Unitech, the country’s second largest builder, has announced plans to construct 20,000 affordable houses at a cost of Rs 1,700 crore to become India's numero-uno realty company within a year. "We made a mistake of only focusing on top two three per cent of India's population. Now we want to reach the masses... enter into budget and affordable houses... We will be the biggest player in the housing segment," said Sanjay Chandra, MD of Unitech.
"We plan to construct 20,000 affordable housing units over the next two years... These will be low-cost homes with prices ranging between Rs 10-15 lakh," Chandra said claiming that they would become the largest realty player within a year.
At present, Unitech has a land bank of about 8,000 acres covering 500 million sq ft. "People do not look at land bank any more. What our aspiration is to be definitely the largest player in housing that we can do by doing volumes... By this year we should be the largest realty player in terms of volume," Chandra added.
Chandra said the group's biggest strength was that it had paid for all the land it owned and hence could launch new projects with least costs.
Elaborating on the new strategy, Chandra said, "We have realised that we can't grow until we are able to cater to at least 50 per cent of urban populating in any city. Therefore, the company is planning to construct such houses, whose average construction cost is estimated at about Rs 1,000 per sq ft, on a total area of 16-17 million sq ft.” At this average cost, the total investment for such houses would work out to be about Rs 1,700 crore.
"We are actually now getting into a category, where we will be able to sell homes for Rs 10 lakh or below," said Chandra. The company would start the low-cost housing from Chennai and then later taking to all the markets, where it already operates like Kolkata, Lucknow, NCR and Hyderabad. Unitech possesses the land to develop these projects and construction cost would be met largely through advances from customers, Chandra added.
Besides low-cost housing, the company would also develop 1,500 dwelling units every year on mid-income category. The company would launch over 40 projects this fiscal, predominantly affordable housing with apartment sizes ranging from 500-1100 sq ft, said Chandra.
Wednesday, May 27, 2009
Sunday, May 24, 2009
Unitech sells a fourth of its Launched Projects
Unitech Ltd, the country’s second-biggest real estate developer, has sold more than a quarter of its launched projects in the first two months of the financial year as it tweaked its product mix and lowered prices, reports Business Standard.
The New Delhi-based company, which had launched 9 million sq ft of residential space, has sold 2.5 million sq ft (over 2,000 units). The developer has been able to garner as much as Rs 850 crore from the sale, according to a presentation the developer made to its investors earlier this month.
“We have received an overwhelming response to our residential projects. The strategy of launching the projects at an average Rs 3,000 per sq ft is paying off,” quoted a company official in the report.
Unitech has launched two residential projects in Gurgaon, three in Kolkata and two in Chennai. The company is also offering residential plots at its Noida and Kolkata projects.
In Gurgaon, the cost of a Unitech apartment is Rs 26-28 lakh, while in Kolkata the price of an apartment starts from Rs 15 lakh. The apartments are between 800 sq ft and 1,500 sq ft in size.
“The company has over Rs 2,000 crore of debt obligations for the current financial year and it is marketing its projects aggressively to raise money from its residential projects to be able to clear its debt,” the official added.
At these prices, the company should not find it difficult to sell its projects, said a Mumbai-based equity analyst.
The company plans to launch 30 million sq ft of space across 40 projects in the current financial year. The proposed projects will span 15 cities and seven metros, accounting for nearly 7 per cent of the company’s land bank which is estimated at 11,000 acres, the presentation showed.
Unitech had raised Rs 231 crore from the sale of its Marriott Courtyard hotel in Gurgaon, while it raised another Rs 500 crore from sale of its proposed corporate office in Saket. The company has a target of reducing its debt by Rs 1,000 crore by end-June.
Last month, Unitech raised $325 million (Rs 1,625 crore) from selling additional shares to overseas investors to repay a part of its debt, which is currently estimated at Rs 7,800 crore, according to the company presentation.
The New Delhi-based company, which had launched 9 million sq ft of residential space, has sold 2.5 million sq ft (over 2,000 units). The developer has been able to garner as much as Rs 850 crore from the sale, according to a presentation the developer made to its investors earlier this month.
“We have received an overwhelming response to our residential projects. The strategy of launching the projects at an average Rs 3,000 per sq ft is paying off,” quoted a company official in the report.
Unitech has launched two residential projects in Gurgaon, three in Kolkata and two in Chennai. The company is also offering residential plots at its Noida and Kolkata projects.
In Gurgaon, the cost of a Unitech apartment is Rs 26-28 lakh, while in Kolkata the price of an apartment starts from Rs 15 lakh. The apartments are between 800 sq ft and 1,500 sq ft in size.
“The company has over Rs 2,000 crore of debt obligations for the current financial year and it is marketing its projects aggressively to raise money from its residential projects to be able to clear its debt,” the official added.
At these prices, the company should not find it difficult to sell its projects, said a Mumbai-based equity analyst.
The company plans to launch 30 million sq ft of space across 40 projects in the current financial year. The proposed projects will span 15 cities and seven metros, accounting for nearly 7 per cent of the company’s land bank which is estimated at 11,000 acres, the presentation showed.
Unitech had raised Rs 231 crore from the sale of its Marriott Courtyard hotel in Gurgaon, while it raised another Rs 500 crore from sale of its proposed corporate office in Saket. The company has a target of reducing its debt by Rs 1,000 crore by end-June.
Last month, Unitech raised $325 million (Rs 1,625 crore) from selling additional shares to overseas investors to repay a part of its debt, which is currently estimated at Rs 7,800 crore, according to the company presentation.
Friday, May 22, 2009
Infrastructure, Realty see booster shot from New Govt., reports The Mint on their website
India’s realtors see a booster shot for the segment, from renewed home buying and government infrastructure contracts, after the ruling coalition got a near-majority in the general elections over the weekend.
Realtors have faced a severe cash crunch over the last nine months as the global financial crisis squeezed liquidity and high prices kept buyers of homes, offices and shops away.
New projects have since been put on the backburner while many of those under construction are delayed, especially commercial.
India’s Congress-led coalition defied predictions of a tight race and was only 10 seats short of an outright majority, sending shares up for its biggest one day gain in almost two decades on the first trading day post election results.
But revival in corporate spending is still some while away, real estate developers and infrastructure firms said.
“Just because things have improved today, we wont go and look for more office space tomorrow. We’ll wait and watch,” Ravi Ramu, chief financial officer, Puravankara Projects Ltd said.
“Whereas if you want to buy a house, you’ll say today, things are not so bad, my job is not in jeopardy, let me buy that house before prices go up,” he added.
“Housing has to come. And affordable housing comes into more significance.”
Affordable housing is “seriously undersupplied” in India, according to a Goldman Sachs report which said more than 30 million units are needed because of growing urbanisation.
Since 9 March, India’s realty index has risen over 140% till date from its year low of 1,297.82 points.
QUICKENING PACE
The new government should mean quicker policy implementation and less excuses on execution, needed to help bring back funding for the country’s crippling infrastructure projects and slowing housing sector, say builders.
