Pune, India's next boom town

Business standard reports

Pune has been the hotbed of engineering activity for many years now, with the likes of Tata, Bajaj, Bharat Forge and several others based in the city. In recent times though, IT, ITeS and a lot of R&D work has considerably upped the ante of real estate development within the city. The pace of development is unprecedented here and those who visit the city after a long time may find it unrecognisable.

There is a spurt in all three segments -- commercial, residential and retail. Over the last 2-3 years the Pune residential market has seen huge appreciation in terms of its capital values.

According to Cushman & Wakefield research, certain premium projects in established residential markets like Kalyani Nagar which were launched and started selling in 2003-04 at Rs 1,500-1,700 per sq ft are presently estimate-valued at Rs 4,000-5,000 per sq ft. Land prices too have doubled in most areas over the last year-and-a-half, according to Aditi Watve, senior executive, CMIS, at real estate consultancy Trammell Crow Meghraj.

Development in Pune today is bipolar. The north western side on the road towards Mumbai as well as the eastern side are seeing a lot of IT-driven development.

The high-end residential development is happening at Koregaon Park, Hadapsar, Kalyani Nagar, Boat Club Road, Bund Garden Road, Shivaji Nagar and Law College Road. Places like Deccan Gymkhana, Bhandarkar Road, Model Colony, Kothrud, Senapati Bapat Road and Camp are old posh areas of the city, where generous new developments are taking place today.

According to some estimates, there are 20-25 malls being planned in Pune. As per Cushman & Wakefield estimates, there are 14 upcoming malls in the city that are in different stages of development -- under construction and in the planning stages.

These upcoming malls are located in the micro-markets of Aundh, Kharadi, Bund Garden Road, Hadapsar, Shastri Nagar, Kalyani Nagar, Karve Road, Raja Bahadur Road, Warje, Wakad, Ganeshkhind Road and Pimpri. Cushman & Wakefield says approximately 4.7 million sq ft of retail (mall) space will come up by the first quarter of 2009.

Commercial office space coming up in different parts of the city, such as Hinjewadi on the western side and Kharadi and Hadapsar on the eastern side, is reserved for mostly the IT sector.

Originally commercial space in the city was in the central business districts (CBD) at Camp, Bund Garden Road and Dhole Patil Road as well as off-CBD areas like Deccan Gymkhana, Senapati Bapat Road and Wakdewadi. According to an estimate by Trammell Crow Meghraj, there is about 20 million sq ft of office space being developed across the city.

Some of the bigger national developers are showing an interest in the city. DLF has taken some land near Hinjewadi on the western side; Unitech has been reported to be looking for land; Reliance is planning a mall close to the Armed Forces Medical College in the Turf Club area. K Raheja Corp is looking at a 1 million sq ft development at Yerawada near Lohegaon airport. This might be a mall-cum-hotel development.

National developers might be here but the flavour of this market is local, says Watve. There are over 300 local builders, some of the more prominent ones being Panchshil Realty, Gera Developments, Paranjape Schemes, Kumar Builders, Kolte Patil and DS Kulkarni Developers.

In Kharadi, Panchshil Realty is building a 4.5 million sq ft IT/ITes SEZ called EON. The first phase at EON with 1 million sq ft of space will be fully operational by July 2007, says Atul Chordia, managing director of Panchshil Realty. Corporates like Honeywell and VSNL have already got space here.

On Senapati Bapat Road, the company is developing 2.2 million sq ft of space which would include an international convention centre, a 430-room Marriott hotel, half a million sq ft of family entertainment centre, a mall, art gallery, high street retail, IT park and a trade tower.

In the residential space, high-end projects are aplenty. Gera Developments are developing 3- and 4-bedroom Sky Villas at Kharadi. "These villas combine the feel and privacy of independent villas with the security and conveniences of apartments," says Sujeet Modak, general manger (product development), Gera Developments.

In addition to 600 Sky Villas, this project will also include a full-fledged country club and a hotel on a total of 25 acres. They also have Gera's GreensVille, with 89 luxury Garden Villas on 13 acres, again at Kharadi.

At Baner, they are developing the Regent Park which incorporates special environment friendly measures like solar water heaters, water recycling plant, motion sensor lights, rain water harvesting, use of efficient building material, along with high-end luxury.

Paranjape Schemes have a township project near Hinjewadi with 150 villas and high-end apartment towers. Shashank Paranjape, managing director, Paranjape Schemes, informs that the 4,000 sq ft villas here would cost over Rs 1.5 crore (Rs 15 million). A five-bedroom 2,500-3,000 sq ft apartment here would cost over Rs 1 crore (Rs 10 million).

Panchshil Realty has residential developments like the Waterfront at Kalyani Nagar and 1 North at Hadapsar.

1 North is a 1.5 million sq ft residential development with seven towers and a total of 400 apartments, which could cost anything between Rs 1.5-5 crore (Rs 15-50 million). The 14 penthouses here cost Rs 5 crore (Rs 50 million) each and have a private swimming pool, an island kitchen and an elevator that zips you straight into your living room!

With such a strong realty buzz, Pune's real estate action has only just begun.

Hospitality boom in Pune

Let's not forget the hospitality segment here in Pune, which is an essential part of the development process. At the moment, there are only three decent hotels in the city including Sun & Sand, Blue Diamond (now a Taj property) and Le Meridien.

This scenario is about to change soon. According to Siddharth Thaker, associate director -- consulting and valuation at HVS International, there are 30-odd hotels being planned in the city at the moment. We hear that in a couple of years there might be three Marriott properties, a Hyatt Regency, Radisson, Novotel, Traders Hotel, Royal Orchid and Lemon Tree (the list is very long. . . and still incomplete) in the city.

Changing Dynamics of IT

After a decade of growth, realignment, consolidation and expansion in the office sector, there are two themes that are likely to influence occupier choices in the near future. The first of these is the move from established metropolitan cities to smaller locations across India and the second is the emergence of a new format of Special Economic Zones (SEZ).
Tier II cities like Kolkata, Pune and Chandigarh saw rapid growth in new supply of IT space, as these centres took notice of the inevitable shift to new locations and positioned themselves as emerging hubs through proactive policies and development of IT park type facilites.
Looking ahead there are a few clear pointers of the anticipated theme for the office market. First, projections regarding the office property sector suggest that it is poised for yet more significant growth. According to studies by Nasscom-Mckinsey it is estimated that between 2005-2010, around one million additional people would be employed by the IT & ITES sector. This increase in the number of new people joining the sector is anticipated to further fuel a demand for nearly 100 million sqft of office space. This would manifest itself not only in increasing volume and depth of the sector in existing locations but also spread to emerging markets in smaller cities and towns (classified as Tier II and III) as occupiers would expand into these to tap into virgin workforce pools. Second, the Special Economic Zones (SEZs) drive that is presently underway is expected to add a new dimension to the office property markets by offering delineated duty free enclaves with global standard infrastructure.
A research report titled Changing Dimensions: Emerging Themes in Indian Office Real Estate Markets brought out by Trammell Crow Meghraj, Knowledge Centre elaborates on the transformation of the office property market where the availability of talent will be the driving force determining where offices will be set up in future.
The report says, companies have started spreading geographically beyond established metropolitan cieis to what have been designated as Tier II and III cities. Tier I are established metropolitan cities, Tier II- upcoming cities, and tier III including state capitals and district towns which are emerging as new IT and ITES destinations.
Although Tier I cities have an established brand name and a large talent pool they have to contend with increasing costs. They also are seeing increasingly rising employee turnover. Tier II cities have established themselves as destination for IT and ITES companies and include locations like Pune, Chandigarh and Kolkata. These cities are also now squarely on the radar of IT and ITES occupiers. Tier III cities include state capitals in most cases and in some cases nodal cities, which are emerging as the new destination for IT and ITES occupiers like Kochi, Bhubaneswar, Thiruvananthapuram, Coimbatore, Indore, Ahmedabad, Jaipur, Nagpur and Nashik.
FACTORS COMPELLING CHANGE
The hunger to have the best talent, in order to stay ahead of the rest, is a fact of life for occupiers. As the cost of recruiting and retaining human capital headed north in established hubs, it has compelled occupiers to look for new talent pools. This is not to say there is no attrition in new locations, but the rate of attrition is relatively lower compared to more mature markets. According to a study done by Mafoi (Talent Pool Mapping Study: 2006), on an average, the attrition rates in more established locations like Delhi, NCR, Bangalore and Mumbai ranges between 25-40 per cent. Comparitively the attrition rate in Tier II cities like Pune and Chandigarh is a little lower at between 10-25 per cent.
The high turnover rates is one part of the story, rising salaries is another. The difference in salaries between locations is one of the reasons for companies to look at new locations, in a bid to reduce their costs. The difference in salary at the entry level between a Tier I location and a Tier II location is approximately 19-22 per cent while in case of a Tier I and Tier III location, the difference increases up to 42-57 per cent.
The report further says, while it is good to say that Tier II and III cities hold the future for the IT & ITES industry, these new locations are not without their own issues. Occupiers looking at expanding to such new locations should carefully evaluate the fitment of such cities with their business strategy.
Human Capital is by far the most important factor while deciding on a new location. Availability of good infrastructure is paramount to the success of operations for occupiers in new locations. One key parameter that needs to be evaluated is connectivity of such new locations with established metropolitan cities, as in many cases bad connectivity could lead to several problems.
Low cost of real estate is just one part of the story. Occupiers need to secure good quality office real estate at appropriate costings in new locations. Although large national level developers have started to move into Tier II and III locations, there may be cases where ready availability of Grade A space may be limited in the short terms. In addition it is important to consider the softer issues about a location which may be equally important for attracting and retaining employees. These could include issues such as quality of life, general city environment, availability of entertainment.
The SEZ is still a recent phenomenon, the SEZ policy and issues are anticipated to evolve over a period of time and this will mean changing dynamics and hence occupiers need to be constantly aware of such changes and have an element of flexibility in their strategy to adapt to these changes.

