To discuss about how to imply relaxation on the norms related to external commercial borrowing (ECB), officials from both Finance ministry and the Reserve Bank of India, may meet this week. Continue reading
The report highlights the revised service tax and its impact on the consumers, the deduction in TDS and the current scenario of the External Commercial Borrowing (ECB) apart from its emphasis on the Chennai Realty Market.
Following are the key takeaways of the report:
– Chennai leads the market in terms of number of units under construction accounting for 68% of the total number of units coming up in the city, followed by the western region with 27%.
– Chennai is slated to witness the infusion of around 67500 residential units in the forthcoming three years.
– During 2011, the highest price rise was observed in the central areas of the city, to the tune of around10-18%.
– According to a United Nations study, Chennai has a deficit of around 60000 housing units. About 6000 of them are in the high income group segment, 12000 in the middle income group and 18000 in the low income group.
The announcement with respect to external commercial borrowing now being permitted opens up a huge opportunity for developers want to cater to the bottom of the pyramid with housing units targetted at the lower income classes even though the overall expectations haven’t been met.
This move will ensure better capital availability for developers of low-cost housing which will result in timely project execution, which will boost volumes and since low margins are typical of this sector, only higher volume growth will make it attractive to developers.
The Union Budget 2012-13 throws up a mixed bag for the real estate sector. The government’s initiative to make affordable housing available to a larger section of the society has only been met partially. Initiatives such as external commercial borrowing (ECBs) for the affordable and low-cost housing segment will help the sector to tap long-term funds and help ease the liquidity in the sector.
Extension of the 1 per cent interest subvention scheme for affordable housing will help the buyers to avail a loan limit of Rs 25 lakh. Also the measures to increase funding for highways and other infrastructure will help put more territories on the real estate map.
The Union budget has no real measure for the real estate sector as most of the industry expectations have not been met. The most important demand across all real estate companies is that of an industry status being assigned to the sector has been still pending.
Even though all the expectations have not been delivered. The most important demand of increase in the limit on tax deduction available on home loans interest from current Rs 1.5 lakhs remains unanswered.
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.
PIn a recent development the Reserve Bank of India along with the Department of Industrial Policy and Promotion are working to streamline and regulate the access and use of Real Estate Firms regarding the External Commercial Borrowings (ECBs). This will be done through a monitoring mechanism which will ensure stricter norms from now on.
RBI took this step in lieu of Real Estate Companies planning to raise ECBs worth Rs.4000 cr in the future and using this money for activities that cannot be funded through ECBs which will eventually adversely affect our economy.
Presently, Real Estate Companies that are only into developing integrated townships of various sizes are allowed to make use of these ECBs provided it is being used only for activities that are related to the construction of the townships. Now even this window will not be available by the end of this year.