Morgan Stanley to Pump Rs5000 crores in Indian Realty

Do you remember the days when Morgan Stanley was the first FII to operate as a Mutual Fund in India ? I was barely 15 then and remember people investing in its issue standing in long queue. My stock broker was already selling Morgan Stanley units at Rs10 even 2 months before listing. He made a killing, the unit started trading on BSE below par. :)

Now Morgan Stanley has set up an ambitious real estate investment strategy in India. It is investing close to Rs5000 crores in 5 years. The first project where it is investing is a service apartment in Pune and the investment is close to Rs700 crores.

Morgan Stanley picked up stake in Mantri Housing and Alpha G at around Rs300 crores each. It has 10-15 retail clients in its portfolio as well. Indian realty with semi transparency is attracting attention of global real estate funds. Merrill lynch puts the Indian realty business to grow to $90 billion in 2015.

Raheja Builders and Unitech head to London

Due to high volatility and lesser appetite from retail investors, Rahejas have appointed Enam financial consultants to list them on London under the Alternate Investment Mechanism(AIM). They are planning to raise $500 Million for a particular project which will be under a Specia Purpose Vehicle(SPV).

Unitech a shady realty firm which is operator driven(atleast appears to be, why not when the stock is locked for 10 days in upper circuit and 15 days on lower circuit) is also planning to raise $500 Million under similar arrangements as that of Rahejas.

London beware, Indian Real estate was controlled by the underworld not too long ago. Their is a atleast 50% of black money involved.(What the Hell ? Yes if I buy an apartment/home, I have to pay some part of the deal in CASH which goes into the realtor's pocket and doesn't come on books at all. Ranges from 60% to 10%).

Real Estate bug bites Department of Posts(IndiaPost)

With skyrocketting real estate prices in the country, the bug has now bitten Indian Postal department. Department of Post(DOP) is the second larget real estate owner in the country after Indian Railways.

In Mumbai alone, DOP holds 22 vacant plots in prime locations. It has tied up with TrammellCrow Meghraj to unlock its real estate value and maximize the holding value by renting or leasing spaces in post-offices at prime locations(First improve your service and look & feel of your buildings, they are so 80ish, hardly any person wants to visit your premises today) DOP plans to conduct a feasibility study in Delhi, Mumbai, Chennai and Karnataka.

Indian realty gets clean chit

India's real estate industry has made impressive strides in becoming a more transparent sector over the past 2 years said Jones Lang LaSalle's in its latest edition of Real Estate Transperency Index(RETI). India has moved up from low transparency market to semi-transparency market. India's legal regulatory framework, professional standards and transaction process have been counted as positives. Jones Lang laSalle's RETI places India among the top 10 globally improved real estate markets.

Is Himachal Pradesh the next realty destination ?

The state of Jammu and Kashmir enjoys many privileges under Article 370, one of which is that an individual not domiciled in the state cannot buy property there. Much is made about this but states like Arunachal Pradesh, Sikkim and Himachal Pradesh too have similar restrictions. This is going to change. Himachal Pradesh will soon allow real estate developers to invest in commercial, industrial and residential property, making it possible for those outside the state to sell and buy property. Today, it’s easier for an Indian to buy property in Dubai, Switzerland, United Kingdom or Australia than to buy in the above mentioned Indian states. Of course, properties were being bought in these restricted states by entering into a partnership with locals. The law was circumvented anyway, legally. So Himachal has decided to do away with the archaic restriction. With a new law in place, property deals will be transparent and command a higher price.

Originally, the restrictions were based on noble intents of protecting the socio-economic characters of the states and not allowing outsiders to dispossess locals. But economics seems to have won the day. Himachal is aware that locals do not have the financial wherewithal to fully exploit the tourist potential the state has. The lack of development of tourism and consequently the lack of job opportunities forced a young workforce to seek employment elsewhere. The state government reasons that opening up the real estate market will bring in huge amounts of investment and pump in money into the state economy. With property prices shooting through the roof all over India and the state being an acknowledged tourist and holiday destination, Himachalis can expect to sell real estate at prices they could never imagine. Of course, development has to be tempered by environmental protection but these laws could be tightened further. Developers do realize the potential of selling holiday homes to an ever expanding list of billionaires. With rising incomes, the universe of property investors too is growing.

