Tuesday, September 30, 2008
Advertising on weathering Market Volatility : Wachovia ;-)
Don't forget to see this ad in the front page of today's WSJ online.  You are being offered "6 strategies for weathering market volatility" from a "120-year old investment firm." The name of the firm? Its called Wachovia Securities...hehe.. Sourced from A fellow bloggers page | |
Real Estate stocks at 52 week low!! Its expected to get worse
Realty stocks took a tumble on the bourses and many logged their 52-week low on Monday.
The BSE Realty Index closed at a 52-week low at 3,407.87, down 5.26 per cent. It had dropped 16.79 per cent over the week from 4,095.50, and 31.78 per cent over the month. In January, the index clocked a high of 13,848.09.
Over the week, almost all real estate company stocks have taken a hammering, dovetailing the Sensex’s fall with the negative market sentiment at an all-time high, which this week is compounded by the wait for the US congressional nod for the $700-billion bailout package for bankrupt investment firms there.
Delhi-based DLF Ltd stock closed at Rs 350. 60, 5.12 per cent lower than its previous close. The DLF issue was priced at Rs 525. (52-week high – Rs 1,225, low Rs 329)
Buyback
In July, the company announced its buyback intention of up to Rs 600 a share for Rs 1,100 crore.
On September 18, it informed BSE that its board of directors would meet on September 30 to consider and approve a public announcement with the proposed buyback of equity of the company.
Sobha Developers’ stock suffered a 9.59 per cent drop, closing at Rs 171.55. The issue price was Rs 640 (Rs 1,060, Rs 164.50). Puravankara Projects traded at Rs 154.05 at close, down 3.14 per cent. The IPO price was Rs 400 (Rs 535, Rs 132.05). At close, Omaxe stock traded at Rs 96.05, down 4.38 per cent, far below its issue price of Rs 310 (Rs 613, Rs 93.60). Housing Development and Infrastructure Ltd was at Rs 166.05, down 13.72 per cent lower than its previous close (Rs 1,432, Rs 160.20). Parsvnath Developers was down 7.04 per cent at Rs 89.85 (Rs 598, Rs 86.60).
Among the marginal declines, was Ansal Infrastructure at Rs 77.30, down 4.13 per cent, and Unitech, which lost 1.98 per cent at Rs 108.85, but recovered from day’s of low Rs 97.5, which is its 52-week low. Of the many investments Lehman Brothers made in India, Delhi-based Unitech received about $175 million (Rs 740 crore).
Mr Hardeep Dayal of Centrum Broking Pvt Ltd said it was a knee-jerk reaction as the medium and long-term story remains strong. Market sentiments were down and only need-based buying was happening. People have held back their decisions to purchase properties, in anticipation of a price fall which is real. Mr Dayal was however, hopeful of a turnaround in a year.
Liquidity crunch
Enam Securities Researchers pointed out that aggressive land acquisition at peak prices through short-term high cost debt and huge working capital mismanagement (short-term debt used for long-term projects) were some of the ills that plagued the industry. Moreover, developers had stubbornly held on to selling prices and high-cost inventories, hoping for a renewal of demand and hike in prices.
Enam said the realty business model consists of three stages of value creation — land acquisition/aggregation and conversion, construction and development, and the lease/sale of the property.
The whole business model depended on the ability to infuse cheap monies at the earliest stages, including additional infusion through exits at the end of each stage, to be able to funnel monies back to stage 1 — land acquisition. Further, as each project funds another in this working-cap intensive business, liquidity is the key exponentiator of the business.
The BSE Realty Index closed at a 52-week low at 3,407.87, down 5.26 per cent. It had dropped 16.79 per cent over the week from 4,095.50, and 31.78 per cent over the month. In January, the index clocked a high of 13,848.09.
Over the week, almost all real estate company stocks have taken a hammering, dovetailing the Sensex’s fall with the negative market sentiment at an all-time high, which this week is compounded by the wait for the US congressional nod for the $700-billion bailout package for bankrupt investment firms there.
Delhi-based DLF Ltd stock closed at Rs 350. 60, 5.12 per cent lower than its previous close. The DLF issue was priced at Rs 525. (52-week high – Rs 1,225, low Rs 329)
Buyback
In July, the company announced its buyback intention of up to Rs 600 a share for Rs 1,100 crore.
On September 18, it informed BSE that its board of directors would meet on September 30 to consider and approve a public announcement with the proposed buyback of equity of the company.
Sobha Developers’ stock suffered a 9.59 per cent drop, closing at Rs 171.55. The issue price was Rs 640 (Rs 1,060, Rs 164.50). Puravankara Projects traded at Rs 154.05 at close, down 3.14 per cent. The IPO price was Rs 400 (Rs 535, Rs 132.05). At close, Omaxe stock traded at Rs 96.05, down 4.38 per cent, far below its issue price of Rs 310 (Rs 613, Rs 93.60). Housing Development and Infrastructure Ltd was at Rs 166.05, down 13.72 per cent lower than its previous close (Rs 1,432, Rs 160.20). Parsvnath Developers was down 7.04 per cent at Rs 89.85 (Rs 598, Rs 86.60).
Among the marginal declines, was Ansal Infrastructure at Rs 77.30, down 4.13 per cent, and Unitech, which lost 1.98 per cent at Rs 108.85, but recovered from day’s of low Rs 97.5, which is its 52-week low. Of the many investments Lehman Brothers made in India, Delhi-based Unitech received about $175 million (Rs 740 crore).
Mr Hardeep Dayal of Centrum Broking Pvt Ltd said it was a knee-jerk reaction as the medium and long-term story remains strong. Market sentiments were down and only need-based buying was happening. People have held back their decisions to purchase properties, in anticipation of a price fall which is real. Mr Dayal was however, hopeful of a turnaround in a year.
Liquidity crunch
Enam Securities Researchers pointed out that aggressive land acquisition at peak prices through short-term high cost debt and huge working capital mismanagement (short-term debt used for long-term projects) were some of the ills that plagued the industry. Moreover, developers had stubbornly held on to selling prices and high-cost inventories, hoping for a renewal of demand and hike in prices.
Enam said the realty business model consists of three stages of value creation — land acquisition/aggregation and conversion, construction and development, and the lease/sale of the property.
The whole business model depended on the ability to infuse cheap monies at the earliest stages, including additional infusion through exits at the end of each stage, to be able to funnel monies back to stage 1 — land acquisition. Further, as each project funds another in this working-cap intensive business, liquidity is the key exponentiator of the business.
Monday, September 29, 2008
US House defeats$700 bn bailout plan!! Markets all set to crash
Indian markets are all set to touch a year low yet again today as the HOUSE has rejected the bailout plan. There is now a huge fear of a global crash with Fortis, Bradford and Wachovia being the latest victims of the subprime and real estate market crisis and the House defeating the $700 billion plan.
This is not exactly great news for the financial markets worldwide. The $700-billion bailout plan envisaged by the Bush Administration has been defeated on the floor of the house. The 205-228 vote against the plan resulted in stocks crashing in Wall Street. The Dow Jones Industrial Average were down around 500 points as the news broke.
