Mumbai : Supari on builder for Rs 500 cr Parel plot

TIMES NEWS NETWORK

Mumbai: Property redeveloper Rajendra Chaturvedi, who constructed India’s tallest residential building—the 45-storeyed Shreepati Arcade at Nana Chowk—finds himself in the thick of controversy after police arrested four hitmen who were paid Rs 50 lakh to eliminate another builder, Rashmikant Shah.
Chaturvedi was grilled by the Juhu police on Wednesday night in this connection. According to the police, the dispute involves a redevelopment project at Abhyuday Nagar, Kalachowkie in Parel. The plot is worth Rs 500 crore.
The four accused arrested on February 25 include Nisar Shaikh, Aslam Khan, Qasim Qureishi and Vijay Warkar. The police is now looking for the prime accused, Baba Udaynath Maharaj, and his accomplice, Bismillah Khan. The police say Warkar is affiliated to don Chhota Rajan’s gang.
On February 25, the police got a tip-off that the four hitmen would be coming to a spot near Hotel Holiday Inn to eliminate Rashmikant Shah, owner of the Vijay Group. Shah had a meeting in the hotel late in the evening. One of the four accused, Nisar, allegedly opened fire on the police team and tried to escape but was arrested.
According to the police, Shah was involved in redeveloping Abhyuday Nagar for the last five years, but the work had not been completed within the given time-frame.
BLOOD MONEY
Rajendra Chaturvedi, the builder under investigation, and Rashmikant Shah, the ‘targeted’ developer, had been at loggerheads over a redevelopment project at Kalachowkie in Parel
After Shah had failed to make headway on the project for five years, the residents approached Baba Udaynath Maharaj, a spiritual leader, who entrusted the project to Chaturvedi in 2006
Shah refused to give in and his men abducted Maharaj and took him to gangster Ashwin Naik inside Kalyan jail. Naik told Maharaj to lay off
On Feb 25, four hitmen, allegedly affiliated to the Chhota Rajan gang, were arrested by the police. They confessed that they had been hired by Maharaj to bump off Shah Group says entire episode cooked up
Fed up with the slow pace, the residents approached Maharaj, a spiritual leader, after they saw him addressing a huge gathering at Kalachowkie, and requested him to hand over the project to any of his followers who could afford to redevelop it. Maharaj then contacted Chaturvedi to take on the project in 2006. Chaturvedi later agreed to redevelop it.
Police sources said that Maharaj then planned to eliminate Shah, who was not ready to give up the project. The accused told the police that Maharaj was abducted by Shah’s men and taken to Kalyan jail and produced before gangster Ashwin Naik who asked Maharaj not to meddle in the matter. The accused also said that this enraged Maharaj, who later called Warkar and gave him the supari to bump off Shah. Warkar then contacted Qureishi and asked him to hire two shooters. “Warkar told us that he (Maharaj) gave him a supari of Rs 50 lakh and promised him a hotel at Mahabaleshwar. Maharaj also made a part payment of Rs 12 lakh. We have recovered the entire amount, two revolvers, two choppers, an Indica car (MH-04 BN 1253) and four mobile phones from the accused,’’ said senior inspector Pradip Shinde.
The accused also narrated how the project, which was being redeveloped by Shah, was later offered to Chaturvedi. “We have called Chaturvedi twice and questioned him after his name cropped up during the investigation. We haven’t got any evidence of his involvement in this case, but will arrest him as soon as we get evidence,’’ Shinde said.
A press release issued by the Shreepati Group on Thursday claimed that the entire episode had been “cooked up’’. “The developer who claims to have been threatened does not have any office or residential premises in the vicinity of the Juhu police, where the matter is being investigated. The developer has
not completed any projects in the island city,’’ it said.
According to the group, the case seems to be a ploy aimed at sidelining it from the proposed redevelopment of Abhyudaya Nagar, even though a majority of the tenants are behind it. “We would like to state that we have no business relations with Shri Udaynath Maharaj ji...Mr Chaturvedi has extended full cooperation to the investigating agency and we shall continue to extend full cooperation to them,’’ the release noted.

Residential prices climb fast in Chennai

TIMES NEWS NETWORK
CHENNAI: The real estate market in Chennai is passing through a phase that it has never witnessed in the past. The residential properties are getting much costlier than office properties in the city.

The sale price of residential apartments, both in the primary as well as secondary markets, has almost doubled over the past 12-15 months in the city. On the other hand , the sale price of office space has increased just 20% - 30% on an average, during the same period.

The flare-up in residential prices is mostly attributed to the demand outsmarting the supply, besides the increasing cost of land acquisition. The increased demand is mostly driven by the growth in the IT/ITES sector in the city, which has also been attracting large investments in the manufacturing sector.

According to industry sources, the current capital value for office space ranges between Rs 4,500 per sq ft and Rs 7,000 per sq ft in the CBD (central business district), Rs 3,500 - Rs 5,000 per sq ft on OMR (IT Corridor) and Guindy, and between Rs 2,500 - Rs 3,000 per sq ft in suburban Ambattur.

On the other, the capital value of residential apartments ranges between Rs 4,500 per sq ft at the low-end areas and goes up to Rs 12,000 per sq ft.

It even goes more in places like Poes Garden, where the prices had never crossed Rs 5,000-mark.

