Independent living for senior citizens

Buy a retirement home for use, not for investment

Abhimanyu Jain, 65, has been living at Ashiana Utsav, Bhiwadi, a housing project for senior citizens for the past eight years. Jain, who has two daughters, was keen to live independently after he retired as a computer engineer from software services company IBM. What he likes about this retirement community is that even a single person can live comfortably, with dining and medical facilities, lots of activities that keep residents engaged, and chores like maintenance, laundry, bill payment, etc, taken care of.

Growing demand

Financially independent senior citizens like Jain are fuelling the demand for housing projects developed specifically for them. A mix of demographic and social trends is driving this. According to projections by the Census of India, the percentage of elders in the total population is expected to rise from 7.4 per cent in 2001 to 12.4 per cent by 2026. India had about 76 million senior citizens in 2011. This figure is expected to more than double to 173 million by 2025.

Among social factors, the break-up of the joint family as an option that one could fall back on in old age, children moving abroad or to another city for work, the desire to not be a burden on the children but live independently among peers from the same age group, the upscale nature of current projects, and the vanishing stigma around such a move are all leading to an increasing number of people opting for such projects.

Growing demand has elicited a strong supply response. Currently, at least 30 entities are developing housing for this segment, including Ashiana Housing, Max, Tata Housing, Mantri, Brigade and Paranjape Schemes. (WIDE RANGE OF OPTIONS AND PRICE POINTS)

Buy, rent or lease?

Buy: This option is well suited for people with deep pockets. "Buying ensures you can live in those premises all your life. There is no anxiety that you could be driven out," says Shashank Paranjape, managing director, Paranjape Schemes (Construction). People who sell off a house and reinvest the money in a retirement home can also save tax on capital gains. Whatever capital appreciation happens in the property will be enjoyed by the buyer or his heirs.

The only risk in this option is that the senior citizen could end up spending a large part of his retirement kitty on purchase. Also, his heir will be able to live in it only after he crosses the minimum age.

Lease: The buyer makes an upfront deposit and then pays a regular rent and other charges. The cost of entry is lower here. If the children live abroad, they are freed of the burden of selling off the property after the parents' lifetime. When the lease period gets over, a certain portion is deducted and the balance deposit is returned. "The disadvantage of this model is that the lessee does not enjoy capital appreciation," says A Sridharan, managing director, Covai Property Centre. If you wish to exit early, you can only do so if the developer gives his consent.

Rent: People who are not sure about whether they like the concept of living within such a project might test the waters by renting and living there for a few years. If they like it, they can go ahead and purchase. As a long-term model, it carries the risk that the developer could ask you to vacate at any point.

Do the due-diligence 

Prospective buyers should bear in mind that service is a critical component in a retirement housing project. "Invest only with a developer who has the capability to offer high-quality service," says Ankur Gupta, joint managing director, Ashiana Housing, which offers senior citizens' projects in Bhiwadi, Jaipur, Lavasa and Chennai. A Shankar, head of operations, strategic consulting, Jones Lang LaSalle, too, agrees. "While amenities can be created through capital investment, it is how they are managed and the service delivery arrangements that will determine the project's popularity," he says.

The developer and his project should also have the capability to support senior citizens in their later years. "As the senior citizen ages, he might need assisted care, both long-term and short-term. There is a need for specialised centres manned by doctors, nurses and care givers who can offer rehabilitation and care with advancing age," says Sridharan. Only if the retirement community offers such facilities will seniors be assured that they will be taken care of when they become physically dependent.

Go with a project where the developer has a mix of sell and lease/rent model. "A 100 per cent sale model typically promotes speculative buying. A large percentage of the project might remain vacant on commissioning," says Shankar. It becomes difficult to develop a vibrant community in such a project. Retirement communities where the developer has sold entirely and outsourced the services should also be avoided. "If the service provider doesn't earn a high rate of return, he could quit and the senior citizens would be left in the lurch. Go with a developer who has a track record of running his projects himself," says Paranjape.

Visit the project if it is already occupied or go to one of the builder's older projects. "Speak to the residents. If they are satisfied, go ahead and buy," advises Jain.

A sound investment?

