Thursday, June 18, 2009

Realtors wait to hear FM music Assetventures

The ministry of housing has taken kindly to the set of demands put across by the real estate developer associations.

The ministry officials are meeting their counterparts in the finance ministry to ask for specific stimulus for the real estate sector.“Liquidity is still a major concern for the sector andthe government needs to provide specific stimulus for its revival,” a senior official in the housing ministry told FC Estate. He added that the ministry would approach the finance ministry to structure the incentives in a way that it generates fiscal concessions for the sector.In fact, over the last week the real estate associations Naredco (National Real Estate Development Council) and Credai (Confederation of Real Estate Developers Association of India) had put across a slew of demands to the secretary, ministry of housing.Though officials of housing ministry remain tightlipped over the exact concessions demanded, developers are expecting that the government will allow an extension of the loan restructuring facility beyond June 2009. The present provisions allow a developer to go for one-time restructuring of debt. Though developers have been able to raise money through the qualified institutional placement (QIP) route over the last couple of months, liquidity still eludes them.“A moratorium on the payment of interest and extension of time for restructuring of debt taken by the real estate developers will help us execute projects on time,” Rohtas Goel, president Naredco told FC Estate. He further said that the finance minister’s move to ask banks to lower their borrowing rates is a welcome step. “I am hopeful that the move will extend the affordability of loans to a large number of people and for the manufacturers and suppliers. The move will help in reviving the real estate sector through reduction in home loan rates.”Further, if the government allows a developer to avail overseas funds through external commercial borrowings (ECB), it will ease cash flow to the sector. At present, ECB is prohibited for housing development. “ECB in housing construction will supplement the funds from banks and financial institutions and, in the long term, reduce the cost of finance, thereby reducing the price of houses in the country,” said Pradeep Jain president Credai (NCR).Further, if the group housing and integrated township development is brought within the definition of infrastructure it will also help in the sector’s revival. “This will ensure a wider finance window for these projects. As a safeguard, a developer may be required tobuild at least 100 residential units in such projects,”quipped Goel.However, how much of these demands actually pass the muster of finance minister remains to be seen.