“Order inflow will come in very fast now. In my opinion, in a month,” H.S. Bharana, managing director and chairman of Era Infra Engineering said. “I think in 2-4 months we will come though some equity also,” he added.
India’s infrastructure growth has smarted as private investors shy away from the frequently-changing bid norms of the country’s long-gestation projects and grow more risk-averse.
Only 146.6 million sq. ft. of commercial space will come up by the end of 2011, according to property consultant Jones Lang Lasalle Meghraj, as opposed to the total 172.9 million sq. ft. announced for completion over the next 3-4 years.
Last fiscal year, bids came in for just 22 of the 60 highway projects offered to private firms to build and operate.
“There should be enough government action in deciding what to reform,” said Gurjeet Singh Johar, chairman of road builder C&C Constructions.
“The real change is there would be improved liquidity because of a stable government,” said an analyst from a local brokerage. Foreign investors would be more interested in the country and promoters more willing to sell stakes as valuations improve.
Last week, DLF, India’s largest listed developer, raised $783 million through a share sale. In April, developer Unitech raised $325 million through a share placement.
Still, the new government faces a widened deficit, slowing growth, falling exports and factory output and huge expectations for fresh stimulus to protect their growth and jobs.
“The economic scenario has not changed, the political scenario has,” Sarang Wadhawan, managing director of Housing Development & Infrastructure Ltd, said.
Sunday, May 17, 2009
Saturday, May 16, 2009
Sanjay Chandra ‘As a company, we need to concentrate on launching affordable projects’ - In a Special Interview with CNBC-TV 18. - (www.livemint.com)
Unitech Ltd, the other star in the realty firmament whose shine seemed to have faded is ploughing its way back. Unitech managing director Sanjay Chandra explains how exactly in a special interview with CNBC-TV18. Edited excerpts:
I was a bit surprised that you only raised $325 million because you had a book of $1 billion. Were you not tempted to raise more?
Actually when we went out to raise the capital, we were looking to raise anywhere between $200 and $250 million. The response was so large that we got a demand of over $1 billion. So we discussed it with the key investors and finally concluded to retail the size to about $325 million because that was also quite an upsize from the initial deal size.
What was it, fear of dilution, because the equity money is not easy to come by nowadays?
It was our strategy. We started working on it much prior to all of this. We were looking at overall fund raising of $500-600 million from private equity at project levels, selling off non-core assets and equity dilution. When we went for the equity raise, we felt $200-250 million was sufficient but we saw a demand which was far more so we upsized it to be able to do that because now what we are seeing is that assets sales are happening at better valuation today because no longer are we perceived to be in distress.
People don’t perceive that you are in a corner anymore?
No, that’s one thing that came out good from both the equity raise and other fund raising process. We changed our business plan a lot. We started focusing rather than land banking from the capital intensive side to actually banking on the land.
So a couple things were that we could sell land but there were not enough buyers.
Developers have enough of their own land so they really wouldn’t buy land. So the only exits which we had was to price our product in a way that it sells very fast. So what we did was we redesigned most of our product portfolio from luxury to relatively affordable to affordable, reduce the apartment sizes, reduce the prices in a sense we got our ticket prices of the product we are selling down by over 50%.
Is that right because the general perception is that you only reduced the prices by only 15 to 25%?
Prices have been reduced by 25%. But we have reduced the sizes of the apartments also, so now we are catering to a far larger market size. For instance in Gurgaon our cheapest product was for Rs70 lakh, now we’ve got Rs29 lakh, Rs28 lakh product also. So now the speed of sales of these products have been phenomenal. Last 45 days we have booked new property of residential of over 2 million sq. ft. Just to give you a perspective, from October to February we would have only booked 100,000 sq. ft because that’s how bad things were in that period.
2 million at an average realization of?
Rs. 3,000.
And this is across which geographies?
One project in Gurgaon and one project in Chennai. So similarly we are launching new products in various markets at price points where we are trying to be 20 to 25% lower than the market prices around, as well as offering sizes that are not available in the market which is opening a whole new customer base.
Do you think you will manage to deliver the kind of targets you are talking about?
We are launching about 30 million sq. ft of new projects, in the least we expect to book about 20 million sq. ft of that. In the last 45 days itself we have achieved 2 million sq. ft itself just out of 2 markets, but every new market takes us a few more months to establish. What we have realized is that we need to price it to see it move. As developers we were focusing on the luxury market, but we had enough product that we could have been a Wal-Mart. Now we need to sell to the masses so we need to price our product accordingly and not go after the margins, margins will come down but return on equity can be much faster, with today’s cost of capital.
So your focus is firmly on cash flows right now?
What we want to focus on is rather than realization per acre, cash flow per acre. We want to convert the land into cash receivables.
How much will you end up delivering or constructing by the end of this fiscal do you think?
About 9 to 10 million sq. ft will be delivered this year.
You will be able to sell it?
Yes.
Are you sure about that?
The bookings will be far more, but this is the past product that is being delivered now. This actual 20 million sq. ft that we book now will be delivered in the next two or two-and-a-half years.
And the blended realization would be about roughly 3000?
Yes it will become high because of Mumbai. NCR is about 3,500-3,600, Calcutta would be 2,500, south where Chennai has the first initial launches we have sold 1200 apartments in the last one month, our realization is about 3,100.
So what will you margin profile come down to?
Margins will still be about 40%. Our land costs are on an average about Rs 200 per sq. ft. Our construction cost depending on the product would be Rs 1300-1500 per sq. ft. So its still healthy margins, earlier they were very healthy.
So what will you end up this year in terms of profits?
I think we will stay away from those numbers because we don’t give guidance but profitability will be down because of costs of capital and interest costs, etc. But I think the worst is behind us.
About asset sales, were you talking about ready property or other assets like hotels from which you need to raise cash from?
It’s hotels, some commercial office buildings and also ready properties. In every project of ours in the past what typically happens is that there are 500 apartment complex, you sell 450 and go on to the next project, you have left overs everywhere. The inventory is pretty substantial and those are ready to move in. Hotels are moving pretty fast, we sold one and the other one we should be close to finalizing within this next month or so. We should net Rs450 crore between the two hotels. We have a target of Rs1,600 crore from asset sales by March.
How much more cash do you need to breathe easy on your balance sheet?
Our peak debt was 10,500 crore, it became 8,500 recently, pre-QIP (qualified institutional placement). Now post QIP and some of these assets sales we think we will be able to achieve 6,000 to 6,500 crore, which is comfortable level but still intend to take it down to 4,500 to 5,000 crore.
That’s still high debt, interest chargers are close to Rs1,000 crore.
It was Rs1,000 crore, pre- all that, now average blended charges would be Rs750-800 crore for this year.
After paying Rs800 crore interest you will generate 18 crore net cash flow?
Yes.
So you don’t need to dilute any more equity?
No. No equity dilution needed at all. As a company we need to concentrate on launching affordable projects which move fast. I think the best thing for us to do is bank on the land which we created.
You think you need to cut prices further?
I think the prices are set, but I don’t think we will increase our prices substantially. We have cut them enough to excite the customers.
