Thursday, November 12, 2009

Govt sets real estate regulation law moving Assetventures

After dragging its feet on the issue for two years, the state now looks the most serious it has ever been about enacting legislation to regulate the housing sector.

The proposed law, called Model Real Estate (Regulation of Development) Act, has made little progress so far due to opposition by the builders’ lobby, but now, under pressure from the Centre, the state has set it in motion.

Sitaram Kunte, principal secretary (housing), said: “This will be a mechanism to tackle home buyers' grievances and prevent cheating by developers.” He said the draft forwarded by the Centre is being studied by the state, which will make revisions and table it before the state Cabinet, which will take the final decision.

For years, there has been a demand for watchdog legislation along the lines of the Securities and Exchange Board of India, which regulates the country’s stock markets.

Consumers have accused developers of cheating them by delaying handing over of flats, arbitrarily increasing rates, and illegally chargingfor parking space etc. “We need some checks and balances. Today, anyone can become a builder; there is no accountability at all,” said lawyer Vinod Sampat.

Builders have opposed regulation saying it will impede growth of the sector. “Our industry works on demand and supply — there’s no way to control prices. We buy land in the free market at current rates and sell flats according to existing conditions,” said Sunil Mantri, president elect, Maharashtra Chambers of Housing Industry, an apex body of builders.

Real estate experts have cautioned that care should be taken while framing the law. “Existing laws are enough to tackle consumer grievances; unfortunately they are not being implemented. Care should be taken to ensure the new law does not become a toolfor harassment,” said Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, a real estate consultancy.

Real estate sales picking up in India with warning against price hikes

Low interest rates, a resurgent stock market and growing confidence in the economy is boosting the real estate market in India but analysts are warning that a sharp increase in prices could put investors off.

‘The residential market, including the premium segment, has rebounded quicker than expected.

We are seeing 2007 level prices again and a robust demand for houses in the $1 million range,’ said Anuj Puri, chairman of Jones Lang LaSalle Meghraj.

According to property consultant Ashok Narang the demand is coming from both investors who want to let out their properties and people who want them as homes.

‘Projects in the suburbs are doing very well and buyers have started flocking to even under-construction projects where bookings are taking place. Earlier, banks were reluctant to lend to buyers for incomplete projects,’ he said.

However, he warned that if prices spurted too fast, the market would slow down once again.

Aditi Vijayakar, executive director of Residential Services at Cushman & Wakefield, agreed.

‘The ideal graph should be gradual,’ she said.

Many major developers have already put up their prices this year and the rest of the industry is concerned.

‘If residential realty rates rise at this juncture it will take the market back to a scenario of stalled sales, similar to what was prevalent during the end of 2008,’ warned Pankaj Kapoor, CEO of real estate research firm, Liases Foras.

And realtor Ramprasad Padhi feels that there is not yet a significant revival in the market that could warrant price increases.

‘The marginal improvement in sales has been mistaken by some builders as signs of the next wave.

In reality, it has been a combination of pent-up demand and accumulated stock being disposed off at lower prices,’ he said.

Potential buyers, he says, will and do find the new increased prices unjustified.

’ But developers seem determined to test the market.

‘At present price increases seem to be limited to certain mid to high end projects, in preferred locations.

If the trend percolates down to a wider spectrum of market segments and locations, we may see prospective buyers once again display circumspection and hesitation to buy,’ said Pawan Swamy, MD (west India) at consultants Jones Lang LaSalle Meghraj.

India is at least a year away from the next real estate upswing, according to Chaitanya Parekh of the Soham Group.

‘In the second half of 2008, several developers started reducing the sizes of the units they offered, aiming for a different customer profile.

Now, if there is any increase in the price, the whole objective will be lost,’ he said.

DLF owners to buy out DE Shaw in arm Assetventures

The founding family of India’s largest real estate company has reached a deal with DE Shaw to buy out the hedge fund’s stake in DLF
Asset (DAL), an important step presaging transactions that could lead to a Singapore listing for the DLF affiliate in the first quarter of 2010.

DE Shaw will get a little less than $500 million from KP Singh and his family and privately-held DAL will most likely become a majority-owned subsidiary of listed property developer DLF, two persons directly involved in the transaction said.

DAL, which buys completed commercial assets from DLF, was set up as a Real Estate Investment Trust (REIT) controlled by the Singh family. A Singapore listing for DAL, which was to have happened in 2008, was shelved following the crash in the global equity markets.

The integration of DAL with DLF, which is expected to be completed by December, is being done to give the property developer access to the former’s revenue stream.

KP Singh and his family have bought DE Shaw’s minority stake for around Rs 2,300 crore ($500 million). The hedge fund had invested $400 million, equivalent to Rs 1,600 crore, in early 2006.

Cash-strapped DLF, whose sales fell by over 50% to Rs 1,810 crore during the quarter ended September, has set itself a target of nearly halving debt to Rs 6,500 crore this fiscal year. Revenue from DAL, which at one time accounted for over a third of DLF's sales, has dried up.