Pune still climbing

Times of India

If you thought Pune’s property prices have reached a plateau, think again, says Prachi Bari

Incredible as it might seem, in last one year, property prices in some areas rose 60-100%. Even middle level properties in Magarpatta, which were earlier quoting at Rs 2,400, are now quoted at Rs 3500. High-end properties quoting at Rs 3,000 a year and a half ago are now quoting Rs 4,500. The city is also witnessing a new phenomenon with one-off properties in areas like Boat Club and Koregaon Park going at Rs 10,000 a sq. ft. So does that mean that prices have now reached a peak and are not likely to rise further? Not quite, say the experts.
Four factors – they say will continue to contribute to the rising real estate prices, especially in the Eastern and Western corridors of the city. First is the paucity of land and consequent rise in land prices, the second is a rise in construction costs, third is the rise in the developers’ cost of funds and fourth is the continued flow of migration thanks to increased employment opportunities.
Satish Magar, MD, Magarpatta city Development Corporation feels that although the market is looking good, there is a shortfall of land to develop. “Land is going to be a major problem and will add to the increase of the price of real estate in Pune.”
Rajesh Choudhary, MD Prestige Developers concurs with this view. “Land cost as well as building material cost have gone up and are adding to the rising prices of real estate,” he says.
Choudhary also points out that led by the IT and ITES industry, migration to Pune is only likely to gather steam. This will create fresh supply, he believes. “Thanks to more companies setting up base in the city, Pune is becoming the destination where in a lakh of job opportunities will be created on an annual basis. These jobs will translate in an increased demand for housing, as well as a greater demand for retail, entertainment and hospitality spaces. Given this demand a price correction is unlikely in the short
term,” he says.
Aditi Watve, Senior executive, Capital markets and investment Sales, Trammell Crowe Meghraj agrees with the viewpoint saying, “There is definitely lot of migration happening to the city which amounts in tremendous amount of job creation, especially in IT, Manufacturing and services,” she says. Watve adds that as long as genuine buyers and retail investors fuel the market, prices will continue to rise but it will not be steep.
Analysts point out that it is not just the increased demand but its quality has also undergone a change. With rising salaries, buyers are willing to pay for more and more amenities. Hardly any developer is today constructing a project with 1BHK flats since the demand is for a minimum of 2BHK flats, going up to premium 4BHK and 5BHK row houses and bungalows, with fancy fitting and high-tech amenities. This itself creates a price pressure. This is especially true of the Eastern and Western Corridors of the city, they say.
As a result market players say, prices in fact may rise higher. Rohit Gera MD, Gera Developers says, “If one were to look at the price rise of the new projects, there will be a good 10 to 15 per cent increase in the price rate. I don’t think the prices will come down as there is also an heavy increase in the construction cost.”
Jones Lang Lasalle also rules out any correction at least for the next six to 12 months. Zaheer Bandukwalla, Associate Director of the international property consulting firm says, “As of now there is no correction as the projects supposed to enter the market have not come up. There may be a slight slump in the market in 2008-09, with more supply entering the market, both in IT and residential.”
According to Mufadal, proprietor Realtors and Secretary of Pune Real Estate Agents Association, “The location of the project, its stage of completion determines the extent to which prices would rise. Demand for projects nearing completion is higher with actual users while investors are looking at pre launch projects in areas like Kharadi, Baner, Kalyani Nagar, and Viman Nagar.”
Shrikant Paranjape, MD Paranjape Schemes believes that a correction is likely first in Metros like Delhi and Mumbai, before it happens in Pune. But he believes that perhaps the rate rise in prices may be lower. “I don’t see any correction in the reduction of rates in cities like Pune, although the way the rates were galloping, 2007 will see them trotting,” he says.
According to Paranjape, Pune prices are still affordable — even at the rate of Rs. 3500 per sq. ft. But he believes that once the rates start going beyond Rs. 4000 per sq ft, then there will be a resistance.
So what this really means that if you were planning to postpone your decision to buy a home, hoping that there will be a correction in prices in the near future; think again. You could actually end up paying more, not less, a year down the line.

Massive bubble in home builder stocks

In comparison Google seems to have taken baby steps.
Feb. 9 (Bloomberg) -- Shares of Unitech Ltd.,
India's largest real-estate developer by market value, soared 26,869 percent during the past three years. Anant Raj Industries Ltd., a competitor, leapt 39,548 percent.

Both have dropped at least 5 percent (shocking.....)from peaks in November and December and further losses may lie ahead. The highest interest rates in four years, tighter lending requirements and seven share sales this year are hurting real-estate stocks. Those companies had rallied as a property boom pushed apartment prices in southern Mumbai to near-Manhattan levels.

Property stock valuations are approaching bubble territory

Real estate-related stocks last year accounted for six of the top 10 performers in the BSE-500 index, the broadest measure of India's stock market. Three of the six are down this year ....

Most Expensive
Indian developers are among the BSE index's most expensive members on a price-to-earnings basis. Unitech trades at 31 times expected earnings, while Anant Raj, a New Delhi-based developer in which billionaire George Soros bought a stake last year, is at 67 times. That compares with 21 times for the BSE-500 and 19 times for the eight stocks in Bloomberg's Asia-Pacific Home Builders Index.

Average home prices tripled over the past three years, buoyed by the world's second-quickest growth rate among major economies after China. Prices rose 50 percent to 100 percent over the past year in cities such as Delhi, Bangalore and Hyderabad,

Millions for Apartments
A six-bedroom duplex apartment in the Malabar Hill area in South Mumbai, where Bollywood actor Vinod Khanna and Citigroup Inc.'s India head Sanjay Nayar reside, sold for about 250 million rupees ($5.7 million), ....

A comparable apartment on the Upper East Side of Manhattan would cost between $6.5 million and $8 million, said Jonathan Miller, president of Miller Samuel Inc., a real-estate appraisal firm in New York.

