Indian Property News on 'April, 2010'

Finance Ministry Provides Slight Tax Relief to Realtors

Home buyers could pay less for property following a partial rollback of a budget levy on realtors by finance minister Pranab Mukherjee today. Mukherjee said realtors would pay a 10 per cent service tax on 25 per cent of the value of the built property, including the cost of land, against the budget announcement of the 10 per cent tax on 33 per cent of the value of the property. “I propose to provide the tax relief to this (construction) sector by enhancing their rate of abatement from 67 per cent to 75 per cent of the gross value, where such value includes the value of the land constructed upon,” Mukherjee said.

A service tax of 10 per cent had been slapped on real estate complexes for the first time in this year’s budget. The abatement (tax rebate) has been increased to 75 per cent from 67 per cent of the gross value of a property that includes land value. This means that on an apartment, which costs Rs 20 lakh, a buyer can get a service tax relief of Rs 16,000, or Rs 800 for every lakh paid. Buyers would earlier have ended up paying Rs 66,000 as service tax, but now they would pay Rs 50,000. Mukherjee said urban development minister Jaipal Reddy had urged him to scrap the levy.

Reddy had written to the finance minister earlier this month seeking a review, arguing that the new tax will hit home buyers rather than dip into the pockets of realtors. The housing market, hit by a slowdown in the Indian economy that saw prices coming down by up to 30 per cent last year, is now reviving. However, realtors are not exactly celebrating the partial tax rollback. Kumar Gera, chairman of the Confederation of Real Estate Developers’ Associations of India said, “The idea of service tax on real estate is unjust. When stamp duty is paid, why should the land value be added upon while calculating service tax. The land is not a service… construction could be.”

Navin Raheja of Raheja Developers said, “This (the tax) would have marginal impact in deciding home purchase. It is unfortunate that land value is being added upon to calculate the service tax.” Mukherjee also exempted from service tax constructions under the Jawaharlal Nehru Urban Renewal Mission and Rajiv Awas Yojana.

The finance minister, however, did not roll back the hikes in excise and customs duties on petrol and diesel. He said the government had to look at ways of meeting the Rs 85,000 crore expected revenue losses from selling fuels at low prices. The 2010-11 general budget had provided considerable relief to income tax payers but hiked the central excise duty on non-petroleum products across the board to 10 per cent from 8 per cent and the basic duty on crude and petroleum products, besides effecting a one-rupee increase per litre on petrol and diesel.

The opposition NDA and the Left parties staged a walkout in protest against the government’s decision not to roll back fuel duty hike before the Lok Sabha passed the Finance Bill 2010. The government has set up an empowered group of ministers (eGom) to decide on the Kirit Parikh panel recommendation of freeing petrol and diesel prices from government control, and a decision is likely soon after the Parliament session ends on May 7. The eGoM will be headed by Mukherjee and its decisions would not be required to be approved by the cabinet. Mukherjee also cut the basic customs duty on stainless steel to 2.5 per cent from 5 per cent and the excise duty on hand-rolled cigars to 10 per cent. He proposed investment-linked tax breaks for hospitals with at least 100-bed capacity.

Export duty on iron ore lumps is now 15 per cent against 10 per cent earlier, while the surcharge on raw cotton exports has gone up. Duty on paper made from waste is now down to 4 per cent against 8 per cent earlier. The duty changes would cost the finance ministry Rs 400 crore, officials said. It’s traditional for finance ministers to announce tax changes in reply to the debate on budget. This is done to address anomalies in taxes or on representation by industry or consumer bodies, which complain that high taxes would hurt them.

Mukherjee also announced a Rs 241 crore relief package for coffee growers by way of waiving three-fourth of loans taken prior to 2002, especially by small farmers, while restructuring repayments for the rest. On the corporate front, Mukherjee announced tax exemption on the transfer of shares by shareholders in case a company converts itself to the limited liability partnership structure, the new kind of business entity introduced a year ago. In education, the minister extended service tax exemption to vocational courses provided by the training institutes registered under the skill development scheme of the labour ministry.

