UK farmland demand falls sharply as Brexit adds to price woes

Demand for farmland in Britain fell sharply in the first half of 2016, hurt by low commodity prices and uncertainty around the European Union membership referendum, the Royal Institution of Chartered Surveyors (RICS) said on Wednesday.

Forty-nine percent of chartered surveyors said they expected prices to fall across all types of farms in the coming year, according to RICS and the Royal Agricultural University survey.

“Commodity price volatility was already negatively impacting sentiment in the rural land market prior to the EU referendum, and the outcome of the vote has added further uncertainty,” said Jeff Matsu, RICS senior economist.

uk-house-prices-rise“For now, this appears to be weighing heavily on demand and prices have begun to slide.”

Many farmers have expressed concern about the possibility of diminished subsidies for British agriculture once the country leaves the EU. But others have said they will be better off without the EU’s rules and regulations.

Matsu said the Bank of England’s decision to cut interest rates and restart its bond purchases could bolster confidence, while the fall in sterling ought to help agricultural exporters.

The survey added to signs of a broader slowdown in property markets since the vote to leave the EU.

A RICS survey last week showed housing market activity ebbed last month, with gauges of house price growth and transactions falling to their lowest level in years.

Circle rates beat market prices, hit realty sector

 Imagine buying property and paying stamp duty far higher than the deal entails because the circle rate is much more than the market price? Many buyers in Delhi NCR — in New Friends Colony, Kalindi Kunj and parts of Noida for instance — and in smaller cities like Bhopal are doing exactly that as a piquant situation has emerged in the subdued realty market.

With market rates being far lower than circle rates — when the opposite is usually true — in these places, the buyer has to pay stamp duty on an amount higher than the price he has paid for the property, drawing the taxman’s attention to both buyer and seller in such deals.

Property consultant Sachin Garg, who is based in New Friends Colony, says there’s hardly been any transaction in the past one year when the market price has been higher than the circle rate. The circle rate in New Friends Colony is Rs 6.45 lakh per square yard against the prevailing market price of around Rs 5 lakh.

Will real estate investment trusts go the right way?

With markets watchdog Securities and Exchange Board of India (Sebi) finalising the long-pending guidelines for the creation and regulation of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), the stage is set for the launch of these new instruments of investment-pooling that could provide a lifeline to fund-starved developers and also prove to be a boon for the small investors by providing them avenues for safe and profitable investments.

Today, the banking system faces tremendous pressures due to high degree of non-performing assets and, as such, this cheap funding is not easy to come by. This is especially so for the real estate sector , which has so far not been given industry status to entitle it to priority lending for accessing long-term funds at reasonable rates.

On the contrary the Reserve Bank of India (RBI) has put restrictions on lending to the real estate sector. This has made bank lending more cumbersome and costly, forcing real estate players to look for alternate avenues. Even FDI and PE funding has been restricted due to low yields, long gestation periods and limited exit options.

The infrastructure sector requires huge funding of Rs 65,000 crore ($10.6 billion) during 12th Five Year Plan (2012-17). An investment outlay of Rs.70 lakh crore is anticipated in affordable housing and in urban roads and transport in next two decades.

The funding requirement has further increased for real estate in view of the abysmally low sales and substantial increase in raw material and labour costs. This is a matter of serious concern for debt-laden companies. The total debt of top 11 listed companies has touched Rs.42,000 crore, with DLF topping with Rs.19,000 crore.

Against this backdrop, REITs may well prove to be a game changer for the real estate sector as there may be 80-100 million square feet (msf) of Reitable office space worth Rs.60,000 generating Rs 6,000 crore of annual rental income.

Global property consultancy Jones Lang Lassale anticipates that nearly half of the 376 msf Grade A office space will get listed in next 2-3 years. To capitalise on the opportunity, leading funds like Xanders, Red Fort, Blackstone and Kotak and developers like DLF, Prestige, RMZ, Panchshil and Phoenix are preparing to launch their REITs.

