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Realty firms dominate IPO boom
The year 2007 has been a landmark year for public issues, with the highest ever mobilisation in a single year and interestingly it was dominated by the real estate sector.
Over 40 per cent of the total IPO mobilisation came from the realty sector. This year as many as 12 real estate companies got listed and 11 of those witnessed huge premiums after listing. This surely is a clear indicator of the market’s huge appetite for good real estate firms. In 2008 more real estate companies are expected to hit the market. Fuelled by the mega public offer of DLF limited, the real estate and construction sectors have emerged as top grossers for initial public offerings (IPOs) with Rs 15,000 crore, over four times the amount generated by the realty companies last year, mopped up between January to November 2007. While DLF Ltd. led the realty pack with an IPO of Rs 9,187 crore in June, the sector also saw IPOs by Housing Development and Infrastructure Ltd. Rs 1,707 crore Puravankara Projects Ltd., Rs 856 crore, IVR Prime Urban Developers Ltd., Rs 778 crore, Omaxe Ltd., Rs 605 crore and Akruti Nirman Ltd., Rs 361 crore. Other realty or construction companies that hit the market this year included Maytas Infra Ltd., Kolte-Patil Developers Ltd, Consolidated Construction Consortium Ltd. Orbit Corporation Ltd. C and C construction and Simplex Projects Ltd. It has also been pointed out that a major portion of the advertising budget of real estate companies is now marked for successful completion of public issues rather than for promoting new projects. A group of real estate companies is all set to come together as a consortium aimed at raising $100 million from the London Alternative Investment market (AIM ). Inspired by the great Indian growth story, several overseas companies have shown keen interest in investing in real estate companies in India. A host of global private equity players, including Red Fort, Blackstone, Citigroup, Morgan Strangely and Tishman Speyer, have committed or invested nearly $4 billion in the Indian realty sector. The renewed interest shown by private equity funds in the country’s realty sector can be attributed to the returns in excess of 25 per cent in Indian properties and the stagnant nature of the developed market. It is further added that property developers might raise $4.7 billion by selling shares in the first quarter of 2008, more than the amount raised by them in the past two years, as real estate companies sought to meet demand. Developers need funds to build more houses in a nation that may have a shortage of 45 million homes by 2012 In an economy that has grown at an average of 8.5 per cent in the past four years, Indians are spending more of their rising incomes on houses. Construction of houses accounts for 80 per cent of the real estate industry in the country. From the developers’ side too there has also been an increased focus on strategic alliances, creation of land banks, geographic expansion and raising capital to fund their extensive development plans. According to global investors India is an excellent investment destination as compared to China, Malaysia, Indonesia and Thailand. The investor and developer focus is evidently shifting to the relatively smaller cities and hence there is a great likelihood of such emerging cities leading the transformation of the Indian real estate sector. The country’s real estate sector was forecast to grow to $90 billion from $12 billion in 2005. It is believed that the high growth will continue for two-three years at more than 15 per cent In January LIC Housing Finance Ltd proposes to raise Rs 400 crore of equity funds through a private placement. The proposal involves issue of 1.2 crore equity shares on a preferential basis. DLF is also planning to raise between Rs 1,500 to 2,000 crore through private equity investments. Besides DLF is also considering international acquisitions, participation in the proposed IPO in Singapore. The DLF is likely to develop the project with an investment of Rs 2,400 crore over a five-year period. Last year, the contribution of real estate sector to India’s total stock market capitalisation was less than one per cent. Though the public offers have improved the figure to four-five per cent, this is still way short of the norm in developed markets. Analysts believe that over a period of time Indian developers, too, will emerge as macro economic plays on economic growth. The real estate sector is still at a nascent stage as far as the major capital markets are concerned. At the macro economic level, despite the massive built up in real estate, if the supporting infrastructure does come up as desired, we may well see demand, - the basis of the current boom, disappear. However, the demand drivers for real estate are on a firm footing. To satiate this demand, the sector will require continuous capital infusion. And with demand showing strength the investor interest is unlikely to wane over the next three to five years. The writer is a Mohali-based senior banker
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Realtors eye Maratha heartland
Realty players have identified Nagpur, Nashik and Kolhapur as emerging growth centres in Maharashtra with the coastal Konkan region also increasingly manifesting itself on their radar.
