Cement price hike: Builders to stop construction works in Tamil Nadu

Realtors and home buyers in Tamil Nadu are on tenterhooks, thanks to the unprecedented hike in cement and other construction material prices, as several builders have either stopped work or have slowed down putting buyers in a quandary.

Ajit Chordia

Jumping into the bandwagon to register their protest, the Confederation of Real Estate Developers’ Association of India (CREDAI)’s Chennai chapter while expressing its strong resentment over sudden cement price hike, has threatened to discontinue construction activities indefinitely from July 7 and also stop procuring cement from south India if the government does not reign in on the rising cement prices.

“The steep hike will result in an increase of around Rs 45 per sq ft for property buyers without considering other costs. We cannot pass this extra burden to home buyers,” said Ajit Chordia, president of CREDAI-Chennai. Already in doldrums, the price increase will further affect the construction activity in and around Chennai and its suburbs.

“Almost 95 per cent of the public and private projects across south India and especially in Tamil Nadu are at risk,” said Suresh Krishn, vice president of Credai-Chennai.

Advocating to have a regulatory authority for cement industry for controlling prices, Sarita Hunt, MD of Jones Lang LaSalle (Chennai and Coimbatore), a leading real estate research firm, said, ‘The steep hike of cement price will increase the construction cost, which will in turn affect the growth of the already sagging realty sector.”

Sarita Hunt

According to Builders’ Association of India (BAI), prices have gone up by as much as 125 per cent for certain key construction material. The construction industry has claimed that the increase in the prices of key materials like blue metal by 125 per cent, hot mix by 75 per cent and cement by 50 per cent have brought work on several projects in the state and Chennai in particular to a grinding halt.

According to an estimate, projects worth around Rs 10,000 crore, including public and private, are being executed in Chennai.

While the cement prices went up by 12 per cent last year, this year it shot up by about 50 per cent. A high-grade cement bag that was available for Rs 250 about a month ago is now being sold at Rs 350-375 per 50 kg bag.

It is not just cement prices alone that realtors are worried about says Vivek Chandra of Srinidhi Builders. “Not only cement, prices of sand and steel have gone up. We are planning to go slow and the projects’ deadlines are sure to be breached. We have informed our clients about the impending delay in getting their keys due to unavoidable circumstances.”

Government projects in Chennai, including the metro rail, would be affected once the strike begins, say builders. Urging the Centre to establish a regulatory mechanism for cement prices and provide concessions on import duty, Chordia wants the government to allow construction firms to import cement from neighbouring countries.

However, manufactures claim that the hike in cement prices is due to the increase in cost of raw materials, and the recent power cuts has added up to it. Hope the prices of construction material stablise at the earliest for the benefit of home buyers.

ASSOCHAM suggests ways to mobilise resources for urban development

To mobilise the resources to the extent of Rs.70 Lakh Cr by 2030 as an aggregate capital investment mainly for urban roads, affordable housing and transportation, ASSOCHAM has submitted a 10-point strategy to the government including incentivisation of REITs and Urban Development Funds (UDFs).

In a meeting with the Urban Development Minister M Venkaiah Naidu recently, the ASSOCHAM 12-member delegation led by its past President Anil K Agarwal said that urban cities are the growth catalysts and likely  to create 70% of net new jobs and contribute over 70% to India’s GDP in another 16 years.   The delegation stated that India will have six mega cities with 10 million population entailing annual per capita investment on urban services to Rs.Rs.8000 as against the current investment of Rs.1000.

Mumbai and Delhi, according to the study undertaken by ASSOCHAM, will be among the five largest cities in the world and, in addition, cities with over one million population will increase from 53 to 68.  The urban population is expected to touch 590 million accommodating approximately 40% of total population.  This will create critical gaps in healthcare, education clean drinking water, sanitation, affordable housing and public transportation.

The chamber has suggested development of basic infrastructure like public transport, flyovers, drainage, sanitation and waste management, incentivization of REITs and Urban Development Funds to invest in public utility services like slum rehabilitation, water supply, waste management, sanitation and deepening of e-governance mechanisms for electronic delivery of public services.
 

