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Realty boom: Developers, PEs aim at buying land parcels amid renewed hopes

BANGALORE/MUMBAI: After a lull of nearly three years, sale of large land parcels is picking up across the country amid a general improvement in sentiment on expectations that the new government will focus on infrastructure development.

Not only developers but private equity (PE) players, too, are keen on joining hands with builders to acquire land parcels at fair valuations without having to pay a premium as corproates try to unbolt the value of their real estate properties, inspiring the realty market out of its trance.

Some of the builders looking for sewing large land transactions include Tata Housing Development Company, Oberoi Realty and Runwal Group in Mumbai, DLF in Delhi, Prestige Estates Projects in Bangalore, VGN Developers in Chennai and Kolte-Patil Developers in Pune. Most of the properties on block are non-core assets, real estate and manufacturing facilities of corporates that can easily be converted to residential or office projects.

“Developers have access to liquidity and are putting war chest together in anticipation of high growth and conducive interest rate,” said Ambar Maheshwari, managing director of corporate finance at property consultancy JLL India. “Such transactions help corporates get money to put into expansion of their core business, while builders get access to clean land that is 30-50% cheaper than the market value.”

In July, Prestige Estates Projects bought an 8-acre prime plot of land in south Bangalore for Rs 345 crore from engineering and electronics conglomerate Siemens.

The deal was preceded by Mumbai-based Lodha Developers buying 87 acre in Thane, near Mumbai, from Clariant Chemicals (India) for Rs1,154 crore and Oberoi Realty’s 25 acre land purchase in suburban Mumbai’s Borivali from Tata Steel for Rs1,155 crore.

A crucial factor like toned down expectations of sellers is also prompting developers to consider deals, which would have otherwise taken longer to conclude.

“With outlook on economy looking positive hereon, we are looking at acquiring land parcels now as values are looking more realistic,” said Sandeep Runwal, director, Runwal Group. He, however, refused comment on the ongoing transaction of Crompton Greaves’ land parcel, for which the developer is believed to be one of the contenders.

Crompton Greaves is looking to sell its 32-acre land parcel in tranches. A stable government that is perceived to be quick in taking firm policy decisions has also boosted confidence of the developers.

“With a stable government in power, we are witnessing slow and steady recovery in the economy and should catch steam with festive season around the corner,” said Brotin Banerjee, CEO and MD, Tata Housing Development Company.

“We believe this is the right time for both consumers and developers to proceed with their purchase decision as these deals may vanish soon. We are utilising this opportunity to increase our footprint of quality land parcels in city centres of major metros as the demand will start picking with improvement in macro economy by end of this year.”

Tata Housing acquired a 7-acre land parcel in Thane from KEC International for Rs225 crore in April. Besides, the developer is looking to invest Rs3,000 crore in acquisition of more land in the premium home category across major cities in the current fiscal.

According to property consultants, over Rs3,100 crore worth of land deals have taken place in the last 6-8 months with similar amount of deals expected to be concluded in the next few quarters. “There is a revived optimism among realty developers,” said Rajeev Bairathi, executive director, capital transactions group & north India at Knight Frank India.

“They know that prices will move upward going forward. Therefore, they are clear about this being the right time to build inventory of the most important raw material for their business — land parcels.”

Source: ET

Will General Budget Fuel the Real Growth Engine?

The intuitive habit of drawing macroeconomic conclusions (about India) from the corporate feedback (and vice versa) is fraught with risk. After all, only half of India’s GDP and 10% of India’s employment are in the formal sector. Further, only a fraction of the formal sector is listed.” This is not any Swadeshi ideologue speaking. This is what the Asia Pacific/India Equity Research paper of Credit Suisse titled “India’s better half: The Informal Economy” says about the most unique aspect of Indian economy. The paper points out that corporate sector accounts for only one-fourth of the national capital formed – the share of listed corporates in it is even less, just 13%. Again corporate sector generates only 15% of the national consumption – the share of the listed corporates in it is just a fraction, just 4%. The Credit Suisse actually compares the corporate sector, which is the celebrity segment of the national economy since 1991, to the tail that “cannot wag the dog”. The Credit Suisse’s study bares the truth that the star corporate sector in India is just the tail – a fact others were too afraid to say, like in the popular Danish fairy tale of “Emperor’s New Clothes” where every one saw the king without clothes but was afraid to tell the truth.

