India's property prices bite the dust - with a few exceptions

 Source :Hindustan Times:New Delhi , November 22, 2011

Residential property prices have dropped across most cities, with an exception of Delhi, Mumbai, Chennai and Pune, mirroring the trend that consumers are perhaps putting off planned house purchases due to rising interest rates and fall in disposable incomes. The movement in prices of  residential properties has shown a decreasing trend in nine cities covered by the National Housing Bank's (NHB) Residex during the July-September quarter of 2011 compared to the previous three months. ( see table)



NHB Residex tracks the housing prices in the select 15 cities. The classification has been designed so as to give the most representative index for each city based on the transactions in the market and data collected from various sources. 


The data is put through a model that depicts the actual behaviour of the market and throws up the index.


Bank credit has slowed down in most sectors during the last six months prompted by deceleration in investment demand. Latest data mirror strong warnings on consumer spending slowdown.


Loans to real estate have also slowed down sharply to 2.3% during the first six of 2011-12 from 10.3% in the previous year.


The RBI has raised interest rates 13 times in the past 19 months to tame prices.


Credit growth to industry during April to September decelerated to 7.5% from 8.1% last year

The City that Mahindra built

Source : BL : Vinay kamath : Nov 24,2011

Mahindra Lifespaces dreamt of turning a bare piece of land into a bustling, self-contained city. The journey so far ...

As we were the first one to start in the Mahindra World City (MWC), we struggled a lot in the beginning. But now we really enjoy all the facilities like its infrastructure, internal transport, security and so on. Working with MWC makes us happy. In fact, we started in a small way with 180 machines with a workforce of 435 and we have expanded three times in the span of six years and now our capacity is around 550 machines with a workforce of 950.

-M.P. Nagarajan, Vice-President, Srinivasa Fashions

Living in Mahindra World City, I don't have to commute to work, nor do my children. It saves me two hours of time a day which I can spend productively. Saves me the stress too. The work-life balance is pleasant, though I miss the city and the weekend movies. But, then, it's more convenient for me to 'commute' to Puducherry, an hour's drive from here, for my shopping than spend two hours to get into the city.

- Nirmala Krishnan, Mahindra World School

Disparate voices, but they would warm the cockles of Arun Nanda's heart. It's been some journey for Mahindra World City but ten years on, what was a barren but picturesque piece of land on the banks of the vast lake Kolavai in Kancheepuram district 35 km from Chennai, has transformed into a bustling industrial and residential hub where 25,000 people and 180 families 'work, live and play'.

And, today, nothing gives Nanda, Chairman of Mahindra Lifespaces, more pleasure than standing at the Paranur railway station, which Mahindra helped develop along with the Railways, and seeing scores of young men and women, backpacks in tow, MP3 players plugged into their ears, getting off the trains and heading to work in the many IT companies, including Infosys, that have sprung up in the City. Says he: "It's immensely satisfying to see that we've created jobs for the next generation. I strongly believe that this is the way of the future. The Planning Commission has been talking of cluster development, and this is working; this is the only way you can improve the quality of life of younger people."

Now that the city, conceived by the Mahindra & Mahindra group, among the first such by the private sector, has many businesses from Infosys to BMW humming, it is going to focus on other aspects of developing the city: Plans are afoot to open a full-fledged hospital, a four-star 120-room Holiday Inn Express will spring up in two years' time, and the next couple of years will see 1,500 apartments coming up to accommodate some of the 25,000 people who work in the city. The Mahindra World School is home to 420 children who study there. Nanda talks of setting up a full-fledged club house for those who live there and also intends a waterfront promenade along the Kolavai. At present, the plug-and-play business zone, whose roads to sanitation are maintained by the Mahindras, has attracted 60 companies, 35 operational and the rest coming up. The exports from the three sector-specific SEZs were Rs 3,500 crore in FY 2011, and collectively, according to Sangeeta Prasad, CEO of MWC, the companies have invested approximately Rs 3,000 crore. In seven to ten years, investments are expected to be Rs 5,000 crore and employment at 80,000 people.

It wasn't always this way. In a lengthy interaction with BrandLine on the occasion of the tenth anniversary of the City, Nanda, along with Sangeeta Prasad and Anita Arjundas, Managing Director & CEO, Mahindra Lifespace Developers (which has promoted MWC, in which the Tamil Nadu Government's TIDCO has an 11 per cent stake) dwelt on the trials and tribulations the project went through before it took off with Infosys plumping for an investment here in 2004.

