Indian Property News on 'March, 2010'

Reddy to ask Finance Ministry to Review Service Tax on Housing Sector

S Jaipal Reddy, the urban development ministry will ask the finance ministry to review the proposal to bring the housing sector under the service tax net from April 1, 2010. “We will approach the finance minister in the next few days and ask him to review his decision of bringing housing under the service tax net,” said Urban Development Minister S Jaipal Reddy. He was speaking at a conference on Indian Real Estate organised by Associated Chambers of Commerce and Industry of India (Assocham). Real estate players and various industry chambers are already lobbying the government to withdraw the service tax imposed on the housing sector (at 3.3 per cent, with abatement) , as it would discourage buyers.

“This is not the right time for service tax implementation as the government’s objective is to encourage people to own houses. We have to wait for another month or so to see if the finance ministry listens to our request,” said KP Singh, Chairman, DLF Group. Addressing issues faced by the real estate sector today, the Reddy said availability of land — which is a state subject — has become a major concern. “If we want India to cater to the issue of demand and gap in the housing sector, apart from the central government, it is the state government which should become the facilitator.”

He also said since land is very limited, the best way forward is to go for vertical development (building high-rise buildings) instead of the present approach of going horizontal. “In Delhi, we would allow vertical development of real estate dwellings in older areas and remaining sprawl of Delhi provided the Municipal Corporation and Delhi (MCD) assure availability of all basic amenities such as water, power, etc.” In this regard, Reddy said the Ministry of Urban Development would soon come out with a new relaxed Floor Area Ratio (FAR) regime without specifying any time frame for it.

Another pertinent point that has been a concern for real estate developers is the number of clearances one has to take to start a project. “Today, there are more than 50 agencies from where we have to take our clearances. We have to ensure that the best way forward is to have a single window system as it would not only save time, but also ensure transparency,” said Navin M Raheja, Managing Director, Raheja Developers Ltd. “It is very important to have a single window clearance system in real estate sector,” echoed Anil K. Agarwal, Past President, Assocham.

Singh feels if real estate and urban development has to reach a self-sustaining level in India, “we have to follow the way it has been done in the telecom and IT sector”. “We need to have a visionary like Sam Pitroda, who can think centuries ahead in the real estate and urban development sector to formulate policies. Today, we are concentrating on meeting shortages, when policies are being framed. This needs to change fast, as we have to take the aspirations of people when we build a nation.”

Ahmedabad Gets over Recession, Rs 25000cr Property Sold this Fiscal

If the revenue collected by the state government as stamp duty on real estate transactions this fiscal is any indication, Ahmedabad realty has come out of recession. Figures for revenue collected as stamp duty indicate that, between April 1, 2009 and March 31, 2010, properties worth Rs25,000 crore were sold in Ahmedabad. Till February-end this fiscal, the state government had collected around Rs780 crore as stamp duty. The government is likely to collect an additional Rs100 crore by March 31. The Gujarat government levies 5.9% stamp duty on property transactions. Ahmedabad district alone is expected to generate revenue of Rs880 crore from stamp duty this financial year.

It is estimated that, in 2009-10, properties worth around Rs15,000 crore were sold in the city on paper (i.e., officially). If Rs880 crore is collected as revenue when the stamp duty is 5.9%, then it follows that property worth nearly Rs15,000 crore (Rs14915.25 crore to be exact) was sold. “The state stamp and registration department has collected Rs780 crore in the current fiscal (till February 2010) and is likely to collect another Rs100 crore by March-end,” said a source in the Gujarat government. “The total revenue earned through stamp duty would then come to Rs880 crore.”

The source added that, by the end of March this year, property worth around Rs14660 crore would have been traded in the city. However, as sources in the city’s realty sector were quick to point out, stamp duty is collected only on the white money involved in property deals. “A lot of black money changes hands in real estate deals in Ahmedabad,” a source said. “No stamp duty is paid for this money. In fact, black money comprises around 40% of the total transaction in realty deals.” If this is true, properties that are officially shown to be worth Rs15,000 crore are actually worth around Rs25,000 crore.

