The Bangalore-based Sobha Developers announced plans to launch two luxury residential projects in Chennai. Addressing mediapersons earlier this week, Mr J. C. Sharma, Managing Director, Sobha Developers, said the two projects, one to the south of Chennai on the IT corridor, and the other closer to the city, will offer the advantage of location. The first of the projects, Sobha Meritta, coming up at Kelambakkam, close to the Siruseri IT Park on the IT corridor, approximately 25 km south of Chennai, will offer more than 556 apartments on a six-acre property. The units (of one to five bedroom-hall-kitchen) will range from 530 to more than 1,400 square feet. Units here will cost from approximately Rs 24 lakh to Rs 78 lakh ‘all-inclusive.' The square foot cost will be approximately Rs 3,800. But this is an indicative price, and the numbers are yet to be finalised, he said. Approvals are in place and work on the project is expected to start soon with delivery planned for February 2015.
The other project will be the Sobha Serene at Porur, on the western periphery of the city, where more than 176 residential units are planned on a 3.15-acre plot. The one to three bedroom-hall-kitchen units of 595 to 1,735 square feet are likely to be priced at approximately Rs 4,600. The approvals are expected soon, he said. Mr T. P. Sanjaya Sarathy, Regional Director, Sobha Developers, said the company's products will cater to one of the active segments in the residential market, as buyers look for quality and hassle-free living. The project, to the south of Chennai, will be close to the Siruseri IT park, which is expected to generate more than 300,000 jobs in the coming years. The other project is at the start of the Chennai-Bangalore industrial corridor, which is seeing fast-paced growth.
Fitch Ratings says it has a negative outlook for the Indian real estate sector in 2012, due to weak overall demand and higher construction costs, which are likely to continue to squeeze margins. High EMIs, resulting from significantly higher interest rates, lower household surplus due to high inflation and high residential unit prices, have reduced the affordability of homes. Both material and labour costs increased during 2011. Residential segment sales, which had improved in the first quarter of 2011, moderated significantly, and this is likely to continue at the lower levels during the first half of 2012. Oversupply of commercial space continues in some markets. However, the demand for office space is likely to be maintained at 2011 levels, as the hiring momentum of the IT/ITeS sector, the major driver of office space in India, continues in 2012.
Demand for retail commercial space is expected to be low in 2012. Gearing continued to increase for most companies in the second half of 2011, though the overall gearing of large real estate companies decreased by approximately 20 per cent from the post-crisis peak of around 0.89x. On the other hand, declining profits resulted in leverage (debt to EBITDA) at high levels in 2011 — at around seven times (7x) — and this is expected to continue in 2012, negatively impacting the creditworthiness of real estate companies. The dependence on operational cash flows to fund growth and service debt is likely to increase. Fund raising choices are limited due to the cautious approach of banks, weak equity markets, and dwindling investment by private equity funds. Improved macro-economic conditions, leading to improved demand, would have the potential to improve cash flows to real estate companies. Also, the ability to judiciously use cash from liquidating existing inventories may result in the selective upgrades of companies in the real estate sector.
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