Informal is not illegal

When the Credit Suisse study dismisses the formal – read corporate – sector as marginal what does it find as the core of the Indian economy. The title of the study itself says it is the informal economy of India. In economic discourse informal economy is not a complimentary term. A World Bank study talks of two kinds of informal economy: one survival activities: casual jobs, temporary jobs, unpaid jobs, subsistence agriculture, multiple job holding and two unofficial earning strategies unregistered business for tax evasion, avoidance of government or institutional regulations. But the Indian informal sector is neither. Credit Suisse says that the Indian informal economy is not contraband. It says: “Unlike in the developed economies where informality is purely a deliberate choice to avoid taxation or regulations, in India it is more structural: a reflection of the lack of development and limited government reach.” This is significant. The informal economy in India should carry no stigma. Yet the media, elite thinkers and economic experts in India look down upon the informal economy in India like it is viewed in the West. This is one of the reasons for the mental block against this most productive segment of the Indian economy.

Non-corporates employ 84% of

What is informal economy in Credit Suisse is the non-corporate sector in Indian dictionary. What is the size of the Indian non-corporate sector? Credit Suisse study says that it constitutes 84% of the non-formal employment in India. How about other countries. It is about 4-6% according to World Bank in ‘Developed’ nations. In developing Turkey it is 31%, South Africa 33%, and Brazil and Thailand 42%. The Credit Suisse study says: “India’s informal GDP, i.e., economic activity by unincorporated enterprises, is half of total GDP, among the highest ratios in the world.” Three significant facts emerge now. First, in developed nations, the informal economy escapes the state; in India the state has not reached it. Second, in developed nations, it is a marginal player; in India it is the main drive. Three, despite the obvious differentials the Indian economists and policy makers, imitating the West where it is marginal, hate the non-corporate sector and are working to wipe it out. The question is whether they can wipe it out?

Staggering Size

The size of India’s non-corporate sector is staggering. The National Sample Survey Organisation (NSSO) Survey 2011 says that there are 57.7 million non-corporate business units excluding those in the huge construction sector. Seven out of ten of them are unregistered. The non-corporate units have almost doubled since 1998. The NSSO says that 85% of them “Own Account Enterprises” (OAE) – meaning self-employment units and the rest are “Establishments” employing outside labour. Here is the picture of this core sector in brief. The aggregate value addition by these units is `6.28 lakh crore – 70% of it in rural areas. Value addition per unit is not trivial. It is `1.09 lakh. And value addition per worker is `58,000 and per hired worker is ` 47,000, which equals the average per capita income of India in 2009-10 and higher than the rural per capita income. They employ 108 million – rural 53 million. The units do employ capital that is not insignificant. The value of fixed assets per unit is `2 lakhs. A fourth of these units is engaged in manufacturing, more than two thirds in retail trade and services. A majority of them operate in rural areas, the most difficult terrain for the government to reach. During the liberalisation period this sector grew faster than the organised sector whose employment came down from 8% in 1991 to 7% in 2011

OBC SC ST Entrepreneurs

The most significant part of the story is that the non-corporate sector is dominated by disadvantaged sections of Indian society – the Other Backward Castes (OBCs) Scheduled Caste (SCs) and Scheduled Tribes (STs). A study Caste and Entrepreneurship in India by Lakshmi Iyer Tarun Khanna Ashutosh Varshney Harvard Business School (HBS) links the non-corporate sector to caste-based entrepreneurship. The NSSO Survey says that two-thirds of the sector is owned by ST (5%), SCs (14%) and Other Backward Classes (48%), including 71% of the manufacturing, and 60% of the trading, units. The Survey shows that the disadvantaged castes are increasingly into trade and manufacturing. In rural areas, 72 per cent of OAEs are run by them. The HBS study said that while, in case of OBCs, their share of the business matched their population, in the case of SCs and STs it was less. But the SC share improved from 10% in 2005 to 14% in 2011. In India entrepreneuship is not a product of IITs and IIMs. They are generated by non-corporate sector. The non-corporate business units actually constitute the open the air university of entrepreneurship for the OBCs, SCs and STs. The non farming enterprises hold huge prospect for the promotion of entrepreneurship, self-employment and livelihood among the weaker sections. The advent of Dalit entrepreneur in Agra and Kanpur could become an all Indian phenomenon.

