Indian Property News on 'October, 2006'

Fresh curbs likely on runaway home loans

54% growth in year to June may invite higher risk weight.

Commercial banks are still disbursing home loans at a break-neck speed as there is no slowdown in the demand for mortgages, despite some signs of moderation in the rate of growth in bank credit.

The unabated growth in home loans may prompt the Reserve Bank of India (RBI) to further increase risks weights on such loans and make them expensive. The risk weight on home loans is now 15 per cent. The objective will be to dampen the demand by making loans dearer.

Housing loans are driving retail loan growth with a 54 per cent increase in the year to June 2006. Total housing loans outstanding at the end of June 2006 were Rs 1,71,917 crore, up by Rs 60,495 crore from a year ago.

“Interest rates have gone up but home loans are growing at a faster pace in 2006-07,” said a banker.

Housing Development Finance Corporation disbursed Rs 11,280 crore of loans in the first half of 2006-07 against Rs 8,910 crore a year ago.

ICICI Bank, the country’s second-largest commercial bank, which has been driving the retail loan growth over the last two years, disbursed a total of about Rs 13,400 crore in the first half of this year.

State Bank of India, the country’s largest commercial bank, disbursed another Rs 4,800 crore of home loans during April-September 2006.

Credit growth has shown no signs of slowing down though the RBI had indicated its concerns over the high credit growth in its 2006-07 annual policy in April.

Bank credit is growing at over 30 per cent for the second year in a row in spite of interest rate hikes and other prudential measures by the RBI.

The RBI has increased the provisioning requirement on residential housing beyond Rs 20 lakh to 1 per cent, along with capital market exposures, personal loans and commercial real estate.

Source: http://www.business-standard.com

Insurance cos to be permitted to invest in SEZs

Insurance companies can invest in special economic zones (SEZs), particularly in infrastructure such as roads and power plants and other facilities, reports Business Line.

Depending on the activity that is being pursued, investment by insurance companies will be allowed. If a power plant is being set up and the tenure of investment is 15-20 years, it would qualify for infrastructure investment, sources added.

According to insurance regulation, infrastructure includes roads, power plants, irrigation and housing. While it does not include SEZs, the applications would be scanned based on the nature of activity, sources added.

Insurance companies can invest up to 15% of their total investments in infrastructure. LIC has invested Rs 596.25 billion in the infrastructure and social sectors as on March 31, 2006.

The Reserve Bank of India has expressed reservations on investments in SEZs. It has also capped investment by banks in SEZs by categorising them as real estate.

For setting up an insurance company in an SEZ, extant requirements would apply. A new company will have to begin with a minimum capital base of Rs 1000 million and the FDI restriction of 26% will hold.

Source: www.myiris.com

Loans for second house may get costlier

If you are planning to buy a second house, you may need to speed up your decision. With RBI trying to tighten credit flow to the housing sector, some state-owned banks are debating raising rates on loans to those buying a second house.

If the move — termed as ‘informal discussions’ by a finance ministry official — goes through, interest rate on the loan for your second house could be higher than what you are paying for the first.

Sources said it has been discussed by boards of some PSU banks after the finance ministry asked them to review their exposure to various sectors to ensure that real estate did not corner most of the credit flow, thereby affecting productive segments like manufacturing, agriculture and infrastructure. In fact, some of the banks came back to the finance ministry with the suggestion. But the house is divided.

Source from Times of India

http://timesofindia.indiatimes.com/

Centre notifies list of authorised activities in SEZs

In the wake of criticism that Special Economic Zones (SEZs) are becoming a real-estate business, the government on Friday notified the list of authorised activities, related to social infrastructure in the zones. However, it omitted construction of golf courses from it.

It cleared 44 SEZs bringing in investments worth over Rs 40,000 crore. Formal nods were given to 24 SEZs including those of developers like Global Health’ Biotech SEZ in Gurgaon, Wockhardt’s Pharma SEZ in Maharashtra, Suncity’s and Ansal’s IT SEZs in Haryana.