Financial planners are of the view that it is best not to treat a retirement home as an investment product. Invest in one because you need it. While most developers might assure you that demand exceeds supply and you are likely to exit at a profit, your experience could be different. "You will only be able to sell to those above 50. The return such a property fetches will depend on demand-supply and the project's quality. If supply increases in the future, your return could be low. Quality of the project, its maintenance and vibrancy of the community will also determine your return," says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

BUYER'S CHECK LIST

• Quality of services and staff
   
• Reasonable maintenance and catering charges
   
• In-house availability of basic medical facilities, doctor on call, medical store, ambulance and trained paramedics
   
• 24-hour availability of nurses and care
   
• Proximity to large hospitals
   
• Senior-friendly design
   
• Availability of activities such as religious, cultural and entertainment
   
• The company has a record of regular payment of bills and filing of I-T returns
   
• Proximity to airport and railway station

GST has benefits for infrastructure

There are both positive and negative impacts of the tax, but the net result for the sector is advantageous

This is GST ( goods and services tax) season; and as the dust settles on the commencement of the long journey to implement the historic GST regime, it is worthwhile to take stock of how it impacts specific aspects of Indian infrastructure. Here are seven ways GST affects the sector — three positive, and four negative.

Electricity ( impact: negative): GST is expected to inflate electricity costs by up to eight per cent as the government has decided to keep electricity out of the ambit of this new tax dispensation. Power producing companies — both renewable and conventional — would have to pay GST for their inputs such as fuel and machinery but will not be able to get these taxes refunded, given that their output — electricity — is exempt. This higher cost of producing electricity will then be passed on to consumers under the “ change of law” clause in power purchase agreements ( PPA). Developers selling electricity in the spot market or on a non- PPA basis would have to factor in the higher cost.

Works contracts and EPC ( impact: positive): GST seeks to provide muchneeded clarity on works contracts, and therefore, on the engineering, procurement and construction ( EPC) business line. Works contracts are proposed to be taxed as “ services”. This means the GST rate and provisions, like place of supply rules et al, as applicable on services will apply to works contracts. The major gain from this treatment is that the tax would be now charged on the actual contractual base. Also, local versus inter- state works contracts, that at present leads to innumerable disputes, should get eliminated. Hence, EPC contract prices should come down somewhat on account of this new tax- efficient structure, which in turn should benefit project owners.

Cement ( impact: positive): Cement is acrucial input to the infra sector, and GST is expected to impact it positively. The overall indirect tax incidence is currently estimated to be around 25 per cent. The cement industry is also expected to benefit from lower costs of logistics. Overall, a decrease in cement prices is expected.

Logistics ( impact: positive): The GST is expected to enable a reduction in logistics cost by as much as 20 per cent to 30 per cent, as firms reconfigure their supply chains on four counts. First, as India becomes one big market, there will be larger but fewer warehouses. Second, it will lead to a larger number of bigger trucks on roads as there is greater adoption of the hub- and- spoke model. Third, these changes will lead to greater economies of scale for transport operators and lead to more companies outsourcing their logistics operations. Four, reduction in waiting and idling time at inter- state barriers and checkpoints is expected to provide a huge relief.

Advisory, consulting, engineering and project management services (impact: negative): As with all other services, firms providing these services to the infrastructure sector will have a negative impact due to the higher incidence of GST at 17 to 18 per cent vis- à- vis the current 15 per cent.

Abolition of tax holidays and exemptions (impact: negative): There are different tax holidays and exemptions for infrastructure development and operations at both the central and state levels. Whilst there is the hope that in the final analysis, these tax holidays and exemptions will be allowed to run their course, the lurking fear is that they will be removed.

Civil aviation ( impact: negative): Five petroleum products — crude, natural gas, aviation turbine fuel ( ATF), diesel and petrol — are excluded from the coverage of GST for the initial years while the remaining petroleum products —kerosene, naptha and liquefied petroleum gas ( LPG) — are covered. Flight tickets are likely to get costlier as airlines will not be able to claim credit on tax paid on jet fuel. The current service tax ranges from 5.6 per cent to nine per cent of the base fare, which is considerably less than the GST rate that is being spoken about, of 15 to 18 per cent. Currently, airlines can claim what is called a cenvat credit on the central excise duty for fuel. They stand to lose this in the GST regime as ATF is outside the purview of GST.

While there is this bundle of negatives and positives, this columnist is of the opinion that on the whole, GST has a positive impact on the sector. Increase in prices of airline tickets and electricity are soon absorbed and forgotten.

But the positives that emanate from rationalisation of taxes on works contracts, reduction in cement prices, the huge benefit to logistics and the elimination of a raft of complex exemptions and tax holidays has clear long- term advantages.

We can create GSTN identity for 90% of taxpayers anytime: Navin Kumar

Navin Kumar
Chairman, Goods and Services Tax Network

Take us through the GSTN journey so far.

We started from scratch in May 2013. At that time our target date was not clear.

