Chennai calling

Economic Times
A spurt in commercial activity — largely led by the automobile industry and IT & ITeS sector — is pushing the demand for real estate projects in the southern capital
Raja Awasthi & V Nagarajan

CATCH the action. Defying political upheavals and though not marketed globally like its neighbours, Chennai has emerged as the favourite destination of corporates and MNCs. In fact, it has emerged as the most attractive city for offshoring services, according to a survey by A T Kearney, global management consultancy firm. The city was benchmarked on three major categories like financial costs, availability of skilled manpower and business environment.
The city is home to major automobile companies. Also, a world-class IT corridor is taking shape on the Old Mahabalipuram Road, a hardware corridor is on its way in the western part, while the northern part is gearing up for port expansion to house warehousing units. Auto major BMW is the latest entrant and is setting up an assembly unit in Mahindra Industrial Park. Industrial estates like Ambattur and Guindy are slowly giving way to IT units.
On the western side, a number of electronic hardware companies are setting up operations. The SIPCOT’s industrial park with an area of 2,469 acres has received an overwhelming response from varied sectors. Investment valued at Rs 4,700 crore is likely to flow into the area, according to reports. Realising the impending potential, land prices are already up 25-35%. Land prices on the arterial road are commanding a price of Rs 40-60 lakh per acre.
Interestingly, flexible FSI norms for IT sector development and lucrative deals have lured residential property developers to switch over to commercial property development. This has resulted in a sudden setback in terms of supply of residential units. Soaring land prices in the central business districts have pushed apartment prices to Rs 4,500-10,000 per sq ft in the prime locations.
In the absence of any largescale housing complex, Chennai is heading towards housing shortage which is one reason for the influx of property developers from Bangalore, Hyderabad, Delhi and Mumbai. On a conservative estimate, 4,000 apartments would be immediately needed as 40,000 people are going to be employed in Siruseri alone, say realtors. The only consolation is that 15 township projects are under various stages of planning, though concrete action plan is yet to see the light of the day.
Chennai’s local developers are launching medium scale projects which are being instantly absorbed by the market due to a strong demand. Akshaya Homes took a bold move to launch a residential project 25 km away from Tidel, which was a sell-out and three projects launched on the IT corridor in Sholinganallur and Perungudi have been entirely sold out. Bangalore’s Puravankara and Mantri are due to launch their projects, whereas others like Brigade, Sobha, Prestige, Salarpuria, Renaissance and Delhi builders like DLF, Unitech and Aerens are eyeing land parcels for projects. In fact, Unitech has acquired more than 2,000 acres in three different locations in Chennai.
Says Devinder Gupta, MD, DGS Realtors Ltd: “There’s a lot of job opportunities in Chennai — with the booming auto industry there. We are looking at new opportunities and will announce our plans soon.”
The demand for office space has been estimated in the region of 5-6 million sq ft this year. If the past absorption is any indication, then 90% of the commercial space has been absorbed by the IT and ITeS sector. Capital values for office range from Rs 2,900 to Rs 4,900 per sq ft. Rental levels are up by 15% in the past one year due to hike in interest rates.
About 10-15 mall-cum-multiplex projects are due to be developed as part of integrated township development in and around the city. These will add about 6 million sq ft of organised retail space in the city,says Santhosh Kumar CEO, property consultants Trammell Crow Meghraj.

Massive Flow of funds could lead to speculation

Economic Times
IT SEEMS the RBI has informed the finance ministry of the whopping growth in the real estate sector, which has seen a 400% rise in foreign direct investment (FDI). In fact, the central bank had expressed concern over the sudden rise in FDI inflow into this sector and the impact it could have on the prices in domestic market.
The inflow into the sector went up to $703.3 million in January-October, 2006 from $135.35 million in January-October, 2005. RBI, which has been consistently cautious over FDI flow into realty sector, has warned that such massive flows could lead to speculation and over-heating of the real estate sector. The total FDI inflow into the country in January-October, 2006 stood at $7.9 billion, up 143% from $3.2 billion in the same period in 2005. RBI had earlier held that pre-IPO and follow-on public offers of real estate companies should be treated as FDI and governed by the FDI guidelines. It had argued that the Foreign Exchange Management Act (Fema) needed to be amended if FDI in real estate had to be given the status of portfolio investment.
With more than 35 big-ticket foreign funds having checked in, more than $ bn additional FDI is knocking the doors of the real estate sector. According to industry estimates, nearly 90-100 real estate funds have already parked themselves in the country scouting for investment opportunities.
Merrill Lynch forecasts that the realty sector will grow from $12 billion in 2005 to $90 billion by 2015. As of now, some of the prominent global funds that are aggressively investing in the sector include Carlyle, Blackstone, Morgan Stanley, Trikona and Warbus Pincus. Experts say they are sitting on a total corpus of $12 - 15 billion.

We’re bullish on small cities’

Economic Times

We’re bullish on small cities’

AJOY VEER KAPOOR is the managing director of Saffron Asset Advisors. This company was established in May ’06 to manage investments for Eredene Capital, a $100-million fund listed on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE). On December 6, ’06, Saffron listed Yatra Capital on Euronext, Amsterdam with a market capitalisation of e100 million (around $133 million). Currently, Saffron manages two internationally listed companies aggregating primary investment of $230 million, focused on the Indian real estate sector. Ajoy is an entrepreneur and banker, with a career spanning over 25 years and having global exposure to real estate. His previous assignments have been with HSBC and Standard Chartered Bank. AMIT BHANDARI spoke to him about his views on the domestic real estate sector. Here are excerpts from the interview:

What part of the funds under your management have been deployed already?
Saffron Asset Advisors currently manages two funds, with a total value of $100 million and $145 million. These are listed on the LSE and Euronext. Yatra, which is listed on Euronext, has the rights to take up the capital to $550 million from the current investors. Yatra has been listed only four weeks ago.
Eredene is a $100-million fund listed on the LSE. It is about six months old and 29% of the total funds have already been invested in three projects — one in Nagpur and two in Indore. The Nagpur project is a mall, while in Indore, we have a township and a mixed development. We expect to invest 60-65% of the total funds over the next two months. We are currently looking at projects in Pune, Kolkata, Trivandrum, Kochi and Dehradun.

Your current investments are all in small cities. Many of the options being evaluated by you are non-metro cities. Is this a coincidence?
Our first two funds — Eredene and Yatra — focus on tier-2 and tier-3 cities. The next fund we launch will look at tier-1 cities. We are very bullish on the mid to long-term prospects of these cities — a timeframe of 5-10 years. We are looking at launching another fund — Yatra 2, targeted at tier-1 cities — on Euronext, once Yatra is substantially invested. We could reach that stage in the next six months.
Two factors work in favour of small cities. First, post 9/11, many companies are diversifying their geographical base. Second, a big problem faced by IT majors is attrition, which can be 20-40% in big cities. A tier-2 or tier-3 city with good physical and educational infrastructure can tackle both these issues.

Do you see a bubble in the Indian real estate sector, given the way prices have moved up over the past few years?
How you read the market depends upon your objectives. Speaking for myself and for Saffron, I feel the mid to long-term story is intact. However, corrections in some sectors and some markets cannot be ruled out. One also needs to consider factors like credit squeeze by the Reserve Bank of India, pressure on the rupee, inflation and the possible impact of new measures which may be introduced in the budget. We are not worried because we are in it for the long term. There is a shortage of housing, and corporate profits are growing at 15-30%, which will lead to more recruitment and more demand. So, we are not worried.

Which are the best markets in India today?

We feel real estate is not the driver, rather it is driven by industry. Therefore, growth of various markets will depend upon the growth engines. In my opinion, tier-2 and tier-3 cities in Maharashtra present a good opportunity. Compared to Mumbai and Pune, Nagpur, Nasik and Aurangabad have a cost advantage.
They are also witnessing activity in sectors like IT and biotech. Among other states, we find Gujarat and West Bengal attractive. Madhya Pradesh is another state that has been ignored so far, but it should grow over the next few years.

Hyderabad : Land rates go south

[TIMES NEWS NETWORK ]

HYDERABAD: The cost of construction might have doubled in the past six months owing to increasing demand for various inputs, but the real estate market on the other hand is on a real downward spiral.

Whether it is due to the Karimnagar by-election result or the talk of Second State Reorganisation Commission (SSRC), the land transactions around the city have almost come to a standstill.

The prices have either dipped by 10-20 per cent on the outskirts or remained unchanged for the past one month. While some locations see a few enquiries, business is slack in popular destinations such as Shamshabad or along the proposed ORR.

"There is no real estate activity in areas such as Maheshwaram and Shamshabad. People are not willing to sell less than what they had bought, which is around Rs 10,000 per square yard as compared to Rs 30,000 per square yard in Madhapur, but there are no takers even if the prices are slashed.

Land and plots in urban areas are still better off. They are at least getting enquiries but in rural areas, the situation is bad," said Ajay Kumar Jetta, a real estate dealer.

