Monday, June 1, 2009

Over 100 malls to spring up in India by end-2010: Report

Keen on matching supply with demand, real estate developers may spring up more than a hundred malls spread over 30-million sq ft in the country by end-2010, a report says. 

"Between now and 2010, an additional 31,846,504-square feet of mall space will be created across India through just over 100 new shopping centres," findings from a report titled 'Mall Realities India 2010', said. 

However, 54 per cent of expected mall supply in 2008 was deferred to 2009-10, the report compiled by real estate consultancy firms, Cushman & Wakefield and Jones Lang LaSalle Meghraj, said. 

"As far as retail real estate in the top eight was concerned, as much as 11-million sq ft of expected mall supply in 2008 was deferred to 2009-10, which was a reduction of 54 per cent from the projections made at the beginning of 2008," it said. 

Of the over 30-million sq ft of malls to be added by end-2010, India's north zone is leading with a total of 14,790,000 sq ft. 

"That translates into 45 malls expected in the North Zone with 24 in the Delhi NCR (National Capital Region) itself," it said. 

West Zone is the second-most prolific region in terms of additional projected mall supply of 7,438,504 sq ft through 47 malls, it said. 

South and East Zones total up a projected mall space at 5,865,000 sq ft (through 29 malls) and 3,753,000 sq ft (by way of 13 malls), respectively, it said. 

"Interestingly, while most projects in North, West and South Zones are in and around Tier II cities, in the East, the majority of developments are to open in or around West Bengal's capital Kolkata," the findings said. 

The list of properties scheduled to open in this period are located across metros, mini-metros and Tier II towns, including in Delhi, NCR, Mumbai, Pune, Aurangabad, Raipur, Bangalore and Siliguri, among others.

Rays of recovery - ASSOCHAM sees real estate recovery in 3 months

According to ASSOCHAM, anticipating strong policy measures for real estate in forthcoming Budget, embattled realty majors see positive signs of recovery taking place, within next 3 months as affordable housing rev up demand and improved cash flows address their liquidity concerns.

Mr Sajjan Jindal president of ASSOCHAM said that based on an expert group of 25 real estate firms, found 88% of respondent CEOs sensing a quick revival in the sectoral activity within next 3 months as developer’s strategic shift towards affordable housing and a significant price correction in the housing projects have pepped up the sale of residential property.

As per the Survey, a whopping 92% of the respondent developers considered affordable housing as the most dominating segment to shore up the demand in real estate sector. The policy actions supplementing the robust demand in the housing sector is likely to hold the key for a speedy recovery phase in the sector.

With developers concentrated efforts to target the lower and middle income consumer group during the downturn, 84% of the surveyed CEOs signaled the least impact in the affordable housing segment.

According to the Survey, at a time when luxury housing more than 50%, SEZ 40% to 50%, retail space 30% to 40% and commercial space 20% to 30% were witnessing steep contraction in demand, affordable housing was the single most resilient segment with a minimal contraction of 0% to 10%.

On the policy front, the surveyed CEOs sought single window clearances for all schemes under affordable housing in the line of SEZ clearances to enable fast development of units and achieve the short fall of about 26 million houses at the earliest.

However, a majority of 76% of the ABB respondents viewed the stimuli given to the sector through fiscal and monetary measures as inadequate to help boost the demand to supply scenario. However, of all the measures taken by the RBI and the commercial banks, 64% of the respondent CEOs were of the view that RBI’s allowance to banks to restructure loans to developers has been the most successful in improving the liquidity for real estate sector.

In the present market scenario, 60% of the surveyed CEOs perceived resurgent stock market as the most prominent source of finance to fund the sector’s cash requirement, followed by 28% viewing bank credit as the best viable option. Almost 92% of the respondent CEOs strongly agreed to the need to unify stamp duty on property across all the Indian States. The surveyed developers also sought reduced stamp duty charges to increase revenue and avoid duty evasion.

Among other policy issues, respondents asked for a central regulation body, recognition of real estate sector as industry, further relaxed norms for ECB and FDI along with a need for speedier and hassle free statutory approvals.

The Survey found that metropolitan cities has been the worst affected market segment whereas tier II cities have been seen as the most promising one to boost up the sector as commercial activity moving to these cities and their greater yield has given a tremendous impetus to investment in the these market segments.

Meanwhile, among the 6 metropolitan cities, the financial capital of India, Mumbai has been ranked first as the most saturated in terms of real estate assets followed by Delhi NCR and Bangalore whereas Chennai, Kolkata and Hyderabad were ranked fourth, fifth and sixth respectively.

Real Estate Buyers are ready to come forward to invest if price is right assetventures

Land monopoly is not only monopoly, but it is by far the greatest of monopolies; it is a 

perpetual monopoly, and it is the mother of all 
other forms of monopoly.” 