India's developers also look expensive when their share prices are measured against the value of the land they own for construction,

Land bank valuations by developers are unrealistically high,'' he said. The valuations may not be justified because the projects will take five or six years to complete, he said.

Expensive Offices
Mumbai's office rentals are now the third highest in the Asia-Pacific region after Hong Kong and Tokyo, ..... It costs annually $88.2 per square foot to rent office space in Mumbai, compared with Tokyo's $97 and Hong Kong's $141.

The central bank is moving to cool the market. The Reserve Bank of India on Jan. 31 raised its overnight lending rate for the fifth time in a year to 7.5 percent and asked lenders to double provisions for commercial real estate loans to 2 percent in an attempt to curb defaults.

`Matter of Concern'
Housing Development Finance Corp., the country's second- largest mortgage lender, raised its rates four times over the past year to 9.5 percent.

Commercial and residential construction in India, Asia's fourth-largest economy, will surge to $50 billion by 2010 from $12 billion in 2005, according to a Merrill Lynch & Co. report. India will need as many as 10 million new housing units a year by 2030, ..

IPOs
Initial share sales, though, will be competing with existing listed real estate companies for investor funds. Seven property companies have sought regulatory approval for IPOs so far this year, up from just two last year. The largest will be billionaire Kushal Pal Singh's DLF Ltd., which aims to raise about $2 billion, expected over the next couple of months.

As more supply of paper hits the market, valuations and returns will come down to more stable levels,'' said Krishnan, at DNB Nor Asset Management in Chennai. "Companies may not be able to get the pricing they want"

Inflation and interest rates explained

The wealth of a nation is directly proportional to low interest rates and low inflation. Looks like 2.5 years of low rates are hurting the middleclass

Times of India

A climb in inflation rates has always seen a frown on the foreheads of countless borrowers. Hike in inflation rate has often been succeeded by lenders hiking the interest rates on home loans. Banks have inserted clauses in their loan agreements that empower them to increase interest rates under special circumstances. And it is not only the floating but also fixed rate borrowers who have borne the brunt of increased rates.
So how does inflation impact home loans?
Inflation is the rise in general level of prices as against the purchasing power of the common man. Inflation in small doses is always considered healthy for an economy. Increasing prices and wages eliminates the need for negotiating and making downward price and wage adjustments that is usually associated with deflation. Inflation is a driving factor that motivates people to invest rather than save money over the longer run.

An out-of-control northward-bound inflation is detrimental to the economic fabric of a nation. When there is increase in money in circulation (government printing money in excess) when compared to the ability of the economy to supply, we see a demand-pull inflation. Then there is the cost-push inflation which can occur from certain events like scarcity of crude oil supply. Whatever be the cause, inflation hurts people, particularly those who have locked themselves in fixed instruments like the pensioners. Inflation can lead to a wage spiral where trade unions may demand more wages, and consequently industrial productivity will suffer.

Inflation can be reined by increasing interest rates. When the central bank hikes interest rates, it reduces money supply. This is the oldest method of controlling inflation. Increase in rates is associated with unemployment and fall in production that is immediately followed by a curb on unhindered price increase.

The Reserve Bank of India (RBI) is justified in increasing the repo and reverse repo rates to bring inflation under check. Repo rate is the benchmark rate at which the RBI lends to banks for a short term. All the banks that borrow money from the RBI have to bear this cost. Often used in conjunction with the repo rate is the reverse repo rate. When the RBI borrows money from banks against its securities, the interest rate at which it does so is known as reverse repo.

The reverse repo rate can also be defined as the return banks earn on excess funds parked with the central bank against Government securities.
When the RBI increases the repo rate, a natural fallout is an impending increase of the bank rate. This will soon snowball into hardening in interest rates - both lending and deposit rates. The lending rates or prime lending rates on the basis of which banks lend to customers will go up. A notable increase in the deposit rates offered by banks on fixed deposits for various maturities can be perceived.

An associated term is CRR or the cash reserve ratio. That is, the portion of deposits to be maintained by banks with the RBI. Increasing CRR pulls away excess money supply from the banking system. This reduces resources with banks and impacts its interest income. Hence, this usually leads to a rise in interest rates on loans like housing loans, that is passed on to borrowers in the longer run.

Home loan's too hot for property buyers

Loan rate hike hits lower, middle income

Pune: Tejraj Parab, a service industry professional who has been hunting for a flat in Pune for the past six months, has postponed his plans. The prevailing home loan rates are way beyond his capacity, says he.

Sudhakar V., an IT professional, too has shelved his plans to buy property. "I'm rather comfortable staying at a rented place,rather than paying such a heavy price now for buying a flat."

"With the equated monthly instalment (EMI) on home loans going up every second day, it's beyond my means to go for a loan at this stage," Parab said, pointing to newspaper reports that rates on home loans may touch 11.75%.

Floating rate on home loans has gone up from 8-8.25% in the beginning of last year to 10.25%. ICICI Bank on Tuesday increased its floating rate to 10.50% and fixed rate to 12.5%, from 11.5%. This was a day after the finance minister requested banks not to hike home loan rates. Also, other housing loan institutions are expected to hike rates.

While property dealers in the city have admitted that many prospective buyers have decided to wait and watch, hoping prices of real estate would fall, builders and developers are upbeat.

"The increasing rates of home loans will not have any adverse effect on Pune's real estate," said P.A. Inamdar, former president, Promoters and Builders Association of Poona. The growth of the sector is spurred by the gap that still exists between low supply and high demand, particularly from IT professionals, he added.

First residential real estate price index to be launched

Bringing significant transparency to one of the hottest sectors of the economy, India’s home loans regulator is rolling out the country’s first residential real estate price index in March.

The index, to be called the ‘NHB Residex’, will initially cover real estate prices in Mumbai, New Delhi, Bangalore, Kolkata and Bhopal. Within a year, the index will be expanded to cover 36 cities.

“Today, there is opacity,” says the regulator, S. Sridhar, chairman and managing director of National Housing Bank. “We hope to bring transparency.”

“India lacks a database on real estate prices, other developing markets have a series of housing indices,” Sridhar says. “A house price index can lead to monetary and fiscal action.”

Indeed, the index comes on the heels of what some in the government see as a worrying trend of soaring home loans, driven by a runaway rise in real estate prices rather than a surge in the number of new homes that are being built every year.

In the five years ended March 2005, home loans grew at a compound rate of 32.15 percent to touch Rs 76,819 crore. During the same period, the number of new houses grew by 8.5 percent- 9 percent, he notes.

Despite concerns about a possible real estate bubble, the government has also been treading cautiously as it remains concerned about the impact of recent bank lending rate hikes on home loans, a politically sensitive issue.

On Monday, finance minister P. Chidambaram said at a conference that he had asked banks—and they had agreed—not to pass on higher rates to home mortgages. The housing regulator will maintain the index and is being advised by a committee made up of representatives from the government, its parent Reserve Bank of India, and independent experts in the field.

Real estate experts welcomed the proposed index, saying it would be a step toward empowering buyers. Home buyers “will get some general direction on where the prices are,” said Anurag Mathur, executive director- project management, at the real estate consultancy Cushman & Wakefield.

Having an index could also help give credibility to the market because recorded real estate transactions in the country are widely believed to under-report the actual amounts that change hands, because of cash being paid to the sellers.

“Black money does create a credibility issue,” said Revathy Ashok, director at TSI Ventures, a real-estate joint venture between private equity firm ICICI Ventures and the large US real estate company, Tishman Speyer. An index created by a government-backed entity would be more credible than if the index was created by the real-estate industry, she added.

Even if a real-estate index can’t match more popular and widely-used stock market indices in terms of credibility, it will still give users a sense of what’s happening in the market, said Saumitra Choudhuri, economic advisor at the credit rating agency, ICRA, and a member of the Prime Minister’s Economic Advisory Council.

Home Lenders Plunge as More Subprime Mortgages Sour

Massive losses at subprime lenders in the US How many lenders in India are in a similar boat ?

