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Power to drive SEZs
Despite
the controversy surrounding the Special Economic Zones, the Board of Approval (BOA) for the SEZs recently gave formal approval to 36 and in-principle approvals to nine such zones. With this set of approvals, the total number of SEZs granted formal approval is 339. And of these 126 have been notified. Investment of Rs 35,145 crore has taken place and current employment in new SEZs is about 33,000 persons. It is expected that by year-end additional employment in the new SEZs would cross 100,000. While the controversy is largely focussed on the land issue, little attention seems to be on the power, the vital ingredient for the success of the economic zones. Power will definitely be a stumbling block for the SEZs though efforts are on for capacity addition, said D S Rawat, Assocham secretary general. He said, “As per estimates at least 40,000 MW of power will be needed for SEZs alone if all sanctioned SEZs are operational fully.” So this capacity addition will have to done simultaneously with the development of SEZs, which are likely to get operational anywhere between three and four years. “In this endeavour SEZs, whose success depends on uninterrupted power supply, will also have to depend a great deal on developing their own captive power plants based on either coal, gas or any other resources,” he said. Over dependence of government entities like the NTPC will boomerang if the private players do not contribute adequately to power generation in the country, he added. However, this was not entirely agreed upon by another industrial lobby group, Confederation of Indian Industry (CII). T.S. Vishwanathan, head, international trade policy, CII, said, “The power as such should not be a problem as even today many of the private industries are using alternative power supply mechanisms. “Since a majority of the SEZ developers are high-profile players, they will definitely have alternative power supply arrangement as part of the plan as they cannot solely on government entities,” he added. Navin M. Raheja, managing director of Raheja Developers, said the SEZ developers could not solely depend on the government and would tie up with private players for the supply of uninterrupted power to the economic zones. “The SEZ being set up by Raheja Haryana SEZ Developers Pvt Ltd will primarily rely on local power supply, however, keeping in view the scare position of electricity, we have planned to develop several small-sized power plants based on the waste generated in the SEZ. We have also hired consultants for exploiting conventional/ natural sources of energy for augmenting the electricity demand,” he said. “As per present estimates the total demand load envisage is 120 MWs. For immediate construction purposes the power requirement shall be 1000 KW,” he added. According to the Committee on Infrastructure, headed by Prime Minister Manmohan Singh, the country would require 90,000 mega watts (MW) of new generation capacity in the next seven years. This would be in addition to the present generation capacity of 122 giga watts. India, despite being the fifth largest electricity-generation capacity country in the world, has the low per capita consumption of 606 units, which is less than half of China. Union power minister Sushil Kumar Shinde has said that the country has targeted expansion of generating capacity by 78,000 MW during the 11th Plan and this will require an investment of Rs 10 lakh crore during the period. The key challenge for the power ministry is to help sustain the GDP growth of 9.4 per cent achieved in 2006-07 with a similar growth in the power sector. This means not only overcoming the current shortages of approximately 13,717 MW, or 13.4 per cent of the requirement, but also to increase the generating capacity thereafter by 9 per cent to 10 per cent. It was imperative to ensure that the current high levels of aggregate technical and commercial losses come down to 15 per cent in the next five years, so that the country can derive the full benefits of the stupendous capacity addition efforts.
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‘Realty prices to come down’
Mumbai: HDFC Chairman Deepak Parekh has said interest rates have peaked and were likely to remain stable in the next six months while real estate prices could fall by up to 20 per cent in the next few months.
“Interest rates have peaked. In the next six months, they are likely to remain steady. There will be no major correction, neither will they move much upward,” Parekh has said. He said realty prices were showing signs of cooling down and in the next three to four months there would be a correction of 10-20 per cent. Parekh said developers were giving freebies such as first six months EMI free to keep the price momentum. “Real estate prices have peaked. In many areas prices are coming down as in Delhi, Gurgaon and Bangalore. However, the freebies being given by the developers are indicative of prices cooling down. There will be correction in real estate prices. However, a crash is unlikely,” he said.
