Saturday, April 12, 2008

TDR rates fall, will flat prices follow suit?

As one as see the bubble was due to FSI policy as well as FSI hoarding, both artificial factors If a builder like Oberoi is saying prices will fall, I think they will starting this week. A lot of buyers who have bought in the recent past will see themselves upside down. IS this a sub-prime crisis where their loans are worth then their properties. A bear market has just begun in Mumbai housing

Mumbai: Rates for transfer of development rights (TDR) have crashed in Mumbai. TDR certificates, which were being sold at an average of Rs 4,500 per sq ft until recently, have plummeted to Rs 1,500 per sq ft. This follows the Vilasrao Deshmukh government’s decision to raise floor space index (FSI) from 1 to 1.33 in the suburbs (first reported by TOI) and keep the premium for the same less than the ready reckoner rates.
The million-dollar question now is whether or not builders will pass on the benefit of the drop in TDR rates to buyers, who are finding flats even in the distant suburbs of Mulund and Dahisar way beyond their budgets. Their problems were compounded when housing finance companies suddenly become tight-fisted following the credit squeeze.
Said Vikas Oberoi, a builder, “There is absolutely no doubt that builders will carry out a correction in tune with the fall in TDR prices. The government’s aim of making flats more affordable will be achieved.’’
Another developer, Sandeep Runwal, said, “The high price of TDR was actually hurting the construction industry as we builders had no choice but to mark up prices. This, understandably, was met with consumer resistance. Now, a more realistic picture will prevail in the property market.’’
It is also being asked whether Vilasrao Deshmukh, who belongs to the Congress, was actuated only by his desire to bring down flat prices when he decided to increase FSI to 1.33 or was there a bigger gameplan.
Sources in the real estate industry said lakhs of sq ft of TDR were cornered by three big builders close to an NCP leader. This left the bulk of builders at the mercy of this group of builders, who jacked up prices to Rs 4,500 sq ft.
If this situation was allowed to continue, then the NCP’s war chest would have overflowed with cash before the general elections next year. “Given the political implications of this, the central leadership of the Congress decided to move in and asked Deshmukh, who holds the urban development portfolio, to raise the FSI and trigger a bear run in the market,’’ a senior bureaucrat told TOI on Friday. A spin-off benefit will be cheaper flats, which will assuage the feelings of the middle-class.
TDR Transfer of development rights: Generally, when a plot owner surrenders his/her property reserved for playground or other purposes, then he/she is compensated with a TDR certificate specifying the FSI. The certificate can be traded in the market. Similarly, when a builder constructs pucca houses for project-affected persoJustify Fullns, he is incentivised by granting TDR certificates. The FSI, however, can be utilised only to the north of the property where it was generated. FSI Floor space index: It lays down the buildable area of a plot. If a plot area is 1,000 sq ft and the FSI is 1, then the buildable area will be 1,000 sq ft.

Thursday, April 10, 2008

Residental property prices to go up in Pune

Pune-based real estate developers have decided to increase the per-square-foot charge for residential construction between Rs 50 and Rs 400 from April 20 due to the increasing cost of construction and heavy taxation by Pune Municipal Corporation (PMC). This was announced today by Lalitkumar Jain, president, Promoters and Builders Association of Pune (PBAP).

Pune, over the last two years, has experienced a boom in the real estate industry. However, availability of land has remained a problem as the new Development Plan (DP) for Pune has not been sanctioned and executed for quite some time.

The city saw construction of 60 lakh sq.ft commercial space for the information technology (IT) industry last year, which has generated employment for more than 60,000 people. There has also been extensive recruitment in industrial areas like Ranjangaon, Pirangut, Chakan and Talegaon - an addition of close to 25,000 new jobs. The services and retail sector has recruited more than 25,000 new employees last year.

While more than one lakh new jobs were added in the city, the builders have developed only 35,000 new flats in and around Pune. "There is a huge demand-supply gap, which has led to the sudden price rise over the last two years. In addition, steel prices have gone up from Rs 32,000 per tonne to Rs 52,000 per tonne while the cement prices have been increasing consistently. PMC, too, has increased the development and premium charges for residential projects from 200% to 400%. All this has led to heavy cost escalation for Pune-based builders," Jain added.

