Jones Lang LaSalle India chief believes that prices are beyond peak levels and developers will not be able to sustain
There is considerable apprehension in the real estate market over the price levels in several micro-markets that have gone beyond the peak of the boom in 2007. Now, the chorus of voices expecting a correction in residential properties is growing louder.
"While I expect selective price escalation to happen until the end of 2010, we are very likely to see corrections related to location, projects and the degree of unrealistic pricing happen after that," said Anuj Puri, chairman and country head, Jones Lang LaSalle (JLL) India. He was speaking on the sidelines of a meeting of the company's country heads from Australia, Japan, China and South-East Asia in Mumbai yesterday.
Mr Puri said prices were at their peak and builders could not afford to hike prices any further, notwithstanding the rapid rise in cement and steel prices. "If they (builders) increase prices further, it would affect demand," he said.
It has been reported that some developers are offering fabulous incentives-like Mercedes Benz and Skoda Fabia cars-to brokers to boost sales. Asked about this recent trend, Mr Puri said, "Only developers whose projects are overpriced and who cannot hold inventory anymore, are making such offers. As there are very few or no buyers for such overpriced properties, the developers are trying to corner some sales from the improved sentiment in the festive season."
While India is struggling to see some improvement in sales in the residential sector, Singapore remains the focus of foreign investment in the residential sector with better facilities for medical treatment and education, as well as well-provided spaces for corporate offices. Interestingly, the investment by Indians in residential property in Singapore is the third highest after Indonesians and Chinese.
"Indians are positioned in third place with a 10% to 11% contribution in the residential segment investment in Singapore," said Christopher Fossick, country head, JLL, Singapore. Indonesians top the list with 35% to 45% by value, and the Chinese have 15% to 16%.
On the other hand, China's realty sector is clouded by regulatory concerns, which analysts fear could lead to a fall in the property market. The Chinese government recently introduced a regulation whereby each household is permitted to purchase only one home in Tier I cities such as Beijing and Shanghai. This has led to worries that home purchase contracts already entered could be cancelled. KK Fung, managing director, JLL, Greater China, said, "It (the regulation) will lead to suppression of demand in the short term, but in the long term the demand and supply will get leveraged."
Commenting on the commercial real estate market, Alastair Hughes, chief executive, JLL, Asia Pacific, said, "Singapore is the most-preferred destination for multinational companies-mainly financial institutions, followed by Hong Kong and Mumbai. The commercial market in Tokyo (in high demand till the recent recession) is sluggish as the country is recovering slowly from the global recession."
In terms of rental values, Jones Long Lassalle has forecast that rental value in Mumbai would increase by 7% by end 2011. The highest increase in rental value is expected in Hong Kong at 33% and the lowest in Kuala Lumpur at 1%. JLL is a financial and professional services firm specialising in real estate services and investment management. It operates from 750 locations in 60 countries.
Ask a question about how much the Indian market is dependent on FII investment and fund managers will flood you with myths and wishful thinking
Indian markets almost hit their all-time high in October, primarily led by the copious inflows from foreign institutional investors (FIIs). FII investment has already crossed $21 billion in 2010. However, this begs the question, if we are so dependent on the kindness of foreigners for our bull market, what happens when they start selling? To discuss this, Indian Merchants' Chamber of Commerce recently organised a discussion, in which Sanjay Sinha, CEO, L&T Mutual Fund, participated.
Commenting on this phenomenal rise in stock markets, Mr Sinha said, "The ongoing interest in equities is shown by strong inflow in the general emerging markets (GEM) which has been more than $40 billion, rising equity weights in GEM pension fund assets, heavy IPO activity and secondary issuance."
But aren't these factors clear signals of an overheated market? The flurry of IPOs, for instance, is a telltale sign of a market that has reached a kind of euphoria. Mr Sinha cited the example of the Korean stock market, which continued its upward surge despite FIIs pulling out funds from the market.
"Despite outflow of funds by FIIs from the Kospi Index, the Korean stock market was surging due to high participation from retail, mutual fund, insurance schemes and pension funds. So even if FIIs withdraw their funds from the Indian stock market, it should not plunge and retailers should show massive interest in the surging economic market."
Mr Sinha's facts may be correct but are quite irrelevant. Indeed, the facts in India are exactly the opposite. Where are the retail investors, mutual funds, insurance companies and pension funds in India? Here are some facts that Mr Sinha knows better than us but prefers to put out a different point of view to the public. Thanks to a slew of regulatory changes in the financial services industry, the number of retail investors is dwindling rapidly. Mutual funds have witnessed a massive hemorrhage of funds ever since the Securities and Exchange Board of India (SEBI) abolished the entry load in August last year.
