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Friday, February 23, 2007
Top 7 days losers on the NSE
Massive losses in majorr scrips over the last 7 days. A group shares down -10%, B group shares are down -20%. This is not a correction, Its a major trend reversal. Due to the high weightage of Reliance and other large caps in the BSE sensex which have corrected 5%, the decline in the Sensex hasn't revealed the true nature of the bearish trend over the past few months
Thursday, February 22, 2007
Mukesh, Anil eye Bangalore IT project - Bidadi
Forget Devanhalli, and other places in Bangalore.. This will soon be the hottest place for the next few years.
Ambani brothers -- Mukesh and Anil -- are the only two Indians of the 24 bidders shortlisted for the Rs 50,000 crore, 10,000 acre Knowledge City being developed specifically to meet the requirements of the IT industry's growth in Karnataka.
The other developers are from across the globe, including players from Dubai, Europe and Asia.
The project is being developed in Bidadi, around 25 km from the city limits of Bangalore. When completed, the township will meet the space requirements of the IT industry in Karnataka for 10 years, growing at 30 per cent a year and will have the capacity to house 7.5 lakh employees.
M N Vidhyashankar, secretary -- IT, biotechnology and science & technology, Karnataka government, on Thursday said this project would be an integrated township, which would have office space, residential colonies, hospitals, shopping malls, schools and all the required amenities. He was speaking at an interactive session with the Bangalore Chamber of Industry and Commerce.
"We expect to hand over the land to the developer by April this year and work on the first phase is expected to kick off during the second half of the year. Then it will take around 18 months for the initial phase to be commissioned," he said.
The first phase will involve work over 2,500 acres.
The Knowledge City will be connected to the upcoming Bangalore International Airport by an eight-lane highway, which when completed will connect the airport and the Knowledge City in a 30-minute drive.
"One of the criteria for companies setting up shops in this campus is that employees must reside in the complex, which will result in less congestion in Bangalore city," Vidhyashankar said.
The state government is also moving fast to set up the country's first IT finishing school for graduates tailored for the requirements of the industry. "Three Indian IT companies are setting up this school in Mysore with affiliation of the Mysore University. This school, which will offer a 12-month diploma course, will churn out 5,000 students in the first year and is, subsequently, expected to scale up this to 20,000 students in the coming years," he said.
In addition to the knowledge city for the IT sector, the Karnataka government has also awarded the biotech park contract to US-based Alexandria Real Estate Equities Inc.
"Nearly 90 per cent of the biotech parks in the US have been developed by this company and this is the first time it is venturing into Asia," Vidhyashankar said.
The project will be developed across 106 acres in the Electronic City at an investment of Rs 550 crore.
Ambani brothers -- Mukesh and Anil -- are the only two Indians of the 24 bidders shortlisted for the Rs 50,000 crore, 10,000 acre Knowledge City being developed specifically to meet the requirements of the IT industry's growth in Karnataka.
The other developers are from across the globe, including players from Dubai, Europe and Asia.
The project is being developed in Bidadi, around 25 km from the city limits of Bangalore. When completed, the township will meet the space requirements of the IT industry in Karnataka for 10 years, growing at 30 per cent a year and will have the capacity to house 7.5 lakh employees.
M N Vidhyashankar, secretary -- IT, biotechnology and science & technology, Karnataka government, on Thursday said this project would be an integrated township, which would have office space, residential colonies, hospitals, shopping malls, schools and all the required amenities. He was speaking at an interactive session with the Bangalore Chamber of Industry and Commerce.
"We expect to hand over the land to the developer by April this year and work on the first phase is expected to kick off during the second half of the year. Then it will take around 18 months for the initial phase to be commissioned," he said.
The first phase will involve work over 2,500 acres.
The Knowledge City will be connected to the upcoming Bangalore International Airport by an eight-lane highway, which when completed will connect the airport and the Knowledge City in a 30-minute drive.
"One of the criteria for companies setting up shops in this campus is that employees must reside in the complex, which will result in less congestion in Bangalore city," Vidhyashankar said.
The state government is also moving fast to set up the country's first IT finishing school for graduates tailored for the requirements of the industry. "Three Indian IT companies are setting up this school in Mysore with affiliation of the Mysore University. This school, which will offer a 12-month diploma course, will churn out 5,000 students in the first year and is, subsequently, expected to scale up this to 20,000 students in the coming years," he said.
In addition to the knowledge city for the IT sector, the Karnataka government has also awarded the biotech park contract to US-based Alexandria Real Estate Equities Inc.
"Nearly 90 per cent of the biotech parks in the US have been developed by this company and this is the first time it is venturing into Asia," Vidhyashankar said.
The project will be developed across 106 acres in the Electronic City at an investment of Rs 550 crore.
Wednesday, February 21, 2007
Realty investors start taking exit route
Source: Expressindia.com
Amrish Shah (name changed) is a “family man” and heavily into investments, real estate taking 50 per cent of his decision space. The year 2004, for Shah, 46, was what he called “the real Diwali” as he explains: “The home loans were at the lowest at 7.25 per cent, while the rental yields across the city had just begun their climb.” It made perfect sense for investors like Shah to join the realty bandwagon, and as the Mumbai skyline changed, so did Shah’s kitty.
Shah made 10 realty purchases, starting from Navi Mumbai to Kandivli and finally touched the central suburbs by early 2006. All these purchases were backed by home loans and tax benefits. This month, Shah has finally started exiting from his realty investments. Reason? As financial planner Amar Pandit from My Financial Planner says, “The fingers have started burning. The gulf between the rental yield and the soaring EMI has widened to an extent that it does not make sense.”
It is investors—or speculators who buy houses and later sell them to make a profit—like Shah who make for the 15 per cent of this realty market; and now they have started taking an exit route from the real estate market, “thanks to the phenomenon called rising interest rates”, says Pandit. In short, rentals have failed to keep pace with EMIs.
The rising interest rates are changing the calculations of home buyers, especially investors like Shah. Since the recent interest hike to 10.5 per cent, Pandit has been getting calls from investors like Shah, who, he says “were the people who are partly responsible in bringing the rates to these levels.”
Of course, like Pandit reveals, Shah who is now his client has locked interest rates for loans for five of his properties towards the end of 2006, before it escalated to current levels.
While not necessarily all of them availed loans to bite into the reality crust, the ones who did now have to move out due to the “less than viable option” in hand. Of course, the growth in interest rate, as banking firms put it, is due to other factors like the rising “cost of funds” following measures by the Reserve Bank of India and the government against inflation.
So who is the real gainer in a property market, where on the one hand property prices are escalating, along with rate of interest resting somewhere between 9.5 per cent and 10.5 per cent for floating loans, and in some cases at 11 per cent for fixed loans? Not the genuine buyer, for sure. Chartered accountant Deepak Tikekar from central Mumbai has been getting calls from his clients who he calls “the much-troubled middle class”.
Their concern, explains Tikekar, “stems from the not so recent phenomena of rate of interest in home loans which has only increased their outflows.” Very few banks offer the option of fixed rates, as they explain that “the pressure is too high” especially since the “fear of risk is phenomenal”. With the mutual funds and stocks giving anywhere between six per cent to 65 per cent rate of returns, says Nilesh Shah, chief investment officer of Prudential ICICI, buying a house in the long term as an investment option only makes sense if the rental yield from an appreciating capital is on the upward trend.
That is a different story, that Tikekar’s clients have started looking at Pune as a place to have a nameplate, since their earnings only permit those levels. He feels that with the market cooling off, the interest rates should also see some decline.
HDFC chairman Deepak Parekh says, globally, real estate prices rise and fall whereas here they have gone up but not come down. “In Japan, real estate remained depressed for 15 years and in the US, there has been a slowdown in recent months,” Parekh says, adding, “high prices cannot sustain for a long time.”
According to a spokesperson for HDFC, they have seen a growth rate between 25 and 30 per cent consistently, as most of their loan purchasers are the genuine home buyers for self occupation. “We do not see any slowing down in the rate, as the tax benefits that one gets of the loan have also improved over the years.”
So who benefits the most in the present scene? “The developer,” replies Pandit. But, not for long as prices will soon see a cooling. Parekh says high prices in the real estate sector and rising interest rates will see some investors exit the market. The dip is already visible in markets in Delhi and Bangalore, and Mumbai can’t be far behind.
Rising EMI
Two years ago at a floating rate of 7.25 per cent, a person availing a home loan for Rs 15 lakh for 20 years would have shelled an equated monthly installment (EMI) of Rs 11,856. Today, the same loan amount will pinch him more-as the EMI will work up to Rs 14,976 now. So how do you explain a jump of 26 per cent in EMI settlement in two years?
HDFC, the leading mortgage financer in the country says that "the cost of credit has gone up."
However, for middle class Mumbai with dreams of better housing this could mean a big jolt, considering eighty per cent of cost of a house is covered by housing loan in most of the cases. Also, the average loan amount is normally above Rs 15 lakh, as the houses no longer come cheap.
Amrish Shah (name changed) is a “family man” and heavily into investments, real estate taking 50 per cent of his decision space. The year 2004, for Shah, 46, was what he called “the real Diwali” as he explains: “The home loans were at the lowest at 7.25 per cent, while the rental yields across the city had just begun their climb.” It made perfect sense for investors like Shah to join the realty bandwagon, and as the Mumbai skyline changed, so did Shah’s kitty.
Shah made 10 realty purchases, starting from Navi Mumbai to Kandivli and finally touched the central suburbs by early 2006. All these purchases were backed by home loans and tax benefits. This month, Shah has finally started exiting from his realty investments. Reason? As financial planner Amar Pandit from My Financial Planner says, “The fingers have started burning. The gulf between the rental yield and the soaring EMI has widened to an extent that it does not make sense.”
It is investors—or speculators who buy houses and later sell them to make a profit—like Shah who make for the 15 per cent of this realty market; and now they have started taking an exit route from the real estate market, “thanks to the phenomenon called rising interest rates”, says Pandit. In short, rentals have failed to keep pace with EMIs.
The rising interest rates are changing the calculations of home buyers, especially investors like Shah. Since the recent interest hike to 10.5 per cent, Pandit has been getting calls from investors like Shah, who, he says “were the people who are partly responsible in bringing the rates to these levels.”
Of course, like Pandit reveals, Shah who is now his client has locked interest rates for loans for five of his properties towards the end of 2006, before it escalated to current levels.
While not necessarily all of them availed loans to bite into the reality crust, the ones who did now have to move out due to the “less than viable option” in hand. Of course, the growth in interest rate, as banking firms put it, is due to other factors like the rising “cost of funds” following measures by the Reserve Bank of India and the government against inflation.
So who is the real gainer in a property market, where on the one hand property prices are escalating, along with rate of interest resting somewhere between 9.5 per cent and 10.5 per cent for floating loans, and in some cases at 11 per cent for fixed loans? Not the genuine buyer, for sure. Chartered accountant Deepak Tikekar from central Mumbai has been getting calls from his clients who he calls “the much-troubled middle class”.
Their concern, explains Tikekar, “stems from the not so recent phenomena of rate of interest in home loans which has only increased their outflows.” Very few banks offer the option of fixed rates, as they explain that “the pressure is too high” especially since the “fear of risk is phenomenal”. With the mutual funds and stocks giving anywhere between six per cent to 65 per cent rate of returns, says Nilesh Shah, chief investment officer of Prudential ICICI, buying a house in the long term as an investment option only makes sense if the rental yield from an appreciating capital is on the upward trend.
That is a different story, that Tikekar’s clients have started looking at Pune as a place to have a nameplate, since their earnings only permit those levels. He feels that with the market cooling off, the interest rates should also see some decline.
HDFC chairman Deepak Parekh says, globally, real estate prices rise and fall whereas here they have gone up but not come down. “In Japan, real estate remained depressed for 15 years and in the US, there has been a slowdown in recent months,” Parekh says, adding, “high prices cannot sustain for a long time.”
According to a spokesperson for HDFC, they have seen a growth rate between 25 and 30 per cent consistently, as most of their loan purchasers are the genuine home buyers for self occupation. “We do not see any slowing down in the rate, as the tax benefits that one gets of the loan have also improved over the years.”
So who benefits the most in the present scene? “The developer,” replies Pandit. But, not for long as prices will soon see a cooling. Parekh says high prices in the real estate sector and rising interest rates will see some investors exit the market. The dip is already visible in markets in Delhi and Bangalore, and Mumbai can’t be far behind.
Rising EMI
Two years ago at a floating rate of 7.25 per cent, a person availing a home loan for Rs 15 lakh for 20 years would have shelled an equated monthly installment (EMI) of Rs 11,856. Today, the same loan amount will pinch him more-as the EMI will work up to Rs 14,976 now. So how do you explain a jump of 26 per cent in EMI settlement in two years?
HDFC, the leading mortgage financer in the country says that "the cost of credit has gone up."
However, for middle class Mumbai with dreams of better housing this could mean a big jolt, considering eighty per cent of cost of a house is covered by housing loan in most of the cases. Also, the average loan amount is normally above Rs 15 lakh, as the houses no longer come cheap.
Rents Have Dropped By Over 30% In The Last Year
The Economic Times
Firmly established as a global technology hub, Bangalore’s IT suburb Whitefield has seen property prices soar consistently over the past five years, until now. In a marked shift, commercial property rents have seen a drop of over 30% in the last one year. A correction has taken place in the IT neighbourhood. The key reason, apart from connectivity-related problems, is oversupply.
Commercial absorption in Whitefield stood at a little over 2 million sqft in 2006. This year, the demand-supply disconnect is to widen. The supply situation is pegged at over 6 million sqft, while demand continues to hover at around 2 million sqft — an oversupply of roughly 4 million sqft. “The challenge in a micro-market like Whitefield is not the lack of demand, but a situation of oversupply, a common problem among metros in India. Also, infrastructure development has failed to keep pace with the real estate growth story. With newer IT centres emerging away from the two main IT clusters, Electronic City & Whitefield, campus developments are being forced to lower rentals in Whitefield in order to attract IT firms,” says Ankur Srivastava, MD, DTZ Debenham Tie Leung. The shift is towards campus developments coming up in close proximity to the city’s Outer Ring Road. The other emerging IT centres are Sarjapur Road and Old Madras Road, where accessibility is better than it is in Whitefield.
