REIT's may solve India's real estate problem: Knight Frank Research

By: Karshni on 00:00

India faces shortage of fresh supply of houses, the Technical Group on the Estimation of Housing Shortage projects the total shortage of dwelling units in urban areas in 2012 to be 18.78 million, said a report by Knight Frank Research.

The estimated slum population in India is 94.98 million in 2012. As against this, the number of dwelling units sanctioned under JNNURM in seven year Mission period was 1.6 million.

The report further said that by 2031, about 600 million Indians will reside in urban areas, an increase of over 200 million in just 20 years. This change in the socio-economic landscape will have a bearing on several things, housing being the foremost.

The industry facing continued pressure in terms of raising funds for investment, the research report suggests that India must have a Real Estate Investment Trust (REIT). A REIT is a company that directly owns income producing real estate assets and provides a trading mechanism to the investors.

REIT makes sense

“On one hand an institutional market of REITs can ensure steady supply of capital to real estate development which shall aid in increasing the supply of houses and on the other it shall serve as an investment vehicle for individuals,” said the report.

The depth of the REIT investment vehicle in developed markets can be assessed from the amount of capital raised over the years. For instance, in the US market, REITs have raised $66.8 billion in 2012 (until November) alone and the momentum of fund raising through this investment vehicle has steadily increased since the global financial crisis of 2008, said the report.

India on the other hand has been slow to look into such a mechanism. Securities & Exchange Board of India (SEBI) had issued draft REIT Regulations in 2008. However, things have not moved since that time.

“Reason being that the confusion with another set of guidelines for Real Estate Mutual Funds (REMF) in 2008, which has also not translated in to product offerings yet. This confusion arises from the fact that both would regulate a similar product. Also lack of transparency and uncertainty involved in the conduct of real estate business has delayed the establishment of the REIT investment structure,” pointed the report.

The World Bank report ranks India at 182 out of 185 countries in the ‘dealing with construction permits’ category.

In the absence of REIT guidelines in the country, some real estate developers have already listed their REIT’s overseas. These investment vehicles invest in FDI compliant properties in India and hold both commercial and residential properties mainly at the development stage.

The properties within these schemes are located in top urban centers like Delhi-NCR, Mumbai, Bangalore, Chennai, Kolkata, Hyderabad and Pune. However, these vehicles were floated before the global financial crisis and the investors are yet to see meaningful returns from these.

Need for finance

The reports also suggest that in light of the dwindling interest among investors to invest in Indian real estate, such a mechanism is important.

Institutional finance to the sector has witnessed a slowdown. Bank credit to the sector has slowed down on account of increased risk perception. In the last two years, the growth in banks’ credit exposure to the real estate industry has come down from 19.08 per cent in November 2010 to 5.29 per cent in November 2012.

Similarly, foreign investment in the sector has also witnessed a downtrend , the share of real estate has declined from 9 per cent in FY12 to 5 per cent in FY13 (until Oct) in the total inflows in the country

The last two years have contributed less than 1 per cent to the total IPO money raised by the industry in the last seven years highlighting the uncertainty of this source of funds.

Shivani Shinde

http://www.business-standard.com/article/companies/reit-s-may-solve-india-s-real-estate-problem-knight-frank-research-113022700199_1.html

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Realtors oppose Hry govt's move on regulatory body

By: Karshni on 22:45

The Haryana government's move to constitute a real estate regulatory authority has met with stiff resistance from real estate developers who have sought time from the government to articulate their objections and point of views on the Haryana Real Estate (Regulation and Development Bill), 2013.

The draft bill which was expected to be introduced and passed in the assembly during the ongoing budget session has been deferred consequently.

Several real estate developers, including representatives of DLF Limited, Emaar MGF, Ansals, IREO, Vatika, ATS, Anant Raj Group, met the chief minister, Bhupinder Singh Hooda, and officials on February 20 to express their reservations on the draft bill.

SS Dhillon, principal secretary, town and country planning, on being asked about the fate of draft bill told HT: "All stakeholders met the chief minister last week and sought time till March 15 to study and examine the draft bill. It will not be presented in the House during the ongoing assembly session. The legislation, however, can be enacted by way of an ordinance later."

A principal secretary-rank officer who is close to the chief minister and is on the verge of retirement is expected to be appointed the chairperson of the Haryana Real Estate Regulatory Authority. As per the draft bill, the chairperson or members of the authority will hold office for five years or until they attain the age of 65, whichever is earlier.

On the objections being raised by the developers, Dhillon said it seemed that most of them had not read the draft legislation carefully. "They are apprehensive about the criminal action under the proposed legislation whereas the draft bill has provisions for financial penalties only," he said.

The principal secretary further said that the developers wanted the licensing authority which is the director general, town and country planning department, to be brought under the ambit of the bill. "They spoke about bringing HUDA and HSIIDC under the ambit of the Bill but the fact of the matter is that these organisations are duly covered under the proposed legislation," he said.

Developers, on the other hand, said there were certain overlapping and aberrations in the draft bill that needed to be corrected.

The department has prepared the draft bill for the establishment of the authority for regulation and planned development of the real estate sector, to ensure the sale of immoveable properties in an efficient and transparent manner, and protect the interests of consumers in the sector. The bill seeks establishment of an appellate tribunal to adjudicate disputes and hear appeals from decisions or orders of the authority.

The bill has been uploaded on the department's website for inviting suggestions.

Hitender Rao, 

http://www.hindustantimes.com/Punjab/Chandigarh/Realtors-oppose-move-on-real-estate-regulatory-body/SP-Article1-1017384.aspx

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Ethics, governance step into the murky real estate world

By: Karshni on 04:18

‘Good governance’ is fast becoming a buzzword in the murky world of the country’s real estate. At a time when the realty sector is facing a credibility crisis, following its links with the 2G telecom scam, regulators, government, non-profit bodies and stakeholders are working on measures that might bring a semblance of order in the chaotic industry.

