Telangana Stir Worsens Outlook For Realty Sector In Hyderabad

General | By mahendra | 2010 Trackbacks (0) Comments (1)   
Dotted with the sprawling campuses of information technology (IT) firms such as Microsoft Corp. and Wipro Ltd, Hyderabad’s fast-moving growth corridor—the Gachibowli area—looks skeletal with half-done buildings, yellow construction cranes and giant billboards that promise delivery of homes on time.

Hyderabad was hailed some years ago as one of India’s hottest property destinations, with firms such as US-based Tishman Speyer Properties and Malaysia’s Sunway City Bhd coming in to launch their maiden projects in the country.In its present condition, Andhra Pradesh’s capital city remains the lone realty victim of the slowdown.“Other cities are already on the recovery route. But Hyderabad has been in the news for all the wrong reasons,” said George Johnson, city head (firm management), Jones Lang LaSalle Meghraj, a property advisory.The downturn perhaps shook Hyderabad more than it did other large cities due to certain disturbing events.The first was the unravelling of a multi-crore accounting fraud at Hyderabad-headquartered Satyam Computer Services Ltd last January, followed by the death of chief minister Y.S. Rajasekhara Reddy in a helicopter crash in September.And just as the sector was beginning to recover, the struggle for a separate Telangana state that includes Hyderabad, intensified.

“Whether the market bounces back depends on if they can control the Telangana agitation,” said N.R. Aluri, managing director, NCC Urban Infrastructure Ltd. “The residential segment particularly looks uncertain though we are expecting some demand in the budget category.”City-based NCC Urban, a subsidiary of Nagarjuna Construction Co. Ltd, has moved its focus to Bangalore, where it is building four projects, compared with one in Hyderabad.NCC’s signature project, a 400-acre mixed development on Hyderabad’s outskirts in Tellapur, in a joint venture with Tishman Speyer India, has been put on hold. Its only ongoing project in the city, Nagarjuna Residency in Gachibowli, has been cropped from 12 blocks to six.Following the 1990s’ IT boom in the city, Hyderabad’s realty market reached its peak between 2005 and 2007, with rising land prices triggering a wave of speculative buying.

Property consultants say the key problems with Hyderabad have always been its unplanned real estate growth, demand-supply mismatch and steep land prices.In 2007, for example, a consortium of developers bought 5.8 acres in the city’s posh Jubilee Hills area for Rs58 crore an acre. The project, which hasn’t been launched yet, would need to sell at Rs15,000 per sq. ft at least to be viable, said a property consultant, who didn’t want to be named.“Everyone was buying large land tracts and planning big projects. Most projects launched in the last two years are nowhere near completion,” said P. Premkumar, member, AP Real Estate Developers Association.Premkumar’s firm, Doyel and Co., part of Opus Developers and Builders Pvt. Ltd, is building Sunway Opus Grand with Malaysia’s Sunway City. The Rs1,700 crore township in Hitec City, a technology hub in Hyderabad, was announced in 2007 but construction hasn’t started yet though bookings have begun. It will have luxury homes and is Sunway City’s maiden project in India.Yap Chun Hua, chief operating office of Sunway Opus, refused to talk about the project citing company policy.

According to Jones Lang LaSalle Meghraj, around 5 million sq. ft of commercial space in the city is expected to come into the market in 2010, of which a little more than 3 million sq. ft is likely to be absorbed.Many buildings that were supposed to be operational in 2009 are still under construction, it added.S. Pochender, director and chief executive of Lanco Hills Technology Park Pvt. Ltd, a mixed-use project in Hyderabad, said the Telangana struggle ripped apart the local property market in December, just when the city was seeing green shoots of a revival.Around 400,000 sq. ft earmarked for office space in the Lanco Hills project is yet to find takers, after five-six nearly-finalized deals fell through in December, he said. Around 2 million sq. ft of retail space, including a 14-screen multiplex, is also going slow. “We have closed 60% of bookings for the homes, the rest is still there.”Jones Lang LaSalle Meghraj’s report says only 0.72 million sq. ft of retail space in the city will be launched in 2010, and demand will be dormant.