The sudden surge

More pump from the bullish realtor. with 70% of Mumbai living in dilapilated conditions, I think he has a point

Times of India
The trend towards rising real estate prices is not a bubble, but a shoot-off of the boom in the country's economy, says Chetan Narain

Continuing from my last column on which way the prices are heading and what factors are pushing the prices up, here is my view keeping an outlook for 2007 and beyond.
With the current scenario the hike in property prices is being questioned and labelled as a bubble by many, and it becomes essential to understand what lies beneath this sudden surge. Especially in the past one year, the prices have gone up tremendously, even by 100 per cent or more in many cases. This has left a lot of residential buyers unsatisfied, especially first-time home buyers, as they don't get the benefit of the hike while selling a previous property. Also, the home loan rates have increased by almost two per cent.
However buyers need to understand that this trend is not a bubble but a shoot-off of the boom in the country's economy and the attention it is getting from the rest of the world. With India becoming the fourth largest economy, it is only but obvious that MNCs from all over the globe are now setting up in India. While other cities like Bangalore, Hyderabad, Pune still have spaces for development, Mumbai is facing the maximum pressure as the city lacks land supply and the demand is high in the financial hub.
With MNCs, the preference is towards buying properties that are located in prime locations as budgets are manageable for them but compromise on locations is not. This has led to shooting prices in areas like South Mumbai, Mid-town and other locations too.
Apart from this, today people are seeking to live not just in comfort but luxury. People are becoming highly conscious of their lifestyles. And when it comes to luxury, as the case has always been, no price can be termed as exorbitant as far as there is a buyer for it. In fact, it is the price that forms an important part of terming a product or service a luxury. It is not an over-statement but a fact that today buyers look not just for well-constructed projects but those that provide a minimum of two parking spaces per unit in a city that ideally cannot afford such extravagances. Also, with not just the concept of nuclear families, but people looking to stay by themselves apart from their families has triggered off a small but significant demand, which will only rise in the near future.
With a lot of focus being on improving Mumbai's infrastructure, standards of living in the city are definitely going to rise within the next three to five years. The rates have increased tremendously in locations that are on the thrust of an infrastructural makeover as self-sufficient and well-planned locations are every Mumbaikar's dream. For instance, Navi Mumbai is bound to become one of the most sought after destinations with the proposed developments of an international airport and development of two huge SEZ projects Maha-Mumbai and Navi Mumbai.
Most importantly, the highest demand is from investors: Local, Institutional and International investors through the foreign direct investment route who are all willing to spend high amounts for that longterm profit based on return on Investment through rental incomes and silent capital appreciation based on futuristic predictions.
The current price levels are, in fact, controlling to some extent most of their demands and making them tread slowly, which would have otherwise led to further pressure on the market. Also, investors are not willing to sell, which has further increased the lack of supply. All in all, it is the current rate of demand and futuristic expectations from the city that are causing a severe hike which is not going to decline in the near future.

Mumbai : Khar co-op hits 180 cr jackpot, wants more

Nauzer Bharucha | TNN

Mumbai: Middle-class residents of housing societies in Bandra, Khar and Santa Cruz are turning into crorepatis. Builders, flush with funds, are scrambling to offer them astronomical amounts in exchange for redeveloping their properties and converting them into residential towers and malls.
And if you thought Khira Nagar in Santa Cruz would be the mother of all redevelopment deals (the developer here is offering each flat owner over Rs 1.50 crore to move out), wait until you hear the mind-boggling figures being doled out to members of a tranquil housing society near the landmark Khar Gymkhana.
Tucked away in a corner of 17th Road, Khar (west), the Bharatiya Bhavan Cooperative Housing Society finds itself sitting on a gold mine—a Navi Mumbaibased builder has upset the calculations of leading developers by offering Rs 180 crore to the society, which works out to an average of a whopping Rs 4.87 crore for each of the 37 flat owners.
The society comprising six buildings—ground plus two floors—is spread over an acre with ample open spaces and car parking. There are just 37 flats, each between 650 and 850 sq ft in size.Each occupant could get a minimum of Rs 3.5 crore, going up to Rs 5 crore, to move out permanently. Members of Khar society hold out for Rs 20 cr more
Mumbai: In a stunning redevelopment offer, a Navi Mumbai-based builder has approached the Bharatiya Bhavan Cooperative Housing Society in Khar with a Rs 180 crore deal—about Rs 4.87 crore for each of the 37 flat owners. The residents who wish to stay back will be rehoused in the new buildings.
But are the residents biting the bait? Although residents were tight-lipped when contacted by TOI, market sources observed that the society was not yet ready to accept the offer made by the little-known Navi Mumbai developer known by the initials APA. “They are still not satisfied with this unusually high offer and are expecting an amount in the range of Rs 200 crore,’’ said a builder, who made an unsuccessful bid for the property. TOI has learnt that other developers in the fray included Tata Housing (Rs 179 crore), Wadhwa Developers (Rs 130 crore), Naman Developers and Acme Housing.
The society had invited sealed bids from various developers last year. “The successful bidder shall make full payment within 30 days of written acceptance of his bid. Else, his bid will be disqualified. Members of the society shall be given a period of 120 days to arrange for alternate accommodation and vacate the premises after the successful bid is accepted and full payment made,’’ stated the bid document.
Said local BJP corporator Ashish Shelar, “Residents of Bharatiya Bhavan felt that since their families have grown and the size of their flats are inadequate, it would be a better option to move out and buy a bigger place elsewhere.’’ The society, which is about three decades old and has well-maintained buildings, has not consumed its entire floor space index.
In recent months, there has been a rash of redevelopment proposals involving housing societies. The MIG colony in Bandra (east) and Worli is already on the block.
A cluster of Mhada tenements at Tata Colony in the Bandra Kurla Complex is also expected to undergo a makeover with a builder, M K Enterprises, offering each tenant up to Rs 80 lakh to move out. Each tenement comprises a room. The developer plans to construct a residential and commercial complex on the four-acre plot.

Prelaunch economics

Source realtyplusmag:

What is this pre-launch business all about? Pre-launch is being resorted to by developers in order to raise funds and to sell a major part of the project in advance and also to create a hype in the market. This creates curiosity among buyers and as they go on a property-buying spree, the developers sell it on a premium price. And all this without taking the pain of developers getting bank loan for which the builder has to make certain disclosure about his project and finances. Through pre-launch, the promoter can manage to raise 25-30 per cent of his total project cost which is sufficient to purchase land and pay for the necessary approvals as total project cost includes development cost, administrative and promotional expenses including profit margins.

By just paying the booking amount one can claim his or her right to residential and commercial property offered on pre-launch basis. The understanding is that the builder or developer will do the actual launching of the project at a higher price so that investor at the pre-launch stage can book a profit and exit the project. The company keeps on increasing the price of original booking to create resale market. The rates of return can be quite high as investors make only partial payment to the company at the pre-launch stage.

But then there is a risk involved here as pre-launches are normally done for projects which have yet not been approved by the authorities. In many cases, the developer doesn’t even have the land for his project. There are several instances where developers announce 50-100 acre township project but they tie up only for 10-15 acres of land by giving advance money. Recently, a leading Delhi-based real estate developer, which has a number of group companies engaged in pre-launch bookings, was exposed by the town planning authorities in Sonepat.

Developer-investor-broker nexus

The entire business of pre-launch sale of property revolves around the chain formed by developer, big investors and brokers. The investor comes first in the chain of command who is approached by the developer. He invests in the project, normally on the promise of about 40 per cent appreciation in property price at the time of the launch. Some big- time brokers are also involved in underwriting the project. Keeping in view the dimension of the entire business, some big-time investors have even formed joint ventures with developers on revenue-sharing basis for pre-launch projects.

The broker or estate agent is the most important link in the pre-launch business. “Since pre-launch is not a legally accepted practice, the developer does not come directly into the picture. Moreover, most of the investors cannot approach secondary market to find buyer for their booked property. Therefore, the real estate agent plays a key role while interacting on behalf of the developer with investor and on behalf of the investor to sell the property again in the market,” says real estate expert Rakesh Purohit. And the broker gets good rewards as well since he gets as much as 4-8 per cent commission (double the normal) for high risk pre-launch projects. It is this lure of big money which has drawn shopkeepers, business men and retired people into property brokering business. With such fat incentives, brokers have become bolder and pro-active in the attempt to hook common people to invest in such properties. “It is not just gullible, ill-informed retail investor but even well-educated and well-informed senior corporate executives with heavy pay packets and ESOPs who are involved in this gamble of striking it rich in short time. These people have lot of surplus funds to invest. An entry-level executive couple in an MNC takes home about Rs 16 lakh annually. So besides investing in their first home, they are putting in lot of money in pre-launch properties,” informs a leading broker of Delhi.

Most of these corporate executives do not mind putting their money at risk. Says Ramesh Menon, working for a leading real estate consultancy in Gurgaon, “We deal with lot of corporate executives and 15 per cent of my clients are women. These Gen X executives are investing in pre-launch business with due diligence and with proper risk spread. There’s this financial analyst lady working for a Fortune 500 company who has invested Rs 80 lakh in three different (residential, retail and office) projects. And her target is to grow her money to Rs 2 crore in two years’ time.”

Real estate in India is overpriced: Deepak Parekh

Rediff.com interview with HDFC Chairman Deepak Parekh

While foreign investors seem to be making a beeline for property in India, HDFC
Chairman Deepak Parekh believes real estate is overpriced. He speaks to Shobhana Subramanian on the dangers of having unreasonably high property prices, saying affordability is now being stretched. Excerpts:

You haven't been bullish on real estate. What do you think you've missed?

I'm still not bullish. Real estate in India has to do with affordability whether it's for residences, offices or even malls, and affordability is the key to viability.

The boom in the commercial space is due to the demand from the IT and ITES sectors where most companies don't buy space. Almost 90 per cent of it is rented. Companies cannot afford to pay rents of Rs 30-35 per sq foot because the wage structure is increasing. If you don't want to lose business to China or Vietnam, rents have to stay in check.

How many malls can afford to pay Rs 100-150 or Rs 200 per sq foot? Look what happened to Crossroads. Only restaurants are left because food sells and the Piramals have sold out. The same thing is going to happen to other malls. There are many international brands, but they too cannot afford to be present in every mall.

How do you view property prices today?

I was in Bangalore recently. Developers tell me they see a slowdown in sales and a dip in commercial and residential property prices varying between 10-30 per cent in Whitefield, which is a growing suburb. I would say this is the beginning, it's not a bubble.

A correction is necessary and further increases are unlikely to happen. Even if your cost of construction goes up, you will not be able to pass it on because you have inflated land prices.

Home loan rates have risen 200-250 basis points from their lows 30 months back and asset prices are also up. Is affordability deteriorating?

Affordability is certainly at a stretch. But the shortage of housing is enormous, so we feel that a 200 basis point increase in home loan rates will not impact demand for housing.

Normally, we either extend the term of the loan, or increase the EMI or ask people to make balloon payments. Sure, we don't want the loan period to extend. Some of the banks have started disbursing loans at 25-year periods at origination. These loans will easily stretch to 40-45 years. Can we afford this? We have to lend on cash flows of the family, not on the asset value.

