Author
Gurbir Singh is an award-winning senior journalist with over 30 years experience. He has worked for BW Businessworld since 2008, and is currently its Executive Editor. His experience ranges from covering 'Operation Bluestar' in 1984 to pioneering coverage of the business of Media & Entertainment and Real Estate for The Economic Times.
The common thread through all the year-enders and forecast reports by realty analysts and brokers is that 2012 ended with mayhem in the property market; and that the headwinds of economic recession, high property prices and rising unemployment would continue through the current year too. The Indian residential and home sales market saw a decline of 30 per cent in fresh launches in 2012, against a 7 per cent fall in 2011, shows a survey by property broking firm Knight Frank. Concurring with this, another broking house report said the residential market across eight major cities witnessed a drop of 16 per cent in total new units launched over 2011. The luxury realty market suffered a bigger blow with new launches declining by up to 24 per cent. Explaining the situation, Cushman & Wakefield executive MD, South Asia, Sanjay Dutt, says, “High consumer inflation, high home loan interest rates and a slower growth of the economy had a strong impact on end users, making them more price-sensitive. Whereas, cash-strapped developers were not willing to take up projects that may fall short on interest from end users.”50% was the percentage fall in new projects in BangaloreThe commercial realty market did not fare much better. A report by CB Richard Ellis (CBRE) showed that the uptake of prime office space in India saw a 26 per cent decline to 26 million sq. ft in 2012, compared to 35 million sq. ft in 2011. CBRE South Asia’s CMD Anshuman Magazine says corporates had shelved expansion plans amid uncertainty. The Knight Frank report also connects the slower launches to developers becoming smart over the years, after being saddled with excessive inventories. For instance, the gap between the launch and absorption numbers for 2012 fell to just 32,000 units for the residential market, compared to the yawning gap of 82,000 and 94,000 units in 2010 and 2011, respectively. Figures for disbursal of credit to realtors also reflected the slowdown. Cautious developers reluctant to launch new projects and complete old ones ensured that bank credit exposure to realtors fell from the peak growth of 23.21 per cent in June 2011 to just 3.88 per cent in September 2012. The cities that bucked the trend were Mumbai, Pune and Kolkata. Mumbai — paralysed all through 2011 due to unclear Development Control Rules — woke up with a 72 per cent growth in new launches, or 22,423 units, in 2012 compared to 13,000 in 2011. On the other hand, Delhi NCR battled an oversupply situation from 2011 with a 31 per cent fall in new units launched (see Bites of Realty). To add to the economic headwinds, guarded consumer response to the marketing initiative of builders will also be a major bottleneck in reviving the realty market. A survey of potential homebuyers by Makaan.com across metros showed that “most homebuyers are unable to justify or afford the high prices”. Buyers were also sceptical of poor location and connectivity of the projects; and feared that the infrastructure development promised around these housing projects would never take place. Of those surveyed by Makaan.com, 54 per cent blamed high property prices as a deterrent to buying, while 20 per cent said poor location and connectivity were dampeners. (This story was published in Businessworld Issue Dated 21-01-2013)
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One more attempt has been made to track the not-so-transparent real estate market with the launch of the Real Estate Sensitivity Index (RESSEX) by Pankaj Kapoor-promoted property tracking firm Liases Foras. RESSEX will provide data through several verticals such as inventory (supply) index, sales-demand index, price index, which shows weighted average price against the unsold inventory, and business turnover index. The data will be collected in four survey months — June, September, December and March — which will be available in the updated index a month later. RESSEX promises to provide location-specific data across 400 locations in six cities covering as many as 10,000 projects. HDFC is supporting RESSEX to the extent it will help validate the data, says HDFC's joint managing director Renu Sud Karnad.This is not the first attempt at a realty index. The National Housing Bank already has a price-tracking index. However, most of the property data collection is done by broking firms such as CB Richard Ellis and Jones Lang LaSalle Meghraj. Being active realty players, the credibility of their reports is suspect.Notably, the main stakeholders, developers and builders, are not forthcoming in providing sales and pricing data; Mumbai-based builder Niranjan Hiranandani concedes that builders have not opened up their books. So, data collection will continue to be a problem. Another round of realty firms going public might increase the pressure to have transparency. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 30-11-2009)
