RICS and CREDAI to Train Middle Managers in Real Estate & Construction

RICS, the global professional body for chartered qualifications and standards in built environment, and CREDAI, the leading association of real estate developers in India, have announced the second phase of the “RICS-CREDAI Skills Development Initiative” aimed at jointly working towards capacity building and skills development in the Indian real estate sector.

Amongst many challenges in Indian real estate sector, the immense shortage of skilled professionals leads to delay in project deliveries, cost overruns and compromised quality.

RICS has been offering specialized education and training programs – ranging across full time degree programs (through RICS School of Built Environment, Amity University), Executive education, Management development programs, Distance learning certificate courses etc.

CREDAI has taken the lead to ensure that development and construction firms upgrade the knowledge and skills of their staff and has thus partnered with RICS to offer Management Development Programs (MDPs) – i.e. short residential programs in metro cities. To begin with, MDPs will be offered in three priority areas namely - Construction project management, Quantity surveying, Real estate sales & marketing. The programs are targeted specifically for middle management professionals and will be implemented by delivery partner – RICS School of Built Environment, Amity University.

Commenting on the importance of this initiative, A Balakrishna Hegde, Chairman, Training Committee, CREDAI said, “CREDAI and its members are at the forefront of building real estate in India. With this collaboration, we hope to enhance the professional expertise in order to execute complex real estate projects. We are happy to partner with RICS, the leading global professional and standard setting body in built environment. Being the global accrediting body for over 600 built environment university courses; we strongly believe their programs are unmatched in terms of curriculum and learning outcomes. We are sure that the courses offered under this Skills Development Initiative will enhance skills in order for our members and their teams to better deliver projects that are completed on time and at reduced costs.”

Commenting on the partnership, Sachin Sandhir – Global Managing Director, Emerging Business RICS said - “Although the real estate and construction sectors are key contributors to economy, there is a complete vacuum of education and training options available for professionals to up-skill. RICS launched distance learning programs a few years ago and there has been overwhelming participation of professionals from small and big towns. This partnership is a huge stepping stone to ensure that a majority of industry now has easy and economical access to education and training options of the highest standards, which in turn will help the sector become more professional and efficient. In this regard, CREDAI’s forward thinking and focussed effort in making sure all their members give due importance to up skilling their professional teams, is to be applauded.”

Affordable housing to get tax breaks: Naidu

NEW DELHI: The minister for Urban Development and Housing M Venkaiah Naidu has said that the government is considering to introduce tax breaks for affordable housing to make achieve the BJP government’s proposed plan of securing housing for all by 2020.

Acknowledging that the present slowdown in the real estate sector was due to the overall economic situation, he said the government has plans to see a turnaround of the sector soon.

He said that to make housing loans available for every citizen of this country,  the government will soon announce a subvention scheme on home loans for middle and lower income groups.

Underlining the need of the revival of housing sector to boost the overall economy, Naidu said at a function in New Delhi that, "We need to relook at urban India and economic development, which will lead to advancement of India. We understand that we cannot progress in achieving our Housing 2020 plan without the support of private sector.'' 

He said with the help of various government-aided schemes he was confident that the contribution of the real estate, which is now 6 per cent to the GDP, will go up to 13 per cent by 2022.

While addressing a conference of real estate developers, Naidu said, "Housing sector has tremendous growth potential and the second largest employer in the country."

Providing Modi’s remedy for economic recovery, he said, "3D Modi is the remedy for economic recovery and rapid growth. Since Narendra Modi is dynamic, decisive and dares to think big, these dimensions are making him popular both within and outside the country."

Lalit Jain, chairman of real estate body CREDAI, said the government should streamline approval processes which will help revive the real estate sector.

Rejecting the claim that the proposed real estate regulatory bill will affect private investments, Naidu said, the bill would instead enhance the credibility of the sector. He also said his ministry has given top priority to pass the bill in the current session of Parliament. 

A journey from Madras to Chennai

For a city, transition is inevitable which goes along with the changes in its demographic status. Chennai has transformed into a modern city from what it was a few decades back, says K Ramanathan, who traces the city's journey from Madras to Chennai.

The southern metropolis has come a long way since the black and white era, registering all around development. Once a sleepy and conservative neighbourhood, the city is now full of life with liberal outlook coupled with vibrancy.  Chennai has become a city that ‘doesn't sleep’.