— PTI
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TAX tips
Q I am a salaried person residing in Yamunanagar, Haryana, I have 2 flats with 2 home loans detailed as under:
First flat was bought in February 2005, rented in Gujarat and has a home loan of Rs 10 lakh with an EMI of Rs 9,531. Rent per month is Rs 7,250. Second flat is in Delhi by direct DDA allotment and the possession and conveyance deed is yet to be executed by the DDA. I have made the full payment of flat and registry. I have also taken a home loan of Rs 10.6 lakh against this flat with an EMI of Rs 12,054. Kindly confirm whether both these home loans can be covered for the principal and interest limits of Rs 1 lakh and Rs 1.5 lakh, respectively. Which section of the IT Act covers these types of 2 home loans? How can I claim IT benefit on home loan on both these properties? What kind of IT benefits are available to me due to renting out of properties as I am having properties in Delhi and Gujarat and living in
Haryana. — Roopinder Singh A. The deduction allowable under Section 24 of the Income-tax Act, 1961 (the Act) in respect of interest payable on amount borrowed for the acquisition, construction, repair, renewal or re-construction of the property is allowable as deduction against income chargeable under the head “income from house property”. The section does not provide that the claim for such interest is allowable in respect to only one house property. In my opinion therefore you should be able to claim the deduction for interest payable on money borrowed for acquiring flats in Delhi as well as in Gujarat against income from both the house properties. The deduction allowable under Section 80C of the Act in respect of payments made towards or by way of repayment of loan borrowed from specified sources is not restricted in respect of one house property. The deduction under the aforesaid section is limited to Rs 1 lakh and therefore can be claimed within the said limit against the total income in respect of the repayment made for loans taken for the purposes of purchase or construction of two residential houses. Apart from the deduction of house tax, interest payable on the monies borrowed for the purposes specified hereinabove a statutory deduction of 30 per cent of the annual value is allowable while computing the income from house property.
Deduction under 80-C for legal owner only
Q My father is a member of CGEWHO (Central Govt Employees Welfare Housing Organisation) Society. He has been allotted a flat in Sunny Enclave, the construction for which is due to start next month. We jointly applied for a house loan from a nationalised bank and got the loan sanctioned. Since my father has retired from job last year, under the bank’s policy, I have to apply as the main applicant and my father as co-applicant. I am working with a private firm and have a gross salary of Rs 35,000 pm. Will I get the income tax rebate on the EMI I pay since the allotment is in my father’s name and he will get the possession of flat in 3 years? I have decided to pay pre-EMI till October 2007. Will I get income tax rebate on pre-EMI? — Harpreet Singh A. Section 80C of the Act provides that in computing the total income of an assessee, being an individual or a Hindu Undivided Family, there shall be deducted, subject to the provisions of the section, the whole of the amount paid or deposited in the previous year, being the aggregate of the sums specified in the said section, as does not exceeds Rs 1 lakh. Sub-section 2 of the said section specifies various sums, which are covered for the purposes of such deduction. Clause (xviii) of the said sub-section provides for the deduction of any sum paid or deposited in the previous year by way of repayment of the amount borrowed by the assessee from any bank, including a co-operative bank for the purpose of purchase or construction of a residential house property the income from which is chargeable to tax under the head “income from house property/ or which would have been so chargeable, if it had not been used for assessee’s own residence. In accordance with the aforesaid provisions, therefore the deductions under Section 80C of the Act towards the repayment of loan would be allowable to the person in whose name the house has been purchased or constructed. In other words who is the legal owner of the house. In my opinion therefore you would not be entitled to the deduction of the EMI payable in respect of amount borrowed for the construction of the house allotted in the name of your father.
Co-borrowers can claim loan benefit
Q My son intends to purchase a flat. With the rising costs, the current planning is that the flat may be purchased in joint names of my son, his wife and his mother. It is intended that the flat shall be registered in the name of all three with proposed partnership of 40/30/30. For the loan, the bank is ready to make my son as prime borrower and the other two as co-borrowers. All three intend to contribute to the total cost of the flat, including the pre-EMI interest, preliminary expenses, up-front contribution and any other expenses that the loan does not cover, in the same ratio in which registration will be got done. All three are employed and have their own salary accounts from which the contributions are planned to be made. Can each of the three claim the benefit of return of principal amount, proportionate to their contribution, with a ceiling of Rs 1 lakh each or for each of the partners the ceiling amount shall be proportion of Rs 1 lakh i.e. 40,000/ 30,000/30,000 for son/wife/mother? Similarly for the interest portion, can the ceiling amount of Rs 1.5 lakh be taken by each of the partners or the ceiling shall be split in proportion to contribution i.e. 60,000/45,000/45,000 for son/ wife/mother? Our logic is that since the property is going to be registered in the name of all three with specified percentage ownership and in the loan document too, one is prime borrower and the other two are co-borrowers, and the contributions are being made in the intended percentage ownerships, each should be able to enjoy full ceiling amounts i.e. Rs 1 lakh for principal return and Rs 1.5 lakh for interest paid it is akin to having a property demarcated and the three having taken individual loans. — R N Kapur A. Each one of the three can claim the benefit of the repayment of loan to the extent of permissible amount of Rs 1 lakh under Section 80-C of the Act provided that the purchase price towards the acquisition of the house is paid by each one of them from their own sources in the proportion mentioned in the query. Each one of them can also claim the deduction in respect of the amount paid towards interest to the extent of maximum amount provided under section 24 of the Act provided that the above condition is satisfied. In this regard care should be taken that the borrowed amount is deposited in the bank account of the three borrowers in the same ratio in which the property has been acquired. Further payments of interest and repayment of principal amount should also be made from the individual accounts of the owners in the ratio in which the property has been acquired.