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The Mumbai Port Trust has just decided to bury a bit of history, and the greens are not happy about it. Two of the port's oldest docks — the Prince's and Victoria — will be filled up to make way for a new offshore container terminal. Both the docks, built in 1885 and 1891 to provide access for small ships, are now in disuse. The Rs 1,228-crore terminal will be developed by the Indira Container Terminal Pvt Ltd (ICTPL), a joint venture between construction firm Gammon India and Spain's leading port group Dragados SPL. The Mumbai Port Trust (MbPT) will cover the cost of dredging and filling up the docks, estimated at Rs 366 crore."The process will give the port an additional 40 hectares," says MbPT's Chairman Rahul Asthana. "From this reclaimed waterfront, a trestle or a concrete pathway on piles in the sea will connect traffic movement to four new berthing stations."With a deep draught of 14.6 metres for the open-sea berths, MbPT hopes to increase its traffic of large vessels. "The filling work has started, but it will gather pace only after the monsoons. We expect the berths to be operational by December 2010," says Asthana.The MbPT chairman concedes the issue is contentious. Showing an artist's image of what Prince's and Victoria could become — a luscious water sports seafront replete with docked yachts, and the city's glitterati making their way on their speed boats — Asthana says there had been intense industry lobbying for converting the heritage docks into a waterfront marina. But the Ministry of Surface Transport rejected this idea in favour of enhancing the port's capacity and revenue-generating operations.A port trustee and president of the All India Port and Dock Workers Federation, Shanti Patel, hints darkly that the pressure for a stylish marina is coming from the Mukesh Ambani-backed Jai Corp that is seeking to develop the alternative port of Rewas across Mumbai's harbour. On the other hand, environmentalist Shyam Chainani, whose Bombay Environmental Action Group (BEAG) has consistently opposed increase in port traffic for the past two decades, says the move will heighten congestion in the city. "Nowhere in the world has city heritage been extinguished like this," he says. But, ironically, nowhere in the world are port operations, stretching over a 14.5-km arc on the eastern seaboard of the island city, enmeshed so hopelessly into one of the most densely populated cities of the world. The port operations pass through the city's transport networks. Also, the posh business district of Ballard Estate, which houses several businesses and markets, is located on the port land.That is why the 1,860 acres of land owned by MbPT becomes a contentious issue. In fact, it is variously seen as a panacea by many — the state government sees it as a remedy to the city's overcrowding; for planners and environmentalists it is a chance to decongest the city; and for scores of builders, it is a goldmine for development. So, which way will the Mumbai port go?Expanding GrowthThe Mumbai port has grown at a steady clip defying wishful thinking that it is shedding traffic over the years to sister port Jawaharlal Nehru Port Trust (JNPT) across the harbour at Nhava Sheva and other west-coast ports such as Kandla. But it has increased its cargo handling from 26 million tonnes (MT) in 2001-02 to 44 MT in 2005-06, and notched up 57 MT in 2007-08. Its operating surplus has also grown from Rs 47 crore in FY05 to Rs 263 crore in FY08. But in 2009, it slumped with the fall in exports and imports to Rs 123 crore.However, there are signs that MbPT has turned into a dinosaur. With an employee strength of 18,700 today, it is the biggest employer among the major ports in India, with one-third of the country's port labour of 57,000. But in cargo handling, it has slipped to fifth position after Kandla, Visakhapatnam, JNPT and Chennai. The highly mechanised JNPT, with a labour force of 1,400 that handles container traffic, notched up 55 MT in FY09 compared to the Mumbai port's 52 MT. MbPT's wage bill — Rs 350 crore in FY08 and close to Rs 488 crore in FY2009 — accounts for a whopping 60 per cent of the port's operating income.In this context, increasing container traffic and converting the defunct docks to container handling terminals seem to be a sensible business decision. The new terminals with railway connectivity are expected to handle as much as 1.2 million TEUs (container units). "From a paltry 118,000 TEUs in FY08, traffic will rise to 6.7 million TEUs in 2010-11, and touch 15.8 million TEUs in 2016-17. While JNPT is expected to level out at 11.6 million TEUs, we will be handling 36.4 million TEUs by 2025," says Asthana, citing a KPMG survey.Going Against The PlanBut this growth trajectory was not the future envisaged for the Mumbai port three decades ago by the then Prime Minister Indira Gandhi. When JNPT was being planned in the 1980s, and faced stiff opposition from environmental lobbies, the port was given the green signal on the ground that it would help decongest overcrowded Mumbai. The idea was to slowly get the Mumbai port to reduce operations and use the surplus land to green the city.A directive issued on 8 August 1980 by the Prime Minister's Office said when considering plans for JNPT "the feasilbility report should provide for the release of land and dock areas in existing Bombay Port area for parks, etc". Interpreting this directive, the Ministry of Environment and Forests (MoEF) laid down detailed guidelines when it gave clearance to JNPT in August 1988. "With the operation of Nhava Sheva port as a measure of decongestion of Bombay Port, the traffic in Bombay Port must be gradually reduced by steps to be taken by the Ministry of Surface Transport, Bombay Port Trust and Nhava Sheva Port Trust so that the total general cargo, inclusive of container cargo handled by Bombay Port, comes down within three years to 6.5 MT."The MoEF directions further stated: "The Ministry of Surface Transport and Bombay Port Trust must take action to gradually make the land of Bombay Port, which is not required for operational purposes of the port, available for greening and recreation."Meanwhile, a look at the global scenario shows that docks within city precincts ultimately give way to more pressing urban demands, and are shifted to independent port towns some distance from the main city. For instance, in the 1800s, Canary Wharf in London was one of the busiest docks in the world. The port industry began to decline by the 1950s, and the docks had to shut down in 1980. Several business groups, led by Credit Suisse First Boston (CSFB), backed an alternative plan for a business district there. Today, Canary Wharf is a bustling financial centre with London's tallest buildings and wealthiest tenants. