Real Estate Chandigarh Facing Severe Downturn |
| Real Estate Chandigarh Facing Severe Downturn Posted: 25 Mar 2010 12:40 AM PDT
Realtors and property consultants say around 10 per cent of investors in and around Chandigarh and Ludhiana have given up their stakes. It may not be a big number, but considering that an average of only 40- 50 per cent of each of these projects has so far been sold out, the percentage of those surrendering their share is substantial. Says Guranchal Sethi, a leading property consultant in Chandigarh: "People here do not have the spending power to buy expensive apartments. Most of these projects were launched in 2006-07, when the realty sector was booming. Majority of investors in these projects were NRIs, who were looking at quick returns for their investments. But when the projects failed to take off and they failed to attract premium because of initial high pricing, many investors started backing out". Interestingly, another major reason for investors pulling out has been that a major component of the price has to be paid in white money. Since the economy in this region thrives on black money (which is unaccounted for), investors (other than NRI investors) got scared of putting their white money in projects when the downslide started in the realty sector in late 2008. "So, in order to stall the flight of investors, most builders are now offering discounts and allegedly accepting 50 per cent of the price in black money," says Parminder Singh, a property dealer in Ludhiana. A senior banker in State Bank of India, dealing with the real estate portfolio, said that a big reason for the projects not taking off was the lack of infrastructure around the location for these projects. "Most of these projects are located far away from the city, with little support in terms of road, power and water infrastructure. It hits the resale value of the property," he said. The trend has now started worrying even the banks that are now advising the realtors to cut down their prices so that the banks' interests are not harmed. A senior official in Punjab National Bank, told The Tribune that some developers have started defaulting on their loan repayments. "We are now holding regular advisory meetings with two top notch developers and are pressurising them to slash prices so that they can sell more units," he said. No wonder, that the builders have either started reducing their prices, or are marketing their products as 'expandable homes' —- where basic structure is made at a much lesser price. They then charge separately for all accessorising and home fittings. A realtor, who has tied up with a Dubai-based firm to construct villas in Mohali, has recently started this concept and reduced the price of his villas by almost 20 per cent. Another builder, who is constructing apartments in Chandigarh, has slashed his prices by three per cent. He is also ready to reduce the price by Rs 200- Rs 300 per sq feet, if the buyer makes the payment within a short span of time. Others are doling out 'juicy' offers like giving free club memberships and luxury sedans to buyers. However, with the economy back on the track, realtors feel that the worst may be over soon. "Things would soon change. With the improved economic scenario, people have already started showing interest in these projects," says Taran Inder Singh, director, Multi Tech Towers, Mohali. |
| Pvt Banks to Offer Tax-Free Infrastructure Bonds Posted: 25 Mar 2010 12:30 AM PDT
Finance minister Pranab Mukherjee said that given the constraints in financing key projects, the government has decided to open up the window for issuing tax-free infrastructure bonds to private firms also. So far, only state-owned companies were allowed to issue such bonds. In this year's Budget, Mr Mukherjee has proposed that investors could put money in tax-free infrastructure bonds over and above the ceiling of Rs 1 lakh for specific investments such as in the public provident fund and equity-linked savings schemes. Investors who park funds in the proposed infrastructure bonds will get a tax break of Rs 20,000 annually. However, the bonds are expected to have a long tenure in excess of 10 years. Private sector banks and NBFCs, particularly those providing finance to infrastructure sector, may be among the beneficiaries of the latest move, a finance ministry official who did not wish to be named told ET. The Indian central bank, or the RBI, recently introduced a new category of NBFCs — 'Infrastructure Finance Companies (IFCs)' which will be largely lending to the infrastructure sector. These specialised NBFCs are tipped to be the first off the block in this bond issuance. The cost of funds raised through infrastructure bonds is low, as the rate of interest offered is low, but the effective return to investors is high because of the tax benefits. A number of governmentowned entities have issued tax-free bonds at 7.5%. If a private sector entity floats such bonds, the cost could work out to 8-9 % which is still lower than raising money from banks at close to 11%," said Vishwas Udgirkar, executive director at consulting firm PricewaterhouseCoopers. In the early half of the decade, infrastructure bonds were a hit with investors, but changes in laws in Budget 2005-06 made them less attractive and practically killed the retail market for such bonds which was worth Rs 15,000-20 ,000 crore then. In a way, Mr Mukherjee appears to be reversing the policy pursued during the time of his predecessor, P Chidambaram, when tax-free bonds were discouraged. Institutions such as the state owned Rural Electrification Corporation were regular issuers, earlier managing to raise funds at 6% rate. Only institutions like the government-backed IFCL now issue tax-free bonds that are picked up by institutional investors. The Budget announcement was in keeping with the demand of banks that sought access to such bonds to lend to the infrastructure sector. Infrastructure projects, typically, need debt for 15-20 years, but banks do not have access to long-term funds, as the deposits they raise are of shorter duration. Banks can raise five-year deposits that are eligible for tax deduction . The benefit will be available to taxpayers after the passage of the finance bill and subsequent notification of the provision by the finance ministry. The move to allow private players to issue infrastructure bonds will also help in the development of a long-term bond market that now lacks both depth and liquidity. However, experts said this may just be the first step, and more measures would be required to generate retail interest. "Infrastructure sector is stretched for capital and this move will open one more big avenue for borrowers to raise fund from retail . To create appetite for such bonds and deepen the market, these bonds could be sliced into two categories based on their level of risk. One category could be to raise funds to finance new projects and other one by securitising cash flows from existing infra projects which will be more secure," said Jai Mavani, head, real estate and construction, KPMG. Deepening of the bond market will require more participation from pension funds, said experts, something which the finance minister did not lose sight of on Tuesday. |
The luxury-living bubble, it seems, has finally burst. Deluxe apartments and luxe villas offered by the country's topnotch realtors in this part of the country are not just seeing a flight by investors, but have also failed to excite new buyers. With recession hitting these realtors hard and most of these projects yet to take off, many a Punjabi's dream of a plush house, seems to be crashing. A large number of investors are now pulling out of projects, even at the risk of losing their earnest money, in absence of desired returns and resale market.
India's private banks and non-banking finance companies (NBFCs) appear set to join a list of select stateowned firms which will be allowed to offer tax-free bonds to investors, as the government seeks to broaden its avenues to raise long-term funds to build more roads, ports and power plants. The country will need over a trillion dollars over the Twelfth Plan period (2012-17 ) to improve its infrastructure.| You are subscribed to email updates from Indian Property Review To stop receiving these emails, you may unsubscribe now. | Email delivery powered by Google |
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