There were 205 in favor of the legislation and 228 against. Among Democrats, 140 voted in favor and 95 against. Among Republicans, 65 voted in favor and 133 against.
WALL Street plummeted by nearly 780 points in its largest one-day drop last night, as proposed American legislation to bail out troubled banks and kick-start the global economy was rejected by the US House of Representatives.
The price of oil slumped and global financial meltdown loomed after the bill pushed by the Bush administration was voted down. The defeat has come as a "massive setback" for the Bush administration, specifically the Treasury Department, as well as lawmakers who have been working throughout the last week on the legislation in the wake of the collapse of Lehman Brothers Holdings as well as the government's bailout of American International Group Inc. and its takeover of Fannie Mae and Freddie Mac.
A White House spokesman said that President Bush was very disappointed in Monday's House vote that rejected the administration's rescue plan.
Apparently the law makers were very wary of voting for a plan that risked so much of tax payer's money. Especially when the elections are fast approaching.
What the 109-page bill would do is to authorise the government in phases to buy $700 billion of illiquid mortgage assets, mostly from Wall Street financial institutions. The bill also has curbs on executive compensation for executives, equity stake and capital distribution control provisions to protect taxpayers.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have said the plan is necessary to avert serious consequences for markets and the economy.
Wednesday, September 24, 2008
Arent Moodys and Standard and Poors equally to blame for the subprime crisis?
We all have heard what the collapse of the real estate market has done eventually to the fate of the largest investment banks such as Lehman Brothers, Merrill Lynch, Bear Stearns and the large mortgage lenders Fannie Mae and Freddie Mac. The instruments behind this fall was the CDOs and mortgage backed securities that the whole world was rushing to invest in. Why was the whole world bullish on these instruments?
One party to blame is the credit rating agencies - Moody's and S&P. These are the guys who started to provide AAA ratings on these complex derivative instruments based on their own private research and provided the cue to the investment banks and others to invest in. However, there is a potential conflict of interest that needs to be pointed out. They were paid by the businesses whose products they rated.
Employee training lax?
Lets take a look at the employee numbers and the training practices of these agencies. From 2001 to 2007, the company's global employment more than doubled to 3,600 . Was there adequate training to these new employees to understand the products they were rating?
``It was very difficult to get people in, train them up sufficiently to really understand this stuff -- from structure to quantitative issues -- and then to keep them, because investment banks were very keen to get good people to help them optimize their trade ideas,'' says a former S&P quantitative analyst in London who left in April 2006. What do we expect these employees to do.
More revenue and higher margins
Looking at this picture from a financial angle. The rating agencies all stood to only gain by rating these complex derivatives. While prospectuses don't disclose fees, Moody's says it charged as much as 11 basis points for structured products, compared with 4.25 basis points for corporate debt. A basis point is a hundredth of a percent. S&P says its fees were comparable. Why would the rating agencies not take up this business???
Looking at financial figures, the rating companies earned as much as three times more for grading complex structured finance products, such as CDOs, as they did from corporate bonds. Through 2007, they had record revenue, profits and share prices. Moody's operating margins exceeded 50 percent for the past six years, three to four times those of Exxon Mobil Corp., the world's biggest oil company. Structured finance rating accounted for just under half of Moody's total ratings revenue in 2007.
Doesnt it all add up that the rating agencies were as careless with their work as were the investment banks who indulged in these exotic derivatives. Only when you ask them, a smart answer from the rating agencies claim that its their mere opinion (backed by private research). Hence they are not liable if the ratings go wrong. No wonder, most of the Mortgage bonds that enjoyed AAA ratings defaulted without any repercussions for these agencies.
Time can only tell whether we will see some actions against these rating agencies.
One party to blame is the credit rating agencies - Moody's and S&P. These are the guys who started to provide AAA ratings on these complex derivative instruments based on their own private research and provided the cue to the investment banks and others to invest in. However, there is a potential conflict of interest that needs to be pointed out. They were paid by the businesses whose products they rated.
Employee training lax?
Lets take a look at the employee numbers and the training practices of these agencies. From 2001 to 2007, the company's global employment more than doubled to 3,600 . Was there adequate training to these new employees to understand the products they were rating?
``It was very difficult to get people in, train them up sufficiently to really understand this stuff -- from structure to quantitative issues -- and then to keep them, because investment banks were very keen to get good people to help them optimize their trade ideas,'' says a former S&P quantitative analyst in London who left in April 2006. What do we expect these employees to do.
More revenue and higher margins
Looking at this picture from a financial angle. The rating agencies all stood to only gain by rating these complex derivatives. While prospectuses don't disclose fees, Moody's says it charged as much as 11 basis points for structured products, compared with 4.25 basis points for corporate debt. A basis point is a hundredth of a percent. S&P says its fees were comparable. Why would the rating agencies not take up this business???
Looking at financial figures, the rating companies earned as much as three times more for grading complex structured finance products, such as CDOs, as they did from corporate bonds. Through 2007, they had record revenue, profits and share prices. Moody's operating margins exceeded 50 percent for the past six years, three to four times those of Exxon Mobil Corp., the world's biggest oil company. Structured finance rating accounted for just under half of Moody's total ratings revenue in 2007.
Doesnt it all add up that the rating agencies were as careless with their work as were the investment banks who indulged in these exotic derivatives. Only when you ask them, a smart answer from the rating agencies claim that its their mere opinion (backed by private research). Hence they are not liable if the ratings go wrong. No wonder, most of the Mortgage bonds that enjoyed AAA ratings defaulted without any repercussions for these agencies.
Time can only tell whether we will see some actions against these rating agencies.
Ocean front Living in Dubai
Amazing housing development taking place near Dubai. Check out the good fitouts. A dream to get a house like these :)
World's largest fountain in Dubai : Spectacular!!
Dubai’s prominent developer, Emaar Properties said on Monday it plans to build one of the largest fountains in the world as the centrepiece of its Downtown Burj Dubai project. Arabian Business reveals what the real estate giant has in store.
The fountains, which has yet to be named, will be capable of shooting water over 150 metres into the air, the height of a 50 storey building, and stretch over 275 metres, the length of two football fields.
The $218 million project will be 25 percent larger than the iconic fountains at the Bellagio Hotel in Las Vegas.
Like the Fountains of Bellagio, Emaar’s fountains will include an integral light and sound show and is expected to become one of Dubai’s major tourist attractions, drawing over 10 million visitors per year.
The fountains will shoot 22,000 gallons of water in the air at any given moment and feature over 6,600 lights and 50 colour projectors.
The fountains have yet to be named and a cash prize of $27,225 has been assigned to the winner of a competition to name the water feature.
The structure is scheduled to be operation by 2009.
Bringing Down Bear Stearns
A brilliant read on how Bear Stearns was built over the years and its collapse amidst all the poilitics and short selling that triggered its fall. Amazing insights into the functioning of Bear Stearns and its collapse!