Chennai in 1960s

The development over the years has made visual changes on Chennai’s landscape. New settlements, roads, bridges, subways, high rises and business establishments have been added to cope with the rising demand. And one can’t deny the role real estate has played over the years in transforming Chennai into what it is today.

A look at Madras

Though the changes have made a paradigm shift to city landscape, it has brought in a host of inherent challenges as well. A few old-timers recalled that Chennai in those days was having less congested roads, quiet surroundings and blessed with fresh air and copious water, which gave the inhabitants a comfortable and quality life.

“In 60s and even earlier, though real estate was as vibrant as today’s in Chennai, only plot development was popular among realty developers. The Usman Road, which is now filled with jewellery, garment and other commercial establishments, was once occupied by real estate companies to sell plots - both within and outside city limits. The Corporation too encouraged residents to buy plots to construct individual homes. City Improvement Trust (CIT) was formed

Dr R Kumar

to develop plots. Today’s CIT Nagar and CIT Colony were the outcome of this Trust. Later, with the advent of Tamil Nadu Housing Board (1961), Ashok Nagar, Shastri Nagar, Indira Nagar, Besant Nagar, KK Nagar and Shenoy Nagar came into existence as plotted development. Anna Nagar was developed after the World Trade Fair in 1969 and Visvesvaraya tower (now know as Anna Nagar Tower), was built in the subsequent year. Later Tamil Nadu Housing Board developed residential plots, built apartments, roads, schools, commercial complexes, bus terminus and parks in Anna Nagar,” says Dr R Kumar, Managing Director, Navin Housing and Properties (P) Ltd, and one of the long-time residents of Chennai.

Loss and gain

Reminiscing about the replacement of several old landmarks due to the inevitable urbanisation, Dr Kumar, who is also the Chairman of Confederation of Real Estate Developers' Associations of India (CREDAI), Chennai, said, “We have lost very many buildings which were once the landmarks of the city to the rapid real estate and infrastructure developments. Popular yesteryears’ theatres like Saffire (1964 -1990), Gaiety (1914-2003), Wellington (1918 -2010),

Kamadhenu (1920- 2008), Nagesh, Chitra etc have been replaced with multi-storey shopping complex-cum-office structures. Hotels Oceanic, Aun, Dasaprakash and Ram Bhavan are no more now.  Breez and JW Marriott too are getting replaced with residential and commercial high-rises. But I feel that unless the buildings are architecturally important, we don’t need to worry about their non-existence anymore. Buildings, which are 30-40 years old, have to be redeveloped.”

Agreeing to Kumar, Sanjay Chugh, Head–Residential Services–Chennai, Jones Lang LaSalle (JLL) India, says, “Redevelopment has indeed changed Chennai’s landscape considerably. Egmore was the first to experience the trend in 1970s. Even today, several bungalows and independent houses are getting redeveloped to multi-storey and commercial complexes.  The trend has spread to other areas as well.”

But there are a few landmarks which withstood the time such as LIC building, which was once the tallest tower in Chennai, Fort St. George, Amir Mahal, SBI building, Chennai Central and Egmore Railway Stations, Bharat Insurance building, Chepauk Palace, Ripon building, Presidency College, Parrys Building, Theosophical Society, Madras High Court, General Post Office, Anna University, Higginbotham's, Victoria Public Hall, etc.

Madras vs Chennai

Comparing old Chennai with the modern metro city, old timers feel that in those days, the quality of life was better though they did not have technology at their disposal. The infrastructure set up available was enough to meet their civic and sociological needs.

N Nandakumar

“Though we didn’t have much motors on roads in 60s or 80s, the city landscape was filled with full of greenery and hence the air was fresh. We had sweet ground water. Though we didn’t have adequate transport connectivity, visiting far-off places was never a burden for residents. But today, even people have swanky cars, visiting a place just few kilometers away has become an arduous task. The city has grown exponentially, no doubt, but sans basic infrastructure. Hence the quality of life has gone substandard. We depend on obsolete infrastructure and sanitary system. Chennai still has open drainage at several places, which is appalling. We have acute water and power shortage. In short, the city is yet to become self-sustainable even decades after the Independence,” says N Nandakumar, President, CREDAI, Tamil Nadu.

Countering that the redevelopment of old buildings and construction of new high-rises have indeed helped to meet the city’s growing housing demand, Sanjay opines, “Such large development has narrowed the demand-supply gap. Old buildings must be redeveloped, which not only increases housing stocks, these buildings can be better planned incorporating modern facilities.” Agreeing that the increase in population density has put pressure on city infrastructure, he says, there is still room for the planners to improve the living condition of denizens.