The notified list included building of roads, power plants, water treatment plant and other necessary amenities. Dadra and Nagar Haveli will get its first SEZ, with the board of approvals (BoA) giving in-principle approval to Alok Infrastructure’s textile SEZ. The BoA also granted in-principle nod to 19 others.

Meanwhile, it is learnt that Hewlett Packard has informed the commerce ministry it would be unable to set up the proposed Rs 400-crore IT SEZ in Bangalore.

The fresh applications has also reduced, with the BoA getting only 62 new proposals. Officials claimed even if 50-60 of the cleared proposals fail to materialise, the country would still get massive investments and job opportunities that would not have come without the SEZ policy. The number of formal approvals has touched 236, so far, with the government notifying 36 of them. SEZs getting in-principle nods have touched 169.

Commerce secretary GK Pillai said the government has decided to bring in an additional screening mechanism to examine the proposals. Till now, the applications were going directly to the BoA. From BoA’s next meeting, all the proposals would be initially screened by ministry officials find out if they meet the necessary criteria including net worth and land area.

He said Suncity’s IT SEZ would bring in Rs 811 crore and 24,000 jobs. The company has also been granted in-principle nod for a 3,000-hectare multi-product SEZ near Ambala with an investment of approximately Rs 16,000 crore, Pillai added.

Among other proposals cleared are the Kandla Port trust’s Rs 7,300 crore port-based SEZ in Gujarat, Bentex’s Rs 8,100 crore multi-services SEZ in 168 hectares in Haryana and Parsvnath’s Rs 1900 crore IT SEZ. While Suncity is purchasing land straight from the owners without the state’s intervention, Bentex already owns the required land in Haryana, Pillai said.

In-principle approvals have been granted to Shapoor Pallonji group’s IT SEZ near Pune, a free trade warehousing zone in Greater NOIDA and a multi-product zone in Karnataka.

Source: http://www.financialexpress.com/

Parsvnath to raise Rs 1,090 cr from its IPO

Real estate firm Parsvnath Developers Ltd (PDL) plans to raise Rs 1,090 crore from its Initial Public Offer, which will hit the capital market on November 6, to finance the construction of its ongoing 11 projects.

“We are currently executing 90 projects aggregating to a saleable area of over 108 million sq ft. We are planning to raise Rs 1,090 crore to meet the construction cost of 11 projects,” PDL Chairman Pradeep Jain said.

Public issue, which closes on November 10, comprises 36,325,800 shares of Rs 10 each including a green shoe option of 30,87,800 shares and the company has fixed the price band of Rs 250-300.

The issue comprises a reservation of two lakh shares for subscription to employees, thus the net issue to the public would be up to 33,038,000 equity shares.

The company would raise Rs 1,090 crore at the higher band and about Rs 908 crore at the lower band.

The post issue dilution of the company’s share would stand at 19.7 per cent if the green shoe option is exercised.

Enam Financial Consultants, J M Morgan Stanley and DSP Merrill Lynch are the book running lead mangers of the issue.

City-based company, which is having a presence in 14 states and 41 cities across India, is currently developing 90 projects at a cost of Rs 13,270 crore that is scheduled to be completed within next 3-5 years.

“We have a pan India presence and we are in all verticals of real estate development,” Jain said.

Of the total projects, residential accounts for 25, followed by 20 integrated townships, commercial 16, hotels 14, metro malls 11 and four IT Parks.

Source from The Hindu

Booming Real Estate Business Pushes Indian Cement Industry Upwards

Remarkable growth has been observed in the cement industry in India, with reasons being the growth in real estate activities and boom in the development of infrastructure.

The seventy years old cement industry in India is ranked 2nd in the world. The industry is fragmented, with its top 5 players making up for about half of the installed capacity of around 150 Million tons. While small players hold the balance in this industry. With the growth in real estate activities and boom in the development of infrastructure, cement industry is on a roll in India.

According to a survey conducted by Assocham’s Industry body said that an average growth of ninety-five percent was registered by the cement manufacturing companies in Q1 2006. An upsurge of 32 percent in the sales volume was witnessed by the key cement producing companies due to the strong demand in western as well as northern regions.