Read the story
Read the story
Thursday, September 18, 2008
What exactly is an Option ARM?
Hybrid Adjustable Rate Mortgage - An ARM is a type of mortgage in which the rate of interest charged on the borrowed amount varies based on an underlying index rate. As the underlying index rate varies, so does the monthly payment amount on the mortgage. In general, an ARM allows a borrower to obtain a mortgage with an interest rate that is usually lower than a fixed-rate type of mortgage, at least at the beginning. The interest rate is usually some fixed amount above an index rate, such as the "cost of funds" rate. As the index rate changes, so does the interest rate on the ARM.
This type of ARM is especially good if you are going to be in your home for only a few years. You get a lower interest rate during that time and can plan to sell before the monthly payment resets.
Example to make it clear : A Hybrid Arm Vs. a 30-Year Fixed Mortgage
If you borrowed $250,000 with a 30-year fixed-rate mortgage at 6.5%, your monthly payments would be $1,580.17 for the lifetime of the loan. If, on the other hand, you get a hybrid ARM at 4% for five years and an indexed rate for the remainder, your first 60 monthly payments would only be $1,193.54. They would then change yearly as the interest rate resets each year. If, for instance, the new rate at the start of year six is 8%, then the payment would become $1,745.22. This payment could change up or down, depending on the movement in the indexed rate.
Option ARM - This is a type of mortgage that can offer various payment options ranging from a minimum payment option, which is usually less than the monthly interest due, to an accelerated payment option, which will cut down on the term of the mortgage.
This type of loan is best for people who want the low monthly payment to start, but can afford a much higher monthly payment. It also is good for those who will move out before the ARM resets.
Example - Option ARM Payment Scenario
Suppose you borrowed $250,000 with a low teaser rate of 1.5%. Your initial minimum monthly payment would be only $862.80 - very affordable. But, the fully amortized payment at the loan's indexed rate of, say, 6.2% would have been $1,531.17, so the difference of $668.37 is added to your mortgage's principal every month. In the second year, the terms of your loan might cause the minimum payment to increase slightly to $927.51, but the amortized amount is now $1,659.40 because the indexed rate has gone up to 6.56% - and now $731.89 is being added to the balance each month. By the time Year 5 rolls around, you could be paying a minimum of $1,071.85, while the loan's indexed rate has increased to 8%, and you are adding some $940 a month to the principal. Not too bad, so far, but at some point, you've got to start paying down that principal. The bank, after all, wants its money back.
This is where Year 6 comes in and the option ARM resets. Thanks to making only the low minimum payments, you would owe almost $300,000 instead of $250,000. At 8%, monthly payments for the remaining 25 years will be $2,312.10, more than twice what you were paying in Year 5 and almost three times what you paid in Year 1. Ouch!
This type of loan is best for people who want the low monthly payment to start, but can afford a much higher monthly payment. It also is good for those who will move out before the ARM resets.
Now read about the real problem with Option ARM here
This type of ARM is especially good if you are going to be in your home for only a few years. You get a lower interest rate during that time and can plan to sell before the monthly payment resets.
Example to make it clear : A Hybrid Arm Vs. a 30-Year Fixed Mortgage
If you borrowed $250,000 with a 30-year fixed-rate mortgage at 6.5%, your monthly payments would be $1,580.17 for the lifetime of the loan. If, on the other hand, you get a hybrid ARM at 4% for five years and an indexed rate for the remainder, your first 60 monthly payments would only be $1,193.54. They would then change yearly as the interest rate resets each year. If, for instance, the new rate at the start of year six is 8%, then the payment would become $1,745.22. This payment could change up or down, depending on the movement in the indexed rate.
Option ARM - This is a type of mortgage that can offer various payment options ranging from a minimum payment option, which is usually less than the monthly interest due, to an accelerated payment option, which will cut down on the term of the mortgage.
This type of loan is best for people who want the low monthly payment to start, but can afford a much higher monthly payment. It also is good for those who will move out before the ARM resets.
Example - Option ARM Payment Scenario
Suppose you borrowed $250,000 with a low teaser rate of 1.5%. Your initial minimum monthly payment would be only $862.80 - very affordable. But, the fully amortized payment at the loan's indexed rate of, say, 6.2% would have been $1,531.17, so the difference of $668.37 is added to your mortgage's principal every month. In the second year, the terms of your loan might cause the minimum payment to increase slightly to $927.51, but the amortized amount is now $1,659.40 because the indexed rate has gone up to 6.56% - and now $731.89 is being added to the balance each month. By the time Year 5 rolls around, you could be paying a minimum of $1,071.85, while the loan's indexed rate has increased to 8%, and you are adding some $940 a month to the principal. Not too bad, so far, but at some point, you've got to start paying down that principal. The bank, after all, wants its money back.
This is where Year 6 comes in and the option ARM resets. Thanks to making only the low minimum payments, you would owe almost $300,000 instead of $250,000. At 8%, monthly payments for the remaining 25 years will be $2,312.10, more than twice what you were paying in Year 5 and almost three times what you paid in Year 1. Ouch!
This type of loan is best for people who want the low monthly payment to start, but can afford a much higher monthly payment. It also is good for those who will move out before the ARM resets.
Now read about the real problem with Option ARM here
Ticking time bomb : The real pain is bigger than subprime! Option ARM!!
A nasty mortgage product promises yet more misery
OPTIMISTS, look away now. Prices in America’s housing market may have slumped, but the pain for a significant subset of homeowners has barely begun. Even at Barclays Capital, which spotted some of the improvements mentioned in the previous story, there is still concern. The bank’s Nicholas Strand says that roughly 1.4m households, most of them in California, hold a particularly nasty type of adjustable-rate mortgage called the “option ARM”. Although the overall value of option ARMs is lower than that of subprime loans—some $500 billion, according to Mr Strand, compared with about $1 trillion in subprime loans—their sting is more venomous.
The option ARM allows borrowers to pay less interest than the formal rate for a limited period (the vast majority of customers choose this option). In return, the unpaid interest is added to the original loan, a process soothingly called “negative amortisation”. While house prices are rising, the product just about makes sense. If borrowers do get into trouble when they start paying off the loan in full, higher property values offer some wiggle-room. But when house prices are falling and refinancing is difficult, as is now the case, the option ARM is the financial equivalent of a bikini in winter. Homeowners end up owing more on a property that is worth less.
Delinquencies are already rising fast. Write-offs for option ARMs at Washington Mutual, a stumbling thrift, have zoomed from 0.49% in the last quarter of 2007 to 3.91% in the second quarter. But the real crunch will come when the mortgages “recast”, forcing borrowers to start making full payments. The loans recast after a set period (typically some five years after origination) or when the principal hits a predetermined ceiling. The biggest wave of recasts is due to happen in 2010 and 2011. By some estimates, borrowers’ monthly payments will then surge by 60-80% (see chart), at a time when property values may still be at, or close to, their trough.
 | |
Rating agencies were unusually alive to the dangers of option ARMs: they demanded more collateral to protect holders of securitised-mortgage bonds. Banks were slower to wake up to the danger. An option-ARM product called Pick-a-Pay (a name that gave fair warning it could lead to trouble) accounts for 45% of consumer lending at Wachovia, a large bank. Wachovia stopped originating loans that allow negative amortisation in June, and is setting aside heftier reserves to cope with expected losses. It has also waived prepayment penalties for existing product-holders and is marshalling its employees to help move these customers on to conventional mortgages. Such efforts are welcome. But they also signal just how protracted America’s housing woes are likely to be.
