by admin | May 25, 2021 | Corporate, Corporate Governance, Economy, Investing, News, Politics, Property
New Delhi : Union Minister Arun Jaitley on Friday said the new ordinance amending the Insolvency and Bankruptcy Code (IBC) to treat home buyers as financial creditors will eliminate “fly by night” operators and will force the real estate industry to eventually formalise itself.
Listed as “minister without portfolio” in the Prime Minister’s official website, he said the ordinance would help reform the real estate sector and would benefit home buyers in multiple ways.
“He (home buyer) is now treated as financial creditor. He can initiate a corporate insolvency for a resolution against the errant developer.
“He acquires the right to be on the Committee of Creditors. He gets voting right. He can influence the resolution process. In the unlikely eventuality of liquidation, he stands at par with other financial creditors,” Jaitley wrote in a Facebook post.
President Ram Nath Kovind had on Wednesday given assent to the ordinance amending the IBC to recognise the status of home buyers as financial creditors.
Being treated as financial creditors would bring home buyers at par with banks and other institutional creditors as they would now have a share in the proceeds earned by sale of assets of bankrupt real estate companies.
Jaitley said that construction was already growing at a double digit rate and that the new ordinance — along with Real Estate (Regulation and Development) Act — would catalyse this process further.
He added that just as the film industry, in the last few years, had increasingly formalised itself, the real estate industry would eventually have to formalise itself as well.
“Sound and structured real estate developers would remain. The ‘fly by night’ operators would be eliminated. Projects would be completed in reasonable time and investors would get their share of allotments expeditiously,” the Minister said.
According to Jaitley, there had been a phenomenal growth in urbanisation post 1991 economic liberalisation leading to construction of more townships, a trend that is likely to accelerate.
“This is also an area where many ‘fly by night’ operators have entered. Some developers have very little resources of their own. They use the home buyer’s money to develop, invest in land banks and then get caught in debt trap,” he said.
“The home buyer is the worst sufferer. He has a triple whammy. He has invested his savings with the developer. He may be paying EMIs on the loans taken and may continue to pay either rent of his currently occupied property or live in some alternate accommodation under compulsion,” the Minister added.
Jaitley underwent a successful kidney transplant surgery last month and has been out of action ever since. However, he had been frequently expressing his views on several issues through his Facebook page.
He returned home on Monday after being discharged from the AIIMS. He is expected to resume work in the Finance Ministry after he fully recovers.
In the meanwhile, Railways and Coal Minister Piyush Goyal has been given the additional charge of the Finance and Corporate Affairs ministries.
—IANS
by admin | May 25, 2021 | Opinions
(4th anniversay of Modi government)
By Vinod Behl,
The four years of the Narendra Modi government, marked by landmark reforms, have seen the complete transformation of the unorganised and opaque real estate sector into a regulated, transparent, affordable and consumer-friendly asset class.
Notwithstanding the global slowdown, Indian real estate’s troubles have been self-created. The sector has been bogged down largely due to lack of regulation and transparency and inflated pricing, owing to speculative operations. Over the years, the foul play by a large number of realtors played havoc with the sector. It is in this backdrop that the government put the focus on undertaking reforms to address these fundamental issues plaguing the sector.
The government’s reform and policy initiatives have been directed towards replacing the investor/speculator-driven model with consumer-centric model to ensure that residential property becomes affordable so that every Indian can have a shelter over his head. The results are there for everyone to see.
Property prices have dropped by 7-9 percent in the first quarter of the calendar year in key cities. The government’s flagship mission, ‘Housing for All’, focusing on affordable and mid-segment housing, providing 6.5 per cent interest subsidy (up to Rs 2.67 lakh) under PMAY has been responsible for enhancing affordability. GST has also provided price relief by dismantling multiple taxation and zero tax on ready-to-move homes. All these pro-consumer reforms contributed to bring homes within the reach of the common people.
For long, hundreds of thousands of home buyers across India have been facing hardships due to large-scale project delays. Especially, over 20,000 home buyers in Noida have been under great stress fearing non-delivery of homes due to the developer — Jaypee Infratech — facing insolvency.
The government came to the rescue of home buyers by issuing an ordinance to amend IBC, putting home buyers at par with lenders, thereby paving the way for refund of their money. A large number of housing projects across India are stalled due to shortage of funds, especially as bank funding has been difficult to come. But the reformed and regulated real estate has led to inflow of huge foreign investment of $114 billion between 2015 and 2017, registering a 40 per cent increase in FDI recorded between 2011 and 2014.
Together with FDI, another avenue of developer funding through NBFCs has come as a lifeline for stalled projects, giving new hope to home buyers.
The Real Estate Regulation & Development Act (RERA) has come as a big saviour for property consumers. With its stringent preventive and punitive provisions, RERA has put an end to their exploitation by unscrupulous developers by making transactions fair, transparent and secure.
The reform-oriented government gave top priority to infrastructure development by setting up the Rs 40,000 crore National Investment & Infrastructure Fund.The high priority to highways, with record construction of 25 km per day, has given real estate a connectivity boost.