“While acquisition of commercial space is driven by average rate of return (ARR) on investments, the buying of residential units is mostly driven by aspiration. If someone is keen on buying a residential apartment in a certain area, he buys. In such cases, the logic takes a back seat,” says Sanjay Chugh, vice president – Transaction Management Services.

In the case of the emerging OMR, the prices range between Rs 2,800 and Rs 4,000 per sq ft for newly-launched residential units. The price ranges between Rs 2,500 - Rs 4,000 per sq ft in suburban areas like Perambur and Ambattur.

“Today, the affordability of home buyers has gone up. Also the supply coming into the market is much less than the demand. Hence, builders are getting premium price and are also able to afford premium quality buildings," V Jagannathan, managing director, Ramaniyam Real Estate, a leading property developer said.
T Chitty Babu, MD, Akshaya Homes, termed this as a cyclical phenomenon.

"An emerging market will first witness demand for 'work space', and the higher earning

executives then drive the demand for residential units, which in turn will catalyse the demand for retail, food and entertainment spaces," he said. "Chennai is now in the residential segment of the cycle. And I am sure, 6-9 months down the road, there will be increased demand for commercial space catering to the requirement of retail, entertainment and food categories," Mr Chitty Babu added.

RBI spying on home loan borrowers

TIMES NEWS NETWORK

MUMBAI: CONCERNED over a possible shakeout in the home loan market, Reserve Bank of India (RBI) has asked several leading banks to furnish data on the number of borrowers who have bought second or third home, how many them belong to the salaried class and the default levels in home loans.

On Tuesday, the RBI met leading banks on a short notice and asked them to provide the loan details. Officials who attended the meeting said bankers told RBI that the home loan market has slowed down following the rise in interest rates and property prices. RBI has also asked bank to provide details on loans disbursed at different interest rates. “Banks have to provide information such as Rs x crore loan disbursed as 7% and Rs y crore at 7.25% and so on. The information sought relates to floating as well as fixed rate loans,” said a banker. The fear is that once the property bubble bursts, borrowers who have invested in second or third homes to earn a fat rent could default, as tenants relocate to properties where the rent is lower. At that point the properties that have been pledged with the banks may not be adequate to cover loan exposure.

Besides, banks are required to provide loan break-up for the salaried borrowers, self employed, loans to builders and property developers. They were also asked to provide information on the various frauds that have surfaced in the home loan segment and measures that banks are taking to protect themselves against such delinquencies.

“RBI also made inquires on the role of home loans as a component of asset price bubble,” said a banker. In other words, RBI is keen to find out to what extend home loans have contributed to the perceived asset price bubble, said a banker. Over the last two years at several occasions RBI has cautioned banks on financing home loan customers. In 2004, when more and more banks were offering home loans at cheaper rates, the central bank raised the risk weightage on home loans from 50 basis points to 75 bps and subsequently in July 2006 to 100 bps.

Further, in order to discourage banks from funding property developers following a steep rise in the property price, RBI raised the risk weightage on loans to commercial real estate in various stages from 100 bps in July 2005 to 200 bps in the January 2007. At present, home loans account for nearly 15-20% of loan books public sector banks while for ICICI Bank, which has the largest share of home loan in the banking sector, it is about 30%. Loan disbursement in the banking sector rose 44% in March ‘06 over the previous fiscal year, from Rs 1,28,728 crore to Rs 1,86,429 crore.

Liquidity squeeze hits realty scrips

Real estate stocks are seeing a downswing as they have lost up to 50 per cent market value from their recent peaks.

Leading the bear hug is Parsvnath Developers, which has lost 51 per cent from its recent peak of Rs 468 to Rs 229 on Wednesday. Unitech has shed 30 per cent from the recent peak of Rs 500 to Rs 347.

Sobha Developers shed 42 per cent from Rs 1,104 to Rs 630, Akruti Nirman lost 35 per cent from Rs 564 to Rs 363 and Ansal Properties and Infrastructure shed nearly 50 per cent from Rs 974 to Rs 479.

Industry watchers hint at various reasons for the downfall, from the squeeze on liquidity to commercial real estate, rise in interest rates and subseqent fall in demand and the not-so-favourable Budget proposals.

The move to impose service tax on lease rentals, selective hike in the excise duty on cement prices and non-extension of section 80IA, which gave tax concession to realty firms, also had negative impact on realty stocks.

“In the pre-Budget period, the interest rate hike and the anticipation of lesser demand from property buyers pulled down these stocks. It was expected that the number of buyers who avail of loans and buy properties will come down. The move to impose service tax on lease rentals and the expectant hike in the commercial rentals also impacted realty stocks negatively,” says Suman Memani, senior analyst, Emkay Securities.

Another reason cited for the crash was expectations of major correction in the property prices in smaller cities where most of the listed realty firms have their operations.

“In the short term, the sentiment that there could be correction in the property market in tier-II and tier-III cities led to the downfall in these stocks. Whenever the interest rates have gone up, presuming the slide in demand the market has factored it immediately,” says Ashutosh Narkar, senior analyst, India Infoline.

Rajen Shah, chief investment officer, Angel Broking, believes that the stocks, which were quoting at very high levels, have now come down to saner levels.