It has further proposed to establish regulatory authority to monitor work of Urban Local Bodies (ULBs) – build capacity in research, planning, HRD - facilitated by States,  strengthening of  fiscal standing of ULBs through improved revenue collection, expense management, budgetary allocations and developing Municipal Bond Markets by providing suitable tax incentives to investors

Rehabilitation  of slums and creation of affordable housing inventory with rental housing facilities for various income groups at city outskirts and improvement in quality of life in Tier I and Tier II cities by maintaining and developing recreation facilities and public parks needs to be prioritized.

Other issues include development of green-field integrated smart cities along industrial corridors such as DMIC, upgradation of civic amenities, health services, urban transport and inter-city connectivity for Tier II cities, innovation in public transport through intelligent transportation systems incorporating vehicle telematics to reduce commuting time and integration of Disaster Management Systems and a comprehensive Risk Management Framework into Urban Planning, with periodic audits.
 

Agarwal said development of suitable framework for people public private partnership (PPPP) in urban infrastructure projects to enhance efficiency in delivery of urban services and effective use Indian Railways' urban land banks to set up Central business districts with facilities for holding conventions and exhibitions, transportation hubs, affordable housing and shopping centers are must.

L&T Construction sets up service facility in Kancheepuram

Chennai: The Larsen and Toubro Construction and Mining Machinery, part of the USD 13.5 billion infrastructure major Larsen and Toubro, has set up a training centre at Kancheepuram near Chennai.
 

Former Larsen and Toubro Board Member J P Nayak inaugurated the facility at the town, about 50 km from here, a press release said.

The "ultra-modern" service and training centre for repair of construction and mining equipment forms an important part of Larsen and Toubro's product support activities in the construction and mining equipment industry and provides a one stop solution to customers in Southern India, Nayak said in a statement on Friday.

The service centre is spread across 33,500 square metre and houses specialised machinery and exclusive bays to provide service solutions for high-value equipment like dozers, loaders, dumpers and excavators, he said.

The facility was one of the five service centres set up by Larsen and Toubro which are situated at Nagpur, Pune, Durgapur and Bahadurgarh (near New Delhi), the statement added.

Construction firms may stop work in south India

The real estate developer community, upset over the recent cement price hike, is planning to stall construction work in southern states for some time. This would result in the cement prices coming down as stocks would pile up.

However, a decision on this will be taken after discussions with multiple stakeholders in the construction segment, according an industry representative.

Cement prices in the recent few days have gone up sharply triggering resentment among developers. For instance, in Andhra Pradesh and Telangana, the prices are now about Rs 280 to Rs 285 compared to Rs 215 to Rs 225 a bag a few days ago.

“From the developers’ side, we are having discussions in the southern states on ways to deal with the big hike in the cement prices. The industry is not in a position to either absorb the hike or pass it to the customers. We are asking the cement industry to reconsider their decision on the pricing,” said C Shekar Reddy, national president, Confederation of Real Estate Developers' Associations of India (CREDAI).

According to him, the impact of the increased cement prices will be to the tune of Rs 60 to 100 per sqft implying an increase of Rs 60,000 to Rs 1,00,000 on units sized around 1,000 sqft. This will have a cascading effect on the finances of the buyers, he said.

“Stopping construction work for some time is an option we have. However, the impact will be on the work force as they will lose wages. Realigning the workforce will be difficult as many would be dislocated. In other words, if the work is stopped for two weeks, getting back to the work schedule may take up to four weeks. Also, about 200 ancillary industries are dependent on the construction segment and their work would also be affected,” said Reddy adding that the developer community was hoping that cement prices come down once rains lash.

Mahindra Lifespaces forays into affordable housing segment

Mahindra Lifespaces Developers, the real estate arm of the Mahindra group, today launched its new business vertical 'Happinest' that will focus on developing affordable housing projects.

According to media report, the first two projects under the new vertical will be developed at Avadi in Chennai and Boisar in Mumbai and would be priced between Rs 10-20 lakh.

