Investors drive Pune Real Estate market in 2012

Despite the government-imposed VAT issue and RBI unrelenting on interest rate, Pune real estate market has witnessed upheaval of prices between 7-9% in most areas in 2012, which is more than many other cities across the country, according to Kishor Pate, CMD – Amit Enterprises Housing Ltd.

In 2012, Pune’s property market performed well despite all odds, but what really pulled the sector through was the growing number of investors who represented 40% of residential sale, he says. 

One of the dampeners was the issue of VAT (Value Added Tax), which the Maharashtra Government made mandatory for all properties bought between June 2006 and March 2010, says Kishor Pate, who also represents CREDAI Maharashtra. 

He further adds, “Over 1.5 lakh flat owners in Pune were affected, and there was a visible cooling of relations between them and the builders. Another issue was the fact that the RBI did not reduce home loan rates – a move which was expected and much required.”

On the up side, the state government removed the NOC system. This system required residential buyers to obtain a no-objection certificate from the project’s developer before registering a sale deed was possible. This was a very unpopular but long-standing system which involved the payment of Rs. 25000 or upward, depending on where the project was located. This cost was usually shared by the buyer and the seller, and the removal of this system has direct cost-saving implications which the market welcomed whole-heartedly.

Another positive factor was the Government’s formal notification to the fact that 28 more villages would be included under the Pune Municipal limits. While such locations are under Gram Panchayat jurisdiction, they tend to be at a disadvantage in terms of reliable water supply, electricity and public transport. The lack of full-fledged support from the Municipal Corporation for these facilities compromised the healthy growth of the real estate market in these areas. The property market in these areas is now going to improve, and there was a definite increase in interest in these areas when the government notification was issued.

As already mentioned, there were ups and downs in 2012 – but throughout, Pune’s property market proved to be very resilient. Even as sales in neighbouring Mumbai plummeted, those in Pune continued to be healthy. During the festive season, no other city in Maharashtra showed as many new residential sales that Pune did.

Demand from NRIs

The demand from the NRI community was considerable in 2012. This could be gauged by the number of inquiries that came from Indians living abroad which were followed up by local relatives or representatives. During the festive period, many NRIs visited Pune personally to close the deals.

These were all positive factors, but what really pulled Pune’s property sector through was the growing number of investors on the market. In 2012, our analysis of the market showed that only about 40% of all apartments in Pune are currently being bought and used by actual end users – flat owners who are personally using their properties for occupation.

35-40% of the remaining flats are held by investors for renting out to the growing transient working population in and around the city’s IT hubs. The remaining 15-20% of the flats are standing empty. These are either bought by NRIs who intend to move back to Pune in the near future, or are being held by speculators looking for a profitable resale.

As a result of the high investor interest, areas that provide ready access to the city’s main IT hubs – such as Baner, Wakad, Undri, Wagholi and Kharadi – showed the highest demand and therefore property rate appreciation. The projects launched in these areas spanned the entire spectrum of residnetial configurations, from budget homes to luxury apartments. While the premium category was largely patronized by NRIs and end users from the higher management business segment, investors from within and outside Pune made a beeline for the budget and middle income housing segment.

Based on the activity levels of 2012, there is every reason to believe that 2013 will be a positive year for Pune real estate. When comparing the Pune market with Mumbai, the advantages of relocating to or investing in property in this city continue to be very evident.

We expect the demand for premium homes to slow down to some extend until the middle of 2013. However, as long as developers continue to accept and factor in the pricing limitations of this unique market, affordable and middle class homes will keep generating healthy demand throughout the year.

CREDAI asks builders to cut housing prices to clear inventory

Good news for those who were longing to buy a house but remain clueless due to skyrocketing of housing prices, as leading realtors' body Confederation of Real Estate Developers' Association of India (CREDAI) has asked its members to consider selling off maximum inventories by reducing prices.

"The developer community is willing to consider the suggestions made by the Finance Minister P Chidambaram to unlock the value of the unsold stock. We have asked our members across the country to seriously consider the proposal to sell (the unsold stock) in maximum numbers," Credai national president Lalit Kumar Jain said in a statement. 

The governing council of Credai had met at Kochi over the weekend where it was decided to consider the suggestion to sell maximum number of housing units by reducing the prices to the extent possible, it said.

Earlier, the developers' apex body had refused to offload the inventories at discounted rates saying that realtors would not be able to reduce the prices as they have invested heavily in the projects. 

