Incentives set to spur demand for housing

Incentives set to spur demand for housing
The Hindu Business Line, July 28, 2009, Page 17

Cheer to home buyers

Our Bureau, New Delhi

In a move that would cheer home buyers, the Government on Monday announced a slew of incentives, including an interest subvention of one per cent for home loan borrowers in the lower and mid-income housing space.

It has also announced a tax holiday for those projects approved during FY08 and completed before March 31, 2012. While the real estate industry feels that the interest subsidy would stimulate the hitherto flagging demand, builders appear divided over the extent of impact of the tax holiday.

Positive impact

“Both the moves would positively impact consumers and developers, and raise the demand for housing. It is a good stimulus at this point of time,” said Mr Pradeep Jain, Chairman of Parsvnath Developers.

The Government has announced an interest subvention of one per cent on all housing loans up to Rs 10 lakh to individuals, provided the cost of the house does not exceed Rs 20 lakh. The interest subsidy would be routed though the scheduled commercial banks and the housing finance companies registered with the National Housing Bank. Announcing this in the Lok Sabha, the Union Finance Minister, Mr Pranab Mukherjee, said that the interest subsidy would be available for one year.

He has also proposed to amend Section 80 IB (10) of the Income-Tax Act to allow the tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008 if such projects are completed on or before March 31, 2012.

Industry body CREDAI’s Chairman, Mr Kumar Gera, said that the announcement on interest subvention would drive demand for houses priced between Rs 12 lakh and Rs 14 lakh (as borrowers typically tend to avail themselves of loan up to 80-85 per cent of the total price). “There is already an existing demand in that price band and so the move would further push this,” he said.

Timeband impact

However, Mr Gera felt that the announcement on tax holiday would have a limited impact.

Given the time band, only select projects in a particular area may be eligible for the tax relief, he pointed out. Since all projects within a catchment area may not enjoy these sops, developers who have actually benefited could have a free hand in deciding the extent of price cuts.

The Omaxe Chairman and Managing Director, Mr Rohtas Goel, said that one-year extension on 80IB benefit was positive but may have limited impact.

FIIs bet big on real estate stocks

FIIs bet big on real estate stocks
The Times of India, July 28, 2009, Page 21

M Allirajan TNN

Coimbatore: FIIs, who resumed their buying spree after a brief pause in the run up to the Budget, are placing their bets on realty stocks. FIIs, who have net bought equity worth more than $6 billion so far this year, have increased their stakes substantially in top realty companies in three months, boosting prices of stocks in the sector.

FIIs have more than doubled their stake DLF, in the country's top real estate company. FII holding in DLF stands at 15.4% for June, the highest since its listing. FIIs have more than trebled their stake in Unitech, which has raised $900 million between April and June.

BSE Realty index, which is among the top performers in the current rally, gained most last week moving up 13.3% while sensex registered 4.3% increase. The rally was led by DLF, which zoomed 18.3% followed by HDIL and Unitech that gained 15.9% and 14.3% respectively.

"Stock prices (of realty firms) had corrected 90-95% from their peaks. But the latent demand (for property) is still high," says Gopal Agrawal, head, equity, Mirae Asset global investments. "Now, big investors have come in and realty firms have also reduced debt and as a result equity values have gone up."

FII holding in Unitech, the country's second largest property developer have jumped from 5.96% in December to 22.79% in June, the highest exposure in more than three years. FII stake in the top two realty majors has hovered between 6-8% in the past two years. FIIs have also increased their stakes in Indiabulls Real Estate (from 41.73% in March to 61.71% in June), Housing Development and Infrastructure and Orbit Corporation.

“Most of the sector's problems started due to lack of liquidity. But when global liquidity began easing out in early April the risk appetite went up," reckons Sameer Narayan, head, equity, Fortis Investments. Top realty companies are on a capital raising spree to reduce debt levels. They have raised $2.7 billion in stake sale in last few months and others are in the process of raising capital.

Muted growth in personal, Home loans

Muted growth in personal, Home loans
Hindustan Times, HT Business, July 28, 2009, Page 1

The credit growth in the banking sector remained muted in the first quarter of this year.

In its first-quarter review of macroeconomic and monetary developments, the Reserve Bank of India said home loans grew at just 5 per cent at the end of May. Personal loans too grew at only 5.5 per cent. In May, 2008 home loan growth was 13.8 per cent and personal loan growth 16 per cent.

Said Chanda Kocchar, managing director and CEO, ICICI Bank: “The assets we wanted to grow are growing even as we are allowing certain loans such as personal loans and credit cards to decline. The transformation should be reflected in our books in the second half of this financial year.”

