Property trusts may soon debut in India

Move will encourage foreign real estate funds to partake in construction boom

(HONG KONG) India could follow other Asian countries this year in creating a market for real estate investment trusts (Reits), making it easier for investors to buy into the country’s sparkling new office blocks and shopping malls.

The move would encourage foreign property funds, which are keen to join India’s construction boom but are not allowed to own finished buildings.

Reits or domestic funds could buy the assets they develop, offering them an easier way to exit the projects and take profits on their investments.

In December, market regulator Securities and Exchange Board of India (Sebi) issued draft guidelines for Reits, which pay most of the rent from their buildings to investors as dividends.

But people in the industry say that unless tax breaks are also offered by the government in its upcoming budget, a local Reit market would be a non-starter.

The Sebi proposal contained no mention of the kind of tax breaks that kick-started other property trust markets, but it could be fleshed out in the federal budget due on Feb 29.

‘It should’ve happened five years back,’ said Nayan Shah, chief executive of private developer Mayfair Housing Ltd, which wants to create a property trust of rental housing in Mumbai as soon as Reit regulations are in place.

‘Unfortunately, the government was never able to get over its regulations and set up a proper market,’ he said.

Arshdeep Sethi, head of capital markets at developer RMZ Corp, said he expected a market to be up and running within a year, adding that RMZ would also look to sell buildings into a trust.

‘We wouldn’t mind exploring it. It’s an instrument that will be interesting for investors and developers,’ Mr Sethi said.

Property trusts, long established in the United States and Australia, have caught on in Asia in the last five years, with investors enjoying stable yields that are higher than government bonds, and share price rises when rents and property values rise.

However, they have not been immune from global stock market turmoil, with Singapore’s Reit index , for example, dropping 20 per cent in the second half of last year and a further 13 per cent so far this year, in line with the broader market.

Reits would be riskier in India’s immature market, where a three-year building boom sparked by easing of foreign investment rules barely masks crumbling colonial-era infrastructure.

Overbuilding in some areas worries investors. For example, around 50 malls are being built in the New Delhi suburb of Gurgaon. With the information technology industry thriving, around 100 million sq ft of office space is to be built over three years, equal to all the office blocks in Washington DC.

An economy growing at around 9 per cent per year has helped push up Mumbai office rents by a fifth in the last year, but as new developments pop up in India’s main cities, old areas can also quickly go out of fashion.

Reits would help cut risks for property investors in the country by improving information flows – as listed securities they provide a constant stock market valuation of buildings and must divulge rental and other data.

As they hanker for new assets to lift investor returns, Reits would also give foreign funds new buyers for their buildings.

Although rules were eased on inward investment in the construction industry in early 2005, overseas investors are still not allowed to own finished buildings.

The likes of Citigroup, Warburg Pincus and Morgan Stanley have preferred to build and sell housing, but could now be tempted into commercial property.

Office yields are about 9-10 per cent in India.

Lacking a home market, a couple of Indian firms are looking to list Reits in Singapore, with the country’s most valuable developer, DLF Ltd, working on a US$1.5 billion initial public offering scheduled for the second quarter of this year.

As well as having an established Reit market, Singapore is attractive to Indian developers as its 10-year bonds trade at 2.3 per cent compared to India’s 7.5 per cent. So trusts, which need to draw investors with a premium to bond yields, can be sold to investors at higher prices in Singapore than in India. Reits in Singapore and Japan now offer yields of about two percentage points above domestic bonds.

But some analysts expect the Reserve Bank of India to push domestic listings by restricting the sale of more Indian assets into Singapore-listed trusts, in an effort to curb capital inflows that threaten to overheat the property market.

‘It might be too much for the RBI,’ said Param Desai, an analyst at India Infoline. ‘In the near future they might come up with a policy to restrict the flow of assets to Singapore.’

For an Indian Reit market to take root, DLF chief financial officer Ramesh Sanka said the government must waive stamp duty and introduce the tax ‘pass through’ that made Singapore’s US$19 billion Reit market popular.

Trusts there do not pay corporate tax but investors pay tax on dividends at their personal rate.

Sebi’s guidelines stipulated that Reits should pay at least 90 per cent of annual income as dividends and borrow no more than 20 per cent of gross assets, but no mention was made of tax.

 

Source: Reuters (Business Times 14 Feb 08)

Indian property trust poised to launch $1.7b IPO in S’pore

INDIA’S fourth-largest realty company by market value is going ahead with its plan to launch a potentially huge initial public offering (IPO) for its Indiabulls Properties Investment Trust in Singapore.

Reports in India suggest that the IPO by Indiabulls Real Estate Ltd could be worth a whopping US$1.2 billion (S$1.7 billion), which would make it the biggest IPO in the Republic in years.

Thai Beverage, the brewer of Chang beer, which raised $1.37 billion in 2006, was the largest IPO in the Republic since SingTel’s in 1993.

The Indiabulls real estate investment trust (Reit) would own property in the booming commercial centre Mumbai.

The company said on Tuesday that the Singapore Exchange (SGX) has granted its property trust an ‘eligibility to list’ status for the mainboard.

India’s developers are keen to expand via a Singapore listing into the Reits business, which is not yet allowed in their home country.

Indiabulls’ plan comes not long after India’s largest and second-biggest property developers – DLF and Unitech – announced plans for Reits in Singapore. The former is reportedly planning an even bigger US$1.5 billion IPO.

Those numbers would probably make them the largest IPOs since SingTel made its debut back in 1993, raising $4 billion. Still, there were earlier concerns that the Indian listings may be delayed due to the fallout from the United States sub-prime crisis.

A report in India’s The Business Standard newspaper quoted Indiabulls Group president for corporate affairs Ajith Mittal as saying that the IPO would hit the market by the middle of next month, and that market sources expect Indiabulls to make a total offer of nearly US$1.2 billion.

The trust will acquire One Indiabulls Centre in Mumbai and Elphinstone Mills, which are developed and owned by Indiabulls Properties and Indiabulls Real Estate Co, respectively. The two properties are held by Indiabulls Real Estate Ltd through investments in those two latter firms.

Indiabulls Real Estate Ltd will offload a 14 per cent stake in the two projects – out of a 40 per cent stake – via the IPO and mop up nearly US$250 million, said the report. The two properties are valued at over US$2.2 billion.