Another government source said that compared to the previous year, a nearly 45% increase in property deals is expected this year. “In 2008-09, the state government collected Rs613 crore as stamp duty,” the source said. “This is expected to rise by around 45% this year.” The source added that, last year, property worth around Rs10,000 crore was sold. Incidentally, properties purchased in Ahmedabad district alone comprise around 38% of the total property deals in the state. “Till February this year, the state stamp and registration department had collected Rs2,080 crore,” sources said. “Out of this, around 38% came from Ahmedabad district alone.”

Indian Ministry of Commerce and Industry to Showcase SEZ Success Story in Singapore

Notwithstanding the widespread protest against the proliferation of special economic zones (SEZs) in the country, the Ministry of Commerce and Industry is organising a seminar on the tax-free conclaves in Singapore tomorrow in order to rope in global investors. The SEZ policy of the country suffered a major setback with the global economic slowdown resulting in large-scale surrender of the lands or extension of the approval period as developers failed to bring in potential clients into these enclaves meant to augment exports from the country.

The seminar is going to be first such public relation exercise that the government is going to undertake in collaboration with the High Commission of India in Singapore. The seminar would be inaugurated by Lim Hng Kiang, minister of trade and industry of Singapore. More than 30 developers are representing India with a total of 60 representatives, while around 200 investors are expected to participate in the event. Representatives from Gujarat, Rajasthan, Karnataka and Andhra Pradesh governments would also make presentations in the event.

“This will be first such major event on SEZs that would take place abroad. We hope to make this a regular exercise to promote SEZs in India. Some of the case studies like Mahindra World City and Nokia, among others, would be showcased,” a senior government official told Business Standard. The seminar will comprise three sessions covering the topics such as foreign investment, government and private initiative, and logistics in the Indian SEZ sector.

Till date, 552 SEZ have received formal approvals, out of which 274 are notified. In-principle approvals have been given to 141 SEZs. Exports from SEZs between April and December 2009 have reached Rs 1,51,785.49 crore, up 127 per cent from Rs 66,638 crore during the same period last financial year. Several protests have erupted in states like Maharashtra, Haryana, West Bengal and Goa against the acquisition of land from SEZs since 2005, when the policy was first formulated.

12-15% Rise Expected in Prime Property Prices in India

Giving a clear message to the potential real estate buyers on the need to act fast, a research done by leading global property consultancy firm, Knight Frank along with Citi Bank, has forecast that the prime property prices in India is likely to increase by 12-15% in 2010. The Wealth Report 2010 Attitudes Survey, pointed out that over 70% believe that 2010 will be good year to invest in property, with half predicting residential property will be the sector’s top performer.

Giving a global view on the performance of prime residential property markets with a focus on the key regions in the Asian Pacific property markets, the survey showcased that the Mumbai and New Delhi realty markets held a significant level of promise for potential investors. Pranab Datta, vice-chairman and MD, Knight Frank India said, ‘‘There are growing prime markets in every city of India. But, South Mumbai and South New Delhi are the markets, which are the highest in terms of prices followed by Bangalore, Chennai and Hyderabad. We anticipate that the prices especially in cities such as Mumbai and Delhi will return to the peak levels of 2008 in this year 2010.’’

SBI to Continue its 8% Home Loan Scheme Even After 31st March 2010

Season for teaser loans does not seem to have evanished at least for SBI. The bank is expected to continue with its 8% happy loan scheme even after 31st March 2010 till July. A formal announcement is however yet to be made regarding this issue. SBI chairperson Mr. O.P.Bhatt has said, “We still have time and will review the situation after March 31.” The major reason behind this plan is the sluggish credit growth still persistent in the country. SBI itself has close to Rs. 50, 000 crore excess funds yet to be disbursed. The rate is expected to continue till the base rate season sets in. “We may extend the 8 per cent home loan scheme beyond the March 31 deadline as we have a good headroom to give loans at this rate. Our cost of funds has not climbed too much and credit growth is yet to pick up,” a senior SBI official said.

