Tatas, Birlas bet big on real estate
The Economic Times, February 26, 2009, Page 5
M V Ramsurya & Rajesh Unnikrishnan MUMBAI
TWO OF India’s large business houses, the Birlas and Tatas, are looking at real estate as a major investment area, albeit in different ways. While the Birlas, through a financial services arm, are offering real estate as an alternative investment option to clients, the Tatas are planning to develop surplus land held by group companies and could also invest in the sector through money raised in recent public offerings.
Interestingly, these moves come at a time when real estate prices are correcting and slow demand for projects has prompted large developers to default on their fi nancial commitments and on project deadlines.
Aditya Birla Management director Ajay Srinivasan who also heads the fi nancial services business, says the con glomerate is merely gearing up for the future. “We are now putting a team in place and want to be ready when the time is right,” he told ET. The financial services arm of the group is setting up a real estate and private equity arm for its wealth management units. To be headed by Sashi Kumar, the real estate business would be managed through Birla Sun Life Asset Management.
The Birlas plan to subsequently launch two real estate funds, offshore and local, for the real estate sector where although the investors would be different, the investment destinations would be in India and could also likely include distressed real estate assets.
Tata Housing Development, a real estate arm of the Tata group, has already said that it plans to leverage its tie-up with banks by developing properties on surplus land owned by other Tata group companies. Tata Housing is now identifying excess landbanks owned by companies such as TCS, Voltas, Rallis India, Tata Motors, Tata Coffee and Tata Tea.
Tata Capital, the financial services arm of the Tatas, is scheduled to close a largely successful non-convertible debenture issue on Tuesday; it has so far raised Rs 2,300 crore against a targeted Rs 1,500 crore. Although Tata Capital has said that it won’t lend to group companies, it has proposed to invest in most asset classes.
Anticipating a large value erosion in the realty space, Indian corporates are planning to float new funds to acquire assets in the domestic property market. Real estate funds such as Saffron Advisors have either floated or are in the process of floating funds with corpus ranging between Rs 500 crore and Rs 1,000 crore. “As far as Indian realty is concerned, for the right projects, funds are still available,” says Saffron Advisors MD Ajoy Kapoor. “Conservative European investors, after conducting extensive due diligence and research, are more comfortable with investing in Indian real estate provided they are able to align with the right partners.”
A few months back, Munich-based retail aggregator Deutsche Capital Management AG underwrote $20 million for Saffron India Real Estate Fund I, an India-focused real estate fund. DCM is raising a specific fund for investing in Indian real estate through Saffron Advisors.
HOUSING IN
Birlas are offering realty as an alternative investment option to its clients
Plan offshore and local real estate funds
Realty arm of the Tata group, Tata Housing Development, plans to leverage its tie-up with banks by developing properties on surplus land owned by group firms
It’s identifying excess land owned by TCS, Voltas, Rallis India, Tata Motors, Tata Coffee and Tata Tea
Thursday, February 26, 2009
Tatas, Birlas bet big on real estate
NRI realty investments halve
The Economic Times, February 26, 2009, Page 5
Avinash Nair & Parag Dave AHMEDABAD
THENRI season is now at its fag end. De spite undertaking tours to the US, the UK and Middle East and doling out free bies and discounts, realtors have been unable to catch the attention of this cash rich community. The result: NRI invest ments in India-based properties dropped by over 50% this season, with the four metro cities and “NRI-heavy” mirco markets in states like Gujarat and Kerala being among the worst hit.
“Compared to last year, the drop in NRI interest in India-based properties has been almost 50% in all sectors. The metros showed a sharp drop in demand, largely owing to the steep prices”, says Sanjay Dutt, CEO - business, Jones Lang LaSalle Meghraj (JLLM), a global realestate consultancy firm. “Very few luxury homes have been sold as compared to last year”, he adds.
At a time when the domestic demand in micro-markets in Tier-I, II and III cities began to slump in the third quarter of this financial year, the developers were hopeful that the demand from the NRIs will pep up the sentiments in the realty markets. However, the global slowdown and the resulting slump froze the bullish sentiments among NRIs. “Though a far-from-spectacular number of transactions have indeed taken place this season, generalised job insecurity and a desire to conserve available cash among IT employees abroad has curbed investment demand for high-end properties, Mr Dutt said adding that the response was “significantly muted” from the NRI community this season.
The sharp corrections seen in some larger cities has also led to an “acute wait-and-watch attitude among NRIs who - just like everyone else - are now very price sensitive”, he explained.
