Realty firms seem to have lost their appetite for properties in Kolkata, where developers such as Emaar MGF Land Ltd and DLF Ltd were fighting to secure plots for building luxury hotels. For the first time, a tender to lease out a prime 10-acre plot on the western fringes of the city is being scrapped because there was only one bidder. The Kolkata Metropolitan Development Authority (KMDA) had invited bids for two more properties, but the response to each was poor. KMDA officials had claimed that developers such as Emaar MGF and DLF had enquired about the properties, but none of them bid even for the 10-acre plot, which was to be leased for building a five-star hotel. Less than a year ago, Life Insurance Corporation of India (LIC) had set a new benchmark by buying a five-acre property on the eastern fringes of Kolkata for Rs276.20 crore, or Rs55.24 crore an acre. LIC has since announced it would build 50-storey towers on the plot.A KMDA official, who didn’t want to be named, confirmed that the tender for the 10-acre plot would be cancelled, but he wasn’t sure what would be done with the bids for the other two plots— one measuring five acres and the other 2.7 acres. “The bids aren’t attractive, but we haven’t decided yet,” he added.

Red Fort Capital, a leading international real estate private equity fund firm, has signed partnership deal with Godrej Properties Limited, one of the leading real estate development companies. The deal will mark Red Fort Capital’s entry in the Kolkata real estate market.The company has taken a 49% stake in an IT Park project named “Godrej Genesis”. The Godrej Genesis project is an IT Park located in the heart of Kolkata’s Salt Lake Sector V, situated between the international airport and the city center. The project, which will be developed over a span of three years, expects to generate sales of over Rs 750 crore. Red Fort Capital manages three active funds under its aegis including an offshore and a domestic fund for Indian real estate market, as well as a hedge fund for listed Indian entities. The company is already in talks with some of its existing investors for floating a new fund, which would invest in infrastructure projects in the country.

The Reserve Bank of India’s decision to revise repo rate and cash reserve ratio is expected to bite the realty industry, which is already burning under a slowdown and price correction. Loans for housing will get dearer and interest sensitive sectors like real estate will be hit hard. The cost of borrowing goes up not only for builders but for all ancillary and input industries as well, leading to a higher price tag for the real estate product. Developers will now have to look towards other sources of funds, which could be on higher rates. A 0.5 per cent increase in home loan rates - which appears most likely - will increase the tenure of a Rs 3 million, 20-year loan by nearly three years. Real estate demand in major Indian cities has been hit this year as urban middle class buyers, fretting over a five-year high in property prices, have stayed away from investing in property as interest rates climbed rapidly. However, a few real estate agents said the rate hike could cause a possible softening of property prices, even in markets such as Mumbai.Developers are sitting on unsold stocks of completed apartments. But potential buyers are sitting still in anticipation that prices will come down

Real estate firm Parsvnath Developers Ltd expects stake dilution in individual projects to help it control its debt and hold margins in a rising interest rate regime, a top official said. The New Delhi-based developer reported a 16% drop in first quarter net profit at 712.9 million rupees. Net sales were also disappointing, up just 5% from a year ago, to 3.65 billion rupees. “The bottomline was down because of higher interest costs and input costs,” Chairman Pradeep Jain said. Parsvnath was mainly hit by a more than five-fold rise in its interest burden to 174 million rupees. The company is currently carrying debt of about 17 billion rupees, compared to 10 billion rupees a year ago, when interest costs were also lower by a third. India’s central bank this week raised a key lending rate for the second time in two months, to a seven-year high, as part of efforts to cool down the economy and curb double-digit inflation. Banks have reacted by pushing up lending rates to customers to their highest in almost a decade. Real estate developers in India have been hit by the rising rates as they struggle to cope with a large number of unfinished projects, but are faced with sharply lower demand as high rates bite property buyers dependent on home loans for funds.“Our average cost of borrowing is 12.85% and has risen about 20 basis points in the last three months,” Jain said, adding that his firm is currently borrowing at rates in the 13.5-14% range.“We are trying to reduce debt. We are looking at equity dilution in our SEZ (special economic zone) and hotel projects for this,” Jain said, adding the company was in talks with a few partners for due diligence. Earlier this year, Parsvnath sold 30% in a Mumbai project to two real estate funds for 1.86 billion rupees. Several other large developers have also leaned on private equity deals in the past year, to unlock value in ongoing projects. Parsvnath shares ended at 111.75 rupees, down 0.9% in a firm Mumbai market that ended 0.5% higher.

A buoyant real estate market last year saw several realty firms foray into the hospitality sector. But with slowdown hitting real estate and choking cashflow, several small realty firms have been forced to put at least half a dozen hotel projects on the block. A developer has put on the block a 200-room hotel project in Ahmedabad that has a management tie-up with a reputed international hotel brand. Work on the project is around 60% complete. Similarly, two mid-size hotel projects in Bangalore, which are in the early stages of construction, and one each in Pune, Chandigarh and NCR have been put on the block. Almost all the projects are mid-size. Some developers are looking at completely exiting the hotel projects while others are looking at stake sale. Till six months back when the going was good, several realty developers, who had parcels of land at strategic locations, were trying to get into the glamourous hotel business. With hotel room shortage taking room revenue to new levels, the hospitality business looked very attractive. And with foreign hotel chains looking to aggressively expand in India, even small developers could easily tie up with them for a management contract.