All the reforms and enabling policies have contributed to the revival of real estate. The worst-hit residential realty has seen a growth of 13 percent in FY18. The commercial real estate has already seen turnaround, with a CBRE report pointing to an all-time high absorption of 11msf during the first quarter of the year, 25 percent up from last year.
The realty revival has also been possible due to turnaround in the economy, with growth bouncing back in the second half of FY18. In the last four years (FY15-18), overall growth rate in the economy showed a modest upstick to 7.3 percent compared to average growth of 7.2 percent in FY11-14.
Though the short-term adverse effects of interruption caused by reforms like demonetisation, RERA & GST have been largely contained and real estate is on the revival path, the government needs to tackle various reform challenges to fast track this process. Notwithstanding GST contributing to ease of business and marked improvement in global Ease of Doing Business Index, there is a need to put single window mechanism in place to speed up projects.
Bringing real estate under GST to derive its full benefits, bringing down transaction costs by rationalising stamp duty and collector rates, according industry status to real estate to access cheap bank funding and effective and speedy implementation of RERA, Housing for All and Smart Cities Mission are the other challenges on hand. Nevertheless, reforms have provided a much needed spring board to real estate to transform into an attractive asset class with sustained growth.
(Vinod Behl is editor, Realty Plus, a leading real estate monthly. He can be reached at vbehl2008@gmail.com )
—IANS
by admin | May 25, 2021 | Opinions
By Vinod Behl,
The year 2017 could well go down as one of the most painful for the bruised real estate and housing sector, reeling under the short-term disruptive impact of a series of reforms. But then, riding high on these landmark reforms, the regulated and organised realty is set to ride out the rough terrain to emerge as a healthy and sustainable asset class in the medium to long run.
The agony of the real estate sector was particularly reflected in the worst-hit residential real estate. The long delays in completing projects and large-scale delivery defaults badly shattered the confidence and trust of home buyers, who were at war with developers and fighting it out in the courts — which saw a few developers landing in jail.
In the wake of all this, home buyers took a back seat, especially refraining from buying under-construction housing units and thereby badly hitting sales. According to industry statistics, there were about 685,000 unsold units across seven major cities till September this year. The high unsold inventory, together with the burden of complying with RERA (Real Estate Regulatory Act) led to a big slump in the launch of new units, though home buyers did pick up ready-to-move dwelling units as they were assured of the safety of their investment.
In view of RERA squeezing funds for residential properties, many developers took to commercial real estate, especially as investors preferred this segment due to better capital appreciation and good returns, particularly in pre-leased properties. Investors also showed keen interest in the retail sector, with national and international brands entering into newer destinations in search of organised mall space. Global PE fund Blackstone invested in a number of malls. Total retail supply, retailers’ expansion plans and investments indicate healthy retail growth in emerging cities.
Despite being a year of hardships, 2017 may well be termed as the year of reforms aimed at removing regulatory hurdles and paving the way for the sector’s growth. These progressive policies brought in transparency, which was reflected in the substantial improvement in India’s rankings in JLL’s Global Real Estate Transparency Index. Major structural reforms and changes in FDI norms made Indian real estate much more attractive to domestic and foreign investors, with a 70 per cent increase in FDI in construction as a percentage of the total FDI over last three years.
The landmark RERA reform empowered and protected consumers against cheating by unscrupulous property developers. Several of its stringent provisions are not only deterrent but punitive in nature to ensure a fair deal to consumers in terms of price, quality and timely delivery of property — besides fast-track redressal of their grievances.
Home buyers got a further protective umbrella with the Mumbai High Court ruling that RERA will be applicable to ongoing projects as envisaged in the model Central Act, nullifying the dilution of some provisions by a few states and in turn protecting the interests of home buyers.
Besides RERA, another big reform that was undertaken this year was the Goods and Services Tax (GST). Currently applicable to under-construction properties, it is aimed at doing away with multiple taxes and checking double taxation, resulting in the benefit of cost reduction which developers are required to pass on to consumers.
To give full benefit of GST to consumers, the government is now extending it beyond the construction stage to final constructed buildings.
The Benami Property Act, aided by demonetisation, together with restrictions on cash transactions, to a large extent rid real estate of black money (responsible for the artificial spurt in prices), making property more affordable. In fact, all the government’s policies — such as according infrastructure status to affordable housing and PPPs for affordable housing — were all directed at promoting this mass segment to achieve the aim of “Housing for All”.
The Housing and Urban Affairs Ministry approved the construction of 112,000 additional affordable houses for the urban poor over and above the 3,076,000 houses sanctioned earlier. That affordable housing was the flavour of the season was clearly evident from the fact that 62 per cent of all new launches in H1 2017 were in the affordable category (less than Rs 4 million price tag), with the trend of “compact homes” catching up.
This year’s budget further provided a booster to the sector. Granting infrastructure status to affordable housing and abolition of the FIPB requirement were significant policy initiatives to help the capital-starved sector.
The other notable measures included provision of additional refinance of Rs 20,000 crore (over $3 billion) for the National Housing Bank (NHB), hike in housing outlay from Rs 15,000 crore to Rs 23,000 crore and allocation of Rs 396,000 crore for infrastructure development.
