Real Estate Intelligence Report, Thursday, August 13, 2009

A Rs 2-L cr plan to house ‘slumdogs’

A Rs 2-L cr plan to house ‘slumdogs’
The Economic Times, August 12, 2009, Page 1

Rajiv Awas Yojana To Build 50 L Homes In 5 Yrs

Sanjeev Choudhary & Bhanu Pande, NEW DELHI

THE government will kick off a massive scheme to rid India of slums and give property rights to slum dwellers while redeveloping the land into valuable real estate that would add to the nation’s economic growth.

Turning the conventional wisdom that urban real estate plus politics equals dirty money on its head, the government plans to build 50 lakh dwelling units in five years across 400 towns and cities, in its most ambitious plan ever to house 6 crore slum dwellers and realise the vision of a ‘slum-free India’.

The programme could free up thousands of acres of valuable government land across the country and generate business worth crores of rupees for real estate developers.

The ministry of housing and urban poverty alleviation has sought an allocation of Rs 2,25,000 crore—over onefifth of the total budget expenditure for the current fiscal—for the entire scheme, said a senior ministry official involved with the preparation of the proposal that has been sent to the Planning Commission.

The programme, named Rajiv Awas Yojana, draws from the experience of the government in housing the urban poor under the ongoing Jawaharlal Nehru National Urban Renewal Mission, and is touted as “the first sincere attempt to rid India of slums”.

Era Infra to raise Rs 600 cr via QIP

Era Infra to raise Rs 600 cr via QIP
The Economic Times, August 12, 2009, Page 5

Paramita Chatterjee & Sanjeev Choudhary NEW DELHI

DELHI-BASED engineering and construction firm Era Infra Engineering is looking to raise Rs 500-600 crore by issuing fresh shares through qualified institutional placement (QIP). The firm has given the mandate to UBS to facilitate the process, two persons familiar with the matter, told ET.

“We have got the shareholders’ approval to raise Rs 1,000 crore through fresh issue of shares. We will raise funds at an opportune time,” said Era Infra CMD HS Bharana, without specifying details of the fund raising plan. Another senior executive of the company and a banker close to the fund raising exercise said the company plans to go in for a QIP in a month. Era Infra scrip closed flat at Rs 151.

The company plans to use the fund to buy equipment, finance three road projects, besides meeting working capital requirements. It also requires Rs 70-80 crore for equipment purchase and another Rs 140-150 crore towards equity for three road projects in Madhya Pradesh, Andhra Pradesh and Haryana being constructed on build operate transfer (BOT) basis.

With rising stock market, many companies have successfully tapped the capital market to raise funds through the QIP route including Unitech, Indiabulls Real Estate, HDIL and Bajaj Hindusthan. Infrastructure firm GMR, however, was an exception and had to withdraw its QIP following poor investor response. Era Infrastructure is a subsidiary of Era Group whose business venture spans across roads, townships, shopping mall, IT parks, hotels and office complexes across India.

After months in firing range, India Inc now out to hire

After months in firing range, India Inc now out to hire
The Economic Times, August 13, 2009, Page 1

Multiple Surveys Reveal Companies Across Sectors, Cities Gearing Up To Recruit More In Coming Months

