Union Budget 2010 -11 - Builders not pleased at Service Tax, No Incentive for Affordable Housing Projects, Not Extending Project Commencement Date

The devil is in the detail for the real estate sector. Though the Budget gave sops to home buyers in the form of tax savings and interest rate subvention, it quietly brought back service tax on lease rentals in the Finance Bill.

Builders said they’d pass on the service tax burden to customers. The silver lining was that the continuation of interest rate subvention and higher disposable income in the hands of individuals through income tax reliefs would more than make up for it.

Why should builders launch affordable housing projects?

This Budget also extended the interest rate subvention on a housing loan up to Rs 10 lakh where the house price is up to Rs 20 lakh, announced in the earlier Budget, to March 31, 2011. But, many developers are unimpressed. “Overall, home sales may go up, but there is no incentive for developers to launch more affordable housing projects. Why should we?'' said Niranjan Hiranandani, managing director of Hiranandani Constructions.

Service Tax will increase the price of properties!

According to the Finance Bill, service tax would be levied for renting immovable property or any other service to such renting with retrospective effect from June 1, 2007. The service tax rate is 10 per cent now.

Buildings under construction and the leasing of vacant land would also attract service tax, the Bill says.

“The levy of service tax will increase the price of properties. This has come as a dampener, as even renting under-construction property will attract service tax now,'' says Jai Mavani, executive director and head of the real estate practice at KPMG.

Some developers are unmoved. “We will transfer the service tax to home buyers and to that effect there will not be any additional liability,'' said Sarang Wadhawan, managing director of HDIL, a Mumbai-based developer.

“One-Time Relief to Real Estate Sector''

Though the Budget allowed projects started before March 31, 2008, to be completed within five years instead of four for claiming deduction of their profits as “one-time relief to the sector'', developers and consultants said the measure does not help much. “It is unfortunate that the commencement date of March 31, 2008, has not been extended but the period for implementation has been extended by one year. Hence, the impact of the amendment would be marginal,'' said Pranay Vakil, chairman of Knight Frank India, an international property consultant.
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Realty developers not pleased at many Budget details

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Indian real estate developers haven't yet learnt their lesson...

The real estate sector, which faced the toughest headwind in 2009, may be smiling today owing to a revival in demand.

However, the road to recovery has been painful. After the collapse of Lehman Brothers on September 15, 2008, the noose tightened around developers’ neck with sales down to a trickle as prospective home buyers looked to save jobs and cut expenditure. High interest rates made matters worse.

Come March 2009, developers realised that there is no other way to make sales happen but to bow down to the needs of customers. Developers started resizing projects keeping the buyers requirements in mind — 1BHK (bed room, hall, kitchen) and 2BHK flats with sizes admeasuring 400-650 square feet (sft) started coming back in vogue. Projects were launched by slashing rates by 30-35% from the market price.

The buzz word in realty became “affordable housing” and every developer added a new profile — Unitech gave way to Uninor, DLF will launch “value housing” and Lodha’s with their “Casa” branding.

Even banks cut interest rates as they sought more business. State Bank of India introduced the fixed-floating interest rate (where the interest rate is fixed for the initial years and then floats for the rest of the tenure). Things started looking up on the economy front as well. The job uncertainty was reduced and fears of a prolonged recession were no longer there.

Buyers started thronging to the real estate market. Developers saw booking sales of 50-70% in their projects in a fortnight’s time.

However, the mid-income segment wasn’t the place for them to raise funds to repay the debt that lied in their books.

The government stepped in, requesting banks to restructure the humongous debts on the books of developers and bringing in new norms for raising money through FCCBS for township projects.

Thus Unitech launched its qualified institutional placement (QIP), setting off a trend of QIPs that changed the realty game completely. Indian realtors cumulatively raised Rs 8,380 crore in the year.

However, realty prices have surged 30-32% in the second half of 2009, driving buyers away and the pent up demand, which gobbled all properties in display, is satiating, fast. Housing registration data shows a fall in sales across India after the Diwali Dhamaka season and thus begins the new struggle for developer of attracting buyers to the foyer.

May be realtors have not yet learnt heir lesson.

Real estate prices have come a full circle - Pooja Sarkar - dnaindia.com

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Union Budget 2010 - 11: Indian real estate sector pins hope on Finance Minister

India's troubled real estate sector is in desparate need of sops which could help boost demand for housing.

In its Budget proposals, the urban development ministry has sought removal of service tax on rental income from commercial properties arguing that renting of space is not a service and due to a court stay on the proposal there has been no loss to the government exchequer.

On its part the housing ministry has sought a three year extension in tax exemption under section 80 IB for developers of affordable housing projects. The exemption was granted in 2007 but was withdrawn last year.

“No one is addressing the larger issue. The most important need of the hour is for us to get industry status. We generate more jobs than any other sector and the trickele down effect is huge,” said Pranav Ansal, Vice-Chairman, Ansal API.