Feb. 8 (Bloomberg) -- Shares of U.S. mortgage lenders plunged after New Century Financial Corp. and HSBC Holdings Plc said losses from bad home loans are piling up faster than they expected.

The stock of Irvine, California-based New Century fell $10.92, or 36 percent, to $19.24 in New York Stock Exchange composite trading, the biggest decline since October 1998. Accredited Home Lenders Holding Co. lost 6 percent to $27.25, Novastar Financial Inc. tumbled 11 percent to $18.31 and American Home Mortgage Investment Corp. slid 8.1 percent to $33.06.

Both New Century and HSBC blamed rising defaults on so- called subprime loans they made to borrowers who had little credit history or heavy debt loads. Defaults on subprime loans increased nationwide last year as competition and a slower housing market prompted lenders to lower their standards and give mortgages to borrowers who couldn't make their monthly payments.

``It's kind of a watershed moment where the magnitude of the problems really is starting to come to the surface,'' said Brian Horey, general partner at Aurelian Partners LP in New York, which has sold short shares of New Century. ``If you could fog a mirror, you could get a loan.''

New Century, the second-largest subprime lender, said late yesterday it probably lost money in the last quarter and will need to restate 2006 earnings, and the company won't make as many loans this year as it had previously forecast.

Wider Impact

HSBC, the world's third-largest bank by market value, announced a management shakeup today after setting aside $1.76 billion more than analysts estimated to cover bad loans in 2006. Shares of the London-based bank fell as much as 2.6 percent, the most in eight months. They closed down 14 pence, or 1.5 percent, at 917 pence in London.

Other big declines at mortgage companies included Fremont General Corp., which fell 11 percent to $12.41, and Fieldstone Investment Corp., down 12 percent to $2.97.

The damage spread to stocks of other companies including H&R Block Inc., which is trying to sell its Option One home lending unit. The shares fell as much as 3.6 percent, closing with a 1.3 percent loss at $24.52.

Washington Mutual Inc., the nation's biggest thrift, Countrywide Financial Corp., the largest independent mortgage lender, and IndyMac Bancorp Inc. each shed more than 2.5 percent.

Among subprime loans, delinquencies of more than 90 days plus foreclosures and seized properties are at their highest level in at least six years, according to a Friedman Billings Ramsey Group report.

Goldman Sees Trouble

``That is the one area across all businesses in all firms that is actually in a bit of trouble now,'' David Viniar, chief financial officer of New York-based Goldman Sachs Group Inc., said today about subprime lending. ``That market's going to get worse before it gets better.'' Viniar spoke at an investor conference in Naples, Florida.

Cooling demand for the mortgages spurred lenders including Wachovia Corp. and KeyCorp to shut or sell home-loan units in the past year. National City Corp. sold its First Franklin mortgage unit to get some of the riskiest loans off its books.

``There's a lot of camouflaging going on in credit quality,'' said analyst David Hendler at CreditSights Inc. in an interview late last month. ``We're getting the sense in this shop that this is more than normal deterioration, that it speaks to deeper difficulties.''

Layers of Risk

Washington Mutual CEO Kerry Killinger blamed worse-than- expected erosion in credit quality among subprime loans for a $122 million fourth-quarter loss at the Seattle-based company. At IndyMac, CEO Michael Perry told shareholders Jan. 16 the Pasadena, California-based lender missed its own profit forecast as defaults increased.

``The banks have headwinds that will make it tough for them to outperform the broader market this year,'' said Chris Hagedorn, a money manager at Fifth Third Asset Management in Cincinnati. Hagedorn, whose company oversees $21 billion, wonders why bankers aren't more pessimistic. ``I got the sense that they're saying we're just at the start of this thing,'' he said on Feb. 5.

Federal Reserve Governor Susan Bies said last month regulators are particularly worried about lenders that added layers of risk by combining low down payments with low documentation, or with interest-only loans that allow borrowers to skip payments and add the sum to the total amount of the loan.

The Fed added a special set of queries on bad loans to its regular quarterly survey of senior loan officers. The Feb. 5 report found half expect credit quality on non-traditional mortgages, such adjustable-rate and interest-only loans, to get worse in 2007. In response, more banks tightened lending standards in the past three months than in any quarter since the early 1990s, the survey said.

Govt to let rupee rise to bring inflation down

Economic times reports.

NEW DELHI: The government is plumping for a stronger rupee as the most effective short-term measure to combat inflation, according to sources in the finance ministry. The ministry has already indicated to RBI governor YV Reddy that the government will be comfortable with a stronger rupee. The central bank has been allowing the rupee to appreciate of late.

The Reserve Bank could also resort to a hike in the cash reserve ratio (CRR), as merely tinkering with interest rates at the short end does not reduce the excess liquidity that is feeding inflation, which is currently pushing 6%. The bulk of inflation reflects supply constraints: metal prices are high globally (nearly 30% increase over 12 months in dollar terms) as also food prices (up 13%, again in dollar terms).

The government has taken several supply-side measures to reduce prices: slashed import duties on base metals, cement and wheat, curtailed export of sugar, and imported wheat at zero duty. It is trying to import pulses from Myanmar and Canada and planning to step up open market sales of wheat. However, the price rise has not been contained. Longer term supply-side measures will take time to kick in.

Also, the current price rise is not just a supply-side impact. There’s another villain in this story: the huge amount of foreign capital flowing into the country, seeking to cash in on the India boom. Just over the last one week, $3 billion has come into the country, said the finance ministry official.

When foreign capital flows in, money supply goes up as RBI purchases the inflow, giving rupees in return. RBI seeks to take back this extra money in the system by selling government securities. When the public picks up bonds, the cash flows into RBI, reducing the money supply. But such sterilisation is not complete and external capital inflows lead to a rise in the money supply.

Boom to bust to bake

Hindu reports on Hyderabad

While builders blame Government's auctions for the slump in real estate, experts feel it's only a matter of time before it hits the growth curve again

After a free run for almost two years, is the property scene set to take a `U' turn? Have the real estate prices that zoomed up and up begun to crash?

Should one buy now or wait for some more time in anticipation of cheaper prices?

Or is it just that property prices are undergoing the much-awaited correction? In what some describe as a cooling-off period in the city and suburbs which had remained hot for some time, there seems to be a slight dip in land dealings in the last couple of months.

Passing phase

Though various theories are floated and causes attributed for the new trend — some even describe it as a crash — observers look at the lull as a passing phase and a spurt in transactions staging a comeback.

Though some feel tempted to attach the separate Telangana demand as a factor for the slight drop, industry watchers term it an unrelated and temporary phenomenon. Some builders themselves are candid in admitting that the prices have gone beyond the margins of reason and the slowdown will offer some sort of correction.

It is widely acknowledged that the activity has slowed down a bit, particularly on the city suburbs and beyond, where plots and acreages had been sold like hot cakes till November. From Maheshwaram to Nagaram to Shamshabad to Ameenpur, it is said the stream of agents and buyers has come down, much to the consternation of those holding properties there.

Nothing unusual

"It is happening across the country and the phenomenon is not restricted to Hyderabad alone," points out M. Murali Mohan, film actor-turned-real estate developer of Jayabheri Group.

Despite the sharp escalation in the last couple of years, land and apartment prices are reasonable when compared to other metros, he says.

The trading may be down but the real estate scenario is definitely not out.

"There is so much of development activity going on in the real estate field. The boom will pick up soon. Perhaps, after a little correction. I expect that to happen by March," Mr. Murali Mohan says.

The construction activity in the city is need-based and hence will withstand the fluctuations, observes P.S. Reddy, president of the Andhra Pradesh Real Estate Developers' Association.

"Around 15 lakh new jobs are expected to be generated in coming years. Imagine the need and demand for housing that the city is set to witness," he says.

No `T' factor

What about Telangana factor? "The city real estate growth has become oblivious to such issues. IT boys and girls, who constitute almost 40 per cent of our clientele, hardly seem to be perturbed by it," Mr. Reddy points out.