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } In July 2007, at a land policy meeting, MbPT's then Deputy Chairman Ashok Bal tried to draw a distinction in respect of the Mumbai port. He said though other ports such as Kandla and JNPT had taken away substantial traffic from Mumbai and reduced the hinterland it served, cargo handling at the port continued to gallop. This showed "the economic development of the Mumbai region demanded continued existence of the Mumbai port". But the state government holds a contrarian view. "We opposed the development of the container terminal at the docks knowing it would increase congestion. But it was a fait accompli," says U.P.S. Madan, convenor of the Maharashtra government's Mumbai Transformation Support Unit. "The port land needs to be used for greening the city, and the port operations must be shifted out or gradually closed."The Demand For LandOver the past two to three years, there has been an incessant demand from the state government that part of MbPT's surplus land be used for the city's development. The state empowered committee that monitors the city's development, chaired by Chief Secretary D. Shankaran, formally raised the issue with MbPT in November 2006. However, Bal said there was little land to spare. In his tally, the surplus land was a measely 12 acre.However, a recent land policy presentation of the port trust revealed that more port land was leased out than used for port's own operations. Of the total 1,860 acre the port owns, 486 acre was used for dock operations, while properties leased out covered about 868 acre or 46 per cent of the total land. MbPT's tenants include government bodies, public sector units and 2,886 private tenants including the Taj Mahal Hotel, Unilever factory and the Ballard Estate.Asthana says a substantial part of his administration was devoted to administering these tenanted estates. Port records show leases for 379 properties accounting for 43 per cent of the land had expired and MbPT was not able to wrest the land back. In the process, the port became the second largest litigant, after the municipal corporation, with 1,800 cases pending in courts. Quips Asthana: "We also run a port."Finally, wilting under pressure from the public and the state government, MbPT, in August 2006, decided to settle the issue by formulating a land policy for the port. It set up a committee of port trustees that included Bal and two labour representatives, S.R. Kulkarni and Shanti Patel. The minutes of a meeting of the committee (July 2007) show Bal vigorously defending the existence of the Mumbai port, but conceding that in the 1988 talks with MoEF, a master plan of the port had earmarked about 131 acres as "green areas and public amenities".Patel has a different take. "MbPT has a lot of land, and it should be used in public interest. The trust should not behave like a private landlord," Patel told BW. He, however, says MbPT, set up as an autonomous body under the Major Port Trusts Act of 1963, was never allowed to function independently, and was ruled by "guidelines" of the surface transport ministry through the chairman's office. Not surprisingly, considering these pulls and tugs, three years after it was formed, the committee of trustees is still to release the land policy.Integrating With The City?Along with the Rs 1,288-crore container terminal at the Victoria and Prince's docks, MbPT has two significant projects on its agenda that it hopes will integrate the port with the city's needs. A Rs 133-crore investment has been planned to develop rail transport through the dock areas to ease the load on the arterial road networks. The plan to develop a dedicated railway line, linking the dockyard hub, Wadala, to the central railway hub, Kurla, will speed up cargo dispersal. Though mooted in 2006, the project has been held up due to delay in rehabilitating the 1,700 slum units that are on the railroad alignment, says Asthana.The second project, the construction of the Eastern Freeway, a road which starts from south Mumbai and exits at Chembur in the north, has kicked off with a 5-km section running on port trust land on elevated stilts. The Rs 300-crore 27-km freeway, though not a port trust project, is being developed by the Mumbai Metropolitan Region Development Authority (MMRDA) to provide a rapid exit for the city and ease traffic congestion. However, MbPT has given free land for the project and invested Rs 35 crore to develop the Anik-Panjarpur link road connecting the Eastern Freeway. Slated to be completed in December 2007, the freeway is now three years behind schedule.Though Asthana is not insistent that the port has no land to spare, as was claimed by his predecessor Bal, he says development of the port land must be commercially beneficial to MbPT. "The trust is not against giving land for the development of the city. But we would want to do it ourselves, and on terms that are financially advantageous to us," Asthana emphasises. "It should be part of a city master plan, and should not hamper port operations." Madan, who heads Maharashtra's Mumbai Planning Cell, says his team is in the process of preparing a concept plan that would include the port trust land in "a single integrated vision" to improve and decongest the city.To start with, land relinquished by lessees of the port trust could be pressed into city development projects, such as the four acres that the Central Warehousing Corporation returned a month ago. However, until the pundits in the surface transport ministry realise that Mumbai port has to reinvent itself as part of the rapidly changing megalopolis, all we will have is short-term, knee-jerk responses.gurbir(dot)singh(at)abp(dot)in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