Tax on office accommodation
Q. I am an employee of private sector company. There has been some change with respect to the perquisite to be added to the salary towards the value of any concession in the matter of rent representing any accommodation provided, by a private employer. Could you please explain such changes? — Harish Chander A. An explanation has been added by the Finance Act 2007 to Section 17 of the Act with retrospective effect from April 1, 2002, for the purposes of valuing the perquisite with regard to the providing concession in the matter of rent. The said explanation as applicable to an employee of a private employer provides that in a case where an unfurnished accommodation is provided by any employer other than the Central Government or any State Government and — the accommodation is owned by the employer, the value of the accommodation determined at the specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year exceeds the rent recoverable from, or payable by, the assessee; the accommodation is taken on lease or rent by the employer, the value of the accommodation being the actual amount of lease rental paid or payable by the employer or 15 cent of salary, whichever is lower, in respect of the period during which the said accommodation was occupied by the assessee during the previous year exceeds the rent recoverable from, or payable, by the assessee. The specified rate has been defined by the explanation as under :- As much as 15 per cent of salary in cities having population exceeding twenty-five lakh as per 2001 census; As much as 10 per cent of salary in cities having population exceeding ten lakhs but not exceeding twenty-five lakhs as per 2001 census; and As much as 7.5 per cent of salary in any other place.
Inheritance rights for ex-citizens Q. My son and his wife have got PR (permanent residence) status in UK and now intend to get UK citizenship. Will our son retain his right on the property he has in India or shall inherit from UK in India? If no, will he get it back these rights after getting OCI (overseas citizen of India) status, which GOI has recently allowed, to foreign citizens of Indian origin? What is the status of children born to them with PR status in UK i.e. citizen or POI? — M.S. Thind A. In case your son has acquired a property from his own sources, he will retain the ownership right in the said property even if he becomes a UK citizen. Similarly, the right of inheritance cannot be taken away by becoming a UK citizen. The children born to him and his wife would be persons of Indian origin and will be treated at par with the status of non-resident Indian.
The writer can be contacted at sc@scvasudeva.com
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GRound REALTY
Recently, there has been a spurt in ready mix concrete (RMC) buyers. A few articles carried under this column and advising the users to switch over to RMC fuelled up the buys. A house builder, a cooperative society, a builder finds it much easier to order for RMC, receive it and get it poured in slabs, beams and columns instead of arranging cement, sand, aggregates, mixers, labour etc and then getting all headache of monitoring various factors for a good quality control.