However, not everyone is impressed.

“There's no denying the fact that UD and housing ministries are doing their bits to bring the needed relief to the sector. We now need to see, the response that finance minister eventually gives,” said Rajeev Talwar, group executive director of DLF.

These are demands that the real estate sector has been pushing for the last many years, and all eyes are on the response Mr Mukherjee gives to them.

To read more, please, visit NDTV Profit

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1) WEDNESDAY, FEBRUARY 17, 2010

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Union Budget 2010 -11: stimulus packages must continue

3) FRIDAY, FEBRUARY 19, 2010

Union Budget 2010 -11: Concessions to rental housing critical

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Union Budget 2010 -11: Concessions to rental housing critical

Today yields in rental housing are so low (at about 5% or 6%) that nobody wants to invest in it. Moreover, the legal system is such that getting a flat back (from a tenant) can be a problem. Both these have to be addressed.

With the Union Budget just a few days away, DNA Money invited some realty sector stalwarts to understand what they wanted from the Union finance minister. Excerpts:

Would better rental norms help develop a Reit market in India?

Pranay Vakil, chairman of Knight Frank India:
I think the two are inter-related. You either have Reit or Reit-like products — both will serve the purpose of organised rental housing. There is not a single developer creating rental housing in an organised fashion in India. See, every city has a 20-30% floating population, which doesn’t necessarily want to buy a flat. They are subjected to brokers who just give something, they don’t even know if the titles are clear; then they worry if they’ll get their deposits back. If you have rental housing backed by the government, it will make repossession possible. That is the need of the hour.

Pujit Aggarwal, managing director of Orbit Corporation:
A Reit-like structure will bring down rentals and there is also an automatic passthrough as far as taxes are concerned. We are asking that Reits be given mutual fund status so that they become more attractive and developers would create more for-rent properties. This structure has proved to be one of the biggest drivers of housing in Europe and America.

Mayur R Shah, managing director of Marathon Realty:
The problem is that we can push the issue but the decision has to be taken by the finance minister. If I do a rental business today, how do I exit from the market? The typical exit is a Reit, which buys flats from a developer. If the developer is given a tax break, he would be inclined to do rental housing.

Vakil:
Another confusion is on whether service tax is applicable on rental housing. The high court says it is not, but I can show you internal instructions of the tax department which say it is, and the department is actually telling its people to go and recover service tax despite the HC order. What we want is clarity and consistency.

What about Section 801B?

Lodha:
A lot of us have abused the section. We have done 4,000 sq ft flats and showed it as 4 flats. We hit ourselves by doing such things. But where the cases were genuine, where you are really providing affordable housing, it has to be there because otherwise the IRRs aren’t there.

Moreover, that is where the bulk of the population wants housing. When you look at Mumbai’s demographics, we have a shortfall of 200,000 units every year. And last year 18,000 homes were delivered. Out of the 2 lakh units, 130,000 is in the Rs 10-40 lakh segment and here there are not even 10,000 homes under construction. So you just see the supply-demand gap.

The cement per sq feet that goes into construction of a Rs 20 lakh home is no different from that which goes into a Rs 10 crore home. But the multiplier effect is much more in the affordable segment because you are spending a much higher amount as construction cost compared with the sale value. So confidence about the continuation of Section 801B — and not making it a year-after-year extension thing —- is necessary. Clarity is very important.

Vakil:
One of the major objectives of Section 80 IB is to give a tax holiday for affordable housing. That would take out the black money from the system.

How is that?

Vakil:
Why does a developer take partly in cash and partly in cheque? If he takes cash, it is not disclosed to the government and therefore there is no tax on it. But when what you disclose is not subject to tax, why would you take cash?

To read more, please, visit dnaindia.com

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Union Budget 2010 -11: stimulus packages must continue

Stimulus Package & Easy Money:

The real estate sector is at crossroads. On a revival path after it went through tough times owing to economic slowdown in the country, the revival, though, is mainly on account of stimulus packages given by government to the economy. The easy-money policy adopted by the RBI, which led to softening in interest rate, also helped the process of revival in the sector.

Industry and real estate players, though, feel any withdrawal in the stimulus packages and hike in interest rate will be counterproductive and will affect revival of economy, particularly real estate sector.

Improve Affordability of Home Buyers:

The government should take measures to improve affordability of end users. To this end, he says government should raise existing slab of Rs 1,50,000 to Rs 3,00,000 against the payment of home loan. This amount is deducted from the assessee's income to compute income tax.

“This limit was set many years ago and needs to be revised to bring it to current levels. This will help people who want to rent their homes. It will induce and incentivise more people to rent their investment properties. It will immediately increase the total available house stock in the market,” says Rohit Gera, Joint Managing Director, Gera developments Pvt. Ltd.

