Tonic to builders and buyers Assetventures

Middle and lower-income subscribers to new home loans stand to save as much as Rs 1.5 lakh on interest payment under concessions announced by the Centre today while wrapping up discussions on the budget.

Finance minister Pranab Mukherjee, replying to the debate on the Finance Bill that was later passed in the Lok Sabha, also offered some concessions aimed at easing the burden of the downturn-hit industry. (See chart)

The measure that will help middle-income earners most is the 1 per cent interest subsidy on home loans up to Rs 10 lakh to buy houses worth up to Rs 20 lakh. The subsidy will translate into a total saving of Rs 28,920 on interest payment during the tenure of a 5-year loan and Rs 1.51 lakh over a 20-year period.

As many as 70 per cent of home loan borrowers fall in the Rs 10-lakh bracket, industry sources said. The government’s offer to underwrite 1 per cent of interest is expected to cost it about Rs 1,000 crore, according to the finance ministry.

“It (the subsidy) is a welcome step as it will improve affordability. Any such step tends to improve activity in the real estate and construction sectors, which are among the largest employment generators,” said Renu Sud Karnad, joint managing director of HDFC.

The subsidy announcement came a day ahead of the RBI’s credit policy which analysts do not expect to offer interest rate cuts.

Mukherjee did not confine the incentives to real estate to the subsidy alone. He also offered a tax holiday to projects that more or less got off the ground at the start of the downturn if they finish construction by March 2012.

Builders of projects that got approval between April 1, 2007, and March 31, 2008, need not pay tax on profits if they are completed on or before March 31, 2012. Given the euphoria of 2007, builders had rushed to launch a slew of projects that ran into rough weather when the tide turned in the latter half of 2008. Realtors have been pleading for relief after housing prices fell by as much as 15 to 25 per cent in many cities.

“The incentive is expected to help more big developers who are stuck with high leverage and low sales but the impact could be felt by all,” Pradip Chopra, director of Calcutta-based developer PS Group, said.

Rajiv Talwar, the executive director of developer DLF, agreed: “These measures will help to a large extent to sell stocks of affordable housing and boost overall demand.”

However, all real estate players were not enthused. Arun Puri, chairman of property consultant firm Jones Lang La-Salle Meghraj, said: “Such tokenism may not really perk up the market… larger gestures like reduction in interest rates and incentives for developers are needed to rescue the market.”

Mukherjee also addressed an accounting concern of industry, clarifying that changes in service tax would be implemented only from September 1. Industry associations had requested the government for time to make changes in their tax software.

Industrial growth had shrunk in December and January, but Mukherjee asserted today that the measures already announced in the budget and earlier as part of two stimulus packages could push the growth in gross domestic product to 8 to 9 per cent by end-2010.

Mukherjee said he would stick to his promise of placing a draft direct tax code within 45 days of taking over as finance minister and it would be tabled in the winter session of Parliament. “We will make some major changes in the tax administration and related laws in the country,” he said.

The minister promised to push through a nationwide goods and services tax by April 1, 2010, “with cooperation from states….”

The measure is expected to reduce taxes on goods and services and make taxation uniform throughout the country.

Mukherjee had a message for those disappointed by the lack of reforms in the budget. “Reforms will be very much on our agenda. It is a continuing process... it will not be a mantra to be chanted occasionally,” he said.

Govt to provide 1% home loan subsidy Assetventures

Finance Minister Pranab Mukherjee today announced an interest subsidy of 1 per cent for one year on housing loans of up to Rs 10 lakh for properties worth less than Rs 20 lakh, a move that has been widely welcomed by realtors and home loan companies. The measure is expected to cost the exchequer Rs 1,000 crore.
Pranab MukherjeeMukherjee also allowed developers of housing projects a tax holiday under section 80 IB(10) of the Income Tax Act on profits from projects approved between April 1, 2007 and March 31, 2008, provided the projects are completed on or before March 31, 2012. Mukherjee asked developers to pass on the benefits of this tax break to consumers.

Mukherjee made these announcements in the Lok Sabha today as part of his reply to the discussion on the Finance Bill. Both houses of Parliament passed the Finance Bill 2009-10, which included a raft other concessions.