"Our commitment to sustainable urbanisation is to be in businesses and develop projects that promotes culture, connectedness and community. 'Happinest' epitomises the concept of shared value where companies seek to do business in a manner which combines profitability with advancing the economic and social conditions of the communities," Mahindra Group Chairman Anand Mahindra told reporters.

The two projects are expected to be completed in two years, Mahindra Lifespaces Managing Director and CEO Anita Arjundas said.

"The Chennai project, which has received all approvals except from the municipal corporation, will be launched in July, while Boisar project is yet to receive environmental clearance and will be launched in August," Arjundas said.

These apartments would have an area ranging between 400-600 sqft and will be priced between Rs 10-20 lakh, she said.

Speaking at the occasion, company's Chairman Arun Nanda said the new project is company's strategic endeavour to address the large and under served home ownership market.

The company, however, refused to give details about investment for the project but said it has invested in innovations to ensure speedy execution and lower costs.

Arjundas said the investment in buying land and other works has been through internal accruals.

She further said the company has tied up with credit scoring agencies like inventure and micro home finance companies like Mahindra Finance and Muthoot to reach out to right customers.

When asked about Prime Minister Narendra Modi's vision of building 100 smart cities, Mahindra said, "Smart cities shouldn't only be IT enabled but should be planned smartly. If we have to provide affordable housing below Rs 20 lakh, then it is important to see the land is available at low cost. The land should be used for diversity, the report further said.

DLF becomes first Indian realty firm to get ISO certification

NEW DELHI: Realty major DLF has become the country's first real estate developer to get ISO 9001:2008 quality certification for development of commercial and housing projects.

In a statement, the largest developer of the country, said, "DLF Home Developers has got ISO 9001:2008 certification after meeting the stringent guidelines set out by British Standard Institute (BSI), an accredited business standards company."

NRIs spin realty growth back home

With real estate growth reaching its nadir in India owing to sluggish economic condition and realtors finding it difficult to launch new projects due to liquidity crunch and piling of inventory, the Non Resident Indians (NRIs) and High Net Worth Individuals have come as a saviour for most of the leading builders, so to say.

There is no doubt that real estate prices have moderated in the last two years and in some cities it has even gone down to 20-30 per cent in 2014 compared to last year, the Indian Diaspora in UAE, UK, US, and also in South Africa, Malaysia, Singapore and Australia, are making beeline to invest in housing and commercial properties in their homeland, with villas and estate properties leading the chart.

‘We are regularly participating in property exhibitions in Dubai, Abu Dhabi, Kuwait, and other Gulf states to reach out to Indians there who are interested in investing in properties back home. We are even having camp officess in the US and UK to sell our projects to prospective NRI clients. We are planning to launch our offices in South Africa too, as the region is gaining momentum with more number of High Net Worth Individuals (HNIs) are showing interest in investing in high-end properties in India. In Gulf region, we primarily target south Indians belong to Kerala, Bangalore, Chennai or Hyderabad,” says Piyush J Bhatt, Senior Sales Manager, Arihant.

NRIs generally prefer to park their money in real estate properties in Mumbai, Bangalore, Chennai, Ahemedabad, Goa, Mohali, Kolkata, Pune apart from a few prominent cities in Kerala like Kochi, Thiruvanandapuram, Alapuzha, Kozhikode, etc.

According to a survey conducted by Sumansa Exhibitions, organisers of the Indian Property Show in Dubai, Mumbai still tops the list of favoured property investment destinations for UAE-based Indians.

The study found that 31.9 per cent of the respondents picked Mumbai as their top city for property investment, while Bangalore came second with 24.4 per cent preferring to invest in residential property in the coming months. Chennai and Pune shared the third spot, followed by Delhi, Cochin, Navi Mumbai, Gurgaon and Hyderabad, the survey noted.

