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Report 25th Oct 2011

Soaring Indian realty ambitions belie rocky foundations

Mumbai: When even the man who is building the world's tallest residential tower speaks of an Indian real-estate slowdown that could last for years, it is clear the foundations of a once-soaring industry are starting to shake.

Behind gleaming white gates, Abhisheck Lodha's 117-storey World One - where luxury apartments start at $1.5 million and rise past $15 million - will boast private swimming pools at cloud level and a 1,000-foot-high open-air garden.

But the promised 60-km view across India's financial hub of Mumbai will look down at a distressed real-estate industry crippled by high interest rates, rising costs and a sales crash that has left developers struggling with mounting piles of debt.

"We're certainly seeing a reduced rate of growth," the U.S.-educated managing director of Lodha Developers told a news agency.

"Real estate, instead of growing at around 15 percent, will probably grow at 9-10 percent for the next couple of years."

From the top of cranes that tower over the World One plot, where a thousand labourers dodge trucks to work on the colossal foundations of the half-kilometre-high tower, the view of a neighbouring site provides a picture of the fallout.

DLF, India's largest developer, had planned a luxury tower to rival the Giorgio Armani-designed apartments of Lodha's record-breaking skyscraper next door.

But that dream looks set to disappear with the sale of the plot as the firm scrambles to reduce its debt of $4.67 billion.

"India has two types of real-estate companies: heavily over-leveraged and reasonably leveraged," said Niranjan Hiranandani, one of India's leading real-estate developers.

Hiranandani's son, also a developer, built the world's current tallest residential block, the 395-metre, 90-floor-high 23 Marina tower in Dubai that was completed in June.

"The companies that are heavily over-leveraged are certainly in danger," he said.

The numbers are all moving in the wrong direction for developers in Asia's third-largest economy. Debt levels are rising as sales volumes and profits fall. Banks are shutting their doors to the industry just when it needs cash the most. Prices are stagnant and expected to fall.

"The marketplace is not foolish," said Lodha. "A price correction will happen naturally."

When the ground was broken at Lodha's dusty site in 2009, builders had been gorging on credit and splurging on land for bigger and bolder plans in the midst of a realty boom that started around four years before.

Since then, India's growth has tempered and interest rates have risen 12 times, hurting sales and pushing up the price of debt.

Steel and cement prices are up about 30 percent over the past year, while labour costs have risen due to scarcity of trained workers.

"Are there going to be months where companies might have to delay paying their interest? Yes," warned Lodha.

FIRE SALES

Approaching the World One site along a pot-holed road beneath an overpass where homeless people squat amid the stench of refuse, it is hard to picture the gleaming Italian marble and concierge service that Lodha has promised.

The metamorphosis of a former cotton mill into billions of dollars worth of luxury apartments in a city where 60 percent of the population live in slums is testament to the economic rise of India that had made developers the toast of investors.

In early 2008, DLF, with a market capitalisation that peaked at over 2 trillion rupees ($40.6 billion), announced a fiscal year profit of over $1.5 billion - an annual increase of over 300 percent - thanks to an insatiable appetite for property.

But times have changed.

With a market capitalisation that has shrivelled to $8 billion, the firm has turned to selling the family silver. Amanresorts, the luxury hotel chain it bought in 2007, is on the block as part of plans to sell $650 million of assets by March.

It is expected to announce the sale of the prime 17.5 acre plot adjacent to the World One site in December, two sources with knowledge of the matter told a news agency.

The company said it would not comment on market speculation regarding the land, which it purchased in 2005 for just over $140 million.

Unitech, the No. 2 listed developer, has said it will offload 7 billion rupees ($142 million) of assets annually in coming years to service its $1.1 billion debt.

India's developers held $24.4 billion of outstanding credit at the end of June, up 23 percent from a year ago. Profits of major listed firms fell 19.5 percent in the same period and property sales in Mumbai slumped 33 percent.

"Developers will be very, very keen to sell off as much of their stock as possible this fiscal year," said Kaustav Roy, executive director of property consultants Cushman & Wakefield.

"And if they fail, in March the banks will be looking to close their accounts, and might end up having to foreclose some of their stock," he said.

COSTLY CREDIT

World One will start to rise above ground level from its 5-metre thick concrete foundations next month. While it must still negotiate an often-tangled regulatory process to get permission to climb above 90 storeys, it should meet its end-2014 deadline.

More than 40 percent of World One's apartments have been sold, but Lodha's 32-year-old MD says business had been held back by a sales crunch that began in January.

"Our overall general assessment is that sales are slowing," says Lodha. "But we have plenty of time."

