Wednesday, January 24, 2007

Credit Suisse, Sun-Apollo realtly funds enter India

Economic Times reports Credit Suisse's $1b to tap Indian realty

NEW DELHI: Zurich-headquartered Credit Suisse, a leading financial house of the world, is giving final touches to a dedicated $1-billion fund for investing in the booming real estate sector in India. The India fund is expected to be announced early in the next fiscal.

US-based Financial services giants Goldman Sachs and Morgan Stanley have managed a strong foothold in the real estate market in India. While Morgan Stanley Real Estate fund has struck a few large transactions in the space, Goldman Sachs is planning to make an investment of $1 billion.

According to sources, Credit Suisse’s $1-billion investment in real estate will be brought in in a phased manner by 2010 and will focus on commercial space. “The financial plans to build a real estate portfolio with an asset value of around $1 billion over the next 3-5 years.

High on its priority list are large-format retail malls, two-star and three-star business hotels, healthcare and multi-use office-cum-residential complexes,” a source told ET.

When contacted, a spokesperson at Credit Suisse’s Zurich office said: “We do not comment on rumours. If we would set up an India real estate fund, it would be announced by a press release.”

Sources said the fund will primarily pick equity in ongoing big-ticket projects or those looking for second round of funding to complete their partially operational projects.

The fund is unlikely to park money in start-up projects, the sources added. The fund is also keen on acquiring management stake in some projects post completion. Typically, after the financing of the project, financiers exit the project by selling the entire stake.

Credit Suisse is a 150-year-old company providing a gamut of financial services, including private banking, investment banking and asset management.

Financial Express reports SUN-Apollo Ventures Ltd has announced the closure of its $630-million SUN-Apollo India Real Estate Fund, which will pursue real estate development and investment opportunities in India. SUN-Apollo Ventures is a joint venture between the SUN Group, an Indian business and investment group principally owned by the Khemka family with operations predominantly focused on India and the countries of the former Soviet Union, and Apollo Real Estate Advisors, one of the most active global real estate investors and fund managers.

The fund was launched in April 2006 and had its first closing in August. Investors include , US, European and Middle Eastern institutional investors, multilateral agencies and high net worth individuals.Chetan Dave, MD, SUN-Apollo , said, “The dramatic growth in India's economy is generating significant demand for all forms of real estate, ranging from offices to shopping centres.”

Here come the moneybags

Outlook article

Space. That's the need of the hour for Indian industry, looking to grow in every direction. Companies are looking to occupy every inch of land they can lay their hands on to keep on their unprecedented expansion spree.

Inevitably, property speculation has emerged perhaps the hottest topic across boardrooms. Not just in India. The big guns of global realty are watching Indian real estate prices ever so closely as the country looks for ways to meet a demand for around 1,000 million square feet property over five years across seven major cities.

Those in the queue include top real estate funds managed by the likes of Blackstone, Broadstreet, Carlyle, Deutsche, Hines and Morgan Stanley.

And once they are in, these big funds -- with corpuses of more than $10 billion each -- may just re-landscape the Indian realty space. Like their equity counterparts, they are known to pump in big money and move in fast once they have figured out the local dynamics. Before you realise what, they may be sitting on huge chunks of land.

Explains a senior executive of a leading real estate fund in the US: "Each of our global fund managers run through about 700 actionable mails (where they have to take a decision on the spot) a day. The pace is very fast and we don't mind if we make a few mistakes along the way. The stakes are too high for us to slow down."

Not surprisingly, global funds are seen as aggressive risk-takers and conservative Indians might do well to start preparing for their big-ticket entry that's looking imminent.

And going by the great land rush across India, it seems India Inc is preparing for the deep pockets. Players from Reliance to Tatas to Infosys to Indiabulls are engaged in a never-before race to amassing land wherever it is available. We don't associate these names with real estate.

But then, that proves the immense potential of the sector. "Land is finite, money is infinite," quips a developer, hinting that the property boom is far from over. Instead, it has just begun.

The Foreign Interest

With rental yields in the US and Europe dipping to about 4-5%, squeezed by inter-fund trading given the lack of significant new realty development, funds are increasingly eyeing opportunities in emerging economies.

In Asia particularly, with Japan -- the biggest investment destination for such funds -- providing limited scope for growth given the land constraint of the island nation, a significant part of the region's allocation is seen flowing into China and India, two markets that provide scale for long-term investments.

