Real Estate

The road not taken

2010-01-05T18:07:00.000-08:00

In May 2001, well before the highway development programme in India gathered steam, Mumbai-based Essar group decided to enter the roads business. The company bagged some stretches on the Golden Quadrilateral highway network connecting Delhi, Mumbai, Kolkata and Chennai. Essar’s area included the Harihar-Haveri stretch of 56 km and Chitradurga-Harihar stretch of 77 km — both spread through the state of Karnataka.
But neither of the projects had a smooth ride. In 2007, the National Highways Authority of India (NHAI), the apex body that manages India’s national highways, terminated Essar’s contracts. After Essar spent six frustrating years trying to complete what it had started, NHAI said it failed to deliver as promised.
And so started the blame game between Essar and NHAI. The company said the government body did not deliver, and vice versa. Essar alleged that NHAI provided the land late and in “bits and pieces”. The cost estimates for the projects were way off the mark and the project’s specifications and drawings were flawed, according to Essar. On top of that, NHAI sat on the company’s head to deliver, without keeping their end of the bargain.
The jury is out on the roads whether NHAI or Essar is actually to be blamed for the unfinished projects. However, the experience was enough for Essar to stay off the path of highway development in the country.
Rough Ride
Like Essar, Hyderabad-based GVK was also an early entrant to the roads sector. The company started on a pretty successful note, completing the Jaipur-Kishangarh stretch in 24 months in 2005 for Rs 706 crore.
But the experience was not without glitches. According to senior executives at GVK, NHAI tends to promise more than it can deliver — land acquired often falls short of what is proposed at the time of handing over of the project. GVK argues that NHAI’s consultants also go awry with their cost estimates — their costs are always lower than what companies estimate. This mismatch can lead to endless disputes on how much debt and equity would be recovered by the company if the contract gets terminated.
Though it completed the project on time, GVK failed to win any further bids from NHAI. The company says this was more on account of what they perceive to be over-aggressive bidding by competitors. Says Vijay Agarwal, head of transportation business in the GVK group: “The capital markets were very buoyant at that time. So, bids were equally aggressive. We did not feel that it made sense to match them”.
Another large company in the fray, Bangalore-based GMR Group, which has six highway roads on hand is facing its own set of problems. While construction and transfer of projects have been relatively smooth, operational problems are beginning to tell. Collection and leakages of tolls are causing problems for the GMR-developed Chandigarh-Ambala highway that got operational barely a year ago.
No Smaller Woes
Like the big players, lesser-known companies have their own tales of woe. KMC Construction, a company with presence in both road construction and building and operating toll roads, says it has not been smooth sailing all the way. Although the company has won many projects, Shashank Shekhar, vice-president of the company, says KMC has faced niggling problems all the time, but has learnt to live with them. The company bagged the contract for the Ichhapuram-Ganjam leg of the Golden Quadrilateral. But the project was hampered by the state government’s ban on quarrying in the region. Stones for the road project were available just 25 km away, but had to be brought from as far as 150 km due to the ban, says Shekhar.
Another KMC project — six-laning of the Gurgaon-Jaipur highway — was stuck for weeks owing to failure in availing ‘forest clearance’, something that should have been received well in advance. Moreover, collecting tolls has become a Herculean task. After KMC took over the task of collecting tolls from NHAI, the company found that the highway authority had in the past been quite lax in collecting toll. As a result, getting users to pay up became quite a challenge.
Soma Construction forayed into highway construction in 2001. The company has bagged many projects — as many as five build-operate-transfer (BoT) projects worth Rs 10,000 crore. D.V. Raju, senior vice-president and head of business development at Soma Construction, says that though the company put in every effort to finish projects on time, “the delays caused by the state government and NHAI tend to hold up projects”.
Then at times, collection of tolls — the very basis for the viability of the project — can be unusually delayed. Raju cites the example of the Bangalore Elevated Tollway. He says while the project is almost completed, the state government is yet to issue the toll notification. Without this gesture, it cannot collect tolls.
Clearing Potholes
The examples above partly illustrate why India’s ambitious National Highways Development Project (NHDP) has progressed way slower than it could have. The numbers tell the story. Despite policy being oriented towards tolls, during 2005-09 (till September), 78 BoT projects totalling a length of a little over 5,700 km have been awarded, but only 23 — with a length of 1,063 km — have been completed so far. Frequent changes at the helm of NHAI (see ‘Musical Chairs’) have made matters worse. But even more troublesome than these changes are the constantly changing government policies that have kept companies spinning.
Almost the entire Golden Quadrilateral — and the initial phase of the NHDP — was based on cash contracts (or EPC contracts), where NHAI paid money to companies to build roads. As it felt the need for more social sector funding, the government in 2005 decided to adopt the public-private partnership (PPP) route to build roads. In PPP projects, government support is limited — in the form of a grant of up to 40 per cent of the project cost — and the private sector has the right to collect tolls in order to recoup the investment for the road project.

There are more troubles. Convincing the big boys to fall in line is easier said than done. Trucks and commercial vehicles are just bypassing the toll plaza at the Dhule-Pimpalgaon highway by using the village roads. Raju says toll collections have already seen a dip by 10-15 per cent, and the company is yet to find a way to stop this.
MUSICAL CHAIRS
Too many cooks spoil the broth. Highway development in India has suffered from lack of consistency in decision making, besides constantly changing policies. Crucial decisions have been affected by constant changes at the helm of NHAI — five chairmen in as many years. Even smaller matters such as clearance of cheques have suffered. During the tenure of previous road transport minister T.R. Baalu, there were four changes in just 13 months.
The longest stint was probably that of N. Gokulram, who steered the wagon for just about a year under Baalu. This, despite the fact that NHAI chairman’s job has a fixed tenure of three years, extendable to five years. But Baalu blames everyone but himself for the changes. He says many of the chairmen under him failed to perform. “Those who were not performing had to be changed,” he says, adding there was one instance where a chairman reached “35 minutes late” for a parliamentary committee meeting. He says the appointments and removals in NHAI were made in consultation with the prime minister and the home minister. Baalu washes his hands off the project delays as well. While the minister is fine with changes at one level, he questions another. He blames the changes in the model concession agreement (MCA) for delays. “What was the need for a new MCA?” he asks. Baalu says no developer had problems with the old MCA (developed by NHAI), and nobody challenged it in court, so there was no need to change it. Initially, the government had decided to offer highways on toll (BoT) basis. If this mode failed to attract investors, then the government would offer the same road on annuity basis — where NHAI gives a yearly payment to the developer of a particular road; and if this too failed to attract investors, the last option was to go back to the cash-contract mode. According to a senior government official, a minimum of six months was lost negotiating this process in spite of the fact that it was known to all that some roads just did not have enough traffic to merit tolling.
Click here to read full interviewMoreover, the entire process of awarding and executing toll-based highways took close to three years to finalise. But even after these were finalised, the developers challenged some of the very restrictive clauses of the agreement. In 2007-08, NHAI had 60 highway projects to offer. But there were absolutely no takers. Amrit Pandurangi, who heads the transport and infrastructure practice for audit and consulting firm PricewaterhouseCoopers, says that there were “deal breakers” in the original policy documents. That is why there were very few bids.
David Birch, regional managing director of engineering consultancy Halcrow Group, says: “In order to attract investments in infrastructure, terms of contract must be fair towards investors.” Birch says land acquisition and identifying the real cost of infrastructure projects remain major areas of concern for investors.
The Journey Ahead
In its second avatar, the UPA government is trying to correct many of the mistakes it made in its first term. A committee has been formed under B.K. Chaturvedi, member of the Planning Commission, to resolve the problems dogging India’s highway development.
In effect, the new policy measures are a shift of tracks. Earlier, all roads were to be offered on a toll basis. Now, the government’s latest work plan for 2009-10 lists out the roads that can be tolled, which can be offered on annuity, and which can be given out on a cash contract basis. The latter two add up to about 30 per cent of the total 12,652 km planned for this year.

Moreover, under NHDP Phase IV (20,000 km), a major portion will be offered on contract or EPC basis — just like it was done in the Golden Quadrilateral. The new government policy says if traffic is less than 5,000 passenger car units, the road project under NHDP Phase IV should automatically be given on the basis of EPC.
In another major shift in government policy, a road developer no longer needs to hold a minimum amount of equity during the entire tenure of the project. The government has now allowed companies to exit a project and hand it over to companies that specialise in road operations. In short, a construction company can focus only on construction of roads and not bother with operating the toll booths.
These changes show that the government policy is running round in circles, and has virtually come back to the earlier policy of getting the road built through its own funds. Asks an official from one of the companies on condition of anonymity: “If this is not an admission of a failure in government policy, then what is?”
Even more critical is Partho Mukhopadhyay of Centre for Policy Research. He says the government appears to be doing just a “spell check” of the earlier policy rather than starting with a clean slate. Problems in toll collections have already begun to surface in the form of toll leakages. In states such as Orissa, truck operators have gone against the toll policy (see ‘State-level Roadblocks’ on page 55). Recently, the Kerala High Court upheld a public interest litigation against tolls. Developers say that if government policy does not ensure that there is no competing road (or alternative routes), which have the potential to take business away, then tolling would always be a risky business.
Based on feedback from developers, there is a fresh thinking in the government to allow road developers alternative sources of revenue. This can be in the form of wayside development — where real estate development along the highway can be offered to the road developer.
STATE-LEVEL ROADBLOCKS
It is just not land acquisition that poses a problem for developers and NHAI in getting the roads built. Government documents show that each state throws up unique, and bizarre, problems. In 2005, Uttar Pradesh imposed a unilateral condition asking NHAI to provide a 10-meter wide strip along their highway to plant trees. This was to compensate for the trees that NHAI had to cut to build the roads. This brought the highway programmes in the state to a grinding halt.
In Karnataka, NHAI expelled a contractor in January 2007 for poor performance and handed over the project to Gammon India. But the expelled contractor approached police and local courts, and filed “false” criminal cases against NHAI officials. The project is delayed by two years. Similarly, a year back on NH-60 at Santoshpur in Balasore district, local people demanded a cut in user fee. Local authorities even deployed security personnel to ensure the demand is met. The daily loss of revenue was Rs 54,000. In Panikhoile on the same highway, private bus operators using the road have not been paying user fee. The loss: Rs 4.66 lakh a day.
In Rajasthan, NHAI says there have been instances where the state government demanded compensation for acquiring government land. A few years back, district collector of Bhilwara ordered sealing of NHAI bank accounts saying the body had not paid compensation. NHAI, however, says intra-departmental transfer of government land is free of cost.
Both Raju and Agarwal agree that there is a dire need to allow developers to create different sources of revenue. This will certainly help, says Agarwal of GVK. “If real estate developers can benefit from a new highway made by us, then we (road developers) should also get a share of this benefit.” Some states such as Uttar Pradesh are already doing this for their state roads, according to Chaturvedi. He says the government may implement such a policy for the national highway projects as well.
Such a change would not only make developers happy, but would also give additional security to banks that fund road projects. According to NHAI, close to $41 billion of the $69 billion is expected from private investments (see ‘Fund Demand’). And these investments are largely dependent on debt financing.
Clear Fund Channels
Developers have already expressed concerns that getting bank finances in the future may pose a problem. This is because loans to road projects are treated as unsecured loans —similar to credit card loans. Banks do not have the backing of any physical assets — which act as a security for the loans given to a road project. Ajit Gulabchand, chief executive of Hindustan Construction, says while the recent steps undertaken are in the right direction, issues such as project financing remain challenges for greater investment in infrastructure.
The Reserve Bank of India may have the last word on the issue of financing. Till then, the government will just have to keep thinking of ways of making investments in this critical sector more attractive. And that will be a million- dollar question.

Unbelievable functioning of Indian Parliament

2009-07-28T03:51:00.001-07:00

Could'nt resist putting this one up on the blog !! This is Nandan Nilekani's brief of his first day in parliament. Do go through. Cheers!

Continuing my tryst with capturing the life and times of Nandan Nilekani in his new avatar as a Cabinet Minister, here is what he had penned after his first day in the Parliament. The last entry stopped when the House was just about to begin. Let’s see what happened thereafter….

The House was in pin drop silence. I was brimming with anticipation and excitement!! !! Manmohan had informed me that my introduction was one of the important points of the agenda. I hoped that I will be able to make my speech properly. After so many interviews and conferences, I was nervous today!!!! After the Speaker indicated that the proceedings of the House could begin, Manmohan formally introduced me to the entire House. He mentioned that as the head of the Unique Identification Authority of India, I was responsible to ensure that each and every Indian had a digital smart card as a proof of his existence.

Manmohan spoke about why I was selected and also some references to the various projects executed by me in Infosys were mentioned. The House listened with rapt attention. I was asked to say a few words and I did exactly the same!!! I thanked the Government of India for having given me this opportunity and I assured the House that I would strive to successfully deliver this project. The Speaker then formally inducted me into the House and before the proceedings could move any forward, there was a small commotion on the other side of the hall.

It was Minister of Textiles who had a comment to make before the next point on the agenda. He made a request that I should be attired in a more austere way instead of a flashy suit. It did not go well with the image of a minister who should live to serve the common man and should be less ostentatious in his habits. I stood up to reply. I offered my apologies to the Honourable Minister and assured that I shall be in a more acceptable dress next time. I felt that he was right. We also used to have corporate dress code in Infosys. So it's here as well!!!!

I sat down and felt somebody nudging me. I turned around and to my surprise; it was the former Indian skipper and one of my favourite batsman Mohd. Azharuddin. I remembered that he had recently won the elections. I smiled at him and mentioned to him that I used to like his game very much, shaking his hand. No Rolex, I noticed. Azhar told me that he would “fix” me an appointment with an Italian designer who had designed his dapper Kurta suit. An Italian designer in Milan doing Kurtas!!!!! I made a note of this and reminded myself to give this example to Friedman for his next book,” The World Markets are flattened”.

Since there was no doubt about the “Fixational” capacities of Azhar, I told him to give me the details and I would consider. The proceedings of the House went on with numerous bills being debated and passed as I sat as a passive audience waiting for my project’s turn to come up. After the lunch break, it was the moment for me!!!!

MY PROJECT’S FIRST REVIEW CAME UP FOR PRESENTATION.

I was at sea. My laptop did not have any reserve power. I went to Manmohan and apprised him of the situation. I was sweating. He calmly replied that this would not be a cause of concern. I was flummoxed!!! ! The Speaker asked me to explain to the House on what were my plans for the Unique Identity Project. I replied that I have a plan prepared for 30-60-90-120 days’ milestones and I have presentation to make for which I need a power socket, a projector and a screen. I had no idea what was going to happen after this.

The next couple of minutes were a complete jolt for me. I was completely in a tizzy. Let me just summarize what happened. A Joint Cabinet Secretary Committee was set up to judge the feasibility of my request. The Under Secretaries for the Ministries of Power, IT and Broadcasting will prepare a Viability Report after scrutinizing National Security threats to my request. This was because the power socket comes under Power, laptop comes under IT and projector comes under Broadcasting. I have also been told to reconsider my timelines of 30-60-90 days and start thinking in terms of years. Probably, they are right. I did not have the foresight in this matter.

The summary of the issue is that I need to come up with a more inclusive, democratic, comprehensive long term plan for this project to be executed over the next five years. I have also been given a presentation slot 3 months from now (by which the issues related to the power cord etc will also be resolved). I am filled with mixed reactions. I was planning for a quick resolution; the management wants a strategic solution. I come out of the House and text Murthy.

“You won’t believe it but these guys work just like us. I am on a NATIONAL BENCH for the next three months!!!!!! !!”

GOVT Considers FDI in Real Estate

2009-06-26T02:56:00.000-07:00

All said and done, the government is already on the right track by considering the hiking of income tax exemption available for interest payment on home loans to Rs 2.5 lakh a year. However, there are still a number of blanks to be filled. The Budget should make high-priority provisions for the laying down of necessary infrastructure so that new areas can be opened up. The concept would be to create and link-up satellite settlements to main cities that will help tackle the demand-supply mismatch.

The Budget should provide clarity on the STPI guidelines whether they will remain or not, or whether they have changed. The Budget should offer clarity on the introduction of a real estate regulator, since the fact that India is now a member of the global village makes higher levels for transparency imperative. This regulator may not necessarily decide on rates, but should put down firm principles in terms of property dealings and also quality parameters in terms of rating of constructions.