Sourced from Economist
Wednesday, September 17, 2008
Lehman Brothers had investments in DLF and Unitech
Lehman Brothers’ bankruptcy is likely to cost Indian real estate dear. It may impact the financial major’s existing investments worth $500 million in realty firms, including DLF and Unitech, besides drying up another $500-million worth of potential investment which was expected to flow into Unitech’s Mumbai projects.
The news of Lehman’s collapse brought the BSE realty index down by 7.65% on Monday, while the benchmark Sensex declined 3.35%. Both DLF and Unitech fell 7.5%.
Lehman’s fall signals a deepening of credit crisis for Indian developers, who have lately been battling falling sales, rising cost of construction and tightening credit. It is expected that the US-based firm is likely to go for a fire sale of its assets.
The financial services major was very bullish on India and was among the active investors in Indian real estate. Early this year, it had leased out an office space in Mumbai paying Rs 1 crore per month as rental. This would divert a part of fresh funds seeking to invest in Indian realty.
This is because global fund houses have country-allocations. And as they buyout Lehman’s stake in some of the Indian assets, they will end up diverting some of the fresh funds-in-hand to existing assets rather than investing in new projects.
“Lehman’s departure will impact future cash flows of real estate companies. In a market situation like today’s, it will be all the more difficult for the firms to raise funds,” says Karvy Stock Broking vice-president Ambareesh Baliga.
Lehman invested $200 million in DLF promoter group company DLF Assets last year and bought 50% stake in Unitech’s Mumbai project for $175 million a few months ago. It had also invested $80 million in Bangalore-based SEZ Gandhi City and was likely to hike its share to $300 million.
Lehman’s other investments include a 40% stake in an IT park project of Peninsula Land in Hyderabad for an initial investment of Rs 50 crore. It had also teamed up with Mumbai-based developer HDIL to bid for the redevelopment of Asia’s largest slum Dharavi.
Wherever the developers had received fund, they are safe. But where the funds are yet to come, the developers could get stuck. Some analysts say a distress sale by Lehman will impact the valuation of existing projects.
DLF CFO Ramesh Sanka had earlier told ET that Lehman’s sale of investments in DAL would not impact DAL’s valuation. Unitech MD Sanjay Chandra said that his company had already received funds. So, the company won’t get impacted by Lehman’s bankruptcy.
Some industry executives say that FDI norms of a three-year lock-in period may prevent Lehman from making an immediate sale. But analysts argue that the lock-in period in case of bankruptcy may not hold.
The news of Lehman’s collapse brought the BSE realty index down by 7.65% on Monday, while the benchmark Sensex declined 3.35%. Both DLF and Unitech fell 7.5%.
Lehman’s fall signals a deepening of credit crisis for Indian developers, who have lately been battling falling sales, rising cost of construction and tightening credit. It is expected that the US-based firm is likely to go for a fire sale of its assets.
The financial services major was very bullish on India and was among the active investors in Indian real estate. Early this year, it had leased out an office space in Mumbai paying Rs 1 crore per month as rental. This would divert a part of fresh funds seeking to invest in Indian realty.
This is because global fund houses have country-allocations. And as they buyout Lehman’s stake in some of the Indian assets, they will end up diverting some of the fresh funds-in-hand to existing assets rather than investing in new projects.
“Lehman’s departure will impact future cash flows of real estate companies. In a market situation like today’s, it will be all the more difficult for the firms to raise funds,” says Karvy Stock Broking vice-president Ambareesh Baliga.
Lehman invested $200 million in DLF promoter group company DLF Assets last year and bought 50% stake in Unitech’s Mumbai project for $175 million a few months ago. It had also invested $80 million in Bangalore-based SEZ Gandhi City and was likely to hike its share to $300 million.
Lehman’s other investments include a 40% stake in an IT park project of Peninsula Land in Hyderabad for an initial investment of Rs 50 crore. It had also teamed up with Mumbai-based developer HDIL to bid for the redevelopment of Asia’s largest slum Dharavi.
Wherever the developers had received fund, they are safe. But where the funds are yet to come, the developers could get stuck. Some analysts say a distress sale by Lehman will impact the valuation of existing projects.
DLF CFO Ramesh Sanka had earlier told ET that Lehman’s sale of investments in DAL would not impact DAL’s valuation. Unitech MD Sanjay Chandra said that his company had already received funds. So, the company won’t get impacted by Lehman’s bankruptcy.
Some industry executives say that FDI norms of a three-year lock-in period may prevent Lehman from making an immediate sale. But analysts argue that the lock-in period in case of bankruptcy may not hold.
Sunday, September 14, 2008
Bank of American buys Merrill Lynch; Lehman Brothers may go bankrupt!
Lehman Brothers has not found a buyer. Both BankAm and Barclays have walked off the deal as the Government has denied any financial support for taking over the fourth largest investment Bank. There are talks of a possible bankruptcy filing for Lehman Brothers which will be clear in a couple of days.
What's the connection to housing? The bursting of the housing bubble exposed the bad loans that have rocked Lehman Brothers and weakened the numerous banks that otherwise would be in a position to save Lehman. It's all connected. And until housing prices find a bottom, it's going to be difficult to measure the losses these big firms are holding on their books.
Tuesday, September 9, 2008
Crash Course on Fannie Mae and Freddie Mac Story
What are Freddie and Fannie?
Shareholder owned firms supporting US housing by enabling money flow in mortgage market
What do they do?
Help expand the mortgage market. They bundle loans they buy into securities which are sold, with a guarantee
What went wrong?
Both were required to write down loans held for investment and pay out on guaranteed mortgages. Both have posted nearly $14 billion losses since the housing bubble burst in August 2007. Now, they are unable to buy fresh loans
Why the bailout?
To ward off further damage to the wounded US housing market. The two have a hand in nearly half of the entire $12 trillion mortgage market.
Shareholder owned firms supporting US housing by enabling money flow in mortgage market
What do they do?
Help expand the mortgage market. They bundle loans they buy into securities which are sold, with a guarantee
What went wrong?
Both were required to write down loans held for investment and pay out on guaranteed mortgages. Both have posted nearly $14 billion losses since the housing bubble burst in August 2007. Now, they are unable to buy fresh loans
Why the bailout?
To ward off further damage to the wounded US housing market. The two have a hand in nearly half of the entire $12 trillion mortgage market.
Subbarao, new RBI governor in his first media interview as governor
Duvvuri Subbarao, who took over from Y.V. Reddy as governor last Friday, addressed the media for the first time today. Subbarao's comments were perhaps more moderate than had been expected, with several references to the need for sustaining economic expansion. It seems the monetary tightening period is coming to an end now as he said that inflation expectations must be contained to enable sustained growth.
