Pan India Properties

Purchase of Immovable Property in India – Reporting requirement

2012-02-17T23:53:00.000+05:30

RBI/2011/12/399
A.P. (DIR Series) Circular No. 79, Dated- February 15, 2012

Clarification – Purchase of Immovable Property in India – Reporting requirement

Attention of Authorised Dealer Category-I banks is invited to Regulation 5 of Notification No. FEMA 21/2000-RB viz. Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India), Regulations, 2000 dated May 3, 2000, as amended from time to time. In terms of the above Regulation, when a person resident outside India, who has established in India in accordance with the Foreign Exchange Management (Establishment in India of Branch or Office or other Place of Business) Regulations, 2000, a branch, office or other place of business, excluding a liaison office, acquires any immovable property in India in accordance with the provision of said regulation, the said person has to file with the Reserve Bank a declaration in the form IPI annexed to those regulations, not later than ninety days from the date of such acquisition. As the form is required to be submitted by such persons only, the form is suitably amended to reflect the position.

2. It is clarified that the extant regulations do not prescribe any reporting requirements for transactions where a person resident outside India who is a citizen of India or a Person of Indian Origin (PIO) as defined in Regulation 2(c) of Notification No. FEMA 21/2000-RB, ibid, acquire/s immovable property in India in accordance with the said provisions of the aforesaid Notification. Form IPI has been, accordingly, amended for greater clarity.

3. Authorised Dealer Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

4. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(Meena Hemchandra)
Chief General Manager-in-Charge

Annex

[Annex to A.P. (DIR Series) Circular No. 79
dated February 15, 2012]

Service tax is payable on flats allotted to the landowner, clarifies Finance Ministry

2012-02-16T02:22:00.001+05:30

Source :BL :Muralidharan:15 Feb 2012

When the landowner is given flats in lieu of cash, such flats become liable to service tax, says the Finance Ministry's clarification of February 10, among other things.

Suppose, the landowner invites a builder to demolish his bungalow and construct 10 flats thereon, with two flats being allotted to him as sale consideration, the two flats, though for non-cash consideration, would attract service tax immediately on signing of the building agreement.

The taxable value would the amount for which similar flats have been booked by the other buyers on the date of such agreement.

It boils down to this: if on the date of the agreement with the builder, there are two buyers who have booked their flats that are similar to those allotted to the landowner at Rs 40 lakh each, the allotment of the two flats to the landowner would be a taxable event, liable to service tax.

With abatement allowed being 75 per cent towards the goods used in the construction, which obviously cannot be subjected to service tax, Rs 10 lakh would be liable to service tax, which currently is 10.3 per cent.

BASIS FOR VALUATION

If the flats are not comparable on account of difference in the area, the rate per square foot charged from buyers must be taken into account.

And, if on the date of the agreement, other buyers paying cash have not stepped into the scene, the basis for valuation of flats allotted to the landowner would be the earliest such booking.

While the remaining eight flats may escape service tax if the buyers pay for them after the ‘completion of construction' certificate is obtained, in view of the fact that no payment was made while the work was in progress or before the commencement of the work, the two flats allotted to the landowner will necessarily suffer service tax because, on the date of signing of the building agreement the non-cash consideration would be deemed to have been paid.

(The author is a Delhi-based chartered accountant).

Service tax on Construction Services- CBEC Clarification

2012-02-12T12:49:00.001+05:30

Source :CBEC :Sunday, February 12, 2012

Circular No. 151/2/2012-ST

F.No.332/13 /2011-TRU

New Delhi, 10th February, 2012

Subject: Service tax on construction services — regarding.

Many issues have been referred by the field formations, in the recent past, seeking clarification regarding the levy and collection of service tax on construction services [clauses (zzq),(zzzh) of section 65(105) of the Finance Act, 1994], in the light of varying business models. Across the country, divergent business models and practices are being followed in the construction sector. Some of these business models and practices could be region specific.

2. From the issues referred by the field formations, important ones have been identified model wise, examined and clarified as follows:

2.1. Tripartite Business Model (Parties in the model: (i) landowner; (ii) builder or developer; and (iii) contractor who undertakes construction): Issue involved is regarding the liability to pay service tax on flats/houses agreed to be given by builder/developer to the land owner towards the land /development rights and to other buyers.

Clarification: Here two important transactions are identifiable: (a) sale of land by the landowner which is not a taxable service; and (b) construction service provided by the builder/developer. The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers: (a) from landowner: in the form of land/development rights; and (b) from other buyers: normally in cash.

(A) Taxability of the construction service:

(i) For the period prior to 01/07/2010: construction service provided by the builder/developer will not be taxable, in terms of Board’s Circular No.108/02/2009-ST dated 29.01.2009.

(ii) For the period after 01/07/2010, construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land was received by the builder/ developer before the issuance of completion certificate and the service tax would be required to be paid by builder/developers even for the flats given to the land owner.

(B) Valuation:

(i) Value, in the case of flats given to first category of service receiver, is determinable in terms of section 67(1)(iii) read with rule 3(a) of Service Tax (Determination of Value) Rules, 2006, as the consideration for these flats i.e., value of land / development rights in the land may not be ascertainable ordinarily. Accordingly, the value of these flats would be equal to the value of similar flats charged by the builder/developer from the second category of service receivers. In case the prices of flats/houses undergo a change over the period of sale (from the first sale of flat/house in the residential complex to the last sale of the flat/house), the value of similar flats as are sold nearer to the date on which land is being made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to be paid by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession or right in the property of the said flats are transferred to the land owner by entering into a conveyance deed or similar instrument(eg. allotment letter).

(ii) Value, in the case of flats given to the second category of service receivers, shall be determined in terms of section 67 of the Finance Act, 1994.

2.2 Redevelopment including slum rehabilitation projects: Generally in this model, land is owned by a society, comprising members of the society with each member entitled to his share by way of an apartment. When it becomes necessary after the lapse of a certain period, society or its flat owners may engage a builder/developer for undertaking re-construction. Society /individual flat owners give ‘No Objection Certificate’ (NOC) or permission to the builder/developer, for re-construction. The builder/developer makes new flats with same or different carpet area for original owners of flats and additionally may also be involved in one or more of the following:

(i) construct some additional flats for sale to others;

(ii) arrange for rental accommodation or rent payments for society members/original owners for stay during the period of re-construction;

(iii) pay an additional amount to the original owners of flats in the society.

Clarification: Under this model, the builder/developer receives consideration for the construction service provided by him, from two categories of service receivers. First category is the society/members of the society, who transfer development rights over the land (including the permission for additional number of flats), to the builder/developer. The second category of service receivers consist of buyers of flats other than the society/members. Generally, they pay by cash.

(A) Taxability:

(i) Re-construction undertaken by a building society by directly engaging a builder/developer will not be chargeable to service tax as it is meant for the personal use of the society/its members. Construction of additional flats undertaken as part of the reconstruction, for sale to the second category of service receivers, will also not be a taxable service, during the period prior to 01/07/2010;

(ii) For the period after 01/07/2010, construction service provided by the builder/developer to second category of service receivers is taxable in case any payment is made to the builder/ developer before the issuance of completion certificate.

(B) Valuation:

Value, in the case of flats given to second category of service receivers, shall be determined in terms of section 67(1)(i) of the Finance Act, 1994.