New home sales in US shoot up

New home sales in US shoot up
The Times of India, July 28, 2009, Page 21

Jack Healy

Sales of new homes in US posted their largest monthly gain in eight years in June, the government reported on Monday, a sign that the housing market is bottoming as buyers take advantage of lower prices.

The commerce department reported that new single-family home sales rose 11% in June, an increase that dwarfed economists expectations of a 3% increase. The pace of home sales rose to a seasonally adjusted rate of 384,000 a year, the highest level since November.

Despite the monthly increase, sales of new homes were still down 21% from June 2008, and the market is still swamped by a glut of forsale houses and foreclosed properties. These are still really bad numbers, an economist at IHS Global Insight, Patrick Newport, said.

The market just couldn't have dropped much further.

As sales rose, median prices of new homes continued to fall, slipping to $206,200 from $232,100 in June a year ago. The figures were the latest evidence that a three-year slump in the country's housing market was levelling off as prices fell back and some builders and buyers began to step tentatively back into the market. Earlier this month, the government reported that housing starts rose 3.6% in June from a month earlier, and a trade group reported that sales of previously owned homes also rose for another month.

“Sales are picking up a little," a senior economist at 4Cast, David Sloan, said. "Whether it's going to pick up any momentum is really the key. I think we have to be doubtful about that." On Tuesday, a closely watched measure of home prices will be released, offering some hints about whether the long plunge in housing values is abating.

Economists are expecting a 18% year-over-year decline in prices in the S&P Case-Shiller Home Price Index. Although new-home sales have risen for three months, many economists worry that rising unemployment, stagnant wages and continued tightness in lending markets will weigh down the housing market for the rest of the year.

There are still worries that the lack of employment growth and lack of wage growth is restraining consumer income, and that's going to ensure that the recovery is quite modest, Sloan said. NYT NEWS SERVICE.

Good cities need less government

Good cities need less government
The Financial Express, July 28, 2009, Page 7

Jeffrey S Hammer

As India grows, it is going to become urban. Municipal governments are simply not ready for the influx of rural migrants and Indian cities are facing the prospect of environments so unhealthy that they would have shocked Charles Dickens. Unless more forward thinking is applied to basic infrastructure investments, development in the country will choke itself off with the stench of sewage and disease-spreading water.

Urban infrastructure via the new Rajiv Awas Yojana (RAY) as well as the much larger Jawaharlal Nehru National Urban Renewal Mission was highlighted as a priority in FM Pranab Mukherjee’s Budget speech. This is as it should be. However, infrastructure should lead and not lag development and an appropriate balance of public real investment needs to be struck.

Urban investment is directly related to rural livelihoods. Urban employment does not come at the expense of rural residents—it is already a major off-season employment option and, more importantly, is the future of the children of rural India. But the government’s role in supporting urban growth should be quite clearly focused on public goods such as sanitation and the guarantee of safety of drinking water and less on the construction of private goods such as housing that, so far, seems to take the lion’s share of budget resources. We can only hope that the RAY, the “parameters of which are being worked out”, in Minister Mukherjee’s words, takes this concept to heart and facilitates continuous and natural urban growth.

It is a fact of life that with income growth, countries’ populations become city dwellers. Some think the causal factor is that proximity to complementary business services and the easy flow of ideas that cities provide accelerate growth. Others think that higher incomes lead people to want the services that only cities have: top quality schools, healthcare, entertainment and myriad other amenities. Frankly, figuring out which way it goes is not really relevant to policy—cities and income are going to grow together no matter what.

India is a bit unusual in that its degree of urbanisation is lower than that of other countries of the same income level and its rate of urbanisation is somewhat slower as well. This is clear from a comparison of different countries’ levels of income against the proportion of their population that live in cities. This data has been compiled at a fascinating website www. gapminder. org, where each countries’ ‘dot’ is proportional to the size of its population. The proportionality of the size of the points is a great tonic against comparing India with smaller countries at the same general level of income. Especially when their populations barely make them the size of the statistical error of the estimated number of people in some of our cities. .

It may be a good thing that India’s urbanisation has been slower than average since it gives government a little more breathing space (so to speak). However, this state of affairs cannot continue. Sooner or later, possibly happening already, the lack of water, sanitation, uncongested roads and reliable electricity, among other things, will retard growth. That is, the rate of growth of urbanisation may be slow precisely because of inadequate planning of infrastructure investments that have made cities unattractive to workers and employers alike.

While lack of sanitation may not have put a brake on economic growth yet, it is likely that it has retarded the growth of peoples’ well-being. For example, recent measures of infant mortality in Delhi appear to show an increase. The lag of indicators such as mortality decline behind per capita income in cities is almost certainly due to poor sanitation, unsafe water and the occasional outbreak of mosquito-borne diseases from stagnant water, rather than lack of medical care.