Has Unitech seen the worst?
Yes, it has. We have worked towards dispelling all that. We are concentrating on a much larger market than two years ago. Our fresh bookings are higher and the volumes are a lot more.
Friday, May 15, 2009
Realty Companies under sell-off pressure; Reports The Mint on their website - 'http://www.livemint.com/2009/05/14111752/Realty-companies-un'
Shares of realty companies suffered losses on the Bombay Stock Exchange (BSE), with the country’s largest real estate firm, DLF, plunging by 4% in the morning trade.
Shares of DLF fell by 4.43% to touch a low of Rs222.20 on the BSE after its promoters yesterday raised Rs3,860 crore by offloading 9.9% stake in the company.
On the volume front, a good 10.30 lakh shares changed hands in the first few minutes of trade.
The 14 share BSE realty index opened on a weak note and declined further to a low of 2,212.09 points, down 3.63% over the previous close.
“DLF is reeling under cash crunch. Investors have turned cautious. The market took the promoters’ decision positively in the beginning, but they resorted to profit selling later,” Ashika Stock Brokers Research head Paras Bothra said.
Indiabulls Real Estate plunged 5.44% to Rs137.2 and Unitech dropped 5.07% to Rs46.85 on the BSE.
“Nervousness in the market is likely to continue. Weakness in the global indices could make the investors jittery from taking any fresh position,” domestic brokerage firm Sharekhan said in its research note.
Other major sectoral losers include Sobha Developers (2.23%), HDIL (1.58%) and Omaxe (2.28%). The Sensex today tanked over 324 points to 11,695.52 in opening trade on increased selling by funds amid political uncertainty.
Thursday, May 14, 2009
Bestech 'Park View Spa' - Bhoomi Pujan
M/s Bestech India Pvt. Ltd. performed the Bhoomi Pujan of their project - Park View Spa, Sec 47, Gurgaon on May 14, 2009. The work for excavation of the said project has already begun.We are attaching herewith some photographs of the same for your reference. These photographs were taken at Site on May 14, 2009.
DLF promoters sell stake to buy out DE Shaw investment in DAL, Reports the Mint on their website
The promoters of DLF Ltd, India’s largest real estate developer by market value, sold a 9.9% stake in the company for Rs3,860 crore, raising money to buy out hedge fund DE Shaw and Co. LP’s investment in its unit DLF Assets Ltd (DAL), and infuse fresh capital into it.
DLF promoters have sold 168 million shares at a little over Rs230 apiece. The holding of the family of real-estate baron K.P. Singh fell to 78.6% after the sale. In an emailed statement, DLF said some members of the promoter group had sold 168 million shares at a little over Rs230 apiece. The price worked out to a 1.08% discount to DLF’s closing price of Rs232.50 on the Bombay Stock Exchange on Wednesday.
“We are pleased to follow through our commitments with this game changing transaction for the company and thank the investor community for their continued confidence in DLF,” Rajiv Singh, vice-chairman of DLF, said in a statement.
The promoters sold the stake at a time when a slowdown in India’s economy has depressed the real estate market.
Home prices may have dropped by as much as 40% across India in the quarter ended March, according to estimates by real estate consultancy Jones Lang LaSalle.
“You’d appreciate that this was a painful and sentimental decision,” Rajiv Singh said in an interview on CNBC-TV18 television channel. “DLF would have preferred to sell shares when the world was more normal.”
Deutsche Bank AG and JPMorgan India Pvt. Ltd executed the share sale, whose proceeds will be used by the promoters to raise their stake in DAL by acquiring DE Shaw’s shares in the unit. The promoters also plan to infuse capital, directly or indirectly, into DAL.
The share sale attracted significant demand from large existing institutional shareholders and several high quality new accounts using the opportunity to become core investors in DLF.
“It’s positive for the company and will help it reduce debt and liquidity problems,” said U.P. Bhat, who helps manage $1.6 billion (around Rs7,940 crore) at Canara Robeco Asset Management Ltd in Mumbai. “It’ll also restore confidence of banks to lend them more and trigger a positive cycle.”
The accelerated book-building route was decided very recently and executed in a short period of time, said Sanjay Sharma, managing director and head of equity capital markets at Deutsche Equities India Pvt. Ltd. “Looking at yesterday’s (Tuesday) closing price, which was Rs236.25, we decided that investors could be offered a price range of between Rs223 and Rs230,” he said, adding that most of the buyers indicated interest to buy at Rs230.
“When the volatility was very high, investors were unwilling to put their money to work. Now, that has changed. They are willing to put money if they understand it is good for the company. Investors are focused on large stocks,” said Vedika Bhandarkar, managing director and head of investment banking at JPMorgan India.
Bhandarkar expects more such transactions to take place. “I think more such issues are likely. Since January, 2008, there have hardly been any capital issues. There are different companies in India who need to raise money for different reasons.”
DAL buys and holds completed commercial assets of DLF, which has so far handed over 5.1 million sq. ft of leased space to the unit. Under an agreement, DLF has to deliver 13-14 million sq. ft of leased space to DAL. The unit owes DLF around Rs5,500 crore as payment for the properties it had bought from DLF.
“The monies infused into DAL would be used by it to pay to DLF towards its contractual obligations,” the company statement said.
DAL has received $1.15 billion, including $450 million from Symphony Capital Partners, $400 million from DE Shaw and $200 million from Lehman Brothers Holdings Inc. over the last two years. In November last year, Symphony acquired Lehman’s stake in DAL after Lehman collapsed in mid-September.
While the proceeds of the share sale will not entirely take care of DLF’s receivables from DAL, the promoter-owned firm can pay the developer with money that it plans to raise through the lease rental discounting method, which helps a company raise funds against expected future rentals.
In its fourth quarter presentation, DLF had said that the company expects around Rs2,000 crore from DAL through the lease rental discounting.
DLF promoters have sold 168 million shares at a little over Rs230 apiece. The holding of the family of real-estate baron K.P. Singh fell to 78.6% after the sale. In an emailed statement, DLF said some members of the promoter group had sold 168 million shares at a little over Rs230 apiece. The price worked out to a 1.08% discount to DLF’s closing price of Rs232.50 on the Bombay Stock Exchange on Wednesday.
“We are pleased to follow through our commitments with this game changing transaction for the company and thank the investor community for their continued confidence in DLF,” Rajiv Singh, vice-chairman of DLF, said in a statement.
The promoters sold the stake at a time when a slowdown in India’s economy has depressed the real estate market.
Home prices may have dropped by as much as 40% across India in the quarter ended March, according to estimates by real estate consultancy Jones Lang LaSalle.
“You’d appreciate that this was a painful and sentimental decision,” Rajiv Singh said in an interview on CNBC-TV18 television channel. “DLF would have preferred to sell shares when the world was more normal.”
Deutsche Bank AG and JPMorgan India Pvt. Ltd executed the share sale, whose proceeds will be used by the promoters to raise their stake in DAL by acquiring DE Shaw’s shares in the unit. The promoters also plan to infuse capital, directly or indirectly, into DAL.