But the environmentalists are up in arms. Already 53 builders and developers have thrown in their hats with the state authority to develop properties. Development rules, the environmentalists claim, have a strange habit of leaning towards circumvention. As evidence, they cite Shimla, the charming hill station of yesteryears, now criss-crossed with concrete in all its inelegance. Unplanned development, flouted rules, environmental degradation and the rapacity of developers, say the critics, will prove disastrous to the state and kill the goose that lays the golden egg of one of the most scenic and ecologically rich region.

One can’t paint all developers with a single brush. But will they rise up to the challenge and prove that for once the environmentalists are wrong?

Prajay to set up automobile mall

Prajay Engineers Syndicate Limited (PESL) has informed that it will be launching ‘Prajay Autopolis’, an automobile mall, in Hyderabad. The mall will be set up on a 35-acre site adjacent to Mumbai highway (NH 7), about 2 km from the proposed outer ring road. It will have over 30.87 lakh square feet of constructed area. The company is currently finalising the layout plans and the concept designs for the project. It has appointed international architects and planners for the assignment. The construction is expected to begin by the end of the year and the mall is expected to open in the second half of 2008. PESL stated that it was in talks with several leading automobile companies in India to finalise space bookings in the mall. The company expects revenue in excess of Rs 670 crore over the next three years from this venture against an estimated cost of Rs 400 crore. According to the company, Prajay Autopolis is a novel initiative in auto retailing in India, where consumers will have the convenience of buying automobiles in a multi-brand retail space. It will be an end-to-end automobile solutions location comprising sales, servicing as well as warehousing.

The project will combine mega automobile showrooms with administrative, servicing and warehousing area across more than 18 lakh sft. This will also include facilities for automobile financing institutions and insurance services to create a complete range of services required for automobiles, for both automobile companies and their customers. It will also have a multipurpose convention centre measuring 1.61 lakh sft for auto fairs and product launches, in addition to having a multi-level car parking facility and civic conveniences. PESL also envisages to build three towers comprising an Information Technology Park at the same venue. The IT Park will have a total constructed area of 15.08 lakh sft. In addition to the IT Park, the mall will have an office block above the showroom space for administrative offices and warehouses for auto companies.

DLF in Dankuni township race

Land acquisition for the proposed 5000 acre township in Dankuni is still several miles from completion, while the financial bid for the same has already been opened and the DLF consortium is on top, the top rung with a bid value of Rs 2,713 crore for the land. The company has also made its technical presentation along with five other parties. Second in place is Emaar-MGF, who had bagged a Kolkata Metropolitan Development Authority plot in April this year at Rs 213 crore for six acres. Emaar-MGF's bid value stands at Rs 2,013 crore. "It has been a six-party bid and DLF's financial bid is the highest. Our technical presentation has also been made and the plan submitted. We are quite confident of bagging the deal, however, till the time the government consolidates its own recommendations, the deal will not be finalised," said a DLF representative. The project is still several months away from taking off as the government is yet to complete land acquisition in the Dankuni area for the township. On completion, it will house an industrial park spread over an area of 1000 acres, with the rest housing the integrated township.

Apart from residential quarters, the township will also have hotels, health centres, a sports complex and an entertainment zone, shopping malls and lakes, said the DLF representative. DLF already has preferred partners for this project. However, for some of the development on this land, it will also invite partnership offers from others. With this deal, land prices in the Dankuni area will shoot upward of Rs 80,000 per cottah, much higher than the estimated Rs 35,000 to Rs 40,000 a cottah. Among the others short-listed for the financial bid were the Ambuja Group and Zee Television promoter, Subhas's Chandra's Suncity. Two local bidders were also a part of the race. If the deal is sealed in favour of DLF, this will be the second township project undertaken by the group. DLF's first project was the Gurgaon megacity developed over 3000 acres.