4% credit for 50% GDP, 90% for jobs

Yet, shockingly, according to the Economic Census 2005, institutionalised finance is available only to less than 4% of the 57.7 million units. More than 90% of the units rely on own or traditional sources including usurious money lenders. Banks garner most of the savings with the bank deposit to GDP ratio doubling from 34% in 1991 to 68% now. But they, perhaps rightly, do not finance unregistered businesses. With over seven out of 10 of the 57.7 million non-corporate business units unregistered, no bank would ever finance them. The banks are unable to finance even the registered MSME units, whose share in bank credit had halved to just 7.2% between 1994 and 2008. Though it improved to 13.4% in 2009-10, it was still less than in 1994. It does not need a seer to say that for ensuring social justice it is necessary to increase the ownership of SCs and STs and also OBCs in this sector. It is doable. Malaysia has done it. Through its affirmative action policy launched in the 1970s, Malaysia managed to increase ownership in private enterprises for the discriminated group of Malaya from only 2 per cent in 1970 to 20 per cent in 1990. The government brought about a systematic redistribution of ownership of private capital in favour of discriminated groups in a period of two decades. (The Hindu dt 30.11.2011)

Credit will formalise the sector

The Indian economic establishment detests devising policies for providing finance to them because they are not formalised. But it now needs to think differently. Providing finance to them is really the best way to formalise them. Says that Economist Magazine (Sept 28, 2013)”At the present rate, it will take half a century before India’s economy is fully formal. The best way to speed up the process is to extend the reach of the financial system.” Undeniably, it is the non-corporate sector, not the corporate sector, which is the back-bone of the Indian economy, employment, trading and manufacturing. Also it is the only practical escalator to lift the backward sections out of poverty. But blinded by the love of the corporate sector and hatred for the informal sector there has been criminal neglect of this sector in the past. And yet, despite being left to fend for itself, it has saved India from socio-economic anarchy by employing 90% of the non-farm labour. It desperately needs a new financial architecture which will finance small businesses. The banks working on global banking norms are structurally disqualified to lend to these units. This requires indigenous, non-Western out the box thinking. Will the budget 2014-15 fuel this real growth engine?

Source: Indian Express By S Gurumurthy

Crisil enters into Rajkot’ real estate sector

RAJKOT: Credit rating firm Crisil has entered into Rajkot’s real estate sector and rated one real project in the city with giving 5 stars. Crisil has rated real estate projects across various cities in India including Bengaluru, Chennai, Coimbatore, Hyderabad, Kochi, Kolkata, Mumbai, Pune, Trivandrum, and Visakhapatnam. In Gujarat, it rates real estate projects in Ahmedabad and Baroda.

Patria, a residential real estate project, coming up in city’s prime location known as ‘Govindbhai ni Vadi’ near airport, has been rated with 5 stars by Crisil.

“We have hired the Crisil for the assessment and this is the first time in the real estate sector the Saurashtra where any project went to rating. It might inspire others to go for real estate rating for their projects” said Mihir Maniar, one of the developers of Patria.

Patria is highly luxurious apartments of 2 and 3 BHK project. Maniar said that the project will complete within the next six months.

“Crisil real estate star ratings provide city specific all-round assessment of real estate projects and help buyers benchmark and identify quality projects within their city. We are also in touch with other new projects in Rajkot for their real estate ratings” said Dnyanesh Nandurkar, regional head, real estate ratings, Crisil ratings.

“Real estate star ratings provide a comprehensive, independent assessment of real estate projects in the city. It improves transparency and objective benchmarking of projects,” he added.

Source: TOI

Realty hopes for infrastructure status, lower rates

The real estate and property development industry, hurting from the slowdown in the country’s economic growth, is hoping for lower interest rates and grant of infrastructure industry status to enable developers to access cheaper finance.

The industry is hoping that a stable government acting decisively would help not only to revive economic growth, but also look into specific problems faced by the industry.

