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Needed: a national regulator for real estate

September 25th, 2009

Sunrise sectors generally follow a pattern of rise and fall leading to consolidation and structural changes.

Time has come for the real estate sector in India to transform from a largely unorganised sector into an organised one, with a national regulator in place.

From its heyday, spurred by credit flow following the opening up of the sector to foreign direct investment and listing of real estate companies in the stock market, there has been a substantial erosion of money from the sector in the recent past. Still, there exists a yawning gap between people’s buying power and unrealistic expectation of sellers. In these circumstances, affordable housing options in a city such as Kochi will depend heavily on how soon the sector gets regularised.

Every sector has undergone similar transformation. “For instance, with the opening up of the equity market, a regulator called SEBI [Securities and Exchange Board of India] came in. Likewise, real estate is in the process of a structural change because this is an investment asset class. This is something that people need,” says Suraj Nair, chief executive officer of Honey Bricks Property Management Private Ltd., which seeks to build an institution base for property intermediary services for the buyer and the seller. Problems crept in when seller expectations rose sky-high for various reasons. “But Kochi was not an isolated case because there was a wave of credit available across all asset classes around the world,” Mr. Nair says. “Equities and real estate in all economies outperformed everything else. When it declined, it did so the world over. In cities such as Mumbai and Bangalore, there was substantial erosion in property prices to the level of 45-50 per cent. Gold was outperforming all asset classes everywhere, including Kochi, where the erosion was only 10 to 12 per cent so far.”

After research for five months prior to its launch in July, Honey Bricks realised that in major tier-1 and -2 cities, over 70 per cent of real estate buying was for personal use or dwelling. About 25 per cent came in as investment. Kochi was, perhaps, the only city where it was primarily an investment option. “But there is something called affordability index. For instance, when a company’s health is evaluated, its market capital, balance sheet, a lot of financial ratios and economic indicators are taken into account. Similarly, there are a lot of financial indicators and economic ratios that define the value of property. Take the rental yield, for instance. Suppose someone buys an apartment for Rs.50 lakh in Kochi. The maximum rental yield that he would get could be in the range of Rs.8,000 to Rs.12,000 depending on the type of furnishing that has been done. In stray cases, the rent could be about Rs.15,000 to Rs.20,000 depending on the grandeur of the interior. If instead Rs.50 lakh is put in the least preferred of investments called fixed deposit, you are bound to get Rs.23,000 to Rs.24,000 after tax. Is real estate an investment option at this point when the least preferred investment option could yield a better return?” Mr. Nair asks.

“The seller has to be brought down from his level of expectation to a reasonable level of expectation. As for the buyer, there is still demand for real estate property, but the cream is gone. That raises the question of affordable housing,” he says.
News Published Under:  The Hindu

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Posted in General, Government, India Real Estate

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Kerala set to open first phase of Rs.600-cr IT park

September 19th, 2009

The first phase of the Rs.600-crore Koratty information technology park in Kerala, being set up as part of the state government’s plan to open IT parks in all districts, will be opened Oct 10.

The project, coming up on 42 acres in Koratty in Thrissur district, is one of the fastest developed IT parks in the state, Siddhartha Bhattacharya, chief executive of Infopark Kochi, which is developing the project, told IANS.

“The 42-acre plot that was given to set up the park earlier housed the Madura Coats factory. In just seven months of taking over the land, we refurbished the 14 villas that existed over there. There is also an old club house, which has been modernised,” said Bhattacharya.

Eight villas and the club house are ready now and 10 companies which would employ 400 professionals are all set to function from here, he added.

The remaining six villas would be ready in the next few months.

“The rates here are so cheap that we offer plug and play facility at Rs.30 per square feet. Those who want semi-furnished facilities, the rate per square feet is just Rs.15,” Bhattacharya said.

The prevailing rates at the Infopark and the Thiruvananthapuram-based Technopark are around Rs.45 per square feet and upwards.

In the second phase development, the government plans to set up a 200,000-square feet IT building, incorporating the green building concept.