2.3 Investment model: In this model, before the commencement of the project, the same is on offer to investors. Either a specified area of construction is earmarked or a flat of a specified area is allotted to the investors and as it happens in some places, additionally the investor may also be promised a fixed rate of interest. After a certain specified period an investor has the option either to exit from the project on receipt of the amount invested alongwith interest or he can re-sell the said allotment to another buyer or retain the flat for his own use.

Clarification: In this model, after 01/07/2010, investment amount shall be treated as consideration paid in advance for the construction service to be provided by the builder/developer to the investor and the said amount would be subject to service tax. If the investor decides to exit from the project at a later date, either before or after the issuance of completion certificate, the builder/developer would be entitled to take credit under rule 6(3) of the Service Tax Rules, 1994( to the extent he has refunded the original amount). If the builder/developer resells the flat before the issuance of completion certificate, again tax liability would arise.

2.4 Conversion Model: Conversion of any hitherto untaxed construction /complex or part thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time.

Clarification: Mere change in use of the building does not involve any taxable service, unless conversion falls within the meaning of commercial or industrial construction service.

2.5 Non requirement of completion certificate / where completion certificate is waived or not prescribed: In certain states, completion certificates have been waived or are considered as not required for certain specified types of buildings. Doubts have been raised, regarding levy of service tax on the construction service provided, in such situations.

Clarification: Where completion certificate is waived or is not prescribed for a specified type of building, the equivalent of completion certificate by whatever name called should be used as the dividing line between service and sale. In terms of the Service Tax (Removal of Difficulty) Order, 2010, dated 22/06/2010, authority competent to issue completion certificate includes an architect or chartered engineer or licensed surveyor.

2.6 Build- Operate – Transfer (BOT) Projects: Many variants of this model are being followed in different regions of the country, depending on the nature of the project. Build-Own-Operate-Transfer (BOOT) is a popular variant. Generally under BOT model, Government or its agency, concessionaire (who may be a developer/builder himself or may be independent) and the users are the parties. Risk taking and sharing ability of the parties concerned is the essence of a BOT project. Government or its agency by an agreement transfers the ‘right to use’ and/or ‘right to develop’ for a period specified, usually thirty years or near about, to the concessionaire.

Clarification: Transactions involving taxable service take place usually at three different levels: firstly, between Government or its agency and the concessionaire; secondly, between concessionaire and the contractor and thirdly, between concessionaire and users, all in terms of specific agreements.

At the first level, Government or its agency transfers the right to use and/or develop the land, to the concessionaire, for a specific period, for construction of a building for furtherance of business or commerce (partly or wholly). Consideration for this taxable service may be in the nature of upfront lease amount or annual charges paid by the concessionaire to the Government or its agency. Here the Government or its agency is providing ‘renting of immovable property service’ (renting of vacant land to be used for furtherance of business or commerce) and in such cases the concessionaire becomes the service receiver.

In this model, though the concessionaire is undertaking construction of a building to be used wholly or partly for furtherance of business or commerce, on the land provided by the government or its agency for temporary use, he will not be treated as a service provider since such construction has been undertaken by him on his own account and he remains the owner of the building during the concession period.

At the second level, transaction can take place between a concessionaire and the contractor. Where the concessionaire himself does not have exposure to construction sector, he may engage a contractor for undertaking construction of a building on the land, in respect of which right to use has been obtained in his favour, from the Government or its agency. If the concessionaire is himself a builder/developer, this level of transaction may not arise. Where an independent contractor is engaged by a concessionaire for undertaking construction for him, then service tax is payable on the construction service provided by the contractor to the concessionaire.

At the third level, the concessionaire enters into agreement with several users for commercially exploiting the building developed/constructed by him, during the lease period. For example, the user may be paying a rent or premium on the sub-lease for temporary use of immovable property or part thereof, to the concessionaire. At this third level, concessionaire is the service provider and user of the building is the service receiver. The concessionaire may provide to the users, taxable services such as ‘renting of immovable property service’, ‘business support service’, ‘management, maintenance or repair service’, ‘sale of space for advertisement’, etc. Service tax is leviable on the taxable services provided by the concessionaire to the users.

There could be many variants of the BOT model explained above and implications of tax may differ. For example, at times it is possible that the concessionaire may outsource the management or commercial exploitation of the building developed/constructed by him, to another person and may receive a pre-determined amount as commission. Taxable service here will be business auxiliary service and service tax is leviable on the commission.

(A) Taxability:

(i) the service provided by the Government or its agency to the concessionaire is liable to service tax;

(ii) the construction services provided by the contractor to the concessionaire would be examined from the point of taxability as to whether the activity is not otherwise excluded;

(iii) the services provided by the concessionaire to the user of the facility are liable to service tax;

(B) Persons liable to pay tax:

Government or its agency and concessionaire are liable to pay tax on the services being provided by them. There could be several other persons liable to pay service tax, depending on the variant of the BOT model followed.

2.7 Joint Development Agreement Model: Under this model, land owner and builder/developer join hands and may either create a new entity or otherwise operate as an unincorporated association, on partnership /joint / collaboration basis, with mutuality of interest and to share common risk/profit together. The new entity undertakes construction on behalf of landowner and builder/developer.

Clarification: Circular 148/17/2011-ST dated 13/12/2011, particularly paragraphs 7, 8, 9 apply mutandis mutandis in this regard.

3. This Circular may be communicated to the field formations and service tax assessees, through Trade Notice/ Public Notice. Hindi version to follow.

(Samar Nanda)

Under Secretary, TRU

Aamby Valley gets Sahara OFCD money

2012-01-11T19:52:00.002+05:30

Source :BS :N Sundaresha Subramanian / Mumbai January 11, 2012, 0:21 IST

Two Sahara India realty firms in legal tussle with Sebi own significant equity in the group’s township project.

Two Sahara group firms have invested a significant portion of the money raised through the issue of Optionally Fully Convertible Debentures (OFCD) in Aamby Valley, a luxury township project developed by the group in Maharashtra.

Sahara India Real Estate Corp (SIRECL) and Sahara Housing Invest Corp (SHICL) had a combined exposure of Rs 6,687 crore to the township project at the end of June 2010. This amounted to over a third of the sum raised through issue of OFCDs. On that date, these firms had raised Rs 16,169 crore between them by issue of OFCDs. SIRECL had dues of Rs 13,245 crore, including accrued interest of Rs 1,287 crore towards investors in OFCDs. SHICL had one of Rs 2,924 crore. Accrued interest was Rs 107 crore.

COST OF LUXURY Investments in Aamby Valley
Company	Number (in million)	Book value (Rs cr)	Price per share (Rs)
EQUITY
SIRECL	234.06	5328.22	227
SHICL	19.47	553.05	284
DEBENTURES	Number
SHICL	800.00	806.00	10,000,000
Total		6687.26
Source: Annual reports

In February 2010, media reports had talked of the Sahara group buying back a 49 per cent stake in Aamby Valley pledged with C Sivasankaran of the Sterling group. Business Standard could not independently confirm if the above investment by the two real estate firms resulted in an exit for Sivasankaran. An email questionnaire to the Sahara group spokesperson on Tuesday did not elicit any response.

