Thursday, September 3, 2009

India's biggest land deals

DLF, India’s largest real estate developer, has emerged as the sole bidder for the 350.71-acre land parcel in Gurgaon put up for auction by HSIIDC. With a reserve price of Rs 1,700 crore, it’s said to be one of the largest land deals in India in terms of value.

Mega land deals, however, are not new to the Indian real estate industry which has already witnessed many such deals in the past few years, particularly during the property boom of recent years. We take a look at some of them:
In March 2008, BPTP outbid DLF for a tract of land in Noida near Delhi with a Rs 5,000-crore offer.

BPTP quoted the highest sum for the site -- Sector 94 running along the Noida and Greater Noida Expressway -- bidding at Rs 1,30,207 per square metre, followed by the country’s largest realty company DLF which quoted Rs 1,17,000 per square metre and Omaxe at Rs 80,100 per square metre.

BPTP’s winning bid was nearly 70 per cent more than the reserve price of Rs 2960 crore for the land parcel. But the deal was called off after BPTP failed to arrange funds to complete the deal.
Unitech in 2007 acquired 1,750 acres of land in Visakhapatnam from APIIC at over Rs 3,300 crore. At Rs 52 lakh per acre, it was among the largest deals in the country in terms of the acreage from a single source in a single deal.

The Andhra Pradesh Industrial Infrastructure Corporation (APIIC) had invited bids to develop the land for the Integrated Vizag Knowledge City.

Dubai-based Al Hamra Real Estate Development LLC had also qualified for the bid, but dropped out in the final stage.
The Ahmedabad-based Adani Group in May 2006 finalised India’s one of the largest lands deal with Housing Development and Infrastructure (HDIL) for Rs 2,250 crore to develop a commercial and retail hub in Mumbai’s landmark commercial business district, the Bandra-Kurla Complex (BKC).

The deal involved the sale and development of over 2.1m sq ft of land (around 48 acres) at BKC.
DLF has emerged as the sole bidder for the 350.71-acre land parcel in Gurgaon put up for auction by a Haryana state corporation. With a reserve price of Rs 1,700 crore, it’s the fourth-largest land deal in India in terms of value.

The Haryana State Industrial and Infrastructure development Corporation (HSIIDC) had first invited bids in January for this project, which will have a golf course, sports, commercial and residential development. DLF, which was the sole bidder then, had sought changes in bid conditions seeking easier payment plan.

HSIIDC re-invited bids in July, giving bidders the facility of a staggered payment plan over seven years and an additional 20% FAR (Floor area ratio or the developable floor space over a piece of land). The reserve price for the site was Rs 11,978 per square meter or Rs 1700 crore.

Unitech had a couple of years back outbid rival DLF Universal to bag the 340-acre city development contract on Noida Expressway with an offer of Rs 1,583 crore.

For the project where 50 per cent land was to be used for open area development and greenery and the rest for residential accommodation, Unitech had bid at the rate of Rs 11,529 per square metre.

DLF had put up a bid of Rs 1,401.46 crore at the rate of Rs 10,200 per square metre, according to media reports.

Reliance Industries in 2006 bid for and won a 7.5-hectare plot at Bandra Kurla Complex, a prime location in Mumbai, for Rs 1,104 crore.

According to media reports, Reliance paid Rs 61 cr per acre to grab the crucial Bandra Kurla convention center deal.

The bid was 130-per cent higher than the reserve price of Rs 480 cr.

Real estate market is improving: Time to buy

The figures in US from the National Association of Realtors show that pending home sales for July increased by a 3.2 percent margin, bringing the organization's Pending Home Sales Index to 97.6. This is a 12 percent improvement over last July's figures, and the highest level for the index since June 2007.

There is strong new reports that the global real estate market is hitting the bottom and some impressive positive news is coming from real estate markets around the world.

In the U.S., the real estate market has yet to hit the bottom, but at least it is very close.
There are 2 factors that would determine recovering the real estate market: one is when job losses stop and new jobs are created and secondly when the real estate prices are realistic reflections of what people can afford to buy.

The news that the real estate market is recovering based on recent sales doesn't really reflect real recovery.
What is happening is that people are buying houses at bargain prices. The value of sales is up and this is a good sign but still the real estate market would probably start recovering by next spring.