He says, rapid transport systems like Chennai metro and mono rail would go a long way to connect far-off areas to the Central Business District (CBD). “As far as real estate in Chennai is concerned, one thing that has changed over the years is the home buyers’ conservative mind-set. Thanks to the improved connectivity, people, who once refused to think beyond Mylapore, Mambalam, T Nagar, Triplicane, Adayar, or Nungambakkam, are going beyond Ponnamallee, Kottivakkam, Kelambakkam Thiruvottiur or even Chengalpet. For instance, home buyers in those days used to give importance to location than other things like amenities and infrastructure. This has changed now. For buyers, distance is not a matter anymore.

“In those days, people even dare to think beyond Adyar River for habitation purpose. Plots on the   other side were sold for pea-nuts as no one would want to invest money there. But those who had invested in land there saw rapid development within few years. People are no more conservative as far as choosing the place for dwelling is concerned. Their outlook has changed. Even Tindivanam and Thiruvallur look nearer now,” says Kumar.

Advent of high-rises

LIC building on Anna Salai was the first skyscraper of Chennai, built in 1961. The building marked the transition from lime-and-brick construction to concrete columns. LIC remained the tallest for over 35 years before it was replaced by Hyatt Regency in Anna Salai and Arihant Majestic Towers in Koyambedu, in the mid-1990s.  TVH Ouranya Bay 1 is presently the tallest building in Chennai with 30 floors.

“People from nearby districts and states, who used to come to Chennai, never missed the opportunity to visit LIC in those days. So, when the fire broke out in July 1975 which destroyed a few levels of the building, the incident saddened everyone in the state and also made the city planners think about fool-proof fire safety methods for high-rises, says Muralidharan, a retired government teacher from Royapuram.

The CMDA building in Egmore was the second skyscraper in Chennai built in 1972. “Multi-storey buildings for residential purposes were not preferred due to non existence of demand and no private developer wanted to do a project on such a large scale. Also, buildings with sustainable features were not known to many. We built the first multi-storey ‘intelligent’ (green) building of South East Asia in Chennai at Egmore for Madras Metropolitan Development Authority (MMDA) now known as CMDA. With 12 floors, the building was made sustainability in mind. This was followed by several such buildings across the country,” says Dr Kumar, who was the Planner In-Charge of the building.

Future scenario

For Chennai, urbanization is now at its zenith, growing in all sides. Thanks to the industrialization which made the southern metropolis a major hub for automobile, IT and ITeS, Education, Engineering and allied industry and Manufacturing and Service sectors, housing needs have gone up manifold. The realty in city has no option but to grow vertically, providing homes in multi-storey and community environment. Homes are getting smaller to make affordable. “However, over the years development did not go hand-in-hand with the quality of life,” says Nandakumar, who is also the Managing Director of DevinarayanHousing and Property Developers.

The IT boom has brought in a lot of changes in terms of real estate development along OMR, ECR and GST Roads in 90s and early 2000. The rise in housing demand has produced realty hotspots along these corridors and new places were added frequently along west and north Chennai. But still, experts believe that the city planners need to do a lot of groundwork to make the city self-sustainable.

“We need to improve the basic infrastructure in Chennai to make it a developed city.  Bad roads, inadequate drainage and drinking water facility, faulty drains, frequent power outages, non-dependable public and private transport systems are some of the deterrents we need to address to make the city progressive,” Nandakumar adds.

“Chennai’s demographic picture is changing quite rapidly with multi-cultural and community living becoming the accepted norms for home seekers. The ambitious Chennai Metro Rail and Mono Rail projects will take Chennai to a new level of development in the coming years. The MRTS will bring far off places, which are now on the outskirts of the city, within the reach of Chennai’s CBD. We will see rapid reality development along the corridors of the metro and mono rail routes and this will increase the housing stocks,” adds Sanjay.

Celebrity speaks

S Ve Shekher, Actor and Playwright

“Growth without infrastructure is what I see Chennai from 60s to today. People don’t have space to park their vehicles. Roads which were once turning as ‘U’ bends have became ‘V’ bends now, thanks to encroachments. The classic example is Santhome to Thiruvanmiyur road. Subsequent governments did not bother to address this issue and the ultimate sufferers are the road users. Roads are the same today as it was a few decades back. Though we have more bridges, flyovers and subways, they failed to address the traffic congestion. Over the years, buildings have replaced the greenery and people have to fight for their basic needs.”

