Thursday, February 12, 2009
Mini budget may give tax breaks on housing
Mini budget may give tax breaks on housing
The Times of India, February 12, 2009, Page 1
Prabhakar Sinha, TNN
NEW DELHI: The interim budget to be announced on Monday could bring some cheer to consumers and investors, as acting finance minister Pranab Mukherjee may use the opportunity to announce one more stimulus package in the form of targeted tax incentives.
Sources in the government told TOI that Mukherjee may announce tax sops aimed at boosting the housing sector, which has been identified as a potential driver for the economy and job creation during a slowdown.
Normally, propriety would demand that an outgoing government not announce any major policy decisions or changes in the tax structure in an interim budget. But, given the global economic crisis and its impact on India, the UPA has the opportunity to argue that it cannot remain a silent spectator and allow things to drift for months till the new government can assume office.
One populist measure that is being seriously considered to kick start the realty sector -- which could help revive a number of related sectors like steel, cement and electric appliances -- is an increase in the deduction allowed for payments on housing loans.
The Times of India, February 12, 2009, Page 1
Prabhakar Sinha, TNN
NEW DELHI: The interim budget to be announced on Monday could bring some cheer to consumers and investors, as acting finance minister Pranab Mukherjee may use the opportunity to announce one more stimulus package in the form of targeted tax incentives.
Sources in the government told TOI that Mukherjee may announce tax sops aimed at boosting the housing sector, which has been identified as a potential driver for the economy and job creation during a slowdown.
Normally, propriety would demand that an outgoing government not announce any major policy decisions or changes in the tax structure in an interim budget. But, given the global economic crisis and its impact on India, the UPA has the opportunity to argue that it cannot remain a silent spectator and allow things to drift for months till the new government can assume office.
One populist measure that is being seriously considered to kick start the realty sector -- which could help revive a number of related sectors like steel, cement and electric appliances -- is an increase in the deduction allowed for payments on housing loans.
BOOSTER DOSE
1. Tax deduction on interest payments on housing loans may be raised from Rs. 1.5 lakh to Rs. 2 lakh.
2. This could enable those who have bought a house for self-use to save up to Rs. 68,000 in tax from a maximum of Rs. 51,000 at present.
3. Another possible sop could be exempting corporates from tax on profits earned by building small dwelling units.
Sops for realty likely
Sops for realty likely
Hindustan Times Business, February 12, 2009, Page 23
Buffeted by an extraordinary global economic slump, the interim budget to be announced next Monday is likely to unveil several sops for the realty and associated sectors including tax breaks for cement and steel.
As a precursor to the interim budget preparations, a committee of secretaries headed by cabinet secretary K.M. Chandrashekhar has prepared the broad contours of a fresh set of fiscal measures.
Officials did not rule out a cut in excise duty on cement and steel from its current levels of 10 per cent.
Housing sector has been singled out for special attention as it can raise demand through greater income and additional employment generation.
“Construction activities need to be stimulated as this sector has considerable employment potential,” a senior official requesting anonymity said. “The interim budget would contain measures for the housing sector.”
Unfavourable real estate and stock market conditions have coincided with a sharp increase in the scale and size of projects executed and planned over the past two years. As a result, many builders — mainly small and medium-sized ones — are operationally stretched, besides being financially leveraged.
“In an environment where job security is diminishing, business confidence is low and net worth hit by falling stock markets and house prices, better affordability due to property price correction or lower mortgage rates alone cannot act as the catalyst for sales reversal in the real estate sector,” said Siddharth Bothra, an analyst with of Motilal Oswal.
The slowdown in the construction activity can be gauged from the sharp fall in capacity utilisation of cement in India.
The total installed capacity of cement at the beginning of 2008-09 stood at close 200 million tones and another 40 million tonnes were planned to be added during the year.
“While capacity addition has taken place, demand for cement has declined,” the official said.