The Budget should provide forward momentum for real estate mutual funds so that real estate becomes accessible to retail investors, as well. The Budget should free the rental income yielded by commercial premises from service tax. The Budget should extend the tax holiday under Section 80-IA (4) (iii) for developers who build, operate and maintain industrial parks so that the compromised IT industry gets a shot in the arm. The Budget should finally and decisively enable the entry of foreign direct investment into the real estate sector. The Budget should reintroduce tax exemption for developers who construct flats of smaller size with tax benefits, offer incentives to developers to concentrate more on affordable housing and rationalise stamp duty registration charges for land so that obtaining land for affordable housing becomes more feasible for developers.

Tax exemption to be raised to Rs 2.5 lakhs from Rs 1.5 lakhs

2009-06-25T03:36:00.001-07:00

The government is taking some bold positive steps to boost the real estate sector. The tax exemption limit for the interest on a home loan may be raised to Rs 2.5 lakhs from the current Rs 1.5 lakhs in the upcoming budget. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh. Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh. Hence a raise to Rs 2.5 lakhs would benefit the home buyers and be an impetus for growth of the housing sector.

If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year (WOW!!) . This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable. However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats. The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand

TATAs ambitious housing projects

2009-06-25T00:22:00.000-07:00

After successful completion of cheapest car project, Tata group is now working on cheapest hosing solution through its two realty subsidiaries, Tata housing and Tata Realty. Tata group has discussed about the land requirement for the project and they have decided to develop land in 3 major ways. First one is Tata housing working with the company that owns the land. Second one is, Tata housing can also take the SPV route and then decide on the profit sharing ratio and the third one is the option of purchasing the land. After completion of project, the property could either be sold or leased. Managing committee refused to share any kind of details by saying that it would be premature to comment.

Real Estate Update

2009-06-24T03:25:00.000-07:00

Indian realty majors have been reeling under a severe cash crunch for a long time now. Will the crisis subsiding (atleast seeming to subside), real estate players have started taking prudent measures to improve their financial condition. Capital Intensive projects have been scrapped/ deferred and affordable housing has become the buzz word.

Players are looking at deleveraging their business with asset monetisation and equity stake sales. Sobha is looking at raising PE funds (in talks with Actis, JPMorgan, and IL&FS Private Equity), DLF is planning to sell its non core assets, Unitech has done a QIP, Parsvnath is planning a 2500 crore QIP and others have been also been following the same path.

With prices down ~30% from the peak, genuine buyers are returning to the market, albeit only in the housing segment. In the last three months, Unitech and DLF have sold 3.2msf and 2.5msf of launched properties. Demand is bound to accelerate over the next 12 months as the economy revives and interest rates stay soft, though commercial demand would come only after the

oversupply is absorbed.

Rentals at Saket for commercial/ retail property have fallen to Rs 120 (who would have imagined that last year). In Gurgaon, rates for new apartments have been cut by over 30% by builders. A lot of construction activity seems to have restarted with the realty players having consolidated their finances.

However, there is a lot of dirt and debt in the balance sheet of most of the realty players which will need prudent financial decisions to clear. Real estate is still away from recovering. Real estate stocks though have shown a decent bounceback in the recent rally of the Sensex. Most of the stocks are up over 50% from its March lows.

The IPO market has seen some activity with Mahindra Holidays coming out with a public offering at a conservative price. The issue has been subscribed 20% on the first day itself, though the pre IPO placement to SBI and Jacob Ballas have taken a 32% haircut on their price!

Education sector the next target for Real Estate players!

2009-04-29T03:15:00.000-07:00

At a time when the biggies of real estate are divesting non core businesses, a clutch of mid-level developers are chalking up plans to invest in the ‘recession proof’ education sector. In the last one month, four real estate developers have announced plans of setting up business schools across the country with the combined investment exceeding Rs 500 crore. The Chennai based R. R Industries, Ahmedabad based Omega Realty, Delhi based Ansal Plaza and Kolhapur based Sanjay Ghodawat group are betting heavily on the `business of education’ to diversify their businesses; a model that has worked successfully in some countries like US and Canada.

With diminished demand for housing and a cash constraint, it’s a natural progression for many developers with available land banks. The reason for the rush into education is the burgeoning demand supply gap and also a logical extension into an adjacent category for builders who have the necessary wherewithal.

Ansal has tied up with Educomp and has leased out its three operational schools in Gurgaon to Educomp. The realty major also plans to build school in townships being developed by them. Similarly, the Ahmedabad based Omega Realty plans to get into business schools - to be named as United World School of Business - with a proposed investment of Rs 105 crores. The three proposed schools in Mumbai, Delhi and Ahmedabad will commence operations in academic session 2009-10.

Sanjay Godhwat Group plans to offer courses in engineering, management and also in the pipeline is an international school. The development of the 150 acre Sanjay Godhwat Institute will happen in three phases with an investment of over Rs 250 crore. The trend is being seen amongst the builders in south too. Chennai based real estate firm R. R Industries has tied up with National Management School (NMS) which is being set-up by US academics to start 25 business schools across the country with an estimated cost of Rs 9 crore.

It is only time before which the biggies, i.e, DLF, Unitech, Sobha get into education.

DLF surrenders 5 IT/ ITES SEZs

2009-04-19T23:18:00.000-07:00

Notwithstanding, the relief rally in the stock market , the real estate sector has not much to cheer about yet. The country's largest property firm DLF which has been facing credit crunch like most of its smaller peers, is now said to have approached the government to surrender five of its nine IT-ITeS notified special economic zones (SEZ), according to a PTI report quoting a senior Commerce Ministry official.

As per the SEZ Act, the tax-free enclaves cannot be surrendered once they become operational. DLF, however, has not started work on the five SEZs that it wants to surrender. Its nine notified SEZs are located in various states.

According to official data, the land bank of DLF's nine notified SEZs include 10.61 hectares near Hyderabad, 10.12 hectares in Gandhinagar, 12.06 hectares and 10.73 hectares in Gurgaon, 10.24 hectares in Sonepat, 10.33 hectares in Pune, 10.23 hectares in Bhubaneswar, 13.29 hectares in Kanchipuram and 10.48 hectares in Kolkata. It is not clear which SEZs are now sought to be cancelled.

Realty firms have been facing credit crunch which had forced them to shelve some projects. DLF had earlier surrendered its 40-acre IT SEZ in central Delhi and Parsvanath had put on hold its 12 IT/ITeS SEZ projects.

The government has till date given formal approval to 571 SEZ projects and notified about 270. Firms cutting across sectors rallied to announce SEZ projects when the economy was growing very fast and stock markets were on a high. Many analysts saw it as a mere strategy to profit by procuring cheap land to be sold later.

It all changed last year after the market crash followed by serious liquidity problem. Most of the promoters of SEZs have either dropped plans of further development or postponed plans indefinitely as there are no takers for setting up greenfield units in these zones nor are there lenders who are ready to provide debt.

Personal Financial Planning!

2009-04-16T04:44:00.000-07:00

At what stage in life where should the money go and how best to plan my taxes.

1. Don’t confuse investments with tax planning. First decide in which financial instrument you want to park your money. This is because whether you want insurance, property, FD/bonds or mutual funds, there is always some tax saving instrument to help you.

2. At any given point of time have liquid assets to cover for 6 months of expenses. This could be parked in savings bank, or FDs or other financial instruments that can be prematurely encashed instantly without attracting much penalty. This cash often comes handy when you are between jobs, during emergencies esp. medical and when family/friends need you. I strongly advise that an individual should not dip into it and also refrain from any long term investments until this reserve has been created.

3. Work towards reducing your loans. If you have a education loan which costs you more than the Bank Fixed deposit (even after accounting for the tax break it provides) then it is advisable to retire it before doing any financial planning.

4. I would recommend you to keep your personal finances separate from that of the parents. However, what good of is all the money if it is not there for those who need it, when they need it. If your parents/family needs money or has taken a high cost debt, work towards retiring that.

5. After taking care of all these, I would recommend you to read this amazing book “Rich Dad, Poor Dad”. This simple book gives a remarkably different insight about how one should classify various assets and investment options.

Now some serious stuff…….
6. FDs are a good place to park the money. You can be sure that your money is safe and will be there when you need it. However the returns this generates is hardly sufficient and inflation eats into it. Hence One should invest in the Stock Market linked instruments (Shares, Mutual Funds, ULIPs etc.) Early on when your savings are small and risk appetite sufficient, then one should park upto 50% of the money these instruments.
However it is also advisable to reduce it as you age. The best way I found is to put an artificial cap of 3 years of Salary on your Market portfolio. 3 years of salary is large enough that it will be a substantial part of your investment. Yet at 15% p.a. expected returns, it won’t be able to generate half of what you earn from 8-10 hours of labor. Hence the market performance will not be a major distraction from work.

7. Now comes property/home: Some people who want to take less risk want to buy a property immediately after graduating. However I would recommend you to push off this decision by a couple of years. The reason for this is that even if land prices don’t fall, it often involves taking a EMI on floating rate. With EMI payments exceeding 50% of the salary, the financial flexibility one has to cope up with unexpected events is severely limited. Once you have sufficient savings and/or a working spouse, then investing in property is advised.

8. Insurance: It is one of the most mis-sold financial instrument. An insurance is neither an investment avenue, nor a tax saving instrument. It is taken to enable a person to take care of the unexpected. The best times in life to buy a life insurance are:
a. When you take a long term loan (for property/education etc.)
b. Marriage (esp. to a non working home-maker)
c. Planning for Kids
Also whenever possible, please buy Term Insurance (huge insurance cover for a small premium) and medical insurance.

So to summarize we have covered liquid assets, market linked portfolio, property and insurance. Last is tax.

9. Most tax savings happen under 80c. If you buy an insurance, its contributes under this segment.
If you plan to go for bonds: then NSC, Infrastructure bonds, PPF are few of the avenues
If you want to invest in market then ELSS (Equity Linked Savings Scheme)
If you want to invest in property then Home Loans give you tax shields.
Hence you should first look into what lock in period you are looking for and what risk/return profile you fall into and then select the tax saving instrument accordingly.

I hope this really long and boring post helps. How different is your investment philosophy?

Got this off a blog that I follow...Hope it helps

Zimbabwe - Its $500 million currency note and real estate market! and the huge crisis!

2008-12-12T04:51:00.000-08:00

WOW! A $500 million currency note after a $100 million currency note has been printed in Zimbabwe which is facing hyperinflation. Zimbabwe’s highest inflation was last estimated in July at 231 million percent but is now believed to be much higher. And did we say we were at 8% and still dreading the effects! Scary, isnt it.

$100 million in Zimbabwe = $14 USD. Unbelievably true!! The highest inflation India has ever faced is 53.8% way back in the famine year of 1943. Many other Asian countries have done far worse than India over the years. (The less said about hyperinflation-prone Latin America, the better.) Inflation in China reached 1,579% in 1947, when there was a civil war raging there. Japanese inflation peaked at 568% in 1945, the year of defeat and economic collapse. South Korea saw inflation shoot up to 210% in 1951, when it was at war with the communist North.

All this thought about the hyperinflation led me to wonder what the property market in Zimbabwe would be like. As it appears, the rentals are revised very rapidly without any major developments. Surprisingly, there is huge demand from South African and Russian buyers for Zimbabwean property despite the global meltdown and the countrys problems.

Further research provided more information about the problems. The president Mugabe who has been at the helm since the country got independence in 1980 from the Britishers in 1980, has started a new land redistribution project that takes property from white farmers and turns it over to blacks. He has said that Britain should be responsible for compensating farmers, because British settlers took the land in the first place. Land redistribution has led to widespread food shortages and stratospheric inflation.

The situation is expected to get worse in the country with widespread cholera epidemic that has killed thousands of people. The country is facing a currency crisis and a political infighting is not going to help Zimbabwe resolve its issues. Either the United Nations or the United States need to intervene to bring this country out of a crisis.

Is the fixed 9.5% rate for home loans justified?

2008-12-12T04:10:00.000-08:00

My previous post talks about the new government regulation where home loans below Rs20 laks will be available at lower than market rates at 9.5% (Read here). On second thoughts I was wondering whether it is fair on the PSU banks to provide loans at such a cheap rate. The gainers will be home builders who have till now made millions by charging exhorbitant rates for their properties. The losers will be banks whose profitability will be eroded or the government will bear the losses through subsidies. Hence, in this case private realtors will bag the profits and government will bear the losses! Should'nt the real estate builders be asked to reduce prices of their flats/ houses/ villas that they have been selling at exhorbitant prices.

Secondly, why is the government supporting only the real estate sector. There are equally hit rate sensitive sectors like automobiles, construction etc. Why arent these being protected with impending bankruptcies in US of the 3 auto majors - GM, Ford and Chrysler. Is it because real estate contributes over 10% to GDP with its forward and backward linkages with steel, auto, construction sectors etc. Then sectors like textile need equal attention as they generate employment. What about banking? A banking sector collapse can send ripples across the economy.

Lets see what measures are further taken by the government to prop up the economy or more specifically the stronger lobbying sectors!

Sale of "The Courtyard"

2008-12-11T21:18:00.000-08:00

A brief background of the deal

“The Courtyard” is a 5 star hotel developed by Unitech. Below you will find some of the other useful details

Location: Sushanklok, Gurgaon. Approximately 25kms from the New delhi airport and 10 kms from Gurgaon CBD ( Cyber greens).

Rooms: 198 rooms
Charges per room: INR 7000- 9000per day

The Hindujas have offered INR 198crore, approximately 1cr per room.

Approach of analysis

Calculate the revenue from hotel using varying occupancy level and room rates.

Calculate the revenue multiple of the transaction at various levels of revenues and compare it to other industry with similar growth pattern as that of real estate ex. IT services.
Calculate the cost of construction of a 5 star hotel (plug and play).
Calculate returns to the developer.
Other trading comparables in the hotel industry

Analysis

1. Revenue sensitivity

The table shows the revenues achievable at various room rate and occupancy assumptions

2. Revenue multiple

Formulae applied = Transaction value (198cr) / revenue (from the table in point 1)
The mean revenue multiple that I have picked up here is 4.9x. The range is 3.6x – 7.1x. Compare this to the revenue multiples in other high growth industry such as IT services. The mean revenue trading multiple for IT services is 3.0x for indian companies. EBITBA multiple would be around 12 - 15x.

3. Construction cost

Hotel “The courtyard” has 198 rooms. I have assumed that average room size is 400 – 800SFT and the cost of construction ranges from INR 5700 – INR 6300 per sft. Covered area has been assumed to be 60%.
With these assumptions the table above shows the sensitivity of costs with the changes in average room size and construction cost. I have taken average room size as 600SFT and construction cost has INR 6000 per SFT. The construction cost for this base case comes to INR 118.8 crore.

4. Calculation of returns
Assuming a construction period of two years and for the given transaction value of 198crores. The returns to Unitech is expected to be around 30% per year for the base case.
The table below shows the sensitivity to returns upon the change of construction cost.

5. Trading comparable
If I were to compare the revenue multiples derived above with the comparables chart below, I see that the revenue multiple of 4.9x touches the higher end of the valuation multiples. However one can argue that the valuation multiple of 4.9x doesn’t factor in the revenues that “The Courtyard” could have got through other sources such as F&B

Conclusion

From the analysis above I believe that the hotel industry still attracts high valuation multiples and this is probably the reason behinds Unitech’s planned investment of INR 2500crore into the hotel business.

Government plans to fix home loan rates for PSU Banks at 9.5% will be ineffective...Heres why?

2008-12-09T04:26:00.000-08:00

Public sector banks are set to offer home loans of up to Rs20 - 25 lakh at a concessional rate of 9.5% for a period of five years as part of the government’s fiscal stimulus package to spur spending and bolster sagging economic growth. Read more

This would mean the cost of funds is greater than the return that these PSBs would be getting. As it is the profitability and efficiency of the Indian PSBs are dangling. Banks and housing finance firms are now charging between 12% and 14% for fixed-rate home loans and offering floating-rate mortgages at between 9.5% and 11.75%.

It seems the Indian bankers have not learnt the lessons of subprime crisis and option ARM pricing. Rates will stay at 9.5% until the loan resets to the market rate.This will greatly harm the bankers as it has done in the subprime crisis.

PSU Banks account for only 20% of the total housing market, hence limiting the scope of the stimulus package.

The obvious outcome of this policy will be that the homebuilders will price the houses at 20 - 25 laks in white and the remaining in black to increase sales. Moreover, they will build jodi flats, which will individually cost 25 laks and the affluent buyers can make use of this scheme to benefit.

