Office space supply falls 40% in 2011

Prime office space supply dropped 40 per cent in 2011, compared to 2010, according to a report by CB Richard Ellis, a leading real estate consulting firm. An accumulation of vacant stock, weak global economic cues, coupled with delays in expansion plans of occupiers and transaction closures resulted in more than 40 per cent decline in overall supply of new prime office space in top cities of India during 2011. The CBRE forecast for the next few quarters remains bleak, indicating a negative impact on the rental value.

Approximately, 30 million sq ft of prime office space entered the market in 2011, compared to 55 million sq ft in the previous year.

More than 80 per cent of the new supply addition was largely concentrated in NCR, Chennai, Hyderabad and Pune, in the fourth quarter of the calendar 2011. Some of the leading office hubs witnessed negligible supply in Grade A office segment, as existing vacancy pressures forced developers to delay project completion to 2012. While NCR and Bangalore led in supply addition, most cities witnessed a drop in the number of completed projects. Delays on account of rising vacancy levels and appreciating input costs had an impact on construction timelines majorly in the last two quarters of calendar year 2011.

Connaught Place in Delhi did not witness any substantial addition in supply. Gurgaon on the other hand continued to be the hub of office transaction activity in NCR, with an addition of almost 1.2 million sq ft of Grade A supply, largely in commercial and IT/ITeS segments. Nariman Point in Mumbai saw no addition of fresh supply, while absorption of approximately 10,000 sq ft was recorded in the secondary space.

Anshuman Magazine, chairman & managing director, CBRE (South Asia), said, “The continuing volatility in the global and Indian financial markets, coupled with rising inflation and interest rates, has led companies and developers to be cautious in their expansion plans”.

He added that the tight liquidity situation, high interest costs and uncertain demand were deterrents for developers.

“It would be safe to say that this sentiment would remain, till the global and the Indian economic situation stabilizes,” Magazine said.

Absorption of office space dipped nearly 12 per cent across leading cities of the country in 2011 to 28 million sq ft, from 32 million sq ft in 2010. In the October-December 2011 quarter, there was a total absorption of almost 6.5 million sq ft of office space across top cities such as Bangalore, NCR, Chennai and Hyderabad. These cities also accounted for almost 80 per cent of the entire space getting absorbed in the country.

According to CBRE, the outlook for office market segment remains weak for the next few quarters on the back of a slowing economy. The IT/ITeS segment is expected to witness supply pressures, with demand not being able to match new supply addition, which might have an adverse impact on rental values in this segment, the report said.

HDFC profit up on home loan demand

Mistry says the only cause of worry for the lender amid global economic uncertainty was a possible loss of consumer confidence.

Mumbai: India’s oldest mortgage lender, Housing Development Finance Corp. Ltd (HDFC), posted a 10.14% increase in profit during the three months ended 31 December on sustained demand for home loans, but fell short of analyst expectations as it earned less from the sale of investments.

Net profit in the fiscal third quarter rose to Rs. 981.25 crore from Rs. 890.88 crore in the year-ago period, HDFC said on Thursday. The lender missed the estimate of 15 analysts polled by Bloomberg, which had pegged its net profit at Rs. 1,010 crore. Earnings per share increased to Rs. 6.56 from Rs. 5.91 in the year-ago period. Revenue increased 35% to Rs. 4,472.51 crore from Rs. 3,321.04 crore.

HDFC shares ended up 0.9% to close at Rs. 687.50 on BSE on a day the Sensex fell marginally by 0.86%.

The reason behind HDFC’s lower-than-expected net profit was a drop in profit from sale of investments to Rs. 87.99 crore from Rs. 167.22 crore in the year-ago quarter.

Keki Mistry, vice-chairman and chief executive officer, told television channels that demand for home loans continues to be strong despite a slowdown in some markets, including Mumbai. “We have seen a 19% rise in both approvals and disbursements in the first nine months to December and our loan book has grown 21%,” he said.

HDFC’s loan book expanded to Rs. 1.32 trillion from Rs. 1.09 trillion in December 2010, even after it sold loans worth Rs. 4,221 crore, Mistry said.

“If we had not sold those loans, the growth would have been stronger at 25%,” he said. The mortgage lender has agreements with HDFC Bank Ltd and IndusInd Bank Ltd to sell home loans.

HDFC’s corporate loan growth, inclusive of loans sold, was 25%, while retail loans increased by 26%, indicating that demand for loans is coming from both individuals to buy properties as well as builders to construct projects, said Ankit Ladhani, an analyst at Sharekhan Ltd.