We were told for the first time in October 2014 that April 1, 2016, was our target date. It was then we started the recruitment process, as we had already built the organisation structure.

Our first challenge was to prepare for the RFP ( request for proposals) in the absence of a GST framework. It was unclear what we should put in the RFP and what work we were supposed to do.

We took the permission from the stateempowered committee of finance ministers to work on the draft and had appointed PwC as our consultant. We floated the tender in April 2015 and selected the vendor, Infosys, in September 2015.

In November 2015, we gave the work order. According to the RFP, the vendor (Infosys) will provide us the support for five years from the date GST is rolled out. In between, we had interacted with the industry and went to Nasscom asking its members for suggestions and feedback about their needs and what could be the likely interface.

What was the industry feedback?

We were stunned by their feedback. We had told them we wanted to work on a built- own- operate- transfer ( BOOT) model. They said, thank you very much. The companies said they had burnt their fingers, and the BOOT model was dead and buried.

They cited instances where they had built the system, operated it but were still not getting the revenues because of various reasons. They said if you want to build the system, you have to pay the pre- operative cost, which is the capital cost.

There were instances when the central and the state governments had floated tenders and no one came to bid for them. The industry gave around 1,500 inputs and suggestions. We took most of them into account.

Did such meetings help?

We held a pre- bid meeting and incorporated their suggestions in the RFP through corrigendum. Finally, the big five — Microsoft, Tech Mahindra, Infosys, TCS and Wipro — sent their proposals. It was achallenge for us to select one because all the proposals were really good.

Where do we stand today on software development?

Prototyping of the user interface is almost over. Code writing is also half done. The software will be first tested by Infosys and then by us. The process will begin in October and last till January. We gave Infosys a go- ahead to purchase hardware a day after the Rajya Sabha cleared the GST Bill. Once the software is loaded and tested, we will take a final approval from the Standardised Testing Quality Certification ( STQC).

The approvals are expected by midFebruary. And then, we will have dry runs till March.

When will the migration of existing taxpayers take place?

Those who already pay VAT, service tax and central excise tax will be subsumed in the GSTN. Later other, small taxes, such as entertainment tax and luxury tax, will be migrated to GSTN. The current taxpayers will not be asked to register again. They will be asked to provide their PAN and be given a unique identification number under the GST. Currently, 6.5 million people pay value added tax, 2.5 million people pay service tax and another 300,000400,000 people central excise tax. We have already validated PAN of 90 per cent of these taxpayers and we can generate their

GSTN number any day.

With the Rajya Sabha passing the goods and services tax ( GST) Constitution amendment Bill, the focus has shifted to the Goods and Services Tax Network ( GSTN), the non- profit organisation that is building the information technology architecture. It will be the backbone of the reform, slated to be rolled out next year. NAVIN KUMAR, chairman, GSTN, tells Sahil Makkar and N Sundaresha Subramanian that his organisation was not caught by surprise by the quick turn of events. It is confident of putting in place hardware and software requirements.

NBFC, housing finance to be among major contributors to group: Ajay Srinivasan, Chief Executive at ABFS

    Interview with chief executive, ABFS

Aditya Birla Nuvo's merger with Grasim Industries and the subsequent demerger of Aditya Birla Financial Services (ABFS) into a listed entity is expected to consolidate all financial services businesses of the group under one roof. Ajay Srinivasan, chief executive, ABFS, details the deal contours of the financial services business. Business Standard: Q&A

Business Standard: Once Aditya Birla Financial Services is listed after the demerger, what segments would be the biggest contributor to growth?

Ajay Srinivasan: I have said consistently that all businesses will grow under Aditya Birla Financial Services. Growth will be there across the platform. But the non-banking financial company (NBFC) business will obviously be a large contributor. Housing finance will be a large contributor, as also asset management and insurance. Life insurance growth is coming back. These four will be the largest contributors.

Business Standard: How will this transaction benefit market participants? By when is it expected to be completed?

Ajay Srinivasan: For us, this was a good time to unlock value. It is a big opportunity which does not exist in the market. It will give the market an access to a wide array of diversified financial services which gives both breadth and scale. This transaction is expected to be completed by the fourth quarter of FY17 or the first quarter of FY18.

Business Standard: Now that ABFS will be listed, could this be taken as a precursor of an initial public offering (IPO) for the life insurance business?

Ajay Srinivasan: As ABFS will be listed, there is no plan to list the companies under it, including Birla Sun Life Insurance. There is no immediate move towards that.

Business Standard: With two large life insurers, HDFC Life and Max Life, set to merge, do you see any impact on your ranking?