Infrastructure Status to Residential Township:

Real estate sector, including residential township projects , should be granted infrastructure status.

Exemption of Income Tax on the Profit - extension of the 80-IB scheme:

Budget should extend tax concessions to residential sector by allowing exemption of income tax on the profit made by developers in constructing small houses of less than 1000 sq ft in Delhi and Mumbai and 1,500 sq ft in other cities.

This will be a huge incentive to developers to build affordable houses in the country. In fact, it will help contain prices in real estate sector in the country.

Tax break for specific types of housing:

1) Affordable housing units
2) Homes meeting specific environmental standards
3) Special Treatment for Rental property

To read more, please, visit Prabhakar Sinha-The Economic Times

Restore Tax Holidays:

Executive director of KPMG in India, Jai Mavani, said the last six months have seen a turnaround in the real estate segment because of the decision of the industry to lower prices (which re-generated the pent-up demand as homes became more affordable) and banks became more flexible in allowing debt re-structuring which gave a breathing space and holding capacity to many developers avoiding distress sales.

“Now, however, liquidity is drying up as central bankers, including in India, debate the phased withdrawal of the stimulus package. On the other hand, the government is concerned about the inflationary aspects, particularly on the socially sensitive residential sector. That said, there is merit in considering restoration of tax holidays for IT parks (Section 80-IA) and affordable housing (Section 80-IB) in light of the current downturn in commercial property market as well as the significant supply deficit in affordable housing.” To read more, please, visit Dileep Athavale | TNN

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Impact of Global financial crisis - real estate to remain subdued: Mid-Year Review of Economy for 2008-09 tabled in Parliament

The global financial crisis may have moderate-to-large impact on India's manufacturing sector, while growth in the agriculture would be insulated from turmoil in the world economy, Mid-Year Review of Economy for 2008-09 tabled in Parliament said on Tuesday

The review said the recent global economic events may have "some impact on account of export slowdown and liquidity squeeze".

The real estate is likely to remain subdued, there may be increase in the non-performing assets in the banking and insurance sector, the review prepared by the Finance Ministry said.
To read more, please, visit - The Economic Times

Role of the Reserve Bank of India(RBI) in the growth and slowdown of the Indian real estate market

Before January 2006:

Home loans formed 11% of the total outstanding credit of scheduled commercial banks in March 2005, up from just 2.4% in Mar 1990.

The sales value of housing construction has witnessed an exceptional leap from Rs176.1mn in 1991 to Rs41.82bn in the year 2006.

Lower interest rate regime has played a pivotal role in the process.

After January 2006:

Reserve Bank starts raising interest rates to curb inflation and prevent the economy from overheating.

RBI has raised the repurchase rate or the rate at which it injects funds into the banking system, to 7.75 percent.

Since December, RBI has increased the cash reserve ratio by 2 percentage points to 7 percent to slow down loans growth.

Because of the hike in interest rates the eligibility of the borrowers has come down by roughly 28%.

The result is market has slowed down and home prices have dropped by 25%. But India's inflation has slowed to a two-year low.

Indian real estate: slowed down, subdued, tranquilized!

"The Reserve Bank of India (RBI) should immediately review its monetary policy to remove its excessive focus on taming inflation only and concentrate to reduce mortgage rate" said ASSOCHAM Past President and Chairman, DLF Universal, K P Singh while he was releasing the ASSOCHAM Study on `Reality Check on Real Estate’ with its President, Venguopal N. Dhoot.

''...because of mortgage rate and monetary policy, there is no doubt that the market has subdued at this moment temporarily,''K P Singh, in Hindu Business Line.

"I don't agree with the monetary policy and I want the interest rates to be reduced. The earlier they do it, the better." Singh, the fifth-richest Indian according to Forbes in March, said, in Bloomberg,"Due to the increase in the mortgage rates, the market is subdued and suppressed temporarily"

Related Story

"Sale of residential property dropped by over 70 percent in May-June 2007," the Associated Chambers of Commerce and Industry report

House of Patels’, one of India’s leading business conglomerates has launched their real estate arm – ‘Wall Street Property’ in Dubai

“We have launched Wall Street Property to aggressively pursue the vast real estate opportunities existing in the UAE and across the region. Currently we are looking at two promising markets UAE and India. Our strategy will focus on selling residential, commercial, retail and leisure projects. The launch of this new arm will take investment opportunities in real estate to a new and exciting level,” says Mr.Asgar Shakoor Patel, Chairman of the ‘House of Patels’.

The company is also tapping into the Indian property marketplace, which is also witnessing a major real estate boom. The company will be showcasing a great opportunity for the Indian community to own properties in India. The company will sell projects in major Indian cities such as Bangalore, Pune, Calcutta, Chennai, Hyderabad, Mumbai, Delhi among other key cities.albawaba.com middle east news information::House of Patels’ launches real estate arm in Dubai
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