RealEstate by kanmanikokila54

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									         SECTION 2 : INDUSTRY REVIEW


     Niranjan Hiranandani
                                                                                        Real Estate
     Managing Director
     Hiranandani Construction Pvt. Ltd.          The real estate sector in India today is witness to a wide spectrum of changes
                                                 that slowly but surely are expected to make India into a preferred destination
                                                 for real estate activity. The real estate market in India is opening up. There are
                                                 still some barriers to real estate development like unclear titles, tenancy laws
                                                 and low property taxes.
                                                 Two major steps taken by the government will however be key catalysts in
                                                 fueling growth in real estate sector in India. Some years back, real estate would
                                                 bring in mind shady images of brokers but now with reputed builders and
                                                 international property consultants joining the fray, this image has strengthened
                                                 and evolved into a professional corporate image.
                                                 In its bid to improve things, recent moves by the Government to allow
                                                 foreign direct investment in real estate in India. The investment would be in
                                                 integrated township which would include housing , commercial premises,
                                                 hotels and resorts, while the urban infrastructure would comprise roads and
                                                 bridges, mass rapid transit, systems and manufacture of building materials.
                                                 The minimum acreage that can be developed is 100 acres designed keeping
                                                 into consideration the local bylaws and regulations. The minimum
                                                 capitalization would be US $ 10 million for a wholly owned subsidiary and
                                                 US$ 5 million for a joint venture with an Indian partner. FDI is however not
                                                 being allowed in the retail sector. Generally speaking , real estate prices have
     Shri Niranjan Hiranandani is the Managing   stabilised to a great deal as the role played by speculation has started declining.
     Director of Hiranandani Constructions, a    There are a lot of changes being introduced in the Indian real estate sector
     leading real estate company in India.       especially with the cheap labour , pool of people.
     Shri Hiranandani is also President of the
                                                 The other major event in the introduction of REIT ( Real Estate Investment
     Maharashtra Chambers of Housing
                                                 Trusts). Currently mutual funds are not allowed to have direct exposure in
     Industry, Member of the Governing Board
                                                 real estate but they can make debt and equity investments in the company.
     of the National Academy of Construction,
                                                 The Indian version of REIT- REIS (Real Estate Investment Schemes) would
     Convenor of the Key Group representing
                                                 enable investments by the small investor in the real estate sector and thus earn
     Business Community in the UN
                                                 dividends on the rental income being paid. Also with globalisation , businesses
     Conference on Human Settlements,
                                                 are being forced to take into consideration contingency plans both in terms of
     Member of the Working Group on the
                                                 additional space and geographical diversifications of their supply and
     Urban Housing for the Ninth Five Year
                                                 manufacturing chains. In India access to a large pool of labour with good
     Plan.
                                                 technical skills is resulting in the establishment of back office.
                                                 The Fiscal incentives introduced by the Government three years ago have
                                                 unleashed the market forces. The credit for housing has grown up to


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Rs. 62,000 crores in 2002-03 from Rs.12,000 crores in 1998-          The land ceiling laws have kept otherwise valuable land away
99. This coupled with the lower interest rate regime has seen        from market forces and productive development. The Indian
interest rates on housing loans come down from 17-18% to 8-          Urban Land Ceiling and Regulation Act was intended to reduce
9% average. With fiscal incentive and factoring inflation the        land speculation and distribute land to the poor in urban areas
real interest rates on housing loan is only 3-4%. This has brought   by imposing a ceiling on the amount of land which could be
in a sea change in the profile of the home purchaser across the      owned by an individual. But over the last 25 years of its existence,
spectrum. The average age of the home buying customer has            the government so far acquired less than 4000 hectares out of
been drastically reduced . We find young working couples in          an estimated total amount of 166000 hectares of excess urban
early and mid twenties also buying residential flats.                land has been confiscated and sold. Thus the purpose of this act
                                                                     has been totally defeated. This has been relaxed from July 2002
The other major change witnessed in the industry is the
                                                                     but a few states still retain their own version of the same. The
recognition of industry status itself. Five years ago, the real
estate activity was considered to be a speculative activity with
other negative connotations. This is not the case any longer.
The Government has made it mandatory that 3% of the                          The other major change witnessed in
incremental deposits of the banks would be deployed to the
housing industry.                                                            the industry is the recognition of
The budget of 2003-04 allows for a tax deduction exemption
of 1.5 lakhs in the interest payable on housing loans. With                  industry status itself. .ive years ago,
many banks like IDBI Bank, CanFin Homes, HDFC and PNB
Housing having slashed down- it is extremely beneficial for the              the real estate activity was considered
consumers. This has provided a boost to residential sales. A
research study conducted by CRIS-INFAC, a Crisil subsidiary,                 to be a speculative activity with other
predicts the housing sector to grow by 24% in the next five
years. The growth in the current fiscal of 2002-03 is expected               negative connotations. This is not the
to be 33%. The incremental funds required by the housing
finance markets will be to the tune of Rs 1,40,000 crore. The                case any longer. The Government has
sector grew by 36% in 2000-01 and 35% in 2001-02.
                                                                             made it mandatory that 3% of the
The industry faces many problems- one of them being the
high stamp duty rates in the Indian states. These range in most              incremental deposits of the banks
Indian cities between 10 and 15 %. States such as West Bengal,
Kerala and Bihar levy it as high as 20%. Some states even have               would be deployed to the housing
a double stamp incidence , first on land and then on its
development. The stamp duty levied in developed countries                    industry.
like Singapore and Europe is about 1-2%. It is an irony that
India’s own National Housing and Habitat Policy 1998
recommends a stamp duty of 2-3%. It is imperative that the
stamp duty is lowered as otherwise it gives rise to a parallel       total repeal of the act would give rise to growth in housing,
economy which leads to a huge loss of revenue for the                industry, transport and other infrastructure segments due to
Government. The stamp duty rates in Mumbai have recently             better availability of land. During 21 years of its operation
been reduced a little but the relief from it has not been very       ULCRA has created artificial land shortage, pushed up real estate
substantial .                                                        prices and generated black money.




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