“The Indian economy and the real estate sector have gone through multiple years of stress,” Anuj Puri, chairman & country head of JLL India, said. “A change in sentiment is imminent now that a pro-business government with a clear mandate has been elected to power, so this is a very significant time for the industry. A general sense is that policy paralysis and indecisiveness are now things of the past,” he says.

According to him, the BJP has time and again given an indication of its willingness to adopt unprecedented reforms in areas such as taxation, housing and infrastructure, amongst others, which has raised high hopes in the real estate fraternity. For instance, the implementation of GST will make a huge difference for warehousing and logistics, and the new government’s focus on boosting tourism will give the hospitality sector a badly needed shot in the arm. “It goes without saying that the infrastructure segment is in for a major facelift, and this is nothing but good news for real estate,” he said.

“For real change, that could convert the scenario of shortage to surplus in housing units, we need an effective single window across the country,” said T Chitty Babu, chairman & CEO of Akshaya. “Further, the regulatory Bill has to be revisited. Government should come out with legislation that offers a level playing field to all the four key stakeholders of the industry, namely developers, financial institutions, government authorities and of course customers,” he added.

The real estate segment should see some reforms like infrastructure status being given to it to enable developers get access to loans at a cheaper rate and for longer tenures. Industry has also been asking for speedy approvals to cut delays in project execution and lessen the interest burden associated with it.

According to C Shekar Reddy, president of industry body Confederation of Real Estate Developers’ Associations of India (Credai), loans extended by the banks to the real estate sector are currently about 12 per cent of total loans. Of these, nine per cent are retail loans given to home buyers and the remaining three for developers amounting to about Rs 1.25 lakh crore. The latter should be increased more than three-fold to Rs 4 lakh crore.

The industry draws hope from the inclusion of ‘housing for all by 2022’ in the BJP manifesto. Towards achieving this, says Reddy, the government must cut down on various taxes in the sector and also cut home loan interest rates, maybe with an interest subvention of about three per cent. It should also remove the 4.9 per cent service tax, an added cost to the developers and is passed on to the home buyers, he said.

The shortfall in the housing segment has been around 18.78 million units, which is likely to be there for the next eight years. There are not many developers keen on taking up affordable housing projects due to thin margins, he said.

Now there is a requirement for a nod from the ministry of environment and forests for projects spanning more than 20,000 sq m, which is hindering progress and causing unnecessary interest burden on developers. This can be scrapped by evolving new building guidelines.

This has caused many a project in Maharashtra and other high density housing areas to be delayed, said Reddy.

According to Anshuman Magazine, CMD, CBRE South Asia, the initial expectations from the new government include an investor and reform-friendly government open to global as well as domestic investment opportunities. “The current liquidity crisis in the sector has been ongoing for the last couple of years and having overlapped with the present slowdown, it appears that much more pronounced,” he said. “As a result of the wider cash crunch plaguing the sector as a whole, developers have faced quite a few project delays too—including in the Noida and Faridabad areas,” he added.

RK Pachauri, TERI director-general said, “Environmental issues are often presented within the framework of conflict between environment and development. What is attempted here is a refreshing departure which provides a price tag on the damage that poor environmental quality and degradation is imposing on human society and how substantially lower-cost action can avoid this burden. What is included here are sectors largely within urban areas, but a similar analysis and presentation is essential for rural environmental degradation as well. Undoubtedly, that would be a far more complex challenge analytically, but given the large population in our villages, ignoring such analysis would be at the cost of ignoring the welfare of two-thirds of our population.”

Rajesh Krishnan, MD and CEO of Brick Eagle, said, “On the supply side, we wish for the government to streamline the lengthy approval process. The construction process requires 50-70 approvals and delays developments by two years on an average, a luxury that most social housing developments (defined as less than Rs 25 lakh per unit) cannot afford without the extra cost factoring into prices. Our hope is that the new government will institute a single-window clearance, in which one bureaucrat is responsible for our case, and can grant approval on behalf of all concerned parties.”

