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REVIVAL HOPES ON 2014

With high property prices and costlier borrowing hitting real estate, developers are hoping for a reversal of the slowdown in the new year and sales picking up post general elections. Low demand for flats, subdued commercial leasing, huge unsold housing stocks, buyers' protest against delays, limited launch of projects and debt-ridden developers clocking lower revenue-net profit numbers marked the year for real estate. Amid these negativities, there were two major government initiatives in form of new land acquisition Act and proposed real estate regulatory bill that would go a long way in making the real estate sector more transparent and accountable. Developers, however, kept complaining that the provisions were pro-farmer and consumer-friendly, leading to further delay in development of projects and price escalation. Cash-strapped industry, however, cheered market regulator SEBI's draft guidelines to allow Real Estate Investment Trusts (REITs) and Commerce Ministry’s proposal to relax FDI norms as it felt that these steps, once implemented, will help revive the global investors interest in a sluggish property market. The year also saw some some big-ticket deals. Mumbai- based Lodha Developers acquired iconic Macdonald House in central London for over 300 million pounds (over Rs 3,000 crore). Realty major DLF sold its wind turbine projects in Gujarat, Rajasthan, Karnataka and Tamil Nadu in phases for about Rs 800 crore. It also exited from insurance venture by selling 74 per cent stake in the joint venture DLF Pramerica Life Insurance to DHFL for an estimated Rs 250-300 crore. "It was one of the worst years in last two decades not only because of slowdown, but weakness of governance at all level from central to state to corporation levels," CREDAI, the apex realtors' body, Chairman Lalit Kumar Jain told PTI. Noting that market improved during December, Jain said: "2014 would be year of revival. Revival has started, the visible change would be seen from second half".
While reviewing yearly performance, property consultant Jones Lang LaSalle India said: "Over the last four years (from the trough of Q2-2009 up to Q3-2013), taking into account the period of economic slowdown, apartment prices have risen by over 50 per cent on an average across India. "As a result, absorption remained subdued during 2013 (until Q3, 2013), falling further from the already tepid levels observed during the same period last year". 

Poor housing demand meant that developers had to sit on a huge unsold stocks and postpone new supply, as reflected in 12 per cent drop in launch of new projects during 2013. Still average housing prices rose by 10 per cent across India. With investors shying away from the housing market, it was a buyer’s market this year but they largely chose to wait and watch for prices to correct and interest rates to ease. By end of the year, both did not happen. While developers kept holding on to their prices citing rising input costs, the Reserve Bank of India did not get enough elbow room to reduce interest rates because of high inflation. Developers’ strategy to focus on execution of the existing projects and selling the non-core assets to improve cash-flows continued even during 2013. Demand slowdown was not limited to housing. Leasing of commercial spaces remained muted as corporates were cautious in expansion amid weak global economic conditions. According to Cushman & Wakefield, the net office absorption fell by 25 per cent in 2013 to 23 million sq ft in eight major cities. Office space supply also declined by 14 per cent to 34 million sq ft. Attractive valuation of rental-yielding commercial assets did provide a golden opportunity for private equity players whose investments in the realty sector grew by 26 per cent to Rs 4,716 crore in the first nine months of this year. Government did try its bit to improve the market. In the beginning of this year, tax sops were offered in Budget to boost demand for affordable housing, but luxury homes were made expensive to compensate. An additional interest deduction of Rs 1 lakh to first home buyers for loan up to Rs 25 lakh was announced. Not only that a Rs 2,000 crore Urban Housing Fund was set up, the outlay for Rural Housing Fund was increased to reduce housing shortage estimated at about 19 million units. On the flip side, a TDS of 1 per cent was levied on the value of the transfer of immovable property valued over Rs 50 lakh.
During second half, new land acquisition law was passed in Parliament. It stipulates consent of at least 70 per cent for acquiring land for public-private-partnership projects and 80 per cent for acquiring land for private companies. Amid buyers’ complaints of delay in project completion, government also introduced the Real Estate (Regulation and Development) Bill 2013 that seeks to protect consumers from fly-by-night operators and unfair practice.
Developers were up in arms against this proposed law saying that Regulatory Bill does not cover all stakeholders involved in the real estate development like the government authorities, which gives projects approval. Ministry for Housing and Urban Poverty Alleviation tried to convince builders that the Bill is not anti-industry but to no avail. Finally, the Centre assured that the Bill would be suitably modified if necessary.  

REALTY NPA'S UP FOR SALE

Indicating the worsening stress on the realty sector, an estimated Rs 7,700 crore worth of commercial and residential properties loans are up for sale, according to an industry report. Data compiled by NPAsource.com, a portal that focuses on resolution of stressed assets, shows that there are around 2,200 units in the commercial category and nearly 11,000 units in the residential segment funded by banks and other financial institutions and valued at over Rs 7,700 crore, which have turned NPAs and are on the block. The portal has NPA data of properties worth around Rs 27,500 crore spread across 27,626 units. Out of this, commercial NPA properties have a 15 per cent share in value term, while residential properties constitute 13 per cent. The lion's share of bad assets come from the industrial land and building category constituting over 65 per cent share in value terms, the portal said. Portal Chairman D K Jain said Maharashtra, largely due to Mumbai, tops both the commercial and residential categories with Rs 842 crore and Rs 838 crore worth NPAs, respectively. Delhi follows with Rs 686 crore worth of commercial NPAs and Rs 500 crore worth of residential NPAs. Andhra is at number three in residential properties with Rs 497 crore worth of NPAs up for sale under. Tamil Nadu, Bengal and UP are the next three states with highest value of commercial and residential NPA properties, he said. Though Mumbai leads the space in realty NPAs, Delhi leads on the single-NPA front, with a New Delhi office property, valued at Rs 200 crore at the base price turning bad and followed by a farm-house in the Capital with a base value of Rs 40 crore. Against this, the priciest two Mumbai properties pale in value with a base price value of Rs 26.5 crore and Rs 24.6 crore, respectively, said Jain. "As NPAs in the corporate sector continue to grow, there will be more commercial and residential properties coming up for auction. The slowdown in realty markets has further added to the woes of the lenders who will not be able to generate higher returns by selling these mortgaged properties," said Jain.  
According to the half-yearly financial stability report of the RBI released yesterday, the gross NPAs in the system is set to rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013 or about Rs 2.29 trillion from Rs 1.67 trillion a year earlier. The amount of recast loans touched an all-time high of Rs 4 trillion or 10.2 per cent of the overall advances. The report also warned that in case the economic conditions deteriorate, the same number will be at the 7 per cent mark by March 2015. The state-run banks will be the worst affected, the FSR said, pegging the GNPAs for public sector banks to touch 4.9 per cent by March 2015, while the same for new private sector banks will be 2.7 per cent. If the restructured assets are added, the total stressed advances ratio rose to 10.2 per cent in September 2013 from the 9.2 per cent in March 2013, the RBI said. The report said though agriculture accounted for the highest GNPAs at 5.5 per cent as of the quarter to September 2013, it is the industry with a GNPA of 4.9 per cent and 10.9 per cent of restructured which is the main culprit. 

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