Interest rates are up 150 basis points year-to-date, though the 10-year benchmark yield has gone down 100 basis points in the last six months. What is your take on interest rates?

Liquidity is certainly getting tight, but then CRR has just been increased and advance taxes have just been paid. Corporate tax collections are 64 per cent higher this December compared with last year. So, the rise in short term rates is temporary and should ease, I would say, by the end of January.

As for long-term rates, I don't think that with the 10 per cent growth that we are aiming at, we can contain inflation below 5-6 per cent. In which case interest rates have to go up and I would imagine a rise of between 1-1.5 per cent.

For the hundredth time, why aren't you merging HDFC Bank and HDFC? Is the Rs 15,000 crore SLR tab the only issue?

The tab is now Rs 20,000 crore (Rs 200 billion).

What about the holding company structure, which you have been talking about?

There is an issue with the double taxation on dividends, which some groups have said, should go. Also, the withholding tax is no longer small, it's very high.

So the operating company pays dividends, the holding company pays withholding tax and even if it's a pass-through, the same amount is paid. There's been a request that if it's a pass-through, to the extent that the holding company pays more, charge it for withholding the tax on dividends.

For instance, if it receives Rs 100 and pays Rs 90, then charge it. But if it receives Rs 100 and pays Rs 200, then charge it on the balance amount.

There are other issues too. We already have two listed companies and are planning to list our insurance ventures soon. A holding company must be listed, so it becomes messy in our case because there is no family. Who will hold the shares?

You say size and market cap are very important for financial players, yet you desist from consolidation. Also, compared with ICICI Bank, don't you think HDFC Bank has grown slowly?

Yes, size is very important but we are growing at a minimum of 30 per cent every year. I think in the financial sector, growing at a 50 or 100 per cent rate on a per annum basis, is inviting trouble in the future. You must have a reasonable growth. A finance company cannot double and treble its balance sheet. Thirty per cent is much more than we can handle.

How does one interpret the 12 per cent stake that Citibank holds in HDFC? Isn't Citibank a competitor?

Standard Life needed to sell the stock and I'd say it's a sale from one portfolio investor to another. Citibank is a competitor in only banking, not in insurance or asset management. Besides, we have 500 branches, while they have 50, so where is the competition?

Citibank is one of the largest lenders to our mortgage business. They are also distributors to our AMC. We work closely, so I don't think you can view Citibank as a competitor.

Do you foresee a time when Citibank will take over HDFC Bank, legislation permitting?

We don't know what the future holds. One thing is certain: as an individual, I can't prevent anything because I don't hold any stock that has power.

HDFC will launch a $750 million international real estate fund next month. How big is the opportunity in this space?

We'll close the fund by January or February. We see an opportunity in real estate if one invests wisely. I know that on the one hand, I'm saying real estate prices are too high and on the other, we're raising money for real estate equity investment.

But our case is different. We have been working with developers for 29 years and have supported many of them with construction finance. We have an edge over the others because we can request our old clients for a project in which we can take an equity stake and thereby, hold a better chance at succeeding.

The other advantage we have is that every builder requires debt, and he knows that if we give him equity from our fund, we will provide debt in any case, because we become part owners of that project. Having said that, we have to be careful about land valuation and we will not accept inflated valuations.

Should the government sell UTI Mutual Fund?

It does make sense because there are five shareholders and each of them have their own AMC and are competing. Five owners are too many and LIC has its own portfolio, so there are some conflicts. Maybe one of the five can make a bid for it. It need not go outside the family of shareholders.

Pallonji may sell stake in realty

Reeba Zachariah
Times Of India article

MUMBAI: Things are changing at Shapoorji Pallonji Centre, the business headquarters of India's fifth richest billionaire, Pallonji Mistry. The legendarily reclusive septuagenarian, well-known as the single largest shareholder of Tata Sons, promoter of India's largest industrial house — the Tata group — is now constructing a deal at group flagship Shapoorji Pallonji & Company, which could see the Mistry family adding billions more to its swelling coffers. With the Indian real estate sector attracting huge investments from foreigners, can the 140-year-old builder be left behind?

It is learnt that foreign investors are wooing the Mistrys to become a part of their real estate venture. A source familiar with the situation told TOI that the Mistrys are not bringing in any investor in Shapoorji Pallonji & Company but planning to sell a part of their stake in real estate business. SP&Co has two business units: construction and real estate.

The source said SP&Co is the holding company of the group which also holds shares of Tata Sons, and any stake sale in the company is being ruled out. Instead, the group is contemplating whether to rope in a foreign investor for a single real estate development project or form a JV for a pool of projects that it could hive off into a separate entity. The JV would be majority owned by the SP group while the foreign investor would get between 15% and 20%. The group has about 50 million square feet of real estate for development spread across Pune, Chennai, Kolkata, Mysore and Gurgaon among others. SP&Co will soon be launching a 60-storey residential tower in Mumbai, said to be the tallest in India.

A source said that the group preferred government-owned funds such as Dubai Capital, Abu Dhabi Investment Authority (ADIA) and Government of Singapore Investment Corporation (GIC), all of which are in talks with it. The valuation of the deal could not be ascertained as the source said the process has just started.

"Land bank is the most important factor as property is about location. If location is good and the land bank has
been substantially acquired at prices well below current levels, developers will attract a very good response," says Siddhartha Gupta, real estate analyst with Macquarie Research.

The real estate sector has become a hot pick for investors, attracting $2.08 billion — about 26% of the total foreign direct investment of $8 billion in the country in 2006. Buoyed by demand from home buyers, retailers and special economic zones, the property boom is expected to continue.

High realty prices hit home loans

From rediff.com

ICICI Bank on Tuesday said it has witnessed a slowdown in home loan segment in the current fiscal, following the high realty prices in certain markets.

"Real estate prices in some markets have touched a high and there has been a decrease in growth rate of the industry," Rajiv Sabharwal, senior general manager and head (retail assets) said.

He, however, stressed that high real estate prices were not a pan-India phenomenon but present only in certain pockets of the country. The bank expects the industry growth rate to reduce from the current 30-35 per cent to about 25 per cent in the current fiscal.

"Apart from high real estate prices, the base too has grown and it is difficult to maintain high growth rates on a larger base," Sabharwal said, adding the bank expects its growth to be in line with the industry.

ICICI Bank is a leading home loan lender with about 30 per cent market share. Out of the total loan portfolio, the retail assets comprise 70 per cent, of which the home loan lending is about 50 per cent.

Great prospects in real estate for you Rediff hype

Few comments on the hyped article which seems to be a plant by some vested interests.

Why was this article not posted in 2003 when the boom began ? The 3x appreciation is over and now they are touting 25% appreciation with a chance of 6 year downturn.
Why should any sane individual go for 25% appreciation over a 7 year period unless he/she wants to stay in the apt/house ? I can get a better appreciation by keeping the money in bank fixed deposits.
If you look at craigslist advts Whitefield is at 2000 for many projects, this woman has Whitefiled at 2400. There will be good areas to invest but the ones mentioned by the article writer are ones which have made maximum gains over the past 3 years. She has written this article by sitting behind a desk and by taking to real estate agents. Let her do some real ground work before gazing the crystal ball and trying to predict the future. For a real reality check, one needs to watch Khosla ka Ghosla to see the real story of real estate



Great prospects in real estate for you

Urmila Rao, Outlook Money | January 06, 2007


Over the last two years or so, real estate prices in most metros have seen a sharp rise, with annual return of 30 per cent being quite common. Though there seems to be some steam left still, some experts predict that prices will either stabilise or fall in 2007.

If you plan to invest in 2007, remember that it is a high-risk game, requiring you to stomach up to a six-year price downturn. Next year, go for long-term bets, basically areas that will surely appreciate in the next 4-5 years courtesy infrastructural developments such as metros, roads, bridges and airports. We map the areas with great prospects for price appreciation in the six metros of Delhi & NCR, Kolkata, Hyderabad, Chennai, Bangalore and Mumbai.

1. DELHI & NCR

Infrastructure development in Delhi is giving access to places where even now people grow two righteous good crops a year. And those are just the places to grow your money.

Delhi Metro: In Dwarka in west Delhi, the connection has pushed up prices by about 75 per cent and a further increase of 15-20 per cent is expected in 2007, especially in sectors 2, 6, 7, 9, 10, 11, 12, 13 and 14. The eastern extreme, adjoining Noida, which will get connected by 2009, is seeing property prices along the Metro shooting up. In sectors that will house stations -- 15, 16, 18, 32 (city centre), the botanical garden and the golf course -- expect a rise of 20-25 per cent.

Says vice-president of Delhi-based Majestic Properties Abdul Bari: "The prices are Rs 4,000-5,000 per sq ft as of now." Sectors 19, 26, 39, 40, 41, 47, 50, 51, 61 and 62 are also expected to gain. "Once the Metro reaches Noida, the connecting corridors will see a rise of about 25-30 per cent," says S.K. Sayal, CEO, Alpha G Corp.

Taj Expressway: The road, connecting Noida to Agra, will divert traffic coming from the south and going north and north-west from going through the city. After work started on it, prices have risen from Rs 1,500-2,000 per sq ft to Rs 2,000-3,500 per sq ft in Greater Noida.

Once it becomes operational, prices could go up by 20-25 per cent. Meanwhile, Greater Noida is likely to see a population rise from 1,00,000 to 3,50,000 by next year. Also, developers like Unitech, Eldeco and the Ansals are coming up with residential projects there.

NH8 Expressway: This awaited project linking Dhaula Kuan in Delhi with Gurgaon has seen a time overrun. Even so, property prices around it have shot up to Rs 5,000-6,000 per sq ft.

2. KOLKATA

It is spreading out in the east and beyond Howrah in the west.

Rajarhat: Development of this new 5,000 hectare township in the north-east started about five years ago. From about Rs 1,400-1,500 per sq ft last year, rates have risen to Rs 2,400-2,850 per sq ft. "In six months down the line, the prices in East Kolkata will increase by another 15-20 per cent," says Rahul Todi of Bengal Sharachi. The average price in New Town next year is expected to be between Rs 2,800-3,300 per sq ft.