PBAP, which represents more than 80% of Pune's real estate developers, has prepared a report that explains the possible ways to tackle the price hike. The report has requested the central government to take cost cutting measures for cement and steel prices.

Jain said: "There is resentment among middle class households over increasing real estate prices. The industry cannot sustain such a situation where costs are not coming down. If housing becomes more costly, nobody will buy a flat in Pune and the industry may come to a halt in the near future."

Tuesday, April 08, 2008

High interest pushes realty to brink

Its high time the bubble pops in Mumbai real estate. The government made few other announcements over the past few days which will impact prices downwards.

1. All flats to be sold on carpet area. The builder can charge for common area but it has to be mentioned in the agreement
2. Increase in FSI for suburbs from 1.0 to 1.3 thats a 30% increase. FSI for SRA TDR's are 2.25 and for Dharavi slum redevelopment it is 4. I think in the city areas it is 2.
3. The premium on the extra FSI has be removed. So the extra .3 which was sold at a premium is now at current rates. This will force TDR's to go below market rates as the premium which existed on the TDR is no valid.

Coupled with the liquidity crisis which the article is taking about, welcome to the bubble pop. You heard it first here :). If you notice carefully the article makes a reference to the word bubble. In the past the writers would always justify the prices repeating cliches like "There is no land in Mumbai", "Prices never fall", "People are migrating to mumbai from all over". All bull crap to justify ad-space spending in their news papers.

MUMBAI: It’s a scary reminder of the exorbitant interest rate of the 1990s’ inter-corporate deposit (ICD) market, where companies borrowed at enormous cost to tide over a cash crunch.

Often, these desperate borrowers ended up losing their businesses to bigger players and loan sharks. In what could be the making of another turmoil, real estate developers, particularly the less creditworthy ones, are today borrowing at as high as 19%-20% from big finance companies to stay afloat.

A week ago, a large property company (which recently withdrew its IPO due to adverse market conditions) was forced to roll over its short-term borrowing from mutual funds, a tell-tale sign of the cash flow strain that some of the realty firms are grappling with.

Since banks have shut their doors, small and medium builders are passing their hat around aggressive non-banking finance companies and MFs who subscribe to the bonds issued by the property firms. The fund houses have quietly rolled over the debt, fearing that the news of default could affect the returns of their schemes and hence, scare away investors.

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Builders who had managed to raise cheap money in the booming IPO market and those who had old land banks created over a period of time at lower rates are in a better shape. But those who had paid a slice of the cost for expensive plots, hoping to make the balance payment with the IPO or private placement money, are stuck.

Small builders who are turned away by MFs and finance companies are borrowing at even higher rates from diamond traders and HNIs. The cost of such money is at an usurious level of 2% a month. Besides, they are mortgaging their properties at 60%-65% of current valuation to raise the money.

“There are three categories of lenders: private NBFC, financial institutions that qualify as NBFCs and a few subsidiaries of foreign banks and securities houses. As long as prices stay high, the party can go on. But it will be impossible for the bubble to sustain for a long time. While pure FDI is coming in for specific projects, structured deals with leveraged foreign funds have come down after the subprime crisis,” said a real estate fund manager.

But the fear is that many companies have already walked into a debt trap with prices beginning to correct in most big property markets except Mumbai. “If the markets do not witness a substantial rise in demand and price in the next six months, these companies will either go bankrupt or be forced to sell out,” said a banker.

Property players also mop up funds by securitising their receivables. If such financing structures bonds (better known as pass through certificates) are sold on the back of the fund flow, they anticipate from property sale. If deals slow down or property prices drop, servicing these bonds becomes difficult.

“However, property prices have to really crash for this to happen. Securitisations are done with margins to cushion the blow,” said a fund manager.

CBI registers case against Hiranandani’s for evading EPF tax

Beats me why Hira should evad 168 crores when they can make 1600 crores of their properties. It goes to show greed knows no bounds. After acquiring the powai land for 50 paise per sq/ft, this one puts them at a new low.