REITs bring new hope for realty sector

K Ramanathan

Is it a new dawn for the real estate sector in India? The struggling construction industry and its offshoot realty sector have got a new reprieve recently when the country’s top market regulator Securities and Exchange Board of India (SEBI), ending a seven-year-long hiatus, approved the rules and regulations to be followed for RealEstate Investment Trusts (REITs). Infrastructure Investment Trusts were also included by SEBI.

Once the REITs become a reality, investors can buy small virtual units of the commercial establishments and part their profits. Though approval has been granted to only for commercial real estate, where the income generation is likely to be more, real estate experts and builders suggest that such option should be available for residential side too.

With over 300 million sq ft of prime commercial space being available across India, the real estate sector would look for a whooping $6-7 billon inflow of funds in the next two to three years, feel realty pundits.

If all goes well with REITs, India will have more commercial complexes and malls across the nation, with tier II and tier III cities too vying for spaces to have their own multi-storey commercial complexes or multiplexes.

Will REITs really make a paradigm shift in the otherwise lackluster real estate market in India? What are the benefits and precautions to be followed to safeguard medium to small investors and also the taxation policy? We asked a few real estate experts and leading builders their opinion on the viability of such trusts in India.

What are REITs?

Realestate investment trusts (REITs) allow individuals to invest in income-generating real estate assets. These may include shopping malls, office buildings, multiplexes, mixed-use developments, self-storage facilities, hotels, resorts and warehouses. Unlike other real estate companies, REITs do not develop real estate properties to resell them. Instead, REITs buy and develop properties primarily to operate them as part of its own investment portfolio.

So, how does it work?  REITs provide a way for individual investors to earn a share of the income produced through commercial real estate ownership – without actually having to go out and buy a property. For example, if one wants to construct a mega commercial complex or mall, he or she can float a trust on its name and get it listed on leading stock exchanges subject to fulfillment of certain pre-requisite conditions laid down by SEBI and finance ministry.

If the cost of construction comes to about Rs 2000 crores, then the REIT would, through Initial Public Offer (IPO) call for investors to invest in the project with each one of them being offered minimum of one unit whose basic cost would be decided by SEBI. Once the construction of commercial complex is completed and let out to tenants or occupants, the income generated will be shared among shareholders by way of dividends.  The rule states that REITs should distribute not less than 90 per cent of their net distributable cash flows to investors at least once in every six months to benefit the tax pass through.

For making an IPO, the value of assets owned or proposed to be owned by REITs should be worth at least Rs 500 crore. The minimum issue size for the initial offer has been fixed at Rs 250 crore. The minimum subscription size for the units of REITs will be Rs 2 lakh.

A welcome trend

Anuj Puri

Commenting on the approval of rules by SEBI for REITs in India, Anuj Puri, Chairman and Country Head, JLL India, said, “With the stamp of approval, REITs are finally a formalized concept in India. This is a big change from the uncertainty and ambiguity that prevailed about this very important instrument for the last few years. It is gratifying to note that SEBI fully intends to deliver on its assurances of bringing better and faster funding into Indian real estate.”

Pressing for more clarity on taxation eligibility norms before the first listing, he said this would increase the interest of foreign investors.

Currently, Grade A office space across major Indian cities amounts to about 376 million square feet, and approximately 50% of this space would likely to get listed in the next 2–3 years. The valuation of these assets is around $10-12 billion, and this accounts for a fairly massive influx of funding waiting in the wings to hit the Indian real estate market via REITs, says Puri.

Industry experts welcomed the rules formulated by SEBI, saying that realty and infrastructure trusts will provide a new source of funding for investors and developers in infrastructure projects.

Calling it as a good step that will bring in organised funding and transparency to the sector, T Chitty Babu, Executive Committee Member, CREDAI and Chairman & CEO of Akshaya Pvt Ltd, however, 

wants the current proposal to have REITs for commercial sector should be extended to the residential sector too. “But the point is that we had to make a beginning somewhere and this is a good way to set the ball rolling. As with every new initiative, this will also go through the learning curve to refine the policy, regulation and implementation processes as we go along.”

T Chitty Babu

“To the developer it means that he can plan large integrated, commercially viable projects that can attract quality funds. Though in the initial phase we expect only a few large developers to launch REIT’s, three years down the line, more quality assets will be created. Also, the government’s commitment to boost manufacturing sector and also to create100 smart cities will make REITs playing a big role to achieve these target,” Chitty Babu said.