The share sale attracted significant demand from large existing institutional shareholders and several high quality new accounts using the opportunity to become core investors in DLF.
“It’s positive for the company and will help it reduce debt and liquidity problems,” said U.P. Bhat, who helps manage $1.6 billion (around Rs7,940 crore) at Canara Robeco Asset Management Ltd in Mumbai. “It’ll also restore confidence of banks to lend them more and trigger a positive cycle.”
The accelerated book-building route was decided very recently and executed in a short period of time, said Sanjay Sharma, managing director and head of equity capital markets at Deutsche Equities India Pvt. Ltd. “Looking at yesterday’s (Tuesday) closing price, which was Rs236.25, we decided that investors could be offered a price range of between Rs223 and Rs230,” he said, adding that most of the buyers indicated interest to buy at Rs230.
“When the volatility was very high, investors were unwilling to put their money to work. Now, that has changed. They are willing to put money if they understand it is good for the company. Investors are focused on large stocks,” said Vedika Bhandarkar, managing director and head of investment banking at JPMorgan India.
Bhandarkar expects more such transactions to take place. “I think more such issues are likely. Since January, 2008, there have hardly been any capital issues. There are different companies in India who need to raise money for different reasons.”
DAL buys and holds completed commercial assets of DLF, which has so far handed over 5.1 million sq. ft of leased space to the unit. Under an agreement, DLF has to deliver 13-14 million sq. ft of leased space to DAL. The unit owes DLF around Rs5,500 crore as payment for the properties it had bought from DLF.
“The monies infused into DAL would be used by it to pay to DLF towards its contractual obligations,” the company statement said.
DAL has received $1.15 billion, including $450 million from Symphony Capital Partners, $400 million from DE Shaw and $200 million from Lehman Brothers Holdings Inc. over the last two years. In November last year, Symphony acquired Lehman’s stake in DAL after Lehman collapsed in mid-September.
While the proceeds of the share sale will not entirely take care of DLF’s receivables from DAL, the promoter-owned firm can pay the developer with money that it plans to raise through the lease rental discounting method, which helps a company raise funds against expected future rentals.
In its fourth quarter presentation, DLF had said that the company expects around Rs2,000 crore from DAL through the lease rental discounting.
Wednesday, May 13, 2009
DLF founders raise $783 mn in share sale (Reported by Mint on their website)
The founders of DLF Ltd on Wednesday raised $783 million through a share sale in India’s top listed property firm. Two banking sources said the shares were sold to about 30 institutional investors.
DLF, which has been hit by high debt and declining profits amid a property market downturn, had been seeking funds after a planned Singapore listing of its property trust was shelved last year following a global equities slide.
The company said its founders would use the proceeds from the sale of 168 million shares to inject capital into property trust DLF Assets Ltd (DAL) and also to buy private equity D E Shaw’s stake in DAL.
The DLF holding of the founders, K P Singh and family, will drop to 78.6% from 88.5% following the deal, which was managed by Deutsche Bank and JPMorgan.
Analysts said the deal was a positive for the company and the sector as it showed that fund raising was possible, boosting DLF shares as much as 7.9% in a weak Mumbai market.
“DLF had been struggling to get private equity investment into DAL,” said R K Gupta, managing director at Taurus Asset management in New Delhi.
“If they are getting close to $1 billion from this, it will help them clear DAL’s dues to DLF and eventually they can merge DAL with DLF,” he said.
DLF joins other firms such as rival Unitech, wind turbine maker Suzlon Energy and software maker Tata Consultancy, whose founders recently raised funds through share sales.
Unitech raised $325 million through share sales, while the founders ofSuzlon got $47 million by selling 2% equity.
Exchange data showed 168.1 million shares changed hands at Rs237 each in a block deal for a total Rs39.8 billion ($808 million), but DLF later said in a statement its founders got 38.6 billion rupees from the transaction.
The deal was done at less than half the price DLF commanded when it raised $2.25 billion in its IPO in July 2007 offering 175 million shares at Rs525 each. DLF’s market value is now about $8 billion, down from a
January 2008 peak of $23 billion. At 1:37pm, shares in DLF were up 3.3% at Rs244.15 in a Mumbai market down 0.5%.
Propert trust
Privately-held DLF Assets Ltd buys commercial real estate from DLF at market price and then leases it out.
Media reports have said Symphony Capital was the other PE investor in DAL, along with D E Shaw and the company’s founders. DLF has not disclosed details of the holdings.
DLF said in April its board was “reviewing strategic relationship” with DAL and an independent committee of directors was evaluating the “most value accretive” transaction for DLF shareholders, which analysts and media reports have said could lead to DLF taking over DAL.
Hope Floats...
Last few months have seen a lot of volatility in the property market especially residential real estate segment due to a combination of factors including exorbitant prices, high interest rates, overleveraging by developers, stalled projects as a direct result of liquidity crunch, demand-supply mismatch and a huge inventory of unsold homes. However, after the dark clouds, there is a silver lining over the realty sky, raising hopes for both property developers and consumers.
Today, the real estate landscape has changed considerably with the once investor-driven market completely turning out to be an end-user market. There has been substantial drop in both property prices and the home loan rates. Together with that, the attempt by the developers to restore the shattered confidence of the home buyers has contributed to bring some sanity and stability to the market that is price and product sensitive.
There has always been a good demand for right product at right price. This demand was however not being met, resulting in sharp drop in home sales. But now the developers have realised the genuine demand for affordable housing. As a result of this, developers as well as housing finance companies have started getting potential enquiries with large number of first time home buyers entering the market.
By now, it's well known that price cuts and lowering of home loan rates alone are not able to spur sales. What's needed is to restore the shattered confidence of property buyers. And it’s heartening to see that developers are now taking steps to win back the confidence of customers. They are not only committing timely completion and delivery of their projects but some of them are also offering protection against any further fall in prices.
Also, considering that demand-supply mismatch had proved to be the bane for the real estate, National Housing Bank's move to set up a Residex (an indicator of property prices) and RBI's plan to come up with the Housing Start-Up Index (a barometer of future housing demand) are set to revive the market. These reform measures will facilitate builders to do realistic number of projects as per demand and help consumers take informed decision about investing in a particular location. Not just that, these initiatives can really help check the formation of a property bubble of the kind which led to the recent real estate bust.
The other significant real estate reforms planned by the Housing Ministry, like providing affordable housing to the masses, ensuring timely delivery of projects and to protect property consumers from frauds will have a desired effect in giving the much needed momentum to the sector.
And with the consumer-driven Indian economy set to bounce back in the next financial year in response to fiscal and monetary policy stimulus and abatement of recession in the international economy, real estate sector is poised to pick up pace in the coming months.
Today, the real estate landscape has changed considerably with the once investor-driven market completely turning out to be an end-user market. There has been substantial drop in both property prices and the home loan rates. Together with that, the attempt by the developers to restore the shattered confidence of the home buyers has contributed to bring some sanity and stability to the market that is price and product sensitive.