Despite the government’s tall promises, real estate has remained out of reach for millions of Indians due to its unaffordability. REITs will provide an opportunity to small investors to invest in a hassle-free manner with ease of liquidating their investment, besides coming in handy for developers of commercial property who require huge capital.

Sebi has also attempted to safeguard interests of property investors through stringent disclosure norms, related party transactions and valuation of assets. The regulator has put a condition that in under-construction properties, where investors are facing the brunt of delays, REITs can invest only 10 per cent of their assets and at least 80 per cent of assets should be deployed in completed and income-generating properties.

Sebi has also tried to take the risk out of investment by mandating that REITs must invest in at least two projects with not more than 60 per cent of the assets invested in one. It has been made mandatory for sponsors to hold 15 per cent stake throughout the tenure of REIT. Compulsory listing of REITs on the stock exchange will make investments transparent and less prone to risk.

However, there are quite a few misapprehensions on the part of real estate sector on the operational success of REITs. The restrictive investment in commercial real estate is being seen as a less attractive opportunity for REITs. Also, there is not a complete pass through on the dividend distribution tax.

Moreover, there will not be much choice for investors in terms of number of projects as only a few big developers will have a Reitable portfolio.

There are also misgivings that REITs won’t be remunerative for investors as thecurrent tax structure is unviable and irksome. Developers are particularly uneasy with the long-term capital gains tax to be paid on selling their units to REITs. They want REITs to be treated like IPOs. Also, exemption from stamp duty would have made REITs more attractive, they say.

It will not be before the next fiscal beginning April 1, 2015 that REITs will get launched. Much of their success will depend on Sebi ensuring that only good quality assets are brought for investment, valuations are right and transactions are well regulated.

It will also be advisable to bring in real estate regulation to make REITs truly attractive to realise their full potential. Notwithstanding the initial hiccups, both REITs and IN ITS will prove to be a boon in channelising domestic and foreign investment into the real estate and infrastructure sector.

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ASIAN NEWS Black money: CBDT orders probe against select real estate firms

CBDT has ordered an Income Tax department investigation against a number of real estatedevelopers who were recently shown by an investigative portal to be willing to accept alleged black money in property transactions.

The apex authority of the I-T department has asked its investigation units across the country to furnish to it reports of any action or probe conducted against the groups named by the portal in the past and in case such an action has not been done, the Central Board of Direct Taxes has ordered the same to be initiated.

“The CBDT has asked the investigation units of the I-T department that all these reports should reach it by the first fortnight of December,” a senior official said.

The investigation done by portal Cobrapost.Com included many developers from the national capital region and those from other parts of the country including Mumbai.

While releasing the transcripts and video recordings of its investigation at a press conference here, the portal said that executives from these companies, including some CEOs and CMDs, were ready to accept anywhere between 10-80 per cent of the property value in black money.

These 35 real estate companies under scanner are spread across the national capital, Uttar Pradesh, Haryana, Rajasthan, West Bengal, Andhra Pradesh, Maharashtra and Karnataka.

While some companies had outrightly rejected the allegations that they accept black money in their property transactions, a few others had said that they have already taken action against the concerned executives.

The portal said that most of these executives expressed willingness to accept money abroad through hawala channels, including in Dubai, Bangkok, Singapore and the US.

The findings of this investigation, named ‘Operation Black Ninja’, have come at a time when the government is making all efforts to bring back unaccounted money stashed by Indian citizens abroad.

BANGALORE Is a hike in home price on the cards?

The Finance Minister today proposed increase in service tax to 14 per cent from 12.36 per cent.

“Hike in service tax will lead to increase in property prices by nearly 0.5 per cent of the total cost,” CREDAI, the apex realtors’ body, Chairman Lalit Jain said.

CREDAI President (elect) Getamber Anand also said: “There will be an direct impact of increase in service tax, as the cost of property will increase”.