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Builders, wanting to make a killing during the Dussehra-Diwali festival period, upped prices and killed an opportunity. Buyer inquiry was mistaken for the return of good times. But unrealistic prices has put off consumers.During Diwali, realty pundits had expected a flurry of buying on the back of lower prices, freebies and special festival offers. "The expected discounts during Diwali did not happen," says Pankaj Kapoor, CEO of realty tracking agency Liases Foras. "We did not see much movement because of higher prices."Shashi Kumar, head of the real estate wing at Birla Sun Life Asset Management, is more unsparing in his criticism: "Builders have not learnt their lesson; their greed is ruining the market." Mumbai's Stamp Duty Office registration data reveals there has been a 13 per cent month-on-month drop in the number of apartments registered in August 2009.Undeterred, builders are gung-ho about increasing sales and demand. Mumbai-based builder Vijay Wadhwa claims he sold 80-100 flats during the festival season. DLF, one of India's largest developers, says it has mopped up Rs 100 crore in advances for the 1,250 apartments in the second phase of its Capital Greens project at Moti Nagar in Delhi.The revival in the market is perceptible. Demand grew by 15 per cent during the July-September quarter. HDFC reported a 26 per cent increase in loan disbursements for April- September, totalling Rs 22,343 crore. However, this is still a far cry from the 35-40 per cent demand growth in the October 2007-March 2008 period.Clearly, the property market is not out of the woods even though some segments are reporting higher sales. Tapasije Mishra, group CEO of IDFC-SSKI Securities, says the affordable housing segment has seen good sales in the past two months. However, Wadhwa says many of these are distress sales and in many cases, "the margins are just Rs 200-300 per sq. ft".The commercial market is still to pick up and leasing rates continue to plummet. For instance, Hindustan Construction Company is realising lease rentals way below expectation for its swanky corporate park in Mumbai's suburb of Vikroli at Rs 45 per sq. ft a month. Similarly, Samsung recently took 90,000 sq. ft on rent on Gurgaon's Golf Course Road for Rs 58 per sq. ft a month against the prevailing rate of Rs 80. This trend is likely to continue with increasing supply. Property broker Jones Lang LaSalle Meghraj projects the December supply to touch 55 million sq. ft against a demand of 25 million sq. ft in the period.Realtors are becoming innovative to keep their heads above water. "When under pressure, they reduce rates for some new projects and rake in their working capital needs," says Liases Foras's Kapoor. "Then they hike them again and adopt a take-it-or-leave-it attitude." Builders have also got a reprieve with foreign investment coming in, which has allowed them to convert their debt into equity on a project-by-project basis. "A further 30-35 per cent fall (in prices) in the residential market is necessary for property economics to become sustainable," says Kapoor. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 02-11-2009)
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The repeated attempts to auction the 10.4-acre Finlay Mills in central Mumbai by the National Textile Corporation (NTC) in many ways mirror the roller-coaster ride the property market has seen in recent times.The first round of bidding held in December last year was cancelled as there were no bids to match the reserve price of Rs 1,065 crore. The only bidder, DB Realty, offered just Rs 405 crore. The second round held in March 2009 was also a washout even after NTC reduced the reserve price to Rs 710 crore. In its third attempt in mid-July, NTC got some serious bidders. However, in this round too the highest bidders, the Lodha Group, bid below the reserve price at Rs 657 crore.After negotiations with NTC, the Lodhas have agreed to up their offer to Rs 710 crore to meet the reserve price, and the sale is now set to go through. While this price is 20-30 per cent lower than the peak prices Mumbai mills have seen in the boom, the Finlay Mill sale still reflects a high price — nearly Rs 16,000 per sq. ft. It shows the builder is confident of the future. However, the risk is obvious. There is a huge glut in commercial property in central Mumbai. It can, of course, wait till demand picks up.Gurbir SinghJapan seems to be manufacturing its way out of recession. Factory output rose for the fourth straight month in June. Production soared 8.3 per cent in April-June from the previous quarter, surpassing the 1953 record of 7.9 per cent. Japanese firms will keep raising production to meet the demand spurred by the trillion-dollar stimulus packages. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 10-08-2009)
