Latest Property News on 'FDI'

Govt Permits SEZ Developers to Sell Part or Full stakes to Other firms Including Foreign Ones

Five years after the special economic zone policy came into existence, the department of commerce and industry has allowed developers to sell their stake partly or fully to other promoters and firms, including foreign ones. In other words, foreign real estate players will now be able to own SEZs in India , even though there are restrictions on FDI in real estate. The decision was taken by the board of approval on SEZs under the ministry of commerce and industry at a meeting on September 19. The BoA, headed by commerce secretary Rahul Khullar, took the decision with regard to three firms, DLF Ackruti Info Parks (Pune) Ltd, Noida-based Aachvis Softech Pvt Ltd and Sterling Addlife Mundra Hospitals Pvt Ltd in Ahmedabad.

The specific change in rules would not go through the usual process of being considered by an empowered group of ministers or Parliament. “This will not go through the EGoM or Parliament because there is no change in the SEZ policy. The SEZ stays intact, only the ownership changes. “It does not change the core business at all. It is an interpretation of the law that already exists,” Khullar told Business Standard. Other officials in the ministry said it was done mainly to help developers in debt unable to develop projects in the wake of a slowdown in SEZ activity and uncertainty over tax incentives. However, the move is seen by many as a way for developers to monetise their ventures.

“This is definitely a change of rules and entails a change of SEZ guidelines. It should have gone through the EGoM or Parliament,” said a senior official from a Delhi-based real estate firm, who did not wish to be identified. The move was initially opposed by the department of revenue, which said such a provision would amount to a sale of land. However, the department of legal affairs disagreed. It said it would entail only a transfer of business and not one of land. But, the question remains as to who would be regarded as the owner of the land. The public accounts committee of Parliament, in its 13th report, had recommended ‘serious reconsideration’ of the SEZ policy due to complaints of its degenerating into a policy for easy land-grabbing, with tax incentives benefiting only a few.

“This new rule would help developers exit the SEZ business and no one can take away their right to not exit a specific business. Developers are not there for philanthropy. Today, a developer is not able to exit an SEZ project that has functional units. So, what should they do? Moreover, they are paying capital gains tax upon selling their shares,” said Tapan Sangal, partner (Tax Advisory Services Regulatory), BDO Consulting.
According to SEZ norms, if a particular SEZ has functional units inside it, then the developer cannot also apply for de-notification. Thus, they have no option but to sell their business if they want to exit the project.

In the minutes of the September 19 BoA meeting, a request for transfer or dilution of equity by the developers would be approved subject to the seamless continuation of SEZ activities, the fulfilment of security clearance criteria by the new entity and compliance with Sebi rules. On DLF’s talks with companies, especially the US-based BlackStone, to sell a stake in its Pune SEZ, its group executive director Rajeev Talwar said, “We will talk to any company, both Indian and foreign. It is about asset divestment, and we are looking for the best partner.” When asked as to why the change in rules should not be seen as an aberration in the SEZ philosophy, Talwar said, “The economic zone concept is about improving the turnover and exports.

The real estate companies should be appreciated for asset creation and increasing the turnover in SEZs. One should stop looking at everything with suspicion.” SEZs are increasingly becoming less attractive for developers, investors and companies and the number of fresh proposals being considered by the BoA has also seen a visible decline.
According to officials, this is more because the number of SEZ projects already approved would take time to come up. On the other hand, those who had aggressive plans to build SEZs around the country have put their projects on hold indefinitely as funds have dried up. There are 381 notified SEZs at present and 148 are operational, from which exports take place. Exports from these SEZs topped Rs 1,76,479.69 crore (Rs 1,764.79 billion) as of September 2011, up 26.20 per cent from the corresponding period of the previous year.

