Budget 2011-12 nothing to cheer about for real estate: DG, NIREM

“Today’s budget has not addressed the core issues that have been affecting the Indian real estate sector. However, enhanced housing loan limit of Rs 25 lakh for priority sector lending is a welcome move. It will definitely benefit a particular segment of home buyers as well as developers”, says, Director General of IDS National Institute of Real Estate Management (NIREM), New Delhi.

The DG further says that this budget also shows that though affordable housing is a concern for the Union Government, it is more concerned with LIG and lower level housing. Few of the most important core issues that have not been touched upon in the budget are:

·         Rationalization of stamp duty,

·         Introduction of REMFs,

·         Industry status to real estate sector,

·         Availability of land at concessional rates instead of auctioning at skyrocketing prices

·         Introduction of a system of timely master/city development plans,

·         Guidelines on private participation in rural housing,

·         80-IB renewal etc.

·         Human resource development for real estate and housing sector.

While industry status brings several advantages to the sector, introduction and promotion of REMFs/REITs enables various funds such as pension funds, insurance companies etc invest in real estate assets which in turn brings liquidity.

Special economic zones under the purview of MAT would reduce the benefits that developer used to get from SEZ. Infact, the additional benefits that SEZ offers had attracted developers but with new policy the level of attraction will reduce to some extent.

On the other hand, DG NIREM further adds, enhanced priority home loan limit of Rs. 2.5 million would do no good to the tight affordable housing situation in bigger cities, though it would definitely benefit the LIG segment in general to some extent. However,  interest subversion of 1% on home loan by including loans upto 15 lakh for houses that cost upto Rs 25 lakh for one year will come as a major relief to home loan borrowers from the low income group segment.’’

DLf to Launch Plots in Sector 91&92 Gurgaon

India’s largest real real estate company DLF Ltd. is launching plots in Sector 91 and Sector 92, Gurgaon. The tentative sizes of DLF Plots Sector 91, 92 Gurgaon are 300 and 350 square yards.

DLF Limited, is India’s largest real estate company in terms of revenues, earnings, market capitalisation and developable area. It has over 60 years of track record of sustained growth, customer satisfaction, and innovation.

DLF’s primary business is development of residential, commercial and retail properties. The company has a unique business model with earnings arising from development and rentals. Its exposure across businesses, segments and geographies, mitigates any down-cycles in the market. DLF has also forayed into infrastructure, SEZ and hotel businesses.

Continuing Along The Path Of Education Reform

The private sector can be encouraged to provide much needed real estate and infrastructure to educational institutes. 

The author’s wish list from this year’s budget from an education sector standpoint include, announcements around the following:-

• Policy initiatives to encourage private participation in PPP models & education services;
• Dilution of FDI conditions prescribed for construction development of education institutions;
• Income-tax incentives and tax holidays for creation of education infrastructure;
• Expansion of service tax exemptions for services provided to or by education institutions;
• Announcement of a road map for passing of pending Higher Education Bills in Parliament.

The Indian private education sector offers considerable opportunities for the private sector. In the context of higher education, the Ministry of Human Resource and Development has targeted an increase in the gross enrollment ratio from the current 12% to 30% by the year 2020. If this is to be achieved, India would need over 300 new Universities and 20,000 new Colleges to be set up. Significant expansion in the number of K-12 institutions is also required.  These supply gaps cannot be achieved through public funding alone and there is an acute need for the private enterprise to significantly increase its participation in the sector. 

Education in India comprises of the regulated and unregulated segments. For example, segments such as vocational training, test preparation centers, ICT services, etc, are subject to little or no regulation. On the other hand, K-12 education and institutions that offer degrees or diplomas comprise the regulated segment. Under Indian laws, the regulated segment requires the institution to function under a not-for-profit format and has been historically subject to archaic laws and multiple regulations. Subject to CSR initiatives, the not-for-profit mandate and the regulatory framework may have dissuaded private capital from entering the regulated segment. While it may be too much to expect the Government to make the structural change required to move towards a for-profit-model, the Government through policy could encourage private sector participation through public-private partnership models and education services.

The private sector can be encouraged to provide much needed real estate and infrastructure to K-12 schools and higher education institutions. Both K-12 legislation such as those of CBSE, ICSE and State Boards and higher education legislation such as certain Private University laws permit the institution to lease land and buildings subject to minimum lease tenures. A pain point in this context is India’s Foreign Direct Investment (“FDI”) regulations, as applicable to real estate. While foreign investment up-to 100% is permitted in real estate, stringent investment and development conditions have been prescribed. One such development condition is the requirement to develop a minimum of 50,000 square meters per project, which is in particular difficult to comply with for school projects. The Budget should take steps to dilute the FDI regulations for the education sector on par with those of other infrastructure segments such as hotels and hospitals in which FDI is permitted without restrictions. A lease model may help the education institution achieve scale faster and will result in a win-win situation for both the Government and the service provider.