As a result, the going rate in the case of commercial rentals in Whitefield, which stood at around Rs 30 per sqft a year ago for an ‘A’ grade property, has come down to Rs 20 per sqft today. Rentals for ‘B’ grade properties are even lower, quoted at around Rs 17 per sqft. ITPL too has witnessed a slight fall in rentals. “While peak-time rentals were at Rs 50 per sqft, the same today is at Rs 44. With the situation getting worse by the day, ITPL rentals could end up in the Rs 35-40 bracket in a year’s time,” said an industry analyst.
“The interest in Whitefield is lower these days. Connectivity is a major issue for those who have to commute to and from Whitefield and surrounding areas. A number of software companies are prepared to pay a premium to move to a location with easy accessibility,” says Manisha Grover, national director, Jones Lang LaSalle India.
Source: Economic Times
Firmly established as a global technology hub, Bangalore’s IT suburb Whitefield has seen property prices soar consistently over the past five years, until now. In a marked shift, commercial property rents have seen a drop of over 30% in the last one year. A correction has taken place in the IT neighbourhood. The key reason, apart from connectivity-related problems, is oversupply.
Commercial absorption in Whitefield stood at a little over 2 million sqft in 2006. This year, the demand-supply disconnect is to widen. The supply situation is pegged at over 6 million sqft, while demand continues to hover at around 2 million sqft — an oversupply of roughly 4 million sqft. “The challenge in a micro-market like Whitefield is not the lack of demand, but a situation of oversupply, a common problem among metros in India. Also, infrastructure development has failed to keep pace with the real estate growth story. With newer IT centres emerging away from the two main IT clusters, Electronic City & Whitefield, campus developments are being forced to lower rentals in Whitefield in order to attract IT firms,” says Ankur Srivastava, MD, DTZ Debenham Tie Leung. The shift is towards campus developments coming up in close proximity to the city’s Outer Ring Road. The other emerging IT centres are Sarjapur Road and Old Madras Road, where accessibility is better than it is in Whitefield.
As a result, the going rate in the case of commercial rentals in Whitefield, which stood at around Rs 30 per sqft a year ago for an ‘A’ grade property, has come down to Rs 20 per sqft today. Rentals for ‘B’ grade properties are even lower, quoted at around Rs 17 per sqft. ITPL too has witnessed a slight fall in rentals. “While peak-time rentals were at Rs 50 per sqft, the same today is at Rs 44. With the situation getting worse by the day, ITPL rentals could end up in the Rs 35-40 bracket in a year’s time,” said an industry analyst.
“The interest in Whitefield is lower these days. Connectivity is a major issue for those who have to commute to and from Whitefield and surrounding areas. A number of software companies are prepared to pay a premium to move to a location with easy accessibility,” says Manisha Grover, national director, Jones Lang LaSalle India.
Source: Economic Times
Tuesday, February 20, 2007
Real Estate Doom
Many of us instinctively feel that buying property is always a good, safe and sound investment. One that will eventually turn out right no matter what the future brings. Consequently, many of us are getting into serious financial trouble because of this delusion. I'm sorry to put this in such an alarmist fashion but that's exactly what my intention is.
Rising interest rates and stagnating real estate prices may be just an inconvenience for the cautious home owner but it could spell disaster for a new class of real estate investors that have come up in our cities in recent years.
The huge real estate boom that's been on for about four years now has given rise to some distinct types of buyers. At the bottom are those who have bought a house or an apartment for their own use. Depending on how much of their income goes into the EMIs of their home loan, these people will get uncomfortable (either a little or a lot) but it will work out for them in the end. At the other end are the big developers whose fate depends on their finances and their risk control.
In any case, each is a different story altogether. In the middle are the category of people who are most at risk. They have other professions and businesses but have been lured into channelising a large proportion of their money into real estate.
Unfortunately, the standard mode of 'investing' in real estate is not investing but is closer to what is called margin trading in other kinds of investing like stocks. For those unfamiliar with this activity, I'll quickly explain. Conceptually, margin trading means buying an investment on borrowed money for which the investment itself is the guarantee.
Normal (non-margin) trading works like this. If you have Rs 1 lakh and you buy shares share worth that much, you pay the broker Rs 1 lakh. If the shares go up to Rs 1.1 lakh, you've made Rs 10,000 on an investment of a lakh which is a gain of 10%. In margin trading, you would give your broker the one lakh and he would let you buy, say, Rs 10 lakh worth of shares. Basically, you would be borrowing Rs 9 lakh on the strength of the one lakh that you've put down.
You would, of course, have to pay interest and the shares would not actually be transferred to your name.
Now when the stock price rises 10%, your effective gain would be Rs one lakh on an investment of Rs 1 lakh (minus interest), a far more handsome return. But the catch is obvious. A 10% gain could double your money but a 10% loss could wipe out all your money. Margin trading is clearly a high risk-high gain activity.
Most real estate investing nowadays is actually margin trading of a kind that is even more dangerous than that in the stock markets. When real estate investors buy a property by putting down 10% or 20% of its value and borrowing the rest, then they are actually not buying anything, they are just speculating on something that the bank owns. So far, they have all been ahead of the game because prices have risen relentlessly. You put down Rs 10 lakh and buy something for a crore. A year later, the property is worth Rs 2 crore and you feel that you've made Rs 1 crore on an investment of Rs 10 lakh.
The problem is interest rates and liquidity. You've actually made a 15 or 20 year commitment which is looking increasingly dangerous the way interest rates are rising. But the bigger problem is liquidity.
In mutual funds or stocks (the bigger stocks), you can at least cut your losses at any point.
Real estate markets, however, tend not to offer liquidity in bad times. Either the prices are rising, or there are just no buyers except at distress prices. My hunch is that at least in residential property, we will enter a phase in which highly-indebted middle level amateur 'investors' will make lots of distress sales, perhaps to the benefit of the individual house owners as well as the deep-pocketed long-term developer
Rising interest rates and stagnating real estate prices may be just an inconvenience for the cautious home owner but it could spell disaster for a new class of real estate investors that have come up in our cities in recent years.
The huge real estate boom that's been on for about four years now has given rise to some distinct types of buyers. At the bottom are those who have bought a house or an apartment for their own use. Depending on how much of their income goes into the EMIs of their home loan, these people will get uncomfortable (either a little or a lot) but it will work out for them in the end. At the other end are the big developers whose fate depends on their finances and their risk control.
In any case, each is a different story altogether. In the middle are the category of people who are most at risk. They have other professions and businesses but have been lured into channelising a large proportion of their money into real estate.
Unfortunately, the standard mode of 'investing' in real estate is not investing but is closer to what is called margin trading in other kinds of investing like stocks. For those unfamiliar with this activity, I'll quickly explain. Conceptually, margin trading means buying an investment on borrowed money for which the investment itself is the guarantee.
Normal (non-margin) trading works like this. If you have Rs 1 lakh and you buy shares share worth that much, you pay the broker Rs 1 lakh. If the shares go up to Rs 1.1 lakh, you've made Rs 10,000 on an investment of a lakh which is a gain of 10%. In margin trading, you would give your broker the one lakh and he would let you buy, say, Rs 10 lakh worth of shares. Basically, you would be borrowing Rs 9 lakh on the strength of the one lakh that you've put down.
You would, of course, have to pay interest and the shares would not actually be transferred to your name.
Now when the stock price rises 10%, your effective gain would be Rs one lakh on an investment of Rs 1 lakh (minus interest), a far more handsome return. But the catch is obvious. A 10% gain could double your money but a 10% loss could wipe out all your money. Margin trading is clearly a high risk-high gain activity.
Most real estate investing nowadays is actually margin trading of a kind that is even more dangerous than that in the stock markets. When real estate investors buy a property by putting down 10% or 20% of its value and borrowing the rest, then they are actually not buying anything, they are just speculating on something that the bank owns. So far, they have all been ahead of the game because prices have risen relentlessly. You put down Rs 10 lakh and buy something for a crore. A year later, the property is worth Rs 2 crore and you feel that you've made Rs 1 crore on an investment of Rs 10 lakh.
The problem is interest rates and liquidity. You've actually made a 15 or 20 year commitment which is looking increasingly dangerous the way interest rates are rising. But the bigger problem is liquidity.
In mutual funds or stocks (the bigger stocks), you can at least cut your losses at any point.
Real estate markets, however, tend not to offer liquidity in bad times. Either the prices are rising, or there are just no buyers except at distress prices. My hunch is that at least in residential property, we will enter a phase in which highly-indebted middle level amateur 'investors' will make lots of distress sales, perhaps to the benefit of the individual house owners as well as the deep-pocketed long-term developer
Monday, February 19, 2007
RIL offers hefty price for farmland
Rediff.com reports
Reliance Industries, India's biggest company by market value, is offering Rs 37.5 lakh a hectare, over 10 times the ready-reckoner price, to acquire 10,000 hectares of land from farmers for its special economic zone on the outskirts of Mumbai.
By a rough estimate, the company will have to pay Rs 3,750 crore for land acquisition.
The company is offering Rs 25 lakh a hectare for land under paddy cultivation.
On top of this, the firm is offering Rs 12.5 lakh per hectare if a farmer does not opt for the land offered by the company at an adjacent site. Reliance has earmarked 12.5 per cent (1,250 hectare) of the total land to be acquired for farmers.
The company will also offer free vocational and technical education to a member of each of the 17,000 families whose land is acquired.
During the training period, the minimum agricultural wage of Rs 60 a day will be paid as stipend. If a landowner does not want the training, he is entitled to Rs 3 lakh as one-time compensation.
The ready-reckoner rate is the one taken to compute stamp duty in real estate transactions. Builders complain that it is often higher than the rate at which transactions are struck.
"We have submitted our compensation package to the state government. But if it asks us to give even higher compensation to farmers, we will be bound by that," said Dilip Chaware, the spokesperson for the company.
Unveiling its plans on Monday, Reliance Industries said it would invest Rs 31,000 crore over 10-15 years in its SEZ project, which would come up as two adjacent zones on more than 14,000 hectares. The company would spend Rs 16,000 crore in the development of infrastructure.
"Although we call it a special economic zone, it is going to be a city," Chaware told reporters. The entire project combines two adjacent zones in Mumbai and Navi Mumbai. "The project will be floated by companies that are a part of the Reliance Group."
The group, which is setting up another SEZ at Navi Mumbai, has already been sanctioned 1,600 hectares of the 4,000 hectares needed.
Reliance Industries, India's biggest company by market value, is offering Rs 37.5 lakh a hectare, over 10 times the ready-reckoner price, to acquire 10,000 hectares of land from farmers for its special economic zone on the outskirts of Mumbai.
By a rough estimate, the company will have to pay Rs 3,750 crore for land acquisition.
The company is offering Rs 25 lakh a hectare for land under paddy cultivation.
On top of this, the firm is offering Rs 12.5 lakh per hectare if a farmer does not opt for the land offered by the company at an adjacent site. Reliance has earmarked 12.5 per cent (1,250 hectare) of the total land to be acquired for farmers.
The company will also offer free vocational and technical education to a member of each of the 17,000 families whose land is acquired.
During the training period, the minimum agricultural wage of Rs 60 a day will be paid as stipend. If a landowner does not want the training, he is entitled to Rs 3 lakh as one-time compensation.
The ready-reckoner rate is the one taken to compute stamp duty in real estate transactions. Builders complain that it is often higher than the rate at which transactions are struck.
"We have submitted our compensation package to the state government. But if it asks us to give even higher compensation to farmers, we will be bound by that," said Dilip Chaware, the spokesperson for the company.
Unveiling its plans on Monday, Reliance Industries said it would invest Rs 31,000 crore over 10-15 years in its SEZ project, which would come up as two adjacent zones on more than 14,000 hectares. The company would spend Rs 16,000 crore in the development of infrastructure.
"Although we call it a special economic zone, it is going to be a city," Chaware told reporters. The entire project combines two adjacent zones in Mumbai and Navi Mumbai. "The project will be floated by companies that are a part of the Reliance Group."
The group, which is setting up another SEZ at Navi Mumbai, has already been sanctioned 1,600 hectares of the 4,000 hectares needed.
SBI PLR up by 75 basis points
Existing housing, educational loans will be excluded
MUMBAI: State Bank of India on Monday raised its benchmark prime lending rate (BPLR) by 0.75 percentage point to 12.25 per cent from Tuesday, an SBI release said.
However, all the existing housing and educational loans will be excluded from the BPLR change as will new educational loans up to Rs. 4 lakh. Similarly, all the existing and future agriculture production loans less than Rs. 3 lakh will be excluded from its impact.
SBI also increased the rates offered on its super-saver term deposits scheme by modifying its terms.
For a tenure of four years but less than five years, interest rates will be 9.50 per cent, while for senior citizens it will be 9.75 per cent.
For SBI staff, including pensioners of 60 years and above, the rate will be 9.75 per cent.
For a tenure of five years and up to ten years, interest rates will be 8.25 per cent, while for senior citizens, the rate applicable will be 8.75 per cent. SBI staff, including pensioners of 60 years and above, will get 25 basis points more interest at 9 per cent. — PTI
MUMBAI: State Bank of India on Monday raised its benchmark prime lending rate (BPLR) by 0.75 percentage point to 12.25 per cent from Tuesday, an SBI release said.
However, all the existing housing and educational loans will be excluded from the BPLR change as will new educational loans up to Rs. 4 lakh. Similarly, all the existing and future agriculture production loans less than Rs. 3 lakh will be excluded from its impact.
SBI also increased the rates offered on its super-saver term deposits scheme by modifying its terms.
For a tenure of four years but less than five years, interest rates will be 9.50 per cent, while for senior citizens it will be 9.75 per cent.
For SBI staff, including pensioners of 60 years and above, the rate will be 9.75 per cent.
