What REITs Mean For Indian Real Estate

The real estate sector in India has been lucrative for savvy investors over the last decade, but it has not been without accompanying uncertainties. The introduction of REITs  (Real Estate Investment Trusts) will open up a platform that will allow all kinds of investors – even those with smaller budgets - to make safe and rewarding investments into the Indian real estate market. 

Kishor Pate

The best thing about REIT is that investors can start with as small a sum as Rs. 2 lakh to secure units in exchange.

The REIT platform has already been approved by the Securities and Exchange Board of India (SEBI) and like mutual funds, it will pool the money from all investors across the country. The money collected from the REIT funds will subsequently be invested in commercial properties to generate income.

A REIT will need to be registered via an IPO or initial public offering. REIT units, as such, will have to get listed with exchanges and consequently traded as securities. The SEBI board has kept the minimum asset sizes to be invested in at Rs. 500 crore. However, the minimum issue size would have to be less than Rs. 250 crore. As with stocks, the investors here would be able to buy the units from either primary and/or the secondary markets.

How does a REIT work?

REIT is a process to generate funds from a lot of investors to directly invest in profitable real estate properties like offices, residential units, hotels, shopping centers, warehouses and more. All trusts with REIT will be listed with stock exchanges as they would be structured like trusts. Consequently, REIT assets will be held with independent trustees for unit holders / investors.

Role of the trustees

Trustees with REIT have defined duties which typically involve ensuring compliance and adherence to all applicable laws that protect the rights of the investors.

The objective of REITs

A REIT’s objective is to provide the investors with dividends that are generated from the capital gains accruing from the sale of the commercial assets. The trust distributes 90% of the income among its investors via dividends. Apart from minimum entry level, a REIT is supposed to provide diversified and safe investment opportunities with reduced risks, and under a professional management to ensure the maximum return on investments.

The advantages with REITs include:

·   Income dividends: 90% of distributable cash at least twice in a year

·   Transparency: REIT will showcase the full valuation on a yearly basis and will also update it on a half-yearly basis

·   Diversification: According to the guidelines, REITs will have to invest in a minimum of two projects with 60% asset value in a single project

·   Lower risk: At least 80% of the assets will have to be invested into revenue-generating and completed projects. The remaining 20% of the properties that include properties like under construction projects, equity shares of the listed properties, mortgage- based securities, equity shares that derive a minimum of 75% of income from Government securities or G-secs, money market instruments, cash equivalents and real estate activities.

The REIT concept has been in the news for some time now. However, the real estate regulations rolled out so far have not quite helped bring them to Ground Zero in India as yet. REITs’ exemption from tax on the distribution of dividends would make it much more attractive for investors. According to a recent report by Cushman & Wakefield, commercial properties in India that are ‘REITable’ investment opportunities are between $43 billion and $54 billion across the top cities.

Are REITs more attractive than actual property purchase?

Investing in REIT can be compared to investing in Gold Bonds. Indians are partial to buying physical gold rather than in Gold Bonds, implying that having one’s own investment in property will always provide Indians greater satisfaction than mere paper investments. The Indian property market is now almost stabilized and it is the right time to buy self-owned homes. While it is human tendency to wait and watch, the bottom of the market cannot be fathomed accurately at the best of times.

At the end of the day, REITs are investment instruments and not a means to acquire actual property – which is always high on every Indian’s wish-list. A budget that clearly favours purchase decisions for first- time home buyers and is a step closer to the Prime Minister’s mission to provide Housing for all by 2022 is in place. 2017 is certainly the year to make home ownership a reality.

By Kishor Pate, 

CMD,

Amit Enterprises Housing Ltd.

Union Budget 2016: Realtors Expect More But Happy To See Few Positives

When the Finance Minister presented his third budget speech in the Parliament, the housing sector was waiting with bated breath expecting the much-needed impetus to the sagging Indian real estate sector which has been in doldrums for the last few years.

Although there are no big-ticket announcements to cheer up developers and home buyers, realtors feel that Arun Jaitley has given some room for the sector to find its growth momentum when he made his point to promote agriculture, infrastructure and rural sectors while giving a push to affordable housing.  

