Central Government Package to Real Estate
Real Estate is an omnipresent industry supporting industries like steel, cement, glass, the list can go on. Besides this, it provides employment to both the skilled and unskilled labour market. Government intervention becomes important in these circumstances. Precautionary measures and a system of checks and balances are needed to keep dynamic downturns in place. This has invariably led to, not one but two such recent economic stimulus packages by the Indian government.
The first economic package In what can be called a mini-budget in a run up to the elections, which involves a revenue loss of Rs 8,700 crore in the next four months, it considers housing among other areas in the economy that needs to be revived.
The Planning Commission Deputy Chairman Montek Singh Ahluwalia is of the belief that rural infrastructure and housing sectors have high employment potential and needed a spur of expenditure.
There were cuts in the CENVAT, the central value added tax structure, which will customarily reduce overall costs and stimulate the infrastructure.
The RBI's monetary measures to ease the cost of funding for the banks include signals to lenders to lower their interest rates. The public sector banks lowered home loans up to Rs 20 lakh. And the ripples are being noticed in banks across India. Home loan rates across various banks average around 10.5% for sub-Rs 20 lakh loans and around 12% for anything above.
• ICICI Bank, as of 31st December 2008, India’s second largest bank, disclosed that it slashed its Floating Reference Rate (FRR) for home loans with immediate effect which includes existing home loan customers. The revised FRR would be 13.75% p.a as against the current 14.25% p.a.
• Punjab National Bank (PNB) has interest rates on fixed rate housing loans reduced to upto 175 bps. Further, the bank has introduced a new housing loan scheme i.e. ‘PNB Special Housing Loan Scheme’ for new accounts from Jan. 01, 2009 till Jun. 30, 2009. Under this scheme, interest at the rate of 8.5% will be charged under fixed housing loan upto Rs 5 lakhs for maximum period upto 20 years and 9.25% interest for fixed rate housing loans of above Rs 5 lakhs to Rs 20 lakhs for a maximum period upto 20 years. The interest rate will be subjected to reset on July 01, 2014 for the scheme.
• Bank of Rajasthan, one of the oldest, fastest growing, technology driven and customer friendly private sector bank, slashed interest rates on home loan under `Apna Ghar Scheme` with effect from Dec. 22, 2008. The rates have been cut for home loans up to Rs 30 lakh on fresh loan, at floating interest rates. The bank has reduced the floating interest rate by 1.50% on maturity slot up to 10 years and 1% for the maturity slot over 10 years. The rate of interest for 5 years maturity period will now be 10% as against earlier rate of 11.5% and for maturity period over 5 years and up to 10 years new rate would be 10.25% as against 11.75% earlier.
• Bank of India announced a 75 Basis Point (bps) cut in its Benchmark Prime Lending Rates (BPLR). The maximum rate available would be 8.75% for deposits of 2 years and above and will also benefit the banks' existing home loan borrowers.
• Major public sector banks such as Bank of Baroda and Canara Bank have decided to lower their Prime Lending Rates (PLR) to 12.5% from 13.25% effective from Jan. 1, 2009 providing assistance to home loan borrowers as well.
• The country’s largest mortgage player, Housing Development Finance Corporation (HDFC), announced a cut in its retail prime lending rates (RPLR) by 50 bps, effective Dec. 22, 2008 for both existing and new customers.
• LIC Housing Finance has slashed 1.75-2.25 percentage point in lending rates for home loans up to Rs 20 lakhs from December 17. The scheme, which is applicable for loans taken till June 30, also offers free life insurance cover and exemption from pre-payment penalties to borrowers in these categories.
Furthermore, the apex bank also pumped in Rs 11,000 crore in Small Industries Development Bank of India and National Housing Bank to give an incentive to realty and small and medium sectors. To encourage the housing finance companies to provide more funds to the real estate sector, the RBI Governor said that housing loans of less then Rs 20 lakh should be treated as priority sector lending.
The second economic stimulus The second package gave a finishing touch to the initial package. Public spending was increased. It also enabled industries to borrow more from abroad and Foreign Institutional Investors (FII) to invest more in the country and also brought about liberalisation of External Commercial Borrowing norms, subject to RBI's approval, provided the money is used for the development of integrated townships.
It also withdrew exemptions on duties on cement, TMT bars and structurals that were originally given to contain inflation. The decision came at the right time.