SIRECL and SHICL have disclosed these investments in their annual reports for the year ended June 2010. Kolkata-based De & Bose were the statutory auditors of both. The companies recently filed the balance sheet and annual report with the registrar of companies. Business Standard accessed these filings from the website of the ministry of corporate affairs, which allows public viewing of these documents for a fee.

The Supreme Court, which is hearing the companies’ dispute with the market regulator over the legality of these debenture issues, had directed them to update their financials before proceeding with the hearing. The two firms are yet to file the audited financials for the year ended June 2011.

According to the financials for FY10, SIRECL had invested Rs 5,328 crore in 234 million equity shares of Aamby Valley as on June 30, 2010. It also had investments of Rs 512 crore in debt mutual funds and shareholdings in 70 subsidiaries. These investments were among the largest items on the balance sheet.

Under current assets, SIRECL had inventories worth Rs 7,847 crore and a cash/bank balance of Rs 1,393 crore. Loans and advances totalled Rs 1,470 crore. Of these, trade advances amounting to Rs 1,351 crore were given to subsidiaries. Ten subsidiaries, which were added to the subsidiaries’ list during the financial year, alone accounted for advances of Rs 1,300 crore.

These included Sahara Prime Realtors, Sahara Oceania Homes, Sahara Continental Estate, Sahara Prime Properties, Sahara City Development, Sahara Green Properties, Sahara New Dream Property, Sahara Milestones Estates, Sahara Oceania Property and Sahara Prime Dream Development. In addition to the money raised through debentures, the company made a preferential allotment of 90 million equity shares, raising Rs 90 crore.

Similarly, SHICL has an investment of Rs 553 crore in 19 million Aamby Valley shares. In addition to this equity investment, SHICL also held 800 convertible debentures of Aamby Valley worth Rs 806 crore. These debentures carried a coupon of nine per cent. SHICL also held four million preference shares worth Rs 204 crore in another group firm, Sahara Infrastructure and Housing Ltd. The promoters of SHICL infused Rs 882 crore through preferential allotment of equity shares.

For FY10, SHICL reported a net profit of Rs 169 crore. SIRECL reported a loss of Rs 68 crore.
SIRECL and SHICL are locked in a protracted legal battle with the Securities and Exchange Board of India (Sebi). In early 2010, Sebi, during the course of examining the prospectus of another group firm, Sahara Prime City, had discovered alleged irregularities in the issue of OFCDs by SIRECL and SHICL. According to Sebi, these issues violated public issue norms. In November 2010, the regulator banned the money-raising activity, triggering a long legal battle that has spanned courts and tribunals in Lucknow, Mumbai and Delhi.

The Sahara group contends the OFCDs were issued on a private placement basis. “During the period under review, certain information (on the basis of some alleged complaints received by Sebi, which despite repeated request have not been shared with the company), were called for by Sebi in the matter relating to the issuance of Optionally

Fully Convertible Debentures by the company on a private placement basis,” the SIRECL annual report said. “Sebi, after issuing summons to the company but without providing opportunity for hearing or waiting for clarifications from the Union of India through the ministry of corporate affairs, passed an ex parte order dated November 24, 2010 and posted the same on its website,” SIRECL said. The board of directors “are of the firm view that the company has not violated any provisions of the Companies Act, 1956, or any guidelines/ regulations issued under the Sebi Act, 1992.”

Coimbatore retirement homes developer attracts FDI

2012-01-03T20:28:00.004+05:30

The Club House at Soundaryam and Santhosham Comfort and Retirement

Home at Pachapalayam, a project promoted by Covai Property Centre in Coimbatore.

Photo — K. Ananthan

Source :BL:Yoganarayaanan:3 jan 2012

At a time when FDI in retail has generated so much heat, a Coimbatore-based real estate developer is on the verge of clinching a multi million dollar FDI deal for his senior citizens projects in the country with a US investor this week.

He is also open to the idea of launching similar projects in the US aimed at the Indian diaspora as he is confident that the experience gained in India could be used to meet the needs of ethnic Indians settled in the US as it would help the Indians domiciled there to house their elderly relatives in easy proximity to them rather than being separated from them in India.

Without naming the US company with whom he will be inking a deal or revealing how much his collaborator would be investing, Col (Retd) A. Sridharan, Managing Director, Covai Property Centre (India) Private Ltd, Coimbatore, said the US investor would be bringing in ‘millions of dollars' for a stake in the new company.

It would offer the much-needed expertise in assisted care and for providing mental care which are not available widely in India.

Quality services

He said his company, in the six years of its existence, has built about 200 units for senior citizens, mostly in the Coimbatore region, which has provided quality residential facilities to about 350 people.

The idea was to expand this to about 2,500 dwelling units by 2015, taking care of about 4,000 residents and to 5,000/6,000 units that could provide accommodation to about 8,000-9,000 senior citizens by 2018.

The total outlay for this would be in the region of Rs 1,200 crore in the next six years.

Community projects

Beginning in 2005 with 48 villas in Coimbatore, the company has taken up retirement communities' projects across eight cities including Coimbatore, Puducherry, Chennai where work has commenced.

In 2012, it plans to roll out projects in Hyderabad, Chennai, Mysore and Pune (Talegaon) and plans are on the anvil for launching a project in Bangalore.

He said his company has tied up with a US-based company for Assisted Living and Mental Care (dementia and alzheimer), which would offer ‘not only world-class care but also knowledge and training to our people'.

These would be created not only in cities where Serene Retirement Communities are being set up but also in other cities as well and the details would be made public next week.

However, his core company Covai Property Centre, would continue to promote real estate projects.

He said the US collaborator would bring in ‘millions of dollars' as private equity as the company had already invested in nearly eight ongoing projects, the returns from which would be shared proportionately by the two partners.

He said the main advantage of his projects was that these were freehold, and not leasehold properties.

The buyers would have the advantage of a buy-back offered by the company which they could take advantage of when they want to move to assisted living facility or continuous care facility by monetising their investment.

Col. Sridharan said the US outfit was well known for its expertise in the areas of Assisted Living and Mental Care.

Both the privately owned companies have swapped certain equity. While his company would take care of the Independent Living facilities and services, the US partner would provide its expertise in training the staff for assisted care and alzheimer care.

He was open to the idea of extending his services to the US where a large number of Indians were living, separated from their parents living in India and who may be left in senior citizens' homes.

Lack of long-term funds a challenge for housing sector

2012-01-01T15:51:00.000+05:30

Source :The Hindu :Dec 26,2011

A series of hikes in key rates by the Reserve Bank of India has put the common man who aspires to own a home in a spot. What is in store for him?

What does the home mortgage business portent for housing finance firms? Srinivas Acharya, Managing Director, Sundaram BNP Paribas Home Finance Limited, puts the issues in perspective in an interview to K. T. Jagannathan.

Excerpts.

How would you look at the year 2011?

Despite talks of slowdown, the year 2011 has been a good year for the home finance sector.

What were the big challenges faced by the sector?

Non-availability of long-term funds and frequent changes in interest rates were a couple of challenges the sector has had to grapple with this year.

The year saw also several rate hikes? What is your view on the current interest scenario?

Where do you see this moving in the medium-term? What impact will this have on the home buyers?