"Foreign capital is looking for markets, where they can get returns. India is one such market where they can expect a return of 20% a year," says Shahzaad Dalal, vice chairman & managing director, IL&FS Investment Managers, the managers of IL&FS Realty Fund that has CalPERS, the US pension fund, as an investor.

Says Sanjay Verma, joint managing director, Cushman & Wakefield, "The drivers of investments for foreign investors outside the developed world are: need for diversification, to cash in on distress sale opportunities, high short-term price upsides and long-term growth potential. India and China fall in the last category and most investors will be looking at these realty markets with a 10-15 year perspective."

Agrees Elizabeth Dewitt, vice president, Trammell Crow Company, US, "Foreign investors were checking India out for the last five years. Now they are taking a long-term view on India."

So, what's the kind of money they are likely to bring in? Ankur Srivastava, managing director (India) of DTZ Debenham Tie Leung, a leading real estate advisor, sees at least 50 overseas investors coming in with $6.7 billion in equity, which leveraged could spell fresh investments to the tune of $15 billion.

And like in the equity market, foreign funds don't mind being the "loss leaders," meaning they don't mind losing some money in the early years to gain an entry and better understand the local dynamics. They'll wait to rake in the big bucks in the long-term.

Does this mean realty is set for a foreign fund-fuelled bull run, like the equity markets? Not quite. Real estate investments are not as easy to get into and get out of, thus the pace of investments is slower.

So while we are likely to see an up-tick in prices in the longer-term for sure, it might lack the fireworks of the equity market. Also, says Prakash Gurbaxani, CEO, TSI Ventures, "Entry of foreign investors does not affect prices on a stand-alone basis, price is more a function of demand and supply." TSI Ventures is a joint venture between ICICI Ventures and Tishman Speyer, one of the world's largest developers.

Now, despite India opening up the real estate industry to foreign direct investment (FDI is under automatic approval route for projects of at least 25 acres or a minimum built-up area of 50,000 square metre), it remains an over-regulated sector with archaic regulations.

So, foreign investors are looking to enter through joint ventures with local players who understand the regulations and other dynamics of the market. Morgan Stanley Real Estate Fund, for instance, has come in by taking a stake in Bangalore-based Mantri Developers. Emaar Properties of Dubai, which has brought in the largest FDI in the sector of $500 million so far, has entered into a joint venture with MGF Developments for residential, commercial and hospitality projects in India.

Says Shravan Gupta, managing director, Emaar MGF, "We plan to develop integrated townships of international standards that will raise the bar by bringing in best practices in technology, design, construction scale and most importantly, the consumer's expectation of his living and working space."

The India Story

To these global investors, India offers an opportunity that can absorb billions of dollars unlike many other markets. "On a macro level India is a good destination. Real estate is a subset of overall growth story," says Gurbaxani.

The prime driver for all these investors is the India economic and demographic story -- by 2010 India is slated to be the world's third largest economy with a 300 million strong middle class that's larger than the US's.

The IT sector alone would require about 66 million square feet of space by 2008, as per a Ficci survey. Industry expects a demand for 25 million sq ft for 200 malls coming up across the country, besides a significant surge in the hospitality sector.

Says Ashwin Ramesh, director, Prime Real Estate Advisors (an affiliate of Quantum Asset Management): "India has a mere 85,000 hotel rooms, compared to 135,000 in Las Vegas alone." On the residential side, Milind Korde, MD, Godrej Properties, puts the shortage of dwelling units at 20 million. This should see the real estate opportunity grow to $50 billion by 2010 from $12 billion today, say sources.

Cushman & Wakefield has estimated cumulative demand across Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, NCR and Pune at 840-1055 million square feet for 2006-2010.

This is the kind of projection that has made companies with no interest in real estate whatsoever till a few years ago enter the field. Reliance has bought a 14 acre plot in Mumbai's Bandra Kurla Complex for Rs 1,104 crore (Rs 11.04 billion); Indiabulls has put up Rs 441 crore (Rs 4.41 billion) for the Elphinstone Mills land in the city; Bata India is developing 260 acres of land it owned in Kolkata; SSI, an erstwhile software company, is building a township in Perambur in Chennai. . .

And then, there's a bigger realty game -- the special economic zones (SEZs). Everybody is rushing to join the SEZ bandwagon.

