Companies & Sectors
‘More money makes realty situation inefficient’

Pankaj Kapoor, managing director, Liases Foras, explains what is wrong with increased capital inflow in the realty business

Despite abysmal property sales, prices have been increasing. While the Reserve Bank of India (RBI) has made borrowing more difficult, developers have been turning to other players for money, and in most cases, they have succeeded. However, whether the capital has come in through private equity or any other means, it is only making the market more inefficient, said Pankaj Kapoor, managing director, Liases Foras. He was speaking at a seminar organised by the Moneylife Foundation last weekend.

Data put together by Liases Foras shows that though private equity deals have gone up both in value and volume, sales have gone down. Inventory has been piling up as equity inflow has increased, but there is hardly any offtake.

Mr Kapoor explained how builders get finance through private equity. "We had an interesting insight while studying y-o-y increase in floor space construction in the main cities. Except Pune, where construction has gone up by almost 60%, all other cities have recorded a decrease. It means that apart from Pune, realty projects in other cities have failed to take off and there has been no construction," Mr Kapoor said.

Even when the builders declare that the whole project has been 'sold out', there is no construction. So after some days, many customers sell their property to another buyer, and demand their deposit from the developer after deducting transfer charges. With no construction underway, the builder has not received any other payment from the customer apart from the amount deposited at the time of booking.

"So the cycle goes on. Developers are not receiving any money-they only get the deeds and certificates for sales. Then they go for IPOs to raise money and approach private equity players," said Mr Kapoor.

The builders convince the private equity financers that that area is a good market, showing him the multiple deeds of property sales. "But the truth is, there is no actual sale, nobody has made money out of it. Everything is only in trading. Still, the private equity flows in," he said. But since there are no sales, neither the builder nor the PE players make any money. In most cases, the PE players exit after seeing losses over time. The builder, meanwhile, has seen no sales, and is about to go bankrupt.

"Lot of people say that private equity is the solution. How come then some developers have almost Rs38,000 crore in debt? This is exactly how in many investments in NCR, money has gone down the drain," said Mr Kapoor.

There are other dubious sources of capital too. "Money also comes in through various other opaque means, and this prevents the prices from coming down. The people involved hold back. But there are no sales, and the areas where these buildings come up are uninhabited. Other buyers then shy away from such locations," he said.

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5 years ago

Does the 33% drop include old buildings also or is it applicable to new projects only??. Each Realty compnay must declare their source of funds.Unless a regulator is formed to govern them the situation will not improve.

Former SAT chief Achuthan passes away

Mr Achuthan suffered a massive cardiac arrest while he was waiting to enter the Sabarimala temple in Kerala, where he was accompanied by his son Anoop

Mumbai: The former presiding officer of the Securities Appellate Tribunal (SAT), C Achuthan (70), passed away yesterday afternoon after suffering a massive cardiac arrest, reports PTI quoting police sources.

He died while he was waiting to enter the famed Sabarimala temple in Kerala, where he was accompanied by his son Anoop.

"Achuthan was rushed to the Pampa General Hospital, but was declared brought dead. The body was taken to Thane (where his family is settled now)," the Pampa police, under whose jurisdiction the Sabarimala temple falls, told PTI.

Mr Achuthan was one of the directors appointed by the government to steer the scam-tainted Satyam Computer Services, now Mahindra Satyam, after a multi-crore accounting scam was unearthed in January 2009.

He also chaired the new Takeover Regulations Advisory Committee of capital markets watchdog Securities and Exchange Board of India (SEBI). After his retirement from the SAT, he was working as a partner with Mumbai-based law firm Corporate Law Chambers.

Mr Achuthan was appointed as the SAT presiding officer for a five-year period from November, 1997. His term, which was extended by a year, expired on November 3, 2003.

Mr Achuthan was born and initially educated in Atavan, a small village in Mallapuram district of Kerala.

A Masters in Economics with a degree in law from the Bombay University, Mr Achuthan started off with the Indian Legal Services and served as a legal advisor to the central government and also served on the Company Law Board before being promoted as the SAT's sole presiding officer from 1997 to 2003.