Mumbai : Kalina joins the real-estate frenzy

DNA reports

MUMBAI: The season of big-ticket real estate purchases continues. On Wednesday, the Orbit Group bid for and won a two-acre (93,000 sq ft) plot owned by Gujarat Ambuja Cement at Kalina for an astounding Rs333 crore.

Orbit’s offer beat the Rs331 crore pitch by Wadhwa Builders and the Rs304 crore proposition by Kalpatru Developers. The price per sq ft (psf) works out to about Rs20,000, which is higher than the rate for the last sale at the Bandra Kurla Complex. Mukesh Ambani’s Reliance Industries had quoted Rs18,000 psf last year for 65,000 sq ft.

Explaining the high bid, Pujit Aggarwal, Orbit Group managing director, said, “The office rental market is booming. In the past few years, we have received offers from finance companies which are willing to pay between Rs250 and Rs400 psf.”

Besides, office space at the BKC is being quoted at between Rs28,000 and Rs30,000 psf. “Considering the plot’s proximity to the BKC and the shortage of good quality commercial buildings, we are confident of commanding a good price even if we decide to sell space outright,” he said. Orbit can develop up to 4 lakh sq ft of space on the land.

The deal comes as good news to the Mumbai Metropolitan Region Development Authority, which auctions plots at the BKC. The MMRDA is scheduled to call for bids for a similar-sized plot on March 21 and has set Rs18,000 psf as the reserve price. With a Kalina plot fetching almost Rs20,000, all eyes will now be on this

Realty firms cash in on land near upcoming SEZs

Real estate companies are rushing in on the opportunities galore around the two SEZs promoted by Reliance Industries - Maha Mumbai SEZ and Navi Mumbai SEZ, which it has started in JV with CIDCO.

Both SEZs are located in Raigarh district and will cover a land area of 14,000 hectares.

According to industry sources, many individuals have also bought land in the Mandwa and Alibag region on the hopes of escalating prices due to proposed SEZs and Rewas-Aware seaport.

To start with, city-based construction firm Samira Habitats is planning to set up a services SEZ in Poynad, Poynad is 6 km from the MMSEZ. It has already appointed Meghraj SP Corporate Finance to scout for private equity partners for the venture.

Real estate major Hiranandani Constructions has also bought 200 acres of land in Nagaon near Alibaug, which is nearly 24 km from MMSEZ. The company is in the initial stages of development plans, a company official said.

Out of the 200-acre land bank the company has with it, it would use 25-40 acres for the SEZ and the rest for the health farms, medical facilities, a international educational institution, a three-star hotel around the SEZ. It has envisaged a investment of more than Rs 100 crore for the venture.

Sameer A Nerurkar claims that the services SEZ would compliment the MMSEZ and NMSEZ. "We want to explore the opportunities spilled out from these SEZs. We are not in competition with the existing SEZs, but to compliment them with auxillary services".

"In the next four to five years, Alibag will not remain as a gateaway destination but will become a suburb to the SEZs. With the world-class infrastructure, well-paying jobs and hi-if lifestyles, the surrounding areas will get great demand.With the upcoming SEZs, a lot of rich and famous are buying land in the areas surrounding SEZs." says Nerurkar.

Apart from the SEZ plan, the company is also planning to foray into medical tourism with a US-based company to set up a JV.

Nerurkar says that his firm was aiming to tap the large chunk of European and US tourists availing medical services in the South East Asian countries and to build upon the union government's target to achieve a business of $1 billion by 2010 by promoting medical tourism in the country.

Samira has a land bank of 600 acres in Alibag and surrounding areas and Panvel. It buys land near the upcoming SEZ, port and potential areas of development.

In Alibag, it is building 'gated community projects', which are cantonment-like projects and building super-luxury villas with an investment of Rs 300 crore, in which it plans construct 50 villas in the first phase and 100 villas in the second phase.

On the North end of the SEZs, the firm has 150 acre of land in Nerual, where it plans to build a mixture of mass housing and villas.

"We are buying land to lock both end of SEZs - villas in Alibag area and mass housing in Panvel," Nerurkar adds.

Govt Revises Guidance Value in Bangalore

OUT OF REACH, YET AGAIN? TOI 06/03/2007
Land becomes dear
Govt Revises Guidance Value, 100-400% Rise In Upmarket Areas
Kudli Gururaja TNN

Bangalore: Here is a shocker for those who are dreaming of buying a site or constructing a house in Bangalore. The government has revised the guidance value of prime areas in Bangalore by one to four times.
The notification was issued on February 28 and March 14 is the last date for filing objections. The objections can be filed before secretary, central guidelines committee, BWSSB, Cauvery Bhavan, through post or handed over personally.
With the guidance value having gone up, Bangaloreans will have to pay higher registration fee while buying land and buildings. Land prices already being sky-high, the decision is bound to pinch the middle class further.
The guidance values of land that come under the 12 registrar offices in Bangalore have been revised. The new values will be applicable in Basavanagudi, Gandhinagar, K R Puram, Jayanagar, Rajajinagar, Shivajinagar, Srirampura, Bangalore North, Bangalore South, Yelahanka and Anekal registrar offices. There is a bonanza for those who own farmland in Anekal: the land priced at Rs 4.2 lakh per acre has shot up to to Rs 10 lakh per acre after the revision.
In Tata Silk Farm area, it is quite steep: the revised value has shot up to Rs 4,000 from Rs 1,000 per sq ft. Bellary Road (up to Mehkri Circle) has also seen a steep revision: from Rs 3,000 to Rs 7,000. The revision is over double in Jayanagar 9th block: from Rs 2,000 to 5,000 per sq ft. So also Bannerghatta Road from Rs 2,000 to Rs 4,000.
In Annepura, Azadnagar areas, the guidance value for one sq ft has gone up from Rs 500 to Rs 1,000; in Banashankari I stage, it has been increased from Rs 1,500 to Rs 2,000 per sq foot, while in Srinagar Layout from Rs 800 to Rs 1,300 per sq ft, Ashoknagar Rs 1,200 to Rs 1,900 sq ft, Chennammana tank from Rs 1,000 to Rs 1,650 sq ft, and Hosakerehalli BDA Layout from Rs 1,000 to Rs 2,000 sq ft.