There has always been a good demand for right product at right price. This demand was however not being met, resulting in sharp drop in home sales. But now the developers have realised the genuine demand for affordable housing. As a result of this, developers as well as housing finance companies have started getting potential enquiries with large number of first time home buyers entering the market.
By now, it's well known that price cuts and lowering of home loan rates alone are not able to spur sales. What's needed is to restore the shattered confidence of property buyers. And it’s heartening to see that developers are now taking steps to win back the confidence of customers. They are not only committing timely completion and delivery of their projects but some of them are also offering protection against any further fall in prices.
Also, considering that demand-supply mismatch had proved to be the bane for the real estate, National Housing Bank's move to set up a Residex (an indicator of property prices) and RBI's plan to come up with the Housing Start-Up Index (a barometer of future housing demand) are set to revive the market. These reform measures will facilitate builders to do realistic number of projects as per demand and help consumers take informed decision about investing in a particular location. Not just that, these initiatives can really help check the formation of a property bubble of the kind which led to the recent real estate bust.
The other significant real estate reforms planned by the Housing Ministry, like providing affordable housing to the masses, ensuring timely delivery of projects and to protect property consumers from frauds will have a desired effect in giving the much needed momentum to the sector.
And with the consumer-driven Indian economy set to bounce back in the next financial year in response to fiscal and monetary policy stimulus and abatement of recession in the international economy, real estate sector is poised to pick up pace in the coming months.
DLF promoters to sell 9.9% stake for raising funds
Real estate barons K P Singh and his son Rajiv Singh will likely dilute their stake in DLF Ltd, the country’s biggest realty firm by market value, by 9.9 per cent through market sales on Wednesday to raise up to Rs 3,800 crore ($760 million), reports Mint.
The people, who didn’t want to be identified, quoted in the report said the stake sale is likely to take place through an overnight book-building issue. Deutsche Bank AG is the joint book-runner along with JPMorgan Chase and Co., the people said.
The promoters’ stake in DLF is currently 88.5 per cent.
The proceeds of the stake sale are likely to be ploughed into DLF Assets Ltd, or DAL, an unlisted promoter company of K P Singh and family.
About $450 million of the proceeds will be used to buy out hedge fund DE Shaw and Co. from DAL, the people said.
It has been widely reported that DE Shaw wants to exit its investment in DAL. The people said DE Shaw was to exit DAL by the end of this month. The remaining proceeds of the stake sale could also be used to pay back DLF part of the money owed by DAL. As of 31 March, DAL owed DLF around Rs 4,900 crore.
DLF’s stock on Tuesday closed at Rs 236.25, up 3.55 per cent, on the Bombay Stock Exchange.
The benchmark index, the Sensex, rose 4.07 per cent and the BSE Realty Index, an index of 14 realty stocks, gained 3.77 per cent.
The people, who didn’t want to be identified, quoted in the report said the stake sale is likely to take place through an overnight book-building issue. Deutsche Bank AG is the joint book-runner along with JPMorgan Chase and Co., the people said.
The promoters’ stake in DLF is currently 88.5 per cent.
The proceeds of the stake sale are likely to be ploughed into DLF Assets Ltd, or DAL, an unlisted promoter company of K P Singh and family.
About $450 million of the proceeds will be used to buy out hedge fund DE Shaw and Co. from DAL, the people said.
It has been widely reported that DE Shaw wants to exit its investment in DAL. The people said DE Shaw was to exit DAL by the end of this month. The remaining proceeds of the stake sale could also be used to pay back DLF part of the money owed by DAL. As of 31 March, DAL owed DLF around Rs 4,900 crore.
DLF’s stock on Tuesday closed at Rs 236.25, up 3.55 per cent, on the Bombay Stock Exchange.
The benchmark index, the Sensex, rose 4.07 per cent and the BSE Realty Index, an index of 14 realty stocks, gained 3.77 per cent.
Tuesday, May 12, 2009
DDA to buy 333 Apartments in Common Wealth Games Village for Rs 700 Crore from Emaar MGF
The Delhi Development Authority, or DDA, will purchase 333 flats for around Rs 700 crore in the Commonwealth Games Village in an effort to bail out cash-strapped real estate developer Emaar MGF Land Ltd. The firm is developing the village, scheduled for completion by the end of 2010.
In a statement on Monday, DDA said it would buy the flats at Rs 11,000 per sq. ft, which is below the rate being charged by Emaar from open market buyers. Currently, Emaar has priced the flats at around Rs12,500 per sq ft. Emaar MGF is developing the project in partnership with DDA.
Of the total 1,168 flats, Emaar MGF was supposed to sell 768 flats at market rates in late 2011 and the rest were to be sold by DDA after the games at lower prices. Emaar MGF was to fund the construction through the sale of flats. Bookings opened in 2008.
The firm has so far sold around 260 flats.
The amount towards the cost of the apartments will be released in instalments and has been linked to various stages of completion of flats, the statement said.
“The DDA’s decision to invest in the Games Village is a very positive development,” an Emaar MGF spokesperson said.
According to the DDA statement, due to non-sale of flats, Emaar MGF had asked DDA for a loan of Rs 1,000 crore. However, it added, at no point had DDA agreed to a loan.
Earlier, a committee consisting of officials from the Central Public Works Department, Housing and Urban Development Corp. Ltd, National Buildings Construction Corporation Ltd and DDA was formed to decide on the bailout package to be given to Emaar. Subsequently, DDA has decided to buy flats rather than give a loan.
In a statement on Monday, DDA said it would buy the flats at Rs 11,000 per sq. ft, which is below the rate being charged by Emaar from open market buyers. Currently, Emaar has priced the flats at around Rs12,500 per sq ft. Emaar MGF is developing the project in partnership with DDA.
Of the total 1,168 flats, Emaar MGF was supposed to sell 768 flats at market rates in late 2011 and the rest were to be sold by DDA after the games at lower prices. Emaar MGF was to fund the construction through the sale of flats. Bookings opened in 2008.
The firm has so far sold around 260 flats.
The amount towards the cost of the apartments will be released in instalments and has been linked to various stages of completion of flats, the statement said.
“The DDA’s decision to invest in the Games Village is a very positive development,” an Emaar MGF spokesperson said.
According to the DDA statement, due to non-sale of flats, Emaar MGF had asked DDA for a loan of Rs 1,000 crore. However, it added, at no point had DDA agreed to a loan.
Earlier, a committee consisting of officials from the Central Public Works Department, Housing and Urban Development Corp. Ltd, National Buildings Construction Corporation Ltd and DDA was formed to decide on the bailout package to be given to Emaar. Subsequently, DDA has decided to buy flats rather than give a loan.
Increase In Demand For Home Loans, Say Banks
Price-shy home buyers are back to the threshold of banks with the reduction in interest rates, coupled with rationalisation of home prices. Several banks said their home loan disbursals have increased towards the end of financial year 2009. Housing Development Finance Corporation (HDFC) saw its loan disbursals during the first three months of 2009 go up by 17.5% to Rs 12,439 crore. Other home financers such as LIC Housing Finance, Axis Bank, Union Bank of India have also seen bulging home loan portfolios in the last two months of FY09 and growth continues after that as well.
