tondon

Government is considering giving the pre-IPO placement to FIIs by real estate firms the status of FII investment. At present it is considered as FDI. At present FDI is allowed in only those projects which are spread over 10 hectares of land with a minimum investment of $5 million. Smaller projects are not qualified for FDI and here companies can’t raise money through pre-IPO placements.

A senior government official said pre-IPO placements in every sector are considered as FDI. But, as there is no restriction on FDI in those sectors, companies have no problem in selling shares. But in case of the real estate sector, where FDI is allowed, subject to certain conditions, companies are finding it difficult in raising funds at the pre-IPO stage.

RBI has reservation on the issue. It says that if the pre-IPO placement is treated as FDI, the efficacy of the FDI restriction will go. Therefore, it wants to stick to the existing norms.

However, a merchant banker said when an FII is taking stake at a negotiated price with a one-year lock-in, the authority should not have any problem in treating it as FII investment. He said a pre-IPO investor is also like a FII, which buys shares from the market.

If government decides to change the definition of pre-IPO investment as FII investment from FDI, a lot many companies who are planning to go public will be benefited.

Meanwhile, RBI on Monday notified that realty firms can not raise funds through ECBs.

Courtesy: The Times of India. Dtd: May 22, 2007

The real estate India business is estimated to be of over Rs 675 billion and growing at the rate of 30% a year. In the next 10 years, it is estimated to witness a gigantic rise Rs 4725 billion.
With the demand fundamentals displaying unusual strength, a majority of corporates have forayed into the dispute, each jostling hard to make hard cash. The matter that is in high discussions with the Government sees a hope that it may allow mutual funds to pump in Indian real estate market.
The real estate India industry has been largely contributing to the GDP. Its share has shot up from 5.25% in 2002-03 to 7% in 2004-05. The market is large and demand driven. It has been making appreciations in value over the years.
Investing in real estate India mutual funds has become a common concept in the US and Europe. The US Government has always wanted to broaden the space for real estate investments and reach to small investors.

Nowadays, no smart homebuyer wants to be a part of any pre-launch real estate India project. And, sky hitting borrowing costs is not allowing the real estate developers to have solace anywhere.
Adding to their woes are higher home loan rates and the prospects of a market correction that have made it difficult for them to woo buyers for their pre launch residential projects. Those who actually want to buy an apartment are waiting for the apartment building to be constructed completely.
Pre-launches are generally looked upon as the builder’s scheme to raise capital for the projects as it allows him to take advance bookings for a project after getting the required building permits, but much before beginning construction, providing them virtually free cash.
Indeed, many builders of real estate India are largely dependent on the money from a pre-launch to fund their real estate projects. Some of them may use the cash to complete another project or acquire land as per their business models.

Consequently, a majority of developers prefer launching projects while raising funds through debt and private placements.
Due to declining demand for real estate India, a Delhi based real estate developer has put off the launch of two residential projects and a commercial complex in the National Capital Region.
Realistically, such a phase comes when the developers are hit by cash flow problems after a two year high. Domestic banks will not lend to them for less than 14-15 per cent.

Growing the fastest in the world, real estate India price are well on their way to leave every other country behind, says the data revealed by Knight Frank and Citi Private Bank.

The real estate India, along with those in Russia and China has increased 40 to 50 per cent in the past few years. In comparison to this, London, witness a price growth of 30 per cent in the high end segment.

Residential real estate India prices are estimated to be going through the roof. Mumbai is known to have the most expensive residential properties, where an average per sq ft will cost Rs 50,000. This includes properties like the Chattan Bungalow on Malabar Hill or Sunita Apartments on Napean Sea Road, says Pranay Vakil, chairman of Knight Frank India.

At present, there are more than 300 funds functioning in these countries. They are mainly of two types – Real Estate Investment Trust (REIT) and Real Estate Mutual Funds (REMF). These funds generate a major part of their revenue from real estate development management (own and operate), rental or direct investment in physical property. This constitutes 60%. A minimum of 35% of the funds are often goes as a part of investment in properties.

The remaining part can be either in mortgage-backed securities, shares, bonds or debentures of companies trading in different securities such as debt and money market instruments, but not shares of companies that do not deal in property.

