High property prices and lack of completed housing units increase cost of home rentals; consumers are being forced to look for alternatives
You might receive a hike of more than double the usual appreciation in your monthly home rent bill when you lease comes up for renewal this time around.
Jit Nandi of Vashi, Navi Mumbai, received a 20% increase in his home rent bill this year compared to the usual 10% every year. But despite the high rent and a desire to move to cheaper accommodation, Mr Nandi says that he is unable to move to a new location. "At the back of my mind, I know that I need to shift as rent is on the higher side. But due to certain problems such as shifting, paying deposits and brokerage, getting adjusted to a new landlord and society, I'm not able to move to new accommodation. But sooner or later, I'll have to shift," he told Moneylife.
However, for some, getting a new apartment was an outright solution to the rising residential rentals in Mumbai. Rajat Kumar of Powai (central Mumbai) said that increasing rentals triggered the idea of opting for a house on ownership. His rent increased from Rs18,000 to Rs25,000 in three years - an increase of 40%. He will get the possession of his 2BHK next month.
Mahendra Ahuja (name changed on request) of Sanpada, Navi Mumbai, who recently purchased a 3BHK in Thane and will get possession next year, said he found it prudent to invest in property rather than paying monthly rent. He said, "My rent has more than doubled in five years. With my increase in income levels, I found it wiser to invest in an apartment as real estate prices are on the rise. Plus, I will get the much-needed tax benefits, whereas, the monthly rent doesn't accrue any benefit as it goes into the landlord's pockets."
According to real-estate dealer Abhay (who uses only one name), the number of persons opting for outright purchase has increased by 8% this year. But Mr Abhay maintained that these are mainly those who are looking to get settled in the financial capital of India. Others such as BPO or private firm employees usually take apartments on rent as they keep shifting from one city to another for better opportunities, he added. Such people don't hesitate to pay high rent and live in plush localities and apartments, according to Mr Abhay.
In the second quarter this year, residential rentals have risen alarmingly. According to a study by real estate portal 99acres.com, residential rentals have seen an escalation of more than 20% in Mumbai. Khar, a western suburb of Mumbai, has seen 47% appreciation in rentals in the second quarter this year compared to the same period last year. Mahalaxmi and Napean Sea Road saw 28% and 13% rise in rentals over the same period. Bandra (West) witnessed an 11% rise in residential rentals.
"Home rentals in Mumbai have always been on the higher side," said Sandeep Reddy, a former real-estate analyst with Kotak Institutional Equities and co-founder of GrOffr.com, a real estate website for group buying. According to a report, the city needs 84,000 houses every year additionally, but the combined effort of private housing companies and government housing authorities yields only 55,000 houses annually. The deficiency in supply of houses keeps on propelling the real estate prices to a new zenith every year.
According to Mr Reddy, lack of completed housing units has led to the rise in residential rentals. "In the last two years, many housing projects have been launched but as they take time for completion, the lack of completed units has led to rise in rentals as the demand for accommodation continues to rise due to various factors such as migration of work force."
According to Yashwant Dalal, president of the Estate Agents' Association of India, high property prices are responsible for the rise in rentals in the city. Mr Dalal told a tabloid recently, "Property prices have gone up beyond the 2008 peak and are consistently going up since the last three quarters. So people are waiting for the prices to correct and have postponed their purchasing plans for some time. As preference is more towards leased property, the rentals have gone up in the city."
It's the same story in other metropolitan cities. According to the study, Saket in South Delhi saw a 31% rise in rentals in the second quarter this year compared to the same period last year. South Extension, Safdarjung and Malviya Nagar followed at 24%, 22% and 21% respectively.
But according to Pankaj Kapoor, founder and managing director, Liases Foras, the rental market is stable and there has been only a slight increase. He said places where high appreciation is reported are mostly high-end locations and these places don't come under the rental market. "These (places mentioned in the study) are high-end locations. It all depends on the kind of property leased out. You can have a gamut of properties but there is something called high-end or exclusive properties and all of a sudden if it goes off at a certain premium, it will have an impact on the kind of rent," Mr Kapoor said.