As the Reserve Bank of India itself has indicated, we do not expect any further rate increase unless there is any sudden adverse development not encountered so far.

You had indicated earlier this year that there is a lot of potential in Tier-2 and Tier-3 markets in the South and that there is still untapped potential. How different are those markets compared to the larger metros such as Chennai or Bangalore?

Is there any unique trend that you find in Tier-2 and Tier-3 towns in terms of home buyers and loan disbursement?

Availability of employable personnel in Tier-2 and Tier-3 towns will see offices spring up in these areas in a big way to avoid the metros. Besides, the cost of operations in the metros has gone up steeply and the infrastructure in the metros is not able to keep pace with the expanding horizons.

Better connectivity in terms of data and communication has made concentration in metros irrelevant.

Therefore, Tier-2 and Tier-3 towns will witness growth and together with this, there will be demand for housing.

What is the outlook for the home finance sector in the coming year? What will drive the growth in the sector next year?

Speaking for my company, the outlook continues to be bright. We believe there is still a lot of potential in the South.

We expect this market to continue to grow in the near- to medium-term.

What are the challenges going forward and opportunities for the sector?

Non-availability of long-term funds will continue to be a challenge. The housing demand in Tier-2 and Tier-3 towns will throw up a lot of opportunities.

What is the short-term solution to this long-term fund issue?

Excepting National Housing Bank (NHB), nobody is providing long-term funds for the housing finance firms. We don't have a mature debt market, where funds can be accessed for say a 10-year period. In the current environment, the long-term debt market simply does not exist. The government has to facilitate the development of the long-term debt market.

What is the solution?

Even NHB has now to raise funds from the market like everybody else. Earlier, it was able to raise capital gains bonds.

Now, it couldn't. May be the government could let NHB float long-term tax-free bonds. That could solve the problem to a certain extent.

What kind of initiatives / support do you expect from the industry body to drive faster growth in this sector?

There is no specific industry body for home finance industry. But, the initiatives taken by the NHB, our regulator, for creating a central registry for properties funded by housing finance companies (HFCs) and banks will go a long way in avoiding multiple funding against the same property.

State governments also need to provide some kind of authenticity to property registrations to avoid frauds. Besides, the laws on the anvil for the real estate sector will also bring in a lot of discipline among the builders and will lead to a greater level of comfort and confidence on the part of home-buyers and HFCs.

Specifically for your company, how has the growth been thus far this year? How do you see the next quarter? Also, what kind of growth do you envisage for the company over the next 12-18 months?

We crossed last full year's disbursements during the first nine months itself of the current year and have expanded our presence to 70 offices in India, including opening up newer locations outside the South. We do hope to reach our disbursement target of Rs.1,800 crore by March 31, 2012, which will represent a growth of 50 per cent over last year. In the next year (2012-13), we hope to grow by 40 per cent and settle down at a growth of 25 per cent once we reach annual disbursement of Rs.3,000 crore.

What is your view on the housing prices?

You haven't seen prices going up substantially. This has not happened in Chennai and Southern towns at least. Given the mindset of the buyers in the South, if you over-quote your price, it puts off a typically Chennai buyer. With Metro Rail and such things coming up in Chennai, I feel the population in Chennai will substantially grow and there will be increased demand.

Lack of new orders hits construction sector

2012-01-01T15:45:00.000+05:30

Source :The Hindu :NEW DELHI, December 31, 2011

With the economy in a sluggish growth mode, the construction sector is faced with short-term challenges of increased debt levels, sluggishness in new order inflows, execution concerns surrounding their current order books and elongated working capital cycle, leading credit agency ICRA has said.

According to ICRA, while there has been an improvement in the quantum of new projects announced by the government sector in the second-half of 2011-12, this was countered by a sharp drop in new project announcements by the private sector in the same period, with the steepest decline in the period under reference. Resultant new order inflow for companies in the sector has been muted over the past two quarters.

The rating agency said despite having healthy unexecuted order books, almost all construction companies are plagued by a number of slow-moving orders due to issues related to land acquisition; securing requisite clearances; labour shortage and other sector-specific issues such as payment issues plaguing irrigation projects in Andhra Pradesh and issues faced by power projects.

The slowdown in the pace of execution can be gauged by the quantum of stalled projects, which has been steadily increasing since September 2010.

As of September 2011, the quantum of stalled projects increased by 42 per cent on a year-on-year basis (15 per cent on quarter-on-quarter basis). Consequently, the year-on-year revenue growth of construction companies in the first and second quarters of 2011-12 has been the slowest as compared to the past few years.

Labour shortages and government welfare schemes such as the National Rural Employment Guarantee Scheme have resulted in higher labour costs. Slower pace of execution and higher input and labour costs affected the operating profits of construction companies, ICRA said.

Insurers Offer Better Commercial Property Loan Terms Than Banks

2011-12-08T16:00:00.000+05:30

Source :Bloomberg:Dec 7,2011

Insurance companies are offering the best terms on senior commercial real estate loans as banks halt or scale back lending, a study by real-estate adviser CBRE Group Inc. showed.

Insurers are prepared to provide loans for as much as 69 percent of a property’s value, compared with an overall average of 66 percent. The interest rate charged by insurers is 20 to 30 basis points lower than the average, CBRE said. A basis point is 0.01 of a percentage point.

“Most of their loans are larger in size than the market average, issued against best-quality real estate in terms of location and covenant strength,” Natale Giostra, CBRE’s European head of debt advising, said in a statement.

Insurers may represent 20 percent of U.K. businesses generating new loans for commercial real estate in the coming years, he said. Ten companies, including Aviva Plc, Axa SA, Canada Life Group, MetLife Inc. and Prudential Plc, accounted for 14 percent this year, CBRE calculated.

Europe’s real estate lending market is dominated by banks, which have also conducted just one significant sale of securitized mortgage-backed bonds since 2007. Proposed changes to European insurance investment rules, known as Solvency II, will make real estate lending more attractive compared with buying properties.

Europe’s banks cut back on lending after incurring 525 billion euros ($701 billion) of losses since the third quarter of 2007, following the financial crisis and ensuing property slump, according to Bloomberg calculations.

An overhaul of bank capital rules by the Basel Committee on Banking Supervision, known as Basel III, requires traditional lenders to strengthen their balance sheets. That will prompt them to sell loans and foreclosed properties.

France’s Societe Generale SA and Eurohypo AG, Frankfurt- based Commerzbank AG’s real estate arm, have halted new lending in the past two months, CBRE said.

--Editors: Ross Larsen, Jeff St.Onge.

FAQ's relating to income from House Property under IT law

2011-12-08T15:43:00.000+05:30

Source : Money control :7 Dec 2011

Q1. I am owning one immovable property at Mumbai which is given on rent. I have to spend money on repairs but unfortunately I do not have full details of the bills etc. relating to repairs done by me to the building. Please inform me in the absence of such bills etc. and other documentary evidence whether I will be able to claim deduction in respect of repair expenditure to the house property which is given on rent.

Ans. Don’t worry at all, you will be entitled to deduction of expenses in respect of repair to the immovable property. Under the Income-tax Law in terms of section 24 you are entitled to get a deduction equal to 30 per cent of the annual value of the property by way of repair etc. etc. For claiming this deduction you are not required to maintain any record or details etc. Hence, in your case even if you are not possessing full proof or details of the expenditure incurred by you on repairs etc., still you will enjoy the tax deduction.