Mumbai, April 08: The Central Bureau of Investigation (CBI) on Tuesday registered a case against the promoters of the Hiranandani Group, Niranjan and Surendra, for evading EPF tax to the tune of Rs 168 crores.

The case was registered hours after the premier investigation agency started simultaneous raids across eight different locations of the group spread across the western metropolis.

The raids were carried out as the CBI claimed to have credible information that the Hiranandani’s have evaded tax to the tune of Rs 168 crore by tampering documents pertaining to the Employee Provident Fund.

As per sources in the CBI, the documents have a fallacy as they show that the group has far lesser number of employees in its roll then they actually have.

By doing this fraud the Hiranandani Group was misleading the government and evading tax, the CBI alleged.

To add credence to their claim of a possible collusion between the Hiranandani’s and government officials, the CBI also carried out raids at the residences of four EPF officers.

CBI action against the Hiranandani Group, one of the biggest players in the real estate market, is sure to send shockwaves across the industry already beleaguered by increasing interest rates and slacking demand.

Sunday, April 06, 2008

Unitech in 97-acre Vakola slum development project - Mumbai

Cost of land Rs 2,500/sq ft, construction cost Rs 2,400, property rates Rs 25,000

MUMBAI: Unitech Ltd, India’s second-most valued real estate company with a market capitalisation of Rs 67,600 crore, is developing 97 acres of slums near the Vakola flyover on the Western Express Highway.

The project, which is close to the Santa Cruz railway station on the east, is estimated to cost Rs 1,900 crore, and will involve the rehabilitation of 20,000 families.

Unitech has joined hands with Pune-based developer Rohan Group for the project.
Sanjay Chandra, managing director of Unitech, confirmed the development to DNA Money, but did not divulge further.

Once the families are rehabilitated, Unitech and Rohan Group will develop the land which will have a final saleable area of 80 lakh sq ft.

The cost of construction is around Rs 2,379 per sq foot, sources said.

Citigroup Global Markets analysts Ashish Jagnani, Aditya Narain and Karishma Solanki estimate the cost of land to be just Rs 2,500 per sq foot as it was acquired under the slum rehabilitation scheme.

The rate for commercial property in the area is around Rs 25,000 per sq foot for A-grade projects, a local broker said.

Jagnani, Narain and Solanki, in a report to clients on February 14, said the rehabilitation process for slum dwellers is ongoing with 30 of 97 acres of land cleared and the construction of rehabilitation already on.

A source close to the development said Unitech’s decision to construct commercial space made more sense since the valuations are better due to the location’s proximity to the Bandra-Kurla Complex, India’s most expensive commercial area.
Cushman & Wakefield, international property consultant, said Mumbai is the world’s fourth-most expensive location for office occupation.

In the report titled ‘Office Space across the World 2008,’ the firm said Mumbai is expensive than Paris, New York, Singapore and Dubai.

Meantime, the Citigroup report said Unitech is aggressively buying more land in Chennai and Hyderabad.

The company has picked up 29% stake in a 70-acre township in Perambur, Chennai, with the investment routed through its 50:50 venture with Arihant Foundation.

The company plans to develop 5,000 apartments, a retail mall, hotels and a hospital in the project.

In Hyderabad, Unitech has acquired 350 acres from the government through a tender process at a cost of Rs 60 lakh per acre. The realtor plans to develop a township here.

In Kolkata, Unitech has added two large projects. It is developing a township measuring 390-acre project near Howrah.

“It has also picked up a 75% stake in the 6-acre prime property of Royal Calcutta Turf Club to develop luxury apartments and a premium hotel/service apartment,” Citigroup’s Jagnani, Narain and Solanki said.

Citi Venture, AIG scrap Akruti investment plan

MUMBAI: Adverse market conditions have affected another major real estate transaction. Leading financial institutions — Citi Venture Capital and AIG — have called off their Rs 1,500-crore deal with real estate developer Akruti City which would have seen the foreign funds picking up 16% equity in the Mumbai-based realty player.