Around the world there is positive news in India where there is a huge demand of the population for real estate that is the main factor for the real estate boom--and also in the Middle East where the population growth in 15-20 years is estimated to triple.

The European real estate market mirrors what is happening in the U.S. There are some signs of improvement in Africa and Latin America but not as strong as in Canada, India and China. The Canadian Real Estate Association reported that realtors sold 50,270 units sold via the multiple listing service last month. That's an 18.2 per cent jump from a year ago. It also marked the first time sales had topped 50,000 in July. Sales of existing single-family homes jumped 55 percent in the 2009 second quarter compared to the 2009 first quarter. Realtors sold 18,141 homes in the second quarter.

In China the strength of the property sector has been another big surprise. Property sales were up 53% in the first six months from a year earlier, according to a survey commissioned by the statistics bureau and published in the China Information News, while nationwide prices averaged across 70 cities climbed year on year in June. This masks the fact that in second and third cities prices have been strengthening much more. Property normally accounts for about 25% of fixed asset investment in China and is a key form of wealth holding for most Chinese. Optimism about housing prices will translate into greater consumer confidence.

Chinese commercial real estate sales have increased in the first half of the year, recording more sales that the US and UK markets combined. Global commercial real estate sales are expected to continue growing in the second half of the year, which analysts believe will be the first step to global economic recovery.

All about taking loan against property Assetventures

Want money for your child's marriage? Or to fund your business expansion? Well the money is already in your house! Read further...

Loans generally can be classified as secured or unsecured. Personal loans and credit cards come under the un-secured loans category because we are not pledging any of our assets (collateral) to get the loan. Housing loans, loan against property, loan against shares, and car loans come under the secured loan category as there are collaterals involved.


Loan against property can be taken against a self-occupied residence or a commercial building. The main requirement on the bank's (lender's) part is that there should not be any other encumbrance.

Lap is the most secure of loans hence the lending rate is generally very low compared to other loans. However, because of the structure of lending by banks, they tend to be slightly higher than housing loans.

The eligibility criteria for getting LAP is also liberal, as the property is available as collateral. The repayment term can also be long from 5 to 15 years.

When to look at LAP?

For anyone who has a house or commercial property and is looking for a loan, LAP should be the first option. The only loan with better features could be the gold loan. But there could be a lot of sentiments attached to pledging gold, so it generally gets done as the last alternative. That leaves the LAP as the better choice.

Though a housing loan and the LAP are secured against the property, LAP is on the existing property and the value of the property is released for productive activity. For a businessman looking to expand business, a LAP comes in handy. As they do not have to look for costly sources and the processing is also much faster. A few banks may even give an overdraft facility against the property; this will help the business as interest will need to be paid only for the amount withdrawn.

Funding children's education can also be done using LAP; also their marriages. But as a general rule, one has to be a cautious when taking loans for expenses.

Advantages of LAP

* Value of the asset owned is released for productive use.
* Processing is faster than a housing loan as the property is already in our possession.
* Partial pre-closure is allowed without any penalties. This is an advantage as the overall interest burden or the tenure of the loan can be reduced by paying small additional amount (some banks permit a minimum part payment of Rs 5,000 most start at Rs 10,000).
* If the value of the property has risen over a period of time, a re-financing option can be used to increase the loan amount. This feature again is very useful for businessmen, who are on an expansion spree. They can use the same property to continuously build the business.
* The property continues to be in the ownership of the borrower. In case the borrowers are not able to pay the loan, they can sell the property and then settle the loan. This may leave surplus cash for the borrowers to restart their financial life.

Some disadvantages of LAP

* Banks generally do not give loans beyond 60 per cent of the value of a house property and 50 percent of a commercial property.
* New businesses generally cannot have access to LAP. They should have been in existence for at least 3 years. Salaried persons of course can get it if they are employed for over 1 year itself.
* There will be some processing charges usually in the range of 0.5 percent to 1 percent depending on the support given by the bank. Some banks may ask us to do the running around to get the encumbrance certificate and legal opinion ourselves and charge us lesser.

Points to be cautious about

Loan against property by itself is a very benign loan. So there is not much to be afraid about. However, there are a few points to be cautious about:

* Fixed vs floating loan conundrum:As in a housing loan, in LAP too a decision has to be taken related to this. In a low interest rate regime it is always better to take up a fixed interest rate. However clauses related to jacking the slabs up even in a fixed interest rate loan needs to be verified. For floating rates, the increase and decrease bands have to be checked.