Beyond Howrah: Two township projects are pushing up land prices. The first is a West Bengal government plan to create a 5,000-acre township project in Dankuni, near Kolkata. "Land prices appreciated last year," says Abhijit Das, regional director, Trammell Crow Meghraj, Kolkata. "One cottah (720 sq ft) on the stretch from the second Hooghly bridge to Dankuni is at Rs 1.5 lakh-3 lakh (Rs 150,000-300,000) compared to Rs 15,000-40,000 a year back." The other is an integrated township, West International City. At present, prices here are ruling at Rs 19 lakh-85 lakh (Rs 1.9-8.5 million) for residences of 900-4,500 sq ft and are expected to rise 20 per cent in 2007.

Eastern Metropolitan Bypass (EMB): The 21-km road along the eastern rim of the city connects its northern and southern parts. Two seven-star projects by Delhi's DLF Group and Dubai's Emmar Group are on the anvil. Current rates are Rs 3,000-3,400 per sq ft and are expected to rise 15 per cent in 2007.

Baruipur-Sonarpur: Located in south of Kolkata, this is the venue of the Salim Group of Indonesia's 6,000-acre, multi-use township project and SEZ. Property prices have already been pushed up 15-20 per cent. "Garia, the Garia-EMB connector, south EMB, Sonarpur and Baruipur will get impacted," says Das. Current property rates: Rs 900-3,000 per sq ft.

3. BANGALORE

The city's infrastructure is creaking now. But it has big plans to bring it back to its former shape.

Outer Ring Road: Currently, the prices are pegged between Rs 3,500-4,000 per sq ft on the Outer Ring Road, connecting KR Puram to Hosur Road. The prices are expected to rise 15-20%.

Airport: The airport being built in Devanahalli, in the north, is to be completed by March 2008. "The prices there are at Rs 2,000 per sq ft now. A rise to Rs 3,000-4,000 per sq ft is expected in the next two to three years," says Bangalore-based Shivaram Malaka, executive director, Habitat Ventures.

"In strategically-located Hebbal, near Devanahalli, the residential prices are around Rs 3,400-3,500 per sq ft and could go up by 60-70 per cent by 2008, if the developments take place as planned," says Praveen Kumar, vice-president, Trammell Crow Meghraj, Bangalore.

Satellite townships: The government has proposed five satellite townships at Sathanur, Bidadi, Ramanagaram, Solur and Nandagudi. The announcement has pushed up land prices from Rs 4-8 lakh (Rs 400,000-800,000) per acre to Rs 15-20 lakh (Rs 1.5-2 million). Prices in the outer ring, which are Rs 3,500-4,000 per sq ft now will see a hike of 15-20 per cent.

Elevated expressway: It will connect Tumkur Road in the north to Hosur Road in the south. Price of land along the corridor has moved up. The Bengarhatta road, Kanakpura Road and Tumkur Road have already seen an increase in land prices up to 300 per cent in the last two to three years. The prices along Tumkur Road are Rs 2,000 per sq ft on an average.

IT Park: Whitefield became the IT hub after industries moved to other parts of Bangalore. The corridor stretches to Indiranagar, Koramangala and Hosur Road. While the location is witnessing lot of action in terms of development and property prices, the spill of prices is being seen at Hosur Road.

Currently the residential prices at Hosur Road are Rs 2,000-2,500 per sq ft and they will escalate 10-15 per cent next year if the development is steady. "In Whitefield, the prices are between Rs 2,400-2,700 per sq ft and are likely to see a rise of 20-30 per cent next year," says Kumar.

4. MUMBAI

From crowded trains to clogged drains, it has huge problems. But still prices are going up due to infrastructure improvements.

Trans Harbour Link: The most ambitious project, it will connect Uran to Shivri across the harbour and become operational in 2015. It should cut travel time from south Mumbai to the eastern suburbs as well as the planned SEZs around the area.

Mumbai Metro: The elevated MRTS link connecting Versova to Ghatkopar will push the prices 40-50 per cent in some areas over three to four years and is likely to start running in this time. This should give a price thrust in Saki Naka, Powaii, Kurla, Ghatkopar and West Andheri. "I expect to see 40-50 per cent rise in these areas in the next three-four years," says Kapoor.

5. HYDERABAD

The challenger to Bangalore's crown as IT capital of India is experiencing some smart realty price rallies.

IT corridor: Madhapur to the west of Hyderabad, and Gachibowli to the north-west are the IT hubs spurring a lot of residential real estate projects in that area. "The prices have shot up between Rs 2,500-3,500 per sq ft in Madhapur, 20-25 per cent high since last year," says Thirumal Govindraj of CB Richard Ellis, Chennai. In Gachiboli, the prices start from Rs 3,000 per sq ft.

International Airport: This is slated to come up early in 2008 at Shamshabad, south of the city. Some major locations getting impacted at Shamshabad are areas along NH-7and Srisailam Highway. The prices along the connecting corridors range between Rs 8,000-12,000 per sq yard. By next year, the land prices will see a hike of 50 per cent. Neighbourhood areas along the airport like Kottur and Tukkuguda are within the range of Rs 3,500-5,000 per sq yard. Mansanpally is commanding prices between Rs 8,000-9,000 per sq yard.

Outer Ring Road: After work starts on Outer Ring Road, prices could go up 20-25 per cent. "West, south and south-west side of Hyderabad will see the maximum impact," says N. Ananthanarayanan, regional director, Trammell Crow Meghraj, Chennai.

6. CHENNAI

This is one of the cities expecting a moderate growth of about 10 per cent.

IT and BPO buzz: The 20-km stretch of Old Mahabalipuram Road has been designated an IT corridor. The stretch, starting at Taramani and Perungudi and ending at Padur and Kelamakkam, has seen property prices spiralling up from Rs 900 per sq ft in 2003 to Rs 3,400 per sq ft in 2006. "The prices are expected to increase by 20-25 per cent next year," says Ananthanarayanan.

"Porur in west Chennai and GST Road in south-west Chennai are emerging peripheral locations and are abuzz with IT developments," says Ramesh Nair, director (Chennai), Jones Lang, LaSalle, India. The prevailing residential prices in Porur are Rs 1,800-2,000 per sq ft and they have appreciated by 20-25 per cent because of the IT developments along the Mount Poonamallee highway.

Along GST Road, the rate is Rs 1,400-2,200 per sq ft for residential property, which has increased by 20 per cent over the previous year because of Mahindra City, Arun Excello Foundation, and Shriram Gateway IT Parks.

Bangalore 2007 forecast

http://www.rediff.com/money/2007/jan/06real.htm

Over the last two years or so, real estate prices in most metros have seen a sharp rise, with annual return of 30 per cent being quite common. Though there seems to be some steam left still, some experts predict that prices will either stabilise or fall in 2007.

If you plan to invest in 2007, remember that it is a high-risk game, requiring you to stomach up to a six-year price downturn. Next year, go for long-term bets, basically areas that will surely appreciate in the next 4-5 years courtesy infrastructural developments such as metros, roads, bridges and airports. We map the areas with great prospects for price appreciation in the six metros of Delhi & NCR, Kolkata, Hyderabad, Chennai, Bangalore and Mumbai.

3. BANGALORE

The city's infrastructure is creaking now. But it has big plans to bring it back to its former shape.

Outer Ring Road: Currently, the prices are pegged between Rs 3,500-4,000 per sq ft on the Outer Ring Road, connecting KR Puram to Hosur Road. The prices are expected to rise 15-20%.

Airport: The airport being built in Devanahalli, in the north, is to be completed by March 2008. "The prices there are at Rs 2,000 per sq ft now. A rise to Rs 3,000-4,000 per sq ft is expected in the next two to three years," says Bangalore-based Shivaram Malaka, executive director, Habitat Ventures.

"In strategically-located Hebbal, near Devanahalli, the residential prices are around Rs 3,400-3,500 per sq ft and could go up by 60-70 per cent by 2008, if the developments take place as planned," says Praveen Kumar, vice-president, Trammell Crow Meghraj, Bangalore.

Satellite townships: The government has proposed five satellite townships at Sathanur, Bidadi, Ramanagaram, Solur and Nandagudi. The announcement has pushed up land prices from Rs 4-8 lakh (Rs 400,000-800,000) per acre to Rs 15-20 lakh (Rs 1.5-2 million). Prices in the outer ring, which are Rs 3,500-4,000 per sq ft now will see a hike of 15-20 per cent.

Elevated expressway: It will connect Tumkur Road in the north to Hosur Road in the south. Price of land along the corridor has moved up. The Bengarhatta road, Kanakpura Road and Tumkur Road have already seen an increase in land prices up to 300 per cent in the last two to three years. The prices along Tumkur Road are Rs 2,000 per sq ft on an average.

IT Park: Whitefield became the IT hub after industries moved to other parts of Bangalore. The corridor stretches to Indiranagar, Koramangala and Hosur Road. While the location is witnessing lot of action in terms of development and property prices, the spill of prices is being seen at Hosur Road.

Currently the residential prices at Hosur Road are Rs 2,000-2,500 per sq ft and they will escalate 10-15 per cent next year if the development is steady. "In Whitefield, the prices are between Rs 2,400-2,700 per sq ft and are likely to see a rise of 20-30 per cent next year," says Kumar.

2006 - Chennai an exciting year for the property market

2006 - an exciting year for the property market

From the Hindu

DWINDLING GREENERY: Chennai has managed to maintain some greenery despite developmental activity.

It was a blinder of a year for Chennai's residential property market in 2006 when, depending on which side of the property divide you stood, you either had reason to rejoice or to regret. Property values appreciated by a whopping 40 per cent in 2006 and considering that it followed the 30 per cent growth seen in 2005, it is stunning indeed. In effect, if you are a property owner, the value of your property should double every two-and-a-half years if the same growth rate continues!

