Month: July 2013

Environment Ministry limits ambit of clearances for realty projects

NEW DELHI: The environment ministry, under pressure from real estate and builder lobbies, and state governments, has limited the ambit of clearances for projects in this sector. Now, local civic authorities will lay down the norms relating to building control and safety in line with the relevant master plan.

The real estate sector has consistently demanded that environmental clearance procedures be simplified and shortened. The urban development ministry too has been advocating single window clearance for real estate and housing projects, arguing that this would help contain escalating housing costs. Given its function as a regulator, the environment ministry had made it clear that it could not be part of a single window clearance system.

However, in response to the overwhelming demands, the environment ministry set up a committee headed by Planning Commission member K Kasturirangan to review the environment clearance process for the sector. The committee recommended that the local authorities decide on the norms, and the environment clearance authorities focus on environmental impact, waste water treatment, air quality and such issues.

Source: The Economic Times

Mumbai real estate: Boom and bust at the same time

MUMBAI: A recent wave of building collapses has brought attention to this city’s large number of poorly built structures. It feels as if every week brings fresh reports of a new disaster. The death toll is expected to rise with the monsoons.

News media and political attention have mostly focused on the vast stock of old buildings from the pre-independence period and immediately after. Yet old age wasn’t the cause of the collapse of a building in Thane, a city on the outskirts of Mumbai, that killed around 74 people in April. That building was still under construction. (And, like a majority of buildings in Thane, the construction was illegal – neither authorized nor overseen by any official agency.) Old age cannot explain the caving in of a 34-year-old building that killed at least 10 people near here last month either, nor the collapse of a building, about a decade old, that killed at least six people and injured more than two dozen last week.

Intangible factors, like faulty urban policies and unchecked real-estate speculation, bear the prime responsibility.

Most of the recent casualties have taken place in the far periphery of Mumbai, where one finds a sprawling landscape of hastily built residential blocks meant to absorb white-collar middle-class Mumbaikars who struggle to find anything even remotely affordable in the city. Many of them commute for hours daily in trains so packed that people routinely fall out – collateral damage of the speculative euphoria.

A bombastic real estate sector has simultaneously pushed up the price and heights of buildings, accelerated the speed of construction and lowered the quality of new structures in and around Mumbai. Many properties are conceived primarily as assets, to be bought and sold to investors. Owners often prefer empty flats because they can be traded more easily. This partly explains why, according to a government census in 2011, nearly half a million houses and flats are vacant in one of the most crowded metropolitan areas on earth.

Officially, the promotion of a vertical skyline has been justified on the grounds that high-rise structures are the only possible response to Mumbai’s huge population and land shortage. Dozens of skyscrapers, 300 feet high or higher, are under construction in Mumbai. Investors are planning to build, at around 2,300 feet, the world’s second tallest structure.

But the argument for verticalization has long been rejected by architects and city planners. Every vertical push also requires a horizontal spread – new high-rise inhabitants need access roads, open space and other services. Besides, the higher you build, the more expensive the construction and maintenance.

High-rise structures are also outside the budget of India’s low-income groups, which explains why, in the last decade, south Mumbai has seen both more high-rise buildings and a declining population.

Following the same faulty logic, the authorities are promoting the transformation of slums, which can be found in all parts of the city and where over 60 percent of the population is said to be living. Since the 1990s, the Slum Rehabilitation Authority has offered to let investors raze slums and redevelop the land, so long as they devote part of the site to new housing for the displaced residents.

Inevitably, that housing is squeezed into high-rises, in order to leave as much land open for development as possible. These structures are often shoddily built disasters. Maintenance is expensive, and rust, leaking roofs and cracked walls are common after only a few years. In addition, the buildings are not amenable to the kind of home-based economic activities and street retailing that characterized the old neighborhoods. Eventually, many sell and move out to a slum.

Source: The Economic Times

RBI flags high home prices

The Reserve Bank of India (RBI) in its Financial Stability Report for June, released on Friday, has flagged the rising house prices in most metros. This is at variance with bank credit to housing, which has actually fallen. “Growth of bank credit to this sector has, however, been moderate. Further, the share of credit to the housing sector fell to 9.5 per cent as at end March 2013 from 13.3 per cent at end April 2007,” the RBI said.

In parts of Mumbai, for example, the central bank says that there are indications that the price to annual rent ratios are as high as 50. “There is a need to closely monitor this sector,” the central bank said.

Last week, the head of a housing finance company too touched upon the high home prices in his message to shareholders. In HDFC’s 36th Annual Report, chairman Deepak Parekh observed, “Even in tier II and tier III cities, home prices are inflated.”

The NHB Residex, an index that monitors house prices in key cities has in its latest instalment pointed to this trend.

For the quarter ended March 31, house prices in 12 cities have shown an increase over the previous quarter. The Residex monitors 20 cities. The maximum increase was observed in Jaipur (28.74 per cent) followed by Bhubaneswar (14.54 per cent), followed by Pune (7.81 per cent) and Bhopal (6.49 per cent). Other cities too witnessed a marginal rise, such as Patna (0.67 per cent), Ahmedabad (0.53 per cent) and Indore (0.52 per cent).

Parekh has advocated increasing supply as the only way to reduce prices and called upon developers to cut prices. “Ultimately, developers need to recognise that in the long-run, it is to their advantage to allow a correction in prices,” Parekh said.

This view has been countered by the real estate industry. “In my opinion, there is enough supply in the market in all segments. Increase in supply is not the solution to the problem. In fact, high supply will worsen the situation further,” said Navin Raheja, president, National Real Estate Development Council (Naredco).

