Foreign Funds Shying Away from Indian Real Estate

Having burnt their fingers during the economic slowdown of 2008-09, foreign private equity (PE) funds continue to stay away from Indian real estate, even as domestic funds have taken the lead in property investments. While domestic funds have put in $864 million (Rs 3,950 crore) in 22 realty deals since January this year, foreign funds have invested a mere $126 million (Rs 575 crore) in only three deals, according to data collated by Venture Intelligence, which tracks PE and merger and acquisitions in India. During the property boom of 2004-2008, foreign funds put in millions of dollars in realty projects, expecting huge returns. Their investments peaked in 2007, when they put in around $5.73 billion (Rs 26,100 crore) as against $ 4.05 billion (Rs 18,500 crore) put in by their domestic counterparts. But the global economic slowdown of 2008-09, which led to lower home sales and redemption pressures on PEs, spoilt the party. Indicating poor risk appetite, foreign funds invested $183 million (Rs 835 crore) in Indian real estate in 2009, while domestic funds put in $665 million (Rs 3.030 crore).

“Most foreign funds are sitting on pre-crash investments which are terribly under water. Limited partners (investors in funds) have lost badly in the downturn and their current focus is more on salvaging investments than taking fresh exposure. Moreover, they still believe that India is overpriced,” says Jacob Matthew of Mape Advisory. Says Ashish Joshi, managing partner, real estate, IL&FS Milestone Fund: “Foreign investors are playing safe and are sceptical. Since one of the biggest reasons for the economic crisis was real estate, there is a rub-off impact and overseas PE funds are staying away.”

But why are domestic funds continuing their investments? For instance, during the first half of this year, the deal flow of domestic funds and amount invested have gone up by 36 per cent and 240 per cent, respectively, compared to last year. “Domestic funds can gauge the pulse of Indian real estate. Moreover, they can invest in any project of any size, unlike foreign funds whose investments are governed by FDI norms,” says a managing director of a domestic PE fund.
A number of Indian fund managers such as Indiareit, Aditya Birla Financial Services and ICICI Venture are raising or are in the process of raising around Rs 6,000 crore from domestic institutions and high net worth individuals. But non-property investments by PEs are still booming. In the first half of calendar year 2010, total PE investments touched $4.571 billion (Rs 21,380 crore) across 138 deals. This was a three-fold jump over the $1,508 million (Rs 7,000 crore) invested in 111 deals during the same period last year, according to Venture Intelligence data. “The Indian market is not cheap. They have the option of investing in other geographies where the market is cheaper,” said Vikram Hosangady, executive director-advisory transaction services, KPMG.

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Retail Sector Facing Wholesale Problems

Incessant rains, political instability in markets such as Srinagar, and the upcoming Commonwealth Games, are giving retailers and manufacturers nightmares. Companies are reworking strategies to ensure that there is adequate inventory during the forthcoming festival season. An analyst note said: “Traditionally in India, sales peak during festival time. Almost 40 per cent of sales are achieved during the period starting from October-December. Incidentally this year, the festival period will coincide with the CWG. Restricted traffic movement and flood situations are creating a barrier to free goods movement ahead of the season start.”

A slew of retailers Business Line spoke to confirmed that brainstorming sessions were on to overcome tight situations, including shipping products directly from factories to the dealers, and even setting up smaller temporary warehouses in the cities to expedite good transportation.

“We are talking to dealers to take stock even at night. On our part, we are ensuring that the warehouses are supplying goods to stockists at a common meeting point and even sub-warehouses to overcome logistical issues,” said Mr K. K. Kaul, Head (Logistics and Supply Chain) for LG Electronics India.

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India 5th best country for real estate investment

NEW DELHI: India is ranked as the fifth most attractive destination for future real estate investments in a list topped by China, according to a latest report of FCCI and Ernst and Young.

In the list of top nine attractive destination for real estate investments, China is followed by the US, UK and Singapore.

"India ranks fifth on the overall index, as it scores better on the country economy development index and the real estate market index, but fairly low on the regulatory index," the report released here said.
As per the report, there is no single clearance system for approval of investment in real estate sector in India. "In addition, the approval system is not time-bound and take up to two years," it said.

On China, it said: "Even amid cautious market sentiments and tightening of government policy, China remains attractive as an investment destination primarily due to its impressive economic growth record and favourable demographics."

However, India has the potential to even overtake the Chinese attractiveness, "if government allows real estate investment trust (REIT) and real estate mutual funds (REMF)," said Dean Hodcroft, E&Y's Head of Real Estate for India, Europe, Middle East and Africa here.

