Housing loan, PF in EET net to offset tax sop losses
The Financial Express, August 14, 2009, Page 2
Surabhi, New Delhi
The finance ministry estimates that scrapping tax deduction on housing loans and bringing provident funds including those for government employees under the EET (Exempt-Exempt-Tax) system will compensate for the lower tax rates proposed in the Direct Taxes Code. A day after the Code was unveiled; the finance ministry is already preparing its stand on the issue, which it expects could lead to huge political opposition .
“You can’t have everything. If tax rates are low, the tax base needs to be widened in order to sustain collections,” a finance ministry official said. The Direct Taxes Code Bill is scheduled to be tabled in Parliament in the Winter Session, where the ministry expects to face a huge debate on these provisions.
The Code, which is expected to come into effect from April 1, 2011, seeks a drastic re-jig of the income tax slabs. The threshold will be Rs 1,60,000 for individual assessees, a 10% tax would be levied on income between Rs 1,60,001 and Rs 10,00,000 while a 20% tax along with Rs 84,000 would be levied on income between Rs 10 lakh and Rs 25 lakh. On annual income over Rs 25 lakh, individual assessees would be expected to pay 30% tax along with Rs 3,84,000.
To make up for this revenue loss, it has suggested scrapping all exemptions for savings instruments, other than the omnibus Rs 3 lakh annual deduction from individual income. The finance ministry estimates given in the budget documents say, the deduction for repayment of housing loans and the savings scheme has cost it Rs 27,389 crore in 2008-09.
The code proposes the EET method of taxation for all savings schemes including approved super annuation funds. According to data with the direct tax department, there are about 2.5 crore income tax assesses in the country, a large percentage of whom use some form of tax savings instruments including the Public Provident Fund as well as the government Provident Fund, Employees Provident Fund and others.
The only exemptions that will continue are for medical and education loans, that together account for Rs 130 crore per year to the exchequer. The Direct Taxes Code also plans to remove area-based and profit-linked exemptions, which account for a large chunk of revenue losses. Instead, it calls for investment-linked incentives for nine activities such as developing special economic zones, exploration of production of mineral oil and natural gas, cold chain facilities. As per the Budget document, the Centre lost out on Rs 68,914 crore of direct tax due to exemptions to corporate.
Friday, August 14, 2009
Housing loan, PF in EET net to offset tax sop losses
New tax code to dent housing, fear bankers & realty firms
New tax code to dent housing, fear bankers & realty firms
The Financial Express, August 14, 2009, Page 13
fe Bureaus, Mumbai
The banks and real estate companies are apprehending that the removal of tax benefits on the interest portion up to Rs 1.5 lakh of any housing loan as proposed in the draft tax code will hamper the growth of housing finance and real estate business.
Niranjan Hiranandani, managing director, Hiranandani Constructions, “This is a very wrong decision as world over tax exemption on housing loan is encouraged to provide boost to the real estate sector. Government will have to restore the tax reforms as demand in real estate business will be badly impacted.”
Hemant Shah, chairman, Akruti City said that the new draft tax code will dampen the sentiments of buyers to the extent that tenants who would be looking at buying first time homes on ownership basis will refrain from inquiring.”
Parthasarathi Mukherjee (president, credit), Axis Bank said first time buyers of housing property do not take their decisions based on tax sops and incentives only. The proposed change will not affect them. However, investors or second home buyers are likely to base their decision pertaining to the taxation angle. So, it’s a mixed effect. Thus it’s too early to comment on the overall impact of these changes on housing mortgage business in the country.
M Narendra, executive director, Bank of India also said the first time home loan borrowers will anyhow continue to go for the home loans.
“Only the affected may be those home loan borrowers that are going for the second or third time for the loan. Now we have to see that the interest rates on our home loans are to be kept competitive and the houses must be available at affordable cost, “ he said.
BoI’s home loan portfolio comprises Rs 6,900 crore and it wants to see a growth of 25% in that space by the end of the fiscal.
However Naina Lal Kidwai, HSBC India CEO and group general manager said “I would like to believe that the recent declaration regarding housing tax exemptions in draft direct tax code is not going to affect the growth of housing mortgage in the country. If someone likes to buy a house, he or she does not look at tax exemptions facility usually. The direct tax cuts announced in the bill are major. People are likely to have more money in their hands at their disposal to pay housing loan installments in the longer run.”
Realty, PE funds bet on brownfield projects
Realty, PE funds bet on brownfield projects
The Financial Express, August 14, 2009, Page 5
Mona Mehta, Mumbai
Investing 70% of the Rs 50,000-crore funds in Indian brownfield real estate projects and income generating assets, instead of greenfield projects is the new buzzword among real estate funds (REFs) and private equity (PEs) players in the Rs 10,000-crore real estate market.
