Real Estate

Plans are also afoot to set up office space in Siliguri, Patna and Raipur. Ambuja Realty chairman Harshavardhan Neotia on Thursday said the company plans to start construction of new projects in couple of months. "We are in the process of receiving the necessary approvals. All the projects will be ready for possession within three years," he added.

While Ambuja plans to invest Rs 200 crore for a 5-lakh sq ft business park in Salt Lake, the second project will be set up over 1.5 lakh sq ft and will entail an investment of around Rs 60 crore. On the other hand, the Rajarhat project (1.2 lakh sq ft) is coming close to the group's existing shopping mall, City Centre II, and will bear an investment of around Rs 35 crore.

"While we will definitely target the IT sector for leasing out and sell out of space, but the parks will be designed in a way which will have appeal for all the sectors. At the same time, we plan to set up office space in three of our upcoming mixed development projects in Siliguri, Patna and Raipur," said Mr Neotia.

Ambuja Realty on Thursday announced the launch of the second phase of the group's first business park, Ecospace, in Rajarhat. The second phase comprising of two blocks will have a saleable area of 4.5 lakh sq ft. The entire project is spread over 10 lakh sq ft. Already 85% of the area in the first phase is leased or sold out to the likes of Bajaj Allianz, HDFC Bank, Voith, Thyssenkrupp, Indus Towers and Bayer Corp. "Of the total project cost of Rs 300 crore, we have already invested Rs 200 crore in Ecospace. The project will be completely ready by April 2010."

"Requests for de-notification by the developers have been received from 13 SEZs located in the states/Union territories of Delhi, Orissa, Gujarat etc, of which 12 have been approved by the Board of Approval," Minister of State for Commerce and Industry Jyotiraditya Scindia said in a written reply.

Board of Approval (BoA), a 19-member inter-ministerial group headed by Commerce Secretary Rahul Khullar, approves the SEZ projects.

Scindia said that the final de-notification is allowed only on refund of duties or benefits, "if any, availed by the developer."

The SEZs, which have been denotified by the BoA includes four IT-ITeS zones of realty major DLF in Haryana, Gujarat, and Orissa.

On the de-notification of three SEZs in Goa, the minister said that the state government "may have compensate the developers". However, he said that the developers have approached the judiciary and the matter is sub-judice.

"The Goa government had recommended 15 proposals for setting up of SEZs. Out of these, 7 proposals were accorded formal approval by the BoA and notifications were issued in respect of three cases," he said.

Stating that LIC was the second largest real estate asset holder in the country after the Railways, besides being the largest investor, Chairman of LIC T S Vijayan said that LIC was looking at a real estate income of Rs 200 crore to Rs 300 crore.

He said LIC was at a premium income of Rs 1,76,000 crore during the current fiscal. To a query, he said that LIC was aiming at 18 per cent to 19 per cent growth in the next fiscal.

The insurer would be investing Rs 2 lakh crore in the current fiscal, out of which 15 per cent would be in infrastructure projects.

Laying the foundation stone of a residential housing complex in south Kolkata on Sunday, Finance Minister Pranab Mukherjee said that LIC was contributing to 4 per cent of the country's GDP as well as paying hefty dividends to the exchequer.

"We are scrutinising all types of fund flows into the sector but no decision has been taken on whether to curb them or not," said R Gopalan, secretary in the financial service department of the finance ministry.

The Reserve Bank of India (RBI) has been cautioning banks against lending to the sector and asked them to continuously monitor the money going in. On their part, banks have curtailed lending to real estate firms. The total outstanding of banks to the real estate sector stood at Rs 88,581 crore as on November 21, 2009. The banks exposure to the real estate sector has gone down by a little over Rs 8,000 crore between June and November 2009. In a speech last week RBI deputy governor Usha Thorat had said that banks were expected to monitor their exposure to commercial real estate so as to limit the risk of a downturn in the sector.

"Although no regulatory limit is specified in this regard, RBI keeps a close watch on each bank's exposure to commercial real estate through offsite surveillance and initiates corrective actions where necessary."

Source: Realty Plus Real estate fund flow under watch

The government had last week clarified through the Budget that transactions such as leasing vacant land and commercial spaces, payment made to developers before the grant of completion certificate and imposing preferred location charges, among others, would come under the service tax net.

Developers said the proposal could push home prices up by 10 per cent in Tier-II and Tier-III towns and 0.5-4 per cent in big cities such as Mumbai and Delhi which have higher land prices. However, a senior finance ministry official here said the net impact of the service tax would be only 3.3 per cent, since there is an abatement of 67 per cent.

"There is a false impression being created that prices will go up by 10 per cent but the fact is that 10 per cent service tax is levied only on 33 per cent of the value," said the official.

