Monday, July 6, 2009

Real estate sector sees focus on affordable housing

Real Estate sector sees focus on affordable housing. The new scheme that the President announced was the Rajiv Awaaz Yojna. Sources said, this will be very big scheme, will require a corpus of over Rs 50,000 crore as the minimum. CNBC-TV18’s Nayantara Rai reports.

Here is a verbatim transcript of Nayantara Rai’s comments on CNBC-TV18. Also watch the accompanying video.

Let’s not forget in the Presidential address the UPA government did promise a slum free India in five years that’s a very ambitious target. Therefore we are expecting that in this budget affordable housing will be given a big focus.

The new scheme that the President announced was the Rajiv Awaaz Yojna . We are hearing from sources that this will be very big scheme, will require a corpus of over Rs 50,000 crore as the minimum. But in this budget we could see an allocation of anything between Rs 5,000-10,000 crore. This allocation will be for implementation of the project as well as interest subsidy.

What we need to understand how this model will work and it is for illegal colonies as well as for slum areas in urban areas. The state should transfer land to woman beneficiary, so women will be given priority and part of the vacated slum as well as illegal colony can be used for commercial developments. So that will help cross subsidising the entire scheme and this also means that we could see public-private partnership. But lets not forget that real estate is a state subject, so it will be up to every state on how it will want to take this up.

We also need to understand that this scheme will cause between Rs 5-7 lakh and the minimum carpet area will be 250 sq. ft. So a lot of these principals are already there in the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). We need to understand from our sources in the Urban Development Ministry that the Ministry has asked for a second phase of JNNURM again over a period of seven years, so that could be the second phase of JNNURM that we might see. The real estate developers have of course asked for an industry status, so we will have to wait and see. The other one is tax breaks under section 80 IB that real estate developers were expecting to be expanded when Mr. Chidambaram presented his last budget and this did not happen, so they will of course be watching for that one.

Scenarios: What to look for in Budget Assetventures

The new government will present the 2009/10 federal budget on July 6 and is expected to expand both the budget deficit and its market borrowing requirement to support growth.

Following are some scenarios on what Finance Minister Pranab Mukherjee may announce and its impact on financial markets. The current fiscal year of 2009/10 runs until the end of next March.

Budget Deficit

The government is almost certain to expand the 2009/10 budget deficit beyond the 5.5 per cent set in an interim and pre-election budget in February.

Bonds have priced in expectations that the deficit will swell to between 6.25 per cent and 6.5 per cent of GDP. So it is unlikely to be rattled so long as the deficit is around these levels.

But any sign that the government is bowing to pressure for populist spending measures to make good on promises made in the April and May general election would spark a bond sell off.
If it also fails to present a plan to bring the deficit back under control in subsequent years, the country’s credit rating could come under pressure.

Government borrowing target

The government will raise its borrowing target for 2009/10 to help pay for its increased budget deficit.

A Reuters poll suggests it will rise to 3.95 trillion rupees, a level already factored into bond prices, from 3.62 trillion rupees set in the interim budget in February.

Bond yields have jumped to factor in a massive increase in government borrowing. Ten-year bond yields, for example, are up 170 basis points since the start of the year.

The forecast borrowing would be 29 per cent above 2008/09 borrowing of 3.06 trillion rupees.

Asset sales

Mukherjee is likely to announce plans to sell shares in some state run firms to help fund rural and social programmes, a central part of the government’s election platform.

Asset sales would relieve pressure on the bond market and help keep the budget deficit in check.

Analysts say the stock market could absorb 100 billion rupees ($2.1 billion) in share sales. A higher amount would be difficult to swallow and would weigh on market sentiment.

Analysts suggest Coal India Ltd and hydro-power generator NHPC would be among the easiest IPOs to complete.

Shares in railways consulting firm RITES, power equipment maker Bharat Heavy Electricals Ltd, Rural Electrification Corp and power transmission firm Power Grid Corp could also be sold off smoothly, they say.

However, potential sales of telecoms firm Bharat Sanchar Nigam Ltd and Air India may be problematic. Unions have opposed IPOs of the telecoms firm and loss-making Air India would need to be restructured to make it attractive to investors.


Mukherjee is expected to announce more plans to repair India’s shoddy infrastructure, considered by many foreign investors as the Achilles’ heel of the economy that prevents the sort of double-digit growth seen in China.