DLF Chennai project faces buyers exit
DLF Chennai project faces buyers exit
Business Standard, February 26, 2009, Page 6
Chennai: DLF, the country’s biggest real estate developer, is facing buyer pressure, as many of them are exiting its project here on concerns of delay and issues related to implementation of the project. A customer group comprising buyers of flats in the DLF Southern Homes project claimed that as many as 600 members had issued letters of exit to the developer. A DLF spokesperson, however, said only 150 buyers had submitted letters to exit. BS Reporter
I-T dept orders special audit of DLF accounts
The Economic Times, February 26, 2009, Page 12
Our Bureau NEW DELHI
THE Income-Tax department has ordered a special audit of the accounts of DLF and would take necessary action after scrutiny, minister of state for finance S S Palanimanickam said on Wednesday.
“A special audit under section 142(2A) of the I-T Act has been ordered in the case of Delhi Lease and Financing Ltd, also known as DLF, for the assessment year 2006-07,” the minister said. As per the minister, the audit report ’is being examined’ for necessary action as laid down under the law.
The DLF spokesman said, “we would like to state that the assessment (of the audit report) is still to be done; it will be wrong to say that any action is being taken against DLF”.
As per DLF, FY 2005-06 was the first year in which DLF revised accounting standards as prescribed by ICAI because it had to go public. As per these standards, DLF started using Percentage of Completion Method (PoCM) for recognising revenues, and consequently, profits. Prior to this, all accounts were prepared in accordance with Indian GAAP.
Percentage of completion method mandates a realty company to book sales and profit proportionate to the level of construction achieved in any project in the given quarter. Earlier, developers would book sales and profits once the project was completed.
DLF said this accounting change led to DLF recognising an additional profit of Rs 314 crore, resulting in taxable income of Rs 334 crore (for DLF Limited as a standalone entity). DLF Limited (as a standalone entity) paid tax of Rs 114 crore on the same, which is more than the tax paid by the company in the past years.’’
Under the I-T law, in an assessment year, the tax department assesses income of preceding financial year.
Co raises Rs 2,000cr to repay short loans
DLF, India’s largest listed property developer by market cap, has raised over Rs 2,000 crore in debt from PNB, LIC, SBI and Bank of India in the past one month to repay short-term debt, a company official said. The company had earlier raised Rs 1,000 crore in debt from PNB in the December quarter, reports Sanjeev Choudhary from New Delhi. In all, the company has borrowed Rs 1,700 crore from Punjab National Bank, Rs 350 crore from State Bank of India, Rs 220 crore from Bank of India and Rs 720 crore through sale of nonconvertible debentures to LIC in the past three months. All these loans are long-term loans for a period exceeding three years and at an average rate of interest of 14%.
Wednesday, February 25, 2009
Service tax, excise duty slashed 2%
Service tax, excise duty slashed 2%
The Economic Times, February 25, 2009, Page 1
Before the poll code of conduct sets in, the UPA govt has provided the final booster dose for the economy. It’s PARTY TIME for both consumers and Corporate India...
Our Bureau NEW DELHI
CHEAPER housing, TV sets, phone bills, visits to the beauty parlour. Such is the consumer bounty arising from the third fiscal stimulus package announced by the government on Tuesday in the form of Rs 30,000 crore worth of cuts in service tax, excise duty and countervailing duty on imports. This package is likely to be followed up with interest rate cuts by the central bank.
Products that attracted 10% excise duty will now be taxed at 8% while service tax has been reduced 2% across the board to 10%. The Customs duty exemption on naphtha imports for power generation has also been extended beyond March 31, 2009. The stimulus package, the third in a row after those announced on December 2 and January 7, came as part of acting finance minister Pranab Mukherjee’s reply to the debate in Parliament on the interim budget presented on February 16. These rate cuts, as well as the 4% excise duty cut announced in December, will continue beyond March 31, as well. Lok Sabha passed the interim budget after Mr Mukherjee’s reply to the debate.
Ninety per cent of manufactured goods that attract an excise duty of 10% at present, including colour TV sets, washing machines, refrigerators, soap, detergents, cola, hybrid cars and commercial vehicles, are expected to become cheaper as a result of the excise duty cut. Phone bills, airline tickets, credit card charges, insurance premia, tour packages etc will also cost less, thanks to the cut in service tax rates. The cess on health and education will also come down, as these are levied as a proportion of the total price, including the indirect taxes that have now been reduced.
The reduction in service tax will serve the twin objectives of giving relief to the service sector that constitutes 50% of the country’s GDP and the move towards the unified goods and service tax regime, scheduled to kick in from the next fiscal.
In December, the government had slashed median excise rates by 4% while announcing a Rs 20,000-crore additional spending plan to boost economic activity. Special packages were also announced for textiles and handicrafts.
Pranab unveils 3rd package
Pranab unveils 3rd package
The Financial Express, February 25, 2009, Page 1
Economy Bureau
Announcing the third stimulus package in as many months to boost flagging demand, the UPA government on Tuesday announced fiscal sops amounting to Rs 30,000 crore, the most significant being an across-the-board 2% cut in central excise duty and service tax.
