BANGALORE: Sky high land prices, unclear titles and a clear need to conserve cash are forcing some real estate companies to do joint development
with landowners rather than splurge money in buying and holding land at expensive rates.

Bangalore-based developers, such as Nitesh Estates, Prestige, Puravankara, Brigade and Mumbai-based Godrej Properties are adopting this route to develop properties, aware of the keen need to save cash in a market that is becoming increasingly tight-fisted for real estate firms.

“Developers no longer want put cash upfront and invest inland. The JV works both for developers as well as landlords,” said Amit Mookim, director, transaction advisory service (real estate), KPMG.

Under the arrangement being discussed by some firms, landowners team up with developers through a special purpose vehicle (SPV). The owner comes on board as an equity partner in lieu of the land he puts on the table. When the project gives returns, the landowner gets a fixed percentage of the revenue in proportion to his equity holding.

The developer invests in the construction and marketing costs, but avoids tying up his funds in land. Bangalore-based Nitesh Estates will use this model to undertake new projects. “This is expected to allow us to deploy our capital towards development expenses and the expansion of our operations,” a company official said.

Currently, Nitesh’s six out of seven ongoing projects and four out of the five forthcoming projects are being undertaken through this model. “It reduces the upfront land acquisition and our total project financing costs, though it requires us to either share revenue generated from such joint-developments or a portion of the developed area with the landowners,” said the official.

The need to conserve cash appears to be the paramount motive for the real estate firms in adopting such route. The slowdown last year greatly crimped the ability of real estate firms to raise cash. Though there was a rebound in the middle of the year when some companies did qualified institutional placement in a buoyant market, many firms seem to have realised the need to play it safe.

Recently, the Reserve Bank of India ruled out another round of restructuring of bad real estate loans, dealing a blow to property firms which had hoped to get their loans reclassified as performing asset. That would have boosted their credit rating and helped them raise more money. However, with this option ruled out, companies don’t have any choice but to save cash and cut down on unnecessary stuff.

“Joint development model works for us as it is capital light and also contains risk. We do not have large debt on our book as compared to many other real estate companies,” said Adi Godrej, chairman of the Godrej Group. Godrej Industries’ real estate arm has lined up Rs 2,000 crore of investments for developing five projects over 30 million square feet (sq ft) in Bangalore.

The Prestige Group plans to offer around 50% of its proposed eight residential projects in the luxury and non-luxury segment under the joint model. “Land owners are more keen to go in for joint development rather than out right sale of land parcel,” said Irfan Razack, CMD, Prestige Group.

Brigade Enterprise, which plans to develop 8-10 million sq ft in the commercial and residential spaces by March 2010 will have 30% of the
development. “In outright land purchase there are many intangible and it calls for 8% registration and stamp duty charges. But in joint development model, one has to pay only 2% tax,” said Kailash Advani CEO Brigade Group.

Some firms such as Puravankara Projects are not embracing this route completely. “Purchasing land outright is the best possible as the appreciation is in land and not in construction,” said Ashish Puravankara director Puravankara Projects. “We will go for joint development model only where project demand and it will depend on case to case basis,” he added.

Your dream home is now going to cost more. Simply because home buyers are now going to bear 10.3% service tax on properties under construction
– as proposed in the Budget 2010 — which will lead to a tax outgo of 3.4% of the sale value of the house, according to experts.

Gaurav Karnik, associate director-real estate practice, Ernst & Young, says, “The Budget has proposed an amendment in the definition of two existing taxable service categories — ‘commercial and industrial construction’ and ‘construction of complex services’. This amendment provides that unless the entire consideration for the property is paid after the completion of construction, the activity of construction would be deemed to be a taxable service provided by the builder/ promoter/ developer to the prospective buyer and the service tax would be charged accordingly.”

Through this amendment, the government seeks to create a legal fiction whereby it deems any advance consideration charged by builders/ developers from buyers as consideration for service of construction of immovable property for and on behalf of the buyer rather than a construction for self for subsequent sale to the buyer.

The amendment would in effect bring all agreements in the nature of sale of immovable property (eg Flat Buyer Agreement) –where any advance payment is received by the builder/ developer prior to the completion of construction — under the service tax. It would, thus, entail the payment of service tax on the sale price collected by the developer from the buyer, having the direct effect of increase in the real estate prices in the hands of the customer. Experts believe this would adversely affect the real estate sector, particularly when it was just beginning to show the signs of recovery.

Further, the proposed amendment may have a deep impact on how real estate transactions are structured in future due to issues relating to the valuation for the purposes of service tax levy. Instead of a single sale price, the consideration may be broken up into cost of construction and land so that service tax may be paid only on the value of services involved in the construction.

