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Real Estate Round Up - November 12 to November 16, 2012

India Infoline News Service | Mumbai |

DLF Limited, India’s largest real estate company, recorded consolidated revenues of Rs 2,157 crore for the quarter ended September 30, 2012, a decrease of 7% from Rs 2329 crore in Q1 FY13.

Top Stories 

Real Estate capital markets predictions for 2013:JLL

In 2013, the availability of debt capital is likely to increase while the flow of equity capital will remain more or less stable. The bid-ask spreads will reduce, increasing overall transaction volume even as additional cuts in CRR and repo rates will infuse more liquidity into the system. Cross-border capital will begin to make a gradual comeback in the coming year and cap rates for office and retail properties are likely to descend to 10.5% and 11.5% from 11% and 12% respectively.

Investors will focus more on transparency, governance and liquidity before investing. Given the on-going challenges that the Indian real estate sector faces on these fronts, even fewer development companies will be successful on the public equity markets. Nevertheless, private equity deals volumes will increase, and there will be more M&A activity within the PE industry. A number of vintage funds from 2007-2008 will have to look at exiting in 2013, some of them at low IRR’s. Given the overall uncertainties, these funds would look at postponing their exits to 2014.

Insurance firms will start investing directly in low-risk, income producing office real estate. Investment bidders per property will increase, this time around with lower return expectations. Investment periods of funds will reduce from 5 years to 4 years.

In 2013, after a lull of two years, banks are likely to start offering construction finance to residential projects with approvals. They will also become marginally more flexible on interest rates, collaterals, LTV’s and upfront fees. Established funds will get back into the fund raising mode after a 3-year hiatus.

As before, developers with longer operating history such as Oberoi, Shobha and Prestige who have managed growth effectively over the years and predictability of income will find it easier to raise funds in 2013. It is unlikely that any major player will venture out nationally, with the accent for 2013 remaining firmly on local expansion. Also, we will see developers focusing more on joint ventures with landlords rather than on buying land.

In 2013, we will see most PE deals being structured to give the investor the first preference to cash flows. Most real estate PE investments will be focused on Tier I cities. Funds with a good track record that have a strategy to target a narrow asset class within specific locations such as last mile funding for residential under construction projects in Tier 1 cities and having strong delivery teams will be able to raise funds more easily. Regulatory authorities will increase their scrutiny of private fund raising offerings and closely monitor if the funds raised by the companies are being used for stated objectives.

Private Equity funds will raise distressed real estate funds and get traction from bank NPA’s and ARC’s. A number of new domestic real estate PE funds backed by corporate entities are likely to be launched in 2013. Also, large family offices will now begin creating dedicated real estate teams.

PE fund terms such as waterfall structure, carried interest, general partner commitment and management fees will change to address investor concerns such as governance, transparency, reporting and operating controls post the global financial crisis. Limited partners will scrutinize fund platforms lot more carefully before investing on the heels of previous negative experiences with issues such as integrity of the general partner and quality and sustainability of earnings. Many more funds will adopt a conservative cash flow-driven investment approach and focus on investing in income producing office assets, with an accent on asset repositioning, refinancing and refurbishment.

We expect new guidelines for non-banking HFCs to assist in pushing funding for the housing sector in 2013. There will be more liquidity available in the housing finance market as rules for raising external commercial borrowings will be relaxed for HFCs, and with SEBI allowing debt funds to invest an additional 10% in HFCs. HFCs will also look at tapping the QIP market to raise funds in 2013.

DLF Q2 cons net profit at Rs1.39bn

DLF Limited, India’s largest real estate company, recorded consolidated revenues of Rs 2,157 crore for the quarter ended September 30, 2012, a decrease  of 7% from Rs 2329 crore in Q1 FY13.

EBIDTA stood at Rs 864 crore, a decrease  of 28% as compared to Rs 1198 crore in Q1FY13. Net profit is Rs 139 crore, as compared to Rs 293 crore in Q1FY13. The non-annualised EPS for the quarter was Rs 0.81.