The budgetary clarification has been issued with retrospective effect from 2007, when real estate transactions were brought under service tax. Abatement scheme, under notification number 1/2006 dated March 1, 2006, says that the contractor is entitled to claim abatement to the extent of 67 per cent of the value of services rendered by him. In effect, the contractor would have to pay service tax only on 33 per cent of the value.

Stung by new service tax proposals on property transactions, real estate bodies such as the Confederation of Real Estate Developers Associations of India and Maharashtra Chamber of Housing and Industry plan to approach the finance ministry to seek rollback of some proposals.

Developers have already increased prices by 15-20 per cent in the last nine months as demand for homes picked up. This resulted in demand tapering in January and February.

The government yesterday brought transactions such as leasing vacant land and commercial spaces, payment made to developers before the grant of completion certificate and imposing preferred location charges among others under service tax net.

The transactions now attract a service tax of 10.3 per cent. Developers complain that levying service tax on payments during construction will push up prices and reduce home sales.

The proposal, according to developers, could push up prices by 10 per cent in Tier-II and Tier-III towns and 0.5-4 per cent in big cities, which have higher land prices. Service tax is calculated on construction cost.

For instance, in South Mumbai, where apartments are priced at Rs 35,000 per square feet, the effective tax burden will be 0.5 per cent (10.3 per cent on construction cost Rs 2,000 per sq ft). A house of 1,000 sq ft will attract a tax of Rs 175,000.

Source: Business-standard By Raghavendra KamathWithdraw move on service tax, say developers

The service tax levy would be 10.3% and would also apply to additional services such as those offering preferential locations for flats in multi-storey buildings where flats in each floor are priced at a premium due to their location. This too has been described as a service and hence taxable, according to the proposal which was tabled in Parliament on Friday by finance minister Pranab Mukherjee. The premium is typically levied on categories such as flats or apartments that are above a certain floor rise or have other high value locations such as being in front of a garden or a sea or any other preferred locality.

"The proposal is to tax construction if the entire payment for the flat is made before completion of construction," said consulting firm RSM Astute executive director K H Viswanathan. "This would increase the cost of the apartment and may discourage potential buyers." The service tax would be 10% on 33% of the price of the apartment, while on the remaining 67%, tax won't be levied.

Till now, for all apartments under construction, customers paid in instalments based on plinth level construction and also on the progress in building activity. Banks too lent money to the customers according to the requirement of the builder. Now most developers would ask customers to pay the entire value of the building if they sought to lock in at a certain value. This would mean paying the entire sum before the construction. Typically, in cities such as Mumbai, where there is a pressure on space and hence apartments and flats are much sought after, customers booking for flats in an under-construction building, is very common. "The service tax and excise duty hike on cement would increase the overall cost of apartment by about 10%," said Dharmesh Jain, managing director of Nirmal Lifestyles, a Mumbai-based developer. "It's a negative step and we are considering to meet the finance minister to plead for a relook on this measure," he added.

But there are other positive measures that the Budget proposes such as allowing pending projects to be completed within a period of 5 years instead of 4 years, for claiming deduction of profits, as one time interim relief. There is also a suggestion that the commercial area included in a housing project would now be 3% of the aggregate built-up area of the housing project or 5,000 sq. ft, whichever is higher, compared to the existing limit of 2% and 2,000 sq.ft. respectively. This would help developers and real estate companies to make their projects more viable.

Besides, development of real estate complexes will also attract service tax, unless the entire consideration for the property is paid after the completion of construction.

"This step will add to the cost and it will be a huge burden on owners. Rentals of commercial property will go up by 10 per cent and it will lead to inflationary pressure," apex realty body Credai resident director GP Savlani told PTI.

Global realty consultant Jones Lang LaSalle Meghraj (JLLM ) country head Anuj Puri also said rentals of office and retail space are likely to increase by 10 per cent.

The Finance Minister said all commercial agreements or contracts between lessor and lessee for rent and lease would come under the service tax net with retrospective effect from June 2007. It will also apply to all agreements for undertaking construction of building or structures on any vacant land for commercial use.

There is, however, no clarity on whether residential properties will be considered as 'complexes' for inclusion under the ambit of service tax.

While Puri of JLLM said it should not be valid on housing properties, another global property consultant CBRE said service tax is likely to be charged on first time home buyers.

However, excise duty on cement, clinker--a crucial input--has been hiked from the current 8% to 10%. This is a partial rollback of the excise duty relief on cement, cement products.

``The Union Budget 2010 has offered some boost to the affordable housing sector. The 1% interest subvention on housing loans for houses costing up to Rs 20 lakh has been extended to March 31, 2011, which is a welcome move for the real estate sector. This will help in maintaining the ongoing momentum of demand for the affordable houses. Another welcome move in the Budget is the positive change in personal tax slabs. The new slabs will increase the disposable incomes which should further boost the demand for affordable housing in the coming months,'' Unitech MD Sanjay Chandra said.