Infrastructure investment is currently around 6 per cent of GDP, so that figure could rise, although the budget deficit limits spending for now.

Measure would cover both urban and rural projects and include improving the rural roads network and building more low-cost homes to deal with massive demand. It will also announce plans to revamp public transport across the country including building metro rail networks in other cities.

These moves will be positive for infrastructure firms and could benefit India’s largest infrastructure firm Larsen & Toubro and others such as GMR, GVK and HCC among others.

Indeed, the real estate sub-index on the Bombay stocks market has more than doubled in the past three months, compared with a 50 per cent rise in the main index.


The government is unlikely to unveil any significant economic reform plans in the budget even though its decisive election victory has put pressure on it to deliver new initiatives.

Parliament is already chewing over plans to raise the foreign investment ceiling in insurers to 49 per cent from 26 per cent and reforms in the pension fund management sector -- a process likely to take 6-8 months before approval is reached.

Govt plans real estate model bill to be firmed up by Aug-Sept

Govt plans real estate model bill to be firmed up by Aug-Sept
The minister for housing and urban poverty alleviation, Kumari Selja has announced a model bill for regulating the real estate sector by August-September timeframe.
Talking about the 100 day agenda for her ministry, Selja said that the Model Bill would propose a regulator and aim to address the concerns of consumers as well as the real estate industry. The finer details of the Model Bill could not be ascertained.

She said, “We have initiated a dialogue with all key stakeholders including private sector, NGOs, and various States to prepare the model Bill for regulating the real estate sector.”

Ozonegroup to develop a township in Chennai
Bangalore-based realtor Ozonegroup has announced the launch of its maiden township project — ‘The Metrozone’ — in Chennai.

The project will be a joint venture between Ozonegroup, HDFC India Real Estate Fund and Urban Infrastructure Opportunities Fund and would involve an overall investment of Rs 2,500 crore and is likely to be completed in about 52 months. Spread over an area of 42.5 acres, the township offers apartments, penthouses and commercial space for hospitality, retail and offices.

Sudarshan KS, COO of Ozonegroup said that the first phase of the township is scheduled to be delivered by November 2010.

Lords Inn to open 10 new hotels
Hospitality player Lords Inn has planned to invest over Rs 100 crore over the next three years to expand its business. The company, which operates in three and four star categories, is also looking at joint ventures and acquisitions. PR Bansal, chairman and managing director of Lords Inn, announced, “We will invest over Rs 100 crore in hospitality across India to open 10 new hotels in three years. Currently, we are eyeing on cities like Bangalore, Jaipur and Delhi.”

The group provides management services to hotels in three and four star categories in tier II and III cities.

Kumar Builders earmarks Rs 450 crore to develop residential tower
Pune-based Kumar Builders has earmarked Rs 450 crore to launch a 30-storey project, 45 Nirvana Hills, spread over 79 acres, in Pune.

According to Lalit Kumar Jain, chairman and managing director, Kumar Builders, construction for the first building of the project has already begun. There would be five to six residential projects that will also be 30 storeyed.

The entire project is estimated to cost Rs 450 crore. It is a self-funded project, finances for which are being raised through internal accruals.

For decades, Pune’s buildings were limited to a maximum of 36 metres. It was only last year that construction of residential projects up to 100 metres high was permitted.

Infrastructure, real estate sectors expect a big boost Assetventures

NEW DELHI: The infrastructure sector and the recession-hit real estate sector are looking forward to the Union budget with great expectations. Both the sectors, which require huge investments, are expecting a big boost to revive growth and put them on the path of recovery.

The President’s address to Parliament has sought to give a big boost to the infrastructure sector, plagued by bottlenecks with slow movement in the development of ports, roads and airports. However, it is expected that apart from granting industry status to infrastructure, the budget will give impetus to investments in the sector.

Global consultant Goldman Sachs expects a leap in infrastructure spending, particularly on roads and ports. It is estimated that India will require $500 billion over the next five years in the sector to sustain the growth momentum. The budget is expected to give a big push to Public-Private Partnership (PPP) projects. Greater flexibility could be given to the India Infrastructure Finance Company Limited (IIFCL), which has been set up as a refinancing facility for infrastructure projects, to deploy funds.

Double the capacity

According to the Planning Commission, India may need to nearly double its capacity of ports, roads, power, telecom and airports to keep pace with its growth. Companies engaged in infrastructure development are expecting some relief for lenders to enable them to achieve financial closure of much delayed projects.

