Realty sector hit by lack of interest in commercial spaces: CREDAI

Chennai: Residential projects have attracted huge investments across the country in recent years, but many commercial plots in major cities are lying vacant due to a dearth of buyer interest, reports PTI quoting Construction Real Estate Developers of India (CREDAI).

“While 12 million square feet is lying idle in Chennai, it will be more across the country. Many areas in Hyderabad, Bangalore and Gurgaon are lying vacant in commercial spaces,” Construction Real Estate Developers of India (CREDAI) national vice-president Prakash Challa told PTI.

Noting that the real estate industry saw a slowdown after the sub-prime crisis in the US, he charged the Centre with not taking any steps to revive the industry.

“If they had taken steps immediately after the crash of the US market, the sector would not have faced this much of a problem... All developers and agencies would have been cautious,” he said.

Asked whether there was any positive impact from the government's intervention after the global economic crisis erupted in 2008, he said, “There are no good developments still in the commercial space front. Only limited investments are coming up.”

“If the government extends the stimulus package, it will generate employment. But if they withdraw it, then there will be a serious problem. Today, many buildings are sitting idle and every builder has become cautious... They don't want to commit themselves (by investments in commercial spaces),” he said.

He said the situation is expected to improve over the next one or two years.

Mr Challa said Tier-II and III cities were the worst-hit, with no major developments in the commercial spaces sector.

Nevertheless, real estate developers are investing heavily on huge residential projects, Mr Challa said.

“Particularly in the Oragadam-belt (near Chennai), many builders are doing good business. It has become the favourite area for many developers as it has many commercial establishments nearby,” he said.

He said low income housing projects have been a “grand success”.

“I was told some builders have sold about 500-600 housing units in the low income category,” he said.

The success was not only due to the presence of logistics parks, but the fact that people have also started looking at buying properties in newer areas, he said.

The Oragadam and Sriperumbudur belt currently has various companies—including auto majors like Nissan Renault, Daimler India, Hyundai Motor India and consumer durable giant Samsung—that have set up shop.

“Basically this area is only for budget homes... not for the high-end,” he said.

On the lack of proper connectivity to Chennai and other destinations from these localities, he said infrastructure would gradually be put in place as people begin to move in.

Infrastructure development would take time, as many people working in far off areas commute today from the city, he said.

Currently, real estate developers like Arun Excello, TVH, Tata Infrastructure and MARG Properties have real estate projects coming up in these areas.


Wednesday’s Market Preview: Range-bound opening expected

The local market is likely to witness a range-bound opening today as the Asian markets are trading with marginal gains in early trade while Wall Street closed in the green, supported by energy stocks due to the cold weather prevailing in the north-eastern region of the country. The SGX Nifty was down 5.50 points at 6,010.50 compared to its previous close of 6,016 on Tuesday.

Volatility is expected to continue today ahead of the futures and options expiry on Thursday.

The market opened with minor gains yesterday on the back of mixed global cues. Choppy trade resulted in the key indices dipping in and out of the red ahead of the futures and options (F&O) expiry. The market touched the day’s low in noon trade, but volatility continued amid low volumes on limited participation of institutional investors as the calendar year comes to an end. The market closed flat. The Sensex ended at 20,025.42, down 3.51 points or 0.02%. The Nifty settled 2.10 points (0.04%) lower at 5,996.

Markets in the US closed mostly in the green on Tuesday, supported by gains in energy stocks as cold weather prevailed in the north-eastern region of the country. In economic news, the Conference Board’s confidence index unexpectedly fell to 52.5, lower than analysts’ predictions. The S&P/Case-Shiller index of property values fell 0.8% in October from the same month in 2009, the biggest year-over-year decline since December of last year, the group said today. Besides, employers added 951,000 workers to payrolls in the first 11 months of the year, according to figures from the Labor Department. Despite the gains, unemployment was at 9.8% last month after finishing 2009 at 10%.

The Dow surged 20.51 points (0.18%) at 11,575.54. The S&P 500 added 0.98 point (0.08%) at 1,258.52. The Nasdaq shed 4.39 points (0.16%) at 2,662.88.

Markets in Asia were trading with marginal gains in early trade this morning as weak economic data from the US raised concerns about the pace of the recovery in the world’s largest economy. The strengthening Japanese currency dampened sentiments of the country’s exporters.

The Shanghai Composite gained 0.04%, the Hang Seng advanced 0.46%, the Jakarta Composite rose 0.64%, the KLSE Composite was up 0.40%, the Nikkei 225 added 0.17%, the Straits Times and the Seoul Composite surged 0.34% each. On the other hand, the Taiwan Weighted lost 0.12% in early trade. The SGX Nifty was down 5.50 points at 6,010.50 compared to its previous close of 6,016 on Tuesday.