Ajay Srinivasan: Birla Sun Life Insurance ranks fourth among private life insurers and we expect it to hold that ranking. We do not have a large bank partners like the other insurers, though we would distribute our insurance products through our payments bank.

Business Standard: Are you looking to enter the general insurance space as well?

Ajay Srinivasan: We already have Birla Sun Life Insurance and have recently received approval to roll out our standalone health insurance business under Aditya Birla Health Insurance, which through its differentiated products and solutions will be relevant to our target consumers. However, we are not planning to set up any separate general insurance company.

Market cheers UltraTech bold move

UltraTech Cement will issue two separate sets of secured redeemable NCDs amounting to Rs 175 crore and Rs 250 crore respectively, each on private placement basis. NCDs with issue size of Rs 250 crore has tenure of 5 years and NCDs with issue size of Rs 175 crore has tenure of 3 years. Both the sets of NCDs offer coupon rate of 7.57% per annum. Its consolidated net profit rose 29.2% to Rs 780.11 crore on 4.1% growth in net sales to Rs 6537.83 crore in Q1 June 2016 over Q1 June 2015. Market rewarded the move with the scrip gaining 4.5%

China Moves Toward Launching Credit-Default-Swap Market

China’s interbank-market regulator is likely to seek approval from China’s central bank to launch a CDS market soon

The National Association of Financial Market Institutional Investors is likely to ask the People’s Bank of China for formal approval to launch a CDS market soon

China is edging closer to launching its own version of a popular hedging tool that protects investors in case of defaults, as the world’s No. 2 economy struggles to cope with slowing growth and record numbers of companies not paying back debt.

The National Association of Financial Market Institutional Investors, an industry body backed by China’s central bank, has consulted major banks and brokerage firms in recent weeks about the planned rollout of credit-default swaps, three people familiar with the situation said. The swaps would pay out if the issuer of a bond or a loan defaults, said the people, who were briefed by the regulator on the matter.

ENLARGE

The regulator, which oversees China’s $8.5 trillion interbank bond market, has drafted guidelines and standardized contracts for the product, one that has in the past two decades become a key tool in global markets to hedge government and corporate debt, the people said.

NAFMII has hired a group of lawyers to help align its CDS rules with internationally accepted practices and is expected to ask the People’s Bank of China for formal approval to launch the market soon, one of the people said.

Officials at NAFMII weren’t reachable for comment.

The planned rollout of rules for CDS reflects the pressures China faces as it tries to attract more investors, including global players, to a swelling bond market, even as debt defaults soar. China’s domestic bond market has had 39 defaults totaling around 25 billion yuan ($3.8 billion) this year, already exceeding the total of 20 defaults worth 12 billion yuan for all of last year. In 2014, there were five such defaults, following one in 2013.

 “If the [CDS plan] is carried out well in China, it will certainly be a big help to investors,” saidWang Ming, a partner at Shanghai Yaozhi Asset Management Co., a bond fund that manages two billion yuan in assets.

China experimented with a less sophisticated version of a CDS called a credit-risk-mitigation agreement, or CRMA, in 2010, in the wake of a credit binge. But the CRMA market never took off, because the state kept bailing out insolvent companies instead of letting them default, in the interests of financial and social stability.

Now, there are signs that Beijing and the country’s local governments are becoming more tolerant of debt defaults as the economy weakens further and governments feel increased fiscal strains.

“The timing is indeed better now for CDS to be introduced to China. Given that all kinds of defaults are on the rise, I think demand will be quite robust,” Mr. Wang said.

The guidelines and standardized contracts for the credit derivative drafted by NAFMII look to be in line with those published by the International Swaps and Derivatives Association, a global body based in New York that sets standard terms for derivatives transactions, said one of the people briefed on the instruments.

So great is the enthusiasm for CDS in China that some officials seem to view them as a way to help ailing companies get credit. The government of the northern province of Shanxi, China’s biggest coal-producing region, said it hopes to encourage credit-default swaps as a means to raise investor confidence in debt issued by the area’s struggling coal-mining firms. Typically big coal miners are backed by the state.

According to a front-page article published Thursday in the Shanxi Daily, the Communist Party’s local mouthpiece, companies from the region are facing greater difficulties in issuing new debt because of a weakening economy and rising debt defaults among state-run enterprises.

One of the coal-mining firms from the province that is struggling to meet its debt repayment, state-backed ChinaCoal Group Shanxi Huayu Energy Co., defaulted on a 600 million yuan one-year bond in April.

“We’ve already come up with a plan, and Shanxi would like to become the first local government to roll out a CDS contract in China,” said Liu Hongbo, an official at the financial affairs office of the Shanxi provincial government.

