Real estate regulator now a reality

The bill aims to empower home buyers and make developers accountable.

The upper house of the parliament on Thursday passed the long-pending Real Estate (Regulation and Development) Bill 2015, paving the way for setting up of regulatory bodies to monitor projects and bring transparency and accountability in real estate transactions.

The bill aims to empower home buyers, make developers accountable toward their promises and put in place mechanism to check malpractices in the sector. The law is of immense value to home buyers who have long suffered with builders changing project plans without the consent of buyers or diverting funds from one project to another. 

 “This is a major reform that promises to bring in much-needed transparency and accountability to the rather opaque sector. It will create a much-needed consumer right protection umbrella for buyers of real estate, thereby increasing consumer confidence as well as creating lasting developer brands strong on quality and timely delivery of their projects,” said Anuj Puri, chairman and country head, JLL India.

The bill’s chief objective is to set up regulatory authority on the lines of other sectors like banking and telecom and also form appellate tribunals in states and union territories. The authority will appoint abjudicating officers to settle disputes, which will be taken up by the appellate tribunal. 

The regulator will work as a nodal agency and co-ordinate efforts regarding development of the sector with key stakeholder and the government.

Among other key features, all projects including commercial and residential starting from 500 square metres or eight apartments are to be registered with the regulator, against the earlier mandate of 1,000 square metres or 12 apartments. It will be applicable retrospectively across ongoing projects too. 

However, in a discussion on the bill in the parliament, Union Urban Development Minister Venkaiah Naidu said clarity is yet to emerge if the current framework will be applicable on ongoing projects as well. He also said state governments have the flexibility to lower the project size threshold for mandatory registration. 

All real estate agents who intend to sell plot, apartment or building also have to register with the regulator. with the regulator.

With a view to promote timely completion of projects, the bill makes it compulsory for developers to keep at least 70 per cent of customer advance, including land cost in a separate escrow account, to meet construction costs. This is up from the previous requirement of 50 per cent.  

The government has also brought in parity on interest payment in case of default. Now, builders will have to pay same interest as home buyers in case of default or delays—earlier home buyers were accountable for this. It has also increased the liability of builders from two years to five years in case of structural defects.  

In case of violation of orders of the appellate tribunal, builders will be charged with three years of imprisonment while agents and buyers will have to face one year of imprisonment or monetary penalty or both. It also advocates that disputes should be resolved within 60 days.

Impact
Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt Ltd, said it will have a far reaching implication for the real estate and construction sector. “It will help regulate the sector and promote transparency. If implemented in the right spirit, it could facilitate greater volumes of domestic as well as overseas investment flows into the sector. Home buyer confidence in the property market is also likely to revive.” 

Experts believe that this will go a long way in reviving the confidence of home buyers. Sales in housing market has softened over the years as end users and investors have stayed away due to high prices and unchecked construction delays in the sector. This has taken the unsold stock to an alarming level with some cities sitting on a huge pile-up of inventory.

The bill aims to boost the confidence of home buyers with more transparency and accountability from the developers.

JC Sharma, vice chairman and managing director at Sobha Ltd, said this is a step in the right direction. But he added that the bill made no mention of time-bound approvals by various central, state and local agencies, which is critical to the sector’s growth.

It is expected that developers will also benefit once the law is implemented as they can access cheaper and wider source of financing. However, on the other side, it will also gradually weed out a lot of fly-by-night and non-serious players from the market. 

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Indiabulls Group to invest Rs 25,000 crore in Haryana over seven years

MUMBAI: Mortgage lender Indiabulls Housing Finance and its group company, Indiabulls Real Estate will invest Rs 25,000 crore in Haryana over the next seven years. The group has entered into a Memorandum of Understanding with the government of Haryana for the same, the company said in a statement.


Indiabulls Group, whose founder, Sameer Gehlaut has origins in Haryana, is headquartered in Gurgaon, and has pan India operations with offices in 200 locations across the country.

The pact was inked during the "Happening Haryana Global Investors Summit" wherein Indiabulls Groups has made an in-principle commitment to invest Rs 25,000 crore during the said period.