The National Housing Bank (NHB) and the Indian Banks Association (IBA), for instance, are learnt to have finalised guidelines for property valuation that can be used as yardstick for bank lending. Valuation of property is extremely disorganised in India and lacks uniformity of any kind, while it is a streamlined business the world over, points out a real estate expert.

Sachin Sandhir, managing director and country head (India), Royal Institution of Chartered Surveyors (RICS), told Business Standard that initially banks and financial institutions would use the property valuation guidelines as recommendation, but these might become mandatory for the industry over a period of time. The project is being carried out under the guidance of the Reserve Bank of India (RBI).

PSN Rao, chairman, National Association of Realtors, said a Valuers’ Bill had also been in the works for some time, and it would be a good idea to revive it. “Wrong valuation while mortgaging a property for loan has been a concern in the country for long,” Rao said.

In another step to cleanse the realty sector, the Royal Institute of Chartered Surveyors, a non-profit global professional body for the real estate sector started in the UK some 140 years ago, has been talking to the Securities and Exchange Board of India (Sebi) to introduce global standards for valuation of IPOs (intial public offers) in this industry. IPOs based on incorrect real estate business valuation must not continue, Sandhir pointed out.

Among some other global best practices that may come to India in near future are brokerage and property measurement standards.

Interestingly, the Confederation of Real Estate Developers of India (Credai) recently announced the ‘Vision Transparency’, with the aim to remove corruption from the sector, reduce administrative cost for the government and bring down the sale price of a tenement. Credai President Lalit Kumar Jain, said: “To ensure transparency, compliance and development standards, it is imperative that the government energise the process of approvals that currently constrains the system.”

Besides offering professional education and courses in real estate, RICS, which opened its India chapter 18 months earlier, is going all out on skill workshops and conferences on real estate. ‘Ignite Change’ is one such conference it would organise for builders in Singapore towards the end of this month, and Urban Development Minister Kamal Nath, among others, would attend the meet.

It may just throw up some answers for the realty sector, the country’s second-largest employer after agriculture.

Nivedita Mookerji

http://www.business-standard.com/article/economy-policy/ethics-governance-step-into-the-murky-real-estate-world-111042400026_1.html

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Knee-deep in levy muddle, realtors look to budget for direction

By: Karshni on 04:37

An analysis of the last few budgets proves that the real estate sector has been left almost untouched with no announcements directly benefiting the sector.

Post introduction of Negative List regime, ambiguity has arisen regarding exact service tax implications on various charges recovered by developers.

TROUBLED WATERS

Developers and investors are wading in troubled waters due to reduced demand, liquidity crunch and delayed projects, says Sherry Samuel Oommen, founder and senior partner, GyanMagnus Associates.

There is a possibility that the rate of minimum alternate tax (MAT) could stand increased from 18.5 per cent to 20 per cent in the new budget.

While the enhancement in rate to 20 per cent could be justifiable, imposition of MAT on gross assets would clearly be retrograde, Oommen said.

Greater clarity on the roadmap for implementation of Goods and Services Tax would be critical for the sector, he told Business Line.

Section 35AD of the Income-tax Act, 1961 provides a 100 per cent deduction of capital expenditure in the first year of business set up for certain specified businesses, which includes affordable housing.

Currently this deduction does not benefit developers, since business of developing housing project does not involve capital expenditure.

This is so because construction and land are stock in trade and not a capital asset. Thus, relooking at the incentive for affordable housing becomes critical.

On a different plane, cascading effect of stamp duty has been a major reason for non-registration of deals and for alternate conveyance options.

STAMP DUTY

Introduction of uniform stamp duty rates and stamp duty credit will reduce costs for ultimate buyers and foster transparent deals. It would be indeed welcome if the State Government could introduce the same in the ensuing State Budget, Oommen said.

While introducing the negative list of services, those provided for construction of single residential units were exempted, making every other residential construction taxable. The exemption was granted without taking into consideration the ground realities, Oommen said.

Most middle income or lower income families construct houses as two residential units with intention of giving on rent one of the residential units.

Consequently the service in relation to this gets taxed. But the high income group would never have two residential units and consequently this goes untaxed. This anomaly should be rectified, Oommen added.

VINSON KURIAN

http://www.thehindubusinessline.com/news/real-estate/kneedeep-in-levy-muddle-realtors-look-to-budget-for-direction/article4443615.ece

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Budget 2013: Industry status, cheap funds top real estate sector wish list

By: Karshni on 02:01

The real estate sector has a long list of expectations from the upcoming Union Budget . Apart from industry status, which the real estate sector has been seeking for long, real estate companies are demanding easier availability of funds, more clarity on land titles, a check on the rise in prices of construction materials and liberalised terms for external commercial borrowings or ECBs.

"The country's real estate industry contributes approximately 5 per cent to the gross domestic product. However, due to lack of regulations and effective policies, the sector is experiencing many challenges on its growth path. The Budget must consider the fact that the Indian real estate sector generates countless jobs across its various verticals. By granting it industry status, the government will enable it to access loans at lower interest rates and collateral values," says Anuj Puri, chairman and country head, Jones Lang LaSalle India, a property consultancy firm.

The sector has been going through a difficult phase with several builders facing liquidity crisis. Some have even defaulted on debt.

"The high cost of finance through the successive increases in bank rates over the last three years, reduced liquidity and a more congenial environment for foreign direct investment, or FDI, into the sector are areas that the government can look into," says Pranab Datta, chairman, Knight Frank India, a realty consultancy.

"The regulatory framework for FDI needs to be relooked at so that constraints can be removed and the funds are not allowed to be employed for speculative purposes," says Datta.

Confederation of Real Estate Developers' Associations of India (Credai) President Lalit Kumar Jain says lending to the real estate sector has declined. "Over the last nine months, credit to commercial real estate (by banks) has gone down by more than 13 per cent and priority lending to the housing sector by 1.29 per cent. The total lending to the commercial real estate is a mere 4 per cent," says Jain, who is also the chairman and managing director of Pune-based Kumar Urban Development.