‘We are planning to lodge the final documents two weeks from now and hit the market in March,’ said Mr Mittal in the report. ‘The total offering will depend on the call taken by other investors and market volatility.’

The report said US hedge fund Farallon Capital and Dev Property Developer are 60 per cent stakeholders in the two projects. The latter is listed on the London Stock Exchange’s Alternative Investment Market.

One Indiabulls Centre in the Parel area of Mumbai has 1.5 million sq ft of commercial space and half a million sq ft of retail space. It is part of the emerging new business centre of Central Mumbai.

Elphinstone Mill is being built in Lower Parel and will have 1.5 million sq ft of leasable office space, according to the Indiabulls website.

According to estimates, Indian real estate developers may raise nearly $20 billion from the SGX in the next two years, said the report.

 

Source: The Straits Times 7 Feb 08

Emaar’s India unit in IPO to tap US$1.8b

Proceeds will be used to buy land, development rights, pay for construction

(MUMBAI) Dubai’s Emaar Properties hopes to raise up to US$1.8 billion from an initial public offering of a unit in India, where IPOs are forecast to more than double this year despite choppy markets in the wake of the US subprime mortgage crisis.

Property development in India has flourished and land prices have jumped since the country eased rules on foreign investment in the construction industry in early 2005.

Emaar MGF Land said in a statement yesterday it plans to sell 102.6 million shares at between 610 and 690 rupees (S$22.30- $25.20) each in the Feb 1-6 IPO, looking to raise slightly more than had previously been expected.

Emaar MGF, which has access to 13,024 acres in India, will use the IPO proceeds to acquire land and development rights, pay for development and construction and repay loans.

‘There is clearly an investor appetite for real estate firms, if the premiums commanded by firms like DLF are anything to go by,’ said Pranay Vakil, chairman of consultancy Knight Frank.

DLF Ltd, India’s most valuable real estate firm, raised US$2.25 billion in an IPO last year. Its shares have risen more than 70 per cent since their July debut.

But, after a five-year, record-breaking bull run, India’s main stock index has dropped 16.5 per cent from a life high just 11 days ago. DLF fell 7 per cent yesterday, in line with the benchmark index, which hit its lowest since late-September.

Shares slumped yesterday, hit by brokers’ margin calls, global fears of a slowdown and selling by foreign investors.

Yet Shyam Bhat, who manages about US$500 million of assets for Principal Pnb Asset Management, said recently that construction firms stand to gain from rising infrastructure spending and expected softer interest rates.

Despite a global credit crunch triggered by the US sub-prime crisis, investors are eager to move money into property firms in China and India, whose economies are growing rapidly.

Three big Chinese property firms plan to hit the Hong Kong market this year to raise a combined US$4 billion, while DLF and Unitech Corporate Parks are in talks to float Real Estate Investment Trusts (Reits) in Singapore.

India’s market regulator has issued draft guidelines for Reits, which some analysts expect may be allowed shortly.

‘India looks set to formulate rules for allowing Reits, which will have an edge, and these firms are possibly keen to tap the market ahead of that to gain some scale,’ said Knight Frank’s Vakil.

Emaar MGF’s IPO follows last week’s blockbuster US$3 billion Reliance Power IPO, which was lapped up by investors in a minute.

Companies in India are expected to raise up to US$15.8 billion from new listings this year, almost twice as much as last year’s record US$8.3 billion, according to Thomson Financial data.

Emaar MGF is being advised by Enam Securities Pvt Ltd and DSP Merrill Lynch Ltd, which are the global coordinators.

Citigroup Global Markets India, Kotak Mahindra Capital, HSBC Securities and Capital Markets (India), JPMorgan India , Goldman Sachs (India) Securities and ICICI Securities are also advisers to the issue.

 

Source: Reuters

Keppel Land markets India projects here

The company is also looking to expand to other Indian cities

(SINGAPORE) Keppel Land is looking to sell its residential properties in India to Indians based in Singapore, the developer told BT.

‘In Singapore we see a growing non-resident Indian (NRI) market,’ said Ang Wee Gee, KepLand’s director of regional investments.

‘In the past we have not been selling in Singapore. But now – with more Indian professionals coming here to work and live – we have decided to.’

KepLand showcased its India properties in Singapore last weekend.

About 300 people visited the company’s booth and about 40 of them are ’serious buyers’ the developer will follow up with, Mr Ang said.

KepLand is now marketing two projects in India – the 1,573-unit Elita Promenade in Bangalore and the 1,376-unit Elita Garden Vista in Kolkata.

It also has another project – the 1,168-unit Elita Horizon in Bangalore. The project is expected to be launched soon.

KepLand has so far sold 86 per cent of 1,340 units launched at Elita Promenade. Units went for between 3,000-3,400 rupees per square foot – a jump of more than 30 per cent since the project was first launched in 2005.

At Elita Garden Vista, the company has sold about 60 per cent of the 250 units launched. Prices were 2,600-3,000 rupees psf, Mr Ang said. The project was launched a few months ago.

About 15 per cent of all the units sold at both projects were bought by NRIs, Mr Ang said.

But most of these people are not from Singapore – they are from places such as the US, the UK and Hong Kong.

However, this is set to change as KepLand is seeing more interest among NRIs based here. ‘We have an advantage here – they know us and can see the projects we have launched here,’ Mr Ang said.

KepLand is upbeat about its future in India, where it has had a presence since 2003. More residential projects are planned there. ‘Definitely, we would want to expand,’ said Mr Ang.

‘Apart from Bangalore and Kolkata we are also looking in Hyderabad, Chennai and the gateway cities of Mumbai and New Delhi.’

 

Source: Business Times 4 Dec 07

India’s growth slips to 8.9% in Q2

Central bank may end 3 years of interest rate hikes on slowdown in expansion

(NEW DELHI) India’s economy grew last quarter at the slowest pace since 2006, signalling the central bank may soon end three years of inflation-fighting rate increases.

Asia’s third-largest economy expanded 8.9 per cent in the three months to Sept 30 from a year earlier after a 9.3 per cent increase in the previous quarter, the statistics office said yesterday in New Delhi. Analysts expected an 8.7 per cent gain.