Assuming a monthly saving of Rs 60 per lakh, today’s announcement implies that a borrower saves about Rs 7,200 on a 15-year loan of Rs 10 lakh. The interest rate subvention will be routed through the scheduled commercial banks and the housing finance companies registered with the National Housing Bank.

Banks to offer subsidy on home loans, says FM. Assetventures

Finance
minister Pranab Mukherjee said that the interest rate subsidy for mid-segment housing would be routed to customers through
commercial banks and housing companies registered with the National Housing Bank. He said to further provide stimulus to the housing sector, it will be allowed a tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008, if such projects are completed on or before March 31, 2012.

‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector,’’ he added.

The interest subsidy is aimed at mid-segment housing loan borrowers from the lower middle to middle-income groups. Even on Monday, Congress MP from Mumbai (North) Sanjay Nirupam, while speaking on the finance bill, said 42.4% of Maharashtra’s population was urbanized and trends pointed to increasing migration to cities. With home loan rates climbing steeply, there was a case for providing relief to borrowers. Providing an interest subsidy and a targeted tax break also answers in part the demand that the becalmed real estate sector needs a leg up.

The government’s message to the real estate developers is to lower prices and make housing more affordable for the aam aadmi.

The housing loan subsidy came with a slew of other concessions such as exempting road repairs and maintenance from the ambit of service tax while extending the sunset clause for tax holidays for industrial parks by a further two years up to March 2011 to boost growth in infrastructure. The FM clarified that service tax on new services and any alteration in the existing services as announced in the Budget would be effective from September 1, 2009.

‘‘It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment,’’ said Renu Sud Karnad, Joint MD, HDFC Ltd.

Fresh real estate sops to spur revival . Assetventures

Eyeing fresh signs of a revival in the economy, which should nudge growth back to 9% level by end-2010, finance minister Pranab Mukherjee announced fresh tax giveaways for housing and renewed the government’s commitment to more economic reforms and introduction of a single goods and services tax (GST) by 1 April.

The move, expected to further boost housing demand in the economy especially in tier II cities, also seeks to quell growing criticism that the Congress-led United Progressive Alliance (UPA) is averse to second-generation reforms.

Replying to the debate on the Finance Bill, which was approved by a voice vote by the Lok Sabha, Mukherjee renewed his efforts to strike political consensus on key areas of tax reform, including the introduction of a direct tax code.

The reply also calibrated a few of his 6 July Budget tax proposals, which are not expected to result in big revenue giveaways, thereby precluding the possibility of a marked increase in the Rs4 trillion fiscal deficit forecast for 2009-10.

The stand out feature of Mukherjee’s calibration of tax proposals in the Finance Bill was the emphasis on boosting real estate through both budgetary support and tax changes. The budgetary support in the form of a 1% subsidy on the interest rates paid by people with a home loan of up to Rs10 lakh would cost the exchequer Rs1,000 crore in the current fiscal year, Mukherjee said.

Under Section 80 IB (10), income-tax deduction was given to real estate developers for housing projects approved before 31 March 2007. This has now been extended to projects approved between 1 April 2007 and 31 March 2008, provided these projects are completed on or before 31 March 2012.

“We have been asking for an extension for a long time and I am happy that this step has been taken,” said Kumar Gera, chairman of the Confederation of Real Estate Developers’ Association of India. “The extension will benefit only those projects that were approved during this period, so it may not have an impact on all housing projects in all markets. It could have an impact on certain micromarkets.”

Among other key tax changes were the removal of service tax charged by contractors repairing and maintaining roads, and extending tax benefits given in the Budget to firms producing natural gas under the new exploration licensing policy to those producing natural gas from coal-bed methane blocks.

The finance minister admitted he had to ignore many other post-Budget representations, which came his way, as the tax proposals had to mesh with the broad strategy of providing fiscal stimulus. “We must generate internal demand,” he said.

The spillover of the fiscal stimulus provided last fiscal year and proposals introduced in the 6 July Budget have cost the exchequer Rs2.4 trillion, Mukherjee said. The fiscal deficit (extent of borrowings needed to bridge the gap between expenditure and revenue) is estimated to touch 6.8% of the gross domestic product in 2009-10.

The Budget estimates of the Centre’s net tax revenue in 2009-10 is Rs4.74 trillion, an increase of 0.19% over the previous year’s revised estimate.

