Eyeing fresh signs of a revival in the economy, which should nudge growth back to 9% level by end-2010, finance minister Pranab Mukherjee announced fresh tax giveaways for housing and renewed the government’s commitment to more economic reforms and introduction of a single goods and services tax (GST) by 1 April. The move, expected to further boost housing demand in the economy especially in tier II cities, also seeks to quell growing criticism that the Congress-led United Progressive Alliance (UPA) is averse to second-generation reforms. Replying to the debate on the Finance Bill, which was approved by a voice vote by the Lok Sabha, Mukherjee renewed his efforts to strike political consensus on key areas of tax reform, including the introduction of a direct tax code.

The reply also calibrated a few of his 6 July Budget tax proposals, which are not expected to result in big revenue giveaways, thereby precluding the possibility of a marked increase in the Rs4 trillion fiscal deficit forecast for 2009-10. The stand out feature of Mukherjee’s calibration of tax proposals in the Finance Bill was the emphasis on boosting real estate through both budgetary support and tax changes. The budgetary support in the form of a 1% subsidy on the interest rates paid by people with a home loan of up to Rs10 lakh would cost the exchequer Rs1,000 crore in the current fiscal year, Mukherjee said.

Under Section 80 IB (10), income-tax deduction was given to real estate developers for housing projects approved before 31 March 2007. This has now been extended to projects approved between 1 April 2007 and 31 March 2008, provided these projects are completed on or before 31 March 2012. “We have been asking for an extension for a long time and I am happy that this step has been taken,” said Kumar Gera, chairman of the Confederation of Real Estate Developers’ Association of India. “The extension will benefit only those projects that were approved during this period, so it may not have an impact on all housing projects in all markets. It could have an impact on certain micromarkets.”

Among other key tax changes was the removal of service tax charged by contractors repairing and maintaining roads, and extending tax benefits given in the Budget to firms producing natural gas under the new exploration licensing policy to those producing natural gas from coal-bed methane blocks. The finance minister admitted he had to ignore many other post-Budget representations, which came his way, as the tax proposals had to mesh with the broad strategy of providing fiscal stimulus. “We must generate internal demand,” he said. The spillover of the fiscal stimulus provided last fiscal year and proposals introduced in the 6 July Budget have cost the exchequer Rs2.4 trillion, Mukherjee said. The fiscal deficit (extent of borrowings needed to bridge the gap between expenditure and revenue) is estimated to touch 6.8% of the gross domestic product in 2009-10.

The Budget estimates of the Centre’s net tax revenue in 2009-10 is Rs4.74 trillion, an increase of 0.19% over the previous year’s revised estimate. Economic growth, which received top priority in the Budget’s overall strategy, is showing signs of recovery, Mukherjee said, though he remained cautious about signals provided by an improvement in economic indicators such as May’s factory output. “I would not say we are out of it. Situation is still difficult.” Mukherjee assured the House that the government would continue putting in place reforms, including tax reforms, to facilitate growth. In the area of tax reforms, Mukherjee said he was confident India’s indirect tax system could stick to the 1 April deadline for transition to GST, even though some states such as Madhya Pradesh and Tamil Nadu have said the deadline might be premature.

“On broad national interest, there is no discordant view,” Mukherjee said, explaining why he remained upbeat about meeting the deadline. GST is India’s most ambitious indirect tax reform, which seeks to dismantle tax barriers that fragment India’s market according to state boundaries. The transition requires cooperation between Centre and individual states. The country’s tax reforms could, however, be negatively affected by the Opposition’s displeasure with the way the UPA has directed policy in areas such as international affairs. “A mere call for consensus is not enough. To have consensus on issues, the government should pre-consult the Opposition on issues of national importance. Unfortunately, the (government’s) conduct in the last two months does not reflect this,” said Prakash Javadekar, spokesperson of the Bharatiya Janata Party.