2.5% Hike Expected in Housing Prices

Real estate industry on Thursday hailed the concession announced by the government on service tax but said housing cost will still go up by about 2.5 per cent. However, the developers were disappointed that their demand to exclude land cost while calculating the service tax was not met. In his reply to the Lok Sabha, finance minister Pranab Mukherjee on Thursday offered tax relief on the construction of real estate complex, which has been brought under ambit of service tax, by increasing the rate of abatement from 67 per cent to 75 per cent of the gross value, including the land value.

“It’s a good relief for small buyers,” DLF group executive director Rajeev Talwar said. He, however, said the industry was asking for more concessions, mainly exclusion of land cost from the service tax component. CREDAI, the apex realtors body, chairman Kumar Gera said “its unjust because the abatement which is meant to cover land cost is not fair”.

Gera said land cost should have been excluded from the service tax. He said the property prices would increase by about 2.5 per cent as the tax is always payable by consumers. Parsvnath Developers chairman Pradeep Jain also thanked the finance minister for the relief and hoped that the government will consider excluding land cost at a later stage. Omaxe Chairman Rohtas Goel also expressed similar views saying it would have been better if land cost would have been excluded from the ambit of service tax.

“Reduction of abatement to 75 per cent will reduce slight burden on customer, but still buyer has to pay extra 2.57 per cent approximately,” Raheja Developers managing director Naveen Raheja said. With on Thursday’s announcement, service tax of 10 per cent will be levied on 25 per cent of the gross sale value of property compared to 33 per cent proposed in the budget in February this year. This means property prices would rise by about 2.5 per cent.

Two Fold Rise in Sobha Developers Q4 Profit

Real estate developer Sobha Developers’ revenues have more than doubled during the fourth quarter of the financial year 2009-10 on the back of improved sales. Revenues for the quarter stood at Rs 403 crore as against Rs 163.5 crore for the corresponding period of last year. Net profit for the quarter was Rs 55.7 crore (Rs 7 crore). The board of directors has also recommended a dividend of Rs 2.5/share.

“This has been a good quarter not only for our real estate business, but also contractual business as revenues from contracts amounts to Rs 95 crore. “While our margins for the real estate business is over 35 per cent, it is over 15 per cent for our contractual business,” said J C Sharma, managing director, Sobha Developers. The company has sold over six lakh sq ft this quarter.

For the financial year 2009-10, the company’s revenues stood at Rs 1,118.5 crore (Rs 990.5 crore), while net profit was Rs 136.7 crore (Rs 109.7 crore), up 25 per cent. “We are back to the good growth figures that we saw till 2007. The slowdown has made us a better company,” he said. The company hopes to clock over 3 million sq ft of new sales in the current year, he added.

What has also contributed to the company’s balance sheet is a leaner organisation. The company’s staff cost has come to Rs 76.8 crore (Rs 100.9 crore). “During the recession, we rationalised and downsized considerably. But we have now started increasing our employee strength,” said Sharma. He added that the company has also started providing salary hikes to employees from January this year, and “we have also restored the cut-backs in salary,” he said.

More Bookings Expected in 2010- Unitech

Real estate company Unitech Ltd said on Tuesday it has sold 16.6 million square feet of residential and commercial space during financial year ended March 2010. This is more than five times the bookings clinched in FY09 (three million square feet), when slowdown in the property market and cash crunch faced by various builders had dented the fortunes of the industry. Unitech had reported 10 million sq ft of bookings during FY08.

The average realisation stood at Rs 4,237 a sq ft for FY10 although the company did not give a comparable figure for the previous year. During FY10, Delhi NCR and Chennai accounted for a big chunk of the total bookings.

According to an operational update by the company, for the year ended March 31, 2010, bulk of the area booked by the company pertains to residential projects (82 per cent) and balance to non-residential or commercial space. The company has claimed that the total value of sales for the space booked in the last fiscal stands at over Rs 7,000 crore.

On the delivery status of past projects — a pain point with buyers during the market slowdown phase — Unitech has reported that out of the total 22.4 msf of area to be delivered, close to 6.8 million sq ft has been delivered till March 2010. About 1.15 million sq ft was delivered in the last quarter alone.