Realtors and their associations though welcomed the budget proposals vis-à-vis real estate sector, they are cautious and refused to be overwhelmed.  Excerpts…

Budget Promotes Affordable Housing - Praveen Jain, President, NAREDCO

While referring the Budget as ‘growth-oriented,’ the National Real Estate Development Council (NAREDCO) has highlighted the impetus given to agriculture, rural sector development and infrastructure besides offering incentive to affordable housing by allowing 100 per cent deduction for profits from housing projects (upto 30 sq. mtr in metros and 60 sq. mtr in other cities). Praveen Jain, President, NAREDCO said, Rs 50,000 additional deduction of interest on home loan for first time home buyers, exemption of Service Tax on Construction of affordable houses and disallowing DDT for Real Estate Investment Trusts (REITs) are expected to stimulate the housing activity.

Rural Focus will Generate Domestic Demand: Dr. Mahesh Gupta, President PHDCCI

While applauding the Union Budget 2016-17 announcements, President, PHD Chamber, Dr. Mahesh Gupta said that the focus on rural India would go a long way to generate demand in the economy and give a push to overall growth and development of the country. 

He expressed happiness over the government’s proposal to increase the tax exemption limit on Home Loans interest for the first time home buyers for housing loans up to Rs. 35 lakh will give a boost to the real estate sector.

Dr. Gupta said, stimulus to real estate sector would provide a significant fillip to the economy and enhance India’s GDP.

Budget is Well-balanced to Face Adverse Global Pressure: Kapil Wadhawan, CMD, DHFL

This year’s union budget has been encouraging for the housing sector and the overall economy. The proposal to introduce 100% deduction to undertakings for construction of affordable housing will help us in realizing honorable PM’s “Housing for all by 2022” scheme.
                         
The proposal to introduce guidelines for renegotiation of PPP contracts and reform dispute redressal mechanism will encourage private participation in the development of affordable housing projects and road infrastructure.

Decision to exempt REITS from DDT is also a welcome move. This will ensure positive movement on real estate projects and will help in bringing the sector on a sustained growth path.

DHFL had recommended empowering the customer for greater affordability. In this context, the decision to give additional exemption of Rs 50,000 for housing loan upto Rs 35 lakh sanctioned in 2016-17 for 1^st time home buyer provided the cost of a house is not above Rs 50 lakh is praiseworthy and will definitely ensure that more Indians will fulfill their dream of owning a home.

DHFL welcomes government’s commitment to boost road infrastructure and address rural distress by skill development of rural population, allocating funds for MGNREGA scheme and providing support to agriculture. We are of the view that this year’s budget will enable the Indian economy to withstand adverse global pressure and move on the road to a more balanced, sustainable and inclusive growth. We will remain an attractive destination for investment over the medium and long term.
 

Below Expectations But With Some Positives, Anuj Puri, Chairman & Country Head, JLL India

To give him due credit, the Finance Minister has definitely made a concerted attempt to manage expectations with a balanced budget. While three of the real estate sector’s major expectations – increased HRA deduction, removal of DDT from REITs and boost to affordable housing by allowing 100% deduction on profits made by entities constructing them – have been addressed, the Budget offered no financial protection from project delays to home buyers.

Most first-time home buyers in the major metros will be left out of the additional Rs. 50,000 tax exemption announced today, as it is applicable only on houses worth up to Rs. 50 lakh with loans of up to Rs. 35 lakh for houses. This announcement will mostly benefit first-time home buyers in tier-III and tier-II cities. The infrastructure sector was a major beneficiary today.

The biggest announcement with implications for the real estate sector in India was removal of DDT from real estate investment trusts (REITs).

Budget Could have Done a Lot More for Real Estate Sector: Kishor Pate, CMD - Amit Enterprises Housing Ltd.

This Budget could have done a lot more for the real estate sector. However, there were some positives. The fact that the annual housing rent reduction limit has been increased from Rs. 24000 to Rs. 60000 could lead to an almost immediate uplift for rental housing across the major cities. This can also potentially encourage the sentiment for home ownership in the long run.