The Associated Chamber of Commerce and Industry of India (ASSOCHAM) too welcomed the introduction of Real Estate Investment Trust (REIT's) which would eliminate the double taxation of built assets with an established rental yield.

“REITs have the potential to attract $15bn to $20bn to finance established assets, which will free up capital for new developments”, said D S Rawat, Secretary General ASSOCHAM, adding, “REITs are important sources of funding across world and there is potential of raising about US$15 billion through this”.

He also emphasized the importance of having clarity over taxation such as stamp duty, VAT etc before the first listing. Suggesting that the ratio of completed property and under construction needs to be modified from 90:10 to 70:30, he said if any project which is about to complete within a year of floating REITs and income generation starts within 12 months should be included.

Under the rules, at least 80% of the value of REIT's assets must be in properties that are completed and generating revenue. A REIT can invest only 10% of the value of its assets in properties that are under construction. It can also invest a small portion in other securities like mortgage-backed securities and money market funds.

Benefits and risks of REITs

Though they are new to Indian investors, REITs are prevalent in USA since 1960, and now successfully functioning in about 20 countries including Australia, UK, France, Singapore, Japan, to name a few.

D S Rawat

It has its own advantages and disadvantages. Apart from providing investment portfolio and offering high dividend compared to other investment options, there are some risks, especially with non-exchange traded REITs.

Though SEBI has set the guidelines on how REIT should be regulated, it is too early to predict its success. As we go along, there will be clarity on many issues like taxation, property valuation, listing price, etc. We need to go through the learning curve, and since RIET is being allowed in commercial sector and that too only for large sized assets, we will see an initial spurt and with that the policy and regulation will get refined and fine-tuned. One can expect the flow of funds at around $10 billion every year for commercial space. Considering the fact that this is only from commercial space, one can understand the potential of REITs when it is introduced to residential and retail sectors, says Chitty Babu.  

Also, most REITs will focus on particular types of commercial development, such as apartments or office buildings. This concentration leaves them vulnerable to a downturn in this particular section of real estate.  Investors should also examine where the REITs projects are located. A high concentration of development in one community or geographic region may leave it vulnerable to a downturn or saturation in that area’s economy.   

Realty experts suggest that one should invest in more than one REIT (from different geographic locations) and choose absolutely different real estate sectors.

Hoping that RIETs will be more of custodians and value creators for investors, ChittyBabu said, “Realty did have any investment option to small retail investors with surplus funds. They had an option to buy residential property for investment purposes and sell it once their capital investments go up to certain percentage. REIT will be able to channelise all these retail investors who were avoiding the realty sector due to lack of a regulatory norms and clarity. One can invest in REIT with as minimum as Rs 2 lakh. The model works well for investors who will earn from long term lease/rentals and as aggregators of quality realty stock, REIT holders will be able to offer better returns as they won’t have tax binding on them if they give out 90 per cent of the earnings as dividends to investors.”

Air India to be the first REIT

In a move that could give the company significant tax breaks and also improve its finances, ailing state-owned airliner Air India is planning to convert its non-core real estate assets into a Real Estate Investment Trust (REIT) and list it on the stock exchanges. Air India has about 800 properties at prime locations across the world, which include several acres of land, office buildings, sports stadiums and residential colonies. Its Mumbai headquarters on the high street of Marine Drive alone is estimated to be worth about Rs.2,250 crore. “If it works out, we will hold 51% in the REIT; the properties will remain ours but be leased out at the best prices,” an Air India executive, who did not want to be named, said.

Budget 2014: Realty experts speak

Dr R Kumar

Dr R Kumar, Chairman, CREDAI-Chennai and Managing Director of Navin Housing and Properties.

The NDA Government , under the give circumstances, has done a good job in the budget. Though it lacks the punch and big ticket reforms as expected by all of us, it has never the less attempts to address issues of concern. The budget covers a wide range of issues, including infrastructure, creation of smart cities, relaxation of FDI norms for housing projects facilitating increased flow of such funds. It also allows Banks to more freely raise and issue funds for infrastructure projects with out being crippled with ratios.  

Another thrust area is to recognise small and medium enterprises as important part of the national economy and setting up of a committee to make recommendations in this regard.

It gives fillip to REITS and creation of Infrastructure investment Trusts by allowing pass through.

The proposals for dis-investment in government. sector undertakings is also expected to yield substantial money supply into the system.

Bank accounts for all, Kisan Vikas Patra and SME related initiatives can also be expected to improve money supply. 