Lodha's father, Mangal Prabhat Lodha -- India's 50th-richest man according to Forbes -- heads the family business. His son is confident that the company can weather the slowdown, given a relatively comfortable $410 million of debt.

Lodha recently issued $160 million of non-convertible debentures to meet a 25.1 billion rupee ($513 million) repayment to Deutsche Bank. The developer had already restructured the loan in January.

In July, it issued a 2.5-year bond at an interest rate of 17 percent, compared with its average cost of debt of 14 percent.

"Recent fundraising has been more costly," said the younger Lodha. "We don't think we can raise cash at expensive levels."

Lodha, which sold a 10 percent stake in World One for $100 million to India's top mortgage lender Housing Development Finance Corp in August 2010, at least managed to secure funding before the tap ran dry for the industry.

Central Bank of India and the country's largest lender, State Bank of India, both of which have loans to Lodha, will not make further loans to the sector, senior executives at the banks told a news agency.

FUNDING DROUGHT

Real estate, which has garnered a growing slice of India's foreign direct investment (FDI) pie over the past few years, from 8.9 percent in 2007-08 to 11 percent in 2009-10, accounts for just 6 percent of the FDI this financial year, according to Ernst & Young.

India's realty index has fallen more than 36 percent since January, more than double the 17 percent slide in the benchmark Sensex, pouring cold water on the roughly $6 billion worth of planned initial public offering from developers.

Lodha's planned $570 million IPO has been stuck on the shelf for nearly two years.

More than $370 million in hoped-for IPO proceeds had been earmarked for construction costs, with another $61 million set to repay loans. That money has had to come from elsewhere.

Private-equity investors, which have poured $10.2 billion into developers since 2006, are set to withdraw around $5 billion in the next few years, forcing top developers including Lodha, Shriram Properties, DLF, Phoenix Mills and Unitech to buy back their investments, a Nomura report said in May.

Lodha counts ICICI Bank and JP Morgan as equity investors.

Feeling the heat from rising land, construction and labour costs, many cash-strapped developers have refrained from dropping prices, despite a growing supply of unsold properties.

But they may not be able to hold out much longer.

"The current market sentiments and excess debt levels at high interest rates, against seriously impacted volumes, should bring about an immediate 10-20 percent price correction," said Sanjay Dutt, CEO, business , at property consultants Jones Lang LaSalle India.

"That means taking a cut in profit or accepting a loss on some projects ... We are likely to see some developers default on their debt," Dutt said.

Bureau Report
Source:http://zeenews.india.com/business/realestate/latest-news/soaring-indian-realty-ambitions-belie-rocky-foundations_403.html
 

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Nothing to do with Congress - DGCA has some objections on the safety of civil aviation. A supertall always puts into question of flight safety wrt flight patterns. Not sure if Lodha actually got an approval from DGCA before commencing (someone can comment on this?). If they didn't then DGCA's objection is valid - most likely there'll be some impact analysis on World One's height vs proximity to CSIA before they comes to some decision. I feel another 17 floors won't make much of a difference - since there are other supertalls in the vicinity. But thats for the experts of Civil Aviation to decide as safety comes first!

The city will have to pay a price for having an Airport in the heart of the city unfortunately.
It is not because of having an airport in the heart of the city, its because of idiotic bureaucrats who always come in way of development and screw it up. There is JFK airport here in new york city, which is located just 20 miles from financial district.

Stupid bureaucratic government and vote bank politician [email protected] have fcked this country since past 64 years, Still the people of this country fall to their political gimmicks and vote them to power.

This DGCA is one big joke, yeah those additional 27 floors (where the building is located several miles out of airport area) will matter a lot to aviation ministry than those slums who are situated right across the airport street, where any possible terrorist can blow up a plan with a small fire canon.
 

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It is not because of having an airport in the heart of the city, its because of idiotic bureaucrats who always come in way of development and screw it up. There is JFK airport here in new york city, which is located just 20 miles from financial district.

Stupid bureaucratic government and vote bank politician [email protected] have fcked this country since past 64 years, Still the people of this country fall to their political gimmicks and vote them to power.

This DGCA is one big joke, yeah those additional 27 floors (where the building is located several miles out of airport area) will matter a lot to aviation ministry than those slums who are situated right across the airport street, where any possible terrorist can blow up a plan with a small fire canon.
I completely agree and go by this statement of yours which hold so damn true "This DGCA is one big joke, yeah those additional 27 floors (where the building is located several miles out of airport area) will matter a lot to aviation ministry than those slums who are situated right across the airport street, where any possible terrorist can blow up a plan with a small fire canon.":lol:
 

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offer them top 3 floors for free.......... then look how this project will get all permissions at one go.
 