“This new signature IT building will be designed to provide a beautiful and inspiring atmosphere and once complete there would be more than 6,000 professionals working at the Koratty IT park,” Bhattacharya said.

In May last year, the state government announced that IT level parks would be developed under private-public partnership model in all 14 districts.

In the first phase, IT parks would come up in Kollam, Alappuzha, Thrissur, Kannur and Kasaragod districts.

Currently, IT companies operating in the state are based either at the Technopark or Infopark.

Nearly 150 companies are operating in the Technopark. They employ close to 20,000 people, while around 40 companies that employ nearly 8,000 people are in the Infopark.

News Published Under:  Manorama Online

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Posted in Government, Infrastructure Development, Kerala Real Estate

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KSHB back with project proposals

September 19th, 2009

The government is on an offensive to end the slackness in the housing and real estate sectors by launching projects at a time when private builders seem to think twice before doing so.

Taking a cue from what the housing boards in West Bengal, Andhra Pradesh, Karnataka and a number of other States have done, the Kerala State Housing Board has planned to take the private-public partnership route to wipe away its liability.

In fact, one of the prime projects at Marine Drive will help the board come out of the red, believes Noel Thomas, Housing Commissioner and Secretary of the board. In a month, consultants will be selected for giving a detailed project report on the Marine Drive plan. The board, which has about 18 acres of land at the Marine Drive, plans to have a tourism, commercial and housing project.

Hotels, office space, convention centre and multiplexes are some of the ideas that have come up. A preliminary study by the board has pointed out that 17 lakh sq.ft of built-up space can be made available.

Since there are environmental concerns, the government held several rounds of discussion before agreeing to the project, Mr. Thomas said.

With an eye on the upcoming LNG terminal at Vallarpadam, the board has conceptualised the space here with a futuristic design, Mr. Thomas said. The prime project will be launched early next year and the full project is likely to be completed by three years, he said.

The housing projects of the board in at least four other places in Ernakulam district are expected to add to the signs of revival that the sector is showing these days. “We believe a revival in the sector by the end of the current financial year,” Mr. Thomas said.

The board has planned to invite builders for the construction on a build-share-transfer basis. The bidders should have done a project of that level in the last three years. Such a criterion is to keep the less-experienced ones away.

The board has got into a financial crisis because of the large number of houses it has financed for the weaker sections who have not been able to remit their part of the payment,

Mr. Thomas said. Unlike the boards in other States, the KSHB has built 6 lakh houses. With a loan of Rs.2,000 crore from HUDCO over the past 35 years, the board has not been able to take up many projects. So far, the liability of Rs.1,500 crore is over and a new outlook with private partnership is expected to push the board on track again, Mr. Thomas said.

Since pricing of houses is most important in a downward looking market, the board intends to keep it affordable considering the market dynamics at the time. In Panampilly Nagar, there will be a 32-unit complex, while the project at Kumaran Asan Nagar will be a 36-unit one.

At Thrikkakara, where the board already has project in innovative housing for the working class, there will be yet another project for the middle and higher income groups that will have 60-65 units.

At Irimpanam, where the board has some prime roadside land on the side of the Seaport-Airport road, a multi-storey housing complex will have a basement and two floors of commercial area.

If these projects are implemented, the board is likely to give a lead to many building projects in the State that are, at present, either going slow or have come to a standstill.
News Published Under:  The Hindu

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Posted in Government, Infrastructure Development, Kerala Real Estate

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Kerala finds a place in NLRMP

September 12th, 2009

Revenue Minister K.P. Rajendran says this is a signal that Kerala is moving in the right direction. He tells K.A. MARTIN that the first instalment of Rs.5 crore is welcome. 

Revenue Minister K.P. Rajendran has welcomed the decision by the Department of Land Resources under the Union Ministry of Rural Development to put Kerala among the first four States to get Central funds for the ambitious National Land Records Modernisation Programme (NLRMP).

He told The Hindu on Friday that this was a signal that Kerala was moving in the right direction in modernising and computerising land records.