There is an expectation that the proposal to restore tax exemption under Section 10 (23G) could be introduced in the budget to be presented by Finance Minister Pranab Mukherjee on July 6. This Section allows tax exemption for investments in infrastructure, both via equity and debt.

The real estate sector is looking forward to relief for the housing sector, which has been reeling under the recessionary trend for the last few months. Real estate developers want interest rates lowered to make cheap loans available, which will give a boost to the housing sector and generate demand.


According to Rohtas Goel, CMD, Omaxe Limited, developers are facing acute liquidity crunch and facing difficulties in servicing debts. Restructuring allowed up to June 2009 has provided immense relief. As the recovery is likely to take more time, further restructuring should be allowed, wherever required.

Group housing and integrated township development should be brought within the definition of infrastructure and incorporated in the explanation under sub-section 4.

“The housing sector should be granted the status of industry for all concessions, rebates and easy finances,” Mr. Goel said.

Saviour Builders director Sanjay Rastogi says the budget should lower interest rates and recognise real estate as an industry. He feels strict norms should be introduced to control the prices of steel and cement to stabilise the industry.


The Royal Institution of Chartered Surveyors (RICS) said the government should increase the housing loan interest deduction limit to Rs. 2.5 lakh or Rs. 3 lakh per annum and lower interest rates to 7.5 per cent for loans in the range of Rs. 5 lakh to Rs. 30 lakh.

The RICS expected re-introduction of concessions under Section 80IB (10) of the Income Tax Act, encouraging construction of small units at affordable prices.

It expected waiver or reduction in stamp duty, value-added taxes and other government taxes for economically weaker sections and lower income group housing; restoration of tax holidays for low-cost housing projects; further relaxation of the external commercial borrowing and Foreign Direct Investment norms; and rationalisation of stamp duty and registration charges.

Will Budget unveil a window of hope for retail? Assetventures

Chennai: Though the past year brought economic hardship with significant implications for the retail sector, there seems to be a silver lining for India. In the Annual AT Kearney Global Retail Development Index (GRDI), which ranks 30 emerging countries on a 100-point scale (where the higher the ranking, the greater are the opportunities offered by the country), India reclaims the top spot, which was last held in 2007, informs Amarpal S. Chadha, a senior tax professional with Ernst & Young.

Given the above potential provided by the Indian economy, the industry is all geared to look at what the Finance Minister has to offer to the different industry segments in this year’s Budget, he adds, during a recent email interaction with Business Line.

“Before chalking down any demands for the retail sector, it is important to have a look at the areas where retail is benefiting the economy. There are some big business houses that have ventured into organised retailing, and have the potential to generate large-scale employment in India.”

Organised retail accounts for approximately 5 per cent of the total retail business in India, Chadha reminds. “Thus, there is a tremendous scope for the retail sector to contribute to the Government in terms of taxes and serving the economy by generating employment opportunities, improving supply chain management, reducing wastage, and offering goods to consumers at discounted prices.”

At some point or the other, most of the sectors have been provided some tax benefits or concessions, be it the hotel industry, shipping, banking or manufacturing, he notes. “All these sectors have reaped the benefits of tax concessions and have also witnessed growth in terms of the number of players, giving a boost to the overall economy. If the Government can look at extending some tax benefits to the retail sector, it will go a long way in providing the necessary boost to the industry. The Government should acknowledge the growth potential, which this sector has, and give it an industry status.”

Excerpts from the interview.


It is of common knowledge that retail works on paper-thin margins. If the Government can cut down the corporate tax rates and give some concessions in the fringe benefit tax (FBT) rates, it will help retail in improving its cash flows and funding its operations.

Sales promotion forms a major chunk of expenses for retail. Though the legislation exempts several means of advertisement from the scope of sales promotion, it would be beneficial if the Government provides an exemption of sales promotion expenses from the FBT levy.

On consolidation.

Benefits of Section 72A of the I-T Act, which deals with carry forward and set off of accumulated losses and unabsorbed depreciation allowance in the case of amalgamation or demerger, should be extended to consolidations in the retail sector.


Foreign Direct Investment (FDI) in retail has been the most-talked about area in the last few months. FDI in multi-brand retail is disallowed. However, the Government recently came up with Press Notes 2, 3 and 4 of 2009, which prima facie gave an indication that foreign investment in multi-brand retail is allowable, if multi-brand retail is carried out by a subsidiary of an investing company, which is owned and controlled in India.