“Furthermore, we expect FDI regulations to be lessened in the affordable housing sector. Presently, the minimum possible investment is $5 million, capital which many developers in this sector cannot access. On the demand side, we would like to see more regulation on behalf of the end-user, who presently has very little protection while entering into an agreement with a developer,” he said.

Ganesh Vasudevan, CEO, IndiaProperty.com, said, “Specifically for the real estate industry, priority areas are infrastructure improvement projects and affordable housing projects. At a systemic level, steps towards improvement of transparency of the industry such as bringing in a regulator, improving speed of approvals by creating a single window process and enabling access to low-cost financing of infrastructure and affordable housing projects are critical enablers. One of the focus areas for BJP has always been development of road infrastructure. Their visionary project – ‘The Golden Quadrilateral’ would be taken to the next level and improved road connectivity with tier II and III cities would help the realty industry prosper in these cities.”

Babulal Varma, managing director, Omkar Realtors & Developers feels, the BJP has always been pro-development, with the focus largely on infrastructure development and real estate sector. Also, the party’s manifesto emphasised ‘urban upliftment’ in India by initiating building 100 new cities, twin cities and satellite towns. It also eyes providing low-cost housing to the poor and making the country slum free. “The SRA scheme in Mumbai, started by the Shiv Sena-BJP combine will be kickstarted once again, having taken a backseat during the UPA regime,” he added.

By B Krishna Mohan, Ritwik Mukherjee (With inputs from Jharna Mazumdar and D Govardan) for Financial Chronicle

Realty sector pinning hopes on new govt for revival

The real estate sector is pinning hopes on the new government for revival.

Confederation of Real Estate Developers Association of India (CREDAI) Chairman Lalit Kumar Jain expressed hope that the new government would bring in a positive change to real estate developers and buyers by introducing reforms given the challenges of slump in sales, high prices and liquidity crunch that the sector has been facing.

‘Housing for all’

“We expect the government to take concrete steps to implement its promise given in the BJP manifesto of ensuring ‘Housing for All’ in eight years,” he added.

For an immediate plan of action, Jain suggested efficient and accountable governance in building approval process to be initiated at the Centre and be strictly followed by all states.

He also suggested that realty sector reforms should cover administrative, banking, tax and legal aspects. “It is imperative to go for single window system of approvals and a balanced land policy that will help the farmers as well as developers,” added Jain.

Regulatory approvals

According to global realty consultancy JLL, India’s developers are hoping that the new government will expedite the process of granting regulatory approvals as the chronic lag in this regard has been a major obstacle for most of their projects.

In its latest report, JLL stated that the pending Real Estate Development Regulation & Development Bill is expected to be passed and land acquisition parameters are also expected to be eased so that availability of land is no longer a major constraint.

The report further highlighted that with the slowdown in home sales, developers have been battling a severe liquidity crunch and a rise in their inventory levels.

“Many prospective buyers have abstained from investing in property because of market negativity, high inflation, and high interest rates on home loans. Now, with pick-up in market sentiment, buyers are expected to snap into action. Increased sales, along with availability of funds from both domestic and foreign investors, will bring significant respite to developers and finally bring an end to the liquidity crunch that they have been facing,” the report added.

3 major promises

The three major promises made by the NDA in their manifesto that have direct pertinence to the real estate sector comprise development of 100 new cities, implementing a new land use policy and planning for low-cost housing.

Modi’s pledge to implement an affordable housing policy and thereby provide homes to every Indian family presents a $150-billion business opportunity to the sector. “The real estate industry now also has real hopes of being granted the coveted industry status, which will further ease fund flows,” said Santosh Kumar, CEO-Operations, JLL India.

“Meanwhile, consumers are optimistic about the impact that the new government will have on real estate pricing, and expect a reduction in home loans, implementation of the proposed GST framework and the implied tax benefits to buyers,” he added.

Source: Manish Jhan for The Hindu Business Line

New government: Home prices may not rise immediately

While the the stock markets, the corporate world and a large section of the country’s citizens are celebrating the election verdict, 45-year-old Shailesh Singh, a Delhi-based executive, is a worried man. Singh has been hunting for an apartment in the National Capital Region (NCR) for the past six months but has not been able to zero in on one. Now he is afraid that in the euphoria generated by the Bharatiya Janata Party’s (BJP) decisive victory, real estate prices may start rising again, making his purchase more expensive.