Private equity players and funds such as Blackstone, IndiaReit, HDFC, ICICI Securities, Anand Rathi, Motilal Oswal, Morgan Stanley, Lehman Brother, Xander who have been planning to pump Rs 50,000 crore into the overall real estate sector are eyeing Delhi, Mumbai, Pune, Hyderabad, Chennai to fund new developers for their brownfield real estate projects. Brownfield real estate projects are the realty projects happening in city- centric locations where property sales are high with quick returns.
Sanjay Dutt, chief executive officer—business, Jones Lang LaSalle Meghraj (JLLM) told FE, "With the supply of commercial properties set to touch 55 million sq ft by December 2009, there will be an expected demand for 25 million sq ft during the period. Moreover, front office will generate huge demand in comparison to IT parks and SEZ."
The new trend comes at a time when builders are strongly focusing on cluster development of residential projects. Jeetendra Jain, managing director and CEO, Neev Group of Companies said, "We are currently in talks with South Mumbai-based developer to enter into JV with them for developing high rise apartments at an investment of Rs 500 crore where both parties own lands, but would jointly develop projects. The project is expected to be launched in the next nine months and will be ready for possession in the next two years."
Cluster development is an eminently suitable model for the Indian milieu, since it permits developers to optimize the available resource where there is a need for land conservation. Apart from having greater potential for increased environmental sustainability, cluster developments also result in a reduction of costs related to construction and location-related infrastructure. According to Pawan Swamy, managing director (West India) from JLLM, "Property buyers also benefit by the retention of a maximum possible amount of open space, preservation of community and enhanced security. In a congested city like Mumbai, these factors are significant."
After selling ready possession residential properties at Goregaon East in North Mumbai at Rs 3,999 per sq ft, Royal Palms India is now planning to offer ready possesson office and mall space on ownership basis at Rs 3,999 per sq ft at the same location.
Knight Frank puts off plan for India-focused property fund
Knight Frank puts off plan for India-focused property fund
Business Standard, August 14, 2009, Page 3
Raghavendra Kamath / Mumbai
The UK-headquartered Knight Frank Group has put on hold its plans to launch a $250 million (nearly Rs 1,225 crore) India-focused real estate fund due to drastic slowdown in property markets across the world, said informed sources.
“The group is relooking at launching new funds in international markets,’’ said a person in the know.
When asked, Knight Frank India Chairman Pranay Vakil confirmed the development. The offshore fund was supposed to raise investments from high net worth individuals and other investors from the UK.
Last year, the group held discussions with potential investors and started putting in place a management team to run the fund. Knight Frank India executive director Keku Cola was expected to head the new fund, but he has quit and joined the Shapoorji Pallonji group.
According to a report by global research firm Preqin, private equity real estate funds are still struggling to raise capital in the current economic environment. In the April-June quarter, 21 real estate funds made aggregate commitments of $10.3 billion, down 72.16 per cent from the $37 billion in the year-ago period.
The interest from private equity funds has waned due to slowdown in the sector in the past nine months. Only three PE deals, worth Rs 600 crore, have taken place in the realty sector in the past nine months, as against Rs 40,000 crore worth of deals during the same period in 2008, according to Venture Intelligence, which tracks venture capital and PE investments.
Knight Frank India has been operating in the country for the past 12 years and has offices in Mumbai, Gurgaon, Pune and Bangalore, among others. With its US-based real estate partner, Newmark Knight Frank, the global network encompasses more than 165 offices in 36 countries across six continents. It handles $36.1 billion of real estate assets.
S&P's increases growth forecast to 6.3%
S&P's increases growth forecast to 6.3%
Business Standard, August 14, 2009, Page 5
BS Reporter / New Delhi
Rating agency Standard and Poor’s (S&P’s) today raised its India’s growth rate forecast by 30 basis points to 6.3 per cent for the current fiscal on the back of improving global and domestic economic scenario.
Strong domestic demand, which has stood the shocks of economic downturn, has also contributed to S&P’s upward revision of India’s GDP.
The revised figure, however, does not take into account the weak monsoon, which is expected to adversely affect the agricultural growth. Finance Minister Pranab Mukherjee had earlier this week expressed confidence that the country would be able to record more than 6 per cent growth despite drought.
“Though it is premature to gauge the impact of monsoon, I don’t think it will have an adverse effect on the level (of growth) that people are anticipating,” said S&P’s Chief Economist Subir Gokarn at a teleconference. “The reason is that most of the areas that have suffered deficient rains have irrigation possibilities and so the monsoons may not affect overall economic growth,” he added.