Meanwhile, Credai has also appealed to the finance ministry to look into the suggestions made by it to revive the real estate industry to rejuvenate the economy slow down, Jain said. 

"We are happy at the positive manner in which the ministry has mooted proposals to help the developer community. 

We are confident that it will also positively respond to the various constructing suggestions made by us," he said. 

Credai has made certain suggestions including single window system of clearances to speed up the process, asking banks to reduce rates of interest for projects and buyers as well and create a congenial atmosphere to encourage affordable and mass housing, the release said. 

Besides, the realtors' body has also suggested declaring housing sector as infrastructure or industry, provide certain tax exemptions, setting up of a comprehensive realty regulator and to provide special incentives for skill development, among others.

ASSOCHAM’s slew of pre-budget recommendations to revive economy

Increase deduction of interest limit on housing loan to  five lakh (from existing Rs 1.5 lakh) to revive consumer demand and boost investment, raise personal income tax exemption limit to Rs 3 lakh and reduce service tax  and excise tax to eight per cent from 12 per cent, ASSOCHAM said in its pre-Budget recommendations to the government. 

The effective rate of corporate tax should also be brought down to 25 per cent from 32.45 per cent at present, the top industry body said.

At present, the limit of deduction of interest on housing loan is Rs 1.50 lakh per annum.  This should be increased to Rs 5 lakh to boost the housing sector as also give relief to middle class families. 

Moreover, to encourage investments in infrastructure during the 12thplan period, the deduction under 801A (4) “profit linked incentives in form of 100% deduction of income in SEZ development” must be continued, reveals the ASSOCHAM pre-Budget memorandum for 2013-14.

“The base exemption limit of resident individual below the age of 60 years should be increased to Rs 3 lakh, to incentivize people to come into the tax net, ensure higher collection from greater compliance and encourage consumption and savings,” the memorandum said.
  The Pre-Budget memorandum for 2013-14 was jointly released by the President R N Dhoot, Chairman & Co-Chairman of taxes council Ved Jain and J K Mittal respectively and Secretary General ASSOCHAM D S Rawat.

The excise duty and service tax rates were increased in the last two Union Budgets from 8 per cent to 12 per cent. Meanwhile the industrial growth has significantly fallen and due to low capital investment and high inflation, the demand for indigenous goods and services has been affected adversely.

“It is therefore, recommended that the excise duty and service tax rates should be restored to the earlier level of eight per cent prevailing two years ago,” the memorandum said.

Dhoot said it was essential to revise the rate of depreciation on plant and machinery back to 25% from the existing level of 15% in view of the technologies.

It said the tax base for goods and services has already expanded to generate high revenue and the government can selectively increase customs duty rates to neutralize the effect of lower tax rate of excise duty and service tax.  Besides, by increasing customs rates, the government should protect the domestic industry from unfair competition from countries like China. There are cases where goods are being sold in the global market below production cost in highly competitive markets abroad.

Moreover, with a view to have a level playing field and removal of such levies in the proposed Direct Tax Code (DTC), the additional levy of tax by way of surcharge and education cesses should be removed on corporate assesses and similarly education cess on non-corporate assesses. The surcharges, including the education cess were levied as a temporary measure.  

Further justifying the demand for tax reduction rates, at a time when the global economy is passing through tough times, “the Indian industry is facing competitive disadvantages due to complex multi-layered indirect tax structure having cascading effect on cost, high compliance cost and prolonged tax litigation,” it said.

Another significant recommendation in the pre-budget memorandum submitted to the Finance Minister P Chidambaram relates to tax re-assessment in a blanket manner under Section 147/148 of the Income Tax Act on matters already examined.

“In recent times, tax reopening notices under Sections 147/148 have become a very common occurrence and such notices are being served in thousands across the country. Simple audit observations, even on points of law are frequently being used as grounds for re-opening leading to extreme harassment of all assesses. The position has become so bad that even for legislations which have become obsolete, like Inter Tax Act, reopening are being done for very old years since the relevant law permitted reopening without any time limit.”

It said the reopening provisions are being misused in various locations, especially for salaried assesses, where scrutiny assessment is not possible as per the CBDT guidelines.” This has become a breeding ground for corruption and harassment”, the document said.

Overview of Indian real estate in 2012

The year 2012 has remained sluggish in terms of economic growth, largely due to high interest rates and poor industrial production. Indeed, the index of industrial production rose by just 0.4% in April-August 2012, as compared to 5.6% in the same period of 2011, says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, who makes an analysis of residential and commercial real estate in 2012. 