The new rates


Bangalore: The government has revised the guidance value for the following areas. The revised rates are: In Gandhi Bazaar, the value has nearly doubled from Rs 2,500 to Rs 4,500 per sq ft, Kanakapura Road from Rs 2,200 to Rs 4,500, South End Road from Rs 2,200 to Rs 5,000.
In Hanumanthanagar cross road area, the value has gone up from Rs 1,400 to Rs 1,950 per sq ft, Lalbagh Road from Rs 2,500 to Rs 4,500, Kathriguppe Rs 1,000 to Rs 1,600.
Land in RT Nagar too has become quite expensive: in first and second blocks the revision is from Rs 2,000 to Rs 3,000 per sq ft. In the upmarket Sadashivanagar, it has gone up from Rs 3,000 to Rs 4,500. In Madivala BDA and BMRDA layouts for every sq ft which was Rs 105, it is now Rs 450. In Sarjapur, value of agricultural land is revised to Rs 34 lakh per acre. TNN

Yen carry trade and the housing bubble

Was the Yen-Carry trade the mother of all bubbles including India's housing boom ? The DNA article makes some interesting points on the amount of liquidity the Japanese banks provided which has fueled booms in unbalanced markets like India's property bazaar

All liquidity starts in Japan, the world’s largest creditor country. When rates go up here, rates go up everywhere. — Jesper Koll, chief economist for Japan, Merrill Lynch

MUMBAI: These nineteen words form the microcosm of the current global stockmarket mayhem.

Jesper Koll was referring to the universal bogey called the yen carry trade.

It’s a business where “trillions” of dollars are involved. “Trillions”, because nobody on earth has any idea how big a Frankenstein has been been spawned by this vast and prolonged leverage.

Which brings us to the question, what are yen carry trades?

Since March 2001, Japanese interest rates have ruled at 0%. Leveraging the yen thus offered gains of about 300 basis points (“3%” in layman terms) on a platter to anybody wanting to earn.

Just borrow in yen, convert the money into dollars, buy US treasuries that yield about 4.5%, pocket the difference -- after deducting expenses including about 100 basis points in hedging cost.

A caveat is due here: to earn from US treasury bills, the yen/$ rate has to remain steady. But investing in high-yielding emerging market equities like India is far more lucrative.

Why have yen carry trades unravelled now?

The answer lies in the unexpected surge in growth in Asia’s largest - and the world’s second-largest — economy to 4.8%% in the fourth quarter of 2006. This figure may be raised to 5.1%, Koll told Bloomberg,, because corporate investments surged 16.8%, the fastest increase since 2002, data released on Monday show. This growth forces the Bank of Japan to increase rates.

Look at it another way: for years, Bank of Japan has bankrolled the yen-carry trade across the globe and you know what Koll means.

The alarms started going off in the leveraged world when Japan first raised its interest rates to 0.25% on July 14, 2006. This was further raised by 25 basis points on February 21, 2007. The problem is, returns on carry trades move inversely to the appreciation in yen.

So, as a carry-trader, if you have borrowed in yen, you have two worrries: you need to pay more by way of interest (when you borrowed, it was at 0% interest, now you have to cough up 0.5%), and your principal has suddenly bloated too (you borrowed in yen, converted the money into dollars and invested. With the dollar weakening against the yen, to pay back the principal, you need more dollars to get as many yens now).

On a mark to market basis, thus, a borrower ends up being worse off every minute he holds on to the trade. There are two exit routes available now - close out positions, take the loss, or hedge using swaps.

Another related development is that one-month deposit rates in Japan has risen 13 basis points to a six-year high of 74 basis points, according to Bloomberg data. Singapore-based Callum Henderson, head of currency strategy at Standard Chartered Bank, told Bloomberg this means Japanese money is definitely going home. “The spike in short-term Japanese rates will exacerbate the rally in the yen,” he said. The appreciation, thus, can feed on itself as the economy surges ahead.

Which brings us to the most important point, what would India’s exposure to yen carry trades?

It may be more than what analysts estimate, as the form of carry-trade varies. In October 2005, BusinessWeek estimated that more than half the money coming into Indian stocks from abroad is of Japanese origin.

An RBI spokesperson could not provide DNA Money disaggregated data on yen inflows on Monday. There is no data with Bank of Japan or the Bank of International Settlements on global yen carry trades, either.

Data in public domain show Deutsche Asset Management has raised nearly a billion dollars from Japan, for investment in India, beginning from December 2004, while Fidelity Investments has a $1.4 billion fund. In all, about half-a-dozen such megafunds exist in Japan.