Mr. Rajendran said that Kerala would need more money to achieve the goal of total computerisation of land records and the first instalment of Rs.5 crore was welcome.

Along with Kerala, West Bengal, Meghalaya and Madhya Pradesh have been chosen for receiving the first instalment during the current financial year.

The NLRMP will help computerise the entire process of property transaction records and network revenue offices.

The Revenue Department had submitted a detailed project report under the NLRMP for 2009-10 at an estimated cost of Rs.6 crore. This was approved by the Planning Board and funds allotted in the State Budget.

Besides, a detailed project report for the work at an estimated cost of nearly Rs.30 crore was submitted to the Union government.

The Revenue Department is expected to complete data entry, revalidation and training of officials and networking of offices in a time-bound manner.

The department has selected Pathanamthitta, Kottayam and Alappuzha districts for the first phase of activities.

In the second phase of computerisation of land records, Kollam, Ernakulam, Thrissur, Palakkad and Wayanad have been chosen.

The NLRMP emerged out of two Centrally sponsored schemes — computerisation of land records and strengthening of revenue administration and updating of land records.

The main aims of the NLRMP are to usher in a system of updated land records, automated and automatic mutation, integration between textual and spatial records, interconnectivity between revenue and registration offices and replacing the present deeds registration and presumptive title system with that of conclusive titling with title guarantee, says information posted on the Land Resources Department web site.

Committee

The Union government has constituted a committee on State agrarian relations and the unfinished task of land reforms in January 2008.

The basic belief behind launching the land records modernisation programme across the country is that effective management of agrarian relations and good land administration are key to economic development and poverty eradication.

News Published Under:  The Hindu

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Posted in Government, Infrastructure Development, Kerala Real Estate

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New tax code and housing loans

August 24th, 2009

How will the realty sector be impacted by the new tax code proposed by the Union government? Will the generosity seen in respect of the income slabs for the salaried class lead to any negative factors for property developers and buyers? These are some of the questions that have come up after the code was unveiled last week.

Bankers and builders have positive views about the tax code, but they are sceptical about the absence in it of the existing income-tax exemption of housing loan interest payments up to Rs.1.5 lakh annually. Borrowers will have to spend more for tax payment as well as the equated monthly instalment (EMI), many say.

As of now, the tax for individuals having annual incomes up to Rs.1.6 lakh is nil. It is at the rate of 10 per cent of incomes between Rs.1.6 lakh and Rs.3 lakh; 20 per cent between Rs.3 lakh and Rs.5 lakh; and 30 per cent for Rs.5 lakh and above.

The code, which will replace the Income Tax Act in 2011, proposes to tax incomes between Rs.1.6 lakh and Rs.10 lakh at 10 per cent. The tax liability will be Rs.84,000 plus 20 per cent of the total yearly income for incomes exceeding Rs.10 lakh but below Rs.25 lakh. In addition, the tax liability for those having incomes above Rs.25 lakh will be Rs.3.84 lakh plus 30 per cent of the total income.

However, savings up to Rs.3 lakh of a salaried person will be exempted from income tax. The existing limit is Rs.1 lakh under sections 80C, 80CCC and 80 CCD of the Act. “The Rs.1.5-lakh limit for housing loan interest exemption is an attractive option for the salaried class. The Centre should continue with it to increase the flow of funds into property investments. Otherwise, the proposal will be counterproductive,” says Nityanand Kamath, president of the Confederation of Real Estate Developers Association of India (CREDAI) Kozhikode chapter.

A salaried person whose yearly income is between Rs.4 lakh and Rs.5 lakh will be forced to think twice before going for a housing loan. A person whose annual income is Rs.4.5 lakh and has taken a housing loan of Rs.9.5 lakh now gets Rs.1 lakh exempted from his gross salary. The individual also gets an exemption of nearly Rs.1 lakh under sections 80C, 80CCC and 80CCD.

That means he will be taxed only for Rs.2.5 lakh of his income, at 10 per cent.

