Realty Sector in Disappointment

The Union Budget 2012-13 on Friday proposed allowing external commercial borrowing for low cost affordable housing projects.

Presenting the Budget in the Lok Sabha, the Finance Minister, Mr Pranabh Mukherjee, also proposed setting up of a Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans.

The Minister also proposed to enhance provisions under Rural Housing Fund from Rs 3,000 crore to Rs 4,000 crore besides extending the scheme of interest subvention of 1 per cent on housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh, for another year.

Meanwhile, real estate players were disappointed with the Budget saying it failed to highlight the role of the housing sector in the economy.

“The proposal of bringing in an umbrella tax structure to the cement industry will increase the cost of housing and will negate the development process. Also providing ECB to affordable housing is a minor respite to the sector. There is an inherent risk of liquidity drying up wherein the exemption of capital gains tax to invest in small and medium enterprises may result in cash out from real estate,” Mr Lalit Jain, President, CREDAI, the industry body of real estate players, said.

The sector also said that the increase in service tax will increase the cost of construction by Rs 50-100 per sq feet.

According to Mr Anurag Mathur, Managing Director, Cushman & Wakefield India, “The increase in allocation in infrastructure implies a clear intent on enhancing the urbanisation process as well as providing a support to the slowing industrial sector. At the same time the increase in the service tax from 10 per cent to 12 per cent would lead to additional burden on the tenants as the service tax on rentals has remained unchanged.”

Cement Industry Seeks Profit

There is good news for cement industry as it is expected that the sale of cement is going to witness a rise in demand from realty sector and construction companies by 12 per cent to 20 million tones this month. As compared to the same period last year, the Sales for the building material grew by 11per cent in January and 4.3 per cent in February this year.

Cement Plant V
Photo by xdjio
On the last day of the current financial year, March 31, Cement companies are supposed to announce the sales data. “Our initial estimates show that March sales will be higher compared with the first two months of the current year,” said Mr. Rupesh Sankhe, Angel Securities Cement Analyst. He added that the sales could go up by 12 per cent in March.

The increased sales in March can be accounted to high inventory levels from the month of February, the analysts say. “There was a shortage of wagons last month and many companies were unable to deliver the commodity to retailers,” Sankhe said.

The major players of Cement industry like Aditya Birla, Jaiprakash Associates, Dalmia, JK Lakshmi and Shree Cements, registered high growth last month and are expected to grow this month too keeping in mind the higher consumption. It is interesting to note that these 5 companies together account for almost half of India’s total cement capacity of 240 million tones.
“Demand for cement is robust and the industry will see healthy growth in March, said Mr. Hari Mohan Bangur, Managing Director of Shree Cement. He added that the growth rate will continue as long as there are no dampening factors.
Apart from the recovery in realty sector, analysts say a sharp increase in sale of cement can also be due to the government’s focus on infrastructure in the five year plan.

Thus the cement industry can only expect profits in the near future.