Merrill Lynch Investment Managers and JP Morgan Fleming Asset Management have also raised monies.

The sums, thus, are difficult to quantify, but the form itself may give the extent to which India is exposed to the yen. Some of the forms are:

* Japanese investors in India. Funds that borrowed in yen and invested in Indian assets in many forms — equities, real estate, stock futures arbitrage, interest rates and credit spreads.
* NRIs exposed to yen borrowing and deploying the money in Indian deposits to take advantage of higher carry and weaker yen.
* Banks and corporates which borrowed in yen and hedged the principal but not interest payments.

This plus many other forms that we do not know of are leading to yen strength translating into weakness in Indian asset classes.

Has the world seen a yen carry trade unwinding earlier? Only once, in October 1998, which led to the spectacular collapse of Long Term Capital Management in the US. The Federal Reserve had to bail out US banks and brokerages then.

Which market will blow up next? : Jubak's analysis

CNBC's Jim Jubak's analysis
In simple words the risks are fourfold

Political risk
Interest rates going higher
Unabated inflation
Lack of foreign liquidity

Which market will blow up next?

It's only logical to wonder after the 9% plunge in China's Shanghai stock market led to a global sell-off on Feb. 27. That ended with the Dow Jones Industrial Average ($INDU) down 416 points on the day.

There are the usual suspects, of course:

* The U.S. markets, if the crisis in the submortgage market spreads to the rest of the debt market.
* Japan, if investors panic at signs that the economy might be slipping back toward recession after the latest interest rate increase.
* Russia, if investors decide that the country's booming stock market -- up 51% in 2006 -- and state-controlled economy too closely resemble the Chinese market that just blew up.
* The $345 trillion derivative market, if some of the math whizzes that carve up risk sent too much risk to the wrong investors.

But I've got another candidate: India.

It's as big as China. It's growing just about as fast. Its economy is in more danger of overheating. And it's more dependent on speculative hot money. The Indian stock market suffered through a 30% drop in May and June of 2006, so similar volatility in the days ahead is certainly a possibility. And the country looks like it's on the road to a genuine economic and political crisis.

And, of course, with the global financial markets as spooked as they are after the Feb. 27 meltdown in Shanghai and the subsequent global sell-off, any short-term blip in a major developing market such as India could set off big ripples across the globe.

In the long term, however, I think India might be the most attractive of all global stock markets: Its population is younger than China, its educational system is expanding and improving, and its companies are more focused on creating wealth for shareholders.

Do the long-term rewards outweigh the short-term risks? Should you buy in now, determined to weather any storm, or wait for the rain to fall and the clouds to clear? Let me lay out the short-term risks and the long-term potential.
First, the short-term risks

* Asset prices are high, so high that they show all the signs of a classic asset bubble. The market valuation of the main Indian stock market in Mumbai, despite that 30% downturn in 2006, had climbed to $836 billion in mid-February from $121 billion in April 2003, an increase of 591%. Property values have soared, with the value of prime office space in Mumbai up 70% in the last year.
* Those high asset prices depend on a flood of easily withdrawn overseas hot money. Flows of capital into the Indian stock market climbed to $12.5 billion in fiscal 2006, up from $2 billion in fiscal 2002.
* India is very dependent on global cash flows. Unlike China, India runs a trade deficit and only showed a total capital account surplus in fiscal 2006 because of that $12.5 billion from overseas investors in stocks, foreign direct investment of $6 billion in 2006 and rising corporate borrowing on international capital markets (about $6 billion in fiscal 2005). India was relatively untouched by the Asian financial crisis of 1997, but it is much more vulnerable to changes in external cash flows today.
* Bank lending is out of control. Over the past three and a half years, bank credit outstanding has jumped by 76%, according to Morgan Stanley.
* Inflation is out of control. Nationally, inflation recently hit a two-year high of 6.7% and is running even higher -- about 9% -- in the rural areas where two-thirds of Indians live. Inflation at the wholesale level has increased to 6% from 4% last spring.
* The Reserve Bank of India, the country's central bank, raised its benchmark interest rate to 7.5% at the end of January without noticeably slowing either inflation or the lending boom. Finance Minister Palaniappan Chidambaram has thoroughly undercut the central banks efforts by urging banks not to pass on interest rate increases to lenders.

My short-term prognosis: A big domestic credit crunch -- caused when lenders stop lending and borrowers can't get the cash they need to run their businesses -- causes India to fall far short of current forecasts of 9% to 10% annual growth. Foreign investors begin to withdraw money from the Mumbai stock exchange, producing another 30% "correction." The current Congress Party government loses power. After stumbling with politically motivated attempts to reduce food and fuel prices in rural areas, a new government bites the bullet, raises interest rates and cuts bank lending enough to slow inflation and the economy. Overseas cash begins to return.

Shanghai stock market plunge on Feb. 27, 2007, was due in part to fears that an upcoming election could bring changes to the way citizens invest in China's stock market, says MSN Money's Jim Jubak. He notes that U.S. investors should now keep an eye on India, where the effect of election-year politics could also cause a sharp decline in the economy.