The budget has increase the IT exemption limit by Rs. 50,000, the 80c benefits by Rs 50,000, and the interest waiver on Housing loans by Rs. 50,000. The combined effect can be used by homebuyers effectively. They can double the benefit by buying the property in the joint name of husband and wife.

There are many areas the FM has tried to address. However, its success will depend upon how effectively these measures are implemented in the spirit of the budget!

N Nandakumar, President, CREDAI-Tamil Nadu and managing director Devinarayan Housing:  

N Nandakumar

FDI

Reduction on the threshold for FDI in real estate from 50000 sq.m to 20000 sq.m will encourage medium sized projects and developers to raise money through the FDI route.

Reduction on minimum capitalization from USD 10 mn to USD 5 mn is also an added encouragement.

Post completion lock in period of 3 years could be a dampner as the investors have to wait for three years post completion for repatriation of their investments.

Affordable Housing:

Projects having atleast 30% of their scheme as affordable housing are exempt from norms 1 & 2 above ,will help small and medium size developers to access funds through the FDI route.The only rider being the 3 years post completion lock in period.

Industry status expected has not been announced – this is a disappointment.

Single window clearance expected has not been announced- lead time for project approval in this category will continue to be on par with regular projects- Stock creation will get delayed proportionately.

REIT:

This is a welcome move as liquidity in real estate will improve while ensuring lower cost of funds.

Funding:

Industry was expecting access to ECB for all types of projects as against present permissibility only for 

Affordable housing projects-Not come in- Disappointment.

Service tax:

Removal of service tax for housing under construction to benefit individuals not considered.

Environmental Impact assessment:

Industry had represented for EIA clearance at a Master Plan level-No response on this.

Anuj Puri

Anuj Puri, Chairman & Country Head, JLL India

The Union Budget 2014-15 was presented in the parliament under economic circumstances that required tax revenues to keep pace with targets. Considering the state of government finances and the current situation – below-normal monsoons, Middle East tension leading oil price volatility, the weakness of the India rupee etc., there was not much room for populism.

However, considering the high inflation and curtailed savings that they have had to contend with for some years now, taxpayers still expected a fair shake from the new government, such as enhanced deductions, reduction in tax rates, interest subvention on home loans and tax incentives to affordable housing.

The Finance Minister took a cautious, yet courageous path with his budget announcement:

•  Housing

In terms of relief to the housing sector, the budget has allocated Rs. 4000 crore for low-cost housing schemes. Apart from this, he has also indicated that there will soon be a relaxation of FDI norms for the affordable housing sector. Though the government has announced such incentives for low-cost housing in the past, the real task lies in the fast execution of the fast execution of these initiatives. It is very positive that the government has taken due note of the demand-supply mismatch in the LIG and EWS housing segments, and it remains to be seen how fast these initiatives hit the ground in real time.

Significantly, the budget has increased the income tax deduction limits under 80C, of which the repayment of principal on housing loans is a component. This limit has been raised from Rs. 1 lakh to Rs. 1.5 lakh. Additionally, the budget has also increased the deduction limit on interest payment for housing loans from Rs. 1.5 lakh to Rs. 2 lakh. These two factors alone will lead to a vastly improved sentiment on the housing markets.

The budget gave further indirect benefits for the residential sector by increasing the individual income tax exemption limit from Rs. 2 lakh to Rs. 2.5 lakh. This will increase disposable income of individuals and would have further implications on their ability to service home loans.

•  Construction Sector

Construction costs have been rising at the rate of 17% over the last three to four years, and this budget has not provided enough measures to bring down these costs. Contrary to expectations, material costs involved in real estate construction will remain high over the near-to-medium term, which is bound to put pressure on developers’ margins.

•  Infrastructure

The infrastructure and manufacturing sectors have been given paramount importance in this budget, since these are job creating verticals. Banks will now be encouraged to extend long-term loans for infrastructure projects without any regulatory pre-emptions such as CRR, SLR and priority sector lending norms. This additional enforcement of banks to support the creation of infrastructure will result in faster infrastructure creation and the consequent benefits to the real estate sector.

The budget has allocated a total of Rs. 37880 crore towards the NHAI for the construction of highways, and additional Rs. 3000 crore to boost road connectivity in the North-East regions. For the current year, it has targeted the completion of 8500 kilometres of national highways, which are a known real estate catalyst and will have long-reaching implications on the markets of the cities they connect.