* Inadvertent shift from overdraft to EMI: Some smart (unethical!!!) salesman may sell off a LAP in EMI format to businessmen seeking an overdraft. This causes unexpected high cash flows for the business.

* Assessment of property value: Support from the owners to give the deeds of recent sales in the neighborhood will help the underwriters of the bank in assessing the value of the property better. Generally they tread on the cautious side.

* Partnership business: In a partnership, LAP can raise some issues among the partners on - Whose property is to be pledged? This is particularly a problem if at a latter point in time one or some of the partners wish to leave the business.

NRI meet to seek changes in Indian property laws

NEW YORK: The Global Organization of People of Indian Origin (GOPIO) will pressure the Indian government to amend property laws to protect the
interests of NRIs at its annual conference here this week.

The biggest and oldest body of the Indian diaspora will hold its two-day conference at the Crown Plaza Hotel near LaGuardia airport Aug 21-22.

It will be opened by Oversees Indian Affairs Minister Vayalar Ravi. The 20th annual conference will also be attended by Frank Wisner, former US ambassador to India.

"Though our main theme is 'People of Indian Origin: Strengthening Global Connections', our thrust this year is to put fresh pressure on the Indian government to change property ownership laws for NRIs," outgoing GOPIO president Inder Singh said.

"How can we wholeheartedly involve ourselves in India's development if someone steals our investments and properties in our absence? The current Indian laws are so outmoded that they are not even fit for Indians, let alone the diaspora," Singh said.

"We are 25 million in strength and pumping billions into India. And don't forget that it was the NRIs who ushered in the IT revolution in India to set it on the path to greatness.

"India should realise that we matter a lot in its aspirations to become a superpower," he said.

Apart from Vayalar Ravi and Frank Wisner, the conference will also be attended by Basdeo Pandey, former prime minister of Trinidad and Tobago, Logie Naidoo, mayor of Durban in South Africa, and Lord Daljit Rana from Britain.

GOPIO counts the institution of the Pravasi Bharatiya Divas and People of Indian Origin (PIO) and Overseas Citizenship of Indian (OCI) cards as its biggest achievements in its two-decade history.

"We mooted these proposals to the Indian government at our very first conference in 1989. Finally, when the Vajpayee government set up the L.M. Singhvi panel to discuss the issue, we worked with it. We also proposed that prominent Indians abroad be recognized each year for their services to India,'' said Singh.

He said GOPIO also worked with other Indian bodies in the US to put pressure on Congressmen and Senators to vote in favour of the nuclear deal bill last year.

Singh said their future agenda is to turn GOPIO into "the Rotary Club of the Indian diaspora at the local level in their adopted countries".

Real estate buffeted by strong currents

Real estate in India has always been the playing field for entrepreneurs. This industry has witnessed unprecedented highs and frightening lows
over the years. One is often left dyspnoeic with the continuous shifts in this sector.

Market Dynamics

Due to rise in demand in the IT/ITeS sector and significant increase in FDI, the commercial and retail real estate markets experienced tremendous growth in the first quarter of 2008. Land deals accrued around Rs 23,000 crore with additional deals worth Rs 10,000-crore in the pipeline. The highest recorded land deal was Mumbai's Bandra-Kurla Complex.

However, it has not been an easy journey for all in the property market. Last year, the global property collapse exacerbated by the credit bubble burst resulted in reduced finance and business activity. Equity markets also remained lacklustre and raising money through IPOs proved to be difficult. Both real estate giants, Unitech and DLF, delayed the plans to raise money through REIT issues after witnessing unfavourable initial response.

Consequently, lack of funds forced developers into high interest loans. High credit amounts proved to be detrimental for property companies. Most companies borrowed a large portion of their land-development outlays up front and relied on advance sales to repay these loans. However, poor sales led to delays and massive cost overruns. According to industry estimates, around Rs 8,000 crore worth of projects had faced considerable delay by June 2008.

The Ripple Effect

The collapse of Lehman Brothers, in September 2008, was perhaps the most significant event that spiflicated an already floundering property market in India. It triggered a shockwave that rippled through the liquidity centric commercial and retail real estate markets leaving a trail of defaults, delays, and losses. Even though property prices have corrected by 22-42% in major cities over the last few months, 10-15% downside is further expected. Commercial real estate demand has languished as corporate firms deferred expansion plans to deal with the
credit situation.

