Budget 2014-15: Sops galore for realty sector

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NEW DELHI: Much to the relief of slowdown- hit realty sector, the government today relaxed FDI rules, gave incentives on home loans, offered tax sops on investment trusts and provided Rs 7,060 crore for the development of 100 smart cities.

Finance Minister Arun Jaitley in his Budget 2014-15 also increased the allocation of Rural Housing Fund, run by National Housing Bank (NHB), to Rs 8,000 crore in this fiscal. Another Rs 4,000 has been earmarked for NHB to increase the flow of cheaper credit for affordable housing for urban poor.

"Our government is committed to endeavour to have housing for all by 2022. For this purpose, I intend to extend additional tax incentive on home loans to encourage people, especially the young, to own houses," Jaitley said.

Stating that housing continues to be an area of concern for middle-lower middle class due to high financing cost, he said: "To reduce this burden, I propose to increase the deduction limit on account of interest on loan in respect of self-occupied house property from Rs 1.5 lakh to Rs 2 lakh".

To deal with the problem of migration of people from rural to urban cities, Jaitley proposed development of 100 'Smart Cities' as satellite towns of larger cities and by modernising the existing mid-sized cities. A sum of Rs 7,060 crore has been provided in this fiscal for this purpose.

For encouraging development of Smart Cities, the finance minister has relaxed the FDI norms.

The requirement of the built up area and capital conditions for FDI is being reduced from 50,000 sq metres to 20,000 sq metres and from USD 10 million to USD 5 million respectively with a three year post completion lock in.

To further encourage this, projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitalisation requirements, with condition of 3 year lock-in.

When asked whether relaxation in FDI in real estate is applicable for all projects or Smart Cities only, Finance Secretary Arvind Mayaram said: "No it is not restricted to Smart Cities. It is anywhere in the country."

"But we believe that as Smart Cities have to come up, lot of construction activities will be in those cities and therefore a large part of it will go in funding in construction activities in Smart Cities. It can come into the (existing) projects which fall in the definition of FDI in construction," Mayaram added.

In 2005, the Centre had allowed 100 per cent FDI under automatic route in real estate and construction subject to conditions that included a minimum area of 50,000 sq meters, minimum capitalisation of USD 10 million and 3 year lock-in period from completion of minimum capitalisation.

To give a major fillip to the commercial realty, Jaitley announced tax sops for Real Estate Investment Trusts (REITs).

"REITS have been successfully used as instruments for pooling of investment in several countries. I intend to provide necessary incentives for REITS which will have pass through for the purpose of taxation," he said.

Budget 2014: Path breaking Budget for real estate sector, says Shishir Baijal of Knight Frank India

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The big bang in Arun Jaitley's budget is that things will be done bottom up and it is more on execution rather than giving some grand proposals.

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Jaitley announced a Rs 500 crore fund for farm price stabilization. He said the govt wanted agriculture to grow although weak rainfall was a concern.

Modi has more or less, achieved such a unity of command and control by getting his loyalist and confidant Amit Shah appointed as the BJP president.

As for his party, Jaitley is one of the principal trouble shooters, dispatched to various corners of the country to settle one dispute or the other.

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A new round of funding could see Flipkart being valued at $5 billion (Rs 30K crore) at least, almost a near-doubling of the company's valuation.

"The will be developed to accommodate the burgeoning number of people, otherwise, the existing cities would soon become unlivable," Jaitley said.

The govt said it will allocate Rs 500 crore for its 'Digital India' initiative to set up broadband network in villages and promote local softwares.

Congress wants to make the people aware of each failure of BJP government and how it has failed to fulfil its promises with a media offensive.

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REITs being awarded a pass through status will attract significant investments into the sector which is the need of the hour

NEW DELHI: Applauding the Budget presented by Finance Minister Arun Jaitley, Shishir Baijal, Chairman & Managing Director of Knight Frank India said, "It's a path breaking budget with significant focus on real estate and infrastructure."

"The various incentives that have been provided will enhance the growth prospects of the real estate sector, even further. To begin with, REITs being awarded a pass through status will attract significant investments into the sector which is the need of the hour," Baijal said.