For a tenure of five years and up to ten years, interest rates will be 8.25 per cent, while for senior citizens, the rate applicable will be 8.75 per cent. SBI staff, including pensioners of 60 years and above, will get 25 basis points more interest at 9 per cent. — PTI
Govt mulls taking away builders’ I-T sops
DNAindia reports
Real-estate developers may be in for some bad news. The Central government is debating on whether or not to extend the income tax benefits under Section 80-IB of the Income Tax (IT) Act beyond March 31, 2007. Under this section, developers constructing residences up to 1,000 sq-ft in Mumbai and Delhi and 1,500 sq-ft in other cities could avail 100 per cent income tax exemption on their profits.
Introduced in the 1998 budget, the tax bonzanza for builders was aimed to promote mass housing. While that (mass housing) has not happened, purchasing a home has become a distant dream for prospective flat buyers. According to senior tax and real estate consultants, the government believes that with investments firming up in the realty sector, the sector does not need incentives.
“Officials also believe that with the market forces determining property pricing, a correction is inevitable,” said the consultant.
“Anway, it is an open secret that unlike in other sectors, developers have not passed on the benefits of the tax rebate to end-users. If one looks at property prices over the past eight-nine years, it has only been rising steadily.”
Realty experts say there is another reason why the act should be scrapped. Developers are known to have the local planning authority approve building plans showing flats less than 1,000 sq-ft in order to avail of the tax concession.
“But to the end-user, he shows a plan having a much bigger area (two flats are combined into one) and which he sells at a hefty premium. And with end users not knowing of this rule, the developer gets away without paying taxes,’’ a planner said, adding that developers in the city make a cool 100 to 200 per cent profit on the sale of each flat.
Though the land prices have increased only in the past few months, developers have been making a cool 100 to 150 per cent profit on each sale. According to National Housing Bank data, in the past, the government has not been able to meet its target of housing for low income groups, in 1999-2000, against a target of 44,000 LIG units, only 27,000 were constructed while in the economically-weaker section (EWS) category, against a target of 96,571 units, only 28,541 were built.
A section of real-estate experts though believe that the Act should be granted extension despite its unsuccessful tenure. Says Ambar Maheshwari, head (Investment Advisory) with global real estate advisors DTZ said: “All this while, developers were not making flats of 1,000 sq-ft, such projects are not lucrative as when compared to large luxury apartments.
With high interest rates and reduced supply of luxury apartments affecting sales, the overheated property market is showing signs of sluggishness. This will make a lot many developers turn their focus to constructing low-cost houses.’’
Real-estate developers may be in for some bad news. The Central government is debating on whether or not to extend the income tax benefits under Section 80-IB of the Income Tax (IT) Act beyond March 31, 2007. Under this section, developers constructing residences up to 1,000 sq-ft in Mumbai and Delhi and 1,500 sq-ft in other cities could avail 100 per cent income tax exemption on their profits.
Introduced in the 1998 budget, the tax bonzanza for builders was aimed to promote mass housing. While that (mass housing) has not happened, purchasing a home has become a distant dream for prospective flat buyers. According to senior tax and real estate consultants, the government believes that with investments firming up in the realty sector, the sector does not need incentives.
“Officials also believe that with the market forces determining property pricing, a correction is inevitable,” said the consultant.
“Anway, it is an open secret that unlike in other sectors, developers have not passed on the benefits of the tax rebate to end-users. If one looks at property prices over the past eight-nine years, it has only been rising steadily.”
Realty experts say there is another reason why the act should be scrapped. Developers are known to have the local planning authority approve building plans showing flats less than 1,000 sq-ft in order to avail of the tax concession.
“But to the end-user, he shows a plan having a much bigger area (two flats are combined into one) and which he sells at a hefty premium. And with end users not knowing of this rule, the developer gets away without paying taxes,’’ a planner said, adding that developers in the city make a cool 100 to 200 per cent profit on the sale of each flat.
Though the land prices have increased only in the past few months, developers have been making a cool 100 to 150 per cent profit on each sale. According to National Housing Bank data, in the past, the government has not been able to meet its target of housing for low income groups, in 1999-2000, against a target of 44,000 LIG units, only 27,000 were constructed while in the economically-weaker section (EWS) category, against a target of 96,571 units, only 28,541 were built.
A section of real-estate experts though believe that the Act should be granted extension despite its unsuccessful tenure. Says Ambar Maheshwari, head (Investment Advisory) with global real estate advisors DTZ said: “All this while, developers were not making flats of 1,000 sq-ft, such projects are not lucrative as when compared to large luxury apartments.
With high interest rates and reduced supply of luxury apartments affecting sales, the overheated property market is showing signs of sluggishness. This will make a lot many developers turn their focus to constructing low-cost houses.’’
Thursday, February 15, 2007
Banks to hike home loan rates further
Rediff.com writes
A key player in the home loan market, HDFC on Thursday said it would hike housing loan rates by another 0.50 per cent this month-end or early March.
"After the CRR hike, our margins, presently at around two per cent, are under pressure and we will raise the interest rate to maintain that spread," HDFC chairman Deepak Parekh said.
A HDFC press note announced that interest rates will be reviewed next week. HDFC's current interest rates are 11 per cent (fixed) and 9.50 to 9.75 per cent on floating loans.
This would be the second time within a month that HDFC would be raising home loan rates. Earlier this month, it raised the rates by 0.5 per cent after RBI announced a 0.25 per cent hike in overnight lending rate, repo, in its monetary review. ICICI Bank had also raised home and car loans by one per cent then.
The government-owned Punjab National Bank, Bank of Baroda and Bank of India will hike interest rates across-the-board from February 16.
Bank of Baroda and Punjab National Bank have hiked prime lending rates by 50 basis points each to 12.50 per cent p.a. and 12.25 per cent p.a., respectively.
The rate hikes follow a 50 basis points hike in cash reserve ratio by the Reserve Bank of India effective in equal phases from February 17 and March 3, which would suck out Rs 14,000 crore (Rs 140 billion) out of the banking system.
Banks are raising the lending rates to make up for the increase in cost of funds, loss on account of zero-interest CRR balances and depreciation in marked-to-market investments as yields harden.
However, ICICI Bank has decided to hold interest rates charged to existing home loan borrowers.
"The bank may increase interest rates incrementally across all segments of customers including lending for automobile purchase. For housing loans, we are choosing not to increase rates for existing floating rate borrowers," ICICI Bank's executive director V Vaidyanathan said.
A key player in the home loan market, HDFC on Thursday said it would hike housing loan rates by another 0.50 per cent this month-end or early March.
"After the CRR hike, our margins, presently at around two per cent, are under pressure and we will raise the interest rate to maintain that spread," HDFC chairman Deepak Parekh said.
A HDFC press note announced that interest rates will be reviewed next week. HDFC's current interest rates are 11 per cent (fixed) and 9.50 to 9.75 per cent on floating loans.
This would be the second time within a month that HDFC would be raising home loan rates. Earlier this month, it raised the rates by 0.5 per cent after RBI announced a 0.25 per cent hike in overnight lending rate, repo, in its monetary review. ICICI Bank had also raised home and car loans by one per cent then.
The government-owned Punjab National Bank, Bank of Baroda and Bank of India will hike interest rates across-the-board from February 16.
Bank of Baroda and Punjab National Bank have hiked prime lending rates by 50 basis points each to 12.50 per cent p.a. and 12.25 per cent p.a., respectively.
The rate hikes follow a 50 basis points hike in cash reserve ratio by the Reserve Bank of India effective in equal phases from February 17 and March 3, which would suck out Rs 14,000 crore (Rs 140 billion) out of the banking system.
Banks are raising the lending rates to make up for the increase in cost of funds, loss on account of zero-interest CRR balances and depreciation in marked-to-market investments as yields harden.
However, ICICI Bank has decided to hold interest rates charged to existing home loan borrowers.
"The bank may increase interest rates incrementally across all segments of customers including lending for automobile purchase. For housing loans, we are choosing not to increase rates for existing floating rate borrowers," ICICI Bank's executive director V Vaidyanathan said.
ICICI readies Rs 1000 cr, 44-floor Hyderabad hub
DNAIndia reports
HYDERABAD: If it is real estate in Hyderabad, then it has to be high rise. Latest to catch skyscraper syndrome is none other than ICICI Bank, India’s largest private sector bank, which is setting up a swank new office in the city - all of 44-stories and costing a whopping Rs 1,000 crore.
The building will come up over eight acres of prime real estate in the upcoming Financial District close to Hi-Tech City technopolis.
It will have other major financial institutions such as UBS and Franklin Templeton for neighbours.
The campus will house 25,000 employees who will among other things provide back office support to all other ICICI operations across the world.
“This will be the biggest ICICI office in the country,” said B P Acharya, vice chairman and managing director, of the AP Infrastructure Corporation (APIIC), talking about the project.
The bhoomi pujan for the project was conducted two weeks ago. K V Kamath, the bank’s managing director and CEO, could not make it for the event as he in Davos attending the World Economic Forum conclave.
100-storey towers coming up!
Interestingly, even though ICICI Bank’s will be one of the tallest offices in the country, it could nevertheless be dwarfed in Hyderabad.
The AP Infrastructure Corporation itself planning to build a 100-storied structure of its own in the planned Business District right next to the Financial District. The bids for the Business District are to be awarded soon with six companies in the race to bag the contract.
But that’s not all. Lanco Infrastructure is yet another company that is planning to build a 110-storied apartment and commercial complex, apart from 24 other high rises of 24-stories each at an information technology SEZ that is constructing a stone’s throw from the Hi-Tech city area.
The building will come up over eight acres of prime real estate in the upcoming Financial District close to Hi-Tech City technopolis.
It will have other major financial institutions such as UBS and Franklin Templeton for neighbours.
The campus will house 25,000 employees who will among other things provide back office support to all other ICICI operations across the world.
“This will be the biggest ICICI office in the country,” said B P Acharya, vice chairman and managing director, of the AP Infrastructure Corporation (APIIC), talking about the project.
The bhoomi pujan for the project was conducted two weeks ago. K V Kamath, the bank’s managing director and CEO, could not make it for the event as he in Davos attending the World Economic Forum conclave.
100-storey towers coming up!
Interestingly, even though ICICI Bank’s will be one of the tallest offices in the country, it could nevertheless be dwarfed in Hyderabad.
The AP Infrastructure Corporation itself planning to build a 100-storied structure of its own in the planned Business District right next to the Financial District. The bids for the Business District are to be awarded soon with six companies in the race to bag the contract.
But that’s not all. Lanco Infrastructure is yet another company that is planning to build a 110-storied apartment and commercial complex, apart from 24 other high rises of 24-stories each at an information technology SEZ that is constructing a stone’s throw from the Hi-Tech city area.
Realty scrips hit 3-mth low
Business Standard reportd
Realty and construction stocks fell to three-month lows on the BSE, with investors offloading the scrips in the last few trading days.
Public sector banks' proposed move to raise prime lending rates and the RBI's hike in cash reserve ratio (CRR) led to a steep fall in realty and construction shares, many of which fell over 30 per cent from their all-time highs.
The weak sentiment saw Sobha Developers (Rs 754), Akruti Nirman (Rs 415), Parsvnath Developers (Rs 276), Lok Housing (Rs 236.55), DS Kulkarni Developers (Rs 239), Ansal Buildwell (Rs 109.45), Unitech (Rs 373), HCC (Rs 110.15) and BL Kashyap (Rs 1,215.60) etc hit their three-month lows on the bourses today.
Rahul Rege of Brics Securities said it was a case of exuberance becoming rational now. Rise in share prices on the basis on land bank was justified only up to a point. If an investor had bought a realty stock influenced by the momentum, he was in trouble. But, if the decision was based on fundamentals, they could still stay investments, he added.
He said the squeeze in bank credit to realty sector might also have contributed to the sudden dip in valuations. "I think there was too much excitement over realty stocks based on their future earnings," he said.
Ansal Buildwell, Lok Housing, Tantia Constructions and Peninsula Land fell over 50 per cent each, while prices of PBA Infrastructure, DS Kulkarni, HCC, Patel Engineering, Ansal Infrastructure, Sobha Developers and Unitech fell in the range of 30 per cent to 50 per cent from their all-time highs.
The stocks of the newly listed realty and construction firms such as Parsvnath Developers, Akruti Nirman, Lanco Infrastructure and Unity Infraprojects fell below their offer price.
Akruti Nirman was trading at Rs 420.25, 22 per cent lower than its issue price of Rs 540 on the BSE. Unity Infraprojects traded at Rs 562.20, 17 per cent below its offer price of Rs 675, Lanco Infrastructure was down 16 per cent at Rs 202.05 against its issue price of Rs 240. Parsvnath was trading just above its issue price of Rs 300.
Realty and construction stocks fell to three-month lows on the BSE, with investors offloading the scrips in the last few trading days.
Public sector banks' proposed move to raise prime lending rates and the RBI's hike in cash reserve ratio (CRR) led to a steep fall in realty and construction shares, many of which fell over 30 per cent from their all-time highs.
The weak sentiment saw Sobha Developers (Rs 754), Akruti Nirman (Rs 415), Parsvnath Developers (Rs 276), Lok Housing (Rs 236.55), DS Kulkarni Developers (Rs 239), Ansal Buildwell (Rs 109.45), Unitech (Rs 373), HCC (Rs 110.15) and BL Kashyap (Rs 1,215.60) etc hit their three-month lows on the bourses today.
Rahul Rege of Brics Securities said it was a case of exuberance becoming rational now. Rise in share prices on the basis on land bank was justified only up to a point. If an investor had bought a realty stock influenced by the momentum, he was in trouble. But, if the decision was based on fundamentals, they could still stay investments, he added.
He said the squeeze in bank credit to realty sector might also have contributed to the sudden dip in valuations. "I think there was too much excitement over realty stocks based on their future earnings," he said.
Ansal Buildwell, Lok Housing, Tantia Constructions and Peninsula Land fell over 50 per cent each, while prices of PBA Infrastructure, DS Kulkarni, HCC, Patel Engineering, Ansal Infrastructure, Sobha Developers and Unitech fell in the range of 30 per cent to 50 per cent from their all-time highs.
