CCI Probe against DLF Gets Compat Approval

The Competition Appellate Tribunal (Compat) today refused to stay the proceedings of the Competition Commission of India (CCI) against real estate major DLF and permitted the competition watchdog to go ahead with its inquiry. DLF had approached Compat against the CCI probe into the complaints raised by some of its customers over alleged “abuse of dominant position” by putting “discriminatory and abusive clauses” in the apartment agreements provided to the allottees of two of its high-profile projects in Gurgaon, Haryana.

Early this month, the Delhi High Court also refused to grant a stay on the CCI investigations against DLF. The petitions before CCI, filed by associations formed by some of the customers of premium residential projects like Park Place and Belaire, complain that DLF failed to deliver the residential projects on time and put “discriminatory and abusive clauses” in the apartment agreements provided to the allottees. It also says the builder is abusing its dominant position in the market.

The two projects are expected to have a total of 2,200 flats, priced between Rs 1.5 crore and Rs 3 crore each, making the total worth of the apartments in the range of Rs 4,500-5,000 crore. The projects, which started in August 2006, were expected to be completed in three years, but the developer extended the deadline to April 2011. The director general (investigations) of CCI, who gave his findings to the commission recently, is known to have endorsed the charges made by the allottees against DLF.

Global property investments to hit $380 bn in 2011

LONDON: Global direct real estate investment is forecast to rise 20 percent this year to $380 billion, led by a sharp rebound in the United States , with total volumes still about half the market’s 2007 peak, a report said.

Investments in commercial real estate, mainly offices, malls, and industrial properties, had reached $316 billion in 2010, a 50 percent jump from an eight-year low of $209 billion in 2009, property consultancy Jones Lang LaSalle said.

Investment volumes soared to $759 billion at the market’s peak in 2007, before the property bubble burst and helped trigger the 2008 global financial crisis.

“Barring further sovereign debt crises or financial shocks, the momentum of 2010 is expected to continue over the next 12 months and we predict global volumes for 2011 should increase by 20 to 25 percent,” said Arthur de Haast, head of the firm’s International Capital Group.

For 2011, Jones Lang expects volumes in the Americas region to jump 40 percent to $135 billion from last year, and for the Europe, Middle East and Africa (EMEA), and Asia Pacific regions to rise by between 10 and 15 percent to $150 billion and $95 billion, respectively.

“The Americas’ recovery has mainly been underpinned by investor interest in core gateway cities like New York, Washington DC, San Francisco and Rio de Janeiro,” said Steve Collins, a Jones Lang managing director.

In the United Kingdom , Europe’s largest market, 2010 volumes were up by 46 percent to $49 billion, as investors targeted London, which is viewed as a transparent and more liquid safe haven from economic and financial uncertainties elsewhere, the consultancy said.

A number of major Asia Pacific markets also posted significant growth in 2010 volumes, including a 219 percent year-on-year jump in Singapore , 77 percent in Australia, 41 percent in China, and a 28 percent in Hong Kong .

Arabian co, Simplex Infra get contract to build World One

MUMBAI: Lodha Developers has awarded civil construction contract of its proposed world’s tallest residential building, World One, to a joint venture of West Asia-based Arabian Construction Company and  The contract is worth 450 crore and is scheduled to be completed in 38 months.

The project at Lower Parel in central Mumbai has been in the news ever since it has been launched in June. There have questions over the status of approvals from the ministry of environment and the director general of civil aviation.

However, according to the company, the construction contract for the tower has been placed as it has received the approvals. “We have all the necessary approvals, including from the ministry of environment and the director general of civil aviation and the construction of World One will kick off from the first week of February,” said Abhisheck Lodha, managing director of Lodha Developers. The DGCA nod is needed because of the builiding’s height.

With a height of 450 metres, World One will surpass the current tallest residential building Q1 at Gold Coast in Australia that is 323 metres high.

Arabian Construction has constructed some of the tallest buildings in the world, including 100-storey Princess Tower and Pentominium in Dubai.

SBI Begins Home Loan Utsav at Bangalore

State Bank of India (SBI) is organizing a three day event called SBI Utsav at the bank’s local head office on St Mark’s Road in Bangalore. The second edition of the loan utsav will be flagged off on Friday. The event is powered by the Times Red Cell.

The bank will showcase a bouquet of home loan products . Around 60 real estate developers /builders and auto dealers will participate in the utsav. The bank is offering a 0.25% concession in interest rate from the fourth year of the home loan if it is availed at the SBI Utsav.

