residential property owners will have to pay the 11.74 per cent more residential property tax

If new proposed formula of the municipal administration to calculate property tax in the city is approved by the standing committee of the BMC on Wednesday so all the residential property owners will have to pay the 11.74 per cent more residential property tax than what is paid now and it will come in effect from April 1 2015.

As per the previous proposed property taxes system of BMC was based on the calculation of built-up area rather than carpet area. It is expected that the average of the increase in property tax across all categories will be 14.52 per cent with the new formula. While the earlier proposal would have taken the revenue from property tax to Rs 5077.62 crore, the revised proposal will mean a tax collection of Rs 4,563.33 crore. As per the statement of Senior BMC officials, we are confident on the new formula as it will get approval in the standing committee meeting to be held on Wednesday. It is expected that if new formula will not get approval, then property tax will increase by 27.43 per cent.

The new formula of property tax calculation is based on the carpet area and it will be presented to the group leader of political parties on Monday. The BMC has a target of collecting Rs 6,000 crore in property tax every year. As per the statement of senior official, “We are expecting to get Rs 90 crore on average from new properties in an addition to Rs 4,563.33 crore and due to that we are meeting our target and not even burdening Mumbaikars”.

Now with the new proposed formula we will get Rs 1,475.22 crore from residents, whereas; earlier we would have got Rs 1,320.21 crore. Now with the new proposed formula is it expected that we will get Rs 595.98 crore from open land whereas; earlier we would have got Rs 460.32 crore. On residents the increased burden would be only 11.74 per cent.”

SBI sells 130 properties

Country’s largest lender, State Bank of India could sell only about 130 properties in its e-auction of 300 assets to release just about Rs 100 crore.

As per the senior official of SBI, “we sold around 130 properties, largely residential through the e-auction process to release just Rs 100 crore: The more he added that SBI may sell all of the 100 residential properties it had put on the block. According to data, SBI had put on block around 300 properties with the worth Rs 1,200 crore including shops, factory buildings, offices and residential apartments which are spread across 25 cities including four major metro cities through an e-auction last Saturday, as they had put out a public notice on Thursday.

Due to heavy traffic one of the real estate portal which was assigned to carry out the auction, SBI had extended the time for auctions by an hour. This was one of the best innovative ways by any lender that has been fighting a long battle to contain bad loans, to dispose of distressed properties through an e-auction.

According to statement of PK Malhotra, who is Deputy Managing Director of SBI, “Due to heavy traffic on assigned real state portal for e-auction, the site has become slow and we don’t want anyone to miss the chance. Earlier, the bidding time was till 5 pm and we are now going to extend it by an hour” The process was conducted by e-procurement solutions providers C1 India and Auction Tiger.

RBI eased norms for Home Loans

Harshil Mehta from DHFL believes that new guidelines of RBI may also get extended for middle income group (MIG) which costs around Rs 12 to 15 lacs in tier-2 and tier-3 cities. To provide a boost for affordable housing, the Reserve Bank of India (RBI) eased norms last week for home loans of up to Rs 10 lacs.

While speaking with CNBC-TV18, Harshil Mehta, CEO, DHFL stated that this is very much positive sign for his company and real estate industry. He believes that these guidelines may also get extended for Middle Income Group (MIG) that costs around Rs 12 to 15 lacs in tier-2 and tier-3 cities. As per the statement of Mehta, the new RBI guideline will largely benefit the Economically Weaker Sections (EWS) or the Low Income Group (LIG) segment where the stamp duty registration is anywhere between 12 -16 percent of the cost of unit which was earlier excluded from calculating the loan eligibility. Below is verbatim transcript of the interview:

• Could you take us through the positive side of this announcement? How it will be good announcement for your company as well as the real estate industry?
  This new RBI guideline will largely benefit the Economically Weaker Sections (EWS) or the Low Income Group (LIG) segment where the stamp duty registration typically goes up to anywhere from 12 per cent to 16 per cent of the cost of unit, earlier it was excluded from calculating the loan eligibility.
  Now, with this it for sure that it will help the borrowers to be a part of the loan so in that segment this is definitely good.

• What is your view on the other guidelines which passed with respect to disbursal of loan upfront for the government owned and backed real estate builder bodies’ such as; Maharashtra Housing and Development Authority (MHADA)?
  This is definitely good sign and has been a constant feedback to all the regulators especially for those who came to statutory housing projects either by government or by statutory housing boards as they work in a different way than the private sector so this is surely a welcome sign because when it comes from the regulator it makes things a lot simpler from process perspective when you have borrowers who apply for a loan and are looking at disbursals. So, this is a pretty good sign.