Economic growth, which received top priority in the Budget’s overall strategy, is showing signs of recovery, Mukherjee said, though he remained cautious about signals provided by an improvement in economic indicators such as May’s factory output. “I would not say we are out of it. Situation is still difficult.”

Mukherjee assured the House that the government would continue putting in place reforms, including tax reforms, to facilitate growth.

In the area of tax reforms, Mukherjee said he was confident India’s indirect tax system could stick to the 1 April deadline for transition to GST, even though some states such as Madhya Pradesh and Tamil Nadu have said the deadline might be premature.

“On broad national interest, there is no discordant view,” Mukherjee said, explaining why he remained upbeat about meeting the deadline.

GST is India’s most ambitious indirect tax reform, which seeks to dismantle tax barriers that fragment India’s market according to state boundaries. The transition requires cooperation between Centre and individual states.

The country’s tax reforms could, however, be negatively affected by the Opposition’s displeasure with the way the UPA has directed policy in areas such as international affairs.

“A mere call for consensus is not enough. To have consensus on issues, the government should pre-consult the Opposition on issues of national importance. Unfortunately, the (government’s) conduct in the last two months does not reflect this,” said Prakash Javadekar, spokesperson of the Bharatiya Janata Party.

Real estate, infrastructure loans show strong growth

Which sectors have banks been lending to in recent months?

The Reserve Bank of India’s macroeconomic and monetary developments review has data up to 22 May on lending to various sectors.

Consider housing first. Year-on-year growth in housing loans slumped to 5% on 22 May, compared with a year-on-year growth rate of 7.5% on 27 February.

Loans to the real estate sector, or loans to the commercial housing sector, grew by a strong 52% year-on-year, albeit on a much lower base.

On 27 February, loans to the real estate sector grew by 61.4% year-on-year.

Between 28 February and 22 May, housing loans increased by Rs3,138 crore, while bank loans to real estate companies went up by Rs3,734 crore.

In short, loans to real estate companies were more than loans for individual housing.

After a rise in bad loans in the credit card business, banks have started to cut back on lending to this segment.

Between 28 February and 22 May, credit card outstandings went down by Rs1,949 crore. Year-on-year growth in credit card outstandings was a mere 1.4% on 22 May.

The data bears out the fact that most of the slowdown in lending has happened in personal loans.

On 22 May, year-on-year growth in personal loans was 5.5%. Lending to industry grew at a year-on-year rate of 21.2%, while loans to the services sector increased by 20.5% year-on-year.

In the services sector, apart from real estate loans, loans to professionals (up 39.8% year-on-year) and to non-banking financial companies (up 31.5% year-on-year) also showed robust growth.

In the industrial sector, the highest rate of growth was notched up by the construction sector which grew by 44.7% year-on-year on 22 May. But that’s decelerated from a growth rate of 58.8% as on 27 February. Loans to infrastructure were up 35.1% year-on-year on 22 May, the same rate of growth on 27 February. Other industrial sectors showed a deceleration in credit growth.

The oil sector, of course, showed a substantial fall in credit growth as crude oil prices fell and as oil bonds were issued.

Is it good time to buy or sell in real estate mkt now? Assetventures

Is it a good time to buy or sell in the real estate market right now? Chances are that as a prospective buyer or a property owner, you may be facing a serious dilemma.
Industry players feel that while it may be a good decision to buy in certain locations, a sell off needs to be given a few more months till the market picks up completely.

So which are the best places to buy in right now? According to global real estate consultancy Cushman & Wakefield (C&W), in Delhi NCR, it is Noida, Greater Noida Expressway and areas in Gurgaon along the Golf Course Extension Road. In Mumbai, central Mumbai and western suburbs such as Bandra, Kalina and JVLR are good bets. New emerging destinations in Bangalore such as Sarjapur Road, North and central Bangalore, apart from a few projects within the city can be considered.

Aditi Vijayakar, executive director, residential services India, C&W, says that this is a good time to buy a property for self use as prices have corrected considerably over their peak in 2007-08. “Buyers at this time can take advantage of lucrative interest rates on home loans. However, for investors entering the market, this time should be evaluated keeping the various arbitrage options that they can take advantage of in the current scenario. As far as selling is concerned, this is not a sellers market. The decision should be taken when the owner is confident of achieving the expected appreciation of the capital value of that property.”