One concern is what will happen once the interest rates fall below 9.5%, which seems to be happening in the next 2 years. Nothing has been mentioned and this makes the deal unattractive!

A peep into the 1996 real estate bust in India

2008-12-03T22:13:00.000-08:00

Magnitude of the problem
Real estate directly accounts for 7.3% of India's GDP. Other background linkages in terms of sectors usage of iron, steel, cement etc., and forward linkages (travel) to other sectors impacts an estimated 14% of GDP. Thus the total impact to India's GDP on account of the real estate sector is 21%.

Understanding the movement of macro economic factors

The Indian property market witnessed a prolonged trough following a bust in 1996. Residential real estate prices which had seen an increase of an average 70% cumulatively in the three years preceding the 1996 bust, fell 40% in the three years after 1996.
The property market bust was accompanied by a period of relatively lower economic growth. GDP growth which had averaged 6.8% in the four year prior to the bust fell to 5.4% on average in the four years after it. The chart above shows GDP, private consumptions and investment in the given period. Can we see a similar pattern in the current scenario?

Looking into the movement of real (inflation stripped) realty prices

From the chart alongside we see that property prices in real terms in Mumbai and Chennai have not surpassed their 1996 levels.

Some insights into the Unitech Telenor transaction

2008-11-18T23:23:00.000-08:00

At a first glance when I looked at the transaction, I thought Unitech made a killing in the transaction, however taking a dip into the transaction reveals a different story. Below are a few reasons why I think that the transaction was a very desperate move by the real estate company to lower it debt in this tight market condition.
1. Comparable Valuation

Above is a list of transactions that have happened in the telecom sector recently with the valuation multiples. There are a few other transactions for which we do not have the valuation multiples, but the press notes say that all of these transactions in the telecom space attracted rich valuation multiples.
According to industry sources (Economic times), Unitech got a valuation of 7x of what it paid for acquiring the telecom business. However the valuation of 7x is superficial. It doesn’t factor in the un-accounted money Unitech must have paid to get the telecom license.
How can I say that there is an un-accounted component?

a. Companies were chosen on a first come first served basis to allocate spectrum. No auction process was held, even though Prime Minister Manmohan Singh publicly stated his preference for an auction process.
b. The cut off date for applications was preponed leaving a window of only few hours to receive fresh application.
c. The spectrum was given away at throw away prices.

Thus it is anybody’s guess that the actual valuation multiple that Unitech received for its telecom business was much below the 7x multiple quoted. To read more on this please refer to http://www.business-standard.com/india/storypage.php?autono=339837 http://www.business-standard.com/india/storypage.php?autono=338815

The table above shows that mean valuation multiple for telecom business in India is 5x. With one of the lowest level of telecom penetration levels among the emerging countries, telecom sector attracts huge multiples.
Looking at the market multiples, It is evident that Telenor struck a good deal.

2. Statement by Unitech ManagementAt the time of acquisition of the telecom spectrum, the Unitech management had clearly mentioned that the wireless business would be an integral part of the company’s operation.

3. Debt scenarioPlease read my last post on Unitech’s sale of the telecom business.Thus the sale of wireless business by Unitech was a calculated and a desperate move.

Selling of non-core activities

2008-11-07T01:12:00.001-08:00

a) Unitech

Unitech sold 60% stake in its telecom venture for Rs 6120crore to Norwegian telecom firm Telenor. The deal reduced Rs1200 crore of debt from Unitech's balance sheet and also reduced the interest burden. Following the transaction Unitech's share rose 7% when the share prices of its peers reduced by 3 -4%
Unitech is a highly leveraged company. Unitech's current debt (post the telenor transaction) amounts to Rs 6917cr, D/E ratio now stands at 3.2x
With PE investments drying up and marginal cost of debt being (15% - 30%)* for the real estate players it is anybodys’s guess what made Unitech offload a majority stake in telecom business.

b) Emami
Economic times on 26th October reported that Emami is in the process of exiting from the real estate business by selling 100% stake of its wholly-owned subsidiary, Emami Realty. It is in talks with other parties for selling the stake of the company in the realty firm.
Real estate accounted to Rs 463.2 crore to Emami's group topline and Rs 18.2 cr as PAT.
Companies whose core business is not real estate might look to exit from the real estate sector and Real estate companies who have a diversified portfolio might look at concentrating at one or two core businesses. This looks like a trend whenever there is a major shakeout.
This only follows the most basic theory of economics, that in the short term due to supernormal profits a lot of players might enter an industry/sector. However in the long term only a few survive.

Innovative ideas of raising funds

2008-11-07T01:11:00.000-08:00

We see real estate companies adopting innovative strategies to sell existing stock and to raise funds. Lets dissect one such strategy adopted by Landmark group a construction company.
In a bid to raise funds in this tight market, the company has come up with a very innovative design of raising convertible debt (if I can put it that way) from retail investors.
Landmark group assures a 66% return to investors in 3 years. This would mean a 22% return per year on a simple interest basis and only 18.4 % on a compounded basis. Things still look good.
Now, the ways the transaction has been structure is such that an investor gets INR 72000 per year for 3 years, this works out to 12% interest rate (Compare this to a fixed deposit interest rate of 11% offered by banks), after the third year, the group promises to buyback the asset from the investor at a 30% higher price.
Factoring this additional return (30% mentioned immediately above), the investor gets an IRR = 15.57% from his investment. In other words, this is a neat way of raising money from the market at a cost of 15.5%.
Cost raising fund 15.5% at a time when real estate developers are finding it extremely difficult to raise funds. The marginal cost of debt for real estate players as reported by Economic times is between 15% - 60%. KP Singh, Promoter DLF in his statement mentioned that DLF’s marginal cost of debt is 15%.

Summary : Credit Cruch of 2008!!

2008-09-30T21:49:00.000-07:00

Advertising on weathering Market Volatility : Wachovia ;-)

2008-09-30T06:13:00.000-07:00

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

2008-09-30T03:08:00.000-07:00

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.

US House defeats$700 bn bailout plan!! Markets all set to crash

2008-09-29T19:54:00.000-07:00

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.

Arent Moodys and Standard and Poors equally to blame for the subprime crisis?

2008-09-24T22:51:00.000-07:00

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.

Ocean front Living in Dubai

2008-09-24T22:34:00.000-07:00

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!!

2008-09-24T22:31:00.000-07:00

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

2008-09-24T03:41:00.000-07:00

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

What exactly is an Option ARM?

2008-09-18T10:48:00.000-07:00

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

Ticking time bomb : The real pain is bigger than subprime! Option ARM!!

2008-09-18T08:58:00.000-07:00

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

Lehman Brothers had investments in DLF and Unitech

2008-09-17T06:37:00.000-07:00

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.

Bank of American buys Merrill Lynch; Lehman Brothers may go bankrupt!

2008-09-14T20:55:00.000-07:00

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.

However, coming as a surprise, Bank of America has agreed to buy Merrill Lynch for $44 billion to become a universal bank in the USA which it has been trying to do since a long time. Bank of America talking to Merrill Lynch well before the perception of the disastrous event is a favourable event. Two giants talking well before time is a positive from the markets point of view. BoA stepping in and talking about a possible combination with Merrill leads to protection of the shareholder. Merrill with its high exposure to the subprime mortgages and a number of writedowns was headed in the direction of Bear Stearns and Lehman Brothers.

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.

Crash Course on Fannie Mae and Freddie Mac Story

2008-09-09T09:29:00.000-07:00

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.

Subbarao, new RBI governor in his first media interview as governor

2008-09-09T07:31:00.000-07:00

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

2008-09-09T06:59:00.000-07:00

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.

Economics in land deals; Bad Judgement setting a precedence

2008-09-09T06:38:00.000-07:00

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.

Trends in real estate in Indian Metros

2008-09-07T02:25:00.000-07:00

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.

Recent Real Estate Regulatory News

2008-09-06T04:46:00.000-07:00

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

2008-09-06T04:33:00.000-07:00

(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

Recent real estate private equity deals

2008-09-06T04:26:00.000-07:00

(Click on picture to view clearly)

Real estate company news over past week

2008-09-06T04:22:00.000-07:00

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

DLF annual report highlights

2008-09-06T03:58:00.000-07:00

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.

Land and property prices skyrocket in Howrah, Hoogly ; Kolkata

2008-09-05T19:37:00.000-07:00

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.

FIIs reduce holding in real estate companies

2008-09-04T19:49:00.001-07:00

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

2008-09-04T19:39:00.000-07:00

1 Pucca Bigha	= 1 sq. Jareeb = 3 Kaccha Bigha = 20 Bissa = 3025 Sq. Yard = 2529 Sq. Meters = 27225 Sq. Feet
1 Acre	= 4840 Sq. Yard = 4046.8 Sq.Meters = 43560 Sq. Feet = 0.4047 Hectare =20 kanal
1 Hectare	= 2.4711 Acre = 10000 Sq meters
1 Kaccha Bigha	= 6 2/3 Bissa = 1008 Sq.Yard and 3 Sq Feet = 843 Sq. Meters
1 Bissa	=20 Biswansi = 20 Sq.Gattha
1 Gaz/yard	= 1 Yard = 0.91 Meters = 36 Inch
1 Hath	=½ Gaz = 18 Inch
1Gattha	= 5 ½ Hath = 2.75 Gaz = 99 Inch
1 Jareeb	= 55 Gaz/yard
1 kanal	= 500 sq mt = 5380 sq ft = 597 sq yd

What is DLFs strategy? First buyback spending 1100 crore and now fundraise of 10000 crore?

2008-08-28T23:40:00.002-07:00

DLF has approached its shareholders for an approval to raise Rs 10000 crore ($2.3 billion) through a placement to qualified institutional investors. This is quite surprising given that DLF is still on with a buyback process where it shelled out Rs 1100 crore to prop up its shares. If DLF had significant amount of money to buyback shares, why is it now looking to raise capital. Proves that the earlier strategy was simply to increase the share price of DLF which is currently below the IPO price of 525 at Rs. 487? The buyback price is Rs 600.(Read about the buyback)

The problem that DLF will face while raising funds is that it has to wait for six months after the buyback closes before raising money from the capital market. But the buyback hasn’t even begun and would take at least three months to be completed. In which case, the fund-raising is still some time away and the company is merely using the annual general meeting to arm itself with the necessary approvals. The DLF stock has lost over 60 per cent from its peak of Rs 1,205.

Another thought on why the company could have gone for a buyback was that the buy back will help increase the EPS. This will also lead to a reduction in the price earning (PE) ratio, hence helping to push up stock prices. High stock prices always work to a company’s advantage when it wants to raise funds. However, the buyback hasnt really helped DLF share prices given the market sentiment.

DLF’s June 2008 quarter results were disappointing with the net debt increasing to Rs 13,200 crore from Rs 10,000 crore in the March 2008 quarter, while receivables (net of customer advances) were up at Rs 5,800 crore from Rs 5,000 crore. Operating profit margins fell around 1000 basis points to 61.5 per cent. Sales were up 24 per cent y-o-y at Rs 3,850 crore but were down sequentially. The net profit, too, was up 23 per cent y-o-y but down sequentially. The company’s revenues from DAL (a company owned by the promoters of DLF) have been coming down over the past few quarters and now account for 40 per cent of the total revenues.

These tactics clearly show the pain that India's largest real estate developer is in terms of funds. We can only imagine the plight of the smaller developers who are now at the mercy of moneylenders and other sources that charge over 30% that too with safety conditions to avoid any downsides.

* Akruti City stock continues to outperform the other stocks. The stock was up over 10% in yesterday's trade :)

DLF Buyback desperate attempt to floor share price

DLF Assets and DLF

DLF puts REIT listing on hold

Retailers Take a Slower Road in India because of realty slowdown

2008-08-26T08:28:00.000-07:00

India's expected retail boom hasn't taken off, leaving companies large and small to rethink their expansion plans because of the economic slowdown and the real estate bust.

Wal-Mart Stores Inc., which unveiled plans to enter India with a joint-venture partner two years ago amid great fanfare, will open its first wholesale store next year, but it won't comment on future plans. Three Build-A-Bear Workshop Inc. franchises in India opened by Murjani Group have closed. Straps, a chain run by India's Oswal Group that featured Wonderbra lingerie from U.S.-based Hanesbrands Inc., has closed its more than 20 stores. Big German retailer Metro AG, after five years here, operates only four wholesale stores; the company says it is taking its time developing its Indian business.

India's retail industry -- including everything from carrots to cars -- clocks around $350 billion a year in sales. That figure had been expected to double in the next seven years. But now, some retail executives are taking a closer look. Growth is less than hoped for. And thousands of new shops have sprouted in the past few years, so there are more players competing for the same consumer.

Just three years ago, an explosion of conferences, analyst reports, Web sites and magazines predicted the arrival of a new Indian consumer who would change the global retail landscape. The first modern retail stores here were so popular that many entrepreneurs thought people would buy almost anything at any price. They were wrong, as both large and small retailers are discovering. For some, the forecast retail boom that promised jobs for Indians and a new market for global retail giants is already a bust.

Most retailers say they are grappling with the same problems: rising costs and fewer buyers. In the early days of the boom, retail rents and salaries soared, though recently they have started to come down a bit. Many outlets discovered that consumers didn't really want their products. And unlike shoppers in Asia's other booming economy, China, Indians are rarely willing to pay three to 10 times more for an international brand than for its domestic equivalent. The average Chinese consumer has more disposable income, and more than a decade extra of experience with international brands.

Nevertheless, India still generates excitement among some investors. Earlier this month, both British retailer Tesco PLC and Vornado Realty Trust, one of the largest mall developers in the U.S., announced plans to enter the country with local partners.

Shoppers Stop Ltd., one of the first companies in India to attempt modern clothing and houseware chains, has posted net losses for the past two quarters. Some companies that still have big plans, including Indiabulls Financial Services Ltd. and Aditya Birla Group, have changed tack, closing some stores and making management changes.

If retail growth sputters, India will lose an important avenue for growth to trickle down to the masses: the jobs retail provides.

The country's recent economic expansion has been fueled largely by its service sector, and hasn't created millions of manufacturing and export jobs in the way China's boom has. But the Indian government had counted on retailing to soak up millions of rural and young job seekers. Two years ago, Mukesh Ambani, chairman of Reliance Industries Ltd., projected that thousands of his new stores would provide jobs for "500,000 young boys and girls in the next few years." Since that speech, the company has built around 700 stores, an impressive number but far from earlier targets.

Indian Real Estate Roundup : The mood swings in the last year

2008-08-25T00:19:00.000-07:00

In a recent report, HSBC predicted that house prices across most Indian cities could fall by 25-30%.

Less than a year ago India’s property market was smouldering with excitement fuelled by unprecedented economic growth. Companies demanded high-quality office space and a growing clique of upwardly mobile, middle-class buyers wanted swanky new homes. The industry had also been given a boost in 2005, when the government eased rules on foreign investment in the construction industry. Property developers were among the biggest winners in India’s economic boom. When DLF, India’s best-known developer, floated on the stock exchange last summer, it was India’s biggest-ever initial public offering at the time. The company has played a leading role in transforming Gurgaon, on the edge of Delhi, from a scrubby plain into a posh satellite city that is a symbol of India’s ballooning self-confidence.

In recent weeks, however, inflation has tipped over 12%, largely driven by surging oil prices. This has pushed up interest rates and turned property companies into the biggest corporate losers of India’s slowing economy. They have been kicked from several sides. Homebuyers are put off by expensive or elusive credit; banks are rationing credit to developers; prices of building materials like cement and steel have soared. The share prices of property firms are down by 40-70% from their highs earlier this year.

In July DLF announced it would buy back part of its equity—a move some saw as a sign of alarm among its controlling shareholders at the falling share price. The company has shelved plans to list its real-estate investment trust on the Singapore stock exchange, as has Unitech, India’s second-biggest developer. “We’ll have to wait for the market. Isn’t everyone?” remarks Rajeev Talwar, DLF’s executive director.

Part of the problem is that when the market was strong, developers piled into the most expensive properties where the biggest profits were to be made. One upmarket enclave in Gurgaon, which boasts a nine-hole golf course and a “cigar lounge,” has sold fewer than half the houses built in the first phase of development, even though it is now more than a year since they went on sale. HSBC reports that sales in the luxury segment have fallen by up to 70% in Gurgaon.