“After Mumbai and Pune where prices have shot up tremendously in recent times, it is the tier II and tier III towns in Maharashtra which hold great promise in the future,” Mantri Realty’s chairman, Sunil Mantri, said. Towns such as Kolhapur, Solapur and Nagpur are poised for rapid development now, he added. Mantri presently has a land-bank of around 4,000-acres of which 1,500-2,000-acres are in Maharashtra. “Around 1,000-acres are presently under various stages of development,” he said. Nagpur, which is increasingly attracting industrial investment, is high on the priority list of most realtors. “Nagpur holds immense potential. There has been a good growth there and prices are presently very competitive,” Sunteck Realty’s managing director, Kamal Khetan, said. Paranjpe Schemes (Construction) Ltd, another leading Maharashtra-based developer, also feels the same about the central Indian city. “We are entering Nagpur now, we feel it is a city with great potential,” the company’s managing director, Shashank Paranjpe, said. He is also upbeat about Kolhapur where he feels prices have the potential to move northward. “Prices even in prime areas are going at between Rs 1,300-1,500 per sq ft. They could rise further,” Paranjpe said. Realtors are also upbeat on Nashik with Paranjpe describing the tier II town as one “having a great potential”. “With IT investments coming into Nashik, the city should develop rapidly in the future,” added Sunil Mantri. Chiplun in coastal Maharashtra is another destination which realtors find appealing. “Rates in the region are presently very attractive and if the coastal route highway comes up in the next 3-4 years, then there will be a rapid development in the area,” Paranjpe said. Apart from residential development, the hospitality segment also has a great potential here, he said. On Pune, which has witnessed a massive development in the last few years, Paranjpe felt that “prices may not come down in the near term. There is an acute shortage of labour and construction costs are rising.” Prices at prime places such as Koregaon Park and Boat Club are presently in the range of around Rs 5,000-plus per sq.ft, while a select few command a higher price at between Rs 7,000-10,000 per sq.ft, realtors said. “The emerging areas of Magarpatta and Karadi hold a high
potential,” Paranjpe said. Prices in these two areas range between Rs 3,000-4,000 per sq.ft with a few properties in Magarpatta understood to be quoted even higher at around Rs 4,500 per sq.ft. On Hinjewadi, another emerging hub in Pune’s environs, Paranjpe said “it holds tremendous potential. With the kind of investments flowing in here, around 2-lakh new jobs are likely to be created in the next two-years. We sold 1,200 flats here in just three days,” he said.
— PTI
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GRound REALTY Attention to detail and careful planning will go a long way in utilising the full potential of basements in residential and commercial buildings, says Jagvir Goyal Over the past few years the trend of constructing a basement in residential and commercial buildings has really caught on. Basement is a utility area that can be used as paying guest accommodation or for an in-house gym or home theatre in residential buildings, while in commercial units it provides the all-important storage space or is used to raise partitions and rent out the cabins and earn healthy profits. In Gurgaon, a good percentage of PGs exist in basements. Delhi’s posh areas have seen a uniform trend of accommodating home theatres, gyms, sauna and jacuzzi in the basements. In Chandigarh, commercial buildings invariably have a basement while residential houses of two kanal or more area are also going in for basements. Basement construction, however, demands more than normal attention. It has to be useful and not an extra burden upon the owner. This can be ensured if certain precautions are taken during the construction of basements. Here are a few guidelines: Use RCC structure
To overcome the problem of leakage, always use RCC walls and RCC raft for the basement. Avoid stone or masonry walls. Use designed concrete. Avoid nominal mixes. M20 is a designed concrete having a strength of 200 kg per sq.cm. 1: 1 ½ : 3 is a nominal mix concrete but with same strength of 200 kg per sq.cm. Difference between the two is that in the former, quality of concrete is ensured while in the latter, it is not. Interestingly, M20 concrete consumes less cement than 1 : 1 ½ : 3 concrete but gives better results.
Mix designs
For external walls of basements, prefer to use M25 concrete. For the base slab, top slab and internal walls, however, M20 concrete can be used. Provide a base of M10 or 1 : 3 : 6 concrete below the base slab. Though expansion joints are a necessary evil for concrete, try to avoid these as far as possible by restricting the dimensions. Add water-proofing agent to all the RCC work. Consult a good water-proofing agent or ask your engineer to specify good brand as there is a great boom in water proofing industry and countless agencies have come up. Fosroc, Pidilite and Roff are some good and reliable names.
Method of blending
If you are using water-proofing compound in dry form, right method to use it is to blend it with cement in dry form. Keep the quantity of water proofing compound as two to three per cent of cement. Thus 1 to 1.5 kg of water-proofing compound should be added to each bag of cement. In case water-proofing compound in liquid form is to be used, calculate the required quantity of water, measure it in a separate drum and add liquid water-proofing compound to it. General tendency of adding water-proofing compound to mixed concrete or mortar should be avoided.