Jain says the present risk weight for commercial real estate loans is hurting the sector. Credai has called for banking reforms to facilitate low-cost funding for housing.

"As the sector is not under the umbrella of any specific regulatory authority, financing has been an issue over the number of years of credit slowdown. What is required is liberalisation of finance for the sector. The Budget should increase the scope for ECBs for real estate and provide a general relaxation of financing norms," says Puri.

Cheaper bank finance to home-buyers is also on the wish list of the sector. "The expectation from the Budget is to reduce the interest rate on home loans, especially for the mid-end housing segment, as well as tax incentives for housing investments," says Anshuman Magazine, chairman and managing director, CBRE South Asia, a real estate advisory firm.

"The scope of the interest rate subsidy for loans for affordable housing should be amplified and broadened to include a wider price band of homes to benefit buyers, especially those in the lower income group," says Puri.

Credai also wants more incentives for the affordable housing segment. "Affordable housing should be treated as a priority sector and the rate of interest for it brought down to an acceptable 7.5 per cent," says Jain.

The sector is also demanding an increase in the tax exemption limit to Rs 3 lakh. This may boost home sales by putting more disposable income in the hands of prospective buyers. Some industry players also want the existing home loan interest rate subvention scheme for low-value homes to be extended to houses worth up to Rs 35 lakh. "We hope that the government grants infrastructure status to affordable housing as it will facilitate easy financing and address the housing problem to a large extent. Also, the 1 per cent interest subsidy on home loans should be extended for houses up to Rs 35 lakh," says Boman Irani, chairman and managing director, Rustomjee, a Mumbai-based realty company.

Many real estate players want the Budget to impact policy rates to make lending cheaper. However, it is not a realistic expectation because these rates are set up the central bank.

"It is not correct to expect policy rates such as cash-reserve ratio and repo rate to go down due to measures in the Budget. The Budget has nothing to do with these," says KPMG India Co-head (tax) Girish Vanvari, who also tracks the real estate sector for the consulting company.

"The Budget can announce some fiscal and reform measures to encourage the sector. For instance, you can have tax-free bonds for the infrastructure sector, incentives for housing loans and clarity on legislation such as the land acquisition Bill," says Vanvari.

Extending incentives and measures such as clarity on value-added tax in special economic zones (SEZs) will make the sector vibrant, says the industry. "It will help SEZ developers and allied real estate sectors," says Vanvari.

The companies also want emphasis on developing infrastructure to facilitate real estate activities in suburban locations. "The Budget needs to increase infrastructure spending in urban areas with a view to unlocking the value of neglected and hidden land assets in sub-urban and peripheral districts. This will enable more holistic growth for the real estate markets in our overburdened metros and help bring down prices in the central areas," says Puri.

The sector also expects the government to allow real estate investment funds (Reits, which are mutual funds that invest in properties for rental income and capital appreciation). Reits will allow the sector to mobilise funds from small and large investors easily. At present, in real estate private equity funds, the minimum investment size is Rs 1 crore, which limits the investor pool.

"The introduction of Reits will help mobilise funds (even from small investors)," says Magazine.

Industry players, including realtors and property analysts, are also rooting for the creation of "special residential zones" (SRZs) on the lines of SEZs. "The government could seriously consider enacting provisions for SRZs to promote the growth of housing stock at targeted locations," says Puri.

"The finance minister should allow tax exemptions for small houses with carpet area of less than 60 square metres and creation of special housing zones with tax exemptions on the lines of SEZs for constructing 45-square-metre houses for the low-income group and 30-square-metre houses for the economically weaker sections," says Jain of Credai.

Among other expectations of the sector is simplification of policies to enable quick clearances. At present, developers need clearances from as many as 50-60 authorities, which results in a significant delay in taking projects from drawings board to the construction stage. Some realty players also want the government to finalise the Real Estate Regulatory Bill, which proposes to introduce a regulator for the sector and streamline several processes.

 

 Pritam P Hans

http://businesstoday.intoday.in/story/budget-2013-real-estate-sector-wish-list/1/192576.html

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Super-size terraces Bangalore’s status symbol

By: Karshni on 04:56

A super-size terrace is the new luxury buzzword in this city. Large semi-open spaces attached to penthouses and million-dollar (upwards of Rs 5.5 crore) condos, that can be used as sit-outs , private green spaces or party areas, is the latest fancy of the gilded class here.

For example, an upcoming luxury apartment development, 77° Sky by DivyaSree , in South Bangalore, is offering buyers terrace spaces anywhere between 1,032 sqft and 1,662 sqft, equivalent to the area of standard one-bedroom and two-bedroom flats. The smallest terrace space being offered — 545 sqft — can fit six Innova cars, while the largest — 1,144 sqft — can fit almost 10 of President Obama's super limos.

In some luxury developments, terraces come with a view and a pool. Located in North Bangalore, overlooking the Hebbal lake, Embassy Lake Terraces offers terrace spaces in the range of 770 sqft to 1,364 sqft per apartment . "Villas in the Sky, that's what developers are offering those who can afford it," says Ram Chandnani, deputy MD, South India, CBRE South Asia, a global consultancy firm.

In central Bangalore, Kingfisher Towers-Residences at UB City, being developed by Prestige Estates Projects , has terraces spanning approximately 600 sqft per apartment. Barely two kilometres away, developer Nitesh Estates is constructing an ultraluxury apartment development, Nitesh Park Avenue, which has terrace spaces above 600 sqft per apartment.

"What's the meaning of luxury if you pay more than a million dollars and cannot enjoy Bangalore's fantastic weather?" asks Amit Bagaria, chairman, Asipac, a development management consultancy firm. Bagaria conducted a survey of luxury homebuyers and found the two things buyers wanted in a million dollar apartment were large terrace spaces and floor-to-ceiling glass windows for more natural lighting.