Until there is a sharp fall in interest rates, developers are focusing on more affordable homes, and ones that are bought to be lived in rather than speculated upon. Gary Garrabrant, chief executive of Equity International, an American property firm which has invested in mass housing in Mexico and Brazil, says he is looking for investment opportunities in affordable housing in India. He cautions, however, that infrastructure, especially roads, will have to improve “before record-breaking speed can be achieved.”

Like so much else, India’s property market hinges on confidence. Even when property prices and interest rates fall, buyers will be slow to catch on, reckons Ashutosh Narkar of HSBC. “It’s not like buying a car,” he notes. “House buyers tend to wait for much longer before they think about spending so much money.”

The Big Bull, Rakesh Jhunjhunwala optimistic of the future of stock markets

2008-08-24T11:33:00.000-07:00

The Indian stock market is a function of the country’s economic growth, return on equity and return on capital employed, said Mr Rakesh Jhunjhunwala, Partner, RARE Enterprises and eminent equity investor.

Delivering a lecture organised by Confederation of Indian Industry titled ‘Sensational Sensex – Retrospect and Prospect’ he said: “Also, infrastructure to attract local money, growth of the Indian financial savings, correction of Indian under-exposure to equities are some of the other factors that will drive the markets,” he said.

He said the movement of the Sensex from 3,000 to 21,000 over a five-year period (2003-2007) and now back to 14,000 was no mean achievement.

“In this entire journey, we have had a few significant price-wise corrections but almost no time-wise correction. This is the first significant time-wise and price-wise correction being witnessed,” he said.

Analysing the genesis of the Indian downturn, Mr Jhunjhunwala said, until now we have had three bear markets. “In April 1992, the peak PE was at 63.1 per cent and we have the scam of Mr Harshad Mehta, then in 1994 we peaked at 42 times the earnings, then in December 1999 we peaked at 30 times the earning and had the Ketan Parekh scam. In 2008, we peaked at 21 times the earnings with no scams. While there was euphoria and mania, this time we have peaked at a far more reasonable valuation and are still below peak PE levels of the past,” he said.
Factors to watch

According to Mr Jhunjhunwala, the key factors to watch for are the US economy and world slowdown, global financial system stability, commodity prices, local and global inflation. “Also political elections, the performance of the Indian IT sector, base forming patterns in equity indices and Indian and foreign fund flows are other key factors to watch for the markets,” he said.

He noted that the aftermath of the 25-year-old US bull market cannot be pretty and the end of the easy money era in the financial markets will shake many out of complacency.

Delhi based Realty player in big debt. May go down!!!

2008-08-24T03:46:00.000-07:00

A Delhi based real estate company, which claims to have transformed the dreams of several of its customers to reality, is being trampled by a leading Mumbai-based NBFC.

The promoters of the real estate company had pledged its shares with the NBFC and accepted a funding of Rs 300 crore to meet its short-term working capital. But as a result of the prolonged bearish phase and constant pounding of realty shares, the promoters are unable to meet margin calls that are triggered when share prices slide.

If market sources are to be believed, the company is not in a position to even meet the interest due on its borrowings. Fearing that the loan would end up as bad debt, the NBFC has started dumping the shares of the real estate developer, triggering a further slide in the stock price.

The stock is already down 80% from its peak price seen some months ago. But market circles feel the hammering is not yet over, and the stock may test new lows in the coming days.

Developers giving late delivery of homes

2008-08-24T03:42:00.000-07:00

Realty slowdown is delaying delivery of homes. Several developers have postponed execution of their housing projects as funds become scarce, demand softens and raw material prices rise. While some others are deliberately delaying projects in order to reduce supply as demand weakens.

Several projects across the country are getting delayed as developers aren’t able to generate enough cash to continue construction work. Projects are delayed by as much as 6 months to over a year. “Funding is largely unavailable. Those developers who can access funds are also shying away from it since it has become very expensive. In addition, income from sales of housing units has declined with the softening of demand,” says Cushman & Wakefield MD Sanjay Verma.

All developers are facing the heat on account of high interest rates, which the country’s central bank has been hiking in order to tame inflation. Mid and small developers are faring worse as banks have almost shut their door on them.

“It is a tough time for real estate firms. A weak demand is affecting cash flow. Moreover, the cost of debt and construction has risen. How can one continue construction with the same pace in this environment,” says a senior executive at Omaxe

Some developers cite usual reasons such as delayed government sanction and unavailability of men and material for the current unusual delays. “Till the last month, steel was difficult to procure even at a very high rate delaying execution of projects,” says Gaursons joint MD Manoj Gaur.

Not all delays are forced by just funding or material constraint. Says Sanjay Verma of Cushman & Wakefield, “Some developers are not minding delaying projects as they feel a reduced supply of homes will help them sustain prices in the face of slowing demand.”

In such cases, early buyers in the project are surely going to suffer as they will have to wait for a much longer time for delivery of their dream homes. Verma feels the scenario in real estate is unlikely to improve for at least one year as interest rates are expected to remain high.

There are rumours that a Delhi based real estate developer is going down and is badly in debt.

Is America headed towards Japanese fate of 1990's? Housing bust = Stagflation

2008-08-21T23:59:00.000-07:00

Will America follow Japan into a decade of stagnation?

AS FALLING house prices and tightening credit squeeze America’s economy, some worry that the country may suffer a decade of stagnation, as Japan did after its bubble burst in the early 1990s. Japan’s property bubble was also fuelled by cheap money and financial liberalisation and—just as in America—most people assumed that property prices could not fall nationally. When they did, borrowers defaulted and banks cut their lending. The result was a decade with average growth of less than 1%.

Most dismiss the idea that America could suffer the same fate as Japan, but some of the differences are overstated. For example, some claim that Japan’s bubble was much bigger than America’s. Yet average house prices nationwide rose by 90% in America between 2000 and 2006, compared with a gain of 51% in Japan between 1985 and early 1991, when Japanese home prices peaked (see left-hand chart). Prices in Japan’s biggest cities rose faster, but nationwide figures matter more when gauging the impact on the economy. Japanese home prices have since fallen by just over 40%. American prices are already down by 20%, and many economists reckon they could fall by another 10% or more.

What about commercial property? Again, average prices rose by less in Japan (80%) than in America (90%) over those same periods. Thus Japan’s property boom was, if anything, smaller than America’s. Japan also had a stockmarket bubble, which burst a year earlier than that in property. This hurt banks, because they counted part of their equity holdings in other firms as capital. But its impact on households was modest, because only 30% of the population held shares, compared with over half of Americans.

Nor were Japanese policymakers any slower than American ones to cut interest rates and loosen fiscal policy after the bubble burst, contrary to popular misconceptions. The Bank of Japan (BoJ) began to lower interest rates in July 1991, soon after property prices began to decline. The discount rate was cut from 6% to 1.75% by the end of 1993. Two years after American house prices started to slide, the Fed funds rate has fallen from 5.25% to 2% (see right-hand chart). A study by America’s Federal Reserve concluded that Japanese interest rates fell more sharply in the early 1990s than required by the “Taylor rule”, which establishes the appropriate rate using the amount of spare capacity and inflation

Japan also gave its economy a big fiscal boost. The cyclically adjusted budget deficit (which excludes the automatic impact of slower growth on tax revenues) increased by an annual average of 1.8% of GDP in 1992 and 1993—similar to America’s budget boost this year. Japan’s monetary and fiscal stimulus did help to lift the economy. After a recession in 1993-94, GDP was growing at an annual rate of around 2.5% by 1995. But deflation also emerged that year, pushing up real interest rates and increasing the real burden of debt. It was from here on that Japan made its biggest policy mistakes. In 1997 the government raised its consumption tax to try to slim its budget deficit. And with interest rates close to zero, the BoJ insisted that there was nothing more it could do. Only much later did it start to print lots of money.

America’s inflation rate of above 5% is an advantage. Not only are real interest rates negative, but inflation is also helping to bring the housing market back to fair value with a smaller fall in prices than otherwise. But in another way America is more exposed than Japan was. When its bubble burst in 1991, Japan’s households saved 15% of their income. By 2001 saving had fallen to 5%, which helped to prop up consumer spending. America’s saving rate of close to zero leaves no such cushion.

Over the past year, American banks have been quicker than those in Japan in the 1990s to disclose and write off losses and raise new capital. In Japan it took a long while before the political will was there to use taxpayers’ money to plug the banking system. A big test for America’s Treasury will be how quickly it recognises the need to nationalise Fannie Mae and Freddie Mac, the teetering mortgage giants.

One advantage over Japan is that America is spreading the costs of its housing bust across other countries. Foreigners hold a large slice of American mortgage-backed securities. Sovereign-wealth funds have provided new capital for American banks. And America’s booming exports have helped to support its economy, thanks to the cheap dollar. In contrast, the yen’s sharp appreciation after Japan’s bubble burst hurt exports at the same time as domestic demand was being squeezed.

By learning from Japan’s mistakes, America can avoid a dismal decade. However, it would be arrogant for those in Washington, DC, to assume that Japan’s troubles simply reflected its macroeconomic incompetence. Experience in other countries shows that serious asset-price busts often lead to economic downturns lasting several years. Only a wild optimist would believe that the worst is over in America.

Real Estate slowdown : Mumbai Bandra plot sees just one bidder!!; Valuations in Real Estate

2008-08-21T21:16:00.000-07:00

Amused by a news article today morning, that talks about a Bandra Kurla plot seeing just one bidder. Sounds unbelievable, it is true! A bandra Kurla plot was sold for Rs Rs 1.55 lakh per square metre, ie, Rs. 92 lakh to Talim Research Foundation - less than half the price from the previous auction in March. The news showcases how the real estate players are crunched for cash and they are not ready to pay astronomical rates for land now.

Just five months ago, Jet Airways (India) Ltd picked up a plot in the same area at Rs3.52 lakh per sq. metre. Moreover, in the beginning of 2007, Wadhwa Group had bought a commercial plot in the complex at a staggering Rs5.04 lakh per sq. m. Compare that to Rs. 1.55 lakh today! Land sales have shrunk in a tight realty market and developers have stayed away from land purchase.

The Mumbai Metropolitan Region Development Authority, or MMRDA, had no choice but to award the 5,900 sq. m to the lone bidder in Talim. The plot would be used for an educational facility by the nine-year old foundation which does social science research with a focus on health, communication, micro-economics, social audit and poll studies. In March, only three out of five plots were sold in a land auction by MMRDA when Jet Airways picked up a plot and Starlite Systems Pvt. Ltd bought two residential plots at the same price. (Read more)

In another interesting development, Phoenix Mills gets Rs Rs1300 million funding in 21 SPV level projects by German real estate funds MPC Synergy. (Read more) This is the second largest FDI investment in real estate in India. Largest was by Deutsche Bank for a 25% stake in a SPV owned by Lodha Group for $425 million.

Deals in the realty space are now being structured as debt instruments rather than pure equity transactions. PE funds are seeking higher returns (Over 25 - 30% IRR) besides securing their investments. Cash crunched developers have no option but to accept the stringent terms of PE funding. Debt like covenants are structured with the PEs continue to share in the equity upside. Unlike past, plain vanilla PE deals are now rare in realty. Under the preferred mode, if the project generates a lower than expected return, then the PE firm first gets its share (equivalent to the agreed IRR) from the overall profit and the balance accrues to the developer.

Real Estate stocks majorly beaten! where are they headed???

2008-08-21T04:35:00.000-07:00

I have been specifically tracking the bigger realty players and the strange part is that HDIL has lost over 40% in the last 20 days whereas the rest of the pack is down by about 10% only. My best bet, Akruti City is up by a 2% :), outperforming the realty stocks and the sensex as a whole . Even DLF has taken a beating despite the buyback offer at Rs 600, with the stock down by 12% to Rs. 481. Any ideas on whats happening with HDIL??Most of the brokerage houses are very bullish on HDIL (in the real estate space) and this comes as a major surprise to me.

Taking a look at the 150 day moving averages for the bigger real estate players, it is evident that none of the stocks are anywhere close to those prices currently. Even for the 50 dma, only Akruti (by 2 Rupees) and DLF (by 5 rupees) is above the 50 DMA price. The others are dangling way below these averages. They are obviously way off the 200 DMA!! Where is the market headed.

Take a look at the 52 week highs and lows of these real estate stocks!! Its mindblowing. Most of the stocks are down by over 60% and near their 52 week lows.

Any guesses where the stocks are headed with the inflation rates expected to be near 13% by September and another rate hike by the RBI. Its anybody's guess where realty stocks are going to be in September!

Unitech : Realty Check

2008-08-20T21:31:00.000-07:00

In its balance sheet for the year to March 2008, the Unitech management has sounded a cautionary note. “It is quite clear that after a fairly long bull run, the real estate sector in India has begun to show signs of slowing down to a more realistic equilibrium rate of growth.

The first signs of market slackening were evident in the second half of FY08. The correction has become more pronounced thereafter. In the June 2008 quarter, revenues for the developer were up a somewhat disappointing 19 per cent to Rs 1000 crore y-o-y although the operating profit margin improved 114 basis points y-o-y to 59 per cent due to increased contribution from the residential segment. The profit after tax was pushed up by lower outflows on interest and a lower provisioning for tax.

The company has been able to rope in an investor for a project being executed by Shivalik Ventures—-a joint venture between Unitech and local Mumbai developers. Lehman Brothers Real Estate will invest Rs 740 crore for a 50 per cent stake in the first phase of the project to develop one million square feet in Mumbai.

The inflows should help ease Unitech’s cash flows —- the company’s gross debt is estimated at around Rs 8,600 crore and analysts estimate that the average cost of the debt should be about 12 per cent. Outflows on interest had increased to Rs 280 crore in FY08 from Rs 120 crore in the previous year. It is believed that a couple of the firm’s projects in Chennai and Hyderabad may have been pushed back because of delays in approvals.

The firm has a strong presence in the eastern and northern parts of the country and residential projects account for close to 75 per cent of its land bank. Of the approximately 55 million sq feet under construction currently, about 30 million sq ft is in the residential segment. Analysts estimate the net asset value of the firm at around Rs 200 per share for FY 10. The stock currently trades at Rs 165.