The last calendar year was the best in the last ten years in terms of absorption, which is purchases, and price increase. Most of this increase was seen in the first two quarters of the year after which the prices stabilised during a cool-off period in the third quarter. However prices have started looking up again in the last two months.

One of the key reasons for the spiralling capital values was the high absorption rate driven by the employees from the IT and BPO Sector. High demand was witnessed for residential units in Old Mahabalipuram Road, Tambaram and Velachery due to their proximity to the IT and BPO hubs. Other fast growing areas included suburban localities such as Mogappair, Porur, Virugambakkam and Mount-Poonamallee Road. The growth in the residential property market was aided by the fact that office absorption activity was also the highest in the city at 5.1 million sq. ft. for the year.

The driving demand for residential property are factors such as contraction in the size of households, rise in the urban middle class population, increase in double income households and increasing affordability. The greater acceptability of debt, increasing aspiration to own larger houses and preference for owned houses have also contributed in no small measure to the driving demand.

Speculation high

The last two years since 2005 have also seen speculators and investors entering the market. It was also noticed that many high net worth individuals and double income families have started buying their second and third homes for speculative purposes. There was also a category of buyers who were upgrading from 2-bedroom apartments of 900-1,000 sq. ft. to an average of 1,500 sq. ft 3-bedroom apartments with high quality construction and amenities. Developers claimed to have no problems in selling the residential units, though the absorption in the last two quarters were not as brisk as the first two quarters, during which a number of projects were sold on the launch day.

In spite of home loan interest rates going up, proactive measures from housing finance companies such as introducing innovative new products, unique marketing strategies, competitive pricing and wider distribution led to the housing finance market grow at approximately 35 per cent. The post-tax interest rates are still far lower than five years ago.

The yields from residential property further compressed to 4.25 - 5.25 per cent. Almost 80 per cent of the annual transactions in the Chennai residential market are mortgage financed and it is end-user driven with limited investor activity compared to cities such as Bangalore, Mumbai and Delhi. The typical end-users in Chennai are a 70:30 mix of salaried and business class. The average age of home ownership has also come down from over 40 years to approximately 32 years in the last few years.

How will 2007 be?


The residential market will continue to see considerable activity, both in the sale and leasing segment. In 2007 residential prices in Chennai are expected to grow by a more realistic 10-20 per cent in many parts of the city. However, any changes regarding tax breaks currently available for housing finance, further increase in interest rates and deteriorating infrastructure could have a negative impact on the residential markets.

One thing looks certain for 2007 - the increase in capital values seen in the last two years will not be repeated. Residential yields are further expected to come down to 4 - 5 per cent. The growing trend of short term speculators booking an apartment at pre-launch or launch prices, and selling them a few months later at higher prices which was witnessed in the first two quarters of 2006 is expected to come down in 2007.

The market would witness more entity level and portfolio level transactions and the discerning private equity investors with their hands on approach are expected to play a more active role. The year 2007 will also see a number of large pan-India developers such as DLF, K Raheja Universal, Hiranandani and Unitech announce their residential projects in Chennai.

Investors need to be cautious as they are not only taking enough risk in real estate through their second home but are also buying real estate stocks in their portfolio.

* * *

Luxury homes much sought after

The year also saw the launch of a number of high-end luxury residential projects in the city. Until 2005, the supply of international standard luxury residential accommodation in Chennai, which has a relatively strong demand, was quite limited.

Projects such as Patio, Four Seasons, Club Cabana and Courtyard by Vijay Shanti, Alliance Infrastructure's Bougainvella, Habitat by Akshaya Homes and Vishranthi's project on Kasturi Rangan Road were well received by the market, with some projects even crossing the US$ 1 million mark per unit.

With the entry of large pan-India developers from Mumbai and Delhi such as DLF, Hiranandani, Unitech and K Raheja, the supply in this segment is expected to further go up in 2007.

The demand for luxury projects is typically from senior management of corporates and NRI's. The typical sizes of luxury projects are in the range of 2,500 sq. ft. to 4,000 sq. ft.

Good luxury projects typically provide amenities such as party area, club house, gymnasium, amphitheatre, modular kitchens, air-conditioning, large landscaped areas, garbage disposal facilities, swimming pool, servants rooms, 100 per cent power back up, driver's room, terrace gardens, squash courts, video door phone, jacuzzi, mini business centre, fire fighting facilities, children's play areas, high speed exclusive lifts and so on.

Despite the spiralling prices, the demand for high-end luxury apartments in prime residential areas such as Boat Club, Adyar and Thiruvanmiyur is much more than the current supply due to the limited land availability for development in these areas.

(The author is Local Director with global real estate advisory firm Jones Lang LaSalle. He can be reached at ramesh.nair@ap.jll.com)
He can be reached at ramesh.nair@ap.jll.com

Mumbai readers respond to a DNA poll

Its a wait and watch scenario with apartment buyers and not even a single resident polled can afford to buy an apartment at these ridiculous prices

Today, property in Mumbai is greatly overvalued. A correction is due, but I don't see it happening immediately. Maybe, the end of the year will see a fall in prices especially in areas beyond Andheri. Lack of space from Juhu to south Mumbai will restrict a correction in these areas. There is a growing ‘wait and watch’ trend among consumers as prices are unaffordable. Delhi is already witnessing a correction and even the Pune market has stagnated. So, logically Mumbai should be next in line. Mill lands opening up should ideally lead to a correction but even that property is being sold at exorbitant rates.

So, while some wait and watch, others have no option but to wait and hope that a correction makes things more affordable.”

— Bhagwan Bahirwani. Lavina Estates

Still waiting for the price dip

For the last two years, we have been trying to buy an apartment in the neighbourhood, but that hasn’t materialised. We were told that property prices would come down and we waited. But the prices have only gone up and I don't see them coming down at this juncture. So, it doesn’t make sense to buy property right now. Perhaps, in future when I have enough money or if I am lucky enough to win a lottery, I will go for it.

— Sushmita Chaterjee. Goregaon

No 1-BHKs available

I have been scouting for houses for quite some time. Earlier I couldn’t find anything to my liking, and now the prices have shot through the roof. I can only think of buying 1-BHK but the problem is that the builders have stopped constructing 1-BHK. I'm afraid, I'll have to wait a few more years to live in a house of my own.

— Dharmesh Chawla. Kandivali

Loans are unaffordable

I am being hunted by banks to take loan, but the property prices are so high that I can't even arrange for the initial payment. A loan, therefore is, out of question. I am praying that the prices come down but I don't see that happening in the near future. They are heading only one way — up.

— Rajiv Gopalan. Malad

Waiting for the next fiscal

I am planning to invest in property but I am in two minds. I have heard that home loans will no longer be exempted from tax and the banks have also increased the interest rates. So, I am putting my plans on hold for a while. Hopefully, the new financial year will see interest rates drop and more tax exemptions, making it easier to purchase property.

— Mitesh Panchal. Andheri

Not an auspicious time

From where I come, they don't make any valuable purchases during this time of the year. I will wait out this period. The property rates in our locality have largely remained stable. I hope things stay the same for the next few months so that I can buy it at the same rate.

— Adhvet Maitra. Jogeshwari

Loan rates went up

I had planned to book a house a short distance from my house. Everything was finalised but the bank where I had applied for loan suddenly came up with new interest rates. They refused to grant a loan at the old rate and I had no choice but to put my plan on hold. Now the rates have almost doubled and I can't afford to buy even half the area I had planned to buy before. I have dropped the idea of buying property.

— Kamlesh Chauhan. Goregaon

A few months later, maybe

Real estate has gone out of reach of the middle-class Mumbaikar. Only the affluent can afford to invest in property. Builders have fired property prices and banks have hiked interest rates. In such conditions, I can’t afford to invest in real estate. I’ll wait for a few months and hope that property rates go down or banks reduce interest rates.

— Jatin Shah. Kandivali

The housing bubble is set to burst

Probably the first and only guy to call the real estate industry's bluff.

Rediff.com,

He's just listed a fund at the AIM stock exchange in the UK - the fund, which controls around 4 per cent of Unitech's land bank, has raised �362 million (Rs 3,168 crore).

Unitech's 10,500 acre-plus land bank makes it one of the largest real estate firms in the country - according to investment firm UBS, this can translate into 400 million square feet of commercial and residential space.

While the group is primarily into residential complexes today, it is a 40 per cent partner in the high profile 40,000-acre project with Indonesia's Salim Group in West Bengal, which includes SEZs, integrated townships, expressways and even two bridges over the Hooghly and Haldi.

Unitech's MD Sanjay Chandra is of the view that a lot of the enthusiasm over hotels and malls, especially in tier II and III cities is unwarranted, as is the rush to build luxury apartments. Excerpts from an interview with Surajeet Das Gupta and Nayantara Rai:

Are you happy with the AIM listing?

Yes, we've listed Unitech Corporate Parks and have got a valuation of Rs 3,168 crore (Rs 31.68 billion) - the company has a portfolio of 197.5 acres and will build up 21.5 million square feet space in six IT parks across the country. This portfolio represents approximately 4 per cent of our total land bank in India.

Apart from the valuation we've got, what's more important is that the world's leading funds and financial institutions have invested in us. I've been told this is the second or third largest real estate float in the UK. That's quite an achievement.

But why did you list at AIM?

One of the reasons is that we needed to create a platform for REITs [Real Estate Investment Trusts]. We have created a development fund, which can now be sold overseas.

What is the size of your current land bank?

As per our disclosure in September this year, our land bank was 10,400 acres. After that, we have acquired 77 acres in Chandigarh, 100 acres for a housing project in Greater Noida, and another 25 acres in Noida.

Are you looking to grow from M&As?

Not at all. We are only interested in adding value to our projects.

What about your foray into hospitality?

We've learnt that it's not a good idea to be in a hurry to sign management contracts with hotel operators. Unlike others who have forged joint ventures with hotel operators, we will be more flexible and neutral in our approach. Therefore, we will require different partners in different locations.

At present, we have three hotels in Gurgaon, two in Kolkata and one at Noida. One of the hotels in Gurgaon will be a luxury hotel and we are in talks with potential partners.