A recent report by real estate consultancy firm L J Hooker (India) says that Bangalore has 52 projects under various stages of development, which have residential units priced above Rs 2 crore — of these, 25 are luxury apartment developments.

"Today, the customer is very conscious of his environment. He wants the convenience of an apartment as well as the luxury of the open space of a garden/ terrace where he can entertain ," says Mayank Ruia, head of residential, at Mumbai-based Phoenix Mills Limited. Phoenix has launched an ultra high-end development residential project in North Bangalore, wherein approximately 10% of the apartment's carpet area has been given to terrace space. "No two terraces face each other, offering complete privacy," adds Ruia.

Terraces are becoming a regular feature in the premium apartment segment too, priced between Rs 75 lakh to Rs 2 crore, says Prashanth Sambargi, partner at Mars Realty, a real estate consultancy. "An average of 150 sqft to 250 sqft of semi-open area per apartment is the new design concept for all developers," he says.

While Bangalore's weather is the biggest reason for buyers wanting terrace spaces, the city's stable pricing regime enables developers to pass on such luxuries to buyers. "Prices in Mumbai and Delhi are way too exorbitant for developers to offer such luxuries and also the weather in the two cities is not conducive to having such open spaces. So that's what makes the trend in Bangalore unique," says Chandnani of CBRE South Asia.

Anshul Dhamija

http://articles.timesofindia.indiatimes.com/2013-02-18/bangalore/37159769_1_divyasree-spaces-cbre-south-asia

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Extend infrastructure sector tax breaks to real estate

By: Karshni on 03:27

India’s otherwise vibrant and thriving real estate sector currently pretty much mirrors the state of the economy. Sales have dropped, margins are under pressure and both high interest rates and fund availability are stumbling blocks.

At the same time, the opportunity is immense and a helping hand in the upcoming budget can give a much-needed fillip to the construction industry. When housing projects take off, it has a rub-off effect on a number of other industries like cement and steel and generates both direct and indirect employment.

According to estimates, there is a shortage of 1.87 crore houses in urban areas. Assuming a conservative cost of `20 lakh for each dwelling, we are looking at a gargantuan investment.

A key demand of real estate companies has been that tax breaks under Section 80-IA of the Income Tax Act, so far given to infrastructure companies, should be extended to the housing sector. Under this rule, infrastructure companies are entitled to a 100% tax holiday for 10 years.

Extending tax breaks to real estate companies will particularly help push affordable housing projects, which has been a key agenda for the government. Given that slums in cities are only expanding, there is an urgent need to address this segment of the housing sector. Clearly, this is one area where the government and housing companies can work together under public-private partnership model.

Infrastructure status also means that developers can access funds from India Infrastructure Finance Co Ltd, which lends at lower rates than commercial banks. 

Approval processes should also become simpler and faster. Currently, obtaining 60-odd permissions to begin construction can take as much as two years. During this time, the cost of acquisition or even simply the cost of holding the land for projects rises. Single-window clearance is the need of the hour to prevent cost escalation, but we know that will not happen in the short term.

The cost of owning a property has gone up significantly due to jump in inflation. The budget, therefore, should provide higher deduction on interest payment on a housing loan. 

Currently, it is capped at `150,000 in a financial year for a self-occupied house. At the same time, the principal repayment which currently forms part of Section 80-C, should be allowed to be deducted under a separate section.

The budget can also look to announce creation of special residential zones on the lines of special economic zones. Such exclusive zones, backed by tax breaks, will translate into development of townships with all facilities including schools, hospitals, recreation centres and office space.

A number of prospective buyers are currently keeping their plans in abeyance due to high interest rates.

Once interest rates moderate, demand is expected to pick up. The Indian economy is at the cusp of recovery. A pragmatic, balanced budget will only hasten that process.

Rajeev Talwar executive director, DLF Ltd

http://www.dnaindia.com/money/analysis_extend-infrastructure-sector-tax-breaks-to-real-estate_1801913

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Realty players upbeat as sales begin to pick up

By: Karshni on 03:48

Improved sales and customer enquiries are helping listed realty players get back on track. Most players have reported growth in net profit in the third quarter ended December 2012, prompting industry watchers to claim that the slowdown in the real estate segment is bottoming out.

Both Unitech and DLF have reported growth in profits after almost nine straight quarters. The two largest listed players said they were ramping up construction activity in the coming quarters. DLF said it had reduced its debt by Rs 1,870 crore by selling its non-core assets.

Unitech’s consolidated net debt stood at Rs 5,421 crore as on December 31, 2012, with the net debt to equity ratio at 0.45, which the company said was one of the lowest in the industry.

Godrej Properties, another listed entity, also cited improved sales from new projects as a main reason for improved profits.

“The sales numbers have improved mainly on the back of new projects which we launched during the quarter. Despite flat sentiment in the overall real estate market, we received good response for our launches,” Pirojsha Godrej, Managing Director and Chief Executive, said. The company had launched four projects across key markets of Mumbai, NCR and Bangalore.

Unitech meanwhile said finance costs too had declined in the October-December quarter to Rs 8.4 crore from Rs 27 crore in the same year-ago period.

SCALING UP

“There has been a significant scale up in construction activity in recent months and the worker strength at sites has reached an all-time high,” Sanjay Chandra, Managing Director of Unitech, said, adding that the company is focused on ramping up the construction activity in the coming months, particularly to clear the delivery backlog.

According to a Knight and Frank estimates, in Mumbai alone as many as 83,000 units, that is, three-quarters of the inventory, remained unsold at the end of 2012.