Source from newswiretoday.com

Real estate price will plummet

The government will soon repeal the Urban Land Ceiling Act, 1976. In an all-party meet held in Mantralaya on Thursday, the chief minister indicated his government would make provisions to repeal the Act. He said as part of pre-conditions of Jawaharlal Nehru National Urban Renewal Mission, repealing the Act would release almost 500 hectares of the land in the state. Officials of the Urban Development Department claimed that real estate prices in Mumbai would go down by 40 per cent once the Act is abolished.

The government has acquired 2,066 hectares of land from defaulters in the last two years under the Act, including 433 hectares in Mumbai, 271 in Pune, 354 in Thane, 361 in Nagpur, 377 in Ulhasnagar and 183 hectares in Nashik. The state was bringing in the housing scheme from November 1, and people would be taken into consideration before scrapping the Act.

CPI leaders alleged that the failure of the Act lay in the nexus of builders, bureaucracy, land owners and builders. Prakash Reddy of CPI said: “At least 30,000 acres land in Mumbai costing Rs90,000 crore could be released if the government implements the Act. Which means more than half of the debt of the state can be paid off with the fund. Over 300 land owners in Mumbai and suburbs hold land which is more than 500 sqm, the limit for holding maximum land as per the Act.” If the government tries to repeal the Act forcibly, they would gather people’s support to fight against the move, he said.

Source: http://www.dnaindia.com

Govt. wakes to implement the building code

The government has finally decided to act in the direction of implementing the National Building Code (NBC), 2005 to prevent Bhuj-like disasters and ensure structural safety of constructions in the country.

The Urban Development Ministry has filed an affidavit in the Supreme Court stating that NBC guidelines should be made mandatory in the wake of earthquakes in Gujrat and Jammu and Kashmir. Both these earthquakes resulted in huge loss of life and property due to collapse of buildings.

The affidavit has been filed in response to a PIL filed by an NGO – Society for Safe Structure – seeking implementation of the Code.

According to the NGO’s General Secretary Anil Aggarwal, it is the constitutional obligation of the State to protect the life and property of its citizens and, therefore, the State must take steps for safety of buildings.

He pointed out that most of the major cities in India are under grave danger in case of an earthquake. Citing the Government assessment, he said that seven lakh people in Delhi alone would die and 28 lakh would suffer severe injuries in case of such a natural disaster.

The filed affidavit stated that the Urban Development Ministry has held a discussion with the Banking and Insurance Division of the Ministry of Finance to explore the possibility of insisting on NBC compliance for building loans and insurance.

The Finance Ministry has been requested to explore the feasibility of bringing about a system that makes it mandatory for lending institutions to insist on the necessity of ensuring that constructions are built with borrowed finance.

It has also been asked to examine how such insuring agencies can be made to insist on adherence to NBC specifications that in turn would ensure safe structures,” the Urban Development Ministry submitted.

However, it said buildings being a State subject, it would be appropriate if the court issued suitable directions to all the urban local bodies to adopt and implement NBC.

“The process of the Centre inviting all the state governments, having discussions with them and persuading them would be a long-drawn process,” it pointed out.

The Centre requested that “a certification with effect from a cut-off date may be specified by the honorable court so as to bring into force the provisions relating to structural safety certification. The architect or the structural engineer, as the case may be, must sign a plan at the time of initial submission and the structural engineer must be responsible for submitting a completion certificate,” it said.

The Urban Development Ministry’s affidavit is a significant step forward in view of the rapid urbanization of the country without any uniform guidelines for structural safety.

It is to be noted that NBC has been prepared by the Bureau of Indian standards and contains standards and specifications regarding constructions throughout India. It is slated to act as a reference manual for the various construction agencies.

It lays down a set of minimum provisions designed to protect the public from the point of view of structural safety, fire hazards, health concerns. While basic requirements prescribed by the Code are to be met, the choice of material and method of design and construction is left to the ingenuity of the building professionals.

The code also covers administrative regulations, development control rules and general building requirements, fire protection requirements, stipulations regarding material and structural design, rules for design of electrical installations, lighting, air conditioning and lifts, regulations for ventilation, acoustics and pumping services such as water supply drainage, sanitation and gas supply.