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A slew of launches at discounted prices have made summer a busy season for builders. Or so they say. Delhi-based Unitech has been among the more active ones, with nearly a dozen new projects going on sale. In Gurgaon's Sohna Road, there is Uniworld Garden II and Uniworld Resorts. In Noida, it has launched Uni-Homes in Sector 117. The typical ‘affordable category' one-bedroom home costing Rs 2,500- 3,000 a sq. ft, is in the range of Rs 21-23 lakh — nearly 20-30 per cent below the July 2008 peak. Unitech MD Ramesh Chandra, claiming success with the new round of affordable housing projects, said the company had sold 4,000 units over the past two months, and is certain it would net another 20 million sq. ft over the next year.To beat the slowdown, builders have been offering new financial packages that they say are luring buyers. Emaar MGF's luxury segment offerings, costing above Rs 2 crore, have an arrangement for the builder to pay the EMIs till the owner occupies the apartment, says Shruti Gupta, country head of Hamptons International, a property broking house.Confidence seems to have returned and some developers have already announced price hikes of 5-10 per cent. Unitech, for instance, says it has upped prices by Rs 50 per sq. ft for its Uniworld Garden II and The Residency in Gurgaon. But are prices really going up or are these claims of price hikes aimed at drumming up a lacklustre market?Playing With PricesThose watching the property market are suspicious of builders' claims. Property brokers Knight Frank India's chairman Pranay Vakil says prices are still plummeting, and the hikes were only in projects that are nearing completion. "The Bombay Silk Mills residential project in central Mumbai, which will be completed in two months, is selling at Rs 13,000 a sq. ft compared to the booking rate of Rs 12,000 a sq. ft," he says.Pankaj Kapoor, MD of Liases Foras, a property research firm, pooh-poohs claims of prices moving up. "Builders are playing a pre-scripted game. Most of these new projects are in remote locations and booking amounts of just Rs 50,000 or a lakh do not reflect actual sales when there are dozens of cancellations," he says. "Investors have taken positions in these projects, and the so-called price hikes are to facilitate their exit in favour of a new set of investors."Liases Foras as well as Crisil Research, which has just released a property market survey, agree that average residential property prices have fallen around 30 per cent since the peak time of June 2008, and can further soften by 10 per cent by the end of the year. The Crisil survey, in fact, says prices in satellite towns — Faridabad in the NCR, HiTech City in Hyderabad and Rajiv Gandhi Salai in Chennai — flooded with over-supply might see a sharper fall.However, while the residential market is expected to stabilise in the first half of 2010, commercial and retail property faced with huge supply in the pipeline, is expected to see a falling market — both in capital values and lease rentals — over the next two years.Problem Of PlentyIt seems there is a pick-up in consumer activity in the property market, but buying is concentrated in the residential sector alone, and that too only in metros such as Mumbai. The paralysis in the office and retail segments continues. Simultaneously, projects launched 2-3 years ago are now ready for sale. This has created a general glut of stock that is reducing prices. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } Despite claims of successful launches, the inventory of all big developers show large unsold stocks. For instance, a Merrill Lynch report on DLF reveals that in Gurgaon it had an unsold stock of 2.5 million sq. ft. "In Chennai, over 70 per cent of the new projects including DLf's land banks are located in Old Mahabalipuram Road and Sriperumbudur. DLF cut prices but still has 50 per cent of the inventory," says Vandana Luthra, analyst at Merrill Lynch .The commercial property glut is even worse. DLF in Mumbai had bought the Mumbai Textile Mills investing Rs 700 crore for 17 acres of prime land. This ensures a potential supply of 3.6 million sq. ft of retail/mall and commercial space. The only problem is, other textile mills in the vicinity were also sold to developers, and are expected to bring in 10 million sq. ft of space over the next few months.Vakil says the most blighted segment of the property market will be the commercial sector, which will see a supply of 163 million sq. ft. in FY 2010, against a projected demand of 132 million sq. ft.Queing Up For QIPs Builders have tried to solve the problem of mounting debt and poor cash flows by launching projects, and then using the initial instalments to complete projects and meet short-term debts.But sales have not been too good. This has generated a queue of builders before the qualified institutional placement (QIP) window. It all started with Unitech raising Rs 1,620 crore in April, albeit at a discounted valuation, with the promoters selling around 13 per cent of their stake. "But it also showed the way that realty was still in demand," says Abhisheck Lodha, director of the Lodha Group. Buoyed by a successful first round, Unitech has closed a second QIP round raising Rs 2,800 crore. The proceeds will bring down its debt to around Rs 5,000 crore.QIPs, a quicker way of selling equity to investors, suddenly became the summer fashion. Indiabulls Real Estate in mid-May raised Rs 2,585 crore through a QIP by selling discounted shares to overseas investors including TPG Capital and Fidelity. Since then, about 