Bangalore, some 550km from Hyderabad, has been gaining from Hyderabad’s loss. Not surprisingly, many investors want to exit projects in Hyderabad or delay investment commitments.Nervous of getting stuck, Naresh C. Reddy, an independent investor, who also runs his own pharmaceutical business in Hyderabad, exited from three premium housing projects in the Madhapur area in the last week of November, when the Telangana movement was gathering steam.“I made a loss compared to the initial investment that I had made in mid-2008. But I am now talking to builders in Bangalore because I think the city is safer to invest in,” said Reddy.Irfan Razak, promoter of Bangalore-based Prestige Estates Projects Pvt. Ltd, said he, too, has put on hold a villa project in Hyderabad, originally planned for a 2009 launch.



Telangana Stir Worsens Outlook For Realty Sector In Hyderabad

General | By mahendra | 2010 Trackbacks (0) Add comment   
Dotted with the sprawling campuses of information technology (IT) firms such as Microsoft Corp. and Wipro Ltd, Hyderabad’s fast-moving growth corridor—the Gachibowli area—looks skeletal with half-done buildings, yellow construction cranes and giant billboards that promise delivery of homes on time.

Hyderabad was hailed some years ago as one of India’s hottest property destinations, with firms such as US-based Tishman Speyer Properties and Malaysia’s Sunway City Bhd coming in to launch their maiden projects in the country.In its present condition, Andhra Pradesh’s capital city remains the lone realty victim of the slowdown.“Other cities are already on the recovery route. But Hyderabad has been in the news for all the wrong reasons,” said George Johnson, city head (firm management), Jones Lang LaSalle Meghraj, a property advisory.The downturn perhaps shook Hyderabad more than it did other large cities due to certain disturbing events.The first was the unravelling of a multi-crore accounting fraud at Hyderabad-headquartered Satyam Computer Services Ltd last January, followed by the death of chief minister Y.S. Rajasekhara Reddy in a helicopter crash in September.And just as the sector was beginning to recover, the struggle for a separate Telangana state that includes Hyderabad, intensified.

“Whether the market bounces back depends on if they can control the Telangana agitation,” said N.R. Aluri, managing director, NCC Urban Infrastructure Ltd. “The residential segment particularly looks uncertain though we are expecting some demand in the budget category.”City-based NCC Urban, a subsidiary of Nagarjuna Construction Co. Ltd, has moved its focus to Bangalore, where it is building four projects, compared with one in Hyderabad.NCC’s signature project, a 400-acre mixed development on Hyderabad’s outskirts in Tellapur, in a joint venture with Tishman Speyer India, has been put on hold. Its only ongoing project in the city, Nagarjuna Residency in Gachibowli, has been cropped from 12 blocks to six.Following the 1990s’ IT boom in the city, Hyderabad’s realty market reached its peak between 2005 and 2007, with rising land prices triggering a wave of speculative buying.

Property consultants say the key problems with Hyderabad have always been its unplanned real estate growth, demand-supply mismatch and steep land prices.In 2007, for example, a consortium of developers bought 5.8 acres in the city’s posh Jubilee Hills area for Rs58 crore an acre. The project, which hasn’t been launched yet, would need to sell at Rs15,000 per sq. ft at least to be viable, said a property consultant, who didn’t want to be named.“Everyone was buying large land tracts and planning big projects. Most projects launched in the last two years are nowhere near completion,” said P. Premkumar, member, AP Real Estate Developers Association.Premkumar’s firm, Doyel and Co., part of Opus Developers and Builders Pvt. Ltd, is building Sunway Opus Grand with Malaysia’s Sunway City. The Rs1,700 crore township in Hitec City, a technology hub in Hyderabad, was announced in 2007 but construction hasn’t started yet though bookings have begun. It will have luxury homes and is Sunway City’s maiden project in India.Yap Chun Hua, chief operating office of Sunway Opus, refused to talk about the project citing company policy.

According to Jones Lang LaSalle Meghraj, around 5 million sq. ft of commercial space in the city is expected to come into the market in 2010, of which a little more than 3 million sq. ft is likely to be absorbed.Many buildings that were supposed to be operational in 2009 are still under construction, it added.S. Pochender, director and chief executive of Lanco Hills Technology Park Pvt. Ltd, a mixed-use project in Hyderabad, said the Telangana struggle ripped apart the local property market in December, just when the city was seeing green shoots of a revival.Around 400,000 sq. ft earmarked for office space in the Lanco Hills project is yet to find takers, after five-six nearly-finalized deals fell through in December, he said. Around 2 million sq. ft of retail space, including a 14-screen multiplex, is also going slow. “We have closed 60% of bookings for the homes, the rest is still there.”Jones Lang LaSalle Meghraj’s report says only 0.72 million sq. ft of retail space in the city will be launched in 2010, and demand will be dormant.