Nanda recalls that the 1,300 acres of land acquired in the late Nineties was registered as Mahindra Industrial Park and was meant to be an auto components park. It is just down the road from the Mahindra Ford project and given Chennai's strengths in auto components, this project was thought to have a nice fit. However, the global downturn in auto and the government decision to allow private investment in special economic zones spurred the decision to set up an SEZ.

The project had its fair share of sceptics, from bankers and financiers, about its viability. But, Nanda went ahead and developed, to begin with, 800 acres of the 1,300 it had acquired initially. Drainage and sanitation were developed, plots marked, roads laid. The team had looked at similar parks in China and the Philippines to model the MWC on. But almost three years after developing the park, MWC was yet to bag its first big client and uncomfortable questions began to be asked, recall Nanda and Anita.

Two events marked a turning point for the project. (See box below) "The man I want to give credit is Deepak Parekh (HDFC Bank), I asked him to see this place. And we made a presentation; he gave us a 10-year loan with a five-year moratorium," says Nanda. Meanwhile, Anita and her team made presentations to Infosys' former HR head T.V. Mohandas Pai and his team. Also, Mahindra invested upfront in the school, knowing that people would move in only then to live at MWC. A real estate player would have looked to build and sell the property and move on but MWC, says Nanda, is there for the long term. "Earlier, all this was in the domain of the public sector so you had to convince people. When you have core infra ready and running for a significant part, that the roads are up there and things like the water treatment plant is running, some amount of confidence comes in," says Anita. L

IFCI, while rejecting MWC's proposal for Developers Ltd, financing, gave the team a sane piece of advice: Do not displace the locals. which is why the MWC property is in an odd shape, winding around villages; there is no boundary wall and it's quite common to see goats CEO, and grazing placidly beside a hi-tech facility. CEO Prasad says employees of all the con- Prasad, CEO, tractors and sub-contractors are all from these villages. "It has changed the lives of Mahindra people; the local community has benefited. World City Intermixing is making the place more Developers at tolerant."

Srinivasa Fashions' Vice-President Nagarajan talks about the transformational impact MWC has had on local communities. Around 90 per cent of the company's workers come from areas nearby. Nagarajan says most of the women workers are from villages. "They never thought that they will work in a company like ours as normally when they finish their 10th standard, the villagers do not send their girls to work in the city.

"Since we are nearby, and seeing neighbours working with us, other girls are also tempted to work. We employ raw hands and train them. They are happy that they have become skilled tailors, plus the family gets an additional income. This has changed their lifestyle and they are sending their children to English medium schools as well."

More companies followed later: MNCs such as Timken, BMW and Tesa Tapes. MWC has acquired more land to expand its domestic tariff area as well as the SEZ. And, Mahindra Lifespaces itself expanded its footprint to Jaipur where it acquired 3,000 acres for a similar SEZ, and one more is planned for North Chennai. Some customers from Chennai, such as Infosys and Wipro, have also set up a facility in Jaipur.

The flipside of working in MWC, says Nagarajan, is that Srinivasa Fashions has to spend more on transporting its staff from the city. A few young employees BrandLine spoke to say that commuting can be a grind. Moreover, power supply can be a problem and the facilities have to depend on gen sets. MWC CEO Prasad says they are in dialogue with the Railways and state transport has got the train and bus services stepped up. Power is something the Government has to deliver on, she says, and it's a reality that confronts the whole state for now.

Some such as Pradip Sachan, Managing Director of Tesa Tapes, are happy MWC has not let the facility decay, though he would like to see more social infrastructure developed. "We started commercial production in less than nine months from the ground-breaking. I suppose, if we had to do a similar project elsewhere, it would have taken us more than 12 months. A clear benefit of getting land which is already levelled, graded and with supporting infrastructure."

MWC made its first profit in 2006-07, in its seventh year. "It's not given us windfall results, but in large projects like these, you make windfall gains only much later," says Nanda.

The expansion in MWC is fuelled by more multinational companies investing in the domestic tariff area to cater to the Indian market, says CEO Prasad. With industry accepting the MWC concept well, now the focus will also be on other aspects of living there.