Canada Based PE Fund SITQ Decides to Shut Down Indian Operations

Canada-based PE fund SITQ, which had plans to invest up to $1.6 billion in the Indian real estate sector, is shutting down its operations in the country. The fund has not been able to identify deals in the ‘right value’, said a person with direct knowledge of the development. SITQ, which is a part of Canadian business group Caisse de depot et placement du Quebec, merged with Ivanhoe Cambridge, another PE fund of the group, in July this year. The fund manages a portfolio of $30 billion across 24 countries. Its assets include office buildings, business parks, hotels, apartments and retirement homes in cities across Canada, US, France, UK and Germany.

It entered the Indian market in 2007, with a focus on the real estate sector. A year later, the impact of global recession was being felt in local markets leading to a lull in corporate activity and a drop in deal flow right up to 2010. “We did not find the right formula to make direct investments in India and direct investments take time to achieve,” said a company spokesperson over an email response. “As we are always on the lookout to increase our global presence especially in high growth markets such as India, we will keep monitoring the situation and may re-evaluate our position over time.”

SITQ planned to make direct investments in India, and appointed Aditya Bhargava as managing director to devise strategy and scout for investment opportunities. So far, its investments in the country have primarily been routed through the ‘fund of funds’ route, a situation where PE firms invest in other funds that in turn invest in companies. SITQ, which has so far invested in funds of other real estate funds dedicated for the Indian market, plans to continue its investments through the indirect route.

“It is a challenge for the overseas real estate firms to invest in Indian realty firms. Besides the regulatory issue, there is hardly any exit route due to poor capital market and non-availability of the real estate investment trust,” said Yogesh Kapur of Enam Securities. PE funds primarily invest in residential projects, which are self-liquidating at completion.

India Based Pacific Real Estate Development Plans to foray into Dubai Real Estate

India-based Pacific Real Estate Development has announced its first property venture in Dubai, the 28-storey luxury tower at Tecom Media City.Announcing the launch, Parvez Khan, founder, Pacific Real Estate Development said, “We are very positive about the real estate market here. Everywhere in the world, the business environment is currently going through upheavals, but we are confident that Dubai will remain a key investment hub for serious property investors who will appreciate the value of a Pacific Waterfront property.” According to Khan, Pacific Real Estate is sufficiently capitalised and has the necessary resources to complete projects it has started.

“By 2015, we would have completed our first luxury property development in Dubai, and it will be first of many projects we envision for this market and the rest of the Mena region as newer projects on tourism, education and healthcare are announced and completed which will open up anew a demand for residential and commercial development,” he stated. “It makes more business sense to position ourselves now than later when the market is bound to pick up again,” Khan said. In addition to its plush amenities and sophisticated design, Pacific Waterfront will be a mixed use luxury development that utilises solar technology for most of the buildings energy requirements.

“It will be the lowest maintenance residential luxury apartment to invest in. Everything starting from the walkways to the gyms to the lights in the building will be maintained through solar technology hence the residents will not be paying a heavy maintenance that they do otherwise for most constructions here or in India,” Khan explained. Pacific Real Estate, he said, has a track record of completing similar projects in India, and as a result has earned a sterling reputation in developing luxury properties known for high quality and eco-friendly features.

According to the latest Ernst and Young report, 2013 will see an additional 60,000 units to Dubai Dubai’s property market, which currently has a residential supply of around 300,000 units. Pacific Real estate development is also in the process of acquiring new projects in the upcoming Business bay area and Dubai sports city along side Pacific Waterfront in Tecom, he added.

51% FDI in Retail: Govt Looks for Support from Allies

The Prime Minister will meet leaders from key ally parties this morning in Parliament to gauge their support ahead of a possible vote on his new policy to allow 51% foreign ownership of store that stock different brands. The Congress must have the DMK and Mamata Banerjee on board – both parties have 18 Lok Sabha MPs each. While the DMK has agreed to support the government, Ms Banerjee’s party, the Trinamool Congress, has not changed its mind. Senior TMC leaders like Dinesh Trivedi said this morning that they cannot support a move that will allow international super-chains to sell directly to Indian consumers.

As the government does its math, lakhs of traders are on strike across the country. And Parliament remains paralysed. Both Houses have been adjourned till noon – the eighth day with no business being transacted in Parliament. The government has to either face a vote, or suspend its decision on FDI.