“The results are in line with our expectations of Rs. 993 crore net profit. Going forward, given HDFC’s track record and the fact that demand for homes continues, they should not find it difficult to meet their 18-20% target,” he said.

About two-thirds of HDFC’s loans go to individuals, with the remaining lent to builders as project finance.

Mistry said loan approvals increased at a slightly faster pace in the quarter ended December, which led to an average of 19% growth in both approvals and disbursements.

“In the first six months, loan approvals grew 18%, while disbursements rose by 19%. This time approvals have risen 20%, while disbursements have kept pace at 19% growth,” he said. HDFC did not give absolute numbers for loan approvals and disbursements.

The lender’s net interest income (interest earned minus interest expended) increased 18% to Rs. 1,235 crore from Rs. 1,040 crore a year ago, while its net interest margin (NIM) was 4.3% in the three months to December, Mistry said.

“NIM has been stable at 4.3% all through the year and though we do not expect it to change in the last quarter of the fiscal, next year it could improve as interest rates are likely to fall,” he added.

NIM is the difference between the rate of interest charged for loans and that paid for funds, and is considered a key measure of a financial firm’s profitability.

Another critical efficiency parameter is the portion of non-performing assets (NPAs) as a percentage of assets. For the 28th consecutive quarter, HDFC’s gross NPAs dropped. In percentage terms, it is 0.82% of assets, down from 0.85% a year ago.

Amid global economic uncertainty, the only cause of worry for the firm is a possible loss of consumer confidence, Mistry said.

“So far it’s been good and we have maintained our guidance, but if people lose confidence that they will keep their jobs, then that could have an impact on home demand,” he said.

HDFC has met its guidance because of sustained home loan demand from across the country even though markets such as Mumbai and Gurgaon have slowed, Mistry said. Source: Mint

Former SARE Group executives form new realty fund

Two senior executives of South Asian Real Estate Group, or SARE Group, an investment and development company, resigned recently to form their own real estate investment fund, looking to tap into growing demand from the sector for non-bank capital.

Arvind Pahwa, former chief executive of SARE, and Mehul Gala, former vice-president in the company, are setting up Lavi Real Estate Advisors Pvt. Ltd to invest largely in urban residential projects. SARE, meanwhile, has transitioned to being run by an executive committee with David Walker as executive director, said a spokesperson.

Pahwa, who joined SARE in April 2010, is now non-executive chairman in the company.

Pahwa’s leaving an established fund to turn an entrepreneur follows another recent example of former Morgan Stanley Real Estate Investing managing director Naresh Naik who too resigned to set up his own investment firm.

Though real estate companies are queueing outside investment firms for money as bank loans have become scarce and expensive, the slowing economy may pose challenges for new funds.

Real estate analysts warn now is possibly the worst scenario for capital raising, as investors are less than convinced about the emerging India story and because the real estate sector faces uncertainties owing to poor sales and a liquidity squeeze.

“Raising capital is not the easiest of things now,” agreed Pahwa, “but you have to look at the right kind of deals and funding strategy.” For starters, Pahwa’s fund will not look at land deals or projects that haven’t secured all the required government approvals. Lavi will essentially eye small projects being developed by mid-scale developers across prominent cities.

Pahwa said Lavi’s first fund will raise more than $50 million (Rs.265 crore) and that he has already got commitments for a bulk of this from family offices and other investors. “The next fund and ones after that would be larger in size,” he said.

Lavi’s investment strategy will be similar to that of several other funds, which is to combine debt and equity funding with assured returns. Limited partners (LPs), investors who typically back private equity funds, have not realized expected returns from investments in Indian real estate and are therefore more cautious about investing this time around, said analysts.

Naresh Naik, who will raise a global fund, said LPs are reluctant to write cheques for emerging markets and investors in India prefer a fund backed by an institution.

Balaji Rao, after quitting as managing director of Starwood Capital India Advisors Pvt. Ltd in 2010, set up Indic Capital Advisors Pvt. Ltd to invest in hospitality ventures.

Rao, who is in the process of raising a $200 million fund, said that despite the challenges for the self-initiated, there are advantages in that one can choose the mandates they want to take up as there is no external pressure. Despite the obvious risks associated with start-up funds, both Pahwa and Rao believe one can put risk-averse strategies in place.

Rao’s focus from the beginning, for example, has been on acquiring, executing and buying out hotels in big and small cities. “There is a huge demand in the mid-market hospitality space and we also saw an opportunity to step into distressed assets,” he said. Source: Mint

National Consultation on Draft Real Estate (Regulation & Development) Bill, 2011

A national consultation on draft real estate (development & regulation) is being organized by the Ministry of Housing and Urban Poverty Alleviation, Govt of India today at Vigyan Bhawan at Delhi. The consultation is expected to deliberate upon the recently formulated Real Estate (Regulation & Development) Bill, 2011.