Also, first-time home buyers have been given the benefit of an additional deduction of Rs. 50000 on home loan interest for loans not exceeding Rs. 35 lakh, where the value of the house is no more than Rs. 50 lakh. This will result in improved home buying sentiment in smaller cities with lower housing costs, such as Pune. An improvement in sentiment will also be seen in the cheaper far suburbs of the metros.

However, this deduction is not sufficient to increase the sentiment much for first-time home buyers in the central parts of the metros like Mumbai, where housing prices are exceedingly high and such an exemption makes little to no difference in the burden on home buyers. 

The fact that the market indices took a nosedive immediately after the budget announcement more or less reflects the way sentiment in the housing sector has gone. However, if the RBI announces a cut in interest rates on the heels of the reduced fiscal deficit announced by the Finance Minister, it could be a day saver.

Not Enough to Infuse vibrancy in Realty Sector: Arvind Jain, Managing Director - Pride Group

Budget 2016-17 was far below expectations. Some leeway has been given to first-time home loan borrowers, but the relief will not boost demand in the metros. That said, service tax has been exempted for developers who are focused on constructing affordable housing with unit sizes not exceeding 30 square meters in the larger cities and 60 square meters in the smaller cities. This is a significant plus, and in line with the incumbent Government's intention to boost affordable housing.

Allocation to MNREGA and irrigation activities have been stepped up, so it is logical to expect rural income to rise from this year onward. This can positively affect rural consumption story and boost the growth of smaller towns. Encouragingly, Rs. 1500 crore has been allocated for the moderation of land records in the Digital India campaign, which will definitely have a positive impact on transparency in the real estate sector.

On the retail front, permitting seven days of operation for small and medium-sized shops in the unorganized retail segment will allow them to compete more effectively with malls. This will boost the demand for retail stores on high streets significantly.

The plans to revive inoperational civil airports in partnership with their States with a rather small allocation of Rs. 100-150 crore per airport can have positive implications for the real estate development in these cities. It will boost infrastructure, and airports are also know influencers of demand for all categories for real estate.

Budget Gives Grand focus on rural economy, infrastructure development: ASSOCHAM

Huge focus on rural economy with a commitment to double the farmers’ income by 2022, betting quite high on rail and road infrastructure and yet sticking to the financial discipline by retaining the fiscal deficit targets for 2016-17 are the most important takeaways from the Union Budget 2016-17, ASSOCHAM President Sunil Kanoria commented.

“A huge commitment of Rs 2.18 lakh crore on the rail and road infrastructure will not only kick start the economic growth but would also result in having a multiplier effect on India’s economy,” said Kanoria.

Government Clears Key Infrastructure Projects in UP, Haryana, Maha and Telangana

While all eyes on the expected budgetary sops for the struggling infrastructure and real estate sectors, there has been some positive news emanating from different parts of the country during the last couple of months, which can rejuvenate the construction industry as a whole from its current precarious state.

Navi Mumbai International Airport

The Ministry of Civil Aviation has recently cleared the proposal to build the much-delayed Rs 15,000-crore Navi Mumbai International airport. The government has given an in-principle go-ahead for financial bids or Request For Proposals (RPFs), which will be soon shared with the four bidders shortlisted for the project, according to official sources. The four bidders are GMR Group, GVK-led MIAL, Hiranandani Developers along with Zurich Airport and Mia Infrastructure with Tata Realty and Infrastructure.

The airport is expected to commence operations from October 2019, while the developer and operator will be required to pay an annual concession fee prior to that. The fee would range from Rs 5 crore in the first year to Rs 1,250 crore from the 40th year of operation.

The government is expected to earn Rs 17,000 crore during the sixty-year period, the net present value of which is likely to be nearly RS 2,045 crore. It is also clarified that the airport project will be awarded only for 30 years (and not 60 years), with extension periods of 10 and 20 years, while the ten-year extension period beyond the 30th year would be on the basis of the operational performance of the airport operator.

The winner of the Navi Mumbai Airport project will also get a Rs 3,000-crore interest-free loan from City and Industrial Development Corporation (CIDCO), to be repaid over a period of 10 years.

