NEW DELHI: India’s largest real estate firm DLF has priced its institutional placement at Rs 230, the company told the Bombay Stock Exchange on Wednesday.
DLF offered 8.1 crore equity shares to institutional investors in the IPP that closed on Tuesday. The issue that will help DLF raise Rs 1,863 crore was oversubscribed by 1.3 times. DLF received 10,63,49,558 bids from qualified institutional buyers for the issue of shares, which it had to undertake to meet market regulator SEBI’s guideline on minimum 25% public shareholding by June 30 for private listed entities.
DLF had said that it will use the money raised to reduce its debt and also utilise it for working capital requirements. This is the third major fund raising effort by DLF. The company had raised close to Rs 10,000 crore in its IPO in 2007 and later in 2009 promoters sold 9.9% stake to raise over Rs 3,800 crore. Shares of the company on BSE closed at Rs 241.65 on Wednesday, up 4.93%.
The India Mortgage Guarantee Corporation (IMGC) is a first-of-a kind entity set up in the country. Its primary function would be to offer mortgage guarantees on housing loans. Amitava Mehra, the CEO of IMGC in an interview to L Ramakrishnan says that in the years to come, the aspiring home owner will be able to buy a home earlier and with significantly lower down payments. Excerpts:
What is a mortgage guarantee company and why is there a need for it in India?
A mortgage guarantee company is a non-banking financial company formed under the Mortgage Guarantee Company (Reserve Bank) Guidelines, 2008. A mortgage guarantee company’s primary business shall be to offer mortgage guarantees against borrower defaults on housing loans from mortgage lenders.
The residential mortgage industry is an important pillar for economic growth of the country. Mortgage guarantee will be able to add significant value to the Indian mortgage sector over the long term through efficient use of capital, risk transfer and risk mitigation, which will also translate to early home ownership for first time home buyers and help expand access to housing in India.
What is the role of the IMGC? What is its structure? How will it function?
IMGC will provide credit guarantees to banks and housing finance companies on behalf of the borrowers. The lending institutions, having taken guarantee cover from a mortgage guarantee company, can benefit from capital relief against such guaranteed loans through lower risk weights.
IMGC has been registered by the Reserve Bank of India (RBI) as the first mortgage guarantee company in India. The company is a joint venture between the National Housing Bank (NHB), Genworth, Asian Development Bank (ADB), and International Finance Corporation (IFC), a member of the World Bank Group. NHB has a shareholding of 38 per cent of IMGC, Genworth has a stake of 36 per cent, while ADB and IFC, have a 13 per cent stake each in the joint venture company.
IMGC will operate under the mortgage guarantee guidelines of the RBI. As per the guidelines, a mortgage guarantee company is required to maintain a minimum capital of Rs 100 crore at all times. One of the key factors for a mortgage guarantee company is its rating. ICRA has assigned an issuer rating of IrAA (Stable), and CARE has issued an in-principle rating of AA+ (Is).
How do you plan to raise capital? What are your short-term and long-term plans?
The joint venture partners have infused the initial capital and will contribute further funds in the form of equity capital, as and when required to meet the capital adequacy requirements as per RBI regulations. Our short-term capital needs will be met by investments from existing partners, and over time we will have to look at alternate sources of funding to meet long-term growth requirements.
The corporation’s primary clients will be housing finance companies and banks that are presently responsible for the majority of mortgage lending in India. The product will be initially offered on the existing books of lenders to enable both IMGC and the lender partners to smooth out the operating processes before offering the same on new mortgage loans.
How will the formation of the IMGC benefit the aspiring home owner?
As the product matures and regulations evolve, lenders will be able to improve product offering in terms of lower interest rates or higher loan to value (LTV) ratio on the underlying property. For example, an originator may be willing to offer an LTV of 90 per cent loan with guarantee cover as opposed to 80 per cent LTV on a standalone basis, resulting in greater affordability for the buyer (lower equity contribution), thereby stimulating demand. This will lead to early home ownership for a first time home buyer with a lower down payment.
