REAL ESTATE
 

 

Foreign fund ban Blocks growth

Restrictions on external commercial borrowings may dent progress as project costs are likely to escalate, realtors tell S. Satyanarayanan

Spurt in inflation led the government and the RBI resort to several monetary and fiscal measures to suck out excess money supply in the economy. In the past one year, the government has been laying special emphasis on curbing credit flow to real estate sector, apprehending overheating.

One of the measures used by the RBI to suck out excess credit flow was to raise the cash reserve ratio (CRR) of the banks, which resulted not only in the flow of lesser credit to the real estate sector but unprecedented increase in lending rates too. These measures, according to analysts have already slowed down the pace of growth in real estate anywhere between 15 per cent and 20 per cent.

However, the rude shock for the real estate developers came last week when the government decided to completely ban the real estate players and township developers from accessing external commercial borrowings (ECBs) to fund projects. In fact, with interest rate on domestic commercial borrowings touching the roof, several real estate players had been looking for adopting ECB route to generate capital for integrated township projects.

Predictably, the recent decision of the government to modify the ECB policy has come in for severe criticism from real estate players, especially at a time when the real estate sector was looking up and poised to register phenomenal growth.

A majority of them wish that the government’s move remains a “temporary measure” as in the long run, it could have a negative implication on the sector, thus impacting employment generation.

“The government’s move to choke the ECB route may, to some extent, prove good for the unreined price escalation in real estate, but there must be a distinction between Infrastructure Integrated Townships that are SEZs and real estate,” C.S. Agarwal, Managing Director, Rockmann Group, said.

“The world is focussed on India and is keen to partner in economic growth. The government, thus, must look at a long-term perspective than just myopic bearing,” Agarwal said, stressing that across the board curbs, legislations and controls had never worked to the advantage of any economy.

“The ideal would be to dig at the root of any malaise rather than just choke the water supply to the whole tree,” he said, reacting sharply to the government move.

“The realty sector has turned out to be a growth driver over the past few years. India needs infrastructure. The growth of Indian economy, despite the recent strides, is haphazard. To meet the growth challenge a large number of new industries, along with working and living spaces have to be built at an unprecedented scale and in a shorter period of time. So, the government should encourage private players to fill the gap,” he added.

Observing that the tightening of ECB norms would definitely impact the credit flow to the real estate sector and that the smaller companies might find it more difficult to raise capital, Kaushik Sengupta, VP, Sales and Marketing, Eros Group, foresees a scenario where smaller companies would form consortium and use each others strengths to combat this tight credit flow situation and joint ventures happening between a strong marketing company and a good construction company.

“There was an inflow of $1 billion through the ECB in 2006-07. Industry will now have to depend solely on the domestic debt market to meet its requirements, so the industry will see formation of consortiums, joint ventures,” Sengupta said, pointing that integrated townships of 100 acres will get affected and even get delayed.

Though the government’s decision would curtail the credit flow to the sector thus making it difficult for some realtors, tightening of norms for ECB and Initial Public Offer (IPO) coupled with the REM bill (to be passed by the Parliament) would ultimately make real estate industry more organised and professional, in their servicing the end user or customer, Sengupta added.

The Associated Chamber of Commerce and Industry (Assocham), which from time to time brings out study on real estate sector, termed the government move as uncalled for.

“It is an uncalled for move as the monetary steps initiated by the RBI to check credit flow into the real estate sector has already started having its desired impact. There are already reports of 15 to 20 per cent falls in the growth of real estate in the past six months to one year,” Assocham General Secretary D.S. Rawat said.

He hoped that the government move would be a temporary measure and not a long-term measure.

Pointing that ECB was a good option available with the real estate companies to raise capital at cheaper rates in the wake of domestic commercial borrowings becoming costlier, Raj Kaushik, Chief Financial Officer of Vipul Limited said “a good option has been done away with so companies may have to perforce go for domestic borrowings, which would mean increase in the project cost.”

However, Kaushik pointed out that listed real estate companies would have the option of attracting foreign players to take equity stake in the company to widen capital flow. 

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Financial giants pin hopes on India
Dominic Whiting

India has made a slew of global financial houses sit up and take notice. Citigroup, Apollo, Trikona, and Kotak, to name a few, are eyeing a share in the Indian pie.