Sewri–Nhava Sheva Mumbai Trans Harbour Link gets the Centre’s nod

After being stalled for several months due to the lack of environmental clearances, the Sewri–Nhava Sheva Mumbai Trans Harbour Link received an in-principle approval from the Ministry of Environment and Forests (MoEF). To receive the final clearance, the Mumbai Metropolitan Region Development Authority (MMRDA) is required to prepare a fresh application for tribal rehabilitation in the forest area. The project is worth Rs 12,000 crore and the tendering process is expected to commence soon, while MMRDA is working out a formal loan agreement with the Japan International Cooperation Agency(JICA) for funding the project.

Deadline set for the Coastal Freeway

The Maharashtra government has set 2019 as the deadline for the completion of the Coastal Freeway from Nariman Point to Kandivali. The Central Government has released a notification amending the Coastal Regulation Zone norms, permitting the reclamation of land for the coastal road.

Telangana gets RS 41,000-cr road, highway projects

The Central Government has announced road projects worth RS 41,000 crore for Telangana; these include two express highways from Hyderabad to Bengaluru and Vijayawada. The government has also offered to provide further assistance in case a new national highway is proposed for the state.

NCRPB to assist nine transport infrastructure projects in Uttar Pradesh and Haryana

The National Capital Region Planning  Board (NCRPB) has announced support for seven transport infrastructure projects in Uttar Pradesh (UP) and  two in Haryana together costing Rs 7838 crore, which would help considerably in resolving traffic and pollution issues.  The NCRPB would extend a loan assistance of Rs 3,113 crore for these projects.

The UP projects include the construction of a 10.30-km, six-lane elevated road in Ghaziabad, expected to be completed by the end of 2016. This road would extend from UP Gate to Raj Nagar Extension, connecting NH-24 with NH-58, while also serving as a bypass on the Kosambi–Mohan Nagar–Vaishali section.

On completion, the travel time between UP Gate and Hindon bridge is likely to reduce to around 15 minutes from the current 50 minutes.

The UP projects also include the 29.70-km Noida–Greater Noida Metro Project, which is awaiting final approval from the Central Government.

Among the projects proposed in Haryana is the development of the 52.33-km Manesar–Palwal Expressway, connecting NH-8 with NH-2, which is expected to be completed in 12 months. The improvement of the 38.41-km Gurgaon–Pataudi–Rewari road on SH-26 and the development of a 5.80-km elevated road on NH-10 from Chhotu Ram Chowk to Old Bus Stand in Rohtak are the other upcoming projects in Haryana.

Maharashtra defers revision of ready reckoner tax rate to April 1

The Maharashtra government has decided to defer revising the ready reckoner rates to April 1 instead of January 1. This decision is aimed at aligning any changes in the rates with the government’s tax revenue targets for the financial year. Thus, homebuyers can avail themselves of the existing rates for three more months.

Government should give more assistance to real estate sector

As real estate sector provides substantial employment, capital generation and enables economic activities such as manufacturing, trading, services, etc., the sector should be considered for similar benefits as provided and recognized like other “infrastructure sectors” such as roads, dams, airports, etc. which will prove very beneficial to the Indian economy at large, according to a leading international real estate research firm.

Suggesting that the RBI and the Government should now recognize the contribution of the Indian real estate sector to the economy, Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, said on the eve of Union Budget 2013 that, “There is a strong rationale to protect and boost the housing sector, as according to a government estimate there is a current shortfall of 18.78 million units in urban India. Indian real estate needs to be provided with requisite Government and institutional support to ensure its long term and sustainable growth in a manner that is beneficial to all segments of society.”

Exphasising that the government needs to assist the real estate sector end-to-end through transparency at all stages and enabling performance through efficiencies, he said that the sector has been suffering because of land acquisition or conversion process, low Floor Space Index (FSI), expensive or no debt and ability to attract foreign or private capital,  no incentive to import and set up of smart construction technologies or pre-fab plants, slow development and almost impossible environment approval processes at Centre level. 

“The Government needs to reform itself before thinking of regulating the sector more. For the urban and rural poor, the income tax deduction under Section 80-IB should be re-introduced in the Parliament in order to generate interest of developers in Low Income Group (LIG) and affordable housing where demand exceeds supply substantially. Additionally, the budget should focus on extending interest subvention for affordable housing, which was 1% on housing loans of up to Rs. 15 lakhs. This will continue to have a positive impact on residential sales in small cities and towns and peripheral locations of major metros where the units are priced up to Rs. 25 lakhs,” he further stated.