Some of the points discussed in the media interview, which are indicators of future economic policy for India in his tenure (Background to the topic has been provided for reference)
Inflation As Short-Term Phenomenon
"I believe that even as the monetary authorities are independent there is a need for coordination between fiscal and monetary policy. "If you believe that inflation is a long-term phenomenon and it is going to sustain then we need to take fiscal policy action. But if you believe that inflation is a short term phenomenon as it is now we depend on monetary policy because monetary policy and fiscal policy have different time lags and different implications as they are going through the economy."
(Background: The RBI has said it aims for wholesale price inflation to fall to about 7 per cent by the end of the fiscal year in March 2009)
Interest Rates
"I have been asked whether monetary policy will be tightened further. There are, as they say, several known unknowns. First, we will have to watch the impact of the measures already taken. Second, we will be watching the drivers of demand – in particular which sectors are triggering the growth in demand. Third, in a globalised world, we will also have to be watching developments around the world and make an assessment of their potential impact on our economic management... All I can say is that we will be monitoring the situation closely and continuously, be mindful of the implications of our monetary stance on the growth prospects, and take action as appropriate."
(Background: The key lending rate, the repo, is at a seven-year high of 9.0 percent and the cash reserve ratio (CRR) is at 9.0 per cent)
Growth
"India's remarkable economic expansion from an average of 5 percent in the '90s to close to 9 percent in the recent period has been led by rise in private consumption, rise in private investment and surge in exports. I believe these engines of growth are still on track. The recent moderation is only a cyclical downturn. The structural India growth story is still intact and credible."
On 2008/09 Growth
"At the moment our estimate still is the number of the RBI. Of course we will be reviewing that as part of the October policy statement."
(Background: The RBI forecasts 2008/09 growth at around 8.0 percent)
On Currency Management
"The RBI's exchange rate policy has served us well, and I believe we will continue on that policy. The elements of that policy have been to not to take a view on the exchange rate but to manage volatility in a flexible and liquid manner."
On Special Market Operations For Oil Companies
"We are not actively considering that because there are no oil bonds in the market at the moment. Oil bonds might come in to the market after the parliament session. If and when the parliament approves supplementaries for under-recoveries of the oil companies, so we will take a view then."
On Capital Account Convertibility
"A lot has been done on capital account convertibility. I understand on some measures we are ahead of the curve and on some measures we are slightly behind the curve. But that's the way we expect in a real-world situation. Capital account convertibility is a continuous process, we continue to manage that process, it remains important on the agenda of the government and of the RBI and we will take appropriate measures."
Financial Reforms
"While what the financial sector has achieved is impressive, the task ahead is formidable. The financial sector has to become more competitive, efficient and forward looking. This underscores the importance of financial sector reforms. I want to conclude on the subject of financial sector reforms with three short comments. First, the liberalisation and development of the financial sector over the last few years has been a key factor in financing our 9 per cent growth. To sustain and accelerate this growth, financial sector reform, aimed at improved efficiency and financial stability, will remain important. In moving forward, we will draw from the lessons of global experience of the recent period, and be cognizant of the evolving global situation. Second, financial sector reforms are not an end in themselves. They have meaning and relevance only if they are anchored in real sector objectives. Third, financial sector reforms should promote inclusive growth through efficient and easily accessible financial services."
Real estate firms get innovative in raising funds to complete projects - Islamic Banking
Market drying up, low liquidity, skyrocketing interest rates, high inflation, real estate company margins declining, lack of funds etc are news we are hearing daily these days. The scenario is very glum and more so for real estate companies who have been marked down by over 50% in the stock markets. If the liquidity crunch is so high, where are they getting money from.
On talking to a number of experts in the real estate, I have discovered that a number of companies are tapping the Islamic capital. Islamic funding is available from deep pocketed West Asian investors who are sitting with trillions of dollars to invest in high growth assets. However, unless the money is used in a Sharia compliant manner, they are not ready to give the money even if one promises them a 100% return.
Financing based on Sharia, or Islamic Law, requires that gains be derived from ethical and socially responsible investments, i.e, should not be in liquor or cigarattes etc. Moreover, they frown upon interest based banking. Money is available at less that 5-6% from these HNIs who are sitting on a pile of cash.
Banks have scaled their exposure to real estate and have refrained from lending to real estate developers and have increased their interest rates sharply. Equity and bond markets have fallen by the wayside as markets have plunged. Private equity funding come with a large number of clauses that leave the developer with little or no profit.
Some of the real estate developers like Unitech and DLF have been looking to establish fund businesses. But there are issues with investors about potential conflicts of interest if a developer manages its own fund. In India, friction has risen because developers want to sell land at market prices for an instant profit whereas investors, saying that they want to share the risks and rewards, want plots to be injected at a lower acquisition value.
On talking to a number of experts in the real estate, I have discovered that a number of companies are tapping the Islamic capital. Islamic funding is available from deep pocketed West Asian investors who are sitting with trillions of dollars to invest in high growth assets. However, unless the money is used in a Sharia compliant manner, they are not ready to give the money even if one promises them a 100% return.
Financing based on Sharia, or Islamic Law, requires that gains be derived from ethical and socially responsible investments, i.e, should not be in liquor or cigarattes etc. Moreover, they frown upon interest based banking. Money is available at less that 5-6% from these HNIs who are sitting on a pile of cash.
Banks have scaled their exposure to real estate and have refrained from lending to real estate developers and have increased their interest rates sharply. Equity and bond markets have fallen by the wayside as markets have plunged. Private equity funding come with a large number of clauses that leave the developer with little or no profit.
Some of the real estate developers like Unitech and DLF have been looking to establish fund businesses. But there are issues with investors about potential conflicts of interest if a developer manages its own fund. In India, friction has risen because developers want to sell land at market prices for an instant profit whereas investors, saying that they want to share the risks and rewards, want plots to be injected at a lower acquisition value.
Economics in land deals; Bad Judgement setting a precedence
We all know what is happening in Singur with Tata bailing out of Singur as the Trinamool Congress has been pressurizing the government to return over 400 acres of land back to the farmers that is claimed to have been taken forcefully by the government from the farmers and given to the Tatas to build their Rs 1 Lakh car "NANO". We seem to have not learnt from this imbroglio.
In another case from Andhra Pradesh, the Supreme Court has dismissed a complaint against the government for acquiring land for Andhra Pradesh Infrastructure Investment Corp. The court ruled that any project which generates employment and brings in foreign exchange is for "public purpose", clearing the road for more forceful land acquisitions.
What is a "public good" in economics terms? A public good is a commodity or a service that is non excludable and non rival in nature, i.e, every individual has a right to use that good and the use of one person does not mean another person cannot use it. Lighthouses and defence/ military services are public goods.