Prime requirements
Good ventilation and freedom from dampness are prime requirements of a basement. If dampness is not tackled effectively, unhygienic conditions prevail in the basements. Always construct a basement when the water table (underground water level) is at its lowest. Note that basements can be made leak proof during construction only. Post construction treatment is very difficult as only inner and leaking face is available for repair work while the outer face where the problem lies can’t be accessed. Moreover, underground water level may rise any time, causing leakage in basement, which becomes difficult to repair. Thus keep ventilation and lighting points in mind during their planning and water table position in view for choosing the time of construction.
Design aspects
For basement, get the walls and floors designed to withstand external earth and water pressures without cracking. When you tell the engineer that the design has to be ‘without cracking’ type, it has to undergo special checks. Take into consideration the maximum level of water table, likely level during the rainy season and the rate of change of water table. Provide fillets at the junctions of RCC walls and base slab. Provide inclined steel along the fillets. Always apply a coal tar epoxy resin coating to all outer surfaces of RCC walls. This will keep the dampness away.
Water proofing
Take another precaution. Provide well compacted stone soling below the PCC layer laid below the base slab. Apply with brush two layers of one part water proofing acrylic polymer and two parts cement over the plain cement concrete (PCC) laid on the stone soling before laying RCC raft on it. This will stop rise of any dampness from the ground into the basement.
Construction joints
Avoid construction joints in basements or keep their number as low as possible. Whenever a construction joint is given, treat it well before laying further concrete. For treatment, chip off old concrete if it is older than a day. Roughen it with wire brush if it is only a few hours old and still looks green. Remove all loose particles from the surface. Now apply the same one part acrylic polymer and two part cement slurry over old concrete and only then lay fresh concrete over it. Always fix nozzles in the walls, preferably at construction joints for grouting the walls with non-shrink injection grout at a later stage if leakage or dampness is noted.
Grout well
Enter all conduits for electricity and other services into the basement from a level above the ground level. See that no open space is left around the conduits. If there, seal it well. Remember that construction joints are vulnerable points for leakage into the basements. Fully prepare and treat their locations carefully to avoid any leakage from there. Wherever required, do the grouting work through nozzles after 28 days of laying concrete and not earlier. During this period, concrete will gain its final strength and shape and grout will have its way into the voids. Choose 1 inch diameter nozzles. Remove nozzles on completion of grouting work and seal the surface with cement mortar.
Ground treatment
Ensure that the ground around the basement area does not slope towards the basement. Ensure that the back filling in foundations has been compacted very well. As we take limited measures to compact the backfill in the foundations of the houses, it settles in the first rainy season directing the rainwater towards the foundations. Place earth around the house in such a way that it slopes away from the house for a width of about 6 feet at least. Provide a slope of one inch per foot in this 6 ft. length. The writer is a civil engineer, author, technical books & articles and working as Superintending Engineer, civil in PSEB. He can be reached through
www.jagvirgoyal.com
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TAX tips on home loan By S.C. Vasudeva Q. My son, who is working in an MNC in Gurgaon, was living there in a rented house along with his wife. Later, he took a home loan and bought a flat in Gurgaon. But due to marital discord his wife shifted to the new flat and he continued living in the rented accommodation. They both filed a petition for divorce on mutual basis and decree was passed after about eight months. He used to visit his flat off and on but was staying in the rented accommodation. Thus he was maintaining two establishments and there was no income from the flat. After the divorce, however, his wife vacated the flat and he moved in there. I understand that he is entitled to the benefit of HRA (allowed by his company in Form 16) as well as deduction of interest on home loan (also allowed by company in Form 16). Kindly confirm that this is correct and quote authority for the same as IT authorities have questioned this. I am told my son is correct, both the benefits are admissible when one cannot live in his own house due to genuine reasons. Here the reason is more than genuine. It was necessary for him and his wife to live separately while divorce proceedings were on. Kindly give me the reference of the ruling given by Tribunal/Court. — Jagjit Singh A. The answers to your queries are as under: (i) Section 10(13A) of the Income-tax Act 1961 (the Act) provides for the exemption of house rent allowance granted to an employee by his employer to meet the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situated and other relevant considerations. The above exemption is not allowable in case the residential accommodation occupied by the assessee is owned by him or the assessee has not actually incurred expenditure on payment of rent in respect of the residential accommodation occupied by him. In view of the above specific requirements of Section 10(13A) of the Act your son is entitled to the exemption in respect of the house rent allowance to the extent permissible under law since none of the prohibitions described above are applicable in his case. (ii) Deduction in respect of interest paid for amount borrowed for the acquisition of a house property is allowable under Section 24 of the Act. Such interest can be claimed as deduction only by owner of the property and who has acquired the property with borrowed funds. There is no prohibition in the Act for deduction of interest on amount borrowed for acquisition of the house property even though the assessee is living in a hired accommodation. The Hon’ble Income-tax Appellate Tribunal in a particular decision has held that a house for residential purposes does not require a compulsory residence in that house. It only requires that house should be available for residential purposes of the assessee all the time. The essential aspect of the matter would be whether the assessee has retained exclusive control over possession of the house owned by him though he may not be actually present in the house, when he was away from it, he is still in constructive possession of his residential house. In this case the claim of the assessee that the property was self occupied was accepted by the Hon’ble Tribunal (CIT vs. Deepak Seth) (2005) (1 SOT 35) (Delhi) In view of the above decision your son should be entitled to a deduction of interest paid/payable in respect to the flat acquired by him for his self residence purposes. Capital gains tax on sale of plot
Q. I was allotted a plot by Haryana Housing Board in 1991 for which I have already made the full payment and the housing board has given me paper possession but I have not yet taken the physical possession of the plot and it is not registered in my name also. Can I sell the plot now and purchase some other plot or house from the sale proceeds, will I be spared from paying long term capital gains tax. — N.K. Garg, Ludhiana A.