The investment will be made through direct lending for home loans as well as indirect lending to the developers of various projects, particularly in the affordable housing segment.

The group already has exposure in NCR, both as a lender as well as a developer and is aiming to scale it up by tapping into the growing demand for affordable housing in the backdrop of "Housing for all by 2022".

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Developers in a consortium to be treated as separate tax units

This will enable these companies to set off losses from other projects and not attract the highest income tax rate.

In a major relief to infrastructure developers, the income tax department has clarified that companies which are part of a consortium in large infrastructure projects will be treated as separate taxable units.

This will enable these companies to set off losses from other projects and not attract the highest income tax rate.

In a clarification, the Central Board of Direct Taxes has now allowed the companies to be identified individually rather than as one taxable unit known as ‘association of persons’ or AOP.

Typically, consortiums are formed to implement large infrastructure projects in engineering, procurement and construction (EPC) contracts as well as turnkey projects.

The income tax department considered a consortium to be one separate entity for tax purposes while the companies’ preferred to be treated individually. This led to many tax disputes, which the tax department has now sought to address.

Pointing out that there are differing court verdicts on what constitutes an AOP, the tax department said that with a view to avoiding tax disputes and to have consistency in approach, it has been decided that consortium arrangements may not be treated as AOP, provided that each member of the consortium is independently responsible for implementing its share of work, earns a profit or loss for that work and has its own personnel.

Another criterion is that the control and management of the consortium is not unified.

“Large turnkey infrastructure projects are executed by consortiums of construction companies through EPC contracts. There are certain cases where the tax authorities have taxed all the consortium members as one taxable unit, that is as an AOP. This leads to a number of issues like being taxed at the maximum marginal rate, inability to set off losses of other projects, non-availability of tax credit for non-residents, etc,” said Hemal Zobalia, partner, Deloitte Haskins & Sells Llp, in a note.

“These issues bring in uncertainty and increase the overall tax cost. CBDT has sought to clarify the taxation of such EPC consortiums through this circular,” Zobalia added.

He said that the circular reiterates some of the principles which were already laid down by judicial precedents.

“However, this may not help in resolving all the issues surrounding AOPs as a lot is left to the discretion of the tax officer and the facts and circumstances of each case,” he added.

The move is also expected to attract more foreign investors to invest in infrastructure projects.

Akhil Sambhar, tax partner at EY, called it a positive move from the government.

“It is important for big projects like oil and gas where most of the work is done in a consortium. Any large project, be it power, metro or oil and gas, the magnitude of work is so much that the work needs multiple players. And with no clarity on taxes, it was leading to a large number of tax disputes,” he said.

“With this circular coming in, it will definitely encourage more foreign companies to come to India. In fact, it was a key issue for foreign companies working on EPC projects,” Sambhar added.

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Piramal Realty plans to invest Rs 16,000 cr in 4 years

Piramal said that the company is looking to increase its commerical portfolio as well in the coming years.

Piramal Realty, the real estate arm of Ajay Piramal-owned Piramal Group, plans to invest Rs 16,000 crore in development of real estate projects and acquisition of land, over the next 4 years.

Anand Piramal, executive director, Piramal Group told FE that while the company already has a roughly 9 million square feet of residential projects pipeline to be executed till 2020, the company is open to acquiring fresh parcels of land and distressed assets.

The company is also in the midst of developing an office project in Kurla, near Bandra Kurla Complex (BKC) ad-measuring 2.5 million square feet.

The company launched a luxury project at Byculla called Piramal Aranya, which will entail an investment of R4,300 crore over the lifecycle of the project.

The sea-facing 70-storey high rise residential project will be spread across 7 acres and is in close proximity to the 60 acre botanical gardens on the west.

In 2015, Goldman Sachs and Waurburg Pincus had invested a total of $434 million in Piramal Realty, giving the company a strong bandwidth to invest in real estate projects.

Piramal said that the company is looking to increase its commerical portfolio as well in the coming years. “As of now we just have one project, but going forward we would like to have a combination of both residential and commercial real estate.