Globally, REITs and REMFs have contributed significantly to the real estate finance and developers overseas have capitalised on the growth potential of the sector, the report said.

"However, this source of finance has not seen a similar response in India primarily due to policy issues and lack of clarity on government's intention to promote such alternative source of funding," it noted.

Hodcroft observed that while global investors are wary of investing in China as they are concerned that Beijing can change the policy anytime, New Delhi should strive to make regulations more investment-friendly.

"India has a strong macro economic story which needs to be supported by some regulatory changes like availability of liquid vehicle for investment such REMFs and REITs," he added.

Hodcroft said as much as $200 billion private equity fund is waiting to be invested globally and India has a chance to get more than its fair share.

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The property market is showing signs of maturity

A key difference in the residential real estate market of today and that of 2006-07 (when the market was at its peak) is that buyers are being more selective now. During the boom time, property prices were going up everywhere – whether it was an A-grade property or a C-grade one, whether in a tier-2 town or in a tier-3 town. It was only the euphoric sentiment that was driving prices higher. Now things are a little different. You see each property market responding to local factors also and there is no one direction in which prices or rents are moving.
There are pockets where prices are rising, others where they are stable and some where a correction may still happen. That, according to me, is a very positive sign and shows that the real estate markets are maturing and so are buyers. Because of the variation, now there seems to be a logic in the price rise or decline in a market. Another encouraging sign is that buyers have now also started looking at factors like infrastructure, and connectivity instead of just buying what they could afford.

Project delays, which have been of concern to a lot of potential buyers, are also likely to improve gradually. Developers have realised that instead of spreading themselves thin across the country they need to focus on key markets and improve their track record. The consumer too has got many platforms to raise his voice and, therefore, developers cannot afford to tarnish their reputation with delayed projects. We will now see developers speeding up delayed projects and sticking to the delivery date.

Another apprehension is that investors (rather than end-users) are coming back in the market. But I think the word investor is highly misunderstood. Investing is not a bad word. Most people think of only two broad categories — the end-user and the investor who is supposed to be a speculator. However, there is also that category of potential buyers like us who may have some extra money on their hands, may have got a bonus and who want to look for a second house. Most will do so by taking another home loan. These people, in all probability, will not look at selling their property in the short term and will stick to their ‘investment’. These are not speculators.

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Hard times over for realty; DLF launching ultra-rich homes

NEW DELHI: Economic hard times are unmistakably easing for the realty industry and market leader DLF is signalling this change with an ultra-luxurious housing project in Shimla, where it would sell only to the elite.


From a market that has been driven by affordable housing ever since recession hit the world in 2008, DLF's new project - 'Sama' homes - will see a marked shift in pricing, an indication that demand for high-end housing is returning and returning strong.

According to sources, DLF, the country's largest realty firm, will develop about 170 villas, 100 apartments and hotels across Shimla, Kasauli and Goa at an investment of Rs 500 crore.

A source familiar with the project said: "The company will sell 24 villas costing about Rs 3 crore in Shimla purely on invitation to the very elite in the society to maintain a like-minded profile of residents."

When contacted, DLF India Vice Chairman Mohit Gujral confirmed that the company would be launching a new series of luxury housing projects under the brand 'Sama', but did not give other details.

Samatara-Shimla, Samavana-Kasauli and Samaraya-Goa will be part of the Sama series, he added.

At the height of the economic crisis, DLF too entered the mid-income housing segment when it came out with apartments in central Delhi for as low as Rs 50 lakhs.

Sama homes would be designed by Mohit Gujral, who is renowned for combining luxury with functionality, and the project would be set in lush green forests in Shimla and Kasauli, and by the sea in Goa.

The hotel and villas at Kasauli would be managed by global hospitality chain Hilton, while the company is in talks with some Asian hotel chain for managing villas and hotels at Goa, sources said.

Though the company has not fixed the price of villas and apartments so far, it is likely to be in the vicinity of Rs 3 crore for the Sama homes in Shimla, sources said, adding that allotment of houses would be on invitation only.

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Zuri Group to Launch More Hotels in India

Hotels group Zuri has recast its six properties into three niche brands and says it plans to add 10-15 hotels globally, either as new hotels or through management contracts in the next five years. Zuri Group Global, which started building its own luxury brand two years ago, would invest an estimated Rs 500 crore on two or three new hotels planned in the country. It was discussing with many players in different places, including in Bangalore, for taking up existing properties on management basis and rebranding them as Zuri, its managing directors, Bobby Kamani and Abhishek Kamani, told a news conference.