Real estate sector likely to revive in 2013: Experts

MUMBAI: After a long lull, the year 2013 is expected to bring back hopes of growth to the real estate sector, mainly due to the government's positive approach towards reforms and moderation of interest rates, a media report quoting experts, said.

Land Acquisition and Real Estate Regulation Bills are expected to be passed during the year, while there is a likelihood of Reserve Bank bringing down the interest rates, ET said in a report.

"The passage of FDI in multi-brand retail by the government shows its seriousness on introducing reforms. RBI can be expected to lower interest rates in the coming months which will benefit developers as well as consumers. This will boost the sentiments," Knight Frank India chairman Pranab Datta said.

Residential prices, which have been increasing over the past few years are likely to witness subdued growth in most markets in a short to medium term till the pressures of unsold inventory are eased out, CBRE chairman and managing director Anshuman Magazine said.

Finance Minister P Chidambaram had recently asked the developers to sell their unsold inventory at a lower price.

"Besides, infrastructure initiatives such as Greater Noida metro rail network and proposed metro link in north-west Bangalore are likely to have a positive impact on the residential market of these cities," Magazine said.

FDI in multi-brand retail will also boost the demand for commercial real estate.

"Apart from the international brands, several domestic brands are also exploring opportunities to increase their foot prints across the country. This anticipated growth in demand is expected to bring some upward movement in retail rentals, particularly along established hubs," DTZ-India chief executive officer Anshul Jain said.

According to Jones Lang LaSalle, major cities like Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the addition of close to 9.5 million sqft of mall space in 2013.

Kovai developers seek divine’s help to end real estate impasse

COIMBATORE: More than 1000 members of the real estate sector, including key promoters, have sought divine intervention to bail them out of the crisis they were in, caused by decreasing demand and prices. They thronged the famous Vella Muneeswaran temple at Kavundampalayam on the outskirts of the city and attempted to appease the presiding deity, offering her 130 kg of chicken meat, 100 kg of goat meat and 1200 eggs.

The present economic slowdown has drastically affected the real estate sector and most companies are struggling to find buyers even for luxury villas. The gathering offered special prayers to facilitate another real estate boom in the city. The ancient temple is famous for 'Kadavettu,' a practice of sacrificing goats to press for divine intervention in a crisis. A total of Rs 3 lakh was spent on the ritual and feast for devotees.

Considered to be a form of Siva, Vella Muneeswaran is known to fulfill the wishes of devotees. "We firmly believe that our prayers would help us improve business prospects. Humans are limited in their capabilities so we seek God's help," M Mohan Raj, a real estate promoter and one of the organisers of the ritual told Times News Network.

"This is the second time that such a ‘pooja’ has been conducted. Last year, when we were in a similar situation, our prayers helped us revive our business. The response has been massive this year due to the severe business losses many of us are suffering," Mohan added. On invitation, developers, builders and mediators from Edayarpalayam, Vadavalli, Thudiyalur, Vellandipalayam, Venketapuram, TVS Nagar and Kavundampalayam attended the pooja which began on Wednesday morning and ended by noon, a Times of India report said.

The real estate business is going from bad to worse. More than 100 projects in Edayarpalayam and Kavundampalayam areas remain static, said Kallimuthu, a builder from Edayarpalayam. "Increase in guideline value along with the government's tough stand in regulating the sector has also contributed to the crisis created by the economic slowdown,'' he said. "I was able to sell 70 houses last year. This year, selling even 10 houses has become a Herculean task," he said. The increase in prices of raw material and labour charges have jacked up the overall cost, he added.

Middle-class families have been affected the most, said S S Shivakumar, a property dealer. Property prices have increased by 100 per cent compared to last year. We are planning to take up the issue with Coimbatore collector," he said.

R Krishnaswamy, chairman, Builders Association of India, Coimbatore chapter, said that most buyers invest in land for resale. Consequently, they are finding it difficult to provide houses at affordable cost. In addition, people prefer to buy land in the suburbs rather than the city. This has also slowed down the business, he added.