Reliance has already earmarked Rs 40,000 crore (Rs 400 billion) for a 25,000-acre project in Haryana. DLF Commercial Developers is investing Rs 800 crore (Rs 8 billion) in a 1,100 acre SEZ in Amritsar; Unitech has obtained clearance for a Rs 10,000 crore (Rs 100 billion), 20,000-acre SEZ in Haryana; Ansals have tied up with housing finance major HDFC for developing a Rs 1,000-crore (Rs 10 billion) IT SEZ in Noida (NCR).

And there are many more who have already clinched the deal or are in the queue. Says Pradeep Jain, chairman, Parsvnath Developers, which plans to set up 14 SEZs in the country at a cost of Rs 40,000 crore: " We have already tied up 6,000 acres of land and will start delivering developed property in the next two to three years."

Critics say the whole SEZ programme is a major land scam whereby corporates are amassing huge chunks of land at subsidised rates. And there's widespread criticism that the SEZs are not all about exports.

A comment by Anand Jain, director, Reliance Venture (the SPV floated for the project), lends weight to this school: "The multi-product SEZ should attract the top Fortune 500 companies and would have a theme park in a possible tie-up with Disney, Time Warner or Universal." Of course, there's a fun factor in the SEZs. The question is, will it be at the expense of the taxpayers?

SEZ, of course, is a controversy. And foreign players are keen to keep out of controversies. They are much more interested in realty projects in the hospitality (hotels) and IT/ITES sectors as the properties are normally of high quality and offer good returns.

Land Mafia

So, does the entry of big money mean the property prices are going to scale new highs? Nope. "Entry of foreign investors does not affect prices on a stand-alone basis, price is more a function of demand and supply," says Gurbaxani.

And in India, the supply side (land) holds the key. Land being a state subject, the laws and regulations vary from state to state. Besides, old laws like the Urban Land Ceiling & Regulation Act (ULCRA) are still to be repealed across many states.

Deepak Parekh, chairman, HDFC, points to estimates that expect real estate business to grow at 14% by 2011-12 if the Act is repealed to make a case for this. He also expects that this would curtail property prices by 40% in the next 5-6 years.

Says Manisha Grover, national director (research and strategic consulting), Jones Lang Lasalle, an international property adviser: "The key challenge in the development business in India lies in the procurement of land ready for commercial exploitation. This because of the high fragmented land holdings, title issues and infrastructure constraints that artificially restrict land supply." And the situation is unlikely to change in the near future.

What this means is that if you have control over a large land bank, you can rake in big money. Land being the raw material for development a large inventory ensures higher production and revenues. It is with a view that the laws are unlikely to change in the near future that developers are going all out to acquire as much land as they can and as soon as possible.

The land hoarding game has just begun and it could get uglier with more and more players joining the fray. Foreign investors also do not want to get involved in the land acquisition game -- they prefer coming in when land for projects has already been acquired, even if the returns are lower.

While developers look at returns of up to 50%, foreign investors are comfortable with even half that. They wish to play it clean and do not wish to get involved in unethical deals or legal battles.

"Foreign investors are extremely compliant," states Alok Vajpeyi, vice chairman and managing director, Dawnay Day AV Financial Services, an institutional realty investor. Implying, this means tremendous bargaining power for developers with large land banks.

In fact, there have been cases of proposals for tie-ups by foreign realty players with large developers not going through due to the valuation.

In this context, land being allotted at subsidised rates for development, as in the case of SEZs, by states offers an opportunity few would let go. However, here too any failure to complete the acquisition of the minimum required land area could put paid to any plans for development.

Besides, an SEZ coming up in the vicinity of a commercial and retail district could hurt other developers -- as their land costs are much higher. So the stakes are high.

But the real estate players are not unduly worried about the extra competition. "If you deliver quality stuff and on time, then there are no dearth of takers. And there is enough space in this sector for a few more players," says Pranav Ansal, director, Ansal API, one of the major developers in the country with nearly 6,000 acres as land bank.

The Price Prop

What's also helping keep prices firm for now, in what some believe to be an overpriced market, are supply factors -- little land supply and lots of money supply. Developers earlier were mostly buying and developing land with their own reserves and borrowings. Hence they would sell off the real estate at various stages of the project to fund new projects.

However, with foreign funds pumping in money their holding capacity has increased -- helping them to keep supply tighter. And the fund supply is only going to swell. According to industry insiders, $4 billion of realty fund investment is waiting to enter, with $1 billion already having received all regulatory clearances.