He will not get the benefit of the Rs.1 lakh interest exemption when the code comes into effect. After considering the benefits under other categories of deduction, the gross salary will be calculated at Rs.3.5 lakh. The individual will then have to seek ways to increase savings from the existing Rs.1 lakh to Rs.3 lakh. “But that will not be possible for a person with a low income because he will have to pay the EMI,” says K.K. Ajithkumar, Assistant General Manager, Federal Bank Ltd.

At the same time, a person who has not taken a housing loan will have a wider choice of savings on account of the Rs.3 lakh limit. Thus, the individual who has taken a housing loan will have to pay more taxes than others with equal income who have not taken a housing loan.

Many believe that the proposal will be detrimental to the policy of affordable housing in the country. The government will have to do a rethink on the proposal before it intends to introduce the Bill on the tax code in the winter session of Parliament.
News Published Under:  The Hindu

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Posted in Government, Kerala Real Estate

Builders seek tax concessions

August 14th, 2009

The Kerala Builders’ Association has suggested exempting flats with areas less than 100 sq.m (about 1,000 sq.ft) in rural areas from within the purview of the value-added tax regime.

The association has suggested tax holidays for a limited period for the building and real estate sector in view of the hard times it faces. The concession will help it come out better from the lull.

M.D. Jairaj, president of the association, says that giving incentives to builders in rural areas can help then offer affordable houses in rural areas to the common man. Besides, he says, this can help people in search of affordable homes move from urban to rural areas.

The association, representing nearly 150 builder members in the State, sees signs of a revival in the housing market in Kerala.

However, Dr. Jairaj alleges that the government is looking at builders as enemies and acting in a way that will render futile their efforts to survive these times of economic recession.

There is, he says, a widespread allegation that tax collection from the sector is low.

This has led the government and the taxes department to treat them from this perspective. The association demands that the government and the department do something to protect the sector, which provides lakhs of jobs in the organised sector.

The sector is straddled with taxes. It pays around 33 per cent, including tax on inputs, he adds.

The sector has been the worst hit in the economic recession. Added to this is a fear psychosis over the recession that scared away potential investors.

The government has admitted to a dip in revenue from registrations in the recent past. However, the association feels that the actual revenue fall may have been more than what is claimed. But the situation may have been helped by the ongoing drive opened by the Registration Department to settle cases related to undervaluation of property.

The association, says T. Padmajan, its general secretary, has been demanding remedial measures for several problems facing the sector. These demands and appeals have fallen on deaf ears.

One of the demands is reduction in stamp duty. The stamp duty in Kerala is one of the highest in the country and scares away buyers. A cut in this can create a more robust property market.

Taking into consideration the present financial crisis faced by the builders, the government should consider allowing them to defer the payment of labour welfare cess.

Individual structural plans for each panchayat is another demand. According to them, each panchayat should have land-use rules to make planning easier.

News Published Under:  The Hindu

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Posted in Government, Kerala Real Estate

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The metro rail will ease traffic congestion that plagues Kochi now

July 24th, 2009

Cochin: As the prospects for metro rail in Kochi have brightened with the Planning Commission giving the green signal, people of the city want the work on the project to begin soon without further delay so that they can escape the traffic congestion being experienced now.

Their apprehensions on these issues are not unfounded, as many infrastructure projects have been in limbo in the city.

While the Delhi Metro Corporation has earned a good reputation for getting work done in record time, work in Kerala will be a different game altogether, believe some of the major builders.

Most builders have welcomed the green signal for the metro rail as the project is expected to provide a good momentum to the overall development of infrastructure. This, in turn, will provide a necessary recharge to the property outlook in the city, they say.

All the same, the work will pose difficulties to people if the government, in association with local bodies, does not develop some of the connecting roads to the arterial roads of Kochi to help ease the traffic flow.

While Sahodaran Ayyappan Road requires repair, parallel roads on either side need to be developed. Similarly, other roads to Thripunithura, entry from the Maradu side and the Vyttila-Kaniyampuzha roads need to be strengthened to lessen the traffic on the main road.

