NCR - Noida Residential Apartment Market - Buy or Wait ?

In continuing our Analysis on the Residential Apartment Trends in Delhi NCR Region, we are covering the Noida Market. Here is a brief excerpt of the ground survey,

• Volumes have been high in Greater Noida and Noida Extension because of a low ticket size (a studio apartment can be bought at as low as Rs 1mn).
• We expects residential supply to outstrip the demand generated by commercial activity in the region.
• End-user led demand is higher in Noida in comparison to Gurgaon. However, investors are more interested in the markets of Greater
  Noida and Noida Extension where ticket size is low (a studio apartment can be bought at as low as Rs 1mn).
  
• Prices have remained muted in this market. He expects the trend to continue primarily because of high supply.
• While Jaypee projects in Noida/Greater Noida are seeing high volumes, there are doubts on whether the same can be sustained. Sales of low-cost houses from Jaypee are faster than luxury apartments (high-end demand prefers Unitech Grande over Jaypee because of the exclusivity factor).
• Unitech’s Grande (UGCC) is doing well and the execution for UniHomes is good. However, there are issues over allotting possession of some projects (Horizon, Escape) in Greater Noida where current market prices (Rs 3500psf) are lower than launch prices (Rs 4600psf
  launched during peak prices).
• Jaypee has started increasing prices of its older projects. However, there should be fewer buyers at higher prices because of ample supply at lower pricing points.
  

How Citigroup Squeezed BPTP Developers

We all have read about the India's Sub-Prime Realty Developer - BPTP. Citigroup which came to the sinking ship of Chawla, squeezed with very tough conditions and clauses. Here is an excerpt from the same.

Citigroup has the right to exercise a swap option (Swap Option) if BPTP fails to achieve a listing of its equity shares within 24 months from the closing date. On the exercise of the Swap Option, CPI is entitled to the following:

• demand that BPTP establish one or more special purpose companies ("Project Companies) for acquiring the assets selected by CPI (Swap Option Projects).
• each Project Company to issue shares to CPI such that the shareholding of CPI and the Chawlas is in the ratio 49.99:50.01.
• demand that BPTP transfer the development rights of the Swap Option Projects to the Project Companies or have the development rights to the Swap Option Projects sold by BPTP for a refund of the swap option amount.
• demand that BPTP or the Chawlas buy back CPI's equity shares.
• if the Swap Option is not implemented in accordance with the investment agreements, CPI has the right to require BPTP to sell the selected Swap Option Projects (Sale Right).

Both the parties agreed to postpone/suspend the implementation of the Sale Right until July 8, 2011 by which time BPTP has to undertake a successful IPO. Can two losers make a winner ?

Gurgaon Residential Apartment - Market - Buy or Wait ?

We recently held a road show with a NCR-based broker to enlighten our readers on the Residential Property Trends in Gurgaon. Here are the key takeaways.

• Established builders with better track records find it easy to sell properties. DLF and Unitech are selling properties faster (and at a premium) than their smaller peers.
• Volumes are likely to remain flat helped by volumes from emerging areas.
• Good demand for Properties nearing completion so that Buyers get immediate possession
• Residential Apartment Investors remain in the market but the investment time frame has changed from 5–12 months earlier to 2–3 years now. Investors include (1) second home buyers, (2) NRIs, (3) service class executives, and 4) professionals.
• Most complained about the Government related approval issues as a key risk to execution
  

People maybe investing in Second Homes, but we strongly recommend our investors to take a disciplined investment approach in Indian Equities which will yield far better returns in the next 10 years.

How PE Investors Squeezed Developers During 2008 Bust ?

Following the slump in late 2008, many projects invested in were either significantly delayed or, in some cases, found to be unviable in the changed scenario and it is quite likely that a large number of investments are currently incurring losses.

Most investments have clauses in the form of put or call options which protect the investor and make it mandatory for the developer to buy-back the securities held by the PE investor. Also, there are punitive clauses which enable the investor to take control of the project if it is not completed.