The stocks of the newly listed realty and construction firms such as Parsvnath Developers, Akruti Nirman, Lanco Infrastructure and Unity Infraprojects fell below their offer price.
Akruti Nirman was trading at Rs 420.25, 22 per cent lower than its issue price of Rs 540 on the BSE. Unity Infraprojects traded at Rs 562.20, 17 per cent below its offer price of Rs 675, Lanco Infrastructure was down 16 per cent at Rs 202.05 against its issue price of Rs 240. Parsvnath was trading just above its issue price of Rs 300.
Wednesday, February 14, 2007
Real estate chat
From rediff.com
Want to invest in realty? Wait for govt guidelines'
Questions poured in from every corner as Kekoo Colah, executive director, Knight Frank (India) Pvt Ltd, came online for a chat on real estate on Wednesday. Colah took his time studying each question thoroughly before coming up with well thought out answers.
Here is the transcript of the scintillating chat:
Kekoo Colah says, Hi, this is Kekoo here; let me attempt some of the questions received.
Ambrish asked, Is the real estate boom going to continue, given the fact that home loan interest rates are increasing and also there are talks about removing the tax exemptions on home loans....
Kekoo Colah answers, at 2007-02-14 15:08:05Demand factors remain very strong across real estate sectors. Please understand that home loan interest rate increase will affect, to some extent, only the residential sector. Even here there is significant pent up demand which will not be very affected by the interest rate increases, but those looking at 2nd and 3rd home purchases for investment will reconsider.
rana asked, will the government succeed in breaking the builders lobby to contain the flaring realestate price??
Kekoo Colah answers, We tend to blame the govt and hold them responsible for everything. Real estate prices have gone up substantially over the past 3 years, but very sharply over the last 1 year, because of huge increase in demand and inadequate supply meeting that demand. With economic growth at record levels, sentiment so positive, consumer led growth, easy availability of finance and interest rates having gone down (compared to 16-17% a decade back) the demand for houses, offices, shops, etc has hugely increased. To bring real estate product to the market requires some minimum lead times and this is also one reason why prices have gone up to such an extent. The best approach for the govt is not to curb demand but debottleneck any supply constraints (transparency of rules, consistency, simplification, etc.)and let the market forces do the rest.
pmp-kannan asked, hi, if my main aim is liquidity then is real estate the real destination for investment? i stay in bangalore. so is it advisable to buy real estate in Bangalore or say 50 kms outside bangalore? which will be more beneficial? thanks in advance
Kekoo Colah answers, No,real estate is a fairly ill liquid asset class to invest in. Govt has several months ago announced that real estate mutual funds will be permitted, but detailed guidelines are still awaited. Once these are permitted, the general public would be able to invest in the real estate sector and have the required liquidity; please wait until then.
rakesh asked, up to what time this realestate boom continues??
Kekoo Colah answers, I wish I were a fortune teller but, unfortunately, I am only a real estate professional unable to give you a precise answer.
saurabh asked, With the property rates + interest rates going up and up, the way it is, soon market would not be able to sustain itself. If so, when do you see that happening and how should a buyer insulate himself from this?
Kekoo Colah answers, Individual investors (as opposed to funds and institutional investors who have a good knowledge base and perspective of the market) should assess the quality and reputation of the developer, their track record and product being sold before taking any investment decision. Good titles to the property are an absolute must as this is a problem area in India and, because of the time delays involved, any litigation can be expensive and lengthy.
dev asked, what do you foresee as he trend in the next 1 yr for commercial property in gurgaon
Kekoo Colah answers, Positive, as there is significant demand for commercial property from corporates and the IT / ITES sectors to be located in the Gurgaon area.
Vivek asked, Hi Colah!! As inflation is going high do you think within 2 years real estate will come down?
Kekoo Colah answers, Minor corrections in micro markets across the country are bound to take place periodically, but the general trend would continue to be upwards unless there are some serious untoward economic or political developments which affect growth and sentiment.
Click asked, Looking to buy a flat in Mumbai. Should or wait.
Kekoo Colah answers, I do not know if you are purchasing this to live in or as an investment. In either case, I have addressed the issues you need to be aware of in some of the earlier answers.
nikhil123 asked, Dear Sir, In Delhi/NCR, real estate prices have gone up by 2-3 times in last 2 years. Do you feel that it will come down from this level? Or would it settle down near this level??
Kekoo Colah answers, What you say is, in fact, correct for many other locations as well. I think we have witnessed a fundamental and structural shift in the market and it is quite unlikely that prices, if and when they do correct, come down to the levels we used to see 2-3 years back.
Karthik asked, Has an spurt in the number SEZs created a new benchmark in real-estate, in metros - i.e. is the real-estate boom here to stay.
Kekoo Colah answers, So far we have only heard a lot of news about people wanting to set up SEZs. Even after there is full clarity and consensus on the SEZ policy, it will take several years before significant amount of product comes into the market. What we will see happening before that are a no. of township developments across the country and these will help to stabilise price increases in the metros and other cities as there will be good quality options available.
arvindagarwal asked, If the FDI limit increases in near future what will the effect
Kekoo Colah answers, FDI limit for what? minimum area requirement, minimum investment? FDI norms were revised and made less stringent in March 2005, post which India began to see serious investors and developers considering real estate projects in the country. Given the opportunities that the Indian market offers, foreign interest can only go up.
Want to invest in realty? Wait for govt guidelines'
Questions poured in from every corner as Kekoo Colah, executive director, Knight Frank (India) Pvt Ltd, came online for a chat on real estate on Wednesday. Colah took his time studying each question thoroughly before coming up with well thought out answers.
Here is the transcript of the scintillating chat:
Kekoo Colah says, Hi, this is Kekoo here; let me attempt some of the questions received.
Ambrish asked, Is the real estate boom going to continue, given the fact that home loan interest rates are increasing and also there are talks about removing the tax exemptions on home loans....
Kekoo Colah answers, at 2007-02-14 15:08:05Demand factors remain very strong across real estate sectors. Please understand that home loan interest rate increase will affect, to some extent, only the residential sector. Even here there is significant pent up demand which will not be very affected by the interest rate increases, but those looking at 2nd and 3rd home purchases for investment will reconsider.
rana asked, will the government succeed in breaking the builders lobby to contain the flaring realestate price??
Kekoo Colah answers, We tend to blame the govt and hold them responsible for everything. Real estate prices have gone up substantially over the past 3 years, but very sharply over the last 1 year, because of huge increase in demand and inadequate supply meeting that demand. With economic growth at record levels, sentiment so positive, consumer led growth, easy availability of finance and interest rates having gone down (compared to 16-17% a decade back) the demand for houses, offices, shops, etc has hugely increased. To bring real estate product to the market requires some minimum lead times and this is also one reason why prices have gone up to such an extent. The best approach for the govt is not to curb demand but debottleneck any supply constraints (transparency of rules, consistency, simplification, etc.)and let the market forces do the rest.
pmp-kannan asked, hi, if my main aim is liquidity then is real estate the real destination for investment? i stay in bangalore. so is it advisable to buy real estate in Bangalore or say 50 kms outside bangalore? which will be more beneficial? thanks in advance
Kekoo Colah answers, No,real estate is a fairly ill liquid asset class to invest in. Govt has several months ago announced that real estate mutual funds will be permitted, but detailed guidelines are still awaited. Once these are permitted, the general public would be able to invest in the real estate sector and have the required liquidity; please wait until then.
rakesh asked, up to what time this realestate boom continues??
Kekoo Colah answers, I wish I were a fortune teller but, unfortunately, I am only a real estate professional unable to give you a precise answer.
saurabh asked, With the property rates + interest rates going up and up, the way it is, soon market would not be able to sustain itself. If so, when do you see that happening and how should a buyer insulate himself from this?
Kekoo Colah answers, Individual investors (as opposed to funds and institutional investors who have a good knowledge base and perspective of the market) should assess the quality and reputation of the developer, their track record and product being sold before taking any investment decision. Good titles to the property are an absolute must as this is a problem area in India and, because of the time delays involved, any litigation can be expensive and lengthy.
dev asked, what do you foresee as he trend in the next 1 yr for commercial property in gurgaon
Kekoo Colah answers, Positive, as there is significant demand for commercial property from corporates and the IT / ITES sectors to be located in the Gurgaon area.
Vivek asked, Hi Colah!! As inflation is going high do you think within 2 years real estate will come down?
Kekoo Colah answers, Minor corrections in micro markets across the country are bound to take place periodically, but the general trend would continue to be upwards unless there are some serious untoward economic or political developments which affect growth and sentiment.
Click asked, Looking to buy a flat in Mumbai. Should or wait.
Kekoo Colah answers, I do not know if you are purchasing this to live in or as an investment. In either case, I have addressed the issues you need to be aware of in some of the earlier answers.
nikhil123 asked, Dear Sir, In Delhi/NCR, real estate prices have gone up by 2-3 times in last 2 years. Do you feel that it will come down from this level? Or would it settle down near this level??
Kekoo Colah answers, What you say is, in fact, correct for many other locations as well. I think we have witnessed a fundamental and structural shift in the market and it is quite unlikely that prices, if and when they do correct, come down to the levels we used to see 2-3 years back.
Karthik asked, Has an spurt in the number SEZs created a new benchmark in real-estate, in metros - i.e. is the real-estate boom here to stay.
Kekoo Colah answers, So far we have only heard a lot of news about people wanting to set up SEZs. Even after there is full clarity and consensus on the SEZ policy, it will take several years before significant amount of product comes into the market. What we will see happening before that are a no. of township developments across the country and these will help to stabilise price increases in the metros and other cities as there will be good quality options available.
arvindagarwal asked, If the FDI limit increases in near future what will the effect
Kekoo Colah answers, FDI limit for what? minimum area requirement, minimum investment? FDI norms were revised and made less stringent in March 2005, post which India began to see serious investors and developers considering real estate projects in the country. Given the opportunities that the Indian market offers, foreign interest can only go up.
Tuesday, February 13, 2007
RBI ends the party, loan rates will go up
DNA India reports
MUMBAI: If you have been partying hard on rising salary levels and big gains from a bull market, here’s a sobering message: slow down, or else…
The Reserve Bank of India (RBI), worried about a runaway price spiral — wholesale inflation is rising at 6.6 per cent annually — has fired yet another warning shot.
In a move aimed at choking consumer lending, the central bank impounded Rs14,000 crore of bank funds through a device called the cash reserve ratio (CRR). The CRR is being raised in two stages by 0.5 per cent to 6 per cent by March 3, which is the highest level since November 2001.
The impending cash crunch will force banks to raise everything from home and car loan rates to corporate lending rates, perhaps by another 0.5-1 per cent. The finance minister’s recent call to public-sector banks to hold the line on home loan rates is thus a dead letter. State Bank of India managing director TS Bhattacharya has gone on record to say that both lending and deposit rates may need to be raised again.
“The moment you impound funds, there will be a shortage of deposits and banks will get desperate to get more deposits in the market. The shortage of funds will affect all segments,” Bhattacharya told Bloomberg.
A spokesman for housing finance company HDFC, Mahesh Shah, concurred: “Interest rates will move up on all consumer loans.
The question now is by how much.”
The stock markets are widely expected to react adversely today, since banking, real estate, and infrastructure stocks could face the heat. “The RBI move has taken everyone by surprise. The markets will open with a downward gap on Wednesday and I see the Sensex closing at least 200 points down from Tuesday’s close,” said SP Jain, managing director, Networth Stock Broking.
The good news for new buyers is that prices may start to descend from stratospheric levels. Manoj Motta, general manager of K Raheja Corp, said: “This move of the central bank could trigger a cycle whereby housing finance companies may slow down their disbursements and hike interest rates. Since property prices are already very high, this may hit the buyer’s purchasing power in a way that will send prices rolling down.”
The central bank has been forced to act because high growth — the economy grew 9 per cent last fiscal and could grow 9.2 per cent this fiscal — has boosted inflation. It will get government support for the move since elections are due in Uttar Pradesh this summer, and are already underway in Punjab and Uttaranchal. No politician can hope to win elections with prices of essential commodities soaring.
How the CRR hike affects you
* Home loan rates will rise by 0.25-0.5%
* Auto, personal loan rates will also rise
* The stock markets are likely to crash
* Equity and income funds will do less well
* New issues won’t yield instant gains
* How companies will be affected
* Interest costs will rise for most firms
* Corporate profits will start falling
* Raising money from markets will become tougher
* Borrowing abroad will become cheaper
* Convertible bonds will be harder to sell
* How government will be affected
* The economy may start slowing down
* Govt will have to borrow at higher rates
* Tax revenues could start tapering off
* Room for manoeuvre in budget narrows
* High interest rates will strengthen the rupee
How tighter money will benefit you
* Bank deposit rates will now fetch you more
* House buyers will find prices moderating
* You can pick up stocks cheaper now
* Short-term stock losses can act as tax shield
* Inflation could start falling after a time lag
WHAT TO DO NOW
* Rework asset allocations from equity to debt
* Pre-pay home loans as soon as possible
* Avoid expanding credit card outstandings
* Stay liquid to buy stocks that fall sharply
* Save more of income as opposed to spending
MUMBAI: If you have been partying hard on rising salary levels and big gains from a bull market, here’s a sobering message: slow down, or else…
The Reserve Bank of India (RBI), worried about a runaway price spiral — wholesale inflation is rising at 6.6 per cent annually — has fired yet another warning shot.
In a move aimed at choking consumer lending, the central bank impounded Rs14,000 crore of bank funds through a device called the cash reserve ratio (CRR). The CRR is being raised in two stages by 0.5 per cent to 6 per cent by March 3, which is the highest level since November 2001.
The impending cash crunch will force banks to raise everything from home and car loan rates to corporate lending rates, perhaps by another 0.5-1 per cent. The finance minister’s recent call to public-sector banks to hold the line on home loan rates is thus a dead letter. State Bank of India managing director TS Bhattacharya has gone on record to say that both lending and deposit rates may need to be raised again.