Indian pension fund managers may have recently got the nod to dabble extensively in volatile stocks, but global pension funds from the US and Europe continue to back India for giving good returns. US public pension funds such as California Public Employees’ Retirement System (CalPERS), California State Teacher’s Retirement System (CalSTRS) and European pension funds such as Norway’s Government Pension Fund (Global), Denmark’s LD Pensions, Netherlands’ ABP Funds — all combined — have exposure to over 300 different companies listed in Indian bourses, apart from investments in real estate. CalPERS, the largest public pension fund in the US, has just reported the most severe (23%) decline in assets to $181 billion in fiscal 2009 but yet it believes India is one of the “most promising” investment destinations globally. CalPERS has over $320 million exposure in listed Indian stocks plus $100 million in Indian real estate via India Realty Fund and India Real Estate Fund.

“We believe markets, including India, are perhaps the most promising investment sector in the coming years. Accordingly, our global equity , private equity, and real estate sectors are looking to allocate increasing share of their portfolios-up to 50% — to such countries. India is promising, especially compared with so-called developed US and Europe,” a CalPERS spokesperson said. The fund administers retirement benefits for 1.6 million active and retired state, public school, and local public agency employees and their families. Norway’s Government Pension Fund (Global) — where the surplus wealth produced by Norwegian petroleum income is deposited — has exposure to around 215 Indian listed companies. According to an official of Norges Bank Investment Management, which is responsible for investing the international assets of the fund, emerging markets such as India have been ‘responsible for improvement in the returns’ clocked by international listed stocks portfolio.

Netherlands’ ABP and Denmark’s LD Pensions have exposure to Indian stocks worth over $500 million as per latest figures. These funds serve the needs of nearly 3 million European pensioners.

Finance minister Pranab Mukherjee said that the interest rate subsidy for mid-segment housing would be routed to customers through commercial banks and housing companies registered with the National Housing Bank. He said to further provide stimulus to the housing sector, it will be allowed a tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008, if such projects are completed on or before March 31, 2012. ‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector,’’ he added.

The interest subsidy is aimed at mid-segment housing loan borrowers from the lower middle to middle-income groups. Even on Monday, Congress MP from Mumbai (North) Sanjay Nirupam, while speaking on the finance bill, said 42.4% of Maharashtra’s population was urbanized and trends pointed to increasing migration to cities. With home loan rates climbing steeply, there was a case for providing relief to borrowers. Providing an interest subsidy and a targeted tax break also answers in part the demand that the becalmed real estate sector needs a leg up. The government’s message to the real estate developers is to lower prices and make housing more affordable for the aam aadmi.

The housing loan subsidy came with a slew of other concessions such as exempting road repairs and maintenance from the ambit of service tax while extending the sunset clause for tax holidays for industrial parks by a further two years up to March 2011 to boost growth in infrastructure. The FM clarified that service tax on new services and any alteration in the existing services as announced in the Budget would be effective from September 1, 2009. ‘‘It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment,’’ said Renu Sud Karnad, Joint MD, HDFC Ltd

Tameer, speaking about its project Al Salam City in Umm al Quwain (UAQ), said that it could be worked out in the future, although it is currently on hold.

Several investors in the project were refunded 100 percent of their money.

The President of Tameer, Federico Tauber, confirmed that so far more than seventy percent of investors have been refunded, and the refunding process to all investors will be complete by end of September.

Tauber said that the project would surely be considered in future. There is a significant investment, but it is not the company’s priority now. For now, Al Salam City aims to satisfy its customers and refund them, as the company now aims to deliver the projects in hand at present.
The Al Salam City project was being developed by Tatweer, together with Umm al Quwain government. With a long overdue shift in management, the company now aims to handover its remaining eight projects, with a total value of Dh.20bn, under the guidance of Tauber.

Tauber says that it is a major milestone in Tameer’s history, as it is the first major project to be delivered. Tameer announced the delivery of its Dh.500mn Palace Towers in Dubai Silicon Oasis, a 25-storey commercial tower, with 150 offices and another 22 storey residential tower with 424 apartments.

The company’s project in Al Majid City and Jordan will be handed over next month, while the tower in Business Bay will be ready by December.