DLF expects to get Rs 4,500 crore through the sale of non-core assets and has already raised Rs 1,064 crore in the first half of the current fiscal.

DLF has been working on the integration of DAL with itself for some time, a person with knowledge of the development said, adding the valuation will depend on the report of a panel of independent directors.

A DLF spokesman said the company "does not comment on market speculations."

Since 2006, DAL had acquired commercial assets valued at over Rs 11,000 crore from DLF. It has raised some Rs 5,000 crore ($1.05 billion) from hedge funds and owes DLF around Rs 2,000 crore.

In May, the Singh family mopped up Rs 3,800 crore by divesting a 9.9% stake in DLF to buy out the investment by DE Shaw. But the deal got
delayed due to a tax hitch: since DAL was not a listed entity, the hedge fund was required to pay capital gain tax on the profit. This issue has now been resolved.

After the exit of DE Shaw, a DLF subsidiary will finalise the purchase of the promoters' entire holding in DAL through a complex share swap deal. The deal is being routed through a subsidiary as the promoter holding in DLF is above 75% and any issue of fresh shares to promoters is not allowed under listing norms. This effectively means that DLF will issue fresh shares of its subsidiary to the Singh family, said one of the officials.

A source said that the value of DAL would be around Rs 9,000 crore. After adjusting for DAL's liability to DLF, loans from banks and the investment by Symphony Capital in the form of preference shares, the net value would be around Rs 2500 crore against which the shares of a subsidiary company will be issued to the Singh family.

London-based hedge fund Symphony Capital has invested $650 million in DAL through convertible preference share in two phases.

The company has started discussions with overseas investment banks for DAL's Singapore listing, a banker said.

Commercial, residential realty picks up momentum in city

The price of real estate in the city, which was on a low for most of last year, has stabilised and in fact posted a bit of a rise in select
locations, if recent research by real estate advisory firms are any indication.

Importantly, commercial real estate including retail spaces which took a bigger hit in the wake of the economic slowdown, is also showing an upward trend as demonstrated by the plans of some major world bands to enter the city, the reports said.

The trend is in keeping with developments witnessed nationally. The realty scene in major cities in the country has seen higher levels of activity after the early signs of an economic recovery both in India and internationally, said the quarterly report of realty research and advisory firm Cushman & Wakefield (C&W).

The report for the third quarter of the year (July-September) observed that the market was characterised by a positive sentiment and increased activity was witnessed. "The city witnessed the launch of various residential projects in the third quarter across many micro markets in both mid- and high-end segments. Capital and rental values appreciated across the city in the third quarter," the report observed. However, values are still below their all-time highs by about 10-30 per cent in Pune, the report said.

Aditi Vijayakar, executive director of residential services at C&W said, "The price and the buyer's sentiment are critical in the current market as key parameters influencing sales. Capital values in select locations in Pune are likely to see growth in the coming months. However, if prices increase too much too soon, there is a likelihood of them correcting again shortly after; the ideal graph representing recovery should be gradual and in line with the demand that calls for a period of considerable stabilisation before the hike."

According to Vijaykar, the Pune residential market has started to regain momentum in the past quarter with all locations witnessing marginal increase in rental and capital values by September 2009. Demand has started to move upward largely driven by end users. Pune is highly price sensitive and the current upward trend is largely a result of the correction in values that was witnessed in the last few quarters which have made the values more affordable. Also noticeable is that the large part of the transactions are happening in the newly-launched projects which offer more competitive values.

According to the C&W report, high end areas such as Koregaon park or Bund Garden have shown an 8 per cent rise in prices while elsewhere the rise is 2-6 per cent.

Satish Magar, President of Credai Pune (Confederation of Real Estate Developers' Associations of India) and chairman and managing director of Magarpatta city Development Corporation, told TOI that the rise in residential prices is not very remarkable and in most cases it restricted to Rs 100 per sq ft. Commercial segment on the other hand, has been active again as enquiries from IT firms have gone up.

"IT firms are back in expansion mode and have started hiring, which has triggered the activity in this segment," Magar said, adding that the retail segment too is warming up again as consumer confidence returns and a new kind of leasee-lessor relationship evolves. "From a flat rental agreement, we are now on a fixed plus floating rental basis where a leasee pays a minimum guaranteed rental and shares revenues with the developer. This has reduced the initial burden on the retailers easing their liquidity problems."

"From a near flat level till June this year, we have leased over 4 lakh sq ft space in Magarpatta City till now," Magar said.

Anand Dutta, head (retail) Pune for real estate consultancy Jones Lang LaSalle Meghraj, said retail transactions have picked up noticeably, following a marked upsurge in shopper sentiments and a generalised correction in retail real estate rentals. "An increasing number of retail landlords in Pune's malls and on key high street locations have opened up to the minimum guarantee and revenue-sharing models. The general stance now is that if a retailer is making money, landlords are willing to offer reductions on rentals if the retailer is willing to share his topline.