The increase in inventories, stagnating absorption levels, rise in interest costs for the realty sector, and decline in net profits during 2012 is likely to compel developers to lighten unsold inventory levels and de-leverage their balance-sheets, Knight and Frank said its outlook.

bindu.menon@hindu.co.in

http://www.thehindubusinessline.com/news/real-estate/realty-players-upbeat-as-sales-begin-to-pick-up/article4425332.ece

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Housing and Real Estate -Budget 2013-14

By: Karshni on 00:06

The sector has been undergoing corporatisation and professionalisation and recognised as a key sector contributing to the economic development of the country. 

After witnessing strong growth in 2010, the sector witnessed a slight correction in the year 2011. The downside for the sector was a weakening in demand due to the global economic scenario, a slowdown in the domestic economic conditions, escalation in input costs including interest costs and controversies over land acquisition. The current easing stance of RBI has rejuvenated sentiments in the sector. However economic conditions can be termed challenging in the short term. In the long run, urbanisation is inevitable and this will bring significant demand for real estate, and therefore the sector’s has significant growth prospects. 

The year 2012 had been sluggish for the Indian economy, with the lower GDP backed by high inflation. However, the tough economic conditions have led developers to adapt quickly to the changing economic situation. While developers in the commercial segment are offering flexible leasing terms to attract occupiers, real estate companies in the residential space are concentrating on building affordable homes, thereby widening their consumer spectrum. 

Another factor that can help real estate companies tide over the difficult times would be the ability to judiciously use cash by liquidating existing inventories. The government has taken initiatives such as relaxation in external commercial borrowing norms, capping subsidies as a fraction of the GDP, new manufacturing and telecom policies to revive global investor confidence. These steps are expected to generate positive results and will assist in generating investor inflows. 

The government has already made efforts for revival of Indian economy by introducing FDI in multi brand retail and aviation industry, and is committed to introduce changes in the existing SEZ policy to resurrect developer interest and expand the role of the private sector in infrastructure development. 

The Government is also heading towards passing of Land Bill for introducing various land reforms. The contentious land acquisition bill which was supposed to be reintroduced in Lok Sabha in December 2012, was deferred till the Budget session. The new land acquisition, resettlement and rehabilitation bill was introduced in September 2011. It was later referred to a standing committee for settling contentious clauses. They have brought about 155 amendments and had also broadened the definition of public purpose, allowing all sorts of industry. The Bill if approved will change the dynamics of real estate and housing sector in India. 

Implementation of other Key economic reforms is likely to result in a gradual improvement in macro-economic conditions in the coming few months. This, coupled with a slow and gradual economic recovery in the Eurozone, is likely to result into a revival in demand in the real estate market.

At present the Real estate and housing sector is in sheer need of government support for its growth. Inspite of being recognized as key sector in development of company the sector which has still not received the status of separate industry. Budget should 2013-14 should provide a separate industry status to housing and real estate sector which will help corporates in this sector to avail funds both long term and short term finances with ease.

Awarding Infrastructure status to development of integrated townships will be a welcoming step towards development of real estate and housing sector as in the process of development of an integrated township, apart from development and construction of above establishments, various facilities such as roads, water supply, sewerage system, sanitation, water treatment, electrification, land scaping, solid waste treatment, horticulture and other civic services are also created which are handed over to respective State Governments/Local Bodies. These integrated township projects are therefore in a way at par with the BOT (Built, Operate & Transfer) projects. In order to motivate the genuine Real Estate Companies to come forward and step into promotion and development of large integrated townships in line with above arrangements to mitigate the huge shortage of housing to all class of society, it is required that Integrated township development projects be brought within the definition of infrastructure.

Also the Common man has lot of expectations from Budget 2013-14 as far as housing and real estate are concerned which is the basic need for them. Budget 2013-14 is expected to bring relief to common man by including provisions which will help them to have affordable housing and loans. Considering the high prices of dwelling units across country and particularly amongst tier 1 and 2 cities, the home loan up to Rs.25 lakhs as priority sector classification should be enhanced Rs.35 Lacs for consumer loan. The same shall boost the demand for real estate and housing and would also help individuals to satisfy their basic housing need.The recent hikes in Stamp Duty// Registration Fee / VAT / Service Tax to buyers in various states has also affected the investor sentiments and added to the cost of acquisition of the house property. Budget 2013-14 is expected to provide relief from same. The borrower should be eligible to avail 90% of the costs of purchase as loan for the first purchase and second purchase of the house, eligibility to be brought down to 80% insisting on 20% by the borrower margin. In both cases Stamp Duty, Registration, VAT, Service Tax should be included in the cost to bring relief to the borrower.

Currently a deduction upto a maximum limit of Rs. 1,50,000/- is available from taxable income towards interest on loan taken for acquisition/construction of self-occupied house property. Government in this budget session shall increase the limit to 2,50,000 per annum considering the rising interest rate and inflation.

In the case of home loan repayments, the ceiling under tax benefits is capped at Rs.1,00,000/- for principal paid. The ceiling of Rs.1,00,000/- under Section 80C is less, particularly when home loan principal repayments are clubbed with other tax saving instruments. Therefore, the deduction for principal repayment of housing loan under Sec 80C should be either increased from the existing limit of Rs.1 lakh or the principal repayments treated as a separate tax exemption entity and excluded from benefits under section 80C.

Budget 2013-14 should provide for ground rent in the sense that deduction for ground rent should be restored while computing the income under the head 'House Property'. Considering the rising value of land and proportionate ground rent in metros and other big cities, it is required that the deduction for ground rent be separately provided i.e. in addition to the overall statutory deduction of 30% available within the ambit and scope of section 24 of the Income tax Act.

Considering the need to provide affordable houses at a very fast pace in the country, new construction technology is required (such as aluminum formwork or precast technology). Currently most of these technologies are being imported and have high taxes levied on them. The customs duty/ taxes paid for importing these technologies vary in the range of 20-25%. This prohibits the use of these technologies and hence the pace of development of affordable housing. The need of the hour is to reduce these taxes for the development of housing for the EWS/LIG segment.