The Company has made significant strides in achieving its business objectives built around net debt reduction, delivery of all past committed volumes and enhancing product mix through launches of higher margin products. In order to achieve this, the Company has completely re-tooled its business model and putting in place the ‘best in class’ project management and construction agencies. The large rental portfolio of the company continues to perform well with better rental realizations.  However the leasing volumes remains muted due to overall economic conditions. Read more…

In Focus Stories

IIFL Institutional Equities recommends on 'Sell' on DLF
IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Sell” DLF.

According to IIFL Institutional Equities report, DLF's reported revenue, Ebitda and PAT were significantly below estimates on low value tier II city sales booked during the quarter. PAT for 1H is the lowest first half PAT reported since the public listing. Net debt increased by Rs9bn over past the one year. This is despite non-core asset sales of Rs21bn over the same period. Interest expenses continue to outstrip operating cash flows.

DLF reported its worst 1H contracted sales volume (<3m sq ft) since its public listing. Contracted sales values have been below Rs10bn per quarter in five out of the past six quarters even as DLF keeps booking >Rs15bn per quarter from sales. We think a slowdown in revenue recognition is inevitable. The company projects 10m sq ft of new launches in 2H but has not launched anything meaningful in Diwali, IIFL report stated.

DLF’s turnaround is predicated on lowering interest outgo via cRs50bn of asset sales over FY13 (Rs30bn achieved). Marquee launches in Gurgaon would help create visibility of cash flows over FY14-16. But CCI’s “cease and desist” order on DLF’s current sale agreement could create challenges in launching new projects in Gurgaon, the brokerage added.

The report was published by IIFL’s Institutional Equities Research desk.

Domestic News

APREDA & Jones Lang LaSalle Cities launches “APREDA Property Show 2012”

Andhra Pradesh Real Estate Developers Association (APREDA) today launched the “APREDA Property Show 2012” in Hyderabad. The property show was inaugurated and graced by dignitaries Sri. N Kiran Kumar Reddy, Chief Minister of A.P, Sri. K Chiranjeevi, Minister of State for Tourism, Govt of India, Sri. N Uttam Kumar Reddy, Minister for Housing, A.P and Sri M Maheedhar Reddy, Minister for Municipal Administration & Urban Development, A.P.

APREDA in association with Jones Lang LaSalle featured a Global Seminar on “Real Estate-Accelerating the Growth Story” at Hitex Exhibition Grounds. The property show was sponsored by LIC Housing Finance Limited and the conference by the State Bank of India.
Read more…

Legend Siroya gets Spain to Maharashtra with ‘Marbella’

Legend Siroya Realtors gets Spain to Maharashtra with their luxury township project ‘Marbella’ in the famed holiday destination of Lonavala. Modeled on the lines of Spanish architecture and culture, Marbella is inspired by the town of the same name in southern Spain. Exquisite scenic beauty, beautiful beaches, ancient architecture with the unique combination of advanced technology characterizes this Spanish town. 

Legend Siroya Realtors, formerly known as Siroya Developers, is a versatile real estate company with a variety of about 60 projects in Mumbai, Pune, Bangalore and Hyderabad spanning across luxury residences, hospitality, commercial, redevelopment and mixed-use ventures.

Legend Siroya has come a long way from being one of the few pioneers of Slum Rehabilitation Authority constructions way back in 1990, to re-inventing luxurious living through its ambitious project ‘Marbella’ in 2012.

DB Realty Q2 total revenue at Rs606 mn

DB Realty Ltd, one of India’s leading real estate developer today announced its results for the second quarter ended 30th September 2012.
Financial Highlights
Total Revenue - Rs  606 mn
EBITDA - Rs 126 mn
Sales Value – Rs 540 mn
Business Highlights – Q2 FY13
The company appointed Vipul Bansal as the new CEO of the company his appointment was approved by shareholders during the company’s annual general meeting.

DB Woods (Goregaon) and Orchid Suburbia (Kandivali) to be completed by March 2013. 

All other DB Realty projects are on schedule, committed timelines remain unchanged.

DB Realty remains committed to completion and delivery of its projects within stipulated time frames.

The company expects an uptake in the next six months.