With the expectation of 7%-8% growth in the Indian economy, the focus on commercial real estate will come back and we would like to have a healthy mix of both segments”.

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Dilip Buildcon bags Rs 545.4-cr contract in Goa

MUMBAI: Engineering firm Dilip Buildcon today said it has bagged Rs 545.4-crore contract from the Ministry of Road Transport and Highways to construct 640-km eight-lane cable-stayed bridge across the Zuari in Goa. 


The Bhopal-based company has partnered with Ukrainian firm Mostobudivelnyi Zahin (MBZ) for its technical expertise to construct the cable bridge, a statement here said. 

Dilip Buildcon will have a majority stake of 70 per cent in the joint venture firm while the remaining 30 per cent will be held by MBZ, it said. 

"This is our first project in Goa, and we hope to complete the project before time. Mostobudivelnyi Zahin, which has a vast experience in construction of cable suspension bridges, will be our technology partner," Dilip Buildcon Executive Director and CEO Devendra Jain said. 

This contract is part of the Rs 676.19-crore, 1.084-km-long project, which is expected to be completed in 36 months. 

"There are around 4-5 cable suspension bridges built on a large scale in India, and this would be the second-largest cable bridge length-wise in the country, after Vidyasagar Setu in Kolkata. With this contract, we are now present in 12 states," he said.

Will a new credit rating system for infrastructure projects help?

CARE expects the proposed system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects

Mumbai: Finance minister Arun Jaitley on Monday announced the formation of a new credit rating system for infrastructure projects in the country for better credit enhancement.

A new credit rating system for infrastructure projects will give “emphasis to various in-built credit enhancement structures… instead of relying upon a standard perception of risk which often result in mispriced loans,” the budget statement said.

The intent seems to be to help infrastructure projects access credit from multiple sources and at better rates. However, it is unclear how the new system would be different from the existing credit rating scale put in place by credit rating agencies. It is also unclear whether the proposed rating system would be for operational projects or under-development projects or both.

“I have not seen the details, but if I draw a comparison with the banking rating system, how will it be different? Has the existing banking rating system helped?” asked a former government official, who has been closely associated to road project financing, but did not want to be named.

There are no clear answers as of now.

D.R. Dogra, managing director and chief executive officer of Credit Analysis and Research Ltd (CARE), expects the proposed credit rating system could help under-development projects with a rating agency stepping in at the pre-bid level of infrastructure projects. “A rating agency can help identify issues which lead to a lower rating at the pre-bid stage, which can then be addressed before private bids are invited,” said Dogra, adding that he is not aware of the details of the proposed credit rating system as it has not been discussed with rating agencies yet.

Not all are of the same view though.

A top official from another rating agency points out the new announcement speaks about credit enhancement. “Credit enhancement measures are taken only once the infrastructure projects are operational. This is the point where a refinancing can happen and bank credit can be replaced with bonds. A better rating makes the bonds market accessible in a better way,” he said. He refused to be identified as the agency is not aware what the actual fine print of the credit rating system would be.

Infrastructure consultant Vinayak Chatterjee, chairman for Feedback Infra Pvt. Ltd, is positive the new credit rating system would help the sector as the traditional rating methods do not fully take into account the risk in an infrastructure project which changes at different stages of the project life-cycle.

Even as the industry waits for details, a former rating agency official, who did not want to be named, said, “Need more clarity (on the details of the system), but mostly it would be inconsequential.”

Budget 2016: Foreign investors can now establish ARCs in India

Sun Capital: Budget 2016: Foreign investors can now establish ARCs in India 

MUMBAI: The asset reconstruction companies got a huge leg up from the Union Budget
with relaxation in sponsor holding limit, 100 per cent foreign direct investment and a
complete passthrough of income tax. Finance Minister Arun Jaitley announced easing of
sponsor holding limit to 100 per cent from the current 49 per cent paving the way for foreign
investors to set up an ARC in India.

"I propose to make necessary amendments in the Sarfaesi Act to enable the Sponsorer of
an ARC to hold upto 100 per cent stake in an ARC and permit noninstitutional investors to invest in securitization receipts," Jaitley said.