All the above suggestions and expectations if incorporated in the coming budget will help the industry as well as buyers, as the same will boost sales and make buying homes easier for common man. Thus we see that there are lot of expectations from budget 2013-14 from housing and real estate sector and the common man for whom satisfying his basic need of shelter has become a distant dream. Budget 2013-14 has dual responsibility of reviving the struggling housing and real estate sector and satisfying the hopes of common man.

Madhavi Thanvi

http://english.samaylive.com/business-news/budget-2013/expert-comments/676523966/budget-2013-14-housing-real-estate-news-investors-global-stakeho.html

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Can the real estate bill protect flat buyers

By: Karshni on 03:20

With the Parliament in all likelihood set to discuss the Real Estate (Regulation and Development) Bill in the coming budget session, property buyers have much to cheer. 

According to property experts,a strong legislation would put a restrain on unethical and unscrupulous practices in the real estate industry, which from the outside looks very fascinating when the skyline of several Indian cities is changing. ``While the penal interest provision could hurt realty players; the Bill if it goes through would indeed in the interest of several buyers - especially the middle class, for whom purchasing a property has been a herculean task (due to skyrocketing prices) and unscrupulous practice adopted by some developers,'' said Ramesh Prabhu, a consumer activist. 

The Bill has been framed under provisions dealing with "property transactions" in the concurrent list of the Constitution that applies to states, making the proposed legislation more than a model law. 

The Real Estate (Regulation and Development) Bill has proposed the following, which intends to protect the interest of property buyers: 

- Real estate developers will have to disclose project details and contractual obligations to ensure transparent, fair and ethical business practices. Hence there could be model agreement which could reduce ambiguities in real estate transactions, which you as buyer may not be familiar with. 

- Moreover, the regulation will make it mandatory for private developers to register all projects before the sale they sell property to you as buyers. The property shall be registered provided that all necessary clearances have been obtained and all major concerns of the buyers are addressed about incomplete or fraudulent land acquisition. 

- If the developer fails to declare the status of clearances, the Bill provides for levying a fine that can amount 10% of cost of project or three years of imprisonment. 

- Also ensuring that the developer adhere to timelines, the Bill states that the realty player will have to park 70% of funds in a particular bank account, thereby precluding resources from being diverted and thus safeguarding property buyers. 

- The Bill also enunciates that developers should sell a residential property on the basis of "carpet area", instead of the current practice of "super area", thereby ensuring that buyers get a better deal and transparency (over the how much carpet area you can enjoy) prevails.

Rajshri Mehta

http://timesofindia.indiatimes.com/business/india-business/Can-the-real-estate-bill-protect-flat-buyers/articleshow/18450731.cms

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Union Budget 2013: Real estate biz seeks easy finance, FDI: Knight Frank

By: Karshni on 04:43

The budget for 2012-13 did not have much to offer for the real estate sector and without any stimulus it is not surprising that the difficult conditions in the sector escalated further. With absorption of commercial real estate having fallen as also housing, the industry finds itself in a tight corner with mounting debts and declining profits.

While the industry should not rely only on government support to bail it out and must look within for 'out of box' approaches,to bounce back at the earliest. It must be acknowledged, considering its vital importance to the economy and the fact that it provides one of the core basic human needs, it has a legitimate case for appropriate facilitative environment in which the sector can prosper and add value to the economy. An incremental or a 'cut and paste' solution will not do. While the regulatory framework needs to be spelt out through the relevant Bills that have been in the pipeline now, it is equally important that some of the challenges that the sector is facing currently are appropriately dealt with. 

For instance, the high costs of finance through the successive increases in bank rates over the last 3 years, reduced availability of liquidity and a more congenial environment for inflow of FDI into the sector are the areas that the government can look into. Without cross border fund flows, the burden will fall only on the banking sector or the private channels (not the best sources). Though the FDI experience so far has been dismalduring the learning curve, hopefully future inflows will not have to go through the trauma of the earlier period.The regulatory framework for FDI needs to be relooked so that the constraints can be removed and at the same time funds are not allowed to be employed for speculative purposes.

There is also a need to fast track the creation of structures such as REITS and real estate funds and a market created for commercial, retail and hospitality assets to improvethe liquidity in the system.

As regards, hurdles to improve offtakes of housing stock, the price value equation needs to be restored. The slowdown in the sector reflects the operation of market forces which hopefully will compel new development to factor the consumer paradigm appropriately for better offtakes. 

Real estate can make a big difference to the economy and it is important that the government provides the required impetus to the sector to improve national growth rates, giventhat there is such a huge unmet demand. Some critical catalytical steps can give exponential benefits to the real estate industry and these are essential for long term sustainable development of the sector.

Pranab DattaKnight Frank India

http://www.moneycontrol.com/news/real-estate/union-budget-2013-real-estate-biz-seeks-easy-finance-fdi-knight-frank_820681.html

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RBI rate cut may boost demand for real estate

By: Karshni on 01:37

The Reserve Bank of India’s (RBI’s) monetary easing could prompt a rise in real estate demand, leading to prices firming up after having dropped around 4% in the recent past, said R.V. Verma, chairman and managing director of National Housing Bank (NHB), the regulator for housing finance firms.

Builders with unsold stock may raise home prices, Verma said on Thursday.

“The Residex (index of property prices in various Indian cities) for January-March could reflect this trend. We are watching it closely,” he said.

RBI cut the key policy rate by 25 basis points (bps) in its 29 January review of monetary policy, and analysts expect it to follow an easy money policy to boost economic growth. Following the RBI rate cut, many banks announced cuts in lending rates, fuelling expectation of a pick-up in retail housing demand. NHB also reduced its prime lending rate, or the rate at which it it lends to other banks, by 25 bps to 9.75% the same day. One basis point is one-hundredth of a percentage point.

The rise in demand will be mainly in tier II and tier III cities where prices are still affordable, said Verma.