“The moment you impound funds, there will be a shortage of deposits and banks will get desperate to get more deposits in the market. The shortage of funds will affect all segments,” Bhattacharya told Bloomberg.
A spokesman for housing finance company HDFC, Mahesh Shah, concurred: “Interest rates will move up on all consumer loans.
The question now is by how much.”
The stock markets are widely expected to react adversely today, since banking, real estate, and infrastructure stocks could face the heat. “The RBI move has taken everyone by surprise. The markets will open with a downward gap on Wednesday and I see the Sensex closing at least 200 points down from Tuesday’s close,” said SP Jain, managing director, Networth Stock Broking.
The good news for new buyers is that prices may start to descend from stratospheric levels. Manoj Motta, general manager of K Raheja Corp, said: “This move of the central bank could trigger a cycle whereby housing finance companies may slow down their disbursements and hike interest rates. Since property prices are already very high, this may hit the buyer’s purchasing power in a way that will send prices rolling down.”
The central bank has been forced to act because high growth — the economy grew 9 per cent last fiscal and could grow 9.2 per cent this fiscal — has boosted inflation. It will get government support for the move since elections are due in Uttar Pradesh this summer, and are already underway in Punjab and Uttaranchal. No politician can hope to win elections with prices of essential commodities soaring.
How the CRR hike affects you
* Home loan rates will rise by 0.25-0.5%
* Auto, personal loan rates will also rise
* The stock markets are likely to crash
* Equity and income funds will do less well
* New issues won’t yield instant gains
* How companies will be affected
* Interest costs will rise for most firms
* Corporate profits will start falling
* Raising money from markets will become tougher
* Borrowing abroad will become cheaper
* Convertible bonds will be harder to sell
* How government will be affected
* The economy may start slowing down
* Govt will have to borrow at higher rates
* Tax revenues could start tapering off
* Room for manoeuvre in budget narrows
* High interest rates will strengthen the rupee
How tighter money will benefit you
* Bank deposit rates will now fetch you more
* House buyers will find prices moderating
* You can pick up stocks cheaper now
* Short-term stock losses can act as tax shield
* Inflation could start falling after a time lag
WHAT TO DO NOW
* Rework asset allocations from equity to debt
* Pre-pay home loans as soon as possible
* Avoid expanding credit card outstandings
* Stay liquid to buy stocks that fall sharply
* Save more of income as opposed to spending
Is the realty bubble about to burst?
DNA India reports
| Timestamp | 03-JAN-2007 | 12-FEB-2007 | %drop | |
| Symbol | ||||
| ANSALINFRA | 944.15 | 744.60 | 21.14 | |
| GESCOCORP | 877.75 | 616.50 | 29.76 | |
| PARSVNATH | 468.45 | 301.55 | 35.63 | |
| SOBHA | 1001.80 | 825.70 | 17.58 | |
| UNITECH | 485.50 | 421.85 | 13.11 | |
Real-estate stocks, which were a hot favourite with investors only some time ago, are suddenly being shunned.
Why have these scrips lost lustre? Does it have anything to do with a property price correction? Leading developer and Mantri Group chairman and managing director Sunil Mantri thinks so.
"The current real-estate market is overheated and there could be a small correction," he said. "In some places, it is already happening. Over the past few months, property transactions in Mumbai have gone down by 20%. High prices and rising home loan interest rates have affected the buying power of people and so they have adopted the policy of wait and watch."
Property prices across Mumbai range from Rs 4,000 to Rs 50,000 per sq ft. This, Mantri believes, could be the peak from where prices go downhill.
Consultant Ashok Narang of L Lachmandas & Co sees the meltdown in real-estate shares as a conspiracy of builders to keep DLF Developers, which will soon be launching its Rs 10,000 crore IPO, out of the market.
"DLF has paid deposit on plots across India and would be acquiring them after it raises money from the IPO," he said. "Many other real-estate firms are also eyeing those plots. These firms are pulling down real-estate stocks so that DLF is not able to get a good issue price."
Narang does not agree that soaring prices have taken properties beyond the common man's reach. "If property prices have risen, then salaries have also gone up," he said.
• Biggest acquisition! : View Special
For Anuj Puri, managing director, Trammell Crow Meghraj, the slump in real-estate stocks is a reflection of a speculator's mood and not a consumer's. "At these prices, property is no longer attractive to a speculator, but demand from a real buyer is still there," he said. "However, he will now shift from central Mumbai to the suburbs.
As long as the supply doesn't meet demand, prices will continue to move up. Though, in some pockets like Nariman Point and Andheri, which have overstretched themselves, one could see a correction."
But people associated with the property market say demand has slowed in the last two or three months, and volumes are lower, especially in markets like Mumbai, Chandigarh, Delhi, Bangalore, and Pune.
But they also add that "though supply has increased, there is no major worry visible among builders as their resistance to hold on to their stocks has increased."
While there are no indications of a drastic slowdown in demand, it may weaken in a few months.
"By June-July, there should be some correction as more supply is coming to the market, interest rates are going up, and demand is not strong," said a consultant.
"Weaker builders who don't have holding power may trigger a correction." Lastly, the budget is also being keenly awaited by the industry.
Why have these scrips lost lustre? Does it have anything to do with a property price correction? Leading developer and Mantri Group chairman and managing director Sunil Mantri thinks so.
"The current real-estate market is overheated and there could be a small correction," he said. "In some places, it is already happening. Over the past few months, property transactions in Mumbai have gone down by 20%. High prices and rising home loan interest rates have affected the buying power of people and so they have adopted the policy of wait and watch."
Property prices across Mumbai range from Rs 4,000 to Rs 50,000 per sq ft. This, Mantri believes, could be the peak from where prices go downhill.
Consultant Ashok Narang of L Lachmandas & Co sees the meltdown in real-estate shares as a conspiracy of builders to keep DLF Developers, which will soon be launching its Rs 10,000 crore IPO, out of the market.
"DLF has paid deposit on plots across India and would be acquiring them after it raises money from the IPO," he said. "Many other real-estate firms are also eyeing those plots. These firms are pulling down real-estate stocks so that DLF is not able to get a good issue price."
Narang does not agree that soaring prices have taken properties beyond the common man's reach. "If property prices have risen, then salaries have also gone up," he said.
• Biggest acquisition! : View Special
For Anuj Puri, managing director, Trammell Crow Meghraj, the slump in real-estate stocks is a reflection of a speculator's mood and not a consumer's. "At these prices, property is no longer attractive to a speculator, but demand from a real buyer is still there," he said. "However, he will now shift from central Mumbai to the suburbs.
As long as the supply doesn't meet demand, prices will continue to move up. Though, in some pockets like Nariman Point and Andheri, which have overstretched themselves, one could see a correction."
But people associated with the property market say demand has slowed in the last two or three months, and volumes are lower, especially in markets like Mumbai, Chandigarh, Delhi, Bangalore, and Pune.
But they also add that "though supply has increased, there is no major worry visible among builders as their resistance to hold on to their stocks has increased."
While there are no indications of a drastic slowdown in demand, it may weaken in a few months.
"By June-July, there should be some correction as more supply is coming to the market, interest rates are going up, and demand is not strong," said a consultant.
"Weaker builders who don't have holding power may trigger a correction." Lastly, the budget is also being keenly awaited by the industry.
Monday, February 12, 2007
CNBC TV18 interview on interest rates
Ajit Dayal of Quantum Advisors
Q: What are your thoughts on this whole interest rate inflation cycle and particularly on the financials, how are you translating that view?
A: Our view again is that interest rates will increase, we believe that the government ten year bond will be probably closer to 8.5-9%, inflation will be a lot worse than people expect and the government and the central bank will have to keep on raising interest rates.
The effect of that in our view will really be a lot on property prices, we have seen over the last two-three years a huge ramp up in property prices across the country. I can tell you what I am reading about floor or the property over the last couple of weeks is that there has been a 50% decline in property prices over the last one year in terms of bare land and suddenly people who were really confident that they are going to make tonnes of money on property development. Some of the largest developers in America like Toll Brothers are leaving money on the table, they have bought land, they have paid deposits but because there is no demand in the US, it is just walking away from it and they are letting their deposits go.
In a similar way, you could see with the interest rates increasing particularly home loan rates increasing. If prices go up and the cost of money goes up at the same time, you could see a slowing down in demand for residential property, for commercial property at a time when supply is increasing many folds.
Some of the numbers that we have heard in the month of December and January for forecast about what is going to happen, there was one number that I think Gaurav Dalmia gave me where he said that in Kolkata the new supply of property is something close to 12 million sq ft over the next two years. The actual demand in Kolkata in 2006 was about the one millions sq ft, so you have got 12 million of new supply and 1 million of actual usage over a last one year. That is a huge growth that is required on the demand side to absorb all that new capacity and he gave me such other numbers for the host of other places across India.
So with the cost of borrowing increasing, with prices of real estate finished products and on land increasing we believe that the demand side may slow down and there could be a very sharp decline actually in property, which will affect to some extent everything else, the guys who sell the air conditioners, the guys who sell the refrigerators and everyone was planning to sell things around all of that. But barring that one sector in the economy, they are very optimistic on India.
We believe that India can grow by 6.5% per annum for next five-seven years without a problem; we are not yet believers on the 8-10% at all because we believe that there is no infrastructure to support that kind of growth on a sustainable level. So we have been skeptical of that number of 8-10% but 6.5% number for India for India for the next five years twice the global average, fabulous managements, very good companies buy India, that is our view still.
Q: What are your thoughts on this whole interest rate inflation cycle and particularly on the financials, how are you translating that view?
A: Our view again is that interest rates will increase, we believe that the government ten year bond will be probably closer to 8.5-9%, inflation will be a lot worse than people expect and the government and the central bank will have to keep on raising interest rates.
The effect of that in our view will really be a lot on property prices, we have seen over the last two-three years a huge ramp up in property prices across the country. I can tell you what I am reading about floor or the property over the last couple of weeks is that there has been a 50% decline in property prices over the last one year in terms of bare land and suddenly people who were really confident that they are going to make tonnes of money on property development. Some of the largest developers in America like Toll Brothers are leaving money on the table, they have bought land, they have paid deposits but because there is no demand in the US, it is just walking away from it and they are letting their deposits go.
In a similar way, you could see with the interest rates increasing particularly home loan rates increasing. If prices go up and the cost of money goes up at the same time, you could see a slowing down in demand for residential property, for commercial property at a time when supply is increasing many folds.
Some of the numbers that we have heard in the month of December and January for forecast about what is going to happen, there was one number that I think Gaurav Dalmia gave me where he said that in Kolkata the new supply of property is something close to 12 million sq ft over the next two years. The actual demand in Kolkata in 2006 was about the one millions sq ft, so you have got 12 million of new supply and 1 million of actual usage over a last one year. That is a huge growth that is required on the demand side to absorb all that new capacity and he gave me such other numbers for the host of other places across India.
So with the cost of borrowing increasing, with prices of real estate finished products and on land increasing we believe that the demand side may slow down and there could be a very sharp decline actually in property, which will affect to some extent everything else, the guys who sell the air conditioners, the guys who sell the refrigerators and everyone was planning to sell things around all of that. But barring that one sector in the economy, they are very optimistic on India.
We believe that India can grow by 6.5% per annum for next five-seven years without a problem; we are not yet believers on the 8-10% at all because we believe that there is no infrastructure to support that kind of growth on a sustainable level. So we have been skeptical of that number of 8-10% but 6.5% number for India for India for the next five years twice the global average, fabulous managements, very good companies buy India, that is our view still.
Property stocks slide as interest rates crawl up
Economic Times
MUMBAI: Fears that property prices could be headed for a meaningful correction seems to be prompting investors in stocks of real estate companies to jump ship. Most realty stocks, which until a couple of months ago were being chased by enthusiastic investors, have shed 10-25% over the past one month.
With interest rates gradually crawling higher, players are worried that demand for property could be hit. Stocks of real estate majors like Mahindra Gesco, DS Kulkarni, Ansal Buildwell and Parsvanath Builders and Peninsula Land have been languishing over the past one month.
Shares of Mahindra Gesco, which closed at Rs 852.65 on January 8, has slid to Rs 645.35 on February 9, down 24%. DS Kulkarni Developers has come down from Rs 387.05 to Rs 304.10 during the considered period, down 20%. Parsvanath Developers slid from Rs 440.25 to Rs 339.20 during the period, down 23%. Peninsula Land, Ansal Buildwell and Sobha Developers have also fallen by around 23%, 22% and 17%, respectively over the past one month.
Said Nikhil Thakker, head research, UTI Securities, "Over the past three years, the housing sector has witnessed a CAGR of 60% to 65% on factors like easy lending rates and accumulated land bank (land purchased at low prices prior to the real estate boom). Hike in lending rates and peaking real estate prices could force the sector towards a slowdown."
Market watchers predict that it would take some time for the sector to regain its lost lustre. The decision to hike interest rates has not gone down well with most builders. "The current real estate boom has largely been contributed by rising income levels and affordable interest rates.
Hike in interest rates and skyrocketing land prices may hit the offtake initially. But we do not see the impact to be very significant,'' said a Mumbai-based builder, adding, "Real estate prices will not impact us as we have sufficient land bank to complete our announced projects. Probably, we will sell our space adding a bit more to the price tag."
Being demand-driven, the realty sector still appears to hold promise with several housing and infrastructure projects coming up at various parts of the country.
"Interest rates on home loans may rise, but this will not change the fact that people need homes. It will only result in people buying homes in less-preferred locations. This will, in turn, force builders to move away from metros to two-tier and three-tier cities.
This trend will automatically negate the concentration of price in a vantage spot," said Mangesh Korgaonker, director general, National Institute of Construction and Manufacturing Research (NICMAR), Pune. According to sector analysts, fresh IPOs by realty companies will pep the sector up occasionally during the days of lull.
"Short-term investors should be careful about sudden dips in stock prices. At current levels, investors, with a long-term view, can start accumulating stocks of companies with good fundamentals. Those who are currently holding realty stocks need not panic; prices will start moving up steadily once the industry factors in raised interest rates and people start booking spaces all over again," said an analyst tracking the sector.