The judicial opinion differs with regard to the treatment of the capital gain arising on the transfer of immovable property where possession has been taken within a period of three years of the date of transfer but the allotment had been made much earlier than the handing over of the possession. In your case the possession has been handed over as per the records of the housing board and it would be difficult to contest that no possession had been handed over to you. There are decisions supporting both the views. You should claim that the capital gain earned beyond three years of the date of allotment but within three years of the date of possession is a long term gain. The benefit cannot be denied as it is a decided principle of law that in case two opinions are possible, that which favours the assessee should find favour with the authorities.
Wealth Tax
Q. I have a residential property which has not been let out for more than 300 days in a year. I had not been able to occupy the same in view of my employment in another town where I am living in a rented accommodation. I have been advised under the Income-tax Act, that the same is exempt from the levy of income tax in view of specific provisions for particular section in the Act. However, I have been advised that the value of such house will have to be included for the purpose of filing the Wealth Tax return. On a conservative basis the value of such house should not be less than Rs 50 lakh. Am I liable to pay Wealth Tax in respect of which the income is exempt in view of the specific provisions of the Act? — R.S. Makkar A.
In accordance with the provisions of Section 5(vi) of the Wealth Tax Act 1957, one house or part of a house or a plot of land belonging to the assessee not exceeding 500 sq. meters is exempted from the payment of Wealth Tax. You are not therefore liable to pay wealth tax in respect of such property.
Deduction on home loan
Q. I am a salaried person living in Mumbai in a rented accommodation. I bought a house in my native place and have taken a home loan from bank for the construction of the said house. Will I be entitled to a deduction on the home loan in spite of the fact that I am not staying in the house constructed by me? — R.S. Bansal, Patiala A.
According to the provisions of Section 24 of the IT Act, the deduction is allowable for the interest paid/payable in respect of the amount borrowed for the construction of a house. The Section provides a higher limit of deduction for a self-occupied house. However, the allowability of the higher amount of deduction is not dependant upon the occupation of the house by the assessee himself and as long as you have the control over the possession of the house you would be entitled to the deduction of the interest to the extent of Rs 1.50 lakh against the income from house property. You would also be entitled to a deduction under Section 80C of the Act in respect of the repayment of the principle amount within the overall limit of Rs 1 lakh provided for by Section 80C of the Act.
Can I claim exemption from capital gains tax?
Q. I had three residential houses located at different places (not self occupied) out of which I have sold off one after retaining it for more than 10 years. Against this, I have purchased a residential plot at Jalandhar (Pb) where I propose to construct a residential house for my own use. My queries are as under: 1) Am I entitled to exemption from LTCG for the amount invested in my newly acquired residential plot and construction thereon? 2) I had sold off the plot on May 15, 2007 and spent almost 60 per cent of the money got from the sale in acquiring the new plot. The balance 40 per cent amount is to be treated in what manner? 3) Whether it can be kept by me in my savings account as normal amount or it has to be deposited in a separate capital gains account till the construction of the new house is completed? 4) Or the entire amount should be withdrawn from the savings account to show on record that the same has been taken out for the completion of construction within six months 5) Or the balance amount has to be invested in some bonds ? — Pradeep A.