“There has been a position of oversupply, which has had a moderating effect on prices. Prices are down 3-4%, primarily in tier II and tier III cities, because this is where the demand for housing loans is concentrated under the slab of Rs.10-25 lakh,” Verma said. “However, because of the increase in positive sentiments and the likelihood of lending rates going down further, the demand may pick up again leading to a price rise in houses by developers which have been under pressure till now.”

Banks have a 67% share of the housing finance market, estimated at Rs.7 trillion as of 31 December. In the Trend and Progress of Housing in India 2012 report released on Thursday, NHB said the housing finance industry could see around 20% growth in 2012-13 from the previous year.

Industry experts said prices are likely to rise in some areas.

“In markets like National Capital Region (NCR) or Mumbai, there have been fewer launches, but pricing has not taken that much of a hit. Prices have been stable or have seen a marginal increase,” said Neeraj Bansal, director, real estate, KPMG. “However, in other parts, where demand has gone down significantly, the developers have been offering good discounts on available prices for ready properties.”

The outlook has become more positive following the cut in interest rates. “There is an increase in positive sentiment, which may lead to an increase in prices in select cities,” he said.

The industry also expects the budget will contain steps that will boost the industry.

“If the industry receives a stimulus, the following quarters post the budget can see more buying from end-users, which will invariably lead to a rise in housing prices,” he said. Bansal said Andhra Pradesh, Mumbai, NCR, Chennai and Bangalore may see house prices increase in the near future. According to some industry estimates, house prices could rise 5-10% in the next few quarters .

Moulishree Srivastava & Remya Nair

http://www.livemint.com/Companies/3aqV5solvv3EuZXvHnbrYM/RBI-rate-cut-may-boost-demand-for-real-estate.html

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Burning issues in real estate regulation

By: Karshni on 04:57

Meet an old friend in a local train or on an air-conditioned bus in Mumbai and it won’t be too long before the conversation works its way around to affordability of houses and continually increasing living costs. Everyone has a story of the exorbitant rent, the sky-high asking price for a mere 1-BHK in faraway suburbs and finally about a friend who had to move away because the bills were just too high.

Since the real-estate sector, which constitutes about 11 per cent of our GDP, is one of the many sectors of the economy which is particularly vulnerable to black money, such situations are bound to rise if strong reform measures are not implemented.

Big reforms are yet to creep in this sector, such as repealing the Urban Land Ceiling Regulation Act, getting our records digitalised, reforming the Rent Control Act, introduction of the property title certification system and rationalisation of property tax designs. But what is most important is the need to integrate the local government bodies in a nationwide digital database.

ACCOUNTING REFORMS

Let’s now focus on some burning regulatory issues requiring immediate attention.

A Guidance Note on Accounting for real estate transactions was issued by the Institute of Chartered Accountants of India in February 2012, but its scope was limited, as it primarily provided guidance on application of percentage of completion method for recognition of revenue. In these times, when investment in property is widely perceived as a common means of parking unaccounted money, Accounting Standards 7 (AS 7) on “Construction Contracts” needs to be revised and made applicable to real estate developers. Further, AS-7 and AS-9 (Revenue Recognition) should be notified under the Income Tax Act, 1961. Similar views were expressed in “White paper on black money” issued by the Ministry of Finance in May 2012 and in a committee headed by the Central Board of Direct Taxes Chairman, in its report, “Measures to Tackle Black Money in India and Abroad.”

The revised schedule VI requires companies to disclose the rates of borrowings for loans taken. Many companies, including some of the largest listed companies have been blatantly ignoring this fact, and have been showing an average rate of borrowing rather than specific rates. Such malpractices need be checked.

Companies should be asked to disclose a sensitivity analysis showing how an increase/decrease in the rate of loan affects the profitability of the company.

For example, a company using high discount rate for valuation, over and above industry norms, will have the least impact on sensitivity analysis. The change in interest rates used should be based on the largest annual change in preceding three or six months Mibor/Libor or variable lending rate over a duration of two to five years. British companies, for this matter, take the largest variation in three months Libor over the last ten years.

The calculations for testing of impairment of assets should be made mandatory as companies take either an unreasonably high/low discount rate for calculation of net realisable value from an asset and hence an impairment loss is almost never reflected in the financial statements. And since AS 28 (Impairment of an Asset), requires disclosure only when impairment loss is there, the anomaly is cleanly kept off the books.

Owing to the volatility in the economic scenarios, similar to investment property valuations, there are serious uncertainties about the possible range of outcomes of impairment tests. Currently more than 90 per cent of the companies place only a note about impairment in the ‘Significant Accounting Policies’.

CURBING SPECULATION

Section 54, 54EA and 54F of the Income-Tax Act should be amended to provide for availing the benefit of non-taxability on reinvesting only twice or thrice by a taxpayer in his lifetime. Capping these limits will help in curbing speculation and flipping transactions, as housing finance companies and the property buyers are provided fiscal incentives do the same. It should be made mandatory for companies to have their properties and capital works in progress valued externally, at least once a year by external certified valuers, rather than the current practice adopted by many companies of valuing it internally by company engineers. Further, companies should be encouraged to provide details of projects under construction and a schedule showing a movement in loans/funds appropriated towards such schemes.

AS 2, “Inventory valuation” read with AS 7, should be revised for making it mandatory to give details of inventory (such as quantitative details required by the earlier Companies Act). This should be given in a clear note along with the movement and reconciliation of units of flats, row houses, plots sold or lying unsold with the company. Companies should be asked to disclose information about the methods, inputs, and assumptions used to determine the transaction price for units of flats or plots.

Companies with joint ventures should be asked to apply equity method of accounting as suggested by IFRS 11 (Joint Arrangements), instead of the widely used proportionate consolidation method.

SUSTAINABILITY

Addressing going concern issues should be made mandatory as in the UK. Companies should be asked to report sustainability performance by means of key performance indicators. The United Nations Environment Programme (UNEP) ‘Sustainable Buildings and Climate Initiative’ reports that buildings represent 40 per cent of global energy use and one third of global greenhouse gas emissions.