Some, however, believe the money may not flow in right away. "Investors want to enter but are waiting for a correction of about 20%," claims an official with KL Raheja Universal. Adds Akshaya Kumar, CEO, Colliers Jardine, a real estate advisory firm, "Over a longer time frame of two years, a lot of supply is expected to hit the market, and at that time there could be a correction."

But while areas like Whitefield in Bangalore have already seen a decline of up to 20% in capital values, Mumbai is a different case altogether. Says Korde of Godrej Properties: "In south and central Mumbai it is difficult to find a single plot of more than one acre. This is why recent deals of 10 plus acres have attracted a high premium."

In addition, claims Naresh Nadkarni, CIO of HDFC Venture Capital, "Developers from other cities have been most aggressive in their purchases." This he claims is to get a foothold in new markets. Thus, while there might be a multiplicity of factors driving prices today and varied opinions on how significant a correction we might see, the verdict for the long-term outlook remains almost unanimously upbeat.

Also, recently Securities and Exchange Board of India (Sebi) has waved the green flag for real estate mutual funds to make an entry into the country. And while this will offer another exit option to foreign funds -- besides the IPO route for equity or dissolution of joint ventures on completion and sale of projects -- in the future, experts expect that it might take a little time for them to hit the market.

This as certain issues need to be sorted out, like daily NAV disclosure. This can be possible if the illiquid part of the portfolio (up to 65%) is revalued every quarter and the liquid part marked-to-market on a daily basis. Again, while completed realty projects can be valued based on rental yield, there will be an issue with regard to valuing projects under construction.

These issues will need to be sorted out by the regulator before realty funds can become an investment option for investors at large.

Where It Hurts

Meanwhile, the rising property rates have already started hurting companies. Of course, those with real estate assets are having a nice time.

Glaxo, for example, did rake in Rs 221 crore (Rs billion) through the sale of its land at Mulund in Mumbai to Oberoi Constructions. And Mukand raised an almost similar sum by selling its 25-acre Kurla plot in Mumbai to a consortium of real estate developers. However, most others in Corporate India -- barring large information technology (IT) companies who have managed to get land allotted to them at attractive prices by states -- are feeling the pinch.

"The increase in rental values definitely impacts the operating costs of a business, occupancy costs account for about 10% of the operating expenses," says Manisha Grover of Jones Lang Lasalle.

This is what is prompting users of large commercial space to move to the peripheral locations in cities, she adds. The costs can come down by 50-80% by moving to the suburbs industry sources point out. For those in the retailing business, realty is a major overhead. It is no wonder then that retailers and developers have been working with alternatives to pure lease deals.

Deals based on a share of revenues subject to a fixed minimum guaranteed payment and hybrid part-lease-part-revenue share formats are gaining currency. Pantaloon and CapitaLAND have formed a retail management joint venture mall that will manage a portfolio of over 50 quality retail malls located in metros, mini-metros and tier-II towns within the next two to three years.

Crossroads, which was acquired by Pantaloon in Mumbai, will be one among them. To start with, the company will follow one such model for the Crossroads mall in Mumbai.

The entertainment segment too is feeling the heat. Says Manoj Bhatia, CEO, INOX Cinemas: "We will consider a property only if the acquisition rate is profitable at the ticket price we can charge." INOX has a mix of leased as well as owned properties for the multiplexes it runs.

For INOX, though, one positive is that the India story will also lead to greater affordability even as a realty boom unfolds. In fact, given that the realty bets placed by developers and foreign investors are based on the India story, the single biggest risk they face is an economic slowdown. For a developer and investor, the answer to one question holds the key: Do you buy the India story?

"Prices are headed up in India"

Karen Ellzey, managing director, Strategic Services, TrammellCrow Company, a top real estate fund in the US, was recently in India on her first visit. She spent time in Bangalore, Delhi and Mumbai with industry people. Prashant Mahesh caught up with her for an interview in Mumbai. Excerpts:

What brings foreign investors to the Indian realty market?

I think the whole thing driving interest in real estate investment is demographics. Anybody who looks to invest in real estate looks at population trends. In India there is a huge population, a population that is arguably not well served by real estate as per its growing needs. So that translates into opportunities for investors. There will be skilled labour, which will need place to work and live, and will want to spend money on new products and services. This all translates into a huge opportunity.

