Property mart wilts in tech rout
Loans below prime rates for privileged few
SAIL charts strategy to boost sales

New Delhi, April 22: 
Realtors say they are scared of a second slump. No, they don’t blame it on a slowdown at home. That’s passe. This time, their bugbear is the flagging US economy.

“The slowdown in infotech market worldwide, especially in the US, means multi-national software firms, who have been our biggest clients, won’t hunt for space anymore,” says Sanjay Verma, director of Cushman & Wakefield.

Over the past five to six years, IT companies have been the mainstay of international real estate consultancy firms based in India.

Problems in America have not spread to India but realtors say focused businesses like real estate are bound face the heat. The questions worrying them are: how soon and to what extent? Will the real estate industry be able to take the blow? Verma says the result is hard to predict immediately. “It will depend on how long the downtrend continues.”

He says the real estate market had actually been expanding last year even as the talk centred on a slump — thanks to infotech. Expansion in the first six months was driven by the birth of dotcom companies, while the second-half surge was attributed to the setting up of new shops by software development firms.

However, says Verma, the growth has been uneven and region-specific. While the south — Bangalore, Chennai and Hyderabad — has seen a rise of 25 per cent in real estate prices, the increase was 9-10 per cent in Delhi and 7-8 per cent in Mumbai.

“Real estate is not a short-term activity. But the global tech slowdown will restrain international firms from shifting their business to India,” Verma adds. He sees growth rates between 10-15 per cent for real estate firms this year, and says only a quarter to a third of their business could be hit.

“Need-based purchases will continue. Our growth rates will plunge from a stratospheric 150-200 per cent to a more earthly 30-40 per cent — good enough in a recession. The impact will shrink the industry, not kill it.”

Says Anurag Munshi, head of research at Jones Lang LaSalle: “Turnover from the IT industry was quite significant, but in no way could we ignore our old-economy customers such as banks, FMCG companies, telecom majors and conglomerates.”

Munshi admits that infotech companies accounted for 75 per cent of real estate investments. “We wrapped up deals for 5,00,000 sq. ft. last year for IT firms. There is a general correlation of 0.76 between the market capital and direct investments. Since market capital is not expected to decline, property investments will suffer.”

According to Munshi, the revision of growth plans by giants like Cisco, Nortel and Lucent is an indication that infotech companies will rethink their asset acquisitions and offload direct investment through sale and lease-back transactions.

Cash-flush companies will continue to strike deals for prime properties, but much of the business will shift to low-cost suburbs, pushing up the rentals in regions which have remained unaffected by the slump so far, says Munshi..

Officials with Colliers Jardine, said they expect an increase in demand from the new breed of private insurance companies, some of which have already started their operations.

“Business will shift to property-management services, rather than direct expansions. Already, a dotcom company,, has announced plans to vacate 16,000 sq ft at Gurgaon, near Delhi. There is also a possibility that infotech majors will probably phase out their expansion plans, rather than stop it,” they said.

If not, property owners had better sell now or wait for an upturn. But with the global business cycles becoming shorter, the end of the tunnel could just be a year away.


Mumbai, April 22: 
Days after Reserve Bank governor Bimal Jalan allowed loans below the prime lending rate (PLR), bankers say they will lend below the benchmark rate only on a case-to-case basis.

The loans will be provided only after certain parameters are met, including demand and supply of credit, quality of the customer and the bank’s asset-liability structure. Nationalised banks are eyeing a net interest margin of at least 3 per cent before lending at the sub-PLR level. What’s more, only top companies with AAA ratings are likely to be welcome.

P. S. Shenoy, chairman and managing director, Bank of Baroda (BoB), sums up the cautious optimism among bankers: “We will consider providing loans at the sub-PLR rate, which will be extended only to top companies. I may even lend at 9 per cent, but the issue is whether the bank will earn a reasonable net interest margin.”

Shenoy said while BoB was planning to evolve adequate practices before lending at rates below the prime rate, its move to offer tenor-based rates would give the bank enough flexibility. “After we introduced the tenor-based PLR and reduced rates recently, business increased by Rs 1,000 crore.”

A senior private-sector bank official held a similar view. He said while the bank was enthused by the idea of providing loans at sub-PLR level to certain companies, it will adopt a case-to-case approach. “We could provide loans at interest rates, to, say a company like Indian Oil Corporation, at the PLR quoted by the State Bank of India,” he said.

Sources point out even as banks are now engaged in the process of evolving a credit-rating structure, the facility is almost certain to be directed towards AAA-rated companies, with a possibility that loans at the benchmark level may be extended to AA-rated corporates.

Others add that loans at rates lower than the prime rate are likely to be given to a bank’s top clients, with considerations like non-fund business which the company may bring, also playing a role in this regard.

The facility of offering loans at such low levels follows Jalan’s move to convert the PLR into a reference or a benchmark rate for banks, rather than treating it as mere minimum rate chargeable to borrowers. This was a long-standing demand from banks, facing tough competition from other instruments like non-convertible debentures and commercial papers, accessed at rates below the prime rate.

Sources say the pressure could now start mounting on banks to cut rates, at least for their top customers. Banks such as SBI, BoB, ICICI Bank and HDFC Bank are expected to make announcements in this regard, in the days to come.


Calcutta, April 22: 
In an effort to increase sales in the domestic market, the Steel Authority of India Limited has worked out a four-pronged strategy. In the current financial year, the public sector steel giant’s sales target is 9.47 million tonnes, up 1 million tonne over last fiscal’s 8.47 million tonnes.

To achieve the target, SAIL has decided to change the product mix as per customer requirement, increase sales of special steels, overhaul the distribution channels and set up additional service centres.

The additional service centres will be jointly set up with local dealers and distributors. The first such service centre is coming up at Bokaro with Bansal Mechanical.

“These service centres will supply steel according to the customer’s specific requirement. They will give instant service to the customers. All the international steel majors have this type of service centres,” said SAIL officials.

Rural markets will be another thrust area for the steel major. “SAIL appointed IRMA to carry out a study on the demand of steel in the rural sector. Based on their observations, we have decided to enter the rural areas of Gujarat, Maharashtra and Rajasthan,” the officials said.

SAIL will focus on selling flat products as competition has intensified in this category. The large secondary producers have entered the market in a big way.

The major market for flat products lies in the western and southern regions of the country, while SAIL’s plants are located in the central and eastern belt.

The state-owned steel giant’s competitors like Essar Steel, Jindal Vijaynagar Steel Ltd, Jisco and Ispat Industries have their factories located in the southern belt, which gives them freight advantages.

These private steel majors deploy modern technology which helps them produce steel at a much lower cost. Therefore, the Central Marketing Organisation (CMO) has to match their prices which results in lower realisations.

“In the current financial year, we are looking at oil and natural gas, petrochemicals, automobiles, white goods, LPG storage and boiler sectors to sell our flat products,” SAIL officials said. “We are also overhauling the entire distribution system so that the marketing cost is arrested,” they further added.

Officials feel that if all these measures are followed rigorously then the net sales realisation will increase substantially. In the last financial year, CMO was able to achieve a growth of 6 per cent in its net sales realisation over the previous year.

During the last fiscal, SAIL had registered a 25 per cent growth in the eastern belt and expects to maintain the same level of growth in the current financial year.


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