It won't play out exactly like that, of course. I don't know how deep any credit crunch might be or how much the Reserve Bank of India might have to slow the economy to reduce inflation to its 5% to 5.5% comfort zone. I don't know how long the Congress Party government might be able to cling to power. I don't know how other global markets would react to a big drop in Indian stocks.

Most of all, I don't know when all of this might happen. This mess took a while to create, and my suspicion is that it will take a while to correct. The core of the problem -- the imbalance between urban areas quickly growing wealthy (in Indian terms) and rural areas left behind in the boom -- isn't unique to India, and it won't be solved by just one crisis. And subduing inflation in India will require big increases in supply, since Indian companies are now operating at full capacity, and improvements in infrastructure that reduce the costs of moving food and fuel. A recent study by the Reserve Bank of India says that it will take 18 months to two years to add significant supply. I think it's reasonable to look for an Indian crisis within that 18- to 24-month parameter.
Second, the case for long-term rewards

* There's no going back to the highly regulated economy of the past. Even the Congress Party, no friend of an open economy, wasn't able to resist the momentum. And with Indian companies increasingly making big bucks from the global economy, there's no reason to put the genie back in the bottle. That means future growth should be in the range of 7% to 10%, not the anemic rates of the 1980s, when growth was just a third of that.
* The Indian middle class numbers 200 to 300 million, enough to make them the driver of a domestic consumer economy. With Indian per capita GDP of $3,460 in 2005 (adjusted for purchasing-power parity because money goes further in a poorer country), India is still poorer than China at $6,660 per capita in 2005, but the country has crossed the economic threshold where growth in consumption takes off. Only 10% of Indians have life insurance now, only 2% have credit cards and less than 15% have refrigerators.
* Even some of India's problems have major economic upside. India's investment in infrastructure has lagged China's. In 2002, for example, the country spent only $31 billion, or 6% of GDP, on building the roads, ports, railroads and airports necessary for competing as a global economy. China in that year spent $210 billion, or 20% of GDP. But the Indian government recognizes its need to catch up.
* Education is getting the attention -- and rupees -- it needs. Indian society has been soundly shaken over the last two years by studies that show that the country spends too little (just 3.8% of GDP), educates too few (only 8% of 18- to 24-year-olds go on to higher education, about half the Asian average), and teaches too poorly (although 95% of 5- to 10-year-olds go to school, 40% drop out by age 10). The government's next budget, though, is expected to show an increase in education spending to 6% of GDP.
* Demographics work in India's favor. Half of India's 1.1 billion people are under 25 today, and the country is among the least rapidly aging in the world. In 2002, according to the United Nations, in the developed world 20% of the population was 60 or over. In China, the figure was just 10%, and in India, 8%. By 2050, according to projections, the percentage will have climbed to 33% in the developed world and to 30% in China, but to just 21% in India. That means that India has time to fix its problems before the needs of a huge cohort aged 60 and older begin to dip into national savings. India can take comfort in research that shows younger economies grow faster, too.
* India's companies have a culture of creating value for shareholders. I know this is subjective, but it is important. If you're going to be a passive shareholder in a company, you'd better hope that the goal of the company is growing the value of all shareholders' stakes. Many Indian companies -- and some of the biggest -- have that culture, maybe because so many started life as businesses run by extended families. I think that culture takes much better care of shareholders than that of corporate China, where companies are often run to enrich local officials, managers and party elites.
* India's companies show above-average profitability. Here's something much more concrete: The average return on equity for Indian companies on the Mumbai stock exchange is 21%. That's significantly above the 18.7% average return on equity for the U.S. members of the Standard & Poor's 500 Index ($INX).
* In addition, Indian companies are comparatively underleveraged, with an average debt-to-equity ratio of just 70% compared with a ratio of 123% for the S&P 500 companies. That means they're got plenty of room to add debt, which will in turn increase leverage, return on equity and profitability for investors.

My long-term prognosis: India is the most attractive stock market in the world for the long haul. By that I mean over the next decade or so.

The Shanghai stock market plunge on Feb. 27, 2007, was due in part to fears that an upcoming election could bring changes to the way citizens invest in China's stock market, says MSN Money's Jim Jubak. He notes that U.S. investors should now keep an eye on India, where the effect of election-year politics could also cause a sharp decline in the economy.

Adding it all up: After weighing the long-term pluses and short-term minuses, I'd wait for another 30% correction in the Indian stock market. The risks in the Indian economy and the global financial markets are just too great in the short run at current prices in Mumbai. And as the panic on global markets that followed the 9% drop on the Shanghai stock market on Feb. 27 indicates, there are just too many hot-money investors around the world, all hoping to be the first out the door at any sign of trouble.

Rising rates and unspoken fears

A jittery stock market is one of many indicators of a wider sense of disquiet

SUCHETA DALAL in the express

The government has obviously hit the panic button over inflation rising to 6.73%, despite its many efforts. Last week, the government set up a special price monitoring cell in the cabinet secretariat and the Prime Minister wrote to all Chief Ministers seeking their help to keep prices in check. That these moves have been widely reported around the world indicates how closely India’s economy, as well as its capital and commodity markets are being watched. Any drastic decision to hike interest rates and slow down the economy in the hope of curbing inflation is bound to impact portfolio flows to India, which would affect several sectors of the economy. Since India is one of the world’s largest producers and consumers/importers of a wide swathe of commodities, our domestic prices and demand-supply factors have an impact on international price trends.