The property prices have indeed gone up. But builders feel the Government, too, should own up responsibility.

"How can it go for the kind of auctions that we had witnessed last year when bids were allowed to hit unscientific levels. At the same time, has the administration done anything to contain the cement and steel prices?" asks a builder.

Mr. Murali Mohan concurs: "The auctions are to be blamed to some extent. The growth should be gradual. It should not lead to situations spiralling out of control."

T. LALITH SINGH

Bangalore all set for a makeover?

Hindu reports

Eight Government agencies unveiled their agenda to make the Garden City the best global address in the world. A look at some of the grand plans by A.B. SUDHINDRA

At the "Bangalore Today, Tomorrow," an interactive workshop held here last week, the heads of eight government agencies unveiled their plan to make the Garden City "the best global address in the world." The tagline was "Well Known, Still Young" and citizens of "today and tomorrow" participated with great enthusiasm.

Here is what the various civic bodies are planning to achieve. The Bangalore Development Authority (BDA), under a new housing scheme, will offer more than two lakh houses for the lower middle and poor sections of society. The project will be implemented in Bangalore east and west zones.

Over 1.6 lakh houses will come up in the east zone and 81,000 in the west. All the houses will cost around Rs. 3 lakh. BDA has also announced that now the focus will be on vertical growth. There will be no 20X30 sites and 30 ft. wide roads in new layouts. A hi-tech corridor will come up at a cost of Rs. 140 crore. The BDA will also distribute 50,000 sites in the coming years.

Three-pronged strategy

The Bangalore Metropolitan Region Development Authority (BMRDA) has a three-pronged strategy to "decongest" the lives of Bangaloreans. Integrated townships, ring roads and expressways will add value to "Brand Bangalore".

It will also ensure that the forests, water bodies and heritage sites of the city are protected. The redevelopment of 39 roads of special economic relevance will be taken up and one can zoom on BMR ring roads which will have a speed limit of 180 kmph. The second phase of the airport expressway will connect NH 207.

BBMP projects

The Bruhat Bangalore Mahanagara Palike (BBMP) will unveil projects worth Rs. 2,000 crore in 2007 to boost infrastructure. These include six underpasses, 155 km of arterial roads and modernisation of Malleswaram market.

It will also upgrade five slums at a cost of Rs. 13 crore. Revamp of solid waste management, landfills on 500 acres and a modern abattoir at Iglur are also on the anvil.

Water supply

The Bangalore Water Supply and Sewerage Board (BWSSB) will complete Cauvery IV stage II phase project by 2010. The project will provide another 500 million litres per day (mld) to the city.

Bruhat Bangalore will require about 1,576 mld of water and there is a shortfall of about 700 mld. The agency has plans to quench the thirst of Bangaloreans by completing the Netak Balancing Reservoir project which will provide 100 mld. Recycled water from Yelahanka and Vrushabhavati plants will be supplied for non-potable use for industries. It will also complete water supply and sewerage connections in all slums by 2010 and replace corroded underground water and drainage lines.

BMRC work

The Bangalore Metro Rail Corporation (BMRC) has identified four corridors to commission its project. Bannerghatta-Mysore Road, Mysore Road-Tumkur Road, Tumkur Road-Bellary Road and Bannerghatta junction - National College projects will be taken up. The works under Reach 1 from Byappanahalli to Cricket Stadium will start in February.

The Bangalore Metropolitan Transport Corporation (BMTC) will add 737 Euro III buses. It will commission eight depots and seven stations.

Modernisation of existing bus stations is also on the anvil and it will establish traffic and transport management centres at Jayanagar, Domlur, Yeshwanthpur, Kengeri and Bannerghatta.

# BDA to offer more than two lakh houses in Bangalore east and west zones for the lower middle and poor sections of society.
# All the houses will cost around Rs. 3 lakh.
# There will be no 20x30 sites and 30 ft. wide roads in new layouts.

Masterplan Silent on 650 Acres

The Urban Development Ministry may be trying to make the Delhi Masterplan 2021 more eco-friendly but interestingly the DDA's plan does not include 650 hectares of land in the Vasant Kunj-Mahipalpur area as part of the Ridge.

Despite many Supreme Court committees directing that the area be notified as a reserve forest, the MPD has not included the area. Environmentalists say that having failed to fill up water bodies across the city, the DDA is now eyeing the commercial benefits of the Ridge.

The MPD mentions 7,777 hectares as the notified Ridge. This only includes the Northern, Central, South-Central (Sanjay Van) and Southern (Bhatti mine area) belt. Currently, the controversial Vasant Kunj malls are coming up on 25 hectares of this land, the army has 330 hectares and the DDA 315.

Other modifications in the Master Plan were notified in 1990 and reflected in the MPD 2001, but this area was left out. "The whole of the 6.5 km stretch along the Vasant Kunj, Mahipalpur, Vasant Vihar stretch has been left out. This area has already seen rampant construction and the DDA now wants to keep this open for further development," environmentalist Vikram Soni alleges.

The ridge is an extension of the Aravalli range but is not a continuous stretch, and it is this argument that the DDA has used to refute allegations that have been made against it. The DDA says this area is just "rocky land" and not forest area. In its affidavit before the Supreme Court in July 2004 and again in February 2005, the DDA stated that the land was just "rocky land" and merely a "land classification" which did not indicate the "land use". It adds that the JNU campus was also set up on this area.

Real Estate Growth Continues In Gurgaon, Albeit At A Slower Pace, According to the QGAPI

The growth story of Gurgaon's Real Estate market continues, but the pace in the last six months has slowed to almost half compared to the six months prior to them.

* The QGAPI (Qubrex Gurgaon Apartment Price Index) calculations, as shown in Figure above, now stands at 1876 with it being 1000 in October 2005.
* The growth over the most recent 3 months was 14% compared to 26% growth seen from April 2006 to June 2006. The index has been calculated by weighting all properties in the basket equally.

The index was calculated based on 17 properties in Gurgaon. The properties included in the index

* represent all major builders,
* are both ready-to-move and under-construction,
* are from all areas (Golf Course Road, Sohna Road, Nirvana, NH8 and Old Gurgaon),
* range in sizes from 1586 to 3850 sq.ft, and
* evenly fall across the budget spectrum.

No room, say Bangalore hotels

The Hindu

# There are over 4,700 rooms in about 66 hotels in Bangalore
# Some hotels have increased charges by 30 per cent

Bangalore: On a good day, rooms are tough to get in upmarket hotels in the city. Now with the Aero India 2007 on, there are no rooms to be had for love or money unless you have booked much ahead.

Visitors and tourists from all over the country and abroad are here in connection with the show, and if anyone thought it fit to fly in and look for a room, sorry but another time. "Bookings for the show had commenced almost a year back," said Amar Ravishankar, Sales Executive, Manager, Leela Kempinski. Some 200 rooms in his hotel have been booked by visitors to the Aero India show. "To cope with the demand, we have accommodated those who stay for a minimum four days," Mr. Ravishankar said.

There are over 4,700 rooms in about 66 hotels in Bangalore that are booked right through. And the rooms are pricey. To get a room below $350 a night has become near impossible in upmarket hotels.

A number of hotels have also upped their charges by 30 per cent.

"Not us," said Rakhi Lalvani, of the Taj Group. "Taj Residency has 160 rooms and Taj West End 117 rooms. They are now mostly occupied with Aero India visitors. Our hotels are providing transport facilities to Yelahanka for them."

ITC Windsor Sheraton and Towers is also pulling out all stops to make the guests' stay comfortable, said Rajesh Rohi, Reservation Assistant.

Ditto with The Grand Ashok. "Delegates from different countries as staying with us and we're providing special facilities for them, said Shalini Mahapatra, spokesperson for the hotel.

Nagpur rakes in crorepatis

Hindustan Times

Nagpur is in the hot seat and raking in billions. There is nobody here who doesn't walk down the city's `Crorepati Galli' and aspire to own a bungalow here. A survey by the National Council of Applied Economic Research (NCAER) says Nagpur has seen a phenomenal rise in crorepatis or billionaires from just a handful about ten years ago to 438 billionaires.