However, with the increase in sales of RMC, some RMC producers have devised ways to siphon off people’s money by selling them inferior quality RMC. It has no more remained an ‘order and sleep’ task. There are some very important points to look into while buying RMC. Take care of these if you want to buy really good RMC. Type of concrete: From the queries received from the readers, it is guessed that they are not clear about the grades of controlled concrete. Most of the readers know of 1:2:4 or 1:1 ½ : 3 concrete only. Note that these mixes are no more in use. Actual concrete grades are M15, M20, M25 and so on. Here M15 means a concrete that gives strength of about 150-kg/sq cm after 28 days of its preparation. M20 concrete gives about 200-kg/sq cm and M25 concrete gives about 250-kg/sq cm strength. To have a better understanding, it can be said that 1:2:4 concrete and M15 concrete are almost equivalent. Similarly, 1:1 ½: 3 concrete and M20 concrete are almost equivalent. Till date, 1:2:4 concrete has mostly been used by people in slabs and beams. This concrete and M15 concrete are no more allowed for used in RCC work. Therefore, always prefer to use M20 concrete or higher grade (if required) in slabs and beams of your house. A common house builder can safely use M20 concrete in his house. So order M20 RMC whenever you are going to place the order. Cement content: There are certain minimum cement contents defined by IS code for each type of concrete. Even if required strength can be achieved with lesser content of cement, these minimum cement contents must be added to concrete to make it really good concrete. In fact, strength of concrete is not the only thing to be checked while buying RMC. Durability of concrete is an equally important factor. If concrete is durable, it will be able to bear the weathering action and will not grow weak with time. It will remain impregnable and not allow water to enter, reach the embedded steel and cause rusting. For each type of reinforced cement concrete (RCC), depending upon the weather to which it is to be subjected to, minimum cement contents should be as under: M20 concrete: 6 bags per cubic metres (mild environment) M25 concrete: 6 bags per cubic metres (moderate environment) Therefore, while buying M20 or M25 RMC, see that it contains a minimum of six bags of cement per cubic metres of concrete. Strength of concrete: M15 concrete is one that should give strength of 150 kg/sq cm after 28 days of laying. Similarly, M20 concrete should give strength of 200 kg/sq cm and M25 should give 250 kg/sq cm. In fact the figures 15, 20, 25 are concrete strengths in Newton per sq. mm. If this figure is multiplied by 10.2, exact strength in kg per sq cm can be worked out. These all are works strengths. In other words, these are the strengths that the concrete must give at site of work. At the RMC plant, concrete should show much higher strength. There is a clear formula for that. At RMC plant, where full quality control measures are supposed to be taken, the strength is to be worked by this formula. Explaining the formula here will make it complicated reading for the reader. It can be said that M20 concrete should give strength of about 272 kg/sq cm at the RMC plant. If your RMC supplier shows you strength of just 200 kg/sq cm for M20 concrete, don’t buy it. Ask for concrete that gives a minimum strength of 272 kg/sq cm. Use of flyash: Recent revision of IS 456, the code for plain concrete and RCC has permitted addition of flyash to concrete. However, the quality of flyash to be added to concrete has been told to be very good and as per IS 3812. In addition, its fineness has to be consistent. Further, its proper mixing in concrete is very important. While adding flyash to concrete, use of super-plasticizer becomes essential. Further, it becomes essential that cement used is high grade OPC only. It is very difficult for a common user to ensure all these points. Whenever concrete with flyash is used, great care has to be taken for its full curing. As such a concrete has lower gain of strength, care has to be taken during removal of shuttering. Extra time may have to be given before shuttering is removed. Tendency of RMC suppliers is to use flyash in the production of concrete as it is cheaper and economical for them because flyash is freely available from thermal plants at zero cost and its use results in lots of savings to them. On the other hand, the buyer has to care for so many extra points. So prefer to buy RMC in which flyash has not been used. Yield of concrete: To avoid disappointment at a later stage, yield of concrete should also be checked. If 6.0 bags of cement are to be added to one cubic metres of concrete then you must see that the yield with 6.0 bags is not above 1 cum. RMC supplier may show you that 6.0 bags of cement are being added to concrete but he may be manipulating the yield. Suppose, in actual 1.2 cum yield is received, the cement content will be 5.0 bags per cum of concrete and not 6.0 bags. Instances have come to our notice where poor quality flyash is being used in production of RMC and cement is being saved and disposed off. Reputation of big and well acknowledged companies may be at stake because of the presence of a few selfish elements. RMC produced and supplied must be of excellent quality if it has to be made popular and houses are to be made earthquake resistant. Buyers have to be equally vigilant in buying RMC. Take care and happy building!