While developers such as Vipul, Realtech, Raheja Developers and SVP Group say the market is picking up and one should look at buying, they don’t sound equally enthusiastic about selling off one’s property at this time.

Mumbai most preferred for investing in properties: Assetventures

Mumbai most preferred for investing in properties:

The country's financial capital Mumbai ranked as the most preferred destination for investing in properties, while Chennai has displaced Bangalore in the South, a survey conducted by an online portal said here on Tuesday.
The survey, "Trend in residential space across top cities in the current scenario" ranked Mumbai as the most preferred destination to invest in property while in south, Chennai was the first place for property investments, overtaking Bangalore.
Cities like Patna, Nashik, Tiruchirapalli and Madurai have also become favourite destinations for property investments, the survey said.
It said 60 per cent of respondents felt interest rates for home loan would come down further in the coming months, while 40 per cent evinced interests on properties with an area between 500 to 1,000 square feet.
Over 3,000 people from the metros and other cities, including Pune, Thane, Coimbatore, Ahmedabad and Vadodara participated in the survey.
"Market sentiments are reviving and people are willing to invest. Based on our survey, more than 60 per cent of customers are looking at buying residential properties in the next six months. They also are expecting a lowering of interest rates on home loans", Consim Info Founder and CEO Murugavel Janakiraman said.

Seizure notices yield Rs 1.33 cr property tax dues in Pune : Assetventures

Property tax defaulters in the Pimpri-Chinchwad Municipal Corporation (PCMC) areas coughed up Rs 1.33 crore after the corporation's property tax department sent seizure notices to 109 defaulters.
Speaking to TOI, Shahaji Pawar, assistant commissioner, PCMC said that the 109 property tax defaulters owed Rs 2.16 crore as dues.
"The property tax department has intensified its drive to recover the dues from defaulters. Seizure notices are being issued to defaulters who owed large sums. Each divisional office was given the target to send 15 seizure notices to recover the dues. The defaulters have partly paid their dues after receiving the notices. If they do not clear their dues, their properties will be auctioned to recover the balance."
He said that property tax bills are being sent to the property holders for 2009-10. The department has collected Rs 10.36 crore as property tax till now, while it had collected Rs 6.56 crore till end of June in 2008-09.
The property tax department has announced a special scheme of Free Singapore trip' to 15 property tax-payers who have cleared their property tax dues and also paid the tax for the current year. as per the scheme, two members of the taxpayer's family or his two nominees will get a free trip to Singapore.
Pawar said, "Property tax bills for 2009-10 are being sent to the taxpayers. There are a total of 2.71 lakh properties in the municipal limits and we have still to distribute around 60,000 bills. Property taxpayers have to pay their pending dues if any and this year's tax before August 30 to be eligible for the Singapore trip."
He added that a list of such eligible taxpayers will be compiled after August 31. "We will select 15 property holders through a lottery system for the Singapore trip," he stated.
The property tax department has collected a record tax revenue of Rs 88.88 crore in 2008-09. Pawar said, "The department hopes to collect property tax of around Rs 30 crore till the end of August this year. We will start a drive to create awareness among the people to pay tax on time. The department will use loudspeakers mounted on vehicles to make an appeal to the people to pay tax on time and be eligible for the Singapore trip."

A cell for NRIs' property issues in Chandigarh Assetventures

This happened after a incident in Chandigarh.

A day after an NRI alleged connivance of estate office employees in the sale of his shop-cum-flat (SCF) in Sector-20 Chandigarh without power of attorney, UT administration has decided to set up a grievance redressal cell for NRIs, which would deal with property disputes.
The instance of cheating and fraudulent sale of property of a London-based NRI Tara Singh is being probed by vigilance department, home secretary Ram Niwas said.
Complainant Tara Singh had alleged that the SCF was in his father’s name and to transfer it to his name, he got in touch with a company that provides services to NRIs in matters relating to property.
Administrator Gen (retd) SF Rodrigues has reportedly taken a serious view of this and has directed that a special cell headed by additional deputy commissioner, having prominent citizens.

