9% rise in realty stocks !

They may be bogged down by debt and demand slowdown. But real estate stocks have suddenly caught the fancy of investors with top companies in the sector emerging as major gainers when sensex breached the 11000-mark on Wednesday. The BSE Realty Index was the topper among sectoral indices closing the day 8.79% higher. Sensex ended 2.9% higher with the BSE-100 advancing 3.3%. Ansal Infrastructure emerged as the biggest gainer among the pack with the stock jumping 17.1% during the day. Unitech, which is rescheduling its debt, rose 15% and DLF, the country’s largest real estate firm, saw its scrip rise by 10%. The Realty Index has performed impressively in the current rally. Realty gained the maximum registering 13.7% increase for the week ended April 9 compared with the 4.4% advance made by sensex. DLF moved up 9.2% while Indiabulls Real Estate and Unitech ended the week 25.4% and 12.1% higher respectively during the period.

High debt levels, however, are weighing down on the performance of realty companies. While DLF is estimated to have Rs 15,525 crore in debt, Unitech has Rs 8,900 crore with interest costs for the next financial estimated at around Rs 2,000 crore and Rs 1,150 crore respectively for the two realty majors. Analysts point out that the stocks have been rising on the hopes of a further rate cut. With debt restructuring now complete, investors’ focus would now shift to the ability of companies to service interest costs, according to Amit Adesara of Emkay Global Financial Services. “Attractively priced projects have found tremendous response. Cash flows generated from these projects will be utilised for interest servicing.”

However, some analysts don’t seem impressed. “There is no improvement on the macro economic front for the realty companies to have rallied. We expect the sector to reel under pressure until interest rates go back to lows of 7-8% and prices correct to affordable levels,” according to analysts at Angel Broking. The brokerage firm, in its weekly note, has maintained that it remains ‘neutral’ on realty and advised clients to stay away from stocks in the sector.

SBI will not extend loans to any new realty project !

India’s largest lender State Bank of India (SBI) has said it will not extend loans to any new realty project even though it counts many property developers among its clients. It is a no to new real estate projects however bank will have existing customers and if they need additional help or restructuring, bank will extend its help. The fact also is that not many proposals are coming these days. SBI expects earnings to grow at 25% in the fiscal year to March 2010 and plans to maintain its net interest margins in the range of 3%.
The public-sector bank could also lower deposit and lending rates by 25 basis points in the next six months. One basis point is a hundredth of a percentage point. The bank is also looking to cut its prime lending rate (PLR), though this might not apply to retail customers. PLR is the rate at which banks lend to their top-rated clients. The top executive also said the process of selling stake in UTI Mutual Fund was in its final lap. There are talks with an international player for the stake sale and is likely to be at the earliest.
SBI said it requires Rs60, 000-70,000 crore in the next five years to fund growth and plans to raise Rs20,000 crore by the end of the year. It is targeting an aggressive 25% loan growth in the current fiscal year because its non-performing assets have declined in 2008-09 compared with the preceding financial year

Banks to slash home loan interests - SBI, HDFC....

According to the latest report, the home loan interest rates will be further reduced so that the Indian people can avail loans at cheaper rates. The financial experts believe that it will boost up the image of the financial sector and evoke a deep interest for loans among the borrowers. It is also a good news for the borrowers that many public and private banks are offering finances at very low interest rates.

According to the financial experts, the home loans are generally sought by people for getting their dream home. They satisfy almost all the needs regarding a home. If you keep a close watch on the current financial market, you must be knowing that the interest rates for such financial tools have been dropping to a great extent. Such steps are taken to provide relief to the loan seekers. According to the bank reports, the main reason for the plummeting interest rates is the global downfall of economy. This is why the Public Union Banks have decided to slash the interest rates of finances before three months. After this decision of Public Union Banks, the borrowers have shown a great interest in availing loans and the craze for finances have returned back.