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^^Doesn't it say the proposed height is 501.339 metres??!!
And in the second link, E clearance is granted for 461 metres...I don't know which to trust since I am hearing they never got the approval for the full height (442 metres).
 

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^^Doesn't it say the proposed height is 501.339 metres??!!
It says "501.339 m AMSL" - Above Mean Sea Level. Parts of Mumbai are 7-15 meters above sea level so you can do the math.

In any case, Lodha has always proposed the height to be 442 meters. The extra 50 meters ain't happening. It looks like they proposed a 500 meter tower to the SEAC and DGCA as a way to bargain and settle down on their original plan of 442 meters.

And in the second link, E clearance is granted for 461 metres...I don't know which to trust since I am hearing they never got the approval for the full height (442 metres).
There are 2 major approvals required (among a host of othes). For the original proposal:

1. Environmental clearance from SEAC - they've received it
2. Height clearance from Airport Authority (DGCA) - they haven't received it

Height is solely in the hands of the DGCA. The SEAC only controls the height to bring down the quantum of construction to reduce environmental impact.

Clearance from the SEAC is required to start construction. You can always tweak the construction plan and present it back to the SEAC for approval along with some chai-paani to get what you want. That's why I usually don't give a damn to what the SEAC says for height.
 

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It says "501.339 m AMSL" - Above Mean Sea Level. Parts of Mumbai are 7-15 meters above sea level so you can do the math.

In any case, Lodha has always proposed the height to be 442 meters. The extra 50 meters ain't happening. It looks like they proposed a 500 meter tower to the SEAC and DGCA as a way to bargain and settle down on their original plan of 442 meters.



There are 2 major approvals required (among a host of othes). For the original proposal:

1. Environmental clearance from SEAC - they've received it
2. Height clearance from Airport Authority (DGCA) - they haven't received it

Height is solely in the hands of the DGCA. The SEAC only controls the height to bring down the quantum of construction to reduce environmental impact.

Clearance from the SEAC is required to start construction. You can always tweak the construction plan and present it back to the SEAC for approval along with some chai-paani to get what you want. That's why I usually don't give a damn to what the SEAC says for height.
Thanks, just learned more about how Mumbai works....:)
 

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90 Floors is still good however 117 is better!

I thought the project would have been scaled further down to 60 or 70 floors by the DGCA.

I guess it is ok to have slums in the vinicity of the airport which poses a security & safety.
 

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Hey savz...looks like me goin to various site takin pics soon lookin bleak. So tell ur friend to take pic of the site. Saw today from bus 3 massive cranes similar to india tower site.
 

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thats a lot of cranes! World one may well be the tallest resi building in the world with the pentonium almost out of the pic.
In the first pic, whats that building in the background U/C? the name just went from my head
 

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CG......this is has been the best update till date. V clear n awesome photography. This one looks really good along with minerva. Lots of construction at World One. One can also see it coming up in the center.
 

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Thank you very much CG for all the updates :cheers2:

thats a lot of cranes! World one may well be the tallest resi building in the world with the pentonium almost out of the pic.
In the first pic, whats that building in the background U/C? the name just went from my head
World crest.
 

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Hmm so much cranes. Do the planners ever realise that there is something called "Roads" that the users of these buildings might need. Afterall, they cant fly.

Lower Parel may be a dream come true for many of the forumers. But, it is going to be a nightmare for Mumbaikars, who are going to work here in future. Afterall Mumbai has been correcting its past mistake of putting all its offices in Nariman Point, far away from the population. Now, it is repeating the same, albeit in a small scale.
 

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Hmm so much cranes. Do the planners ever realise that there is something called "Roads" that the users of these buildings might need. Afterall, they cant fly.

Lower Parel may be a dream come true for many of the forumers. But, it is going to be a nightmare for Mumbaikars, who are going to work here in future. Afterall Mumbai has been correcting its past mistake of putting all its offices in Nariman Point, far away from the population. Now, it is repeating the same, albeit in a small scale.

But now with some good quality Rapid transits like Metro and Monorail until this buildings are completed work on these systems will also complete which will help MUMBAI alot
 

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but a lot pf buildings in lower parel are actually residential and so it can be people living and working in same place ( if they can afford the prices :p)

yeah great pics CG .. Really clear and descriptive. SO are they going on all the buildings in the sites concurrently ? So are we looking at two supertalls at this site rising together.

That would be so awesome !!
 
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