Q2. I am owner of a big property in Delhi. This property has been let out to very old tenants. I maintain meticulous proof in respect of the expenses on repair to the building. The main problem is that rent from the property is very small and repairs on the property is very high. Nearly 60 per cent of the amount of rent collected is spent away just by way of making payment for repairs to maintain the building. I will like to know whether I can get deduction from the rental income in respect of the expenses on repairs which is equivalent to 60 per cent of the rent receipt. I maintain that I should get this deduction from the rental income specially because I maintain meticulous details of each and every expenditure incurred on such repairs.

Ans. Even if you maintain full details in respect of the expenses incurred by you on repairs to the building, still you will not get deduction equal to 60 per cent of the rental amount which you have actually spent on repairing the building. Under the Income-tax Law the maximum and the minimum amount which is allowed as a deduction from the rental income is equal to 30 per cent of the annual value only. Hence, even when you are maintaining full details and vouchers and proof of having incurred heavy expenditure in your very old building, still as per the provisions existing in the Income-tax Law the maximum amount that will be allowed as a deduction to you will be equal to only 30 per cent.

Q3. For the year ending 31st March 2012 I will be required to make payment of Rs. 1,22,000 in respect of the interest on loan taken by me from the bank. However, due to very bad financial position I am not in a position to make payment of the interest this year. I will, however, make the payment of interest in subsequent year. My question is in such a situation where interest on housing loan has not actually been paid in the financial years whether in such a situation the deduction will be allowed of the interest payable by me.

Ans. Happy news for you, in spite of the fact that you have not made payment of the interest for the housing loan and your circumstances are such that you will not be able to make payment of the interest on loan, even then under the provisions as contained in the Income-tax Law together with clarifications issued by Central Board of Direct Taxes, the interest on loan for the house property will be allowed to you as a deduction even when the same is not actually paid by you.

Q4. I have a commercial property which is given on rent and the rental income is Rs. 1,80,000 per annum. I have taken loan against this property and I am required to make payment of interest equal to Rs. 2,50,000 during the year. Right now no house tax is payable in respect of this property. Please inform me how the tax liability will be calculated in respect of this rental income from commercial property in my case.

Ans. From your facts it is clear that you have not made payment of house tax because house tax is not applicable in your case as on today and from the gross rental amount of Rs.1,80,000 rupees deduct 30 per cent being the standard deduction for repair, collection charges etc., etc. Thus, the sum of Rs. 54,000 will be deducted towards this standard deduction from your rental income of Rs. 1,80,000 thereby the balance rental income will be Rs. 1,26,000. Now from this house property income of Rs. 1,24,000 you are entitled to get a deduction in respect of interest on loan taken for the property. As you are going to pay Rs. 2,50,000 interest on loan, so this amount will be deducted leaving a net negative balance of Rs. 1,24,000. This amount will be treated as loss from house property which will be adjusted against any income of the year.

Q5. I am owner of two residential properties one in New Delhi and the other in New Bombay. In one of the properties I stay with my wife while in another property my son stays there. Please inform the tax implications in respect of these properties which are standing in my name alone.

Ans. Under the Income-tax Law in respect of one self occupied house property there is no liability to income-tax at all. Now in your case you are occupying two residential properties. Hence, for one property there will be no tax liability but for the second property there will be a tax liability and this liability will be calculated based on the fair market value of the property if let out, hence deemed rental income will be added to your income in respect of the second house property which is self occupied by you.

Q6. If I take a loan for my residential house property I get a tax deduction equal to Rs. 1,50,000 by way of interest payment. I will like to know what would be the situation if I take this loan not from bank but from my close relatives and friends.

Ans. The deduction of Rs. 1,50,000 is allowed as a deduction whether you take the loan from the bank or you take the loan from any other person. Hence, in your case if you have taken loan for house property from friends and relatives, the entire interest payment up to maximum limit of Rs. 1,50,000 will be allowed as a deduction.

Q.7. I have applied for purchasing a flat in upcoming new colony in Gurgaon. Loan has also been sanctioned to me for this property. I have started making payment of the EMI. The possession of the property will be ready by July 2014. Please inform me how much deduction I will be able to claim in respect of the interest paid by me for this property.

Ans. On the facts stated by you, you will not get any deduction in respect of interest paid by you. This is mainly because of the fact that the house property has not yet been ready. Please remember that deduction in respect of interest will be allowed only when the house property is ready for use.

Q.8. I am owner of a big multistoreyed building which is given on rent to commercial establishments. Some of the tenants do not make payment of the rent in time while some tenants are not making payment of rent at all. Hence, I am required to file legal cases. In the current financial year I spent nearly Rs. 48,000 being the payment made to lawyers etc. for fighting legal case to recover the rent from the tenants. I will like to know how much of this amount will be allowed as a deduction.

Ans. No amount will be allowed as a deduction in respect of the legal expenses incurred by you for making payment to lawyers fees etc. This is mainly because of the fact that under the Income-tax Law only one single deduction equal to 30 per cent of the rental value is allowed as a deduction for taking care of repairs incurred for the property as well as taking care to realize the rent and other expenses if any. Hence, no expenditure by way of legal expenses will be allowed separately as a deduction to you.

Q.9. I have purchased two very small flats in one upcoming residential project coming up in Nagpur. The purpose of buying two flats is to ensure that ultimately my two sons inherit each of the flat. My question is that during the year ending 31st March 2012 I will lend up in making payment of total interest payment of Rs. 1,40,000 to the bank in respect of these two flats. I will like to know how much deduction will be allowed to me under the Income-tax Law, I understand that the entire amount will be allowed as a deduction to me because it is within the overall maximum limit of Rs. 1,50,000.

Ans. It is true that the maximum amount of interest on housing loan which is allowed as a tax deduction is Rs. 1,50,000 per annum. But actually in your case the amount which will be allowed as a deduction to you by way of interest on housing loan for residential house property will be Rs. 70,000 only because the deduction is allowed only for one house property and not two properties. Tax payers may kindly note that under the Income-tax Law the maximum amount which qualifies for a tax deduction in respect of interest on housing loan is Rs. 1,50,000 but restricted to one property only.

Q.10. I purchased a residential house property with a bank loan some 15 years ago. With God’s grace the loan has been repaid. But I now require a small loan amount to be taken from the bank for repairs of my existing house property. The interest on this loan which has been taken for the purpose of repair will come to nearly Rs. 95,000. Please inform the maximum amount that will be allowed as a deduction to me in my Income-tax Return.

Ans. In your Income-tax Return the maximum amount that will be allowed as a deduction will be only Rs. 30,000 being the interest on loan taken for a residential property for repairs of the property.

Q.11. I am a salaried employee deriving salary income and I have got only income from one house property and a small rental income. Please inform me for the Assessment Year 2011-12 which Income-tax Return Form should I file.

Ans. You should file your Income-tax Return in ITR1 popularly known as the SAHAJ Income-tax Return Form.

Q.12. I am a proprietor of my proprietorship concern doing in garments manufacturing. I have got a rental income also. Please inform me which Income-tax Return Form should I use.

Ans. On your facts the Income-tax Return Form has to be filed in ITR4.