Mahima Puri & Shreya Biswas NEW DELHI

INDIA Inc is hiring again. After months of rigorous cost cutting characterised by recruitment freezes and layoffs, several Indian employers are looking to increase hiring in the coming months, according to different surveys. The Economic Times surveyed select listed companies across sectors such as telecom, infrastructure, consumer goods, auto, pharma, technology and power, and all the respondents said they plan to increase their headcount in the next 3-6 months. Companies notably planning to increase hiring include Infosys Technologies, Maruti Suzuki, Lupin Pharmaceuticals and Standard Chartered Bank. A larger survey by job portal TimesJobs.com noted an upswing in hiring sentiment among Indian companies. The survey, which polled 5,000 companies across sectors in Indian metros, showed that almost half the respondents from Delhi and Mumbai are planning to increase hiring in the current quarter. Even IT capital Bangalore seems to be returning to normalcy after witnessing mass layoffs in the last quarter of 2008, with one-fourth of the firms planning to increase headcount this quarter. Of these firms, 52% said they are undertaking replacement hiring. Four-fifths of the firms in Delhi and 57% recruiters in Mumbai are hiring to ramp up for growth, said the survey conducted by TJ InSite, the research wing of TimesJobs.com. The results show that corporate India is upbeat about the economy in spite of the looming threat of a drought due to the truant monsoon and swine flu fears that have created panic in several cities. “Swine flu is not a pandemic yet; unless it goes to such proportions, there will be no impact on the job market,” says Sunit Mehra, managing partner of executive search company Hunt Partners. Though these concerns remain, India Inc’s general mood is optimistic, with the feeling that economic recovery has well and truly started gaining traction across sectors. July’s robust car sales and industrial production figures for June bear out this optimism. Globally too, the signs are encouraging, with a lower-than-expected decline in US economic growth for the June quarter and a rebound of the South Korean economy. “The quarter-on-quarter growth that India Inc has witnessed both in terms of revenues and profits, and the continuation of government stability, policies and commitments have brought a more optimistic business forecast for organisations,” said Vivek Madhukar, vicepresident of TimesJobs.com. The TimesJobs survey covered sectors such as IT, BPO & ITeS, engineering, logistics, healthcare, architecture, hospitality, travel & tourism, finance & accounting and sales & marketing. India’s largest carmaker, Maruti Suzuki, which hired 300 professionals from engineering and management campuses last year, plans to take the strength of its engineers in R&D to 1,000 by April next from around 730 now. Drugmaker Lupin, which has over 50% of its employees in India, plans to add up to 1,000 people, including medical representatives, R&D professionals, IP managers and clinical researchers, this financial year. “Healthcare not being a discretionary spend, the industry has largely been insulated from the economic slowdown,” explains Lupin Pharma president-HR, Divakar Kaza.

Recovery hopes rise on 7.8% surge in June factory output

Recovery hopes rise on 7.8% surge in June factory output
Business Standard, August 13, 2009, Page 1

Government mulls raising retirement age to 62 yrs

Government mulls raising retirement age to 62 yrs
Business Standard, August 13, 2009, Page 1

Aditi Phadnis / New Delhi

Move aimed at easing strain on finances in a drought year.

The government is actively considering raising the retirement age of all central government employees, including those in the armed forces, from the present 60 to 62 years.

Finance Minister Pranab Mukherjee has submitted a report to the prime minister outlining all the pros and cons of the move, including the “cascading effects” on government employment and the huge savings, at least for two years, on account of retirement payouts.

If the Department of Personnel and Training (DoPT) and the prime minister find the arguments forwarded by the finance ministry credible and convincing, the announcement may come as early as August 15, as part of Manmohan Singh’s Independence Day speech.

The Cabinet may discuss the matter tomorrow.

Although the finance ministry is making a strong case for the move, the DoPT is taking time to make up its mind, possibly out of consideration for the 1979 batch of the Indian Administrative Service (IAS) and other central services. Officers of the 1979 batch have been empanelled for promotion to the ranks of additional secretary and secretary but can take up their posts only after the present incumbents retire. If an announcement extending the retirement age comes before November, a batch of empanelled joint secretaries stand to lose their future ranks. In turn, this will also affect those who joined the central administrative services in 1980. The DoPT also says that the age profile of Indian bureaucrats, instead of becoming younger, will become older, out of tune with the rest of the world.

For the finance ministry, the gains from the move are clear. The pension payout of all armed forces personnel of the rank of Lieutenant General and equivalent who were to retire this year will be postponed by 24 months; the government will also defer by two years the liability of paying pension to more than 100,000 employees. While salaries will have to continue to be paid, this will be cheaper than paying upfront benefits like gratuity.