• It was reported in the last month that Cement manufacturer ACC, India’s biggest maker of cement, was shutting down one of its Kilns at Gagal (HP) for a period of 15 days, due to poor cement demand in both Himachal Pradesh and Punjab on account of the economic slowdown. It has kept all options open for the same kind of temporary close down for its other locations as well. It also held back expansion of its ready-mix concrete (RMC) business.
• Germany`s Merckle family was also expected to surrender a 53% stake in Heidelberg Cement to a group of banks which may have impact on Indian cement manufacturer Mysore Cements in which the German firm holds a 54.89% stake.
• On December 29th 2008, Birla Corporation declared a `lay-off`at its unit, Birla Vinoleum, Birlapur. Birla Corporation disclosed a phenomenon drop in its standalone net profit for the quarter ended September 2008. During the quarter, the profit of the company declined 42.11% to Rs 597.00 million as of last year.
The sector was keenly watching the impact on cement demand due to the recent positive initiatives taken by the government to improve liquidity and catalyze construction activities.
• In view of the second package, as of 3rd January 2009, Binani Cement has started discussions with a few FIIs to bring up Rs 15 billion for its new projects for cement and mining projects in Gujarat and Rajasthan in 2009.
NBFCs and ECBs Mr. Ahluwalia’s commission paid special attention to the housing sector, macro and micro industries and infrastructure sectors through a series of measures including provision for higher credit and greater liquidity for the Non-Banking Financial Companies (NBFCs).
Real estate firms were not allowed to tap the ECB route earlier. The government will now allow development of integrated townships, access to External Commercial Borrowings (ECB), to borrow funds from overseas with a view to giving a boost to the housing and construction sectors. The government said "all-in-cost" ceilings on ECB would be removed by RBI subject to review in June 2009.
These relaxations come against complaints from realty and NBFC firms about dwindling domestic fund sources and rising borrowing costs. NBFCs are major financiers of construction equipment used in infrastructure projects.
The government also asked states to release land for low and middle-income housing schemes. However, developers are not holding their breaths reminiscing the time taken to Centre's repeal of the urban land ceiling act which took the states 7-8 years to approve.
Wait and watch There was a bit of disappointment because there were expectations of allowing Foreign Real Estate Investment Trusts (REITs) into the country and were also expecting an announcement in the rental property front, which lacks uniformity in the country.
“There is a genuine merit in the point for making available enough funds for housing" confirmed Gajendra Haldea, advisor to Deputy Chairman of the Planning Commission.
Pranay Vakil, managing director, Knight Frank said that the packages may address the liquidity crunch. He also adds, “The move is also positive for the industry because borrowing money abroad is always cheaper than in India. But companies will benefit only if there is no significant change in rupee/dollar parity, which I think is unlikely,'
All-in-all the package, like the bobbing economy, shares its ups and downs. But it provides the proverbial shot in the arm for a potential sector to be the engine of growth.
Chandanagar turns into a residential hub
The relatively quieter Chandanagar has become a residential hub for business executives and IT professionals K.SRINIVASA RAO
Chandanagar has emerged as a major residential hub of business executives, IT professionals and employees of various organizations. Most of them are fed up with the hustle and bustle of city life and prefer to settle down in Chandanagar, which is relatively quiet. At the same time it is also has connectivity to Hitech city, Gachhibowli, Hyderabad Central University, Patancheru, IDA Bollarum and Zaheerabad.
The MMTS railway station has become an added advantage for Chandanagar, chich comes under the jurisdiction of the Greater Hyderabad Municipal Corporation-Serilingampally circle. With demand for flats and individual houses going up, construction activity has picked up in the area. For those who work in various industries located in Ramachandrapuram and Zaheerabad, Chandanagar is the right place to have their dream homes.
“Though the cost of the construction material is skyrocketing per square feet cost is still between Rs.2400 and Rs.2800 here,” says Mrs.M.Vijaya Laxmi, managing partner of a construction company. “Even young software engineers whose monthly income is around Rs.40000 can afford to own houses here.” Some builders feel that high rents in the area have also interested property buyers. “The monthly rent for a 2-bed room flat is between Rs.8000 to Rs.12000”, says Mr.Chinna Raghava Rao, managing director of a construction firm. “And the demand is growing with the establishment of several companies in nearby localities.”