CDS are normally created by investment banks, which calculate the default risks involved and charge sometimes steep fees for the guarantees, and it is unclear how Shanxi province proposes to handle them.

Bill to amend Sarfaesi, debt recovery tribunal Acts cleared by Lok Sabha

The amendments to the Sarfaesi Act and debt recovery tribunal Act are aimed at faster recovery and resolution of bad debts by banks and financial institutions

Arun Jaitley (Finance Minister)

In an important step aimed to resolve bad loans, the Lok Sabha on Monday passed a bill to amend the existing Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, and the debt recovery tribunal (DRT) Act.

The amendments are aimed at faster recovery and resolution of bad debts by banks and financial institutions and making it easier for asset reconstruction companies (ARCs) to function. Along with the new bankruptcy law which came into effect earlier this year, the amendments will put in place an enabling infrastructure to effectively deal with non-performing assets in the Indian banking system.

The government had introduced the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 in May. The bill was referred to a joint Parliament committee which submitted its report last month. The bill will amend four acts—Sarfaesi Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the Indian Stamp Act, 1899 and the Depositories Act, 1996.

The bill will now go to the Rajya Sabha for its approval. Introducing the bill, finance minister Arun Jaitley said the government has accepted all the recommendations of the joint committee.

“The bankruptcy law is now becoming operational. One of the big challenges we face is the enforcement of interest and recovery of bad debts. Securitization law and DRT law need to be amended for quick disposal of disputes,” he said. “DRTs were envisaged as an alternative to civil courts and for ensuring quick disposal. But things need to move faster. Procedures in front of DRTs cannot be similar to civil courts,” he said.

Indian banks have been under stress with many of them reporting losses and surge in non-performing assets (NPAs) after the Reserve Bank of India (RBI) pushed lenders to classify visibly stressed assets as NPAs after an asset quality review in 2015-16. Total stressed assets of state-run banks as of 31 March were at 14.5% of total advances, and according to recent report released by RBI, this may increase further. The gross non-performing asset (NPA) ratio of state-run banks may rise to 10.1% by March 2017 from 9.6% as of March 2016, RBI’s financial stability report said, warning that under a severe stress scenario, it may rise to 11% by March 2017.

Flaws in the existing recovery process have added to the problem of bad loans. For instance, more than 70,000 cases are pending before DRTs.

The bill gives RBI powers to audit and inspect ARCs and the freedom to remove the chairman or any director and appoint central bank officials to its board. The central bank will be empowered to impose penalties for non-compliance with its directives, and regulate the fees charged by these companies to banks at the time of acquiring such assets.

The bill will also pave the way for the sponsor of an ARC to hold up to 100% stake. It will also enable non-institutional investors to invest in security receipts issued by ARCs and mandate a timeline for possession of secured assets.

To be sure, RBI already regulates these entities, but the bill expands the regulator’s powers. It also increases the penalty amount that can be levied by RBI to Rs.1 crore from Rs.5 lakh.

The bill proposes to widen the scope of the registry that will house the central database of all loans against properties given by all lenders.

It also proposes to bring hire purchase and financial lease under the ambit of the Sarfaesi Act, and enable secured creditors to take over a company and restore its business on acquisition of controlling interest in the borrower company.

As part of the overhaul of DRTs, the bill proposes to speed up the process of recovery and move towards online DRTs. To this effect, it proposes electronic filing of recovery applications, documents and written statements. DRTs will be the backbone of the bankruptcy code and deal with all insolvency proceedings involving individuals. The debtor will have to deposit 50% of the amount of debt due before filing an appeal at a DRT. It also seeks to make the process time-bound. A district magistrate has to clear an application by the creditor to take over possession of the collateral within 60 days.

However, many members of Parliament said the government should have the political will to check NPAs rather than enacting one law after another.

Saugata Roy, MP from All India Trinamool Congress representing West Bengal, said, “Political will is necessary and that seems to be missing. Bankruptcy and insolvency code has been passed. In spite of passage of laws, we have not seen much progress on either curbing black money or on NPAs of banks. Total stressed assets have crossed Rs.8 trillion,” he said.

The bill also proposes to amend the Indian Stamp Act to exempt deeds of assignment signed at the time of an ARC buying a loan from a bank from the levy of stamp duty.

“The amendments carry the work forward done in the insolvency and bankruptcy code. Automation will help in increasing the pace of recovery, but this requires an investment. Currently, the problem is that many DRTs from time to time do not have presiding officers,” Sandeep Singh, senior director at India Ratings said.