Monday, May 11, 2009
Service Tax on Commercial Rent – Matrix of Possibilities
The High Court of Delhi (DHC) has on April 18, 2009, by a composite judgment allowing 26 writ petitions, held that no service tax can be levied on pure renting of immovable property for commercial purposes. While the judgment has been welcomed by most businesses, the Government is expected to prefer an appeal against it to the Supreme Court of India (SC).
Meanwhile, the factual matrix has given rise to interesting discussions on issues inter alia territorial applicability of the DHC judgment; finality; past, present and future tax liabilities; responsibility of landlords and refund of service tax paid.
I. Territorial applicability
The judgment does not restrict itself in terms of territorial scope. Notably, the DHC while granting interim stay orders in many petitions, recorded that the stay would operate only within the territory of Delhi. However, no such qualification is placed in the final judgment.
In any event, the judgment is on the point of legality, rather illegality, of the Notification No 24/2007 dated 22nd May 2007 (Notification) and Circular No 98/1/2008-ST dated 4th May 2008 (Circular) that sought to levy service tax on commercial rentals of immovable property, the situation would in all likelihood remain the same across India. To dispute applicability of the judgment in any other Indian state, the Service Tax Department would have to perform the herculean task of demonstrating as to how the judgment based on same points of law would not be equally applicable in other states.
It is noteworthy that Article 226A barred the High Courts from deciding the constitutional validity of any central law, and vice versa Article 32A barred the SC from considering the constitutional validity of any state law unless the constitutionality of any central law was also in question in the proceedings. These Articles, among others with similar objectives, were introduced by the Forty Second Amendment to the Constitution of India. By Forty Third Amendment to the Constitution, these Articles, conferring exclusive jurisdictions, were repealed.
II. Finality
The judgment is final in itself, unless stayed or set aside by the SC which is true for every HC judgment. The benefit of the judgment would therefore be available until it is so stayed or set aside. It is for the Government to prefer the appeal. An appeal does not warrant that the DHC judgment will be stayed initially, or set aside finally.
It is also being speculated that the Government may bring out new notification or clarifications in an attempt to secure taxation on commercial rentals on immovable property. The judgment of the DHC, in a nutshell, holds that commercial rental itself is not envisaged to be taxed by the Finance Act and consequently the Notification and the Circular that sought to tax it were held ultra vires. Thus, to tax commercial rentals, the scope of the Finance Act itself would need to be enlarged. That can happen, at the earliest, in the next session of the Parliament, given the variables that the next session would be the first session after the formation of the new Government.
Even if the Finance Act is amended, the alternative plea of the petitioners, on constitutionality of levy of service tax on rentals, which the DHC has not presently decided, will assume significance. Without amendment of the Finance Act, any new notifications or circulars by the Government to bridge the gap as regards applicability of service tax "in relation to renting" and "on renting" of immovable property may still be susceptible to a fate similar of the Notification and Circular set aside by the DHC.
A line of argument that the Government may adopt on constitutionality is to try and classify the levy within entry 92C of List I of the Constitution of India i.e. "Taxes on services". However, the respondents may inter alia adopt the argument that the Government had, by way of the Notification set aside by the DHC, permitted exemption on service tax "as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax, levied and collected by local bodies". In the mind of Government, the tax was equitable (thus adjustable) vis a vis property tax, i.e. under List II, and not List I.
The issue of constitutionality has not been decided by the DHC. To clarify, the issue is not about constitutionality of service tax per se, but constitutionality of service tax on commercial rentals of immovable property. If and whenever, the issue becomes contentious, the respective parties would hopefully bring in many more arguments, and the outcome cannot be predicted as of now.
III. Past, present and future liabilities
A debate is on as regards with the liability towards service tax if the DHC judgment is reversed by the SC in appeal. The issue may be analysed with respect to three different periods: A. Duration within which the service tax was not paid owing to interim stay orders granted by the DHC, or for that matter by any other High Court that disposes off the petitions in view of the DHC's final judgment – say period "A". B. Duration between the date of delivery of the judgment by the DHC and the stay thereof, if granted by the SC – say period "B"; and C. Duration during which the SC would decide the matter conclusively – say period "C".
If the SC stays the DHC judgment, the liability would continue during period "C", unless otherwise specified by the SC. The SC is however likely to specify, at the time of admission of the petition or soon thereafter, whether the liability to pay service tax would continue during period "C".
The liability for payment during period "B" is also likely to depend on the language of the stay, if granted by the SC. The Government, in its appeal, may press for payment of tax at least during periods "B" and "C", and consequently one may expect clarity on these issues once the appeal is preferred by the Government. If the Government does not prefer the appeal, the payment obligation would anyway not arise in view of finality of the DHC judgment.
It is also likely that the SC may consider the issue of payments during period "A", if it sets aside the judgment. Notably, benefit of period "A" has been availed only by the parties that have obtained stay orders from any High Court, mostly on undertakings that they would bear the tax and the consequences if the tax is held legal. Though the benefit of periods "B" and "C" are likely to be availed by far more entities, it would be desirable to have clarity from the SC on tax obligations during each period if the DHC judgment is reversed.
IV. Concerns of landlords
As is true for every petitioner in any case, the Government may also succeed in obtaining a favorable judgment from the SC. Understandably, this leaves the landlords as a worried lot, concerning liability of service tax for periods "A", "B" and "C" discussed above, as they are the persons responsible for collection and deposit of the service tax. It is likely for the landlords to, on the one hand, ask the tenants to undertake to bear the service tax in the event of adverse decision by the SC, and on the other hand, wish to be party to the proceedings before the SC to secure their interests. A number of landlords were party to many petitions before the DHC, and are petitioners and respondents in many petitions pending before other High Courts.
Indemnity or undertaking for a tax that is currently held ultra vires would however be viewed by the tenants as undesirable. Such an indemnity would also to a great extent undermine the judgment of the DHC, which per se is not subject to validation by the SC to be effective. The onus is upon the Government to approach the SC promptly if it wishes to secure continued payment of service tax.
The judgment of the DHC does not provide benefit only to the tenants, but is rendered and is applicable qua all the parties to the transaction, viz. tenants, landlords, the Union of India and the Service Tax Department. The judgment has taken away the entitlement from the Service Tax Department to claim service tax on commercial rentals of immovable property, and consequently unless the SC expressly reinforces the entitlement, the Government may not demand tax under this head. For now, it would be reasonable for the landlords to obtain letters from their tenants that the tenants would not pay service tax as it is not payable in view of the judgment of the DHC.
The future course of action may be decided based on how the events unfold, especially in an appeal before the SC. In the event of any unforeseen liability, the landlords would have the remedy of approaching the courts, making the tenant and the Government including the Service Tax Department a party, to seek directions that no tax is payable from the pocket of the landlord as the primary dispute was between the tenants and the Service Tax Department and the tenants have discontinued payment based on the DHC judgment. During the period of operation of the judgment, the landlord cannot recover a tax held ultra vires, and consequently should not be liable to deposit the same afterwards.