Capacity utilisation in the cement industry has declined from 95 per cent in 2006-07 to about 85 per cent in the current year mirroring the slowing down of the construction sector.
Finance Minister Pranab Mukherjee has indicated that measures are on the anvil to boost growth in labour intensive sectors.
Hindustan Times Business, February 12, 2009, Page 23
Buffeted by an extraordinary global economic slump, the interim budget to be announced next Monday is likely to unveil several sops for the realty and associated sectors including tax breaks for cement and steel.
As a precursor to the interim budget preparations, a committee of secretaries headed by cabinet secretary K.M. Chandrashekhar has prepared the broad contours of a fresh set of fiscal measures.
Officials did not rule out a cut in excise duty on cement and steel from its current levels of 10 per cent.
Housing sector has been singled out for special attention as it can raise demand through greater income and additional employment generation.
“Construction activities need to be stimulated as this sector has considerable employment potential,” a senior official requesting anonymity said. “The interim budget would contain measures for the housing sector.”
Unfavourable real estate and stock market conditions have coincided with a sharp increase in the scale and size of projects executed and planned over the past two years. As a result, many builders — mainly small and medium-sized ones — are operationally stretched, besides being financially leveraged.
“In an environment where job security is diminishing, business confidence is low and net worth hit by falling stock markets and house prices, better affordability due to property price correction or lower mortgage rates alone cannot act as the catalyst for sales reversal in the real estate sector,” said Siddharth Bothra, an analyst with of Motilal Oswal.
The slowdown in the construction activity can be gauged from the sharp fall in capacity utilisation of cement in India.
The total installed capacity of cement at the beginning of 2008-09 stood at close 200 million tones and another 40 million tonnes were planned to be added during the year.
“While capacity addition has taken place, demand for cement has declined,” the official said.
Capacity utilisation in the cement industry has declined from 95 per cent in 2006-07 to about 85 per cent in the current year mirroring the slowing down of the construction sector.
Finance Minister Pranab Mukherjee has indicated that measures are on the anvil to boost growth in labour intensive sectors.
BUDGETING FOR GROWTH
1. Construction activity has employment potential.
2. Incentives likely for realty and assoicated sectors.
3. Tax breaks for cement and steel.
4. Focus on housing sector as it can raise demand.
5. Measures likely to boost growth in other labour-intensive sectors.
Interest payment dig a hole into realty companies’ pockets
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Interest payment dig a hole into realty companies’ pockets
The Financial Express, February 12, 2009, Page 4
Kakoly Chatterjee, New Delhi
The interest payment as part of total income of real estate companies has gone up dramatically in the current financial year. It has witnessed a four-fold increase during the third quarter of the current financial year. In financial year (FY) 2007-08, third quarter income as a percentage of total income stood at 6.5%, while it rose to an astonishing 25.92% for the current financial year. It can be attributed to the fact that income has plunged by half, while the expenditure on interest payment has more than doubled.
In the current financial year for the quarter ending December, the total income of all realty companies stood at Rs 2,516.56 crore, while the total expenditure on interest payment stood Rs 652.28 crore in comparison with the corresponding quarter of FY07-08 where the total income of companies was Rs 5,898 crore while expense on interest payment stood at Rs 362.53 crore.
For the quarter ending September, interest payment as a part of total expenditure almost tripled. From 5.14% in FY 07-08 it rose to 14.85% during the same period of FY 08-09. With piling inventories and low sales, this number started rising from the first quarter itself when it doubled from 5.13% during the last financial compared with 12.21% during this financial year.
“With lack of growth in the top line, realty companies are feeling the pressure as the interest cost continues to grow. We are, however, hoping that things will look up in the fourth quarter as property price is sliding and interest cost is coming down,” Amitabh Chakraborty, president (equity) at Religare Securities said.