Q.13 I and my wife we jointly own a very big flat in Noida. Both of us have contributed for this single flat. We are owners in the ratio of 50 : 50. For the year ending 31st March 2012 the total interest payable in respect of housing loan for this flat will be Rs. 3 lakhs. I will like to know whether we will get a tax deduction combined of Rs. 1,50,000 or whether each of us can separately claim tax deduction of Rs. 1,50,000 in our separate Income-tax Returns.

Ans. On your facts please note a happy news for you and that is both of you will be entitled to tax deduction of Rs. 1,50,000 being interest on housing loan individually. Thus, you can claim deduction in your Income-tax Return of Rs. 1,50,000 being the housing loan interest. Similarly your wife can separately claim tax deduction of Rs. 1,50,000 on the interest payment for the property.
____________________________________________________________
The Author is Tax and Investment Consultant at New Delhi for last 40 years. He is also Director of M/s. R.N. Lakhotia & Associates LLP & The Strategy Group.

Commercial space bought by US school for 125 crore

2011-12-05T21:21:00.000+05:30

source :3 DEC, 2011, 09.50AM IST, RAJSHRI MEHTA,TNN

MUMBAI: With the construction industry reeling from an oversupply of office space, an entire commercial building has now been sold to a school. The 30-year-old American School of Bombay (ASB) has bought 1.4 lakh square feet of space in the 36-acre Kohinoor City, Vidyavihar, in a deal amounting to more than Rs 125 crore.

The six-storey building, which has been entirely bought by the ASB, was earlier planned as a commercial building. The 36-acre mixed township in Vidyavihar is promoted by Unmesh Joshi, son of Shiv Sena leader Manohar Joshi.

The newly bought premises are expected to accommodate almost 800 students and admissions are expected to begin in 2012. The ASB currently operates from an 85,000-square-foot state-of-the-art complex in the Bandra-Kurla Complex (BKC).
Joshi confirmed the deal, saying the school's presence would boost the Kohinoor City project. "We have our own school, a hotel and other commercial and residential buildings. The ASB liked being located in a project that has all social facilities,'' said Joshi. CBRE, the global property consultants who brokered the deal, refused to comment. ASB coordinator Craig Johnson was unavailable for comment as he was travelling.
Property experts said the deal is a reasonable one, being struck for approximately over Rs 8,000 per sq ft. "Considering the stagnancy in the property market, and especially in the Kurla-Vidyavihar region, where office rentals are low at about Rs 80 to Rs 100 per sq ft, and the huge availability of space, any deal is welcome,'' said an expert.
Two years ago, notwithstanding the economic slump, Kohinoor City witnessed one of the biggest property deals in the city when the National Stock Exchange (NSE) bought 80,000 sq ft of office space for Rs 120 crore. The NSE is expected to use the Kurla property for its operations, as its main office in BKC is not adequate for its operational requirements

Emami Group buys land worth Rs 200 crore for realty venture

2011-12-05T21:11:00.000+05:30

Source :5 DEC, 2011, 03.59AM IST, ANURADHA HIMATSINGKA,ET BUREAU

KOLKATA: Emami Group, a Rs 3,700-crore diversified conglomerate, has bought about 850 acres of prime real estate in a countrywide property expansion binge. The company has spent more than Rs 200 crore to buy land in Hyderabad, Chennai, Coimbatore, Jhansi and Kolkata for developing up-market large scale residential and commercial complexes.

Top officials from Emami are negotiating more land deals and expect to clinch them in 2011-12, RS Agarwal, group joint chairman, Emami, told ET. "We are indeed in a hurry to lap up huge tracts, but will not close the land deals in haste.

All pros and cons will be weighed before we clinch the property," he said. Agarwal, however, refused to reveal the break-up of these deals citing corporate governance issues. He said the company has been supported by commercial banks and lending institutions.

"We are looking to build premium residential complexes. We also plan to develop large as well as mid-sized mixeduse housing projects comprising residential, hospitality, retails and commercial properties depending on prevailing market conditions," said Girija Choudhary, director, Emami Realty.

"Our real estate ventures, like all other projects being undertaken by us, will be financed by unsecured and secured loans, advances from customers and promoter's own funds," Choudhary said. The Emami Group, which has taken big strides in FMCG and personal care space over the years, has been actively involved in the city's realty market.

It has acquired majority stakes in some of Kolkata's landmark real estate projects being developed by a city-based realtor or a group of realtors. On its own, the group has been building residential complexes under the Orbit brand.

"Although a firm decision has not been taken, as a group we intend to grow our real estate business independently. Joint venture developments will be taken up selectively and only if the deal is lucrative. Going forward, the focus will be more on promoting the umbrella brand 'Emami'," Agarwal said, outlining the group's future plans.

DLF divests stake in IDFC JV, gets Rs 200cr as 1st tranche

2011-12-05T11:23:00.000+05:30

Source : Moneycontrol.: Dec 04, 2011 at 15:02

DLF , India’s largest real estate company, announced that Galaxy Mercantile (GML), a joint venture company of DLF Home Developers Limited (DHDL), a wholly owned subsidiary of DLF Ltd., has received Rs. 200 crore as the first tranche of infusion of capital fromIDFC .

The amount is received as part of a process for IDFC to acquire 100% stake in the joint venture company which has been received by the joint venture partners including DHDL. The balance which would be received from IDFC has been linked to the leasing milestones.

Prior to this infusion of Rs 200 crore, DHDL had a 71% equity stake in Galaxy Mercantile Ltd., which owns of the 1.3 million square feet (msf) IT Park located in NOIDA, Uttar Pradesh.

DLF spokesperson said, "This stake sale is in line with our objective of divesting the non-strategic assets."

Spokesperson of IDFC Limited said, "We are pleased to partner with DLF, country’s largest and most experienced developer. This investment in GML is the first ever by by IDFC as a part its strategy to invest in a portfolio of yield generating office infrastructure assets in major markets around the country."

Not done anything wrong knowingly: DLF's KP Singh

2011-12-05T11:19:00.000+05:30

Source : CNBC-TV18: Dec 02, 2011 at 15:08:

DLF has not done anything wrong knowingly, says chairman Kushal Pal Singh. However, he admitted that inadvertently mistakes can happen.

Last month, the Competition Appellate Tribunal (Compat) stayed the Rs 630 crore penalty imposed by fair trade watchdog Competition Commission of India (CCI) on DLF, India’s biggest real estate firm by market value, over alleged abuse of dominant market position.

Speaking to exclusively to CNBC-TV18's Sheeren Bhan, Singh said that he is confident of DLF’s case at the Compat. “My son Rajiv drives the company. I know his philosophy. He is a very hard taskmaster. He is very clearheaded. He makes no moans about it and he deals in a manner according to rules and regulations. But sometimes people misunderstand,” he said.

Shifting focus to reforms, Singh said. FDI in multi-brand retail is a very progressive step. But on the Land Acquisition bill, he said, the 80% consent nod is not a practical one.

"I think townships must not be kept of public purpose definition."

Bangalore best Indian city to live in: Global Survey

2011-12-02T01:09:00.001+05:30

Source :ET :29 NOV, 2011, 04.19PM IST, PTI

NEW DELHI: Pipping past the four metro cities of New Delhi, Mumbai, Kolkata and Chennai, the southern technology hub Bangalore has emerged as the best city to live in India, a global survey said today.