Unfortunately, the court in its ruling has specified "public purpose" but does not seem to use it in the economics sense. It assumes investments bringing forex is for "public purpose". This decision has serious ramifications. India follows a common law system where higher court judgements are used as precedents for lower courts. In all future cases, a lower court will ask -
1. Does the investment generate employment
2. Does it bring in foreign exchange?
If the two answers are yes, land acquisition is legal.
This opens the door to unjust acquisition of private property, especially of the poor without a political clout. We can see in Singur that private property needs to be protected and enterpreneurs should directly buy land from owners.
In another case from Andhra Pradesh, the Supreme Court has dismissed a complaint against the government for acquiring land for Andhra Pradesh Infrastructure Investment Corp. The court ruled that any project which generates employment and brings in foreign exchange is for "public purpose", clearing the road for more forceful land acquisitions.
What is a "public good" in economics terms? A public good is a commodity or a service that is non excludable and non rival in nature, i.e, every individual has a right to use that good and the use of one person does not mean another person cannot use it. Lighthouses and defence/ military services are public goods.
Unfortunately, the court in its ruling has specified "public purpose" but does not seem to use it in the economics sense. It assumes investments bringing forex is for "public purpose". This decision has serious ramifications. India follows a common law system where higher court judgements are used as precedents for lower courts. In all future cases, a lower court will ask -
1. Does the investment generate employment
2. Does it bring in foreign exchange?
If the two answers are yes, land acquisition is legal.
This opens the door to unjust acquisition of private property, especially of the poor without a political clout. We can see in Singur that private property needs to be protected and enterpreneurs should directly buy land from owners.
Sunday, September 7, 2008
Trends in real estate in Indian Metros
Positive buzz continues amid realty
The real estate sector may not be in its ‘golden phase’ right now, but the buzz surrounding the market still remains. Industry bodies such as Ficci and Assocham say that a 10-15% fall in property prices has been witnessed over the last six months, with further corrections in the offing. In fact, a recent Ficci-E&Y report also observed that slowdown or not, a majority of developers see an upward growth curve for Indian real estate. The positive buzz continues despite the slowdown or high interest rate worries. Global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) made some key findings on the top trends in prime property markets in metros for residential stock.
Delhi: Left A-loan
The increase in home loan rates has caused the residential market in Delhi to slow down to quite an extent, according JLLM. Many prospective buyers are deferring their purchases, though this is true only in the mid-income segment — the demand for high-end residences remains unaffected. A correction of around 10% has been seen in Delhi’s property market. Also, DDA’s initiative to develop 6,000 flats for the mid-income group has seen a tremendous response. The Greater Noida Development Authority has launched a similar initiative. This has made homes in the Rs 15 lakh range a possibility again. Says Kunal Banerji, president, marketing, Ansal API, “It’s a fact that the high-end segment has not been affected and the demand is still as strong. Even the mid-income segment is seeing good demand with the coming of schemes in the market. For instance, our EMI holiday scheme has been getting an encouraging response from the mid-segment.”
Mumbai:
Going Slow In the financial hub, the sales of residential properties has slowed down dramatically, especially in key areas from Santa Cruz up to Andheri, Goregaon and Kandivali. There has been a 40% dip in sales since the slowdown began and intending buyers are deferring their decisions until after November. However, it is a different scenario in the Bandra-Khar area, where the cash-cheque component in transactions has been far higher. The dip there has been to the tune of 25%. There have been no transactions in south Mumbai since the last four months, even though investor flats are now selling at cheaper rates than builder flats. In areas like Byculla and Prabhadevi, builders are asking for rates like Rs 44,500-45,000/ sq.ft while investors are asking for Rs 43,000-44,000/ sq.ft.
Bangalore:
Supply’s Drying Up JLLM finds out that in Bangalore, even though the residential market has slowed down, the true impact of the slowdown is yet to be seen. There is a wait-and-watch situation in many areas which include mostly Central Business District (CBD) locations. Rates in CBD areas such as MG Road, Lavelle Road and Richmond Road range between Rs 14,000 and Rs 16,000 per sq ft. However, in high-demand areas such as Koramangala, Indiranagar and Sadashivnagar, there is a dearth of supply being seen.
Amit Bagaria, chairman of Bangalore-based Asipac Projects, however, feels the slowdown has impacted the city. “Overall, there has been a dip of 20-25% in sales. Locations such as Whitefield, Sarjapur Road, Bannerghatta Road and JP Nagar are seeing this dip. There is a price correction in the resale market to the tune of 15-25%. However, there is hardly any correction in the primary supply coming from developers.”
Chennai:
No More Construction In Chennai, there is a new supply coming in but primarily in the upper income segment with prices between Rs 75 lakh and Rs 1 crore. No fresh constructions are happening in the mid-segment, since land rates have moved beyond developers’ affordability. The accent is now on larger properties of 1,000-2,000 sq.ft. and above, with supply in smaller properties considerably lower. Premium locations in the city such as Poes Garden, Boat Club Road and Aryapuram are still seeing strong demand. While prices in Poes Garden are in the range of Rs 18,000 and Rs 20,000/ sq ft, it varies between Rs 20,000-Rs 22,000/ sq ft in Boat Club Road. Speaking of lower-to-middle income group destinations, Moggapair, which is close to Anna Nagar is witnessing rates ranging from Rs 2,800-Rs 3,200/sq ft. There has been no fresh supply for the lower income groups in this and similar areas, with new projects catering mostly to the middle segment. However, the OMR area and Sriperumbudur will see low-income housing supply in the next few years.
The real estate sector may not be in its ‘golden phase’ right now, but the buzz surrounding the market still remains. Industry bodies such as Ficci and Assocham say that a 10-15% fall in property prices has been witnessed over the last six months, with further corrections in the offing. In fact, a recent Ficci-E&Y report also observed that slowdown or not, a majority of developers see an upward growth curve for Indian real estate. The positive buzz continues despite the slowdown or high interest rate worries. Global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) made some key findings on the top trends in prime property markets in metros for residential stock.
Delhi: Left A-loan
The increase in home loan rates has caused the residential market in Delhi to slow down to quite an extent, according JLLM. Many prospective buyers are deferring their purchases, though this is true only in the mid-income segment — the demand for high-end residences remains unaffected. A correction of around 10% has been seen in Delhi’s property market. Also, DDA’s initiative to develop 6,000 flats for the mid-income group has seen a tremendous response. The Greater Noida Development Authority has launched a similar initiative. This has made homes in the Rs 15 lakh range a possibility again. Says Kunal Banerji, president, marketing, Ansal API, “It’s a fact that the high-end segment has not been affected and the demand is still as strong. Even the mid-income segment is seeing good demand with the coming of schemes in the market. For instance, our EMI holiday scheme has been getting an encouraging response from the mid-segment.”