What is the impact the corporation expects to make in the housing finance market?
The mortgage guarantee product will help reduce the quantum of credit risk in lenders portfolio (as some proportion of risk would stand transferred to the company), release capital which can be further deployed in business resulting in higher business volumes and improved profitability, improving return on equity and diversify sources for high quality equity capital for the lender.
The product can also provide greater impetus to the securitisation market, as the requirement of credit enhancement to be provided by the lender would come down if the underlying loans included in the securitised pool have guarantee cover, thereby making such transactions more attractive. Over time, usage of mortgage guarantees by lenders will lead to standardisation of definitions, practices and processes across the industry just like evolution of credit bureaus has led to standardisation of data used for credit appraisals.
This product will provide an alternative equity source and help mortgage lenders maintain prudent capitalisation levels even in unfavourable market conditions, without having their growth prospects curtailed or compromising on shareholder returns.
Is this an Indian version of Fannie Mae? If not, how does it differ?
No, IMGC is not the Indian version of Fannie Mae. The charter of the two institutions is very different, while Fannie Mae is a US government sponsored enterprise to help develop the market; IMGC is a private limited company operating on a commercial basis providing guarantee cover to lenders.
Fannie Mae is formed with the primary purpose to expand the secondary mortgage market by securitising mortgages in the form of mortgage-backed securities. Their business model is to borrow at low rates by selling bonds with implied government guarantee and lending by creating mortgage backed securities. Fannie Mae also assumed credit risk on mortgage loans underlying these assets for a fee, providing guarantee that principal and interest will be paid in case of borrower default.
IMGC is a private limited company, which cannot be a subsidiary of any other company as per the RBI guidelines. The primary business of a mortgage guarantee company is to provide mortgage guarantee on residential mortgage loans for a fee, guaranteeing the repayment of outstanding principal and interest upto the guaranteed amount to a creditor institution, on the occurrence of a trigger event (which is the classification of an account as a non performing asset as per RBI guidelines).
Further, each loan guaranteed will have to pass through the credit screens of the company improving the quality of the portfolio.
Source: The Indian Express By: Harsh Roongta Publish: 22-April-2013
NEW DELHI: Private equity firm Xander is close to investing Rs 280 crore in a 125-acre township project in Gurgaon being developed by real estate firm Supertech.
The Noida-based real estate firm has already bought over 100 acres of land, and part of the money raised will be used to buy more land and the rest for starting construction of the project.
RK Arora, managing director of Supertech, confirmed the development and said that the term-sheet for the deal had been signed. A spokesman for Xander said as a matter of policy, the firm does not comment on market speculation.
This will be Supertech’s second project in Gurgaon. The developer, which has focused mainly on Noida so far, has now zeroed in on Gurgaon as fresh land is not available in Noida. It launched its first project in Gurgaon in sector 79 recently.
Currently, Gurgaon has a higher demand for luxury housing among the large investor base of the city, said Arora. Besides, developers in Gurgaon can buy land directly from farmers unlike in Noida, where the government leases land to real estate players.
Source: Times Of India Publish: 24-April-2013
BANGALORE: The Subhash Chandra-owned Essel Group has launched a Rs 500-crore real estate private equity fund, a person with knowledge of the development said. “The Securities & Exchange Board of India has approved and given licence for category II AIF (alternative investment fund),” the person said, adding that it will be close ended and have a four-year tenure.
The fund, India Asset Growth Fund series I, has been launched under Essel Finance Managers, the group’s private equity business. Amit Goenka, managing director and chief executive of Essel Financial Services, the holding company, confirmed the creation of the fund but did not give any details.
According to the person quoted earlier, the fund has a target net internal rate of return of over 20%. It will primarily invest in urban residential real estate projects across Mumbai, NCR, Bangalore, Chennai, Pune and Kolkata. The ticket size of the investment will range from Rs 75 crore to Rs 100 crore. Under Sebi rules, category II AIFs do not get any specific incentives or concessions from the government or any other regulator.