Soundara Kumar, chief general manager (Karnataka) of SBI, said the bank was looking to generate a business of Rs 550-600 crore from the threeday event. “We expect the ticket size of home loans to be in the order of Rs 20-25 lakh. IT professionals and people employed with public sector companies will drive the demand for home loans,” she said.

Those buying flats in real estate projects for which SBI has extended loans can avail home loans in four days. The Utsav is open from 4pm to 7pm on Friday and 11am to 7pm on Saturday and Sunday.

Real Estate Company Rose Valley Files Petition against SEBI at Kolkata High court

Rose Valley Real Estate and Construction Company today moved the Calcutta High Court against market regulator SEBI’s order that prevents it from collecting money from investors or launch any scheme. A SEBI order dated 3 January had asked the company to not to collect money from investors or launch any scheme to dispose of any of its properties as part of its collective investment scheme.

Praying for an injunction on the SEBI order, Rose Valley counsels P C Sen and S Pal submitted before Justice Jayanta Biswas that as the company is not listed in any stock exchanges of the country, SEBI has no jurisdiction to interfere with its affairs. According to their petition, affairs of the company are regulated and administered by the Ministry of Corporate Affairs of the Government of India as provided under the Companies Act, 1956.

The petitioner stated that the method of receiving money for allotting a plot of land to prospective buyers could not be equated to collection of deposit from the public or trading in the securities market.The principal business of the company was real estate promotion and development, they submitted. The petitioner prayed for an injunction on SEBI directing it to quash its January 3 order and not to interfere with the business of the company.

Appearing for SEBI, counsel Hirak Mitra submitted that the company had violated its regulations and that collective investment scheme was a type of collection from the public which SEBI had power to regulate.

Banks Tighten Lending Norms for Commercial Real Estate Projects

Banks are getting tough with developers of commercial projects such as office buildings, malls and shopping centres—a fallout of the corporate loan scam that came to light last year. Meanwhile, several large property developers have to repay loans in the coming months. Builders seeking fresh loans have been asked to meet more stringent conditions, including demands to produce five-year lease agreements with tenants, and having to settle for considerably lower borrowings against future rent receivables, two bankers said.

Indian Overseas Bank, for instance, will lend to developers only if they produce a five-year leasing agreement with a lock-in period for tenants. “This is what banks do at this moment,” said M. Narendra, chairman and managing director of the public sector bank. “This way, you can be sure of the repayment capacity of the borrower.” Banks grew wary of lending to commercial real estate projects after several of them turned sour during the slowdown and developers struggled to repay debt. Their worries increased when in November the Central Bureau of Investigation nabbed eight senior officials of state-owned banks and other financial institutions for irregularities in lending to builders.

The Reserve Bank of India (RBI) had been warning banks even earlier about the high-risk nature of realty, terming it a “sensitive sector” along with capital markets and commodities because of likely price fluctuations. Anand Gupta, honorary treasurer of Builders’ Association of India, an industry body of construction contractors and builders, said no new commercial real estate project has been launched in the past couple of months. “Banks have not approved any fresh proposals in the last one-two months,” he said. “Most banks are even hesitating to release sanctioned money.” Bank loans constitute at least half of a developer’s borrowings.

Already, starved of funds from this key source, developers are turning to land sales, pre-sales from projects, rental income from office buildings, institutional borrowings, and money from public share sales to raise money, a majority of it to repay bank debt. “We have made the process more stringent and are highly selective in choosing (real estate) borrowers,” said the head of corporate banking at a state-run bank. He did not want to be named. The executive said his bank has sharply lowered the amount of loan given to even “good” borrowers in the sector against future rent receivables.

“For instance, if the rent lease agreement produced by the developer or owner for five years amounts to Rs.1 crore, we earlier used to give some Rs.80 lakh against that. Now, this proportion has been brought down to, say, Rs.50-60 lakh,” he pointed out. The exposure of Indian banks to the real estate sector was about Rs.5.8 trillion on 31 March 2010, accounting for nearly 17% of their advances. Of this, bankers estimate around Rs.14,000 crore is repayable by the end of March. Property analysts say in the wake of falling revenues, cash flow constraints and tightening of bank lending, repayment will not be easy for developers.

“Since banks have stopped issuing fresh loans to the sector, developers would resort to high-cost private equity money or refinance debt,” said Parikshit Kandpal, analyst at brokerage firm Ambit Capital Pvt. Ltd. “Essentially a lender’s market in the current scenario, we will see bankers asking developers to pay up even if there is a shortfall of 20-30%.” Kumar Gera, chairman of the Confederation of Real Estate Developers’ Association of India, said bank lending to the real estate sector is crucial. “If banks tighten lending, not only would it up borrowing costs for developers, but it would impact the pricing of the end-product,” he added.