What do you read from the recent rush among companies and developers in India to acquire huge tracts of land?

It is conventional wisdom to control the dirt (that's what we say for owning land) which makes everything else possible. You want to be the first to get it, before everyone else rushes in at the lowest possible cost. That gives you the best position to respond to any kind of development.

So I would say it's an issue of strategic positioning, for whatever future opportunities that may come up. If somebody else owns it, you have a vision to build and you don't own that piece of dirt it is probably too late to realise your dream and vision.

Real estate prices have shot up in certain pockets of the country. Do you think it's rational?

Real estate price is a product of supply and demand. When demand is high and supply is low, market responds and prices goes up. In India, I don't see enough supply to match demand. As more and more land develops, prices will move up. Now is a good time to get into the market because as more and more real estate is developed it will increase in value.

Does the entry of foreign money push up prices?

Real estate follows a particular cycle in response to the economic cycle. Investors expect a top and bottom, with each economic cycle. There is a lot of growth opportunity and all I can say is that we are headed up, though it is difficult to predict the extent of rise.

More and more jobs are being created here, and disposable income is rising, which will lead to tremendous growth. However, sometime in the future, and I would not like to project when, real estate too will enter into a cyclical mode just as it did in the US.

What impact would high real estate have on business?

Certainly corporations look at cost. They also look at labour cost and speed at which the place can be ready for work or use. A lot of US corporates are conscious about branding and cost, how attractive the space is and so on.

Monday, January 22, 2007

Stop treating urbanisation as an evil

From the Hindu
What is it that has actually made Bangalore develop a robust clime for the real estate boom? Anurag Mathur of Cushman & Wakefield, India, spells out the USP of the Garden City to RANJANI GOVIND

Bursting at its seams, the Garden City is all poised to spread itself the horizontal way, even as the skyline is witnessing a veritable burgeoning of tall buildings both in residential and commercial sectors. The exponential growth steered by IT and ITES is gripping the city with terrifying traffic and infrastructure snags. Cloudy as it may seem now, sunshine is expected with developments like Greater Bangalore taking shape to envelop the contours and lighten the nucleus of the city, Metro Rail to ease road chaos, peripheral ring road expansions to bring in better connectivity and mechanised garbage collection for a more organised and cleaner lifestyle.

Amidst plans, developments and government proposals for the city's improvement, PropertyPlus caught up with Anurag Mathur, Deputy Managing Director of the global real estate consultants, Cushman & Wakefield, to get a grip of the `real' situation and ascertain the effects of resultant spread out.

Buildings are mushrooming at an alarming rate... getting urban is an uphill task.

As with any other major city in India, there has been a feverish activity with respect to land development within Bangalore. The Indian economy is booming, mainly with the backing of services and manufacturing industry; both of which require developed urban infrastructure. Unfortunately, the country has lagged in creating new urban centres unlike countries like China and Malaysia; this has resulted in a huge (and continuing) pressure on developed urban centres like Mumbai, Bangalore and the National Capital Region. The time has come for us to stop treating urbanisation as an evil and focus on creating planned urbanisation that allows a balance between built space and open areas, resulting in quality life for its inhabitants.

The actual city expansion over the last few years...

Bangalore is relatively a circular city and over the years has grown in concentric circles. In the last five years Bangalore has added nearly 10 to 15 km in all directions. As per the Comprehensive Development Plan, the existing urbanised area in the city amounts to 512 sq. km. with 300 sq. km. of proposed area to be urbanised. The increasing growth in North Bangalore is due to the new International Airport. East Bangalore has grown beyond Whitefield and South Bangalore has crossed the Electronics City. While this growth was basically with office space, it is trailed closely by residential, retail, hospitality and logistics/warehousing.

The upcoming peripheral ring road, with a circumference of more than 110 km, translates into a diameter of around 35 km. Development has moved way past the outer ring road, to beyond the peripheral ring road in a period of less than five years and this is indicative of the growing borders of the city.

What is the ratio of built land area when compared to other IT cities?

While it is very difficult to present statistics in this regard, presently, the Bangalore market constitutes the largest organised market for commercial development in south India. From 4.30 million sq. ft. in 2003, Bangalore received a supply of 17.25 million sq. ft. of built space in 2006, which is a 230 per cent increase from last year. Other emerging IT hubs like Hyderabad and Pune witnessed a supply of 2.94 million and 4 million sq. ft. respectively in 2006.