The property investment arm of Citigroup is investing around $400 million of equity from a recently raised fund in India and $600 million in China, with hotels, technology parks, and housing estates on its menu.

Citigroup Property Investors closed a $1.29 billion Asia opportunities fund in February, of which 40 per cent was allocated to projects it had already started. The unit’s Asia head, David Schaefer, said other investments were being made fast, especially in India, where a growing middle-class hankers for new homes, offices and shopping centres fitting for an economy growing at an annual rate of over 8 per cent.

“Our investment pipeline is very robust,” Schaefer said in an interview adding that he travels to India about once a month. “We look for partners we want to do business with over and over again, and we look to extend those relationships.”

Citigroup has teamed up with seven Indian developers, including unlisted Nitesh Estates for a $100 million luxury hotel in Bangalore, and Gera Developments, for a $125 million housing project in Pune.

The fund is also building serviced apartments with US developer Portman Holdings and India’s biggest mortgage lender Housing Development Finance Corp and technology parks in Bangalore and in Noida, on the outskirts of New Delhi.

Schaefer says using borrowings on average 50 per cent of a project’s value, and adding equity from joint venture partners, the Citigroup fund would be involved in around $2 billion worth of property projects in India.

US private equity firm Apollo Management will pour $2 billion into Indian real estate, rival Warburg Pincus has earmarked $250 million, and Merrill Lynch and JPMorgan are also hunting deals. Some funds are talking of internal rates of return of as high as 40 per cent, but most seasoned investors say 20-25 per cent is more realistic.

Fund manager Trikona Capital is raising a $400-million fund to invest in India’s housing boom, but a company executive says fast-climbing land prices meant money-spinning deals will be tough to find.

“It’s very scary, prices are sky-high,” Aditya Bhargava, senior vice-president of Trikona unit TCK Advisers, says.

The new private equity fund, which will close in the next couple of months, will probably be called Trikona India Real Estate Partners.

Kotak Realty Funds is raising $350 million for property joint venture projects in India and take stakes in developers, who are seeing funding sources narrow.

Chief Investment Officer Hari Krishna, who has already invested a $100 million fund raised domestically, says the new 7-year fund will close next month.

A unit of India’s Kotak Mahindra Bank hopes to attract pension funds and other institutional investors, mostly from Europe, with a internal rate of return target of around 25 per cent.

“They need to juice up their returns,” Krishna says of the willingness of investors to dabble in relatively high-risk Indian property.

— Reuters

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HOME DECOR
Flashy kitchens
Devendra Malik tells how to make ‘heart of home’ trendy

The kitchen is the heart of home. Kitchen designs have come a long way from the days of hot shed, open flame, smoke-blackened walls and bare stone floor to a stylish compartment whose colour, finish and material defies imagination.

Planning

When it comes to kitchen, there are three major issues that bother a builder. The first is the space constraint that makes a person wonder on how to utilise space optimally. Second is on how to get more counter space and the third is about adding class and style to the kitchen.

Customised and personalised kitchens are the most in demand. Besides sticking to the norm of a work triangle, larger kitchen concept revolves around island counters, breaking the conventional routine of long-counters along the wall.

Storage

Gain storage space with narrow, 4-to-10 inches wide slide -in shelves are in vogue. These give extra space without taking up the entire section of the cabinet. Pullout wicker baskets and under-the-sink pullout wire basket, it is ideal to store linens and more. For drawers, use dividers for simplified retrieval. Pulldown and pullout cabinets make things easier to reach, regardless of a person’s height and age.

Flooring

When it comes to kitchen flooring, tiles have a greater accent. Tiles are available in a variety of colours, styles and patterns. These can altogether change the looks of a kitchen, thus lending it an invigorating look. One can use a combination of different colours to create a specific design. Choose tiles that can blend well with the finish and colour of cabinets and countertops.

Kitchen tiles not only jazz the flooring but also sail smoothly on the walls and countertops. Ceramic tiles go pretty well with granite-cabinet countertops. In terms of material, there are many choices like ceramic, glass and porcelain tiles.

Colour

Creative use of colours can result in a budget-friendly kitchen that can stimulate hunger and funk-up the surroundings. Vibrant colours spice up kitchens to lend them an attractive look. Neutral shades such as lighter wood grains and natural colours, including green and blues create a calming effect. These are contemporary as well. The colour and texture of kitchen products and material works together to enhance overall style. Remember, while the colour influences the dimensions of a kitchen, texture adds contrast and interest.