The vote on Foreign Direct Investment or FDI in retail is what the opposition has been pushing for- the BJP’s Sushma Swaraj has said the government does not have the confidence of the House on its reforms in retail. The BJP now wants the vote to follow a debate on an adjournment motion of its choice -the text of which asks for a “rollback” of the government’s policy. Last night, Finance Minister Pranab Mukherjee called BJP leader LK Advani and offered a one-line adjournment motion; because it did not refer to a revocation of the FDI policy, Mr Advani rejected it. He said the draft of the adjournment motion placed by the BJP is “non-negotiable.” But Mr Mukherjee told Mr Advani that the Prime Minister is not in favour or reversing his decision.

The DMK has already said it will support the government in a vote. Now, the Congress needs to win over Ms Banerjee, the Chief Minister of West Bengal. So far, she has said she wants the PM to ban any FDI in retail because the livelihood of thousands of farmers and traders is at stake.

The Congress has backed the Prime Minister and said there is no question of changing its stand to allow FDI in the retail sector.”The PM has made it clear that it is a well thought-out decision and the party supports it,” said Congress spokesperson Manish Tewari. Commerce Minister Anand Sharma told NDTV, “There is no question of a rollback.”

The half-way mark in the Lok Sabha is 272. With the TMC and the DMK, the government manages 282 votes. Without either of those parties, it drops to 264 votes – which means it loses the confidence of the House on the issue of FDI in retail. The government would then have to withdraw its reforms in FDI; the loss of moral authority would be hugely damaging.

Read more at: http://www.ndtv.com/article/india/fdi-row-showdown-set-to-worsen-after-advani-rejects-pranab-s-offer-154305&cp

Around 50% UAE NRI’s Planning to Buy Property in India

Nearly half of non-resident Indians (NRIs) plan to buy property in India for investment purposes, according to a survey released by Sumansa Exhibitions. Conducted amongst 15,000 NRIs across the UAE, the survey revealed that Mumbai and Delhi grabbed the top spots as the extremely viable options for property investments since the cities continued to be the most robust real estate markets in the country.Pune, Gurgaon and Noida have emerged as hotspots for investments making it to the top five list of favourable cities. The study further indicates that NRI’s are not necessarily looking at their hometowns for investments.

Sunil Jaiswal, CEO of Sumansa Exhibitions, organisers of Indian Property Show, said: “The survey result is not surprising as Mumbai and Delhi are the most promising markets as far as RoI (return on investment) and net profitability is concerned. Both these cities enjoy commercial prominence, location advantage and increasing wealth, as such the growth momentum either has continued or is stable even if the world markets have experienced economic crisis. Factoring all the advantages these cities have, the scene will not change in near future. NRI does still consider that investing in these cities will be profitable. Pune, Gurgaon and Noida are in the top 5 as they enjoy the advantage of being in close proximity of the main cities.”

Honey Katiyal, CEO, Investors Clinic, India’s leading real estate consultancy, said: “NRIs are choosing other cities apart from their hometowns and especially Mumbai, Delhi, Pune, Gurgaon and Noida, which reflects the sentiments that the investors are looking for good investment options for increasing their wealth. These cities are favourable as investors can make good profit as the real estate prices in past few years have spiraled enormously and will witness upward trend in future, barring 10-15 per cent correction in some parts of these cities, plus the cities give good rental income. Home loans and other facilities from Banks & Builders can also be availed quickly, all this makes them good options for investment. We as one of the India’s largest real estate management consultancies have seen this trend and expect the same to continue in foreseeable future”.

Katiyal said NRIs stand to gain from the sharp slide in rupee over last two weeks. The rupee has depreciated more than 16 per cent against the US dollar since July 2011. This has made homes in India increasingly cheaper in dollar price terms, an attractive proportion specially at a time the real estate sector in the developed markets remain depressed. Little wonder then, NRI’s have been looking at the homes back home with renewed interest.