Manufacturing activity, which contributes significantly to India's GDP, also took a big hit in 2012. Inflation remained high, impacting sentiments and investor interest across businesses – including real estate, he says.

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Residential Real Estate in 2012 

 As has been the case in the past, the larger cities of Mumbai and NCR-Delhi recorded healthy absorption of residential units during 2012, with a 60% contribution to the overall absorption. Chennai and Pune were among the other two cities that increased their share of absorption during 2012 to 26% from the 23% recorded a year ago. 

 
At a country level, a total of 160,622 residential units were launched in 2012, as compared to 154,701 units for the corresponding period of 2011. From the pricing perspective, the average residential capital values in 2012 appreciated in the range of 1-3% y-o-y. 

 Among the top 7 cities of India, the capital value growth in Pune and NCR-Delhi was the highest, while Hyderabad and Bangalore saw a slower rate of capital value growth. There is still no price correction on the cards, but the quantum of appreciation definitely reduced significantly in all the top seven cities of India in 2012.

 Although demand showed signs of improvement with the approach of the festive season, developers are still struggling with rising inventories and have attempted to sell off their existing stock via out-of-the-box marketing techniques and pricing mechanisms to attract end users and investors.

•   Infrastructure deficit continues to be a key restraint for the growth of residential markets across India.
•  Overpricing has been an issue in Pune, Hyderabad and Kolkata, resulting in a relatively smaller share of absorption from these cities during 2012.
•  From a supply perspective, Hyderabad and Kolkata saw a decline in the number of residential units launched, accounting for less than 2% respectively of the total in 2012YTD.

Commercial Real Estate In 2012

The secondary business districts (SBDs) of Mumbai, Bangalore and Pune, followed by central business districts (CBDs) of Bangalore and Gachibowli in Hyderabad, began emerging as landlord markets. This is primarily because these areas have a lower-than-average vacancy levels from a national perspective, and also because of the relatively higher rental value change in these submarkets as compared  to the corresponding trough levels in the past.

The CBDs of NCR-Delhi, Mumbai, Pune and Hyderabad remained neutral markets because of negligible vacancies (5-10%) as compared to the national average of 19%. Also, these locations saw persistent market stagnation because of negligible rental growth and lower vibrancy.

 The suburban business districts of NCR-Delhi, Mumbai, Chennai and Kolkata, which have higher-than-average vacancies, remained occupier friendly markets. Higher vacancy expectations continue to exert short-term pressure on their rental value growth.

  In 2012, the cautious occupier sentiment that resulted from the on-going global uncertainties was one of the key reasons behind slow commercial property leasing activity in the major cities of India. 

 With domestic office occupiers going slow on expansion, MNC occupiers have been delaying deal closures as they have to go through multiple levels of approvals to execute expansion plans amid sustained cost pressures. 

Among the top seven cities, Mumbai and NCR-Delhi recorded a y-o-y absorption drop of around 47% and 26% respectively during 2012.

 The year was defined by a notable decline in absorption of office space across most of the cities in India from the 2011 levels. However, the larger cities of Mumbai, NCR-Delhi, Bangalore and Chennai contributed to a healthy 72.5% of the country’s net absorption of commercial real estate. In fact, the share of pre-commitments to absorption in 2012 was more than recorded during the previous year.

 Retail Real Estate in 2012 

With an operational stock of close to 65 million sq ft during 2012 YTD, the retail mall supply across the top seven cities of India slowed considerably as compared to the supply recorded in 2011. 

With a drop in supply of over 65%, new completions in 2012YTD were at a new low when we consider the trend of the past five years (since 2007). Barring Hyderabad, all cities recorded completions during 2012, albeit at a slower pace than witnessed in 2011. 

Mumbai, NCR-Delhi, Bangalore and Chennai together absorbed 81% of the total retail space in 2012. This is significant, considering their consolidated contribution of 70% in total retail space absorption in 2011.

Retailers in cities like NCR-Delhi, Mumbai and Bangalore continued to actively lease space in superior quality malls due to the limited availability of new space and the low vacancy rates in existing prime malls. The total net absorption of retail space across India projected for 2012 was 4.4 million square feet, led by NCR-Delhi and Bangalore (which together absorbed 2.6 million square feet). They were followed by Mumbai, Pune and Kolkata, where absorption was around 0.8, 0.5 and 0.4 million square feet respectively.