“Reducing prices could significantly impact sentiments in the market place. It might create panic situation in the market,” said Nishant Singhal, director-strategy, Investors Clinic Infratech, a property brokerage.

Instead developers have been attracting buyers by offering payment schemes such as 20:80 schemes and interest subvention schemes. Parekh cautions against such “teaser” offers. “To my mind, teaser products of any nature entail risks. Customers need to be cautious of ‘too-good-to-be-true’ type of products. Borrowers must not be blinkered into believing that there are no risks when developers offer to pay interest on a borrower’s loan for a specified period.”

In fact, such schemes are also on the radar of the National Housing Bank (NHB), the regulator for housing finance companies. “We are keeping a close watch on such schemes. We aim to ensure that developers do not derive undue regulatory arbitrage if lenders unknowingly or unwittingly club individual retail loans to the project loan,” said RV Verma, chairman and managing director, NHB.

Raheja pegs the increased prices on the very nature of the business with high capital costs, which escalate as approvals from various authorities take up significant period of time. Anuj Puri, chairman and country head, Jones Lang LaSalle India agrees with this view.

“The ground realities of the development business also need to be factored in. The general impression is that the high prices being quoted by builders stem purely from a profit motive. However, it is not commonly understood that builders have also been paying a lot more for developing their projects. To begin with, obtaining the 57-odd permissions for construction of a project can take as much as two years,” said Puri.

A major cost is the purchase of land, which can work out to a substantial portion of the total project cost in metro areas. Currently, developers have to resort to private financing to cover the purchase of land. The RBI has given a ‘high risk’ weight to land purchase and banks do not offer financing. The move is essentially aimed at preventing asset bubbles, which were the prime reason for the 2008 financial crisis.

Verma, however, calls for a relook into the business model that is prevalent today in the real estate sector. “Developers resort to costly financing to purchase land. It is time to take a relook at land purchase. Bringing in a special regulatory treatment for residential projects would be most favourable. If there is a mechanism for part financing of land, the lender can monitor the project from day one, which can help mitigate risk and bring in better affordability.”

The high land costs have become a major impediment to the growth of affordable housing, the sunrise sector, as Parekh observed.

“In most states, the floor area ratio (FAR), density and ground coverage norms do not support creation of affordable housing. The long approval process is another major problem. In the cities where land cost is high, this is possible only under public-private partnership. Upward revision in FAR, ground coverage and population density norms are required on priority basis,” said Raheja.

While industry players pin the rising prices on extraneous factors, the RBI has plans to monitor the sector closely by developing a set of indicators. “Indicators such as house price to household disposable income ratio, household financial obligations to household disposable income ratio, land price indices, index of construction costs, and price to rent ratio, information on ownership of houses, among other indicators need to be developed,” the RBI said.

Source: The Indian Express

Land acquisition for metro project upheld

The Calcutta High Court today set aside a trial court order upholding the acquisition of land by the transport department of the West Bengal government for construction of Central Station at Bowbazar in the city under the East-West Metro project.

A division bench comprising Chief Justice Arun Mishra and Justice Joymalyo Bagchi upheld the acquisition, observing that the state has proved that the award was announced within the statutory period of two years and not beyond that as claimed by the residents who had challenged the acquisition.

The state’s Land and Land Revenue Department had moved the division bench against an order of Justice Jyotirmoy Bhattacharya, who had in September last passed an order that the entire land acquisition proceedings concerning the properties stood lapsed.

The single bench had observed that the consequences for non-publication of compensation award within the statutory period as provided in Section 11A of Land Acquisition Act, 1894, would follow in the case.

Source: The Indian Express

Proposal to levy VAT on realtors spreads panic

Haryana government’s proposal to bring real estate developers under the ambit of Value Added Tax (VAT) has thrown buyers and builders into a tizzy.

During a press conference in Chandigarh on Tuesday, state excise and taxation minister, Kiran Choudhry, told reporters that a survey is being conducted “to bring developers, joint developers, promoters and builders under ambit of the Value Added Tax Act, 2003”.

While buyers fear the additional tax, if approved, will be passed on to them, builders are worried about slower sales in a recession-hit market.

According to the state government’s proposal, builders will be liable to be registered under the Act with the excise and taxation department and pay a prescribed 4% VAT on the contract value of a project. However, no VAT will be applicable on built-up flats and buildings.

Shveta Jain, executive director, residential services, Cushman and Wakefield, said such a proposal is expected to create an upward pressure on prices across Haryana, especially cities like Gurgaon, Sonepat and Faridabad which are part of the national capital region (NCR).

“In states such as Maharashtra, where VAT has been imposed on developers, the tax was passed on to buyers as added cost,” she said.

The additional tax will make other NCR locations such as Dwarka Expressway and the Noida-Greater Noida belt, among others, more attractive to the buyers, Jain added.

The director-general of the Federation of Apartment Owners Association of India, Amit Jain, said, “It’s obvious that the extra burden will be passed on to buyers. Before formulating such a policy, the government should take us into confidence and work out a rational VAT policy, if any, keeping in mind buyers’ concerns.”

On the other hand, Navin M Raheja, managing director of Raheja Developers and president of the National Real Estate Development Council (NAREDCO), expressed concerns that the proposal has come at a time when off-take in the sale of properties is low and this kind of announcement may discourage prospective buyers.

Urging the government to put on hold its decision, Raheja said, “The state should hold an open discussion with real estate leaders and note their points of view before taking any such decision.”

Source: Hindustan Times