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Private Equity Biggest Contributor to Indian Real Estate Sector, says Knight Frank India Report

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Karnatka RERA, GST

The Knight Frank India report further mentioned that the total funding in the Indian real estate sector increased by 40% from USD 3.8 bn in 2011 to USD 5.4 bn in 2016.

 

Mumbai, April 5: Knight Frank India, the leading independent global property consultancy on Tuesday came out a with a report that focuses on private equity (PE) fund flow across real estate asset classes between 2010 and 2016. The company launched the first edition of its Capital Markets Report Titled ‘Analysis of Institutional Funding in Real Estate’ in which it stated that the Bank credit has shrunk drastically in the last few years from 57% in 2010 to less than 24% in 2016.

The report further mentioned that the total funding in the Indian real estate sector increased by 40% from USD 3.8 bn in 2011 to USD 5.4 bn in 2016. This takes into account the fund flow on account of private equity, NBFC, bank credit and IPO. The report further said that the rising Non-Performing Assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to the reduction in credit offered by banks. Around three-fourth of the real estate sector’s funding requirement is met by PE players in the past couple of years; as against one fourth in 2010.

The Knight Frank LLP, headquartered in London, Knight Frank has more than 14,820 people operating from over 413 offices across 60 countries. In India, more than 1,000 experts offer a comprehensive range of real estate services across advisory, valuation and consulting, transactions (residential, commercial, retail, hospitality, land & capitals), facilities management and project management.

The year 2015 witnessed the highest amount of PE fund flow in real estate since 2010 with more than USD 3.6 bn investments across 100+ deals while  2016 observed a 13% drop in PE fund flow with less than 60 deals in the previous year. However, the year 2016 has also recorded the highest amount of the average deal size amounting to USD 56 mn.

NCR, which used to lead in 2013, has dropped sharply from 39% to just 9% in a span of three years. Poor sales volumes, a huge amount of unsold inventory and stagnant prices in the residential segment of NCR have shifted PE investor’s interest away from this market. IT Parks attract the largest deals within the real estate sector in India. With the average deal size amounting to USD 106 million.

Commenting on the report, Rajeev Bairathi, Executive Director & Head – Capital Markets, Knight Frank India said, “As the real estate market in India matures, driven by both regulatory and market forces, we expect PE capital to play an even greater role. Creation of public markets for commercial assets in the form of REITs and sale of distressed assets by banks to reduce NPAs is some of the drivers that would attract a lot of foreign capital into the Indian real estate market.”

Meanwhile, Dr. Samantak Das, Chief Economist & National Director – Research, Knight Frank India added, “The current environment for real estate is both challenging and opportunistic at the same time. Bank credit, which used to account for anywhere between 50% and 57% of the sector’s institutional funding requirement till 2014 has witnessed a sharp reduction in the last two years in the range of 24%-26%. Rising non-performing assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to significant reduction in credit offered by banks. PE players have replaced banks and are currently the biggest source of institutional finance for the real estate industry. Currently, PE funding is not just restricted to equity but has largely moved towards a quasi-equity type of structure.”

The Knight Frank India reported that shortages in quality retail space and increasing rental values have attracted PE players towards the retail segment in the last two years. Blackstone’s purchase of L&T Realty’s Seawood Mall and GIC’s investment in Sheth Developer’s Viviana Mall, are some of the large deals during the year. Mumbai has regained its number one position in terms of attracting PE funds among all cities of India. Bengaluru continues to hold steady in terms of attracting PE investments, although its share has dipped marginally since 2013

Some of the major deals during the year in the IT park space include the USD 221 mn fundraising by Manyata Promoters (part of the Embassy Group) from Edelweiss Financial Services and IIFL Holdings, and M3M’s 3.5 mn sq ft Gurgaon IT park’s stake sale to TRIL and Standard Chartered Private Equity.

Source: India.com

Ahmedabad Real Estate News

Under Construction Flat Booking Finds Tax Deduction Under Time Constraints

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Tax Deduction

If a buyer makes a transaction to book an under-construction flat and if he acquires it within the three-year period of the sale of his old house, then he is entitled to a tax deduction, says a ruling from the Mumbai bench of the Income-tax Appellate Tribunal (ITAT). If an apartment is booked in an under construction project than it must be viewed as a method of constructing residential tenements, says the December 18 judgment.

That means if the buyer uses the entire gain from the transaction to buy another house within two years or construct another house within three years. The two- and three-year period applies even if the buyer bought another house a year before selling the first one. But the property should have been bought in the name of the seller.

It is mandatory that within a period of two years after or one year before the date of transfer of old house, the taxpayer should construct a residential house or acquire another residential house within a period of three years from the date of transfer of the old house. The date of receipt of compensation will determine the period of acquisition or construction in a case of compulsory acquisition.

This exemption is effective and can only be claimed in respect of one residential house property purchased/constructed in India. In the case of multiple house purchases or constructions, the exemption under section 54 will be available in respect of one house only. Any purchases made outside the country does not fall under any kind of exemption. Section 54 gives relaxation in such cases by providing relief to the taxpayer who sells his residential house and acquires another residential house from the gained capital.