“The effective service tax would now increase by 0.41 per cent from 3.09 per cent earlier,” he added.

All under-construction properties are covered under the service tax that developers passes on to the buyers. There is abatement of 75 per cent on the service tax.

NAREDCO President Navin Rajeja also said “the additional service tax impact on home buyers will be 0.41 per cent of value of property.”

While expressing mixed reaction on Budget, Parsvnath Developers Chairman Pradeep Jain said the increase in service tax would make properties costlier to home buyers.

KPMG Partner and Head (real estate and construction) Neeraj Bansal said the slight increase in service tax and excise duty may impact housing prices.

Cushman & Wakefield Executive MD South Asia sanjay Dutt said: “The increase of nearly 2 per cent in Service Tax is going to increase the overall costs of buyers and those availing services from the real estate sector, creating further stresses across the sector.”

HDIL Vice President (Finance & Investor Relations) Hariprakash Pandey said service tax hike will further escalate the housing prices and will be counterproductive to mass and affordable housing.

Developers and property consultants however hailed further tax incentives on Real Estate Investment Trust (REITs).

Commenting on REITs, DLF Group Executive Director Rajeev Talwar said: “The government had already introduced norms for REITs last year, but it could not make much progress pending clarity on taxation related matters. Through the Budget, the Finance Minister has addressed this issue. Pass through rental income and rationalisation of capital gains regime for sponsors will help REITs.”

Emaar MGF CFO Sanjay Malhotra said the removal of some of the tax deterrents for Funds and REITS are steps in the right direction. Amrapali CMD Anil Sharma welcomed rationalisation of capital gains regime for REITs.

Sobha VC and MD JC Sharma said the decision to overhaul capital gains taxes to pave the way for the listing of REITs) in the country is a step forward that will indirectly aid the promotion of housing for all in the country.

Housing sale down 4% in 8 cities in 2015; 6.9L units unsold

New Delhi: Housing sales fell by 4 percent to 2,63,720 units last year, lowest since 2010, in the eight major cities of the country on account of demand slowdown in the real estate market despite interest rate cut by the RBI.

The National Capital Region (NCR) continued to be the worst performing market in India with sales and launches at six year low, property consultant Knight Frank said in its report released today.

Launches of new homes fell by 21 percent in 2015 at 2,44,944 units in the primary market of eight major cities – NCR, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad.

The unsold inventories have declined marginally to 6.91 lakh units from nearly 7.15 lakh units in 2014. Developers would take more than 2.5 years to exhaust this unsold stock.

Commenting on the report, Knight Frank India CMD Shishir Baijal said: “2015 for Indian real estate had both the good and bad news. While the office market grew from strength to strength, residential did not perform as expected.”

Residential segment continued to face slowdown with launches at a five year low, despite the festive season.

“Sales in 2015 were lower than 2014 levels. Despite the 125 bps rate cut by RBI, demand did not see an uptake. Our outlook for 2016 remains muted. To further revive the demand, it is important to transmit the benefits of the rate cuts to consumers,” Baijal said.

In the Delhi-NCR market, housing sales fell marginally to 48,503 units in 2015 from 48,630 units in the previous year.

However, launches of new homes fell by 20 percent to 63,458 units in NCR. The unsold inventory in NCR stands at 2.06 lakh units at the end of 2015.

On housing prices, Knight Frank India National Director (Residential Agency) Mudassir Zaidi said the prices grew by an average 3 percent last year. However, he said the rate of growth has come down from 9 percent to 3 percent in the last 36 months.

In contrast to the housing segment, Knight Frank India’s Executive Director (North and Capital Markets) Rajeev Bairathi said the office space absorption stood at 40.4 million sq ft, highest since 2012, in six cities – Mumbai, NCR, Bengaluru, Chennai, Hyderabad and Pune.

Delhi-NCR witnessed absorption of 7.4 million sq ft of office space last year.