Though industry chambers hailed the incumbent administration’s farewell gifts, they stressed that an interest rate cut by RBI was imperative to spur investment, consumption and reduce pressure on bond yields due to increased government borrowings.
While central excise duty has been slashed to 8% from the earlier 10%, service tax will be levied at 10% from the previous 12%. As a further sweetener to corporate India, the 4% excise duty cut announced under the first stimulus package in December has been extended beyond March 31, 2009.
Finance minister Pranab Mukherjee also announced measures to address sectoral concerns. Bulk cement will now attract central excise at 8%, or Rs 230 a metric tonne, whichever is higher, from the existing 10% or Rs 290 a mt. Similarly, to provide relief to the power sector, naphtha imported for the generation of electricity has been fully exempt from basic customs duty beyond this fiscal.
After the tax breaks, prices of commercial vehicles and consumer durables like refrigerators and washing machines are expected to come down. Similarly, steel companies producing long products like Sail and Tata Steel are expected to benefit. Since the price of naphtha has also been clipped, projects like NTPC’s Kawas will be in a better financial position.
Explaining the rationale behind the steps, Mukherjee said, “Latest figures confirm that our two fiscal packages are steps in the right direction. These are encouraging signs (but) the full impact of the recession in other parts of the world, especially Europe and Asia, is yet to unfold. Due to the strong export linkages with these economies, it is likely that the Indian economy may feel a further impact in coming months.”
The sops won’t come cheap. “The measures will lead to revenue loss of Rs 13,000 crore in service tax, Rs 8,500 crore in excise duty and Rs 6,600 crore in customs duty,” Central Board of Excise & Customs chairman PC Jha said. The Centre has already revised its tax collection figures for 2008-09 downwards to Rs 6,27,949 crore from the budgeted target of Rs 6,87,715 crore.
Consequently, the fiscal deficit for 2008-09 will probably overshoot the estimated 6% of GDP. “They are trying to revive demand in the economy, but I am not sure if it is a prudent move. The tax cuts will increase the fiscal deficit by another 0.5% at least, and in a fiscally strained situation, this will add to the stress,” said National Institute of Public Finance & Policy director M Govinda Rao.
Nevertheless, Mukherjee was under pressure to provide sops after the interim Budget offered little to help the economy despite industrial production contracting by 2% in December. “The government is keen that business confidence in the services sector is restored,” the finance minister said during his reply to the debate on the interim Budget in the Lok Sabha.
Meanwhile, giving further leeway to state governments to announce their own stimulus measures, the Centre has also given them the flexibility to deviate from their fiscal consolidation targets for another year and borrow an additional 0.5% of state GDP to “spur the development of infrastructure and employment generation”.
“This arrangement could be further reviewed, if necessary,” Mukherjee said. States are currently sitting on around Rs 91,000 crore in cash and have been permitted to borrow up to 3.5% of state GDP in 2008-09. Following the discussion, the interim Budget was passed by the Lok Sabha.
Domestic equity bourses, which witnessed heavy sell-offs by FIIs following the overnight sharp plunge on Wall Street, recovered sharply with government’s announcement. The 30-share Sensex of the BSE, which slipped to an intra-day low of 8,619.22 points after shedding 224 points in early trading, closed the day with only a marginal loss of 21.15 points, or 0.24%, at 8,822.06 points. Similarly, the 50-share Nifty of the NSE closed at 2,733.90 points, a marginal loss of 2.55 points, recovering sharply from the day’s low of 2,677.55 points.
Reacting to the government’s measures, KPMG executive director Pratik Jain said, “The duty cuts are a positive move and will help generate demand, especially in manufacturing and consumer goods. But the measures may take some time to take effect.”
A Sakthivel, president of Federation of Indian Export Organisations, said the measures would give the economy only a limited boost. He said the service tax cut would add to export competitiveness by about 0.25%.