Light

When it comes to kitchen lighting design, it is vital to ensure that it goes well to suit the architectural details and decoration theme. Lighting up the kitchen excessively is not a very good idea, as light fixtures tend to dominate the kitchen visually. Recessive lighting is just as bad.

The writer is a New-Delhi based interior designer. He can be reached at [email protected]

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Johnson to make tiles in Chandigarh
Peeyush Agnihotri

Upbeat after having acquired 50 per cent equity stake in Venkateswara Udyog, a Baddi-based faucet-manufacturing firm, this week, H&R Johnson (India) Limited now plans a cement tile manufacturing unit in North India.

"We plan a cement tile unit in Punjab. This is a part of aggressive strategy to invest and grow in this business segment. The Punjab unit is part of the two cement tile units that we have planned for the north region. The second unit is planned in Delhi. An investment of Rs 20 crore has been envisaged for this activity. We are considering Chandigarh for locating the Punjab cement tile unit," says Managing Director Vijay Aggarwal.

The unit is expected to go on stream by September this year, he adds.

Aggarwal says the company had diversified into cement tile business just last year.

“Our focus and energies are invested in growing this business unit. Currently, we are setting up four new cement tile manufacturing units in West and North India to grow cement tile business in the two markets. An investment of Rs 30 crore has been envisaged towards these units. These four units are being set up in Gujarat, Pune, Punjab and Delhi. This is in addition to the 5 cement tile units the company already has in the South.

Out of the total Rs 30 crore investment, Rs 10 crore is being invested in the Gujarat and Pune units while the balance Rs 20 crore will be invested in the Punjab and Delhi units,” he says.

Partially accepting the fact that H&R Johnson's manufacturing business has been predominantly south India-centric, Aggarwal says the company forayed into north in April 2005. “We are now aiming at 35 per cent market share in North India.”

HR Johnson's took 50 per cent of a Baddi-based faucet-manufacturing firm this week. Following the deal, the Baddi-based venture has been renamed Milano Bath Fittings. Through the deal, the company has entered in the sanitaryware & bathroom accessory business.

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Ludhiana to have master plan

Ludhiana will become the first city in Punjab to have a Master Plan 2021, with the state government working in this direction to check the city’s haphazard growth.

“The exercise for preparing a master plan 2021 for planned growth of Ludhiana has begun in view of the directions received from the state government in this regard,” a senior official in the Town Planning department said, adding that the plan was expected to be prepared within one year.

As per the proposed master plan, the Town Planning department has decided to include about 286 villages surrounding the city and three towns, including Sahnewal, Doraha and Mullanpur for their overall development.

Area falling within 20 km of the city would also be incorporated in the master plan, the official said.

The department would also seek details from the Municipal Corporation of Ludhiana about present status of sewerage system, drinking water facility, flyovers, bridges and other basic amenities on the basis of which the projections would be made.

Besides taming the chaotic traffic and taking care of slums at outskirts, the plan would also focus on shifting small industrial units in residential areas to new industrial zones.

“Shifting old industrial clusters from residential areas would be a big challenge for plan developers as industry has always resisted any move of the state government for shifting its bases,” he said.

Punjab Chief Minister Parkash Singh Badal has reiterated on number of occasions for preparing a master plan for Ludhiana city as soon as possible. — PTI

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TAX tips
No wealth tax on premises in commercial complex
By S.C. Vasudeva

Q. I have a flat in a commercial complex, which has been let out at a very fancy rent to one of the MNCs. I have been told that I am liable to pay wealth tax on a market value of such property if such value exceeds Rs 15 lakh. Is it correct?

— Hari Prasad

A. Section 2(ea) of the Wealth Tax Act, 1957, provides that wealth tax is chargeable only on assets specified in the said section. One of the items, which have been covered by the said section for the purpose of levy of wealth tax is any guest house, residential house, commercial property and/or farm house situated within 25 km from the local limits of any municipality or a cantonment board. The said section also provides exclusion in respect of certain properties from the above said properties. The exclusion, among others, includes any property in the nature of commercial establishments or complexes. The flat owned by you being in a commercial complex would not be covered for the purposes of wealth tax in view of the above exclusion.

