Real Estate Intelligence Report, Wednesday, July 08, 2009

Industry welcomes Budget proposals

Industry welcomes Budget proposals
The Hindu Business Line, July 8, 2009, Page 15

Our Bureau, New Delhi

Industry on Tuesday congratulated the Finance Minister for paying heed to their suggestions in the Budget.

Welcoming the Budget, the Confederation of Indian Industries (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI) have said they were grateful that their pre-Budget proposals of abolishing Fringe Benefit Tax and Commodity Transaction Tax were considered. They also thanked Mr Pranab Mukherjee, Finance Minister, for largely continuing with the excise and Customs duties and for announcing the rollout of the GST next year.

Speaking to the Finance Minister at an interactive meeting with industry, Mr Venu Srinivasan, President, CII, said, “Your focus on rural markets, employment generation and creating economic opportunities in rural areas would bear fruit for generations to come.” Mr Harsh Pati Singhania, President, FICCI, said, “One element of investment led growth in the Budget was the big boost to the infrastructure sector by earmarking Rs 1 lakh crore for PPP projects, besides a huge emphasis on rural infrastructure.”

He added that the targeted agricultural credit flow of Rs 3.25 lakh crore could propel the rural economy.

However, Mr Singhania suggested that the indigenous defence industry should be given exemption from Customs duty and imported capital goods. Also, a Rs 100-crore technology fund should be setup for SMEs engaged in defence production. Regarding agriculture, he said that cold chain and warehousing should be given infrastructure status, while for education the PPP model on the lines of ITI schemes should be adopted for schools and universities.

He further added that additional exemptions for all subscription to New Pension Scheme (NPS) over and above Rs 1 lakh should be allowed and insurance legislation should be taken forward to enable the flow of long-term money into the infrastructure sector. The cascading effect of dividend deduction tax also needs to be removed, he said.

Mr Srinivasan also expressed reservation on the high fiscal deficit and said that fiscal expansion is necessary under the current economic conditions. He suggested a partial monetisation of the fiscal deficit.

Realty firms disappointed with Budget

Realty firms disappointed with Budget
The Hindu Business Line, July 8, 2009, Page 2

Our Bureau, New Delhi

Reactions to the Budget from the realty companies battling cash crunch and slowdown in property sales: “Utterly disappointed”, “ignored”, and “let down”.

Waiting in the hope of provisions that would pull the sector out of its woes, real estate companies were left disappointed at the absence of any specific incentives for them.

“We are also upset about the fact that the industry, which has an impact of over 200 services and industries, with forward and backward linkages, has been let down…. Since the Government has set a target of achieving 9 per cent growth, we were expecting housing and real estate sector to substantially contribute towards achieving the target.

“The Budget has failed to provide any incentive even to the purchasers of affordable homes,” Mr Kumar Gera, Chairman of CREDAI, said.

Mr Sanjay Chandra, Managing Director, Unitech Ltd, said he wished that the Finance Minister had announced some incentive for the affordable housing sector.

No boosters

Mr Vijay Jindal, Chairman and Managing Director, SVP Group, said: “We were expecting a good increase in income-tax exemption limits to help increase the buyers’ purchasing power.

“Another thing that we were expecting was FDI, but the Budget did not mention FDI or REITs (real estate investment trusts) and REMFs (real estate mutual funds). The Budget has not given any measures that will boost the buyer sentiment.”

Mr Anshuman Magazine, Chairman & Managing Director, CB Richard Ellis, South Asia, said the Budget had largely ignored the housing sector.

“None of the expectations from the industry was touched upon; ranging from increase in tax exemption on people taking housing loans to infrastructure status for integrated townships (Section 80-1A), reduction in housing loan interest rates, etc. There was no impetus given for low-cost housing,” he said.

Budget disappoints realty sector players

Budget disappoints realty sector players
Business Standard, July 8, 2009, Page 5

Bankers caution realtors against raising property prices

Bankers caution realtors against raising property prices
The Hindu Business Line, July 8, 2009, Page 6

Warning against price hike.

Our Bureau, New Delhi

Leading bankers on Tuesday cautioned real estate developers against raising residential prices, saying that any such move at this juncture would stall recovery in the market.

“Certain top-rung developers have already started increasing prices, especially in mid-income projects, following the recent pick up in sales. Besides, with liquidity no longer a constraint, certain developers are seeking once again to increase their margins,” Mr Deepak Parekh, Chairman, HDFC, said.