“Sector experts predict that residential property in Bangalore and Chennai will remain a good bet for 2014, too. Bangalore is the third-largest real estate investment hub for High Net worth Individuals (HNIs) and tops the list in terms of investments from NRIs looking at settling down in India in future. With a HNIs population of about 10,000 — the third highest in the country after Delhi and Mumbai — Bangalore’s super-luxury segment is worth watching,” said Sunil Jaiswal, CEO Sumansa Exhibitions.

According to the survey, 16 per cent of the respondents were looking for high-end properties priced above one crore, 31 per cent were seeking properties in the price range of over Rs 76 lakh, while the majority – 52.6 per cent – were focused on the mid-segment range of Rs 26-75 lakh rupees.

The survey also found that around 77 per cent of the NRIs were interested in buying residential apartments, with 72 per cent of the buyers aiming to make the purchase within the next six months. Most of the buyers, at 67 per cent, were within the age group of 36 to 50 years.

Leading property consultancy firm Jones Lang LasSalle (JLL) India, says that India’s real estate sector receives significant investment from NRIs, with the amount reaching over $2 billion in 2013. The figure indicated a growth of 35 per cent compared to 2012, and accounted for almost 12 per cent of total apartment sales in the top seven cities.

As per a recent estimate, nearly five million Indian expatriates are living in six Gulf Co-operation Council (GCC) countries of Oman, Saudi Arabia, Qatar, Bahrain, Kuwait and the UAE and they remit close to 30 billion USD to India every year.

Cautious approach

Due to steady growth of Indian real estate and also decreasing value of rupee against international currencies, NRI investments in Indian real estate, both commercial and residential sectors, has seen a jump in the last few years.

Sentimentally, the Indian expatriates are attached to their homeland and they also feel secured when they invest their money in the booming real estate back home. Some even park their money in gold, government bonds and securities, but majority of them, particularly from UAE, the UK and the US are predominantly see real estate is the best option for short and long term investment.

However, there has been a cautious approach by NRIs in the recent months in buying properties back home due to new change of guard at the government level, feel many builders.

“There has been a lull in new property launches across India since 2013 due to impending general elections. Normally it has been a practice that one year before elections, developers avoid launching projects as it generally takes 18-36 months to get all statutory approvals from various State and Central government departments. There is a possibility that the builders may end up paying twice for getting the project approvals, because when the new government sets in, they have to apply for the approvals again, thereby incurring expenses twice. So, builders generally postpone the projects till six months after polls. Since there are less number of projects available, NRI investments would be less during this period,” opines R Rajendran, Senior Deputy Manger-sales, Rajkham Builders.
 
NRIs in Chennai Realty

As far as Chennai real estate is concerned, NRIs prefer to invest in properties in and around OMR, ECR, Porur, Valachery, Chrompet, Tambaram West, Oragadam and Sriperumbudur. Those who look for high-end properties within central business district are looking at places like Adyar, Thiruvanmiyur, Mylapore, Besant Nagar, Anna Nagar, etc where property prices are very high and only premium builders are offering homes on invitations only.

“We are getting enquiries mainly for properties around OMR, ECR, Porur and nearby areas. According to me, GST and adjoining areas are less preferred by them as it has low return on investment. Even Oragadam and Sriperumbudur, which are the hot destinations among local realty enthusiasts, haven’t found many takers from NRI community,” says Sudarshan, Senior Sales Manager, BBCL.

Most of the NRI investors prefer high-end properties valued about one crore with world- class amenities. PS Shiv Shankar, an NRI lives in Dubai and has a base in Chennai, says, “If I am investing in a property in India, my choice will primarily depend on the location of the property. If it is a city like Bangalore or Chennai, which are not as crowded as Mumbai or Delhi, I would ideally look for villa, with maybe five to six bedrooms, in a relatively quiet area within easy driving distance of the city. I would want greenery as I enjoy gardenining, and my villa should come with a small gym and private, covered swimming pool. Privacy is very important to me, so that is something I would definitely look for and I would love a Jacuzzi in my bathroom,”

Interestingly, a recent survey conducted by associated chamber of commerce and industry of India (ASSOCHAM) across major cities in India, revealed that developers have found an easy escape route from the present cash crunch and see NRIs as their saviors.

