News

Emaar MGF to Invest Rs 500 cr on Gurgoan Housing Project
March - 2010


Real Estate Major Emaar MGF will invest Rs 500 crore to build a mid-income housing project at Gurgaon in Haryana. The company, which plans to launch its initial public offer to raise up to Rs 3,850 crore, would develop 1,250 units in the 29 acre-project located at Sector-77 in Gurgaon. Sources said that investment in the project ‘Palm Hills’ could be around Rs 500 crore, excluding the cost of the land. With a starting price of Rs 48 lakh the company has sold 650 units in the first phase.
“The encouraging response on the first day of launch is a testimony to the prevailing huge demand for quality housing in the mid-market segment,” Emaar MGF Executive Vice Chairman and Managing Director Shravan Gupta said. Emaar MGF is a joint venture between Dubai-based Emaar Properties and domestic firm MGF. It commenced its operations in India in 2005 and recently got approval from the SEBI for its maiden public offer.
Of the total proceeds from the issue, Emaar MGF plans to utilise Rs 1,972 crore for part re-payment of debt of over Rs 5,800 crore. The company would use Rs 820 crore for redemption of certain redeemable preference shares and will invest Rs 276.8 crore in paying development and licence renewal charges. Emaar MGF has a land bank of 11,340 acres. It currently has 29 projects, including the Commonwealth Games Village.

30% Rise in NPAs- Banks to be Cautious in Extending Loans to Real Estate, Retail
March 2010

Banks’ non-performing assets have shot up nearly 30% at the end of calendar 2009 from a year ago due to stress in many sectors and farm loan waiver, indicating sharply lower profits for banks and possibility of curbs on exposure to sectors that have contributed to the bad assets. In a reply to the Rajya Sabha, the government said the overall NPAs have increased to Rs 80,023 crore at the end of December 2009 from Rs 61,647crore at the end of December 2008, an increase of over 30%. “Banks will be more cautious towards lending to sectors such as real estate, exports and even retail loans,” says a senior banker with a private bank. A number of private banks have already curtailed their retail lending, specially personal loans.
A recent report by Fitch ratings on ‘banks’ restructuring loan portfolio’ pointed that restructured bank loans worth Rs 30,675 crore may turn bad in 2010-11 and further push up banks’ gross non-performing assets (NPAs) on an average by one percentage point. State-owned banks, however, feel that the rising NPAs will not impact their profitability and that NPAs are minuscule as compared to the total advances. “If you look at our figures, the gross NPAs are at 1.8% of our total advances. Besides, all banks have been making provisions for these loans, which have been reflected in third quarterly results. There will be some caution but it’s not over-exercised,” said CGM Punjab National Bank, RIS Sidhu. The bank reported a flat 1% increase in the net profit to Rs 1011.31 crore for the third quarter of this financial year.
Country’s largest lender, State Bank of India (SBI) also feels that increase in NPAs would not result in lending curbs. “There are no indications that loans to a particular sector has totally gone bad. Every sector has reported bad assets and there seems no reason to stop lending to any particular sector,” said chief financial officer SBI, SS Ranjan. Incidentally, the gross NPAs to gross advances for the public sector banks has also shown an increase of 0.27% as compared with last year. In a move that could put more pressure on PSBs, the government has allowed an extension for loan repayments to large farmers under the Agricultural Debt Waiver and Debt Relief Scheme. The total amount under the one time settlement (OTS) for large farmers is estimated at Rs 10,000 crore.

Finance Ministry Rules Out Rolling Back of Service Tax on Real Estate Sector
March 2010

The Finance Ministry on Thursday ruled out rolling back of service tax on real estate developers at the time of construction, a move which the industry says will jack up housing and commercial property prices.
“Construction is a service. As a service, there is no reason why it should not be taxed,” revenue secretary Sunil Mitra said at a CII seminar here on Thursday, adding however, it is only 3 or 3.5 per cent that gets added up for the buyer. Central Board of Excise and Customs chairman V Sridhar has also said the realty sector would not attract 10 per cent service tax in effect.
“The tax is not at full 10 per cent ad valorem. We’ve a scheme of abatement for 67 per cent. The ratio, basically, was arrived at to represent the cost of inputs. So, in reality, it would pay only 33.3 per cent of the value,” Sridhar said. In the Budget speech, Finance Minister Pranab Mukherjee had said development of real estate complexes will attract service tax, unless the entire consideration for the property is paid after completion of construction.
“In the construction of complex services, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service,” say the Budget papers. Complex is defined as consisting of more than 12 residential units. Industry players, however, said the tax would make housing costlier for buyers.