The Canopy, a mini-mall in the campus, will have solar panels, in partnership with Mahindra Solar, to bring down energy costs. Common area lighting will use LEDs.

Soon Mahindra's entire automotive research facility will be housed in MWC and nearly 660 families are expected to relocate to the campus. As quick as industry is rolling out at the City, MWC will need to roll out the + apartment complexes and the new set of villas it is constructing to take in the influx.

Prasad says in MWC's pursuit to impart the multi-faceted characteristic of a city, they are focusing on the residential and social aspects. Says Prasad, "We will continue providing homes for all segments, for both ownership and rentals, making this a holistic yet heterogeneous ecosystem, a city in reality. Aqualily and Iris Courts, the current residential offerings, thus cater to the different needs of the customer." In a few years' time, MWC expects the campus to buzz even more and hopes are by then it will truly be the place to 'live, work and play'

.

The turning point

Mohandas Pai's team at Infosys was not connvinced about MWC as the IT highway was developing on another corridor outside of Chennai city.

"We landed up at Narayana Murthy's office, and told him of our dream and asked him, as a visionary, if we were on the right path or barking up the wrong tree," recalls Nanda.

One day, Narayana Murthy got off an international flight and visited the site at 6 a.m. with no Mahindra officials and only the Infy facilities head. "He saw this and said this is the future and that we should be part of the future," adds N anda. Infosys signed up to take 129 acres and expects to eventually employ 25,000 engineers at this facility from the 17,000 it has now.

Some of the moves made by the team in the early part of the decade paid off. As Anita Arjundas says, the fact that they had developed a large tract of land helped Infy's decision to locate its project in the MWC. And, once it had a large anchor client in Infy, other software companies such as Wipro and Mindtree followed. "We did a few things right, we later realised. We took 800 acres in the first phase and common wisdom would have said do modular, do 200 acres to start with, but then Infy would not have taken it, because it wanted a large tract of land itself," elaborates Nanda.

Property gifted on marriage is not taxable

Source: BL :PARIZAD SIRWALLA :Nov 20,2011

My father would like to dispose of a piece of property purchased in the year 1994. In this connection, please clarify on the following points.

1) If the total amount received on sale (Guideline value) is gifted to me, whether Capital Gains tax is exempt to my father or the gift is to be made only after paying the Capital gains.

2) Also please clarify about the Gift tax payable and whether I would be taxed as per I-T act on gift of these proceeds also.

— Shyam Sunder V R

 Under the Income tax Act, 1961 (“the Act”), gain, if any, arising from sale of the property is taxable as capital gains. As the said property has been held for more than 36 months since purchase, the gain arising from its sale would be treated as Long Term Capital Gains (LTCG).

To arrive at LTCG, the purchase cost may be indexed based on cost inflation index published by the Tax Department.

LTCG is taxed at a flat rate of 20.6 per cent (including education cess). An individual may be able to claim an exemption from taxable LTCG under Section 54/Section 54F/Section EC of the Act, only if he invests in a new residential house /specified bonds, subject to fulfilment of prescribed conditions. Accordingly, your father would need to pay capital gain tax on sale of the property which is owned by him, even if he gifts the sale proceeds to you.

Gift tax has now been abolished. As per Section 56 of the Act, any money received by an individual from any person during any financial year (FY) without consideration, the aggregate value of which exceeds Rs 50,000/- is taxable under the head ‘Income from other sources'. However, an exemption is available if the money is received from a relative which includes amongst others, any lineal ascendant or descendant of the individual.

Accordingly, the money received by you from your father would not be taxable in your hands. Any subsequent investment made by you out of that money which yields income, would be taxable in your hand, if any, assuming you are a major assessee.

I sold a housing site in September 2009 for Rs 30 lakh (owned by me for 20 years) and bought an apartment for Rs 32 lakh in January 2010. I have claimed deduction U/s 54F in my IT returns filed for AY 2010-11 and not paid any capital gains tax. I have only one other house which I live in.  I gifted the apartment (bought in January 2010) to my daughter for her marriage in June 2010. Now, my daughter wants to sell this apartment for Rs 32 lakh. What is the income tax implication for my daughter and myself? My auditor says I need not pay any tax. Is he correct? 