Return of NRI interest in Indian real estate

"The right sized product, at the right price will surely be a sell-out," says Sukhraj Nahar, chairman of the Nahar Group. At the MCHI's India Realty Expo, 2009, in Dubai, the Nahar Group offered NRIs homes in a new segment - a two BHK flat that cost INR 55 lakh onwards, which received good response. "The NRI customer needs the security of being able to walk up to the chairman of the company and ask just about any question related to the project," says Nahar, on the product's success.
MCHI CEO, Zubin Mehta, substantiates the return of NRIs' interest in Indian realty with figures from the exhibition: a turnout of 1,096 NRI families; 106 flats worth Rs 65.33 crore ($13 million) booked and around 86 flats worth Rs 80.18 crore ($16 million) in the pipeline; site visits fixed for July-August, when the NRIs come to India on their annual vacation.
"We tweaked the format and offered products that were nearing completion, with a budget limit of INR 75 lakh, mostly in the suburban areas and these were perceived by the NRIs as having scope for further value appreciation," he says. "The softening of real estate prices and home loan interest rates in India, were the key factors for attracting a large number of NRIs," says Mehta.
HDFC's branch manager (Dubai), Vikram Goel, reveals that innovative schemes, like the '20:80' home finance scheme offered by HDFC and the Nahar Group, play a big part when it comes to garnering bookings. "The average NRI is worried about the economic challenges, across the next year or so. Hence, they find schemes like these, which provide for 20 per cent payment at the time of booking and the remaining 80 per cent at possession, attractive," he added.
"NRIs are facing a unique situation," says JS Augustine of Everest Developers. "There is a certain amount of job uncertainty, due to the global economic situation. At the same time, Indian real estate offers lower entry-level prices, with potential for good returns on investment (ROI). So, NRIs who are sure of their job for the next few years, are buying Indian real estate. The INR/USD rate differential also makes it more attractive for NRIs to buy now," he says, adding that it is necessary for Indian developers to meet NRIs more often, to create confidence and give them more comfort.
What works for the NRI buyer? It has to be innovation and a different product, from what has been on offer so far and at a price level that seems attractive to the NRI buyer who has the global property market to choose from, concludes Rajnish Oswal, MD of Dubai-based real estate firm, Home Back Home.

Commercial realty picks up steam Assetventures

After months of stagnation in the commercial real estate market in Mumbai, there is finally some revival. First off the block was the
10.3-acre Finlay Mill property for which there have been bids from Lodha Developers and Indiabulls Real Estate. On July 31, NTC will put the 16-acre Kohinoor Mill-1 property also on the block, for which the base price will be Rs 1,200 crore. Both these properties are located in central Mumbai.

In the case of Finlay Mill property, the last day for the submission of bids was Thursday. Lodha Developers and Indiabulls Real Estate have put in their bids. The base price for this property, which has a buildable area of 4.20 lakh square feet, is Rs 708 crore with Lodha’s bid at Rs 657.9 crore and Indiabulls’ at Rs 520 crore. The property was put on block twice earlier, and according to senior officials at NTC, the sale will go through this time around. When contacted, NTC Mill CMD K Ramchandran Pillai said: “The asset sale committee would review the bids on July 22, after which a decision will be taken.”

It is now learnt that property consultant Jones Lang LaSalle Meghraj has been mandated for the sale of the Kohinoor Mill-1 land. A senior NTC official told ET: “The bidding process will commence in less than two weeks.” This is the first time that this land is being put on the block. The Kohinoor Mill-1 property is different from that of Kohinoor Mill-3, which was bought by Manohar Joshi and Raj Thackeray for Rs 421 crore in 2005.

In all, NTC has the go-ahead to put 25 mills in Mumbai on the block. The last deal struck was for a land parcel in Parel in central Mumbai for Rs 702 crore. Last month, the Hindoostan Mill land in the same area, which was owned by the Thackersey family and later sold to a special purpose vehicle (SPV) company of Ackruti City and DLF, was put on the block, ET had reported on May 14 that C Sivasankaran, the NRI maverick investor, had acquired DLF’s stake of 66% for Rs 310 crore.

The revival in the commercial real estate segment has been a welcome development and has been viewed positively by those tracking the industry.

“Though the Finlay property has received bids below the base price, the price on a per acre basis indicates a recovery,” said a property consultant.