International News

Challenges in Housing and Mortgage markets: Bernanke

Following is an extract of a speech delivered by US Fed  Chairman Ben S. Bernanke on the housing and mortgage market:

The past few years have been difficult for many Americans and their communities. At the Federal Reserve, we understand the depth of the problem and the need for action, and we will continue to use the policy tools that we have to help support economic recovery. We also know that the burdens of a weak economy and the benefits of economic growth often are not equally shared, and that, to be truly effective, policymakers must take into account how their decisions affect the least advantaged, not just the economy as a whole.

My remarks today will focus on an important part of our economy, the housing sector. Housing and housing finance played a central role in touching off the financial crisis and the associated recession, and the ensuing wave of foreclosures wreaked great damage on communities across the country. As I will discuss, for the first time in a number of years, the housing sector is improving, adding to growth and jobs. But the housing revival still faces significant obstacles, and the benefits of that revival remain quite uneven. Strengthening and broadening the housing recovery remain a critical challenge for policymakers, lenders, and community leaders. The degree to which that challenge is met will help determine the strength and sustainability of the economic recovery and the extent to which its benefits are broadly felt.

Developments in Housing and Housing Finance

The multiyear boom and bust in housing prices of the past decade, together with the sharp increase in mortgage delinquencies and defaults that followed, were among the principal causes of the financial crisis and the ensuing deep recession--a recession that cost some 8 million jobs. And continued weakness in housing--reflected in falling prices, low rates of new construction, and historic levels of foreclosure--has proved a powerful headwind to recovery. It is encouraging, therefore, that we are seeing signs of improvement in the housing market in most parts of the country. House prices nationally have increased for nine consecutive months, residential investment has risen about 15% from its low point, and sales of both new and existing homes have edged up.1Homebuilder sentiment has improved considerably over the past year, and real estate agents report a substantial rise in homebuyer traffic. The growing demand for homes has been underpinned by record levels of affordability, the result of historically low mortgage rates and house prices that are 30% or more below their peaks in many areas.

To be sure, the housing sector is far from being out of the woods. Construction activity, sales, and prices remain much lower than they were before the crisis. About 20% of mortgage borrowers remain underwater that is, they owe more than their homes are worth. Despite marked improvements in overall credit quality, 7% of mortgages are either more than 90 days overdue or in the process of foreclosure.2 And, although the number of homes in foreclosure has edged down since cresting in 2010, that number remains in excess of 2 million, three times the historical norm. Meanwhile, the national homeownership rate has slipped nearly 4%age points from its 2004 high of 69%, and it now stands at a 15-year low. So, although there are good reasons to be encouraged by the recent direction of the housing market, we should not be satisfied with the progress we have seen so far.

Lower-income and minority communities are often disproportionately affected by problems in the national economy, and the effects of the housing bust have followed that unfortunate pattern. Indeed, as a result of the crisis, most or all of the hard-won gains in homeownership made by low-income and minority communities in the past 15 years or so have been reversed. For example, among all income groups, between 2007 and 2010, homeownership rates fell the most for households with income of $20,000 or less, according to the Federal Reserve's Survey of Consumer Finances.4 Data from the Census Bureau show that, over the period from 2004 to 2012, the homeownership rate fell about 5%age points for African Americans, compared with about 2%age points for other groups.

Homeownership rates fall when existing homeowners lose or leave their properties, when barriers to homeownership increase, or both. In recent years, both factors have been important. As I mentioned, home loss through foreclosure, though down from its peaks, remains an important problem, with lower-income and minority homeowners often being the hardest hit. Importantly, foreclosures can inflict economic damage beyond the personal suffering and dislocation that accompany them. Foreclosed properties that sit vacant for months (or years) often deteriorate from neglect, adversely affecting not only the value of the individual property but the values of nearby homes as well. Concentrations of foreclosures have been shown to do serious damage to neighborhoods and communities, reducing tax bases and leading to increased vandalism and crime. Thus, the overall effect of the foreclosure wave, especially when concentrated in lower-income and minority areas, is broader than its effects on individual homeowners. A strengthening housing market will help to gradually undo that damage, but the process has only begun.

U.S. foreclosures down 19% in October: reports

The number of U.S. properties with foreclosure filings dropped 19% in October from a year earlier, RealtyTrac reportedly said.

Reports stated that there there were 186,455 U.S. properties with default notices, scheduled auctions and bank repossessions in October.

The report also showed one in every 706 U.S. housing units with a foreclosure filing during the month.

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