Source : IBnlive
Mumbai: Banks are playing it safe when it comes to home loans. They're putting in stringent safeguards against possible defaults, which means financing your dream homes may get tougher now. With hardening home loan rates, banks are putting stringent mechanisms to check defaults. Bank of Baroda has recently introduced variable eligibility criteria for its home loans.
The eligibility for people earning above Rs 1 lakh a month has been increased from 60 to 70 percent making it possible for them to take more loans than earlier. But for those earning below Rs 20,000 a month the eligibility has been decreased from 60 to 50 percent.
“We want to ensure that they have enough money left for other expenses after paying their EMIs,” said Ajay Kumar General Manager, Bank Of Baroda.
Private banks, which already had differential eligibility in place, are becoming more conservative in amount of loans given out. Kotak bank has reduced its loan to value ratio. Earlier it stood at 90 percent however now its been reduced to 80 to 85 per cent. HDFC too has reduced this ratio from 85 to 80 percent for most cases a few months back.
Which means that for a Rs 10 lakh home loan you will now get a loan only upto Rs 8 lakh as against Rs 8.5 lakh that one used to get earlier.
Even ICICI bank has now become more conservative on property valuation for home loans. Home loan rates have gone up by 3 to 4 percent in the last 18 months. With EMIs swelling and eligibility declining, customers are losing out on both fronts.
Saturday, May 19, 2007
Realty companies wont be able to sustain margins
Devina Mehra of First Global feels that property prices seem to be peaking and the rising rates are adding to the worry. She adds that the EBITDA margins of real estate companies are not sustainable and could come down to 20% from the current 40%.
Excerpts from CNBC-TV18's exclusive interview with Devina Mehra:
Q: What is your basic concern? Will the demand-supply situation, or the interest rate, which has gone up that will hurt margins?
A: Actually, it is a combination of both because property prices do seem to be peaking and in fact have come off a bit from the peaks in few of the hotspots.
The interest rate is going up and this time around you may not get land at the same low cost that was available a year or two ago. That is how you have seen these big expansions in margins.
If you look at the real estate sector and go back four years, the margins were much lower than what they are today; EBITDA margin for Unitech and Sobha Developers were all in single digits and even DFL was somewhat around 14-15%, and suddenly 50-60% EBITDA margins don’t look sustainable.
Q: So, do you think there will be a meaningful compression in the margins of companies like Unitech and Sobha Developers?
A: Our numbers are making small correction in the property prices; maybe about 10-15% and plus the interest rates hike will bring you to an EBITDA margin about halving, let us say an average of 40% down to 20-22%. But for real estate companies, talking of margins only; in some sense, is doing paper exercise, because for any other industry you can say I am predicting this EBITDA margin of 22%.
For real estate, there is a real danger of ill liquidity. So if you are a steel company, you know it. Maybe the hot roll prices will fall from USD 550-450 maybe to USD 400. That is how you know that at least you will be able to sell most of what you produce. But in real estate you can have inventory lying there.
If you have been to Belapur, for instance - the mid 1990s boom, there was whole CBD built-up and all those buildings remained completely unoccupied. So, that is the kind of gender in real estate, which is compounded by the fact that most developers are highly leveraged which is a cause of concern. If you look at DFL, the last reported number was close to Rs 10,000 crore of debt.
Q: What do you think then will be the biggest challenge for these companies in the next two-four quarters, they will have to leave with lower price points so that there will be a genuine change in the demand-supply situation?
A: I think it will be a bit of both, because in real estate, the ill-liquidity comes in at point, which is that you just cannot sell, the prices go down. The other one is, some of the low cost funds you were getting because the customers were willing to pay in advance for buildings get built up goes away, which means you have to fund the whole building and the customer only looks at a ready building. So there are combination of both.
Besides the inherent danger or rather the difficulty of evaluating real estate plays per se because they are taking many things just on faith that the land is there. The title is clear so on and many of those things become question marks because many time if you talk to the large housing loan companies, they will tell you titles, litigation and things like that there are a lot of causes for worry.
Q: The point on ill liquidity, which one is more vulnerable in that case. Is it the company, which has gone out for big-ticket growth or projects in the metro cities, or are those smaller ones?
A: You will have to go company-by-company and project-by-project for that, but there will be some areas which are already showing signs of strain; some parts of Noida, Greater Noida or White Field in Bangalore where you have already seen price corrections. But you cannot put the blanket thing saying that non-metros will do well, as it really depends on specific project. Real estate ultimately comes down to a local business, which makes it little more difficult to evaluate.
Q: The stocks have been rallying as the general perception is that interest rates will not harden. But if interest rates remain at these levels for the next three-four quarters with no meaningful dip, do you think its bad enough to dent a lot of things in the real estate space?
A: From the buyer’s point of view, we do not think interest rates will harden at least significantly from here on. But EMIs of the average borrower has already gone up significantly in spite of the fact that urban salaries have increased.
To understand this better, one should look at the ratio of income to EMI. Two years ago the average salary was 4.2 times the EMI, let’s say an Rs 20 lakh loan and at present it is 2.7 times. There has been a significant drop from about 24% of your income going towards EMI to about 38% now. Obviously, it’s going to have an impact on demand.
Q: From these valuation levels, after the pullback, you do not find compelling reasons to go out and buy most real estate stocks?
A: Individual companies are hard to value in this space given the many things that you have. One cannot go in depth into whether it’s the land bank or the titles, etc. We still do not have ratings on many of the real estate stocks, but it is the broad concerns that remain a risk area.
Q: Your report indicated that you are concerned about the leveraged position as well for some of these companies. If you had to compare DLF and Unitech on a balance sheet basis, which one holds higher?
A: The risk appears little higher in DLF. We do not have a final rating out, so I would not like to give a final comparative comment on the two.
Q: What is First Global’s take on the public sector banking space after the pullback, which has taken many banks close to new-highs?
A: We have placed a market performer on most of them. We were expecting rates to peak out and start correcting and that is what happening as real interest rates have gone completely out of whack. Inflation was not that much at high when rates were high last time around.
We were expecting some kind of correction. The public sector banks are the most highly leveraged because of their investment portfolio to the rate cycle.
Q: What is about the other rate sensitive - reacting to things other than interest rates on Friday - Bajaj Auto?
A: We like the Bajaj Auto demerger story more than the two-wheeler story. The results were a bit disappointing on the two-wheeler side. Ten years back we were probably the first one to point out that Bajaj Auto’s return on operating assets was getting clouded over by the huge cash on its balance sheet. It’s a good thing that it is getting separated out.
The market never values an operating-cum-holding company and values it much better when it splits. Currently, some parts of the valuation for Bajaj Auto would be somewhere in the Rs 2,800-2,900 range.
Q: Are you a bit disappointed like the rest of the market on the whole insurance call option business because that is what lead to a Rs 400 sell-off from Thursday?
A: That means you cannot capture the entire upside. What would have also worked on the market are the results themselves on the operating side.
Q: What is the call on the market from here; this week it has been quite strong for it?
A: Some time back our call was that the market would touch a new high before correcting. Then in the middle, we were unsure whether the new high would come. Now, it looks like new highs would be made, but the bias still remains towards softness thereafter.