Said former British Prime Minister Winston Churchill and that’s the sense of power felt by those who hold land. The thinking of Indian developers is no different. They went on a drive to amass huge land banks, only to see themselves in deep trouble when the real estate market slowed. Nonetheless, amidst all the gloom and doom surrounding the sector, they have managed to survive the slowdown. With the successful closure of a number of qualified institutional placements (QIPs), a number of builders have managed to tide over cash flow problems for now. This has turned the tide in favour of the industry. 

Besides, the developers have resorted to measures such as selling non-core assets, cutting down prices, reducing apartment sizes, borrowing from banks, and pledging of shares to keep themselves afloat. Thus it seems that there is light at the end of the tunnel for sector, though the length of the tunnel is still not known. 

Industry scenario 

With a stable government in place, the sector may be in for some pleasant surprises. 

Affordable housing and rural housing are part of the agenda of the new government at the Centre. Leading builders were the first ones to react to this need and launch new projects with prices ranging from Rs 4 lakh (depending on location) to Rs 50 lakh (though not really affordable). 

Both listed as well as unlisted developers such as Lodha Developers , HDIL, Unitech, Puravankara, Omaxe, BPTP and DLF made a foray into affordable and midsegment housing. A recent entrant in the affordable housing segment is the house of Tatas, under the brand name ‘Shubh Griha’. Though it is difficult to arrive at a price point for defining affordability , some of these projects have seen good response from the customers. In fact now a number of private equity players are also keen on the affordable housing segment. HDFC Realty, Red Fort Capital and Kotak PE are believed to be eyeing this segment. 

The story so far 

In the last two months the BSE Realty Index has gained 20% (since 9th March) whereas the benchmark index, Sensex rose by 54%. This surge in the equity market coupled with increased buyer interest has had a positive impact on stock prices of realty companies. The beaten down stocks are again finding favour with investors. Though one still cannot directly say that this will ensure increased sale of units, it reflects the change in investor sentiment about the sector. 

However, it is only the developers with proven track record and construction capabilities that are benefiting from this change in sentiment. 

Sales offices and under construction project sites that bore a deserted look till a few months back are now buzzing with walk-in customers. With a manifold increase in the number of inquiries, it just shows that buyers are willing to come forward and buy as long as the prices are reasonable. This will help them to avoid over leveraged position. 

Since it still continues to be a buyers market, customers are not willing to pay a premium for any under construction property. In fact it is for this reason that ready flats are finding more takers. Builders are thus offering easy payment schemes to instill confidence in the minds of people. For e.g., in some projects buyer needs to pay only 20% of the value of the flat and the rest 80% (through EMI) would start only after the property is delivered . Data shows that new launches with reduced prices and smaller size apartments are seeing higher sales now. Bangalore and Hyderabad registered a low absorption rate (ratio of units sold to units launched) compared with Mumbai, Chennai and Gurgaon because the number of new launches in the affordable segment was low in these regions. 


With over 195 million sq. ft of ready and under-construction property in the market and hardly any takers, residential sales are the saving grace. DLF’s quarterly revenue for March’ 09 reported a whopping 73% decline. Following closely were HDIL and Puravankara, with a 63% and 56% drop in revenues. Similar was the trend in net profit margins (NPM). Puravankara’s NPM halved to 21.5% compared to the same quarter in the previous year. For DLF and HDIL it was much worse. Almost three-fourth of their profits have been wiped out. Higher sales of low margin mid housing segment were a cause of this drop in margins. 

Had it nor been for Reserve Bank of India directing banks and financial institutions to help them restructure their loans, most of them would have defaulted on their loan payments. Cumulatively, DLF, Unitech, HDIL and xx have managed to restructure close to Rs 4,100 crore of debt through commercial banks and mutual funds. DLF has repaid 1,700 crore of debt while Unitech managed to reduce its debt Rs 2,000 crore. This has helped them to not only reduce their debt equity ratio but also interest outflow. 

Going ahead 

Given the current scenario, the response to various newly launched projects shows that ‘right price’ has played a key role in their success. Realty prices have been rising since the last three-four years. Places like NCR, Bangalore and Mumbai where prices had gone up by 300%, have seen the maximum correction. Still there are few locations where builders have been maintaining absurd prices because of their improved liquidity position. But this would only lead to piling up of inventory, which will further tighten the cash flow position of the builders. With the approaching rainy season, sales would anyway be subdued. If the industry has to come out of this slowdown, dussehra would be an important time. 

In the six metros, 53 per cent of the 930-million sq.ft (as per Liases Foras) available realty stock is unsold; putting downward pressure on prices and lease rentals. We could thus expect a further 10-15 % correction in prices till Diwali, depending on the location. 

However, it is advisable for buyers to select the property of their choice and budget so that they do not waste useful time in doing the groundwork during the festive season.