Real Estate Intelligence Service, Tuesday, July 07, 2009

Realtors unhappy

Realtors unhappy
The Hindu Business Line, July 7, 2009, Page 7

Our Bureau, Bangalore

The Budget is not inspirational, at least for the real estate sector which was mainly looking up for some Governmental support for a speedier revival, says a section of the industry.

“There is nothing for the real estate sector. We were expecting some reduction in the taxes and duties for the housing sector, which is the most taxed sector with taxes accounting for about 40 per cent of the developmental costs,” said Mr Irfan Razack, Chairman and Managing Director, Prestige Estates Projects, a Bangalore-based real estate developer.

The Central Government needs to appreciate that one of its fundamental responsibilities to urban India is to provide good quality affordable housing, said Mr Ravi Ramu, Director – Finance, Puravankara Projects Ltd.

According to him, the tax revenues, sacrificed for the cause of some well-established industries through the extension of a further one-year tax-free status, should instead have been channelled towards providing financial incentives to housing developers build affordable homes in cities and towns.

Mr Navin M. Raheja, Managing Director, Raheja Developers, said that even if the Government efforts to implement, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) would not be workable as the allied services and activities were not supportive.
However, while the Budget is good under the circumstances, what has been left out is a policy-level pronouncement for the sector, said Mr Anurag Mathur, Managing Director, Cushman & Wakefield India, a real estate services firm.

“These announcements could have gone a long way not merely in standardisation, but also in bringing in transparency for the real estate sector,” he added.

With the infrastructure sector receiving a much-needed thrust with the proposed SPV (India Infrastructure Finance Company Ltd - IIFCL) and increased allocation of funds, the real estate industry is bound to benefit significantly from the developments, said Mr Mathur. He pointed out that the decision to enable IIFCL to refinance 60 per cent of commercial bank loans in PPP projects would offer great opportunities to developers and infrastructure companies in the long run.

For the construction sector, “a positive initiative has been the full exemption on goods manufactured at site, thereby decreasing the cost of construction for developers,” he said.

The Budget has ignored the wishes of both property-seekers and developers, said Mr Aditya Verma, Business Head and Vice-President, Makaan.com. While prospective buyers were expecting an increase in income tax exemption limit (on repayment of interest on home loans) from Rs 1.5 lakh to Rs 2.5 lakh a year, developers were looking forward to an announcement to boost affordable housing in India,” he added.

Road to rapid growth

Road to rapid growth
The Hindu Business Line, July 7, 2009, Page 21

Vidya Bala

If there is any sector that can boast of walking away with most goodies from the Budget 2009-10, it is infrastructure. Be it the allocation for highways or irrigation programmes, rural development or accelerated power reforms, the increased infrastructure spending has been the key highlight of the Budget. Clearly, the sector is being viewed as the key driver of economic growth .

The beneficiaries from such a massive infrastructure spending range from companies in the business of infrastructure development and contracting to even those that execute irrigation projects and power distribution and transmission lines.

Expedite road projects

In the road space, the allocation to the National Highways Authority of India has been stepped up by 23 per cent in the current budget compared with the Budget Estimates of 2008-09. Companies such as Gammon Infrastructure Projects, IRB Infrastructure Developers, Larsen & Toubro, Hindustan Construction and Nagarjuna Construction are some of key players in the road space. It merits note that all these players have participated in a number of projects that have been put up for bid so far.

Also, note that that the Government had, through its multiple stimulus packages, ensured reasonable funding for infrastructure projects through IIFCL; this was expected to translate into about Rs 1,00,000 crore of investment in infrastructure. The Budget has, in this regard, suggested another innovative scheme of ‘takeout financing’, wherein a consortium of banks in consultation with IIFCL, can break-up the full tenure of the loan in to shorter periods and take turns to hold the loan portfolio. This would not only help solve the asset-liability mismatch for banks but help fund high-value long-term projects too. Such a move would be crucial for projects in road and power, which are now of a larger ticket size.

The Finance Minister has also indicated the need to remove regulatory and institutional bottlenecks to expedite implementation of infrastructure projects; the UPA government in its previous regime has been criticised for slower implementation, especially of road projects. If this happens, not only would the order inflows of infrastructure companies pick up, it will also result in lower cost over-runs, a bane faced many a times by these companies.