Unscruplous builders in Pune
Park Street and Pride and Purple properties in Pune seem to be crooks as documented by the buyers of their properties. The owners have documented Park's Street's greed and blatant disregard for the laws at this site. The builder lobby in cahoots with the corrupt politicians and administrative officers is abusing the system to the full extent. The best way to tackle these guys is to spread the message to as many people as possible and boycott them. This is the only way the consumers can teach these cheats a lesson
Friday, May 18, 2007
New Housing policy in M'rashtra in one month
Mumbai, May 18: The Maharashtra Chief Minister, Vilasrao Deshmukh has announced that the new housing policy will be implemented by the next month.
It may be recalled that the state government announced a draft housing policy on November 1 last year to mark the two years of Democratic Front in the office.
For some aspects of the policy, like creating a housing regulator which needed consent from state legislature, bill will be introduced in the monsoon session of the state legislature, Deshmukh said.
Deshmukh was speaking to reporters after the meeting of elected representatives from large cities of the state like Mumbai, Pune, Nagpur, Nashik and the other places on the state government's new housing policy.
The housing policy is aimed at making available affordable housing to common man and increasing the housing stock.
First of all we had given two months for citizens to file their suggestions and objections on the policy, subsequently due to the model code of conduct for municipal election and budget session of the state legislature, we could not finalise the policy, the Chief Minister said while justifying the delay in implementing the policy.
The new housing policy will include a single window system for clearing projects. The new policy will give priority to redeveloping old and dilapidated buildings and ensure the rights of the 'sons of soil', the CM said.
"There will be a separate chapter outlining a time-bound program for redeveloping such buildings in the new policy," he added.
"We will ensure that the sons of the soil — the original inhabitants — get their home. Why should they be left in a limbo, when slum dwellers get a house despite coming to the city years later," he said.
City legislators had earlier voiced their grievance at the slow pace of redeveloping the 16,000-odd old and dilapidated buildings.
The government reassured that redevelopment of such buildings will be given priority.
However, Deshmukh voiced its helplessness saying the Supreme Court is yet to give its order on a petition on Development Control Rule 33 (7) which was framed by the state to redevelop old buildings.
The state will set up a regulatory commission under the new housing policy which will decide on the cost of flat in a particular area. The commission will be a quasi-judiciary authority which will function on the same lines as the Maharashtra Electricity Regulatory Commission. The Housing Regulatory Commission will be the first such body to control property prices to be set up in the country.
Deshmukh has ruled out broad changes in the draft policy which was declared on November 1, 2006.
"The final policy won't be much different from the draft. There could be some changes, but the spirit of the policy to increase housing stock and facilitate affordable housing for the lower- and middle-income groups would be retained," Deshmukh said.
A significant addition to the draft policy would be a chapter on redevelopment of old housing colonies and buildings in the island city.
It may be recalled that the state government announced a draft housing policy on November 1 last year to mark the two years of Democratic Front in the office.
For some aspects of the policy, like creating a housing regulator which needed consent from state legislature, bill will be introduced in the monsoon session of the state legislature, Deshmukh said.
Deshmukh was speaking to reporters after the meeting of elected representatives from large cities of the state like Mumbai, Pune, Nagpur, Nashik and the other places on the state government's new housing policy.
The housing policy is aimed at making available affordable housing to common man and increasing the housing stock.
First of all we had given two months for citizens to file their suggestions and objections on the policy, subsequently due to the model code of conduct for municipal election and budget session of the state legislature, we could not finalise the policy, the Chief Minister said while justifying the delay in implementing the policy.
The new housing policy will include a single window system for clearing projects. The new policy will give priority to redeveloping old and dilapidated buildings and ensure the rights of the 'sons of soil', the CM said.
"There will be a separate chapter outlining a time-bound program for redeveloping such buildings in the new policy," he added.
"We will ensure that the sons of the soil — the original inhabitants — get their home. Why should they be left in a limbo, when slum dwellers get a house despite coming to the city years later," he said.
City legislators had earlier voiced their grievance at the slow pace of redeveloping the 16,000-odd old and dilapidated buildings.
The government reassured that redevelopment of such buildings will be given priority.
However, Deshmukh voiced its helplessness saying the Supreme Court is yet to give its order on a petition on Development Control Rule 33 (7) which was framed by the state to redevelop old buildings.
The state will set up a regulatory commission under the new housing policy which will decide on the cost of flat in a particular area. The commission will be a quasi-judiciary authority which will function on the same lines as the Maharashtra Electricity Regulatory Commission. The Housing Regulatory Commission will be the first such body to control property prices to be set up in the country.
Deshmukh has ruled out broad changes in the draft policy which was declared on November 1, 2006.
"The final policy won't be much different from the draft. There could be some changes, but the spirit of the policy to increase housing stock and facilitate affordable housing for the lower- and middle-income groups would be retained," Deshmukh said.
A significant addition to the draft policy would be a chapter on redevelopment of old housing colonies and buildings in the island city.
Builders to take a hit as realty prices fall
Hindustan Times and Mint/Wall Street Journal both have articles on the slowdown in Indian housing.
Hindustan Times
India’s once-buoyant real-estate market has gone into a deep freeze with more than a 50 per cent drop in actual transactions over the last two months, developers and real-estate analysts have said.
For the first time in three years some developers have dropped rates to bolster demand. A nation-wide survey reports a drop of between 5 to 10 per cent in rates across edge suburbs like Kharghar, in Navi Mumbai, Greater Noida in the National Capital Region and Bangalore’s Hosur Road.
Developers on the fringes of the big cities have found it hard to hold the price line. Cheaper land also allows them greater freedom in fixing profit margins. However, within the metropolitan cities, developers have withstood the plunge in sales and held their price lines. In prime locations and exclusive buildings, the price spiral is intact.
“Small developers who cannot hold out anymore have cut their rates by 8 to 10 per cent so that they get buyers,” said Vijay Wadhwa, chief promoter of the Mumbai-based Rs 2,000-crore Wadhwa Group.
He explained how Kharghar on Navi Mumbai’s edges is reporting a price decline up to 20 per cent, but there have been no price cuts on prime land, like the eight-lane coastal promenade of Palm Beach Road or land leading to the proposed new international airport.
In Delhi, Stanchart’s Regional Manager-Home Assist and Home Loans, Vikram Dhamija, said there had been a 50 per cent fall in transactions since mid-February.
“Potential buyers have backed off because of confusion over zoning norms and FAR (the floor area ratio or FSI) in Delhi’s Master Plan and higher interest rates for home loans,” Dhamija said.
“Developers like Parsvnath and MGF have cut rates by 15-20 percent in Greater Noida. On Hosur Road (in Bangalore), average rates are down from Rs 2,700 a sq ft to Rs 2,300 a sq ft,” said Shashi Kumar, CFO of the realty fund IndiaReits.
But don’t expect a drop in prices of high-end properties in mid-town locations. That’s because there aren’t enough upscale properties both in commercial and residential segments to fuel continuing demand.
“South Mumbai’s Cuffe Parade residential properties are not coming down from the Rs 25,000-30,000 per sq ft range. The asking rate for the new, swanky 32-story DSK Durgamata Towers is around Rs 35,000 a sq ft,” said south Mumbai broker Prakash Kanuga. “However, there are hardly any transactions at these levels.”
The slowdown is beginning to hit loan disbursals of banks and home-finance companies.