How much of the construction activity is hampering traffic?

No matter how large the construction "yard" is or the location of ongoing construction, most construction activity would create pressure on the immediate surrounding traffic. That being said, by using modern construction techniques, this can be reduced significantly as has been demonstrated so well by the Delhi Metro Rail Corporation over the last six years when they went about constructing the Metro Rail network in some of the denser parts of Delhi, with remarkably low nuisance to surrounding areas.

Bangalore in the next two years, when the Metro Rail zooms through...

The pace of growth would lead to expansion of Bangalore's geographical boundaries to a great extent, as has been already proposed in the CDP 2015.

However, it is expected that the proposed peripheral ring road once operational, coupled with the five townships proposed along this ring road, will help to decongest the city.

The Metro Rail, expected to get operational by October 2008, is proposed to have two tracks, from Mysore Road to Byappanahalli (west-east) and from Yeshwantpur to R.V. Road (north-south), both via the Kempegowda bus terminus. This would help significantly in decongesting the city as there will be less reluctance to live in the suburbs. Airport City has been planned for non-aviation activities, which will include fully equipped business centres, restaurants, hotel rooms and other facilities expected to be on a par with international standards.

Other developments like conversion of the Bangalore-Hosur stretch of the national highway into a six-lane road and road-widening along the 141-km stretch of state highway connecting Bangalore and Mysore further reiterate the geographical expansion in the next 5 to 10 years.

Growth post-2012 would largely depend on projects and infrastructure initiatives announced in the next 4-5 years.

What is the boom primarily due to, only IT?

The boom started due to IT and was further fuelled by the ITES sector, the same is evident from the absorption figures which have increased from approximately 1.08 million sq. ft in 1999 to approximately 11.43 million sq. ft of office space in 2006. However, it is interesting to note that as of Q1 2004, Bangalore housed 92 of India's 180 biotech companies, with total actual investments of over Rs.1,000 crore.

India, being on the `threshold of biotech revolution', currently has 280 biotech and 180 bio-suppliers contributing to the total biotech market worth $100 billion, of which a major percentage is located in Bangalore.

With regard to property rates, what do you predict?

Marginal price increase is expected in the months to come in the Central Business District, off CBD locations as well as Koramangala and Indiranagar which are no longer considered as suburban areas; rental and capital values in the peripheral locations of Whitefield and Electronics City are currently stable and are expected to remain stagnant in the near future owing to the oversupply situation. North Bangalore (Yelahanka, Devanahalli) as well as areas around the NICE corridor (West) are the favoured investment destinations.

With regard to the residential market, prices may not escalate at a rapid pace, but the trend over a 5-10 year horizon continues to be robust. Investment in peripheral locations may be a good option with a medium to long-term view, since connectivity to these areas is expected to improve significantly.

Rs 100-crore apartments are hot!

At a time when prices are merely notional if the address is right, it's hardly surprising that the cost of residential properties in New Delhi and Mumbai are going, quite literally, through the roof. Hold out long enough for the right buyer and even the most generous estimates by real estate agents or consultants could go awry.

And as Indians gain the confidence to spend as well as aspire to A-lists everywhere, a few more crores are hardly likely to matter when the price of even an apartment matches that of a decent, mid-sized company!

Only a week ago, the Oswals bought a bungalow on an acre of land on New Delhi's Tilak Marg (in prestigious Lutyens Delhi) for Rs 100 crore (Rs 1 billion). Other industrialists who own houses in the neighbourhood are steel tycoon Lakshmi Mittal, Bharti Enterprises managing director Sunil Bharti Mittal and DLF chairman K P Singh.

The most a property in this central part of Delhi has fetched is a whopping Rs 137 crore for a bungalow on Amrita Shergill Marg, becoming the most expensive residential real estate to change hands in India. The one-acre plot was purchased by Sanjay Singal of Bhushan Power & Steel.

Lakshmi Mittal, who bought a 12-bedroom mansion in London's Kensington Palace Gardens in 2004 for $125 million (Rs 550 crore), also got a slice of Delhi's residential pie for a more modest Rs 40 crore (Rs 400 million) on Prithviraj Road. Today it is valued at Rs 80-100 crore (Rs 800 million- Rs 1 billion).