Ahmedabad and Lucknow have been singled out as special beneficiaries of this budget with the allocation of Rs. 100 crore towards the deployment of Metro rail systems in these cities. The increased connectivity will raise the scope of real estate development there and also have an impact of property valuations over the mid to long term.

The development of 16 new ports has been proposed at an outlay of Rs. 11,000 crore. Additionally, an allocation of Rs. 11,600 crore has been made for the development of outer harbour port projects. The combined effect of these provisions will be that there will be an increase in demand for commercial office space from the manufacturing sector in India’s major port cities.

•  Smart Cities

As promised in the new government’s manifesto, it has proposed the creation of 100 smart cities across India. The budget has allocated Rs. 7060 crore towards this end, thereby giving a financial sign-off for this concept. This will have very positive implications for real estate across all segments, namely residential commercial, retail and hospitality. Smart cities, by definition, imply considerable demand for technology-enabled services, and this is a big positive for IT/ITeS companies in India. Significantly, as much as one-third of the country’s demand for office space emanates from this sector.

•  Retail

The country’s warehousing sector has received a boost with an allocation of Rs. 5000 crores. In this, we see positive implications for the retail real estate sector on account of a strengthened supply chain, which has been a serious requirement of this sector for a very long time. Apart from this, the budget has not provided any further benefits to the retail sector, which is a disappointment.

•  Hospitality

The budget also brought cheer to the hospitality sector in two major ways. One, it has stipulated that electronic visa services will be introduced in nine international airports in India over the next six months. This will increase the magnitude of tourist arrivals in the country. Secondly, it has indicated that major provisions will be made for the creation of world-class convention centres to be developed through the PPP model. Once these centres are created, they will bring about an increase in corporate tourism into the country. Ailing hotel chains are looking at a significant revival in their fortunes, and we expect that the absorption of hotel-related real estate will rise in the bargain.

All In All…

The real estate sector’s expectations have definitely not been met completely in this budget. However, given the economic situation prevailing in the country, this is not really surprising as the government needs to balance myriad issues while addressing growth. We are satisfied at the real estate sector is once again headed in the right direction.

​Kishor Pate, CMD - Amit Enterprises Housing Ltd.: 

The reduction of personal income tax ceiling and the raising of home loan interest deduction will definitely increase demand for homes in cities like Pune. True to his promises, the Finance Minister has made singificant allocations towards infrastructure projects in the country. The allocation of Rs. 37,850 crore into the National Highway Authority of India will result in vastly improved road networks, which will in turn result in new vibrancy in the real estate sector. The National Housing Bank has received an allocation of Rs. 8000 crore for this program, which will have. I am especially enthusiastic about the Rs. 7060 crore allocation towards the government's program for creating 100 smart city projects.

Arvind Jain, Managing Director - Pride Group:

It is a satisfactory budget with good implications for real estate. Significantly, the budget has included slum rehabilitation under the ambit of corporate social responsibility. We will now see greater involvement by India Inc in this very important sector and give a boost to supply in the inner parts of our major cities. The FM has given much-needed relief to individual tax payers by raising the income tax exemption limit by 50,000 and has also raised the limit of the interest part of home loans from Rs. 1.5 lakh to Rs. 2 lakh. The combined effect will definitely be renewed interest in home purchase by Indians.

 

Sachin Agarwal, CMD - Maple Shelters:

The budget has reduced  the FDI norms for minimum built-up area for affordable housing. Additionally, Rs. 4000 crore have been allocated towards the creation of low-cost housing. This is extremely promising for the affordable housing sector and we will see an increase in housing development for the under-privileged in the peripheral areas of cities like Pune. The relief provided on individual income tax and interest on housing loans is very significant for the bduegt homes sector, since these measures have greatest pertinence to the more financially sensitive home buyers. I am happy with this budget, in which the Financial Minister has shown great foresight and set the path for economic revival.

Realtors give a thumps up to budget

K Ramanathan

Chennai: Realtors have given a thumps up to the Union Budget, saying the proposals made by the Finance Minister on Real Estate Investment Trusts, hiking income tax limits and reduction on the threshold for FDI in real estate will come a long way in enhancing the sagging realty sector in Tamil Nadu.