These funds are close ended, cannot engage in leveraging and have no other investment restrictions. The fund, with a greenshoe option of Rs 500 crore, achieved first close of Rs 200 crore earlier this year, the person said, adding that Essel plans to launch by mid year a $100-million offshore fund that will co-invest with the domestic fund.
The National Housing Bank is looking forward to relaxations in external commercial borrowing norms for housing finance companies (HFCs) to enable larger number of players to tap the route.
“We are expecting to modify some of the features (with regard to ECBs), which are a little restrictive now,” NHB Chairman and Managing Director R V Verma said. This is being considered by RBI and the government to allow more players, he added.
“The RBI has already sent its recommendations to the government which are being considered on share capital and networth of HFCs,” Verma said. The existing norms with regard to Rs 50 crore of paid-up capital and Rs 300 crore of net-owned funds (NOFs) are being examined to allow more players in the ECB fold, he said.
The RBI had allowed real estate developers, developing low-cost housing, and housing finance companies to raise up to $ 1 billion through ECBs last fiscal. Verma also pointed out that the ECB limit for FY’14 would be determined after exhausting the limit for FY’13. The NHB has also sought some clarifications from the Finance Ministry regarding tax exemption in securitisation deals.
“We are awaiting some clarifications from the Finance Ministry with regard to securitisation,” Verma said, adding that the housing finance regulator will go ahead with the proposed Rs 200-crore securitisation deals after the clarification.
The FY14 Budget has provisions to exempt securitisation trusts from taxation. On loan disbursements, Verma said the NHB plans to increase loan growth by 20 per cent next fiscal. (NHB follows July-June financial year).
“We plan 20 per cent growth in loan disbursement to Rs 20,000-21,000 crore in the next fiscal from Rs 17,000 crore target of this financial year,” he said. Verma also pointed out that the proposed Urban Housing Fund would start in one month.
This year’s Budget has provisions for setting up an Urban Housing Fund to support affordable housing in urban areas. — PTI
MUMBAI: Indiareit Fund Advisors, the real estate private equity arm of Piramal Enterprises, has made two investments totaling Rs 200 crore in realty projects in Mumbai, Pune and Bangalore, the fund said in a release.
Of the two investments, the first investment worth Rs 100 crore is in a residential project being developed by Omkar Realtors & Developers at Bhoiwada in central Mumbai. The under-construction project is spread over 17 acres has a potential free-sale component of 2.5 million sq ft. This transaction also marks the maiden deal for Indiareit’s recently concluded Rs 400 crore Mumbai Redevelopment Fund.
Indiareit’s second transaction is for investment of Rs 100 crore in Pune-based Marvel Group’s projects in Pune, Bangalore and Mumbai. Marvel Group has total 15.3 million sq ft space under construction spread over 38 projects. Indiareit has made this investment from Indiareit Domestic Scheme IV that has a total corpus of Rs 900 crore.
Separately, Indiareit also announced that it has started distribution of its Rs 440-crore exits that were term sheeted three months ago with the first transaction of a special economic zone at Hinjewadi in Pune. The remaining exits are also on track to close/distribute within the next two months, the release said.
MUMBAI, BANGALORE: Confederation of Real Estate Developer’s Associations of India (CREDAI), has sought withdrawal of Budget proposal to levy 1% tax deducted at source on any property deal other than agriculture land.
In a recent representation sent to the finance ministry, the realtors’ body has argued that implementation of this proposal will lead to more complexities and harassment of consumers. “We are seeking withdrawal of this proposal completely. This will lead to harassment of consumers, especially the buyer who is being burdened with additional responsibility to withhold the amount, deposit this to tax authorities and file returns,” said Lalit Kumar Jain, chairman, CREDAI.