Currently, no sponsor can hold more than 50 per cent of an ARC's shareholding either by
way of FDI or by routing it through foreign portfolio investor controlled by the single sponsor.

"It looks very clear now that a foreign entity can also come in and establish an ARC in
India," VP Shetty, Executive Chairman, JM Financial ARC told ET. "Easing of sponsor limit
would certainly help ARCs to strengthen their capital base."

"The easing of sponsor holding limit will resolve capital issue for the ARCs to a very large extent," Siby Antony, MD & CEO, Edelweiss ARC told ET. "It's a good thing that the budget has given a lot of importance to ARCs for NPA management."

The government also relaxed foreign direct investment rules for ARCs by permitting 100 per cent FDI through the automatic route. The investment basket of foreign portfolio investors will now be expanded to include securities issued by such special purpose vehicles.

"Earlier only QIBs defined by Sebi were allowed to subscribe now it has been expanded, though we need little more clarification on who all will be part of non institutional investors," Antony added.

The Finance Minister also announced a compete pass through of income tax for all securitization trusts. "I propose to provide a complete pass through of income tax to securitization trusts including trusts of ARCs," Jaitley added. "The income will be taxed at the hands of the investor instead of the trusts."

The measures announced by the FM is aimed at enabling banks to clean their balance sheet which is saddled with rising bad loans.

"We have been representing to the government and RBI to allow us to have more capital so that we can participate in the market more significantly," Shetty added. "All the ARCs together have Rs 4000 crore of capital invested, with this capital our capacity to invest in bank bids is limited."

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Budget 2016 gives massive push to affordable housing supply and construction activity, seeks to spur demand

Sun Capital: Budget 2016 gives massive push to affordable housing supply and construction activity, seeks to spur demand

NEW DELHI | BENGALURU: The budget announcement on allowing 100 per cent deduction for profits to housing projects building homes up to 30 sq metres in the four metro cities and 60 sq metres in other cities is likely to spur supply of affordable homes, demand for which makes for almost 90 per cent of the demand for homes in India.

(Representative image) Builders and real estate experts say the exemption for affordable housing projects would bring in a 15-20 per cent upside on profits after paying the MAT tax. 

"100 per cent deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply," finance minister Arun Jaitley announced in the budget today. 

Builders and real estate experts say the exemption for affordable housing projects would bring in a 15-20 per cent upside on profits after paying the MAT tax for a real estate developer building such a project, making it easier for the developer to attract foreign and domestic investment for housing projects.

In the budget, the FM also said that construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including PPP Schemes will be exempt from service tax. 

First time home buyers will get deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned in 2016-­17, where house cost does not exceed Rs 50 lakh. 

"This will push developers to redeploy money into building more affordable housing. The FM has tried to address supply side concerns on the housing front. This will bring in much greater supply, spur construction activity and employment connected to it. Anyway 90 per cent of demand for housing is in this segment," says Rajeev Talwar, chief executive officer of DLF. 

Getamber Anand, national president of industry body Confederation of Real Estate Developers' Associations of India (CREDAI) says the government has actually understood that ease of doing business has to become reality to spruce 0 Comments Ravi Teja Sharma , Sobia Khan Search for News, Stock Quotes & NAV's READ MORE : real estate | MAT | Budget 2016 | Arun Jaitley Comments Add Your Comments actually understood that ease of doing business has to become reality to spruce up the GDP. 

"There has been a lot of rationalization of taxes. Small pain points of the real estate industry like harassment by excise department on ready mix concrete being manufactured on site for self use have been addressed," he says. 

In his speech, Jaitley extended excise duty exemption, which is presently available to concrete mix manufactured at site for use in construction work to ready mix concrete as well. 

The big challenge before the industry, Anand says, is to now lobby with states to increase density norms to achieve 30 sq metres and 60 sq metres of housing. 

In Haryana, for examples, the density norms are so low that you cannot do 30 sq metres of housing at all. 