Negative absorption rate aggravated by falling rentals led to decreasing margins. Companies like DLF, with 40% of its portfolio in the commercial and retail space, reported 29% y-o-y decline in 2009 revenues while its net profit plummeted by 43%. Similarly, the top line was also distorted for companies like Ansal (-26%), Parsvanath (-60%), etc.

Timely Measures

Timely and synchronised measures taken by central banks and governments around the world restored balance and prevented a total collapse of the financial system. Thus, markets saw a mild recovery. According to Rajeev Rai, vice-president of Corporate Assotech Ltd, “To counter decreasing demand and to gain confidence of all stakeholders of Indian real estate, associations like NAREDCO and CREDAI decided to bring down prices of various properties by reducing overheads and marketing costs. In some cases, ticket size of the property was reduced with reduction in size of apartment to make it more affordable for the masses.”

As per a report by Grant Thornton, the total number of PE deals announced during the first half of 2009 stood at 93 with a total announced value
of $2.89 billion with the highest proportion invested in real estate and infrastructure management worth $1.61 billion. Bhim Yadav, CEO, Falcon Realty Services Pvt Ltd, reckons, “A higher FAR not only brings in more supply to the market, it is also vital for creating room for more affordable housing and control the steep rise in prices, ultimately benefiting the common man.”

The Mumbai real estate saw a sharp price correction. Average peak rentals fell 40–60%. While there was a slight mismatch with excess supply, (supply of over 30mn sq ft over 2008–10E vs expected demand of 22mn sq ft), the demand in Mumbai has been healthy.

Comparative Analysis

UnlikeMumbai, commercial and retail space in NCR is expected to languish due to weaker absorption rate. As per Centrum, the average vacancy rate in malls across India was about 9% in Q408 and NCR had the highest vacancy rate of around 25%. According a study by Knight Frank India, average rentals in Gurgaon was down from Rs 120/sq ft to the Rs 51/sq ft while rents in Noida dropped from Rs 90/sq ft to Rs 44/sq ft.

In conclusion, as market conditions stabilise, the financial markets will slowly pick up resulting in an improved liquidity scenario, stable government, and affordable prices. This may well serve to bring back the shine to this lacklustre sector.

Sukhbir orders checking of under valued registration of properties in Punjab

CHANDIGARH: Sukhbir Singh Badal, Deputy Chief Minister Punjab on Tuesday took a serious note of under valuation of properties being done by revenue authorities in the field for the purpose of paying stamp duty.

Badal flanked by Harsimrat Kaur Badal, Member Parliament from Bathinda , while reviewing the development programmes of four districts here today asked the Financial Commissioner Revenue Mrs. Romila Dubey to issue instructions to the Deputy Commissioners to ensure that the data with regard to the entire land/urban property along with the collector rates was fed in the software within one month so as to check the exercise of discretion in application of collector rates and the type of land/property. He instructed that all registries from October 1, 2009 onward be done only as per computers fed rates.

He said that due to non-feeding of collector's rates and property details in the computer, the exercise of discretion leads to under valuation and corruption. Badal said that some times registering authorities impound the properties leading to harassment to the concerned parties and also leaving scope for leakages of government revenue.

Dubey informed the Deputy Chief Minister that revenue department has created a new software PRISAM-4 to make provision for entry of every parcel of land (Khasra Numbers) or urban properties in the software. She informed that would take care before the registration of the documents that the value of the property being registered was at par with the collector rates already fed in the computers. She said that instructions have been issued that in respect of Urban properties, the Registering Officers would not register documents unless the same was accompanied by relevant revenue record if applicable, a map of the property and a valuation certificate issued by a registered architect.

Badal said that instructions should be issued to all Deputy Commissioners to ensure that registries were done by the Registering Officers in accordance with the collector rates and in the case of any doubt, the documents should be impounded and referred to the collector for determination of value of the property concerned.

Taking seriously the feedback regarding under valuation of some properties by registering authorities for a consideration causing loss to revenue of the state, Badal asked Deputy Commissioners to conduct cross audit of suspected registries and in the case of under valuation, take strict departmental as well as criminal action against the erring officials.