He said that the real estate market had just begun correcting itself and it would be “extremely unfortunate if the developers were to increase the home prices at this juncture.” Mr Parekh, who was speaking at Habitat Business Forum event organised by FICCI, expressed scepticism on whether existing developers would stay committed to affordable housing segment.

‘short sighted’

Mr S. Sridhar, Chairman and Managing Director, Central Bank of India, echoed similar sentiments, He pointed out that it would be “short-sighted” if the players were to raise prices thinking that the demand is coming back into the market.

“It is difficult to generalise but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand. If the real estate players revise the prices upwards, it will stall the recovery process,” Mr Sridhar said.

He said that the demand for housing loans had picked up among the banks.

Exemption to prefab concrete products welcomed

Exemption to prefab concrete products welcomed
The Hindu Business Line, July 8, 2009, Page 2

R. Balaji, Chennai

The housing and construction industry has welcomed the Budget proposals that envisage a fillip to urban and rural housing, and tax exemption for prefabricated concrete products manufactured at site.

Mr R. Sarabeswar, Chairman and Chief Executive Officer, Consolidated Construction Consortium Ltd, said the full exemption to prefabricated concrete products would give a 12 per cent relief in cost.

Tax relief

This tax relief has been a long-pending demand from construction companies and is a welcome step that complements the Government’s plans to increase spending and investments in infrastructure. Concrete structures such as bridge beams, slabs and blocks would be covered under this exemption.

The Budget announcements also hold significant points that will drive infrastructure development, construction and housing. This includes 23 per cent higher allocation to highway projects, plan to construct one lakh houses for the para-military forces and the huge scheme announced to increase supply of rural housing and urban housing targeted at creating slum-free cities.

Increased allocation to IITs and other academic institutions would also drive construction of new academic buildings, he said.

The proposal to provide for a larger role for India Infrastructure Finance Company Ltd in infrastructure financing is a welcome step, he said. This would encourage public-private partnership in infrastructure financing and encourage flow of bank credit to PPP projects, Mr Sarabeswar said.

However, the proposal to expand the National Rural Employment Guarantee Scheme is a retrograde step in the long term. It would have an adverse impact on creation of a skilled and employable labour force.

The proposal to allocate Rs 39,000 crore to the scheme with a target of daily wage of Rs 100 will only encourage unproductive labour.

The money could be better spent on creating large-scale training infrastructure, Mr Sarabeswar said.

Govt will not crowd out corporate borrowing

Govt will not crowd out corporate borrowing
The Hindu Business Line, July 8, 2009, Page 1

Divestment roadmap will have stakeholders’ input: Pranab.

Our Bureau, New Delhi

The Finance Minister, Mr Pranab Mukherjee, has assured the private sector that the proposed higher Government borrowing for 2009-10 would be planned in such a manner that it would not crowd out corporate borrowing.

Budget 2009-10 has projected a gross Government borrowing of Rs 4.51 lakh crore for the current fiscal, about Rs 89,000 crore more than what was forecast in the Interim Budget. This had raised concerns that the step-up in Government borrowing to fund increased spend on social programmes could raise interest rates in the economy and thereby raise the cost of borrowing for the private sector.

“We will plan our borrowing in such a way that the private sector does not suffer from that (huge increase in Government borrowing). The intention is not to crowd out the private sector from the market,” Mr Mukherjee told industry captains at a post-Budget meeting here today.

Micro details

On the issue of disinvestment roadmap not finding any specific mention in the Budget speech, Mr Mukherjee said, “Budget is not the platform to set forth micro details and minute aspects of the disinvestment roadmap.

Disinvestment roadmap should come only after good deal of discussions with all the stakeholders. I had made my intentions clear in my Budget speech and highlighted that people participation in PSUs will be encouraged,” he noted.

The Finance Minister also admitted that high fiscal deficit was a problem and that the Government would make earnest effort to cut fiscal deficit (as a percentage of GDP) to 5.5 per cent in 2010-11 and 4 per cent in 2011-12.

He said that it was a conscious decision of the Government to go for a big hike in Plan outlay in this year’s Budget even if it involved risking a higher fiscal deficit. “I had no option but to heavily depend on borrowed resources.”