After the sale of an asset, the difference between the buying price and the selling price is a capital gain or a capital loss. These are further classified as long-term or short-term. If a property is held for 24 months or less, with effective from 2017-18, then that asset is treated as Short Term Capital Asset. Then an investor can make

treated as Long Term Capital Asset. Then only a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) can be made on that investment.

ITAT agreed that booking of a new flat in an under-construction apartment should be considered as a case of “construction” and not “purchase”, hence following the earlier decisions of the Bombay high court and the tribunal itself. Further ITAT allowed the fact that the construction can began prior to the date of sale of the old asset. Same was stated in the earlier judicial decisions of the Karnataka high court and Ahmedabad ITAT, that the date of commencement is not relevant but it is the completion of construction that comes in relevance to section 54.

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India Real Estate News

HDFC and Quikr Make A Deal

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HDFC and Quikr Make A Deal

According to a deal between HDFC and Quikr, a stake of more than 3 percent will be given to the mortgage giant in return to its transfer of offline and online real estate brokerage business to the classified ads platform.

After acquiring Commonfloor in 2016 Quikr already has a major presence in online real estate broking.

“Most of the searches for real estate are moving online. Quikr has a much bigger presence online. Through this deal, we are partnering Quikr in the broking business,” said HDFC MD Renu Sud Karnad. According to her, this deal will strengthen Quirks position with offline support.

The deal suggests that HDFC will transfer to Quikr its entire shareholding in HDFC Realty, a real estate brokerage platform, and HDFC Developers, which runs the HDFC RED online platform.

Karnad added that the deal expects Quikr to generate home loan leads for HDFC. The transaction consists of a co-branded alliance between both parties and the HDFC brand will continue to be used online for a year.

The e-real estate classifieds platform HDFC RED has around 7,000 project listings and generates traffic of over 80,000 unique visitors per month. HDFC Realty has a 300-member, in-house sales team, and 7,000-strong nationwide broker network. Avendus Capital was the exclusive financial adviser to Quikr while Kotak Investment Banking acted as the exclusive financial adviser to HDFC on this.

30 million monthly users make Quikr India’s largest classifieds platform. It runs multiple vertical businesses across real estate, automobiles, jobs, services, and goods. The Quikr Home, its real estate vertical generates 3.5 million monthly unique visitors.

Both companies intend to work closely and conduct analytics and identify potential homebuyers, and therefore home loan customers, early in their home-buying journey. Quikr founder and CEO Pranay Chulet said, “We see great synergies between Quikr and HDFC as we start working together to bring a seamless online-to-offline platform to developers and consumers.”

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India Real Estate News

Retaining The Sustainability: GRIHA Launches Star Rating For Urban Homes

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GRIHA Launches Star Rating For Urban Homes

Green Rating for Integrated Habitat Assessment (GRIHA), is the National Rating System of India, a Sanskrit word meaning – ‘Abode’. Human architecture has always consumed resources in the form of energy, water and material from the environment. From their construction to operation, these habitats absorb the resources throughout their life cycles, emitting wastes in the end. This emission could be direct in the form of municipal wastes or indirect emission into the atmosphere, such as from electricity generation. Hence GRIHA was formed to reduce an architecture’s resource consumption, waste production and overall environment impact up to certain national acceptable limits.

In attempt to quantify all these aspects, like energy consumption, waste generation etc. GRIHA tries to manage, control and bring down the respective to the best possible limit. Being a rating tool, it helps people to assess the performance of their respective projects against the national benchmarks.

Hence it becomes an evaluation of the environmental performance of an architecture on a holistic level. Covering its entire life cycle, this evaluation provides a specific standard for a ‘green building’. This rating system aims to strike a balance between established institutions and emerging concepts, on a national as well as the international level.

The process starts with an online submission of documents according to the criteria. Then a team of professionals and experts from GRIHA Secretariat takes a site visit for the evaluation of the building.  There are four different sections categorized by 34 criteria in GRIHA rating system. Some of them are site selection and site planning, conservation and efficient utilization of resources, building operation and maintenance, and innovation. 

Sanjay Seth, CEO, Green Rating for Integrated Habitat Assessment (GRIHA) Council says, “A rating between one and five stars is being provided, helping the costumers to know about the sustainability of the houses”.

According to the Union Minister, Hardeep Singh Puri, the climate resilient and sustainable buildings are the need of the hour. As the government is aiming to construct around 1.2 crore houses for the urban poor under the affordable housing scheme.

In one of his keynote addresses, Andreas Baum, Ambassador of Switzerland to India and Bhutan said that the Indo Swiss collaboration is operating with the Indian Bureau of Energy Efficiency in the development of guidelines for energy efficient housing.

“At present India is witnessing a rapid urbanisation, if each building becomes greener than the last one, then we have a huge opportunity and hope for our country. We need to look beyond the conventional methods of building, in order to provide our citizens with a good quality of life. Hence, GRIHA gains important in meeting our national goals with respect to a sustainable society”, says Dr Ajay Mathur, director general, TERI & president, GRIHA Council.

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