Why prices won’t move up

Singh’s worries might be premature. Realty experts are of the view that while there might be some euphoria-driven rise in transactions and a marginal rise in prices, this will dissipate soon. “It will take another 12-odd months before prices begin to rise within the sector. And that will happen only if the new government has a successful first six months and its initiatives put the economy on a higher growth path,” says Anshul Jain, chief executive, DTZ India.

One reason why prices may not rise immediately is that they are already very high in most major metros. The economic slowdown has had an impact on salary revisions, and hence on urban buyers’ purchasing power. “Economic activity has to pick up and purchasing power has to rise before we see more demand in the housing sector,” says Anshuman Magazine, chairman and managing director, South Asia, CB Richard Ellis. High interest rates are another deterrent. “In the near term, the new government can’t down interest rates, especially with inflation reining high,” adds Magazine.

Urgently needed reforms

While the new government can’t engineer a quick revival of the real estate sector, it can take several steps that would have a salutary impact in the medium to long term. One, it could expedite the process of granting approvals to real estate projects. “We expect the new government to be more efficient in granting approvals to real estate projects,” says Lalit Kumar Jain, chairman, Confederation of Real Estate Developers’ Association of India (CREDAI). Developers complain that the authorities too should be made accountable for not granting timely approvals. But remember that since real estate is a state subject, the central government can at best create a model of best practices for offering quicker clearances and persuade state governments to adopt it.

The new government also needs to get the Real Estate Regulation and Development Bill passed. “By making developers more accountable, the Bill will revive trust in the sector. Low trust in developers’ ability and intent to deliver a quality product on time is one reason why buyers are staying away,” says Sanjay Sharma, managing director, Qubrex, a Gurgaon-based real estate consultancy. However, some of the harsher provisions of the draft Bill need to be modified. Currently it says that if a developer doesn’t comply with certain rules, he could be jailed. Experts feel that it would be more prudent to punish an economic offence with a penalty rather than treat it as a criminal offence.

The slowdown in sales has caused a severe cash crunch among developers, forcing them to borrow from non-banking financial companies (NBFCs), private equity players and private lenders at high rates, thereby making housing more expensive. “Fund flow to real estate from banks and housing finance institutions needs to improve,” says Kumar. This will happen only if RBI relaxes the provisioning norms and caps applied to realty lending.

The Securities and Exchange Board of India had released the draft SEBI (Real Estate Investment Trusts) Regulations, 2013. “Making REITs a reality will make more funds available to players,” says Jain of DTZ. The new government needs to give the required tax exemptions to REITs at the earliest.

Tax fillip

A couple of tax benefits would provide an immediate fillip to the real estate sector. The UPA government had allowed an additional tax deduction of `1 lakh to persons taking a home loan of up to `25 lakh. This benefit, however, expired on 31 March, 2014. Also, the government had introduced the provision of tax deduction at source (TDS) at 1% on transfer of immovable property priced at `50 lakh or more. “Extending the tax deduction by another year and levying TDS on properties priced at `1 crore or more will provide immediate fillip to the sector,” says Sachin Sandhir, managing director, RICS, South Asia.

Infrastructure push

The new government could provide an indirect but strong fillip to the real estate sector by improving urban infrastructure. “Providing urban infrastructure will release more land for real estate development, increase supply, and thereby help cool prices in the major cities,” says Magazine.

What should you do?

If, like Singh, you too are hunting for a property, the general elections and the formation of a new government at the centre don’t change the situation much for you in the near term. Unlike the stock markets, which are liquid and nimble, a turnaround within the real estate market takes time. So keep looking diligently and don’t lose sleep over prices rising immediately.

Source: Economic Times

Real Estate Regulation Bill partly draconian: Anuj Puri, JLL India

If a stable government comes to power at the Centre, the sentiment will improve. However, for prices to come down, it must provide infrastructure on new land parcels, says Anuj Puri, in an interview with ET.

Do you expect the slowdown in real estate to end after the general elections?