Though there are more billionaires in Delhi (5,085) or Mumbai (4,439 crorepatis), Nagpur has the highest growth rate of millionaires. The city is home to the well-known Pendharkars of the Vicco group and Sharmas of Baidyanath.

The study shows that there is more to Nagpur than oranges and Vidarbha. In 2002, there were 10, 417 households with an annual income of over Rs 10 lakh in Nagpur as against 1,199 in 1996. In terms of percentage, that is a 770 per cent growth in six years. Mumbai with a `billionaire growth rate' of 319 per cent and Delhi with 274 per cent were the third and second slowest among the 10 cities that were surveyed.

"Nagpur is a peaceful city unlike others where businessmen face extortion, and are kidnapped and threatened by the mafia," said N. Kumar, a leading city-based builder, film financer and one of the crorepatis. "The infrastructure and quality of life here have attracted several businessmen and industrialists from Orissa, Madhya Pradesh and Chhattisgarh. The international airport, cargo hub and the Boeing unit have changed the way others see the city."

Satish Goel, another crorepati who shifted from Raipur a few years ago, said Nagpur will be India's next big metro. "The city has the advantage of providing skilled and technical personnel," he said.

Realty bites: Home Buyers seek budget relief

Hindustan Times

For DS Kulkarni (24) buying a flat in Mumbai has become a daunting task. The sky rocketing prices have compelled him to focus on Navi Mumbai.

"There is no other alternative," said Kulkarni adding, "For Rs 14 lakh, I can maximum have a flat with a carpet area of less than 300 sq ft in Navi Mumbai. Houses are not cheap even in Thane." "Builders are increasing prices by Rs 100 per sq ft every week and it is unrealistic. But what can I do," he said.

The expectations

Release land into the system by repealing of ULCA and releasing of salt pan land
Stamp duty exemption on resale flats
Enhance the income tax exemption limits to Rs 3 lakh paid towards interest
Segregate first time house buyers from the 2nd and 3rd (investors) as the former is in dire need for a house

This sums up the plight of the salaried class house buyers, constituting about 80 per cent of all the buyers in the Mumbai region, and who pay back the cost with their future income.

But there is more trouble ahead.

Prices of flats in the Mumbai region are likely to go up by 10 to 15 per cent post-budget due to the shortage of land, say real estate developers. Unless the finance minister announces radical measures by unlocking land resources and provides tax sops, the prices will gallop.

Though the finance minister has asked the public sector banks not to increase the interest rates for the time being, it may not help much as the private sector banks, that control 75 per cent of the business, may charge more. "Unless interest rates are attractive, buyers will find it difficult to go for houses. Also, the land availabili ty issue needs to be addressed if prices are to settle," said Mukesh Patel, director, Neelkanth Group.

The finance minister must announce big changes in the budget to curtail prices, he said. Realty developers have asked the FM to make enough land available in every city so that prices will fall automatically. This can be done by repealing the Urban Land Ceiling Act and releasing the salt pan land for development.

The tax exemption limits on interest amount for housing loans must be enhanced to Rs 3 lakh so that the rising payout levels can be balanced. And finally, exempting stamp duty on resale flats. But the housing finance sector does not expect much. "It will be great if the existing sops can be retained. The FM would be more focused on addressing the problem of rising inflation and falling agricultural growth rather than the housing sector.

"We expect real estate and interest rates to stabilise with a higher side of 50 basis points," said Aseem Drhu, Executive Vice President, Head of Business Banking and Mortgages, HDFC Bank.

He said this year house buyers will come under the double pressure of rising interest rates and real estate prices. But since people's income is rising it will have margin effect on the housing finance industry that will still grow at 20 to 25 per cent as compared to 30 per cent now. "This year should see stabilisation of real estate prices," he added.

Structure of SEZ unlikely to be changed

Times Of India

MUMBAI: The Union Government on Thursday said it was unlikely that the basic structure of the SEZ policy would be changed and the Empowered Group of Ministers (EGoM) would meet after the Budget to bring more clarity to the existing policy.

"The EGoM is going to meet again after the Budget. They may bring in some clarification. But, I don't think that the basic structure of the rule is going to be changed," Union Commerce Secretary G K Pillai, who is also the Chairman of the SEZ Board of Approval said.

The UPA government has put a halt on agricultural land acquisition for industrial purposes following protests from different quarters.

Pillai said that so far 235 SEZ applications have got formal approval, while 162 have bagged in-principle nod from the Board of Approvals.

The Union Commerce secretary said that these 235 proposed SEZs, being set up across 17 states and three Union Territories would require "only 34,510 hectares of land" but bring in 8.9 lakh jobs and an investment of Rs 59,000 crore.

So far 63 SEZs have been notified out of which 23 are operational. These 23 have created 15,800 jobs and brought in Rs 11,000 crore investment in one year, Pillai said.

He said that both the Union Finance and Commerce Ministries were working on a report to judge the socio-economic benefits of SEZs.

"We expect these reports will come out in the next three months," Pillai said.

PSU banks freeze home loan rates

If you were worried about mounting interest rates on the home loan you have taken or are planning to take, breathe easy — at least until March. Finance minister P Chidambaram on Monday asked public sector banks to hold in abeyance any decision that hits the monthly budget of the common man.

Public sector bank chiefs, who met the minister on Monday, immediately agreed and decided to freeze interest rates at the current level.

But here’s a caveat. The FM’s request included only public sector banks. Currently, 75% of the home loan market is lies with private sector banks and housing finance institutions which may not necessarily comply. The freeze on interest rates by public sector banks could, however, put pressure on them and force them to fall in line.

Over the past three years, interest rates have gone up on five occasions. From 7% in 2004, the rates had hit 10% by January 2007. Borrowers are now paying nearly 25% higher equated monthly instalments (EMIs).

Last week, the Reserve Bank of India (RBI), in its annual policy review, hiked the repo rate (the rate at which banks borrow funds from RBI) to 7.50%. This hike is expected to put pressure on banks to revise the rate at which they lend. Chidambaram’s remarks came in the backdrop of the concerns this hike raises.

While RBI has expressed concern on credit flow to real estate, Chidambaram said home loan had not been clubbed with the sensitive sectors where the central bank wants credit growth to be moderated. He pointed out that the provisioning requirement — resulting in setting aside of more funds for the sensitive loans — had not been changed.

In other segments like personal loans, credit card, commercial real estate and loans for buying shares and borrowing from non-banking finance companies, the provisioning norms have been increased from 1% to 2%.

Time to pay off your home loan

TIMES NEWS NETWORK

NEW DELHI: ICICI Bank's latest hike in home loan interest rates was probably accompanied by a round of groans from those who now face the prospect of paying even larger EMIs. With other private sector banks set to follow suit, is there any way they can avoid having to shell out ever increasing amounts? And what about those who haven't yet bought a house, but were planning to do so?

If you were one of those planning to buy a house, you might be better off postponing the move. According to a consultant, prices are likely to come down. If interest rates go up further, the fall will even be steeper. At the same time, rents are still low. For example, the rental of a house worth about Rs 60 lakh is just Rs 10,000 per month in Delhi. If you buy the house, your EMI would be Rs 61,920. So it makes sense to pay rent and wait.

What if you already have a house loan?

Try to reduce your liability by repaying a part of the loan from your bank deposits. On a Rs 60 lakh loan, because of the tax incentive, the effective rate of interest comes down from 11% to around 10%. But your fixed deposits with the bank earn only around 9%. If you repay a part of your floating rate loan from your own deposits, banks do not levy prepayment charge.

Should you withdraw money from PF to prepay your house loan?

Not really. Your provident fund still earns an effective post-tax return of over 11%. As we've just established, the tax sops on home loans effectively bring down the rate of interest from 11% to 10%. So you're still better off keeping money in PF. But yes, if the interest rate on home loans is hiked to, say, 12%, then it's better to pay it off even if you have to draw down your PF to do so.