ICICI Bank’s growth in home-loan disbursals has fallen from 32 per cent to around 20 per cent, while the State Bank of India said it would not be able to sustain its current growth rate of 25-27 per cent and expects it to settle around 20 per cent. In the upscale property market of south Mumbai, the freeze in sales has ironically given the leasing market a push.
Mint/Wall Street Journal reports
Real-estate developers could see their operating margins, fattened by a two-year housing boom, shrivel this year by half as property prices soften and consumers postpone buying decisions, according to a new report by multinational broking firm First Global.
The report said it expects housing prices to fall by about 15%, which is in line with what some other analysts say they’re expecting. First Global said developer margins, which jumped from about 13% two years ago to about 40%, could drop to about 22% this year largely because fewer people can afford homes. Salaries have not kept up with real-estate prices and interest rate hikes, said Hitesh Kuvelkar, associate director (research) for First Global. And investors are pulling out of the market, further reducing the pool of buyers and adding to the number of sellers, he added.
Residential units account for about 75% of the real-estate market and have a strong impact on developers’ profitability. First Global said developers’ expansion plans could result in an oversupply of houses in some markets. Some 10 large Indian builders expect to construct about nine times as much as they built in the past by 2011, according to a First Global analysis.
“If buyers for real estate are not there, then things become tough because there is no liquid market for properties,” Kuvelkar said. “If one buyer doe-sn’t come, you have to wait a long time for another to come. It brings pressure to prices.”
Malvika Chandra, head of research (western India), Knight Frank India, said residential prices since December have fallen by about 5-8% in major cities. Prices had been increasing by about 30% a year. She said prices this year could drop by another 5%.
“Locations where there is too much supply, where there are too many projects planned, you will see a correction,” Chandra said referring to areas such as Delhi’s Gurgaon suburb, Navi Mumbai and Mumbai’s central suburbs, and the Outer Ring Road in Bangalore.
First Global, which surveyed property dealers, said real-estate prices have dropped by 10-15% in some pockets of Ghaziabad, Noida, Gurgaon and Bangalore.
Anshuman Magazine, managing director of CB Richard Ellis South Asia, said the prices are softening in the suburbs where a large supply of homes is coming up. He said small developers have already been hurt by the slowdown because they were expecting to finance projects by pre-selling houses. Larger developers have staying power and can more easily secure financing and stagger projects so they all don’t reach the market at once, he added.
“It will impact everybody, but it should not be a major problem,” Magazine said.
Arvind Parakh, CEO of Omaxe Ltd, which is planning an initial public offering, said he expects a 15-20% drop in prices, but doesn’t see a rapid reduction in developers’ margins. It will likely be a few quarters before the slowing market is reflected in developers’ financial results. Sales revenues includes money that was collected from buyers long before the market showed signs of weakening.
Omaxe also plans to offer incentives, such as kitchen and floor upgrades and extended pay schedules, to keep buyers interested in slow markets, Parakh said. It is keeping prices stable for now.
“Marketing skills now come into play,” he added.
Hindustan Times
India’s once-buoyant real-estate market has gone into a deep freeze with more than a 50 per cent drop in actual transactions over the last two months, developers and real-estate analysts have said.
For the first time in three years some developers have dropped rates to bolster demand. A nation-wide survey reports a drop of between 5 to 10 per cent in rates across edge suburbs like Kharghar, in Navi Mumbai, Greater Noida in the National Capital Region and Bangalore’s Hosur Road.
Developers on the fringes of the big cities have found it hard to hold the price line. Cheaper land also allows them greater freedom in fixing profit margins. However, within the metropolitan cities, developers have withstood the plunge in sales and held their price lines. In prime locations and exclusive buildings, the price spiral is intact.
“Small developers who cannot hold out anymore have cut their rates by 8 to 10 per cent so that they get buyers,” said Vijay Wadhwa, chief promoter of the Mumbai-based Rs 2,000-crore Wadhwa Group.
He explained how Kharghar on Navi Mumbai’s edges is reporting a price decline up to 20 per cent, but there have been no price cuts on prime land, like the eight-lane coastal promenade of Palm Beach Road or land leading to the proposed new international airport.
In Delhi, Stanchart’s Regional Manager-Home Assist and Home Loans, Vikram Dhamija, said there had been a 50 per cent fall in transactions since mid-February.
“Potential buyers have backed off because of confusion over zoning norms and FAR (the floor area ratio or FSI) in Delhi’s Master Plan and higher interest rates for home loans,” Dhamija said.
“Developers like Parsvnath and MGF have cut rates by 15-20 percent in Greater Noida. On Hosur Road (in Bangalore), average rates are down from Rs 2,700 a sq ft to Rs 2,300 a sq ft,” said Shashi Kumar, CFO of the realty fund IndiaReits.
But don’t expect a drop in prices of high-end properties in mid-town locations. That’s because there aren’t enough upscale properties both in commercial and residential segments to fuel continuing demand.
“South Mumbai’s Cuffe Parade residential properties are not coming down from the Rs 25,000-30,000 per sq ft range. The asking rate for the new, swanky 32-story DSK Durgamata Towers is around Rs 35,000 a sq ft,” said south Mumbai broker Prakash Kanuga. “However, there are hardly any transactions at these levels.”
The slowdown is beginning to hit loan disbursals of banks and home-finance companies.
ICICI Bank’s growth in home-loan disbursals has fallen from 32 per cent to around 20 per cent, while the State Bank of India said it would not be able to sustain its current growth rate of 25-27 per cent and expects it to settle around 20 per cent. In the upscale property market of south Mumbai, the freeze in sales has ironically given the leasing market a push.
Mint/Wall Street Journal reports
Real-estate developers could see their operating margins, fattened by a two-year housing boom, shrivel this year by half as property prices soften and consumers postpone buying decisions, according to a new report by multinational broking firm First Global.
The report said it expects housing prices to fall by about 15%, which is in line with what some other analysts say they’re expecting. First Global said developer margins, which jumped from about 13% two years ago to about 40%, could drop to about 22% this year largely because fewer people can afford homes. Salaries have not kept up with real-estate prices and interest rate hikes, said Hitesh Kuvelkar, associate director (research) for First Global. And investors are pulling out of the market, further reducing the pool of buyers and adding to the number of sellers, he added.
Residential units account for about 75% of the real-estate market and have a strong impact on developers’ profitability. First Global said developers’ expansion plans could result in an oversupply of houses in some markets. Some 10 large Indian builders expect to construct about nine times as much as they built in the past by 2011, according to a First Global analysis.
“If buyers for real estate are not there, then things become tough because there is no liquid market for properties,” Kuvelkar said. “If one buyer doe-sn’t come, you have to wait a long time for another to come. It brings pressure to prices.”
Malvika Chandra, head of research (western India), Knight Frank India, said residential prices since December have fallen by about 5-8% in major cities. Prices had been increasing by about 30% a year. She said prices this year could drop by another 5%.
“Locations where there is too much supply, where there are too many projects planned, you will see a correction,” Chandra said referring to areas such as Delhi’s Gurgaon suburb, Navi Mumbai and Mumbai’s central suburbs, and the Outer Ring Road in Bangalore.
First Global, which surveyed property dealers, said real-estate prices have dropped by 10-15% in some pockets of Ghaziabad, Noida, Gurgaon and Bangalore.
Anshuman Magazine, managing director of CB Richard Ellis South Asia, said the prices are softening in the suburbs where a large supply of homes is coming up. He said small developers have already been hurt by the slowdown because they were expecting to finance projects by pre-selling houses. Larger developers have staying power and can more easily secure financing and stagger projects so they all don’t reach the market at once, he added.