Despite its top Indian ranking, Bangalore's worldwide rank is very low at 141st position in a list of 221 cities globally in terms of standard of living, compiled by the 'Quality of Living Survey - Worldwide Rankings, 2011' by the global HR (human resources) consultancy major Mercer.
Vienna has been ranked as the world's best city to live in on the global list,

which has five Indian cities --

Bangalore (141st),

New Delhi (143rd),

Mumbai (144th),

Chennai (150th) and

Kolkata (151st).

Globally, Vienna is followed by

Zurich,

Auckland,

Munich,

Dusseldorf,

Vancouver,

Frankfurt,

Geneva,

Copenhagen and

Bern

among the top-ranked cities in terms of quality of living, Mercer said.

In another list of the world's best cities in terms of personal safety standards, Luxembourg has been placed on the top, followed by Bern, Helsinki, Zurich, Vienna, Geneva and Stockholm.

On this list, Indian cities have been ranked a little better, as Bangalore has got 117th place, New Delhi and Kolkata shared the 127th position, Mumbai is at 142 and Chennai is placed at 108th.

Bangalore has been ranked as the best Indian city both in terms of quality of living and the personal safety standards.

The personal safety ranking has been on measures of internal stability, crime levels, law enforcement effectiveness and host-country's international relations.

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

2011-11-26T00:34:00.001+05:30

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

2011-11-26T00:03:00.001+05:30

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

2011-11-20T17:43:00.001+05:30

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

2011-11-20T17:11:00.001+05:30

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.

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

Real Estate Bill is balanced

2011-11-20T16:49:00.001+05:30

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.

10 grounds on 200ft Pallavaram ring road,chennai - Outrite Sale

2011-11-19T02:59:00.001+05:30

Prime residential land in Kovilambakkam near Kamakshi hospital

to the extent of 10 grounds on 200feet Pallavaram Ring road

available for outrite purchase at discounted price .

Area : Kovilambakkam

Extent : 10 grounds

Road width : 200’ft road , Frontage > 100ft

Zone : Mixed Residential

S.F.nos : No.51 , 54 & 58

Village : Kovilambakkam(St.Thomas Mount PU)

No.of owners : Single title holders

Price on request .

Land owner not ready for Joint Development .

get in touch thro : bankfinance555@gmail.com

Real estate market turns innovative to lure home buyers

2011-11-19T02:08:00.001+05:30

source : Business Today :Pritam P Hans : Delhi Edition: November 2011
The Indian real estate sector is in a state of flux with changing economic scenario and proposed real estate laws. In the evolving environment, both buyers and developers are embracing change. Developers are coming up with new formats of properties to capitalise on the changing environment. Buyers are also becoming more discerning and demanding better quality and services from the developers.

Demand for real estate is driven by economic growth. As industries grow and purchasing power of individuals goes up, new homes, offices and shops witness an increase in uptake. As the economic scenario undergoes change, the real estate industry is constantly evolving to remain on top of the situation and making efforts to generate demand from buyers. Here we look at some changes that are emerging in the country's real estate market.

SPECIAL: Buying a house? Here's how to steer clear of land troubles

VIRTUAL COMMUNITIES

Home buyers are realising the power of collective bargaining. They are coming together on common platforms to have better leverage, whether it is in buying properties or putting pressure on developers. Modelled on successful group-buying websites such as Groupon.com, some websites like GrOffr.com and SnapGhar.com are offering a platform for buyers to come together and get better deals through collective bargaining.

"The developers give discounts because they are able to move a large inventory in one shot and the economy of scale starts working," says Vikhyat S, co-founder, GrOffr.com.

Property deals are listed on these websites where buyers can express their interest in the offer. If the deal manages to attract the minimum number of buyers, the properties are offered at the discounted rates.

"The group rate is lower than the rates that an individual can bargain. The only time where group rates are equal to the individual rates is when the project is being launched because at that stage the prices are already at rock bottom," says Vikhyat S.

FLEXI HOMES
Home buyers are no longer content with the pre-designed homes being offered by developers. They want more flexibility and control over how their apartments will eventually look. In order to allow home buyers to customise their apartments, developers are offering homes where buyers can select their own layout, floors, kitchen and several other aspects.

In traditional apartments, home buyers have very little say in designing the house. With customisable homes, buyers do not have to spend time and money making modifications to their apartments.

"Buyers often end up spending as much as 15-25% of the original value and at least two-three months in making changes to their apartment after possession. This can be avoided with customisable homes," says Anil Kumar, executive director, Millennium Spire India Management, which offers 'flexi homes' in which the buyer decides the floor plan of the house along with other details.

However, these customisable homes have their limitations in terms of changes that can be made to the layout out the property.

"In customisable homes, the basic structure and plan remains the same. Only minor changes are allowed such as converting space allocated for a study into another room," says Rajesh Goyal of RG Group, a Delhi-based developer.

PE MUSCLE
Funding has remained a concern for several developers over the past few years. As investors do not want to be stuck in a stalled or delayed project, real estate private equity (PE) firms no longer just finance realty projects. PE firms are forming joint ventures with developers and actively participating in the development of the projects. Fire Capital Fund and Indus Capital Partners, for instance, have formed joint ventures with developers for realty projects in places like Delhi, Bangalore, Indore, Nagpur and Chennai.

"A development backed by a PE fund creates a higher level of comfort in the minds of buyers," says Om Chaudhry, founder and CEO, Fire Capital. "Customers are now more focused on whether the developer has the operational ability and the financial muscle to deliver projects on time."

Chaudhry's real estate PE fund, Fire Capital, owns majority stakes in its projects and acts like a developer by taking the responsibility of developing the projects. Fire Capital promoters also floated a new housing company, Astrum Homes, in October 2011.

When a PE firm invests in a realty project, it has its own obligations towards its investors to ensure timely delivery of the project. PE firms do their own due diligence on the land, etc., because they are investing a lot of money.

"Involvement of realty PE funds is a symbol of financial security as well as legal due diligence. It also offers assurance that the PE fund will ensure that commitments are met and properties delivered on time," says Chaudhry.

HOTEL APARTMENTS
Driven by demand from the corporate sector, particularly the information technology (IT) and IT-enabled services segments, serviced apartments are the new buzz in the real estate industry. With an array of projects across cities like Mumbai, Pune, Bangalore, Chennai, Delhi, Kochi and Kolkata, leading real estate companies are offering medium- to high-end serviced apartments in the price range of Rs 20-70 lakh. Serviced apartments are furnished residential units with accompanied housekeeping, concierge and maintenance services, just like a hotel accommodation.

"With several developers offering investors a chance to buy serviced apartments with the attraction of earning good returns through rentals, serviced apartments are offering new opportunities to both developers and investors," says Ganesh Vasudevan, vice president and business head of property portal Indiaproperty.com.

Investors also have the option of buying rooms in condominium hotels. The property is managed and rented out by the hotel management and the investor gets a share of the profits.

Silvexity Group-owned Tuscany Terraces, a condo hotel property in Neral near Matheran in Maharashtra, offers various format apartments for Rs 28 lakh to Rs 70 lakh. The company offers 9% annual return for the first three years for leased apartments. The leased apartments are maintained and refurbished at regular intervals by the company. Serviced apartments and hotel rooms offers 10-20% annual return, against 3-5% offered by residential apartments.