Selling a flat

Q I seek your advice regarding capital tax applicable on the sale of a property. I was allotted a flat by Chandigarh Housing Board in June last year and the possession of the apartment will be given in June 2008. I have paid one instalment and two instalments are still to be paid. I have decided to sell the flat and need your advice whether any capital gains tax will be applicable on the receipt of Rs 6 lakh from the sale of the flat. Also, are there any means of saving on the capital gains tax or avoiding it altogether?

— Dinesh Kapoor

A The flat allotted by Chandigarh Housing Board in June last year will be a short-term capital asset as the same has not been held for a period of three years. The capital gain arising on the sale of such a flat will thus be a short-term capital gain. Such short-term capital gain will be added to your other income and the total income including the short-term gain will be taxed at the normal slab rate. The Income-tax Act, 1961 (the Act), does not have any provision, which enables you to save capital gains tax arising on the sale of short-term capital asset.

The only course available in such case would be to claim the maximum benefit under the Section 80C of the Act. I hope you are aware that you can invest/deposit in various schemes specified in Section 80C of the Act and a maximum amount of Rs 1 lakh so invested or deposited is allowable as a deduction against your total income.

Interest on loan

Q. I have received an interest free loan from my employers for the construction of my house. The loan is repayable over a period of 10 years in monthly instalments, which are being deducted from my salary. Will such interest free loan have any bearing on tax payable by me?

— Rishabh Mehra, Ludhiana

A. Rule 3(7) of the Income-tax Rules, 1962, provides for the valuation of the benefit in the shape of interest free or a concessional loan. According to the said rule, value of benefit to the employee resulting from the provision of interest free or concessional loan for any purpose made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf, shall be determined as a sum equal to the interest computed at the rate charged per annum by the SBI, as on the first day of the relevant previous year in respect to the loans so granted, on the maximum outstanding monthly balance as reduced by the interest, if any, actually paid by him or any such member of his household. The rules also provide that no such value shall be charged if such loans are made available for medical treatment of specified diseases or where loans are petty not exceeding in aggregate of Rs 20,000.

In view of the above rules the interest computed in the aforesaid manner shall be added to your salary income provided such loan is not exceeding Rs 20,000.

Gifting a house

Q. I am senior citizen and 94 years of age. I am drawing Rs 5,863 monthly pension and get $2,000 a year from my daughter who is settled in the USA Are the dollars exempt from tax? I have a house built on a plot of 200 sq. yards. I wish to make a will in the name of my son. He is a citizen of the USA. What are legal implications of income tax?

— Nirmal Chand Bali, Haryana

A. The answers to your queries are as under:

(1) The amount received from your daughter from the USA is not chargeable to tax as the same is not in the nature of an income.

(2) In accordance with the provisions of Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000, a person of Indian origin can acquire any immovable property in India other than agricultural land/farm house/plantation property by way of gift from a person resident in India. A person of Indian origin has been defined by the said regulations as an individual who at any time, held Indian passport or who or either whose father or whose grandfather was citizen of India by virtue of the Constitution of India or Citizenship Act 1955. Your son would be a person of Indian origin as you are a citizen of India.

The Act does not prohibit the gifting of immovable property by father to his major son. I may add that such a gift would require registration with the sub-registrar and stamp duty on the basis of market value of a house will have to be paid at the time of such registration.

HUF property

Q. We are living in an old haveli, which had been built by our ancestors about 100 years back. The said haveli is in the heart of city and has a lot of commercial value in view of the growth of commercial establishments around the said haveli. It is being assessed as an HUF property in the hands of my father. It is proposed to effect a partial partition of the HUF property so that each of the members entitled to his share can take a decision with regard to the sale or use of the said property. Will such partition be considered a transfer under the provisions of the Income-tax Act?

— Suresh Purohit, Chandigarh

A. A distribution of capital assets on the total or partial partition of a Hindu Undivided Family (HUF) is not considered a transfer of capital assets and capital gains, if any, which arises from such transactions is totally exempt from tax. It may be added that the exemption provided by Section 47(i) of the Act applies to both partial or total partition of HUF. However, in accordance with the provisions of the Section 171 of the Act, a partial partition would not be recognised and a family shall continue to be assessed as HUF. There will have to be therefore a total partition of the HUF so as to get the partition recognised by the tax department. A partial partition would thus not enable you to achieve the desired objective.

The writer can be contacted at [email protected]

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