Coming soon: bonds that would pay you rental income from property

Reuters

Mumbai: Indian property firms, including DLF Ltd, are gearing up to sell the country's first bonds backed by rental income from their office buildings and shopping malls.

The bonds would open a new source of capital for a commercial property sector weighed down by $22 billion of bank debt and sluggish rentals, and come on the heels of new rules allowing developers to raise money through real estate investment trusts (REITs).

Property and infrastructure lender IDFC is at the most advanced stage, with plans to sell at least Rs. 300 crore in a debt security backed by lease rentals from an IT park in Noida, outside Delhi, and a special economic zone in Pune, said people involved in the discussions.

IDFC declined to comment.

DLF, India's biggest listed developer, is in talks to raise up to Rs. 1,000 crore in a bond backed by lease rentals from two malls by the end of this year, the people said. The developer has in the past talked about raising funds through such a vehicle. Developer K. Raheja Corp is also pursuing an asset-backed deal, but is proceeding slowly, Neel Raheja, group president, told Reuters. 

Credit Suisse and JP Morgan are among banks tapping property companies and investors to gauge their interest in the structure, the people said. Both banks declined to comment.

"Bankers have pitched deals for IDFC and DLF to us. We are assessing the risk of the product and waiting for the rating," said a senior fund manager who declined to be named because the talks were not public. He said IDFC was likely to issue the first such bond, within a month.

MORE LRD THAN CMBS

While the bond structure is loosely referred to in India as a commercial mortgage-backed security (CMBS), it differs from a CMBS in the United States or Europe, under which lenders securitise mortgages on commercial property.

Rather, DLF and IDFC's proposed bonds would be similar to so-called lease-rental discounting (LRD), sold in a bond. Rental income is used to pay the interest to the bond investor, while the principal is repaid at maturity, the people said. In an LRD, the principal is amortised over the life of the debt. 

Both DLF and IDFC are considering bonds with 5-year maturities and an option to extend the borrowing to 7 years. The debt would be issued by a special purpose vehicle that owns the underlying property and would carry a credit rating independent of the developer.

DLF's executive director of finance, Saurabh Chawla, confirmed the developer is looking at such a debt structure for its offices and shopping malls, but gave few details.

"We are exploring the possibility," he said. "There are many such programs that we have which we hope to complete over the next 6-9 months." 

DLF earns more than 20 billion rupees in rent every year, Chawla said. The company has also been selling non-core assets to reduce its debt.

YOUNG DEBT MARKETS

Indian property developers, typically family-run, usually rely on bank loans and selling equity to fund their operations.

India's corporate bond market has traditionally lacked the depth and liquidity to serve as a major funding source for all but the highest-rated companies. More exotic bond products, meanwhile, have failed to take off because of low investor appetite and regulatory restrictions that prevent many investors such as pension funds from buying riskier assets.

The search for new ways to raise funds comes after Indian developers gorged on cheap bank loans during a property boom in 2006-07, which was ended by the global financial crisis as well as high domestic inflation and interest rates.  

Demand for commercial property in India has also weakened in some cities as corporate tenants rein in costs by consolidating operations, according to a report this month by CBRE.

IDFC is considering an asset-backed security that yields 10.75 percent to 11 percent, said those close to the discussions, below the roughly 12-13 percent interest on a loan for a similar duration.

Property-backed bonds carry risk, as issuers can default if lease payments are disrupted. Defaults on mortgage-backed assets were a key contributor to the 2008 global financial crisis.

The Indian market for property-backed bonds is likely to develop slowly. "The tap may finally open, but not in strong force," said Sandeep Singh, director of structured finance at Fitch Ratings in Mumbai.

Raheja said his company is considering doing a deal in the next 3-6 months. "Before we do it we want to make sure it goes right and therefore we are not rushing into it," he said

DLF Builder Announces Q2 FY14 Results

New Delhi : DLF Limited, India?s leading real estate company, recorded consolidated revenues of Rs 2,225 crore for the quarter ended September 30, 2013, a decrease of 9% from Rs 2,453 crore in Q1 FY14.

EBIDTA stood at Rs 863 crore, decrease of 18% as compared to Rs 1,055 crore in the Q1FY14. Net profit stood at Rs 100 crore, a decrease of 45% compared to Rs 181 crore in Q1FY14. The non-annualized EPS for the quarter was Rs 0.56.

The Company witnessed an enthusiastic response to its luxury development-Camellias in DLF 5, Gurgaon. During the Quarter, the Company sold approx 0.09 msf of the project at an average realization of Rs 28,055 per sq. ft.

The Company has appointed the construction major L&T as the general contractor to build the luxury residential development - The Crest and Leighton Welspun, an Australian construction major as the general contractor to build luxury residential development The Camellias. The execution of both the projects Crest and Camellias has commenced.

