Mistry to launch real estate fund in Singapore

To unlock Tata Realty investment in IT parks and road projects
The $100 billion Tata group, now headed by real estate and construction baron Cyrus Mistry, plans to float a real estate investment trust or a business trust in Singapore.

The idea is to unlock a closely held subsidiary’s investment in projects such as IT parks, malls and roads already built or under construction assets such as IT parks, malls and road projects.

The subsidiary, Tata Realty & Infrastructure (TRIL), also intends to buy some smaller IT parks in India.

“We plan to float a real estate investment trust (REIT) in Singapore which will pool our completed IT parks… The REIT will helps us unlock capital from built and leased out assets and re-deploy it for infrastructure projects such as the Mumbai trans-harbour link which we have bid for,” a top official of the subsidiary told Financial Chronicle.

For the Mumbai harbour link, TRIL has formed an equal partnership with the Italy-headquartered, ¤8 billion Atlantia, one of the world’s largest operators of motorway infrastructure, and the ¤36.95 billion Vinci of France, a big construction company.

If the consortium manages to win the Mumbai bid, the planned REIT will help fund the equity contribution required for the project without a big cash infusion from Tata Sons, the parent firm.

The IT parks include Chennai’s Ramanujam IT special economic zone (SEZ) which plans a processing zone of 3.5 million sq ft of built-up area and a non-processing zone consisting of Cambridge Green a high-end residential enclave, a retail mall, service apartments and an international convention centre.

In March 2011, the company purchased a 700,000 sq ft greenfield IT park from Kotak India Real Estate Fund I for Rs 525 crore. It also plans to build a 600,000 sq ft IT park in Bangalore.

At the Ramanujam IT city 1.2 million sq ft of space has already been leased out to firms including HCL, Cognizant and TCS. In all 2.8 million sq ft will be ready for occupation by March.

Besides, the company plans to build mixed-use 1.3 million sq ft of space for retail and residential use, the Tata Centre in Bangalore, and is in the process of acquiring three toll road projects at a cost of Rs 600 crore.

“We are evaluating whether to float an REIT or a business trust in Singapore. A business trust will allow us to have a mix of both completed and leased assets as well as under development assets. An REIT can only be for completed assets such as toll roads and leased office space,” said the TRIL official.

If the company goes in for a business trust it could potentially fold in its 700,000 sq ft Trilium mall in Amritsar; the under construction Tritvam residential complex in Kochi and Capital Height, its 10 acre integrated residential and retail complex.

It also plans to pool in its subsidiary TRIL Roads that has been awarded the Rs 1,371 crore project of four-laning a 110 km stretch of the Pune-Solapur highway.

“We will take a call on which of the two routes to adopt depending on the valuation and advice from merchant bankers,” said the TRIL official. The business trust will target investors who are keen to have a rental base and a development play that generates capital appreciation albeit at a slightly higher risk of project execution.

The REIT, on the other hand, will target investors such as sovereign wealth funds and pension funds interested in a steady rental income.


India realty sector to get $4-5 b investments

India’s realty sector is set for inflows of $ 4 to 5 billion from global investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as favourites, according to the  Asia Pacific CEO of global real estate consultancy firm Jones Lang LaSalle (JLL).

“The early foreign investors in India, who came in around 2006-07, did not have very good experience, partly because of their inexperience in doing business in India and partly because of global financial crisis,” Alastair Hughes said at the World Economic Forum (WEF) Annual Meeting.

They don’t seem to be perturbed by it as India’s growth rate is still an attraction, according to him. “Foreign investors are now looking with a renewed interest at India, given its still robust economic growth rate as that bodes well for good returns to their investments,” Hughes said.

He  added that there is more international money today waiting to be invested in India than any of the last five years. Overseas investors have invested $ 14 billion into the Indian real estate sector over the period from 2006 to 2012.

In the last two years, foreign investment into Indian real estate has been around $ 1.2 billion per annum.

Around half of all transactions were invested in residential property, a quarter in the offices sector and the remaining quarter was split among other sectors.

According to him,  2013 and 2014 look more promising from an investment standpoint and the realty sector would get about $ $ 4-5 billion, mainly to buy income yielding SEZ assets at a capitalisation rate of 10.75 per cent.  Globally, Hughes said, there was a boom in 2007, followed by a bust in 2008, in the realty sector, while there has been a gradual recovery since the end of 2009.

Investments into Asia Pacific commercial real estate market fell around 10 per cent in 2012, from $ 98 billion to about $ 92 billion. “It was because of a sense of caution prevailing in different countries. But now we are seeing a change in the sentiments,” he said.

“One of the reasons for that is people looking to divert their investments from bonds to equities and other asset classes and that include real estate. Therefore more money is coming to real estate and a bigger proportion of that we see coming to Asia Pacific,” he added.

He said that in the retail sector, a very high growth is expected with the (likely) entry of foreign retailers.

Besides, manufacturing and industrial sector would also benefit a lot as retailers would need to set up logistics facilities. The residential space is also set for growth, he added.

Realty to be our largest business in 10 years: Godrej Group

Godrej Group, a major player in consumer durables and fast moving consumer goods sector, is investing heavily in the property sector and expects that realty would be the biggest contributor to the company’s business 10 years ahead.