CREDAI, the apex body representing organised real estate developers and builders across the country, has sent a written representation to the finance ministry in this regard. Under the proposal, the tax is mandated to be paid if the property consideration is over 50 lakh in specified urban areas and 20 lakh in any other area. The transaction will be registered only after the buyer provides proof of deduction and payment of TDS. The proposal will be effective from June 1, 2013.
According to Jain, around 80% of realty transactions in top six markets in the country including Mumbai Metropolitan Region, Delhi, Bangalore, Chennai, Pune and Hyderabad will be affected by the proposal, given the current property rates.
Once bitten, twice shy. If this saying were to be followed literally, the finance minister wouldn’t have restored the levy of deduction of tax at source (TDS) on immovable property transactions. The introduction of a similar proposal was proposed last year in Budget 2012, but did not see the light of the day. It was ultimately withdrawn due to the number of representations pointing out the compliance burden. Surprisingly, a microscopic reading of the new proposal makes us believe that the compliance burden has in fact substantially increased in the current proposal.
It was quite apparent that the finance minister was wearing the hat of a revenue collector when presenting this year’s Budget proposals considering that he is faced with a huge fiscal deficit problem. And the most obvious sector to be pushed to the fence was the real estate sector which is generally perceived to be not so “real”.
The finance minister was vocal enough in putting it on record that transactions in immovable property are generally undervalued and under-reported (few would be able to articulate anything against this).
In addition, half of all property transactions are not supported with the PAN of the parties involved. With a view to improve reporting mechanism of such transactions and to collect revenue at the earliest point of time, the finance minister has proposed the introduction of a levy of TDS on immovable property transactions (other than agricultural land transactions). This enables a buyer will be liable to deduct taxes at 1 per cent of consideration from a resident seller where the property value is in excess of Rs 50 lakh.
Introduction of the TDS provisions may have manifold repercussions, especially by increasing the compliance burden for buyers. Based on the current reading of the law proposed, the buyer will have to obtain Tax Deduction Account Number (TAN’), file TDS return and issue TDS certificate.
The provision introduced last year had a specific exemption from obtaining a TAN and filing a TDS return, on which the current proposals are silent. A salaried individual is likely to buy his dream home, only once in his life on account of soaring property rates (especially in metro cities). Because of such provisions, he will be required to apply for a TAN, file a TDS return, issue TDS certificate, etc., and more so, be prepared to answer queries of TDS officer (in addition to the usual income-tax officer). This will surely increase his compliance burden and costs, and not to forget the possibility of additional scrutiny from income-tax authorities.
In case of resale of properties, where the PAN of the seller is not provided or an invalid PAN is quoted, then the buyer shall be liable to deduct taxes at a massive rate of 20 per cent as against 1 per cent. In such a scenario, if tax is not deducted at 20 per cent, the buyer may also be faced with levy of interest and penalty. On account of such onerous provisions, the buyers will have to be extra cautious about the genuineness of the PAN provided by the seller.
From seller’s perspective, where the seller buys a new residential house upon sale of his existing house and thus, is not liable to pay tax on the capital gains earned, he will have no option but to claim the TDS as a refund in his return of income. No prizes for guessing when the refund will see the light of the day.
In the case of a property under construction, the developer will have to collect the TDS certificates from thousands of buyers and claim the TDS in its return of income. This may pose administrative issues for the developers which may also result in short grant of TDS credit. In addition to the administrative hassle, the amount withheld by the buyers will negatively impact the cash flow of the developers.
In case of purchase of under-construction property, where the buyer uses bank finance and payment to the developer is made directly by the bank on a staggered basis, the question that may arise is, who will deduct tax; the buyer or the bank?
Certainly, for better implementation of these proposals, clarity on certain aspects is awaited. Only time will tell whether the provisions are successful in creating a better reporting mechanism of such transactions or whether such provisions will cause undue hardship to the average home buyer.
The author is Associate Director – Tax and Regulatory Services, PwC India. With inputs from Vishal S Shah, Senior Manager