Why is that you don't participate in hotel auctions?

All our hotels will be a part of a mixed-use development - we don't believe in stand-alone projects. So land agencies auctioning these isolated sites do not fit in with our overall strategy.

Besides that, people are paying exorbitant rates that I just don't understand. It doesn't make sense to pay Rs 450 crore (Rs 4.5 billion) for a hotel site in Dwarka. You can make a Ritz Carlton in Singapore for that amount.

What are your plans for retail? Everyone seems to be entering it...

We don't plan to be retailers. Retail has very low margins, and being in the real estate business, I'm used to high returns.

We are in the business of developing retail destinations. We have had a soft opening in Rohini (west Delhi) and our mall in Noida will open in two and half months. There are obviously many more plans on the radar.

Will you tie up with any retailer for your malls?

No, we don't want to limit ourselves. We want to do business with everyone. So why should we get into exclusivity clauses with any retailer?

Do you perceive a property bubble in the near future?

I think some pockets are heading for trouble. The realty run-up in the tier-II cities in north India are outrunning the employment opportunities available there. And today, all of us developers are chasing the upper middle class.

There is all this talk of Ambala, Rudrapur and Haridwar and so on. But how many job opportunities coupled with high purchasing power will actually become a reality in these towns?

What about all the talk of IT/ITES companies starting operations in tier-II cities?

So what? Even if they do, there will still be trouble. These companies will probably have business process outsourcing outfits in these towns and about 90 per cent of the employees won't be able to afford housing. The rest may be supervisors who may have the purchasing power, but 10-15 per cent of them would be living with their parents.

Hospitality will be another troubled sector. Those buying sites at exorbitant prices haven't factored in the fact that room rates will fall. A few years from now, the supply will increase considerably, and hotels will no longer be able to command today's room rates.

Even retail is heading for trouble. Retailers cannot be expected to make profit from the rentals charged by developers today. Rentals in authorised shopping complexes skyrocketed after the MCD (Municipal Corporation of delhi) sealing drive in the capital. This directly affects the retailer's business.

How much rent do you charge for your malls?

In Noida, we leased about 80 per cent of the mall before building and the average rate was Rs 120 per square foot. The last 20 per cent was rented out at an average of Rs 300 per square foot.

In Rohini, we started leasing after the construction was complete. While we were targeting Rs 60-70 per square foot, we actually ended up charging Rs 170 per square foot.

Is the market in Gurgaon slowing down?

We feel there is an overdose of luxury housing in Gurgaon. So we have made a conscious effort to stay away from that and concentrating on the upper-middle class segment. The average size of our houses is 2,000 square feet and these are available for Rs 80-90 lakh (Rs 8-9 million). Even that is probably too much.

Is there speculation in the market still high?

No, it's much better. From 70 per cent last year, I think, it is down to 10 per cent. Buyers now seem to be selling after possession. This is good news for us in the industry.
Earlier a person would buy a house at the time of the launch - with discounts offered which would vary from developer to developer - and sell in just a few months. By the time the construction was completed, a house or apartment had been resold five to 10 times.

Realty cos raise Rs 4k cr in 2006

PREITI SHARMA SHAHANE

TIMES NEWS NETWORK[ TUESDAY, JANUARY 02, 2007 03:10:16 AM]
BANGALORE: There couldn’t have been a happier year for Indian realtors. Riding on stellar valuations, the real estate industry has jumped 10 places from last year to emerge at the No 2 slot by contributing as much as 17% to the total funds mobilised through public issues — initial public offerings (IPOs) and follow on public issues (FPOs) — this year.

Indian real estate developers and infrastructure companies have raised Rs 3,994 crore in IPOs and FPOs this year as compared to a mere Rs 216 crore last year.

Two out of five issues of over Rs 1,000 crore each this year emerged from the real estate category. Prithvi Haldea, MD, Prime Database, said, “Led by Parsvnath Developers (issue size — Rs 1,090 crore), Lanco Infratech (Rs 1,067 crore) and Sobha Developers (Rs 569 crore), the share of the realty/infrastructure sector stood at Rs 3,993 crore through 12 companies out of the total Rs 24,141 crore that public issues mobilised in 2006. The year also witnessed the second highest-ever mobilisation in the history of the Indian capital market.”

According to Prime, energy companies dominated with a 35% share of this year’s tally at Rs 8,374 crore through just three issues. The year also witnessed the largest-ever IPO — Cairn India — for Rs 5,260.79 crore which propelled the energy sector to the numero uno position.

The realty juggernaut shows no signs of slowing down in the year ahead. As per PRIME, issues in the realty/ infrastructure sector that have already received or are awaiting Sebi approval include the big-ticket Omaxe which is estimated to raise Rs 1,500 crore, Gammon Infrastructure Projects (Rs 375 crore), Akruti Nirman (Rs 350 crore), C&C Constructions (Rs 150 crore) and Gremach Infrastructure Equipments & Projects (Rs 59 crore). Ahluwalia Contracts is expected to raise about Rs 250 crore through its FPO.

About 20 other IPOs/FPOs are in the pipeline for 2007. They include the much-delayed DLF Universal, which will look to raise Rs 12,000 crore, Simplex Infrastructure, Ansal Properties & Infrastructure, Mantri Developers, Emaar Properties, Puravankara Projects, Goel Ganga Group, IJM India Infrastructure, IVRCL Prime Urban Developers, JMD Promoters, Kumar Builders and Peninsula Land.

Rents go through the roof in India’s top cities

Indian express article

Reuters

Changing archaic laws will free up a lot of property in India’s financial capital, but it still won’t meet demand

MUMBAI, January 3 : UP a flight of creaky wooden stairs, real estate agent Hemant Surve guides a prospective renter around a damp two-bedroom apartment overlooking the sea in the country’s financial capital.
Real estate boom to continue: AssochamReal deal: Digital and transparent Foreign funds adding to realty boom: ParekhWhen prices crash, hidden home loan clause may hauntIt won’t bring down the roof

Flaking paint and dilapidated toilets leave his client, an American expatriate, distinctly unimpressed but Surve says its dysfunctional plumbing and dour colour scheme is all she’ll get for her budget of $2,500 a month — plus bills.

“Many are willing to pay anything for a flat like this,” Surve says as he gestures at a bare sitting room, whose arched windows open on to a heap of ugly road construction material and huge cranes.

As global firms flock to India to tap opportunities in its burgeoning economy, premium residential rents in cities like Mumbai and New Delhi are going through the roof. While residential rents have gone up across the board, they have surged 31 per cent in the last quarter in Mumbai’s top-end areas like Nariman Point, named as one of the world’s 10 most expensive locations in a recent CB Richard Ellis survey.

Tenants drawn from banks, IT companies, securities traders and headhunters are driving the market in the city, property dealers say.

In New Delhi, upmarket southern suburbs have seen rents appreciate 30 per cent in each of the last two quarters.

“Values in Delhi will remain buoyant as there will be no substantial supply in the next 12-15 months,” said a consultant with real estate firm Knight Frank. “The demand-supply situation in the premium segment is the same in Mumbai and New Delhi.”

In Bangalore, home to major IT firms, property prices have risen as much as 50-60 per cent in the past six months, but have since fallen and stabilised at a rise of about 15 per cent after new construction met part of the huge demand.

The high-end property market in India’s financial capital Mumbai is witnessing a bizarre drama, where rents for some two-bedroom apartment can either match those in New York or Tokyo, or cost only a few dollars.

The cause is a six-decade-old rent control law — framed to insulate tenants from unscrupulous landlords — which millions of renters use to hold a large chunk of prime property, paying rents at 1940s prices.

The politically popular law has been extended more than 20 times and currently applies to roughly 60 per cent of buildings in the city centre. Landlords, who can’t raise rents or redevelop their assets without tenants’ permission, have watched helplessly as market prices have soared and their properties have disintegrated.

“A change in the rent laws will free up a lot of premium properties,” said Sandeep Sadh, chief executive of online real estate firm www.realestatemumbai.com. But he adds that even then it wouldn’t be enough to meet the demand in the residential segment.

The pressure on the high-end property market has forced companies and individuals to look at Mumbai’s northern suburbs, but poor connectivity to the rest of the city is a problem.

-Krittivas Mukherjee

editor@expressindia.com

Real estate pump up

Everyone with any real estate background is pumping up real estate.

Moneycontrol.com
By Kamiya Jani

One sector, where demand does not seem to be going down, is real estate. Several reports suggested that property prices would cool off post Diwali and all those who wanted to buy a house were waiting for this period. Now that Diwali is over, Moneycontrol takes stock of what is really happening. Have property prices finally started to cool down?

Price check

“Prices are still on the rise and we don't see them coming down soon. Developers have purchased plots at expensive rates and will sell them at higher rates,” says Sanjeet Narain, managing director, Narain Corporation. He also adds that the demand in the market is ever increasing and the supply is less. So prices will be on a rise for a while, however, they may stabilize after 12 months.

Experts say that the infrastructural development like sealinks, flyovers, highways and also malls coming up in India has been the major reason for prices to go up.

Property consultant, Ramesh Nair points out that in many markets, be it residential or commercial, major price increase has happened in the 12 months since May 2005. “Prices are rising even today but not as much as then. It is not going to be a drastic increase as we saw in the first quarter of 2006.”

In certain pockets of India, prices have grown upto 200%. However, Nair says that prices could fall in certain over-heated pockets of the city but the fall may be just marginal. He cites the following reasons for the correction being only marginal:

* Speculators leaving the market
* Rental rates going down
* Interest rates going up
* Demand increasing in certain parts of the country

Should you buy a home to live in now?

Narain suggests, “Someone who is planning to buy a home should not wait any longer as prices will keep going up. He should go ahead and buy it now.” He recommends that in ready possession properties, one should invest in the suburbs, as the demand is more there, hence chances of a price rise are higher.

“In Mumbai, over the past 30 months, prices at suburbs have increased from 40% to 130%,” says Sandeep Sadh, CEO, Mumbaipropertyexchange.com. From Andheri to Borivili, Kurla to Mulund and location surrounding BKC will be on a peak.