An official also said that these teaser home loans have helped in the growth of the retail lending book of the bank. “There is demand from the field offices (circles) to continue with this offer beyond March, for better credit growth in 2010-11,” he said. The teaser loan schemes have been withdrawn by many banks like ICICI, HDFC and Kotak Mahindra. Public sector banks like Union Bank of India as well as Canara Bank have also withdrawn their schemes. However, mixed set of reactions are coming regarding the issue from other entities. “There is demand from the field offices (circles) to continue with this offer beyond March, for better credit growth in 2010-11,” a senior official from a housing finance company had to say.

“With the Reserve Bank of India’s recent hike in repo and reverse repo rates by 25 basis points and an indication of further tightening, interest rates are expected to go up by 100-150 basis points in the next 12 months. Lower lending rates will put pressure on any finance company’s balance sheet,” he added. RBI Deputy Governor, Shyamala Gopinath said, “We will not mandate banks to have a particular rate of interest or stop banks from offering special rates. Our concern is only about borrowers’ ability to service the loan when the rates climb up in the latter part of the repayment cycle.” SBI was the first bank to launch these special loan rates in February 2009. Other banks had followed suit with SBI. Now the plan to extend this scheme might also be followed by other banks.

Increase seen in Residential Real Estate Demand- Jones Lang LaSalle‎

The Indian realty story is back on the growth path and has weathered the downturn. That’s the view of global real estate services firm Jones Lang LaSalle. “Growing upper middle class pushing residential spaces and in turn prices. Ulike last year, the US and EU have started taking some hard decisions and that is resulting in lot of IT spaces getting filled up or new IT properties coming up. Retail is another Indian industry that is seeing a lot of growth,” said Colin Dyer, President and CEO of Jones Lang LaSalle.

But India has long way to go when it comes to foreign direct investment in the realty space. The reason is not just the strict banking regulations but also the lack of a transparent investment mechanism. Indian realty space witnessed an FDI inflow of about $10 billion in 2007-08 and is expected to remain in the same levels this year too.

“A lot of deregulation needs to happen. An investor needs to know not just how he can bring in the money but also how to take it out,” said Dyer. Globally, Jones Lang LaSalle feels the US real estate market is still weak and signs of recovery are felt only in a few American cities. In some parts of Asia though the outlook is of a slow bubble building up. But in India the realty story is of growth across sectors.

Home Loan Interest rates May Rise Soon

The honeymoon for home and auto buyers is over. With the Reserve Bank of India (RBI) raising repo and reverse repo rates by 25 basis points last week, most expect that interest rates will now start moving up. RBI has indicated there could be further rises in the days to come. Its governor, D Subbarao, said yesterday the central bank would continue its movement towards exiting its accommodative policy, implying further rises in indicative rates. Clearly, we are moving towards a higher interest rate regime, which is, however, good news for investors in fixed deposits. A number of banks started raising their deposit rates last month. For example, HDFC Bank increased its deposit rates up to 150 basis points across maturities. ICICI Bank did so by 25-50 basis points. So have many public sector banks, such as Bank of India and Central Bank of India.

Obviously, the focus for a lot of investors will be on the debt portfolio. Industry experts felt the second half of the year could see debt mutual funds doing much better. Though it is still not the time to go the whole hog, shorter-term debt schemes are likely to do better than medium and long-term ones. Said A Balasubramaniam, CEO, Birla Sun Life Mutual Fund, “For the next couple of months, passive fund management will not help. Fund managers will have to react to situations quickly. Actively-managed schemes in both duration and spread management are likely to do much better.” In other words, look at short-term schemes now. Balasubramaniam said May-June would be a good time to take a look at medium- and long-term schemes again. Reason: One would be more confident about the direction interest rates would take then.

