RBI UNVEILS POSTBUDGET RATE CUT

Less than a week after the Union Budget, RBI governor Raghuram Rajan reduced the repo rate - the rate at which RBI lends to banks - by 25 basis points, to 7.5%, citing improved government finances. However, the burden of home and auto loans on borrowers is expected to ease only in April, the beginning of the new financial year. This is RBI's second rate cut in the last two months but only three of 45 banks - Union Bank, United Bank, and Karur Vysya - have so far lowered the benchmark rates.

Banks are yet to pass on the benefits of the earlier midterm cut in rates on January 15. “Since there is a lag effect for the monetary transmission to take place, effect of previous 25 basis points cut together with the present rate cut would encourage banks to review their base rates,“ T M Bhasin, chairman of Indian Bank, said.

Although banks have seen a marginal dip in cost of funds, they are reluctant to lower rates now due to earning pressure on account of rising bad loans. Also, the financial year end is the time banks try to beef up their balance sheet by aggressively mobilizing deposits and often offer better deals.

An immediate rate cut would reduce interest income for banks. Although some economists did forecast a rate cut given the improvement in the quality of fiscal deficit in the Budget, the timing of the rate cut took markets by surprise. Apart from announcing the cut midweek, this was also the first time that RBI announced its decision before markets opened for TRADING.

Source: PropertyatNeoDevelopers.Wordpress.Com

Great expectations from the Budget

The Government should enhance the income tax exemption limit and give home loan incentives to help drive demand in the residential realty space.

As we move closer to the Union Budget 2015–16, India’s real estate sector is hoping for key announcements to help revive the housing market. With the existing housing shortage in India, demand is not really the key issue as much as affordability for the average citizen. What the Government can do to encourage homebuyers is announce tax rebates on housing purchases and mortgages. Income tax exemption limits and home loan incentives would also help to drive demand in India’s residential real estate.

We are still awaiting the ordinance with the latest amendments to the Land Acquisition Act, 2013, to be finally passed in Parliament. One hopes that the new Act will be implemented soon, together with more incentives for the low cost/affordable housing segment. With the Reserve Bank of India already having announced in July 2014 that lending to the affordable housing segment be made eligible under the priority sector lending category, similar announcements for other housing segments would also be a welcome move.

The real estate sector expects a push for affordable housing at a massive scale across the country from the upcoming Budget announcements. Among other factors, incentivising the developer community by offering subsidised land and partial ownership of the project, as well as incentivising the end-user by providing attractive tax breaks will be desirable.

According to the previous Budget, low cost affordable housing projects for the urban poor were exempted from Foreign Direct Investment (FDI) restrictions, and the Government had allocated ` 4,000 crore through the National Housing Board (NHB) for providing cheaper loans for low cost housing to support the Housing for All by 2022 scheme. Additionally, ` 8,000 crore had been allocated for the rural housing scheme under NHB.

With substantial funds already allocated for affordable and/or low-cost mass housing schemes from previous fiscals left unused, the effective utilisation of fund allocation for affordable housing cannot be stressed enough.

A relaxation in FDI norms in the housing sector, moreover, included a reduction in the minimum capitalisation from US$10 million to US$5 million for wholly-owned subsidiaries; and trimming the minimum area of construction projects from a carpet area of 50,000 sq m to 20,000 sq m. Such relaxation in entry norms are expected to boost the quantum of investments going into the housing sector, particularly into our tier II and III cities.

On the personal savings and tax regulations front too, the previous Budget had allowed for the home loan interest exemption limit to be hiked from `1.5 lakh to `2 lakh. Similar increases from the upcoming Budget are likely to have an impact on home-buyers waiting to take purchase decisions.

In the upcoming Budget, however, there must be more clarity on the Sardar Patel Urban Housing Mission, in terms of fund allocation, funding instruments and entities, exact timelines and project locations, among other factors.

Source: PropertyatNeoDevelopers.Wordpress.Com

Realty sector desperately needs organised funding

With the two most important agendas of the Narendra Modi government being Housing for All by 2022 and development of 100 Smart Cities, real estate stakeholders are expecting something exciting from the upcoming Budget 2015-16.

Om Chaudhary, founder & CEO of FIRE Capital, the first India-centric Real Estate Fund to be registered with Securities Exchange Board of India shares his expectations from the Budget.

Chaudhary says the first thing that should come to the sector is organised funding, as the developers are facing serious liquidity crunch at this point of time. He expects the finance minister to introduce some measures such as lowering the current interest rates to make this happen.

Granting 'industry' status:

Given the requirement for large quantum of funds and the long gestation period in the real estate development of projects (townships and large commercial/mixed use), the sector needs patience and low cost capital from banks and ECB (External Commercial Borrowings), if ‘industry’ status is to be granted to the real estate sector.

Real Estate Regulatory Bill:

The enforcement of the Regulatory Bill will ensure the formation of a Single Window Clearance mechanism. Through the Bill the government needs to make all stakeholders responsible and create a single window clearance mechanism at the state level for a time bound approval process. Chaudhary reinforces that once there is certainty and less scope for corruption and delays, organised capital will flow, especially Foreign Direct Investment (FDI).

Regulations on REIT:

Chaudhary wishes the finance minister to sort out the tax/structuring issues and make the Real Estate Investment Trust (REITs) a reality, thus making investments in the real estate sector more organised for retail and institutional investors. This will ensure developers get the much needed liquidity.

Source: PropertyatNeoDevelopers.Wordpress.Com