“While currently the law also provides an option of paying service tax on 33% of the total consideration in respect of construction contracts, the same is grossly inadequate in the present context as it does not take into account the value of land involved (which, based on location, could form a major component of the sale consideration),” says Karnik.

Mumbai: Projecting a negative outlook for the domestic real estate sector in CY 2010 with a slight stable bias, a leading rating agency today said while demand in the commercial space segment is expected to improve in H2, rentals would remain under pressure due to over-supply risks.

“Outlook for the Indian real estate sector in 2010 is negative, with a slight stable bias. Overall, the fundamentals of the real estate sector are improving, as seen by better liquidity and improved demand in the residential segment,” Fitch said in its recent report, ‘Indian Real Estate 2010′.

The commercial segment continues to remain under pressure, as evident from the vacancy levels reported in various key markets, it said, adding, “demand for commercial space to improve in H2-10 consequent to the expected resumption of hiring in key sectors like IT/ITeS and financial services.”

At the same time, rentals are likely to remain under pressure due to the over-supply risks, which continue to persist, the report said.

On the retail side, the rating agency forecast that volumes would pick up and rents get stabilised by H2-10 due to retailers moving back into the expansion mode.

Watching your favorite movie at one of the plush multiplexes of Sathyam, dining with your family in the city’s largest food court with a seating capacity of over 800 guests, shopping for vied for international and national brands, Spa and fitness, fun and frolic galore, all this and more in a environment that lifts your spirit and leaves you wanting for more. Life in Chennai would not be the same anymore. If you want to know what a real Mall is, This Is It! The first of its kind in India.

Express Avenue, the largest mall in South India is a destination in itself. There is something for all age groups, all tastes, leaving you with a desire to keep coming back for more. All this will begin form April when curtains are raised to public for the first time. Hold on to your breath till then!!

85% of the sprawling 800,000 sq ft allocated for retail space, has been leased out to more than 160 popular brands. If you think you are someone and haven’t already booked your own space yet, you really need to call them now. The leasing cost are being increased form March 1, 2010.

Located in the Central Business District of Chennai, Express also houses an office tower and a boutique hotel facility – defining the term “Shoppertainment Destination”.

Sathyam to open 8 screens

Funcity to open its largest outlet in the country within the mall

Structure encloses huge central atrium spread over 12,000 sq ft and a central dome at a height of 70

Underground parking facility that can house 2000 vehicles

The architecture of the mall has been designed by none other than Mohit Gujral and the structure incorporates an elegant “racetrack” design followed by most of the successful malls around the world. Apart fron the esthetics and appeal, some of the prominent features that differenciates Express Avenue includes – unfettered movement around the malls by means of travelators, facilities for the physically challenged, environment friendly features such as natural lighting, water treatment facilities, recycling facilities and low emitting materials used in the construction.

The mall has been conceptualized by Mrs. Kavita Singhania, MD & CEO, Express Infrastructure after indepth research and and extensive travel across the world. All shops are leased out on a Leave & License agreement which ensures highest standard of professional world class management of the Mall.

IDS National Institute of Real Estate Management (IDS NIREM) believes that contrary to the popular demand of and expectation for huge impetus to the housing and real estate sector, the India budget 2010-11 has brought a mixed bag for this sector. Though, some benefits have been extended to housing and real estate sector, the burden imposed will definitely undermine the benefits. The burdens and benefits for the real estate sector are as follows:

The burden:

Widening of Service Tax net:

Real Estate Developers will have to pay service tax on transactions where consideration is collected from prospective buyers prior to completion of construction. However, it seems service tax will not be applicable if the full payment is made after completion of the construction.

In addition, other services provided by the builders to prospective buyers such as providing preferential location or external or internal development charges (excluding vehicle-parking space) etc. shall also be covered.

Renting of immovable properties is also under service tax net and the definition of ‘renting of immovable property service’ has been clarified as well as widened to cover rent of vacant land under contract for undertaking construction of buildings or structures for business purposes. This may have negative effect on to the properties bought or to be bought solely for investment purpose.

Excise Duty on Cement:

Excise duty ion cement has been increased which will increase the cost of construction and it is expected that per unit cost for prospective buyers will also increase.

The benefits:

Some emphasis has been given to promote housing in general such as:

Extension of Interest subvention scheme upto March 31, 2011,

Extension of deadline for completion of pending housing projects by one year without losing tax holiday u/s 80-IB. However, MAT may affect the companies executing such projects.

Extension of 1% interest subsidy on housing loans upto Rs. 10 lakhs and where the cost of the property is under Rs. 20 Lakhs. This along with along with increase in the tax slab rates for individuals should provide the necessary demand boost for low-cost housing.