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Buzz on Bourses
Chandigarh: Somany Ceramics, India’s leading tile manufacturer has announced a marketing joint venture with Keraben Ltd. of Spain. The new company to be called Somany Keraben Pvt Ltd would launch Synergy brand. It will leverage Keraben’s manufacturing facilities in Spain and other parts of the world, as also the ultra modern facilities of Somany under installation, bringing in the best through Spanish technology, Spanish glazes and designs. Abhishek Somany, Joint Managing Director, Somany Ceramics Ltd, said: “We have floated Somany-Keraben Pvt. Ltd. which will be a 50:50 equity partnership between Somany and Keraben Ltd to launch this new product. We are investing Rs 50 m in this venture and expect revenues of Rs 500 m in the next two years.” —
TNS
Israeli realtor in Bangalore
Jerusalem: Israel-based firm Meshulam Levinstein Group plans to invest up to $50 million in various projects in India and has opened an office in Bangalore to look for suitable opportunities, Ynetnews reported. “India is overflowing with local and foreign money that is being directed toward real estate projects after the local market opened its doors to foreign investments in 2005,” newly appointed director of group’s activity in India Yaron Gelbhart said. —
PTI
Tishman, ICICI venture on cards
Singapore: An India joint venture between private US real estate firm Tishman Speyer and ICICI Bank could tap global investors to raise a new fund, a company executive has. Brushing off fears that a property bubble is forming in India, the chief executive of TSI Ventures, Kok Huat Goh, told the Reuters Real Estate Summit in Singapore that his current $700 million pot was being spent fast. “At the rate we’re going, it would be sooner rather than later,” Goh said of the prospects for a new fund. TSI Ventures now wants to quickly expand to the New Delhi area, Mumbai, Pune, Bangalore, Chennai and Kolkata. —
Reuters
Zoom to invest in Indore SEZ
New Delhi: Mumbai-based Zoom Developers, engaged in diversified businesses including real estate, plans to invest Rs 1,000 crore in the next three years to construct a 100 hectare IT-ITeS SEZ at Indore in Madhya Pradesh. The Board of Approval had recently given a formal approval to the SEZ of the company. “We are planning to invest Rs 1,000 crore to develop a 250-acre multi-services SEZ including IT and ITeS at Indore,” Zoom Developers President and CEO Rumneek Bawa said. —
PTI
Omaxe IPO in July
New Delhi: Real estate major Omaxe, which plans to raise upto Rs 1,400 crore from the capital market through its IPO, has said it will develop a luxury group-housing complex at Faridabad, Haryana. The project -The Forest - is spread over 16.25 acre at Surajkund and would comprise apartments and penthouses, the company said in a press note. The IPO of the company is expected to hit the capital market in July. —
PTI
EVP ties up with Viglacer
Chennai: Leading real estate and construction company EVP Group has announced a tie-up with Viglacer Tienson Granite, a Vietnam-based firm, to sell various range of ceramic wall and floor tiles in the Indian market. EVP Group general manager M.P. David said: “EVP will set up EVP Procilen Products Limited, in collaboration with Viglacer Tinenson Granite Company to launch exclusive range of vitrified ceramic wall and floor tiles into Indian market. There is a special emphasis to bring in Micro Crystal stones to Indian market,” he said. —
UNI
GMR Infrastructure plans
Mumbai: GMR Infrastructure Ltd plans to lease 30 to 40 acres of land at the Delhi airport for real estate development. “We would give the land on lease and thereby we expect to raise about Rs 3,000 crore,” GMR chief financial officer Madhu Terdal said here. Of the total area of 5,100 acres, 5 per cent can be developed for real estate purposes related to the airport. The company has appointed Jones Lang LaSalle as consultants, which is working on the finer details. —
PTI
Indiabulls Real Estate to raise $200 mln via GDRs
New Delhi: Realty firm Indiabulls Real Estate Ltd has said it will raise raise $ 200 million through issue of global depositary receipts (GDRs). The company has an option to retain oversubscription, a statement said. In connection with the proposed equity capital raising, the company has appointed Merrill Lynch as the as the book running lead manager. — UNI
Maharashtra Govt, Vornado sign $ 200 m MoU
Mumbai: The Maharashtra Government has signed an MoU with US-based Vornado Realty Trust to develop an integrated township for software professionals working in Information Technology (IT) parks. The MoU was signed at New York recently between Vornado Hinjewadi Township Pvt Ltd and the Maharashtra Industrial Development Corporation (MIDC) in presence of Chief Minister Vilasrao Deshmukh, who was on a 10-day US visit recently to attract foreign investment, an official in the CM’s Secretariat has said. The MoU was signed by MIDC CEO Rajiv Jalota and Vornado Realty Trust, USA, president Michael Fascitelli, he said. The agreement paves way for an investment of around $ 200 million over a period of five years at Hinjewadi near Pune for development of the integrated township, he said. —
PTI
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Estate talk
The cantonment town of Ambala is set to get a face-lift. The mandatory visit to City Beautiful for meeting the aspirational needs may soon be over with leading real estate developer coming up with Vatika City Central project in the heart of town.