In January, Citi and AIG had proposed to pick up equity in Akruti through a preferential allotment, where Akruti would place up to 10.7 million shares. The firm has now cited market conditions and delay in getting government approval as reasons for aborting the deal. The BSE Realty index has crashed 46% from its peak of 13,647 recorded on January 14.

“In view of the inordinate delay in receiving necessary approvals from the Department of Industrial Promotion and Policy (DIPP), coupled with uncertain market conditions, we have decided not to proceed further with the proposed issue with the foreign funds,” Akruti City managing director Vimal Shah said.

However, sources said that after the market fall, differences of opinion had cropped up between the foreign funds and the real estate firm on valuations which ultimately led to a deal abortion.

After the deal was announced on January 23, shares of the company had touched a record high of Rs 1,399 during intra-day trading. Since then, there has been a sharp decline, which touched a low of Rs 682 on March 24, or down 50% in two months. The scrip, however, has recovered smartly in the past two weeks, ending with a 5% gain at Rs 1,021 on Friday.

The market turmoil has already taken a toll on fund-raising plans of some companies, including Emaar MGF and Wockhardt Hospitals. Both were forced to withdraw their initial public offering (IPO) plan, after the offers evoked poor investor response in the extremely bearish market.

According to investment bankers, the continuing dull phase has prompted others to defer their plans to raise funds through private equity placements and preferential allotments to institutional investors. The trend will continue for some more time in the wake of uncertain market conditions, which have been triggered by negative global cues and rising inflation in the country, investment bankers said.

Besides, a tightening of liquidity in global markets has made private equity fund raising for real estate and infrastructure sectors difficult, with many funds expected to extend closures or reduce the target corpus. According to industry sources, the churn in global equity markets has made investors wary of even private equity funds, although the two markets are in different categories with different levels of risks.

“The situation has changed and fund-raising has tightened,” admitted the senior executive of a UK-based private equity firm, with considerable exposure in India. “In many cases, the targeted amount may have to be scaled down,” he added.

Indian real estate companies have been attracting investments from foreign funds, which were apparently bullish about the sector. Among the few major deals in the past, a group of private equity and financial firms led by Deutsche Bank invested $425 million in the Lodha Group in September last year. Early 2007, Oberoi Constructions received $152-million funding from Morgan Stanley

Mysore on my mind

The article fails to recognize that Infosys has a training center in Mysore. Most IT companies operate from premises located in an STP and now SEZ. There are no tax incentives otherwise. Infosys is on neither so it will end up with being a hub with migrant trainee population. Infoys's Sarjapur road campus will be the biggest whenever it is built. As for others am sure IT companies are looking out 5 years into the future and acquiring land. Economic times and the bennett coleman company are ad-space sharks which aid the land sharks. All these articles are written with an intent to scare the common bangalorean that Mysore will soon become unaffordable. There is some truth in that but I think that will take another 5 years. The competition is not between end uses to acquire plots and land. Its between big developers to acquire large parcels of land at low prices. In this context buying a plot with a time frame of 5 years doesn't look to be a bad idea. Interestingly the hype over devanhalli seems to be died down. People now appreciate that building infrastructure takes 10x more time then the time to move prices up.

Soaring land prices in Bangalore, realtors battle it out for space in Mysore

MUMBAI/BANGALORE: Soaring land prices in Bangalore have led to a rush by developers to secure space in Mysore, the heritage city of Karnataka. The influx of IT/ITeS professionals is seen as instrumental in driving the demand for residential property since land rates in Mysore are low compared with Bangalore, industry officials said.

Currently, residential real estate prices in Bangalore vary anywhere between Rs 2,500 per sq ft and Rs 14,000 per sq ft. In Mysore, land prices have shot up significantly, said Cushman & Wakefield joint managing director (India) Anurag Mathur. The asking rate for land in the new outer ring road (ORR) area is in the range of Rs 1,200-3,000 per sq ft (Rs 5.2-13 crore per acre approximately) for converted land. In the outskirts (beyond ORR), it is in the range of Rs 70 lakh-2 crore per acre.