Lodha Developers – HDFC Property Ventures:

The HDFC Shareholders‟ Agreement provides the Investors on and from the Investors Exit Date (May 2, 2013 if 95% of the cash flows of the project are not received till then), a put option, in which the Investors shall have the right to call upon our Company to purchase from the Investors all the securities held by them

In the event, other than on the occurrence of a force majeure event or reason approved by a unanimous decision of the board of Lodha Healthy, if the Project is not completed within a period of five years from the date of commencement of the development of the project, then the Investors shall have an additional right to appoint majority directors on the board

Lodha Developers – Deutsche Bank (DB)

DB had granted another Lodha subsidiary the option to purchase the debentures or the converted equity shares of Cowtown prior to Dec’10, failing which DB would be the owner of 99% of Cowtown and, in turn, the owner of the mortgaged land parcels in Thane, Lower Parel and Malabar Hill in the event of a default by LHRB. In our view, this means that if Lodha does not buy back the debentures from the current debenture holders, it would lose control of several valuable land parcels for an amount of just INR16bn

Parsvnath-Sun Apollo Ventures

our company (Parsvnath) has granted to the investors (Sun-Apollo) an option, exercisable at any time on or subsequent to 48 months after the first closing date, to sell to the promoter, all the securities of Hessa (Parsvnath Exotica-II) held by the investors and upon exercise of such option, our company shall be obliged to purchase the securities on the terms and conditions contained in the investment agreement.

Emaar MGF-New York Life Investment (NYLI), Jacob Ballas Capital (JBC) and EIF

the Investors were granted the right to require Emaar to purchase all the Equity Shares subscribed for by the Investors at the per share price at which the Investors had acquired the Equity Shares.

Entertainment World Developers Ltd (EWDPL)-ICICI Ventures Ltd

In the event the IPO does not take place by Feb 15, 2011 the investor has the right to require either the promoters of EWDPL or EWDPL itself purchase all equity shares and optionally convertible debentures and/or redeem all optionally
convertible debentures at a fair value.

Raheja Universal-Urban Infrastructure Venture Capital (UIVC)

Raheja Universal is required to provide the investor an exit within seven years from the date of investment, i.e. by March 2014 or such extended period as may be determined by the investor, through an IPO or strategic sale. In the event the company is unable to provide a suitable exit option to the investors, the investor shall be entitled to exercise a put or call option requiring Raheja to purchase all of its shares in the project or to sell all of its shares in the project to the investor.

The Evils of Private Equity Capitalism led many of these Greedy Realty Developers to Hold on to abnormally High Property Prices when in reality, they offer no value for the Dream Home the hardworking and Honest Tax Paying Citizens deserve.

Total Private Equity Investment in Property

Here is an excellent piece of data that shows historical Private Equity Investments in the Indian Real Estate sector which has now touched a whopping $8.8 Bn.

The following Charts Show the Data.

Chart - 2


You can also download the same data sheet here. [PDF}

Residential Boom - Spectulator Driven

PropEquity data suggests a recovery in sales volumes in CY11 ytd. But our channel checks suggest this is speculator driven and not sustainable as home buyer sentiment remains weak.

Ears on the Ground suggest that rising speculative demand (encouraged by the low down payments), especially in cities, such as Gurgaon, could be boosting sales volumes which we believe is not sustainable. We believe that the sentiment of genuine home buyers remains weak and are holding back on purchases in anticipation of a 15-20% price correction. The affordability [Price vs Mortgage Rates] remains under pressure and, hence, real buying sentiment remains weak.

Financial Institutions and Banks turning cautious towards rescheduling debt or issuing fresh loans, developers are approaching Non Banking Financial Companies (NBFC) which are issuing Non Convertible Debentures (NCD) at 16-20%. As per National Securities Depository Ltd (NSDL) and various press reports, real estate companies like Puravankara and Kalpatru have raised funds at 16% pa while Century real estate has raised funds at 20% pa.

There is a talk to bring Real Estate Developers, Builders and all bad sections of the society indulging in Black Money transactions under the ambit of "Prevention of money Laundering Act" as they have evaded massive taxes much more than 2G Telecom Spectrum Scam in India.