“The township would be self contained. It is located in the heart of Ambala surrounded by well developed sector 7, 9 and 10 in the city” says Pankaj Pal, president sales and marketing, of Vatika Group. The township is to be built on 180 acres. Giving reasons for choosing tier III city for coming up with the modern and innovative township, he said with the inflow of information, the aspirational value of people in these towns had gone up and they had the capacity and purchasing power to fulfill their dreams. Explaining the structure of the township that Vatika plans to build, he said it would have space for plots, housing society, club house, library, restaurant, swimming pool, commercial complex with multiplex, medical facilities, and a budget hotel. He pointed out that the fully airconditioned commercial complex would the biggest in Ambala spread over seven acres hosting hyper market, multiplex, food court and other facilities for modern shopping experience. Apart from world class civic amenities and rainwater harvesting, the township would boast of landscaped parks and well-maintained green cover. Of the 1040 plots, which would be available for the residents, 10 per cent would be for the economically weaker section and another 10 per cent would be sold off on no profit-no loss basis as per the state government guidelines. The 215 plots of the economically weaker section would be of the size of 60 sq yards, Vatika would sell the 260 NPNL plots in the size of 150 sq yards. While the group housing society would be fully constructed by Vatika, Pal said the company could provide the expertise in construction in the plots if such is the demand of the Ambala residents. He said the group-housing complex would be constructed in two and a half years, and the commercial complex would be built in two phases. The project, Pal said takes off on August 15, Independence Day and major work would be completed over the next 18 months.
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3-year lock-in stares at FIIs
The finance ministry has proposed a three-year lock-in for investments made by foreign institutional investors (FIIs) in real estate firms through pre-IPO placements to check speculation in the booming sector.
Such a regulation, which brings FIIs on par with foreign direct investments (FDI), would require a change in FII norms and market regulator SEBI is expected to amend regulations in this regard shortly. The regulator is expected to take up the issue of amending SEBI (FIIs) Regulations, 1995, at its next meeting scheduled in Mumbai on June 30, official sources said. Finance Ministry has supported the views of the RBI, which wanted a lock-in period for FIIs as part of its strategy to curb the rising speculations in the real estate sector, the sources said. The government may also have to amend Foreign Exchange Management Act (FEMA) to put in place the lock-in, they said. Earlier, the Department of Industrial Policy and Promotion (DIPP) and SEBI had recommended that pre-IPO placements by FIIs must be treated as portfolio investment and should not face a lock-in. Sources said finance ministry has rejected the views of DIPP and SEBI, and has asked the regulator to amend rules making it mandatory for real estate firms to have a three-year lock period for FII investments through pre-IPO placements. In the meantime, real estate companies, which had sought permission for pre-IPO placements with the FIIs, had been asked to wait as guidelines had not been firmed up, the sources said. Although FIIs investing in real estate sector through pre-IPO placement are likely to face a three-year lock-in, they may be exempted from other conditions such as minimum capitalisation and area development that are applicable to real estate FDIs, the sources said. With rising property prices, the sources said, the ministry and the RBI want to put curbs on FII investments in the sector, claiming that a lock-in period would prevent building up of a possible real estate bubble. The government has allowed up to 100 pc FDI in realty projects with conditions like a three-year lock-in, minimum capitalisation of $5 million and development of at least 10 hectares of land. At least seven realty, construction and infrastructure companies, including Omaxe, have lined up offers to raise a total of over Rs 6,000 crore from the market. Although RBI has put various restrictions on real estate firms to raise funds overseas, many companies mopped up funds by promised hefty returns to foreign investors through investments ahead of IPOs. As per industry estimates, nearly half of the over $4 billion of foreign investment that was pumped in the real estate sector last year was through private placements by FIIs. —
PTI
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From apple state to cement bowl
The ongoing construction boom in the country, particularly the northern region where a large number of hydropower plants, mega infrastructural, commercial and housing projects are coming up, is proving a boon for the cement industry in the hill state. With demand outstripping the supply, more and more companies are coming up to set up cement plants in the limestone-rich state. The boom has come after a long period of rescission. Its impact can be judged from the fact that the government has sanctioned six new mega-cement projects in just past two years, while in the past 25 years only two projects came up. The government had sanctioned three more plants but companies concerned did not seriously pursue the projects mainly due to lack of buoyancy in demand. However, the situation has undergone a sea change over the past couple of years and with the sharp increase in demand cement has virtually turned into ‘grey gold’ for the manufacturers. Many fresh memorandums of understanding (MoUs) have been singed with new companies for the execution of projects allotted earlier. More projects, too, have been assigned. One of the existing manufacturers has been permitted to expand capacity albeit as a new unit. The apple state is all set to become the “cement bowl” of the country with the government giving nod to setting up of two more cement plants. When all plants come into production over the next four years, the cement output will shoot up from the existing about 7 million tonne to 19 million tonne. The state already has three big cement plants at Barmana, Darlaghat and Rajban, while two