“We have a multi-pronged strategy to expand our operations. After setting up Greenfield projects, we are also looking at inorganic growth through management contracts,” Abhishek Kamani said. “We are in advanced stages of talks with a few private owners in the southern and eastern markets [for management contracts]. We are still not present in key markets such as Mumbai, Delhi, Chennai.” The group, with a fiscal 2009-10 turnover of Rs 250 crore, may tap the public issue route or private equity players to raise part of the funds and the plans were at an early stage, Abhishek Kamani said. It has invested Rs 750 crore so far on existing businesses.

Bobby Kamani said the profile of the hotel planned near the Devanahalli airport was being decided while another premium hotel in Nairobi would start shortly. Other locations in Africa, West Asia and India were being considered. He said, “We have taken a rather bold step to restructure our hospitality business at this early stage. While several brands have adopted this approach at an advanced stage of their existence in the market, we believe a restructuring at this stage will definitely help build a strong identity for our guests…. Considering the dynamic nature of our industry, we are required to compete in the global marketplace which demands bolder and clearer brands.”

The six properties would be branded as premium Platinum, the intermediate Lifestyle and the more affordable family category of Comfort, according to Priti Chand, assistant vice-president, PR & Communications. Zuri has a business hotel in the IT hub of Whitefield; a resort and spa in Kumarakom, Kerala; the White Sands Resort and Casino and the Portuguese style Retreat, both in Goa; it has one in the UK and a beach resort in Mombasa, Kenya. Domestic operations account for Rs 100 crore of the turnover.

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DLF Puts on Hold its Plan to Sell Non-Core Assets

DLF, India’s largest real estate company, has put on hold its plan to sell its non-core assets including ultra-luxury hotel chain Aman Resorts and wind energy business for the next three quarters, said Rajeev Talwar, MD at DLF Developers In July, the realtor had indicated that it plans to raise around `2,500 crore in the next 15-18 months by selling its non-core assets. The firm had raised around `290 crore for the quarter-ended June through sale of land parcels.


“Properties assume different prices at different times. Since prices in the real estate sector have started firming up, we have deferred our divestment plan for three quarters. We will rather wait for the right market condition,” said Mr Talwar. Reasons for holding onto the two business are different. “The valuation of our wind energy business was high so we decided to wait. In case of Aman, we want to check how the travel industry fares before selling our stake in it,” he said. DLF saw improved cash flows from operations in the past few months in the backdrop of recovery in the realty space. With commencement of construction of many projects, the cash flows are expected to improve further. The builder saw its total debt increase 25% to `18,463 crore during the June quarter due to the acquisition of debt-laden DLF Assets
For DLF, the average cost of debt came down to 10.5% in June 2010 from 11.9% in December 2008. The firm said it will continue to use all free cash flows to reduce debt. Recently promoter billionaire KP Singh picked up 92% stake in its wholly-owned retail subsidiary DLF Brands through fresh issue of shares for around `92 crore, by which DLF Brands ceased to be a subsidiary of DLF.

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HDFC Increases its Retail Prime Lending Rate (RPLR)

After a gap of two years, mortgage leader HDFC has increased its retail prime lending rate (RPLR) by 50 basis points to 14.25 per cent.
Significantly, the lender has not said anything on the continuation of its “teaser rates loans”, launched late last year and which was supposed to end yesterday.

“This (the hike) is in line with the current rates of interest in the economy, which have hardened in the last few months due to rising inflation and tightening of liquidity in the domestic market,” HDFC said in a statement, adding that the new rates will be effective from tomorrow.
This is the first hike since August 2008 by the largest mortgages player. HDFC follows a three-month reset cycle for its floating rate loans and hence the change in RPLR will impact all existing customers over the next three months, depending on their date of first disbursement, it said.

However, loans up to Rs 30 lakh will bear an effective interest of 9.25 per cent, while those in the Rs 30-50 lakh bracket, will carry an interest of 9.5 per cent. For loans above Rs 50 lakh, interest will be 9.75 per cent, the company spokesperson said, adding the above rates are irrespective of tenure of the loans.

A host of lenders like the State Bank, ICICI Bank and others have raised their benchmark lending rates in the last few weeks following the Reserve Bank hiking its key short-term lending and borrowing rates (repo and reverse repo) by 0.25 per cent and 0.50 per cent to 5.75 and 4.5 per cent respectively in the Q1 credit policy review on July 27.

Under the teaser rate scheme, which was innovated by SBI in early 2009, HDFC charges 8.25 per cent up to March 31, 2011, 9.25 per cent for the period between April 1, 2011 and March 31, 2012 and the applicable floating rate for the remaining term of the mortgage.

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