Anuj Puri: If we have a stable and business-friendly government, the sentiment may improve very quickly. Subsequently, there will be growth in the residential segment. People have the money, but due to poor sentiments they are not willing to spend on home purchases. However, the sector’s fundamentals may take longer to change. I also see corporates taking up more office space on lease and private equity returning to the country due to a stable rupee and on the expectations of better governance.

High prices, high interest rates and slow salary growth have affected affordability. Will this issue be resolved soon?

Anuj Puri: This will remain a challenge. In tier I cities, land accounts for 50-60% of the total project cost. Unless the government provides infrastructure and opens up new land parcels for development, property prices will not come down. In cities such as Hyderabad, Ahmedabad and Greater Noida, where infrastructure is good, residential prices are reasonable. The prices remain high in cities like Mumbai, where infrastructure is poor.

What are the problems in the New Land Acquisition, Rehabilitation and Resettlement Act in its current shape?

Anuj Puri: Almost 70% of the legislation is okay. The trouble lies more with its implementation, which is painfully slow.

How will it affect land acquisition by private developers?

Anuj Puri: It will affect the price at which land is acquired. Consequently, it will also impact the pricing of the end product.

Will the new bill make land acquisition more time-consuming due to red tape?

Anuj Puri: This holds true for places where large land parcels have to be acquired and bureaucratic sanctions are needed. However, some cities like Bangalore and Kolkata, and some of the tier II towns like Patna are more progressive and it is easier to get approvals there. In other places, such as Mumbai, there is a lot of red tape and getting approvals takes longer.

Does the new bill require reforms?

Anuj Puri: The bill will make land acquisition more expensive. However, it will impact the real estate sector much less compared to the industry. Setting up a manufacturing unit in India will become more expensive and, as a result, it will affect its competitiveness vis-a-vis China. Real Estate Regulation Bill partly draconian: Anuj Puri, JLL India

Is it true that the provisions of the bill apply to developers, who are trying to build large townships?

Anuj Puri: Yes, it is true, but it is rare for real estate developers to pick up large land parcels from farmers. They usually buy land from corporates that want to relocate. The industry acquires land directly from farmers more than the real estate community. So, the impact will be more on manufacturing.

What changes are required in the foreign direct investment policy for India’s real estate sector to attract more FDI?

Anuj Puri: At present, foreign investors are allowed to buy only completed buildings in special economic zones (SEZs). Most of the foreign investors who want to come to India want to put their money in less risky investments. This will be possible only if they can buy completed and occupied assets. If the rules were to be liberalised, allowing foreign investors to buy such assets even in non-SEZ areas, say, retail malls and commercial buildings, we would see a lot of sovereign funds investing in India. Secondly, there is a lock-in period of three years for FDI investments. Each tranche of money that comes in cannot be taken out until it has completed three years. Finally, the FDI money can only be invested in developments that are at least 550,000 sq ft in size. Such large developments are usually not available within the city limits. Some of these rules need to be liberalised.

What are the advantages of the draft Real Estate Regulation and Development Bill?

Anuj Puri: It is a good bill. It will hit hard the fly-bynight operators, who follow unethical practices. However, some of its clauses are draconian. For instance, if a developer doesn’t comply with some rules, he could be put in jail. It would be more prudent to punish an economic offence with a penalty rather than treat it at par with a criminal offence. Clearly, the bill benefits the customer. It puts the onus on developers and financial institutions that give construction loans. However, the third stake-holder, the government authorities who give approvals for projects, has not been held liable for delays in giving approvals. The bill says that if the project gets delayed, the authorities can take its possession and hand it over to someone else to deliver the balance. If the government delays approvals, it would be unfair to punish the developer. It, too, should have been held accountable.

How will real estate investment trusts benefit the retail investor?

Anuj Puri: At present, the retail investor cannot put money in real estate with a small amount, say, Rs. 5 lakh. He needs to buy a house or a small office or shop, which costs quite a lot. He can invest in the shares of listed developers, but those haven’t been performing well for the past few years. The only way that he can play for the upside in real estate with a small sum is via REITs. These trusts are transparent as well as liquid.

How soon can one expect REITs in India?

Anuj Puri: A few tax advantages have to be given to REITs, which can only be done through a Budget session of the Parliament. I think the new government will take up REITs in Budget 2015.

Source: ET