Under the domestic tax law, education is a ‘charitable activity’, which entitles not-for-profit entities to claim income-tax exemptions on their income. However, no similar incentives are provided to entities engaged in the development of infrastructure for education purposes. The dearth of high quality infrastructure in both private / State institutions justifies the need for tax holidays for entities that invest in the creation of education related infrastructure. Such tax breaks could be structured on the same lines as the deductions contained in tax law for the development of other infrastructure segments such as industrial parks, hospitals, etc. Such a policy will positively impact the creation of additional capacities and among others would help the Government achieve its social objectives around implementation of the Right to Education Act, 2009 and its targeted gross enrolment ratios.

The fees charged by recognized education institutions to students are not subject to service tax. However, most services consumed by such institutions are subjected to service tax and as a result the tax burden is passed on to students. The Finance Minister could consider exempting services rendered by entities to recognized educational institutions from the levy of service tax. Under the current service tax code, taxable service categories such as immovable property rentals and business support services provided to recognized education institutions are not subject to service tax and it would be helpful if the exemptions can be applied across a larger list of taxable service categories. If such an exemption is provided, this would reduce the cost of imparting education by a few percentage points and would make it easier to comply with the RTE Act and sixth pay commission norms.

While staying on the subject of service tax, the definition of commercial coaching and training centers was widened in the last budget. This year it is rumored that the service tax net would be widened to include additional education services. Human resource development is one of India’s most critical challenges given our demographic profile and the Minister should weigh the potential revenue collection with access and equity to achieve inclusive growth.

As is common to other sectors as well, tax and policy certainty is critical while making investment decisions; else the risk weightage for the sector increases. The Ministry of Human Resource Development has proposed a large number of Bills including the Foreign Education Providers Bill and the Unfair Practices Bill. The passage of such Bills would help the process of reform and would add to policy certainty across the higher education sector. We are hopeful that the Finance Minister would in his Budget provide a road map towards enactment of pending Bills; which otherwise may share the fate of several other legislation which either does not get enacted or are enacted after significant delays.

(Mithun D’Souza, senior tax professional with Ernst & Young has also contributed to this article. Views expressed are personal.) Source: VCCircle

Ascendas India Trust To Buy Phoenix Infocity Assets For Rs 855Cr

BY TEAM VCC

These assets include five of its buildings in Hyderabad's Hitec City area.

Ascendas India Trust (a-iTrust), an Indian property trust managed by Singapore-based Ascendas Property Fund Trustee Private Limited, has signed an agreement with Phoenix Infocity Private Limited to acquire its portfolio of five buildings in Hitec City 2 Special Economic Zone, Hyderabad, in a deal valued at Rs 855 crore.

Of these, two of the buildings, with a total super built up area of 4 lakh sq ft completed and fully occupied, will be acquired with immediate effect for Rs 173.9 crore. The other three buildings, with a total area of 18 lakh sq ft, will be acquired as and when each is completed and is leased out. This is expected to be completed in next 4-5 years. The pricing of these three buildings, which is estimated at Rs 680.8 crore, will be based on the net property income achieved at the time of acquisition, an Ascendas statement said.

According to the deal, a-iTrust has the flexibility to acquire the buildings even when they are partially leased, by paying first for what has been leased, and paying for the balance space as and when it is leased.

The Trust will invest in the construction of the buildings, by subscribing to interest bearing convertible debentures during the construction of the buildings, subject to conditions of pre-leasing of the buildings and the trust’s ability to borrow within specified limits.

The Trustee-Manager will be actively involved in the development of the three buildings. The building design and specifications, as well as leases to be entered into, will be reviewed by the Trustee-Manager, the statement said.

Following this deal, a-iTrust’s presence in Hyderabad grows significantly, from the current 1.7 million sq ft owned to 3.9 million sq ft when all of the five buildings are acquired. The acquisition will strengthen a-iTrust’s position to capture the opportunities provided by the rapid growth of India’s IT industry.