A few weeks ago, the Prime Minister personally threw open the inflation issue to public discussion, making it clear that he wanted views and feedback from all constituencies. It triggered a massive media debate over controlling inflation at the cost of economic growth. There were equally strong arguments on both sides. However, two crucial stakeholders stayed out of the debate—industrialists and bankers.

Industry is probably feeling complacent about the liquidity situation. Globally, liquidity is not a problem. There is plenty of money waiting and willing to be lent to Indian companies at excellent rates today. The capital market has, however, turned distinctly jittery, but since this is just a one-week phenomenon, it is probably too early to signify an important turning point.

But bankers are not so sanguine. They are seriously worried that any further increase in interest rates will cause a severe economic setback and that the implications of such an action are not fully understood by policymakers. There are already indications of the speed with which interest rates could rise in the bidding for short-term deposits. Last week, a 100-day fixed deposit by Gas Authority of India Ltd received seven bids from banks, all willing to pay over 10% — they included State Bank of Patiala, which offered 10.51%, Bank of Baroda (10.26%), Union Bank (10.20%), State Bank of Hyderabad (10.03%) and IDBI Bank, Allahabad Bank and ICICI Bank offering 10% while Punjab National Bank offered 9.95% and HDFC Bank offered 9.4%. ICICI Bank reportedly offered 10.10% for a 30-day deposit of Rs 150 crore to Unitech and there is talk of a Rs 1,000 crore deposit having been snapped up for 11%. If this is the situation today, then another hike will cause interest rates to go haywire.

The Indian economy is bubbling along based on increased consumption, thanks to higher earnings as well as the availability of easy personal loans and finance for everything from white goods to family holidays. That will change. High interest rates will slow down fresh borrowing, while delinquencies on existing personal loans could increase if money has gone into the stock market, which was exceedingly nervous last week. On the mortgage front, borrowers are already sore at the repeated increase in interest rates. So far, there were a few mitigating factors such as rising realty prices and increased household incomes. Lenders also had some cushion to avoid hiking equated monthly instalments (EMI) across-the-board, because the average borrowing age has dropped sharply from 40-plus to the late 20s. Another interest rate hike could force banks to hike EMIs as well.

Rates could rise. There are already indications of the speed with which interest rates could rise in the bidding for short-term deposits. Last week, a 100-day fixed deposit by GAIL received seven bids from banks, all willing to pay over 10%
The trend in realty company shares, which have dropped anywhere between 20-35% in the last three weeks, suggests that this bubble is starting to lose air. A sure sign of rising panic is the fact that bankers were suddenly talking about the downgrade of a personal loan pool of a private bank by Crisil. This had happened over a month ago, and the rating agency insists that it does not signal a trend so far.

If the realty bubble bursts and the capital market goes into a deep correction, the impact is bound to slow down the growth of a wide cross-section of manufacturing companies. This, in turn, will have a domino effect on foreign portfolio inflows. While all this pain may indeed curb inflation, will it cool public anger over the rise in prices of staples such as rice, dal, wheat, milk, onions and potatoes? Their prices have risen anywhere between 30% to 200%, so the drop of a couple of percentage points in the overall inflation rate is hardly likely to reduce these prices substantially. Since the government’s panic about rising prices is heightened by forthcoming state elections, it would make far better sense to figure out ways of supplying these food essentials at controlled prices to lower income groups. While economists may sneer at such an inelegant solution, it is perhaps better than the alternative scenario projected by worried bankers, traders and select industrialists on condition of anonymity. Ironically, nobody wants to speak publicly about this scary picture for fear of offending either the central bank or the finance ministry.

Instead, they prefer to start preparing for tougher times and even a possible repeat of the debilitating slow down of the latter 1990s.

At a time when India’s confidence level is riding higher, does it make sense to force the country into a period of needless pain—especially when the surge in agricultural commodity prices, particularly in oilseeds and grain, is a global phenomenon?

Greenspan Warns of Likely U.S. Recession

When the U.S sneezes the world catches a cold. Will this adage come true this flu season ?

Yahoo reports..

HONG KONG (AP) -- Former U.S. Federal Reserve Chairman Alan Greenspan warned Monday that the American economy might slip into recession by year's end.
He said the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."
"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.
Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.
The U.S. economy grew at a surprisingly strong 3.5 percent rate in the fourth quarter of 2006, up from a 2 percent rate in the third quarter. A survey released Monday by the National Association for Business Economics showed that experts predict economic growth of 2.7 percent this year, the slowest rate since a 1.6 percent rise in 2002.
Greenspan also warned that the U.S. budget deficit, which for 2006 fell to $247.7 billion, the lowest in four years, remains a concern.
"The American budget deficit is clearly a very significant concern for all of us that are trying to evaluate both the American economy's immediate future and that of the rest of the world," he said via satellite at the VeryGC Global Business Insights 2007 Conference.
Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market.
"We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said.