Farewell gift
• Package to cost exchequer Rs 30,000 crore
• Excise duty and service tax reduced by 2%
• Excise duty on bulk cement trimmed to 8%
• Earlier 4% relief extend beyond March 2009
• States may borrow 0.5% more of their GDP
Cement TO GET CHEAPER: Cos to cut prices by Rs 5 per 50-kg bag from Mar
Cement TO GET CHEAPER: Cos to cut prices by Rs 5 per 50-kg bag from Mar
The Economic Times, February 25, 2009, Page 11
CEMENT prices in India will drop Rs 4-5 for every 50 kg-bag from March 1, following Tuesday’s excise duty cut. Executives of leading cement makers like Grasim Industries, ACC, Shree Cement and Binani Cement said the duty cut will be passed on to customers. In a move to boost infrastructure projects and construction activity, the government has cut excise duty by 2% on bulk cement. Once the companies announce a price cut, cement prices will drop to Rs 222 in key markets like Mumbai while it will vary between Rs 210 and Rs 230 in other regions, according to industry circles. At present, a bag of cement costs Rs 215-235. According to Binani Cement MD Vinod Juneja: “Prices will reduce by Rs 4-5 per bag as companies will pass on the benefit. A slowdown in the property market will also help to bring down prices.” The real estate sector accounts for nearly 60% of India’s cement demand. Ambuja Cements MD AL Kapur also said the duty benefit would be automatically passed on to bulk cement traders. The country’s two largest cement makers, the Aditya Birla group and ACC, have called meetings to take stock of the situation. Grasim Industries whole-time director & CFO DD Rathi said, “We are studying the entire thing and if required, will take a decision on pricing in the next few days.” However, the 2% duty cut has not cheered cement companies in south India as bulk cement accounts for a small portion of their overall revenues.
TEAM ET
Steel PRICES TO SOFTEN: Cos to reduces prices by Rs 500-600 a tonne
PRICES of steel, widely used by makers of cars and consumer goods, are expected to come down by Rs 500-600 per tonne after the government on Tuesday reduced excise duty by 2%. While agreeing to pass on the benefits, steel industry executives said that along with the duty cuts, if interest rates were also reduced, it would spur domestic demand. The government cut the excise duty to 8% from the existing 10% as part of its efforts to stimulate the economy. In its vote-on-account measures announced last week, Union finance minister Pranab Mukherjee had announced large government expenditure for the infrastructure sector. Most steelmakers, including Essar Steel, JSW and Ispat Industries, have said they will pass on the benefits of the reduced excise tax to endusers. Essar Steel Holdings director J Mehra said: “Steel users will benefit as the excise duty burden on the final product will come down by 2%. These are, however, temporary measures. The government should increase spending on the infrastructure sector as it will be a key driver of growth in the future.” Steel prices (inclusive of taxes) are currently hovering between Rs 33,000 and Rs 35,000 per tonne, a drop of more than 30% from the peak of Rs 50,000 in April last year. Prior to the announcement made by the government, steel companies were paying excise tax of 10%. “We intend to pass on the excise duty cut benefits to the end users in the form of reduced final product prices. Traders will also benefit from the move,” said an executive of Ispat Industries.
TEAM ET
Upbeat realty sector seeks to tame job cuts
Upbeat realty sector seeks to tame job cuts
The Financial Express, February 25, 2009, Page 5
fe Bureau
With the third stimulus package announced, real estate developers and market analysts anticipate an improvement in the margins of the real estate sector and no further job cuts. The booster package includes reduction in service tax and an excise cut of 2%.
Hiranandani Constructions managing director Niranjan Hiranandani told FE, “The third stimulus package is very good. As an impact, there would be no job cuts further in the construction sector that has witnessed 1.5 million job cuts in the past 12 months. Besides, the 2% excise cut on cement is another positive news for the construction sector. In the near future, the real action in the real estate sector could be seen in terms of developers re-starting constructions within their existing projects. Also, SBI’s new home loan scheme whereby a customer pays 8.5% for loans upto Rs 5 lakh and 9.25% for loans between Rs 5 lakh and Rs 20 lakh is encouraging for end-buyers. Hence, even we feel that we should start planning to restart construction of new buildings within the existing projects.”
Similarly, chairman Akruti City Hemant Shah, said, “The third stimulus package in the right direction as it will surely help corporates across the board, and even real estate players to some extent, in improving the margins and recovering costs. It seems now that the economy is all set to improve”.
Even the market is upbeat with positivity for the sector. Says Hitesh Agrawal, Angel Broking research head, “In continuation of the stimulus measures announced over the past three-four months, the government has announced some more relief to the Indian economy. The cut in excise duty and reduction in the service tax rates is a welcome relief for the manufacturing and the services sector of the economy, which combined contributes to almost 80% of the country’s GDP. Notably, while the government has refrained from making any announcements in the interim Budget and had also indicated earlier of no further measures on the stimulus front, the current move is more or less in the form of a third stimulus package, this time benefiting a wide range of sectors. However, the impact of these either to prop up consumer demand or to the economy at large would not be significant.”
Nayan Shah, CEO Mayfair Housing has also welcomed the government’s move. He opined, “We welcome the announcement by the central government to reduce excise and service tax rate. In fact, in the last 60 days the central government has announced three stimulus packages. However, announcement by the state government to impose 1% registration fee on February 17 on transaction is a negative move as compared to earlier 1% or Rs 30,000, whichever is lower. This will have a negative effect on the real estate sector and end-buyers as demand for properties will drop further now.”
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