Those who give out the newly purchased flats on rent will also be able to pay back their bank loans quickly. “We have recently purchased a house in Chandanagar after carefully analyzing the advantages,” says Ms P.K.Sai Rekha, an executive of the National Institute of Smart Government. “ I’m happy with social infrastructure. Moreover, there is no water scarcity here.”
Mr.M.Muralidhar, who is employed with a private organization in Khairatabad, says that he is able to travel easily because of MMTS connectivity from Chandanagar. “It helps me avoid traffic congestion and sound pollution and I can also unwind after reaching home in the evenings,” says Muralidhar.
-Report from Deccan Chronicle Estates ( 25 July 2008 )
Excepts from Home Affair (page 3), Times Property, The Times of India dated 29 Sept, 2007.
What’s with the apartment prices? Only till recently, a decent 2/3 bedroom flat could be booked within Rs.2500/sft. However the prices have shot up by 30 to 50% on an average. This is primarily due to the following:
The latest regulations by HUDA, GO No.86 has freed the land ( as applicable under GO 86 land) from Floor Area Ration (FAR) strangle. Based on the setbacks ( open area from boundary wall) and the abutting road, a developer can now build to the maximum. However this adds to the cost. • Above 5 floors Impact Fees needs to be paid of around Rs.100/sft. • City Urban Improvement Fees or processing fees of Rs.40/sft. • Above 5 upto 20 floors, approval from fire authorities costs Rs.25/sft. • Above 20 floors, the fire authorities insist on special fire fighting systems such as sprinklers, advanced fire fighting systems, elevators to combat fire at great heights which needs to be imported. • Fees for approval from Airport Authority of India.
The above alone adds to around Rs.300/sft including the fees for quick turnaround of approvals. And with rising costs of cement, steel, labour, the construction cost works out to around Rs.1200-1500 /sft ( from earstwhile Rs600-800 ) for quality development in the city.
Moreover, the new rules demand that 44% of the area is provided for parking which forces the developer to dig further (underground parking) and Hyderabad being a rocky terrain the excavation costs on higher.
It is no wonder that projects are announced between Rs.3200 to Rs3500 to begin with. The moot question is, how many genuine buyers can afford to shell our a minimum of Rs.50 lakh for a 2-bed room apartment to avail “lifestyle living”. Only time will tell. George Johnson, Regional Director, Jones Lang Laselle Meghraj.
Getting the WINGS
One of the most prestigious projects that seeks to firmly place Hyderabad on the international map is the upcoming international airport at Shamshabad, Located on the outer fringes of the city. The RS 2283 crore project is being executed in a private-public partnership mode, by the GMR group,Andhara Pradesh state government, the Airport Authority of the and Malayasia Airport Holdings Berhard.
Set to open in March 2008, the Rajiv Gandhi international airport is currently a beehive of activity, with over 3000 workers working feverishly, to make this dream a reality. When completed, this project set out in about 5400 acres, will be one of the most advanced airport in the country, capable of the handling modern aircrafts like the awe- inspiring A 380s, coupled with a capacity of handling twelve million passengers per annum.With seven floors and 1.05 lakh sq mtrs of space. It also has parking space for 1500 cars. The facilities include 42 aircraft parking stands, to rapid exit taxiways and full-length parallel taxiways for enabling a quick turn around for aircraft. The runway designated Code 4 F is 4260 meters in length with a width of 60 meters and a shoulder of 7.5 mtrs on either side, giving it the enviable tag of the longest runway in South-East Asia. Moreover, there is also a provision for another runway in the north.
The 25 km boundary wall around the airport is 100% complete .About 40% of passengers terminal building, ATC complex including tower plus technical building and airside land side work is complete. The impressive terminal building is the shape of an inverted ‘T’ across seven levels.
Level ‘C’ of the passengers terminal building will be the deck level with AHU and baggage sorting areas, while level D will consist of the airport village with food courts and other facilities, including the baggage reclaim area. Level E will be the arrivals hall, while level F will have the check in countries along with handling of departures. Level G and H will house offices of different airlines while level H will have the GMR Hyderabad International Airport Limited (GHIAL) offices.
Passengers who walk into the airport can have a breeze through with check-in desks and 30 immigration desks along with a provision for six domestic bus gates. The ultimate plan is to have an airport that can handle 20 million passengers per annum. When that scenario arises, GHIAL will look for an alternate terminal and a runway on the northern side. Interestingly, a dedicated cargo facility capable of handling 1.5 lakh tones per annum along with a cold storage facility is also being set up.