"Supply of these kinds of homes cannot increase unless density norms area changed and density is increased for housing projects," he explains. 

Ashish Puravankara, managing director of Puravankara Projects says there is a huge shortage of affordable homes across cities. 

"The enhanced home loan interest deduction will further encourage buyers to invest more in this segment. This will further encourage private participation in affordable housing," he says. 

Anand of CREDAI says the budget has put the onus on real estate developers to finish houses within three years of start if they are to avail the exemption for affordable homes. "This would also be a challenge for us in the absence of single window clearance for project affordable," he says. 

"The government's service tax exemption on houses less than 60 sq m, and the additional exemption of Rs 50,000 for housing loans up to Rs 35 lakhs for homes not above Rs 50 lakhs will both likely improve first-­time home buyers' sentiment," says Jason Kothari, CEO, Housing.com. 

Shishir Baijal, managing director of property consultancy Knight Frank India says the housing sector will get a push from both supply and demand side. 

Baijal pointed out that the government's focus on digitization of land records is in the right direction especially in the rural areas, which will render land records free from encumbrances. 

The budget has also increased the limit of deduction of rent paid under section 80GG from Rs 24,000 per annum to Rs 60,000, to provide relief to those who live in rented houses

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Indiabulls Real Estate Fund invests Rs125 cr in Mumbai project

Suncapital.co.in: With this deal, the fund has deployed almost 90% of its capital; remaining Rs50 crore to be deployed through another transaction

Indiabulls Real Estate Fund (IREF) has invested Rs.125 crore in an upcoming residential project in south Mumbai, its fourth transaction from the fund.

IREF, the first of the several real estate-focused funds managed by Indiabulls Asset Management Co. Ltd, made the investment in the form of structured debt in a project by the Shree Naman Group. With this, the fund has deployed almost 90% of its capital. It has invested Rs.100 crore each in projects of Supertech Ltd and Vatika Group in the National Capital Region (NCR) and Rs.125 crore in Sheth Creators Pvt. Ltd’s project in Mumbai during the course of last year, after launching its fund in February 2015.

The remaining Rs.50 crore will be deployed through another transaction. In line with its proposed strategy, IREF has invested in approved, under-construction and upcoming residential projects with visible sales, primarily in key property markets.

The investments have been done via the non-convertible debentures (NCDs) route.

“It was a successful first attempt by the fund. In 2016, deployment of capital by fund managers like us will be done with a little more caution. Cost of borrowing of developers have come down with a lot of liquidity in the market and there is a lot of pressure to deploy, but we will invest carefully,” said Ambar Maheshwari, chief executive– private equity, Indiabulls Asset Management Co. Ltd.

Jayesh Shah, chairman of Sree Naman Group, confirmed raising debt for an upcoming project and said the money will be used for project development.

In a month’s time or so, IREF plans to launch a second fund to raise another Rs.500 crore from domestic investors to invest in residential projects this year.

In the last couple of years, India’s real estate sector has witnessed a steady fall in home sales and a rise in unsold inventory.

Private equity (PE) funds and non-banking financial companies (NBFCs) have come to the rescue of many developers who needed capital to refinance loans, kick off projects or for last mile financing for ongoing projects.

“While there are ample investment opportunities in real estate, our measured and calibrated investment strategy of choosing top developers and their quality under-construction projects, has worked and will result in superior returns for our investors,” said Akshay Gupta, group executive head and chief executive officer, Indiabulls Asset Management Co. Ltd.

In 2015, PE funds invested nearly $2.77 billion in real estate projects and companies across 81 deals against $2.1 billion in 2014 through 90 deals, according to data from VCCEdge, which tracks investments. Demand for capital among developers continues to remain high this year as well.

“Fund-raising and deployment are both challenging in tough times. Fund-raising process for most funds has become a longer process as investors carry out a more rigorous due diligence process before committing capital,” said Shashank Jain, partner, transaction services, Pricewaterho\useCoopers India. “Deploying is tough because funds need to choose the best projects and developers, when they give out money when the sector is going through a rough patch.”

by Suncapital.co.in