Tuesday, January 26, 2010

Outsourcing dollars fund real estate in Bangalore

The big headline in the following story is that Sobha has called off his deal with Shriram properties but the bigger headline is that Infosys founder N.S. Raghavan sold off his Infosys stock and now is investing in land and my guess is in locations close to Infosys campuses all over India. One has to read between to lines to see the impact Infosys, Wipro and other outsourcing companies have on Bangalore real estate. The investment made by Raghavan to the tune of 225 crores is the entire turnover of Sobha for a fiscial year. It appears that Raghavan got a bargain for his price. Will Raghavan get into the consturction business ? Only time will tell.

Sobha Developers calls off land sale talks with Shriram Properties
BANGALORE: Sobha Developers, which was in talks with Shriram Properties for the sale of around 400 acres in four cities, is learnt to have called
off its negotiations following differences over price, people familiar with the matter told ET. While Sobha confirmed that talks have been called off, it did not provide details. Shriram Properties MD M Murli said his company was "not pursuing the deal aggressively." Some of the land the firm had put up for sale include 100 acre at Hinjewadi in Pune, 3.8 acres on St Marks Road, Bangalore, 7 acres of NBCC land behind the Bangalore railway station, 330 acres comprising two islands of Valanthakad & Nadukeri and adjoining lands in Manakunnam & Thekumbaghom villages in Kochi. The total value of these land could be between Rs 600 and 800 crore, according to estimates by Mumbai-based research firm Enam Securities. The latest move by Sobha Developers comes after it managed to strike a deal with an investment fund owned by Infosys co-founder N S Raghavan to raise Rs 225 crore by selling a part of its land bank. The company has also managed to reschedule a substantial part of its loan portfolio. Last year, Sobha raised around Rs 530 crore by diluting close to 22.5% equity through a qualified institutional placement (QIP). Sobha MD J C Sharma had earlier told ET that the company was looking at a stake dilution of up to 25% at the project level through a special purpose vehicle. While the deal would have generated the much-needed cash for Sobha to develop its projects, it would have also helped Shriram Properties, a part of the $5.5-billion Chennai-based Shriram group, scale up its size in the residential market. In fact, Murli of Shriram Properties had earlier said that the firm was in talks to buy 1,500 acres of distressed assets which could be land with development rights, projects under development or mid-sized real estate company. The company was eyeing bad assets in Mumbai, Pune and Ahmedabad which were available at throwaway prices to expand its presence in the market. Shriram has completed projects covering 4.5 million sq ft in Bangalore, Chennai, Coimbatore and Kolkata and has 9 million sq ft of residential space under various stages of development in Bangalore, Chennai, Vizag and Kolkata. Sobha has sold 3.92 lakh sq ft space in Q2 of this financial year compared to 2.5 lakh sqft in Q1. Currently, it has about 9 million sqft of ongoing projects. The company's Q2 net profit was down to Rs 27.5 crore versus Rs 51.3 crore in the corresponding quarter last year. The turnover during the same period was Rs 226.3 crore as against Rs 230.4 crore last year. Walton Street Capital made its first investment in India through Shriram Properties.


Anonymous said...

Maybe Raghvan thinks he can make more in RE than stocks. But what he doesn't know that he can't make anything either in stocks or in RE if he is investing now. he is too late for that. he must have already made good money in stocks which will vanish now by his RE investments.

The interest rates going up by 50 basis points on Jan29 would have a small impact on RE. But the rate increases this year by 300 bp would take the RE down. Moreover, foreign investors are now shying from investing in India.

Anonymous said...

Looks like the party is definitely going to be over soon for India. Sensex may go down by another 4000 points as deficits are rising, terrorism threat, Telangana issue, massive corruption, unemployment rising, massive inflation and a massive RE bubble.

RE may down by at least 40% in this year.

sabbalseshu said...

Real Estate prices will never go down. The very foundation of real estate is 'black money' and this will remain as long as corruption remains.

Anonymous said...

Good Sabbaleshu,
Excellent observation. I think you should buy more properties and make more money.

Either black or white, money is money and RE has no where but to go down at least 50%. I'll wait till it settles down.

Moreover, it makes no financial sense to buy when I can rent the same thing for fraction of a price. Why should I get into the EMI mess when I can live comfortably renting the same place for almost 1/5th the price.

Bindas bhai said...

i agree with Sabbaleshu,

home prices r never going down in India. There r too many people with black money. These people with black money and NRIs onsite money will keep the demand up.
India has too much population. and too many corrupted people.

so guys stop dreaming
bindaas bhai

Shrini said...

Bindaas Bhai may be right this time. The fact is that first time home buyers should not wait. The longer you wait, the slimmer are the chances of getting a good house in a good area (new one at least).

The Bubble in India has shifted from housing to commercial real estate. There are way too many empty malls and complexes in the 8-10 big Indian cities.

However for people buying homes as investment, it is worthwhile to wait and watch.

Renting in India is not easy once you have family and decide to settle down. Trust me as a bachelor/bachelorette you can easily change houses, but once you have responsibilities of your family its hardly a simple task.

Once again my advice is to only buy 90% plus complete projects.As genuine buyers wait, sellers will follow. Because investors are quietly exiting the market.

rajni sharma said...
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