more such projects, each of two million capacity, are under implementation at Bagha and Nalini. Early this year the government allotted three more big plants to private companies to be set up at Broh-Shind and Chopal. The Lafarge is setting up a two-million tonne plant at Al Sindi in Mandi district. Apart from the Rs 908 crore project of Lafarge, the world’s leading cement maker with 132 plants across the globe, the government has allowed the Gujarat Ambuja Cements to set up its second two million-tonne capacity plant at Darlaghat. The company had originally submitted a proposal to double the capacity of the existing two million-tonne plant but the government asked it to set up a separate unit. The project will cost only Rs 672 crore as the company already has the infrastructure at Darlaghat. The total mining area for extraction of limestone, the main raw material for cement plants, will increase to 45 sq km. The Gujarat Ambuja Cements already has on lease 546 hectare of mining area on lease. It has applied for another 15 sq km of adjoining land for the second plant. The government normally allots 5 sq km to 7 sq km of area for mining. However, earning the tag of ‘cement bowl of India’ will generate its own set of problems for the hill state. Apart from the Broh-Shind plant in Chamba, Rajban in Sirmour and Chopal in Shimla, the six plants will be in close proximity of the Darlaghat-Bilaspur-Karsog belt. It will create unmanageable traffic congestion as a plant of two million-tonne capacity generates transport work for about 2,000 trucks, which only serve as mobile polluters. The five new cement plants will require about 12,000 trucks, which will choke the narrow hill roads. The problem could be solved if the Rs 1400-crore Bhanupali-Bilaspur rail project, which is hanging fire for the past 15 years, is implemented on priority. The Railways have not been keen on the project as it considered it economically an unviable proposition. However, the state government recently got a study conducted, which revealed that with the setting up of new cement plants the a double-lane track will be viable. The state has made a fresh plea to Prime Minister Manmohan Singh for taking up the venture as a national project.
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Construction sector poised to grow, says Assocham
Domestic construction enterprise is poised to grow at the rate of 15 per cent per annum from about 10 per cent now to touch $120 billion by 2012 from its current size of over $70 billion and the manpower requirements for the industry will be over 900 lakhs man/years by the projected period. A paper brought out by Assocham on India’s construction industry further projects that the construction enterprise will have potential to create direct & indirect employment opportunities for 45 million people over the next five years. Currently, this industry offers job opportunities for skilled and unskilled workforce which number about 30 million. According to the chamber’s president Venugopal N. Dhoot massive investment in construction industry will be driven by growing requirements of sectors such as transportation, power, urban infrastructure, housing and irrigation to ensure that the industry grows at the projected level. Mega Golden Quadrilateral and other highway projects, opening up of infrastructure to private players and allowing 100 per cent FDI in the real estate would be the other factors that will thrown up fresh opportunities for construction companies to boost the growth pattern of the industry. A majority of investment will come from public sector with private sector contribution rising to it substantially. The paper also estimates that by 2012, India would absorb the manpower requirements of over 970 lakhs man-years in specialised areas of engineers, technicians, contractors, supporting staff, skilled and unskilled workers. It emphasies that India should enhance its productivity in view of upcoming construction industry projects, especially for infrastructure, roads & highways. According to Assocham, the government aims to invest $150 b for infrastructure in coming 5-6 years. Apart from that, road sector will witness an investment of $60 b by 2010. There is a need to invest $50 billion to install new telecom networks in the next 8-10 years and around $10 billion for the modernisation of ports. Civil aviation sector will also propel the growth of construction industry in view of air passenger traffic reaching new heights in 2-3 years, an investment of $4 billion would be made in the next decade. While, the number of engineering graduates in India is increasing day by day, very few engineers chose civil engineering as IT, BPO, banks and other sectors are offering better opportunities. The construction sector requires a large pool of contractors also because currently the contracting agencies are already overloaded, new contracting agencies to be formed. There is also a dearth of skilled manpower to operate and maintain machines so the sector will not depend on unskilled workforce as is seen currently. Currently, the construction industry is growing at 10 per cent by employing less than 500 lakhs man/years and consumes 40-50 per cent of the National Plan outlay by contributes over 12 per cent to national GDP. The contribution of the sector to India's GDP will further enhance by at least 4 per cent in the coming years in view of its growth prospects. The paper also says that the construction sector will require an investment of Rs 14,000 billion in the next five to six years during 11th plan and even thereafter. The development of physical infrastructure through massive investments will require delivery potential of construction industry to rise by 30 per cent. Investment of this extent will be targeted if the industry will raise its delivery potential. The investment in construction accounts for nearly 65 per cent of the total investment in infrastructure and is expected to be the biggest beneficiary of flow in infrastructure investment in coming five to six years. The construction equipment industry in India is also growing at a tremendous pace of over 30 per cent annually and its market size was estimated at $2.5 billion. With growing projects and investments in infrastructure, power, roads & bridges are coming up, the construction equipment sector will grow at the rate of 15 to18 per cent in the next two to three years.