It prescribes measures to ensure safety of workers and public during construction and rules for erection of signs and outdoor display structures too.

For Delhi traders, its time to go extreme

The Delhi Traders Association has decided that it’s high time now to take some intense steps against the sealing drive which is scheduled to restart from November 1.

The association has called for a complete strike where all Delhi markets will be shut from October 30^th to November 1^st.

Threatening to go on an indefinite strike, traders have also planned to gherao the Delhi assembly on October 30, when the assembly session starts.

It is reported that around 44,000 shops will be forced to shut down when the sealing drive starts on November 1^st.

Continuing on its usual note, the Delhi Government promises to solve the issue soon. Chief Minister of Delhi, Shiela Dixit says, “All options to give relief to the traders will be looked into in the sealing issue”

But instead of cooling down the temperatures, such non-committal promises have only added to the flame. The infuriated traders are now determined to fight the battle on their own and take extreme steps.

In fact, the whole issue has been mishandled in such a way that the traders are viewing it as a punishment for following the law.

The Supreme Court had ordered the shopkeepers in residential areas to file an affidavit declaring their business to be illegal. They were granted temporary permission to continue their business.

Now, these 44,000 shopkeepers who filed an affidavit that time are facing the axe and will have to shut down their shops when the sealing drive starts.

Contrary to this, those who did not file an affidavit can stay in business till February 2007, when the court will finally decide on whether shops can operate in neighborhoods.

“Why are those who filed the affidavits being targeted is that the price you pay for following the law,” said a trader.

Kapil Bhatia, owns a garment showroom in Delhi’s Greater Kailash, area because he filed an affidavit he has less than a week to clear out or be forced shut.

He has 50 workers to look after a business that’s in jeopardy and no place to move to.

“We cannot move to malls because they are three times more expensive,” said Bhatia.

Show of unity

For traders like him, this may be a show of unity, but it is already clear that everyone will not participate in the strike. “I will not shut shop it’s inconvenient for the public,” said traders.

The Supreme Court has already refused to reconsider its order against traders who filed affidavits.

India’s SEZs Set To Raise US$5bn

India’s Special Economic Zone (SEZ) program has run into stiff resistance, but premier Manmohan Singh is sticking to his guns against a motley crew of opponents.

The SEZ law was passed in 2005, but detailed regulations were issued only in February this year, and there have already been more than 500 applications for SEZ status, of which 180 had been approved by the end of September. They range in size from 10 to 100 hectares, and give firms 100% tax exemption on export profits for first five years. Foreign investors are automatically allowed to have up to 100% direct control of firms in SEZs.

The initiative is seen as part of the government’s attempts to liberalize India’s constipated economic structure, where every move forwards falls prey to special interests. And it’s exactly those special interests which are intent on stopping the SEZ program in its tracks.

Agrarian interests fear that SEZs will use up farmland (this in the third biggest country on earth and one of the least developed). IMF officials, the head of the Central Bank and politicians from the left and the right are among those who are opposing the program for a variety of other reasons. The Communists, who support the government’s majority, argue that displaced farmers should receive more compensation. And even the Finance Minister Palaniappan Chidambaram has said publicly that he fears the loss of tax revenue that the SEZs will bring about.

One of the more reasonable objections to the SEZs is that there are going to be too many of them, and they will be too small. But in India, industrial and even fiscal policy in every state is at the whim of local authority, and the Prime Minister presumably sees the SEZ program as a way of breaking up the stranglehold on innovation and development exercised by petty officials.

Another objection with some teeth is that the WTO may well be used by other countries to attack the SEZ program – but it hasn’t happened to China, with vastly more expansive SEZ areas.

So far the government is standing firm. Mr Singh and his economics minister Kamal Nath were in London this month and said they expected the new zones to raise US$5bn in foreign direct investment by the end of 2007 – a large proportion of the country’s total expected FDI, if indeed it doesn’t just amount to recycling of money that was already committed.

source: http://www.tax-news.com/