40 companies, most of them real estate or construction giants, have secured clearances from their AGMs to raise over Rs 60,000 crore through QIPs. These include Parsvnath Developers intending to raise Rs 2,500 crore, Sobha Developers Rs 1,500 crore, HDIL Rs 2,500 crore, Akruti City Rs 2,500 crore and construction group HCC Rs 1,500 crore (See ‘Qualified List').But the irony is that the bull run that prompted these companies to go to the market turned against them. By the time these companies started their road shows and fund-scouting, their stocks had risen three-fold from December last year, and investors found them too expensive. It is also a case of too many suitors chasing too few investors.The road show became a flop show. HDIL met lukewarm response during its Singapore sorties, and its Executive Director Sarang Wadhavan said the QIP was on hold till the market improved. GMR Infrastructure has formally pulled out, while Parsvnath and Sobha are believed to be facing heavy weather.This has left builders in a bit of a jam. With monsoons settling over the country, sales will peter out as consumers take a break from home-buying. On the other hand, builders seem to have exhausted all the traditional routes to raising bridge funds — debt, private placement and QIPs. The only hope they now have is that when sales resume in the post-Dussehra festival season, the market would have turned for the better.gurbir dot singh at abp dot in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
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The Lavasa Hill Township and its holding company HCC are caught in a legal logjam. Following the 25 November show-cause notice and stop-work order from the environment ministry (MoEF), work at the township site near Pune has come to a halt. According to the company, 10,000 workmen are sitting idle. Though the Bombay High Court on 6 December stayed the MoEF notice till the ministry passes a final order, Lavasa committed not to go on with the work till the next 16 December hearing. On that date, the bench pleaded with MoEF to "partially allow" some work to go on. Counsel for the ministry Darius Khambatta has promised to seek advice and revert back to the court. Meanwhile, Lavasa has filed its reply against MoEF's show-cause notice and the ministry is expected to deliver its final order by 31 December. Seeing the tenor of MoEF's interim order, it is unlikely the final order will be any different. Lavasa will then have to challenge the order afresh. Meanwhile, the permission given to Lavasa by the Maharashtra government has been challenged by Medha Patkar's National Alliance of People's Movements (NAPM). Lavasa has a long and serious legal battle on hand. More serious is the financial heat. The hill township is a humungous 25,000-acre project straddling 18 hills and covering an area of 100 sq. km. Kicked off in 2001, the project cost is estimated at close to Rs 40,000 crore. By the beginning of this year, HCC had pumped in Rs 2,000 crore — Rs 800 crore as equity and Rs 1,200 crore as debt. HCC had also done a QIP last year raising Rs 1,500 crore, most of which will find its way into Lavasa.Where do the remaining funds come from? Lavasa was planning a Rs 1,500-crore IPO last year that had to be held back because of the recession. MoEF's action has again put the IPO on the backburner. Secondly, the accruals from advance sales have been crippled. Rajgopal Nogia, president of HCC Real Estate, had told BW in an earlier interview that sale of 6-8 million sq. ft of realty stock in Lavasa was expected to yield Rs 2,000-3,000 crore over two-three years after the company opened sales for its second phase. For realty projects, continuing cash flow from advance sales is crucial. So, till the legal issues with MoEF are resolved, it is unlikely that any buyer will put his money into Lavasa. With advance sales blocked, the ability for Lavasa to raise debt will also be dented.The foundation of the challenge to Lavasa is based on failure of the company to take statutory clearance from the Union environment ministry as required under the Environment Impact Assessment notification of 1994. Lavasa, on the other hand, has questioned the delayed action. The company has argued that it does not need the Union ministry's permission since it had been given environment clearance on 18 March 2004 by the Maharashtra government for 2,000 hectares.Counsel for NAPM, Y.P. Singh, told BW he plans to enlarge the scope of the challenge to include seeking criminal action against those officials and politicians who have indulged in corruption. "There is no way they can avoid clearance from MoEF, and that means there will have to be a public hearing. They (Lavasa Corp.) will see the resistance at that stage," he says. This is going to be a battle to watch. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 27-12-2010)