‘Removing bottlenecks is central for India’s growth to continue,’ said Maya Bhandari, an economist at Lombard Street Research Ltd in London. ‘India is growing at its potential, its macro fundamentals are solid and you have a situation where companies will put more money there.’ The Reserve Bank of India expects growth in the year to March to ease to 8.5 per cent after it raised interest rates nine times since 2004 to curb consumer-price gains.

Inflation was 3.01 per cent in the week ending Nov 10.

Manufacturing gained 8.6 per cent last quarter from a year earlier, easing from a previous increase of 11.9 per cent.

Electricity output slowed to 7.3 per cent from 8.3 per cent, while farming rose 3.6 per cent after a 3.8 per cent gain in the quarter ended June 30.

Higher interest rates have curbed demand for cars and motorbikes, prompting Tata Motors Ltd and Hero Honda Motors Ltd to delay opening new factories and cut output. Demand for paper may wane from next year, said Gautam Thapar, chairman of Ballarpur Industries Ltd, India’s biggest maker of writing and printing paper.

Still, economic expansion in this financial year almost matches the average 8.6 per cent growth from 2003, the quickest pace in the Asian nation’s history since independence in 1947. That’s boosting profits for companies doing business in India.

South Africa’s Richards Bay Coal Terminal, the world’s biggest coal-export facility, expects a 30-fold surge in sales to India this year. Holcim Ltd, the world’s second-largest cement maker, said last month that its third-quarter profit rose 28 per cent as plants in India and China ran at full capacity.

‘This trend will continue because of all the work on infrastructure,’ said Jerome Lombardi, a business development manager at Holcim Group Support (S) Pte Ltd in Singapore. ‘When there is a global crisis we would rely on countries like India and China to sustain our growth.’ With exports accounting for only 23 per cent of India’s US $906 billion economy, Lehman Brothers Inc expects the South Asian nation to be immune to a deceleration in world growth sparked by mortgage defaults in the US.

India’s pace of growth is almost three times the economic expansion in the US and countries that share the euro, and falls only behind China’s 11.5 per cent gain last quarter among the world’s top 15 economies.

Global producers of cement, steel, aluminum, copper and other products are benefiting from an unprecedented drive by India to modernise and expand roads, ports and other infrastructure. Mr Singh’s government aims to attract US$500 billion by 2012 in India’s infrastructure.

The government will next week consider easing foreign investment rules in aircraft maintenance companies, petroleum marketing firms and commodity exchanges, the Economic Times reported. Since assuming office in May 2004, the government has relaxed foreign investments in telecommunications and single- brand retail outlets.

The Indian economy has quadrupled in size since 1991, when the Oxford-educated Singh as the finance minister, introduced free-market measures that cut red tape and allowed foreign companies to set up operations locally.

That’s helped double per capita income in the last eight years.

 

Source: Bloomberg (Business Times 1 Nov 07)

IPO lifts Indian property baron’s fortune by $6.3b

Shares of Mundra Port & SEZ more than double on debut on back of infrastructure boom

MUMBAI – INDIAN property magnate Gautam Adani has just added US$4.4 billion (S$6.34 billion) to his personal fortune.

His company, Mundra Port & Special Economic Zone (SEZ), more than doubled on its first trading day in Mumbai, boosting the value of his family’s 81.3 per cent stake to about US$8 billion.

Real estate ‘has caught the fancy of investors’, said Mr Jayesh Shroff of SBI Funds Management. ‘We could see many more billion-dollar property tycoons as investors pay a premium to own real-estate stocks.’

India’s 10 richest property investors have more funds than Mr Donald Bren, Mr Donald Trump, Mr Samuel Zell and the next seven wealthiest United States real-estate investors, Forbes Magazine reported.

Mumbai has the world’s second-highest office rents after London’s West End, according to data compiled by real-estate broker CB Richard Ellis. Rents in Mumbai rose 55 per cent in the past year to US$189.51 per sq ft, almost double the costs in mid-town Manhattan, CB Richard Ellis reported.

Mr Adani, 45, is among eight Indian developers whose wealth exceeded US$1 billion each for the first time this year, Forbes reported. A government plan to spend US$500 billion on ports, roads and airports has drawn investors to developers focusing on infrastructure.

Mr Adani’s Mundra Port, India’s largest cargo terminal outside government control, rose as much as 710 rupees to 1,150 rupees on the Bombay Stock Exchange (BSE) and finally ended 521.7 rupees, or 118.6 per cent, higher at 961.7 rupees.

The initial public offering (IPO) raised 17.7 billion rupees (S$642.5 million) this month with shares sold at 440 rupees each. The IPO attracted US$52 billion of bids, 116 times the stock for sale.

‘There was lot of interest from investors since this is the first port and SEZ company to be listed,’ Mr Adani said at a listing ceremony at the BSE yesterday. ‘Infrastructure stocks are in favour right now.’

Mundra Port is about 70km from the airport at Bhuj in the western state of Gujarat. The port can cater to companies including Reliance Industries, which is constructing the world’s biggest refinery in the state.

The port will handle 30 million tonnes of cargo this year, up from about 20 million tonnes last year, Mr Adani said.

A state-backed plan for private companies to build SEZs, or business enclaves with their own power, roads and commercial buildings, is also lifting developers’ shares.

Mr Anand Jain, who is building an economic zone near Mumbai with his school buddy Mukesh Ambani, joined the Forbes list with a US$4 billion fortune after his Jai Corp soared seven- fold this year, giving it a market value of US$45 billion.

Mr Jain’s family members last month reaped US$568 million selling a stake to investors including units of Merrill Lynch, Goldman Sachs and Morgan Stanley. The family still holds about 75 per cent in Jai after the sale.

Source: BLOOMBERG NEWS (The Straits Times 28 Nov 07)

India’s retail rents rank 16th most expensive

Khan Market in New Delhi the most costly at 950 rupees psf a month

IN NEW DELHI

INDIA has been ranked the 16th most expensive global retail ‘high street destination’ by a prominent real estate consultant.

According to the report Main Streets Across the World 2007 by Cushman & Wakefield, Khan Market, located near the famous India Gate in New Delhi, is the most expensive retail location in India with rentals of 950 rupees (S$35) per square foot (psf) a month.

Rents at Khan Market, known for its book, music, grocery stores and popular restaurants that are patronised by the diplomatic community in the city, have witnessed an annual growth of 35.7 per cent over the same period last year.

‘Khan Market is the biggest riser in the ranking of the world’s most expensive shopping locations in terms of retail rents, moving up eight places from last year’s 24th position,’ the report says.