The Finance Secretary, Mr Ashok Chawla, told Business Line that the debt management committee of Finance Ministry and the RBI would meet on July 17 to “fine-tune” the already declared calendar of Government borrowing for the first half of the current fiscal. “We will also plan for the second half.” He also highlighted that the RBI would conduct open market operations and nearly 50 per cent of the projected gross borrowing could be achieved through RBI support.

Softer rate regime over, say bankers

Softer rate regime over, say bankers
Business Standard, July 8, 2009, Page 1

BS Reporters / Mumbai/new Delhi

Finance Minister to address RBI’s Central Board of Directors on July 11, may discuss the government’s borrowing programme

A day after the government announced record market borrowings to boost demand, bankers anticipate rising interest rates in the next six months.

The overall consensus was that the days of softer interest rates were over, since the government would be forced to pack in a dramatic increase in borrowing in the next three months, pressing the Reserve Bank of India (RBI) to buy more bonds from the market, crowding out borrowing by the private sector. Typically, demand for bank credit surges in the second half of the fiscal year.

Finance Minister Pranab Mukherjee will address the Central Board of Directors of the Reserve Bank on July 11 and is expected to discuss the government’s borrowing programme and other issues.

Most bankers are also pinning their hopes on a scheduled meeting between the finance ministry and the Reserve Bank of India on July 17 to finalise the revised borrowing calendar.

Bankers are also waiting anxiously for the first quarter monetary policy review scheduled for July 28, where the central bank is expected to announce its strategy to ensure that government borrowings would not affect corporate fund raising plans and interest rates.

The Budget document shows that the central government will borrow Rs 4,51,093 crore from the market in fiscal 2009-10, substantially higher than the Rs 3,62,000 crore planned earlier this year.

Today Finance Secretary Ashok Chawla said there was adequate liquidity in the market. He added that RBI would increase its subscription of government securities through open market operations (OMO), but declined to say how much the Centre wants the central bank to mop through this route. “Both RBI and various bank chairmen have said there is no liquidity problem to support the government borrowing programme,” he said.

In Mumbai, O P Bhatt, chairman of State Bank of India (SBI) told reporters after a pre-policy meeting with Reserve Bank of India Governor D Subbarao that interest rates could rise in the next six months on likely robust credit growth in October-March.

There was a discussion on how to manage the borrowing in a phased manner so that there is no pressure on interest rates, Bhatt said, adding, “my own view is that the interest rate scenario is soft. For some industries or for some sectors, further softening may take place. But six months down the line, when credit growth picks up and all the borrowing takes place, the rate could stabilise or harden a little bit,” Bhatt said.

Bond dealers have had a tough time ever since Finance Minister Pranab Mukherjee’s announcement of a higher fiscal deficit of 6.8 per per cent against 5.5 per cent stated in the interim Budget in February. The yield on the government bonds across maturities shot up by over 20 basis points on Monday.

What also added to the woes were signals that the government would front-load the borrowing programme as RBI announced auction of bonds worth Rs 15,000 crore last evening, against the weekly average of Rs 8,000-12,000 crore few weeks ago.

Soon after Mukherjee ended his speech, the yield on 10-year government paper shot up to 7.03 per cent. Yields have an inverse relationship with bond prices, so rising yields suggest that bond prices are falling.

But even before the fresh borrowing calendar was finalised, RBI and government officials have seen an increase in its workload.

With bond prices crashing, the first statement came from the finance ministry with Chawla telling reporters on Monday that at least half the Centre’s gross borrowing would be through open market operations.

Minutes later, RBI Deputy Governor Shyamala Gopinath said borrowings would be undertaken in the least disruptive manner. Even today (Tuesday) RBI told bankers that it will ensure that government borrowing programme is conducted smoothly.

While this had a comforting impact on the markets as seen from less volatile trading in bonds (the yield on 10-year bench mark paper moved between 7.06-7.08 per cent), it was not sufficient to allay fears.

“The demand-supply mismatch has made a comeback. There is no great appetite to absorb so much of borrowing as banks are sitting with comfortable SLR holdings…. The next direction will be known in the July monetary policy review and till then there will be pressure on yields,” said Moses Harding, Head Global Markets Group at IndusInd Bank.

In a report, Standard Chartered bank noted that the government and RBI were making comforting statements for the market, but said, “considering the negative headline print on overall GoISec issuance, the central bank may have to come up with more concrete measures to placate negative market sentiment.”