“It will impact everybody, but it should not be a major problem,” Magazine said.
Arvind Parakh, CEO of Omaxe Ltd, which is planning an initial public offering, said he expects a 15-20% drop in prices, but doesn’t see a rapid reduction in developers’ margins. It will likely be a few quarters before the slowing market is reflected in developers’ financial results. Sales revenues includes money that was collected from buyers long before the market showed signs of weakening.
Omaxe also plans to offer incentives, such as kitchen and floor upgrades and extended pay schedules, to keep buyers interested in slow markets, Parakh said. It is keeping prices stable for now.
“Marketing skills now come into play,” he added.
Wednesday, May 16, 2007
And Flooding woes in Mumbai
What is the country coming to :). 1 crore match box apts with a potential to be zero when it floods. Something is not right
Water woes in Sarjapur road Bangalore
Fancy houses with basic amenities missing. Without water what is the point of the granite counter-top
Tuesday, May 15, 2007
Govt shuts door on foreign money for realtors
Moneycontrol.com
It's become tougher for real estate companies to raise foreign capital. CNBC-TV18 reports on how that will impact realty prices.
There seems to be no room here for dollars anymore. The government has shut the door on realty companies raising foreign funds via preference shares.
The Finance Ministry has notified that all foreign funds coming in via non-convertible, optionally convertible or partially convertible preference shares would be considered as debt.
Realty companies are not allowed to raise foreign debt. Sanjay Bansal, Partner, Ambit, ''The quantum of money coming through the non-convertible preference share route was sizeable so far and that will trickle down or shutdown given the regulations."
Sizeable is right - at USD 4 billion foreign funds make up a fifth of the total investments in the real estate sector. Half those dollars coming in are via preference shares. To seal the deal - the Finance Minister has also categorized fully convertible preference shares as equity. This makes it tough for foreign funds to repatriate their cash.
It also could activate FDI limits - especially in land-oriented deals. Net - the dollar flow may calm down and that could be good news for prices.
Akshaya Kumar, CEO, Park Lane Property, said, ''The mad frenzy, which was happening on chasing land anywhere, at any price anyhow, anytime is going to slowdown and effectively that will cool the land market.''
It adds up to a triple whammy - first banks were stopped from funding developers to buy land. Then real estate companies were barred from raising external commercial borrowings or foreign debt and now there are roadblocks on the popular preference share route. Fund raising is going to be a tall task for real estate developers in Mumbai.
It's become tougher for real estate companies to raise foreign capital. CNBC-TV18 reports on how that will impact realty prices.
There seems to be no room here for dollars anymore. The government has shut the door on realty companies raising foreign funds via preference shares.
The Finance Ministry has notified that all foreign funds coming in via non-convertible, optionally convertible or partially convertible preference shares would be considered as debt.
Realty companies are not allowed to raise foreign debt. Sanjay Bansal, Partner, Ambit, ''The quantum of money coming through the non-convertible preference share route was sizeable so far and that will trickle down or shutdown given the regulations."
Sizeable is right - at USD 4 billion foreign funds make up a fifth of the total investments in the real estate sector. Half those dollars coming in are via preference shares. To seal the deal - the Finance Minister has also categorized fully convertible preference shares as equity. This makes it tough for foreign funds to repatriate their cash.
It also could activate FDI limits - especially in land-oriented deals. Net - the dollar flow may calm down and that could be good news for prices.
Akshaya Kumar, CEO, Park Lane Property, said, ''The mad frenzy, which was happening on chasing land anywhere, at any price anyhow, anytime is going to slowdown and effectively that will cool the land market.''
It adds up to a triple whammy - first banks were stopped from funding developers to buy land. Then real estate companies were barred from raising external commercial borrowings or foreign debt and now there are roadblocks on the popular preference share route. Fund raising is going to be a tall task for real estate developers in Mumbai.
Tier 2 cities in bubble now
Hectic builder activity in small towns
Source : Moneycontrol.com
A snapshot of the real estate scenario in Vishakapatnam, Mangalore, Mysore, Coimbatore and Cochin.
Vishakapatnam
A number of Grade A integrated townships are springing up in the city - mostly in the peripheries towards the north east - in Madurawada and Rishikonda.
Apartment prices here are up 33% over the last three months. Vepagunta is another area in the northern outskirts where the housing board has taken the initiative to develop a 52 acre township.
Mangalore
In Mangalore, the area between Bijai in the northeast to the KS Rao Road continues to be in demand but industry watchers say that the demand is primarily from investors at this point.
Nantoor too has witnessed an increase in demand with an appreciation of 5% in two and a half months.
Bangalore based Purvankara Group plans to develop between a 40 to 75 acre township near Bondel in the city's western outskirts, while the Raheja Group from Mumbai is developing a 100-acre township in Kulai in north Mangalore. Thirty acres of the township has already been handed over to a Singapore based software company for their set up.
Mysore
In Mysore, the north and northwest belt of the city is where all the residential activity is concentrated. Jayalaxmipyram has seen the maximum growth over the last two months with an increase of 10% in apartment prices. Vijaynagar too is in demand. The Prestige Group from Bangalore has its project underway here.
Further north, the Sankalp Group is developing a 28-acre township in Yadavgiri. In the south of the city, development of villas is being proposed in Koodanahalli and Nanjangud. The average price quoted for villas is about Rs 3000 per sq ft today.
Coimbatore
Avinashi Road continues to be in huge demand in Coimbatore. Apartment prices have touched Rs 3,500 per sq ft now - up 9% in two months. The Peelamed area along Avinashi Road is also witnessing some demand now. Shreeram Properties have launched their project in Pellamed at Rs 2100 per sq ft and villas are priced at Rs 2,600 per sq ft.
Sai Baba colony too has seen a significant increase over the last two months, with close to a 50% appreciation, and higher end projects now command Rs 4000 per sq ft.
According to estimates, approximately 3,000 apartments are under construction in Coimbatore. Major development is also underway on Trichy Road and Mettupalayam Road where many developers hold large land parcels.
Cochin
Lastly, in Cochin, new developments continue to spring up along the suburban belt of Kakkanad, Edappally and Kalamasery. The demand for residential space has increased significantly here and national level players like Puravankara, Shobha, Brigade Group, DLF, Prestige and Dubai-based Emaar groups have now joined the development bandwagon in the region.
The traditional prime area of Marine Drive is also not loosing steam � in fact, prices have touched a high of Rs 6,500 per sq ft there, compared to Rs 2,000 per sq ft last year.
Source : Moneycontrol.com
A snapshot of the real estate scenario in Vishakapatnam, Mangalore, Mysore, Coimbatore and Cochin.
Vishakapatnam
A number of Grade A integrated townships are springing up in the city - mostly in the peripheries towards the north east - in Madurawada and Rishikonda.
Apartment prices here are up 33% over the last three months. Vepagunta is another area in the northern outskirts where the housing board has taken the initiative to develop a 52 acre township.
Mangalore
In Mangalore, the area between Bijai in the northeast to the KS Rao Road continues to be in demand but industry watchers say that the demand is primarily from investors at this point.
Nantoor too has witnessed an increase in demand with an appreciation of 5% in two and a half months.