An allocation of Rs 7,060 core indicates that equal attention has been paid to infrastructure growth which is often inter-linked with demand for real estate, he said. "Various other monetary incentives such an allocation of Rs 4000 crore towards affordable housing backs the present government's vision of providing housing to all by 2022, he added.

Overall, this budget will ensure that sentiments remain upbeat for the next few years, Baijal said.

According to Jaitley, the Budget 2014 is only a step in the direction of economic recovery. Jaitley said, "We shall leave no stone unturned in creating a vibrant India."

Stating that he is taking up the fiscal deficit target as a challenge, Jaitley said, "We will try to meet the fiscal deficit target set for us."

"I have set a fiscal deficit target of 3.6% for 2015-2016," Jaitley said. "We need to introduce fiscal prudence. Fiscal prudence is of paramount importance. We cannot leave behind a legacy of debt," Jaitley stressed.

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Budget 2014: Sops in abundance for realty sector

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NEW DELHI: In a slew of measures to boost slowdown hit real estate sector, the government today relaxed FDI rules, gave incentive on home loans, offered tax sops on investment trusts and provided Rs 7,060 crore for the development of 100 smart cities.

Finance Minister Arun Jaitley in his Budget 2014-15 also increased the allocation of Rural Housing Fund, run by National Housing Bank (NHB), to Rs 8,000 crore in this fiscal. Another Rs 4,000 has been earmarked for NHB to increase the flow of cheaper credit for affordable housing for urban poor.

"Our government is committed to endeavour to have housing for all by 2022. For this purpose, I intend to extend additional tax incentive on home loans to encourage people, especially the young, to own houses," Jaitley said.

Stating that housing continues to be an area of concern for middle-lower middle class due to high cost of financing, Jaitley said: "To reduce this burden, I propose to increase the deduction limit on account of interest on loan in respect of self occupied house property from Rs 1.5 lakh to Rs 2 lakh".

To deal with the problem of migration of people from rural to urban cities, Jaitley proposed development of 100 'Smart Cities' as satellite towns of larger cities and by modernising the existing mid-sized cities. A sum of Rs 7,060 crore has been provided in this fiscal for this purpose.

For encouraging development of Smart Cities, the finance minister has relaxed the FDI norms.

The requirement of the built up area and capital conditions for FDI is being reduced from 50,000 sq metres to 20,000 sq metres and from USD 10 million to USD 5 million respectively with a three year post completion lock in.

To further encourage this, projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitalisation requirements, with condition of 3 year lock-in.

In a major fillip to the commercial realty, Jaitley announced tax sops for Real Estate Investment Trusts (REITs).

"REITS have been successfully used as instruments for pooling of investment in several countries. I intend to provide necessary incentives for REITS which will have pass through for the purpose of taxation," he said.

Industry players hailed the Budget saying these measures will help boost affordable housing as well as improve investment flows.

Market regulator Sebi had proposed draft regulations relating to REITs that has been placed in public domain for comments. Final norms are yet to be notified.

REITs would reduce the pressure on the banking system while also making available fresh equity, Jaitley said, adding that the instrument would attract long term finance from foreign and domestic sources including the NRIs.

Noting that Rural Housing Scheme has benefited a large percentage of rural population who have availed credit through Rural Housing Fund (RHF), Jaitley proposed increasing the allocations to Rs 8,000 crore for NHB.

He proposed setting up a mission on low-cost affordable housing which will be anchored by NHB. The schemes will incentivise the development of low cost affordable housing.

Finance Minister allocated Rs 4,000 crores for NHB in this fiscal with a view to increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment.

Jaitley proposed to add inclusion of slum development in the list of Corporate Social Responsibility (CSR) activities to encourage the private sector to contribute more towards this activity. He said the government is willing to examine other suggestions that would spur growth in the housing sector.

Budget 2014: 5 changes to improve housing and real estate sector

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Jul 4, 2014, 02.26PM IST

By Neeraj Bansal

The real estate sector has been the backbone of the Indian economy and has been a major contributor in the economic growth. The approach followed by real estate players have been instrumental in changing the face of the country, from being under-developed to accelerating its way to a developed country. The sector contributes about 6.3 percent to the nation's GDP (2012-13) is a major source of revenue for Central, state and local governments and provides employment to more than 50 million people (along-with construction sector). It also supports about 300 ancillary industries, such as cement, steel, building material, paint and transport.