New York’s Fifth Avenue held its position as the world’s most expensive shopping destination followed by Hong Kong’s Causeway Bay and Avenue des Champs Elysees in Paris.

‘Retail is going through a revolution in India, although a part of the increase in rents is due to lack of high quality space in the right location,’ Cushman & Wakefield India head (retail) Rajneesh Mahajan said.

India also figures among the world’s top 10 locations that have recorded the biggest rental increase in local currency terms.

Connaught Place, the main commercial and shopping hub of Delhi, is the biggest gainer in Asia and globally second only to Chicago’s East Oak Street, with an annual rise of 87.5 per cent.

Kemp’s Corner in Mumbai has also clocked very high rental growth of over 78 per cent, making it the fourth highest riser.

The rental at Connaught Place was 750 rupees psf a month and Kemp’s Corner was 490 rupees psf a month.

Greater Kailash in South Delhi and Fort/Fountain and Colaba in Mumbai also saw steep rises in rent of over 55 per cent for the first two and over 50 per cent for the third.

High rental in the above-mentioned locations is also attributed to the very narrow scope for expansion, as these areas are located in the heart of the various cities.

However, suburbs such as Noida or Gurgaon, adjoining Delhi, offer very good and cheaper retail options, as space for expansion is not an issue.

 

Source: Business Times 23 Nov 07

CapitaLand sets up $880m India property fund

CAPITALAND, South-east Asia’s biggest developer, yesterday said that it has successfully established its first India private property fund with a fund size of $880 million.

The company first announced the fund – CapitaRetail India Development Fund – in July.

The closed-end private fund has the mandate to invest in retail mall developments in India. CapitaLand holds a stake of about 45 per cent stake in it, with the remaining held by insurance companies, pension funds and corporations.

CapitaLand chief executive Liew Mun Leong said that the fund will allow the company to increase its multi-sector presence in India.

‘We are conscious of the vast opportunities presented by India’s retail real estate market, driven by the country’s strong macro-economic growth and rapid urbanisation,’ he said in a statement. ‘Over time, we expect to deepen our retail and fund management presence in India to become a significant long-term retail real estate player there.’

CapitaLand, which also has similar funds in China, hopes to replicate its successful China retail business platform in India.

CapitaLand’s shares closed unchanged at $6.50 yesterday. The company’s stock has risen some 4.8 per cent since the start of the year.

 

Source: Business Times 23 Nov 07

Dubai developer Damac to invest US$5b in India

It will build houses, offices, shops in Mumbai, New Delhi, Hyderabad, Bangalore

(MUMBAI) Damac Properties, a closely held developer based in Dubai, plans to invest as much as US$5 billion in India over the next three years as a booming economy spurs demand for real estate.

The developer will construct houses, offices and shops in the Indian cities of Mumbai, New Delhi, Hyderabad and Bangalore, chairman Hussain Sajwani said. The first project will be started in 12 months, he added.

Soaring office rents and a shortage of apartments are luring developers including Donald Trump Jr and Emaar Properties PJSC to India. The real estate market is set to grow to US$90 billion by 2015 from US$12 billion, according to Moody’s Investors Service.

Demand for property is soaring as the world fastest-growing major economy after China is poised for 9 per cent growth in the year to March 31, following an average 8.6 per cent average rise over the past four years.

India’s 1.1 billion population faces a shortage of 25 million housing units, according to government data. The government is seeking to encourage the purchase of homes by giving tax breaks and ensuring easy availability of bank loans.

‘We plan to meet the funding requirement from our internal resources,’ Mr Sajwani said. Damac has built waterfront luxury projects in the United Arab Emirates and is investing in Saudi Arabia and Egypt.

 

Source: Bloomberg (Business Times 22 Nov 07)

JLL sees Asia as safe haven amid sub-prime debris

Region could benefit as investors reallocate funds from US, Europe

(LONDON) Asia provides a ’safe haven’ for property investors as returns decline on US and European assets because of sub-prime mortgage losses, said commercial real estate broker Jones Lang LaSalle.

‘The region could be a beneficiary of the fallout as investors reallocate funds from the US and Europe towards Asia-Pacific in search of higher growth opportunities on a risk-adjusted basis,’ Jane Murray, Asia-Pacific head of research at Jones Lang LaSalle, said yesterday in a report.

The world’s biggest banks and securities firms wrote down US$45 billion of assets this year and cut 10,000 jobs because of the collapse of the market for mortgages made to borrowers with poor credit.

Commercial real estate transactions fell in the UK and the US after defaults on subprime pushed up borrowing costs, creating turmoil in financial markets.

Global direct real estate investment in Asia gained 14 per cent to US$54 billion in the first half of the year, compared with the year-earlier period, Jones Lang LaSalle said. Asian deals are about a third of the volumes in the Americas or Europe.

‘Although regional investment volumes are still a comparatively low proportion of global direct property investment, interest levels are very high and we foresee the continuation of rapid growth in volumes,’ said Ms Murray.

Japan remained the dominant market in Asia for international investors in the first half, accounting for more than half of investment in the region, the broker said.

Capital values gained 8.7 per cent in Japan during the quarter to 3.96 million yen (S$52,075) per square metre.

Goldman Sachs Group bought the building that houses Tiffany & Co’s flagship store in Tokyo in August for 37 billion yen, or about 54.45 million yen per square metre, the highest price paid since the burst of the bubble economy in the early 1990s, according to Jones Lang LaSalle.

Average monthly rents for grade A office buildings advanced 3 per cent from the second quarter to 54,882 yen per tsubo (US$150 per square metre), the 13th-straight quarter of gains, Jones Lang LaSalle said.

Grade A office buildings are sites with total leasable floor area of more than 10,000 square metres and more than 800 square metres per floor, according to Jones Lang LaSalle.

The buildings should be no older than 25 years.

 

Source: Bloomberg (Business Times 14 Nov 07)

HSBC raises US$1.5b for fund, eyes Indian realty

(MUMBAI) Hongkong and Shanghai Banking Corp (HSBC), which recently raised US$1.5 billion, aims to invest 40 per cent of that in Indian realty, the Business Standard reported yesterday. This is in addition to its growth fund investments of about US$600 million in India, it said. ‘At the Asia PE (private equity) fund level, we have recently closed a US$1.5 billion fund. According to our estimates, 40 per cent of that is expected to be committed to India,’ HSBC India country head Naina Lal Kidwai told the paper.