Bangalore based Purvankara Group plans to develop between a 40 to 75 acre township near Bondel in the city's western outskirts, while the Raheja Group from Mumbai is developing a 100-acre township in Kulai in north Mangalore. Thirty acres of the township has already been handed over to a Singapore based software company for their set up.
Mysore
In Mysore, the north and northwest belt of the city is where all the residential activity is concentrated. Jayalaxmipyram has seen the maximum growth over the last two months with an increase of 10% in apartment prices. Vijaynagar too is in demand. The Prestige Group from Bangalore has its project underway here.
Further north, the Sankalp Group is developing a 28-acre township in Yadavgiri. In the south of the city, development of villas is being proposed in Koodanahalli and Nanjangud. The average price quoted for villas is about Rs 3000 per sq ft today.
Coimbatore
Avinashi Road continues to be in huge demand in Coimbatore. Apartment prices have touched Rs 3,500 per sq ft now - up 9% in two months. The Peelamed area along Avinashi Road is also witnessing some demand now. Shreeram Properties have launched their project in Pellamed at Rs 2100 per sq ft and villas are priced at Rs 2,600 per sq ft.
Sai Baba colony too has seen a significant increase over the last two months, with close to a 50% appreciation, and higher end projects now command Rs 4000 per sq ft.
According to estimates, approximately 3,000 apartments are under construction in Coimbatore. Major development is also underway on Trichy Road and Mettupalayam Road where many developers hold large land parcels.
Cochin
Lastly, in Cochin, new developments continue to spring up along the suburban belt of Kakkanad, Edappally and Kalamasery. The demand for residential space has increased significantly here and national level players like Puravankara, Shobha, Brigade Group, DLF, Prestige and Dubai-based Emaar groups have now joined the development bandwagon in the region.
The traditional prime area of Marine Drive is also not loosing steam � in fact, prices have touched a high of Rs 6,500 per sq ft there, compared to Rs 2,000 per sq ft last year.
Monday, May 14, 2007
Bangalore IT majors eye Mysore option
Business Standard reports
Migration of IT companies to Mysore due to its proximity to Bangalore (150 km) is driving residential and retail real estate developments and pushing up prices in some parts of the city.
Mysore is to get heritage funding under the 'Jawaharlal Nehru National Urban Renewal Mission' and in addition to this, a number of other infrastructure projects like the completion of the Bangalore-Mysore expressway, upgradation of the existing airport and doubling of the Bangalore-Mysore railway track, are expected to boost the city's growth.
Once the commuting time between Bangalore and Mysore is reduced, the scope for office market development will increase in the city in the view of increasing number of corporates planning to expand their operations in Mysore.
As real estate cost is rising in Bangalore and its suburbs, many corporates have already begun to turn their attention to this tier II city. Here, Mysore fits in well for it provides a good alternative with easy availability of land and growth potential.
Due to demand for industrial land in the city, especially in the north-west, the Karnataka Industrial Area Development Board, the nodal agency to develop industrial layouts, is busy acquiring land to facilitate investments.
"Currently, due to numerous policy measures (to deflate the property bubble) by the central and state governments, land transactions have come down by 25 to 30 percent in Mysore," said Dhirendra Mehta, advocate, familiar with land registrations in Mysore.
"This is a temporary phase but in long term, the city is expected to emerge as an extension of Bangalore and may attract investors once the key infrastructure is in place," he added.
Due to the availability of land at relatively competitive rates, a number of Bangalore-based developers have entered the real estate market in Mysore, said Knight Frank, a international property consultant in its report on 'Emerging growth centres'.
Besides Brigade Group and Sankalp who already have ongoing projects in Mysore, other leading developers like Sobha and Purvankara are considering setting up their residential projects in the city.
But it is local players who are already working on strategies to promote Mysore as a second home to individuals and corporates in Bangalore. What helps is Mysore being an important educational, commercial and administrative centre with a high literacy rate of 84.5 percent, greater than the state average.
According to Knight Frank, "The city's growing attractiveness as a commercial and IT destination offers vast potential for development. Till now the city has not seen much development on the retail front, but with an increase in population, there exists significant potential for retailers. A number of mall developments are currently in the pipeline and private developers such as Sankalp, Brigade, Premier Properties and Mittal Builders are developing mall space of about 1.7 million square feet over the next two years."
As for the capital values in Mysore, prime residential property are in the range of Rs 2,000-3,000 per square feet, while residential projects in the suburban locations are quoted in the range of Rs 1,400-1,900 per square feet.
Developments of villas are being proposed in Koodanahalli and Nanjangud. The average prices quoted for villas are about Rs 3,000 per square feet and rentals for office space in the CBD of the city are charged at Rs 46-51 per square feet per month while capital values exist at Rs 4,500 per square feet.
In suburban locations, office space rentals are in the range of Rs 25-30 per square feet per month and capital values are quoting at around Rs 2,500 per square feet.
The city currently boasts of major IT and non-IT campuses like Infosys, L&T Infotech, Wipro and Software Paradigm India. In addition to this, Mysore houses many non-IT companies like Reid & Taylor, L&T Electronics, S Kumars, Kirloskar Gensets, Bharat Earth Movers, Venlon Polyster Automobile Axles and South India Paper Mills.
During the last few years, Mysore has been witnessing unprecedented growth in real estate, with a large number of housing co-operative societies having secured land for development of residential colonies. This has set the base for the city to propel on its own.
Migration of IT companies to Mysore due to its proximity to Bangalore (150 km) is driving residential and retail real estate developments and pushing up prices in some parts of the city.
Mysore is to get heritage funding under the 'Jawaharlal Nehru National Urban Renewal Mission' and in addition to this, a number of other infrastructure projects like the completion of the Bangalore-Mysore expressway, upgradation of the existing airport and doubling of the Bangalore-Mysore railway track, are expected to boost the city's growth.
Once the commuting time between Bangalore and Mysore is reduced, the scope for office market development will increase in the city in the view of increasing number of corporates planning to expand their operations in Mysore.
As real estate cost is rising in Bangalore and its suburbs, many corporates have already begun to turn their attention to this tier II city. Here, Mysore fits in well for it provides a good alternative with easy availability of land and growth potential.
Due to demand for industrial land in the city, especially in the north-west, the Karnataka Industrial Area Development Board, the nodal agency to develop industrial layouts, is busy acquiring land to facilitate investments.
"Currently, due to numerous policy measures (to deflate the property bubble) by the central and state governments, land transactions have come down by 25 to 30 percent in Mysore," said Dhirendra Mehta, advocate, familiar with land registrations in Mysore.
"This is a temporary phase but in long term, the city is expected to emerge as an extension of Bangalore and may attract investors once the key infrastructure is in place," he added.
Due to the availability of land at relatively competitive rates, a number of Bangalore-based developers have entered the real estate market in Mysore, said Knight Frank, a international property consultant in its report on 'Emerging growth centres'.
Besides Brigade Group and Sankalp who already have ongoing projects in Mysore, other leading developers like Sobha and Purvankara are considering setting up their residential projects in the city.
But it is local players who are already working on strategies to promote Mysore as a second home to individuals and corporates in Bangalore. What helps is Mysore being an important educational, commercial and administrative centre with a high literacy rate of 84.5 percent, greater than the state average.