This is all the more important given the government’s other financial liabilities on account of stimulus spending and one drought, though the effects of the latter will kick in only in the next fiscal year. The fiscal deficit is 6.8 per cent of gross domestic product this year and a two-year lag in paying pensions will help in bridging this.

In 1998, the National Democratic Alliance government had raised the retirement age from 58 to 60, a move that benefitted 90,000 government servants and 50,000 defence personnel. At the time, the logic was: the retirement of 140,000 employees would have cost Rs 5,200 crore whereas paying salaries cost only Rs 1,493 crore.

That move came in the wake of the 5th Pay Commission report which had just been implemented by the then United Front government. In 2003, the government also right-sized the central government employee workforce by 30 per cent.

Every time the Centre announces an increase or concession on pay packages, both public-sector units and state governments follow suit. If the prime minister does decide to raise the retirement age, state governments and Public Sector Units (PSUs) will mirror this action. This has its own implications for many cash-strapped states like Punjab.

If the decision is finally taken, it will only be the third time the government will have raised the retirement age. Jawaharlal Nehru was the first prime minister to have increased the age of superannuation from 55 to 58 following the 1962 war with China. The Atal Bihari Vajpayee government did it a second time in 1998.

If you want to buy a flat, shift to a less costly city

If you want to buy a flat, shift to a less costly city
Business Standard, August 13, 2009, Page 3

BS Reporter / Mumbai

A study of households with an annual income of Rs 3-10 lakh in seven cities shows substantial variations in the type of houses they can afford to buy.

The study on affordable housing, done by property consultants Knight Frank, says the Rs 8-10 lakh income category in Chennai can afford houses up to Rs 45 lakh, while the same group can afford houses up to only Rs 38 lakh in Mumbai and Rs 37 lakh in Bangalore. The same category in Hyderabad, Kolkata and Pune could afford between Rs 40 lakh and 43 lakh.

In terms of apartment sizes, the Chennai households can afford up to 1,200 square feet, while those of Pune and Mumbai can only afford 800 sq ft and 950 sq ft, respectively. In terms of affordable rates per sq ft, Pune can afford up to Rs 5,900 a sq ft and Bangalore only Rs 3,600 a sq ft, the study said.

“Mumbai’s high cost of living, coupled with the generally higher maintenance lifestyle, has adversely affected the affordability of households in the city. For instance, middle class households in Kolkata, Chennai and Hyderabad can afford houses valued at Rs 14-45 lakh, whereas households of similar stature in Mumbai can afford houses valued at Rs 12-38 lakh,” the study said.

“Affordable rates are higher if sizes are smaller. If buyers can compromise on size, they can afford higher priced apartments,” said Samantak Das, national head, research, Knight Frank.

The study assumes significance, as top real estate developers such as DLF, Unitech and Parsvnath have shifted their focus towards the Rs 20-60 lakh income category in many cities, with the premium housing segment seeing sharp decline in sales after the economic slowdown and stock market decline impacted home buyers.

The report states that not all of the so-called affordable housing projects in the country are really affordable; they are way beyond the means and preferences of buyers.

“Although preferred unit sizes are less than 1,200 sq ft, many projects are offering greater sizes that are unaffordable. Based on consumer preferences, house property beyond Rs 5,900 a sq ft would be unaffordable across all cities covered,” it said.

The consultancy thinks it is premature for developer to rise prices now. “It is too short a period for developers to increase prices. It is just a euphoria after elections and a stable government and not supported by fundamentals,” said Gulam M Zia, national director, research and advisory services, Knight Frank.

Unitech to invest Rs 600 cr for 5,000 affordable houses

Unitech to invest Rs 600 cr for 5,000 affordable houses
Business Standard, August 13, 2009, Page 3

Press Trust of India / New Delhi

Enthused by the robust demand for its affordable housing projects, realty major Unitech today said it would invest Rs 600 crore to develop 5,000 such units in seven cities across India.