Real estate giant IREO to invest $500 mn in India

NEW DELHI: Global real estate giant IREO will pump in $500 million in various infrastructure projects in India over a period of seven years, the company said Thursday.

IREO, which has invested $1.5 billion in India, is already one of the largest investors in the country's real estate sector.

"Having already invested $1.5 billion, we still have another $500 million available in cash for further investments in our projects," Lalit Goyal, vice-chairman and managing director IREO, told reporters here.

The company currently has 13 projects and is in the process of constructing an IT SEZ (special economic zone) in Pune.

"We have already commenced construction of a five million square feet IT SEZ (Pune) and a three-million-square-feet housing project," Goyal said.

Added Anurag Bhargava, chairman IREO: "The Pune SEZ should be completed by next year."

The company has projects in many states including Haryana, Punjab, Tamil Nadu, Maharashtra and Delhi.

The company said it would develop an eight-million-square-feet housing project in the next 12 months.

Real estate survey shows silver lining for market

Presently facing a downward trend, the real estate market is likely to recover by 2010 with increase in demand for residential
segment driven by improving affordability, steady economic growth and greater liquidity. These are the findings of a survey carried out in 10 cities, including Chandigarh, by the Crisil Real Estate Research Group.

The report says, “Demand in the residential market is expected to turn positive in 2010 due to these factors, however, a decline in the currently over-priced capital values of all the three real estate segments - residential, commercial and retail would persist through 2009.” “The commercial and retail markets would continue to witness erosion in lease rentals through the next two years,” it states.

The report provided information and analysis of more than 400 acres of land across 88 micre markets in 10 cities - Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai and Pune.

The report indicated that capital values for residential sector and lease rentals for commercial and retail properties have substantially corrected till March this year, due to slowdown in both the domestic and global economies. Cities such as Kochi, Chandigarh and Pune, which have greater investor presence as against end-users, witnessed a greater fall in capital values compared to other cities, the report revealed.

However, Crisil believes that demand for houses would improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth in the economy.

Expressing confidence in the report, a leading real estate agent of the city, Sunil Kumar, said, “Apart from the low interest rates on housing, another important factor for the rising demand in 2010 would be the upcoming international airport in Chandigarh. The direct Dubai flight from Chandigarh would also add to arrival of many big business houses here.”

Kumar insisted that these factors would compell more and more tricity tenants to go for owning a property of their budget and choice. “The demand for residential properties would be more in the neighbouring areas like Mohali, Panchkula, Zirakpur, villages across the city and even far-off areas like Derabassi, Kharar and Kurali,” said Kumar.

Cheap housing offers lifeline to Indian developers

"No frills, Simple homes" reads the banner hanging in the Delhi headquarters of Unitech, India's leading property developer.

It's a mantra that has been taken up by realtors across the country with a new-found passion for affordable housing that owes little to their social conscience and everything to their bottom line.

The global economic downturn ended a four-year property boom in India that had largely been driven by the luxury housing segment and saw a near three-fold increase in residential prices in major cities.

Now developers are turning their attention to middle and lower income buyers and low-cost housing that offers lower profit margins but enjoys much greater demand.

"We made a mistake by only focusing on the top two-three percent of India's population," acknowledged Unitech vice president Vikram Datta.

"Now we have to reach the masses by entering into budget and affordable houses," he said.

According to a May 2009 survey by the Associated Chambers of Commerce and Industry of India, there is a nationwide housing shortage among lower and mid-income families of around 20 million units.

With luxury housing projects struggling to find buyers, that kind of demand suddenly seems more attractive.

Unitech has committed to constructing 20,000 affordable houses at a cost of 17 billion rupees (340 million dollars) by 2011 across the country, and others are following suit.

"India desperately needs budget houses. Constructing and selling them is the only way for real estate companies to survive," Rajiv Dash, a senior official at Tata Housing Development Co., told AFP.

In May, Tata launched a low-cost housing project on the outskirts of India's financial capital Mumbai, constructing 1,000 studio apartments which sell for as little as 7,800 dollars.

The targetted buyers are primarily factory workers and small shopkeepers.

By building on cheaper, suburban land and bulk-buying raw material, developers can turn a per-unit profit of around 15 percent which is half the return on luxury houses.