Two problems stand in the way of quick action on this matter. First, while we sometimes talk as though we are still ‘planners’, the fact of the matter is that forward-looking infrastructure development is sorely lacking. The problem of inadequate infrastructure is not new. Indeed, it is almost perennial and does, in fact, require planning. If the government can ‘stick to its knitting’ and guarantee the provision of real public goods and high externality-correcting activities, it can make good progress on accommodating urban growth. If its money and energy is frittered away on ‘planning’ private goods, it won’t.

Second, India’s history of handling urban slums should remind policymakers of the need for humane policies as it provides essential services. That the focus of the RAY is the establishment of property rights for the urban poor is heartening. Such rights and humane treatment as infrastructure is built are both moral and practical imperatives. China may be able to ignore peoples’ rights; India can’t and shouldn’t. The end is improving peoples’ quality of life. The means may require inconveniencing the very same people. Laying pipes, running electricity lines and inspecting, draining or treating stagnant water all take time and disruption of daily routine, but simple bulldozing is not an option. It’s been tried, it’s been proven unacceptable. On the other hand, Delhi, at least, is currently living with construction sites for Metro stations and flyovers. Many of these are in affluent areas and people are coping. These will help with congestion but not with safekeeping public health. No one should underestimate the difficulties of implementing urban renewal to make cities livable for an expanding workforce but neither can it wait much longer.

The author is Charles and Marie Robertson Visiting Professor of Economic Development, Woodrow Wilson School of Public and International Affairs, Princeton University.

Real Estate Intelligence Servic, Monday, July 27, 2009

9-10% growth by Sept 2010: Pranab

9-10% growth by Sept 2010: Pranab
The Economic Times, July 26, 2009, Page 8

First Signs Of Revival To See Particularly In Cement & Steel Sectors By Early Next Year, Says FM

Smitha Venkateswaran GOA

UNION finance minister Pranab Mukherjee on Saturday said India will take one-and-a-half years to come back to a 9% growth rate.

"We are still facing many problems of recession; it will take time to get back to 9-10% of GDP. Earliest signs will be visible by September 2010," said Mr Mukherjee while addressing an interactive session with businessmen in Goa.

Mr Mukherjee was in the coastal state to unveil the Indian Customs and Central Excise National Museum — the first of its kind in India. Maintaining that India and China have managed to curtail the impact of recession to a "great extent," Mr Mukherjee acknowledged that the economic slowdown that began in the US has taken its toll on India.

"For many years from 2003 to 2009, we enjoyed an average 8.6% growth rate but this has come down heavily with the meltdown. At least I feel the worst is now behind us," he said.

The first signs of revival, the FM hopes, to see particularly in the cement and steel segments by early next year. "We have ejected Rs 1,86,000 crore already into the economy, even with the burden of the Sixth Pay Commission on us. This will show results," he explained. Reiterating the Centre's commitment to create more spending power in the hands of people, Mr Mukherjee stressed on the growth of rural India which in turn will spurn growth, mainly of consumer durables. "Eradication of poverty is our primary focus. This in itself will become a solution to the slowdown problem," he added.

RBI may leave policy rates unchanged

RBI may leave policy rates unchanged
Business Standard, July 27, 2009, Page 1

Anindita Dey / Mumbai

Growth forecast may be raised to factor in improving monsoon, stimulus packages.

The Reserve Bank of India (RBI) might change its bias towards softening interest rates into a more cautious outlook but is expected to keep key policy rates unchanged in the monetary policy review on Tuesday.

At the same time, banking sources close to the development said the central bank could raise its growth target from 5-6 per cent to 6.5 per cent to accommodate the impact of an improving monsoon and the growth impetus provided through various fiscal and monetary stimulus packages earlier in the year.

The cautious outlook on interest rates is primarily to accommodate rising inflationary expectations in the economy.

“Around October-November, the base effect, which is keeping inflation rates down, will no longer apply. Therefore, rising food prices will also start showing on the wholesale price index. Besides, the consumer price index is highly inflated,” said the source.

This apart, a string of fiscal and monetary packages announced by the government and the RBI after the global credit crisis intensified last September are expected to result in high liquidity that could be inflationary in nature. “Thus, the inflation index will soon start going up and that needs to be incorporated in the outlook for interest rates in the coming days,” the sources added.

RBI could, however, raise rates towards the second half of the financial year, if not before, but is likely to maintain status quo for now, they added.

Since October, the RBI has lowered the cash reserve ratio (the proportion of deposits that banks set aside), 400 basis points to 5 per cent to increase liquidity in the system and encourage banks to lend more to companies.