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

NSE (NIFTY) 7 Days Losers 23-Feb-2007 Company Latest Close Compared To Absolute Change % Change GRASIM IND 2270.25 2653.90 -383.65 -14.46 JET AIRWAYS 639.50 724.90 -85.40 -11.78 ORIENTAL BANK 199.45 222.60 -23.15 -10.40 A C C 914.45 1017.65 -103.20 -10.14 GUJ AMB CEME 123.20 136.75 -13.55 -9.91 RANBAXY LAB. 356.55 393.35 -36.80 -9.36 HIND LEVER 188.15 205.95 -17.80 -8.64 MTNL 138.75 151.80 -13.05 -8.60 O N G C 830.00 906.25 -76.25 -8.41 VIDESH SANCH 393.80 428.20 -34.40 -8.03

NSE (OTHERS) 7 Days Losers 23-Feb-2007 Company Latest Close Compared To Absolute Change % Change MARICO IND 57.80 584.75 -526.95 -90.12 GOLDSTONE TECH 72.20 94.45 -22.25 -23.56 TOUBRO INFO 19.60 25.05 -5.45 -21.76 RUCHI INFRA. 33.80 43.10 -9.30 -21.58 PARAMOUNT COMM 39.10 49.50 -10.40 -21.01 PRAJAY ENGRS 216.35 269.70 -53.35 -19.78 G M R TECHNO 189.60 234.20 -44.60 -19.04 MOT&GEN FIN 49.30 60.80 -11.50 -18.91 WALCHANDNGR 1529.05 1872.95 -343.90 -18.36 STANDARD IND 43.40 53.00 -9.60 -18.11

BSE (SENSEX) 7 Days Losers 23-Feb-2007 Company Latest Close Compared To Absolute Change % Change GRASIM IND 2271.10 2653.65 -382.55 -14.42 A C C 915.65 1017.55 -101.90 -10.01 GUJ AMB CEME 122.85 136.50 -13.65 -10.00 RANBAXY LAB. 356.45 393.50 -37.05 -9.42 HIND LEVER 187.45 205.75 -18.30 -8.89 O N G C 830.25 905.40 -75.15 -8.30 H D F C BANK 957.45 1041.85 -84.40 -8.10 WIPRO 623.25 676.00 -52.75 -7.80 SATYAM COMPU 448.75 485.45 -36.70 -7.56 REL COM 432.35 466.50 -34.15 -7.32

BSE (AGROUP) 7 Days Losers 23-Feb-2007 Company Latest Close Compared To Absolute Change % Change GRASIM IND 2271.10 2653.65 -382.55 -14.42 CUMMINS 257.95 292.60 -34.65 -11.84 ARVIND MILLS 50.50 57.10 -6.60 -11.56 IDBI 86.65 97.95 -11.30 -11.54 TITAN INDUST 889.80 1005.15 -115.35 -11.48 CENTURY TEXT 551.35 621.60 -70.25 -11.30 BANK OF INDIA 157.60 177.55 -19.95 -11.24 MPHASIS BFL 274.95 306.70 -31.75 -10.35 BHARAT ELECTRONIC 1556.70 1734.05 -177.35 -10.23 ORIENTAL BANK 200.00 222.70 -22.70 -10.19

BSE (B1GROUP) 7 Days Losers 23-Feb-2007 Company Latest Close Compared To Absolute Change % Change MADHAV MARBLE 100.15 134.10 -33.95 -25.32 JUPITER BIOS 157.65 204.40 -46.75 -22.87 GOLDSTONE TECH 72.20 93.20 -21.00 -22.53 MODIPON 108.15 139.55 -31.40 -22.50 HATHWAY BHAW 23.40 30.10 -6.70 -22.26 PARAMOUNT COMM 38.85 49.25 -10.40 -21.12 G M R TECHNO 188.30 235.00 -46.70 -19.87 ENCORE SOFT 34.25 41.95 -7.70 -18.36 HINDOO SPG 44.45 54.15 -9.70 -17.91 STANDARD IND 43.65 52.90 -9.25 -17.49

BSE (B2GROUP) 7 Days Losers 23-Feb-2007 Company Latest Close Compared To Absolute Change % Change CONART ENG 32.85 43.20 -10.35 -23.96 OSCAR INV 413.50 534.30 -120.80 -22.61 WALCHAND CAP 1077.45 1392.30 -314.85 -22.61 MEFCOM AGRO 109.40 141.30 -31.90 -22.58 B C C FUBA 27.20 35.05 -7.85 -22.40 TOUBRO INFO 19.40 25.00 -5.60 -22.40 CENTRAL PROV RLY 55.00 70.80 -15.80 -22.32 RIGA SUGAR 34.65 44.25 -9.60 -21.69 CAPITAL HOTELS 16.00 20.35 -4.35 -21.38 RUCHI INFRA. 33.80 42.90 -9.10 -21.21

BSE (ZGROUP) 7 Days Losers 23-Feb-2007 Company Latest Close Compared To Absolute Change % Change INTELLVISIONS SOFT 156.75 202.40 -45.65 -22.55 RITESH INDUS 61.15 78.85 -17.70 -22.45 ASIA FAB 16.70 21.45 -4.75 -22.14 MAZDA 120.00 154.10 -34.10 -22.13 TRIPEX OVERS 142.65 182.25 -39.60 -21.73 SHREE RAM 371.85 470.80 -98.95 -21.02 KAMANWALA IND 184.85 232.80 -47.95 -20.60 ROYALE MANOR 23.40 29.40 -6.00 -20.41 BRAKES AUTO 16.75 21.00 -4.25 -20.24 B C C FINANCE 17.60 21.95 -4.35 -19.82

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.

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.

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

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

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.

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

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.’’