``Extension of 80 (IBX) to five years will help real estate developers to get the tax benefit under section 80 (IBX). Additionally, partial roll back of excise duty on cement and cement products is a welcome move as it will help in reducing the input cost thereby making the final product somewhat economical,'' Delhi based real estate developer Emaar MGF MD Shravan Gupta said.

The residential segment has largely led the recovery with prices rising 5-25% across India. The commercial leasing segment has also been witnessing signs of recovery, even as the retail segment continues to languish. Banks are also offering aggressive mortgage rates, but rates are likely to increase by 0.5%-1% over the next six months on inflationary concerns.

Moreover, the Budget was silent on the sector's demand for cheaper capital, and faster project clearances.

Realty companies had sought an extension of tax benefits under section 80IB along with a higher deduction on interest paid on housing loans from Rs 1.5 lakh to Rs 2 lakh per year.

Shares of realty firms, led by real estate major DLF, surged on the Bombay Stock Exchange boosted by consumer friendly Budget proposals, including direct tax sops. DLF gained 6.79 % to close at Rs 308.90 on the BSE, Unitech 4.54%, Omaxe 3.84%, Parsvnath Developers 3 % and Simplex.Infra 4.6%.

• Service-tax could significantly increase the transaction cost for specified asset classes. Service-tax @ 10.3% is now proposed to be levied on value of (i) additional services provided by the builder such as offering preferential location, etc (ii) lease of vacant land, if construction is undertaken thereon. For developers, there may also be a trade-off between the realizing pre-sales, and reducing transaction costs, as service-tax would now be levied on sale of property, unless the entire consideration is paid after completion of construction.

• On the other hand, extension of the interest subvention of 1% for low cost housing to March 31, 2011, along with increase in the slab rates for individuals should provide the necessary demand boost for low-cost housing.

• In what should provide much-needed succor to residential developments staring at project delays, the time-limit for completion of projects eligible for deduction under section 80-IB has been extended to 5 years. Liberalizing the limit of commercial space that could be created in such projects will also help. On the flip side, however, companies executing such projects would now need to pay a higher minimum alternate tax of 19.93%.

• Hospitality would receive a much-needed boost by the investment-linked tax holiday being made applicable for all new hotels in the 2-star plus categories.

On the positive side, however, the Finance Minister did acknowledge the contribution of SEZs to India's export-growth, and expressed the government's commitment to the continued growth of SEZs. One could, therefore, expect that the revised Direct Tax Code, which the government intends introducing by April 1, 2011, may not hopefully tamper with the fiscal incentives being offered under the SEZ regime.

By Avinash Narvekar
Tax partner-real estate, Ernst & Young

Real Estate got a mention in this year's budget unlike last year where it was largely ignored. The finance minister provided one time interim relief by allowing a one year extension to housing development projects to claim deduction on profits.

The scheme of 1 per cent interest subvention on housing loans up to Rs 10 lakh for a house costing not more than Rs 20 lakh has been extended by one more year and an additional Rs 700 crore have been allocated to the scheme. The allocation to Housing & Poverty Alleviation has been raised to Rs 1,000 crore. The significant increase in allocation of funds by 75 per cent to Rs 5,400 crore for urban development is a welcome move. The finance minister also announced increased allocation of Rs 10,000 crore for Indira Awas Yojana -- a popular rural housing scheme. These positive measures will encourage demand, especially in the tier II & tier III cities and towns.

The Rajiv Awas Yojana scheme for extending support to states that are willing to provide property rights to slum developers got a substantial incremental allocation of Rs 1270 crore. This is in line with the government's announcement of making India slum free and is certainly a step in the right direction.

I am pleased that infrastructure got its due attention especially getting 46 per cent of the total planned allocation of the budget. Schemes such as Bharat Nirman, The Backward Region Grant Fund, increased allocation by 13 per cent on road transport, railways, the Delhi Mumbai Industrial Corridor project, etc., will give an impetus to infrastructure development in the country.

Source: Realty Plus Tier II, III towns to benefit more from Budget: CBRE

A study by global realty consultant Cushman & Wakefield revealed that the Burrabazar-BBD-Esplanade area-Park Street belt that comprises Kolkata's central business district (CBD) commands a rent of Rs 98/sqft, way over Gurgaon prime commercial (Rs 77), Bangalore CBD (Rs 73), Pune CBD (Rs 55), Chennai CBD (Rs 55) and Hyderabad CBD (Rs 50).

What's even more surprising is that rents in Kolkata have been least affected by the downturn that sparked a major price correction in the real estate sector across the country. While rent in the city's CBD is down 7 per cent against last year, the rentals erosion elsewhere is 10 to 28 per cent.