Some of the sensitive cases that came before him during this period at the SAT included the appeals by Sterlite Industries, BPL, Videocon, Anand Rathi Stock Brokers, Grasim (L&T takeover), Wimco, Clariant, Gujarat Ambuja (on ACC shares), Herbertsons and stockbroker Ketan Parekh cases and Seamec.


BHEL targets 20,000MW power equipment manufacturing capacity

BHEL's capacity addition strategy for the current financial year also envisages an improvement in product cost-competitiveness and quality, said BHEL chairman and managing director B Prasada Rao

New Delhi: The country's largest power equipment-maker, BHEL, today said it plans to ramp up its manufacturing capacity to 20,000 MW by March 2012, reports PTI.

BHEL's capacity addition strategy for the current financial year also envisages an improvement in product cost-competitiveness and quality, said BHEL chairman and managing director B Prasada Rao at the 47th annual general meeting of the company here today.

He said BHEL is well on track to becoming a 20,000MW company by March 2012.

The company also plans to diversify into the emerging business areas like R&D and people management, he said.

BHEL recorded a profit of Rs9,006 crore for the 2010-11 financial year and an all-time high turnover of Rs43,337 crore, he added. The company declared a dividend of Rs1,525 crore.

BHEL secured orders worth a record Rs60,507 crore in FY10-11.

The company secured orders for seven boilers and nine turbine generators with supercritical parameters from public as well as private sector utilities during the fiscal.

With an order book worth over Rs1,64,145 crore at the close of the financial year, the company expects to achieve robust growth in 2011-12 and beyond, Mr Rao added.

Outlining the trends in the power sector, Mr Rao said that environmental compulsions are driving the demand for sustainable development worldwide.

BHEL also plans to develop economically viable solar power equipment and it would be the company's focus area this fiscal.

BHEL is also developing Advanced Ultra Supercritical (Adv-USC) technology in association with the Indira Gandhi Centre for Atomic Research (IGCAR) and NTPC, as part of the National Mission for Development of Clean Coal (Carbon) Technologies.

The company reported export orders worth Rs3,738 crore from 24 countries spread over five continents in FY10-11.

BHEL also secured maiden orders for supply of solar cells to Hong Kong and Turkey, he said.

In 2010-11, BHEL commissioned 9,442MW of power equipment. This included 52 sets of equipment with a combined capacity of 7,667MW, commissioned within the country and abroad.

BHEL has established an R&D gateway at the IIT Madras Research Park, Chennai, for promoting research in ultra-supercritical power cycles and high temperature materials, he said.

As part of its R&D initiatives, BHEL will further streamline its strategy to maintain the growth trajectory in future, Mr Rao said.

The company invested Rs982 crore on R&D programmes during the year-18.5% higher than the previous year. Products and systems developed in-house contributed 18% to the total turnover of the company.

BHEL is establishing a Centre for Nano Technology (CNT) at its corporate R&D division at Hyderabad. The facility will explore the application of nano materials in products and systems relevant to BHEL.

Material development for applications like power plant components, nano structured wear-resistant coatings, electrical insulating materials, solar cells, carbon nano tube applications, nano fluidics, fuel cells and sensors will be studied at this facility.

The centre is being established to carry out R&D and make the company 'future-ready' in the areas of ultra supercritical power and renewable energy, he added.

BHEL has also taken a 51% stake in the Kasargod unit of KEL Kerala for rapid capacity enhancement for rotating electrical machines. The company will continue to build capacities both organically as well as inorganically, he added.

For cost reduction, BHEL is focusing on key initiatives like global sourcing and quicker indigenisation.

The company intends to continue its diversification strategy to enhance shareholder value and is expanding its offerings in new growth areas like solar and nuclear energy, transportation, transmission and distribution, and water.

Toward enhancing and strengthening its human resource base, 17,189 employees have been inducted in the company in the last five years, he said.


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