The great SEZ rush skids on slowdown, land issues Assetventures

Almost half the proposals to be taken up by the Board of Approval involve developers wanting to curtail their plans.
Also Read Related Stories News Now - Vascon Engineers puts Guj IT SEZ project on hold - Opto Circuits plans to invest Rs 150 cr in Hassan SEZ - Software sector banking on tax benefit extension - Satyam staff get new portal on learning services - Board of Approval to meet on June 19 for SEZ approval - Satyam granted 1-yr extension to complete SEZs Also Read Related Stories News Now
- Sensex volatile; ACC down 4% - NEWSALERT: Inflation in red, at -1.61% - SpiceJet hikes fuel surcharge by Rs 400 - Most active stocks on the BSE - Mahindra firm in volatile market; MHRIL IPO to open on June 23 - Asian markets in red; Hang Seng sheds 356pts More When the Board of Approval for special economic zones (SEZs) meets on Friday, liaison and corporate affairs executives will jostle for space in the narrow corridors on the ground floor of Udyog Bhavan, which houses the commerce department.
In stark contrast to last year, however, few of them will be pushing proposals for new zones. Demand dynamics brought on by the global slowdown and persistent land acquisition problems are forcing developers to alter their plans.
As a result, almost half the proposals that the inter-ministerial panel headed by Commerce Secretary Rahul Khullar will consider have to do with extensions to acquire land or cancellations of these tax-free enclaves that were supposed to catapult India’s exports into the big league.
Of the 58 SEZ proposals on the agenda, only two are for setting up new zones; 23 zones are applying for an extension of the validity period and two — from K Rajeha Universal — are seeking de-notification on the grounds that the economic downturn has resulted in lower demand.
Then there is Mansarovar Industrial Development Corporation that has decided to expand the focus of its zone from handicrafts to information technology-enabled services (ITES), and to split the 131 hectare-zone.
“The developer has requested that due to the present downturn in the economy, the additional sectors (ITES) may kindly be permitted to be included in the SEZ,” the commerce ministry said in its note for the BoA meeting.
Similarly, financial constraints have forced Diamond Software Developers, which was setting up an SEZ focused on information technology (IT) and ITES in Noida, to drop its plans.
Meanwhile, companies such as Parasvnath SEZ have had to move the proposed 10.11 hectare Biotech SEZ from Ranga Reddy district in Andhra Pradesh to Medak in the southern state owing to legal hurdles in land acquisition.
Similarly, with only 63 per cent of the land acquired, Rajasthan Explosives and Chemicals has sought more time for developing a multi-product zone.
Plagued by insufficient demand for space, land acquisition problems and the liquidity crunch in the first half of 2009, nearly 27 developers with all approvals in place had already sought more time to operationalise SEZs. Ministry officials said the number could go up to 50 at Friday's BoA meeting and much more at subsequent meetings.
According to the norms, an SEZ has to be up and running within three years of receiving the formal approval, which is only given after land is in the developer’s possession.
When the economy was growing at 9 per cent, there was a rush to set up SEZs. Between February 2006 and May 2009, the government gave formal approvals to 568 proposals, nearly 60 per cent for IT. Of these, 315 have been notified, which means they can claim tax and duty benefits.
But work has been completed and exports are taking place in only 90 zones. So, only 16 per cent of the formally approved proposals are contributing to India’s exports.
Exports from these 90 operational SEZs are projected to grow 38 per cent to over Rs 1,25,000 crore in 2009-10, as against Rs 90,000 crore last year. This will, however, be just a quarter of the Rs 5,00,000 crore projected if all the formally approved zones were to become operational.
Government officials, however, said this was only to be expected. “When we started giving approvals, we expected at least one-third of the approved SEZs to fall by the wayside. But the slowdown and restrictions on state governments acquiring land could see more projects not seeing the light of the day,” said an official who was associated with SEZ policies and approvals for over five years.
“The number of approved zones is already high. The serious players are here to stay and our focus will be to facilitate SEZ-related matters,” added another official.
Experts said with prospective clients putting their expansion plans on hold, developers do not want to take risk and build zones. This is because, unlike the real estate business model, SEZs require a long gestation period before developers see any financial gains.
“Scrapping unviable zones is a systemic correction. When the business cycle is on an upturn, the zones will bounce back,” said Aradhana Agarwal, senior fellow at ICRIER and reader at Delhi University’s Department of Business Economics.
PricewaterhouseCoopers Executive Director Vivek Mehra, who is advising many developers, said the downturn had lowered demand for space in the IT zones. Besides, the extension of the Software Technology Park scheme also meant that the rush for SEZs has come down.
“There are pressures on timeline and builders, who have put in more than the requisite 25 acres, are looking at other options. Even if you de-notify now, you have the option to seek a re-notification later or a set up a zone with a smaller land area,” he said.
Developers seeking extensions include fraud-hit Satyam (three zones), Infosys (two zones), NIIT, and ONGC-promoted Kakinada SEZ in Andhra Pradesh.
The former commerce ministry official said the manufacturing sector-related SEZs, which have not shelved their plans, could stage a comeback over the next eight to 10 months if production shifted to low cost destinations.
For the moment, the absence of demand and liquidity crunch has also forced real estate major DLF to get conditional approval to scrap four of its notified zones, while its plea to get another of its Delhi-based zone has already been accepted.
Gitanjali Gems, which has permission to set up nine SEZs, has also applied the brakes on its plans. Although the company has decided against going ahead with a proposed zone in Nanded, the development of six zones in Gujarat and Maharashtra is yet to pick up. Only one SEZ in Hyderabad is expected to be operational, but that is one-and-a-half years away.
In pharmaceuticals, chemicals and biotech, most of the 16 notified SEZs have been non-starters. Apart from the projects of Divi’s Laboratories, Biocon and Serum Institute of India - the first among the notified SEZs in 2006 – the others are still under implementation. Issues such as land acquisition, delays in developing physical infrastructure, setting up of plants and regulatory approvals from the US and Europe are delaying the projects, sources said.
“The development of a pharmaceutical SEZ may take three-seven years as pharmaceutical plants need quality water, effluent treatment plants and good physical infrastructure,” said Hitesh Gajaria, head - pharmaceuticals and executive director, KPMG India.
Even government-promoted projects such as development of Kandla Port Trust’s Rs 7,000 crore port-based SEZ is in pause mode.
“A majority of the developers want to see how the situation evolves in the coming days. So, they do not want to scrap their plans for the zones as of now. But there is an oversupply issue in zones,” said Abhishek Goenka, partner at consulting firm BMR & Associates.

