The Hindu Business Line : Analysts say road sector will widen

In a report on road segment, the analysts say that with road sector inter-linked with the general economic growth, which is expected to do well in the long term, India has over four-five years averaged 8.5 per cent growth, and investors are increasingly focusing on the road sector. Traffic projections on most of the roads have been in line with the economic cycle.

The Government is also focusing on nurturing a profitable partnership with the private sector to bridge the investment and knowledge gaps in road infrastructure. The way ahead appears well-defined with innovative partnerships in the offing.

Road infrastructure, however, entails huge investments. While returns are high, the projects have long gestation periods.

Angel Broking said the sector is on the fast-track due to Government support, structural changes and buoyant capital markets that indicates fund raising is still an option. Road projects achieve financial closure consistently, reflecting the financiers’ positive attitude to fund road projects. Domestic and international funds are bound to flow into the sector to capitalise on the opportunities.

Infrastructure companies skewed towards the road segment, such as L&T, IRB Infra, IVRCL Infra, NCC, HCC, Madhucon Projects and Sadbhav Engineering, would be the major beneficiaries.

Call for policy on affordable housing

The private sector cannot provide a solution for sustainable and affordable housing. It is up to the Government to partner with the private sector to enable supply of affordable housing, said representatives of the construction industry.

The authorities should look at new approaches to provide affordable housing instead of tinkering with rules, said Mr K.K. Raman, Head-Homes, DLF Home Developers Ltd.

Addressing a seminar on affordable housing organised by the Builders Association of India in Chennai earlier this week, Mr Raman said high land costs, inadequate supply within city limits and lack of infrastructure in peripheral areas, where land is available, are constraints that impact the supply of affordable housing.

What is needed is a dedicated policy geared to increase supply of affordable housing, including an “affordable housing finance system” possibly with the creation of an “affordable housing bank”, development of primary and secondary mortgage, involvement of affordable housing in Jawaharlal Nehru Urban Renewal Mission, public-private partnership that brings Government land for development by the private sector and creation of dedicated residential zones along industrial estates. Technological development, like standardised construction technologies to bring down cost of construction, would also be needed, Mr Raman said.

Mr R. Kumar, Managing Director, Navin Housing, said regulations should pave the way for speedy implementation and supply of affordable housing. Regulations are needed to streamline development but they often become bottlenecks in supply as projects are delayed while awaiting clearances. Regulations should be simplified as project delays add to the cost of construction, he said.

Mr W. Anand of Anand Architects said development of satellite towns with planned infrastructure would support supply to the affordable housing space. Development control rules that dictate the type of structures and construction should change with the times to provide for more space, he added.

Realty transactions in US slump

Jones Lang LaSalle’s US Mid-Year Capital Markets bulletin shows transaction activity in the first half of 2009 slumped to just $16 billion, down 80 per cent from $79.8 billion in the first half of 2008, and down 93 per cent from $231.4 billion in the first half of 2007, when the market was at its peak.

Second quarter 2009 sales volume at $5.2 billion was easily the lowest total on record. This represented an 83 per cent decline from $30.7 billion in the same period in 2008 and a 95 per cent decline from $114.7 billion 2007.

Jones Lang LaSalle’s statistical pricing model reveals the present value of current cash flows, compared with the height of market exuberance in the first quarter of 2007 when most markets priced in rental growth based on artificial values, have experienced value declines of more than 40 per cent based on rental drops, rising vacancy and the availability, terms and cost of debt. “The unprecedented level of public policy support, with $4 trillion already provided of a total $12 trillion pledged to restore the financial markets and create economic stimulus, has effectively halted an economic free-fall. However, it has also stalled a recovery in the commercial real estate capital markets as banks continue to extend maturities for their borrowers, avoiding foreclosure in a practice that is becoming more commonly known as ‘delay and pray’,” said the report quoting Mr Kenneth Rudy, President of Jones Lang LaSalle’s Capital Markets practice. “It is unlikely that any true debt liquidity will return to the market until mid-2010 at the earliest.”

“Further rental rate erosion is expected in 2009 as the real estate market correction lags the general economy by 12 to 18 months. A recovery in values could be delayed until 2012 and beyond ….”

OUR CHENNAI BUREAU

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