Though Chawla has said that at least 50 per cent of the borrowings would be through open market operations, what the market is looking for is how much would be the eventual borrowing.

In terms of options, RBI’s has fewer tools at its disposal but bankers such as Corporation Bank Chairman and Managing Director J M Garg said that the central bank would first look at unwinding the market stabilisation (MSS) bonds and open market operations before exploring the prospects of reducing the cash reserve ratio and the repo rate.

“At present, there is sufficient liquidity in the system and credit offtake is low. Instruments such as CRR and repo rate would only be used if the liquidity situation tightens,” Garg said.

Outstanding MSS bonds decreased to Rs 22,890 crore at the end of June from Rs 88,077 crore at the start of the year as RBI tried to ensure that government borrowed more without affecting the market. But open market purchases have increased to Rs 43,159 crore at the end of June 26 against Rs 14,642 crore in the corresponding period last year. The target for the first half of the current financial year is 80,000 crore.

“The focus will now also be on supportive measures from the central bank, notably its open-market operation (OMO) purchase programme... Moreover, WPI inflation remains in negative territory, and we anticipate another cut to both the reverse repo and repo rates in Q3-2009. This may provide some support for the bond market in what is otherwise likely to be a depressed environment in the near term,” Standard Chartered said.

Bankers ask RBI to extend deadline for NPAs restructuring to December

Bankers ask RBI to extend deadline for NPAs restructuring to December
The Financial Express, July 8, 2009, Page 13

fe Bureau, New Delhi

The bankers have asked the Reserve Bank of India (RBI) to extend the existing deadline for facilitating the restructuring of the defaulting accounts to December 30.

A day after the Budget, RBI governor, D Subbarao and all three deputy governors-Usha Thorat, Shyamala Gopinath and KC Chakrabarty- to take stock of the current situation and offer suggestions for the forthcoming announcement of first quarter review of annual credit & monetray policies on July 21.

Leading bankers who met the RBI officials are chairman, State Bank of India, OP Bhatt, managing director, ICICI Bank Chanda Kochhar, chairman & managing director, Canara Bank AC Mahajan, chairman & managing director, IDBI Bank Yogesh Agarwal, and discussed on range of issues including situation about non-performing assets, government borrowing programme and infrastructure finance.

Bhatt said RBI’s deadline for restructuring of accounts by banks ends by June 30. ``But, in case of consortium lending where there are dozens of banks, the process is taking a lot of time because bankers have to meet and they have to go back top their management committees or boards. On the other hand, the borrowers too have to go to their management on the issue. So, in some cases, the processes cannot be over by June 30, though the process has already commenced. So, there was a request that some more time could be given and it would be better if the time was extended until December as in case of agricultural relief which the government has already done.’’

According to him there is not much credit growth in the system.

``At least, during the first quarter of this year, there is not much credit growth. The consensus is that there are lots of signs available in the economy. And that despite business activities improving across multiple sectors, the economic activities are not showing up in bank lending. But, we believe that by the time lag, it is going to happen. So, more credit growth will take place now than the last quarter and in the second half of the year, it is going to be much, much better.’’ The bankers also discussed whether the NPA handling by the banking system have been good or something more needed to be done for it. Some discussion on liquidity also was a part of interaction between bankers and RBI deputy governors.

The bankers were of the opinion though currently, there is liquidity overhang in the system, it would be all sucked out once government borrowing programme, which is quite large during the year begins and possibly strain the system . The bankers are in favour of consensus on the time and overall management of borrowing programme.

However, the bankers urged the RBI to manage government borrowing in a phased manner so that there is no pressure on interest rates. By and large, it should be possible to manage it in a manner that it will not pose any huge stress on the system. “First, we discussed what can be done to create mid-term or long-term market for infrastructure issue and the NPA in the infrastructure which have become sticky assets because there is a delay in implementing the project because of land acquisition or environmental clearances. Whether these can be treated as special cases,’’ said Bhatt.

Commenting on the Budget, Bhatt said that if the government makes finances available to the bankers, then lending for infrastructure sector would be easier for bankers. On interest rate, Bhatt said that at the moment, the interest rate scenario is very soft. “Maybe for some industries and for some players, it could see further softening, which could take place. But down the line, when credit growth picks up and when all the borrowings take place, either it would stabilise there or it may even harden a little bit,’’ he said. IDBI Bank CMD Yogesh Agarwal said there are two kinds of interest rates. “While 10-year G-Sec yield will go up with market borrowings, interest rates on credit growth is essentially a function of demand and supply. So much of liquidity is there in the market right now and no much credit offtake was happening. So, I don’t see interest rates rising further,” he said.