In comparison, a year ago, the rates were approximately half the present price range. Within the city, prices varied between Rs 600-1,500 per sq ft (approximately Rs 2.6 crore-6.5 crore per acre) and in the outskirts between Rs 25 lakh-1 crore per acre. The BMIC is likely to further fuel growth in this market. The Future Group’s real estate fund Kshitij has bought five acres near Mysore Palace to develop a mall while Shobha Developers is developing another five acres property as retail property. Delhi-based real estate major Unitech is also developing another one acre in Nazarbad as retail property.

A majority of these malls are expected to be up and running by 2010, by which time there would be enough demand for retail space in the city. DLF, another Delhi-based firm, is planning to build its biggest residential project in Bidadi which is on the Bangalore Mysore expressway and the upcoming inter-city infrastructure corridor. Central Mysore has a large unorganised retailing base and organised retailing in the city is still in the nascent stage. Shopper’s Stop and Inox are expected to mark their entry in the near future

“At present, the vacancy levels are in the range of 10-15%, with some of the complexes developed to house malls now being used as commercial space. There are no operational malls in the city. However, this is expected to change, with five planned malls having a total area of 1.7 million sq ft expected to be operational in the next two years,” said Cushman & Wakefield joint MD-India Anurag Mathur. Property experts said that as real estate prices in Bangalore have touched its upper limits, the developers have started targeting Mysore. Many IT and software companies, which have been eased out of the mainstream in Bangalore, have now chosen Mysore as the next destination.

“The IT sector helped Mysore gain prominence after Bangalore. The coming years could see the city develop as an important MICE destination since travel time to the city is shorter now,” said Brigade Enterprises CEO-hospitality Vineet Verma. Many domestic IT companies have already started their campuses in Mysore, notable among them being Infosys. According to reports, Accenture, IBM, Cognizant Technologies and Honeywell too might extend their operations in Mysore. Wherever IT companies go, they usually provide a push to other residential and retail sectors too.

Maharashtra real estate to be sold on carpet area

The builders are smarter. Now they will tell you the carpet area and also the common area and charge you accordingly. If my guess is right, the registration of the flat will amount to the flat area ? Now if the common area is not registered with the flat owners, who owns it ? does the developer hold the right to the common areas indefinitely ?


Mumbai: Here’s some relief for flat-buyers baffled by built-up area, super built-up area, niche area and other such jargon. All sale and purchase of flats will soon be allowed only on the basis of carpet area.
The state on Friday introduced a Bill to amend the Maharashtra Ownership of Flats Act (MOFA) such that all sale, purchase and transactions of flats will be made on the basis of carpet area alone. The bill was introduced in the legislative council and will be taken up for discussion and passing on Monday.
“The common man is not able to tell the difference between builtup, super built-up and all these other terms. Many builders take undue advantage of this,’’ explained principal secretary (housing), Swadhin Kshatriya. “It’s a good move towards bringing in transparency,’’ agreed Hiranandani group MD Niranjan Hiranandani.
Shreedhar Sharma, a legal consultant for housing societies and a member of the Maharashtra Societies Welfare Association which covers 2,600 housing societies in Mumbai and Thane, said that the government move would be much appreciated by flat-owners as several of them approached him with this problem.
“Buyers do not understand technical jargon like niche area and exit area and super-superbuilt-up area. Carpet area is measurable, and gives the buyer and accurate idea of the size as well as FSI,’’ said Sharma. When the sale of a flat is being discussed, almost 40-42% is currently shown in such terms, leading to a higher possibility of the final product not matching the buyer’s expectations, or of cheating, he said.
Meanwhile on Thursday, the state cabinet approved a Bill to set up a Housing Regulatory Commission in Maharashtra. The Bill will now be placed before the legislature next week. The Commission will have the powers of a civil court, and be headed by an expert from the housing field. The three-member commission will have a 21-member advisory committee.


The government is framing rules and regulations for an amnesty scheme to aid citizens who bought flats decades ago, but have not yet got it conveyed. “If people who bought flats 20 and 30 years ago try to get it conveyed now, they find that the current stamp duty rates are more than the cost of the flat when they bought it. The government will introduce an amnesty scheme to save them from this unnecessary hardship,’’ Kshatriya added.