V. Composite agreements
An interesting case was pleaded by Alpha Future Airport Retail (India) Limited. The Delhi Airport has granted to Alpha, by a single indivisible license agreement, a license to operate duty free shops and the retail space to operate them at the airport. In return, Alpha pays to the airport a fixed fee and a percentage on gross sale proceeds from the duty free shops. As per Alpha, it is impossible to ascertain what part of the payment is towards license and what towards rent, while the license to operate and user of the property are inseparable as the duty free shops cannot be operated at any place except at the airport. The Act does not provide any mechanism to determine the amounts payable for license and for user of real estate respectively.
Alpha's case has not been decided by the DHC by the composite judgment delivered on April 18, though Alpha's submissions are recorded therein. Alpha's case is now coming up before the DHC in May 2009. The judgment in this case is likely to throw light on possibility of attribution of payment towards rental in composite arrangements.
Meanwhile, in cases where the payments can be separately attributed for rental and other services components, but have currently not been so attributed, the parties may amicably decide on splitting the components. Assuming the service tax on commercial rental is not revived, the justification for each component may be subject to scrutiny in future by the Service Tax authorities. Adequate analysis, care and caution are therefore advised while undertaking this exercise.
VI. Other similar arrangements
Section 65(90a), at the center stage of the DHC judgment, applies to arrangements including "renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce ……..".
While the judgment clearly applies to arrangements of renting, letting, leasing and licensing, the scope of "other similar arrangements" has neither been restricted in scope and applicability by the Finance Act, nor was it an issue to be determined by the DHC. Arguably, to be covered under the DHC judgment, the payment should have a direct relationship with the use of immovable property. Any arrangements that can qualify as any other taxable service may be a bone of contention with the Government. The judgment in Alpha's case may be of guidance in limiting the exposure.
VII. Possibility of refund
Many retailers are also exploring the options, and are keen to seek and secure refund of the service tax paid by them on rentals since its levy. There seems a legal possibility for refund for the past one year, or more. Refusal of refund by the Government may lead to another round of litigation.
VIII. Other petitions
Many similar petitions are pending before other High Courts in India, at various stages. While it is likely that many petitioners there may withdraw their petitions in view of the DHC judgment, and a few High Courts may even dispose off these petitions in view of the judgment of the DHC, the possibility of any other High Court opting to independently hear and decide the matter on merits may not be absolutely negated. Any such instances would add multiple dimensions to the issues discussed here and to the proceedings, if any, before the SC.
IX. Transfer petition
The Union of India had preferred a Transfer Petition before the SC in 2008 seeking transfer of writ petitions by 20 odd petitioners pending before different High Courts challenging levy of service tax on commercial rentals to the DHC. No final directions have been passed by the SC in the matter till date. Now that the DHC has, in the meantime, disposed off the writ petitions pending before it on the subject, in a manner unfavorable to the Government, it would be interesting to see whether the Government still presses for transfer of these petitions to the DHC. The SC had stayed further proceedings in these writ petitions before the other High Courts.
In all likelihood, the next few weeks may witness good amount of action on the front.
Meanwhile, the factual matrix has given rise to interesting discussions on issues inter alia territorial applicability of the DHC judgment; finality; past, present and future tax liabilities; responsibility of landlords and refund of service tax paid.
I. Territorial applicability
The judgment does not restrict itself in terms of territorial scope. Notably, the DHC while granting interim stay orders in many petitions, recorded that the stay would operate only within the territory of Delhi. However, no such qualification is placed in the final judgment.
In any event, the judgment is on the point of legality, rather illegality, of the Notification No 24/2007 dated 22nd May 2007 (Notification) and Circular No 98/1/2008-ST dated 4th May 2008 (Circular) that sought to levy service tax on commercial rentals of immovable property, the situation would in all likelihood remain the same across India. To dispute applicability of the judgment in any other Indian state, the Service Tax Department would have to perform the herculean task of demonstrating as to how the judgment based on same points of law would not be equally applicable in other states.
It is noteworthy that Article 226A barred the High Courts from deciding the constitutional validity of any central law, and vice versa Article 32A barred the SC from considering the constitutional validity of any state law unless the constitutionality of any central law was also in question in the proceedings. These Articles, among others with similar objectives, were introduced by the Forty Second Amendment to the Constitution of India. By Forty Third Amendment to the Constitution, these Articles, conferring exclusive jurisdictions, were repealed.
II. Finality
The judgment is final in itself, unless stayed or set aside by the SC which is true for every HC judgment. The benefit of the judgment would therefore be available until it is so stayed or set aside. It is for the Government to prefer the appeal. An appeal does not warrant that the DHC judgment will be stayed initially, or set aside finally.
It is also being speculated that the Government may bring out new notification or clarifications in an attempt to secure taxation on commercial rentals on immovable property. The judgment of the DHC, in a nutshell, holds that commercial rental itself is not envisaged to be taxed by the Finance Act and consequently the Notification and the Circular that sought to tax it were held ultra vires. Thus, to tax commercial rentals, the scope of the Finance Act itself would need to be enlarged. That can happen, at the earliest, in the next session of the Parliament, given the variables that the next session would be the first session after the formation of the new Government.
Even if the Finance Act is amended, the alternative plea of the petitioners, on constitutionality of levy of service tax on rentals, which the DHC has not presently decided, will assume significance. Without amendment of the Finance Act, any new notifications or circulars by the Government to bridge the gap as regards applicability of service tax "in relation to renting" and "on renting" of immovable property may still be susceptible to a fate similar of the Notification and Circular set aside by the DHC.
A line of argument that the Government may adopt on constitutionality is to try and classify the levy within entry 92C of List I of the Constitution of India i.e. "Taxes on services". However, the respondents may inter alia adopt the argument that the Government had, by way of the Notification set aside by the DHC, permitted exemption on service tax "as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax, levied and collected by local bodies". In the mind of Government, the tax was equitable (thus adjustable) vis a vis property tax, i.e. under List II, and not List I.
The issue of constitutionality has not been decided by the DHC. To clarify, the issue is not about constitutionality of service tax per se, but constitutionality of service tax on commercial rentals of immovable property. If and whenever, the issue becomes contentious, the respective parties would hopefully bring in many more arguments, and the outcome cannot be predicted as of now.
III. Past, present and future liabilities
A debate is on as regards with the liability towards service tax if the DHC judgment is reversed by the SC in appeal. The issue may be analysed with respect to three different periods: A. Duration within which the service tax was not paid owing to interim stay orders granted by the DHC, or for that matter by any other High Court that disposes off the petitions in view of the DHC's final judgment – say period "A". B. Duration between the date of delivery of the judgment by the DHC and the stay thereof, if granted by the SC – say period "B"; and C. Duration during which the SC would decide the matter conclusively – say period "C".
If the SC stays the DHC judgment, the liability would continue during period "C", unless otherwise specified by the SC. The SC is however likely to specify, at the time of admission of the petition or soon thereafter, whether the liability to pay service tax would continue during period "C".