During the third quarter of this financial year when the income of the country’s largest real estate player—the Delhi-based DLF Ltd—came down to Rs 694.16 crore, its interest expense stood at Rs 210.19 crore. This means 30.28% of the income goes towards interest payment. In the corresponding period of FY 07-08 DLF’s income stood at Rs 1812.59 crore while its interest payment was Rs 130.12 crore, 7.18% of its income. Currently, its interest payment burden has become more than fourfold as compared to its income.
The impact of rising interest burden compared to income started getting accentuated from the second quarter of this financial year for DLF. Interest expense as a part of income stood at 13.74% with income being Rs 1362.86 crore and interest expense Rs 187.26 crore. In FY 07-08 interest expense as a part of income was 4.49% with income at Rs 1299.74 crore and interest payment at Rs 58.36 crore
Some developers have already started working on decreasing the interest payment. Delhi-based Parsvnath Developers chairman Pradeep Jain said, “We have paid off some of the principal amount during the third quarter of this financial year to reduce the expense on interest cost.”
Cumulative income of the first three quarters of Parsvnath and Unitech has gone down by 45% and 9.3%, respectively, during FY 08-09 compared with the previous financial year. During the same period cumulative interest expense for Parsvnath rose 153.72% and Unitech’s by 65.12%.
The scenario is expected to improve in the next quarter with the vote on account expected to boost this sector through tax breaks. With a few public sector banks bringing down interest rates to as low as 8%, enquiries from customers has already started picking up. Realising the importance of bringing in movement to the sector realty firms are reducing prices of properties. This additional cash flow will help the fourth quarter to look up as income is expected to rise.
Meanwhile, many realty firms are converting their short-term debts into long-term ones. This would raise the interest expenditure component of the realty firms. “Realty firms are converting short-term debts into long-term ones. As a result, the amount to be repaid is increasing. In a scenario where it is quite impossible for them to pay the principal amount, this burden continues to rise. A little movement in the sector is not going to help until volumes pick up,i summed up Shobhit Agarwal, MD, Capital Markets, Jones Lang LaSalle Meghraj.
'Housing sector to see 30% price correction in 4 months'
'Housing sector to see 30% price correction in 4 months'
The Financial Express, February 12, 2009, Page 12
The prices of houses have come down by up to 30% over the last four months but weak consumer sentiments continue to prevail resulting in subdued demand, says realty consultant Jones Lang LaSalle Meghraj (JLLM).
Affordability metrics for homebuyers have started to improve since October due to the sharp correction in property prices, reduction in mortgage rates and smaller unit sizes per apartment, it said.
"Currently, transaction prices in most markets are down by 25-30% across the board, "JLLM Chairman and country head Anuj Puri said.
Weak Deepawali sales last year and a "virtual standstill"in incremental credit lending during October-December period of the current fiscal have forced developers to mark down their asking rates, he added.
"Price corrections are more pronounced in new launches than existing projects, which are mostly sold to end-users or investors and hence are cost covered, "Puri said.
He, however, said demand of housing properties still remain subdued with end-users postponing their home-purchase decisions given an uncertain job market and expectation of further price corrections.
The consultant said though many developers have shifted their focus towards building affordable houses in the last few months, but due to thin margins on account of high costs of existing land inventories (mainly acquired over 2006-08) and the current level of construction costs, companies are finding it difficult to remain afloat.
"JLLM expects Rs 1,800-Rs 2,000 per sq ft as the bare minimum pricing level in the current market,"Puri added.
PTI
The Financial Express, February 12, 2009, Page 12
The prices of houses have come down by up to 30% over the last four months but weak consumer sentiments continue to prevail resulting in subdued demand, says realty consultant Jones Lang LaSalle Meghraj (JLLM).
Affordability metrics for homebuyers have started to improve since October due to the sharp correction in property prices, reduction in mortgage rates and smaller unit sizes per apartment, it said.
"Currently, transaction prices in most markets are down by 25-30% across the board, "JLLM Chairman and country head Anuj Puri said.