Uproar in Parliament over Govt’s Decision to allow FDI in Retail

The Lok Sabha and the Rajya Sabha were adjourned till noon, minutes after the two Houses gathered on Monday, as a united opposition created uproar over government’s decision to allow FDI in retail. The opposition members were up on their feet shouting slogans against the government.

In Lok Sabha, plea for calm by Speaker Meira Kumar fell on deaf ears. In the Rajya Sabha also the members refused to listen to the Chairman. Several parties are expected to move adjournment motion over the issue in both the Houses.
The opposition parties had given a clear indication to disrupt proceedings to raise the matter of FDI in retail.

The govt if also facing fire from some of its key allies who have openly opposed the move to allow FDI in retail. The opposition parties are trying to rope in these parties to isolate the govt.

Union Cabinet Meets to Decide FDI in Multi-Brand Retail Today

Some Congress ministers including Veerappa Moily and Mukul Wasnik have opposed FDI in retail as the Union Cabinet meets on Thursday to decide on allowing Foreign Direct Investment (FDI) in the multi-brand retail. A decision in favour of the FDI will allow global mega chains like Walmart and Tesco to open shop in India. Sources say the government will include safeguards to minimise the fears of small traders. The Cabinet is likely to decide on a panel report that looked into FDI feasibility last year.

It is also being reported that the Cabinet is likely to approve 51 per cent Foreign Direct Investment in multi-brand retailing. Sources have claimed that the government has also proposed to increase the FDI ceiling to 100 per cent from the present 51 per cent in single-brand retail. The government, it is being claimed, will address the concerns by other political parties on matters like agricultural products still remaining with the government. The Cabinet will also talk about setting up retail branding outlets only in those cities which have a population of over 10 lakh as per the census.

They will also address concerns about textiles, electronics and a final call will be taken by the government on these. The government, however, is likely to face stiff opposition, not just from Opposition parties like the Left and the BJP but also from it’s own allies like the TMC and DMK. West Bengal Chief Minister and TMC chief Mamta Banerjee said that since her party is just represented by one minister in the UPA cabinet, they cannot raise their voice against the majority. Mamata said that she opposed the government’s decision to allow FDI in multi-brand retail. “We don’t support this, I don’t support, even pension scheme also,” she said.

“I have some reservations, we can express our views, we will express our views when the details will come to us,” Mamata added. The Left has also opposed allowing FDI in retail, saying it threatens small traders. But the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia had told CNN-IBN on Saturday that consensus was being built on FDI.

Puravankara Targets Overseas Market; Plans Project in Sri Lanka

Real estate developer Puravankara is eyeing the overseas market for expansion. The company’s maiden project in a foreign soil is coming up in Sri Lanka. The company had invested on the land some years back, but postponed development as the situation was not congenial for promoting mega projects. “We were waiting for the right time to develop it,” a senior official of the company told Business Line.

Stating that Purvankara would make an announcement about this upcoming project before the end of the current calendar year, the official said “the site is located en route to the airport from Colombo city. It is a 25-acre plot and we have the necessary approvals in place from the respective authorities.” The real estate development major also owns another piece of land within the city limits, but would look at developing the same at a later date he said, referring to the land holding in Colombo.

“The project would comprise apartments and mid-segment dwelling units,” he said without disclosing more details about the company’s overseas venture. In India, Puravankara is planning to reach out to 22 cities over the next five years. The company is planning to moot projects in Tiruchi, Salem, Madurai and so on among other locations.
The company, meanwhile, has expressed its intent to hike the price of ‘Purva Bluemount’ – a project under construction at Singanallur in Coimbatore, from November 21. The project is sitting on 16.86 acre, with a planned layout of 1,116 units, comprising two and three bedroom apartments ranging from 1,352 sq feet to 1,872 sq feet. Construction is under way, work commenced around May 2011.