According to real estate anaysts, Treveni Infrastructures picked up a 2.8 acre property on Sikandra Road for Rs 115 crore (Rs 1.15 billion). In another recent transaction, the Jindals bought a 3.2 acre property on Mansingh Road for Rs 125 crore (Rs 1.25 billion).

If Lutyens Delhi is the city's power address, in its Tony Khan Market or Jorbagh areas you should expect to pay Rs 3 lakh per sq yard. On S P Marg, where liquor baron Vijay Mallya owns a house, the going rate is around Rs 5 lakh per sq yard.

There is news now about highrise apartments being developed in central Delhi's Connaught Place. These 4,000 sq ft apartments could cost as much as Rs 16,000 per sq ft or Rs 6.4 crore (Rs 64 million) overall.

DLF is building a nine-storey apartment complex on 2.5 acres in W-block of Greater Kailash II, in south Delhi. These 6,000 sq ft apartments are being sold for over Rs 21 crore (Rs 19,000-25,000 per sq ft), by invitation only. Sources tell us about a possible development of apartments and individual bungalows by DLF in GK-II's E-block.

DLF also has a plan for very high-end villas in posh Chanakyapuri. These 6,000-7,000 sq ft villas could cost between Rs 12-14 crore (Rs 20,000 per sq ft).

Gurgaon too has some big ones. The top-end penthouse at Ansal's The Ivy could cost between Rs 5-8 crore (Rs 50-80 million). A 2,500-4,500 sq ft apartment at DLF's new Park Place and Park Tower ranges between Rs 1.75-3.15 crore (Rs 17.5-31.5 million). Omaxe's The Forest Noida offers apartments ranging from 4,000-6,500 sq ft for Rs 2.25-4.5 crore (Rs 22.5-45 million).

Delhi may have raised the bar where expensive residential rates are concerned, but Mumbai is still leagues ahead on average.

"Every second building in Mumbai commands a huge price, anything above Rs 25,000 per sq ft to sometimes even upto a whopping Rs 75,000 per sq ft," says architect Hafeez Contractor.

The NCPA Apartments at Nariman point are among the most expensive in Mumbai with an uninterrupted view of the sea. Rs 60,000 per sq ft is the current rate there. The vice-chairman of Reliance Capital, Amitabh Jhunjhunwala, recently bought a 2,880 sq ft apartment at NCPA for Rs 18 crore (at Rs 63,000 per sq ft).

Other expensive areas in Mumbai are Cuffe Parade, Napeansea Road, Carmichael Road, Altamount Road and now Worli and Bandra as well.

Shah Rukh Khan's bungalow Mannat, on Bandra Bandstand, is currently valued between Rs 70-100 crore (Rs 700 million-Rs 1 billion). The approximate rate here is Rs 30,000-plus per sq ft, as opposed to Rs 15,000-20,000 per sq ft at Juhu, where Amitabh Bachchan owns a bungalow.

Indiabulls promoter Saurabh Mittal recently bought a 5,500 sq ft apartment in Maker Building on Cuffe Parade for Rs 40 crore (Rs 400 million). The rate here is a whopping Rs 72,000 per sq ft.

A recent transaction in Sunita Building on Malabar Hill for a 3,450 sq ft apartment, where the rate is even higher, fetched Rs 1.03 lakh per sq ft. Leading stockbroker Rakesh Jhunjhunwala bought a 4,400 sq ft apartment at El Palazzo on Malabar Hill for Rs 25 crore (at Rs 57,000 per sq ft).

Among the most impressive buildings under construction in Mumbai is Shapoorji Pallonji's Imperial Towers on Kambala Hill. Two 65-storey towers, with the first 12 storeys reserved for car parking, have two 25,000 sq ft penthouses on top. At a conservative Rs 50,000 a sq ft, each of these penthouses could cost Rs 125 crore.

Standing tall at 36 storeys, the building on the old Chattan Bungalow site at Altamount Road, being developed by K Raheja Universal, will blow your mind. The first 12 stories offer just amenities.

The remaining 24 storeys have 12 duplex apartments stacked on top of each other. Each apartment has its own huge terrace and an elevator to take the car right up to the living room. The whole building itself is on a hill, enhancing the view.

The view might be better from the top, but luxury living seems to be a goal in itself.