The answers to your queries are as under: (i) The capital gain from the sale of house will be treated as long term capital gain. The acquisition of plot would not entitle you to an exemption but in case the construction of the residential house is completed within a period of three years from the date of transfer of the capital asset, you would be entitled to claim the exemption from the taxability of the capital gain earned on the sale of one of the houses. (ii) The balance 40 per cent should be deposited in a bank under the Capital Gains Scheme Account. Such deposit has to be made before the date of filing the return. In your case the return would be due on July 31, 2008 and therefore such deposit must be made before that date. The amount required to be utilised for construction of the house will have to be withdrawn from such an account as and when required. (iii) The amount if kept in the saving account would not entitle you to claim the exemption under Section 54 of the Act. (iv) As indicated above, the balance 40 per cent should be deposited in a bank under the Capital Gain Scheme Account. On the facts of the case as evident from query as a period of six months from the date of transfer of the capital asset has already expired so you would not be able to invest the amount in the acquisition of capital gains tax saving bonds.
The writer can be contactedat sc@scvasudeva.com
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Realty Bytes
New Delhi: Realty firm DMC International Ltd has finalised MoUs to acquire 200 acres of agricultural land near Kota in Rajasthan. The city-based company is planning to start agri- farming on the land with Israel technology and consultancy, it said in a statement.
— UNI
Zoom bags
three contracts in Haryana
New Delhi: Realty firm Zoom Developers has bagged three different projects for constructing Road Over Bridge (ROB) in Haryana worth Rs 46 crore. The company has bagged a Rs 11 crore two-lane ROB on Delhi-Rewari-Bhatinda railway line in Bhiwani district from the Public Works Department, Zoom Developers said in a statement. It has also emerged as the lowest bidder for the Rs 20-crore Kaithal ROB and the Rs 15-crore Mahendergarh ROB, the statement said.
— PTI
Israeli firm to pump $135 m in Chennai project
Jerusalem: An Israeli real estate firm has invested $ 135 million in a Chennai project to develop mixed-use high-end residential and commercial complexes, a media report here said. Elbit Medical Imaging Ltd (EMI), a Nasdaq listed Israeli firm, has bought 80 per cent of a 135 acre plot in the southern city from an unnamed Indian developer, who will own the remaining 20 per cent, business daily 'Globes' reported. “This additional transaction in India announced today is an additional step in deepening our penetration into the Indian market. We consider our operations in India as comprising an important part of our group’s activities,” Chairman of EMI Moti Zisser said. The leading Israeli real estate firm is also planning to build a mixed-use project in Bangalore in collaboration with an Indian developer on an equal share basis, the report said.
— PTI
Highway mall
project launched in Rajpura
New Delhi: Parsvnath Developers Ltd, has launched a highway mall project in Rajpura. The project is a part of Rs 250 crore Parsvnath King City project in the city. Located in the vicinity of Ambala on NH 1, the project has a total saleable area of 2.30 lakh sq ft, the company said in a statement.
— UNI
Unitech to invest Rs 20,000 cr to develop 48 malls
New Delhi: India’s second largest realtor Unitech Ltd has announced a Rs 20,000-crore investment to develop 48 malls and shopping centres across the country in the next six years expanding its presence in the organised retail sector. Unitech currently has two operational malls in Noida and Delhi. After the proposed expansion, the number would reach 50 by the end of 2013. The company plans to develop over 60 million sq ft of retail space through these malls and shopping centres. “In first phase, Unitech will develop 24 malls covering more than 20 million sq ft,” the company’s MD Sanjay Chandra said. To start with, the company is targeting metros and major state capitals for its retail expansion and will gradually move to tier-II and tier-III cities, Chandra added. Of the 24 malls and shopping centres planned in the first phase, 18 are at the designing stage, while the construction work has started on six malls. In the first phase, the company would develop malls and shopping centres in the NCR, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Chandigarh, Dehra Dun, Lucknow, Bhopal, Goa, Vizag, Bhubaneshwar, Kochi and Trivandrum. Each of the proposed eight malls in metro cities
would be one million sq ft in size. — PTI
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Bourse TALK Real estate firm Emaar MGF will be listed in the Indian bourses by launching an initial public offering (IPO) to raise $1.7 billion by early next month, said the company's chairman. — IANS Indiareit to raise Rs 4,500 cr
Ajay Piramal group promoted Indiareit Fund Advisors is planning to raise up to Rs 4,500 crore from overseas and domestic markets to invest in real estate projects in India. The real estate venture capital fund would raise the amount in two tranches. While Rs 700 crore would be raised initially from the domestic market by the end of this month, the company plans to raise nearly $ 1 billion (Rs 3,800 crore) from overseas markets by mid next year.
— PTI
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