Tag Archives: realty sector

Reforms in realty sector, untouched by budget 2013

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Budget 2013 has failed miserably to bring in any reforms in the realty sector. Many reforms like real estate regulatory bill and so on, were expected by the experts.
Reforms stood away from realty sector

All expected reforms also stood away from realty sector.

The budget 2013 was expected to boost realty sector in many ways. Many reforms like real estate regulatory bill, infrastructure status at least to the affordable housing sector, etc. were the main reforms which realty sector expected from the budget 2013.

Leading realty players to greater despair and mischief, none of these reforms were included in the budget.

The main focus was on the lower and middle income segment people and affordable housing segments. On the other side the budget did not forget to levy heavy burden on the shoulders of the top earners.

The affordable housing segment may be boosted as the budget includes some sort of boosts to the sector. However the budget is expected to affect the luxury housing segment inversely. After the budget, the prices for luxury houses are expected to rise sharply. Continue reading →

Buyers back in Real Estate Sector this Navaratra.

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Buyers are back in the realty market this Navaratra, lending credence to this festive season’s reputation as a golden period for business in this sector.

There is flurry of activity in the offices of realty firms as buyers are coming out to seal deals. The mood is likely to remain upbeat till the end of summer vacation of schools.

“I am sure that this positive momentum in the market will continue till summer vacation when even more end users are likely to clinch deals,” Samir Jasuja, the chairman and managing director of Prop Equity, says.

“After Navaratra, summer vacation in schools is regarded a good time for realty, as people wait for the end of term of their children to shift houses or buy one. The summer is a time of transfers and relocation; a time of school admissions and hunting for a house near schools, so that children can have an easy commute,” Jasuja says.

Gaurav Mittal, the managing director of CHD Developers, says: “The mood is really upbeat in the market with people finalizing deals in property. While market warms up during Navaratras even during bad times, this Navaratra is different. The quantum of deals is unexpected, though a welcome development.”

Jasuja says, “Notwithstanding a slew of legal battles, buyers are taking a final call on their new purchases in Noida and Greater Noida.” A report of Prop Equity says that the current financial year has proved to be good for almost all the big cities of the NCR including, Noida, Gurgaon, Ghaziabad, Greater Noida and Faridabad.

Sanjay Khanna, the director of Kailash Nath Developers Pvt Ltd, says: “I hope the worst is over for realty market and transactions take place till the end of summer vacation in schools. This Navaratra is proving to be very auspicious for the realty world. I know that NRIs, too, find the summer months an ideal time to return to their roots in order to buy property. Their search for a property also starts during the summer. This is the time when they visit India in order to meet their relatives and, side by side, also look for nice properties. They do not mind paying slightly more for good properties.”

Realty watchers say that April-June period records a high quantum of property transactions. Realty market picks pace from Navaratras. This is a time when end users finalize their deals and those looking for new homes on rent, also shift. The summer is also a time when the resale market picks up nicely.

Vijay Jindal, the chairman and managing director of SVP group, says: “It is a hectic period from Navaratra and through the summer months. A lot of transactions take place at all levels.” He says that during the summer, buyers give priority to those projects which are close to good schools.

Realty Sector in Disappointment

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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.”

Realty Sector has no resurgence.

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The latest Economic Survey reveals that the share of the housing sector to the overall GDP is likely to rise by one per cent to 6 per cent on increased investment. Currently, about 5 per cent of India’s GDP is contributed by the housing sector. With institutional credit for housing investment growing at a compounded annual growth rate of about 18-20 per cent per annum in the next three-five years, the housing sector’s contribution to GDP is likely to increase to 6 per cent.

As every rupee that is invested in housing and construction, Rs 0.78 gets added to the GDP. Investment in housing and real estate activities can be considered a barometer of growth of the entire economy. Unfortunately, the 2012-13 Budget does not recognise this. Although the finance minister’s speech concludes by reiterating the fact that there is a need to create an “enabling atmosphere” and that India is on the brink of “resurgence”, he has done precious little to make that happen.