As the prima facie reading of the above Press Notes seems to create misgivings in the industry, it is of utmost importance for the Government to clear its viewpoint in relation to FDI in multi-brand retail by issuing a specific clarification.

On service tax.

The economic downturn has reduced the price of real estate, and this has benefited the retail sector. However, the cost which is causing inefficiency in retail is the levy of service tax on the renting of immovable property, which should be abolished as there is no service element involved when an immovable property is let out.

Recently, the Delhi High Court ruled that service tax is not intended to be levied on the renting of immovable property. However, the Revenue has filed a Special Leave Petition before the Supreme Court against this ruling. Accordingly, the aforesaid issue remains open till the constitutional validity of such a levy is finally decided upon by the Supreme Court.

On refund.

The process of refund of Special Additional Duty (SAD) of customs allowed to importers on goods meant for resale in India poses a lot of administrative difficulty for the taxpayers. The Government should either totally exempt SAD or simplify the procedure associated with the refund of claim. This would help taxpayers reap the benefit as envisaged by the Government.

On related measures.

Reduction in the individual personal tax rates will help in increasing the purchasing power of consumers, boost consumption, and thereby help the retail sector in improving its profitability. It will also have an indirect impact on improving the manufacturing sector.

Sea link hits Worli property prices Assetventures

With the Bandra-Worli Sea Link now open to the public, real-estate prices in the once tony residential area of Worli Sea Face are set to change.

According to real-estate experts, increasing traffic and the consequent noise and air pollution are bound to have a negative impact on property prices along the promenade.

"Individuals who may have wanted to shift to Worli Sea Face will be put off," said Anuj Puri, managing director, Jones Lang LaSalle Meghraj, a real-estate consultancy firm. "There are many issues like pollution, easy access to buildings, and security of children due to the increase in vehicular traffic."

Residents are already complaining that noise levels and air pollution have gone up. Moreover, the exit of the sea link has created a bottleneck, ruining the peace of the locality. The press of the National School for the Blind is on this road which, interestingly, is designated a silence zone.

While Puri did not think that prices would crash, he said they would stabilise, "they won't appreciate. The impact will be such that if anyone wishes to sell their property, they won't get a good price."

Even the hitherto quiet hillock of Pochkhanwala Road will now suffer heavy vehicular traffic. In fact, some residents anticipated this problem some months ago and moved into the western suburbs, selling off their properties when prices were still good.

"A CEO of a top information technology firm sold his property a few months ago as he anticipated noise and traffic problems," said Pranay Vakil, chairman of Knight Frank India. "The fact is that the value of properties along the Sea Face has now gone down."

On the other hand, experts say the sea link has brightened real-estate prospects in the western suburbs. "The key word is infrastructure," said Vakil. "It increases connectivity and with better spread comes better prices."

N Raghunathan, a former chief secretary of Maharashtra and resident of Priya building on Worli Sea Face, is now spearheading a campaign against the exit of the sea link. Raghunathan and other residents have written to the state government and even the prime minister about the problems.

Their claims are not unfounded. Town-planning expert Chandrashekhar Prabhu said he had read the note prepared by Raghunathan and agreed that the area, once an open space, is now a hub of pollution.

"They are cent per cent correct in the assessment of the aftermath of the sea link," Prabhu said. "Worli Sea Face is surely becoming the most polluted area for no fault of the residents."

BSES can collect arrears from present property owners: HC

BSES can collect arrears from present property owners: HC
In an important ruling, the Delhi High Court has said that power distribution companies in the capital can collect electricity dues of the previous owner of a property from its present owner or occupant.

In its judgment, the high court allowed BSES Rajdhani Power Ltd to collect from the present owner of a plot the arrears against its previous owner.

The court clarified that on the ground of non-payment of the arrears, the BSES can stop supply of electricity to the present owner.

"If there are electricity dues against the previous owner or occupant, the present owner applying for fresh electricity connection can be compelled by the distribution company to pay the electricity dues of the previous owner," said a bench comprising Chief Justice A P Shah and Justices S N Aggarwal and S Muralidhar.

The court order came while allowing a petition filed by the BSES challenging the single judge's order that rejected the plea of the power discom saying that it (BSES) has no right to collect from the new occupant the dues of previous owner.