Decision on FDI in Multi Brand Retail Next Week

The Government’s long awaited ‘big ticket’ reform — of allowing foreign direct investment (FDI) in multi brand retail — is likely to see the light of day soon, with the Union Cabinet likely to take up the issue next week. The case for increasing the current 51 per cent cap on FDI in single-brand retail is also likely to be considered at the same time, Business Line reported, citing sources. Allowing FDI in multi-brand retail would open the door for giant multinational retail chains such as Walmart to enter the Indian retail sector. Currently, Walmart has a joint venture with Bharti for wholesale ‘cash-and-carry’ stores.

The move had been delayed by strong political opposition from some quarters, which feared that the entry of foreign retail chains would kill the small Indian retailer. According to sources, the plan is to issue the necessary orders within a month of the approval by the Cabinet. “So now you can expect a New Year gift for the foreign investors”, a person familiar with the development said. But the “gift” is likely to come with several strings attached. Sources confirmed that the Cabinet nod was likely to come with several modifications to the recommendations made by the Committee of Secretaries (CoS) on the subject.

For example, the final guidelines for the FDI may ask for 30 per cent mandatory sourcing from small and medium enterprises (SMEs). The definition of the SMEs may include domestic and global firms. It may be recalled that the CoS, in its meeting on July 22, said, “The condition that 30 per cent of value of manufactured items may be procured from the domestic SME sector, was not agreed to.” The Government is also likely to stipulate that in the case of agricultural produce, 60 per cent of the sourcing should be from low-income, resource-poor farmers.

Such farmers will be defined as those who are having less than 10 hectares of land. The final guidelines may retain the recommendation of the COS regarding self-certification by the company in regard to 50 per cent of the total FDI proposed by an investor in back-end infrastructure, but with a condition that the Government may go for surprise checks.
The final proposal is also likely to give some detail about the definition of ‘back-end infrastructure.’ It may say that cost of land and the building for a retail store will not be taken as investment in the back end infrastructure. Earlier, it was not clear what could be considered as back-end infrastructure.

To soothe the concerns of the electronics sector, the final guidelines may impose a condition such as, “for the purpose of investment in the back end infrastructure, any investment made in the processing, manufacturing or distribution would be counted.”
A senior Government official said that an increased FDI limit in single-brand retail may come with some riders. One of these could be mandatory 30 per cent sourcing from small and medium enterprises, as soon as the FDI limit exceeds 51 per cent. The Government allowed FDI in single-brand retail in February 2006. Till May this year, a total of $92.1 million was approved, but actual inflow has been just $69.26 million.

Supply May Overpower Demand in Office Space Segment by 2015

Office space market in India’s top seven cities will see total supply of nearly 243 million sq ft by 2015 and this would be 17% higher than estimated demand, indicating a clear oversupply, Cushman & Wakefield and Global Real Estate Institute said in a report. In Mumbai, supply at 78 million sq ft is expected to outstrip demand by 125% by 2015-end and is expected to experience some downward pricing trend going forward, the report said. Of the seven cities – National Capital Region, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata – only Bangalore will see demand for office space exceeding supply.

Bangalore will witness the highest demand of approximately 57.30 million sq ft followed by 34.4 million sq ft in National Capital Region and 33.9 million sq ft in Mumbai. However, during this period, cities like Kolkata, Hyderabad and Chennai are expected to see a better rate of growth compared with others. In the next five years, the highest estimated supply of grade A office will be witnessed in Mumbai followed by 40 million sq ft in NCR, 30 million sq ft in Chennai and 29 million sq ft in Pune.

“As the supply will be exceeding the demand for commercial office spaces in the next 5 years this may lead to increase in vacancy. The corporate clients in such a scenario will look for better value proposition in terms of rents, maintenance cost, parking etc, while expanding and consolidating operations,” said Arvind Nandan, executive director, Consultancy Services, Cushman & Wakefield India.

Chennai is estimated to be the most active market for real estate with the highest demand growth of 15% compounded annual growth rate during next five years. Kolkata is expected to have lowest demand-supply gap owing to reduced pace of supply and second highest growth in demand during the period.