According to Knight Frank, "The city's growing attractiveness as a commercial and IT destination offers vast potential for development. Till now the city has not seen much development on the retail front, but with an increase in population, there exists significant potential for retailers. A number of mall developments are currently in the pipeline and private developers such as Sankalp, Brigade, Premier Properties and Mittal Builders are developing mall space of about 1.7 million square feet over the next two years."
As for the capital values in Mysore, prime residential property are in the range of Rs 2,000-3,000 per square feet, while residential projects in the suburban locations are quoted in the range of Rs 1,400-1,900 per square feet.
Developments of villas are being proposed in Koodanahalli and Nanjangud. The average prices quoted for villas are about Rs 3,000 per square feet and rentals for office space in the CBD of the city are charged at Rs 46-51 per square feet per month while capital values exist at Rs 4,500 per square feet.
In suburban locations, office space rentals are in the range of Rs 25-30 per square feet per month and capital values are quoting at around Rs 2,500 per square feet.
The city currently boasts of major IT and non-IT campuses like Infosys, L&T Infotech, Wipro and Software Paradigm India. In addition to this, Mysore houses many non-IT companies like Reid & Taylor, L&T Electronics, S Kumars, Kirloskar Gensets, Bharat Earth Movers, Venlon Polyster Automobile Axles and South India Paper Mills.
During the last few years, Mysore has been witnessing unprecedented growth in real estate, with a large number of housing co-operative societies having secured land for development of residential colonies. This has set the base for the city to propel on its own.
Housing market trends
From moneycontrol.com
In the near future at least rates are likely to remain stable, since inflation is expected to come under check as the Reserve Bank of India has been taking necessary steps to tame it.
Former SBI Chairman, AK Purwar is optimistic about interest rates and says they have almost peaked. "My perception, as far as interest rates in general are concerned, by and large they have peaked. Inflation numbers have started improving now, and are showing a downward trend. I am very positive and sure that housing loan interest rates have also peaked. As soon as RBI becomes comfortable with inflation numbers and feel that they are in the range which they are targeting, I am very positive that they would look at these rates little more positively."
Chairman of HDFC, Deepak Parekh too believes that interest rates will stabilise looking at a cool down in inflation.
"My view is that interest rates have stabilised and will remain at the present level for atleast the next six months till the new inflation numbers come up because there has been a slight weakening of the inflation numbers that have been recently released," he says.
On the other hand, bankers are also finding that the demand for retail loans has redued a bit owing to the interest rate rise in the past 2 years.
Purwar says, "The demand has to be correlated with interest rates. If you compare the interest rates in housing loan during last two years to what the position is today, there has been a very substantial interest rate hike as far as housing loans are concerned. The middle class which was getting into housing in a very major way, suddenly find that its liabilities in terms of EMIs have gone up substantially. With this naturally the demand will get impacted. But I think in times to come we will have to work out systems that the demand instead of going down goes up provided other things are right."
Parekh does not feel that that the loan demand has come down all that much, but he says that now property prices are seen coming down.
"The demand hasn’t dropped for actual users - for those people who are in the market to buy a house to live in. But the demand has certainly dropped for many investors around the country, who have realised that property prices have peaked and they are unlikely to go up further; so there is no point of putting surplus money into the real estate market."
He adds that, in quite a few places in India, property prices have started weakening and in some areas they have come down 10-20% in the last few months. "Most of the builders are complaining of slow sales and when the sale slows down the only option a developer has is to bring prices down. So I expect prices to come off in the next few months," he claims.
So how soon before one could see some cooling off in interest rates? Purwar says it would be sometime next year, provided inflation remains low.
"My feeling is, the RBI and government would definitely have a very close watch on how inflation rates move. If the inflation rates come within the manageable limits and the limit which they are attempting to achieve, I am sure that they would start signaling the market where they would like to see interest rates move. Maybe for another six-nine months, it should continue at this level. If inflation starts moving the other way there could be another small hike but after that the interest rate will see the other trend, maybe some time next year interest rates in my view should start moving the other way."
So, while prices in the real estate market may be cooling off a bit, the interest rate scenario over the year would determine the condition of the housing sector in India.
In the near future at least rates are likely to remain stable, since inflation is expected to come under check as the Reserve Bank of India has been taking necessary steps to tame it.
Former SBI Chairman, AK Purwar is optimistic about interest rates and says they have almost peaked. "My perception, as far as interest rates in general are concerned, by and large they have peaked. Inflation numbers have started improving now, and are showing a downward trend. I am very positive and sure that housing loan interest rates have also peaked. As soon as RBI becomes comfortable with inflation numbers and feel that they are in the range which they are targeting, I am very positive that they would look at these rates little more positively."
Chairman of HDFC, Deepak Parekh too believes that interest rates will stabilise looking at a cool down in inflation.
"My view is that interest rates have stabilised and will remain at the present level for atleast the next six months till the new inflation numbers come up because there has been a slight weakening of the inflation numbers that have been recently released," he says.
On the other hand, bankers are also finding that the demand for retail loans has redued a bit owing to the interest rate rise in the past 2 years.
Purwar says, "The demand has to be correlated with interest rates. If you compare the interest rates in housing loan during last two years to what the position is today, there has been a very substantial interest rate hike as far as housing loans are concerned. The middle class which was getting into housing in a very major way, suddenly find that its liabilities in terms of EMIs have gone up substantially. With this naturally the demand will get impacted. But I think in times to come we will have to work out systems that the demand instead of going down goes up provided other things are right."
Parekh does not feel that that the loan demand has come down all that much, but he says that now property prices are seen coming down.
"The demand hasn’t dropped for actual users - for those people who are in the market to buy a house to live in. But the demand has certainly dropped for many investors around the country, who have realised that property prices have peaked and they are unlikely to go up further; so there is no point of putting surplus money into the real estate market."
He adds that, in quite a few places in India, property prices have started weakening and in some areas they have come down 10-20% in the last few months. "Most of the builders are complaining of slow sales and when the sale slows down the only option a developer has is to bring prices down. So I expect prices to come off in the next few months," he claims.
So how soon before one could see some cooling off in interest rates? Purwar says it would be sometime next year, provided inflation remains low.
"My feeling is, the RBI and government would definitely have a very close watch on how inflation rates move. If the inflation rates come within the manageable limits and the limit which they are attempting to achieve, I am sure that they would start signaling the market where they would like to see interest rates move. Maybe for another six-nine months, it should continue at this level. If inflation starts moving the other way there could be another small hike but after that the interest rate will see the other trend, maybe some time next year interest rates in my view should start moving the other way."
So, while prices in the real estate market may be cooling off a bit, the interest rate scenario over the year would determine the condition of the housing sector in India.
Sunday, May 13, 2007
NICE work kicks off
If there was a parallel the Mumbai-Pune expressway is probably a good analogy to the NICE corridor. I hope Mysore doesn't go the Bangalore way.
DH News Service, Bangalore:
The Nandi Infrastructure Corridor Enterprise (NICE) on Friday kicked off work on a village road that would supplement its ongoing Bangalore Mysore Infrastructure Corridor (BMIC) project.
The Nandi Infrastructure Corridor Enterprise (NICE) on Friday kicked off work on a village road that would supplement its ongoing Bangalore Mysore Infrastructure Corridor (BMIC) project.
Work on the road has been taken up following a request from residents of Doddabele, a village that falls on the BMIC route, near its clover-leaf interchange.
