Pain in real estate, but builders refuse to cut prices

2G tainted Unitech is embarking on a mega fundraising drive and attempting India's largest real estate asset sale. Its London AIM listed Unitech Corporate Parks or UCP has put a Gurgaon IT SEZ on the block for Rs 2,800-3,000 crore. At these valuations Unitech stands to raise Rs 1,100-1,200 crore for its 40 percent share. Sources say that the UCP board arrived in India on July 11 to kickstart the sale process.

Also Read: Mahalaxmi Cresec buys 23 lakh shares of Indiabulls Real Jones Lang LaSalle has the mandate to submit the bids. The deadline ended on June 12. Sources add 11 parties had expressed interest including Blackstone, GIC, IDFC, Xander, Sun Apollo, Morgan Stanley, and Tishman. Built on 27 acres this notified IT SEZ called Infospace is spread across 3.6 million square feet. Approximately 2.4 million square feet or 67 percent has already been leased and another 0.19 million square feet is committed in hard options. Tenants include Bank of America, RBS, Accenture and Sapient, among others. The big question is - how exactly have Unitech and Jones Lang LaSalle arrived at a valuation of Rs 2800-3000 crore? The average rental at Infospace is Rs 64 a square foot and the total annual revenue projection between rental and maintenance works out to Rs 280-300 crore. Unitech is expecting a 10 percent cap rate as that is around the level the deals have closed around in the recent past and therefore one can get an asking price of around Rs 3000 crore. Infospace is one of the five operational assets in UCP's portfolio in the National Capital Region (NCR) and Kolkata. It is a well documented fact that Unitech initially wanted to exit UCP via a listing in Singapore. Unitech is now embarking on selling each of these assets separately. After Emaar, another Middle Eastern giant is eyeing a piece of the Indian real estate. We are talking about Qatar Investment Company that's clearly bullish on India. It recently invested a whopping USD 1.26 billion in telecom giant Bharti Airtel and is now focused on the Indian property market. Sources say a term sheet has been signed with the Bangalore based real estate firm RMZ Corp. RMZ and Qatar Investment Company are expected to execute around eight to nine commercial projects spread across Bangalore, Chennai and Pune cumulatively across approximately 20 million square feet. In an attempt to improve sales, recently, developers across India have been coming out with attractive schemes, be it the 20:80 interest subvention scheme, gold coins at time of launches and even special discounts post lunches for a very limited time perhaps like a weekend. How exactly are launches and prices panning out? In the NCR, Cushman & Wakefield has noted almost a 40 percent drop in new launches. But Shveta Jain, Executive Director - Residential, Cushman & Wakefield India says, “I think the mood is very positive. What is happening is the markets are getting more streamlined, the so to say speculation or the investor activity which was driving NCR is sort of getting out of the window. So, from that aspect the markets are becoming healthier in nature.” _PAGEBREAK_ Here is an excerpt of Shveta Jain's interview on CNBC-TV18: Q: In Gurgaon there has been high appreciation in prices, nearly 30 percent year-on-year (YoY) in the luxury segment and around 18 percent in the high end segment. The appreciation is mainly on account of launches at the futuristic Dwarka Expressway and the Golf Course Extension Road. So, is the Golf Course Extension Road a good bet? A: Golf Course Extension Road, a pure and pure investment, is something that I will not recommend. However, if somebody has a desire for a long-term objective or a long-term objective of end use then from that point of view Golf Course Extension Road should still make sense. Q: Cushman & Wakefield say the maximum number of launches in India has been down south in Bangalore making up almost 30 percent of the overall new supply across the top eight cities. Central Bangalore has also witnessed a price appreciation of almost 30 percent. A: If you look at Central Bangalore it has seen about 30 percent increase over the last two years, at locations such as Lavelle Road and MG Road. Similarly you have locations towards Whitefield, which are again doing well. So Bangalore is a good market if somebody has the patience, it is not really in a hurry to cash out Bangalore offers, some very value for money options. If we were to compare it to any of the other metros which are Delhi and Mumbai and if you were to look at what you get for per square feet prices and the amenities and the facilities and the overall quality of developments, I don't think it is on the higher side. Q: Chennai, a stable property market, has seen some pain which experts believe is temporary. However, prices in the high end segment in areas like Anna Nagar and Kotturpuram increased by 25-35 percent on the back of good demand. A: We may see a marginal decline in prices because of the overall supply condition but that is very temporary. We have not seen any unprecedented rise in prices in Chennai and we will not see anything of that nature. However, it will be a slow and a calm market. From an investment angle if somebody is looking to invest it is a good market to lookout for. Some of the emerging locations are good. There are locations such as Porur, OMR, GST Road these continue to be good investments. There are still some developments which are sub of Rs 5000 a square feet in these corridors and they continue to be good. Central Chennai, locations like Anna Nagar, has always been a strong market. Q: The commercial capital Mumbai continues to remain subdued and there has been no major changes in prices. Builders are also launching smaller apartments to rev up sales. So which locations are a decent bet? A: Mumbai is one city where you have many people who are living in rented accommodation, are doing very well for themselves, have yet not decided to buy properties. For those people my message would be that Mumbai is one city where Parel if you see the amount of development which is happening and currently lots of developers are also offering some flexibility in payment that is a good area to look out for. Goregoan is another good belt to lookout for. Prices have gone up significantly in Bandra, Khar and that entire corridor. However, that from a living and a social infrastructure perspective is another good belt so somebody who can afford to be in that corridor because it is all over Rs 40,000 a square feet. Q: Mumbai's loss is often seen as Pune's gain, but now supply seems to have outstripped demand. Here's the outlook on the Pune market. A: Pune has suddenly seen a lot of supply and I don't think the demand is matching the supply. So, Pune is a bit of a slow market. Some of the locations which are sort of good, well established, well defined locations of Pune continue to do well which is Kalyani Nagar, Koregaon Park and the supply is limited there. Some of the developers like whether it is the Panchshil, Marvel or the Kasturi Developers have taken positions in some good corridors of Pune. So, those developments are good. However, all in all my advice would be a bit of caution as far as Pune is concerned. Q: The property market in Ahmedabad is normally dominated by NRIs. Deal activity is now expected to rise on account of rupee's depreciation, but oversupply is a concern. A: Ahemdabad if you see does not have enough local activity. There are a few people or a few families in Ahmedabad who believe in investing in the residential developments that are coming but that is not sufficient. What has happened is that over the last few years many developers have taken positions in Ahmedabad and as a result we have suddenly seen a spurt of supply and that is one of the reasons why despite an overall healthy investment demand we have not seen the kind of increase one would have expected which also is not a bad thing because if the increase has been slow and steady and it has not been sort of so much driven by speculation then it is not a bad sign. However, Ahmedabad I would say is currently a bit of a concern because of the excessive supply situation.