— Narasimhah Kodur

The provisions of Section 54F of the Act stipulate that exemption claimed under said section, gets revoked if the individual “transfers” the new residential property purchased, within a period of three years from the date of purchase.

As you have gifted the new residential property to your daughter without consideration, this transaction would not be regarded as a “transfer” for the purpose of capital gains and would not therefore attract capital gain tax implications in your hands.

Tax implications for daughter:

As per Section 56 of the Act, any property received by an individual from any person during any FY without consideration, the stamp duty value of which exceeds Rs 50,000/-, is taxable under the head ‘Income from other sources'.

However, an exemption is available if the property is received from a relative which includes, amongst others, any lineal ascendant or descendant of the individual/on the occasion of marriage.

Accordingly, the property gifted to your daughter without consideration should not be taxable in the hand of your daughter. In case, your daughter proposes to sell the property, gains, if any, arising from the sale should be taxable as capital gains in her hands.

As the property has been acquired by her under a gift, the period of holding for her shall be counted from the date of acquisition of property by you i.e. in January 2010.

Assuming that your daughter proposes to sell the property during the FY 2011-12, the resultant capital gains shall be termed as Short Term Capital Gains (STCGs) as the property would be held for less than 36 months from the date of acquisition.

Capital gains should be computed as difference between the net sales proceeds (i.e. after reducing transfer charges such as commission/ brokerage) and the ‘cost of acquisition'.

The cost of acquisition in her case shall be the cost for which the property was acquired by you in January 2010.

However, please note that clubbing provisions may be attracted where it is established that income from such property transferred for inadequate consideration, is for you or your spouse's immediate/deferred benefit.

Bangalore realty segment perks up

source  : Business Line :ANJANA CHANDRAMOULY: Nov 20, 2011

Real estate developers especially in Bangalore, who suffered a setback in 2009 and 2010 consequent to the global recession, have much to cheer this year.

After 2006-07, which is considered as the peak year as far as the Bangalore real estate market is concerned, 2011-12 is the year which has seen the maximum number of residential project launches.

In 2008-09 and 2009-10, not many projects were launched in this city.

NEGATIVE SENTIMENTS

The Bangalore property market saw significant impact on prices and demand post-recession because of the negative sentiments that existed in this predominantly IT-sector-driven market. “We saw a setback in 2009 which was an after-effect of the global recession. So developers didn't come up with any new launches,” recalls Mr Sushil Mantri, President, — CREDAI Karnataka, and Chairman and Managing Director, Mantri Developers.

But now, the market is seeing some good activity, as even non-IT customers are looking at buying property in the city, he says. According to him, property prices bottomed out in 2009-10 and 2010-11, and prices went down 20-25 per cent in those two years, compared to the peak rates witnessed in 2007-08. To retain buyers in the market and keep prices affordable for customers, developers went in for different unit sizes. “So two-bedroom apartments, which used to be in the 1,300-1,400 square foot range, have now been re-sized to approximately 1,100 square feet,” points out Mr Mantri. This helped developers maintain a “healthy and affordable” price. “We cannot bring down the price, but we can bring down the budget for the customers, but for developers also the sale price is more realisable,” he adds. The benefit of this decision is now coming into the market, says Mr Mantri.

DAMPENER ON DEMAND

What has been a dampener is the high interest rates. Some developers do point out a fall in demand in the past few months, since the interest rates started climbing up. “It's more of a delayed decision,” says an industry analyst. The sluggish demand could have impacted prices in Bangalore, with prices falling 8-10 per cent in just the last two quarters.

Besides rising interest rates, the sudden burst of launches has resulted in piling up of inventories, which has also impacted prices, adds Mr Ghumal Zia of Knight Frank India. According to him, there is a possibility of further price correction of approximately 10 per cent in the next six months. “If interest rates don't come down, further reduction in prices is a possibility,” he says.

The weakened global markets have impacted the demand in Bangalore, with the festive season witnessing 30-35 per cent reduction in transactions compared to annual peaks, he says, adding that there has been a continuous de-growth in sales for the past few quarters. However, developers don't agree with Mr Zia.