The new 800-metre road will connect Doddabele and Mysore Road, sources said. The road used by villagers has been in a bad shape for years, they said. On Friday, the project was kicked off with a pooja by residents of Doddabele.
DH News Service, Bangalore:
The Nandi Infrastructure Corridor Enterprise (NICE) on Friday kicked off work on a village road that would supplement its ongoing Bangalore Mysore Infrastructure Corridor (BMIC) project.
The Nandi Infrastructure Corridor Enterprise (NICE) on Friday kicked off work on a village road that would supplement its ongoing Bangalore Mysore Infrastructure Corridor (BMIC) project.
Work on the road has been taken up following a request from residents of Doddabele, a village that falls on the BMIC route, near its clover-leaf interchange.
The new 800-metre road will connect Doddabele and Mysore Road, sources said. The road used by villagers has been in a bad shape for years, they said. On Friday, the project was kicked off with a pooja by residents of Doddabele.
Townships or green belts? Anxiety rules the roost
It has been almost a week since the Bangalore Metropolitan Region Development Authority (BMRDA) called for the genereal publics objections any or suggestions with respect to its Interim Master Plan (IMP) for the development of Anekal, Nelamangala, Magadi, Hoskote and Kanakapura areas surrounding Bangalore. A large section of the people who have had a look in at the BMRDA office to check out the interim plan are shocked: for, their entire villages or layouts have been converted into a township or backetted as green belt in their respective interim master plan.
Jagadish K, a villager from Anekal, said that he has visited the BMRDA office for four days now to try and figure out the status of his land measuring two acres. "I agree that this is just an interim plan and not the final one. But as I saw in the map entire village and surrounding five other villages have been marked under commercial space. We have been living in this area for decades and now, if they want us to vacate the place, there is no meaning in it," he said.
Others among the public were worried whether they will get good prices for their land if the government was to acquire them. Shivashankar from Gudemaranahalli, which comes under Magadi taluk, noted that their entire village has been marked for a township. A representative group of 50 villagers has now filed a complaint before the BMRDA, he said. "Even if the government is acquiring our lands, we should be given the market value. Many of us in this village and the surrounding ones are small farmers and have lands not more than an acre each. We cant make a living with the sum that the government will give," he said.
Market value per acre of land in this village located near NH 48 ranges from Rs 35 lakh to 50 lakh while that of government is Rs 10 lakh. Professor Govindappa, an environmentalist from this area observed that villages like Gudemaranahalli and nearby Koodluru are rich in vegetation. BMRDA officials said that they have received more than 150 objections from the public as on Friday. Most of them are from Anekal, Hoskote and Nelamangala Local Planning Areas, they said.
One officer said that LPAs like Anekal have witnessed haphazard growth in terms of industry and commercial activities and therefore the queries are more from these areas. "From such areas, we are also receiving complaints on overlapping of industrial and residential areas.We will sort out such issues once we come out with the final master plan," he said.
Jagadish K, a villager from Anekal, said that he has visited the BMRDA office for four days now to try and figure out the status of his land measuring two acres. "I agree that this is just an interim plan and not the final one. But as I saw in the map entire village and surrounding five other villages have been marked under commercial space. We have been living in this area for decades and now, if they want us to vacate the place, there is no meaning in it," he said.
Others among the public were worried whether they will get good prices for their land if the government was to acquire them. Shivashankar from Gudemaranahalli, which comes under Magadi taluk, noted that their entire village has been marked for a township. A representative group of 50 villagers has now filed a complaint before the BMRDA, he said. "Even if the government is acquiring our lands, we should be given the market value. Many of us in this village and the surrounding ones are small farmers and have lands not more than an acre each. We cant make a living with the sum that the government will give," he said.
Market value per acre of land in this village located near NH 48 ranges from Rs 35 lakh to 50 lakh while that of government is Rs 10 lakh. Professor Govindappa, an environmentalist from this area observed that villages like Gudemaranahalli and nearby Koodluru are rich in vegetation. BMRDA officials said that they have received more than 150 objections from the public as on Friday. Most of them are from Anekal, Hoskote and Nelamangala Local Planning Areas, they said.
One officer said that LPAs like Anekal have witnessed haphazard growth in terms of industry and commercial activities and therefore the queries are more from these areas. "From such areas, we are also receiving complaints on overlapping of industrial and residential areas.We will sort out such issues once we come out with the final master plan," he said.
Nagpur in the New York times
Its time for Tier-2 cities to make their mark in India. I've been to Nagpur recently and was surprised at the cleanliness and the lack of traffic and crowds in this winter capital of Maharashtra. The main issue here is not Malls or movies but basic infrastructure like water and power. In nearby Vidarbha villages, farmer suicide rates are at historic levels due to failing crops and drought. In the name of development, under the guise of SEZ's, the Congress govt. is causing a spiral in real estate values in obscure villages and towns of India. When the music stops, I just hope retail investors are not left holding the bag. Looking at the UP result and the rout of Congress, I think the an NDA style govt at the center is a distinct possibility. I think this will be last straw that breaks the camel's back and we will be back to more realistic growth levels of 5-6% in the foreseeable future.
NY Times article below
NAGPUR, India — A year ago, this relatively small, forgettable city in the heart of India did not have an air-conditioned cinema. In the sweltering heat of summer, the rich would fly one hour to Mumbai, India’s financial hub, to see a movie and stock up on Levi’s jeans, Domino’s Pizza and other big-city treats that they could not find at home.
But if the government has its way, Nagpur will become a destination city itself. In an experiment that is highly unusual for this most unplanned of countries, the government is doling out money to Nagpur and other “second tier” cities to help them modernize — fast.
The plan is to provide the kind of modern conveniences, and infrastructure, that will attract more international investors to India. In doing so, the government is following the lead of China, where the government has invested in infrastructure such as roads and airports, taking a build-it-and-they-will-come approach that has drawn foreign corporations helping to fuel the country’s boom.
India’s government is also hoping its plan will stop disasters in the making in its largest, teeming cities as more people move there in search of jobs and a more urban lifestyle.
“One hundred million people are moving to cities in the next 10 years, and it’s important that these 100 million are absorbed into second-tier cities instead of showing up in Delhi or Mumbai,” Montek Singh Ahluwalia, the Indian government’s chief economic planner, said by telephone.
Already, Nagpur, with an estimated population of about 2.5 million, is a changed city. So far, the government has allocated $280 million for projects and has paid for everything from lush parks to new roads. And investors — drawn by the hope of a boom — have built several malls and a multiplex cinema, complete with air-conditioning.
A renovated airport will become the cargo hub of India, with a terminal that will be 100 times larger than the existing one and will handle at least 100 jets at a time instead of the current five.
The government is planning an ecofriendly mass-transit system to absorb an expected surge in road traffic, years before many residents even own a car.
The government is also building a special economic zone with ready-to-use water, electricity and fiber optic cable, in the hope of attracting 100,000 technology jobs to a city long dominated by coal mining. It is providing tax breaks for companies who set up businesses there.
Since its independence from Britain in 1947, the city-building philosophy of India has been, to put it gently, laissez-faire. Except for the recently developed technology hubs of Bangalore and Hyderabad, India has not added cosmopolitan, globally connected metropolises to its old ones: Calcutta, Delhi, Madras and Mumbai.
And those cities have shown the strain as more people have poured in from the countryside in recent years.