"But less profit is better than no profits," said Sanjay Verma, managing director for real estate consultancy Cushman & Wakefield.

In the last five months more than 65 property developers across the country have announced new projects in the affordable housing segment.

For 32-year-old Amar Singh, a commodity trader living in rented accommodation in New Delhi for over a decade, the new trend has enabled him to realise his dream of buying a home.

"I am now the proud owner of a small, two-bedroom apartment," said Singh, who hopes to move in to his still under-construction home by 2010.

Singh managed to procure a loan from a private bank and arranged the down payment by selling some of his wife's gold ornaments to seal the house deal.

Situated on the outskirts of New Delhi, his affordable housing project with 120 apartments will provide parking space to all residents, a play area for children, a power back-up and a small cafeteria.

Such amenities do not feature in the low-cost sector, where the developer's priority is to maximise the number of units.

"The low-cost houses are just like boxes with a door and few windows, there are no value additions," said Verma.

But while they may be spartan in the extreme, they do provide basic amenities such as water, sewerage, drainage and street lighting which is a major step up for low income settlers living in shanty towns.

The newly-elected Indian government announced a housing scheme in its recent budget as part of a plan to promote a slum-free India in five years.

Such an ambitious target, analysts say, can only be realised with massive private sector involvement.

"Indian property developers should consider themselves fortunate," argued Verma. "They have a new market to do business. The faster they make small houses, the more money they earn."

Houses most affordable since 2005

Buying your own home is more affordable now than it has ever been in the last four years. The average price of a house is around 4.5 times of the buyers average income, against 4.6 times in 2005.

In 2007, the affordability factor had widened to 5.1% due to a sharp increase in real estate prices. However, with the prices of new houses dropping by around 30%, the number of years’ income required to buy a house has come down to 4.5 years.

Developers have realized the need to introduce affordable housing and are reducing dwelling size and omitting amenities which drive up cost in a bid to cater to the untapped demand.

HDFC, India’s largest housing finance company, calculates the ‘‘affordability factor’’ based on data of its home loan borrowers. At 4.5 times of annual income, the average EMI would be about 50% of a house buyer’s income on a 15-year loan. In the home loan market, this is considered affordable.

Joint property hope for wife Assetventures

The time has come for a “holistic” policy that will allow women joint rights over matrimonial property, law minister M. Veerappa Moily told Parliament today.

Matrimonial property is property acquired by either spouse or both together during the period of marriage.

The question had, of course, been raised by a woman — Brinda Karat of the CPM.

In reply, Moily said it was time to “modernise our thinking”.

“The husband can always claim that this is my property, this is acquired by me, this is exclusive to me. They think that the wife does not inherit that or the wife does not contribute to that,” the minister said.

“I think the day has come when we have to modernise our thinking, our mindset. There cannot be exclusiveness when they (husband and wife) are in a family, when she belongs to that family.”

Karat had asked Moily: “Would you kindly set up a small committee to look into the concrete recommendations… by the Status of the Women Committee Report in 1975 and by the Gujarat government in its Gaurav Nari Niti which was passed in 2006?”

Under the Gaurav Nari Niti, the Narendra Modi government has exempted transfer fees and stamp duty for land or property that is solely in the name of a woman.

Upper House members, dissatisfied with Moily’s reply that women’s property rights were governed by personal laws, began a debate that ended with Moily’s words on the issue. The minister promised the issue would be referred to the Law Commission and the National Commission for Women to chalk out a “holistic” policy.

Karat said no personal law in the country recognised the concept of joint rights over matrimonial property. “Even 62 years after Independence, Indian women are denied this right under the community property regime,” she said.

DLF sells Ackruti City JV stake Assetventures

NEW DELHI: India’s largest real estate developer DLF has sold its stake in a 50:50 joint venture with Mumbai-based Ackruti City for developing a project in Mumbai to a US-based real estate fund for over Rs 200 crore, two senior executives at DLF said, asking not to be named.

The JV firm is developing two office buildings spread over nine million sq ft at Andheri, Mumbai. These two buildings are part of a larger slum rehabilitation project being developed by Ackruti City. DLF had picked up stake in the project over two years ago with the strategy to spread its footprint across the country. DLF exited the project as part of its asset sale programme to raise Rs 5,500 crore by the end of this fiscal.