In the case of Mr Nanda who is unable to shift to a new location due to logistical problems, Mr Kapoor said there is no solution other than to bear the high expenses or move to locations far off from the main business areas where rents are cheaper.
The nodal bank, a stronghold of the Congress-NCP combine, is in deep financial trouble due to its suspicious loan distribution to some of its favoured co-operative banks as well as some loss-making sugar co-operative factories
Maharashtra State Co-operative Bank Ltd (MSCB), the nodal bank for all co-operative banks in the state, is in deep financial trouble due to its suspicious loan distribution to some of its favoured co-operative banks as well as some loss-making sugar co-operative factories.
The apex co-operative bank is scheduled to celebrate its centenary year next month in Pune in the presence of president Pratibhatai Patil and Union agriculture minister Sharad Pawar. The majority of the directors on the bank's 'jumbo' board (44 elected and 33 appointed, a total of 77 directors) belong to the Pawar-led Nationalist Congress Party (NCP). Some ministers from the ruling Congress-NCP combine like Ajit Pawar, Rajendra Shingane, Diliprao Deshmukh, Madan Patil, Hasan Mushrif and powerful leaders such as Vijaysinh Mohite-Patil, Sadashivrao Mandlik, Yashwantrao Gadakh, Prasad Tanpure, Jaywantrao Awale and Dilip Sopal are directors of MSCB.
For FY10, the bank's auditors, Joshi Nair and Associates, have given a 'D' grade to MSCB as it could score only 31 marks out of 100 based on various parameters. As per the provisional figures provided on the bank's site, for FY10, its gross non-performing assets (NPA) are 20.9%. However, while converting the same into net NPAs, the bank has shown the figure at 7.7%.
Although the auditors refused to share the audit report with Moneylife, according to some media reports, politicians are pressing hard to change MSCB's audit grade to 'C' from 'D' as a damage control measure. The bank has shown deposits of Rs21,500 crore and a net profit of Rs2.83 crore. However, according to the audit report, the bank had to suffer a loss of Rs1,070 crore, mainly due to NPAs.
The bank had to make a provision of Rs768 crore for the NPAs, but it failed to do so. In addition, for the NPAs, it made a provision of around Rs144 crore from its cash reserve instead of showing the same in the profit & loss account.
Banks in India are required to maintain a Capital Adequacy Ratio (CAR) of 9%; however, MSCB's CAR is 8.66%. In the audit report, the bank was able to score just one mark out of 48 marks that are assigned to CAR, loan worthiness, management and income, together. This was the main reason why the bank scored a 'D' grade in the auditor's report.
The MSCB is the apex co-operative bank in the state since 1954 and has initiated major schemes for the co-operative banking sector in India. It has been helping agricultural credit co-operatives and agricultural processing co-operatives. The bank provides re-finance facility to District Central Co-operative Banks, which cater to the agricultural sector.
It also promotes finance to artisans and agro-industrial co-operatives - especially sugar factories and spinning mills by providing them medium-term loans as well as interim loans.
Traditionally, MSCB has been a stronghold of the Congress-NCP. Even the efforts of the then ruling Shiv Sena-BJP combine in 1998 to take control of the apex co-operative bank had failed. The combine's effort to appoint an administrator for MSCB did not materialise at that time.
Earlier, in March, all parties in Maharashtra joined hands for the MSCB elections and got their representatives elected by a seat-sharing formula. This shows why despite very strong 'strictures' from the auditors, no one, including the opposition parties, is willing to speak about it. Given the political pressure and involvement of all parties, one should not be surprised if the Maharashtra government bails out MSCB from this financial mess.
Intense competition, falling revenues and incremental expenditure have affected the balance sheets of all telecom operators. Post 3G and MNP, they will have to either consolidate or diversify in order to survive
With the imminent launch of third generation (3G) network services and mobile number portability (MNP), Indian telecom companies are now gearing up for the next big move. In the first part (http://www.moneylife.in/article/4/9386.html), we saw how the government and telecom industry are preparing for the merger and acquisition games under the exit route policy.