The Telecom Regulatory Authority of India (TRAI) on Tuesday released a consultation paper seeking views of stakeholders for promoting research and development (R&D) and manufacturing of telecom equipment in the country.

The consultation paper aims at discussing, debating and finalising measures for promotion of R&D and creation of intellectual property as well as manufacture of telecom equipment and electronic components in India, TRAI said in a statement.


Khurshid releases book on study of constraints and solutions for IPOs

In his new book, investor-activist Virendra Jain discusses issues like the disappearance of companies after fund-raising and monitoring of companies, based on his study of public issues by 243 firms between 2001 and 2009

Salman Khurshid, minister of corporate affairs, yesterday released a book titled ‘Wealth Creation and Destruction through Initial Public Offerings (IPOs) in India 2001 to 2009’, by investor-activist Virendra Jain. Praising the book, the minister said that the book has invaluable information which can be of assistance in policy formation.

The book provides detailed information on a range of issues and factors affecting IPOs along with a comprehensive study of 243 IPOs during the period 2001 to 2009 that contributed to the creation and destruction of wealth. The aim of the study was to find out constraints affecting IPOs and their possible solution through a policy framework.

Speaking on the occasion, Mr Khurshid underlined the need to create a situation where investors would have confidence in the capital market. Asked about the issue of the end use of funds raised through IPOs that is discussed in the book, Mr Khurshid said, “This essentially is an overlapping area with SEBI and the Ministry of Finance and we are looking into it”.

The study looks at various facets of IPOs such as issue price, role of merchant bankers, the process of grading (mandatory as per guidelines of the Securities and Exchange Board of India), laws, the policy governing IPOs, along with statistical data and information such as price history, and comparison with the Sensex of these IPOs. The book includes IPOs of the companies from both public and private sector. The book also specifically gives details of over and under-performing IPOs.

The book comes up with some interesting facts. It states that the Rs 1,07,373 crore raised by the 243 IPOs is nearly equivalent to the amount raised by a single IPO in China. It reveals that one out of every two IPOs of private companies resulted in wealth destruction and three out of 10 quoted at less than half their issue price.

Mr Jain provides reasons why the Indian market failed to retain, attract and sustain retail investors, despite transforming from a paper-based to a paperless online system. One reason is vanishing companies, where companies in the 1990s vanished after raising public funds, leaving investors cheated. Following this the government appointed a joint coordinating and monitoring committee in 1999. The study states that “the process of monitoring of companies by stock exchanges is weak and not adequate to act as a preventive measure”.  The other prominent factors for low participation of retail investors are compulsory delisting, defunct stock exchanges, scams and reduction of shares earmarked for them in the IPOs.

The over-pricing of IPOs by corporates, which was not sustainable in the long run, eroded investors’ confidence, Mr Jain writes in the book. He says PSUs were an exception as they fixed reasonable and fair prices. Interestingly, the use of technology is also cited as one of the factors for the decline in the number of investors. It states that the hassle of opening and operating a demat account and various charges levied on the account have affected the participation of investors in the market.

Mr Jain offers some solutions to the problem of dwindling investor interest. He says that an increase in the minimum securities offered in IPOs would lead to an increase in the liquidity, curb price manipulation and enhance efficiency of the price discovery mechanism. He suggests that the minimum offer to be made to the public be increased to 25 % from the current 10% of the post-issue.

He also suggests strengthening the IPO grading system whereby the process and the grading agencies should be made accountable and transparent. Fees paid to the grading agencies should be de-linked from the issuer company and must be paid by the stock exchange or SEBI. The report calls for strengthening the process of disposing of objections in the draft prospectus received by SEBI prior to opening of the issue and the final decision to be put on the SEBI website, which would enhance the confidence of investors in the system.

Other suggestions such as monitoring the end-use of funds should be done by the authority to ensure that funds are used for the purpose as stated in the prospectus. Monitoring share prices after listing and allotments, monitoring companies after listing, are some other key solutions mentioned in the report.  It emphasises on compensation and empowerment of investors in the event of loss due to fraud, unfair trade practices, insider trading and so on. Lastly, the report appeals for the simplification of the processes for opening and operating a demat account.

The book ends on the note that PSUs through IPOs can revolutionise the security market and accelerate economic growth by following the pricing principle they followed from 2003 to 2008 which led to immense wealth creation.



R Balakrishnan

6 years ago

Surely, the world's thinnest book will be titled:
Rewarding IPO's from India in the 2000's.

Nagesh KiniFCA

6 years ago

In the 1990s many IPOs with great names went down under taking small investors - either they disappeared from the scene altogether or enjoyed the funds, milked the companies and abandoned them.
The Regulatory frame work should provide for stopping this by insisting on the promoters, in their personal capacity providing appropriate guarantees, proof of permanent residence as well as that of the legal advisors, auditors and company secretary to prevent them from scotting from some hole in the wall PO box Chor Bazaar address.

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