can potentially expect will be smaller, because you wouldn't have the same volume of property hitting the Indian market as say, in China, where the regulatory regime is a bit friendly towards the developer and real estate investors.

Part of the supply shortage is also because of the scarcity of skilled labour and escalating cost of construction material. As supply starts ramping up, the supply constraint will be solved. Right now, it is a short-term issue which should be resolved soon. The market will find its own equilibrium over a period of time.

Where are prices headed?

Prices vary from city to city, India is too large a country to generalise. Price correction or price over valuation is a localised issue. The beauty of real estate is that the situation in Ahmedabad will not be the same as Bangalore or Delhi. Prices are excessively high in Mumbai, but the same may not hold true for Ahmedabad. So, this issue is very location-specific.

Even if prices have gone down, so far, evidence suggests that this has been marginal. I don't think prices will go down drastically, because there is so much demand. Statistics say there is a shortage of 20 million residential units, so it is hard to say there will be a dramatic decline in prices. The other way to look at this question is that local factors will ultimately be the criteria for valuing real estate.

How do you see the Indian interest rate regime, going ahead?

This depends on the Reserve Bank of India's (RBI) view on domestic inflation, as well as the increasing strength of the rupee versus the dollar. A relatively higher interest rate regime will obviously attract high inflows into the rupee and I am not sure whether the RBI wants to further push the already appreciating rupee. So, we can see a bout of easing in interest rates in the next 10-12 months to gently remove some support from the rupee and also because inflation is still pretty low at 3-3.5%.

How can one keep up with the volatility in the domestic real estate market?

The Indian real estate market is going through some growing pains, a lot of sentiment and emotion is driving the market, which has resulted in volatile prices in the real estate securities market. Many listed real estate companies continue to see a lot of investor interest, which is making them highly volatile.

Having said that, there is a whole world outside India. Indians love property, so they should also look at the global market to mitigate their risks. Global real estate mutual funds, which have a diversified portfolio, may be the best option to tackle high volatility and give investors exposure to real estate as an asset class.

How are the dynamics of the Indian real estate market different from that of international markets?

The Indian real estate market is largely a development market at the moment. Perhaps there are some similarities with China, since both countries follow the land bank model. This is a big part of the story for both these economies. Here, it's important to understand the monetary value of the land and determine the execution strategies if real estate companies want to derive value from that land.

One should also know how much cash flow the entity will ultimately generate. In the Indian case, the story is more of development. In other developed markets, the model is to hold properties for cash flows which, in many countries, is facilitated by the REIT (real estate investment trust) structure.

A lot of private equity (PE) money is flowing into India, but China is way ahead of us. What is so different in China?

China is a land of tremendous opportunities, like India. It has undergone a structural change similar to the Indian economy, but the Chinese real estate market had a head-start compared to India. PE funds have been investing in China for over 10 years now.

China will remain a high growth market. India is becoming a real estate high growth market, which is why we see such intense interest from PE funds. The Indian market is expected to see the same transformation as China. In the short term, the market will be very competitive and many PE funds will find it hard to conduct deals. The money has been raised, but for many of these funds, deploying it will be a challenge in the short term.

As an investor, should I put my money in Chinese or Indian real estate?

Both markets have different advantages and disadvantages. If I have a short-term outlook, of say 12 months or so, I would probably marginally prefer China at this point of time, since the earnings outlook is more visible, which gives me comfort. There are a number of high-growth companies in the Chinese market.

Moreover, that market is bigger and more liquid than India, where the option is restricted to only 5-6 companies. On the other hand, from a long-term perspective, the Indian market is likely to provide competitive returns, especially since the long-term benefits of economic reforms are beginning to be felt and India is catching up with China.

How should one differentiate between two real estate companies?

Execution is the key parameter. Given the large number of promises made by developers, one should look at early signs of delivery.

Which companies in China and India have given maximum returns?

Among Chinese companies, Guangzhou R&F Properties and Agile Property Holdings have delivered over 100% returns year to date. In India, Unitech and DLF have delivered over 60-70% returns for this year. Besides these two countries, Singapore and Japan are also very strong markets.

Source: Economic Times

'Mature market won't have 4 malls in proximity'

It is Joe Valente’s second visit to India and ever since he arrived in Delhi from London, the global head of research at real-estate consultancy DTZ has been holed up in meetings.

Though he hasn’t had the time to go and check out the ground realities for himself, he is aware of the frenetic construction activity going on in south Delhi’s Saket, a stone’s throw from Sheraton hotel where he’s sitting.

“I can’t think of another example where four malls are coming up within a half-kilometre,” Valente says, adding, “That’s not to say they won’t succeed. But it would never happen in a mature market.”

Valente is not alone in being circumspect about this development as well as other aspects of the real estate party that, despite high interest rates and rising property prices in a few key centres, seems to be sustaining itself on hype.

DTZ’s recent report, “Money Into Property, 2007”, tracks the insatiable appetite that investors seem to have for real estate. It estimates that investment transactions world-wide in the sector hit a record high of $600 billion in 2006 and that there was so much capital coming into the sector that as much as $4 of capital was chasing $1 of investible real estate.