Wasl, the Asset Management Group of Dubai Real Estate Corporation (Drec), will add 4000 new units to its leasing portfolio towards the end of the year, a company executive revealed.

These properties spread across Al Karama, Muhraisnah, Al Badaa, Emirates Golf Club, Al Quoz, Al Rashidivah, Ras Al Khor, Al Barsha and Muhaisnah, which includes apartments, villas and retail space.

Wasl has leased about 20,000 residential and commercial units around Dubai, and will also release about 131 villas in several areas of Dubai this year.

In Muhaisnah alone, the company has nine buildings, comprising 1715 apartments. The first phase of the project has 450 apartments with a total built-up area of 787,000 square feet, and will be available for lease shortly. The second phase with 1266 apartments will be available for lease later during the year. The development at Muhaisnah will comprise of studios, single, double and triple bedroom apartments.

The Ras Al Khor area will offer 19 residential buildings with 1732 apartments featuring great community amenities. Located in proximity to the Dubai-Hatta Highway, the project offers residents easy access to major arterial roads and is meant for a community-focused lifestyle. Leasing in the area will commence in October this year.

Additionally, the company plans to release 131 villas across various areas in Dubai, with 92 villas in Emirates Golf Club, 31 in Al Rashidiyah, and an additional 8 villas to the already existing 132 units at Al Badaa this year.

At Al Barsha the company will release two three-storey buildings, offering total of 471 residential units and 31 retail outlets, in proximity to the Mall of Emirates. The latest property here is the 162-unit residential building, offering studios, single, double and triple bedroom apartments. The building aims to cater to the lifestyle requirements of professional executives and families working in nearby business districts.

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All eyes are now on the government sector. Government employees are being wooed like never before be it real estate, consumer durables and auto. In fact, banks are also introducing special schemes to woo the sarkari brigade. Maruti Suzuki India, for example, claims that 11% of their sales contribution came from government sector employees this financial year as compared to negligible contribution a year back. Similarly, housing finance company, Dewan Housing Finance, saw a sizeable rise in loan offtake from this sector. According to them, almost 40% of their total book size came from this category. And mid-scale developers such as Delhibased Piyush Group will be coming up with some special schemes in the affordable segment for government sector employees in a month. According to Anil Goyal, CMD of Piyush Group, they will we will be bringing some special incentives.

Banks are not lagging behind in these initiatives as well. UCO Bank launched a special scheme for government employees a few days back. “About 15 days ago, we have launched a special scheme to provide housing and auto loans to civil servants. We provide housing loan at 8% and auto loan at 9%. Since the launch, these schemes have been received quite well,” said S K Goel, CMD of UCO Bank. For other banks it is also a case of relatively lesser risk in lending. This largely due to the nature of their job profile. “Since there is uncertainty in the job market, a greater amount of due diligence takes place while sanctioning loans to private sector employees as compared to government employees ,” says Sujan Sinha, senior vice president and head of retail liabilities, Axis Bank.

In fact, government employees have even contributed to the turnaround of the auto industry. Maruti Suzuki India registered its Essex 4 recently with the Directorate General of Supplies and Disposal (DGS&D ), an arm of the Ministry of Commerce . According to a senior official of the company, a bulk of the government’s own buying is done through them. Their latest addition is the Essex 4 which they have included in DGS&D after the Maruti Desire was registered 3-4 months back. Focus models for them, however, are the compact cars such as Alto, Wagon R and Estillo which are in the range of Rs 3 lakh to Rs 4.5 lakh. These are the most popular buys for this sector. Other auto majors have a similar view. In fact, they believe that the industry managed to grow by a single digit growth in 2008 after witnessing a decline in the previous year only due to increasing demand from this segment. “Factors such as Sixth Pay Commission and attractive stimulus packages have helped a turnaround in the industry,” says Anil Dua, senior vice president, marketing and sales, Hero Honda Motors.”

