Developers claim that they are reporting good sales across the country. What do their financial results indicate?
Property prices are shooting up in almost all realty projects across Mumbai, Delhi and Bengaluru, but are the properties actually selling at such high prices? After the March 2010 quarter results, most listed developers were quoted in media reports claiming that they were satisfied with the annual sales growth over the past fiscal.
However, the numbers portray a mixed bag of results. If we compare the operating profit of FY09-10 versus FY08-09, of a few listed real-estate companies, this is the picture that emerges. DLF Ltd has reported a fall of 36% in operating profit (FY10 was at Rs1,109.61 crore; FY09 at Rs1,721.58 crore), Sobha Developers Ltd has reported a drop of 6% in operating profit (FY10: Rs254.5 crore; FY09: Rs269.7crore), Parsvnath Developers Ltd reported 5% annual growth (FY10: Rs233.31 crore ; FY09: Rs221.24 crore).
Only Orbit Corporation Ltd has bucked the trend and reported 71% growth in operating profit (FY10: Rs154.87 crore; FY09: Rs90.43 crore).
Unitech Ltd and Omaxe Ltd have not declared their annual results for the last fiscal ended March 2010. We decided to compare their results of FY08-09 with the performance for the first nine months of the last fiscal, ending December 2009.
Unitech Ltd reported a drop in operating profit of 23% (FY08-09: Rs1,047.41 crore; annualised performance for nine months ended December 2009 at Rs808.08 crore) while Omaxe Ltd reported a growth of 42% (FY08-09: Rs135.65 crore; annualised nine months: Rs192.51 crore).
“One of the major reasons for de-growth is that developers are initiating new construction when the corresponding sales are not happening. Developers are failing to report incremental sales. They are just holding on to high prices without being bothered about sales,” said Aditya Bansal, vice president (finance), Liases Foras.
There have been a few places in metros like Mumbai and Delhi, where a few residential properties have been sold for almost Rs50,000 per sq ft. However, this does not indicate that consumers are buying property at these hugely inflated rates—Moneylife has consistently reported on how developers are not being able to sell real estate at current rates.
“As for the quarter ended March 2010, prices have gone up further by 15%-20% and we are estimating sales to be down further by 25%-30%. Property prices are (now) indicating the rise of another asset bubble,” said Pankaj Kapoor, founder, Liases Foras.
A slew of changes in the way funds are created and sold, would come about in the next 12-18 months, asserted KN Vaidyanathan, an Executive Director of SEBI, while speaking to Moneylife in an exclusive interview. This is the first story of a series
The Securities and Exchange Board of India (SEBI) is pushing for a series of reforms over the next 12-18 months to streamline further the process of how mutual funds are created and sold. This would mean further changes in the roles of distributors—both national distributors and Independent Financial Advisors (IFAs) who are currently not regulated.
In an exclusive interview to Moneylife editor Debashis Basu, KN Vaidyanathan, an Executive Director of SEBI said, “We will first deal with the banks and national distributors and then handle the IFAs. We have already started doing certain things. We have taken the exam away from the Association of Mutual Funds in India (AMFI). It will be handled by National Institute of Securities Markets. The test will be more current. There will be a demarcation between passing the test and getting the certificate.”
When it was pointed out that with the smaller IFAs pushed to the background, banks have emerged as powerful national distributors leading to a lot of mis-selling, Mr Vaidyanathan replied: “It’s true that banks alone enjoy the trust of investors and some of them have been abusing that trust. Maybe the fund distribution will be done by a different set of banks, provided the fund companies get their product right. Instead of feeding investors 10 different funds, nothing stops a fund company from offering one fund that does asset allocation and ensures low volatility.” Indeed, as Moneylife has pointed out many times, mis-selling often starts with product design itself.
Mr Vaidyanathan is currently talking to the asset management companies as to whether mis-selling can be rooted out through an institutional process. “The key issue on the distribution side is how do you institutionalise the due diligence process. I told the funds, you can take the view that mis-selling is not mis-selling unless I am caught. That to me is low-grade. The issue is how do I build systems in an organisation which makes it institutionally difficult to mis-sell. Banks have such systems in place. When you open a new account, there are calls from the quality control departments asking questions about various service parameters—there is a verification of the on-boarding process in place. Does the mutual fund industry have this? Why not? After all, many of them have been set up by banks. This upsets me because they are making a distinction between banking and mutual funds, depending on what is on (the) balance (sheet) and what is off balance sheet.”
Based on Mr Vaidyanathan’s suggestions, funds are working on creating appropriate internal systems. SEBI is also pushing the fund industry to develop a code of ethics and stick to it.
After suspension orders against various projects in the past, the environment ministry has suspended clearance for Sesa Goa’s iron ore project
The ministry of environment and forests (MoEF) has come down heavily on projects across sectors for violating environment regulations in the recent past.
In its latest move, the ministry has pulled up Sesa Goa, a Vedanta-owned company, for one of its proposed iron ore mines in Goa. In an order sent to Sesa Goa on Monday, the ministry stated that the environment clearance granted to the company in June 2009 had been suspended with immediate effect. The project in consideration is an iron ore mine in north Goa.
The ministry has suspended the clearance order in line with the National Environment Appellate Authority’s order in a hearing between Pirna Naroda Nagrik Kruti Samiti, a local group, and another case filed against the project.
This action is among the many suspension orders released by the ministry over the past few days. Last week, the ministry had ordered construction work at the Maheshwar Hydel power project to be suspended
On 11 May 2010, the ministry had put the construction work of Vedanta’s university on hold. The university was being planned at Puri in Orissa. Earlier, the ministry had also rejected a uranium mining proposal in Meghalaya. The proposal was put forward by the Department of Atomic Energy.
The standing committee under the chairmanship of Jairam Ramesh, minister of environment and forests, has also decided to press the Maharashtra government for the implementation of a report prepared by the Bombay Natural History Society (BNHS) which also includes an immediate ban on illegal mining & construction of roads.