HDFC re-launches dual rate product

Soft interest rates coupled with a strong response to its earlier scheme has prompted HDFC to relaunch a limited period dual-rate home loan scheme. HDFC is now offering two-year fixed rate home loans (8.25% for 1st year followed by 9% for 2nd year) as compared to 8.75% floating rate (for loans up to Rs3 mn) offered currently. The scheme is currently available for limited period (loan applicants up to April 30, 2010) and we understand that the company has already tied up corresponding borrowings for the same, thus protecting its spreads. We believe that HDFC will extend the scheme if interest rates remain low.

We believe that excess liquidity in the system (investments under reverse repo are currently at Rs534 bn) is fueling the discount scheme and such schemes will likely be withdrawn when the excess liquidity in the system dries up. ICICI Bank and Axis Bank withdrew their discounted home loan scheme in March 2010, just two months within their launch, as liquidity had reduced.

NCR Proprty a Bubble - Merrill

Just seconds ago, BOFA-Merrill Lynch Analysts Pushed the Go on the Indian Realty Sector Report which talks of a Bubble in NCR property Market and a Recovery in other parts. Excerpts from the report,

The National Capital Region (NCR) is the area around New Delhi, the capital of India. This area has traditionally been one of the three key real estate markets in India (along with Mumbai and Bangalore). Residential sales volumes in city center locations reached historical highs from March 2009 till date, driven by some speculation and genuine end-user demand. This surge has also spilled over to suburban and remote locations, where our channel checks suggest that speculation contributes to as much as 75% of demand.

Some of this euphoria has also have spilled over to far suburbs and remote locations (such as Dadri and Greater Noida). Merrill visited the NCR thrice in the last quarter. Channel checks suggest that the pick up was primarily speculative to the extent that speculation outweighs genuine demand by a factor of 3:1 in these remote locations. They forecast a decline of over 30% in the monthly run rate of primary sales on average in the NCR and north India. The largest impact is likely to be felt in the peripheral areas of Noida and Gurgaon and the remote suburbs (e.g. Dadri).

Signs of a revival in high-end residential and commercial markets - A revival in high-end residential and commercial property remains our core thesis for 2010. Sale of high-end residential units in Gurgaon and Delhi has picked up.

Regulatory actions in last three years

Here is the chronology of regulatory actions in Real Estate in the last 3 years in India.

Feb-10 -Withdrawal of teaser home loan rates by a number of banks ICICI, HDFC, BOI etc
Feb-10 -Budget proposes imposition of service tax on sales/rentals and increases input costs (excise hike).
Feb-10 -RBI disallowed restructuring of loans for real estate developers.
Oct-09 - Increase in provisioning requirements for commercial real estate loans from 0.4% to 1%
Sep 09 - RBI eases lending norms for SEZs (classified as infrastructure lending)
Jul 09 -Extension of 80IB(B) scheme by one year and interest subsidy of 1 %
Jul 09 -Norms relaxation for SEZ development
Jan-09 - ECB norms for overseas lending relaxed
Dec-08 - Home loan rates on below Rs 20L segment to be cut by about 200bps
Dec-08 - Rs40B credit line to National Housing Bank to to kick start lending in the Rs 2MM category (priority sector lending)
Dec-08 - Permitted real estate loan restructuring upto Jun-09 as standard loans without requiring banks to classify these as NPAs
Nov-08 - HFCs allowed to raise short term foreign currency borrowings under the approval route
Nov-08 - Reduction in provisioning requirements on advances to the commercial real estate sector and home loans beyond Rs 2MM to 0.4%
Nov-08 - RBI reduced risk weightings on banks' exposures to commercial real estate to 100% from 150% earlier
May-08 -- Lower risk weight (50%) on home loans upto 30L (20L earlier)
May-07 -Ban on ECB's for township projects. Likely to hit the development plans of large developers
Jan-07 -Increase in provisioning requirements for real estate loans
Sep-06 - RBI asks banks to treat loans to SEZs as real estate loans
May-06 - RBI increases risk weightings on banks' exposures to commercial real estate to 150% from 125%
May-06 - Increase risk weightings and general provisioning of residential housing/commercial loans above Rs 2MM
Apr-06 - FII entry into real estate IPOs comes under scanner with RBI trying to classify it as FDI

Firstobject Technologies Visakhapatnam SEZ

Firstobject Technologies has received final approval from Visakhapatnam SEZ for setting up, operation and maintenance of the IT/ ITES unit in Visakhapatnam SEZ (VSEZ).

The VSEZ built up space has state-of-the-art satellite earth station within the zone premises for high speed data connectivity. The company is in the process of ramping up its manpower for kick-starting the operations by this month end.

Firstobject Technologies has also received earlier confirmation about allotment of built up space.

Affordable Housing - Promising Segment, But Losing

Affordable housing has been the bellwether in the recovery path, and most developers forayed into this segment during the liquidity crisis given the attractive demand/supply metrics. However, we had adopted a muted stance then on the sustainability of this model, as profitability was yet to be tested due to cost escalations/delays - this seems to be turning true now.

With economy bouncing back, the demand for premium/luxury housing is up. There is an increasing bent among developers to launch higher-margin projects. DLF sold high-end apt valued at Rs10bn in Dec’09 alone; IBREL sold apts priced at Rs70m- Rs225m in ‘Sky’ proj in Mumbai; and Puravankara’s 2010 launches comprise 67% of premium housing.

Though gov’t has extended 1% interest subsidy on loans for homes Given buyers’ price sensitivity, affordable housing will remain the way forward to tap potential housing demand in India.

Activity Slowdown - Delhi NCR Property Market

Goldman Sachs visited leading sites of Realtors in Delhi NCR and after Research on the ground, here is a snapshot of finding

• Absorption has slowed down from levels seen in late 2009, which may be as a result of significant price hikes. Channel checks suggest that overall market absorption may remain lower than 4Q2009 until the end of the monsoon season, but steady nonetheless.
• Prices of some residential launches have risen significantly since March 2009, by 20%-30% in some cases. However, there have been a number of launches by small local developers, which may temper any further price hikes until after the monsoon.
• There is end-user demand in Gurgaon, but investors and brokers account for a high proportion of sales in Noida and Greater Noida
• Office vacancy rates remain high in Gurgaon, Noida/Greater Noida. Rents are down 40%-50% from the 2008 peak but have bottomed
• While absorption is low, it is picking up and the recovery is likely to be gradual rather than V-shaped