Sourced from Business Standard

Official World's 100 Tallest Hotels

2008-08-20T21:04:00.000-07:00

#	Building	City	Height	Height	Floors	Year
1.	Rose Tower	Dubai	333 m	1,093 ft	72	2007
2.	Ryugyong Hotel	Pyongyang	330 m	1,083 ft	105	1992
3.	Burj Al Arab	Dubai	321 m	1,053 ft	60	1999
4.	Jumeirah Emirates Towers ..	Dubai	309 m	1,014 ft	56	2000
5.	Baiyoke Tower II	Bangkok	304 m	997 ft	85	1997
6.	The Cullinan I	Hong Kong	270 m	886 ft	68	2008
7.	Grand Lisboa	Macao	258 m	846 ft	52	2008
8.	Lanko·Grand Hyatt Hotel	Chongqing	258 m	846 ft	60	2004
9.	Oasis Skyway Garden Hotel	Shanghai	226 m	742 ft	52	2007
10.	JR Central Hotel Tower	Nagoya	226 m	741 ft	53	2000
11.	Swissôtel The Stamford	Singapore	226 m	741 ft	73	1986
12.	Detroit Marriott at the R..	Detroit	221 m	727 ft	70	1977
13.	Westin Peachtree Plaza	Atlanta	220 m	723 ft	73	1976
14.	Ritz-Carlton Jakarta Towe..	Jakarta	212 m	696 ft	48	2005
15.	Ritz-Carlton Jakarta Towe..	Jakarta	212 m	696 ft	48	2005
16.	Four Seasons Hotel	New York City	208 m	682 ft	52	1993
17.	Sofitel Jin Jiang Orienta..	Shanghai	207 m	679 ft	47	2002
18.	Four Seasons Place	Hong Kong	205 m	673 ft	55	2005
19.	Tower A Berjaya Times Squ..	Kuala Lumpur	203 m	666 ft	48	2003
20.	Renaissance Hotel Tianjin	Tianjin	203 m	666 ft	48	2002
21.	Yuanyang Building	Dalian	201 m	659 ft	52	2000
22.	Guangdong International B..	Guangzhou	200 m	657 ft	63	1990
23.	Radisson Hotel Shanghai N..	Shanghai	200 m	656 ft	46
24.	Dolton Hotel Changsha	Changsha	200 m	655 ft	51	1998
25.	Hotel Ukraine	Moscow	198 m	650 ft	34	1955
26.	Waldorf=Astoria	New York City	191 m	625 ft	47	1931
27.	Wynn Las Vegas	Las Vegas	187 m	614 ft	45	2005
28.	Gran Hotel Bali	Benidorm	186 m	610 ft	52	2002
29.	Hotel Sofitel Silver Plaz..	Jinan	186 m	610 ft	53	1999
30.	Grand Seasons Hotel	Kuala Lumpur	184 m	604 ft	40	1998
31.	Makuhari Prince Hotel	Chiba	181 m	594 ft	49	1995
32.	The London NYC	New York City	180 m	590 ft	54	1990
33.	The Millenium Hilton	New York City	179 m	588 ft	59	1992
34.	North Building	Tokyo	178 m	584 ft	47	1971
35.	W Times Square	New York City	178 m	583 ft	53	2001
36.	Holiday Inn Qingdao	Qingdao	175 m	574 ft	38	1998
37.	New York Marriott Marquis	New York City	175 m	574 ft	56	1985
38.	Lotte Hotel Busan	Busan	173 m	567 ft	41	1997
39.	Four Seasons Hotel	Shanghai	172 m	564 ft	37	2002
40.	Helmsley Palace Hotel	New York City	172 m	563 ft	51	1981
41.	Hotel Sherry-Netherland	New York City	171 m	560 ft	40	1927
42.	Langham Place Hotel Hong ..	Hong Kong	170 m	557 ft	42	2004
43.	Marriott Marquis Hotel	Atlanta	169 m	554 ft	52	1985
44.	Sheraton Dallas Hotel Cen..	Dallas	168 m	550 ft	42	1959
45.	Marriott Rivercenter	San Antonio	166 m	546 ft	38	1988
46.	Wang Fu Jing Century Hote..	Chengdu	165 m	541 ft	45
47.	Baynunah Hilton Tower Hot..	Abu Dhabi	165 m	541 ft	40	1994
48.	Ritz Hotel Tower	New York City	165 m	541 ft	41	1926
49.	The Portman Ritz-Carlton	Shanghai	165 m	541 ft	48	1990
50.	J.W. Marriott Hotel	Hong Kong	165 m	540 ft	50	1988
51.	L'Hotel Nina Tower One	Hong Kong	164 m	537 ft	42	2006
52.	InterContinental Warszawa	Warsaw	164 m	536 ft	45	2003
53.	Westin New York at Times ..	New York City	162 m	532 ft	45	2002
54.	Minnan Hotel	Xiamen	162 m	531 ft	38	1995
55.	New Century Hotel	Wuhan	162 m	531 ft	36	2003
56.	Swissotel Krasnye Holmy	Moscow	162 m	531 ft	35	2005
57.	New York-New York	Las Vegas	161 m	529 ft	49	1997
58.	Linden Hotel	Kaohsiung	160 m	526 ft	41	1994
59.	Hotel Pierre	New York City	160 m	525 ft	41	1930
60.	International Foreign Tra..	Shenzhen	160 m	525 ft	50	1985
61.	Qilu Center & Tower	Jinan	158 m	518 ft	39	1995
62.	Shin-Kobe Oriental City	Kobe	158 m	518 ft	37	1988
63.	Tokyo Dome Hotel	Tokyo	155 m	509 ft	43	2000
64.	Smitomo Fodo-san Mita Twi..	Tokyo	155 m	508 ft	42	2005
65.	Bellagio Resort & Casino	Las Vegas	155 m	508 ft	36	1998
66.	Hilton Kuala Lumpur	Kuala Lumpur	154 m	505 ft	38	2004
67.	Hotel Arts Barcelona	Barcelona	154 m	505 ft	44	1992
68.	JW Marriott Hotel Chongqi..	Chongqing	154 m	505 ft	45	1999
69.	Le Meridien Kuala Lumpur	Kuala Lumpur	154 m	505 ft	38	2004
70.	Miyazaki Phoenix Hotel Oc..	Miyazaki	154 m	505 ft	45	1994
71.	Süzer Plaza Ritz-Carlton	Istanbul	154 m	504 ft	34	1998
72.	Hyatt Regency Crown Cente..	Kansas City	154 m	504 ft	45	1980
73.	Jin Jiang Tower	Shanghai	153 m	502 ft	46	1988
74.	The Fairmont Dubai	Dubai	153 m	501 ft	37	2002
75.	Sheraton New York	New York City	153 m	501 ft	51	1962
76.	Crown Towers	Melbourne	152 m	500 ft	43	1997
77.	Manchester Grand Hyatt Ho..	San Diego	151 m	497 ft	40	1992
78.	The Peninsula Bangkok Hot..	Bangkok	151 m	495 ft	40	1998
79.	Baiyoke Tower I	Bangkok	151 m	495 ft	43	1987
80.	St. Regis Hotel	Shanghai	151 m	495 ft	38	2001
81.	Hilton San Francisco & To..	San Francisco	150 m	493 ft	46	1971
82.	Loews Philadelphia Hotel	Philadelphia	150 m	492 ft	36	1932
83.	NTT Credo Motomachi Build..	Hiroshima	150 m	492 ft	35	1993
84.	Shin Yokohama Prince Hote..	Yokohama	149 m	490 ft	42	1992
85.	Renaissance Harbour View ..	Hong Kong	149 m	489 ft	51	1989
86.	New York Hilton Hotel	New York City	148 m	487 ft	49	1963
87.	Hotel Nikko Dalian	Dalian	148 m	486 ft	36	2000
88.	THE Hotel	Las Vegas	148 m	485 ft	43	2004
89.	Swissôtel Nankai	Osaka	147 m	482 ft	35	1990
90.	Millennium Broadway Hotel	New York City	147 m	481 ft	47	1990
91.	Mandalay Bay Hotel & Casi..	Las Vegas	146 m	480 ft	43	1999
92.	Crowne Plaza Hotel	New York City	146 m	480 ft	46	1989
93.	Sheraton New Orleans	New Orleans	146 m	479 ft	48	1985
94.	The Hilton Plaza	Osaka	145 m	476 ft	34	1986
95.	Hilton Times Square	New York City	145 m	475 ft	39	2000
96.	The Venetian	Las Vegas	145 m	475 ft	40	1999
97.	Purple Mountain Hotel	Shanghai	145 m	475 ft	42	1997
98.	Hotel New Otani Tokyo Tow..	Tokyo	144 m	472 ft	40	1974
99.	Jing An Hilton Internatio..	Shanghai	144 m	471 ft	43	1988
100.	Hotel InterContinental	Chicago	144 m	471 ft	42	1929

From the top of Burj Dubai

2008-08-20T20:55:00.001-07:00

This is taken from the world’s tallest building Burj Al Arab in Dubai at 2,620ft/801m.

Really amazing. Look at the edge (uppermost right corner) of the picture. You can almost see the “turn” of the earth.

We can not feel the turn of earth. But the persons who are working on the upper most Girders can see the “Rotation of Earth”. So terrifying.

Would be interesting the cover the Burj in detail. Will do so in some days.

Rules for NRIs to invest in Real Estate in India

2008-08-20T12:25:00.000-07:00

Many NRIs and Persons of Indian Origin (PIO) want to invest in India, both commercial and residential properties. NRIs and PIOs also plan to buy such properties as an investment, and rent them out to earn a secure income
stream.

This post talks about various rules and restrictions related to such purchases. It also clarifies the concerns about taxation (capital gains and income tax), repatriation, etc. The rules regarding purchase, rent and sale of immovable property by Non Resident Indians (NRIs) have been thoroughly simplified and liberalized in recent years.

Let’s have a look at the current regulations for NRIs regarding purchase, renting out and sale of residential/ commercial property:

Purchase of Property:-
A Non Resident Indian (NRI) can buy a residential (apartment, house, etc) or a commercial (shop, office, go down, etc) property (but not farm land or a farm house or a plantation) without seeking any permission from the Reserve Bank of India (RBI).
But the NRI can not participate in any business activity in real estate.

No. Of Properties:-
There is no restriction on the number (or value) of properties that can be bought by NRIs.

Payment for purchases:-
The payment can be made using money remitted through banking channels, or using the funds from the NRE / FCNR / NRO accounts.

Permission from the Reserve Bank of India (RBI):-
No permission is needed by NRIs to buy a property in India.

Mortgage property to a bank / financial institution:-
An NRI can mortgage the property to a bank / financial institution to take a loan for funding the purchase.

Stamp duty / registration fee exemption:-
No stamp duty / registration fee freedom is available to NRIs.

Permanent Account Number (PAN):-
A PAN number is not mandatory for NRIs buying residential or commercial property.

Inheritance of property in India:-
NRIs can inherit a property in India.

Purchase going wrong:-
If the payment is made from an NRE / FCNR account, and the deal is canceled or there is no allotment of property, the refund amount can be repatriated by NRIs.

Is Trump Jr too late for the Real estate party?

2008-08-20T05:10:00.000-07:00

Last month, Donald Trump Junior, son of Donald Trump, who is also the executive vice president of acquisitions and strategy for Trump Organization, annouce d a $1 billion real estate fund for investments in India. He is looking at investing in the high end and also resorts.

However, the idea had come to Trump's mind at a real estate conference in Mumbai when the market was booming last year in November. Indian market was in its fifth year of boom and international players were investing heavily on India residences, malls, offices, townships, etc.

The scenario is a lot different today, with the interest rates and inflation surging and in turn leading a decline in the demand for real estate. The shares of the Indian developers are dangling to their all time lows, demand for homes and home price appreciation is slowing. The severe valuation mismatch with developers not ready to sell out cheap and investors asking for IRRs of 25-30% has made it extremely difficult to invest in real estate.

However, distressed assets (which have come up one too many) is proving to be opportune to buy currently. But, Trump will be competing with the established players (including U.S. companies such as Wachovia, Trinity Capital, Vornado Realty Trust, and Tishman Speyer). Dubai firms have been investing heavily in Indian estate for years now and have good connections with landowners and government officials and a deep understanding of the country's shadowy world of land acquisition and development.

Trump says his fund will start slow, investing first in luxury real estate in Mumbai before expanding to cities such as Bangalore, Hyderabad, and Delhi where the IT sector is strong.

Sobha Developers gets investment SPV Level; Plans rights issue

2008-08-19T09:03:00.000-07:00

Just a few days back, I had mentioned why PE investors prefer to invest at SPV level (Read here) and how real estate developers are really crunched for cash. They are getting funding at over 25-30% from non traditional sources such as moneylenders and personal investors. Banks have restricted their lending to Real estate players as per the guidelines of RBI and these developers are sitting on a heap of land which leads to high holding cost.

However, as SPV is the preferred route for PE funds, Sobha Developers is planning to dilute minority stake at Special purpose vehicle level to private equity investors for 3 projects in Bangalore, Pune and Gurgaon to raise funds. Sobha is planning to come out with a rights issue and then dilute its stake in 3 projects. Sources familiar with the development said Sobha is in talks with at least three investors, including Dubai-based Pan Atlantic, which recently invested $10 million into Sobha’s residential project in Bangalore.

However, it is to be noted that most of these investments are not pure equity but have a structured debt element.

Sobha is issuing shares on a rights basis to raise about Rs 350 crore. Enam Securities is the lead manager to the issue. The realtor is expected to raise this money by the end of October.

Sobha Developers MD expects property market to improve in the medium term

2008-08-18T02:08:00.000-07:00

For an industry that is going through a rough patch, there is a lot of optimism among the developers. Mr J.C. Sharma, Managing Director, Sobha Developers, describes the construction industry as ‘the industry of tomorrow.’

“Migration to the city cannot be stopped. India’s prosperity, availability of disposable income to the country’s middle-class cannot be stopped. Aspirations of the middle-class cannot be overlooked. The India story is still intact. There is a matured market for automobiles, electronic items, mobiles, etc. And there will be one for real-estate too,” says Mr Sharma in an interview.

Excerpts from the interview:

What is the current real-estate industry scenario?

The primary market is holding up. In the secondary market, some people who have booked apartments might have sold. Three variables are crucial for the industry to become vibrant again — interest rates have to come down; prices have to come down; and real income has to go up.

The year 2008 can be called a year of aberrations — high prices, inflation, etc. For developers to reduce the prices, our input costs have to come down. The market has its own dynamics. Once inflation and interest rates start moderating, developers will get the comfort to pass on the benefit of pricing to end-users. If there is softening of input prices and land prices, things could change.

What about the demand for apartments? Has it come down, and if yes, how much has it come down by?

Demand has come down. How much is not known, though. Rs 50 lakh is the price point for which demand is existing.

There is a deferment of demand. Real-estate is not a perishable product. For developers, delay only means holding costs.

The market is still unorganised. That is a problem.

At Sobha, this year, we will do as well as we did last year. Between years 2006-07 and 2007-08, the latter was better. This year (2008-09) could have been better. The first half was good, but the second half, with two CRR hikes and inflation continuing to be in double digits, you get worried about the impact on the market.

With repo rate and CRR hikes, what is the kind of funding problem that the developers are facing now? Is it difficult to get bank finance now?

Small players face greater problems. Small players don’t have access to funds and customers. They are not able to deliver.

Organised players have better access to capital and customers. Customers prefer bigger players, which is good for the industry. Consolidation will happen. Large developers have better access to superior technology and capital, can buy loans cheaper, execute projects cheaper, expand the market and pass on the benefits to customers.

In such a scenario, big players will become bigger, and small developers smaller. Small players are selling their projects to big players.

How easy or difficult is it to get PE funding now?

Very difficult. In the real-estate industry, funding through one’s own internal accruals, cash deposits, bank debts and customer booking is ideal. PE funds look for IRR at 25 per cent, while internationally the libor rate is 3.5 per cent.

Can you tell us about Sobha Developers’ plans this year? Are you launching new projects in the immediate future and where?

We are launching a villa project — Sobha Scarlet — in Mysore soon. It will feature 83 villas in 13 acres. Two more launches have been planned — at Chennai and NCR — which will be by the end of this financial year.

We will be submitting plans for our hotel on St Mark’s Road in Bangalore this year. It is a five-star hotel project, for which we are awaiting approvals.

We currently have 10 million sq.ft in various stages of construction.

What do you think is the outlook for the real-estate industry?

The industry has a good future. Currently, it is in consolidation phase. Every one has to pass through a tough phase, and whoever has a better understanding and better skills will succeed. As we move forward, project sizes are getting bigger.

Interest rates will come down by 2 per cent in a year. Inflation will fall to 7-8 per cent in six months’ time. The situation will become tailor-made again.

Over $20 billion PE money waiting on sidelines to invest in India Real Estate

2008-08-18T00:56:00.001-07:00

There have been significant fund raising announcements of >US20B made over the last two years for investing in Indian real estate. Even thought the overall amount is huge, note that a big proportion of funds have yet been deployed as yet.

As a word of caution, in the current market, it is not inconceivable that the draw down facility many PE players use for funding new projects could be dry up or be materially reduced as their investors can back out of their capital commitments. According to news reports, there are over 15 private equity deals across sectors that have been called off since December. Some of the key ones include Citi Venture’s investment in Akruti City and ICICI Ventures’ investment in Jaypee Infratech.

Here is a list of funds with the amount of money raised to invest in Indian Real Estate. The present may look gloomy due to high input costs, rising interest rates and lack of cash but the future holds good with over $20 billion waiting on the sidelines.

Fund Amount (US$MM)
Pacific Star (Asia Fund Select Concept) 2000
ICICI Ventures 2000
IDFC Private Equity 2000
Donald Trump Jr 1000
Deutsche Bank (RREEF Alaternate Investments) 1000
Millennium Spire 2 1000
Kotak India Realty Fund - overseas 1000
Credit Suisse 1000
Blackstone group 1000
Goldman Sachs 1000
HDFC International Fund (HIREF International LLC.) 800
IL&FS Investment Managers Ltd 750
Sun Appolo Real Estate Fund 630
Triangle India Real Estate Fund (co-promoted by Old Mutual Investment Group Property
Investments (OMIGPI) and ICS) 500
Baer Capital (Dubai based PE fund) 500
HSBC Real estate fund 500
Khaleeji Commercial Bank (Global Logistix Navi Mumbai Investment Company) 430
JM Financial Infinite India 400
Trikona Capital 375
Singapore Ascendas 325
Mumbai-based Primary Real Estate Advisors 300-500
Unitech (Unitech International Real estate fund) 300
Rutley Capital Partners 300
US Based Hines 300
Societe Generale Asset Management 296
Milestone Capital Advisors (Milestone Domestic Scheme–II) 250
Red Fort Capital - domestic fund 250
Knight Frank 250
Yatra Capital (Netherland) 212
Mauritius based Pragnya Fund II 150
Yatra Capital (Euronext) 136
LIC Housing Finance 125
JM Financial Property Fund II 125
Citigroup property investors 125
Morgan Stanley 70
GE Commercial Real estate 63
Millennium Spire I 50
Total 21,812

Finance Minister Chidambaran to the rescue of realtors

2008-08-15T10:55:00.000-07:00

Finance Minister P. Chidambaram asked public sector banks not to increase interest rates on home loans up to Rs3mn (both old and new) and lend more to consumers even as the Reserve Bank of India (RBI) is trying to moderate credit growth to contain inflation. Most public sector banks have increased their benchmark primary lending rate (PLR) by 75 to 100 basis points, but agreed not to raise interest rates on existing home loans, auto loans and education loans.