Similarly, the repo rate (the rate at which RBI lends to banks), has been slashed 425 basis points to 4.75 per cent to signal a softening rate bias. The reverse repo rate, which is used to absorb surplus liquidity from the system, has been pared 175 basis points to 3.25 per cent.

Sources said the RBI has also decided to maintain status quo in the various stimulus measures announced since September 2008 to provide additional rupee as well as foreign exchange liquidity in the system.

The central bank had opened special windows to ensure that mutual funds, non-banking finance companies, small and medium enterprises and the banking system had enough funds at their disposal to deal with the higher demand locally after the credit crisis. But the windows have been largely unused for several weeks now, with banks consistently parking over

Rs 1,00,000 crore with RBI through the reverse repo window because of the low credit demand.

Land acquisition Bill on hold after Mamata puts her foot down

Land acquisition Bill on hold after Mamata puts her foot down
The Financial Express, July 25, 2009, Page 11

J P Yadav, New Delhi

With railway minister and Trinamool Congress chief Mamata Banerjee putting her foot down on the land acquisition Bill, even threatening to quit at the Cabinet meeting last night, the UPA government has decided to put the Land Acquisition (Amendment) Bill, 2007 and Rehabilitation and Resettlement Bill, 2007 on the backburner for now and look for a way out.

Sources in the government said that the Bills have been kept in abeyance and the move to introduce them during the current session of Parliament has been dropped. The Congress leadership is now looking for a way out given that Banerjee’s TMC is the second largest party in the UPA.

Banerjee on Friday stayed away from Parliament, skipping lunch with finance minister Pranab Mukherjee and others in the House. She sent her junior minister to the Rajya Sabha that she was scheduled to attend. In Lok Sabha too, only a couple of Trinamool members were seen, that too for a very brief period.

At the meeting of the Cabinet chaired by Prime Minister Manmohan Singh on Thursday, Banerjee was learnt to have rejected the twin Bills, making it clear that these failed to protect the interests of poor farmers. She was learnt to have told the Cabinet that she would be left with no option but oppose the Bills in Parliament.

With Banerjee not prepared to budge and even threatening to quit, the Cabinet was learnt to have decided to keep the Bills in abeyance till a solution was arrived at.

Word spread that Banerjee was boycotting Parliament but TMC MP Sudeep Bandopadhyaya denied any such move. He said they have differences over the land acquisition Bill but there was no question of separation. He denied reports that Banerjee had walked out of the Cabinet meeting and said she had lodged her dissent.

Bandopadhaya said they wanted the Bills to be placed before a Standing Committee or Joint Parliamentary Board. He said public opinion should be gathered. “We are firmly against any forcible acquisition of farmer land. We want industries but not at the cost of poor farmers,” he said.

According to TMC sources, Banerjee was learnt to be against the very core of the proposed Bill that talks about a private developer:state ratio of 70:30. The Bill proposes that the state would acquire 30% of the land only after private developers buy 70% of the land directly from farmers.

Banerjee wants that the state in no way should get involved in the acquisition process and that 100% of the land should directly be purchased by private developers. She also insists that the Bill should contain penal provision to check the use of money or muscle power by developers to acquire land.

The previous UPA government got the Bill passed in the last session of the 14th Lok Sabha before the elections. But the Bill lapsed and must be re-introduced. The Congress had claimed that the amended Bill was historic in the sense that it ensured rehabilitation before acquisition and protected interests of farmers and the tribals. The proposed Bill was prepared setting aside many important and unanimous recommendations of a Parliamentary Standing Committee.

U.K. Economy Shrank by 0.8% in the Second Quarter

U.K. Economy Shrank by 0.8% in the Second Quarter
The Financial Express, July 25, 2009, Page 20

July 24 (Bloomberg) -- The U.K. economy shrank more than twice as much as economists forecast in the second quarter as a record annual slump in construction, banking and business services kept Britain mired in the recession.

Gross domestic product contracted 0.8 percent from the first quarter, the Office for National Statistics said today in London. Economists predicted a 0.3 percent drop, according to the median of 32 forecasts in a Bloomberg News survey. From a year earlier, the economy shrank 5.6 percent, the most since records began in 1955.

Prime Minister Gordon Brown’s Labour Party trails the opposition Conservatives in polls less than a year before an election as the recession drives up unemployment. Bank of England policy maker Andrew Sentance said yesterday that the British economy may start to pick up in the second half of 2009.

“It’s a very sizeable recession indeed,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “I think we’ve seen the worst, but what will the post-recession environment look like? There is a risk in the medium term that growth will be weaker than we’re used to.”

The pound dropped as much as 0.5 percent against the dollar after the report.