• In present, how much of your loan portfolio is sub Rs 10 lacs?
  If we look at our company’s portfolio, than more than 60 per cent of our home loans get sanctioned for loans up to the size of Rs 10 lacs and on the disbursement side we would be at 51 per cent of the loans to Rs 10 lacs.

• How do you see this benefiting your top line and subsequently the earnings for your company?
  This announcement leads to an enhancement in our disbursements because now you are including that in your loans. So, for sure it will helps us to increase your disbursements while the traction continues on the tier-2 and tier-3 cities so, this means that from a sanction perspective because you will now have more borrowers coming to you for loans and this will lead to higher sanctions. So overall, on the portfolio you can see a marginal increase on account of this.

• Do you see an extension to the ticket size of Rs. 10 lacs going forward to include the Middle Income Group (MIG) as well?
  While this new guideline of RBI is for loans up to Rs 10 lacs, we also need to keep in mind that in tier-2 and tier-3 cities even Middle Income Group (MIG) unit cost is in the range of Rs 12 to 15 lacs. So, this limit of 10 lacs may get extended to cover for the Middle Income Group (MIG) segment also which is up to Rs 15 lacs as it would surely benefit as all this falls under affordable housing but this is definitely a good move towards that.

• Can you quantify that?
  We would suspect that this would be in the range of anywhere from 2 to 6 per cent.

SBI is planning to include Kingfisher House on its next e-auction block

After getting unexpected response from its mega auction of Rs 1,200 crore worth properties belonging to defaulters, now SBI is planning to include Kingfisher House on its next e-auction block for the next round. On last Friday, State Bank of India put the block 300 pieces of residential, commercial and industrial properties across the countries which it had attached from defaulters in a bid to recover bad debts.

Till now SBI was selling its assets of defaulters in a piecemeal basis, but the problem was that most of the response was coming from localized and specific group of people who specialized in purchasing stressed assets at a discount price. In present economy is turning around and due to that now banks are hoping that investors from all over the country will be drawn to mega auction there will be a genuine price discovery based on demand and supply. According to Deputy Managing Director of SBI, PK Malhotra, “It was too early for us to include and put the Kingfisher House in the e- auction and now we are planning to include this during the next auction. Like other we are also looking for good business house to buy it rather than have a reseller come in. Our valuation of this was quite dated and now we are doing a fresh valuation which is expected to be through in a couple of days.

The latest e-auction included residential units as well as industrial plots from all over the country. While there was a good response to the residential properties, now SBI expecting some work on the larger industrial plots. According to Malhotra, “We are expecting to get over 10 to 14 per cent (over the asking price). Few of the industrial properties are very good with the entire infrastructure available. It is like a `plug and play’ asset for any entrepreneur.”

It is expected that these e-auctions and valuation of assets will add few hundred crores to SBI’s bottom-line for the third quarter as successful bidders have to make full payment by March 29 2015. As per the statement of Malhotra, there was good interest in the bank’s auction because the properties have clear title and buyers see value in them. The extent of profits would depend on the level of provisions made by the bank. If the asset has been fully written off the entire realizations would add to the banks bottom-line.

Queries regarding House tax

Vivek Kalia, Joint commissioner of MCG, stated that the move comes in existence when some junior staff members were caught demanding bribes from people who had come to the office to pay house or property tax. The more he added that “In past 48 hours we have caught four junior officers like attendants, peons and clerks were found demanding money from residents who came to pay property tax or collect birth and death certificates.” Vivek said all of the employees who were demanding bribes have been suspended and police complaints have been filed against them.

Why email id?

According to officials of MCG, “We have started the email id so that residents and other people can seek clarification regarding tax notices as well as they will be able to attach the necessary documents and we will answer doubts on the email itself. In special cases people will be free to provide us phone numbers and we’ll call them and fix an appointment so that they can come and meet us directly, instead of getting harassed by junior staff”.

However, some of the officials said, it is interim step and harassment would only stop when the civic agency starts an online payment system on its website to pay the property tax and submit fee to obtain other documents.

MHADA will review its 104 colonies

Recently, the Maharashtra State Government is in his effort to augment housing supply in Mumbai and in that process it asked to MHADA (Maharashtra Housing & Area Development Authority) to to review its all 104 colonies spread over 3,800 prime acres across the city. The Maharashtra State Government has also asked to MHADA to assess the quantum of fresh supply and demand through redevelopment of these colonies.