Talking to reporters here, the $3.2 billion Godrej Group’s chairman Adi Godrej said the company had increased its focus on the real estate business in the past few years.

“In the next 10 years, I expect real estate will be the single largest contributor to our business,” Godrej said at a media briefing on the sidelines of the Partnership Summit here.

Godrej Group’s real estate unit Godrej Properties is currently developing several residential and commercial projects in different parts of the country including Mumbai, Bangalore, Kolkata and the National Capital Region.

Godrej said he was expecting good growth in India’s real estate business in the coming years.

“Real estate is the single largest industry in India. There is no player who dominates the business,” Godrej said.

There are seven major companies under Godrej Group with interests in the sectors like FMCG, industrial engineering, appliances, furniture, security and real estate.

RBI step may boost real estate slump

The city developers welcomed the Reserve Bank of India’s decision of reducing the 25 basis point repo rate, hoping that it would lead to less expensive home loans.

However, the buyers feel that the developers also need to slash the highly inflated property rates to make housing affordable.

The developers said RBI’s move will help decrease the interest rate, boosting the slow down in real estate industry. “It is a small, but good beginning. We hope that RBI will come out with many more such steps. And, bankers will follow suit by cutting down the lending rates,” said Paras Gundecha, president of MCHI-CREDAI.

He added that it would boost liquidity in the real estate market, easing pressure on cash-strapped developers.
“Last year was particularly bad for the real estate sector. Due to liquidity crunch and costly EMIs, sales plummeted,” said Gundecha, adding that the RBI should take some pragmatic decision to support the capital- and labour-intensive real estate sector.

The real estate sector is reeling under the burden of huge debts and poor cash flows caused by slowdown in sales. “The consequential drop in home loan rates will greatly benefit consumers and stimulate demand for new housing. The long-awaited move will trigger off a change in sentiments and catalyse the required buyer behaviour,” said experts.

Real estate expert Atul Nemade said developers were asking to cut down interest rate.

“Now, they have to take some complimentary steps to make unaffordable houses affordable. Beside the bank interest, the current skyrocketed housing prices are major factor for low sale. Now, it is the developers turn to cut the property rates to boost the sale,” he said.

Joydeep Ghosh: Why real estate prices won’t fall!

There’s too much at stake for both builders and their lenders, as a correction would put both in a tight spot

It seems that everyone, except real estate developers, wants property prices to fall. But there is some serious doubt it will happen soon, or ever. What potential buyers can hope for at best, is a slow rate of growth in prices or a miniscule revision, especially in big cities.

The reason is quite simple: Too much is at stake. Most builders have borrowed from housing finance companies, banks and private equity players. The latter have lent at rates as high as 25-30 per cent a year. Yet, resistance to rate cuts is unlikely to come from them.

It is more likely to come from housing finance companies and banks that have funded both builders and borrowers quite aggressively in the past. They would be quite petrified at the thought of a real estate slump.
Though the Reserve Bank of India limited loan-to-value to 80 per cent and took registration and stamp duty charges out of the loan component a couple of years ago, enough players lent as much as 100 per cent before these guidelines came into place. Some gave even more than 100 per cent of the residence value, if one includes payment for stamp duty, registration fees and sometimes, even home improvement loans.

If there is a sharp correction – say even 20 per cent – buyers, especially those who own second and third properties, will simply dump them. Worse still, investors who are helping builders hold on to prices will exit at the first inkling of any correction. In such circumstances, both builders and financial institutions will be stuck very badly. The latter, as we know, are already saddled with non-performing assets in various sectors.

What else justifies an inventory of 80,000-plus flats (report by Knight Frank on July 2012), with an average price of Rs 1.2 crore, lying unsold in just one city… Mumbai? That is, flats worth almost Rs 1,00,000 crore have no takers, still builders are unwilling to cut prices sharply. In addition, another 50,000-100,000 flats are supposedly vacant, but not available for sale, suggest reports.

It’s not that bankers have not been wary of lending to builders. But builders raised money at obscene rates to repay debts as well as to hold on to prices. Like a private equity player said, “One builder wanted a loan of Rs 100 crore just for one month, after deducting interest, because he did not want to default on his bank repayment. The interest cost: Rs 5 crore for just one month.” In other words, he was willing to pay 60 per cent interest instead of selling his inventory.

A little chat with market players will tell you that some banks are helping builders raise funds to avoid any default or disaster. Many banks, through their wealth management arms, are roping in high-networth individuals with lucrative offers. Others are using their private equity arms to fund them.

Yes, there can be corrections, in fact sharp ones. But only if the Reserve Bank of India and the government step in. RBI can make loans for investors or second/third property holders very difficult. Also, if projects are not completed or delayed, financial institutions should be able to take them over and sell them, much like the Sarafaesi Act. This way they can protect themselves.

The government can put pressure on civic bodies to use powers vested with them to check a builder’s record before giving clearances. If a developer has delayed a project or sold more than 10 per cent of a previous building to investors, they should not be given clearances for the next project. But that is called… living in hope.