REITs are not obliged to pay tax on net income but 90% of the income has to be distributed as dividend. The dividends are exempted from tax. Any company that qualifies as REIT is allowed to deduct dividend paid to its shareholders from the corporate taxable income. Real Estate Funds in the US have reportedly been able to yield high returns of 12.5% annualized on a five year basis.
Courtesy: Realty Plus

Soaring residential properties in India & commercial property prices and interest rates on home loans in Metros have brought a decline in demand for new homes here. This has in turn resulted into a sharp drop in demand for re-sale flats.

Years old re-sale residential properties in India like apartments are hardly able to attract attention of prospective buyers. In comparison to the new residential property / plots in Delhi, Mumbai, Bangalore, and Kolkata, the demand of these flats has slipped more generally.

However, re-sale apartments are likely to pick up after May as the prices will start falling down by 15-20%. The reduction in prices of flats may encourage the buyers again to queue up for them, says industry watchers.

In May 2006, the demand for these flats grew at the rate of 35-40% as buyers were being bullish on buying such flats. Contrary to this, metros have witnessed a hike of 100% in their respective residential properties in India sector, putting off buyers from buying new or old apartments, says TrammellCrow Megharaj.

To save on their profit margin, property developers are not offering any discount on new residential & commercial projects as they cannot see any hike in prices in the near future. Recent increase in interest rates on home loans is what preventing people to opt for re-sale apartments. Although, it is a short term phenomenon but there will be a slowdown in the residential segment in the long term, says Hiranandani Construction.

DLF Venture Capital Fund, promoted by Dewan Housing, has roped in banks, financial institutions, high net worth individuals and corporate as potential investors. The fund has focused on developing properties rather than invest in real estate. It has put more emphasis on secondary locations to add value.

HDFC Real Estate India Fund (HI-REF), the first scheme HDFC Property Fund, will invest in three broad categories of companies-projects: those in the planning stage, those in the development stage and those, which are complete. However HDFC is not keen on investing in shopping malls because it expects some shake-out in that space in the coming months.
On the contrary, Kshitij Venture Capital Fund, a group venture of Pantaloon Retail India Ltd. one of the well known real estate India company, will be deploying funds exclusively in developing malls in tier II and III cities, primarily in western and southern India. The company is also launching a mall management service that will manage the upcoming plethora of malls as well as offer mall management services to other mall owners.

Real estate India- Interest rates on housing loans have been rising for over a year and its effecting always to real estate India market. Now they are slowly inching towards early 2002 levels. The interest rate on housing loans move more less in tandem with the policy rates announced by the central bank. Borrowing rates on home loan started falling initially since 2002, when the central bank started signaling lower rates. In the last two-and –a-half years, with the level of inflation rising and the growing concern over asset price bubble, the central bank has been signaling higher rates. Accordingly, the interest rates on home loans have also moved up. Given the trend in inflation, the rates could still rise further.
In 2006 home loans was approx 9.50% and according to source it is going to be approx 14% at the end of 2007. The rate of home loans is increasing due to investor showing big interest in real estate India sector. It is clear indication towards the future growth of real estate India market.

Courtesy:-ET dtd-11-04-07

Real estate India sector becoming one of the biggest growing and earning sector, as many others big companies and developers launching their ideas soon in India due to its opportunities. Property or real state India sector contains a better money growth than other sectors, and on other hand, risk factor is minimum here.
Developer and agent are offering number of schemes to customers and real estate India is changing their aspect. Renting is also a new category of them. Estate agent offering rent facility to customers and NRI investors as well as Indian investors are showing interest in this category. Due to this category all investors could get a good amount.

Since real estate India is becoming a heaven for safe investments, FDI has increased by 100% within two years comprising major share in real estate India and infrastructure. Moreover, the country is trying to successfully host the common wealth games in 2010 and cricket world cup tournament in 2011.
This is not enough, more than 90 international brands are looking for invest in real estate India and more than five luxury projects are being developed. On top of this, the entry of big business groups like Reliance, Bharti, Aditya Birla, Walmart, Spinach, Shoprite, Metro Cash and Carry, Carrefour & Tesco will further fuel achvities in this field who are still waiting in the wings. . Around 45 $ 10 billion foreign private equity has been committed to real estate India and it has focused the retail sector which is evident in Hyderabad , Bangalore, Indore, Pune, Delhi, Mysore and Aurangabad.