September 2010 saw equity fund outflows touching a level as high as Rs7,100 crore, taking the outflow to Rs21,000 crore over the last 14 months. Similarly, revised Unit-linked Insurance Plan (ULIP) regulations have hurt the life insurance industry, whose ULIP sales accounted for 80% of the total. Pension funds do not even participate in the Indian equity markets in any meaningful manner. The Indian situation is exactly the opposite of that in Korea.
Mr Sinha had another piece of logic as to why the market will not fall with FII selling that completely contradicted the facts. He said that FIIs are unlikely to sell since it would erode the value of their investments! If that was true, markets would fall because all equity markets in the world are substantially dominated by institutions. The fact is, and Mr Sinha knows it very well, institutions move in herds. They buy in herds and sell in herds because of two reasons. One, institutional investors do not work in isolation. They are keen to know what their peers are buying and selling and even try to follow each other. FIIs are more interested in the short-term actions of their fellow investors than the long-term returns of their holding. Those who have increased their investment heavily recently are especially nervous of a decline. A temporary but large looming global or local crisis can send stocks skidding. Didn't the Sensex drop by 5,000 points in the April-May period on FIIs worrying about what is happening in Greece of all places? Two, when the market declines quite a bit, investors tend to withdraw their money and a serial redemption will force FIIs to sell together even if they don't want to. In that case, they have no choice. Mr Sinha surely knows such a thing as selling caused by redemption pressure.
If Mr Sinha, an ace fund manager, peddled lots of misconceptions and myths about the institutional investors, another top fund manager, Sunil Singhania of Reliance Mutual fund, was not far behind. He argued that India is expected to be the third largest economy in the world. He feels that BRIC countries will double in size in 5-10 years from $8 trillion economy to $16 trillion while by that time the US economy will struggle. Hence he firmly believes that money will shift from developed economies to emerging ones. Even if you don't dispute these figures, beware of drawing any market-linked conclusions from it. It is classical fallacy to assume that economic growth and stock market movement are anything but loosely correlated. Ask yourself why does the fastest growing economy in the world not have the fastest-rising stock market? Shanghai is not among the best performing markets of the past 20 years.
Argues Mr Sinha, "Global economies especially developed economies like the US and the eurozone are giving mixed signals and pointing towards a prolonged period of benign growth which will keep the central bankers inclined towards maintaining (a) loose monetary policy stance." Well, this is the actual truth. A low interest rate regime in the West and Japan is what is giving an unusual lift to stocks in emerging markets, as also commodities. The bulk of FII money is chasing Indian stocks because of lack of alternatives and not because of the great long-term story of India. Watch out for a change in the interest rate situation in the West; a lot of money would return home and a small bout of selling by FIIs is all that is needed to bring the market down. The same fund managers who are saying FII selling doesn't matter or won't happen may be the first ones to sell.
Dheeraj Hinduja, the second of the four brothers who have built the Hinduja Group, would now led Ashok Leyland while incumbent RJ Shahaney would become its chairman emiratus.
Hinduja Group company Ashok Leyland said it appointed Dheeraj Hinduja as its chairman. He takes over from RJ Shahaney, who will now be chairman emeritus.
Mr Hinduja, who has been co-chairman of the company for the past three years, is a third-generation member of the Hinduja family. He has years of experience at strategic and leadership levels covering a wide variety of businesses across diverse sectors such as automotives, energy, infrastructure, finance and banking, IT and ITes, media and healthcare.
"I have very ambitious expansion plans for Ashok Leyland and right at the top of my priority list is to fast-track the company's global thrust through both organic and inorganic modes," said Mr Hinduja.
Mr Hinduja succeeds Mr Shahaney who was earlier Ashok Leyland's first Indian managing director. Mr Shahaney, who joined Ashok Leyland in 1978, was primarily responsible in spreading the Company's manufacturing footprint in India with the establishment of facilities at Hosur, Bhandara and Alwar.
Mr Shahaney said, "Today's challenges are very different in nature but they are just as exacting and formidable as they were before. I have participated in Ashok Leyland's growth to the stature and size it now has acquired; all the engines of growth are in place and it is now for Dheeraj and his team to lead the Company to even greater heights in the coming years. I shall always follow its fortunes with passion because Ashok Leyland is very much a part of me."