The corresponding ratio for India, ranked second after China, with transactions of $12 billion last year, is even more startling — $8 to $1.

But Valente isn’t worried. “During the peak of the cycle, the ratio was $20 to $1 in China and Germany, so 8:1 isn’t atypical,” he observes.

Such large capital flows naturally cause distortions in the market, especially in the pricing. Valente acknowledges that the recent inflated valuations in some markets like Mumbai, which have become as expensive as London or Sydney or New York, are unsustainable.

On the other hand, Valente feels that as a growing market, in India the price correction could be put off for another five to seven years. “After all, there is some catching up to do, given that India is an emerging market and people need houses, shopping centres, offices,” he adds.

Also, mistakes, says Valente, happen every time there’s a boom in capital flow. “They remain hidden and by the time you see them, it’s too late.”

As for now, DTZ is bullish on India. The consultancy, which came to India four years ago, began with two people on its research team. “We have 13 people today and are looking to recruit another three to four even as we speak,” says Valente.

But the one thing that Valente feels would greatly help investors is greater transparency.

“An investor is looking for an element of certainty — how certain am I of getting utilities, how certain am I of actually owning it. The returns in the Indian market are about 11 per cent, and the cost of capital is 12 per cent. An investor can withstand that, but if he can be more certain of his investments in, say, Bangkok or Shanghai, why should he come here? The competition, remember, is not between Mumbai or Delhi or Chennai, it is global,” he warns.


India property in takeoff mode

A decade ago, Gurgaon on the outskirts of the Indian capital was little more than scrubland and a few isolated housing developments.

Today it is a sprawling concrete jungle home to a slew of multinational companies and a symbol of India's real estate boom which is drawing a flood of foreign and domestic money.

While the west is in the grip of a sub-prime credit crisis, investors are still flocking to India which experts say is one of the last few nations where there is primary demand for real estate rather than individuals trading up.

"In the west, the world is fully built up," Ashwin Ramesh, partner at Mumbai's Primary Real Estate Advisors which tracks domestic property price movements, told AFP.

"In India, demand still has to be met," he said.

Last week, Donald Trump Junior, son of the flamboyant US real estate billionaire, turned up on a scouting mission for his father, declaring: "Now is the time to come to India."

Trump followed in the footsteps of other investors including private equity giant Blackstone, brokerage Goldman Sachs, US-based General Electric and New York real estate investment fund Trinity Capital LLC which have announced plans totalling billions of dollars to invest in Indian property.

The announcements have come since India allowed foreign capital into the real estate sector two years ago.

"The genuine demand factors are very strong, you have nine percent GDP growth, 350 malls are coming up, you have new office space, income levels are growing substantially," said Pranay Vakil, Indian chairman of global property consultancy company Knight Frank.

One four-bedroom apartment in the financial capital Mumbai sold for a hefty 8.62 million dollars last week.

That was the equivalent of 97,842 rupees (2,488 dollars) per square foot, the Times of India reported, calling it the country's "largest ever" price per foot. In the early 1990s, apartments in the same building were selling for 7,000 rupees per square foot.

Commercial and private rents have also soared. The price of office space has climbed by 55 percent in Mumbai in the past year, making it the second costliest office market in the world after London, according to a report by realty consultant C.B. Richard Ellis.

The Kuwait Investment Co, a powerful investor in the oil-rich sheikhdom, expects India's real estate sector to grow by 700 per cent in the next decade.

-- Infrastructure demand is surging --

There is also surging demand for infrastructure -- housing, schools, hospitals -- along with retail, hospitality, commercial property and special economic zones aimed at spurring rapid industrial growth.

"The world is coming here because there is business," said Primary Real Estate's Ramesh.

Among the biggest investors are those from the Gulf.

Emaar Properties, the world's largest listed real estate developer, has announced a more than 12 billion dollar investment with India's MGF Developments. Nakheel Group has signed a 20 billion dollar deal to develop townships and DAMAC Holdings plans to invest three to five billion dollars.

"The number of upper middle class and rich populations are growing in India and with it the demand for quality housing," DAMAC chairman Hussain Sajwani told India's Business Standard. "We will tap this potential."

According to the Indian government's habitat policy, about 800 billion to 900 billion dollars in investment is required to overcome the country's housing shortage and achieve the target of everybody having a home of their own.

But it is not only foreigners who are pumping in money into the country of 1.1 billion people.

Top of the list of Indian property magnates is developer K.P. Singh who made a far-sighted bet decades ago that real estate would eventually soar. In the 1970s, he bought 1,000 hectares (2,470 acres) on the far reaches of New Delhi that spawned Gurgaon, host to such corporate heavyweights as Motorola and Dell.

The 76-year-old Singh now is worth 35 billion dollars and his real estate development company DLF is India's largest, raising two billion dollars in June in the country's biggest-ever IPO.

During the last 18 months a score of Indian real estate firms have raised about three billion dollars on London's Alternative Investment Market.

India, meanwhile, is seen escaping major fallout from the US credit crisis thanks to its largely insulated economy.

"The direct and indirect exposure of the Indian banking sector to the subprime woes is limited and does not pose a threat to either the local banking system or to the economy," said JP Morgan economist Rajeev Malik in Singapore.