Opportunity for smaller players

The 87 per cent increase in allocation under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) will translate into a bigger boost for smaller construction companies.

This scheme, with an allocation of Rs 12,887 crore, is expected to provide a plethora of opportunities to small and mid-sized companies such as Unity Infra Projects, Simplex Infrastructure, Tantia Construction and JMC Projects. Unlike, sub-contracted road projects from developers, urban development projects tend to hold superior profit margins. This apart, spending under the Bharat Nirman (rural roads and housing) is also likely to benefit the smaller players.

For transmission and distribution companies, the blessing comes in the form of a 160 per cent increase in allocation under the Accelerated Power Development and Reform Programme, to Rs 2,080 crore This would translate into orders for transformer and distribution companies that include Crompton Greaves, KEC international, Emco and Jyoti Structures. That the excise duty for this sector remains unchanged is yet another positive as profit margins have been thin for quite a few.

As has been the case in the past couple of years, the allocation to the irrigation space has only been increased, this time by over 70 per cent. IVRCL Infrastructure Projects, Jain Irrigation Systems and Pratibha Industries are likely to see enhanced order book from this spending.

Real estate

It appears that the special packages for the realty sector granted on earlier occasions may be nearing its end. In contrast to the earlier occasions, the Budget may have fallen short of expectations. While on the one hand, the allocation of Rs 3,973 crore towards housing for urban poor and eradication of slums could help broaden the opportunities for companies such as Akruti City and HDIL, on the other, the clarification made under sub-section 10 of Section 80-IB for availing of tax concession could be a drawback for contractors. According to the clarification, only the developer (one who bears the investment risk) can avail of the tax benefits; not the contractor who builds the project.

Similarly, tax benefits availed of for building low- and middle-income housing would be allowed only for sale of a single unit to a buyer (sale of multiple units to same buyer would not be allowed).

Another key limitation for the infrastructure and realty sectors could be the increase in the Minimum Alternate Tax.

Proposal to free up capital will come as a boon for real estate industry

Proposal to free up capital will come as a boon for real estate industry
The Financial Express – Corporate Impact Section II, Page 1

fe Bureaus

Following the announcement by the finance minister to raise Rs 1,00,000 crore for the development of the infrastructure sector by Infrastructure Finance Company (IIFCL) in Budget 2009-10, construction players feel that this is an indirect boom to the real estate sector as taking out finances will help free up capital in infrastructure. Meanwhile, top real estate developers are unhappy as they expected this year’s Budget to be aggressive and investment-led for the low and middle-income housing in metros and rural housing which was not addressed.

According to the new amendment in the Budget, a developer cannot sell more than one unit to the same person or his family. This is going to come into effect from April 1, 2010. The government had tightened the regulations for Section 80 IB to avoid its misuse. Under the section, developers get total tax concession for residential units of 1,000 sq ft in bigger cities and 1,500 sq ft in smaller ones.

Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, said, “Allocation for Jawaharlal Nehru National Urban Renewal Mission (JNNURM) has been substantially increased. This is good news for urban infrastructure in general. JNNURM has been instrumental in proving road and rail connectivity in urban and suburban areas, and this will give a significant boost to mass housing schemes on the fringes of the metros.”

Meanwhile, announcement of infrastructure investment to exceed 9% of GDP by 2014 has been welcomed. However, Navin Raheja, managing director, Raheja Developers, said that the government’s efforts to implement JNNURM will not be workable as the allied services and activities are not supportive, such as availability of funds at cheaper rates, fiscal incentives such as restoration of Section 80 I B and treating integrated townships which has at least 25% of low cost housing units as infrastructure projects. The government has also not taken steps towards increasing disposable income such as enhancement of limits under Section 80 C and 24.

The finance minister has also stated that manufacturers of prefabricated concrete slabs will now have a tax relief and that goods made at construction sites now have their exemption reinstated. Puri added, “This spells good news for developers of lower income housing segment, who depend largely on low construction costs. Also, the fact that allocation for the National Highways Authority of India has been increased will mean improved and accelerated connectivity.

Industry players feel that the increase of funding for the Commonwealth Games will vastly enhance development potential in the Delhi NCR region and have direct positive implications for the hotel industry in this sector.