PSBs have agreed not to increase home loan rates with existing Home loans costing around 9-10 per cent (floating) and 11 per cent (fixed), with rates and tenure varying across banks. Allaying fears of high rate of default among home loan customers, the Finance Minister said banks have reported around 99 per cent recovery in home loans. He said only a few fraudulent borrowers in home loan segment were causing an increase in non-performing assets.

Surprisingly, home sales boom in sinking markets and fall in booming ones

2008-08-15T10:35:00.000-07:00

The National Association of Realtors’ second-quarter home sales data shows something startling.

We’re entering a kind of real estate Twilight Zone. We are entering a phase where the states with the highest housing prices losses are now showing strongest sales and vice versa.

Many of the states with the best housing and job markets (Washington, Idaho, Oregon, Hawaii, North Carolina) have had the biggest drops in sales, and the worst markets, in terms of foreclosure rates and home price declines (Arizona, California, Nevada, Ohio and Florida), are now seeing the strongest sales. Home sales in the robust Washington state market fell 36.6% in the second quarter compared to the same period a year ago. During the same one-year stretch, home prices in the Yakima (Wash.) metro area increased by 8.9% -- the highest appreciation of any metro area tracked by the Realtor group. Home sales in Nevada increased 17.9% in the second quarter and home prices fell 23.6% in the Las Vegas-Paradise metro area.

To explain this phenomenon, it helps to remember that the credit crisis began one year ago. Last summer, the weakest housing markets, in Nevada, California, Arizona and Florida, were already seeing rapidly falling home prices and sales. But the stable markets in Utah, Idaho, Washington and North Carolina weren't. After the credit-crunch began in August, those markets suddenly began to flag as buyers found it increasingly difficult to secure mortgages.

At the same time, foreclosures pushed home prices so low in California, Arizona, Florida, and Nevada markets that they became more affordable and attractive for first-time homebuyers and investors. Sales in many of the weakest markets suddenly began increasing. I’ve heard anecdotally that some foreclosed homes are getting competing offers from investors and first-time buyers.

Reliance forms a real estate JV with Vornado for $500 mn fund ; PEs buy in as realtors face cash crunch

2008-08-14T10:51:00.000-07:00

A downturn in demand for housing and the shortage of debt and investor capital in the real estate business may be bad news for realtors. But, it comes as a huge investment opportunity for private equity (PE) players. Such firms say it is a good time for them to strike deals with developers facing a cash crunch for completing their projects and fund expansion. “India is a land of scarcity and due to the downturn, more opportunistic distress investments will be made now,” says Aashish Kalra, co-founder and managing director, Trikona Capital, a real estate fund management firm. PE firms have invested around $5.8 billion in real estate cos in the first half of 2008. Real estate firms have seen a blip this year as high inflation, put at 12.1% by latest government estimates, a 13-year high, and rising interest rates as well as steep property prices have turned away buyers.

In the first six months of this year, PE firms invested around $5.8 billion or Rs24,360 crore across 56 real estate companies or special purpose vehicles (SPVs) built around projects, compared with $4.5 billion in 48 companies or SPVs in the year-ago period, according to Venture Intelligence, a firm that tracks venture capital and PE activity in India. Some of the prominent deals this year include: Standard Chartered Plc.’s $830 million investment in DLF Assets Ltd, a firm owned by the promoters of DLF Ltd, and steel tycoon L.N. Mittal and San Francisco-based Farallon Capital’s investment of $399 million in Indiabulls Real Estate Ltd.

In another interesting development in the realty space, Reliance Industries has entered into a joint venture with New York-based Vornado Realty Trust, a real estate investment firm. Under the equal JV, each partner will commit up to $250 million to acquire, develop and operate retail shopping centers across key cities in India. The shopping centers will contain 500,000 to 1,000,000 or more sq ft and typically be anchored by a hypermarket to be owned and operated by Reliance. Reliance currently operates over 700 retail stores in multiple formats in India.

Reliance was searching for a real estate manager for developing an asset base and had initiated talks with several international players, including US-based Taubman Centre and NYSE-listed Real Estate Investment Trust (REIT).

RIL has been aggressively scouting for joint ventures since in retail it has decided on the partnership model for growth. It has already signed JVs with Marks & Spencer, Vision Express, Miss Sixty and Office Depot. Reliance was also reported to be in talks with the Canada-based Four Seasons Hotels and French group Accor to set up hotels at some of its properties in Mumbai and Ahmedabad.

Vornado, the $14-billion market capitalisation company, develops and manages retail properties and office spaces in Washington and New York. Vornado has been quite active in India. It has a 50 per cent stake in the 263 acre IT Park in Gurgaon being developed by Uppal Group. The total investment in the project is expected to be Rs 5,000 crore and Vonado is jointly financing the project. It has also signed an MoU with the Maharashtra Government to develop a $200 million IT township. Vornado also has a partnership in India Property Fund, which is a $600 million fund it runs in association with The Chatterjee Group and invests in office and mixed-use development throughout India.

Negative Equity - Falling Home prices

2008-08-13T20:32:00.000-07:00

Real estate Web site Zillow.com released data today suggesting that the average U.S. home fell 10% in value in the past year, to $207,000. That was the largest year-over-year decline in twelve years. Homes prices are now back to 2004 levels, according to Zillow’s calculations, which are based on analysis of 165 cities.

Some other bad news in Zillow’s numbers: One in four homes sold in the past year have been sold at a loss. In some markets, such as California’s Central Valley, more than half of all home sales were foreclosures. In Washington, D.C., foreclosures represented 17% of sales. In New York, where the market remains strong, just 3% were foreclosures.

According to Zillow, nearly one-third of all Americans who bought a home since 2003 now owe more on their mortgage than their house is worth. That's called negative equity. It's even worse for those who bought in 2006, 45% of them are underwater.

Zillow burst on the scene in 2006 with its “Zestimates” of what people’s homes are worth. Looking up the numbers soon became a national past time and the subject of water cooler chat. Zillow’s estimates have come under criticism for their accuracy however. And now that prices are falling, will people still be interested in seeing what Zillow says their house is worth?

Magarpatta - History, Benefits and Implications

2008-08-12T23:30:00.000-07:00

What would happen to the Indian infrastructure if there were no land acquisition problems and no socio-political issues? I am sure the answer would be a resounding yes. What would this imply?

No Government intereference
No Political infulence
Inclusive Growth (for the land owners)
Employment
Increased number of large projects
No Singur, Kalinganagar and Wagholi

Most of us think this would be true in only a utopian world but its true in Magarpatta too. Magarpatta is a township near in Pune and in its model lies the solution to India's land problems.

What is Magarpatta?
123 farmers pooled about 400 acres of land and set up a private limited company that developed a large commercial cum residential project, complete with IT offices, Shopping Centers, enough parking spaces and extremely orderly development. The farmers own shares in the company to the extent of their share of land in the pool. The Magar clan owned about 40% of the land and hence the name. In late 80s, they realized that Pune was busting at its seams and rapid urbanization would claim their agricultural land. Hence they decided to develop the land themselves. They requested Hafeez Contractor drafted a private township plan after converting the entire pool of 400 acres to non-agricultural land.

How did Magarpatta come into existence?

In late 1990s, the farmers registered Magarpatta Township Development and Construction Company Limited. The company was run by the managing director and technical director in consultation with eight board members drawn from the shareholding families. Every family was an equity shareholder of the company. Each share was equivalent to 1 square metre of land and cost Rs 100, in 1998. The current price per share is approximately Rs 1,000. Shares could be sold only to member families.

The approximate price of an acre of land that was Rs 1.20 crore in 2000 rose to Rs 5 crore in 2007. Thirty per cent of the total cost of each construction was earmarked as cost of land at the current price and paid to the shareholders. The family has the option of reinvesting the amount in the company, in the form of a term deposit at an appropriate rate of interest (12.5% for three years, 11.5% for one year, and 10.5% for three months).

There were two kinds of shares initially -- a preferential share and an equity share. The preferential share was short-term, where the rights of shareholders in the company and over their lands were redeemed at the end of the term. The equity share, on the other hand, endowed shareholders with permanent rights in the company and over their lands. Later, preferential shares were abolished and only equity shares that offer lifelong security to the families retained.

Benefits to the stakeholders?

The most important feature of the model is that the land pattas (registrations) remain in the name of these families, safeguarding their ownership over the land. Thus the farmers are still the land owners and they get a regular stream of income from the company as and when newer developments, either commercial or residential, occur.

In addition, these families also benefitted from the commerce that resulted out of the developmet of the project. For instance, the farmers have benefitted immensely from raw material, labour and construction contracts, road maintainence, security services, landscaping, beautification etc. These activities also provide jobs to the local people in thousands.

Thus the farmers not only get fair prices for their land, but also dividends proportional to the shares they hold in the company, lease income, contractual work, labour, and they now live in plush homes lavishly. In 1990, a farmer with 6 acres of land would have earned Rs. 25000 a year. Compare this with his income in 2007 - Rs 40,00,000! The farmers also derive handsome incomes from renting out the apartments/bungalows to IT professionals working in Cybercity Magarpatta - the 4 million square feet officespace.

The Government intereference is at a minimum; only limited to permissions. This makes life easy for both, the developers and the owners.

Implications for National Development?
The opposition to development hubs (SEZs and industries) is primarily because of land issues. The owners fear being left out of the pie; they feel their sacrifices are disproportionate to the gains. The Magarpatta model had allayed these fears and shown that development can be truely inclusive. The model is a subject of study by planners and developers across the country. It is surprising that an idea with potential as this originated in the minds of the illeterate farmers!

The Videocon SEZ at Wagholi is also planning to model its development on the lines of the Magarpatta City. In addition, many groups of farmers have approached the company on seeking guidance and advice on following the Magarpatta model. In my opinion, we have found the panacea to all the land problems that India has faced, and will face!

Contributed by my friend Jindal Haria from FMS

Know more about JP morgan's real estate investments in India

2008-08-12T19:19:00.000-07:00

At a time when development companies are facing a liquidity crunch with fewer financing options and real estate asset prices taking a southward turn, JP Morgan finds an opportunity to be tapped.
The company plans a $1 billion investment in India and China.
However this is not the first time that JP Morgan has looked at the India market, a few of the announcements about JP Morgan's investment in India are as follows

In Oct 2007, JP Morgan set up a $2 bn fund to invest in India infrastructure projects such as roads, ports and power. The fund was to invest both at the SPV level and the hold co level.

Way back in Aug 2006 the investment bank mopped up $360 mn for investments in the Indian real estate. The fund was targeting an IRR of 20% and focussed on the development of new properties in a range of real estate diversified across the office, residential, industrial & warehouse , retail and hospitality sectors.

Investments

JP Morgan invested $68 mn in Lodha Bellissimo - an exclusive residential development coming up at Apollo Mills, located at south central Mumbai.

July 2008: JP Morgan invests $32.5 mn for a 33% stake in an SPV of realty firm Alok infrastructure

July 2008: JP morgan with Goldman Sachs and other telecom companies plan to invest $700 mn for a 22% stake in Global Holding Corporation (GHC).
Global Holding Corporation (GHC) two listed firms GTL Ltd and GTL Infrastructure and three unlisted entities.

In May 2007, JP Morgan partnered with Arihant Foundations & Housing Ltdto promote a $97.6 mn residential project near Chennai

Why Special Purpose Vehicle (SPV) is a preferred route for investment in Real Estate

2008-08-11T23:46:00.000-07:00

As the Reserve Bank of India has been tightening the lending screws on the real estate sector, special purpose vehicles have become a preferred route to raise money for real estate companies from private equity players. “Private equity players find it safer to invest in projects rather than a developer. A lot of developers are also finding easy that way. Once a private equity fund enters, the project suddenly becomes viable because it has the money to execute,” said Ashish Bhalla, Managing Director of Millennium Spire India Management, a real estate investment firm. In about 26 deals real estate deals in the first quarter of 2008, about 19 deals have been done via SPV’s.
Look at some of the recent SPV deals. Sun Apollo Ventures has closed a $76 million deal in the SPV of Amrapali Group, which is developing a 200-acre township in Jaipur, and a 15-acre high-end housing project in Noida. Similarly, TAIB Bank is investing $50.44 million for a 26 per cent stake in the SPV of Anant Raj Industries, while Lehman Brothers Real Estate Partners is acquiring a 50 per cent stake in Unitech’s Mumbai project. (See a list of major SPV deals).

Liquidity Pressures
Declining internal accruals and reduced funding options is putting pressure on the sector. Adding to the woes are the recent measures of Reserve Bank of India such as raisiong the repo rate and cash reserve ratio. Already banks have raised their prime lending rates, and the residential demand is likely to get hit, said industry observers. “Even if the developer now takes loan which is difficult to get anyways, where is the assurance that buyer is there,” Bhalla asked.

Real estate players are already grappling with dwindling sales, correction in land prices, tepid demand, and rising input costs, even as they face a liquidity squeeze. The developers are now looking at other sources of funds, and they find no other option than to raise money from PE players for particular projects, because the situation out there is extremely scary.

“Most mid size developers, be it at the regional levels have taken over a lot of load. All these people have got more projects than they can execute. They have more agreements to buy land than they have money for. They have applied for licenses but have no money for licensing fee and construction,” says Bhalla. And in a market where sales are being restricted to genuine investor and to some extent cautious investors, there isn’t much liquidity for the real estate which was getting all the investors’ attention earlier. Bhalla added that all those who banked on the land bank concept of investing in real estate are having very difficult times.

Not withstanding huge debt on its books, Parsvnath Developers, a mid-sized real estate developer is considering stake sale in individual projects. The company is currently carrying debt of about 17 billion rupees and is looking at equity dilution in its its SEZ (special economic zone) and hotel projects.

Also, Unitech is planning to raise $1bn from private equity investors for individual projects and will float SPV’s for its hotel and realty projects.

However, in the recent past, there have been a few investments where investors have picked up stakes in developers at entity level. India Bulls Real Estate owns 50 per cent shareholding in Kenneth Builders & Developers, a South Delhi based developr. It also acquired 100 percent in Noble Realtors. And about 90 per cent stake in Dev Property Developers (DPD), for about Rs 1,100 crore. DE Shaw made an equity investment of $250 million (Rs 1,000 crore) in Mack Star Marketing, a unit of Mumbai-based public listed real estate developer Housing Development & Infrastructure (HDIL). DLF Assets raised $450 million from Symphony Capital. ICICI Venture invested Rs 227 crore in Indore Entertainment World for picking up a 14 per cent stake in the, a wholly-owned arm of EWDPL . But the trend has been changing of late and the investors prefer to invest at the project level rather than entity level.
“We always invest at a project level as we see more value in it. Also, it is a higher return game investing at the project level because if I invest say in a developer, I pay a fee and my returns are reduced to that extent”, said Sanjeeva Shivesh, Executive Director, Fire Capital.

Bhalla also believes that although raising funds have become difficult now, this is the best time for investing in the sector as valuations have reached the rock bottom levels and there are lesser options available for financing now. “Now that the real estate pit has reached the bottom, we can definitely find a few hidden pearls,” said another investor.
Since it has opened its shop in India, Blackstone Real Estate Partners has only managed to make one investment (Synergy Properties). It appears that the investors are increasingly cautious to invest in real estate, finding it safe to invest in individual projects and keep scouting for the same. Now it’s time to build a real estate company SPV by SPV.

