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Y! BookmarkletsIndian real estate sector’s outlook negative in short-term - Fitch
July 15th, 2008Forbes Article
MUMBAI (Thomson Financial) - Fitch Ratings said the short-term outlook for India’s real estate sector is negative with slowing demand and growing liquidity concerns, coupled with the tightening bias of monetary policy, leading to a possible negative impact on the credit profiles of real estate companies.
But in Fitch’s opinion, this slowdown will also aid the process of weeding out some of the weaker entities within the sector, and increasing the relative strength of some of the larger, more established developers.
The rating agency, however, warned that the liquidity risks on account of significant bullet repayments falling due during the course of 2008 remain a key challenge across the board.
Larger, established and well-capitalised companies with access to banks/financial institutions would remain better positioned to manage this risk, while smaller players may end up either refinancing these at materially high rates of interest, or could default on their obligations, it said.
TFN.newsdesk@thomson.com
Full Article: http://www.forbes.com/afxnewslimited/feeds/afx/2008/07/10/afx5201326.html
Indian Real Estate Crash Imminent? Real Estate Developers/Consumers Facing Cash Crunch
June 17th, 2008The situation in Indian real estate is dangerously similar to the US story before the real estate meltdown about 24 months ago – read this story from economic times…
NEW DELHI: The recent bloodbath in the real estate sector has started taking a toll. Almost all large developers are now facing a severe cash crunch and finding it difficult to complete their ongoing projects. In fact, the situation is so bad that most of them have reported a 50-70% cash shortfall. Industry sources told SundayET that the liquidity crunch has forced many developers to pick up cash from the unorganised market at interest rates as high as 35% to 50% annually. The lending rate of banks is between 18% and 20%.
The grade A developers which are facing crash crunch include DLF, MGF Emaar, Shobha Developers, Unitech, Omaxe, Parsvnath Developers, Hiranandani Group, Ansal API, BPTP Developers and TDI Group.
As a result of the crash crunch many developers have started going slow or even stopped construction of projects which are either in their initial stages of development or which would not affect their bottomline in the near future. While most developers that SundayET spoke to, agreed with the problem at hand, none of them were ready to be quoted on how it had affected them.
“There are visible signs that the global liquidity crunch has started to impact real estate companies in India. It is becoming extremely difficult for both small and large realty companies to organise financing, given the global liquidity crisis. The recent slowdown in demand, high interest rates, rising input costs and meltdown of realty stocks have only added to their problems. The real estate companies are in dire need for credit and other sources of capital to complete projects at hand and also to sustain their expansion plans. Some companies are able to access capital, albeit at very high costs, which in the long run may not be a sustainable solution, especially given the size of the market and consequent need for large chunks of capital,” says Cushman & Wakefield executive MD (South Asia) Sanjay Verma.
Many in the industry feel that notwithstanding the final verdict on the extent of global economic slowdown and recovery of financial institutions, real estate players in India may continue to face liquidity problems in the near future due to global credit crunch and unfavourable stock market conditions for raising capital.
What’s more, bankers say they may now get more cautious towards lending to real estate developers. “Real estate companies have many projects at hand and the sales have been constantly dwindling. Analysing these sentiments, any financial institution will be cautious. Remember, during monsoons, housing sales come down and banks may have to consider increasing interest rates further in future,” says HDFC Bank chairman Deepak Parekh. State Bank of India (SBI) is no different. It is also contemplating similar measures. “We are not sure for how long the current volatility will exist in the realty market. Also, banks need to maintain their reach among their clients. However, it is possible that all banks may sanction loans to only those developers with whom they have had a long relationship,” says a top SBI official.
Industry experts feel the only avenue available for raising capital in the current situation is at the project SPV level and by way of private equity or similar sources, which is generally the most expensive method of raising capital and has limitations on the over all extent of financing that is required. “Concerns about liquidity will continue to plague the market since debt will not be easily available. Real estate players had traditionally raised money from debt funds via corporate deposits and commercial paper. However, debt funds are currently not eager for more exposure in real estate and are continuously rolling over the debt advanced to these players. The primary source for institutional funding will, therefore, now be private equity,” says JLLM chairman & country head Anuj Puri.
Harvard examines Indian real estate
May 20th, 2008By Paul Imbesi
BOSTON – The Harvard Business School is hosting its first-ever real-estate program in India this June with the goal of providing some guidance to local executives as the real estate market in India continues to expand.
The South Asia Real Estate Seminar runs from June 17 to June 20 in Hyderabad, India, and costs just under $7,300. It will focus on South Asian real estate, will be taught by Harvard Business School instructors, and will feature a lecture by Noel Tata, the managing director of Trent, the company that manages Tata Group’s retail store chains in India.
He is also the director of other Tata companies, such as Voltas, Titan Industries, Tata Investment Corp., Trent Brands and Landmark. Tata will speak on the final day of the program in a session titled, “Property as the Foundation for Growth of Indian Multinationals.” The program is intended to help executives address and profit from the challenges within the changing international real-estate market, according to Harvard Business School. It will focus on several aspects of real estate, including land valuation, development planning and finance, leadership and talent development, and strategy and competitive advantage.