While it is said that some new entrants are easy prey for bigger, cash-rich players like Bharti Airtel, there are incumbents who may be ready to sell their part or complete business. In order to reduce its debt burden, Reliance Communications (RCom) is already talking about a stake sale. Although its tower sale deal with GTL did not materialise, RCom for sure needs to scout for other buyers at the earliest.
Citing RCom management, Ambit Capital Pvt Ltd, in a note said, "The company intends to offload stake in the tower company, which may be followed by strategic stake sale in RCom. Though we believe that the stake sale will result in deleveraging the balance sheet, we prefer to wait until further clarity emerges on the same."
RCom's effort to sell its towers was nothing but an attempt to diversify part of its non-core business. Towers, unless rented out to other companies are nothing but dead assets for any company - especially for mobile operators, it is a huge burden in terms of revenues. In case of RCom, the hiving off of the tower business to another company and then selling it to other parties should be seen in this context only.
The best example of diversification among telecom operators is Bharti Airtel. Long before other companies could wake up to the reality of the tariff war and subsequent intense competition, Bharti started spreading its wings in overseas markets. Once upon a time, both RCom and Bharti were in the race to acquire South African Mobile Telephone Networks SA (MTN), which did not materialise due to various reasons, including last minute changes in regulations in India and South Africa.
While RCom decided to stay away from any acquisition, Bharti continued its search and grabbed the African operations of Kuwait-based Zain for $10.7 billion. The deal, however, led to a huge debt burden of about Rs50,000 crore for Bharti. At present, the company is burdened with a debt of around Rs65,000 crore due to the Zain acquisition and auction and launch of 3G services in India.
Bharti Airtel is planning to sell mobile phone towers of its African operations to its unit Bharti Infratel, in order to raise badly needed cash and taking a big step towards replicating the outsourced business model that has underpinned its growth in India. The value of the towers is expected to be around Rs12,000 crore to Rs15,000 crore.
Kisan Ratilal Choksey Shares and Securities Pvt Ltd, in a research note said, "The move is positive for Bharti considering that it will improve the cash position of the company, significantly reducing net debt position of the company. Debt position of the company is expected to reduce to Rs50,000 crore after repayment of money borrowed for Zain's acquisition. At the same time, by handing over the operation of its phone network, towers and information technology services, the company will be able to focus on its core mobile phone service business in Africa."
While hiving off its non-core business, Bharti is also venturing into the mobile handset business. The business is crowded, with a new company entering the market almost every other day. A number of these companies procure handsets from China and sell it in India using their own label or brand. Despite the stiff competition there is growing demand, especially for handsets in the price range of Rs2,000 to Rs6,000. India's annual shipments for mobile handsets are about 130 million units.
Bharti's group company Beetel has launched eight mobile handsets in the price range of Rs1,750 to Rs7,000. In the first phase, the company is targeting select regions like Delhi, Haryana, UP and Uttaranchal, Rajasthan, Punjab and the seven north-eastern states through its 4,000 outlets.
The company plans to extend its services throughout India by FY11.
Consumer electronics giant Videocon has also entered mobile services as well as the handset business. Although the figures for its mobile handset volumes are not available, during August it added 3.7 million new subscribers.
Sistema Shyam, which operates under the brand name of MTS, has also come out with its own handsets in the CDMA category. Currently there are three operators, RCom, Tata Teleservices (Tata Indicom) and MTS, which offer CDMA mobile services in India. Often, CDMA handsets are sold in a 'locked' status; the same cannot be used with another operator. This may have prompted MTS to offer its own handsets.
Bharti and Videocon offer their direct-to-home (DTH) TV services under a similar brand as that of their mobile services, thus leveraging maximum brand value. RCom and Tata Indicom do not have that advantage as it's not their own brand but sister concerns that offer the DTH services, namely Reliance Big TV and Tata Sky. The DTH venture of Bharti also ratifies its diversification under one brand theory.
On the one hand, telecom players are seeking to de-leverage their balance sheet through sale of their non-core assets (evident from Idea and RCom seeking to sell stake in their tower business). On the other hand, looking at the intense competition in Indian markets, some players are also following the footsteps of Bharti Airtel in diversifying their presence in other regions outside India. Whether diversification of businesses would help the survival of telecom companies, only time can tell.