Relaxation in norms for built-up area of shops and other commercial establishments in such eligible housing projects and

Increased budgetary allocations for urban development and housing schemes.

extension of investment linked deduction benefit to convention centres located in the NCR of Delhi extended from the present 31st March, 2010 to 31st July, 2010 (for purposes of deduction u/s Section 80-ID of the Income-tax Act).

Overall, this budget will have mixed affect on the Indian real estate sector. However, looking at the overall economic scenario, we also need to consider that the budget was presented against mutually conflicting objectives, where-in it is not possible to meet the demands of each individual sector. Another important aspect is that very clearly the Finance Minister took pragmatic approach instead of populist measures, which is a good sign of a growth orientated government.

And euphoria seems to building in the realty sector even though the warning signs are already visible

In the grip of irrational exuberance people tend to ignore several warnings, leading to catastrophic investment losses. And euphoria seems to building in the realty sector even though the warning signs are already visible.

Turn the pages of real estate classifieds or look at the realty message boards and one sees people anticipating rising home and commercial property prices. In many major metros, prices of homes have reached new highs, turning people into real estate bulls. There is, however, a clear divergence between the property prices and the lagging realty sector index.

Real estate prices have hit new highs, so logically so should the realty index, which has not happened. A comparison to NIFTY clearly shows extreme relative weakness in the realty sector, which is not reflected in the booming home and commercial property prices. Since the stock markets discount the future, the lag in the realty index is bearish for the sector. In the US too, the realty sector stocks began declining before the property prices crashed.

Let us look at the charts of the NIFTY and the Realty index to see the divergence and relative weakness of real estate. NIFTY’s most recent rally took it to the April 2008 highs, but the realty index is way below its April 2008 high. The NIFTY hit its bottom in third quarter of 2009 and then began making higher lows before the rally that began in March. The realty index in a clear sign of weakness, continued to make lower lows till it began the March 2009 rally.

The realty index peaked in October 2009 and has been falling since then. However, the NIFTY continued to rally and only peaked in January 2010. Then finally take a look at the 30-week moving average that is used by institutions for long term investing. In the case of the realty index the moving average has flattened and may to turning lower, which is bearish. The NIFTY’s moving average on the other hand is still sloping upwards.

Now let us step back and look at the facts objectively. The prices of residential and commercial properties are rallying, but the realty index is falling. The realty index is weaker than the broad market index–NIFTY. Residential properties are acquired largely by novice buyers and commercial properties are bought by businessmen who may not be as well versed in economic trends as the institutional investors. In the US the real estate stocks sold off before residential and commercial property prices fell.

Given all these facts, we would stay away from the real estate hype.

Affordable property is set to play a key role in the residential real estate sector in India in 2010 on the back of a significant pickup in demand, according to the country’s developers association.

An upturn in the economy and the Government’s ongoing efforts to push growth in the infrastructure are expected to help the sector grow this year, said Kumar Gera, chairman of the Confederation of Real Estate Developers’ Associations of India (CREDAI).

‘This year will be crucial for the housing industry given the Government’s concern over the massive housing needs of the people, especially in urban areas,’ Gera explained.

‘By the end of 2010 we expect prices in the real estate sector to roll back to at least 90% of the level prevalent in 2007/08,’ he added. CREDAI estimates that values have fallen by 20 to 35% on average across different regions in the country since August 2008.

Real estate growth expectations are based on an assessment of GDP growth by CREDAI, the global revival, domestic sentiments and on the assumption that there would be no major unforeseen fluctuations in the economy or natural calamities this year, he explained.

The real estate market in India was most hit by the downturn between August and October of 2008 when the sales almost came to a standstill.

There were some early signs of recovery in March 2009 and since then prices have stabilized and sales went on to improve considerably by the end of the year, Gera also said.

The growth of the information technology sector in different markets such as Bangalore, Pune and Kolkata will help drive the growth of housing in the regions irrespective of the national IT scenario, he said. And US economic recovery would help stabilize the situation in the IT sector and activities in the Special Economic Zones (SEZs) in the country, he added.

Infrastructure is also set to aid the property market revival on a local basis. In Mumbai prices are already rising at the prospect of the city’s second airport coming up near Khargar. According to Gulam Zia, national director for research and advisory services at Knight Frank, the Navi Mumbai area is likely to grow faster than other location.

Opening may be some six to seven years away yet, he said, but it is already a factor along with a new trans-harbour link and extensions to the metro network.

Generally it is southern cities that will see growth, according to Zia, but places like Kolkata in the east are also expected to see substantial growth, led by the IT industry.

‘Other emerging locations include Mahesh Tala and Tara Tala. Many new townships are being constructed in Tara Tala, gradually transforming it from an industrial zone to a residential township. This will be a promising area in the future,’ Zia added.