Weak Deepawali sales last year and a "virtual standstill"in incremental credit lending during October-December period of the current fiscal have forced developers to mark down their asking rates, he added.
"Price corrections are more pronounced in new launches than existing projects, which are mostly sold to end-users or investors and hence are cost covered, "Puri said.
He, however, said demand of housing properties still remain subdued with end-users postponing their home-purchase decisions given an uncertain job market and expectation of further price corrections.
The consultant said though many developers have shifted their focus towards building affordable houses in the last few months, but due to thin margins on account of high costs of existing land inventories (mainly acquired over 2006-08) and the current level of construction costs, companies are finding it difficult to remain afloat.
"JLLM expects Rs 1,800-Rs 2,000 per sq ft as the bare minimum pricing level in the current market,"Puri added.
PTI
DLF stalls 2 of its biggest projects
DLF stalls 2 of its biggest projects
Business Standard, February 12, 2009, Page 4
The affected projects are DLF New Town Heights in Gurgaon Sector 90 and Express Greens in Sector M1 in Manesar, launched in January and August 2008, respectively. –DLF Chairman K P Singh
NEERAJ THAKUR New Delhi
Facing acute liquidity crunch and poor buyer sentiments, the country’s biggest property developer, DLF, has stopped work at two of its biggest mid-income housing projects. The move comes after the developer stalled at least a quarter of its commercial projects.
The New Delhi-based builder has halted construction at DLF New Town Heights in Gurgaon Sector 90 and Express Greens in sector M1 in Manesar, both in Haryana. The two projects were launched in January and August 2008, respectively.
Even after a year, the company has merely begun some basic work at its New Town Heights project, according to a report by Nomura Financial Advisory and Securities. In the Town Heights project, DLF has merely undertaken excavation work while in the Express Greens project, the company has just marked the boundary with its bill boards, the report said.
According to sources, the company has sold most of its apartments in New Town Heights in the first few months, offering 3 and 4 BHK apartments at Rs 2,125 and Rs 2,505 square feet, respectively.
However, sales in the Express Greens that offers 3 and 4-bedroom apartments for Rs 1,760 and Rs 2,125 respectively have not been very good. DLF did not respond to a detailed questionnaire sent on Friday.
DLF’s third quarter profit has dropped by 69 per cent to Rs 670.79 crore. The developer has stalled work on nearly 16 million square feet of office and retail mall space out of the 62 million square feet under development.
“All big developers have invested future earnings from soft launches in buying land for future projects. With the demand for new projects drying up, they don’t have money to complete the pre-sold projects,” said an analyst.
However, buyers who have booked houses at the DLF projects may be partly compensated if DLF fails to complete the project in 36 months after the launch, a company official, who declined to be identified, said. The company’s debt has spiralled by Rs 1,500 crore to reach Rs 14,800 crore in the third quarter of FY09, compared to the previous quarter, according to sources.
DLF had recently announced that new mid-income housing projects in Panchkula, Gurgaon, Hyderabad, Bangalore and Chennai to cater to the increased demand in this segment. However analysts say if the company could not start construction on its already sold mid-income housing projects, it is unlikely that the company can come up with any new projects.
Repays Rs 400-cr debt
Mumbai: DLF has repaid Rs 400 crore of debt to lenders, a top company official said. The repayment comes on the back of its stalled commercial and residential projects. The New Delhi-based developer, which owes Rs 14,800 crore to lenders, said it has repaid about Rs 2,000 crore of debt to lenders. “The debt was paid through internal accruals,” a company official said, declining to give more details. The company’s stock dropped 1.08 per cent to close at Rs 150.85 on the Bombay Stock Exchange on Friday.