Unitech would launch affordable housing projects in seven cities this week. The projects would come up under 'Uni Homes' brand at an affordable price range of Rs 10-30 lakh.

The projects would come up at Noida, Greater-Noida, Chennai, Kolkata, Rewari, Bhopal and Mohali.

"The total area to be launched in these seven cities would be 4.5 million sq ft," a company spokesperson said.

The company has land to develop these projects and would invest Rs 600 crore on construction, he added.

Unitech is aiming to launch 30 million sq ft of housing space in FY10, including 20 million sq ft under 'Uni Homes'. So far it has launched 17 million sq ft housing area.

"We have received overwhelming response from the customers and have sold more than 6,000 apartments comprising seven million sq ft of area," he further said.

In order to achieve the numero-uno status in realty sector within a year, Unitech had announced to build 20,000 affordable houses at a cost of Rs 1,700 crore in May.

"We made a mistake of only focusing on top two-three per cent of India's population. Now we want to reach the masses and enter into budget and affordable houses. We will be the biggest player in the housing segment," Unitech Managing Director Sanjay Chandra had told PTI.

Unitech rains low-cost projects

Unitech rains low-cost projects
Hindustan Times, August 13, 2009, Page 25

Unitech is likely to launch 4.5 million sq ft of mid-income housing projects priced between Rs 10 lakh to Rs 30 lakh under its Uni Homes brand across seven cities this week.

The projects will have a mix of plots, independent floors and apartments with an expected completion time of up to two years. This is in line with the firm’s strategy to launch a total of 20 million sq ft space of mid-income homes during the current financial year.

Around 5,000 houses less than 1,000 sq ft in area are expected to be announced in Noida, Greater Noida, Chennai, Kolkata, Rewari, Bhopal and Mohali, sources close to the development said.

The construction cost is estimated at Rs 600 crore. The homes are likely to be a part of the integrated township and include convenience stores, community centres, medical services and shuttle bus services in some locations.

For its Chennai project, the company has tied up with Food Bazaar for setting up a convenience store and with the Delhi Public School for setting up a school, the company mentioned in an investor presentation. Unitech also stated that it is in talks with hospital chains for setting up a medical facility within townships but partnership details were not immediately available.

MFs re-discover love for realty

MFs re-discover love for realty
Business Standard, August 13, 2009, Section II, Page 1

Namrata Acharya / Kolkata

Newly-deleveraged balance sheets make their shares attractive.

Mutual funds’ exposure to equity of real estate companies has increased significantly in the last two quarters.

The MFs’ investment in real estate stocks rose from Rs 124 crore at the end of March 2009 and Rs 171 crore at the end of December 2008 to nearly Rs 1,113 crore at the end of the first quarter of FY09.

The value of shares held by MFs in major real estate companies stood at Rs 1,421 crore on July 2009 while the total number of shares held by them was 88.3 million, according to data available at ValueResearch.

With real estate companies like DLF and Unitech raising funds through instruments such as qualified institutional placements (QIPs) while focusing on low-cost housing projects in April-May, MFs started investing in the sector in the June quarter.

“Most large real estate companies have deleveraged their balance sheets. Valuations of several such companies are benign. We have exposure to companies in this space that have already raised money and have a strong balance sheet ” said Prateek Agrawal, head, equity, Bharti AXA Investment Managers.

In April this year, Unitech raised Rs 1,620 crore through a QIP issue. The promoters of DLF sold 9.9 per cent to raise Rs 3,860 crore.

“While about four-five months ago, we had zero equity exposure to the real estate sector, over the last two months, it has become 2-3 per cent of our total assets under management (AUM),” said Ajay Argal, equity co- head, Birla Sun life Mutual Fund.

Over medium and long term, there were significant value-creation opportunities in the equity side of the real estate sector, said Piyush Surana, CEO, Shinsei AMC.