Gokarn also said the spread of swine flu might affect some sectors, but its effect on overall economic growth would be limited.
On the policy front, he expected that a neutral monetary policy and softer interest rate scenario would stay for another 2 to 5 months, as inflationary pressures might rise and require policy unwinding.
“Though the inflation situation is benign at present and is expected to be so for some more time, rising oil and commodity prices, along with the excess liquidity pumped into the system, may lead to inflationary pressures and risk economic recovery,” he added.
Moreover, he said the steep growth of 7.8 per cent in the industrial output in June signalled that credit offtake might rise at a much faster rate than thought and surplus liquidity might be absorbed at a much faster pace.
“However, I expect the recovery to be modest, as capital inflows have stabilised to keep liquidity at comfortable levels at present,” he added.
Indian economy has bottomed out: S&P
Indian economy has bottomed out: S&P
The Hindu Business Line, August 14, 2009, Page 15
Our Bureau, Mumbai
The Indian economy has bottomed out and is set for positive growth in 2010, according to Standard & Poor’s 2009 Asia Pacific Mid Year Market Outlook
In view of the fiscal and monetary measures, robust domestic demand, and an overall improvement in the global economy, the rating agency has pegged India’s GDP growth in the 5.8-6.3 per cent range this year and 6.8-7.3 per cent range in 2010. In a teleconference, Dr Subir Gokarn, Chief Economist, S&P – Asia Pacific Region, told the media that macro-economic numbers indicate a turning point in the Indian as well as global economy in the first half of 2009.
Explaining the turnaround, Dr Gokarn said the country’s GDP will be driven by strong domestic consumption, which has been held up by stable rural demand and the recent hike in public sector salaries.
However, he cautioned that high inflation, interest rate pressure and persistent sluggishness in global growth could be a drag on India’s growth.
Asia-pacific region
With a faster than expected growth in demand for credit from the private sector, there is also a possibility that future government borrowing could crowd out private investors.
The swine flu pandemic would have negligible impact on the economy, he added.
Commenting on the growth prospects for the Asia-Pacific region, he said China, India and Indonesia will continue to lead with strong growth in GDP.
China played an important role in the economic turnaround of the region as Asian countries have increased their share of exports to China while decreasing there reliance to the US markets.
However, the US continues to be critical to the growth of the Asia-Pacific region, he added.
Fed says economy is leveling out
Fed says economy is leveling out
Business Standard, August 14, 2009, Page 11
WASHINGTON (Reuters)
The Federal Reserve said on Wednesday the U.S. economy was showing signs of leveling out two years after the onset of the deepest financial crisis in decades and it moved to phase out one emergency measure.
The U.S. central bank also kept its benchmark short-term interest rate steady near zero and said it would likely stay there for an extended period to guide the way to recovery.
The Fed made its clearest statement to date that it sees the recession nearing an end and that shattered financial markets are healing.
"Information since the Federal Open Market Committee met in June suggests economic activity is leveling out," the Fed said, referring to its policy-setting panel. "Conditions in financial markets have improved in recent weeks."
It is the first time since August 2008 that the committee's statement has not characterized the economy as contracting, weakening, or slowing.
Many peg the onset of the crisis to French bank BNP Paribas' move in August 2007 to freeze funds because of problems with U.S. subprime mortgages. In the months that followed, the U.S. economy toppled into the most damaging financial crisis and painful recession in decades, and the economic malaise spread around the world.
"They see the worst with the economy is behind us but they don't want to jump the gun and pull back quickly," said Craig Thomas, a senior economist at PNC Financial Services in Pittsburgh.
The Fed cautioned that the economy remains fragile as employers continue to cut jobs and businesses trim investment.
U.S. Treasury prices fell after the Fed statement in apparent disappointment that the Fed did not increase the amount of debt that it plans to buy but subsequently regained some ground.
However, major U.S. stock indexes flirted with 10-month highs and the U.S. dollar rose against the yen.
The Fed cut interest rates to a range of between zero and 0.25 percent in December and pumped hundreds of billions of dollars into financial markets to stimulate economic activity in aggressive efforts to thwart the recession.
President Barack Obama's ability to implement his health care and environmental reforms partly depend on his administration's ability to turn the economy around with a controversial $787-billion economic stimulus package.
The recession has seen tax revenues fall and spending rise, leading to a record federal budget deficit expected to top $1.84 trillion in the current fiscal year.
Global confidence rises on signs of recovery
Business Standard, August 14, 2009, Page 11
Bloomberg / Singapore
Confidence in the world economy surged to a 22-month high in August on signs the worst global recession since World War II is approaching an end, a Bloomberg survey of users on six continents showed.