Sourced from VCCircle.com

DLF Assets still owes Rs 3,382 crore to DLF; Looking for funding

2008-08-11T23:17:00.000-07:00

DLF Assets Pvt. Ltd, an affiliate to which DLF sells developed commercial property still owes Rs 3,382 crore to DLF. The plan that the promoters of DLF had was to list DLF Assets on the Singapore exchange and payoff to DLF the capital raised. However, due to a global turmoil, DLF Assets could not be listed and this has spelt a lot of problems for both DLF Assets and DLF.

Almost 40% of DLFs profits are accounted for by sales to DLF Assets. DLF Assets has raised almost $1billion from PE investors DE Shaw, Symphony Capital and Lehman Brothers, promising them higher valuations by listing on the Singapore exchange due to yield compressions. However, due to the failue, DLF Assets had to be bailed out by the promoters by infusing an additional equity of Rs50 crore into DLF Assets and giving the company an interest-free loan of Rs1,150 crore for an indefinite period.

DLF sold around Rs1,557 crore worth of properties to DLF Assets in the quarter ended June. The sales are part of a business model in which the company monetizes its assets by selling them to the affiliate, also owned by the family of chairman K.P. Singh. However, only Rs111 crore of payment was received in quater ending June and Rs3,382 crores of payment is still outstanding.

Since its founding, DLF Assets had bought assets worth Rs7,500 crore from DLF as of the year ended March. In the same period, it paid DLF Rs4,338 crore for these assets. Some of that money came from the sale of stakes in DLF Assets to foreign funds.

Share performance

DLF’s shares closed at Rs520.15 each on the BSE on Friday, 0.92% lower than the issue price of Rs525 and 57.53% lower than the peak of Rs1,225 seen on 15 January.

Since January this year, the exchange’s benchmark Sensex index has fallen 27.80%, but its realty index plunged 60.12%, as a 13-year high inflation prompted the Reserve Bank of India to raise interest rates. Demand for apartments and houses has slowed as consumers, deterred by more expensive credit, deferred purchases.

For more on DLF Assets and DLF, read on my blog -
DLF Assets puts REIT listing on hold
DLF Buyback : How is it shaping up
DLF Buyback desperate attemp to floor share price

French Villa Leoploda sold for highest ever $750 million

2008-08-11T13:43:00.000-07:00

News reports of a $750 million (€500 million) purchase of a French Villa Leopolda by a mysterious Russian Billionaire is all over the news. Villa Leopolda was built in 1902, ordered by the King of Belgium, Leopold II.

The qouted price sounds very astonishing as the prices on the French Riviera are not as high as this one. However, it may be true as the Russians have been known since the 1990's to be purchasing properties in Europe at astounding prices. They have amassed wealth because of the oil resource of the country.

According to Forbes, there are 87 Russian billionaires, hence the fierce competition to lap up good properties. Moreover, properties in the range of $6o million to $150 million are very few. Real Estate brokers say that with the economy of Russia surging, the demand for property by Russian Oligarchs is mindblowing. But to escalate price far beyond going rates speaks more to Russian buyers' efforts to brand themselves and the vanity associated with owning the most expensive home in the world. Buying real estate in the Med has become a favorite strategy for Russians trying to find a place to stash their commodities cash.

What makes this particular villa--built with spoils of Belgian pillaging in Africa under Leopold II-- particularly desirable are its 20 acres of land. This is something impossible to find on the Riviera without combining properties. Even so, the premium doesn't really add up given that no sale in the south of France, or the rest of the world, has come remotely close to that sum.

History

That Villa Leopolda has commanded this price, should'nt be too much of a surprise, since the property has been the site of over exuberance before. In 2005 and 2006, Bill Gates was rumored to have paid $110 million for the property in what would have been a French record at the time--but the transfer never occurred. Of course billionaires have to just scratch to shell out $750 million, taking Mukesh Ambani's Antilia quoted at $2 billion!!

In the gossip-filled circle of high-end real estate, Russian tycoon Roman Abramovich was originally rumored as the buyer, though he has denied it. The rumor was difficult to believe as it was only last week that the Chelsea Football Club owner received permission from Kensington and Chelsea council to build his own $285 million dream home in that section of London. He's only worth $23 billion after all.

EMI Calculation

Of course the property would be paid in cash. But just for fun, imagine the property being financed by the bank. Say 80% financing is done by the bank at 13% interest for 3o years. So of $750 million, $600 mn is financed by the bank. The payment per month would equal 6,637,197. Yes, a month!

So the yearly payment would be 79,646,364 and the total payment in 30 years would amount to 2,389,390,920, i.e, $2.3 billion. Woaaah!! Thats even more than what Mukesh Ambani's Antilia stands to command on completion. Proves to pay $750 million in cash today than pay $2.3 billion.

And buying the place is the easy part. The Russian buyer also will have to factor in the cost of the 50 full-time gardeners, the household staff, pool cleaners and the requisite supplies of champagne and caviar.

Subprime writedowns and losses by investment banks

2008-08-11T11:04:00.000-07:00

Below is a summary of credit-related writedowns and losses recorded by major institutions since the credit crunch hit in the third quarter of 2007:

COMPANY AMOUNT

(Billion Dollars)

Citigroup 46.40

UBS 36.70

Merrill Lynch 36.8

AIG 20.23

HSBC 18.70

RBS 16.50

IKB 14.73

Bank of America 14.60

Morgan Stanley 11.70

Deutsche Bank 10.95

Ambac 9.22

Credit Suisse 9.17

HBOS 9.01

Wachovia 8.90

MBIA Inc 8.41

Washington Mutual 8.10

BayerischeLandesbank 6.75

SocieteGenerale 6.40

Mizuho Financial Group 6.24

JPMorgan 6.05

Barclays 5.20

Dresdner Bank 3.45

Bear Stearns 3.40

Fortis 3.10

WestLB 3.10

BNP Paribas 2.70

UniCredit 2.70

Lloyds TSB 2.60

Nomura Holdings 2.46

DZ Bank 2.00

Natixis 2.00

Swiss Re 1.85

HSH Nordbank 1.70

LBBW 1.70

Commerzbank 1.24

Mitsubishi UFJ 1.19

Sumitomo 1.19

Total 347.03

* Estimates based on writedowns, loss provisions and trading losses from subprime securities, mortgages, CDOs, derivatives, and SIVs.

Merrill Lynch lowers the valuation of CDOs to 22 cents to a dollar

2008-08-10T10:54:00.000-07:00

Merrill Lynch has sold its Super-Senior Tranches of mortgage linked securities known as Collateralized debt obligations (CDOs)_ for 22 Cents to the Dollar, which means at a fifth of its purchase price. ML sold 30.6$ bn worth of CDOs at $6.7 billion to Lone Star, hence selling it at 22% of its value. These were already written down to $11 billion earlier.

Anyways, the real issue is that Citibank had marked its CDOs down to 53 cents to a dollar and now the market for CDOs suddenly has become marked at 22 cents to a dollar. Citibank is definitely going to announce some more writedown as it is still valuing the CDOs at 53 cents to a dollar.

The real twist is the fact that 75% of the sale to Lone Star has been financed by ML itself, which means, only $1.8 billion has been totally sold off and the remaining $5 billion can still be written off as loss by ML if the prices of those CDOs go down further. That implies that these CDOs are worth much less than 22 cents of the dollar. The market for CDOs is completely illiquid rite now and a lot of investment banks have been providing such financing to hedge funds and PE funds to get bad CDO's off their balance sheet.

The interest rate at which the financing occurs is often significantly lower than the appropriate rate at which this risk financing will occur. Merrill has not announced what are the terms of its financing of this deal and this leaves the serious suspicion of a heavily subsidized transaction. In the case of the Merrill transaction if the market value of this $11.1 tranche (now priced at $6.7 billion) falls another 25%, the collateral for the 75% financing will be worth less than the underlying assets and thus additional losses will be incurred by Merrill.

ML has raised money from the capital markets by issuing some shares (the firm raised $8.55 billion by selling new shares for $22.50 each, 60 percent less than Merrill's stock price at the beginning of the year), but it also needs to pay to Temasek and other investors for the 50% loss they have had for providing money to ML on issue of shares.It is paying Temasek $2.5 billion to offset losses on its earlier investment. ML shares have fallen the most after Lehman Brothers which is down over 75%.

ML has been selling off its assets in good companies including Bloomberg to avoid the bloodbath that it is facing and will face in the time to come. The company still has commercial real-estate investments, mortgages and other holdings that may be vulnerable to further writedowns

An interesting observation on the 08/08/08 Nelson phenomenon

2008-08-08T00:02:00.000-07:00

Just wanted to share an interesting perspective given in ET today on how Nelson dates have proven lucky for investors in India. An analysis shows that the investors who chose to invest in the benchmark indices on dates with three common digits — such as 05/05/05, 06/06/06 etc — in most cases earned positive returns at the end of the corresponding calendar year.

6 out of 7 instances in this century have proven to give positive returns to investors. Please do not read too much into this as it may just be a mere coincidence. Moreover, Indian markets were on a bull run in most of these 7 years.

Just enjoy the statistic attached :)

Inflation’s climb raises fears of more rate hikes as it spells doom for developers

2008-08-07T23:53:00.000-07:00

Is the inflation going to be controlled by the numerous rate hikes or is it going to keep rising and continue eating into the margins of real estate developers??? Inflation is worrying the real estate developers as another rate hike could spell disaster to the already falling margins and slowdown in the property market.
ANNUAL inflation based on wholesale prices raced past the 12% mark in the week ended July 26, fuelled by costlier manufactured products, fuels and food items other than vegetables. Vegetable prices fell 8% from the year-ago period. Prices rose 0.1% from the week ended July 19.

In the previous week, wholesale prices had risen 11.98% from their level a year ago and by 11.89% in the week before that. Inflation, at a 13-year high of 12.01% in July 26 compared to 4.7% in the corresponding period a year ago, is likely to prompt RBI to further tighten monetary policy to reduce spending, economists said. Suggesting that inflation may be understated, the government revised the annual inflation figure reported in the last week of May by a whopping 0.52% to 9.32%.

Annual inflation in manufactured products, which have the highest weightage of 64% in the wholesale price index, rose 10.74%, while primary articles—with a weightage of 22%— gained 10.3% in the same period. RBI may hike rate in October

PRICES of items in the fuel, power, light and lubricants category shot up by over 17%, while prices of processed food items gained by 13.6%. The saving grace is vegetable prices, which eased by 8%.

“Inflation may peak in November-December and slip into single digits by March 2009. There may be another round of monetary tightening, going by the current price situation,” said Prime Minister’s economic advisory council member Saumitra Choudhury. The fastest price gains since 1995 have prompted the central bank to raise interest rates three times in two months to reduce consumer spending. “The central bank has already pressed the monetary brakes very hard. Depending upon oil prices and money supply in the system, RBI may lift its repurchase rate by 25 basis points in its October policy,” said DK Joshi, director and principal economist at Crisil, the local unit of Standard & Poor’s.

RBI had, last week, raised the benchmark rate at which it lends short-term money to banks by half a percent to a seven-year high of 9% and increased the reserve requirements for banks by 0.25% to 9%. RBI governor YV Reddy had said while revising the rates that the central bank would attempt to bring down inflation from the current level of about 11-12% to a level close to 7% by March 31, 2009. High cost of borrowing has already started showing in economic indicators like industrial production and capital goods production. Industrial output had declined sharply to 5% in the first two months of this fiscal from 10.9% in the same period a year ago.

HCC wants to spin off Lavasa and other 3 businesses

2008-08-07T14:25:00.000-07:00

HCC plans to spin off four businesses -- construction, infrastructure development, real estate and the Lavasa project, the beautiful township on Mumbai Pune Highway (Read more) -- and list them separately as a part of its restructuring plan.

Ajit Gulabchand, chairman and managing director said that LAVASA would be the first on the block. HCC will restructure Lavasa as a holding company and expects to generate Rs 2,000 crore revenues from it in the next three years by selling and managing properties at the planned commune 64 km from Pune. HCC expects to make positive cash flows from Lavasa from 2010 onwards.

HCC will manage the property by levying municipal charges on residents and charging for security through a public private partnership deal.This would be a first of its kind in the country that the residents would be paying the municipal charges to the holding company than the government directly.

Lavasa has so far earned Rs 550 crore through sales of 160 apartments and villas clubbed together from June 27, 2008. A second round of property sales will be conducted in August. ITC will open its property in Lavasa by October 2008. HCC is also buying stake in most of the developments that are coming up around Lavasa. Most of the stakes range from 26%-76% in most of the projects. For example, it holds a 49% stake in an Apollo unit that is being developed.

In all, the company plans to invest Rs 5,000 crore into construction projects in Lavasa in the next 12 years. Axis Bank has taken a 2.5% stake in the project by investing Rs 250 crore worth debentures which will be converted at the Lavasa IPO price or by the end of the fifth year.

That values the project at Rs 10,000 crore. HCC is also in talks with Deutsche Bank and other banks for raising private equity funding. HCC will issue secured redeemable non-convertible debentures worth Rs 100 crore to the Life Insurance Corporation on a preferential basis.

The company's net sales grew by 22.5% to Rs 895 crore for the quarter ended June 2008 as against last year's Rs 731 crore. However, the company's net profit slipped to Rs 31 crore vis-a-vee Rs 34 crore.

Slum Rehabilitation projects for private developers in Delhi

2008-08-06T22:39:00.000-07:00

Like Mumbai, where players like HDIL, Akruti City and Omaxe have made a killing in the slum rehabilitation projects, Delhi slums also offer big business to real estate developers. Delhi Development Authority (DDA) is firming up on an elaborate plan for slum redevelopment projects in the capital and for the first time is involving private developers. It has appointed consultants to draw up plans on the redevelopment of 30 slums in Delhi. Players like DLF, Omaxe and Raheja have shown interest in the DDA plan to redevelop 30 slums.

Why are these big developers vying for the slum rehabilitation projects?
The simple reason is that margins offered by slum projects near 70% as against 30 - 35% for other real estate projects. The developer is expected to build houses for the slum dwellers and in return gets a part of the total space for development which he can sell at market rates. The developer get higher floor area ratio (FAR), i.e, permission to build more floor area on a piece of land. The FAR on a normal project is different for every city ranging from 1.8 in Kolkata to 2 in Delhi and unlimited in Hyderabad. However, in slum development projects FAR is increased further thus allowing higher margins in these projects. The Internal Rate of Return (IRR) for slum projects are much higher than commercial and retail projects. Access to cheap and strategically located land is the biggest advantage in these projects.

Scope for slum development in Delhi
Delhi has around 900 slum clusters housing a fifth of the total population. This is the first time that DDA is involving private developers in slum projects and DLF, Omaxe and Rahejas have shown considerable interest and are waiting for the government's nod. The slum redevelopment projects will be done on similar lines as being undertaken in Mumbai's Dharavi(Done by HDIL) or other slum areas. As against Mumbai where the slum clusters are spread out in size, Delhi slums are small and hence relatively less attractive.

Nevertheless, the slowdown in the real estate markets makes these slum projects in Delhi also very attractive with higher margins and is likely to attract private developers interest.

10 Most expensive Streets in the world - Altamount Road also figures in it

2008-08-06T09:41:00.000-07:00

Even as the real-estate bust reaches into Richistan, a handful of the world’s toniest streets seem immune.

The Wealth Bulletin (a Dow Jones site) has come up with a list of the 10 most expensive streets in the world. Granted, this is an inexact science, but the list includes some jaw-dropping price-per-square-foot numbers for some of the richest blocks on earth.

Topping the list is Monaco’s Avenue Princess Grace, the palm-lined street named after Grace Kelly that overlooks the water. Forget buying a house there — just getting a beer at Jimmy’s Bar on the Avenue will set you back more than $100. But living on the avenue gets you a chance to rub elbows with Russian oligarchs, Middle Eastern oil sheikhs and the occasional Monaco royal.

India's Altamount Road, home to Mukesh Ambani's $2 billion home also figures on the list

Here is the complete list, with some sample property prices as tallied by Wealth Bulletin:

1. Avenue Princess Grace, Monaco — $17,750 per square foot.

2. Severn Road, Hong Kong — $11,200 per square foot.

3. Fifth Avenue, New York City — $7,500 per square foot.

4. Kensington Palace Gardens, London — $7,196 per square foot.

5. Avenue Montaigne, Paris — $5,046 per square foot.

6. Ostozhenka, Moscow — $3,738 per square foot

7. Via Suvretta, St. Moritz — $3,551 per square foot

8. Carolwood Drive, Beverly Hills — $2,803 per square foot

9. Wolseley Road, Sydney — $2,616 per square foot.

10. Altamount Road, Mumbai — $2,336 per square foot.

I will cover these streets in more detail in future posts.