The housing authority of Maharashtra State Government is currently working on the report, to ascertain the additional housing supply which can be infused into the market in the next few years by redeveloping these colonies which was built between the ‘1960s and mid ‘1980s. According to the top officials of MHADA, “The assessment will be completed in the next three weeks. As now we have to consider the existing housing supply in these colonies which has already consumed FSI (floor space index), space needed to be used for rehabilitation of existing tenants and balance amount of FSI that can be used for fresh housing supply.” Floor space index (FSI) is the permissible development area on a land parcel and it can be estimated that around two lacs people are living in these 104 colonies and they are from middle-and lower-income group whereas; these colonies are located mostly in the central and suburban parts of Mumbai.

According to MHADA officials, “Out of total 104 colonies approx. 72 are such colonies where redevelopment can be undertaken. Of these 72 layouts, 56 complexes are in such a condition that they must be redeveloped soon.” Around 56 of these complexes should be redeveloped on larger layouts and almost not fit to be occupied because these complexes have been declared unsafe to live in by the MCGM (Municipal Corporation of Greater Mumbai).

The state had raised the Floor Space Index (FSI) for these colonies in 2013 to three from earlier limit of 2.5 in order to encourage the societies to come together under cluster development and from long time the efforts have been made to redevelop these housing colonies. Under the recently revised Floor Space Index (FSI), each existing tenant is expected to get a unit spread of over 405 square feet.

Extra FSI can hit the Redevelopment work

Recently, the proposal of Maharashtra government to put extra charge on builders more for the extra 0.33 floor space index (FSI) given for housing projects is likely to hit redevelopment work in Mumbai‘s suburbs. The Maharashtra government has increased the ready reckoner rates by an average 15% every year since 2008 and now government is now considering linking the premium to be paid by real estate developers for the 0.33 extra FSI to ready reckoner rates of 2015 as against current base of 2008 rates.

Effect of an extra FSI:

If this proposal will be accepted, so according to real estate experts, so real estate developers may not find smaller redevelopment projects in Maharashtra viable because of the financial outgo, as the base rate for calculation of premium will increase by almost 100 per cent. This move will push up the costs for home buyers in Mumbai’s suburbs. If central government is serious about project “Housing for All” or to make homes affordable than they need to take the extra measures as most of the announced aim to boost the government’s revenue, but these, including the latest one, will impact home buyers in terms of prices and lower areas offered to existing owners in redevelopment projects.”

In some of the localities and zones, ready reckoner rates have been revised upward by more than 30 per cent to 40 per cent on yearly basis. For the year 2015, revision in rates is popular in suburbs such as Malad, Chembur, Goregaon, Borivali, Ghatkopar and Vikhroli have been increased by 30 per cent to 40 percent. It is the same for plush residential localities such as Worli and areas near Bandra-Kurla Complex. In a sluggish real estate market where prices are weakening, a rise in cost for real estate developers is bound to hit their margins. This is expected to see low number of real estate developers coming forward for smaller redevelopment affordable residential as well as commercial projects in the suburbs.

As per the Nayan Bheda, CMD of Neptune Group, “All the equations in real estate market will change as costing itself will double with this proposal. Redevelopment projects in suburbs like Borivali, Kandivali, Mulund, Bhandup, Kanjurmarg and Dahisar will be hit severely as the cost will move up without much room for recovering it through any price hike”.  Once the proposal is notified, real estate developers are likely to renegotiate on the old redevelopment project agreements as construction is yet to start for them, because most of the real estate builders will be interested in reducing the compensatory benefits, including extra space for tenants.

In 2001, the state government of Maharashtra had decided to grant 0.33 additional FSI to real estate projects in the suburbs and extended suburbs of Greater Mumbai and central Mumbai by sanctioning an amendment to the Development Control Regulations for Greater Mumbai, 1991. As per the Vvikas Aroraa, Director, Marketing & sales, Runwal Group, “The costing is growing up and it will have two possible ramifications. Either home-buyer will have to pay more, which looks unlikely given the current market scenario, or developers’ margins will suffer whereas; other industries in real estate market is assessed on its net realization and profitability , and based on that redevelopment projects in suburbs may not see many takers”.

It is expected that this will make an impact as additional space to be shared with existing tenants. it is expected that this move will help to low the price of housing on the back of augmented supply in the suburbs. The premium accrued to the state government and the Municipal Corporation of Greater Mumbai from this additional 0.33 FSI was to be used on upgrade the city’s infrastructure. The additional FSI could be availed of on payment of premium.