The Draft Real Estate (Regulation & Development) Bill, 2011 seeks to establish a regulatory oversight mechanism to enforce disclosure, fair practice and accountability norms in the real estate sector, and to provide adjudication machinery for speedy dispute redressal.

This Act is in pursuance of the powers of Parliament to make laws on matters enumerated in the Concurrent List namely, transfer of property other than agricultural land; registration of deeds and documents, and contracts including partnerships, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land.

The Bill aims at restoring confidence of the general public in the real estate sector; by instituting transparency and accountability in real estate and housing transactions.  Currently, the real estate and housing sector is largely unregulated and opaque, with consumers often unable to procure complete information, or enforce accountability against builders and developers in the absence of effective regulation.  The sector, in recent years, has also emerged as a source of black money and corruptions in the economy. The Bill is expected to ensure greater accountability towards consumers, bring transparency and fairness in transactions and reduce frauds and delays significantly. All of these factors would make sizable dent in the corruption in this sector.

The Bill is also expected to promote regulated and orderly growth through efficiency, professionalism and standardization. It seeks to ensure consumer protection, without adding another stage in the procedure for sanctions.

The salient features of the Draft Real Estate (Regulation & Development) Bill are:

• Establishment of a ‘Real Estate Regulatory Authority’ in each State by the Appropriate Government (Centre for the UTs and State Governments in the case of the States), with specified functions, powers, and responsibilities to facilitate the orderly and planned  growth of the sector;
• Mandatory registration of developers / builders, who intend to sell any immovable property, with the Real Estate Regulatory Authority as a system of accreditation;
• Mandatory public disclosure norms for all registered developers, including details of developer, project, land status , statutory approvals and contractual obligations;
• Obligations of promoters to adhere to approved plans and project specifications, and to refund moneys in cases of default;
• Obligation of allottee to make necessary payments and other charges agreed to under the agreement and payment of interest in case of any delay;
• Provision to compulsorily deposit a portion of funds received from the allottees in a separate bank account, to be used for that real estate project only;
• The Authority to act as the nodal agency to co-ordinate efforts regarding development of the real estate sector and render necessary advice to the appropriate Government to ensure the growth and promotion of a transparent, efficient and competitive real estate sector; as also establish dispute resolution mechanisms for settling disputes between promoters and allottees/ buyers;
• Authorities to comprise of one Chairperson and not less than two members having adequate knowledge and experience of the sector;
• Establishment of a ‘Real Estate Appellate Tribunal’ by the Central Government to hear appeals from the orders of the Authority and to adjudicate on disputes.  Tribunal  to be headed by a sitting or retired Judge of Supreme Court or Chief Justice of High Court with 4 judicial and at-least 4 administrative/technical members;
• Chairperson of the Tribunal to have powers to constitute Benches, for exercising powers of the Tribunal;
• Establishment of a Central Advisory Council to advise the Central Government on matters concerning implementation of the Act.
• Council to make recommendations on major questions of policy, protection of consumer interest and to foster growth and development of the real estate sector;
• Penal provisions to ensure compliance with orders of the Authority and Tribunal;
• Jurisdiction of Civil Courts barred on matters which the Authority or the Tribunal is empowered to determine;
• Both Centre and States to have  powers to make rules over subjects specified in the Bill, and the Regulatory Authority to have powers to make regulations;
• Powers to Central Government to issue directions to States on matters specified in the Act have also been specified.

Read the complete draft of the Real Estate (Regulation& Development) Bill, 2011 HERE

Bills to streamline land records in Bihar passed

The two Bills have been formulated to reduce land-related disputes among the people and prevention of forgery in sale and purchase of land

Patna: Bihar Government has adopted Bihar Special Survey and Settlement Bill, 2011, which aims at land reforms.

The Bill was passed by the State Legislative Assembly by a voice vote. With the introduction of the new Bill, the officials would now have to dispose all the applications for transfer of title within a fixed time frame.

The new legislation—Bihar Land Mutation Bill, 2011—empowers Deputy Collectors to take action against unscrupulous elements who have claimed right on public land by virtue of paying rent through illegal entry of their names in revenue records.

“The law will supplement the Right to Public Service Act under which mutation applications have to be disposed off within a time frame,” Chief Minister Nitish Kumar said. 

 
Kumar said that the twin legislations on land reforms have been formulated to reduce land-related disputes among the people and prevention of forgery in sale and purchase of land.