According to John Macomber, a lecturer at the Harvard Business School who is part of the real estate program’s faculty, the school viewed real estate as a good industry to focus on because it is a huge asset class with a lot of people involved in the field either as investors or as commercial real estate users. Macomber is the chief executive officer BuildingVision Inc. and the faculty co-chair of the Real Estate Executive Seminar and the Real Estate Management Program. He said that he expects about 50 people to attend the real estate program.
According to Harvard Business School, the real estate program is intended for chief executive officers and executives with “significant real estate experience,” including property owners, investors and developers.
According to Macomber, the program is intended for executives who may not have formal training in the sector. These executives are expected to be people who primarily work between the Middle East and South Asia and also in Malaysia, Myanmar and Thailand.
“This is intended essentially for in-country people to develop management and leadership skills. This is about being in the real estate business in South Asia. It’s not about being passive money from outside thinking about a market. It’s about really being a principal at risk and operator,” he said.
He added that people who attend the program will learn on several levels: they can take a step back from day-to-day business operations and have the opportunity to learn about other people’s experiences and reflect and think about what they can do when they return to their company; they can share some best practices with peers; and they have a chance to learn in a formal setting in an academic framework that they may already know.
The program comes to India at a time when the country’s real-estate industry is on the rise. According to a report by Merrill Lynch & Co. Inc. in February 2007, investment in India’s real estate sector is expected to jump from $16 billion to $90 billion in 2015. Due to the relaxation of rules on foreign investment by India’s government in March 2005, many U.S. companies have pledged or have already invested billions into the Indian real estate market.
According to data collected by the India Brand Equity Foundation from January 2008 to March 2008, direct foreign investment could have a six-fold jump to $30 billion over the next 10 years.
The organization, which is a public-private partnership between the Ministry of Commerce and Industry, Government of India, and the Confederation of Indian Industry, found information that showed real estate is one of the “most appealing investment areas for domestic as well as foreign investors.”
The India Brand Equity Foundation also found numbers from Cushman and Wakefield Inc., the commercial real-estate services firm, which show that since 2005, foreign investors have already raised nearly $30 billion to invest in Indian real estate. Another report collected by the foundation showed that Merrill Lynch states that $25 billion is needed over the next five years for urban housing, and a study by Indicus Analytics, an economics research and data analysis firm in New Delhi, believes there will be a demand for over 24.3 million new dwellings in India by 2015.
Other companies that are making large investments into India includes: Jones Lang LaSalle, which is planning to invest about $1 billion into the property market, Dubai-based DAMAC Properties, which is investing up to $4.5 billion in property development, according to information collected by the India Brand Equity Foundation.
In addition, the India Brand Equity Foundation also found data which revealed that real estate is the second largest employer in India, if construction and facilities management are included. Real estate is also linked to 250 other industries like cement, brick and steel.
There was also a recent conference on South Asian real estate in Mumbai, with some of the major international hotel chains attending. The fourth annual Hotel and Investment Conference – South Asia in Mumbai took place April 2 to April 3 and was created by HVS, a consulting and services organization which concentrates on the hotel, restaurant, shared ownership, gaming and leisure industries.
Nelson Migdal, a lawyer with the Greenberg Traurig law firm, attended the conference and said there were over 400 people there, with every major international hotel company in attendance, including Jumeirah International LLC, Hilton Hospitality Inc., Hyatt Corp. and Wyndham Hotels and Resorts LLC. Migdal, who works in the firm’s Washington D.C. office, focuses on real-estate acquisition, development and leasing, hospitality and resorts, and condo management and operations.
According to him, the chief operating officer and president of the Four Seasons Hotels and Resorts, Kathleen Taylor, came to the conference to speak, and Edwin Fuller, the managing director and president of international lodging for Marriott International Inc. flew from Bethesda, Maryland, to attend the conference.
Migdal said these hotel companies are targeting local development partners and owners in India with appealing real estate holdings. This spans real estate properties for business in Bangalore or pleasure in Goa with high-end to mid-price hotels. He added local Indian real estate developers also attended the conference and spoke.
He said there is no question that there is a growing interest in South Asia real estate, but since this is relatively new to many real estate owners and developers in India, the desire does not yet match the experience. He added that a program like the Harvard Business School helps because it brings know-how to the region.
Full article here
Indian Real Estate Opportunity
April 19th, 2008|
By Aseem Shrivastava (Leading Indian Economist) |
ProLogis Announces JV Partnership With Indian Real Estate Developer K Raheja Corp.
April 17th, 20084/9/2008 12:54:17 AM Wednesday, ProLogis (PLD), an owner, manager and developer of distribution facilities, said it has signed a 50/50 development joint venture agreement with K Raheja Corp, one of the largest real estate developers in India, to provide new warehouse space for its global customers. The company announced also the appointment of Abhijit Malkani as head of operations for ProLogis in India.
Under the terms of the deal, the joint venture will acquire land, develop properties and manage the assets. The companies initially plan to focus on securing development opportunities in the cities of Mumbai, Chennai, Delhi, Bengaluru, Kolkata, and Pune, the fastest growing locations for distribution operations in India.