Lending rates, on the other hand, will also start going up. Teaser rates, launched by almost all banks, including State Bank of India, HDFC, Axis and others, are already being phased out. Axis Bank exited its two-year fixed rate scheme last month, almost two months before schedule. HDFC’s teaser rate closed on February 13. Many others have also gone out of the market. For a potential home-buyer, this means that besides rising property rates, he will be burdened with higher interest rates as well. “For someone buying his first home, I will advise that timing the market is not at all important. However, one can wait till the first week of April to see where home loan rates go,” said Harsh Roongta, CEO, apnapaisa.com. However, for those planning to invest in property, things are unclear. Property experts feel it makes sense to wait for more time. Akshaya Kumar, CEO, Parklane Advisors, said: “I don’t see the property market running away anywhere in the next few months, so an investor can wait before taking a call.”

According to him, if the stock market were to stay strong, the property market would follow, though with a lag. However, a higher interest rate regime could be a deterrent. “One can take a call on investing once there is some clarity on interest and property rates,” he added. As far as a car loan is concerned, most feel one should defer the purchase unless it is necessary. “With cost of living rising due to higher food inflation, consumers should concentrate on savings rather than unnecessary purchases,” said a financial planner. Also, after the first round of rise in car prices in January, many auto makers like General Motors and Hyundai Motor India are expected to raise prices by 1-3 per cent from April. In addition, loans will become costlier. Further, many people purchase cars during the end of the year, because it gives them depreciation benefits while filing tax returns. Purchasing in the initial part of the year does not make much sense from a tax perspective. One could wait for some more time for things to cool before deciding later in the year.

Hike in Rentals Expected in Commercial Properties

If you are planning to go for a new commercial property in the city, then in all likelihood it will cost you more than earlier. According to realty experts in the city, with the rise in prices of cement and other construction material, as well as increase in excise duty across the board, commercial properties are set to get costlier. If it happens, then there are high chances that the rentals of office complexes, retail stores and other commercial space will go northwards, which, in turn, can affect demand for them, say the experts. They believe that there could be a rise of 10% in rentals of commercial properties.

Shrenik Shah, CEO (land and commercial) of Space Management Ltd, said “There are high chances that with the rising burden of service tax and cost of construction, buyers may end up paying more for commercial properties compared to what they would have cost them before budget.” The one who can be affected the most are the corporates. Their expenses would shoot up and its adverse effect could be seen in the long run, added Shah. Agreeing with Shah, MD of Bakeri Group, Pavan Bakeri said that in future the tenants of commercial properties may have to face the consequences as there are high possibilities that the rentals of new properties can shoot up.

However, there are some other experts who do not support the view of an impending rise in commercial rentals and its adverse effect on their demand. They contend that there is an oversupply of commercial properties in Ahmedabad’s realty market. Elaborating, the director of Real Estate Studies and Management Academy, NK Patel, said “The service tax was being charged earlier too, which will now also include residential segment. In fact, the new residential property rentals have higher chances to rise.” He added, “I believe that commercial rentals will not be impacted much, and will remain stable.”

Jateen Gupta, MD of JP Infrastructure Pvt Ltd, which is into construction of both commercial and residential properties, said that there was genuine demand for commercial properties. “I believe that any commercial project today would get at least 30%-40% bookings as soon as it is launched. Therefore, I see no problems with the commercial segment in near future.”

Family-Driven Real Estate Firms Thrive On Gut Feel

Real estate business in developing countries like India has more to do with gut feel. While spreadsheets chart corporate’s path, family-run enterprises rely on instincts and seek to leverage contacts and relationships with regulatory organisations. But it is not a cakewalk for the next generations participating in the realty businesses started by their ancestors.