“Supply of quality office space is now a concern with vacancy levels at an eight year low. Rentals have firmed up as a result,” he added.

Among sectors driving growth, IT/ITeS continues to lead with start-ups. “This year, however, we saw e-commerce and start-ups contribute to the office space uptake in a major way. Going forward, we have to wait to see if this trend continues,” Bairathi said.

Bengal emphasises on developing new tier II & III townships

KOLKATA: West Bengal government emphasised on new smaller twonships in the state but so far its proposed theme cities had failed to attract bidders for development in PPP model.

“I am interested in new tier II and III townships,” state Finance Minister Amit Mitra said on the sidelines of the CII organised realty conclave.

But, a real estate developer on the sidelines said, “The theme cities have not able to attract bidders’ interestand so the state government has decided to develop Bolpur theme city of their own.”

The state governemnt had decided to promote six theme based cities with government land – Siliguri, Baraipur, Asansol, Kalyani, Bolpur and Howrah.

Mitra asked investors to come forward for the theme townships.

Meanwhile, Mitra said state has taken several reforms to boost real estate sector.

“We have rationlised circle rate, 10 per cent higher Floor Area Ratio (FAR) for green building. For buildings within metro railway stations 10 per cent more FAR. New private township policy,” he said.

Jio Phone to Increase ARPU in the Long Term: ICRA

Flagging concerns on the success of the new feature phone offering – JioPhone – from Reliance Jio, rating agency ICRA on Tuesday said it’s positive from an ARPU (average revenue per user) perspective, while rival Crisil estimated a massive slowdown in data usage growth to 4X in the next five years from the present growth rate of 24X.

“JioPhone is likely to keep the competitive intensity of the industry high with RJio targeting strong addition of lower-ARPU subscribers and/ or rural subscribers,” ICRA said in a note.

The report said in the long-term, Reliance Jio can help push up the overall ARPU levels of the industry with the JioPhone product aimed at low-ARPU users.

The agency, however, flagged a slew of concerns for the success of the offering, including it being a bundled phone – something that has not succeeded in the domestic market so far many times. Other ICRA concerns include the “tricky issue” of bundling of apps and creating a ‘walled garden’, and whether the JioPhone would be able to let customers use other apps.

“Marketability and acceptability of JioPhone would hinge on the kind of data experience it offers to the users without the port to connect to the TV, which comes at a higher monthly charge,” ICRA said, adding the ‘effectively free’ phone can also increase funding requirements for the company.

Meanwhile, Crisil said it expects data usage growth to slowdown to 4X in the next five fiscal years, as against the 24X growth seen in the previous five years. The number of data subscribers is estimated to double to 900 million and the penetration will also double to 80 percent in the period, it said.

Crisil said the faster mobile data penetration would be supported by a continued drop in tariffs given the intense fight for market leadership, and telcos will have to “increasingly sweat per-subscriber usage to bolster incremental revenues.”

Jio Phone to Increase ARPU in the Long Term: ICRAMobile data usage per subscriber nearly doubled to around 1.3GB per month between fiscal 2013 and 2017 on faster adoption of 3G and 4G services, Crisil said, adding Jio’s free data and a sharp 40 percent fall in tariffs in fiscal 2017 were the growth propellants.

Over the next five years, a larger number of new users will be from rural areas and their relatively lower data usage would impact the industry’s average data usage adversely, the report added.

Crisil said a similar trend was observed in China as well and added the faster and cheaper Wi-Fi will play an important role from here on.

“The cost of offering services on Wi-Fi is just a fifth of mobile, and speeds are significantly faster, too. We expect a sharp increase in Wi-Fi hotspots over the next three to five years, which can be a drag on mobile data growth once penetration growth plateaus,” the agency said.

Despite the drop in tariffs, mobile will be 80 percent costlier than Wi-Fi, it said, adding the country has only around 35,000 hotspots compared with 58 lakh and 6.5 lakh in China and South Korea, respectively.