Private equity firms The Carlyle Group, JP Morgan Chase & Co, and the private equity arms of Citigroup and Morgan Stanley have poured money into Indian property since rules on inbound investment were eased in 2005.

Ms Kidwai also told the paper the bank was in talks to lend US$500 million to Wipro Ltd, India’s third biggest software services exporter. HSBC and Citibank were expected to do the deal, the paper said, citing industry sources.

 

Source: Reuters (Business Times 7 Nov 07)

Global property investment expected to fall

Mortgage defaults in US may prompt lenders to tighten credit, says JLL

(TOKYO) Global direct real estate investment may fall this year as concerns about defaults on US mortgages prompted lenders to tighten credit, said Jones Lang LaSalle Inc, the world’s second-largest commercial real estate broker.

Asia may be the only market to experience an increase in investment in the second half of this year, Jane Murray, Asia-Pacific head of research at Jones Lang LaSalle, said in Tokyo yesterday. Global direct property investment rose 41 per cent in 2006 to US$699 billion, advancing for a third-straight year.

‘The highly leveraged players who were very active earlier in the year are certainly sitting on the sidelines at the moment,’ Ms Murray said.

The four-year boom in real estate is threatened after the US housing slump raised concerns about the value of mortgages and bonds linked to those loans. Investors are finding it harder to borrow money when they want to fund property acquisitions.

Japan, Singapore, China and India are among the markets offering the best opportunities for investors, according to Jones Lang LaSalle research.

Grade A office rents in Japan have gained 80 per cent in the past three years and have more than doubled in Singapore, Ms Murray said. Grade A buildings are no more than 25 years old, with total leasable floor area of more than 10,000 square metres and more than 800 square metres a floor, according to Jones Lang LaSalle.

Japan features strong economic growth in a large market and is the only country where returns on office buildings exceed local interest rates, also known as a positive yield spread, Ms Murray said.

Morgan Stanley raised a record US$8 billion for a real estate investment fund in June. In April the firm agreed to buy 13 Japanese hotels from All Nippon Airways in the country’s biggest real estate deal.

Japan offers a positive yield spread of 1.56 per cent, compared with negative spreads in other major cities including London, Paris, Frankfurt and New York, said Takeshi Akagi, local director in Japan for Jones Lang LaSalle.

Investment in China rose 23 per cent in the first half of the year even after the government sought to curb property investment to cool gains in housing prices. India, where more than half the population is under the age of 25, doesn’t have enough offices, shops and houses to meet demand, Ms Murray said.

‘It will require major additions to the stock base across every sector over the coming years to accommodate its rapidly growing services sector and the increasing wealth of its population,’ Ms Murray said.

‘When the Indian government begins to deregulate investment for foreign players, we will see a flood of money pouring into that market.’

 

Source: Bloomberg (Business Times 25 Oct 07)

ICICI Venture to float US$2 billion real estate fund

Fund will have 10-year tenure, with money invested within three years

(NEW DELHI) ICICI Venture Funds Management Ltd is floating a US$2 billion real estate fund – the largest in the country – according to a report in Business Standard.

The fund, which will be launched next month, will have a tenure of ten years and the money will be invested in projects within three years.

The fund from the country’s largest private equity fund (it manages assets of over US$2.5 billion in a diversified portfolio) comes just 18 months after it launched a real estate fund of US$500 million. Of this, it has already invested 70 per cent in various projects.

ICICI Venture joins other majors such as Morgan Stanley, Citigroup, HDFC, JP Morgan, and Kishore Biyani that hope to cash in on the realty boom by floating real estate funds.

The private equity fund is planning to operate in the entire value chain of the real estate business and will now use part of the cash from the fund to build a land bank. It has also decided to buy and manage completed properties – commercial and residential – and sell them later.

Confirming the development, Renuka Ramnath, managing director and CEO of ICICI Venture Funds, said: ‘We will be able to raise large sums of money leveraging the ICICI brand name, coupled with over five years of experience in realty investment and, of course, a great international real estate developer as partner.’

ICICI Venture has a 50-50 joint venture with Tishman Speyer, TSI Ventures, to develop new projects with other partners. The fund has also tied up with developers to finance and build new properties in India.

For instance, TSI Ventures, in association with Nagarjuna Constructions Company Pte Ltd, has won a bid to develop an integrated township at Tellapur, Hyderabad on a 163-hectare plot.

In another development, Reuters reported a senior ICICI Bank official as saying the bank expects to sustain 70 per cent growth in its private wealth management business this year on the back of rising affluence.

‘In the last two years, our private banking portfolio grew by 65-70 per cent. There is no reason why this growth will not be sustained this fiscal year,’ Anup Bagchi, head of global private banking division, told reporters.

ICICI has about 150,000 customers with investible surplus of at least one million rupees (S$37,250), he said, but declined to give details on how much the business contributed to total revenue and profit.

‘Equity, real estate and private equity is driving private banking business in India,’ he said.

India had 100,000 millionaires by end-2006, up 21 per cent from a year earlier, according to the Merrill Lynch Capgemini 2006 Asia-Pacific Wealth Report.

Some of the biggest names in the wealth management business, such as Citigroup and Merrill Lynch, are stepping up their private banking operations in India, where the market is estimated at around US$600 billion.

 

Source: Business Times 17 Oct 07

World’s wealthy still eyeing property

They are undeterred by the market turmoil triggered by the US sub-prime crisis

(GENEVA) The wealthy have lost none of their appetite for property despite the market turmoil triggered by the sale of risky sub-prime mortgages in the US, according to some of the world’s top private bankers.

Clients of wealth managers are, however, on the lookout for the next big areas of growth and want products that will enable them to reduce their exposure to any one property or market.

‘We’re seeing heavy levels of investment in property in Hong Kong (and) throughout Asia,’ said Peter Flavel, global head of private banking at Standard Chartered. ‘You can’t get office space in Singapore, you can’t get it in Dubai.’

Speaking at the Reuters Wealth Management Summit, Mr Flavel said there was a ‘group of Asians that love real estate’ and that their ardour showed no sign of fading. ‘They’d see the situation in America as specific to America and the situation in the UK as specific to the UK,’ he added.