Centre to bring in law to regulate real estate in Delhi

NEW DELHI: The Central Government on Thursday said that it is considering a model legislation on regulating real estate in

Delhi.
In reply to a written question in the Rajya Sabha, Minister of State for Urban Development Saugata Roy said that 'the Delhi Real Estate Management (Regulation and Control) Bill' can also serve as a reference for other states.

The minister, however, ruled out the constitution of a regulator for real estate sector for the entire country, saying matters pertaining to local governance and land falls in the list of state subject as per the Constitution.

Real estate giant IREO to invest $500 mn in India

NEW DELHI: Global real estate giant IREO will pump in $500 million in various infrastructure projects in India over a period of seven years, the company said Thursday.

IREO, which has invested $1.5 billion in India, is already one of the largest investors in the country's real estate sector.

"Having already invested $1.5 billion, we still have another $500 million available in cash for further investments in our projects," Lalit Goyal, vice-chairman and managing director IREO, told reporters here.

The company currently has 13 projects and is in the process of constructing an IT SEZ (special economic zone) in Pune.

"We have already commenced construction of a five million square feet IT SEZ (Pune) and a three-million-square-feet housing project," Goyal said.

Added Anurag Bhargava, chairman IREO: "The Pune SEZ should be completed by next year."

The company has projects in many states including Haryana, Punjab, Tamil Nadu, Maharashtra and Delhi.

The company said it would develop an eight-million-square-feet housing project in the next 12 months.

RBI issues revised draft norms on commercial real estate exposures

CHENNAI: The Reserve Bank of India (RBI) has come out with revised draft guidelines on commercial real estate (CRE) exposures. The revision comes in the wake of doubts raised in certain quarters on treatment of specified exposures. The new draft is also necessitated by the need to align with the rules with the Basel-II framework.

The Basel-II framework has clearly spelt out the definition of income-producing real estate (IPRE) in para 226 of its framework. According to the Basel-II framework, IPRE “has a strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property.” The apex bank has chosen to align the definition of commercial real estate (CRE) exposure with the Basel II prescription. Going by this, the RBI has clarified in its revised draft guidelines that “if the repayment primarily depends on other factors such as operating profit from business operations, quality of goods and services and tourists arrivals, the exposure would not be counted as commercial real estate.”

Source of cash flow

Any exposure would be classified as IPRE/CRE exposure if the “funding results in the creation/acquisition of real estate (such as office buildings to let, retail space, multi-family residential buildings, industrial or warehouse space and hotels) where the prospects for repayment would depend primarily on the cash flows generated by the asset.”

In any case, the apex bank goes on to clarify, “the prospect of recovery in the event of default would also depend primarily on the cash flows generated from such funded asset, which is taken as security.” For an exposure to be classified as IPRE/CRE exposure, the primary source of cash flow (that is, more than 50 per cent of cash flows) for repayment and recovery would have to be lease or rental payments or sale of assets.

The revised draft has also sought to clarify confusion vis-a-vis exposure arising out of ‘infrastructure lending’ to special economic zones. Certain types of exposures in respect of SEZs would have the characteristics of CRE exposure if the Basel-II approach is followed.

Lending to SEZs

In such cases, the RBI says, they would be simultaneously classified as both ‘CRE exposure’ and ‘infrastructure lending’. In such instances, the applicable risk weight would be that of CRE exposure (even if the borrower is Triple A rated).

The exposure, however, would be eligible for all the regulatory concessions available to `infrastructure lending,” the RBI clarifies.

An investment in the equity of a real estate company or a mutual fund/venture capital fund/private equity fund which invests in the equity of real estate companies would be sensitive to the movement in prices of real estate.

Further, they have correlation with the general equity market. Therefore, these would be reckoned both as capital market exposure (for the purpose of compliance with the regulatory ceiling fixed by the RBI) and the internal ceiling for real estate exposure fixed by the bank itself as required by the RBI norms.

Such exposures would attract a risk weight of 125 per cent (as applicable to equity exposures) or 150 per cent (as applicable to exposure to VCFs) as the case may be since these risk weights are higher than that applicable to CRE at 100 per cent.

“The exposure should be reported to the RBI under both the classifications with an appropriate footnote to avoid double counting,” says the revised draft.