India’s residential property sector, by far the largest amongst the nation’s property classes, has begun the march towards recovery as home prices across the country have shown signs of stability and growth, according to an in depth report into the real estate market.

But developers and investors have for too long focused on markets in the northern and southern regions of India while ignoring the opportunities in the central region of the country, says the report, Residential Opportunities in Central India, from Jones Lang LaSalle Meghraj.

It looks in detail at residential markets in 10 cities in what is known as Central India. The report provides an analysis of the states of Rajasthan, Madhya Pradesh, Chhattisgarh, Orissa and Jharkhand.

It says that demographic and economic fundamentals continue to favor smaller residential markets in India. ‘Across markets all markets in the country, demand for residential units will continue to be driven by growing populations, rising incomes, increased urbanizations, and a shift towards nuclear families,’ it says.

‘Smaller markets, particularly those that have been underserved by national developers, will present increased opportunities due to the relative affordability and availability, along with unmet demand arising from an increasingly sophisticated set of consumers,’ it adds.

Those markets with a combination of relatively higher levels of affluence and lower residential capital values, such as Indore, Udaipur, Cuttach and Bhilai, are predicted to be poised for growth over the medium term.

The report also points out that while local developers do exist in smaller markets, they do not necessarily have the expertise, financial strength or trusted name brand that national developers can offer in India’s opaque residential sector.

But national developers need to take account of the variances in each local real estate market to maximize the returns on their projects. ‘These can include governmental regulations, consumer preferences, purchasing power and operational strategies,’ the report says.

Pioneering developers such as Entertainment Word Developers, Omaxe and Sahara City have already entered Central Indian markets, which are amongst the most under served in the country, it adds. ‘Others will undoubtedly try to follow as these leaders demonstrate the viability of their market strategies, a fact that bodes well for consumers and the industry as a whole,’ the report concludes.

Cement companies across the company have increased the price of the commodity in the range of Rs10 to Rs12 a bag, to offset the twin effects of the excise duty hike and the rise in diesel rates.

The 4.5 per cent hike in Mumbai alone, has come into effect from March 1, and has been implemented in all zones in India. This is also one of the first times that cement companies across the country have raised prices uniformly, as the commodity is zone-specific and cement prices depend on the market conditions of each region.

The last time that cement prices were raised by a large quantum was in November 2009 when prices were hiked by Rs10 per 50 kg bag after a shortage in rail wagons affected supplies in the key markets of western and southern India. Price hikes in this industry have always been Rs3 to Rs5 per 50 kg.

In Mumbai, the country’s largest cement consumption market, prices have been risen by Rs12 per bag. Retail prices have touched Rs280 and wholesale price in the trade segment is commanding around Rs265 per bag.

Although the price hike is attributed to Budget proposals of excise duty and diesel rate rise, analysts believe, fast capacity addition in the world’s second-largest cement growing market after China, is likely to depress prices and hence makers are squeezing each opportunity.

Cement players in the country have been aggressively ramping up capacity due to a spurt in domestic demand, which is one of the few markets in the world to see a sharp rise in cement usage.

Nanded city in Maharashtra’s Marathwada region got a big push, when the state and the central government decided to spruce it up ahead of Gurta Gaddi, a ceremony to mark the 300th year of the consecration of Guru Granth Sahib as the last guru the Sikhs. This city of barely 6 lakh people will become entirely slum-free It is home to one of the five most revered Sikh temples, Sachkhand Darbar Shri Hazoor Sahib.

The massive transformation of the highly congested, dusty and backward Nanded started in 2001when the city’s municipal corporation drew up an ambitious plan to redevelop and modernise the holy city. The then-Mayor approached the then-Prime minister, Chief Minister and the Planning Commission, seeking funds for the city’s crumbling infrastructure.

The real thrust came in 2005, when the then-Chief minister appointed a high-level committee, headed by PS Pasricha, who was the state Director General of police at the time, to prepare for the tri-centenary celebrations as about 50-lakh pilgrims were expected to visit the city in 2008-09. The state government allotted Rs250-crore for the makeover. Then, in 2007, the central government sanctioned a five-year plan worth Rs2,500-crore. The local Gurdwara board chipped in with Rs300-crore by the middle of 2008.

Within a shot span, four new flyovers came up, nearly 100km of roads were constructed, and several others were widened. A swanky and spacious airport with night-landing facilities was readied in just eight months to meet the Gurta Gaddi celebration deadline. The sewage system was also upgraded and new pipelines were laid, ridding the city of open gutters.

The biggest project, however, was to provide comfortable homes to the city’s over 26,000 slum dwellers living on the outskirts of the city. Of the central government contribution under the JNNURM scheme, Rs1,100-crore has already been spent, and 6,000 tenements are ready for occupation. The remaining will be completed within the next 18 months.