The industry body has conducted a random study involving 1250 real estate developers in Dera Basi, Delhi-NCR, Mumbai, Mohali, Kolkata, Hyderabad, Chennai, Bangalore, Pune, Ahemdabad, Dehradun etc. Most of the developers have revealed that NRIs have been showing renewed interest especially after the rupee hit the record low since they would get good exchange rates for their currency.

The ASSOCHAM study also found that NRIs prefer Bangalore as the most suitable city to park their funds in real estate properties, which include residential and commercial establishments. After Bangalore, NRIs prefer Chennai, Mumbai, Ahemdabad and Dehradun.

Punjabis settled in UK and Canada are showing more interest in investing in upcoming real estate spots around Chandigarh like Mohali, Dera Basi, Zirakhpur and Panchukla. Surprisingly, India’s hottest real estate destinations like Delhi-NCR and Mumbai markets did not figure in their ‘most preferred’ investment destinations list.

“The depreciation of rupee value which began one months ago and have moderated now, has increased the enquiries from NRIs considerably and we are expecting a surge of business up to 35 per cent in this adverse market condition. The decline in rupee, though affected the domestic market due to macro-economic conditions, sales have increased due to NRIs because they want to get value for their money,” said a majority of developers.

Though for non-resident Indians, this is the best time to buy properties in India, the time is not good for people back home. As per market estimate, an NRI who buys a home can save up to 30 per cent on his property value and can expect good percentage of return on investment, opines DS Rawat, Secretary General of ASSOCHAM.

According to the survey, majority of the NRI traffic is coming from the US, UK, UAE/Gulf region, Singapore, UK, Canada, Australia, South-Africa etc and the demand is more for commercial buildings and high-end properties like villas and single floor luxury apartments.

K Ramanathan

Make way for PG homes

Builders in Chennai have found a new market for their product, particularly for single bedroom tenements. 

Thanks to the burgeoning floating population of professionals belonging to IT and ITeS, automobile, education and engineering sectors from various states and within Tamil Nadu, the city has been witnessing huge demand for PG accommodation and 1 BHK flats on rent. The rental too has hit the roof due to the high demand.

Since the city is also home to several colleges, both within the central business district and on the outskirts, students from outside Chennai generally look for safer places to stay, where their food and other basic needs are taken care of much to the relief of their parents. And, builders and house owners are taking advantage of this unprecedented rush for smaller homes.

“Students and professionals from other states prefer Paying Guest (PG) accommodation.  These units are well furnished with basic facilities. They too provide homemade food for tenants. Most of them have facilities such as Wi-Fi connectivity, LCD television with DTH connection, refrigerator, magazines, furniture, etc. Each room is being provided with a single bed, study table, wardrobe and dressing table,” says Niharika Kapoor, an IT professional working in Taramani, who stays at Velachery.

The hubs for PG accommodation in Chennai are Mambalam, Nungambakkam, Velachery, Kodambakkam, Tambaram and Mylapore. Some of the places where IT professional look for homes are Thiruvanmiyur, Thorapakkam, Sholinganalur, OMR, Karaipakkam, Medavakkam, Porur and Iyyappanthangal.

The rates too vary as per the facility available. For non A/C accommodation with hosts of other facilities homeowners are charging anywhere between Rs 6000 to RS 10,000 per month and for non A/C rooms without sharing, one has to shell out between Rs 3500 to Rs 5.500, says Gopal Menon, a student, who stays in Tambaram West.

Majority of the demand for PG accommodation is in locations, which are closer to the IT corridors of the city. However, maximum supply is concentrated in Thorapakkam, Thiruvanmiyur and Sholinganalur, which is close to IT corridor, since it has cheaper transportation towards work places.

“People, who may be professional or student come to the city from other states. They look for safer place to stay for few months. Hence, they prefer PG accommodation rather than renting small-sized apartments, where they have to pay huge security deposit,” says  Sridharan, who let out PG rooms exclusively for girls in Velachery.