Still jittery on debt

However, fund houses are staying away from the debt of real estate companies. “The fact that the mutual fund industry had invested in a lot of debt paper issued by the sector created a perception of uncertainty,” said Surana.

In February-March 2009, Icra downgraded ratings of three debt schemes because of high exposure to the real estate sector.

“Mutual funds’ exposure to debt of real estate companies continues to come down. Investors are showing interest in equity because of attractive valuations. As the capital structure of the real estate companies gets better when their equity rises, we could see mutual funds investing in their debt too,” said Karthik Srinivasan of Icra.

Consequently, the credit ratings of most schemes continues at the same levels. On a consolidated level, the share of the real estate exposure in the total assets under management of ICRA-rated schemes declined to 0.4 per cent as on May 2009, from 2.5 per cent in December 2008 and 1.5 per cent in March 2009.

“The real estate sector has been stressed for cash. Mutual funds are in general cautious over exposure to the real estate sector. Repayment is an issue in debt investment in real estate companies. We do not have any debt exposure to real estate,” said Ashish Nigam, head, fixed income, Religare Mutual Fund.

New Code promises lower direct tax rates

New Code promises lower direct tax rates
The Hindu Business Line, August 13, 2009, Page 1

I-T slab to be widened; corporate tax at 25%; STT to go; likely from 2011.

Our Bureau, New Delhi

India has taken the next step towards structural changes in direct taxes by releasing a draft of the proposed new Direct Tax Code for public debate.

The draft, along with a discussion paper, was made public by the Finance Minister, Mr Pranab Mukherjee, at North Block here on Wednesday.

With this, the Finance Minister has fulfilled the promise he made in his Budget Speech on July 6 that the draft direct taxes code would be put up for public debate within 45 days. Both Mr Mukherjee and the Home Minister, Mr P. Chidambaram, who was invited for the release ceremony, made it clear that the proposed new Tax Code would replace the existing Income-Tax law and was not intended to bring amendments to the Income-Tax Act, 1961.

Mr Chidambaram also indicated that the the new Code would be applicable only from 2011. “By the time the new Code is debated and becomes law, I think it will be year 2011, marking the golden jubilee of the earlier Code”, he said.

A chunk of the drafting of the new Code has been done by Mr Chidambaram himself, Mr Mukherjee said, while commending his predecessor’s efforts.

Single Code

Mr Pranab Mukherjee said that with the implementation of the Code the Government expects better compliance and realisation of taxes.

“The overall objective has been to keep the Code as simple as possible. I expect the Code to eliminate scope for litigation as far as possible. All direct taxes have been brought under a single Code,” he said.

The Finance Minister also said that he expects informed debate and discussions between now and the winter session of Parliament; the Government intends to introduce a Bill in the winter session.

One of the features includes moderation of tax rates for domestic companies. The basic tax rate is proposed to be brought down to 25 per cent from the current 30 per cent. The same rate of 25 per cent is proposed to be applied for foreign companies also. However, they will be required to pay branch profits tax of 15 per cent.

For individuals, the Code proposes to tax total income between Rs 1,60,000 and Rs 10 lakh at 10 per cent of the amount by which the total income exceeds Rs 1,60,000.

Where the total income exceeds Rs 10 lakh but not Rs 25 lakh, the tax liability will be Rs 84,000 plus 20 per cent of the amount by which the total income exceeds Rs 10 lakh.

Where the total income exceeds Rs 25 lakh, the tax liability will come to Rs 3.84 lakh plus 30 per cent of the amount by which the total income exceeds Rs 25 lakh.

Savings limit

Moreover, the savings limits are also proposed to be increased to Rs 3 lakh. From April 1, 2011, contributions to all savings instruments would be subject to tax under the ‘exempt-exempt-tax’ method — that is, withdrawals will be subject to tax.

Mr Mukherjee admitted that the Government had taken time to come up with a simplified tax code though Dr Manmohan Singh, as Finance Minister in 1991, had underscored the need for a tax system that was easily understandable, with moderate rates and without exemptions.