It is said that, the reduction of the interest rates for home loans is a new year bonanza for people. With bank authorities promising more cuts in the interest rates, the demand for credits will definitely rise and help the financial sector to recover.

According to a report, HDFC bank has also promised to cut its rates on loan against property and securities by 150 to 200 points. HDFC bank has launched special home loan product, offering an interest rate of 9.75 for an amount of 30 lakhs.

At last ! Timely completion may be a realistic promise :)

In todays economic down turn, selling residential project is a challenge in itself ! There was value adds which were being used as attraction so far and now the new tactic is gaining popularity which is timely completion of the project
In this downturn, the promise of ‘timely completion of project’ has become as good a bait, as any other — affordability, complementary club membership or swimming pools. With the slowdown in sales and cash crunch delaying real estate projects, some builders have started pitching ‘on time completion’ as their Unique Selling Proposition — a commitment that until recently was taken for granted. The biggest fear of a real estate buyer today is protection of his capital invested into a project, and its completion

A case in point is the recent marketing campaign unleashed by Crossings Republik which declares that despite the “tough times” and “slump in global economy”, its project has been running on schedule. Another ad campaign, by Purvanchal Construction Works, talks of a commitment to “completion and possession on time”. Industry experts feel that when the market was ‘euphoric’, completing projects on time was a given. Now with funds drying up and projects getting stalled, real estate buyers are already feeling the heat — for some possession has been delayed by over one year. Builders are now hoping to differentiate themselves from the rest, by meeting project deadlines.

For me, a buyer myself who has faced the pushing deadlines, poor quality of work, this indeed is blessing, ofcourse on an assumption that the deal is too good to resist :)

A new beginning for India - Housing Start-up Index

A technical advisory group (TAG) set up by the Reserve Bank of India (RBI) has recommended the creation of a Housing Start-up Index (HSUI) to be based on newly-built residential units in urban India and compiled on a quarterly basis. The central bank is likely to launch the index, work out the computation methodology and monitor its evolution.

The number of housing starts during a period indicates the demand and supply situation as reflected in conversion of building permits into actual starts. Housing starts are considered lead indicators of economic activity due to their strong forward and backward linkages with other sectors.

The TAG said the HSUI would be confined to newly built residential units in urban India, whose construction is authorised through the issuance of building permits. The start-up co-efficients should reflect the recent experience of converting the housing permits into housing starts and the number of permits issued during the past two years. The group made its recommendations after studying the practices followed in Canada and USA.

Post liberalisation, RBI has been largely looking at equity prices to keep a check on asset price inflation. The significance of real estate in the economy has increased substantially in the recent years, compelling the central bank to also look at real estate prices. The RBI had, in fact, made it more expensive for banks to lend to real estate as a counter-cyclical measure.

The Case-Shiller Home Price Indices are a useful tool for measuring the movement of nominal house prices in the United States. The index indicates the price direction by using sales data for the same house over time.

The HSUI will be initially based on co-efficient matrices constructed for the six metros

Govt initiatives for attracting overseas investments !

Companies in sectors with foreign direct investment (FDI) limits could soon be exempted from taking prior approvals for participation by foreign funds in their share issues, as per new rules being considered by the government to attract more overseas investments. A committee of top government officials will soon consider a proposal that seeks to explicitly do away with the Foreign Investment Promotion Board’s (FIPB) approval for investments by foreign institutional investors (FIIs) in public offers of companies that operate in sectors with such FDI limits

The proposal, mooted by the Department of Industrial Policy and Promotion (DIPP), is likely to be taken up by the committee of secretaries shortly, said the commerce and industry ministry official, who asked not to be named. This move will remove all ambiguity in the policy over whether FIPB permission is needed for such investments and could benefit companies in sectors such as singlebrand retail, aviation and telecom, all of which have strict foreign investment limits. At present, the government’s foreign investment policies are silent on whether such investments need FIPB approval, but companies as a practice take its approval for their public offers due to lack of clarity.