India’s top developer DLF Ltd needs to repay around Rs.1,600 crore of debt by 31 March. It repaid Rs.1,224 crore as of end-September with money raised by selling land as well as stakes in its retail business, according to numbers provided by the company after its second quarter earnings. Its net debt now stands at Rs.19,000 crore. A DLF spokesperson said the company would not comment because of the mandatory silent period ahead of its quarterly results. Housing Development and Infrastructure Ltd (HDIL) has to repay Rs.350 crore by March 2012, and it intends to do so through large land sales and cash flows from its residential transactions, said Hari Prakash Pandey, vice-president (finance and investor relations).

HDIL, which recently sold its suburban Mumbai Popular Car Bazaar land for Rs.800 crore, will use some of the sale proceeds to repay debt. “Though we can actually prepay some of our debt with this money, the macro challenge today is if we should hold on to cash or repay debt considering tightened liquidity conditions that the sector is likely to face,” said Pandey. Typically, advances to commercial real estate projects form only a small part of a bank’s loan book due to the higher risk weight for such lending. Even for residential property, a segment that has fared relatively better, RBI announced a slew of measures in its November policy, including a cap on the loan to value ratio at 80% and a higher risk weight for loans above Rs.75 lakh at 125%. Banks typically lend to commercial real estate projects at 13-14% on 5-10-year tenures.

Property consultants are also worried about how the dozen-odd developers who were looking to go public last year, but still haven’t, will repay their debt. Mumbai-based Lodha Developers Ltd, which was eyeing an initial public offering in 2009-10, has repaid only Rs.850 crore of the Rs.1,650 crore loan it took from Deutsche Bank AG in 2007. Managing director Abhisheck Lodha said the company plans to repay the remaining money in the next few months, largely through internal accruals. “Even if some amount of refinancing of debt takes place, developers will also try to restructure loans to borrow money from the same lender, and that will be expensive,” said another property analyst, who didn’t want to be named.

While revenues did not scale up substantially in the December quarter, robust land purchases have led to increased borrowings. For instance, Indiabulls Real Estate Ltd’s (IBREL) debt mounted by Rs.1,690 crore to Rs.3,340 crore on the back of aggressive land acquisition in the fiscal third quarter, according to reports by brokerage firm Motilal Oswal Securities Ltd.

Housing price may fall in Delhi, Mumbai if interest rates rise

NEW DELHI: Housing prices could fall by up to 20 per cent in Mumbai and Delhi-NCR sooner than expected if RBI raises key rates in its upcoming monetary policy review, says a report by property consultant Jones Lang LaSalle .

“An increase in lending rates is almost inevitable, considering the high need to curb inflation,” JLL India Chief Executive Officer (Business) Sanjay Dutt said.

He pointed out that any increase in policy rates by RBI would affect the sentiments of the property market and housing prices, which were expected to correct in the next 6-8 months in Delhi-NCR and Mumbai, could decline within six months.

“RBI raising its lending rates will add to the stress already building up and hasten the inevitable correction of at least 15-20 per cent in the pricing of residential properties in the overheated central areas of these cities (Delhi-NCR and Mumbai). This correction was previously expected to happen in 6-8 months,” Dutt said in a report.

It is widely expected that the apex bank would increase the key policy rates by up to 50 basis points in its upcoming monetary policy review on January 25 to curb food inflation, which is hovering around 15 per cent.

“Already there is a liquidity crunch and sales are down. Moreover, lot of developers are having exposure to expensive debts from the non-banking finance companies and high net worth individuals that they used for buying lands,” Dutt said, justifying correction in the housing prices.

The consultant feels that it makes sense for developers to reduce price to boost sales to improve their liquidity rather than taking the high-cost debt.

Dutt pointed out that housing prices in certain parts of Delhi-NCR and Mumbai have crossed even the peak level of 2008. In Delhi and Mumbai, housing prices had fallen by about 25-30 per cent after global meltdown in 2008.

While there is a high projected supply in Delhi-NCR and Mumbai, there is a distinct dearth of appropriately priced projects in the low-to-mid income segments, he added.

Prices for mid to high-end flats in Gurgaon are currently hovering at Rs 8,000-10,000 per sq ft, while in Noida it is 3,500-5,000 a sq ft.

Similarly, apartments are offered for Rs 25,000-30,000 per sq ft in Central Mumbai, while in sub-urban Mumbai the rates are little less and the range is Rs 9,000-16,000 for every sq ft.