MUMBAI: Fears that property prices could be headed for a meaningful correction seems to be prompting investors in stocks of real estate companies to jump ship. Most realty stocks, which until a couple of months ago were being chased by enthusiastic investors, have shed 10-25% over the past one month.
With interest rates gradually crawling higher, players are worried that demand for property could be hit. Stocks of real estate majors like Mahindra Gesco, DS Kulkarni, Ansal Buildwell and Parsvanath Builders and Peninsula Land have been languishing over the past one month.
Shares of Mahindra Gesco, which closed at Rs 852.65 on January 8, has slid to Rs 645.35 on February 9, down 24%. DS Kulkarni Developers has come down from Rs 387.05 to Rs 304.10 during the considered period, down 20%. Parsvanath Developers slid from Rs 440.25 to Rs 339.20 during the period, down 23%. Peninsula Land, Ansal Buildwell and Sobha Developers have also fallen by around 23%, 22% and 17%, respectively over the past one month.
Said Nikhil Thakker, head research, UTI Securities, "Over the past three years, the housing sector has witnessed a CAGR of 60% to 65% on factors like easy lending rates and accumulated land bank (land purchased at low prices prior to the real estate boom). Hike in lending rates and peaking real estate prices could force the sector towards a slowdown."
Market watchers predict that it would take some time for the sector to regain its lost lustre. The decision to hike interest rates has not gone down well with most builders. "The current real estate boom has largely been contributed by rising income levels and affordable interest rates.
Hike in interest rates and skyrocketing land prices may hit the offtake initially. But we do not see the impact to be very significant,'' said a Mumbai-based builder, adding, "Real estate prices will not impact us as we have sufficient land bank to complete our announced projects. Probably, we will sell our space adding a bit more to the price tag."
Being demand-driven, the realty sector still appears to hold promise with several housing and infrastructure projects coming up at various parts of the country.
"Interest rates on home loans may rise, but this will not change the fact that people need homes. It will only result in people buying homes in less-preferred locations. This will, in turn, force builders to move away from metros to two-tier and three-tier cities.
This trend will automatically negate the concentration of price in a vantage spot," said Mangesh Korgaonker, director general, National Institute of Construction and Manufacturing Research (NICMAR), Pune. According to sector analysts, fresh IPOs by realty companies will pep the sector up occasionally during the days of lull.
"Short-term investors should be careful about sudden dips in stock prices. At current levels, investors, with a long-term view, can start accumulating stocks of companies with good fundamentals. Those who are currently holding realty stocks need not panic; prices will start moving up steadily once the industry factors in raised interest rates and people start booking spaces all over again," said an analyst tracking the sector.
Sunday, February 11, 2007
Left home alone with loan rates
TIMES NEWS NETWORK[ SUNDAY, FEBRUARY 11, 2007 03:28:32 AM]
Chintamani is more worried these days. And not without reasons. Ever since he has taken a home loan, he’s seen interest rates going northwards, with no respite in sight. So much so that during the last two-and-a-half years alone, home loan rates (floating) have increased from 7.5% to 11.75%, forcing the EMI for a 20-year loan go up by around 35%.
Moreover, despite government assurances, bankers and experts see no softening of rates at least till the next one year or two, implying more worries and hardships for the people like Chintamani.
Says Deepabh Jain, business leader - mortgages, GE Money, “Interest rate follows a cyclic trend. 2002 to 2005 saw a downward trend in the interest rates and from the beginning of 2006, rates have gone up by approximately 2.5% to 3%. The rising trend is likely to continue for some more time and with current market conditions, rates are not expected to stabilise for the rest of the year.”
This means more trouble for home buyers, particularly for home loan seekers. “Home loan seekers today have to contend with the double whammy of rising interest rates coupled with sky-rocketing asset prices. While the home loan rates have gone up sharply over the last one year, the asset prices have moved by an average of 18-22%. As a result, homes have started moving in the range of unaffordability for the average home buyer,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
Thus, besides the houses becoming unaffordable, the current trend of rising interest rates is a matter of concern for consumers as even small upward changes in the monthly EMIs can play havoc with their personal finances. What, however, is the way out? The home loan seekers may postpone their plan to buy a new house for some more time, but what about the old customers? Should they switch from a floating rate to a fixed one or start prepaying the loan?
Says J S Grewal, president-operations, Religare Finvest Ltd, “Consumers who have already taken home loans do not have too many options at this juncture. It would, therefore, not be advisable for people with floating rate loans to shift to fixed rates, since most banks charge a premium of 1 to 1.5% for fixed rates over floating rates. In my view, however, home loan rates are not expected to go beyond this band in the coming year or two. Hence, paying this premium upfront today would not be advisable. Banks also charge a fee for permitting such a switch. This would also add to the overall cost.”
Rakesh Singh, business manager - mortgages, Standard Chartered Bank, is of the same opinion. “Floating rate loans are cheaper by 100-150 bps compared to fixed rate loans. Also, switching from floating to fixed attracts an additional fee of around 1-1.5%. We feel interest rates in the short-term are not expected to increase by more than 50-100 bps. Hence, our advice would be not to shift from a floating rate loan,” he says.
The case of home loan seekers, however, is different. “Going by the trend, one cannot completely rule out the possibility of home loan rates inching up further. This being the case, home loan seekers should consider opting for a fixed rate loan (i.e. fixed for 3-5 years).
This will protect them from a potential interest rate hike in the near term. At the end of the said 3-5-year term, they have the option of considering either to continue with the ‘fixed’ rate (if interest rates continue to rise) or migrate to a floating rate loan,” informs Kapur, adding that “however, in case interest rates were to decline going forward, the truly fixed rate loan will not reflect the fall in interest rates and the consumer will forfeit any chance of benefiting from a decline in interest rates.”
Jain agrees. “Interest rates are not looking to stabilise for some time and with property prices going up, decision to wait may not be the right approach. It is suggested that consumers opt for a fixed rate for the initial years and subsequently be on the floating one,” he says.
Put simply, your home loan will be a lot more expensive, but still it is better to go for it rather than wait for interest and property rates to come down.So far as prepayment is concerned, this option looks ideal, but should be handled with care.
Jain is of the opinion that prepayment is not a good option considering returns on the investment with any other instrument is much higher. For instance, take the example of a Rs 25-lakh loan for 15-year tenor at 9.5% IRR. On making part-payment of Rs 5 lakh, the tenor is reduced to 119 months, with the total savings in interest amount being Rs 11.11 lakh. “If the same 5 lakh is invested in fixed deposits with at least 9% returns, earning for 119 months will be Rs 12.17 lakh, which is over Rs 1 lakh higher than the savings made in the interest. Similar investment in stock markets or other market instruments can fetch even better returns,” advises Jain
Moreover, prepayment is an option that comes mostly with a prepayment penalty clause which is generally based on outstanding principal. “This prepayment penalty ranges from 3 to 4% of the principal outstanding. So, the amount of penalty would vary from consumer to consumer, depending on principal outstanding,” says Kapur.
Thus, if a consumer has the money to prepay the outstanding home loan, he must calculate the total Net Present Value (NPV) of both the options, i.e. regular instalment vs prepayment. The option with the lesser NPV is preferable.
Of course, however, if you are making the part payment from your own fund, this generally doesn’t attract any penalty. But make sure that there isn’t a prepayment penalty associated with your loan.
Says Singh, “Prepayment decisions should also be taken by customers depending upon their cash flow situation -- availability of surplus funds. Customers with surplus funds should look at the option of maximizing their investment returns based on their risk appetite.”
Besides, other considerations like tax savings on account of principal repayment and interest should also be taken into account. The principal repaid in a home loan instalment is currently allowed for a deduction up to Rs 1 lakh under section 80C. You can also claim up to Rs 1.5 lakh in interest payments as a deduction from your income, the combined deduction being up to Rs 2.5 lakh. Not a small amount to be ignored! Also, you should clear your non-constructive debts such as credit card, personal and car loans first before focusing on your home loan.
Experts are also of the view that the current trend of rising interest rates is likely to put a lot of pressure on financial institutions offering housing loans and will force them to review their portfolio.
“They will now have to be more careful about while assessing individual’s ability to service the loan being offered. This is good as the tightening of norms will result in lower NPAs for the banks and help them earn better profitability. This in turn will ensure that genuine buyers/investors with adequate finance capabilities remain in the market providing an overall sustained growth for the real estate sector,” says Varun Pawha, director, Pawa Builders. Thus, actual users are also likely to benefit as it will deter speculators from over leveraging themselves and cornering/hoarding housing flats for speculative gains.
In the final analysis, prepayment makes lots of sense. After all, it’s a great feeling owning one’s own house, and residing in a debt-free world. But if wishes were horses, wouldn’t everyone have been riding them?
Chintamani is more worried these days. And not without reasons. Ever since he has taken a home loan, he’s seen interest rates going northwards, with no respite in sight. So much so that during the last two-and-a-half years alone, home loan rates (floating) have increased from 7.5% to 11.75%, forcing the EMI for a 20-year loan go up by around 35%.
Moreover, despite government assurances, bankers and experts see no softening of rates at least till the next one year or two, implying more worries and hardships for the people like Chintamani.
Says Deepabh Jain, business leader - mortgages, GE Money, “Interest rate follows a cyclic trend. 2002 to 2005 saw a downward trend in the interest rates and from the beginning of 2006, rates have gone up by approximately 2.5% to 3%. The rising trend is likely to continue for some more time and with current market conditions, rates are not expected to stabilise for the rest of the year.”
This means more trouble for home buyers, particularly for home loan seekers. “Home loan seekers today have to contend with the double whammy of rising interest rates coupled with sky-rocketing asset prices. While the home loan rates have gone up sharply over the last one year, the asset prices have moved by an average of 18-22%. As a result, homes have started moving in the range of unaffordability for the average home buyer,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
Thus, besides the houses becoming unaffordable, the current trend of rising interest rates is a matter of concern for consumers as even small upward changes in the monthly EMIs can play havoc with their personal finances. What, however, is the way out? The home loan seekers may postpone their plan to buy a new house for some more time, but what about the old customers? Should they switch from a floating rate to a fixed one or start prepaying the loan?
Says J S Grewal, president-operations, Religare Finvest Ltd, “Consumers who have already taken home loans do not have too many options at this juncture. It would, therefore, not be advisable for people with floating rate loans to shift to fixed rates, since most banks charge a premium of 1 to 1.5% for fixed rates over floating rates. In my view, however, home loan rates are not expected to go beyond this band in the coming year or two. Hence, paying this premium upfront today would not be advisable. Banks also charge a fee for permitting such a switch. This would also add to the overall cost.”
Rakesh Singh, business manager - mortgages, Standard Chartered Bank, is of the same opinion. “Floating rate loans are cheaper by 100-150 bps compared to fixed rate loans. Also, switching from floating to fixed attracts an additional fee of around 1-1.5%. We feel interest rates in the short-term are not expected to increase by more than 50-100 bps. Hence, our advice would be not to shift from a floating rate loan,” he says.
The case of home loan seekers, however, is different. “Going by the trend, one cannot completely rule out the possibility of home loan rates inching up further. This being the case, home loan seekers should consider opting for a fixed rate loan (i.e. fixed for 3-5 years).
This will protect them from a potential interest rate hike in the near term. At the end of the said 3-5-year term, they have the option of considering either to continue with the ‘fixed’ rate (if interest rates continue to rise) or migrate to a floating rate loan,” informs Kapur, adding that “however, in case interest rates were to decline going forward, the truly fixed rate loan will not reflect the fall in interest rates and the consumer will forfeit any chance of benefiting from a decline in interest rates.”
Jain agrees. “Interest rates are not looking to stabilise for some time and with property prices going up, decision to wait may not be the right approach. It is suggested that consumers opt for a fixed rate for the initial years and subsequently be on the floating one,” he says.
Put simply, your home loan will be a lot more expensive, but still it is better to go for it rather than wait for interest and property rates to come down.So far as prepayment is concerned, this option looks ideal, but should be handled with care.
Jain is of the opinion that prepayment is not a good option considering returns on the investment with any other instrument is much higher. For instance, take the example of a Rs 25-lakh loan for 15-year tenor at 9.5% IRR. On making part-payment of Rs 5 lakh, the tenor is reduced to 119 months, with the total savings in interest amount being Rs 11.11 lakh. “If the same 5 lakh is invested in fixed deposits with at least 9% returns, earning for 119 months will be Rs 12.17 lakh, which is over Rs 1 lakh higher than the savings made in the interest. Similar investment in stock markets or other market instruments can fetch even better returns,” advises Jain
Moreover, prepayment is an option that comes mostly with a prepayment penalty clause which is generally based on outstanding principal. “This prepayment penalty ranges from 3 to 4% of the principal outstanding. So, the amount of penalty would vary from consumer to consumer, depending on principal outstanding,” says Kapur.
Thus, if a consumer has the money to prepay the outstanding home loan, he must calculate the total Net Present Value (NPV) of both the options, i.e. regular instalment vs prepayment. The option with the lesser NPV is preferable.
Of course, however, if you are making the part payment from your own fund, this generally doesn’t attract any penalty. But make sure that there isn’t a prepayment penalty associated with your loan.
Says Singh, “Prepayment decisions should also be taken by customers depending upon their cash flow situation -- availability of surplus funds. Customers with surplus funds should look at the option of maximizing their investment returns based on their risk appetite.”
Besides, other considerations like tax savings on account of principal repayment and interest should also be taken into account. The principal repaid in a home loan instalment is currently allowed for a deduction up to Rs 1 lakh under section 80C. You can also claim up to Rs 1.5 lakh in interest payments as a deduction from your income, the combined deduction being up to Rs 2.5 lakh. Not a small amount to be ignored! Also, you should clear your non-constructive debts such as credit card, personal and car loans first before focusing on your home loan.
Experts are also of the view that the current trend of rising interest rates is likely to put a lot of pressure on financial institutions offering housing loans and will force them to review their portfolio.