UAE Realty Major to Launch Integrated Mega Township Projects In India

UAE-based realty major Rakeen has announced plans to launch integrated mega township projects in India, it was revealed to Property Pulse. In an exclusive interview with Property Pulse on the sidelines of just concluded Realty Plus Conclave 2010 held in the Capital, Dr. Khater Massaad, Executive Chairman, Rakeen and CEO, RAK Investment Authority (RAKIA) said that India has become the most attractive destination as there is a huge demand for real estate projects. “Moreover, the country enjoys an excellent relationship with the Emirate,” he added.

Rakindo Developers Pvt Ltd, a joint venture between Rakeen and Chennai-based Trimex Group, is currently engaged in completing its first integrated township project in Coimbatore in Tamil Nadu. “The date for booking for this project will be announced in June,” informed Dr. Massaad.

According to Prasad R Koneru, MD, Rakindo Developers Pvt Ltd, Rakindo is developing Kumarakom Wetlands in Kumarakom, Kerala and Chennai Marina in Tamil Nadu. “The 1000-acre Kovai Hills township project in Coimbatore will also feature a luxury resort and a spa. Besides offering luxury living options under this project, the company is also creating affordable housing just alongside the main project,” added Koneru.

Rakeen is also involved in projects like infrastructure and ports development in India. Meanwhile, the much talked about Al Marjan project, a cluster of five coral-shaped man-made islands spread over 2.7 million sq mt off the coast of Ral Al Khaimah — is being developed in the emirate. The project comprises waterfront homes, floating villas, hotels, resorts, sporting facilities and commercial areas.

The company’s other projects include Bab Al Bahr, RAK Financial City, Gateway City, RAK Convention Centre, Banyan Tree Al Wadi Resort and Jabal Al Jais, among others. Rakeen also has projects in countries like the Congo, Georgia, Lebanon and Kyrgystan.

Mumbai Property Market

One of the largest public frauds happening in the booming real estate market of India, specifically Mumbai, has to do with the extremely opaque redevelopment rights being offered to reality firms. The major players in this industry include DB Reality (India Agriculture Minister Sharad Pawar lobby), Unitech (Congress lobby) and DLF (in bed with almost all political parties). Needless to say that there are many others who are in the fray and none of them can be viewed as saints.

Most redevelopment rights are offered with with questionable ‘freebies’ like free FSI (Floor Space Index), additional “free space” in a better location and many other perks. It is a blatant violation of public capital and it is happening right in the full glare of media houses who still have not got the scent of the fraud.

Property costs in central Mumbai areas such as Lower Parel and Parel hover at Rs18,000-22,000 per sq. ft, depending on the project. In south Mumbai, the rates run up to about Rs50,000 per sq. ft. The developers don’t just get access to prime land, they are also given additional construction rights, or FSI (floor space index), as an incentive to take up the projects.

Brokerage Anand Rathi Financial Services Ltd says in a March report that Unitech, the country’s second-largest developer, expects to construct four to five million sq. ft of space in Mumbai every year—all of it in redevelopment. Unitech has invested around Rs850 crore in joint ventures for redevelopment projects in the city and will invest another Rs200 crore, Anand Rathi said. In return, the firm will get five million sq. ft of “free sale” space, which the management expects will add 20-25% to Unitech’s revenue over two years, the brokerage said.

Another realty firm, Ackruti City, has at least 40% of its portfolio dedicated to redevelopment projects. Among them is the 96-acre redevelopment scheme of the Government Colony in Bandra (East). The Bandra project, which will be developed with DB Realty, will see an investment of at least Rs5,000 crore.

9.2% Rise in Pune Property Prices

Property prices in Pune went up by 9.2% in the last quarter, making the city one of the only three in the country to see a rise. Apart from Pune, Ahmedabad and Kolkata saw a price rise in the January to March quarter. In Mumbai, the prices dropped by 2% in the first quarter, while in Delhi they dropped by 7.6%. The data was revealed by Delhi-based real estate portal makaan.com as part of its annual real estate indices report of eight top cities in India. The report was released on Tuesday

Price Rise Will not Favour Real Estate in the Long Run

Even as realtors are happy about the rise in property prices in the last two quarters to almost the pre-slowdown highs, experts said this sudden rise in prices will not help the sector in the long run but would rather derail the recovery process of the sector, which is still looming under a funds crisis.

According to a Knight Frank report, the improving economic outlook boosted the demand for real estate in the last two quarters.