BS Reporter
Market price of pledged shares vital: Experts
Market price of pledged shares vital: Experts
Times of India, February 12, 2009, Page 21
Times of India, February 12, 2009, Page 21
Investors To Benefit More From This Added Disclosure
MUMBAI: Sebi's decision to force companies to disclose the quantum of shares pledged by promoters has come as an important step for investors who buy and sell stocks based on company fundamentals. However, market players feel another crucial information the price at which the pledged shares could be put up for sale in the market (trigger price) by lenders should also be disclosed since this could help investors take a better view of a stock. Post the Sebi directive, nearly 300 companies have disclosed the extent of shares pledged by their promoters. On Wednesday, over 30 companies disclosed the data to the bourses.
While disclosing the trigger price would not be of much use to investors in a bull market, it could come handy in a bear market like the present one, they said. Additionally, end use of funds raised by pledging of shares could also give investors some indications about a company's future.
"Of course Sebi has taken a welcome step by making promoters disclose the quantum of pledged shares. But it would also help investors to know more about the end use of funds received by pledging and also the trigger price at which the lenders could sell these shares,'' said Puneet Nanda, CIO, ICICI Prudential Life Insurance.
As of now companies disclose the quantum of shares pledged by promoters, percentage of promoters' holding pledged and also percentage of total equity capital pledged. "Disclosing the price at which shares were pledged and the trigger price will help investors take a better view of the stock,'' said Arun Kejriwal, director, KRIS, an investment research and advisory firm.
MUMBAI: Sebi's decision to force companies to disclose the quantum of shares pledged by promoters has come as an important step for investors who buy and sell stocks based on company fundamentals. However, market players feel another crucial information the price at which the pledged shares could be put up for sale in the market (trigger price) by lenders should also be disclosed since this could help investors take a better view of a stock. Post the Sebi directive, nearly 300 companies have disclosed the extent of shares pledged by their promoters. On Wednesday, over 30 companies disclosed the data to the bourses.
While disclosing the trigger price would not be of much use to investors in a bull market, it could come handy in a bear market like the present one, they said. Additionally, end use of funds raised by pledging of shares could also give investors some indications about a company's future.
"Of course Sebi has taken a welcome step by making promoters disclose the quantum of pledged shares. But it would also help investors to know more about the end use of funds received by pledging and also the trigger price at which the lenders could sell these shares,'' said Puneet Nanda, CIO, ICICI Prudential Life Insurance.
As of now companies disclose the quantum of shares pledged by promoters, percentage of promoters' holding pledged and also percentage of total equity capital pledged. "Disclosing the price at which shares were pledged and the trigger price will help investors take a better view of the stock,'' said Arun Kejriwal, director, KRIS, an investment research and advisory firm.
Independent directors bail out of boards
Independent directors bail out of boards
The Economic Times, February 12, 2009, Page 1
The Economic Times, February 12, 2009, Page 1
115 Resign In A Month As Satyam Case Underlines Liabilities Of Board
Mahima Puri & Vivek Sinha, ET Bureau, New Delhi
There has been a sharp rise in the number of independent directors stepping down from boards of listed Indian companies in the past month, after the recent fraud at Satyam Computer Services put the spotlight on the responsibilities and potential liabilities that could accompany this vital, yet hitherto largely ceremonial function.
Some 115 independent directors on the boards of more than 100 listed firms have quit between January 7 and February 7 this year, data compiled by research firm Prime Database along with the Bombay Stock Exchange show. This compares with a monthly average of 50-60 resignations in the past two years.
The link with the developments at Satyam is clear from the fact that it was on January 7 that the Hyderabad-based company’s founder B Ramalinga Raju confessed he had fudged the firm’s accounts for years. The revelation, which took the lid off India’s biggest corporate scam, culminated in a spate of resignations from the company’s board and ultimately led to the government sacking and replacing the board with directors nominated by it.
The Satyam episode tarnished the reputations of its six independent directors, and some of them have been forced to engage lawyers to fight possible litigation by investors, both in India and abroad.
SAFE THAN SORRY
Independent directors shy away from promoter-led cos & firms with strong govt links
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