On the divestment of the non-core assets, the Company has closed the divestiture of the Wind business and Star Alubuild to Lixil. The Company has also signed a share purchase agreement with Dewan Housing Finance Ltd. for sale of shareholding in DLF Pramerica Life Insurance, which is currently awaiting regulatory approvals. Given the pipeline of divestitures, the Company remains committed to reduce its net debt to 17,500 crore by end of FY14.

Lastly, in the current economic & high interest rate environment, the Company expects a slow absorption of product in the market. Despite these adverse conditions, the Company has managed to more than double its H1 sales bookings compared to corresponding period of last year.

The Company remains hopeful in achieving its sales booking target for the year. On the leasing front, the Company has achieved leasing of 1 msf in H1 FY14 compared to 1.14 msf for the entire FY13. Source: Silicon India

DLF Ltd profit falls 27% in Q2

Reuters: DLF Ltd, India's top real estate developer, posted a 27% fall in its consolidated net profit for the July-September quarter, hit by slowing home sales in Asia's third-largest economy.

"In the current economic and high interest rate environment, the company expects a slow absorption of product in the market," DLF said in a statement to the exchange late on Wednesday.

The New Delhi-based developer, founded by billionaire KP Singh, said net profit for he fiscal second quarter was 1 billion rupees ($16.3 million) compared with 1.38 billion rupees a year earlier.

The profit fell short of analyst expectations of 1.4 billion rupees.

Total revenue was 19.56 billion rupees, down from 20.4 billion rupees posted during the same period last year.

On Wednesday, Oberoi Realty Ltd, India's second-largest developer by market value, posted a 48% fall in net profit for the September quarter - its worst quarterly profit decline in nearly two years - hit by a drop in sales.

Real time property price index launched in Dubai

The first ever real time guide to property prices in Dubai has been launched for both sales and rentals with the data reflecting actual transactions.

The move is a joint venture between Arabian Business and Better Homes, the regions biggest estate agent which is providing the data for the live prices.

The index covers key locations including Downtown Dubai, Dubai Investment Park, Dubai Marina, Jumeirah Lake Towers, Jumeriah Village circle, The Greens and The Palm Jumeirah.

The latest prices are shown for all types of properties available in those areas, including the latest monthly changes.

‘This is the first time that anyone in Dubai, whether buying or renting, can get an accurate, up to the minute guide, or prices in the key areas of the emirate,’ said Ryan Mahoney, Better Homes chief executive officer.

‘Nothing else is as close to real time prices. Over the coming months, we will be hoping to roll this out across other areas of Dubai, and then eventually other cities,’ he added.

Shane McGinley, executive editor of Arabian Business, explained that until now anyone trying to find out true property prices  has had to make a judgment based on listed prices.

‘We all know that listed prices can be very different to the real prices. This data from Better Homes reflects what people are actually paying rather than what landlords and sellers are asking. Right now, we are confident there is no better guide to prices in the market,’ he added.

Meanwhile, the latest data from the Dubai Land Department shows that sales in the emirate have increased by 67% in a year with $6.26 billion of transactions made in the 12 months to the end of July.

 
The official data also shows a similar increase in mortgages over the same period of time and real estate agents have confirmed that people are increasingly looking to buy their own property as opposed to renting. Source: Property Wire

Greater Noida Authority cancels allotment of 1,200 plots

The Greater Noida Authority cancelled allotments of around 1,200 plots on Tuesday on account of non-payment of pending dues by their owners. 

These include 1,173 residential plots in different sectors of the city. Authority officials informed that allotments of 25 industrial plots and 12 institutional plots have also been cancelled.

Officials informed that the authority has taken the extreme step because it is reeling under a huge financial crisis to the tune of over Rs 6,000 crore to a number of banks and financial institutions. Non-payment of dues for several terms by plot allottees has added to the financial burden of the authority.

The cancellations were effected after the allottees failed to pay up three consecutive pending dues against their respective plots despite repeated notices issued by the Greater Noida Authority. Officials said that more cancellations might be effected in the near future as notices are being issued to several other allottees who have goofed up on making timely payments.

All plots, which had been allotted through different schemes by the authority since the year 2009, have been cancelled. Cancellation letters, said officials, have been issued to all allottees losing their plots.

“The cancelled plots will be put up for fresh allotments through a leftover scheme. The details of the scheme are being worked out following which the plots would be put up for sale,” said Manvendra Singh, DCEO, Greater Noida Authority.

Greater Noida Authority intends to raise revenues through the re-allotment of these plots so that debts and loans incurred by it can be cleared. A portion of the revenue so raised would also be used for paying compensation to farmers in lieu of their land in accordance with the Allahabad high court verdict of October 2011.

However, the authority also informed that it would give the first preference to original allottees of these plots to regain their allotments through a restoration process. Allottees would have to clear their pending dues together with penalties. “They will also be required to pay stiff restoration charges for regaining possession of their plots,” added Singh.