Reliance Plans Rs2,000 Crores IT SEZ

Reliance is planning a mega IT SEZ in Mumbai on 450 acres of land owned by Nocil, a part of the Reliance group. The company is in the process of securing necessary approvals from the Maharashtra Industrial Development Corporation to set up this project. The company is also developing its headquarters in the same area.

RIL would have to obtain a no-objection certificate from the MIDC to convert the Nocil land, which was meant for chemical production, for developing it as a dedicated IT city. Reliance is developing a special economic zone in Navi Mumbai near the Jawaharlal Nehru Port Trust. Sources said the proposed Navi Mumbai SEZ would also have IT units operated by other companies.

The new Indian Land Lords

Kushal Pal Singh - The richest Indian and CMD DLF Group.
Landholdings: 1,372 acres
Where: Centred in and around Gurgaon. He is slated to add 2893 acres to his kitty. Their are vast tracts of land held by DLF but we were unable to obtain the details. DLF is developing Large scale housing complexes, Malls and office Parks. Mostly present in and around Guragon(the artificially inflated real estate market, yes call centers alone cannot add value)





Mukesh Ambani
Landholdings: 60,000 acres
Where: 35,000 acres in Maharashtra and 25,000 acres in Haryana under special economic zones. Several stretches of private lands in upscale Mumbai localities are held privately.





Subrata Roy
Landholdings: 20,000 acres
Where: 10,000 acres in Maharashtra under Aamby Valley project and over 100 acres of land in 100 cities across India. His ambitious 100 city project never took off. By the way where is these days ?



Anand Mahindra
Landholdings: 10,000 acres
Where: 9000 acres spread across Maharashtra, Rajasthan and Tamil Nadu for SEZs, 1100 acres in Faridabad. Also Mahindra industrial park in Chennai.





Ajit Gulabchand
Landholdings : 10,000 acres
Where: 10,000 acres of land under an SEZ in Pune and about 1000 acres in and around Thane and Panve.

Infosys hates SEZ policy but loves free lands by Karnataka Government :)

Infosys HR-Director came down heavily on SEZ policy,

It is not at all conducive and the process for approval is tedious. It takes around 9-12 months for a company to get the necessary clearances. The SEZ policies are against small companies and the government should work towards helping them. That is where innovation happens. The STPI is one of the best initiatives that the Indian government had taken and that should be adopted in the SEZ regime. The SEZ policies in its present form favours a real-estate developer.

Then why is Infosys so bent upon acquiring 845 acres of Government lands when no other company is asking for such huge chunk of land at Government rates. Why doesn't Infosys go andBUY them at market rates ?

600 chinese firms rin in Delhi Mall

Business Standard is reporting that 600 chinese firms have booked space in Anant Raj's Delhi Mall.
The two floor building which will offer 300,000 sft of space is slated to be ready in october this year.

Anant Raj quoted,

The Chinese companies are of the view that the middlemen from Hong Kong and Singapore are benefiting from the present trade that takes place between the two countries. If they have a direct presence in India, these companies will be able to remove the intermediaries and benefit from it.

Indian Real Estate Mutual Funds - 1

Now small/retail Indian invetors can also ride the Indian realty boom. Highlights of Subrmanyams article as it appeared on Moneycontrol. SEBI has released gudieliness on Realty Mutual Funds.

Advantages to the investor
Reduction of Risk (single property vs. a portfolio of property)
Smaller amounts can be invested
Easy Redemption
Diversification

However for the savvy investor with good investible surplus, and a high risk appetite the returns from a direct investment in property could be higher. However such a savvy class is in the minority.

Disadvantages to the investor
1. Lack of transparency in deals.
2. Inadequate documentation of history of prices at which deals are struck.
3. Cash element.
4. Legal hassles.
5. Low professionalism.
6. Low regulation
7. Lesser liquidity especially as compared to equity markets
8. The industry could also be a victim of pricing manipulation or fraud
9. Lack of talent appropriate for this industry
10. High transaction costs.
11. Lack of uniformity of laws governing property across many States in India.