But despite the 20 per cent rent correction, office space in Nariman Point, Mumbai's CBD, remains the costliest in the country at Rs 300/sq ft ($107/sq ft/year). It is also the fifth most expensive location globally after Tokyo ($190), London West End ($161), Hong Kong CBD ($160) and Dubai CBD ($120). New York Midtown ($105), Moscow CBD ($102), Paris CBD ($102), Milan CBD ($89) and Zurich CBD ($88) are all cheaper than Mumbai.

Source: Realty Plus `Office rentals remain high in Kolkata'

The proposed new scheme, as announced in the Rail Budget for 2010-11, would provide "house for all" railway employees, from officers to gangmen. The scheme, however, it is estimated, would benefit only 30-40 per cent of the employees as the rest already have homes of their own.

Mr Santosh Rungta, President, CREDAI, said, "This will open up opportunities for developing affordable housing in the public-private partnership model."

The scheme was likely to allot railway land for setting up housing projects, Mr Rungta said. "It should allow a portion of the projects to be sold for the common people, while the rest should be allotted to the railway employees," he said. The proportion of the housing projects to be sold to other than railway employees could vary between 25 per cent and 70 per cent, depending on the location of the projects, he pointed out. The developers would hand over the units for the employees to the Railway Ministry free of cost, he said. While the Railway Ministry had not given out any concrete proposal for the scheme to CREDAI yet, various proposals had been received by the private sector over the last two months for developing projects on railway land in places such as Delhi, Aurangabad and Kolkata, Mr Rungta added.

The West Bengal Government on Tuesday announced that it would no longer implement a special economic zone (SEZ) within the proposed chemical hub project in Purba Medinipur district and would rework the agreement signed in July 2006 to implement the project over a 15-year time span.

State Industry Minister Nurupam Sen told reporters at the Secretariat that it has been decided to drop the SEZ portion of the project which had run into controversy for many reasons including environmental and livelihood issues raised by the principal Opposition party in the State.

• W.Bengal Govt. to rework the agreement to implement the project over a 15-year time span

• Likely investment of around Rs.94,000 crore, with an anchor investor and many ancillary units

The Minister's announcements came after a meeting taken by him on this matter on Tuesday, which was also attended by the Industry Secretary and officials of the West Bengal Industrial Development Corporation (WBIDC), the State's apex industry promotion agency.

Source: The Hindu By Indrani Dutta West Bengal scraps SEZ within chemical hub

Buy land, they are not making it anymore,' said Mark Twain. If only investing in real estate was as simple as saying `buy land'. Given the unavailability (in cities), uncertainty (of appreciation in under-developed areas) and unreliability (about the title), buying land is no longer an option for many. Today, most buyers look at built property as their first option, not just to avoid the hassle of constructing a house, but also because of easy availability of finance for such projects
.

Even if you choose to buy an apartment, the land on which it is built and your share in it play an important role in its potential price appreciation. In fact, the registered sale deed guarantees the right of ownership to land equivalent to the carpet area of your apartment -- an `undivided share of land'.

This is the part of land designated to an individual apartment and registered in the name of the buyer. It is referred to as `undivided' because the months, 55 per cent were lowrise.

The opportunity to buy one is magnified as most of these projects are in the `affordable' segment, even in the metros, where low-rises have not been a popular phenomenon till now. For instance, in the National Capital Region, realty players such as BPTP, Vatika Group, Raheja Developers and Assotech are catering to this demand in the market.

While not everyone attributes this trend to the cost factor, they definitely see the demand. Says Harinder Dhillon, general manager, marketing, Raheja Developers: "This trend is coming up as some customers prefer the privacy and space that independent floors offer. Besides, the additional costs arising from facilities like lifts, larger common areas and equipment maintenance are saved in the case of low-rise development. Also, one gets the benefit of adequate space, which may be a constraint in high-rise apartments."

If you are wondering why a developer would want to build a low-rise apartment vis-a-vis a big volume one, here's a good reason. The cost of construction is lower (up to 50 per cent cheaper than high-rises) and less equipment is required for maintenance work. So costs are saved and developers tend to operate on a high-volume strategy.

Says Nitesh Kumar, director, marketing, TDI Group: "Building low-rises helps to cut costs as a number of services can be done away with. For instance, fire norms are easier to follow, separate parking space does not need to be created within the structure, there's no need to maintain a basement and elevators are not required. All this amounts to significant savings for the developer."

In a slow market, this format of construction has picked up. It makes sense for a developer who is short on cash to go for low-rise projects. As this involves lowrise, low-density development and concentrates on basic infrastructure, the speed of delivery high-density development. This enables developers to complete more projects in a given time frame. Also, since there are no cost-intensive construction activities, the developer faces a much lower risk.

Source: Mail Today By Rakesh Rai Realtors high on low-rise projects