And when it comes to the real estate sector, biggies such as DLF confirm the activity from this sector. “We do not discriminate between our clients. However, there is an increase in the number of government employees as their cash flows have not been affected due to slowdown,” said Rajeev Talwar, group executive director, DLF. Agrees Gaurav Bhalla, executive director of the Vatika Group. “We are seeing more people from the government sector buying as compared to earlier.” You could call this ironic for private sector employees or plain good luck for the public ones, but the fact remains that government employees have been the least impacted by the slowdown blues. They even got a huge jump in salaries after the implementation of the Sixth Pay Commission last year, and a part of their arrears are due this year.

In fact, leading consumer durable companies such as LG also contend to the fact that a significant part of the business has come from first time buyers which include rural sector and government sector employees. “The large part of the demand in the current calendar year has come from first time buyers and upgradation to LCD categories. A significant growth has also come from the rural and the government sector. They are holding the growth rate of the consumer durables industry, which may not have been the case otherwise,” says V Ramachandran , director, sales and marketing, LG Electronics India . Sarkari may well be the buzzword for the industry now. After all, with good business coming in from this segment, it’s no surprise why everyone is going ga ga over them.

Is it a good time to buy or sell in the real estate market right now? Chances are that as a prospective buyer or a property owner, you may be facing a serious dilemma. Industry players feel that while it may be a good decision to buy in certain locations, a sell off needs to be given a few more months till the market picks up completely. So which are the best places to buy in right now? According to global real estate consultancy Cushman & Wakefield (C&W), in Delhi NCR, it is Noida, Greater Noida Expressway and areas in Gurgaon along the Golf Course Extension Road. In Mumbai, central Mumbai and western suburbs such as Bandra, Kalina and JVLR are good bets. New emerging destinations in Bangalore such as Sarjapur Road, North and central Bangalore, apart from a few projects within the city can be considered.

Aditi Vijayakar, executive director, residential services India, C&W, says that this is a good time to buy a property for self use as prices have corrected considerably over their peak in 2007-08. “Buyers at this time can take advantage of lucrative interest rates on home loans. However, for investors entering the market, this time should be evaluated keeping the various arbitrage options that they can take advantage of in the current scenario. As far as selling is concerned, this is not a sellers market. The decision should be taken when the owner is confident of achieving the expected appreciation of the capital value of that property.”

While developers such as Vipul, Realtech, Raheja Developers and SVP Group say the market is picking up and one should look at buying, they don’t sound equally enthusiastic about selling off one’s property at this time. The fact that prices have corrected to far more realistic levels today makes buying a much better bet in these times, feel many developers. Says Punit Beriwala, MD, Vipul, “Whatever correction was possible has already happened and the properties are available at best prices today. From the investment view point, buying a property and holding it for few years is a good option. The demand for housing in mid and affordable segment is on the rise and definitely is an appropriate buying option in these times.”

However, on selling the property at this juncture, many are of the view that it’s better to hold on for some time. Harinder Dhillon, GM, marketing, Raheja Developers, says one should refrain from selling right now as the market is bouncing back. “A lot of projects recently launched have generated a fantastic response in the market. Rates have already started climbing up in select areas, and the rest are poised for growth in the next few weeks. One should wait, as in a few months’ time, a seller will get a much better rate for the property.” Agrees Vijay Jindal, CMD, SVP Group. He says that to reap the benefits in the seller’s market, one should wait as the market is really down. “It is better to wait. The reason is that property in the primary market is much cheaper than property in the secondary market. People are preferring to invest in new projects rather than going for the secondary market.”

However, keeping a few basics in mind will work well in this scenario. Rohit Malhotra, CEO, Realtech, feels that in both the cases one should consider key factors. “For those buying, it is prudent to look for better prices (as liquidity is still an issue) and they can drive better bargains. For sellers, depending upon the need to liquidate the assets, it is better to hold on for another six months and take it from there.” Be sure not to overlook the primary do’s and don’ts whether you are buying or selling off in this market. In the case of buying activity, analyse your requirement before going in for any transaction in the market, adds Mr Dhillon of Raheja Developers. According to him, if the requirement is for a ready-to-move-in property at a prime location, prices have already started firming up so it is better not to delay any further.