The operational vision has to be passed in line with long-term plans. For instance, those at the helm of the family biz might target completing “so many sq ft within so many years,” to the next generation, but internally they would be having the aim of building the firm’s land bank, Prince Foundations Yogesh Harish said. Certain aspects has to be corporatised and it all depends on the structure that one is engaged with, Eversendai Construction ED Narish Nathan While family-owned real estate firms are realising the need to professionalise, it does have a limitation, JLL-M chairman-country head Anuj Puri notes.

Unitech and DLF started doing it in the early eighties, with the latter largely successful in professionalising its marketing, financing and execution functions. But attempts to outsource land acquisition activity for outside the geographical locations where it is not present, spelt trouble, he said, responding to a question by JLL-M Chennai/Hyderabad MD Ramesh Nair as to whether professionalising led to natural accretion in shareholders’ value. While most companies tend to professionalise during the pre-IPO or filing the Red Herring prospectus stage, it is imprint to retain the structure post-IPO too, Mr Puri said.

It is the organisation’s DNA that matters. While in a family business, ideals flows through generation, the other end about customer-focus or vendor friendliness are competencies that have to be evolved to operate in today’s business environment, Casa Grande founder M Arunkumar said. Though it is essential to tap talent within a family, the ingredient for success is to ensure the right-talent mix. “Better talent, driven by professional pillars of organisation , is the order of the day. Every organisation will have a cultural shift,” he said, adding real-estate firms too should start promoting incentivising concepts like stock-options . Mr Shetty said the critical fabric for family-businesses to sustain is the emotional connect aspect. “Quitting is the last resort. You try innovative ways to keep it going through generations. You want to sustain it whereas in other cases, at the first sign of trouble , sell-off is the immediate option,” he opined.

JLL global CEO Colin Dyer observed the common thread world-wide is that of family involvement, particularly in the initial development cycle of real estate. In a developing entrepreneurial environments like Indian, Chinese or Indonesian, the markets have less checks and balances. Intuitive approaches click. Whereas corporates prefer a rational way of doing business. Family biz is about experience accumulation and instinctive dealing methods. Mr Puri said real estate in developing countries operates more out of “gut feel,” where unified leadership under a patriarchal format is the key. But, there are many compromises as well as each of them is treated equal irrespective of their capabilities. “Each of the horses in the race is always treated equal and it is vital to find a leader from within the pack,” he said, citing the instance of the state’s latest dynastic politics coming to the forefront.

Commitment, trust and integrity may be the keys, like Gem Group’s V Siddharthan says but the next generation finds negotiating in the fragmented environment tough. “When you are small, it (professionalising ) is a luxury, when you are big, it becomes a necessity. Large parcels of land acquisition requires a different mindset. You may have to accelerate the decision-making pace,” says VGN Developers MD D Pratish.

Budget 2010 comes up with Good Investment Opportunities for NRIs

India’s budget yet again demonstrates to NRIs that investing in their homeland is probably the best option right now. The West is still struggling to climb out of one of its deepest recessions and provides low returns, while India’s growth story promises healthy returns. Surely, it’s time to wake up and smell the Indian coffee. Soon after the budget was read, the Indian stock exchange gave it a thumbs up sign without delay as the market climbed up by a hefty 175 points. The return on Indian equities in the past year has been calculated at 87.4 percent by The Times of India. If an NRI invested in real estate stocks for the last year, the returns would be a whopping 139 percent

The auto sector was not far behind as the returns on wheels was 184 percent. Again, consumer durables and the IT sector would have raked in returns at 150 percent and 125 percent respectively. Now, where would an NRI get his investment almost doubled in one year? As far as returns on fixed deposits are concerned, NRIs can reap much higher returns of eight percent for term deposits if they convert their currencies into Indian rupees. This compares with two to three percent when they keep their funds in hard currencies in India or abroad. Considering that over 100 banks have failed in the US following the meltdown and a number of British banks were also shaken. NRIs hastily sent their savings to India and the country’s foreign exchange reserves are hovering at a bulging $280 billion now.