The pro-consumer budget took several other far-reaching initiatives, including increase in personal income tax limit with additional benefit in tax slabs, long-term capital gains tax benefits on housing, enhancing the scope of the Credit-Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) by extending the loan tenure from 15 to 20 years and replacing built-up area with carpet area as qualifying criteria for benefits of the PMAY scheme. This scheme has now been further extended beyond the EWS/LIG segment to include the MIG segment.
Spurred by the positive sentiment generated by continuous structural reforms, expected improvement in the economic and employment scenario and tapering off of the disruptive impact of RERA and GST, in the months ahead, the real estate and housing sector is headed for consolidation, with a new eco-system marked by transparency and corporate governance.
(Vinod Behl is editor, Realty Plus, a leading real estate monthly. The views expressed are personal. He can be reached at vbehl2008@gmail.com)
—IANS
by admin | May 25, 2021 | Opinions
By Taponeel Mukherjee,
As lenders and borrowers in India grapple with heavy debt levels, asset sales have been a strategy used to pare debt levels by conglomerates.
We think one aspect of asset sales that needs even greater focus in India is for corporations to realise that selling real estate is an alternative to using the capital markets for share or debt issuance. This “unlocking of real estate value” need not be limited to only distressed borrowers, but should be deemed as a financial strategy that needs to be looked at from a capital allocation perspective by the Indian corporate world.
As we know, corporates that have significant real estate holdings such as those engaged in retailing (like Aditya Birla Fashion & Retail Ltd.), hospitality (like ITC) and healthcare services (like Wockhardt Hospitals), amongst others, need to clearly demarcate the value of the business that they derive from their core business versus the value they derive from their real estate portfolio.
For example, a hospital chain can use a Real Estate Investment Trust (REIT) like structure to monetise its real estate assets to pursue further growth if it finds that capital raising through the REIT is cheaper than issuing debt or equity.
Real estate sales can add substantial value for banks which hold Non-Performing Assets (which stands at more than Rs 8 lakh crore ($124 billion) according to an estimate by CapitalinePlus). We know, for sure, almost all public sector banks hold real estate with market value running into thousands of crores. And these banks need to work with cash-rich asset buyers to do a transaction where the bank sells the asset to the prospective buyer and then leases the asset back for use. This financial transaction will allow the bank to use the sales proceeds to infuse capital into its own balance sheet.
Such capital infusion strategies have been used in the more developed markets such as the US to unlock real estate value. The capital infusion assists the bank to create a more efficient balance sheet and focus on its core business of banking, while the real estate asset is managed by a real estate focused investor.
In addition, corporates in India must look at real estate asset monetisation as an alternative to raising capital through IPOs and issuing debt. By the very nature of the lease payments involved in a sale and leaseback of real estate assets, there are similarities between real estate asset monetisation and debt.
We hasten to add that it is important to factor in the debt issuance cost versus the cost of funding through real estate monetisation. A corporate may find it cheaper to monetise the value of the real estate portfolio versus having to either issue debt or dilute equity, especially when credit markets are unfavourable. To further emphasise the importance of real estate asset monetisation, we think corporates that have borrowed over the last six years can use this strategy to refinance their debt.
In India, base rates from the RBI have headed lower from eight per cent in 2014 to the current six per cent. For corporates refinancing their debt by taking the capital from the real estate sale to buy back expensive debt and issue cheaper debt provides an opportunity to bring down interest servicing costs by over 200 basis points in some cases to reflect the lower base rate.
This will allow corporates to invest in new businesses — investments which lead to new jobs. This strategy can be used by both distressed and non-distressed corporates. The key is for the corporations in India to be able to utilise the value of the real estate portfolio to make the best financing decision. This will not only benefit the corporations themselves but also have a positive multiplier effect on the economy.
When each corporation tries to make better financing decisions, capital within the economy finds the best use, which in turn improves economic prospects for the country.
Real estate asset monetisation is not without complexities, with clear demarcation of ownership and control required. There can be issues around ownership of assets versus control of assets, but clear legal agreements at the outset are useful in putting such issues to rest. Nevertheless, real estate monetisation is a path that must be actively looked at and pursued in India much beyond it simply being a last resort for the distressed borrower.
(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. The views expressed are personal. He can be contacted at taponeel.mukherjee@development-tracks.com or @taponeel on Twitter)
—IANS
by admin | May 25, 2021 | Business, Corporate, Corporate Buzz, Investing, Large Enterprise, Property
Mumbai : Real estate major DLF on Friday said that it plans to raise Rs 11,250 crore through issue of warrants and debentures to its promoters, subject to shareholders approval.
“Upon completion of the… mentioned issuances and conversion into equity shares, the total additional amount of promoter or promoters group’s equity contribution to the company will be approximately Rs 11,250 crores,” the company said in a BSE filing.
The company also plans to offer and issue up to 17.30 crore equity shares of Rs 2 each, to eligible investors, in one or more tranches, in India or abroad by way of “public issue or a private placement or a qualified institutions placement”.
—IANS