If the work on Pulleppady overbridge gets done, one of the major roads connecting the city to the highway will become open, lessening the traffic on the metro route that will ring the city from north to south.

The construction of metro rail will be a challenge as the size of the existing roads, already congested, will be further reduced. Hence, it is important that the government does the spadework to prepare for a bigger project such as the metro.
News Published Under: The Hindu

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Meet to lay road map for Kerala’s infrastructure

July 22nd, 2009

KOCHI: The Confederation of Indian Industry (CII), in partnership with the State government, is organising a one-day conference on ‘Infrastructure in the time of economic crisis’ on Thursday 23 in the city. This conference is to lay a roadmap for improving the infrastructure in Kerala.

The conference will focus on improving physical infrastructure — roads, metros, railways, mobility hubs, ports, city development, low cost housing, funding options overcoming implementation challenges, policy prescriptions to create a five-point infrastructure agenda, creating world-class urban infrastructure and achieving inclusive growth and need for innovation.

Experts from the infrastructure space at the national level will initiate a dialogue at the conference and throw light on the implementation elsewhere in the country.

The government of Kerala will also exhibit the plans and proposals for project implementation, which will subsequently be taken up for discussion for furtherance.

In India, 28 per cent or 285 million people live in urban areas.

This will go up to 40 per cent by 2021. According to the Planning Commission, India needs an investment of $500 billion in the infrastructure sector from 2007 to 2012.

The Jawaharlal Nehru National Urban Renewal Mission envisages an investment of $20 billion in urban infrastructure by 2012.

The government of India has identified a public-private partnership approach as the cornerstone of its policy and has been actively encouraging foreign direct investment in India’s infrastructure sector.

 

News Published Under: The Hindu

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Govt may Ease FDI to Help Real Estate Growth

July 16th, 2009

The government department responsible for the promotion of industry is proposing easier rules to allow overseas investors to be part of smaller real estate projects and lower capitalisation norms for those which involve facilities related to hospitality or tourism. The department of industrial policy & promotion (DIPP), which handles the FDI policy, in a note drafted for the Cabinet Committee on Economic Affairs (CCEA), has said that FDI should be allowed to flow into realty projects even if the area covered is only 10 acres.

As of now, FDI is allowed in realty projects only if the minimum area covered is 25 acres (or 10 hectares). The move will help realty projects in metros like Mumbai, Delhi, Bangalore, Chennai and Hyderabad to attract FDI. Realty players feel that it is not possible to find 25 acres of land in these cities to make their projects comply with Press Note 2 of 2005, which defines guidelines for permitting FDI in this sector. The industry is keen on business in the metros, as it attracts high-profile customers, but wants FDI to be allowed since the cost of land in these cities is high, making them expensive.
The DIPP has also proposed that the minimum capitalisation norms specified in Press Note 2 can be waived in the case of projects, which involve hospitality and tourism facilities, such as hotels, restaurants or entertainment facilities meant for tourists. Press Note 5 specifies that minimum capitalisation should be $5 million for permitting FDI in realty projects, which involve an Indian partner. In case the project is implemented by a fully-owned subsidiary of an overseas firm, the minimum capitalisation specified is $10 million.

The waiver would be available in case 50% of the built-up area in a project is devoted to hotel and tourism businesses, such as food courts, resorts, restaurants. If 20% of the total built-up area is used for hotel rooms, the waiver will be available. Veterans in the real estate business, who do not want to be identified, said the liberalisation moves were welcome changes that they have been waiting for. These steps, when implemented, will provide relief to high-value projects in metros and projects being developed for the tourism sector.

The move comes as a relief at a time when realty players are struggling to managed debt and lull in business, they added. However, the realty industry is upset that its demand for waiving off the three-year lock-in for FDI in real estate has not been accepted. Many fund houses keep off realty projects due to the three-year lock-in period, industry veterans feel.

 

News Published Under:   Foreign Direct Investment in India

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