Mr. Subhash Runwal – Chairman Runwal group

Subhash Runwal, who is one of the India’s newest billionaire, makes his debut this year with a worth of $1 billion fortune, hails from Dhulia, which is a small town in Maharashtra state. His grandfather was a jeweler but when Mr. Runwal was a teenager, the family had faced a very hard times. This young boy lad the group of five siblings and left the town Dhulia to study commerce in Pune city, after completing graduating in commerce to do his chartered accountancy he moved to Mumbai and on that time he was having less than $2 in his pocket at age 21.

Professional career:

After completing chartered accountancy he joined Ernst & Ernst as first job where he got an American posting in St Louis, Missouri, but after six to eight months he decided to pack up and return home because of different lifestyle, says Runwal, seated in his suburban office in Mumbai. Behind his desk is a painting, the handiwork of his daughter, which he proudly displays. His first abode as a young lad was a modest studio in a far-off suburb in Mumbai that he rented after landing a job at a chemical firm as an accountant. I can do it attitude helped him a lot to acquire a reputation as the go-to guy for dealing with hidebound bureaucracy. As he was able to speak local Marathi language fluently, so he was able to strike a rapport with local bureaucrats and politicians as well and they was giving all impossible tasks to him, recalls Runwal.

On that time one of his major tasks was to lobbying the central government to ban the import of a chemical, which was manufacturing by his company. Still he can recall that this task took 52 trips to Delhi over a year for Runwal to secure the crucial ban that enabled the company to start reaping profits. In this process Runwal had built up his network in bureaucratic circles and then he he decided to put everything at risk, choosing real estate as his field of play.

Entry in real estate market:

Runwal had chanced upon an opportunity hidden in a draconian law called the Urban Land (Ceiling & Regulation) Act of 1976, which he had studied in detail an under this particular law the government imposed limits on land ownership and had the power to acquire vacant urban land as this law has been repealed in most parts. Than Runwal acquired his first ever plot of 22 acres in a central suburb of Mumbai, which is an area that was eventually to become his stronghold in the property market. After making his first property deal and never looked back as his specialty was to buy litigious plots or lands that had fallen into the ambit of the land ceiling law and then he work on his way into getting the titles cleared. Due to putting his name on those projects, he becomes famous for providing low cost apartments aimed at the middle class. His one of the notable project called Runwal Nagar in the suburb of Thane was a cluster of 16 buildings however; after 18 months of the initial sale, the price had more than doubled. The more he added that, our customers were people who had never owned their own homes before and most of them were from middle class. They would come to my office with boxes of Indian sweets and touch my feet.

Milestone of success:

Now Runwal was building his own real estate empire and he harbored the dream of becoming an industrialist so he got into manufacturing arm as well. Later he expanded into steel and pharma but those businesses unraveled. Than eventually he sold out and renewed his focus on real estate while his Runwal Group was still busy in building the low cost affordable middle class housing and it has moved up several notches and now has projects in tony south Mumbai where it is building luxury residences for the uber rich.

Entry of new generation in business:

Later in 1995, the entry of his two B-school trained sons in his privately-held family business make him to enter into malls business. The more he added that sons pushed me to market their projects more aggressively and create a new corporate identity for Runwal as his older son Sandeep is an MBA from the Indian Institute of Management, Bangalore and the younger son, Subodh, is an MBA from Northeastern University. Runwal has managed to get the backing of the Singapore government’s GIC, which invested in one of its malls in Mumbai, the more he added that completing projects on time is critical in his business, but his none of the projects never get stuck for approvals as nothing was impossible for him due to high connection with bureaucrats and politicians. Lately, Runwal has been picking up big plots in suburban Mumbai, which ensures a long pipeline of new projects.

After certain time he put all his efforts to giving back to society as he donates $1.5 million every year to various causes. He built two hostels in Navi Mumbai and now he offers education scholarships to the less well off. Now every morning he walks on the promenade opposite his sea-front home and counts Bollywood actor Shahrukh Khan as his neighbor and the more he added that “I’ve achieved more than I could have ever dream of.”

Property prices in Mumbai

According to few reports, property prices will remain high in certain market conditions, but they will not increase any more. The value of under construction property which is unsold in real estate inventory in Mumbai can be anything as its R 53,400 crore for a clutch of listed firms and it presents that consumer confidence isn’t exactly soaring. What can be worse with an additional R36,800 crore of launches in the area of 20.4 million sq ft, which is more than half of south central part of the city and it can put the prices of real estate industry under pressure.