Therefore, if you are planning to buy a home to live in, and you have a budget big enough to buy it in the city's central location, understand that you may not get high appreciation. If you are looking at home, along with getting the benefit of real estate boom, buy a home in suburbs.

Ravindar K Vanwari, Director of Investment, AAkarshna Realtors, makes an interesting point. He says, “Property seekers may go ahead with their plan but I suggest that they should buy home with original booking only and not by paying premium on it.”

Original booking price means the price at which the builder is selling the flat even before the building is ready and is yet under construction. This price is generally less than the ready to move in price. For instance, original booking price of a certain complex in Bhandup was Rs 2,500 but now, on completion, it has gone up to Rs 4,000 and is expected to go further up. Original booking price is generally low due to many reasons, one of which could be the risk that the builder may or may not finish the building.

However, if you are planning to buy a ready apartment, try to bargain to get the closest price at which the developer sold the flat when it was under construction as against the price he quotes for a ready apartment.

Nair recommends that you do an in-depth analysis before buying property, since price appreciation will vary from area to area. Look at the price trend in the last few years in the particular area, infrastructural development in the city and the location, future attraction and also how the property looks from a long term investment point of view. This means that schools, connectivity, stations, depots, SEZ, highways, malls, entertainment centers so on and so forth should be not more than half and hour's distance from home.

Sadh says, “We ask all our clients to follow one policy. When a man is looking for a house, his first priority should be for kids, second should be for wife and third should be himself.”

Therefore, make sure that:

* Your home should be at a good proximity to your kid’s school. Since he is going to be in the same school for about 12-15 years, it may not make sense if your kid has to spend time to travel far off.
* Hospitals, markets, bus depots and railway stations are other important necessities you must look for.
* You should be ready to travel for work but do not compromise on the above-mentioned areas. You may change your job in the next three years or your office might get shifted to some other place. Therefore, buying a home near your workplace should not be the priority in your wishlist. However, if you are lucky to get a right one, then off course, what can be better than that?
* You should also preferably look for amenities like swimming pool, sports club, gym etc. either within the residential complex or near by. All these facilities will help your family for recreation and refreshment.
* Opt for higher floors since that helps to keep away from dust. You also get to enjoy all climatic conditions in India, be it winter, rainy or spring.

Property as an investment

Since experts believe that prices will still be on the rise, investing in real estate won’t be a bad idea. But Narain recommends one must invest only in under construction properties, as the prices of under construction properties are lesser than the ready ones and will increase on possession, hence better profit on possession. One can buy at a cheaper rate, enjoy appreciation and then sell it at a higher rate when the building is ready for possession.

By investing in a property at an early stage, you also get an option of choosing the floor, sight facing, and various other amenities.

Nevertheless, one must look at the real estate sector as a long-term investment. Vanwari avers, “A person who holds his property for 15-20 years gets more returns than an investor who buys and sells property after every six months. By doing this frequent trading in property, a short term investor may be happier but at the end of 15-20 years, the investor with a long term view will benefit more.” Since every time you buy or sell your property, you may have to pay various taxes like property tax or capital gains tax, the returns may look lucrative but it may not necessarily be.

Nair says, “Investing in land is better than investing in apartments, because yields on apartments have dropped from 5.5% to 4%.” All underdeveloped areas and new townships like Faridabad, Mohali or Noida will give a good capital appreciation in the coming years. But you must also look for connectivity - the place should be well connected to the main city. In this case, quite a many under developed areas are being connected to the urban areas with the help of newly built highways, flyovers etc.

Basically, all prospective buyers should look at peripheral location where infrastructural developments are happening that can be classified as growth corridors of the city.

India's property boom yields high returns

From news.yahoo .com - By Shailendra Bhatnagar

NEW DELHI (Reuters) - Rajan Sharma bought 4,000 square feet of office space on the outskirts of India's capital, New Delhi, for 2,900 rupees ($65) a square foot in 2002 and hasn't stopped grinning since.

Four years later, the 42-year-old consultant regularly gets offers more than three times the price he paid for the same office space as the arrival of foreign players, easy finance and rising incomes fuel a rush for prime real estate.

"It has been a very short but a hugely profitable journey," Sharma, who now runs a property firm, told Reuters.

"Seeing these profits I feel I should have done real estate all my life."

He is not alone.

There are literally thousands of sellers and speculators who have laughed all the way to the bank because of a property boom in New Delhi and its two satellite towns -- Noida and Gurgaon.

The pace has been almost as brisk in many other cities in India.

In Delhi, prices have been pushed even higher by a government campaign to close shops and offices built illegally in residential neighborhoods, adding to already fierce competition for commercial property.

And a spreading underground rail network in Delhi, which will eventually reach parts of Noida and Gurgaon, has spurred property prices along existing and planned routes.

"There is also fundamental and growing demand for office and retail space because of sustained economic activity driven by software companies and branded firms," said Tanaji Chakrabarti of real estate firm Trammell Crow Meghraj.

Delhi and its suburbs are also home to fifth-ranked software services exporter HCL Technologies Ltd. and huge backoffice units of companies such as American Express Co. and Convergys that employ thousands of staff.

The $23 billion software services sector has been one of the biggest consumers of real estate along with changing shopping tastes that are favoring multi-brand malls over neighborhood mom-and-pop shops, said Chakrabarti.

A NEW ECONOMY

Spurring the boom, the government has slashed cobwebs of legislation by allowing 100 percent foreign direct investment in large projects. Stamp duties have been rationalized and reduced, and a policy to set up special economic zones is boosting industrial growth.

Nascent chains such as Pantaloon Retail (India) Ltd. and Reliance Retail Ltd. have lined up multi-billion dollar expansion plans in which the largest component has been set aside for leasing or buying organized retail space.

In addition, companies such as Nike Inc. and Adidas are deepening their presence through franchised operations beyond India's metros to soak up demand from millions in the growing middle class.

"The demand for retail space across India will increase," said Vivek Dahiya, associate director at global property advisor DTZ India. "Certain markets seeing oversupply will see reduction in vacancies."

In Delhi, Gurgaon and Noida alone organized retail space is likely to rise to 14 million sq.ft. by the end of 2007 from 2 million now, he said.

But the sharp rise in commercial rentals in the past three years is hurting growth prospects of organized retail chains, which operate on margins as low as 3-4 percent.

"Rentals are now dramatically higher - by at least 50 percent in a lot of cities," said Kishore Biyani, managing director at Pantaloon. "At these prices we can't sign up new properties."

Biyani, who started retailing in 1997, said annual sales needed to be at least 50 percent higher to offset rising rentals.

In central parts of heavily congested Mumbai city, monthly rentals for discount stores have soared in excess of 125 rupees sq.ft from 55 rupees sq.ft about 2 years ago, said Pranay Vakil, chairman at Knight Frank India.

"This is madness and has little relevance to actual supply and demand factors," Vakil said. "Rentals are now crossing the industry norm of 12 percent of gross sales, making it extremely difficult and unaffordable for retailers."

But even after this rise, monthly retail rentals in prime commercial space or "high street" in Mumbai are low at $11 per sq.ft compared with $24 in Singapore and $80 in Hong Kong, according to data from Knight Frank India.

SERVICES SECTOR

Research firm SSKI forecasts demand for 160 million sq.ft. of commercial real estate over the next 3-4 years, driven primarily by the services sector, which contributes nearly 55 percent of
GDP in Asia's fourth-largest economy.

Similarly, the housing sector is likely to see 15.9 billion sq. ft. of construction by 2010, SSKI said in a recent report.

However risks abound despite runaway gains and could harm short-term demand for residential property.

"The sharp run in property prices over the last 2-3 years and an upturn in the interest rate cycle are the key risks," said Shirish Rane, an analyst at SSKI.

"Commercial and retail properties are threatened by the trend of rising rentals which impact profitability."

Prices of prime residential property in central Delhi have soared more than 75 percent over the past two years thanks to demand from a growing tribe of millionaires and a law that limits the number of floors that can be constructed.

All this euphoria has also spilled onto the stock markets where the real estate stocks have been among the top performers thanks to scarce supply of quality paper.

Initial public offerings of firms such as Parsvnath Developers Ltd. have seen huge demand and the stock listed, in November, at an 83 percent premium to the issue price of 300 rupees.

($1 = 44.61 rupees)

Losing air by Sucheta Dalal

Losing air
01 Jan, 2007

It is an indicator the property bubble is beginning to go flat when inquiries for new properties decline and doubts are cast over so-called deals that had pushed prices into the stratosphere. Questions are being raised about the veracity of a newspaper’s report heralding the ‘record-breaking’ Rs 73,000 per sq feet deal for a South Mumbai apartment. While many in the property market deny such a deal, a more charitable version insists the sale occurred, but the buyer paid an exceptional price for personal reasons. The newspaper didn’t mention the price quoted was on a carpet area basis. Since all newly constructed property has a 40-45 per cent mark up (what are known as super-built up area) it leads to a huge price difference in for newly constructed properties. Sources also say insisting on a particular flat entails another mark up of anywhere between 10 and 20 per cent, depending on the seller’s demands. Once adjusted for these factors, the price looks less stratospheric. So there’s consensus that Rs 73,000 is by no means a new benchmark for Mumbai apartments. Markets sources say irrational prices paid for specific properties in Mumbai can never be considered a benchmark price.

Awry AIM

Another issue worrying realty developers looking to raise large chunks of premium-priced public money is the performance of companies recently listed on London’s AIM (Alternative Investment Market). Prices of three of the top Indian stocks fell below their issue price within a day of listing and continue to remain subdued. So far, 11 Indian companies have raised $1.2 billion from AIM in record time; almost all are trading at a discount. Realty companies love the AIM because the fund raising process is tremendously fast and requires much fewer disclosures. Although global investment interest in Indian realty companies has been high, there is worry aggressive pricing by the front-runners could ruin the chances of those to follow. Higher interest rates and the sharp rise in realty prices has already forced many Indians to drop plans to acquire or upgrade existing homes and the impact is apparent in fewer inquiries for new constructions. All this could impact fund raising plans of realty developers in the coming year.