Should you switch from a floating rate to a fixed rate loan?

No, say bankers and consultants. This would invoke a 'switch charge' of around 1.5% to 2% of your outstanding amount. Besides, the fixed rate is always 1 to 1.5 percentage points higher than the prevailing floating rate. While the floating rate is now 11%, the fixed rate is 12.5%. If you switch now, in the first year your effective rate would be 14-14.5%, including the switch charge. After that, it would be around 12.5%. At the same time, if in future interest rates come down, you would be stuck with the higher fixed rate.

Bankers feel a fall in rates in the medium term, say six months, is likely. They argue that if inflation is controlled, rates should fall. Also, if present interest rates continue, the economy is likely to slow down, which in turn would result in a fall in interest rates.

Pune punch

Economic times again on Pune

This is boom town with a vengeance: if more housing is not brought into the Pune market quickly, the city could face a huge shortage. And this is not at some distant date: the Promoters and Builders Association of Poona (PBAP), an industry body comprising the city's top builders and developers, estimates this could happen over the next few months.

"Demand is fast out-stripping supply. Pune is becoming a city of have nots be it roads, housing or any other infrastructure. There is no housing stock in the market," Lalit Kumar Jain, chairman, Kumar Builders and current president, PBAP, said. He added that this is mainly due to non-availability of developable land.

Rohit Gera, executive director, Gera Developments and honorary secretary, PBAP, echoed Mr Jain's view: a galloping demand and a huge shortfall. "Pune is the sixth most important city in the country and IT is getting it huge attention. But the city cannot cope with the growth, it does not have adequate housing or infrastructure," Mr Jain remarked. He added that office premises for IT development are available in both the IT `hotspots' of the city, namely Hinjewadi and Kharadi.

When demand outstrips supply, the inevitable happens prices rise. And in Pune, prices in some locations have risen 100-150% over the past three years, averaging out at 75% for the city as a whole. The localities where appreciation has been at 150% are Kalyani Nagar, Boat Club Road and Koregaon Park. Currently, the minimum price for residential properties across the city is Rs 2,000 per sq ft, going all the way up to Rs. 8,000 per sq ft. Mr Gera pointed to the micro markets of Kharadi and Baner, where gross supply is being consumed in two-three months. And new projects are not being announced at the same rate as demand growth all of which means an upward pressure on prices of what is available.

"If no new projects are launched, then everything that is available in the market will be sold out in the next two-three months. This tight supply situation is causing the upward pressure on prices," he said.

In 2005-06, 65,000 tenements were built, which came down to between 35000 to 40,000 in the current fiscal. Developers, trying to pressure the civic body, claim that if the city's development plan is not sanctioned, there could be a further fall in construction in fiscal 2007-08. Just when the city is getting more investment, hence more jobs being created.

As for the much-touted townships, market sources claim that all the 15 to 16 of them are stuck with the state government's environment department, awaiting clearances. Since each of these project is being developed on a 100 acre area, these sources point to the marginal effect they will have on the city's woefully inadequate supply.

"Townships don't solve the problem since they will each have a maximum of 4,000 tenements if the FSI is 1. If the FSI is not increased to 1, then the maximum tenements each will have is 2,000. Every year, 1 lakh people get added to the city's population where is the housing for them?" they asked.

Developers in the city are up in arms against the civic body not passing the new Development Plan, thereby stalling the process of creating more housing. Their other grouse is the state government dragging its feet over the repeal of the Urban Land Ceiling Act (ULCA), under which large chunks of land are not available.

According to one estimate, if the ULCA is repealed, then an additional 15,000 acres could come into the market in the Pune and Pimpri Chinchwad areas. Apart from land becoming available, it will also have a cooling effect on prices, helping to stabilise the market, developers maintained. Mr Jain pointed out that with an annual influx of 1 lakh people, 60% of who will need housing, which means 65,000 tenements. Added to this is the local demand for 85,000 tenements, and the total goes to a huge 1.45 lakh incremental homes every year. "About 60% of people who come to Pune, who will need housing also includes the lower income group (LIG) component. These people will live in shanties and they do not get counted," he said.

Although this is not a phenomenon specific to Pune alone and is part of the urban Indian nightmare, it is an area which does not receive the requisite action. "The LIG segment is not addressed and it is unacceptable for society or our social structure that they should live in shanties. We, as developers, need support from the central and state governments since there is no funding available for the construction of such housing," Mr Jain said. With close to 40% of the city's population living in slums, this is a significant segment.

Pune is gaining a new global look

Economic times

Pune is undergoing a tremendous change, developing rapidly and offering its residents a whole new international lifestyle. Large malls, international brands and speciality stores have changed its face, bringing new zing to the retail scenario. Young professionals and migrant white-collar workers are increasingly zooming in on these new spaces, and the result is an evolution in organised retailing that one could not have imagined even ten years ago.

Earlier Laxmi Road area, M G Road, Camp Road and areas near Jungli Maharaj Road saw some retail activity. Then Deccan as well as the Camp area saw a sudden spurt with the Central Mall and Big Bazaar. More recently Nucleus and Magnum Mall have also come up. Senapati Bapat Marg, Kalyani Nagar, Nagar Road, Paud and Bibewadi are the new destinations gaining ground in retail. Kalyani Nagar is coming up with Adlabs mall and multiplex and Nagar Road will soon see three to four big commercial developments.

Developers like Vascon Engineers, Kumar Builders, Kolte-Patil and Kakde have come up with a number of malls. Some of the wellknown malls in Pune are the Nucleus Mall near Camp, Pune Central, City Mall, International Convention Centre, Shoppers, Stop and Magnum.

Lalit Kumar Jain, Chairman, Kumar Builders says, "The coming of the IT industry into Pune has given it a lot of exposure. Along with that, the new economic business growth has also helped a great deal in changing the face of the city. The kind of people required to adapt to new trends are present in Pune; thus almost 80% of the population has easily adjusted to the developments."
"The city needs larger malls at newer locations. The outskirts are still to see malls and soon there will be malls soon in those areas too. At the same time malls will see changes in the near future," adds Jain.

Kumar Builders has a seamless, no-partition mall at Bund Garden Road known as Pune Central. The mall is spread over an area of 1,50,000 sq ft. Some of their upcoming malls include a 1.6 million sq ft mall near Karve Road, four multiplex malls at Fatima Nagar, Kalyani Nagar, Station Road and Karve Road respectively.

Govind Shrikhande, CEO, Shopper's Stop, believes Pune is the cultural capital of Maharashtra, with booming software, manufacturing and education sectors. "Property rates have been increasing dramatically for the last five to seven years. For the retail hubs, like Deccan, Camp etc, the rates vary between Rs 40 to Rs 60 per sq. ft per month. Pune offers a good combination of the educated, upwardly mobile and more demanding consumer," he adds.

Shopper's Stop has stores in Pune - one in the Camp area, as part of Nucleus Mall and the other in Shivaji Nagar. Both are more than 45,000 sq. feet. "We have intentions to open at least two more stores. Sadly, the infrastructure continues to be a deterrent," explains Shrikhande.

Along with Shopper's Stop, Pyramid and Crossword are some of the important players in Pune. Interestingly, Pune will lead the mall culture in the country by being the first ever city to get niche malls. Ishanya Mall - The Design Centre, developed by Deepak Fertilisers is being projected as a "one-stop mall for interiors and exteriors". Kumar Builders are also developing a mall near Peshwe Children Park, which will specially cater to children.

Developers in Pune, seem to have realised the need for specialised malls. The Ishanya mall, spread over 5 ½ lakh sq ft on 10 acres of land will, apart from offering specialist shopping, allow for relaxation in a pleasant environment and cultural entertainment.

"Organised retailing is happening faster in Pune than in other cities. In other words, the expected mall space will be more in Pune compared to other cities. There is huge amount of amount of growth taking place in the city," observes I S Narula, President and CEO, Ishanya Specialty Mall. The coming months will see it emerge as number two in terms of organised retail space.

