Tuesday, June 23, 2009

Real estate sector seeks lower loan rates, higher exemptions

PUNE: Lower interest rates for home loans, higher tax exemptions for repayments and restoration of Section 80-IB of the Income Tax (I-T) Act top the real estate sector's budget wish list this year. Appropriate action on these counts will help improve the fortunes of this sector be devilled by a lack of demand for quite some time the players said. As the entire thrust of the ongoing debate in the sector is on reducing the prices of homes, an instrument such as the budget can be used to reduce the burden of both taxes and costs on the home buyer, Rohit Gera, executive director, Gera Developments Private Limited, said. "An income tax deduction up to Rs 1.50 lakh, currently available against interest paid on home loans, should be raised and so should the deduction for the principal amount repaid, currently restricted to Rs 1 lakh," Gera said. He added that the finance minister should also allow higher standard deduction (the amount deducted from rental income earned from a property) from rental income so that more rental stock can be available in the market. Gera said Section 80-IB of the I-T Act, which exempted profits earned by developers from housing units less than 1,500 sq ft in size, should be restored so that the overall cost of a house for a buyer will be reduced. Satish Magar, president of the Confederation of Real Estate Developers' Associations (Credai), Pune, said the key issues pertain to lower costs of housing and availability of funding to the sector. Magar said the deadlock over funding of housing projects by financial institutions will be broken if the construction industry is accorded priority sector status. "Banks and other lenders can ensure that developers are not using the money for land acquisitions and fund projects where construction has begun," Magar said. According to R Vasudevan, chairman and managing director, Vascon Engineers Limited, the definition of long-term capital gains in respect of the real estate sector should be modified to mean gains earned by sale of a unit after one year of acquiring it. At present, the term refers to gains earned by sale of a unit after three years. Vasudevan also demanded infrastructure status for the construction industry and asked for an increase in the deduction available on interest paid on home loans. Vasudevan said the upper limit for stamp duty on realty deals should be fixed at Rs 1 crore. Vinay Phadnis, chairman of the Sahil group of companies, said a reduction in service tax along with modification of the entire income tax structure for the real estate industry is the need of the hour. The government should prevail upon the banking sector to lend at 6 to 6.5 per cent for houses costing up to Rs 30 lakh, he stressed. "We expect the finance minister to create an environment of refinancing real estate projects and enabling the secondary market to finance the assets," Phadnis said. Aniruddha Deshpande, managing director, City Corporation Limited, said the budget should encourage affordable housing through further home loan support and housing policy reforms. According to Vishwajeet Jhavar, CEO, Marvel Realtors, "The real estate industry is one of the key drivers of growth for the country. We hope that this budget will bring some good news that will steer and cheer real estate developers and at the same time create a conducive buying environment for the consumer. We also expect some positive steps towards relaxing the norms for external commercial borrowings and on the foreign direct investment front, which will serve as an impetus to the industry." Atul Goel, director, Goel Ganga group, said the government must make an attempt to reduce the tax burden on real estate so that people get homes at affordable prices. "For every Rs 100 a buyer pays, there is a tax burden of Rs 45. If this is brought down, homes will become cheaper," he pointed out. Hemant Naiknavare of Naiknavare Developers suggested that there should be appropriate I-T exemption for slum redevelopment projects and financial institutions should fund such projects. He also said the JNNURM subsidy should be available to residents of slums that have come up after 1995 who are otherwise ineligible under the Slum Rehabilitation Authority norms.

Is it the right time to expand biz in property market?

The good news is that the commercial segment in real estate is upbeat and demand is picking up. While initially, the first quarter of the calendar year saw a major decline in rental values in commercial spaces, the process of stabilisation has now begun over the last few weeks. Companies, which were earlier hesitant to set up shop or expand are also looking at viable locations to close deals. A study by global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) shows commercial rentals across all major cities reaching stability after an overall downward movement in the second quarter. According to the consultancy, an absorption between 4-5 million square feet of commercial space was witnessed in the first quarter of 2009, which was higher than 4th quarter of 2008.