“They will now have to be more careful about while assessing individual’s ability to service the loan being offered. This is good as the tightening of norms will result in lower NPAs for the banks and help them earn better profitability. This in turn will ensure that genuine buyers/investors with adequate finance capabilities remain in the market providing an overall sustained growth for the real estate sector,” says Varun Pawha, director, Pawa Builders. Thus, actual users are also likely to benefit as it will deter speculators from over leveraging themselves and cornering/hoarding housing flats for speculative gains.
In the final analysis, prepayment makes lots of sense. After all, it’s a great feeling owning one’s own house, and residing in a debt-free world. But if wishes were horses, wouldn’t everyone have been riding them?
Saturday, February 10, 2007
Pune, India's next boom town
Business standard reports
Pune has been the hotbed of engineering activity for many years now, with the likes of Tata, Bajaj, Bharat Forge and several others based in the city. In recent times though, IT, ITeS and a lot of R&D work has considerably upped the ante of real estate development within the city. The pace of development is unprecedented here and those who visit the city after a long time may find it unrecognisable.
There is a spurt in all three segments -- commercial, residential and retail. Over the last 2-3 years the Pune residential market has seen huge appreciation in terms of its capital values.
According to Cushman & Wakefield research, certain premium projects in established residential markets like Kalyani Nagar which were launched and started selling in 2003-04 at Rs 1,500-1,700 per sq ft are presently estimate-valued at Rs 4,000-5,000 per sq ft. Land prices too have doubled in most areas over the last year-and-a-half, according to Aditi Watve, senior executive, CMIS, at real estate consultancy Trammell Crow Meghraj.
Development in Pune today is bipolar. The north western side on the road towards Mumbai as well as the eastern side are seeing a lot of IT-driven development.
The high-end residential development is happening at Koregaon Park, Hadapsar, Kalyani Nagar, Boat Club Road, Bund Garden Road, Shivaji Nagar and Law College Road. Places like Deccan Gymkhana, Bhandarkar Road, Model Colony, Kothrud, Senapati Bapat Road and Camp are old posh areas of the city, where generous new developments are taking place today.
According to some estimates, there are 20-25 malls being planned in Pune. As per Cushman & Wakefield estimates, there are 14 upcoming malls in the city that are in different stages of development -- under construction and in the planning stages.
These upcoming malls are located in the micro-markets of Aundh, Kharadi, Bund Garden Road, Hadapsar, Shastri Nagar, Kalyani Nagar, Karve Road, Raja Bahadur Road, Warje, Wakad, Ganeshkhind Road and Pimpri. Cushman & Wakefield says approximately 4.7 million sq ft of retail (mall) space will come up by the first quarter of 2009.
Commercial office space coming up in different parts of the city, such as Hinjewadi on the western side and Kharadi and Hadapsar on the eastern side, is reserved for mostly the IT sector.
Originally commercial space in the city was in the central business districts (CBD) at Camp, Bund Garden Road and Dhole Patil Road as well as off-CBD areas like Deccan Gymkhana, Senapati Bapat Road and Wakdewadi. According to an estimate by Trammell Crow Meghraj, there is about 20 million sq ft of office space being developed across the city.
Some of the bigger national developers are showing an interest in the city. DLF has taken some land near Hinjewadi on the western side; Unitech has been reported to be looking for land; Reliance is planning a mall close to the Armed Forces Medical College in the Turf Club area. K Raheja Corp is looking at a 1 million sq ft development at Yerawada near Lohegaon airport. This might be a mall-cum-hotel development.
National developers might be here but the flavour of this market is local, says Watve. There are over 300 local builders, some of the more prominent ones being Panchshil Realty, Gera Developments, Paranjape Schemes, Kumar Builders, Kolte Patil and DS Kulkarni Developers.
In Kharadi, Panchshil Realty is building a 4.5 million sq ft IT/ITes SEZ called EON. The first phase at EON with 1 million sq ft of space will be fully operational by July 2007, says Atul Chordia, managing director of Panchshil Realty. Corporates like Honeywell and VSNL have already got space here.
On Senapati Bapat Road, the company is developing 2.2 million sq ft of space which would include an international convention centre, a 430-room Marriott hotel, half a million sq ft of family entertainment centre, a mall, art gallery, high street retail, IT park and a trade tower.
In the residential space, high-end projects are aplenty. Gera Developments are developing 3- and 4-bedroom Sky Villas at Kharadi. "These villas combine the feel and privacy of independent villas with the security and conveniences of apartments," says Sujeet Modak, general manger (product development), Gera Developments.
In addition to 600 Sky Villas, this project will also include a full-fledged country club and a hotel on a total of 25 acres. They also have Gera's GreensVille, with 89 luxury Garden Villas on 13 acres, again at Kharadi.
At Baner, they are developing the Regent Park which incorporates special environment friendly measures like solar water heaters, water recycling plant, motion sensor lights, rain water harvesting, use of efficient building material, along with high-end luxury.
Paranjape Schemes have a township project near Hinjewadi with 150 villas and high-end apartment towers. Shashank Paranjape, managing director, Paranjape Schemes, informs that the 4,000 sq ft villas here would cost over Rs 1.5 crore (Rs 15 million). A five-bedroom 2,500-3,000 sq ft apartment here would cost over Rs 1 crore (Rs 10 million).
Panchshil Realty has residential developments like the Waterfront at Kalyani Nagar and 1 North at Hadapsar.
1 North is a 1.5 million sq ft residential development with seven towers and a total of 400 apartments, which could cost anything between Rs 1.5-5 crore (Rs 15-50 million). The 14 penthouses here cost Rs 5 crore (Rs 50 million) each and have a private swimming pool, an island kitchen and an elevator that zips you straight into your living room!
With such a strong realty buzz, Pune's real estate action has only just begun.
Hospitality boom in Pune
Let's not forget the hospitality segment here in Pune, which is an essential part of the development process. At the moment, there are only three decent hotels in the city including Sun & Sand, Blue Diamond (now a Taj property) and Le Meridien.
This scenario is about to change soon. According to Siddharth Thaker, associate director -- consulting and valuation at HVS International, there are 30-odd hotels being planned in the city at the moment. We hear that in a couple of years there might be three Marriott properties, a Hyatt Regency, Radisson, Novotel, Traders Hotel, Royal Orchid and Lemon Tree (the list is very long. . . and still incomplete) in the city.
Pune has been the hotbed of engineering activity for many years now, with the likes of Tata, Bajaj, Bharat Forge and several others based in the city. In recent times though, IT, ITeS and a lot of R&D work has considerably upped the ante of real estate development within the city. The pace of development is unprecedented here and those who visit the city after a long time may find it unrecognisable.
There is a spurt in all three segments -- commercial, residential and retail. Over the last 2-3 years the Pune residential market has seen huge appreciation in terms of its capital values.
According to Cushman & Wakefield research, certain premium projects in established residential markets like Kalyani Nagar which were launched and started selling in 2003-04 at Rs 1,500-1,700 per sq ft are presently estimate-valued at Rs 4,000-5,000 per sq ft. Land prices too have doubled in most areas over the last year-and-a-half, according to Aditi Watve, senior executive, CMIS, at real estate consultancy Trammell Crow Meghraj.
Development in Pune today is bipolar. The north western side on the road towards Mumbai as well as the eastern side are seeing a lot of IT-driven development.
The high-end residential development is happening at Koregaon Park, Hadapsar, Kalyani Nagar, Boat Club Road, Bund Garden Road, Shivaji Nagar and Law College Road. Places like Deccan Gymkhana, Bhandarkar Road, Model Colony, Kothrud, Senapati Bapat Road and Camp are old posh areas of the city, where generous new developments are taking place today.
According to some estimates, there are 20-25 malls being planned in Pune. As per Cushman & Wakefield estimates, there are 14 upcoming malls in the city that are in different stages of development -- under construction and in the planning stages.
These upcoming malls are located in the micro-markets of Aundh, Kharadi, Bund Garden Road, Hadapsar, Shastri Nagar, Kalyani Nagar, Karve Road, Raja Bahadur Road, Warje, Wakad, Ganeshkhind Road and Pimpri. Cushman & Wakefield says approximately 4.7 million sq ft of retail (mall) space will come up by the first quarter of 2009.
Commercial office space coming up in different parts of the city, such as Hinjewadi on the western side and Kharadi and Hadapsar on the eastern side, is reserved for mostly the IT sector.
Originally commercial space in the city was in the central business districts (CBD) at Camp, Bund Garden Road and Dhole Patil Road as well as off-CBD areas like Deccan Gymkhana, Senapati Bapat Road and Wakdewadi. According to an estimate by Trammell Crow Meghraj, there is about 20 million sq ft of office space being developed across the city.
Some of the bigger national developers are showing an interest in the city. DLF has taken some land near Hinjewadi on the western side; Unitech has been reported to be looking for land; Reliance is planning a mall close to the Armed Forces Medical College in the Turf Club area. K Raheja Corp is looking at a 1 million sq ft development at Yerawada near Lohegaon airport. This might be a mall-cum-hotel development.
National developers might be here but the flavour of this market is local, says Watve. There are over 300 local builders, some of the more prominent ones being Panchshil Realty, Gera Developments, Paranjape Schemes, Kumar Builders, Kolte Patil and DS Kulkarni Developers.
In Kharadi, Panchshil Realty is building a 4.5 million sq ft IT/ITes SEZ called EON. The first phase at EON with 1 million sq ft of space will be fully operational by July 2007, says Atul Chordia, managing director of Panchshil Realty. Corporates like Honeywell and VSNL have already got space here.
On Senapati Bapat Road, the company is developing 2.2 million sq ft of space which would include an international convention centre, a 430-room Marriott hotel, half a million sq ft of family entertainment centre, a mall, art gallery, high street retail, IT park and a trade tower.
In the residential space, high-end projects are aplenty. Gera Developments are developing 3- and 4-bedroom Sky Villas at Kharadi. "These villas combine the feel and privacy of independent villas with the security and conveniences of apartments," says Sujeet Modak, general manger (product development), Gera Developments.
In addition to 600 Sky Villas, this project will also include a full-fledged country club and a hotel on a total of 25 acres. They also have Gera's GreensVille, with 89 luxury Garden Villas on 13 acres, again at Kharadi.
At Baner, they are developing the Regent Park which incorporates special environment friendly measures like solar water heaters, water recycling plant, motion sensor lights, rain water harvesting, use of efficient building material, along with high-end luxury.
Paranjape Schemes have a township project near Hinjewadi with 150 villas and high-end apartment towers. Shashank Paranjape, managing director, Paranjape Schemes, informs that the 4,000 sq ft villas here would cost over Rs 1.5 crore (Rs 15 million). A five-bedroom 2,500-3,000 sq ft apartment here would cost over Rs 1 crore (Rs 10 million).
Panchshil Realty has residential developments like the Waterfront at Kalyani Nagar and 1 North at Hadapsar.
1 North is a 1.5 million sq ft residential development with seven towers and a total of 400 apartments, which could cost anything between Rs 1.5-5 crore (Rs 15-50 million). The 14 penthouses here cost Rs 5 crore (Rs 50 million) each and have a private swimming pool, an island kitchen and an elevator that zips you straight into your living room!
With such a strong realty buzz, Pune's real estate action has only just begun.
Hospitality boom in Pune
Let's not forget the hospitality segment here in Pune, which is an essential part of the development process. At the moment, there are only three decent hotels in the city including Sun & Sand, Blue Diamond (now a Taj property) and Le Meridien.
This scenario is about to change soon. According to Siddharth Thaker, associate director -- consulting and valuation at HVS International, there are 30-odd hotels being planned in the city at the moment. We hear that in a couple of years there might be three Marriott properties, a Hyatt Regency, Radisson, Novotel, Traders Hotel, Royal Orchid and Lemon Tree (the list is very long. . . and still incomplete) in the city.
Friday, February 09, 2007
Changing Dynamics of IT
After a decade of growth, realignment, consolidation and expansion in the office sector, there are two themes that are likely to influence occupier choices in the near future. The first of these is the move from established metropolitan cities to smaller locations across India and the second is the emergence of a new format of Special Economic Zones (SEZ).
Tier II cities like Kolkata, Pune and Chandigarh saw rapid growth in new supply of IT space, as these centres took notice of the inevitable shift to new locations and positioned themselves as emerging hubs through proactive policies and development of IT park type facilites.
Looking ahead there are a few clear pointers of the anticipated theme for the office market. First, projections regarding the office property sector suggest that it is poised for yet more significant growth. According to studies by Nasscom-Mckinsey it is estimated that between 2005-2010, around one million additional people would be employed by the IT & ITES sector. This increase in the number of new people joining the sector is anticipated to further fuel a demand for nearly 100 million sqft of office space. This would manifest itself not only in increasing volume and depth of the sector in existing locations but also spread to emerging markets in smaller cities and towns (classified as Tier II and III) as occupiers would expand into these to tap into virgin workforce pools. Second, the Special Economic Zones (SEZs) drive that is presently underway is expected to add a new dimension to the office property markets by offering delineated duty free enclaves with global standard infrastructure.
A research report titled Changing Dimensions: Emerging Themes in Indian Office Real Estate Markets brought out by Trammell Crow Meghraj, Knowledge Centre elaborates on the transformation of the office property market where the availability of talent will be the driving force determining where offices will be set up in future.
The report says, companies have started spreading geographically beyond established metropolitan cieis to what have been designated as Tier II and III cities. Tier I are established metropolitan cities, Tier II- upcoming cities, and tier III including state capitals and district towns which are emerging as new IT and ITES destinations.
Although Tier I cities have an established brand name and a large talent pool they have to contend with increasing costs. They also are seeing increasingly rising employee turnover. Tier II cities have established themselves as destination for IT and ITES companies and include locations like Pune, Chandigarh and Kolkata. These cities are also now squarely on the radar of IT and ITES occupiers. Tier III cities include state capitals in most cases and in some cases nodal cities, which are emerging as the new destination for IT and ITES occupiers like Kochi, Bhubaneswar, Thiruvananthapuram, Coimbatore, Indore, Ahmedabad, Jaipur, Nagpur and Nashik.