Mumbai:
Going Slow In the financial hub, the sales of residential properties has slowed down dramatically, especially in key areas from Santa Cruz up to Andheri, Goregaon and Kandivali. There has been a 40% dip in sales since the slowdown began and intending buyers are deferring their decisions until after November. However, it is a different scenario in the Bandra-Khar area, where the cash-cheque component in transactions has been far higher. The dip there has been to the tune of 25%. There have been no transactions in south Mumbai since the last four months, even though investor flats are now selling at cheaper rates than builder flats. In areas like Byculla and Prabhadevi, builders are asking for rates like Rs 44,500-45,000/ sq.ft while investors are asking for Rs 43,000-44,000/ sq.ft.
Bangalore:
Supply’s Drying Up JLLM finds out that in Bangalore, even though the residential market has slowed down, the true impact of the slowdown is yet to be seen. There is a wait-and-watch situation in many areas which include mostly Central Business District (CBD) locations. Rates in CBD areas such as MG Road, Lavelle Road and Richmond Road range between Rs 14,000 and Rs 16,000 per sq ft. However, in high-demand areas such as Koramangala, Indiranagar and Sadashivnagar, there is a dearth of supply being seen.
Amit Bagaria, chairman of Bangalore-based Asipac Projects, however, feels the slowdown has impacted the city. “Overall, there has been a dip of 20-25% in sales. Locations such as Whitefield, Sarjapur Road, Bannerghatta Road and JP Nagar are seeing this dip. There is a price correction in the resale market to the tune of 15-25%. However, there is hardly any correction in the primary supply coming from developers.”
Chennai:
No More Construction In Chennai, there is a new supply coming in but primarily in the upper income segment with prices between Rs 75 lakh and Rs 1 crore. No fresh constructions are happening in the mid-segment, since land rates have moved beyond developers’ affordability. The accent is now on larger properties of 1,000-2,000 sq.ft. and above, with supply in smaller properties considerably lower. Premium locations in the city such as Poes Garden, Boat Club Road and Aryapuram are still seeing strong demand. While prices in Poes Garden are in the range of Rs 18,000 and Rs 20,000/ sq ft, it varies between Rs 20,000-Rs 22,000/ sq ft in Boat Club Road. Speaking of lower-to-middle income group destinations, Moggapair, which is close to Anna Nagar is witnessing rates ranging from Rs 2,800-Rs 3,200/sq ft. There has been no fresh supply for the lower income groups in this and similar areas, with new projects catering mostly to the middle segment. However, the OMR area and Sriperumbudur will see low-income housing supply in the next few years.
Saturday, September 6, 2008
Recent Real Estate Regulatory News
- Mar-08 Industrial Parks exempt from restrictions on FDI in real estate [Press Note 2(2005)] provided 66% of area is allocated for industrial activity and no single unit occupies more than 50% of the area
- Apr-08 SEBI (Security & Exchange Board of India) permits mutual funds to launch REMFs
- Apr-08 Tax benefits for Software Technology Parks has been extended by 12 months to March 31 2010
- May-08 MMRDA (Mumbai Metropolitan Region Urban Development Authority) has increased FSI (Floor Space Index) to 4 from 2 in G Block of BKC (Bandra Kurla Complex) subject to payment of premium
- Jun-08 Maharashtra government has increased FSI (Floor Space Index) for slum rehabilitation to 3 for low density slums and 4 for high density slums
- Aug-08 Cap on space for Financial Institutions in IT Parks in Mumbai Metropolitan Region increased to 80% from 30%
- Aug-08 Delhi government plans to rope in private players for slum redevelopment (Read more)
- Aug-08 Developers will have to provide double parking space in all upcoming residential and commercial buildings in Mumbai
Recent land/ notable transactions across key cities; Realty slowdown indicated
(Click on picture to view clearly)
Take a look at the recent land deals that have happened in various parts of the country. We are hearing a lot about the slowdown and this chart makes it amply clear that there is a clear trend. Look at the deals done in the MUMBAI BKC (Bandra Kurla). Clearly and surprisingly, a deal struck in March 2008 by Jet Airways got land at Rs. 5666 million per acre compared to a recent deal in August when Talim Research got the land at only Rs 635 million per acre in the same region. Over 80% discount to the price paid by Jet Airways in March!! The slowdown is very evident from the above example.
Surprisingly, the August deal had just 1 bidder!!
Read more on the story I had written earlier
Take a look at the recent land deals that have happened in various parts of the country. We are hearing a lot about the slowdown and this chart makes it amply clear that there is a clear trend. Look at the deals done in the MUMBAI BKC (Bandra Kurla). Clearly and surprisingly, a deal struck in March 2008 by Jet Airways got land at Rs. 5666 million per acre compared to a recent deal in August when Talim Research got the land at only Rs 635 million per acre in the same region. Over 80% discount to the price paid by Jet Airways in March!! The slowdown is very evident from the above example. Surprisingly, the August deal had just 1 bidder!!
Read more on the story I had written earlier
Real estate company news over past week
Puravankara subsidiary to raise Rs7.5bn through private equity
Puravankara’s wholly owned subsidiary, Provident Housing and Infrastructure, is in talks with four overseas private-equity funds to raise ~Rs7.5bn to acquire land for its affordable housing projects. – Business Standard, Aug. 26
DLF seeks shareholder approval to raise Rs100bn; plans overseas foray
DLF plans to seek shareholder approval to raise up to Rs100bn from institutional investors (Business Standard, Aug. 27). The company has clarified that this is only an enabling resolution and there are no near-term plans to issue fresh capital. The company in fact intends to place back the bought back equity shares at a steep premium to the bought back price.
Merrill Lynch hikes stake in Ansal Properties
Merrill Lynch Capital Markets Espana SA SV acquired as much 1.163m equity shares, representing a 1.03% stake, in Ansal Properties through the secondary market purchase route on August 20, thereby increasing its stake to 5.96%. – Financial Express, Aug. 23
HDIL to raise Rs10bn for slum land swap
HDIL plans to raise debt of Rs10bn within a year to buy land and relocate slum dwellers for the Mumbai airport modernization project. The company intends to buy land within 1km from the airport. – Mint, Aug. 27
Kolte-Patil, UK’s Arora Intl may call off hotel JV
The proposed joint-venture between Kolte-Patil Developers and Arora International Hotels, a UK-based hotelier, is learnt to be in trouble and is likely to be called off. However, Kolte-Patil has denied any such development. Kolte-
Patil had announced plans to enter a JV with Arora International Hotels to develop two hotel properties in Nagar Road at Pune and Hosur Road in Bangalore. – Economic Times, Aug. 25
UAE-based Emke group to build Rs12bn mall in Kochi
The UAE-based Emke Group is setting up one of India’s largest malls, including a 300-room hotel, in Kochi with an investment of Rs12bn. The project will have a built-up area of 2m sq ft and is to be completed by 2010. – Mint, Aug. 25
Plaza Centers, Elbit Imaging to develop India projects
Plaza Centers has entered into an agreement to acquire a 47.5% stake in Elbit India Real Estate Holdings to develop three projects with a total area of ~3.8m sq ft in Bangalore, Chennai and Kochi. – Economic Times, Aug. 26
Jain Heights to raise UD$25m
Jain Heights plans to raise up to US$25m from foreign investors to develop a mid-segment residential and a luxury hotel project in Bangalore. The company has tied up land for both projects and detailed plans for the residential project are in place. – Economic Times, Aug. 28
Puravankara’s wholly owned subsidiary, Provident Housing and Infrastructure, is in talks with four overseas private-equity funds to raise ~Rs7.5bn to acquire land for its affordable housing projects. – Business Standard, Aug. 26
DLF seeks shareholder approval to raise Rs100bn; plans overseas foray
DLF plans to seek shareholder approval to raise up to Rs100bn from institutional investors (Business Standard, Aug. 27). The company has clarified that this is only an enabling resolution and there are no near-term plans to issue fresh capital. The company in fact intends to place back the bought back equity shares at a steep premium to the bought back price.