You can track the hiranandani ticker on yahoo finance as HIRC.L and Raheja's Ishaan Real estate as ISH.L

Hot property destinations in 2007

From MonceyControl.com

A booming economy, easy availability of loans and plenty of projects to choose from are perhaps some of the reasons for the property market shining bright. Year 2006 has come to an end and if you're waiting for the right time to buy some nice cozy place under the sun, Moneycontrol gives you a lowdown on the areas across the country that hold the most promise and the reasons as to why they hold high growth potential.

According to Sajeet Narain, Managing Director, 'Narains Corp' International Properties, all Tier I cities will continue to remain a hot favourite in 2007 too thanks to the influx of foreign fund, multinational companies, FDI, better infrastructure among others.

But then if Tier I cities are out of your reach you could consider investing in the surrounding locations. Adds Narain, "A good place to invest in any Tier I city, is the location surrounding the city and the suburbs, as these areas historically have been in demand in most developing international cities.

"For instance the location surrounding Hyderabad is in demand as the rates in the city has increased. India's largest IT special economic zone is also going to be set up in the outskirts of Hyderabad which will help the residential demand to grow in the surrounding areas."

Sandeep Sadh, CEO Mumbai Property Exchange.com also believes that a lot of the growth will be driven by developments in the IT and ITES sectors.

Moneycontrol lists down hot locations that a mix of experts feel will be the best bets in 2007.

Tier I cities:

Areas

Reasons

Mumbai

Growing infrastructure, relatively transparent property deals, entertainment and financial hub.

Pune


Growing IT and ITES companies, good infrastructure, better quality of life than metros

Bangalore

Increased demand from IT/ITES sectors, growing expatriate and returning professional NRI's, infrastructure development

Hyderabad

Increased impetus on IT and ITES sector, quality residential housing, affordable compared with other Tier II cities, infrastructure development

Gurgaon/Noida

Proximity to Delhi, better connectivity with high speed highways, impetus on IT and ITES sector

Chandigarh

One of the best planned cities, government policy towards future development of IT and ITES Sector, improved infrastructure, easy connectivity to Delhi,

Tier II cities

Reasons

Bhubaneshwar

Potential areas for retail development in the vicinity of the IT/ITES Park.

(Chandrashekharpur, Bhubaneshwar�Cuttack Highway)

Coimbatore (Vadavalli, Kovai � Pudur, Peelamedu, Kaudampalayam and Trichy Road)

Major construction activities visible in these areas

Indore

Important industrial city with its robust textile, engineering and machinery sectors


(Focus is around the Central Business District (CBD) of M.G. Road)

Jaipur

Likely to witness large-scale organized retail activity with leisure, entertainment. Surplus retail spaces may be offered for offices at lower price.

(CBD of Jaipur)


Kochi

Potential destinations for the future development

(NH 47 by-pass road along NH 47 at Edappally, Seaport Airport Road, Kaloor-Kadavanthara road, Vytilla, Kakkanad)

Kozhikode

Dream City project (a 140-acre project with nature park, amusement park, culture park etc.) coming up, the S.M. Street Heritage Project on 270 acres of land

(Indira Gandhi Road, Mavoor Road, Cherooty Road, several locations of Indira Gandhi Road, Mavoor Road, Cherooty Road, Beach Road)

Lucknow

Preferred destination for retired IAS, IPS and other senior state government officials, more than four malls proposed in the city

(Mahanagar, Gomti Nagar, Aliganj, Indira Nagar, Nirala Nagar, Hazratganj, Kanpur Road and Rae Bareli Road, Gomti Nagar, Ashok Marg)

Trivandrum

Proposed expansion for phase 2 and 3 of techno park

(Techno Park - (1.5 million square feet in 1995) housing global majors like Infosys, TCS, Ernst and Young, McKinsey and Company)

Nagpur

Expansion of residential development is from the core to the fringe areas of the city.

(Amravati Road, Wardha Road, Kamptee Road and Katol Road., Civil Lines, Dharampeth and South and West of the city)

Madurai (Melur Highway)

City growing towards Melur Highway. No significant growth towards southern part of the city

Raipur (The G.E. Road, stretch between Tati Bandh to Teli Bandha, Sharda Chowk, Jaistambh Chowk, Raipur, G E Road)

Emerging as the most active retail destination in the city. Raipur, G E Road would remain most important corridor for retail real estate development


Of late the trend is also towards owning a second home - a home away from the hustle bustle of city life especially to chill out during the weekend. Say property consultants Trammell Crow Meghraj, "Buyers of second homes mostly constitute the affluent audience of IT professionals, corporate executives, doctors, lawyers and stockbrokers and those with double income."

You can consider luxury villas in tourist spots like Goa, or if your budget permits, even a place in Dubai. Today, those with a budget of Rs 2 crore or more are increasingly eyeing this jewel of the United Arab Emirates. The incentives are a residential permit, enhanced career prospects and a great standard of living.

"That apart, there are hill stations that are also in great demand. These include Dehradoon, Mussorie, Nainital, Ooty, Mahabaleshwar, Simla, Wellington, Khandala or Lonavala' add property consultants Trammell Crow Meghraj.

Chennai to witness largest residential land deal

Chennai is set to witness its biggest residential land deal ever. IDBI Bank has put land in Chennai's most premium location, Boat Club Road, on the block and CNBC-TV18 reports it could fetch the bank over Rs 150 crore.

Chennai's property market is buzzing with news of big-ticket deals. Close on the heels of news that Chennai based HTL is looking to sell its 11 acre land in Guindy, IDBI Bank is selling its 2.38 acre plot in the city's most posh address, Boat Club Road.

The land has an FSI of 1.5 and sources say, it is probably the last large chunk of available land on Boat Club Road. Sources say bidders could pay upwards of Rs 14,000 per square foot for the chunk of land that currently houses two guesthouses of the State-owned bank.

Boat Club Road is the most coveted residential address in the city and consultants say, the sale will attract an overwhelming response from developers and individuals looking to build high-end luxury housing.

The sale is expected to take place in February through an e-auction. IDBI Bank has appointed Jones Lang Lasalle as the consultant to the deal.

Speedbumps ahead in property market

From the newspaper DNA

Speedbumps ahead in property market
Rabin Ghosh
Sunday, December 31, 2006 23:59 IST

2007 likely to witness some correction

Sometime during the middle of 2006, when Deepak Parekh, chairman of Housing Development and Finance Corp, India’s second-largest mortgage lender, predicted a 15-20% fall in property rates by the year-end, not many doubted.

After all, the stock market was in a bear hug (in what proved to be short- term), the Reserve Bank of India was making periodic noises about the overheated property market, and interest rates were moving north.

By the end of the year, nothing of that sort happened. On the whole, real estate as an asset class performed fairly well in 2006, gaining 30-40% on-year, though in some pockets the rise was as much as 100-150%.

While specifics vary, almost everyone believes that, in 2007, reality market would behave much logically and rationally. The heady days of 40-50% growth rates are over.

Brokerage house India Infoline estimates the Indian real estate market, currently about $12 billion, is likely to touch $50 billion by 2010, registering a compounded annual growth rate of 33%.

“The year 2007 will see rationalisation of property prices. I am not calling bursting of the bubble. The India growth story is still very strong, but the same bullish sentiment we saw in 2006 won’t be repeated. Already, there are signs pointing to an impending correction in the second half of 2007,” says Ankur Srivastava, managing director, DTZ Debenham Tie Leung, India, an international property consultancy firm.

The year gone by was an interesting one for the real estate industry. In 2006, for the first time, foreign money began to look at India seriously. Over 100 foreign institutional investors committed funds for the sector. It was also the first time that banks were cautioned against lending money to the sector. This was also the year when demand was unprecedented across all the reality buckets - residential, commercial, retail, and hospitality and across geographies.

According to a DTZ report, commercial property absorption in Delhi NCR for the first nine months of the year was 6.03 million square feet (msf), against 3.5 msf for the whole of 2005.Chennai absorbed as much in one quarter (1.8 msf) as it did for the whole of last year.

Jackbastion Nazareth, marketing director of the recently listed Bangalore-based Shobha Developers, feels that property as an asset class would continue to grow.

“In 2007, people with short-term goals will vacate. Against about 15% speculators we had (in our projects) in 2005, the number came down to 8-9% in 2006, and we see their share further coming down in favour of genuine buyers,” he says.
Nazareth says the only thing holding back people wishing to invest in property for long-term horizon was lack of information and transparency.

“In 2007, real estate would shed the tag of an unorganised sector. With about 25 real estate companies to be listed by 2007 end, transparency would no longer be an issue for those looking at investing,” he says.

DTZ’s Srivastava points out to negative yield (difference of finance costs and rentals) that in certain markets. “In 2007, at least four of the top seven cities would see rationalisation. In Chennai, against an estimated demand of 5.5-6.0 msf of office space, the supply in 2007 would be 10 msf. For Delhi, against a best case absorption of 10 msf, the supply would be over 15 msf. In certain markets, we see office lease rentals falling by as much as 40% in 2007,” he says.

In commercial office space, Srivastava says markets like Chennai, Pune, Kolkata, and Hyderabad are headed for huge oversupply. In the residential segment, he sees Gurgaon and certain areas of Bangalore facing correction.

“In the residential market, Chennai is a strong market since not too many quality projects are coming up. However, Whitefield (Bangalore), Gurgaon, and Pune will see major correction. At Whitefield, already developers have begun to hand out freebies and holding property expos to hawk unsold properties. Rental values are down by 25% over the last six months,” he says.

Mukesh Khandelwal, president, Infrastructure Advising Committee, Feedback Ventures, a real estate and infrastructure consultancy firm, too, sees a severe price correction in Tier-I residential projects.

“At places like Jaipur and Lucknow volume of supply is not matched by adequacy of demand. In Gurgaon, too, we see price correction since that kind of pricing is not sustainable and more supply would hit the market in the coming months,” he said.