Samir Raslan, head of Citibank’s wealth management operations in central and eastern Europe, Middle East and Africa, said his clients also remained alive to potential opportunities in world real estate markets.

‘We haven’t seen any change in our clients,’ he told the summit held at Reuters offices here.

Nicolas Cagi Nicolau, global head of structured product solutions at SG Private Banking, said demand so far in 2007 had been particularly strong.

In Ireland, where fortunes have been made on the back of the country’s decade-long property boom, a fast-cooling domestic market and recent global market turmoil may have had a short-term impact, but investors’ love of property is intact.

‘All that we may be seeing is that people are just waiting to see what may well happen either domestically or internationally, but the appetite for further investment is undoubtedly there,’ said Mark Cunningham, managing director of Bank of Ireland Private Banking.

He said his main problem was persuading Ireland’s growing ranks of self-made millionaires to diversify into assets other than real estate. ‘The first love has always been property and will continue to be property for a lot of these people.’ In Spain, which like Ireland is experiencing a rapid cooling in its property market, the wealthy remain committed to real estate, although not necessarily in their own country.

Daniel de Fernando, head of asset management and private banking at Spain’s BBVA , said a new product offering clients a chance to invest in the Mexican property market had proved particularly popular. ‘People are asking us for more ideas on that front,’ he said of a fund bought into by 60 people within two weeks of its launch at a minimum investment of 2.5 million euros (S$5.2 million) each.

In the Netherlands, property also continues to be popular, according to Bernard Coucke, deputy chief of private banking at ING Groep. ‘On the contrary, more and more programmes are being set up, not only in residential but also commercial. Why? Because, for instance in the Netherlands, demand is high . . . and I think it will continue to go up.’

For some rich investors, however, there is a growing belief that other assets can offer better returns.

‘I think that the appetite for real estate is decreasing a lot,’ Paolo Molesini, head of private banking at Italy’s Intesa Sanpaolo said of a country where up until now the wealthy have held about 70 per cent of their assets in property.

‘Property costs a lot and gives you a very, very low revenue . . . There is no equilibrium from the price of the asset and the earnings that you can get out of it.’ Mr Molesini said his clients were looking to invest in foreign property, particularly in Germany, eastern Europe and Paris.

 

Source: Reuters (Business Times 11 Oct 07)

Citigroup buys stake in Nitesh Estates: report

(MUMBAI) Citigroup will pay around US$250 million for a minority stake in Indian real estate firm Nitesh Estates, the Economic Times said yesterday.

The deal would see Citigroup partner privately owned Nitesh in the Indian firm’s hospitality venture, which involves setting up at least five luxury hotels and possibly malls also, the newspaper said, citing sources close to the deal. Nitesh Estates declined to comment, the paper said.

The head of Citigroup Property Investors told Reuters in April that the unit was investing around US$400 million in India, and that it had tied up with seven Indian developers, including Nitesh, for a US$100 million luxury hotel in Bangalore.

A spokesman for Citigroup in India did not immediately return a call seeking comment on the report.

 

Source: Reuters (Business Times 10 Oct 07)

WORLD HOUSING MARKETS – Bubble trouble

By Robert J. Shiller

THE future of the housing boom, together with the possible financial repercussions of a substantial price decline in the coming years, is a matter of mounting concern among governments around the world.

I learnt this first-hand while attending this year’s Jackson Hole Symposium in the remote wilderness of Wyoming where, ironically, there are almost no homes to buy. The howls of coyotes and bugling of elk rang out at night. But, by day, everyone was talking about real estate.

This conference has grown to be a major global event for government monetary policymakers, with governors or deputy governors of 34 central banks attending this year. Roughly two-thirds of these countries have had dramatic housing booms since 2000, most of which appear to be continuing, at least for the time being. But there was no consensus on the longer-run outlook for home prices.

Of all these countries, the United States appears to be the most likely to have reached the end of the cycle.

According to the Standard & Poor’s/Case-Shiller US National Home Price Index, US home prices rose 86 per cent in real, inflation-corrected, terms from 1996 to last year, but have since fallen 6.5 per cent – and the rate of decrease has been accelerating.

That looks like the beginning of the end of the boom, though, of course, one can never be sure. I presented a bearish long-run view, which many challenged, but no one obviously won the argument.

Nevertheless, an outside observer might have been struck by the weight given to the possibility that the decade-long boom might well suffer a real reversal, followed by serious declines.

Weaker standards

THERE seems to be a general recognition of substantial downside risk, as the current credit crisis seems to be related to the decline in US home prices that we have seen.

The boom, and the widespread conviction that home prices could only go higher, led to a weakening of lending standards. Mortgage lenders in the US seem to have believed that home buyers would not default, because rising prices would make keeping up with their payments very attractive.

Also, the boom resulted in some financial innovations, which may have been good ideas intrinsically, but which were sometimes applied too aggressively, given the risk of falling prices. Mortgage- backed securities were urged onto investors for whom they were too risky. As with homebuyers, all would be well, the reasoning went, on the premise that home prices continue to rise at a healthy pace.

At the Jackson Hole conference, Mr Paul McCulley of Pimco, the world’s largest bond fund, argued that in the past month or two we have been witnessing a run on what he calls the ’shadow banking system’, which consists of all the levered investment conduits, vehicles and structures that have sprung up along with the housing boom.

The shadow banking system, which is beyond the reach of regulators and deposit insurance, fed the boom in home prices by helping to provide more credit to buyers.

Bank runs occur when people, worried that their deposits will not be honoured, hastily withdraw their money, thereby creating the very bankruptcy that they feared. It is no coincidence that this new kind of bank run started in the US, which is the clearest example of falling home prices in the world today.

When home prices stop rising, recent homebuyers may lose the enthusiasm to continue paying their mortgages – and investors lose faith in mortgage-backed securities.

Loose policy

THE US Federal Reserve is sometimes blamed for the current mortgage crisis, because excessively loose monetary policy allegedly fuelled the price boom that preceded it. Indeed, the real (inflation-corrected) federal funds rate was negative for 31 months, from October 2002 to April 2005. The only precedent for this since 1950 was the 37-month period from September 1974 to September 1977, which launched the worst inflation the US had seen in the last century. What then helped produce a boom in consumer prices now contributed to a boom in home prices.