The unprecedented demand for PG accommodation or independent single bedroom apartments has forced many denizens to convert their homes into PG accommodation for better earning. ‘We have a few projects for joint development for PG accommodation- cum-single-bedroom apartments from owners in Tambaram, Thoraipakkam and Porur. We have making one in Iyyappanthagal, where the demand is more since it is closer to DLF IT Park and Sri Ramachandra Hospital, says Somesh Verma, Senior Marketing Manager of Om Ganesh Construction.

Needles to say, the real estate prices are going up in certain pockets of the city where it has huge demand for such accommodation. In places like West Tambaram, Kattupakkam, Ramapuram, Kundrathur and Chrompet, the demand is more for single room tenements being sought by college students, nurses and IT professionals.

ASSOCHAM asks govt to drop MAT & DDT for SEZs

Apex industry body ASSOCHAM has urged the new commerce minister, Ms Nirmala Sitharaman to restore the policy for special economic zones (SEZs) to its original form and immediately withdraw minimum alternate tax (MAT) and dividend distribution tax to regain trust of domestic and global investors.

SEZs were conceived as tax free enclaves with world class infrastructure for exporting only goods and services from units set up in them without carrying the incidence of various direct and indirect taxes, duties and levies to provide Indian exports a strong competitive edge in global markets.

However, imposition of MAT and DDT by the government a few years after the announcement of SEZ policy took investors by surprise followed by a fall in their interest thereby raising questions about government’s commitment to a stable policy regime.

“Creation of additional infrastructure in approved SEZs without exemptions, concessions and drawback is also imperative as additional benefits would flow through decongestion of overcrowded cities and creation of alternated urban satellite centres would provide new streams of revenue for governments and local bodies,” highlighted a paper on ‘Suggestions to Revive Special Economic Zones’ prepared by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

“Both of these significant changes in the SEZ policy are imperative to provide Indian exporters a level-playing field and these should be included and be implemented as part of the new government’s immediate economic agenda,” said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the chamber’s paper.

“If immediate action is taken by implementing these corrective measures it would restore investor confidence and bring back SEZs to the forefront of economic and industrial development,” said Mr Rawat. “Restoring confidence of domestic manufacturing sector by providing a stable policy environment would promote competitiveness as SEZs can be the vehicle to boost manufacturing exports from India and catalyse revival of Indian economy.”

Besides, global markets are showing strong trends of revival after a prolonged spell of subdued and in some cases, negative growth, noted the ASSOCHAM paper. “India has the opportunity to reclaim its position as a world class, competitive global manufacturing power.”

Frequent policy changes have eroded the investors’ confidence in SEZs thereby severely affecting the overall potential of SEZs to provide significant boost to investments, exports and employment in India thereby virtually reducing it to a non-starter, noted the paper prepared by the ASSOCHAM Economic Research Bureau (AERB).

NABARD lowers rate of interest by 20 bps

NABARD has reduced the rate of interest by 20 basis points (bps) on their long term refinance facility to banks with an objective to promote investments in agriculture. The new rates will be applicable from 6 June 2014.

Announcing the new rates, Dr. Harsh Kumar Bhanwala, Chairman, NABARD said that rates of refinance will now be 9.50% for 5 years and above and 9.70% for 3-5 years period, Banks availing more than Rs.500 crore in a single drawl will further be incentivised by 10 bps.

To combat food inflation, efficient agricultural technologies get a further incentive of 50 basis points

In addition, NABARD shall further give 50 basis points reduction, for innovative agricultural activities which enhance production & productivity. These activities among others include; production under controlled conditions like poly houses with water saving drip & fertigation facilities, precision farming, post-harvest management, etc. The list includes 12 such innovative farm practices to enhance fruit and vegetable production. This initiative is aimed at combating the food inflation by addressing the supply side constraint.

NABARD will also extend the 50 basis points rebate for supporting single purpose under area development schemes, mainly to benefit small and marginal farmers.

Dr. Bhanwala said that this initiative will incentivise the Cooperative Banks, RRBs and Commercial Banks in reversing the decelerating trend of investment credit and will aid in enhancing capital formation in agriculture.