Recently, Oil India and National Hydel Power Corporation sought FIPB approval for raising foreign capital in their planned initial public offerings, though both the oil and power sectors come under the automatic route where such approvals are not needed. “There is a lack of uniformity and clarity in the existing policy as far as treatment of FII investments vis-à-vis constituents of a sectoral cap is concerned,” the official said. The secretaries’ panel will also consider a separate proposal to just prescribe a single composite cap on foreign investment, doing away with sub-limits on portfolio investments by foreign funds and FDI. Sectors such as commodity exchanges, credit information companies, stock exchanges and direct-to-home broadcasters have sub-caps for FDI and portfolio holdings by foreign funds.

If approved, foreign investment in a company could be through any route so long as it remained within the stipulated composite ceiling. The committee of secretaries will also consider proposals for easing various restrictions for foreign investment in the real estate and aviation sectors. The proposal for aviation includes allowing up to 49% FDI in aviation through the automatic route. For real estate, the restrictions mainly pertain to minimum area and capitalisation requirements. The proposal will seek to reduce the minimum area criteria to 10,000 square meters for commercial developments and 10 acres for residential projects

Government's relief on home loans...

When public sector banks had announced concessional interest rates on home loans on Monday, developers and huge sections of consumers were not too enthused, since the relief applied only to loans of up to Rs 20 lakh. Now, the government is considering a proposal to broaden the “differential” interest rate regime even on home loans exceeding Rs 20 lakh. Such loans may be split into two parts, where concessional interest will be charged on the first Rs 20 lakh and market rate on the remaining amount. At a meeting with Planning Commission deputy chairman Montek Singh Ahluwalia and finance ministry officials on Wednesday, real estate players demanded progressive slabs on interest rate for home loans. Realty representatives were of the view that banks should extend the relief on interest rate on home loans beyond Rs 20 lakh.

They suggested that banks could charge reduced interest rate of 9.25% on the first Rs 20 lakh and the exceeding amount could be charged at existing market rates. Real estate players, under the aegis of National Real Estate Development Council (NAREDCO), apprised Ahluwalia and other officials of depleting demand and liquidity crunch. They sought credit and increased overseas borrowings but the government made it clear that it would not tinker with the monetary policy again and again to restore real estate boom.”Monetary policy cannot be operationalised to restore real estate boom,” a senior finance ministry official said at the meeting. The real estate players urged the government to further cut interest rates on home loans and restructure debt of developers in order to boost demand in the sector. The developers made it clear that there was no scope to cut prices from the present levels. They argued that they were catering to those in metros with an income of over Rs 10 lakh per annum and affordable housing, according to them, was a flat costing Rs 35-Rs 50 lakh.

In a blunt reply to the realty players and echoing the common man’s sentiments, Planning Commission member Kirit Parekh said, “I can’t buy a home in Delhi without black money.” The grouping also asked for one-year moratorium on repayment as part of restructuring of debts besides demanding revision of upper limit in the recent home loan package announced by PSU banks to Rs 30 lakh from Rs 20 lakh. The builders also demanded that interest should be brought down to 6.5% for loans up to Rs 5 lakh, 7.5% for loans in the bracket of Rs 5 lakh to Rs 30 lakh and 9.5% for borrowings above Rs 30 lakh. The high-profile meeting accepted that the sector needed stimulus and the plan panel chief asked the developers to come up with specific demands by Thursday. According to sources, Ahluwalia said he would forward the suggestions to Prime Minister Manmohan Singh who has instructed the cabinet secretary to work out a package for the real estate sector. After the meeting, Ahluwalia said the realty players explained their issues and different government departments would consider what could be done. The real estate developers told the meeting that transactions had come down by 80%, prices were on a downward trend and new projects were not taking off. The builders, highlighting that 35% of construction cost went in taxes, said banks were not lending to real estate developers which had created severe liquidity crunch in the sector.