Property prices shoot up thanks to our PM Mumbai Assetventures

Thanks to Prime Minister Manmohan Singh and his stable government in power, property prices in the city have shot up notably. In the past month, builders, who had earlier slashed rates by about 35 per cent, have increased their rates by 10-15 per cent. And the buyers don't seem to be complaining. The Lodha group registered 1,000 bookings, while the Nahar group sold 620 flats in the last month. Experts say people are investing in property because they foresee a steady economy because of our government.
DEAR ESTATE: After a long slump, builders have hiked rates by 15 per cent, as they foresee a good future in our stable government.R Karthik, senior vice-president, Lodha builders, said, "Transactions have increased due to economic stability." S Rao, a resident of Andheri, said, "The financial future of our country seems stable. I don't mind investing, but the builders should not increase the rates too much."Double effectSandeep Sadh, a realtor from the western suburbs, believes a combination of the Manmohan Singh government and the recent golden run of the stock market has led to the improvement in the real estate market. "It is ideally wrong on the part of the builders to increase rates since we are still burdened under the economic slowdown. But the morale of builders has risen because of improved sales," said Sadh. But Mihir Dhruva, CEO of Siddharth builders, said, "If the rates become unrealistically high, sales will drop again." However, some builders are unrelenting. Early this year, a Bandra broker had struck a deal for a four BHK flat in Khar for Rs 15,500 per sq ft. But now the builder is demanding Rs 18,000 per sq ft. "Rates in the Bandra-Khar area have risen to Rs 20,000 per sq ft from Rs 18,000 per sq ft. And buyers are still striking deals," said Vibhoo Mehra of Mumbai Properties, a real-estate brokerage firm.Experts warnMost of the bookings take place in the under-construction projects. Thus, buyers should check details, including date of possession, before investing. It is advisable to buy from credible builders. "Builders may demand unrealistic prices and try to extract money for excise on the cement from buyers," said a realty expert.

Four Seasons to add six more properties Assetventures

After hitting quite a few roadblocks early on in India, the Canada-headquartered luxury hotel chain operator Four Seasons has finally prepared a roadmap for its expansion in India, which involves the setting up of at least six more hotels and resorts.

The premium hotel brand plans to come up with properties in New Delhi, Gurgaon, Hyderabad, Bangalore, Kerala and Goa. All of the said properties will have management contracts handed to Four Seasons and will not entail any significant equity contribution from the company.
In a management contract, hotel companies sign a pact with the property’s owners, who can be real estate developers or financiers. Four Seasons, like most other international hotel players — including Marriott, Hyatt and Intercontinental, among many others — is a management operating company.
Currently, Four Seasons has only one property in India — a 33-storied tower with 202 guest rooms and suites located at Worli in Mumbai, which was thrown open in May last year, although it was supposed to come up in December 2007. The company has been able to seal a deal with a partner for its second property, which will come up in Bangalore in the next 2-3 years.
“We are in talks with our partners for hotels in the north as well as for the ones coming up in the south of the country. Since we operate in the premium category, our primary focus will be on major cities before we graduate to other centres,” said Uday Rao, hotel manager, Four Seasons Hotel Mumbai.
Plans are also underway to add service apartments and a ballroom to the Mumbai property, owned by the Jatia family, in its second phase of expansion. The Mumbai property was established at a cost of $90 million (about Rs 300-350 crore).
The company will shift its focus to resorts scheduled to come up in markets like Kerala and Goa once its hotels projects are finalised. In fact, the company is in advanced stages of inking a deal for the Goa property with the Jatia group.
As the company has maintained a low-key affair in India, Four Seasons will have to depend a lot on foreign tourists for revenue generation as the brand is relatively subdued in India when it comes to advertising and marketing. Furthermore, the company has decided against giving advertisements, while solely banking on word-of-mouth publicity.
“We cannot let the brand value of Four Seasons go down through advertisements. We would rather work with sales managers in various cities, identify top-level customers, sign up local companies from across the country and tie up with airline companies. It will be a long drawn process and will be difficult, but that’s how we will operate,” added Rao.
With India’s economy on the rebound, many hotel operators are eagerly waiting to have a slice of the Rs 2.88-lakh crore market. About Rs 52,000 crore worth of investments are expected to flow into the domestic market for setting up new hotels in the next two years by various international and domestic hoteliers.