Home, asset sales ease pressure on Unitech to raise equity capital

India’s second largest developer by market value, Unitech Ltd, has sold more homes than expected and raised more than Rs1,000 crore from asset sales this year, and has no immediate need to raise money through an additional share sale, managing director Sanjay Chandra said.“We are not under pressure to raise equity capital,” Chandra said after a meeting of shareholders. “We have been able to sell more than expected and our asset sales have been good,” he said.The company has sold 4,000 apartments, covering 4 million sq. ft, in the last two-and-a-half months as demand revives in a property market recovering from a downturn that left developers strapped for cash last year. Unitech had a target of raising Rs1,700 crore this year from a sale of assets such as hotels.It has sold 4,000 apartments in under three months as demand revivesUnitech has rescheduled all of its outstanding debt of Rs7,800 crore and plans to reduce it by another Rs900 crore within this month, Chandra said.Sales have also started to pick up. “The volume of sales that we are seeing now is more than what we saw in 2006,” Chandra said. “Home prices have come down by 25-30% on an average.”Shareholders approved a resolution to allow the company to sell one billion equity shares through instruments such as a placement of shares with qualified institutional buyers or stock sales to overseas investors.The company can raise more than Rs8,500 crore at current market prices, but hasn’t decided on the timing or the route of a share sale, Chandra said. In April, Unitech raised $325 million (Rs1,553.5 crore) through a placement of shares with institutional buyers to reduce debt.The shareholders also approved a plan for the company to offer Rs1,150 crore of warrants to the promoters, including the Chandra family. Unitech will sell 227.5 million warrants at Rs50.75 a share to the promoters.The promoters will have to pay 25% of the amount for the warrants, around Rs271 crore, within the next 15 days, Chandra said. With the issue of warrants, the promoters’ stake in the company is expected to rise from 51% to 61%, Chandra said.Unitech expects to sell 20 million sq. ft of developable area in fiscal 2010. The company plans to launch homes in the Rs10-20 lakh range under its Uni Home brand in Gurgaon, Greater Noida and Chennai. In Greater Noida, Unitech recently launched an affordable housing project with 10,000 units and it has received 2,000 enquiries, Chandra said.The company has also increased prices by 2% in two of its projects in Gurgaon, a suburb of Delhi. “We have increased the prices in our ongoing projects just two weeks ago. We will evaluate whether there is a need for raising the prices in other projects as well,” Chandra said.Chandra also said that Unitech Wireless, the telecom unit of Unitech, will launch mobile services in the December quarter of this year.Unitech Wireless, in which Telenor SA of Norway has a 67% stake, has already placed orders with network providers Alcatel-Lucent SA and Huawei Technologies Co. Ltd. The telecom unit will have a capital expenditure of Rs10,000 crore over the next three years, Chandra said.Unitech’s share price rose 2.13% to close at Rs88.90 on the Bombay Stock Exchange. The benchmark Sensex was up around 0.5% and the BSE Realty Index gained 1.63%.

Property prices set to rise Assetventures

Property prices in India which have been on the decline for several months on account of the credit crunch, are set to rise, according to Mr R.R. Nair, Director and Chief Executive, LIC Housing Finance Ltd.
“People cannot expect a further fall in property prices. That stage is over. Builders had lowered prices when they were in trouble in the last few months. For builders, the liquidity position has eased and the cash flows have improved. They have also cleared off existing inventories. Therefore, there is no reason for them to lower prices,” he said.
As the demand picks up, property prices will go up. This could happen in the next five-six months, Mr Nair, head of the second largest housing finance company in India, said.
“By how much the price will increase, will depend on the builders. In some pockets, they have started quietly increasing prices. However, it has not happened universally,” Mr Nair said in an interview to Business Line.
Moreover, builders had not increased prices in the last 15-18 months. Because of all this, there is a “good possibility’ that property prices will rise, he said.
Citing reasons for renewed housing demand, Mr Nair said that with a stable government in place, people feel that the economy will improve, the liquidity situation would be better and the soft interest regime will continue. They also feel that property prices have bottomed out. This is precisely why there is a renewed interest in buying homes, he said.
The property prices had seen a correction in the last two quarters as demand for housing had dried up. Builders had been forced to lower prices as they were sitting on a large inventory. Some builders who had planned luxury projects had converted to standard projects.
“With the economy looking up, there is confidence among builders that they can raise funds either through loans or through equity or QIPs. That is why builders have regained enthusiasm and started working on the projects”, he said.
Growth pick-up
The housing finance company has seen growth pick up from end- February. In March, the company had a 42-per cent growth. For April and May put together, there was a 120 per cent growth in approvals and a 50 per cent growth in disbursements.
Most of the growth for LIC Housing Finance has come from retail finance, Mr Nair said.
The company has revised its business growth target upward from the 25 per cent it set for itself at the beginning of this fiscal.
“With the first two months of this fiscal registering a 50-per cent growth in disbursements, the growth should be in the range of 30-40 per cent this fiscal”, Mr Nair said.