Experts warn of higher tax regime

Experts warn of higher tax regime
The Financial Express, July 8, 2009, Page 13

fe Bureau, Mumbai

Noted tax consultant and Supreme Court lawyer, Homi Ranina has said that the next Union Budget of India, to be presented in February 2010, is expected to be worse than the recent one, as government would have no option but to take stringent measures to narrow the fiscal deficit of the country.

India would witness a high tax regime at least for the next 2-3 years.

While delivering a lecture on Implications of the Union Budget 2009-2010 at C H Bhabha Memorial Endowment Public Meeting at the Indian Merchants’ Chamber in Mumbai on Tuesday, Ranina said, “The proposed GST and direct taxes code announced in the recent budget are aimed at raising the revenues from people, while reducing huge government borrowings. I believe, most IT exemptions would get withdrawn under the proposed direct tax code.”

“To check fiscal deficit, we cannot afford to print more currency like what’s happening in the US. The government has no choice but to increase infrastructure spending, promote public savings and tax them more to narrow the fiscal deficit in the years to come,” he said.

Also in the next few years, the effective corporate tax rate in India is expected to rise to around 32% from 21% currently. Responding to a queries , he said that India, presently, cannot absorb huge disinvestment of the public sector units.

“If PSU IPOs try to suck over Rs 7,000 crore from the country in a year, than the secondary market would get severely hit,” he said.

Ranina did not welcome the recent budgetary announcement pertaining to the taxation disputes raised by the foreign companies operating in India. “The announcement is mainly aimed to earn foreign money through the taxation route,” he said.

Ajit Ranade, chief economist, The Aditya Birla Group said, “In the prevailing scenario where government spending is restricted and corporate spending is under sever pressure, the recent Union budget has made an effort to promote consumer spending in the country.”

Budget resurrects regulation for minimum 25%

Budget resurrects regulation for minimum 25%
The Economic Times, July 8, 2009, Page 1

THE DAY AFTER, ET DELVES DEEPER INTO THE BUDGET SPEECH TO READ THE MINUTIAE...

The market may have failed to register a weighty reform that the FM revived. Here’s that
move along with the other hits and misses & the full measure of the price impact...

Deepshikha Sikarwar NEW DELHI

PROMOTERS of some of India’s largest companies may have to initiate moves to bring down their stake to 75%, with the government planning to implement a rule stipulating minimum public shareholding in listed firms, a finance ministry official said.

State-run companies such as IOC, NTPC, NMDC and MMTC, and private firms such as Wipro, Reliance Power and real estate group DLF will have to take steps by December to raise public shareholding to the stipulated 25% over 3-5 years. The finance ministry had put out a proposal in this regard last February to deepen and broaden the stock market. The move could temper volatility in these stocks and the wider market by increasing the free float and reducing the concentration of shares in a few hands.

Software major Wipro is 80.63% owned by its promoters, the Premjis, while in the case of Reliance Power and DLF, the promoters hold nearly 85% and 88.55%, respectively.

The proposal, which had been put on the back burner after opposition from the Left and the global downturn that drove down valuations, has now received a fresh impetus with the finance minister Pranab Mukherjee making a statement in his budget speech. The budget clearly said the norm would uniformly apply to all listed companies, including PSUs.

The stock markets that crashed after the budget presentation as it failed to spell out a clear road map on disinvestment or fiscal deficit, may have missed to see the significance of the minister’s statement. Going by the norms, the government will have to dilute its stake in many blue-chip firms.

The proposed norms also have implications for listed companies from sectors such as IT, infrastructure, communication and entertainment that had been allowed to list with a 10% public float on account of a special exemption by the market regulator. The proposal also seeks to take away the regulator’s discretionary powers on this issue.

At present, public stake includes shares of individuals and FIs, foreign portfolio investors, MFs and NRIs, staff and others. The ministry will also decide on amending this definition. Its draft plan had said the threshold public holding must be calculated without accounting for non-promoter stakes such as foreign portfolio investors, institutional investors and MFs.