In fact, Mr Venkat K. Narayana, Chief Financial Officer, Prestige Group, says that sales has been very good for his company this year, and the company has also launched new projects this fiscal. “We have planned a lot more launches this fiscal compared to the previous years. We have already launched 5-6 million square feet of projects this year, while an equal number would be launched during the rest of the year,” he adds. The company delivered 17 million square feet in the last fiscal.

The sales during the fiscal has been good at Rs 980 crore, out of the Rs 1,500 crore new sales targeted for the full year. For Sobha Developers too, sales this fiscal, especially during the second quarter, has been good, and “demand has been far better than the previous quarters,” says Mr J. C. Sharma, Managing Director, Sobha Developers.

He is quick to add there has been an increase in inflationary costs, which can be absorbed by the 8-10 per cent increase in prices year-on-year. Mr Narayana says that prices in Bangalore are now affordable, “and if interest rates go down, demand should go up”. This year, the company has launched more projects in the mid-income segment, which would “give us better volume, and hence even better sales”, he adds.

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The property market, which experienced a negative impact on prices and demand post-recession, has witnessed a significant increase in residential project launches.

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Real Estate Bill is balanced

Arun Kumar Misra

It is a good Bill that will bring a lot of investment into the real estate sector.

The draft real estate Bill calls for stringent disclosure norms and mandatory registration for every new housing project. The legislation could lead to a major overhaul of the real estate sector and curb unfair practices.

 Builders, however, argue that some provisions in the Bill — including one that stipulates up to three-year imprisonment for not registering projects — are too harsh. 

Mr Arun Kumar Misra, Secretary, Ministry of Housing & Urban Poverty Alleviation, spoke to Business Line on the latest draft which incorporates crucial changes into the original draft of 2009. Excerpts:

What are the key changes between the drafts of 2009 and 2011?

The original draft had envisaged some form of a bank guarantee, but the new version doesn't have that concept. 

Originally, it was thought that the bank guarantee could be used to complete an incomplete project — but that wasn't a tenable proposition.

 Instead, the new Bill advocates that in order to finish the incomplete works, if any, separate efforts will have to be made by municipalities, development authorities and some other partners. 

The States will have to take the lead. So the bank guarantee has been done away with.

The new Bill has also introduced a concept of ‘escrow account', wherein the money collected from buyers has to be kept reserved, and cannot be diverted.

The 2009 draft had provided for inspection of accounts (of builders) and their books, which has been done away with in the new version. The regulator isn't really concerned with the financial dealings of the promoter. But the regulator is interested that the commitment given to buyers for completion of a project should be maintained.

The property market is fraught with complaints regarding the conduct of builders. Why did it take so long for the Government to come out with the draft Bill?

The major reason could have been that the Central Government took some time to clearly define what its role will be. Finally, it is clear now that land will continue to be under the purview of the State Governments, but that transactions are under the purview of the Central Government. Once that clarity came in, some changes had to be made to the draft.

Builders have opposed the imprisonment clause pertaining to Section 3 of the Bill. They say IPC already deals with such cases. What is your view?

Section 3 (which mandates the registration of every project before construction begins), is the heart of the Bill. It basically fixes the responsibility on what needs to be done. If Section 3 isn't complied with, the Bill has no meaning. That is why we have recommended it. But as the Minister has said, we are open to having a discussion on these issues with stakeholders. Also, we have stated it (the punishment) can be a penalty or imprisonment, or both.

The draft mentions a threshold of 4000 square metres, for provisions to be applicable. Does that mean construction in smaller towns will go unchecked?

Obviously, a regulator cannot be expected to look into small developments. There has to be a critical mass, below which there shouldn't be so many conditions.

So, we have suggested 4000 square metres.

Will the regulator also be responsible for verifying the documents that a builder submits?

The documents that are required to be furnished would have already been cleared by various development authorities at some stage. And then the regulator would have to again send it to the authorities for vetting. So, intentionally, we haven't used the word ‘scrutiny'. We presume that the builder has given the correct document, and in case something is found to be wrong, then he will be penalised.

What is your message to the real estate companies, many of who say that provisions of the Bill could impede growth?

I have seen a few reports by real estate advisors who say that this is a good Bill, and that it will bring a lot of investment into the sector. Their interpretation is that it will promote large-scale development; make all transactions, above the board. It is a tremendous opportunity for the sector to change its perception and image. There is nothing harsh, it is a balanced Bill.