Loose monetary policy is not the whole story. The unusually low real funds rate came after the US housing boom was well under way. According to the Standard & Poor’s/Case-Shiller US National Home Price Index, home prices were already rising at almost 10 per cent a year in 2000 – when the Fed was raising the federal funds rate, which peaked at 6.5 per cent. The rapid rise thus appears to be mostly the result of speculative momentum before the interest-rate cuts.

Former Fed chairman Alan Greenspan recently said that he now believes speculative bubbles are important driving forces, but at the same time, the world’s monetary authorities cannot control bubbles. He is mostly right: The best thing that the monetary authorities could have done, given their other priorities and concerns, is to lean against the real estate bubble, not stop it from inflating.

Today’s fall in home prices is linked just as clearly with waning speculative enthusiasm among investors, which is likewise largely unrelated to monetary policy. The world’s monetary authorities will have trouble stopping this fall, and much of the attendant problems, just as they would have had stopping the ascent that preceded it.

The writer is professor of economics at Yale University and author of Irrational Exuberance And The New Financial Order: Risk In The 21st Century.

 

Source: The Straits Times 19 Sept 07

Plaza Centers to invest 50b rupees in India

Israeli group will build entertainment, commercial centres

(MUMBAI) Israeli-owned property company Plaza Centers said yesterday that it would invest 50 billion rupees (S$1.87 billion) over the next 5-7 years to build entertainment and commercial centres in fast-growing India.

Plaza Centers, a subsidiary of Elbit Medical Imaging Ltd, will build 50 malls and multiplexes in Indian cities, some in ventures with local Indian developers, said Abraham Goren, executive vice-chairman, Elbit Imaging Group.

‘We have been very active in central and eastern Europe for the last 10 years, and when we started thinking about where else we wanted to be, we thought of India,’ he told a news conference.

‘We think India has a lot of potential, and we plan to be here for a very long time,’ he said.

Plaza Centers picked India over China because of the widespread use of the English language, a familiar legal system and the openness to new ideas in India, he said.

‘India was an obvious choice over China,’ he said.

Plaza Centers has begun construction of a mall in western Pune city in a venture with an Indian developer, and has picked sites in Bangalore, Chennai, Kochi and Trivandrum.

Mr Goren said the first centre would open by end-2008 or early 2009.

India’s fragmented US$350 billion retail industry is forecast to double by 2015.

But the expansion of large Indian firms and the entry of foreign retailers has led to protests by traders, farmers and owners of small shops, who fear massive job losses.

The protests are a natural reaction to change, Mr Goren said. ‘India’s not the first to see protests against retail,’ he said.

‘Everywhere, retail goes through a process of evolution, and everywhere, human nature is the same. It is natural when there is a change from one system to another,’ he said.

Indian developers including DLF Ltd, Unitech Ltd and Peninsula Land Ltd also develop malls, office and residential complexes.

 

Source: Reuters (Business Times 4 Sept 07)

Indian developers eye mass market as prices fall

Property stocks depressed on worries about housing market

(MUMBAI/HONG KONG) After a two-year surge, home prices in India have dropped as much as 20 per cent because even the most upwardly mobile tech graduates can no longer afford to buy, forcing developers to consider building for the poorer masses.

‘We’re at a point where growth in salaries has not kept pace with property price increases,’ said Hari Krishna, of Kotak Realty Funds, a unit of Kotak Mahindra Bank that has been raising US$350 million for property joint ventures in India.

‘Many developers are rationalising prices across the country, and certain sets of people are saying there’s a need to focus more on either the luxury or the mass market.’

Since India eased rules on inward property investment in early 2005, the country has swept into a dusty frenzy of construction, causing land prices to double in major cities.

Drawn by a thriving, 1.1 billion-person economy, where a new batch of graduates swarm out of technology parks eager to shop and go home to modern apartments, global property investors such as Citigroup and Morgan Stanley have rushed in.

A raft of developers such as DLF Ltd and Parsvnath Developers Ltd have listed on the Mumbai stock market to raise funds for expansion drives.

Annual property investment is projected to double to US$90 billion by 2010.

But a drop of around 20 per cent in residential transactions since January – as rising interest rates and soaring prices put India’s new rich off buying – has persuaded many developers to take a second look at their business models.

Prices have fallen 15-20 per cent in the New Delhi area and Punjab state, and have paused in Mumbai after sharp rises.

Most developers have been targeting the roughly one million families bringing in US$25,000-50,000 a year – for example, middle level accountants or software programmers.

Another million families are expected to join their ranks over the next three years, according to an economic thinktank, while the number of ’super-rich’ families with an annual income of more than US$250,000 is set to nearly triple to 141,000.

But with fierce competition to build high-margin apartments for the rich, some investors are starting to target the 53 million families earning US$2,500-5,000 a year – where the much-vaunted figure of a 20 million home shortfall originates.

An estimated 22 million families should be lifted out of poverty and into this segment of society by 2010.

Gross margins for the mass market are around 20 per cent, rather than the 30 per cent for high-end housing.

But developers can forge healthy businesses by building huge townships on non-prime land that is more easily acquired.

‘Our view is that building residential units for the lower middle class in that part of the world is pretty recession proof,’ said Alastair King, chief executive of Eredene Capital, which is listed on London’s Alternative Investment Market (AIM).

‘These are people taking out mortgages for the first time,’ he said, citing bank clerks, junior civil servants and hotel chambermaids as examples.

Bank exposure to housing loans tripled in three years to around US$60 billion in 2006, but that was only about 6 per cent of gross domestic product (GDP) – so industry players are unconcerned about any US-style mortgage default crisis.

Mortgage debt in the US and Britain is equal to about 50 per cent of annual GDP.

Eredene has invested an initial £pounds;16.4 million (S$50.3 million) in a joint venture that plans to build 185,000 units in Panvel, where a planned train link aims to cut the 90-minute commute to Mumbai by half.

Mr King said that blocks could also be sold en masse to Indian developers working on slum redevelopment projects in central Mumbai who are obliged to find new homes for people they evict.

Some investors are steering clear of residential homes altogether. ‘The residential market has taken a bit of a beating, but commercial prices are super buoyant and will continue to rise,’ said Vikram Mehta, associate director at Coldwell Banker, a unit of US real estate brokerage Realogy Corp.

‘Multinationals and Indian companies – everybody wants to expand.’