Legal issues together with well drafted documents relating to broker agreements must be thorough. Varied financing options must also be explored completely before finalising a property deal. Apart from the location, an important aspect to look into is the project, adds Vijayakar of C&W. “Factors such as credentials of the developer, construction time line and actual location vis-a-vis surrounding infrastructure should be taken into consideration before finalising any purchase. This is especially true in the case of purchase for investment purposes.” Make your decision after careful consideration of all the factors in play. As long as your judgement to buy or sell is a well thought out one, it is bound to give you a profitable edge.

According to the latest quarterly Harbor Report, to be issued end of this month, the real estate sector will begin recovery early next year. The report has been issued by Harbor Real Estate, a brokerage company, also an integrate real estate service provider in Dubai.

The report indicates that although the market seems to have bottomed out, it will take many more months until we see an improvement in the market.

The Managing Director of Harbor, Mohanad al Wadiya, mentioned that the market is in a phase of fragile stabilization, and it is hard to predict at this stage, when exactly an improvement is likely, but it is generally hoped that this will happen during early 2010, although the pace of recovery is largely dependent on the global economic recovery and world economic events.

When the first half of Harbor Report was issued in Q1, the general mood was rather dull. But today it is evident that although the market is stressed, it is not getting any worse, and that in itself is good news. The efforts put in by the government and corporate institutions to beat the recession are slowly gaining grounds. With economists in China, Japan and USA, talking about early recovery signs, the economic growth is now on the horizon, and it looks promising to note that things will pick up by early 2010, Al Wadiya said.

The Harbor report is a quarterly report, which was first issued in April 2009. The second report will be issued end of this month, and will explain in-depth about trends and insider views of the real estate industry. The report has already received a positive response from industry professionals in the region.

Commercial real estate transactions, considered a key indicator of economic activity, is showing first signs of stability after a free fall during the early part of this year. According to real estate consultants, the worst phase for the industry seems to be over as lease rentals both in peripheral areas as well as the central business district (CBD) are showing signs of settling down, in addition to deals getting clinched. Transaction data show that Chennai and its adjoining areas witnessed more than 1.95 million square feet of property deals in the first half of 2009. The whole of 2008 witnessed transactions for around 4.90 million square feet.

“We do not want to call it recovery as yet, but at least we can say the downturn has been arrested. In our view, the worst seems over. Property prices are showing signs of holding on, and it may not fall further,” said Rajesh Babu, Chief Consultant, RECS Group a real estate consultancy, which managed the largest deal of RBS in India Land IT Park for 3.50 lakh square feet this year. For instance, around Guindy (in South Chennai), lease transactions were sealed for Rs 45 to 46 a square foot. During the peak of real estate activity, transaction rates were around Rs 55 a square foot. Likewise in the CBD of Chennai, transactions were concluded at around Rs 60 a square foot this year, while the peak rates were around Rs 75 a couple of years ago.

“Absorption till the end of June stood at approximately 1.95 million square feet, similar to H1 2008 and approximately 29% lower than the peak absorption levels achieved in H1 2007. The largest quantum of absorption has taken place in the suburban areas and within the suburban markets, Manapakkam, Ambattur, Perungudi and Taramani saw the highest demand for space due to the robust infrastructure, strong connectivity, proximity to major markets, and rational rentals,” N Hariharan, General Manager, Cushman and Wakefield international real estate consultants said. “We haven’t crossed the woods as yet. But, clearly in the past one month, we have been getting enquiries showing first signs of demand trickling in. We need to wait and watch if the demand sustains and breaches the five million square feet mark this year,” industry sources said.

Even as the industry is trying to project a revival face, clearly there is over-supply in select pockets like Old Mahabalipuram Road (OMR). “On the IT corridor, clearly there are supply overhangs. Roughly four million square feet are vacant and another two million square feet are under development. That pocket of the city remains weak,” sources added.