The Commissioners of the Divisions have been instructed to review the progress of data feeding in the computers and send a report to the government.

NRI cell goes beyond property issues Assetventures

CHANDIGARH: The NRI cell, a landmark initiative of UT administration to redress property disputes, will have to expand its ambit to take care of
many other concerns of those who may have left the country for greener pastures but still look back with hope for solutions to their problems. Ever since its doors were thrown open on August 15, the makeshift centre in the Estate Office has received over 35 complaints ranging from issues of land, finance and matrimony.

“The cell was primarily constituted to deal with property dispute cases but now, going by the complaints, it seems that NRIs want to seek help for all their problems, including financial and matrimonial ones,” said home secretary Ram Niwas

The brainchild of UT administrator Gen (retd) SF Rodrigues, the cell was set up after an NRI from Chandigarh alleged that his shop-cum-flat was sold out on a fake power of attorney. “Since it’s difficult to settle things by sitting far away in a different country, disputes linger on for years. The fact that the cell is overseen by top UT officials has assured NRIs that their matter will be pursued seriously. However, one key trigger for marriage-related problems is the delay in visa for brides as well as grooms,” said Niwas.

With all issues to be handled by a committee headed by retired justice Amar Dutt and consisting of the SSP, UT senior standing counsel, a representative of NRIs and a legal luminary to be co-opted by the committee, for the time being, the administration plans to hear out complaints at UT guest house.

“The objective of the cell is to protect rights of NRIs. The process of lodging a complaint with the cell is also simple as they can either send an email at or call on 0172-2700218,” said an official.

MCD launches amnesty scheme for tax defaulters

NEW DELHI: Not paying your property tax can land you behind bars for a period of seven years now. The Municipal Corporation of Delhi (MCD) has
launched am amnesty scheme under which tax defaulters can clear their dues without having to pay a penalty or the interest amount. But those who fail to pay the tax by October will not only face penalties like sealing of bank accounts and attachment of property but may also be jailed for a period of seven years.

Said mayor Kanwar Sain: "The 30% penalty will be waived off for those paying property tax dues before October 31. In addition to this, 1% interest levied every month on unpaid amount will not be charged from them. The amnesty scheme will be open from Tuesday to October 31.'' For the scheme, the civic agency has constituted special teams in all the 12 zones and the property tax headquarter at Lajpat Nagar.

"Under the scheme, all the property tax payers in the city will get a special identification number similar to Permanent Account Number from the civic agency. In future, the facility will be extended to other property owners too,'' added Sain.

The agency said that in future, property owners who submit pay the tax will get benefit in getting the building plan sanctioned. The mayor said the MCD will collect tax from property owners in unauthorized colonies, about whose status there was some confusion till now.

Survey of India is currently determining the number of property owners who are not in the tax net of the civic agency. According to MCD, only nine lakh people pay property tax, while according to its estimate, there are more than 30 lakh properties in the city.

New property tax rule put on hold Assetventures

MUMBAI: With an eye on the upcoming assembly elections, public representatives in the BMC held back an important proposal to implement new
capital value-based system to calculate property tax.

The capital value-based system, which is fairer and easier to understand, will now be introduced in phases across the city only after the election code of conduct, which came into force from Monday, gets over. The proposal was held back by the civic standing committee after the corporators called it a `mystery'.

"The civic administration has still not clarified how this system will benefit the middle and lower-middle class. There is still very little understanding on the calculations and why it can be so skewed for different properties," said Yogesh Sagar, member, standing committee.

The new system, starting from April 1, 2010, will be will be based on the actual property value. The figure will be mostly based on the stamp duty ready reckoner, which the government brings out every year. Older buildings will get a concession for depreciation.

As of now, Mumbai follows the rateable value-based system, which was introduced in 1888 by the BMC Act. According to this system, property tax is calculated on the basis of the rent a property is likely to earn. Going by the book, residential properties are charged at 83.5% of the rent they are likely to earn and commercial properties at an even more absurd 112.5%. With rents frozen for buildings built before 1940, and the BMC levying increased tax rates for newer buildings, the existing system has led to lot of disparities.

Additional civic commissioner, Anil Diggikar, said doubts of committee members will be cleared. "We have assured them that explanations will be soon given," he said.