“The acquisition is consistent with a-iTrust’s strategy to grow through acquisition and development. Since a-iTrust’s listing in August 2007, we have developed four buildings (two in 2008 and two in 2010), growing the portfolio from an initial 3.6 million sq ft to 5.9 million sq ft today. A fifth building of 0.5 million sq ft will be completed in mid-2011, bringing the portfolio’s completed space to 6.4 million sq ft,” Jonathan Yap, CEO of the Trustee-Manager, said.

“Upon acquisition of all five buildings, a-iTrust’s portfolio of operating space will increase by 34%, from 6.4 million sq ft to 8.6 million sq ft. On top of this, we own land that can yield another 2.5 million sq ft in Bangalore,” he added.

Upon closing the deal, Hitec City 2 SEZ will be renamed aVance Business Hub. The acquisition, subject to certain regulatory approvals and satisfaction of certain conditions by Phoenix, is expected to close over the next 3 months.

Ascendas, Asia’s premier provider of business space solutions, develops, manages and markets IT Parks, industrial parks (manufacturing, logistics and distribution centres), business parks, science parks, hi-tech facilities, office and retail space. Among its flagships are the Singapore Science Park, International Tech Park Bangalore, Ascendas-Xinsu in Suzhou and Dalian- Ascendas IT Park.

In India, a-iTrust is seeded by four IT parks in India, namely the International Tech Park Bangalore, International Tech Park Chennai, and CyberPearl and The V in Hyderabad.

EduMark launches job oriented course in property sales

EduMark has launched a 3-month job oriented Diploma in Property Sales & Transaction. The course aims to prepare educated youth for a career in property sales. Real estate employers have shown keen interest in recruiting successful participants. This is the first initiative, in the fast growing Indian real estate market that prepares unemployed youth for employment in this sector.

Indian property market has been facing acute shortage of trained and real estate educated professionals, in particular sales and marketing professionals. On the other hand, there is a huge population of educated but unemployed youth in the country. Therefrore,  Job Oriented Diploma in Property Sales & Transaction has been launched to train the unemployed workforce as per the needs of the real estate employers and place them with these companies. Real estate employers have shown keen interest in this unique initiative of EduMark.

Job oriented Diploma in Property Sales & Transaction is a three months program, targeted at educated youth who are looking for employment. The major components of this course are class room teaching, on-the-job training with real estate companies and employment on successful completion of the course. The course covers everything that aspirants today need to start their career in property sales and marketing. This course is also suitable for those who have entrepreneurial zeal and want to start their own property advisory firms.

Course curriculum has been devised by considering the actual needs of the employers and therefore the course objective is to develop those skills and knowledge of participants which can specifically meet the requirements of employers. Industry participation in the form of knowledge and skill development of participants by practicing real estate professionals, career guidance, individual evaluation and suggestion for corrective measures by real estate HR managers, on-the-job training under guidance of senior level property managers etc. are few of the key features of this first ever vocational education and training program in real estate.

HDFC To Invest In Kaizen PE Fund

BY SIBI SATHYAN; VCCircle

Bottom of Form

Signalling its growing interest in the education space, India's leading home mortgage lender HDFC is making an investment in Kaizen Private Equity, the country's first education-focussed PE fund. This comes close on the heels of HDFC investing Rs 50 crore in Indus World Schools, the formal education venture of Career Launcher.

HDFC will make the investment, whose size was undisclosed, through its wholly owned subsidiary, HDFC Holdings Ltd.

Sandeep Aneja, founder and managing director of Kaizen PE, said the HDFC investment in the fund will help it complete its $100 million fund-raising exercise. He, however, declined to divulge the size citing contractual obligations.

Following the investment by HDFC, Kaizen would now need about 50% more to close India’s first education-focussed fund entirely, he told VCCircle. Kaizen is in the process of raising a $100-million fund and has achieved its first close in December 2010. It has used the proceeds to make its first investment in an undisclosed company, a report in Business Standard said, quoting a press release.
Kaizen has, recently, raised commitment for its debut fund from International Financial Corporation (IFC), the private investment arm of World Bank.

Kaizen's fund expects to raise over 50% of the corpus from institutional investors. The PE fund will look at providing funding to education companies in their growth stage and will also focus on operational improvements in its portfolio companies. The fund would look at typically investing in the range of $5 million to $15 million, according to its website.

Thanks to its non-cyclical nature and huge demand across the KG to PG spectrum, education is one redhot sector if deal data is a pointer. The sector has seen investments of $190 million across 23 deals in 2010, according to VCCEdge, compared to 10 deals worth $128 million in 2009. Beginning of 2011 has already seen several large-ticket deals such as Dubai-based QInvest's deal with FIITJEE and Pearson's strategic acquisition of TutorVista.