According to Niranjan Hiranandani, co-founder of Hiranandani Developers, in real estate market pricing strategy is now crucial since only relatively affordable projects are able to find takers whereas; high end properties in the central and southern parts of the city aren’t seeing any specific interest. Ghulam Zia Executive Director of  Knight Frank India, stated that first-time home buyers continued to sit on the fence however in recent budget there are no incentives for home buyers the market will get revitalized only once the RBI (Reserve Bank of India) begins to cut interest rates.

Analysis of Kotak Institutional Equities (KIE):

According to analysis of Kotak Institutional Equities (KIE) the numbers are clearly indicating that says land buying has dropped and prices are not going so up as only there are four or five developers have the capacity to buy land worth more than $200 million. The analysis showed that Oberoi Realty, Peninsula Land, Sunteck Realty, Godrej Properties, HDIL, DB Realty and Indiabulls real estate are among those property developers who are sitting on high inventories and major part of those inventories belongs from Lower Parel, Worli, south and central pockets of Mumbai and Prabhadevi.

Ambar Maheshwari, CEO of Indiabulls Group also believes that there is a glut at the premium and high ends of the real estate market. The more he added that a recovery is unlikely in areas like Lower Parel and Prabhadevi unless developers build smaller apartments that result in some kind of rationalization in prices. In present Oberoi Realty is targeting on the sales of unsold inventory and they are expecting to sale it in next 12 months, but KIE expects the company will only be able to sell R8,500 crore worth of residences in the next 30 months. As per the data issued by the Director General of Mumbai, in the first 11 months of 2014, property registrations fell 2.4 per cent.

As per few reports developers are planning to offer discount after definitive interest from buyers and channel checks suggest that large number of units are being sold in the 20:80 schemes which will be without a bank debt burden to and trip abroad for designing apartments however discounts are becoming more evident as real estate developers are also offering absolute discounts to investors and as well as end buyers now. These measures are clearly failing to impress and attract new buyers. In certain real estate market, in certain markets developers are selling 20-30 units in a month while in others they could be selling in 2 to 6 a month. Amit Bhagat, who is CEO & MD, ASK Property, stated that the demand was tepid in the luxury space so any developer who was leveraged might be under pressure.

ADB support India’s ambitious plan to build 100 smart cities in Country

ADB (Asian Development Bank), which is Manila based bank stated that they are committed to support India’s most ambitious plan, which is to build around 100 smart cities in the country. As per the statement of Takehiko Nakao, who is the President of Asian Development Bank, “Our bank will continue to play an important role in driving the development of inclusive, resilient, green and eco friendly cities and for the global climate change agenda and success of Sustainable Development Goals (SDGs).

It is expected that the use of intelligent systems and latest technology will improve the urban services for the poor, which will include the affordable transportation and as well as including sanitation, officials said in the Delhi Sustainable Development Summit 2015. From starting Asian Development Bank was committed to support the India’s 100 smart cities initiative. Now it’s perfect time to make the cities greener, so that they can become more resource and energy efficient through promotion of low carbon emission or development and as well as the smart use of natural sources such as; water.

He said, “If we want to see the real growth we need to invest more in mass public transport systems and in better waste and wastewater management process, which means to make the transport systems more integrated for better and convenient uses. The more he added that to make the cities more resilient decision makers we should consider the climate change and natural hazards risks while designing cities as well as the urban infrastructure. It is well known fact that small up-front investments are able to save lives and avoid large scale infrastructure rebuilding and rehabilitation costs later”. Now it’s time to invest more in climate resilient infrastructure like; bigger storm-water retention reservoirs to accommodate variations in rainfall, enlarged drainage systems in cities and elevated roads. At Asian Development Bank, approx. all investment projects are screened for climate risks.

All the green, resilient and inclusive cities need better governance and more effective institutions for management as greater use of integrated urban planning and better use of land can attract more timely investments for resilient and more sustainable infrastructure. For example; It could consider the new finance instruments to better mobilize local resources like; through PPPs (public private partnerships) or municipal bond mechanisms.  As per the statement of ADB President, 2015 can be the milestone for international development in India.

It is expected that an agreement on SDGs for 2015 agenda will appear in the September United Nations (UN) summit, which is going to held in New York and in December there are chances for new climate deal to be agreed at COP 21 in Paris.