Merrill Lynch hikes stake in Ansal Properties
Merrill Lynch Capital Markets Espana SA SV acquired as much 1.163m equity shares, representing a 1.03% stake, in Ansal Properties through the secondary market purchase route on August 20, thereby increasing its stake to 5.96%. – Financial Express, Aug. 23
HDIL to raise Rs10bn for slum land swap
HDIL plans to raise debt of Rs10bn within a year to buy land and relocate slum dwellers for the Mumbai airport modernization project. The company intends to buy land within 1km from the airport. – Mint, Aug. 27
Kolte-Patil, UK’s Arora Intl may call off hotel JV
The proposed joint-venture between Kolte-Patil Developers and Arora International Hotels, a UK-based hotelier, is learnt to be in trouble and is likely to be called off. However, Kolte-Patil has denied any such development. Kolte-
Patil had announced plans to enter a JV with Arora International Hotels to develop two hotel properties in Nagar Road at Pune and Hosur Road in Bangalore. – Economic Times, Aug. 25
UAE-based Emke group to build Rs12bn mall in Kochi
The UAE-based Emke Group is setting up one of India’s largest malls, including a 300-room hotel, in Kochi with an investment of Rs12bn. The project will have a built-up area of 2m sq ft and is to be completed by 2010. – Mint, Aug. 25
Plaza Centers, Elbit Imaging to develop India projects
Plaza Centers has entered into an agreement to acquire a 47.5% stake in Elbit India Real Estate Holdings to develop three projects with a total area of ~3.8m sq ft in Bangalore, Chennai and Kochi. – Economic Times, Aug. 26
Jain Heights to raise UD$25m
Jain Heights plans to raise up to US$25m from foreign investors to develop a mid-segment residential and a luxury hotel project in Bangalore. The company has tied up land for both projects and detailed plans for the residential project are in place. – Economic Times, Aug. 28
DLF annual report highlights
Highlights from DLF’s FY08 Annual Report
- DLF sees FY09 as a challenging year given the liquidity and inflationary issues in the economy. It expects FY09 to be a year of consolidation.
- Targets: 1) Maintain gearing at 51% to ensure that the company can easily tide over any downcycle in the business; 2) be FCF-positive by FY11; 3) plans to develop ~25m sq ft of retail space in the leased mall category over the next five years; plans to have 4,000 hotel rooms under construction in FY09; and 4) aims at increasing projects under construction to ~100m sq ft by end-FY09, from 63m sq ft in 1Q FY09.
- DLF’s rental earnings, which were Rs2.8bn in FY08, are set to grow further with an increase in leased office space and retail malls.
- To ensure adequate replenishment of land resources, DLF has carved out a land replenishment fund, wherein 15% of the sale value of its real estate development is credited – should ensure consistent development pipeline.
DLF has announced both a buyback of Rs1,100 crore to prop up its dangling share price. Next, surprisingly in the next month of buyback, it announced capital raising of Rs. 11,000 crore. Isn't it a conflicting strategy. DLF has failed to list DLF Assets which had plans to raise Rs 9,500 crore from Singapore REIT. Lets see what else is DLF upto in the coming months.
Friday, September 5, 2008
Land and property prices skyrocket in Howrah, Hoogly ; Kolkata
Land prices have skyrocketed on Kona Expressway and stretches of National Highway-2 and National Highway-6. Call it the Singur ripple effect or impact of other projects like the DLF township project in Dankuni and logistic hub on Kona Expressway, land prices have risen at least six fold in the past four years.
Many brokers had even purchased land in the area hoping for the price to shoot up further. An acre of land which cost Rs 24 lakh even five years ago, fetches around Rs 2 crore today.
Property prices have shot up even further on Kona Expressway that serves as a gateway to Singur from Kolkata. Even in 2001, the price per acre there stood at Rs 12 lakh per acre.
“With projects like the Tata Motors small car plant in Singur, the DLF township in Dankuni, Kolkata West International City and the logistic hub on Kona Expressway coming up, it is obvious that property prices would soar. But the delay in these projects and the Singur stalemate are a matter of concern for many,” said Ram Ratan Chowdhury, managing director of Panchadeep Constructions Ltd (PCL). He has been a pioneer in bringing mega projects to Howrah.
If poor infrastructure and lack of development held back real estate prices on the western front of the Hooghly even a few years ago, the upcoming projects are changing the industrial landscape in the Howrah-Hooghly belt, thus pushing up property prices.
Less commuting time, excellent connectivity and ventures by big houses like the Tatas, DLF and the Salim-Ciputra group have made realtors make a beeline for land in the area. The Singur plant is just around 10 kilometre from the point where the Kona Expressway meets NH-6 and NH-2.
Real estate developers and brokers, who have invested in the stretch, are keeping their fingers crossed. For, they feel that the growth of price in real estate will be at a much slower pace if the Tata project shifts from Singur to an alternative location.
“The price of real estate does not change overnight, though there will be an impact on the price of land in that belt in case the Tatas leave. We hope that the Singur stalemate will be solved in a week or so at the most. If the Tatas stay, the price of land is bound to shoot up. Even if they leave, real estate prices will still go up but at a slower pace and rate,” said real estate developer Sumit Dabriwala, managing director of Riverbank Holdings Private Ltd.
Thursday, September 4, 2008
FIIs reduce holding in real estate companies
Foreign institutional investors (FIIs) have reduced their holding in real estate companies, particularly Unitech and Parsvnath Developers by over 2 percentage points and by 0.8 percentage point respectively, year-on-year. According to shareholding data available on BSE, the financial institutions and banks have increased their holding in Unitech Ltd by just over 1.5 percentage points, even as the stake of FIIs has come down.
In the case of Parsvnath, there were marginal changes in the institutional shareholding within the non-promoter category, even as the ‘individual’ holding rose by just less than a percentage point. “The FII stake in Parsvnath had almost doubled between June 2007 and December 2007, but came down subsequently, in line with market trend,” a market observer said. When it comes to ‘public shareholding’ in Unitech, the stake held by various mutual funds and UTI stood at 0.51 per cent on June 30, 2008 — a tad higher than 0.25 per cent in the year-ago period. According to market sources, while FIIs have trimmed their holding in Unitech, the shares sold by them may have been picked up by private Indian insurance firms.
Agricultural Units of Measurements Used for land in India
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