Friday, February 08, 2008

IPO market deflates as 2 major IPO's withdraw

New Delhi: Real estate major Emaar MGF on Friday decided to withdraw its initial public offering as the issue could not get fully subscribed.
“The decision has been taken due to prevailing adverse market condition...although the QIB and HNI portions of the IPO were fully subscribed and the overall book was closed to 90%,” the company said in a statement.
Emaar MGF, the joint venture between Dubai-based Emaar and India’s MGF Development, has said that it would consider IPO at an appropriate time.
“Given the prevailing sentiments in the capital markets, it was unclear how well the stock would trade post-listing. It has been considered wiser to revisit the market only when the demand and sentiment are stable and better providing greater value to investors”, it said.
Delhi-based Emaar MGF said that the company remains committed to executing its projects on hand and is well funded to ensure that the delay in IPO would not hamper its growth plans.
The company expects to return to the market at a later date when sentiment and liquidity conditions are better.
Emaar MGF entered the capital market on February one with an IPO of 10.25 crore equity shares of Rs10 each to be determined through a 100% book building.
The issue was scheduled to close on February six. The company had initially fixed the price band at Rs610-690, which later on was brought down to Rs540-630.
The company further slashed its lower band to Rs530 per share and extended the period of public offer till 11 February. The issue was originally scheduled to close on 6 February.
Emaar MGF is present in 26 cities in India and has 13,000 acre of land bank. The company plans to develop 566 million sq ft during the next nine years, of which 455 million sq ft is residential, 90 million sq ft commercial and 18 million sq ft for retail.

Sunday, February 03, 2008

Stock market correction triggers property downturn

Pune, February 2 The recent stock market meltdown has fuelled speculation of a slowdown in the city real estate because of a perceived liquidity crunch. Real estate consultants say cancellations, if they happen, would occur in the investor and speculator segment of the real estate market that comprise 20 per cent of buyers in the city.

“Some cancellations have already begun. After the stock market fell, a private developer reported five cancellations on NIBM road from clients who had lost money in the market,” said Ravi Varma, president of the Estate agents association of Pune (EAAP).

“Typically, profits booked in the markets are invested in real estate. However, builders are least likely to own up to cancellations, as it will further affect their stocks, if they are listed. Developers think that they can talk up the market,” he said. Varma added, however, that cancellations due to stock crash are very small and not likely to exceed two to three per cent of the real estate market.

Last week’s crash from around 22,000 points to around 18, 000 on Friday was responsible for wiping out nearly Rs 2 lakh crore, Rs 1.5 lakh crore of which was lost on the first day.

Deepak Kunjeer was one real estate consultant who admitted that the land market was headed towards a slump. “In the past two to three months, the sales have come down by half. This is especially true of areas like Kharadi, Wagholi, Kondhwa and Hadapsar. The same plots have been on sale for the last few months. Properties have not been moving or changing hands,” he said.

Kunjeer said the pre-budget months were normally slow and coupled with a global slowdown in the offing, a cascading effect is likely in six months’ time. “There is a 99 per cent chance of a correction happening unless there is something miraculous in store in the budget with major policy decisions in infrastructure and power sectors or in the case of allowing FDI funds,” he said.

However, most city developers dismissed the notion of mass real estate cancellations due to the stock market drop saying that they dealt only with “genuine buyers” and did not deal with the speculator community.

Some others said it was too early to say if the stock market effect would spiral down to real estate stagnation. “The effect, if any, will take at least three months to be visible in the market. Even if investors have lost money, their first reaction is rarely to cancel their real estate purchase,” said Manish Jain, Kumar Properties.

This trend is likely only in the high-end segment and not the middle class, or the working class who do not have a “risk taking appetite”. Irrespective of the sensex, the last three months have been slow and real estate consultants agree that prices have been on the upswing without any perceived value addition. This coupled with the pre-budget jitters and the law of averages makes a slump inevitable, they said.

The last real estate stagnation took place in 1996, which lasted for almost five years. In the ensuing boom, the last three years has seen real estate prices more than triple. The complementing growth in the economy, especially the IT players and now recently the manufacturing sector, encouraged developers to cater more to the high end segment.

“But now developers are resorting to raising prices arbitrarily. In the last two months, projects across the city have seen prices rise by Rs 500 per sq ft for no reason. Effectively, this puts a lot of property out of reach for the middle class segment,” said Mukesh Charbhe, real estate agent working in NIBM are Sopan Baug areas.

“Compared to December, January has been a slow month. There is definitely a 25 per cent reduction in sales. But there should be a correction as prices have been increasing randomly without justifying a rise,” he said.