Worries about the housing market and recent stock market turmoil have depressed property stocks.

Yesterday, Puravankara Projects, the latest developer to list, was trading nearly 6 per cent below its issue price by 0549 GMT after making its market debut last Thursday.

The country’s biggest listed developer, DLF, has seen its stock fall 12 per cent from a peak reached a week after its July 5 market debut.

But analysts said the firm, which raised US$2.25 billion in its initial public offering (IPO), is undervalued and a planned move by the company into mass housing should be positive.

‘DLF is going into mass housing two years down the line, and that’s a good thing,’ said JPMorgan analyst Gunjan Prithyani, which has an ‘overweight’ recommendation with a price target of 725 rupees (S$27), or a 21 per cent upside.

‘Like Chinese companies, it’s a volume game rather than a margin game, but it has huge potential.’

 

Source: Reuters (Business Times 4 Sept 07)

Sub-prime market is thriving in India

Estimated US$10-11b market for unsecured credit growing at 25-30%

(NEW DELHI) Like the US, India too has a sub-prime market and it is booming. The success of early entrants like Citi Financial and GE Money has encouraged several others to enter the consumer lending business – nearly half of which is a sub-prime market, says a report in Business Standard.

These include players like HSBC (Pragati Finance), Stanchart (Prime Financial), Fullerton India, DBS Cholamandalam and Indiabulls.

Many more are coming. Industry sources said Barclays, Deutsche Bank and AIG are eyeing the segment, which includes private lenders like ICICI Bank and HDFC Bank, which entered in 2004.

What is attracting them is an estimated US$10-11 billion market for unsecured credit, which is growing at 25-30 per cent, according to Citi Financial managing director Sandeep Soni. The smaller players are growing at 50 per cent or more.

‘The non-banking finance companies, or NBFCs, are riding on the aspirations of people who were under-served by banks,’ said Mr Soni.

‘It’s an untapped market. There’s an opportunity to expand the market like in telecom,’ said Rajeev Yadav, head of personal loans at GE Money. Sub-prime has become a dirty word, so many multinationals in India call it a nearprime market and refuse to draw parallels.

A typical sub-prime customer is the self-employed, neighbourhood retailer or a trader who needs credit to buy goods and grow his business. He may be filing a tax return – most show an income of 70,000 rupees (S$2,604) to 80,000 rupees – but it does not truly reflect his cash flows.

‘Many of these people do huge business in cash; there’s no way it can be registered on paper. We use a lot of surrogates to estimate their income or cash flows,’ said Biju Pillai, business head, personal loans, HDFC Bank.

Take a car mechanic, who comes to borrow, say, 25,000 rupees. Lenders like GE Money will look at surrogates like his bank balance or his credit card records or visit his shop to estimate his income.

‘If he maintains an average bank balance of 2,000-3,000 rupees and that’s increasing or services an EMI of 1,500 rupees on credit card or another loan, it shows he has cash flows. Banking tells us about a guy’s character, about his cash flows. His ability to service an existing loan or an EMI indicates his credit-worthiness,’ Mr Yadav added.

‘You can’t expect people to have either of the two where only 30 million people file tax returns and most of the economy runs on cash,’ said a senior executive with an NBFC.

To expand their pool of customers, companies like GE Money run pilots to test various surrogate programmes (based on income, quality of bank statements, earlier loan or field verification). At any given point, these companies have five to six surrogate programmes running.

Customers for NBFCs also include salaried people and professionals like doctors and chartered accountants, who are prime customers.

A salaried employee could be a business process outsourcing executive earning 8,000-10,000 rupees a month who wants to buy a bike, a mobile phone or a personal computer. The customer could also be a blue-collar worker who wants to do up his house or buy a refrigerator or TV. Many of these are first-time borrowers.

In the absence of credit history, companies like Citi Financial have built a database of customers by providing loans for two-wheelers, television, washing machines, TV and mobile phones, on which they do not make much money. ‘This is the best way of getting customers on board and creating a pool of tested customers,’ said Mr Soni.

The average ticket size for these loans is 25,000 rupees but could go up to 100,000 rupees. They come with a term of 25 months and interest rates of 45-50 per cent. But the high cost of operations and sourcing (10 to 15 per cent) and defaults (5 to 15 per cent) partly negate the margins.

 

Source: Business Times 4 Sept 07

Ascendas sets up $500m fund for Indian properties

Business park group’s first development fund will have a target asset size of $1 billion

BUSINESS park developer Ascendas yesterday launched a $500 million fund to invest in property development projects in India.

Called Ascendas India Development Trust, Ascendas’s first development fund has a target asset size of $1 billion.

This follows its $250 million equity Ascendas India IT Parks Trust, which was launched in June 2005.

The fund comes as India’s real estate sector is seeing strong demand for quality commercial space as the country develops into a global information technology outsourcing powerhouse.

Its growth will also be underpinned by India’s rapidly growing and diversifying economy.

The development fund is set to invest in development assets including land suitable for industrial, commercial, residential and retail use.

Ascendas will develop the business space within the development projects.

Fund investors will benefit from a diversified blend of returns, said Ascendas in a statement yesterday.

The fund will include International Tech Park in Pune and International Tech Park in Nagpur, which are being developed as state-promoted special economic zones.

Ascendas announced in April that it was building these two major business parks, worth a total of $570 million, in north-western Maharashtra state. Pune and Nagpur are the biggest cities in the state, after Mumbai, which is India’s financial hub.

The fund is securing more properties.

Ascendas has a 26 per cent stake in the fund. Other investors include Bahrain-based Islamic investment bank Arcapita and ING Private Banking.

Arcapita said they will look at other opportunities in India and elsewhere with Ascendas.

Ascendas yesterday also announced that it had appointed Mr Jonathan Yap as the chief executive officer (CEO) of its India funds business from June 1.

Mr Yap, who is based in Singapore, will manage all of Ascendas’ India-focused funds, including future ones in the pipeline.

He said the launch of the fund reflects Ascendas’ long-term commitment to India.

Mr Lim Sin Tiow will take over his previous position as CEO of Ascendas India.

Ascendas’ portfolio in India comprises seven IT parks spread over Bangalore, Chennai, Hyderabad, Pune and Nagpur.

The company listed Singapore’s first business space trust, Ascendas real estate investment trust, in November 2002.

Source: Business Times 14 Jun 2007