Under the directions from Finance Ministry, the RBI, in a notification today, eased credit availability for the affordable housing sector in India. We believe the central bank’s fresh measures will enhance availability of funds to the sector, while not having material impact on affordability. The above measures along with key
announcements in Budget 2015 highlight the government’s intent to give impetus to the real estate sector.
Banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to affordable housing (defined as housing loans eligible under priority sector lending by RBI and also housing loans to individuals upto INR5mn for property valued up to INR6.5mn in Mumbai (clarity awaited whether intent is Greater Mumbai or MMR), New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad, and INR4mn for property valued up to INR5mn in other cities.
The above measures will enhance availability of funds to the affordable housing sector. The measures will not significantly impact interest rates and accordingly affordability, as current home loan rates (~10.25%) are already near base rates (10%) but in the Medium Term will help Small & Genuine Home BUYERS across India as Interest Rates Will begin to Fall in the next 24 months.
Thursday, July 17, 2014
Thursday, July 03, 2014
Residential Demand / Launches Dull - Price Stable
Residential absorption (area sold) in key cities of India fell 31%YoY/ 51%YoY in FY14/ 4QFY14
(Prop Equity data). The pace of demand destruction has accelerated through FY14
with 3%/ 27%/ 39% 51%YoY decline in absorption in 1Q/ 2Q/ 3Q/ 4QFY14.
Absorption fell 19%QoQ in 4QFY14. Though the monthly numbers are volatile, April
2014 (1MFY15) saw an absorption decline of 53%YoY in key cities tracked. All
these data point to sharp deterioration in residential demand due to ongoing
economic slowdown and stubbornly high prices.
Residential Property Prices in India have been increasing despite weak volumes over the past 3-4 years. However, now different data points are suggesting some decline in prices in a few areas. At least the sharp price rises have moderated over the past few months.
Wednesday, July 02, 2014
REIT in India Could be Simple With Taxation / Rules
The very act of setting up a REIT requires a sponsor to contribute assets (either directly to the REIT or shares of an SPV that owns immovable property into the REIT). Any such contribution, under the current law, will mean a capital gains tax incidence of at least 20% on the difference in value between the holding cost and the transacted fair market value in terms of contribution to the REIT. The industry has lobbied hard to the Finance Ministry that such a tax incidence on contribution will be a non-starter, as it would entail a 20% outflow in order to do an IPO and a liquidity element of at least 20% will be required just to pay taxes. Experts on our call opined that the Finance Ministry is coming around to the view that the contribution of assets or contribution of SPV shares into a REIT should be treated as restructuring and hence, should be tax exempt.
Secondly, any income generated at the SPV level or property income at a trust level is subject to corporate tax and a dividend distribution tax in order to upstream income and be distributable to unitholders.
The industry is seeking a zero-tax regime on the grounds that: (a) income stands distributed to unitholders and unitholders, depending on their character, may or may not be taxed; and (b) being a new investment product, the REIT, as an investment instrument, needs a fiscal impetus. Whilst zero-taxation is the ask, our
experts felt that the Finance Ministry may agree to a single point of taxation but it may not be in a position to provide complete exemption.
Whilst these tax concessions impose a minimal cost on the exchequer, our experts opined that the benefits to the Government and the economy, in the form of foreign inflows, comfortably outweigh the implicit costs. REITs will not only attract foreign inflows that positively impact the economy’s current account deficit but also channel household savings towards investment in REITs (as against the current habit of Black Money Investment in Physical Gold and Real Estate Assets)
Secondly, any income generated at the SPV level or property income at a trust level is subject to corporate tax and a dividend distribution tax in order to upstream income and be distributable to unitholders.
The industry is seeking a zero-tax regime on the grounds that: (a) income stands distributed to unitholders and unitholders, depending on their character, may or may not be taxed; and (b) being a new investment product, the REIT, as an investment instrument, needs a fiscal impetus. Whilst zero-taxation is the ask, our
experts felt that the Finance Ministry may agree to a single point of taxation but it may not be in a position to provide complete exemption.
Whilst these tax concessions impose a minimal cost on the exchequer, our experts opined that the benefits to the Government and the economy, in the form of foreign inflows, comfortably outweigh the implicit costs. REITs will not only attract foreign inflows that positively impact the economy’s current account deficit but also channel household savings towards investment in REITs (as against the current habit of Black Money Investment in Physical Gold and Real Estate Assets)
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