India’s GDP has not been growing as it was sometime earlier was the topic of the finance minister before presenting the Budget. His five-point objective does not really lay any emphasis on the housing and real estate industry. While he has tried to restrict central subsidies to fewer than 2 per cent of GDP to improve the quality of public spending, he has failed to provide for measures which will give impetus to the industry at large, housing and real estate in particular.

The finance minister has permitted external commercial borrowings (ECBs) for low cost affordable housing projects. One wonders if this would do any good, since players in this industry are not used to taking the ECB route for affordable housing projects. This provision therefore does not make sense.

Extending the scheme of interest subvention of 1 per cent on housing loans up to Rs 15 lakh (on houses costing up to Rs 25 lakh) for another year also does not make sense, unless and until the limit of Rs 25 lakh is increased.

Realty sector seeks affordability from the government.

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Real estate businesses have much expectation from the forthcoming Union Budget 2012 that it will contain some pragmatic provisions that will lower effective price barriers for home-seekers.

Vice-president of Credai (Confederation of Real Estate Developers Associations of India) Pune Metro, Anil Pharande, said that on a macro level, a higher allocation of infrastructure funds for housing can be a favourable approach. “The government can set clear guidelines on timely commencement and completion of projects and link disbursement of these funds with adherence to these guidelines.”

Pharande also added that removal of the 10 per cent service tax on residential real estate construction, that increases the cost of new homes by as much as 3 per cent, is critical for a cost-sensitive market like Pune, which has mainly lower mid-income segment.

Real estate developers says, that broader incentives for development of affordable housing are needed, to encourage more developers to become active in this important sector and increase the supply of budget homes in the city as the city continues to face problems including high lending rates and construction costs, insufficient infrastructure and lack of affordable housing.

Even the 1 per cent interest rate subsidy on home loans can also work as a good measure to bring affordability. Also the present eligibility limit of loan amount of Rs 20 lakh should be raised to Rs 30 lakh which will help people think about buying apartments of decent sizes. Reducing taxes such as excise VAT and stamp duty on real estate will also make home purchase attractive, Pharande said.

Affordable housing is not more affordable for builders

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The  sector appears to have found its feet with focus on affordable housing and this may reflect in the June quarter results of the companies. The move has led to higher sales for many companies, but on the other hand, it has also impacted the margins negatively. The reason being that the mid-segment housing is a high volume with low margin business.

It may also be understood that only the residential market has seen a recovery, while the commercial and retail segments are still under stress.

Among all the listed companies, Orbit and Indiabulls Real Estate (IBREL) are expected to show a marginal improvement in sales. With a huge fall in property prices in the luxury segment, Orbit has shown 5% increase in sales. With a 70% YoY decline in revenue, Parsvnath is expected to see the highest fall. DLF and Unitech may follow with 60% and 54% decline, respectively. As a move to generate cash for business activities, both these companies have exited from unviable projects and also sold noncore assets. This would help in completing under-construction projects. Even some large SEZ projects have been shelved.

Many companies have launched new residential projects in affordable housing segment. Though construction costs would be low, EBIDTA margins would decline by 5-10 % average due to sharper decrease in prices. However, companies like Unitech, DLF, HDIL, and Sobha that have raised funds have improved their balance sheet positions and thus lowered their overall finance cost. Average EBIDTA margin for June’ 09 would be 39% as against 43% for March’ 09. Peninsula Land is expected to show positive margin, as the number of projects was very limited, hence leverage was also low.

Despite all the gloom, realty sector is seen to show some improvement in margins. The overall PAT margins for the June quarter will be at 26%. Though real estate sector is one of the major contributors to the over all profit growth for India Inc, yet it is low as compared to the past PAT margins of 35-40 %. However as alternate sources of funds have become available, builders have managed to improve their cash position. Loans have been restructured and thus interest liability has been reduced. Developers like Mahindra Lifespaces, IBREL and Peninsula Land are expected to report PAT margins upward of 30%.