Since the opening up of the Indian economy to foreign investors in 2005, the sector has attracted more than US$22 billion through foreign direct investment; it is expected to attract US$180 billion by 2020. However, over the past few years, it has been facing several problems, such as increased land prices — the most precious and scare 'raw material' — funding constraints, slump in sales, numerous approvals and a significant time required to obtain them, and uncertainties on the tax and regulatory fronts.

However, there's no denying that the sector has substantial growth potential, which is evident from a burgeoning middle class, significant high urbanization, shortage of affordable housing, proposed development of new cities and industrial corridors, signs of revival in the global economy and the corresponding positive impact on the Indian economy. The need of the hour is for the government to reform its policies for the sector and tax regulations to provide the much-desired fillip to the sector. Here are some changes that can be brought in the budget to initiate the process:

1. Service tax credit on construction activity is not available against output service tax liability on renting immovable property. Credit of input service tax paid on construction service should be allowed to avoid cascading effect of taxes.

2. Clarification on transferring of development rights: The transferring of 'development rights' entails transferring of rights related to land. Some states levy stamp duty on such transactions. Taxing the transferring of development rights has not been clarified under the current service tax regime. Suitable clarification should be issued to ensure that the transferring of development rights would not attract service tax.

3. Industry Status for Affordable Housing: The Reserve Bank of India characterizes the sector as 'risky', which deters it from accessing funds. Considering that it generates significant employment opportunities and contributes to the GDP, the sector should be given an industry status, which will help it access bank funding at better interest rates and reduced collateral values. A reduction in the base rate and repo rate would enable banks to grant loans to developers and home buyers at reduced rates, which would increase affordability.

4. Revoke the LARR Act 2013; make only landowner's consent mandatory: mandates obtaining consent from 70 per cent of project affected families (PAF) in case of public private partnership (PPP) projects and 80 per cent in case of public projects. PAF is defined to include not only land owners but also those who lose livelihood from the land acquired. Hence, the requirement of obtaining consent of 70/80 percent PAF can be a tedious and long-drawn-out process. These provisions should, therefore, be modified to include only landowners.

Alternatively, the PAF consent limit should be reduced. Also, compensation of up to two times of the market value in urban areas and up to four times of in rural areas seems steep, considering the fact that PAF are also provided separate rehabilitation and resettlement (R&R) benefits.

  5. From the perspective of Real Estate Regulatory Agency (RERA), the requirement of setting aside up to 70 per cent (state-wise threshold) of the sale proceeds in an escrow account appears to be high, considering that the cost of the land is generally between 40 and 60 per cent, depending on the state in which it is located.

Accordingly, it is suggested that the upper limit of 70 percent be reduced or states should be directed to issue guidelines to fix an appropriate cap so that the money in the escrow account is enough to meet the construction cost of a project but does not unnecessarily lock additional liquidity of developers.
The continued growth driven strategies of the real estate players, along with the support of the Central and State governments, will surely pave a positive path to take the Indian economy to the next level.

The author is a Partner at KPMG in India.

Banking sector slow to increase competition after new rules

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The new rules were meant to increase competition for high-street bank customers. Photograph: Network/Alamy

A relaxation in the rules governing the creation of new banks is yet to lead to a dramatic increase in the number of new high street players being authorised by the City regulator.

Figures published by the Bank of England show little change in the annual approval rate for new banks since the introduction of rules last year, which mean that new banks need less capital to get started than they did in the past.

Five banks were authorised in the 12 months to the end of March, similar to the average since 2006. Talks were held with another 25 potential applications.

The government wants to bolster competition on the high street, dominated by the big four banks – Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays – by encouraging the creation of new banks. More than 30 banks have been authorised since 2006, although only a few would be regarded as competitors to the high street players, such as Metro Bank, which in 2010 was the first bank to open a branch network in 100 years, and buy-to-let lender Paragon, which has recently been handed a banking licence. After the period covered by the Bank of England report, Edinburgh-based bank Scoban was also authorised.