Sunday, January 21, 2007

Prices may not fall in many pockets

Business Standard interview
Niranjan Hiranandani
Rajesh Bhayani / Mumbai January 21, 2007
Niranjan Hiranandani, managing director, Hiranandani Constructions, spoke to Rajesh Bhayani on an array of topics related to the realty sector, including expected returns. Excerpts:

What kind of returns one can expect from the real estate sector now, when it is almost at its peak?

I think the real estate sector will give 30 per cent returns in 2007. Even next three years will be good for the sector in general, and next five years will be good for the housing (residential) sector in particular. In India, we have immense scope for housing.

The consistent high growth rate of the economy has opened the doors for huge development of commercial properties. I don’t agree with the view that in places such as Mumbai 60-70 per cent buying is by investors. It is around 30 per cent. The rest is buying by individuals.

How will realty prices behave in the coming days? There is a buzz of the market peaking out in Mumbai?

Prices will not fall in Mumbai. Demand as well as liquidity is good. And if the stock market corrects, more investments will flow into the sector. Prices in many pockets in the city will not fall; rather they will rise.

In some peripheral areas, prices may correct provided supply increases owing to TDR use, abolition of ULC (urban land ceiling) and so on.

Should Mumbai be seen as the benchmark for realty prices? Which other centres are going to drive the growth in the sector?

Yes, Mumbai is the benchmark for real estate prices. It is the financial hub of the country. It has a tremendous financial purchasing power in the country which no other city can match. In Mumbai, to earn your bread is very easy.

The Mumbai-Nasik-Nagpur belt and Mumbai-Pune belt have great growth potential. At the national level, Chennai, Jaipur, Hyderabad and Bangalore are growing and will continue to grow.

How to benchmark the prices in Mumbai?

Real estate valuations are more a perception than anything else. I don’t blame somebody buying a place at Marine Drive by paying Rs 73,000 a sqft. That’s only one deal. But how can you justify somebody being able to sell (costly) 100 housing units in Thane, Vashi and other places.

You have to look at the areas sold by builders. That’s why I am of the view that the weighted average prices should be calculated to find out the benchmark prices in Mumbai. It will give a trend, which will be generally applicable in the country.

What is your wishlist for the forthcoming Budget?

I would say the government should treat real estate on par with information technology. If it wants the IT sector to grow, the realty sector should feature first on its agenda. It is the government which has set the ambitious target of affordable housing. And for that it will have to encourage housing.

What is your estimate of private equity money flowing into the sector?

One estimate shows $10 billion of private equity is coming into real estate. I have no idea, but I would say that whatever amount comes in – even if it is $50 billion – it is not enough to make housing affordable.

Chennai : Pacifica launched first IT project in India

CHENNAI: US based real estate company Pacifica has launched its first IT project in India at Chennai. Pacifica's 1.1 million sqft Tech Park is expected to be ready for occupation by April this year, making up nearly 12% of estimated IT space to come up in the city this year.

Mr Vikram Agnihotri, Regional Head - South, Pacifica told reporters in Chennai on Friday that the company has invested about Rs 150 crore to Rs 175 crore in the tech park, and expects the project to break-even in three years. The IT park is located on Old Mahabalipuram Road on a 7.29 acre land in Navalur.

So far, Pacifica has signed up with four players, who would be taking up a total of two lakh sqft in the park. Two of them already have presence in the city, and are expanding their operations here. The other two are from Bangalore, he said, without disclosing their names. The company expects the IT park to be fully occupied in three to five months time, he added.

Real estate consultants Cushman & Wakefield's Ravi Ahuja said the total demand for IT space in Chennai this year is expected to be about five million sqft, against an estimated supply of eight to nine million sqft. "This (8-9 million sqft) is under construction. We would not know how much of this would fructify," he added.

Mr Agnihotri said the company expected a rental of Rs 35/sqft, which was the going rate for that location last year as well. Mr Ahuja said, in Chennai, rentals for IT space was over Rs 50/sqft near Tidel Park, the city's first IT park located right at the begining of OMR. "The rentals drop as you go down the road", he said.

Pacifica also plans to get into residential housing in Chennai. "We will be focusing on middle and upper middle segments," Mr Agnihotri said. The $2billion San Diego, California based company, which started its Indian operations in 2005-06, has two residential projects spread over five acres each in Ahmedabad, besides hotel and mixed-use projects in Hyderabad, Pune and Bangalore. It's investing about US$200 million in the country, the company said.