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Housing Blues
The grave dancer”, US tycoon Samuel Zell was in a mood to spoil a two-year-long party when he told a gathering of Indian property executives this week they were “on the brink of excess” and their boom would end in tears.
The developers and fund managers could only agree. The man who earned his nickname, and a $4.5 billion fortune, picking up cheap offices in the ’90s US downturn and packaging them into a property trust sold last year for $39 billion, said it was a folly to believe there were endless riches for investors in India’s 1 billion person market. “India’s greatest asset today is everyone’s imagination,” Zell said. Many in the audience nodded in assent. The only difference of opinion among some of India’s leading property professionals was how far property prices would drop, probably at some point in the next year - 10 per cent or 40? The last time a property bubble burst in India prices slumped by as much as 70 per cent between 1995 and 2001. But this time around, a raft of international funds raised by the likes of Citigroup, Morgan Stanley and Credit Suisse are likely to step in looking for bargains and cushion the fall. “Our expectation is that sometime in the course of this year you’ll see a 30 to 40 per cent drop in prices,” says Ajit Dayal, chief executive of fund manager Quantum Advisors. An estimated $10 billion was raised internationally for Indian property funds last year. But rising mortgage rates and a doubling of property prices in major cities in the past two years will lift home prices beyond the reach of even the 40 million richest Indians that developers are targetting, Dayal said. Since 2004, 10-year bonds have risen around 300 basis points to 8 per cent, as the central bank seeks to control inflation in an economy that is estimated to have grown by 9.2 per cent in the year ended March 2007, its fastest pace in 18 years. Young software engineers earning between $700 and $2,000 a month in the country’s outsourcing boom could stop buying homes. The price of a 100-square-metre Bangalore flat has jumped 60 per cent in two years to $100,000. Prime residential prices in Mumbai and New Delhi have doubled in that time to about 20 per cent lower than Shanghai and 40 per cent below Singapore and Hong Kong. Dayal says in some cities, such as Kolkata, new housing supply outstripped demand by 5 to 10 times. “They’ll just stay with their parents.” The property boom gathered pace quickly after the government eased rules on foreign investment in the construction industry in early ’05 to help revamp the country’s crumbling infrastructure and fill an estimated shortfall of 20 million homes. About 90 per cent of all property investment is in residential development. “It’s very scary, prices are sky-high,” says Aditya Bhargava, an executive at fund manager Trikona Capital, which is raising a $400 million fund for Indian property. “I don’t know when the correction will happen, but there’s significant overheating.” Nayan Shah, chief executive of township developer Mayfair Housing Ltd., agrees with Zell’s outlook for the market, but says the U.S. billionaire’s comments would shock many in the industry. The demographic fundamentals for India’s real estate boom touted by analysts appear compelling for many investors. For example, according to CLSA, disposable income has grown 12 per cent a year for the past five years, and the number of people per household has dropped to 5.1 from 5.52 in the past decade as young professionals move away from their parents. “I think it’s an ice-breaker for our country, it’s like someone saying look east when everyone’s looking west,” Shah says of Zell’s comments. “I’ve seen three recessions and booms in my life, and he’s seen more,” he says. “But I think it will stay stable for now, and maybe from 2008 there’ll be signs of distress.” Some fund managers are laying plans for when prices fall. “We’ll step up more in 9 to 12 months time when the liquidity crunch hits the market,” says Sameer Nayar, the Asia head of Credit Suisse’s real estate arm. Zell says that he had no property investments in the country. His company, Equity Group Investments, is pouring money into mass housing in Mexico and Brazil, selling units for An office delivery boy, employed to scooter through Mumbai’s dusty streets lined with crumbling tenements and shacks, would earn about Rs 3,200 per month, and keep Rs 700 aside for housing. With land prices spiralling, developers do not build for him. Quantum Capital’s Dayal says, “If someone can make housing and sell it for $2,000, it would be a great market now, and for decades.”— Reuters
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