The Bank's data does not include TSB, the high street bank spun out of 24% taxpayer-owned bank Lloyds last year and floated on the stock market last month, because it already had a banking licence. Tesco Bank, which recently launched current accounts, was also already authorised.

The regulators were given a wider remit than just tackling competition on the high street and were instructed to look at ways of encouraging a range of new entrants, including in wholesale banking.

The report highlighted improvements in the process of authorisations, with 47 meetings before formal applications were made for a licence in the 12-month period compared with 48 meetings between 2010 and 2012. The Bank of England said that new banks seeking authorisation had a variety of business models in high street and wholesale banking or were aiming to offer loans to small businesses or retail customers taking in deposits.

Andrew Bailey, chief executive of the Bank's regulatory arm, the Prudential Regulation Authority, said the changes to regulation were making a difference. "Reducing barriers to entry can be achieved alongside continuing to ensure new banks meet basic standards that prevent risks to the safety and soundness of the UK financial system. The feedback we have received from the new banks has been very encouraging," he said.

City minister Andrea Leadsom said it was "great news for bank competition and choice" that the new banks were being authorised. "Critical to our long-term economic plan is getting new banks into the marketplace, and today's report shows we are doing that," said Leadsom.

Bolstering high street competition could be a battleground during the 2015 general election as Ed Miliband has signalled that he will cap the size of banks' market share and create two new challenger banks with an 8% market share.

Service sector growth remains strong

  The UK's services sector continued to expand in June The UK service sector continued to grow at a steady pace in June, pointing to a further strengthening of the economy in the first half of 2014.

The Markit/CIPS services purchasing managers' index (PMI) registered 57.7, down from May's reading of 58.6 but still well above the measure of 50 which indicates expansion.

The survey also said employment in the sector grew at a record pace.

The services sector accounts for about three quarters of UK economic growth.

'Firing on all cylinders'

The PMI survey also indicated that business volumes in the service sector rose at the fastest pace for six months.

Markit chief economist Chris Williamson said the services sector index taken together with strong construction and manufacturing data published earlier this week suggested economic momentum was holding.

"Alongside an ongoing surge in construction and the largest quarterly rise in manufacturing output for 20 years, the services PMI confirms that the economy is firing on all cylinders," Mr Williamson said.

He said the data pointed to UK growth of 0.8% in the second quarter, building on economic growth of 0.8% in the first three months of the year.

Mr Williamson said that this made it more likely than not that an interest rate rise would occur later this year rather than in 2015.

The construction and manufacturing sectors have also seen strong growth

"The persistent strength of the PMI surveys raises the likelihood of policymakers deciding that a pre-emptive rise in interest rates later this year is warranted, especially given the speed at which the labour market is improving," he said.

Mixed signals

Bank of England officials have given mixed signals on the timing of a potential interest rate rise.

Last week, MPs accused Bank of England governor Mark Carney of being an "unreliable boyfriend" after he suggested interest rates could rise by the end of this year and then appeared to row back on idea the following week.

Mr Carney said there may be more "spare capacity" in the economy than the Bank originally estimated in its February Inflation Report, adding policymakers think more slack may need to be used up before that happens. The Bank is particularly concerned by the slow rate of increase in average wages.

He told the BBC that markets were too focused on when interest rates would rise, rather than the point they would ultimately settle at, adding interest rates could rise to a "new normal" of 2.5% by the end of the first quarter of 2017.

Wage rises

David Tinsley, UK economist at BNP Paribas, said if the survey's employment figure was reflected in the official data, "then it appears we are set to see even larger falls in unemployment ahead".

"The knock-on impact of more payrolls should support consumer spending over coming quarters," he added.

Howard Archer, chief UK and European economist at IHS Global Insight, pointed out the Markit survey noted reports of rising wages as the service sector labour market tightened.

"This fuels the belief that earnings growth will trend up over the coming months despite the relapse in April reported by the Office for National Statistics," he said.

"This would be good news for consumers' purchasing power and would boost growth prospects."