Bill Gates Residence, Washington

2008-08-06T08:49:00.000-07:00

Click to watch Video of Bill Gates home

The Bill Gates family lives in the exclusive suburbs of Medina, Washington, in a huge earth sheltered mansion in the side of a hill which took over 7 years to complete. The home is totally hi-tech with technology that adjusts the light in the house based on the light outside and other electonically advanced systems. The house is a contrast with the latest gadgets on the one hand, but also having the feel of a 18th or 19th century mansion: it has a large private library with a domed reading room. While it does have a classic flavour, the home has many unique qualities.

Technology is definitely the USP of the home -

Lights would automatically come on as you enter the room
Speakers would be hidden beneath wallpapers, so that the music would follow you from room to room
Portable touch pads would control everything from the TV sets to the temperature and the lights, which would brighten or dim to fit the occasion or to match the outdoor light
Visitors to Bill Gates House are surveyed and given a microchip upon entrance. This small chip sends signals throughout the house, and a given room's temperature and other conditions will change according to preset user preferences.

The median size of an American house is 2,000 square feet, and Bill Gates' home is 30 times its size (60,000 sq ft) with a Pool building, Exercise facilites, Library, Theater and Formal dining room. The garage can accomodate 30 cars. Inside Bill Gates' Garage, you'll find a 1999 Porsche 911 Convertible and 1988 Porsche 959 Coupe. Interestingly, due to the 959’s questionable emissions and unknown crash ratings, it took a federal law signed by President Clinton for Bill Gates to legally drive his 959 on American roads. Well thats the power of having anything you want if you are the richest person in the world.

Property records indicate 7 bedrooms, 24 bathrooms, 6 kitchens, 6 fireplaces, and 4 building levels. From the outside, the house seems to be smaller than it actually is. This is largely because most of the construction has been done underground. Unfortunately, this does not escape the eyes of the Tax Department, as reportedly, Bill Gates paid a property tax of over 1 million dollars last year.

Earlier, Bill Gates organized a private party at his waterfront mansion. The U.S. Department of Homeland Security announced a "temporary security zone" around Gates' Lake Washington home which locked down all of Lake Washington south of the Highway 520 bridge and stayed in effect for two days.

Well, the lifestyles of the rich and famous and their CRIBS :)

Antilia, Kensigton, Beverly Hills, Donald Trump - Richest houses in world

2008-08-05T08:53:00.000-07:00

Mukesh Ambani, the owner of Antilia, the worlds most expensive residence at a steep price of $2 billion has made the world gasp for the architecture and the luxury that its 27 stories will have. Read here . The next most expensive residential property is not even close at $300 million, purchased by Aditya Mittal, the son of steel tycoon Lakshmi Mittal for a 7 storey house opposite his father's house in Kensigton Palance Gardens. The difference between the two most expensive property prices is striking and his house could spur the billionaire's of the world to build high priced

There are only 11 known residential properties in the world whose prices are over $100 million. After Mr Ambani's $2 billion Antilia and Mr Mittal's $300 million home, the house used by Don Corleone in The Godfather, in Beverly Hills California comes 3rd with a value of $165 million. This residential estate has 29 bedrooms distributed over 6 buildings with 3 swimming pools and a cinema hall. Next comes the five-storey Victorian villa in Kensington Palace Gardens in London, which was bought by Mr. Lakshmi Mittal for $156 mn in February this year. Dracula's Den - $140 million
The fifth most expensive residence has an interesting history - it is the 1212 AD vintage castle in Romania, that was once the home of Vlad the Impaler, who inspired the infamous man-vampire character Dracula. Priced at $140 million, it is perched atop a cliff and overlooks the mountains.

Uptown Court in England, which is even larger than the Buckingham Palace, is 6th with a price tag of $138 million. It has gardens, theatre, ball rooms and a marble drive way. The 7th largest estate is the $135 million Hala Ranch in Colorado owned by Saudi prince Bandar bin Sultan bin Abdul Aziz. This is the most expensive residence in the US. Bandar's place comes with about 56,000 square feet, more than 30 rooms, indoor pool, trails, employee living quarters and stables on 94 acres.

Next on the list is Donald Trump's property in Florida quoted at $125 million for which he paid a meagre $40 million 4 years ago since the previous owner had gone bankrupt. Donald Trump's property is on six acres with 475 feet of Atlantic Ocean beachfront. The home has a 4,100-square-foot conservatory, media room, library and three pools. Prince Abdul Aziz's $135 mn Ranch

The remaining three residential properties on this list are all valued at $100 million — Tranquility, at Lake Tahoe, Nevada, US; Waterfront Estate, in Istanbul, Turkey; and Eurasia, in Moscow, Russia.

The Lake Tahoe mansion looks like a European mountain home and was built by Joel Horowitz, the co-founder of the fashion brand Tommy Hilfiger. Turkey’s Waterfront Estate is located bang on one of the world’s most strategic waterways linking the Mediterranean with Black Sea, while the Russian property is a manor with two attached guesthouses and nearly 100,000-feet recreation area that includes a gym, a swimming pool and many lounges.

To summarize, 11 properties exist with a value of greater than $100 million.

Mukesh Ambani's Antilia - $2 billion
Aditya Mittal's Kengsington Garden's house - $300 million
Don Corleone's California house - $165 million
Lakhsmi Mittal's Kengsington Garden's house - $156 million
Vlad the Impaler's Romania house - $140 million
Surrey, England - $138 million
Sultan bin Abdul Aziz's Colorado house - $135 million
Donald Trump's Maision - $125 million
Tommy Hilfiger's cofounders' Tranquility at Nevada - $100 million
Waterfront Estate, in Istanbul, Turkey - $100 million
Eurasia, in Moscow, Russia - $100 million

With Mukesh Ambani raising the bar for the billionaires of the world to splurge on their homes, we could see more luxurious houses in the years to come. I will write on some of these 11 properties in the next posts, definitely about Lakshmi Mittal's 4 residential properties valued at over 250 million pounds in greater detail.

Mukesh Ambani - Antilia - 27 storeyed house

2008-08-04T12:01:00.000-07:00

Videos - http://in.youtube.com/watch?v=2ASNE1eZiYw&feature=related
Video - http://in.youtube.com/watch?v=QFMNXOJ3-dA

Thought it would be fun covering the much talked about 27 storeyed $2 billion (yes 8,000 crore) house being built on Mumbai’s Altamount Road by India's richest man – Mukesh Ambani. Well the nearest priced residential house is valued at $300 million, the sum offered by Aditya Mittal, son of steel tycoon Lakshmi Mittal, for a seven-storey mansion opposite his father’s home in London’s billionaires’ block, Kensington Palace Gardens.

The name of the house is Antilia — meaning mythical island - which is not just a home. It is going to be more of a private mini-hotel with its ballroom, several lounges, guest rooms, six floors of parking for 168 cars and 600 servants. In comparison, most other rich properties are renovated villas, mansions or castles. No two floors of the project are similar.

Some absurd facts about this ‘house’..

3 helipads on top. Mumbai corporation has not given permission for making this operational yet
Hanging gardens within the structure
Swimming pool within the structure
A two storey Health centre
Parking space for 168 cars (6 floors). I initially thought that meant there will be a mini office in the building but apparently that is not the case. All these cars will belong to Mukesh Ambani! Just in case you are interested, he drives a 5 crore Maybach now
A floor exclusively for servicing these automobiles within the building
A floor for Home theatre – sitting capacity of 50

Well the most absurd part is the employee strength of over 600 in the building. Yes, the ratio would be almost 1:100 for people living in the house and those that are being paid to take care of it. The 6 lucky members are Mukesh, his wife, 3 children and his mother Kokilaben. The family will be moving in from their old home ‘Sea Wind’ which was a 14 floor building at Cuffe Parade.

It is designed by Chicago architects, Perkins & Will, and is inspired by the Hanging Gardens of Babylon. It is expected to be completed by September 2008. The 4532 sq m plot was bought by Mr Ambani in 2002 when land prices were relatively cheap and hence the actual expenditure on the property is less than $2 billion. Currently, land is valued at over Rs 75,000 per square feet.

The building will be will be 150 metres tall. Normally that is the equivalent of a 60 storeyed tower, but in this case each floor is more than twice the height of a normal floor, with the result that the building will only have 27 floors when completed. Given the prevailing state of skyscrapers in Mumbai, this building will be more than twice as tall as the earlier tallest buiilding.

Meanwhile, this trend of spending extravagantly on high end residential buildings is catching up in India. Videocon Industries chairman Venugopal Dhoot, JSW Steel's Sajjan Jindal, Kasliwal brothers, Nitin and Vikas of S Kumars are some among a long list of corporate honchos who are moving to their dream residences. I will write about these in detail in the next post and also about the most expensive residential houses in the world.

Innovative ads and greater ad budgets to woo buyers

2008-08-03T01:04:00.000-07:00

Despite the market downturn, most of the real estate developers have upped their advertising budget by over 20%. This is just a case of increasing visibility for the players as most of the properties for the small developers are sold once their brand has a recall by the buyers. The print media is taking up the major chunk while the rest goes to the outdoors. Till some time back, advertisements were confined mostly property supplements or niche magazines, but with the slump in the realty market, developers are targetting the television and even print.

Stakes for developers are very high as their projects are not being sold in this high interest regime. Real estate developers are optimistic that the sceario will be good in the coming 6 months and hence are working on increasing their brand value for now.

Promotional activities are in full swing. Unitech, when it started its luxury project Grande launched an ambitious TV campaign just 4 weeks from the time the project commenced. The company also held special events - derby in Delhi and polo in Mumbai - in the past few weeks to attract buyers for the launch of its two new towers in the Grande project.

In a referral programme launched by a Mumbai-based developer, a buyer, who gets an additional customer, gets a 2% commission on the sale proceeds. In fact, to create hype, some developers have hosted pooja at the launch inviting guests.

When real estate company Unique Builders launched a condominium development near Jaipur, 3,510 Hindu priests performed traditional rituals and prayed for divine blessings. The number of priests equalled the number of condos on offer at the development, My Haveli@ Mannat1. The gimmick helped, and the project made up 63% of total residential sales last year in a softening Jaipur real estate market. It is an example of how developers are moving away from traditional marketing techniques and adopting novel strategies to attract reluctant homebuyers.

Mumbai-based Lodha Group hired an event management company to think up a different on-site experience for potential buyers to sell its luxury villas in Lonavala, a hill station near Mumbai.

The company conducts pre-visit interviews where personal details about the potential buyer are collected. Based on these, buyers are picked up in a luxury car, given their favourite magazine and offered a beverage to sip through the journey to the site, which is then followed up by a personalized trip around the site. Lodha adds a personal touch by clicking a photograph of the visitor on the site. The photograph is framed and then sent to the potential buyer as a memento.

It is time for innovative techniques to woo property buyers in this testing time. Only time will tell if these modern techniques are able to revive the recession that the real estate market has entered into.

Small developers exit hotel investments at lower valuations

2008-08-01T00:36:00.000-07:00

An exuberant real estate market saw a large number of small real estate developers foray into the hospitality sector. These small developers, who had plenty of land at strategic locations, were trying to get into the glamorous hotel business. With hotel room shortage taking room revenues to higher levels, the hospitality business looked immensely attractive. And with foreign hotel chains looking to aggressively expand in India, even small developers could easily tie up with them for a management contract.

The scenario is very different today. With real estate prices , room rents sliding, cash strapped small realty players have been forced to put at least half a dozen hotel projects on the block. A developer has put on the block a 200 room hotel project in Ahmedabad that has a tie-up with a reputed international brand. Work on the project is around 60% complete. Similarly, two mid-size hotel projects in Bangalore, which are in the early stages of construction, and one each in Pune, Chandigarh and NCR have been put on the block. Almost all the projects are mid-size. Some developers are looking at completely exiting the hotel projects while others are looking at stake sale.

The developers are looking for equity dilution and are now willing to settle for lower valuations for their hotel projects. What is forcing the developers is not only the slowdown in the real estate sector but also the nature of the hotel industry. Hotel projects are capital-intensive and payback period is very long, compared to other assets such as housing or commercial.

Most of the projects put up for sale are by small developers who do not have the holding power. In several cases, where construction has not begun, the projects have been deferred and the developers plan to do a commercial or retail project.

Akruti City beats market expectations with profits trebled

2008-07-30T11:52:00.000-07:00

Despite testing market conditions and dangling results from other real estate developers, Akruti City has posted profitability growth of 284% as more projects hit the market. Akruti reported first-quarter net profit of 1.71 billion rupees, more than trebling from a year ago. Its total income also surged to 2.4 billion rupees from just 715.6 million a year ago.

The company has not bought any land over the last 6 months and has enough land to build and execute projects for the next 4 years. The management believes that as land prices soften in the coming months, it will go and buy land as it does not expect the demand for property to go down drastically in the long term given the demographic and other factors in India.

Focus on execution and the right product mix ensured that Akruti was ahead of the competitors. Forecasting a lack of interest in malls, the company had cut its exposure to retail projects a year back and converted seven malls into commercial space, where demand is booming. Akruti has focused on a low-cost strategy by acquiring cheap land through slum redevelopment projects, and setting up projects on the outskirts of cities it is present. It recently launched a project each at Mira Road near Mumbai, and in Pune.

As already stated in earlier posts, Akruti has outperformed other realty stocks. It is currently quoting at Rs 731 with a PE ratio of 12.1. and a market cap of Rs 48 billion. Given its growth and the ability of management to predict market conditions and take necessary measures, the company is slated to outperform the market and possibly the other Realty stocks.

Monetary Policy - EMI Impact - Floating vs Fixed home loan rate

2008-07-30T01:36:00.000-07:00

With banks now readying plans to raise PLR by atleast 50 basis points on the eve of the RBI raising the CRR and Repo rate to 9%, the direct impact will be on home loan takers and their EMI. Home loan EMI will be up by Rs 17 - 34 for every Rs 1 lakh loan. In case of a 20 year loan, a 25 bps hike will mean the EMI going up by Rs 17 for every Rs 1 lakh loan amount; in case of a 50 bps hike, it will be Rs 34 and so on. Similarly, for a 15 year loan, 25 bps will hike EMI by Rs 16 a month and 50 bps by Rs 33. So net net, home loan borrowers with large EMI installments are in for a tough time going forward.

New borrowers would be better off taking a floating home loan rate despite the fact that interest rates are likely to go up in the future. The advantage of a floating rate scheme - where rates move in line with the PLR - is that the borrower will gain once the interest rate cycle turns. As per industry experts, the rate cycle takes a turn every 3-5 years, hence the rates will go down sooner than later.

A fixed rate does not necessarily imply that the rate will remain fixed over the life of the loan. Most banks insert a reset clause in the fixed rate home loan agreement. This means that the bank will have the option to revise the rate upwards even if the borrower had opted for a fixed rate. For instance, SBI resets its interest rate at the end of every two years from the date the loan has been disbursed. For Bank of India, the reset happens every five years. HDFC however, is among the few lenders with an absolute fixed rate.

However, the difference between the floating and fixed rates is very high - as much as 300 bps in case of lenders like ICICI and HDFC Bank. HDFC has a floating rate of 11% whereas its fixed rate is 14%. Similarly, ICICIs floating is 11.25 - 11.50% and its fixed is 14.75%. Understandably, most borrowers are discouraged from taking a fixed rate loan. A borrower should look at a fixed rate only if the loan period is less than 10 years, else go for a floating rate. There is also an option to split the loan amount into floating and fixed rate.

Impact on real estate developers

For now, EMIs are set to rise and demand for real estate is bound to go down at least in the short term. Borrowers are bound to find it difficult to get funds at cheap rates and there is also going to a slowdown in demand. This will hurt the margins of the realty players also resulting in further correction of realty prices. The cost of construction will go up and banks will cut their exposure in the property sector, forcing developers to tap unofficial channels for funds. Black money is going to flood the system as the developers would be liquidity starved.

Interestingly, the bank credit to real estate sector has come down 31% from last year from Rs 19,010 crore to Rs 14,750 crore. Sales for the real estate developers has gone down, hence affecting their ability to service the term loans. Moreover, with a slowdown in the IT space, developers are losing tenants and thereby lease incomes are declining. Real estate developers are adding to their stock of non income generating property. Thus developers with substantial unsold stocks of residential units and office space will be directly taking a hit in their bottom lines with a hike in interest rates.