Further, FIEC (The European Construction Industry Federation) has put sustainable construction very high on its agenda.

Almost none of our companies in real estate report sustainability performance. The European Public Real Estate Association (EPRA) has initiated a similar process and over two thirds of companies in the EPRA region now disclose sustainability performance.

As of January 2013, the Global Reporting Initiative (GRI) has announced a new research project to publish, by May this year a list of internationally recognised reference material beginning with five sectors, i.e. airport operators, construction and real estate, oil and gas, media, and event organisers.

A little down the road our companies are expected to face significant issues with the adoption of IFRS 10, IFRS 11, IFRS 12 and IFRS 13, also compliance with any Government specific practice guides like the EPRA’s or the guidelines of the GRI, so it’s better our companies shape up accordingly.

ASHOK PAUDEL

http://www.thehindubusinessline.com/opinion/burning-issues-in-real-estate-regulation/article4386291.ece?homepage=true

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Government plans real estate regulatory authority

By: Karshni on 03:48

The Haryana government is working towards setting up a Real Estate Regulatory Authority to regulate the booming real estate sector and prevent unscrupulous realtors from targeting property buyers. The state government is planning to bring a bill to set up the authority in the coming budget session scheduled to commence on February 22, said Rao Dan Singh, chief parliamentary secretary (town and country planning), Haryana, on Tuesday.

"As yet, the property buyers, in case of any dispute with the builders, have to approach the civil courts. After constitution of the proposed authority, they would be able to complain against the builders with the new forum. Apart from giving early relief to them, the authority would also reduce the burden of courts," said Dan Singh, adding the authority may be empowered with quasi-judicial powers.

Talking to TOI, R R Singh, an ex-Army officer and director general of National Real Estate Development Council (NAREDCO), said, "Any regulatory body should have a single window system for setting up guidelines and hear grievances of consumers. It should lay down procedures for reaching builder-buyer agreement, project deadlines for builders and even function as a quasi-court for redress of disputes. The body must also look into problems such as pre-launches of the projects by developers. The regulator should be the umbrella body heading all stake-holders in the sector, with an aim to streamline the various procedures."

When contacted by TOI in Gurgaon, developers said that a regulator must not further complicate and lengthen the existing procedures and add more windows issuing clearances.

The regulatory authority will be headed by a chairman and two members. According to a source, the authority would look into complaints pertaining to disputes related to sale and purchase of flats in housing societies.

Efforts are on to incorporate a provision for imprisoning builders in case of violation of the sales agreement norms related to cost and timeline, said a source adding that the Union government has suggested up to a year's imprisonment or fine up to 5% of the total project cost for violations.

In a similar law being brought by the Centre, the Union law ministry has reportedly proposed imprisonment up to three years or fine up to 10% of the project in case a builder doesn't register with the authority and the project land exceeds 1,000 square metres. The Union government will introduce the Real Estate (Regulation & Development) bill in parliament during the coming budget session.

"The Centre has issued broader guidelines to set up such authorities in all states and we will keep in mind the same before finalizing the draft bill for Haryana," said a Haryana government officer.

Principal secretary, Department of town and country planning , S S Dhillon, said, "We have prepared a draft proposal to seek approval of the chief minister before tabling it in the state assembly."

In the past few years, Haryana has witnessed major real estate activities especially in Gurgaon, Faridabad, Rohtak, Sonipat, Panipat and Rewari due to the state's proximity to the national capital.

Tanushree Roy Chowdhury & Sukhbir Siwach

http://m.timesofindia.com/city/gurgaon/Government-plans-real-estate-regulatory-authority/articleshow/18359171.cms

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Need to relax land use norms to boost low-cost housing: Maken

By: Karshni on 23:16

The floor surface index and land use norms in large cities, which do not have adequate open land for housing needs to be revised. Otherwise, low cost housing for slum dwellers in these cities is not possible, said Union Minister for Housing Ajay Maken on Monday.

He was addressing a Confederation of Indian Industry workshop on governance of megacity regions.

He said that on one hand urban poor, who are major service providers, don’t have proper houses, while on the other, houses of the High Income Group (HIG) and Middle Income Group (MIG) are lying vacant.

The existing polices are more in the favour of HIG and MIG housing colonies. Therefore, rehabilitation of slums in low cost housing schemes in the same areas was the need of the day.

“About 50 per cent of the population in Mumbai stays in slums. In cities like Delhi, about 84 per cent are homeless, but these people are self-employed and contribute towards economic growth. They live close to their workplaces. Therefore, we need to create affordable housing even in premium locations of mega cities. It is required to bring these service providers nearer to the service consumers,” Maken said.

He pointed that the Centre cannot give any directive to the State Governments in the matter of FSI and land use norms, but in the New Delhi master plan, which is under the Centre’s purview, a number of FSI relaxations have been provided for low cost housing.

URBANISATION

He said Indian policy makers took a long time to understand the challenges thrown up by urbanisation. In the early years after independence, the thrust of the planners was to stop the people from coming to the cities. It took two decades to understand that urbanisation was inevitable and it took even longer to realise that it is desirable.

“Today, the urban dwellers, which are 30 per cent of the population, produce about 70 per cent of the GDP. Each urban inhabitant, when compared with the rural one, contributes 2.21 times to the GDP,” Maken added.

He said that policy makers are scared about population density in cities. They cite that a population density of more than 30,000 dwellers per square km in very high. But some areas in London city have a working population of 1.25 lakh per square km.

“Policy makers and government officials should not get intimidated by these figures. Cities have enough resources for these areas, but the real challenge is to manage them properly,” he said.

rahul.wadke@thehindu.co.in

http://www.thehindubusinessline.com/news/real-estate/provide-infra-status-to-affordable-housing-sector-ajay-maken/article4378720.ece

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