The Bloomberg Professional Global Confidence Index jumped to 58.12 this month from 39.13 in July. It is the first time the reading exceeded 50, which means optimists outnumber pessimists. A measure of US participants’ confidence in the world’s largest economy rose to 47.3 from 29.5, the survey showed.
“It’s clear the recession is over and some kind of recovery is underway,” said Nick Kounis, chief European economist at Fortis Bank Nederland Holding NV in Amsterdam, and a regular survey participant. “We have the biggest monetary and fiscal stimulus policy in history, globally, and we’re starting to see it work. Probably the next debate will be about how strong and sustainable the recovery is.”
The MSCI World Index has increased 12 per cent in the past month and President Barack Obama said last week’s unexpected drop in the US unemployment rate indicates the worst may be over. Nobel Prize-winner Paul Krugman said August 10 that the world, now in a “rough stabilisation” mode, has averted another Great Depression.
The survey of more than 2,300 Bloomberg users was conducted between August 3 and August 7. Since the previous survey, the US jobless rate declined, second-quarter growth in the US and China was better than expected, and the European Central Bank held interest rates at a record low.
US payrolls fell by 247,000 in July, after a 443,000 loss in June. The jobless rate unexpectedly dropped to 9.4 per cent from 9.5 per cent. The Standard & Poor’s 500 Index closed above 1,000 for the first time since November last week.
The US economy will expand 2 per cent or more in four straight quarters through June, the first such streak in more than four years, according to the median forecast in the monthly Bloomberg News survey.
Analysts lifted their estimate for the third quarter by 1.2 percentage points compared with July, the biggest such boost in surveys dating from May 2003.
In Europe, a recession is also showing signs of bottoming out. ECB President Jean-Claude Trichet said on August 6 that the euro-region economy will show a “gradual recovery” followed by a return to growth in 2010. The gauge for Western Europe rose to 41.1 from 31.
Manufacturing and service industries in Europe contracted at a slower pace in July and business confidence in Germany, its largest economy, rose for a fourth month. Linde AG, the world’s second-largest maker of industrial gases, forecast business to pick up in the second half of 2009 from the previous six months, it said August 3.
“Government and central bank measures are starting to show an impact,” said Peter Leonhardt, an analyst at Dekabank in Frankfurt, and a regular survey participant. “Sentiment is improving much faster than expected. There’s a need to catch up after a deep slump.”
In Asia, respondents were more optimistic, with the index reaching 74.2 from 59.4. Goldman Sachs Group Inc this week raised its forecast for China’s 2009 economic growth to 9.4 per cent, and said Asian nations excluding Japan will expand faster than earlier expected as well.
The CLSA China Purchasing Managers’ Index reached the highest level in a year last month. Samsung Electronics Co, Hyundai Motor Co and LG Electronics Inc are among South Korean exporters that reported increased profits last quarter.
“A lot of the recovery we see in Asia is driven by government spending and restocking,” said Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore. “We need a genuine recovery or stabilisation in consumer spending and private investment to ensure the slack will be picked up when the fiscal policy fades away and the restocking phenomenon disappears.”
Confidence also rose in Japan, where the economy is forecast to have expanded for the first time in more than a year last quarter. Elections in the world’s second-largest economy at the end of the month may result in a victory for the opposition Democratic Party of Japan, which has never held power. The index for Japan climbed to 50 from 34.1.
Bloomberg users became more optimistic on the outlook for their equity markets in the next six months. Respondents in Japan, the UK and Italy predict stocks will extend gains, while those in the US and Germany are mixed about the direction of their markets. The global equity rally has added more than $15 trillion to the value of global stocks since this year’s low on March 9.
“Risk appetite is returning to a much more normal level,” Standard Chartered’s Hui said.
The US dollar may weaken in the next six months against the world’s most active currencies, with the index falling to 38.8 from 43.8 in July, the survey showed.
Users in Japan are divided on the direction of the yen against the dollar, with the index dropping to 50.3 from 59.6. Most respondents in Western Europe are more optimistic the euro will strengthen against its US counterpart.
Survey participants in the US, Japan and Western Europe are also more confident short- and long-term interest rates will rise in the next six months, the survey showed.
The Federal Reserve will forego raising its benchmark rate until the third quarter of 2010, according to the monthly Bloomberg survey. Bank of England Governor Mervyn King on Wednesday said inflation may miss the central bank’s target over the next three years, signaling investors may have to rein in expectations for interest rate increases.
Globally, “it’s too early to start tightening policy,” Kounis of Fortis Bank said. “In general, it’s not something that should be considered this year.”
Thursday, August 13, 2009
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”.
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