Beginning October last year, the cost of residential property had once again risen especially in Mumbai and the National capital region (NCR) to as high as the pre-slowdown period.

“It seems that the sector has not learnt its lesson well. Developers rather than encashing this increase in demand, just raised the property price too quickly, which will hurt the sales figure,” Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, an international property consultancy, told Mail Today.

“The sector has not recovered completely. It has just moved from the crisis. But with the lending problem and debt still looming on the realtors, they are standing on the threshold of overheating too early in the business cycle,” Puri added.

According to the March 2010 Property Index (MPI) of Makaan. com, an online property portal, the national property index stood at 1,117 compared to 954 in the corresponding month last year, showing an increase of over 17 per cent.

“Property prices in the western markets of Mumbai and Pune rose by 29.4 per cent and 28.1 per cent respectively, and Delhi rose by 6.8 per cent,” said the report by Makaan. com.

According to the portal, the prices of existing and new projects in all the Tier-I cities were increased significantly in November and December.

According to the Makaan. com report, the unexpected rise in home prices led to the crowding out of buyers as they were caught off guard. This led to lower number of transactions during the January- March, 2010 period.

Ever the Reserve Bank of India (RBI) in its report on the macro- economic and monetary developments in 2009- 10 released last week expressed concern over the overheating of property prices in Mumbai and Delhi.

Parry Singh, managing director Red Fort Capital, a private equity fund, said RBI’s concern on property price rise could force banks to cut lending to realtors and will increase the cost of bank lending to realtors.

In fact, according to RBI data, banks are cutting down on loans to real estate. Growth in lending to real estate has declined from 41.5 per cent yearon- year as on August 28, 2009 to 15.3 per cent as on November 20, 2009, and to 0.9 per cent by March, 2010.

However, realtors are playing it safe. ” The sector has come out of the crisis. Demand is improving.

People who were just holding up their buying decisions are now ready to strike deals. So, sales won’t be hurt even by increasing costs,” Ananta Raghuvanshi, director, DLF Home Developers, said.

The sector has not learnt its lesson. Realtors rather than encashing this demand, raised the price quickly, which will hurt the sales figure.

Real estate has just moved from the crisis. They are standing on the threshold of overheating too.

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LIC Housing Finance Plans Foray Into Banking Business

LIC Housing Finance, a subsidiary of Life Insurance Corporation of India (LIC), plans to apply for a banking license if it qualifies after the Reserve Bank of India (RBI) issues guidelines on issue of fresh licenses for private sector companies. Even if its parent company, LIC, is not able to partner the venture, the home loan company will go ahead with its plans of starting a bank if the company finds itself eligible under the proposed RBI guidelines.

“We are interested in applying for a banking licence. LIC may or may not be part of the venture because it is a public sector organisation and has its own regulations to follow. We have not initiated any talks with RBI. We are waiting for the guidelines from the central bank,” said R R Nair, director and chief executive officer of LIC Housing Finance, at a press conference called to announce the company’s fourth quarter results.

The company will also start operations of its real estate venture capital fund in the next six months with an initial seed capital of Rs 500 crore. “About 20 per cent of the capital will be from LIC and the housing finance company and the remaining would be mobilised from HNIs (high net worth individuals) and institutions,” said Nair. The company had plans of roping in a joint venture partner for this, but decided against it. Now, it will be a subsidiary where LIC and the home finance company will be majority shareholders. It will invest in real estate projects in residential and commercial areas.

Financial Chronicle first reported that LIC and LIC Housing Finance will start a real estate fund with a corpus of Rs 500 crore. The company also plans to raise Rs 20,000 crore during the financial year through non-convertible debentures and public deposits.

The company has improved the share of its home loans from 6 per cent in 2008-09 to 12 per cent in 2009-10. The company has a special home loan rate of 8.9 per cent fixed for three years and a 8.75 per cent floating rate. For the year ended March 2010, the company approved Rs 18,043 crore of loans to individuals and real estate developers and disbursed Rs 14,853 crore. Of this, home loans sanctioned was Rs 14,151 crore and disbursed amount was Rs 12,448 crore. The company reported a 36 per cent year-on-year rise in net profit to Rs 213.51 crore in 2009-10.