The airport will be equipped with category 10 fire fighting system, which requires a response item of under two minutes for the tender to reach the aircraft. Two fire crash rescue station are being set up to ensure compliance to the standards.
GHIAL awarded the passengers Terminal building and Air Traffic Control works to china state construction Engineering (Hong Kong) Limited (CSCEHK), a fortune 500 company for Rs.615 crore. The GHIAL has also given airside and runway works to L&T at cost of Rs.495 crore. It has recently awarded in-flight catering to two renowned companies named LSG Sky Chef and Sky Gourmet. GHIAL has also signed an agreement with Reliance Petroleum to operate a fuel farm, while L & T will lay the fuel hydrant.
The state government is the process of implementing the 162 km access free outer ring road, which will link up the airport in a seamless manner with the inner city roads. The airport will have two approaches, one from the west side along the NH 7 on the Bangalore highway. GMR Group holds 63% equity in this project while Airport Authority of India and Government of Andhra Pradesh hold 13% each and the rest 11% is with Malaysian Airport Holdings.
Date: Tuesday 31 October INDIA CENTRE FOR EXCELLENCE
Hospital majors in H’bad plot capex binge
Global, Heritage, Medicity & Yashoda Plan Rs 700-Cr Investment In Capacity Addition
BETTING big on the healthcare segment, leading hospitals in Hyderabad have lined up mega expansion plans. While hospital like Global and Heritage are looking at expending their footprint outside the state, Medicity is planning to set up new centers in Hyderabad. Multi-speciality Yoshada Hospitals is planning to double its capacity to 1,000 beds in two years at an investment of RS 150 crore. A cumulative investment of Rs 700 crore in the medium term is what these corporate hospitals are coming for their capacity expansion plans. And, funding is not a constrain with NRI and venture capitalists keen on investing in these hospitals.
Global Hospital, for example, is planning to set up a 450-bed center in Bangalore by January. It has also tied up with BGS Group for the expansion. “The center will focus on oncology, trauma care and organ transplant,” said Dr K Ravindranath, managing director of the Global Hospitals. The group, which currently operates two hospitals in the city, has revenue base of Rs 60 crore. “We require about Rs 500 crore for our further ventures and part of this funding will be through NRI while the balance will be through internal accruals.”
The group also planning to set up hospitals Mysore, Mumbai and Delhi. “While the hospitals in in Mumbai will be ready in a year, Delhi will be require 2 years for completion. In Mysore, we are scouting for land.” However, the group’s biggest plan seems to be in Kolkata, where it is looking at setting up two new hospitals in two years besides expanding the capacity of one of its centers. “Our new centers are expected to come up in the city outkirts and it will require over year, we will add 50 beds to our city hospitals.” Said Mr G Babji, director to and chief operating officers of Medicity.
The hospital is confident that it will be able to meet its funding requirements through internal accruals. “We have recorded revenues of Rs 30 crore last year and our revenue base is growing at 25%” he pointed out. Heritage Hospitals, focusing on geriatric care is also planning to set up centers in Chennai, Bangalore, Mumbai, and Delhi. “Being a nice player, we don’t require huge bad capacity. On an average, we require about 60-100 beds in our hospitals.”
Date: Tuesday 31 October THE ECONOMIC TIMES
Motorola R&D centre in Hyderabad
MOTOROLA has launched its new research and developing facility in Hyderabad, from where it will develop technology powering its mobile phones. The new facility, set up at investment of Rs 60 crore, will seat 1,000 employees.
Motorola’s chairmen and CEO EdZander, who is on his first visit to Hyderabad, said “some of the products that you will buy later will be designed in Hyderabad.” The R&D centre in Hyderabad’s Hi-Tech City area, spread across 1.67sqft, would house the Motorola Software Group.
Mr Zander said, at the launch of the facility, “Software is a major driver of technology and our Hyderabad facility’s focus on Software engineering addresses a key aspect of our global operations. We want to cultivate, retain and grow top talent in the world. We like what we see here, “She said, the R&D centers in the country would work on products for the emerging markets.” We have a talent pool developing cutting edge technology for handsets, networks and connected home products. The new facility will develop next generation technologies tailor-made for specific geographies,” she said.