<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Track Global Recession
India's troubled property developers are seeing early signs of a rebound, but high debt costs and a lack of private equity funding suggest a sustained recovery is unlikely for some time.
Enquiries for homes and offices remain strong in Asia's third-largest economy as it grows at an annual clip of 6-7 percent, but buyers are staying away as developers dither over sharp price reductions that could turn pent-up demand into sales.
Foreign investors, scarred by the global sub-prime crisis, are wary of investing in a property market beset with red-tape, land disputes and unclear titles. And with no clear sight of prices bottoming, like home buyers, they are staying away.
Major developers, who have seen their share price slide by up to 90 percent from last year's peak, expect the market downturn to last another 3 to 4 quarters even as property markets elsewhere in Asia show signs of turning a corner.
"Anything I buy today, I may get at half-price later. We have a decline in front of us," said Gulbir Madan, managing partner at New York-based Brahma Management, which runs a $500 million India-focused property fund.
It has invested only a fifth of its capital since 2007.
Property prices doubled in the two years after India eased rules in early 2005 on overseas investment in its construction industry, partly fuelled by interest from foreign investors.
But the sharp rise, followed by interest rate hikes to calm inflation and global financial turmoil have battered the sector. Property sales are down more than half from a year ago, and developers are piled with unsold and incomplete projects.
"All new property buying has been suspended for the moment," said Pradeep Jain, chairman at New-Delhi based Parsvnath Developers
.
Parsvnath, among the earliest real estate firms to raise equity through an initial public offering in 2006, last week said dwindling cash flows had pushed it to restructure half of its 16 billion rupees ($325 million) bank debt.
Without cash, new projects that promise future growth have come to a standstill, beating down stock prices.
The real-estate sector index is down 83 percent from its peak in early 2008, and shares of the largest developers such as DLF, Unitech, Indiabulls Real Estate and Parsvnath have been among the worst performers in the Mumbai market. Share prices though, have started to recover since early March, in line with the broader market.
For a graph on developers' share performance, click http://graphics.thomsonreuters.com/059/IN_PPTY0509.jpg
In an bid to generate cash flows, developers are frantically cutting costs, re-sizing apartments and redesigning projects, but have not been able to significantly change buyer sentiment.
"I think they will have to cut prices (further) and they need to spruce up their execution schedules," said Nimesh Grover, chief investment officer of UBS Global Real Estate in India.
Even then, only projects of developers with a strong brand and proven track record are expected to attract investors.
Investment peaked in 2007, with Indian real estate firms raising 151.85 billion rupees through local public offers and another $2.1 billion from foreign funds.
With the primary market still in the doldrums, foreign investment could be key to the next growth phase in real estate.
Holding Back
Although foreign investors sense opportunity in a cash-hungry Indian market, valued at about 5 percent of India's GDP, they say deals are not happening yet as developers hold on to valuations and returns are hardly tempting.
"We maintain certain discipline in deploying capital. Because of this, we have half our capital available, at a time when cash equity has greater value," said Chetan Dave, director at Sun-Apollo Real Estate Advisors, which manages a $630 million fund.
With real estate in a downturn globally, global funds say investments in riskier markets such as India and China need to be justified with at least 25-30 percent returns at a time when bargains are available in their home markets.
Analysts say China's property market is finding a floor, while Japan's apartment market may well see a turnaround from mid-year.
"The premium for taking the risk (in India) is much higher. My dollar is limited and has to be weighed against other opportunities in the region," said Richard Yue, chief executive of Arch Capital Management, which runs an Asia property fund set up by Philippines developer Ayala.
"And honestly, India doesn't look all that attractive."
Stretched Cashflows
Property firms are doing what they can to raise cash.
Unitech, which last year deferred plans to list its property trust in Singapore due to market turmoil, last month raised $325 million through a share sale to institutions at 38.50 rupees each, a fraction of the 2008 peak of 546.80 rupees.
The funds raised will help repay its $1.7 billion debt.
DLF, India's leading listed realtor, meanwhile is also close to finalising a deal to raise up to $608.5 million through a share sale, the Economic Times reported on Friday.
During the boom, real estate firms raced to buy land or build new townships and malls, sometimes in league with foreign funds run by the likes of Morgan Stanley and Citigroup and often through heavy borrowing.
Since early 2005, foreign investors have earmarked an estimated $20 billion for the booming property market. But government figures show only about $4.5 billion has actually been spent in the last three years.
And as property sales came crashing down over the past year, developers were left holding balance sheets laden with debt, and are generating little cash to service them.
Early this year, India's central bank allowed banks to restructure existing loans with developers, giving a temporary respite in interest payments. Double-digit interest rates, however, remain a constant worry.
"What is important is to reduce the ticket size, it appeals to a wider segment of customers," said R Nagaraju, head of corporate planning at Unitech. "We have redesigned some projects and cut costs by 20-25 percent."
(Reuters)