Friday, July 10, 2009

DLF sells Ackruti City JV stake Assetventures

NEW DELHI: India’s largest real estate developer DLF has sold its stake in a 50:50 joint venture with Mumbai-based Ackruti City for developing a project in Mumbai to a US-based real estate fund for over Rs 200 crore, two senior executives at DLF said, asking not to be named.

The JV firm is developing two office buildings spread over nine million sq ft at Andheri, Mumbai. These two buildings are part of a larger slum rehabilitation project being developed by Ackruti City. DLF had picked up stake in the project over two years ago with the strategy to spread its footprint across the country. DLF exited the project as part of its asset sale programme to raise Rs 5,500 crore by the end of this fiscal.

Centre to bring in law to regulate real estate in Delhi

NEW DELHI: The Central Government on Thursday said that it is considering a model legislation on regulating real estate in

In reply to a written question in the Rajya Sabha, Minister of State for Urban Development Saugata Roy said that 'the Delhi Real Estate Management (Regulation and Control) Bill' can also serve as a reference for other states.

The minister, however, ruled out the constitution of a regulator for real estate sector for the entire country, saying matters pertaining to local governance and land falls in the list of state subject as per the Constitution.

Real estate giant IREO to invest $500 mn in India

NEW DELHI: Global real estate giant IREO will pump in $500 million in various infrastructure projects in India over a period of seven years, the company said Thursday.

IREO, which has invested $1.5 billion in India, is already one of the largest investors in the country's real estate sector.

"Having already invested $1.5 billion, we still have another $500 million available in cash for further investments in our projects," Lalit Goyal, vice-chairman and managing director IREO, told reporters here.

The company currently has 13 projects and is in the process of constructing an IT SEZ (special economic zone) in Pune.

"We have already commenced construction of a five million square feet IT SEZ (Pune) and a three-million-square-feet housing project," Goyal said.

Added Anurag Bhargava, chairman IREO: "The Pune SEZ should be completed by next year."

The company has projects in many states including Haryana, Punjab, Tamil Nadu, Maharashtra and Delhi.

The company said it would develop an eight-million-square-feet housing project in the next 12 months.

RBI issues revised draft norms on commercial real estate exposures

CHENNAI: The Reserve Bank of India (RBI) has come out with revised draft guidelines on commercial real estate (CRE) exposures. The revision comes in the wake of doubts raised in certain quarters on treatment of specified exposures. The new draft is also necessitated by the need to align with the rules with the Basel-II framework.

The Basel-II framework has clearly spelt out the definition of income-producing real estate (IPRE) in para 226 of its framework. According to the Basel-II framework, IPRE “has a strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property.” The apex bank has chosen to align the definition of commercial real estate (CRE) exposure with the Basel II prescription. Going by this, the RBI has clarified in its revised draft guidelines that “if the repayment primarily depends on other factors such as operating profit from business operations, quality of goods and services and tourists arrivals, the exposure would not be counted as commercial real estate.”

Source of cash flow

Any exposure would be classified as IPRE/CRE exposure if the “funding results in the creation/acquisition of real estate (such as office buildings to let, retail space, multi-family residential buildings, industrial or warehouse space and hotels) where the prospects for repayment would depend primarily on the cash flows generated by the asset.”

In any case, the apex bank goes on to clarify, “the prospect of recovery in the event of default would also depend primarily on the cash flows generated from such funded asset, which is taken as security.” For an exposure to be classified as IPRE/CRE exposure, the primary source of cash flow (that is, more than 50 per cent of cash flows) for repayment and recovery would have to be lease or rental payments or sale of assets.

The revised draft has also sought to clarify confusion vis-a-vis exposure arising out of ‘infrastructure lending’ to special economic zones. Certain types of exposures in respect of SEZs would have the characteristics of CRE exposure if the Basel-II approach is followed.

Lending to SEZs

In such cases, the RBI says, they would be simultaneously classified as both ‘CRE exposure’ and ‘infrastructure lending’. In such instances, the applicable risk weight would be that of CRE exposure (even if the borrower is Triple A rated).

The exposure, however, would be eligible for all the regulatory concessions available to `infrastructure lending,” the RBI clarifies.

An investment in the equity of a real estate company or a mutual fund/venture capital fund/private equity fund which invests in the equity of real estate companies would be sensitive to the movement in prices of real estate.

Further, they have correlation with the general equity market. Therefore, these would be reckoned both as capital market exposure (for the purpose of compliance with the regulatory ceiling fixed by the RBI) and the internal ceiling for real estate exposure fixed by the bank itself as required by the RBI norms.

Such exposures would attract a risk weight of 125 per cent (as applicable to equity exposures) or 150 per cent (as applicable to exposure to VCFs) as the case may be since these risk weights are higher than that applicable to CRE at 100 per cent.

“The exposure should be reported to the RBI under both the classifications with an appropriate footnote to avoid double counting,” says the revised draft.