The companies said that the JV already has acquired 27 acres of land in Loni near Pune and is in advanced stages of land acquisition in other key markets, including 140 acres in Bengaluru; 120 acres in Chennai; 99 acres in Kolkata; 70 acres in Mumbai; and an additional 33 acres in Pune.
The combined company expects to develop about 7.5 million square feet over the next three years and about 25 million square feet over the next five years. The JV plans to invest about $575 million or INR 2,300 crores over the next three years.
Privately owned K Raheja Corp’s. Clients include multi-national corporations such as IBM, Morgan Stanley, HSBC, Nokia, Accenture, Oracle, and Citigroup.
C.L. Raheja Chairman of the K Raheja Corp Group, said, “The majority of the existing distribution space in India is functionally obsolete, and we believe this new partnership will be successful in meeting the growing demand for high quality logistics facilities here,”
The Denver, Colorado headquartered ProLogis said it named Abhijit Malkani as head of operations for India. Malkani is the former regional director of Indian and Middle East operations for NAI Global, a premier network of independent commercial real estate firms and one of the largest commercial real estate service providers worldwide.
Malkani brings more than ten years of experience in domestic and international real estate to the position. While at NAI, he helped establish the NAI operations in India and led the acquisition and investment process for several multinational companies entering the Indian market.
PLD declined $1.03 or 1.67% and closed Tuesday’s regular trading session at $60.54.
India Faces Housing Slowdown
February 20th, 2008Property Developer Pulls IPO
Citing Fears of U.S. Recession;
Latest Sign of Global Trouble
By SARA SEDDON KILBINGER
SPECIAL TO THE WSJ
February 20, 2008; Page B7
The withdrawal of an IPO by a big property developer in India earlier this month was just the latest sign of the growing difficulties companies world-wide are having tapping capital markets.
But the message for the sizzling Indian real-estate development business was worse: get ready for a slowdown.
Emaar MGF Land Pvt. Ltd. said it pulled its initial public offering of shares because of “prevailing adverse market sentiments, fueled by renewed indications of a U.S. recession and global meltdown.” Emaar MGF is a joint venture between the developers Emaar Properties PJSC of Dubai, United Arab Emirates, and MGF Development Ltd. of India.
Emaar Properties, which is best known for its Burj Dubai skyscraper, and MGF aimed to raise about $1.64 billion with the IPO of 102.6 million shares. They pulled the plug after cutting the IPO’s price twice and extending its listing period by several days.
The venture’s ill-fated IPO contrasts sharply with the success that Indian real-estate companies have had in recent years in tapping the capital markets to fund growth. They have sold equity through IPOs, raised funds through AIM listings in London — the Alternative Investment Market, which is a submarket of the London Stock Exchange — and taken advantage of the loose credit markets.
Now it is getting much harder. “A few months ago, real-estate companies were raising capital like there was no tomorrow,” says Prakash Chakravarti, deputy editor of Thomson IFR Asia, a weekly report from Thomson Financial focusing on international capital markets. “If sentiment has affected the market so badly, it raises questions about their ability to raise capital for expansion going forward.”
Housing is one of the sectors that has been expanding the fastest and now is the most vulnerable to the tightening capital markets. Forecasters estimate that India has a shortage of about 20 million homes, and developers have been racing to satisfy this demand. Local developer DLF Ltd., which was listed on the Bombay Stock Exchange in July, is developing a $12 billion township development in Bidadi, India, which will provide homes for 750,000 people.
The township, which is about 22 miles southwest of Bangalore, is being developed in conjunction with Limitless Co., a development subsidiary of Dubai World, the business and investment holding arm of the Dubai government. DLF is using capital it raised from its IPO to enter new areas of development, including hotels, says DLF’s senior general manager of investor relations, Rajiv Goel. The company intends to build 20,000 standard hotel rooms and serviced apartments and 5,000 luxury hotel rooms over the next five to seven years, he says, at a cost of as much as $3 billion.
Emaar MGF was set up in February 2005 with the aim of developing residential, commercial, retail and hotel space in India. The joint venture’s net worth last March 31 was 46.7 billion rupees ($1.18 billion), according to its prospectus.
The venture planned to use the IPO proceeds to help pay for the acquisition of land and development of its Palm Drive project in Gurgaon, Haryana — about six miles from Indira Gandhi International Airport in Delhi — which is scheduled to be completed by 2010 and to repay loans, according to the prospectus. Palm Drive is expected to consist of 1,238 luxury apartments and villas.
Emaar said the Emaar MGF venture remained well-funded and the delayed IPO “will not hamper” its growth plans. But the company declined to say how it intends to fund Palm Drive and other projects.
It said it intends to attempt a new IPO at a later date “when sentiment and liquidity conditions are better.”
The darkening global economy isn’t the only challenge facing Emaar MGF. Its prospectus states that the Indian real-estate market can be volatile and risky, which is likely to fuel the concerns of investors. It notes that many of Emaar’s developments are in only the preliminary stages and subject to a number of contingences, such as whether the titles to the lands the company owns are defective or could be challenged.
Link: http://online.wsj.com/article/SB120345010794577681.html?mod=hps_asia_inside_today