Ajit Chordia

While welcoming the budget as proactive as far as real estate sector is concerned, Ajit Chordia President of CREDAI-Chennai, said, “Amendment to IT Act to provide Real estate Investment Trusts (REITs) a pass-through status will be an advantage to commercial real estate. A number of larger IT parks and office complexes will be available for retail investors to participate and dependence on bank borrowings will come down drastically. Also, reduction on the threshold for FDI in real estate from 50000 sqm to 20000 sqm will encourage medium sized projects and developers to raise money through the FDI route. The reduction on minimum capitalization from USD 10 mn to USD 5 mn is also an added encouragement.”

Anuj Puri

Observing that the Finance Minister has taken a cautious, yet courageous path with his budget announcement, Anuj Puri, Chairman & Country Head, JLL India, a leading real estate research firm however, said, “Considering the high inflation and curtailed savings that they have had to contend with for some years now, taxpayers still expected a fair stake from the new government, such as enhanced deductions, reduction in tax rates, interest subvention on home loans and tax incentives to affordable housing.”

Puri however, stated that the real estate sector’s expectations have definitely not been met completely in this budget. “However, given the economic situation prevailing in the country, this is not really surprising as the government needs to balance myriad issues while addressing growth.”

Expressed his disappointment for not according ‘industry status’ to real estate sector, N Nandakumar, President of CREDAI-Tamil Nadu chapter, said, “We expected the government to announce industry status to the sector, which is a huge disappointment. Also, no decision has been taken on single window clearance system. Time delay in getting project approvals will continue to haunt developers and stock creation will get delayed proportionately.”

N Nandakumar

Welcoming the decision taken on REITs, Nandakumar further said, ‘This is a welcome move as liquidity in real estate will improve while ensuring lower cost of funds.’

On affordable housing, the CREDAI state head said, “Industry was expecting access to ECB for all types of projects as against present permissibility only for affordable housing projects. The government should consider it for the benefit of the sector.”

He also expressed dismay over non-removal of service tax for housing under construction, which will benefit individuals and also helps to bring down the housing prices.

Cement price hike: Builders to stop construction works in Tamil Nadu

Realtors and home buyers in Tamil Nadu are on tenterhooks, thanks to the unprecedented hike in cement and other construction material prices, as several builders have either stopped work or have slowed down putting buyers in a quandary.

Ajit Chordia

Jumping into the bandwagon to register their protest, the Confederation of Real Estate Developers’ Association of India (CREDAI)’s Chennai chapter while expressing its strong resentment over sudden cement price hike, has threatened to discontinue construction activities indefinitely from July 7 and also stop procuring cement from south India if the government does not reign in on the rising cement prices.

“The steep hike will result in an increase of around Rs 45 per sq ft for property buyers without considering other costs. We cannot pass this extra burden to home buyers,” said Ajit Chordia, president of CREDAI-Chennai. Already in doldrums, the price increase will further affect the construction activity in and around Chennai and its suburbs.

“Almost 95 per cent of the public and private projects across south India and especially in Tamil Nadu are at risk,” said Suresh Krishn, vice president of Credai-Chennai.

Advocating to have a regulatory authority for cement industry for controlling prices, Sarita Hunt, MD of Jones Lang LaSalle (Chennai and Coimbatore), a leading real estate research firm, said, ‘The steep hike of cement price will increase the construction cost, which will in turn affect the growth of the already sagging realty sector.”

Sarita Hunt

According to Builders’ Association of India (BAI), prices have gone up by as much as 125 per cent for certain key construction material. The construction industry has claimed that the increase in the prices of key materials like blue metal by 125 per cent, hot mix by 75 per cent and cement by 50 per cent have brought work on several projects in the state and Chennai in particular to a grinding halt.

According to an estimate, projects worth around Rs 10,000 crore, including public and private, are being executed in Chennai.

While the cement prices went up by 12 per cent last year, this year it shot up by about 50 per cent. A high-grade cement bag that was available for Rs 250 about a month ago is now being sold at Rs 350-375 per 50 kg bag.

It is not just cement prices alone that realtors are worried about says Vivek Chandra of Srinidhi Builders. “Not only cement, prices of sand and steel have gone up. We are planning to go slow and the projects’ deadlines are sure to be breached. We have informed our clients about the impending delay in getting their keys due to unavoidable circumstances.”

Government projects in Chennai, including the metro rail, would be affected once the strike begins, say builders. Urging the Centre to establish a regulatory mechanism for cement prices and provide concessions on import duty, Chordia wants the government to allow construction firms to import cement from neighbouring countries.

However, manufactures claim that the hike in cement prices is due to the increase in cost of raw materials, and the recent power cuts has added up to it. Hope the prices of construction material stablise at the earliest for the benefit of home buyers.