Also how will the NAV be calculated ? What are the basis for the same ? It is unclear until someone really hits the market.

NOTE: Till now HDFC & Kotak had realty funds which was only for the high networth individuals(Minimum Rs 5 crores investment was needed with a lockin period of 3 years or 7 years)

Indian Real Estate Mutual Funds - 2

ET is reporting that the model adopted by Indian REMFs is different from those practicsed globally. REITs(Real Estate Investment Trusts) globally invest 100% of their funds directly into real estate. However, in India they are allowed to invest in realty stocks and have atleast 35% of direct real estate investment.

Globally REITs adopt a dividend yield model which is an indication of returns expectation. In Stocks and Shares it is the dividend declared that indicates the yield, while in properties it is teh rental income earned out of leasing.

The yield of REITs is usually 1.5%-2.0% higher than their respective government securities. For example, in Japan average dividend yield is 4.1% p.a as compared to a 10-year government bond yield of 1.85% p.a. In the Indian context, residential properties yield 9-10% while commercial properties yield 10-12%.

At first their could be diversified(Residential, Malls, Commercial, etc) real estate funds in the offering. The main concern is the risk of lesser available investment avenues which could lead to poor diversification. There should be sufficient availability of projects across developers to allow MFs to diversify investments. From the model adopted, it does look that Indian realty funds will come a little high on their risk-return quotient.

Retail, IT and ITeS will drive Real Estate demand in India

CLSA has reporetd that Retail and IT services industry will drive the demand for commercial real estate in India. They will require 300 Million SFT in the next 5 years. It is likely that Tier-1 cities will slow down a bit while demand in Tier-2 and Tier-3 cities will grow at a faster.

Residential market might see a small correction in short-medium term but for long term they are still poised to give decent returns. However, residential property prices in cities will see a saturation while property prices in SEZs and townships will witness strong demand. Can't believe it ? Time will tell :)

Protests against Reliance SEZ in Haryana

Reliance SEZ deal between the Haryana government and RIL group was signed on the 19th of June. This was amidst protests and differences between various political parties who want to gain mileage as well make money(the obvious way). The loser - farmers whose lands have been acquired by the Haryana Government at far lower rates compared to ruling market price.

However, today MLAs and MPs of Indian National Lok Dal met Governer Kidwai and demanded cancellation of the deal. They have alleged that HSIDC which acquired land in Guragon to setup its own SEZ has now transferred the same to RIL acting as an agent of Reliance. The worst part of the deal is some parts of land are quoting at prices as high as 80Lakhs to 5Crores/ acre and the farmers owning those tracts of land have been given a mere compensation od Rs25 Lakhs/acre.

Why is this sudden greed for land for an industrialist like Mukesh Ambani ? Dhirubhai was known to create wealth out of nothing, even barron lands were turned into fertile. Remember how western Gujarat was before the senior Ambani ventured ? Mukesh is an industrialist and probably has to setup large-scale manufacturing base best suited to compete in the international markets. Hopefully, Anil will remind his elder brother about their fathers secret to turn wasteland into Gold and not to follow the advise of lesser mortals like Anand Jain.

Welcome to Reliance SEZ

It is well known fact that India severely lacks basic infrastructure so essential for industrialization and modernization for a country with 1.1 Billion population. Former PM of India, Shri Atal Bihari Vajpayee, under whose vision the dream project of Golden Quadrilateral started in 2002 didn't solve all of India's problems and hence proposal to form Special Economic Zones was moved. For more details refer to SEZIndia.

Reliance under the able leadership of Mukesh Ambani, is building two worldclass SEZs. One at Jamnagar for a new Petroleum complex much on the similar lines like his father, Dhirubhai Ambani did in early 90s including taking the company public even before they had the machineary, forget production and profits :) The second one is coming up in Haryana which will cover 25,000 hectares of land. Lets closely follow the developments of SEZ and Real Estate in India here.

Cheers!