Bangalore, some 550km from Hyderabad, has been gaining from Hyderabad’s loss. Not surprisingly, many investors want to exit projects in Hyderabad or delay investment commitments.Nervous of getting stuck, Naresh C. Reddy, an independent investor, who also runs his own pharmaceutical business in Hyderabad, exited from three premium housing projects in the Madhapur area in the last week of November, when the Telangana movement was gathering steam.“I made a loss compared to the initial investment that I had made in mid-2008. But I am now talking to builders in Bangalore because I think the city is safer to invest in,” said Reddy.Irfan Razak, promoter of Bangalore-based Prestige Estates Projects Pvt. Ltd, said he, too, has put on hold a villa project in Hyderabad, originally planned for a 2009 launch.



DTC And Its Impact On Properties

General | By mahendra | 2010 Trackbacks (0) Add comment   

The Direct Tax Code (DTC) is a major evolutionary step in the direct tax history of the country, which is all set to change the entire financial landscape of India. As it spells major change, it will require a fairly in-depth study before all its implications can be understood and assimilated. On the face of it, DTC may have benefited Indian tax payers due to some of its moves, but it looks like a dampener for the Indian realty industry. Moreover, it is likely to undergo many changes and corrections before it is finally enacted. Hence commenting on DTC is a minefield. With these qualifications let us analyse some aspects that will apparently impact the property market. First, there is a significant change in the way income from house property is calculated under DTC, most of which is adverse from the point of view of residential property investments.

1. Tax on every property: Current tax provisions provide for paying tax with respect to every property (except a self-occupied property) whether let out or not, based on contractual rent and where that is not available then based on a reasonable rent. There is also provision for a vacancy allowance in case of property that has been previously let out at any time.Under the DTC Bill, tax is payable on all properties on the basis of a higher contractual rent or presumptive rent. The provision for vacancy allowance has also been deleted. In most cases the local authorities have now moved to a market value based rateable value. Possibly the presumptive rate has been kept at a middle value of 6 per cent considering that commercial properties can be rented out at around 8 per cent of the market value. Of course this simplicity works against residential property ownership. Since the income is higher of contractual rent or presumptive rent the end result will be taking completely non-existent income as income. Thus whether or not a tenant is available for the premises, it forces the owner to pay tax on income.Without the protection of the vacancy allowance that is available under the current tax laws this single change will drive investors out of the market. Some may argue that not having investors may not necessarily be a bad thing but it may not be an ideal situation either.

2. Unclear clause: The words for not applying this income clause to one non-let-out property (equivalent to a self-occupied property under the current provisions) are a little unclear and if left unchanged can jeopardise even this small relief.

3. Gross rent: For let out properties the standard deduction has been reduced from 30 per cent to 20 per cent of the gross rent.

4. Deduction: Deduction is available on all properties for local taxes and service tax to the extent paid.

5. No deduction for interest: There is no deduction for interest for non-let-out properties where the income is taken as nil unlike the current provision where this is available up to Rs 1, 50,000.

6. Principal payment: There is no provision for deduction on the principal payment of the loan taken to buy a home.

7. Commercial property: As far as commercial property is concerned it is now clear that renting out property in whatever guise will now be taxable as income from house property and not as business income or income from other sources. The impact is that no deduction for any other expenses will be allowed except local taxes, service tax and interest on loan.

8. Joint properties: The good thing is that calculations for jointly owned properties has been made absolutely clear as also the treatment of interest payable for loans taken to re-pay the original home loan.

All in all, the real killer here is the presumptive rent. Clearly, this is a stiff annual wealth tax on owning a residential house property in the guise of creating an objective benchmark for the rental potential of a residential house property. With changes in capital gains tax as well as the current rental laws, which discriminate against landlords, and the stiff service tax on rentals, owning residential property except one for self-occupation will be a fairly taxing thing. These provisions, if enacted, are likely to have a very large impact on the residential property market. Residential properties purchased for investment purposes or ownership of second properties are likely to go down significantly. Still these are early days so let us see what actually gets enacted into law. Till then you move on with your decisions of home buying!http://www.maaproperties.com/Pages/ModuleContent.aspx?Module=Articles&nid=1112



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