Coimbatore retirement homes developer attracts FDI

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

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

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

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

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.