You can also sell these properties to realise the appreciation gains. "The investor can sell the apartment to a new investor on the condition that the lease agreement, if any, shall be binding upon the new purchaser also," says Amod Kumar Singh, vice president of Silvexity Group.

With the boom in IT and related services, the demand for transit housing (which includes hotel accommodation and serviced apartments) is expected to remain strong.

GREEN HOMES
As people are turning more conscious about the environment and seek better lifestyle, eco-friendly homes are becoming popular. Developers are implementing eco-friendly building concepts in homes even if the properties do not have green certification from rating agencies.

Green buildings do not only offer better living spaces to home buyers, they also help builders market their products. With several corporate houses opting for green buildings and the National Housing Bank and some commercial banks offering incentives on loans for environment-friendly buildings, it makes sense to go green.

Currently, India has around 800 million square foot of green built-up space, of which 40% is residential, according to CII-Sohrabji Godrej Green Business Centre head S Raghupathy. It is expected to go up to 1 billion square feet by 2012 and again double in the next two years.

"Green buildings are here to stay. As costs come down, both awareness and legislation will drive green buildings," says Anshuman Magazine, chairman and managing director (South Asia) of CB Richard Ellis, a property consultancy.

Eco-friendly homes with green certifications are more expensive than traditional homes. "Green homes do increase construction cost high by 5-10% but bring in overall efficiency and reduce operating costs by an equal or more percentage," says Bharat Dhuppar, chief marketing officer of Mumbai-based Omkar Realtors and Developers.

Five Tips for Investing in Properties

1. Houses or Shops
The choice between residential and commercial properties depends on availability of money and your investment objective. Commercial properties generate regular income through rentals (8-10% of the property value annually), while residential properties offer more appreciation benefits (average 8-10% per year).

2. Apartment or Land
Any developer will tell you how land prices are skyrocketing. "Investing in land is always good for long-term investment, especially when you want to avoid maintenance costs. Plots give high returns," says Aditya Verma, executive vice president and chief operating officer, Makaan.com, a property portal.

3. Loan for Investment
Does it make sense to buy a property on loan with interest rate of around 12% per annum? Annual rental income from residential properties is 3-5% of the property value. When you are borrowing money to invest in homes, your total return (rental plus appreciation) should exceed the interest that you are paying.

4. Appreciation prospect
The price of a property appreciates based on factors such as infrastructure development, local economy, availability of land and connectivity. If there is a boom in the local economy and commercial development goes up, demand for both residential and commercial properties will reflect the trend.

5. Exit Strategy
When you invest in a property, you also need to exit to realise the gains made through its appreciation. You must have a clear investment objective before you put your savings in a house or any commercial property. You must be clear on your investment tenure as it takes time to find a buyer who is willing to offer a good price.

SBI sees sharpest rise in realty loans

2011-11-19T01:46:00.001+05:30

Source ;Dinesh Unnikrishnan:BS;Fri, Nov 18 2011. 1:24 AM IST

Real estate loans now account for 17% of the group’s total loans, up from 13.7% in the previous fiscal, according to RBI data

Mumbai: The country’s largest lender State Bank of India (SBI) is seeing the sharpest growth in loans to the real estate sector—nearly double the industry average and much higher than that of private and foreign banks. Analysts caution that such a rapid pace of growth in this sector could lead to higher bad loans for SBI.

For the quarter ended September, SBI’s gross non-performing assets, or NPAs, grew to 4.19% of total assets, from 3.35% a year earlier, the highest in the industry.

The SBI group’s exposure to the real estate sector grew 43.4% in the fiscal year ended March to Rs. 1.7 trillion from Rs. 1.17 trillion against the industry growth of 23.2%. Real estate loans now account for 17% of the group’s total loans, up from 13.7% in the previous fiscal, according to Reserve Bank of India (RBI) data.

Compared with this, real estate loans account for 13.2% of the loan book of other state-owned banks. New generation private banks have a greater exposure to the real estate sector—26%—but the pace of growth has been slower.

In fact, the proportion of real estate loans as a percentage of total loans has declined or remained at the same level in the last one year for almost all banks in the system except for the SBI group.

SBI officials, however, downplayed the faster pace of growth, saying the majority of the loans in its real estate portfolio are less risky home mortgages.

“RBI is concerned primarily with commercial real estate and not with residential mortgage. In our case, commercial real estate is only around 1.5% of total loans or around Rs. 15,000 crore in March. Hence this does not carry a concentration risk,” said A.P. Verma, the bank’s chief credit risk officer.

The commercial real estate portfolio fell to around Rs. 9,195 crore in September. The home loan portfolio, at Rs. 92,383 crore, is 12% of the total loan portfolio of Rs. 7.9 trillion.
Analysts attributed the sharp rise in SBI’s overall real estate book to the lender’s controversial special home loan scheme or “teaser” loans.

SBI added around Rs. 36,000 crore in home loans till the scheme was discontinued early this fiscal year in the face of stiff opposition from the banking regulator.

Teaser loans offer cheap rates in the initial years. RBI asked SBI to set aside more money for such loans, saying that customers may not be able to cope with the increasing repayment burden in subsequent years and loan defaults may rise.

Analysts said higher interest rates and the economic slowdown are likely to impact the ability of individuals to repay their home loans.

“In the banking industry, overall there are higher chances of defaults emerging from home loans due to the steep rise in interest rates and the adverse market scenario,” said Abizer Diwanji, head, financial services at KPMG India. “However, there is no need for ultimate loss as such loans are secured.”

RBI has raised its key lending rate 13 times since March 2010 to tame persistently high inflation.

Builders said prospective home buyers have postponed planned purchases. Poor demand and delays in securing approvals have resulted in a drastic drop in the number of new projects in recent months, they said.

“You are very likely to see more defaults from home loan borrowers in such a market. Already, many of the borrowers have sought restructuring of their loans,” said Anand Gupta, honorary treasurer at Builders’ Association of India lobby group. “Many borrowers, who had drawn home loans at a rate of 8-8.5% a year back, have now seen their repayment rates going up to 12-14% on account of successive rate hikes by banks.”

After setting aside money for bad loans, SBI’s net NPA ratio was brought down to 2.04% in September against 1.7% in the year-ago quarter. This level of both gross and net NPAs was last seen in September 2005. In absolute terms, SBI’s gross NPAs rose to Rs. 33,946 crore from Rs. 23,204 in the year-ago quarter.

Of SBI’s total NPAs, bad loans from mortgages stood at 2.38% of home loans in September.
Real estate is one of three sectors regarded as sensitive because of the high risk perceived in exposure to them. The other two are the capital market and commodities.
Traditionally, RBI has cautioned banks from taking higher exposure to real estate, citing the probability of defaults on account of volatility in prices.

Analysts said there is no immediate reason for panic. “Such a faster pace of growth is not good for any bank. However, there is no need for panic as there is little logic in factoring in home loans as ‘sensitive’ in a market like India. There will be a problem in the event of any further stress in the economy,” said an analyst with a Mumbai-based brokerage who did not want to be named.

Ashwin Ramarathinam contributed to this story.