He adds, "The city is moving fast towards development also because of the coming of big industries, the satellite city coming up and automobile industry growing and to complement it all are the IT industries. Pune today is amongst the fastest growing cities in the world. Since there are no space restrictions for Pune as in Mumbai and Bangalore, the city is proudly growing in all five directions."

Bangalore has no space restrictions whatsoever and is growing in all directions

The glitz and glamour that are making their presence felt is only the beginning; as the year progresses, and competition increases with both new and large players in the fray, the Pune retail scene will undergo a metamorphosis.
Watch out for exciting times!

ICICI Bank Raises Interest Rates on Loans, Deposits

Bloomberg reports

By Sumit Sharma

Feb. 6 (Bloomberg) -- ICICI Bank Ltd., India's biggest by market value, raised its benchmark lending rate by one percentage point to 14.75 percent, the second increase since December.

The bank, which has one-third share of lending to individuals for purchase of houses, cars and other durables, said the floating rate on home loans has been raised by one percentage point to 11.75 percent.

ICICI Bank will pay 125 basis points more on its fixed deposits on maturity of five years on an amount of 100,000 rupees ($2,267) or less. One basis point is one-hundredth of a percentage point. The revised rate will be 9.5 percent compared with 8.25 percent, it said. The new rates will be effective Feb. 9, the bank said in a statement faxed from Mumbai.

ICICI Bank raised its lending rate after the Reserve Bank of India, the country's central bank, on Jan. 31 raised the key interest rate at which it lends overnight by a quarter point to a four-year high of 7.5 percent, making it more expensive for banks borrowing from it.

The central bank has raised rates five times over the past year to reduce the availability of money and contain the inflation rate that accelerated to a two-year high of 6.12 percent in the week ended Jan. 6.

ICICI Bank last raised its lending rate by half a percentage point effective Dec. 18. It raised the home loan rate to 10.75 percent from 10.25 percent and its benchmark lending rate to 13.75 from 13.25 percent.

Expanding Loans

About 68 percent of ICICI Bank's loans are to individuals to purchase houses, cars or other durables. The bank's loans rose 42 percent in the three months ended Dec. 31 to an outstanding 1.8 trillion rupees.

Bank loans have been rising rapidly as the economy expands. Loans rose about 30 percent through the year to Jan. 19, outpacing the 23 percent growth in deposits, according to central bank data. Loans expanded at an average 35 percent in each of the past two financial years.

ICICI Bank and HDFC Bank Ltd, India's two biggest non- state-owned banks, give 68 percent and 55 percent of their loans, respectively, to individuals.

India's Finance Minister P. Chidambaram yesterday told chairmen of state-run banks to hold home loan rates at current levels.

``Ninety percent home loans are to middle or lower middle class people,'' O.P. Bhatt, chairman of the State Bank of India, India's largest lender with more than 9,000 branches catering to 100 million customers, said in New Delhi yesterday.

Raising either the monthly installment of payments or extending the maturity of the loan would hurt borrowers, Bhatt said.

Ecnonomic times : Bubble trouble ??

What goes up must come down....The great property spiral may finally have to kowtow to the laws of nature. For real-estate prices are in for a correction at least in North India.

While the decline is relatively sharp (10-20%) in 'B' cities like Chandigarh, Amritsar, Jaipur, Rudrapur and Karnal, it's moderate (5-10%) in the National Capital Region (NCR) of Delhi. And prices in other cities like Mumbai, Bangalore, Pune and Chennai are showing signs of stabilising.

It's happening in Delhi too. Barring posh South Delhi, where residential prices are still rising, there's been a 5-10% fall in the months since Diwali in suburbs like Noida, Greater Noida and Gurgaon, and in areas like Mayur Vihar, Patparganj, Rohini and Dwarka.

The main reasons are fairly obvious: an unprecedented price boom, which has made property unaffordable for a large chunk of the middle class; a flood of new projects, and the complete mismatch between capital value and rental rates.

However, developers and consultants take heart from the high economic growth; the decline, they say, is unlikely to be steep or last very long.
"The correction was inevitable given that prices had become unrealistically high. In that sense, it's good for the sector," says CB Richard Ellis (South Asia) MD Anshuman Magazine. But, he adds, it should not be seen as the beginning of a slowdown as latent demand is still "very strong".

Exit speculators

The trend, which could be limited to stabilisation in prices instead of a decline in certain markets, would force speculators to exit, paving the way for end-users to enter.

So far, a majority of plots or apartments in a project were cornered by speculators and brokers at the pre-launch stage, who, in turn, sold them to the end-users at 25-50% premium.

Now, with end-users increasingly baulking at steep prices, investors are stuck with their investment. With no money flowing in, they are not being able to block apartments in upcoming projects.

This has also made it more difficult for developers to find buyers for their projects. Says Magazine, "Earlier a project would be sold within a few days, now it might take a few months, but it is going to end users.

Therefore, the price discovery is genuine." In the last three months, developers have not been able to increase the selling price of their projects and, thanks to the absence of the speculators, people are being able to buy property directly from builders at rates cheaper by 10-25%.

A senior banker reveals that in a project in Greater Noida, brokers cornered almost all the apartments in a project being developed by a respected developer, thinking they would sell it at a substantial premium.

Finding no takers, they are now selling the apartments at a discount 15-20% less than the official launch-price of the project.

What's more, such discounts could get even better when the large number of projects are completed. As Vivek Dahiya, director of global real-estate consultancy firm Debenham Tie Leung, points out, a number of projects launched in the last two years would be ready for delivery in the next six to 18 months.

"When that happens, speculators would want to exit. This would increase supply and prices could witness a sharp correction."

Growth = Demand

However, the market is hoping that the decline wouldn't go beyond 10-15% from present levels as long as economic growth continues to create new buyers.

Says Unitech executive director Sanjay Chandra: "In a city like Delhi, for instance, there would not be much problem for developers as demand for residential real estate is genuinely on the rise. This stems from large-scale absorption of commercial real-estate space in 2006."

According to one estimate, 6.4 million sq ft of commercial space was leased out in NCR in 2006 as against 3.2 million in 2005. This translates to 75,000 new jobs, since every 1,000 sq ft of office space is supposed to accommodate 12 employees.

Even if only 25% of them go in for a new house, there would be a demand for around 19,000 houses. Against this, the annual supply in the region would not be more than 10,000 houses. "This means a huge mismatch in demand-supply. Though the price points could be an issue, which would see some minor correction," says Chandra.

TO B OR NOT

But the situation could be different in 'B' cities like Amritsar, Chandigarh, Jaipur, Karnal and Rudrapur where commercial activity has not picked up. Besides, a large number of developers have already entered these markets to cash in on cheap land and easy investor money.

But there is no huge demand from end-users. Developers and consultants feel the upcoming townships near these cities might witness a sharp correction in coming months.

However, Assotech CMD Sanjiv Shrivastava points out that prices in 'B' cities are still substantially higher than what they were one year back. He believes the correction would not be very steep in areas where developers had planned projects with an eye on end-users' requirements.
Even in 'B' cities, by the time the projects and townships are completed in the next three to five years, there would be enough demand if the economy continues to grow at the current pace of 8-9%."

Besides, the new townships would also fuel economic activities in these areas. "But there could be problems if investors enter these markets to make a fast buck."

ATS Infrastructure promoter Getambar Anand attributes the correction to the large number of project launches announced by developers without commencing development work. This has affected market sentiment.

Pawa Builders MD Pankaj Pahwa blames unscrupulous elements in the business for playing havoc with market sentiment. "Many developers have sold apartments or plots without even having land. There is a need for a regulator to keep an eye on such irregularities."

Dahiya concludes: "Clearly, a correction is inevitable as more and more projects enter the market, interest rates inch ever upwards, vacancy levels in completed projects increase and end-users question the rationale behind the price rise.

But it is still unclear which reason might act as the proverbial last straw."