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The most enduring media image of the fall of the rich emirate of Dubai is the rows upon rows of cars abandoned at the airport by fleeing expatriate employees who had lost their jobs and had no money to settle their dues. But Dubai, used to pomp and glitter, does not like to admit it is facing a meltdown. How can one explain that Nakheel, one of the emirate's largest realty developers, spent $20 million in fireworks and pageantry for the opening of its $1.5 billion resort Atlantis in December last; and then sacked 500 employees a few days later because it could not pay their salaries? Among the worst hit in Dubai's deceleration that started around October 2008 has been the realty industry. Investors from West Asia, the Far East, the US and India flooded the booming economy which they thought was secure because of the never ending rise of oil prices. A construction boom that kicked off about a decade ago became a frenetic tide by the first quarter of 2008. By the end of the year, about 42 million sq. ft of commercial construction was in the pipeline — more than any other city in the world; and prices had shot up 40-45 per cent in just the first quarter of the year. Post-Lehman Brothers fall, meltdown began to hurt, and Dubai was in the centre of the mess. Oil prices tanked, and the easy liquidity that financed these real estate projects evaporated. Amlak, the largest home financier in the UAE, announced it was suspending new loans. The first quarter of 2009 saw residential property prices plummet 40 per cent and unfinished skyscrapers dotted the skyline.By the first quarter of 2009, prices had fallen to 2007 levels. At the Dubai International Financial Center (DIFC) prices crashed to Dirham 2,000-2,300 (Rs 26,680-30,700) per sq. ft from the peak July 2008 levels of Dirham 4,500 (Rs 60,000). The Jumeirah Lake Towers (JLT), a clutch of 77 upscale residential and commercial towers, saw prices fall to Dirham 700 per sq. ft from Dirham 1,700 (Rs 22,600) — a decline of over 60 per cent. In the posh Jumeirah Palms, capital value of property declined to Dirham 800-900 per sq. ft from the peak of Dirham 1,800 per sq. ft. Dubai realtors also said the promise of a three-year visa along with a property purchase in Dubai, brought in thousands of foreign investors keen on setting up business in the Emirates. However, this proved to be a chimera and developers could not provide the visas, triggering a flight of foreign money.Dubai-India Synergy StumblesIn the boom days, the property markets of India and West Asia — Dubai in particular — saw a lot of osmosis. Indians living in Dubai, investors from India and Indians in other markets made a beeline for picking up a piece of the action. Among the Indian developers that attempted to cash in on the investor money flowing in was the Niranjan Hiranandani-promoted Hircon International that launched in true Dubai style a 90-storey tower — the 23 Marina — in 2007. Other Indian developers in the Dubai market included HDIL's subsidiary Dheeraj East Coast, Seth Developers, the Mumbai-based Mayfair and Evershine groups and Bangalore's Sobha Developers. The investment flow was the other way too. Several Dubai-based developers queued up to invest in India's property boom. Emaar Properties, Dubai's leading developer, joined hands with India's MGF Developments in 2005 to form the joint venture Emaar-MGF Land. The company is a major contractor for the Commonwealth Games construction in Delhi and has launched a slew of residential and hospitality projects. ETA Star launched its first residential project Jasmine Court in Chennai and claimed it had 5 million sq. ft under development in India. The Nakheel Group announced projects in Bangalore, while another big Dubai player Damac Properties said in 2007 that it planned to invest around $5 billion (Rs 19,700 crore) in India over the next three years. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } Many of these projects have been either withdrawn or have slowed down. Ironically, among the first to suffer the stockmarket slide was Emaar-MGF Land, whose mega IPO in February 2008 expected to net Rs 6,500 crore, had to be withdrawn due to lack of subscriptions. The Nakheel Group's 50:50 JV with DLF for the development of the Rs 60,000-crore Bidadi Knowledge City has been shelved. Similarly, ETA Star's Sriperumbudur township development slated for launch in 2008 and four other Tamil Nadu projects projected to together cost nearly Rs 15,000 crore have been put on the backburner. So has its IT Park in Bangalore. Hiranandani's 23 Marina in Dubai that has gone up 60 floors so far has been luckier. "I don't know if we were luckier or smarter, but we completed sales before the slowdown started. We expect to give occupation by June 2010," Hiranandani says. The luxury residential property was sold in the Dirham 800-1,200-per-sq-ft range (Rs 10,000-15,000 per sq. ft), but prices had thereafter fallen in resales. Hircon's second project in Dubai, announced in 2007, has however been withdrawn, he added.Looking To RecoverAmong the steps the Dubai government mooted was the merger of two loss-making mortgage lenders, Amlak and Tamweel, with the two government-owned banks to create a new $2.7-billion Emirates Development Bank. However, the merger of the two housing finance groups that once controlled more than half of Dubai's mortgage market, has run into trouble eroding investor confidence further. The future of the lenders was thrown into doubt last week when the UAE Federal National Council, the government's advisory body, failed to agree on a law governing Emirates Development Bank.Administratively, the Dubai government has appointed Mohamed Alabbar, chairman of Emaar Properties, as director general of the Department of Economic Development, and has given more teeth to the Real Estate Regulatory Authority to ensure completion of projects. A recent Standard Chartered survey said "considering the number and success of recent bond issues both by corporate and sovereigns," the Dubai market was showing the first signs of revival. However, even after the 40 per cent fall from peak in mid-2008, the bank's analyst Phillppe Dauba-Pantanacce warned that prices were still too high and would need to come down further. Says Venkateshwaran Ramadoss, senior research analyst of the Kuwait Financial Center: "We cannot foresee a short-supply scenario to cause a remarkable recovery. The increased supply will lead to further contraction in prices and rentals — in the range of 15-25 per cent." As more ‘for sale' signs go up across Dubai expat residential enclaves like Jumeirah, Umm Suquiem and Safa, the heady days of Dubai as a property investment hub are clearly over.gurbir dot singh at abp dot in var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') }