In Mumbai, a majority of the more than 15 million residents live in slums, and a river of sewage passes through the middle of the city. Delhi is chronically short of clean drinking water and electricity.
So far, the government has pledged to spend $29 billion over seven years to upgrade 62 cities besides Nagpur. Grants are given only to cities that can show good fiscal controls and enact business-friendly policies like scaling back rent control.
No one knows if India has the stamina to make Nagpur a truly international hub, and then transform scores of other cities. But many experts say that the plan to remake smaller cities could be a key to India’s continued economic growth.
“Much of India’s future will undeniably be made in the second-tier cities,” said Ashutosh Varshney, a specialist on Indian political economy at the University of Michigan in Ann Arbor. The existing metropolises “will reach saturation points before long, or have already reached such points.”
The second-tier cities could address the needs of local and foreign corporations that have complained about soaring land prices and increasing wages in the country’s most modern cities.
Experts say the government plan could also provide a boost to home-grown businesses. More international airports, for instance, could help raise incomes for the country’s hundreds of millions of farmers by making it easier for their produce to reach export markets.
Nagpur has a head start on most of the other cities expected to receive government money. Because the government selected it as the air cargo hub for the country, skeptical investors have more hope that this obscure city will eventually rank with the busiest air centers in the world.
Today, the Nagpur airport is an airstrip. Visitors deplane and walk across the tarmac to enter the terminal. It takes 30 seconds to traverse the entire terminal from arrival gate to taxi stand.
The blueprints foreshadow radical change. Nagpur got its first international flight just 18 months ago, but it is already planning a second runway long enough for jets like the Airbus A380 superjumbo. A new terminal, already being built, is designed to accommodate 14 million passengers a year.
Next to the airport is a vast special economic zone, an enclave of relative economic freedom designed to attract investors. Boeing is already setting up a maintenance hub there and in an adjoining technology park. Indian companies that do outsourcing work for American and European companies like Satyam Computer Services and HCL Technologies are buying land.
Some worry that all the change — which has already caused real estate prices to soar in the city — is fueling a bubble economy that could burst. Alok Tiwari, the executive editor of The Hitawada, the local newspaper, said a boom cannot last unless more jobs are created, increasing buying power.
“We’ve got to create opportunity, not just take land and build a mall there,” he said.
Yet others say such development will eventually take on a life of its own, driving the economy by raising people’s expectations and willingness to work hard to afford the new luxuries appearing before their eyes.
Vishwas Chaknalwar, a developer, put it this way. “Once you wear Pyramid clothes,” he said, referring to the new Pyramid mall here, “you cannot wear anything else.”
NY Times article below
NAGPUR, India — A year ago, this relatively small, forgettable city in the heart of India did not have an air-conditioned cinema. In the sweltering heat of summer, the rich would fly one hour to Mumbai, India’s financial hub, to see a movie and stock up on Levi’s jeans, Domino’s Pizza and other big-city treats that they could not find at home.
But if the government has its way, Nagpur will become a destination city itself. In an experiment that is highly unusual for this most unplanned of countries, the government is doling out money to Nagpur and other “second tier” cities to help them modernize — fast.
The plan is to provide the kind of modern conveniences, and infrastructure, that will attract more international investors to India. In doing so, the government is following the lead of China, where the government has invested in infrastructure such as roads and airports, taking a build-it-and-they-will-come approach that has drawn foreign corporations helping to fuel the country’s boom.
India’s government is also hoping its plan will stop disasters in the making in its largest, teeming cities as more people move there in search of jobs and a more urban lifestyle.
“One hundred million people are moving to cities in the next 10 years, and it’s important that these 100 million are absorbed into second-tier cities instead of showing up in Delhi or Mumbai,” Montek Singh Ahluwalia, the Indian government’s chief economic planner, said by telephone.
Already, Nagpur, with an estimated population of about 2.5 million, is a changed city. So far, the government has allocated $280 million for projects and has paid for everything from lush parks to new roads. And investors — drawn by the hope of a boom — have built several malls and a multiplex cinema, complete with air-conditioning.
A renovated airport will become the cargo hub of India, with a terminal that will be 100 times larger than the existing one and will handle at least 100 jets at a time instead of the current five.
The government is planning an ecofriendly mass-transit system to absorb an expected surge in road traffic, years before many residents even own a car.
The government is also building a special economic zone with ready-to-use water, electricity and fiber optic cable, in the hope of attracting 100,000 technology jobs to a city long dominated by coal mining. It is providing tax breaks for companies who set up businesses there.
Since its independence from Britain in 1947, the city-building philosophy of India has been, to put it gently, laissez-faire. Except for the recently developed technology hubs of Bangalore and Hyderabad, India has not added cosmopolitan, globally connected metropolises to its old ones: Calcutta, Delhi, Madras and Mumbai.
And those cities have shown the strain as more people have poured in from the countryside in recent years.
In Mumbai, a majority of the more than 15 million residents live in slums, and a river of sewage passes through the middle of the city. Delhi is chronically short of clean drinking water and electricity.
So far, the government has pledged to spend $29 billion over seven years to upgrade 62 cities besides Nagpur. Grants are given only to cities that can show good fiscal controls and enact business-friendly policies like scaling back rent control.
No one knows if India has the stamina to make Nagpur a truly international hub, and then transform scores of other cities. But many experts say that the plan to remake smaller cities could be a key to India’s continued economic growth.
“Much of India’s future will undeniably be made in the second-tier cities,” said Ashutosh Varshney, a specialist on Indian political economy at the University of Michigan in Ann Arbor. The existing metropolises “will reach saturation points before long, or have already reached such points.”
The second-tier cities could address the needs of local and foreign corporations that have complained about soaring land prices and increasing wages in the country’s most modern cities.
Experts say the government plan could also provide a boost to home-grown businesses. More international airports, for instance, could help raise incomes for the country’s hundreds of millions of farmers by making it easier for their produce to reach export markets.
Nagpur has a head start on most of the other cities expected to receive government money. Because the government selected it as the air cargo hub for the country, skeptical investors have more hope that this obscure city will eventually rank with the busiest air centers in the world.
Today, the Nagpur airport is an airstrip. Visitors deplane and walk across the tarmac to enter the terminal. It takes 30 seconds to traverse the entire terminal from arrival gate to taxi stand.
The blueprints foreshadow radical change. Nagpur got its first international flight just 18 months ago, but it is already planning a second runway long enough for jets like the Airbus A380 superjumbo. A new terminal, already being built, is designed to accommodate 14 million passengers a year.
Next to the airport is a vast special economic zone, an enclave of relative economic freedom designed to attract investors. Boeing is already setting up a maintenance hub there and in an adjoining technology park. Indian companies that do outsourcing work for American and European companies like Satyam Computer Services and HCL Technologies are buying land.
Some worry that all the change — which has already caused real estate prices to soar in the city — is fueling a bubble economy that could burst. Alok Tiwari, the executive editor of The Hitawada, the local newspaper, said a boom cannot last unless more jobs are created, increasing buying power.
“We’ve got to create opportunity, not just take land and build a mall there,” he said.
Yet others say such development will eventually take on a life of its own, driving the economy by raising people’s expectations and willingness to work hard to afford the new luxuries appearing before their eyes.
Vishwas Chaknalwar, a developer, put it this way. “Once you wear Pyramid clothes,” he said, referring to the new Pyramid mall here, “you cannot wear anything else.”
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