FACTORS COMPELLING CHANGE
The hunger to have the best talent, in order to stay ahead of the rest, is a fact of life for occupiers. As the cost of recruiting and retaining human capital headed north in established hubs, it has compelled occupiers to look for new talent pools. This is not to say there is no attrition in new locations, but the rate of attrition is relatively lower compared to more mature markets. According to a study done by Mafoi (Talent Pool Mapping Study: 2006), on an average, the attrition rates in more established locations like Delhi, NCR, Bangalore and Mumbai ranges between 25-40 per cent. Comparitively the attrition rate in Tier II cities like Pune and Chandigarh is a little lower at between 10-25 per cent.
The high turnover rates is one part of the story, rising salaries is another. The difference in salaries between locations is one of the reasons for companies to look at new locations, in a bid to reduce their costs. The difference in salary at the entry level between a Tier I location and a Tier II location is approximately 19-22 per cent while in case of a Tier I and Tier III location, the difference increases up to 42-57 per cent.
The report further says, while it is good to say that Tier II and III cities hold the future for the IT & ITES industry, these new locations are not without their own issues. Occupiers looking at expanding to such new locations should carefully evaluate the fitment of such cities with their business strategy.
Human Capital is by far the most important factor while deciding on a new location. Availability of good infrastructure is paramount to the success of operations for occupiers in new locations. One key parameter that needs to be evaluated is connectivity of such new locations with established metropolitan cities, as in many cases bad connectivity could lead to several problems.
Low cost of real estate is just one part of the story. Occupiers need to secure good quality office real estate at appropriate costings in new locations. Although large national level developers have started to move into Tier II and III locations, there may be cases where ready availability of Grade A space may be limited in the short terms. In addition it is important to consider the softer issues about a location which may be equally important for attracting and retaining employees. These could include issues such as quality of life, general city environment, availability of entertainment.
The SEZ is still a recent phenomenon, the SEZ policy and issues are anticipated to evolve over a period of time and this will mean changing dynamics and hence occupiers need to be constantly aware of such changes and have an element of flexibility in their strategy to adapt to these changes.
Tier II cities like Kolkata, Pune and Chandigarh saw rapid growth in new supply of IT space, as these centres took notice of the inevitable shift to new locations and positioned themselves as emerging hubs through proactive policies and development of IT park type facilites.
Looking ahead there are a few clear pointers of the anticipated theme for the office market. First, projections regarding the office property sector suggest that it is poised for yet more significant growth. According to studies by Nasscom-Mckinsey it is estimated that between 2005-2010, around one million additional people would be employed by the IT & ITES sector. This increase in the number of new people joining the sector is anticipated to further fuel a demand for nearly 100 million sqft of office space. This would manifest itself not only in increasing volume and depth of the sector in existing locations but also spread to emerging markets in smaller cities and towns (classified as Tier II and III) as occupiers would expand into these to tap into virgin workforce pools. Second, the Special Economic Zones (SEZs) drive that is presently underway is expected to add a new dimension to the office property markets by offering delineated duty free enclaves with global standard infrastructure.
A research report titled Changing Dimensions: Emerging Themes in Indian Office Real Estate Markets brought out by Trammell Crow Meghraj, Knowledge Centre elaborates on the transformation of the office property market where the availability of talent will be the driving force determining where offices will be set up in future.
The report says, companies have started spreading geographically beyond established metropolitan cieis to what have been designated as Tier II and III cities. Tier I are established metropolitan cities, Tier II- upcoming cities, and tier III including state capitals and district towns which are emerging as new IT and ITES destinations.
Although Tier I cities have an established brand name and a large talent pool they have to contend with increasing costs. They also are seeing increasingly rising employee turnover. Tier II cities have established themselves as destination for IT and ITES companies and include locations like Pune, Chandigarh and Kolkata. These cities are also now squarely on the radar of IT and ITES occupiers. Tier III cities include state capitals in most cases and in some cases nodal cities, which are emerging as the new destination for IT and ITES occupiers like Kochi, Bhubaneswar, Thiruvananthapuram, Coimbatore, Indore, Ahmedabad, Jaipur, Nagpur and Nashik.
FACTORS COMPELLING CHANGE
The hunger to have the best talent, in order to stay ahead of the rest, is a fact of life for occupiers. As the cost of recruiting and retaining human capital headed north in established hubs, it has compelled occupiers to look for new talent pools. This is not to say there is no attrition in new locations, but the rate of attrition is relatively lower compared to more mature markets. According to a study done by Mafoi (Talent Pool Mapping Study: 2006), on an average, the attrition rates in more established locations like Delhi, NCR, Bangalore and Mumbai ranges between 25-40 per cent. Comparitively the attrition rate in Tier II cities like Pune and Chandigarh is a little lower at between 10-25 per cent.
The high turnover rates is one part of the story, rising salaries is another. The difference in salaries between locations is one of the reasons for companies to look at new locations, in a bid to reduce their costs. The difference in salary at the entry level between a Tier I location and a Tier II location is approximately 19-22 per cent while in case of a Tier I and Tier III location, the difference increases up to 42-57 per cent.
The report further says, while it is good to say that Tier II and III cities hold the future for the IT & ITES industry, these new locations are not without their own issues. Occupiers looking at expanding to such new locations should carefully evaluate the fitment of such cities with their business strategy.
Human Capital is by far the most important factor while deciding on a new location. Availability of good infrastructure is paramount to the success of operations for occupiers in new locations. One key parameter that needs to be evaluated is connectivity of such new locations with established metropolitan cities, as in many cases bad connectivity could lead to several problems.
Low cost of real estate is just one part of the story. Occupiers need to secure good quality office real estate at appropriate costings in new locations. Although large national level developers have started to move into Tier II and III locations, there may be cases where ready availability of Grade A space may be limited in the short terms. In addition it is important to consider the softer issues about a location which may be equally important for attracting and retaining employees. These could include issues such as quality of life, general city environment, availability of entertainment.
The SEZ is still a recent phenomenon, the SEZ policy and issues are anticipated to evolve over a period of time and this will mean changing dynamics and hence occupiers need to be constantly aware of such changes and have an element of flexibility in their strategy to adapt to these changes.
Pune still climbing
Times of India
If you thought Pune’s property prices have reached a plateau, think again, says Prachi Bari
Incredible as it might seem, in last one year, property prices in some areas rose 60-100%. Even middle level properties in Magarpatta, which were earlier quoting at Rs 2,400, are now quoted at Rs 3500. High-end properties quoting at Rs 3,000 a year and a half ago are now quoting Rs 4,500. The city is also witnessing a new phenomenon with one-off properties in areas like Boat Club and Koregaon Park going at Rs 10,000 a sq. ft. So does that mean that prices have now reached a peak and are not likely to rise further? Not quite, say the experts.
Four factors – they say will continue to contribute to the rising real estate prices, especially in the Eastern and Western corridors of the city. First is the paucity of land and consequent rise in land prices, the second is a rise in construction costs, third is the rise in the developers’ cost of funds and fourth is the continued flow of migration thanks to increased employment opportunities.
Satish Magar, MD, Magarpatta city Development Corporation feels that although the market is looking good, there is a shortfall of land to develop. “Land is going to be a major problem and will add to the increase of the price of real estate in Pune.”
Rajesh Choudhary, MD Prestige Developers concurs with this view. “Land cost as well as building material cost have gone up and are adding to the rising prices of real estate,” he says.
Choudhary also points out that led by the IT and ITES industry, migration to Pune is only likely to gather steam. This will create fresh supply, he believes. “Thanks to more companies setting up base in the city, Pune is becoming the destination where in a lakh of job opportunities will be created on an annual basis. These jobs will translate in an increased demand for housing, as well as a greater demand for retail, entertainment and hospitality spaces. Given this demand a price correction is unlikely in the short
term,” he says.
Aditi Watve, Senior executive, Capital markets and investment Sales, Trammell Crowe Meghraj agrees with the viewpoint saying, “There is definitely lot of migration happening to the city which amounts in tremendous amount of job creation, especially in IT, Manufacturing and services,” she says. Watve adds that as long as genuine buyers and retail investors fuel the market, prices will continue to rise but it will not be steep.
Analysts point out that it is not just the increased demand but its quality has also undergone a change. With rising salaries, buyers are willing to pay for more and more amenities. Hardly any developer is today constructing a project with 1BHK flats since the demand is for a minimum of 2BHK flats, going up to premium 4BHK and 5BHK row houses and bungalows, with fancy fitting and high-tech amenities. This itself creates a price pressure. This is especially true of the Eastern and Western Corridors of the city, they say.
As a result market players say, prices in fact may rise higher. Rohit Gera MD, Gera Developers says, “If one were to look at the price rise of the new projects, there will be a good 10 to 15 per cent increase in the price rate. I don’t think the prices will come down as there is also an heavy increase in the construction cost.”
Jones Lang Lasalle also rules out any correction at least for the next six to 12 months. Zaheer Bandukwalla, Associate Director of the international property consulting firm says, “As of now there is no correction as the projects supposed to enter the market have not come up. There may be a slight slump in the market in 2008-09, with more supply entering the market, both in IT and residential.”
According to Mufadal, proprietor Realtors and Secretary of Pune Real Estate Agents Association, “The location of the project, its stage of completion determines the extent to which prices would rise. Demand for projects nearing completion is higher with actual users while investors are looking at pre launch projects in areas like Kharadi, Baner, Kalyani Nagar, and Viman Nagar.”
Shrikant Paranjape, MD Paranjape Schemes believes that a correction is likely first in Metros like Delhi and Mumbai, before it happens in Pune. But he believes that perhaps the rate rise in prices may be lower. “I don’t see any correction in the reduction of rates in cities like Pune, although the way the rates were galloping, 2007 will see them trotting,” he says.
According to Paranjape, Pune prices are still affordable — even at the rate of Rs. 3500 per sq. ft. But he believes that once the rates start going beyond Rs. 4000 per sq ft, then there will be a resistance.
So what this really means that if you were planning to postpone your decision to buy a home, hoping that there will be a correction in prices in the near future; think again. You could actually end up paying more, not less, a year down the line.
If you thought Pune’s property prices have reached a plateau, think again, says Prachi Bari
Incredible as it might seem, in last one year, property prices in some areas rose 60-100%. Even middle level properties in Magarpatta, which were earlier quoting at Rs 2,400, are now quoted at Rs 3500. High-end properties quoting at Rs 3,000 a year and a half ago are now quoting Rs 4,500. The city is also witnessing a new phenomenon with one-off properties in areas like Boat Club and Koregaon Park going at Rs 10,000 a sq. ft. So does that mean that prices have now reached a peak and are not likely to rise further? Not quite, say the experts.
Four factors – they say will continue to contribute to the rising real estate prices, especially in the Eastern and Western corridors of the city. First is the paucity of land and consequent rise in land prices, the second is a rise in construction costs, third is the rise in the developers’ cost of funds and fourth is the continued flow of migration thanks to increased employment opportunities.
Satish Magar, MD, Magarpatta city Development Corporation feels that although the market is looking good, there is a shortfall of land to develop. “Land is going to be a major problem and will add to the increase of the price of real estate in Pune.”
Rajesh Choudhary, MD Prestige Developers concurs with this view. “Land cost as well as building material cost have gone up and are adding to the rising prices of real estate,” he says.
Choudhary also points out that led by the IT and ITES industry, migration to Pune is only likely to gather steam. This will create fresh supply, he believes. “Thanks to more companies setting up base in the city, Pune is becoming the destination where in a lakh of job opportunities will be created on an annual basis. These jobs will translate in an increased demand for housing, as well as a greater demand for retail, entertainment and hospitality spaces. Given this demand a price correction is unlikely in the short
term,” he says.
Aditi Watve, Senior executive, Capital markets and investment Sales, Trammell Crowe Meghraj agrees with the viewpoint saying, “There is definitely lot of migration happening to the city which amounts in tremendous amount of job creation, especially in IT, Manufacturing and services,” she says. Watve adds that as long as genuine buyers and retail investors fuel the market, prices will continue to rise but it will not be steep.
Analysts point out that it is not just the increased demand but its quality has also undergone a change. With rising salaries, buyers are willing to pay for more and more amenities. Hardly any developer is today constructing a project with 1BHK flats since the demand is for a minimum of 2BHK flats, going up to premium 4BHK and 5BHK row houses and bungalows, with fancy fitting and high-tech amenities. This itself creates a price pressure. This is especially true of the Eastern and Western Corridors of the city, they say.
As a result market players say, prices in fact may rise higher. Rohit Gera MD, Gera Developers says, “If one were to look at the price rise of the new projects, there will be a good 10 to 15 per cent increase in the price rate. I don’t think the prices will come down as there is also an heavy increase in the construction cost.”
Jones Lang Lasalle also rules out any correction at least for the next six to 12 months. Zaheer Bandukwalla, Associate Director of the international property consulting firm says, “As of now there is no correction as the projects supposed to enter the market have not come up. There may be a slight slump in the market in 2008-09, with more supply entering the market, both in IT and residential.”
According to Mufadal, proprietor Realtors and Secretary of Pune Real Estate Agents Association, “The location of the project, its stage of completion determines the extent to which prices would rise. Demand for projects nearing completion is higher with actual users while investors are looking at pre launch projects in areas like Kharadi, Baner, Kalyani Nagar, and Viman Nagar.”
Shrikant Paranjape, MD Paranjape Schemes believes that a correction is likely first in Metros like Delhi and Mumbai, before it happens in Pune. But he believes that perhaps the rate rise in prices may be lower. “I don’t see any correction in the reduction of rates in cities like Pune, although the way the rates were galloping, 2007 will see them trotting,” he says.
According to Paranjape, Pune prices are still affordable — even at the rate of Rs. 3500 per sq. ft. But he believes that once the rates start going beyond Rs. 4000 per sq ft, then there will be a resistance.
So what this really means that if you were planning to postpone your decision to buy a home, hoping that there will be a correction in prices in the near future; think again. You could actually end up paying more, not less, a year down the line.
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