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After Lodha Group's dream run in acquiring land in Mumbai, it is now Indiabulls' turn. Following Lodhas' big-ticket acquisition of a 6-acre government plot for Rs 4,050 crore, the next round of bidding for two National Textile Corporation (NTC) mills — Poddar Mills and Bharat Textile Mills, both in central Mumbai — went Indiabulls' way. Land in Mumbai is not only astronomically expensive; it is also a scarce commodity. The rancour between builders that often spills over into court rooms is, therefore, no surprise.Indiabulls Real Estate had bid hard for the two mills. In the case of the July-end auction for the 2.4-acre Poddar Mills, Indiabulls came through with the highest bid of Rs 475 crore. A week later, Indiabulls repeated the feat with a Rs 1,505-crore clinching bid for the 8.4-acre Bharat Textile Mills. Pipped in the race was Lodha, which had stopped at Rs 1,503 crore.The squabbling started soon after. The Lodhas alleged that the tender terms had been violated. After the auction, NTC took over 45 days to confirm the sale. This, Lodhas claim, was to "promote the interests of Indiabulls". Lodhas also alleged that Indiabulls began pre-launch sales in the two mills even before the payment had been made. "Much higher bids would have been received had it been known that moneys could be raised through sale of units," says a Lodha official. The pitch was further queered by the Lodhas, offering NTC an additional Rs 100 crore for the mill.Indiabulls Financial Services' CEO Gagan Banga has a different story. He says there was a time lag as NTC had to seek clearance for the sale from the Board of Industrial and Financial Restructuring (BIFR). He admits his company had been taking bookings at Rs 18,000-23,000 per sq. ft, but claims pre-launch sales had been permitted by NTC in this case as well as in the past. "We have furnished a bank guarantee for the whole sum on 22 September. The entire cash is with ICICI Bank. There is no question of payment not having been made," says Banga. Lodha challenged the NTC decision to award Bharat Textile to Indiabulls before the BIFR, but lost. "Once earnest money deposit is returned and accepted by the appellant, no further bidding shall be legally acceptable by NTC," BIFR ruled. The company has now appealed to the Appellate Authority for Industrial and Financial Restructuring (AAIFR) and a decision is awaited.In the case of another central Mumbai NTC mill, the Finlay Mills, the shoe is on the other foot. In this case, two rounds of auctions came a cropper in December 2008 and March 2009. The recession period saw few takers. Finally in August 2009, Lodha was the highest bidder at Rs 657 crore; but that was far below the revised reserve price of Rs 710 crore. Negotiations followed and Lodhas upped their offer to Rs 710 crore. NTC did not accept the revised offer as it felt it could do better later, but BIFR passed a confirming order in favour of Lodha.Indiabulls, which was an initial bidder for the mill at Rs 500 crore, has pointed out that they should also be allowed to revise their bid. Indiabulls is now offering Rs 100 crore more than Lodha. "We are not in court over Finlays, but NTC has gone to AAIFR to get the best price," says Banga.Interestingly, Indiabulls has focused on Mumbai's defunct NTC mills since they come with a clean title. But so have the Lodhas. In a city that is already over-developed, the only source of land is by redeveloping old buildings or buying defunct industries. Even this source has now dried up; but for whatever remains, the fight will be sharp and bitter. var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } (This story was published in Businessworld Issue Dated 15-11-2010)
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The centre had proposed a slew of amendments to the Right to Information (RTI) Act aimed at restricting disclosure of file notings to only social and development issues. If these had gone through, a significant area of government decision-making would have been become out of bounds. However, an outcry by civil society, notably National Advisory Council member Aruna Roy, led the government to do a rethink. UPA chairperson, Sonia Gandhi, too put her weight behind withdrawing the controversial amendments. The RTI Act has proved to be an important tool for opening up the corridors of power to publicscrutiny. With scams being the flavour of the season, and with a sizeable number of politicians and businessmen cooling their heels in the country’s jails, it is understandable that those in power want to roll back the wheels of history and make decision-making as opaque as it used to be. But democratic institutions have progressed when they were not looking. And it is difficult to put the genie of public accountability back in the bottle now.Strictly BusinessThe Royal Bank of Scotland, which is being investigated by the US and the UK authorities over its involvement in an interest rate rigging scandal, in a statement on Friday indicated that it might “incur financial penalties” to “settle some of these investigations”. (This story was published in Businessworld Issue Dated 12-11-2012)
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