The liability for payment during period "B" is also likely to depend on the language of the stay, if granted by the SC. The Government, in its appeal, may press for payment of tax at least during periods "B" and "C", and consequently one may expect clarity on these issues once the appeal is preferred by the Government. If the Government does not prefer the appeal, the payment obligation would anyway not arise in view of finality of the DHC judgment.
It is also likely that the SC may consider the issue of payments during period "A", if it sets aside the judgment. Notably, benefit of period "A" has been availed only by the parties that have obtained stay orders from any High Court, mostly on undertakings that they would bear the tax and the consequences if the tax is held legal. Though the benefit of periods "B" and "C" are likely to be availed by far more entities, it would be desirable to have clarity from the SC on tax obligations during each period if the DHC judgment is reversed.
IV. Concerns of landlords
As is true for every petitioner in any case, the Government may also succeed in obtaining a favorable judgment from the SC. Understandably, this leaves the landlords as a worried lot, concerning liability of service tax for periods "A", "B" and "C" discussed above, as they are the persons responsible for collection and deposit of the service tax. It is likely for the landlords to, on the one hand, ask the tenants to undertake to bear the service tax in the event of adverse decision by the SC, and on the other hand, wish to be party to the proceedings before the SC to secure their interests. A number of landlords were party to many petitions before the DHC, and are petitioners and respondents in many petitions pending before other High Courts.
Indemnity or undertaking for a tax that is currently held ultra vires would however be viewed by the tenants as undesirable. Such an indemnity would also to a great extent undermine the judgment of the DHC, which per se is not subject to validation by the SC to be effective. The onus is upon the Government to approach the SC promptly if it wishes to secure continued payment of service tax.
The judgment of the DHC does not provide benefit only to the tenants, but is rendered and is applicable qua all the parties to the transaction, viz. tenants, landlords, the Union of India and the Service Tax Department. The judgment has taken away the entitlement from the Service Tax Department to claim service tax on commercial rentals of immovable property, and consequently unless the SC expressly reinforces the entitlement, the Government may not demand tax under this head. For now, it would be reasonable for the landlords to obtain letters from their tenants that the tenants would not pay service tax as it is not payable in view of the judgment of the DHC.
The future course of action may be decided based on how the events unfold, especially in an appeal before the SC. In the event of any unforeseen liability, the landlords would have the remedy of approaching the courts, making the tenant and the Government including the Service Tax Department a party, to seek directions that no tax is payable from the pocket of the landlord as the primary dispute was between the tenants and the Service Tax Department and the tenants have discontinued payment based on the DHC judgment. During the period of operation of the judgment, the landlord cannot recover a tax held ultra vires, and consequently should not be liable to deposit the same afterwards.
V. Composite agreements
An interesting case was pleaded by Alpha Future Airport Retail (India) Limited. The Delhi Airport has granted to Alpha, by a single indivisible license agreement, a license to operate duty free shops and the retail space to operate them at the airport. In return, Alpha pays to the airport a fixed fee and a percentage on gross sale proceeds from the duty free shops. As per Alpha, it is impossible to ascertain what part of the payment is towards license and what towards rent, while the license to operate and user of the property are inseparable as the duty free shops cannot be operated at any place except at the airport. The Act does not provide any mechanism to determine the amounts payable for license and for user of real estate respectively.
Alpha's case has not been decided by the DHC by the composite judgment delivered on April 18, though Alpha's submissions are recorded therein. Alpha's case is now coming up before the DHC in May 2009. The judgment in this case is likely to throw light on possibility of attribution of payment towards rental in composite arrangements.
Meanwhile, in cases where the payments can be separately attributed for rental and other services components, but have currently not been so attributed, the parties may amicably decide on splitting the components. Assuming the service tax on commercial rental is not revived, the justification for each component may be subject to scrutiny in future by the Service Tax authorities. Adequate analysis, care and caution are therefore advised while undertaking this exercise.
VI. Other similar arrangements
Section 65(90a), at the center stage of the DHC judgment, applies to arrangements including "renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce ……..".
While the judgment clearly applies to arrangements of renting, letting, leasing and licensing, the scope of "other similar arrangements" has neither been restricted in scope and applicability by the Finance Act, nor was it an issue to be determined by the DHC. Arguably, to be covered under the DHC judgment, the payment should have a direct relationship with the use of immovable property. Any arrangements that can qualify as any other taxable service may be a bone of contention with the Government. The judgment in Alpha's case may be of guidance in limiting the exposure.
VII. Possibility of refund
Many retailers are also exploring the options, and are keen to seek and secure refund of the service tax paid by them on rentals since its levy. There seems a legal possibility for refund for the past one year, or more. Refusal of refund by the Government may lead to another round of litigation.
VIII. Other petitions
Many similar petitions are pending before other High Courts in India, at various stages. While it is likely that many petitioners there may withdraw their petitions in view of the DHC judgment, and a few High Courts may even dispose off these petitions in view of the judgment of the DHC, the possibility of any other High Court opting to independently hear and decide the matter on merits may not be absolutely negated. Any such instances would add multiple dimensions to the issues discussed here and to the proceedings, if any, before the SC.
IX. Transfer petition
The Union of India had preferred a Transfer Petition before the SC in 2008 seeking transfer of writ petitions by 20 odd petitioners pending before different High Courts challenging levy of service tax on commercial rentals to the DHC. No final directions have been passed by the SC in the matter till date. Now that the DHC has, in the meantime, disposed off the writ petitions pending before it on the subject, in a manner unfavorable to the Government, it would be interesting to see whether the Government still presses for transfer of these petitions to the DHC. The SC had stayed further proceedings in these writ petitions before the other High Courts.
In all likelihood, the next few weeks may witness good amount of action on the front.
BPTP’s Independent Floors @ Faridabad for Rs 16-26 Lakhs only
A couple of days after Tata Housing launched a low-cost realty project which offers houses at below Rs 4 lakh, BPTP Ltd, the New Delhi-based developer has launched independent floors called Park Elite Floors at very competitive rates of between Rs 16.08-25.56 lakh. The floors will be located within BPTP’s 1500 acre township, BPTP Parklands in Faridabad near Delhi.
The company has launched 500 flats in the first phase of the project. BPTP is also offering its buyers an upfront discount of 5 per cent on the installments of the basic sale price if paid on or before the due date.
BPTP Parklands will have 30 million sq ft of residential, 4 million sq ft of commercial and 2.5 million sq ft of retail space.
The construction cost for the Park Elite Floors has been budgeted at about Rs 1,000 per sq ft, said Kabul Chawla, managing director, BPTP. We have cut down on our margins as well and in most of our projects our margins are not more than 25 per cent, Chawla added.
On the Noida land that BPTP had surrendered, Chawla said that the company has taken possession of 22 acres of land after paying 100 crore of stamp duty. The total cost of the land is Rs1400 crore.
In March, 2008, BPTP had won the bid for a 95-acre commercial plot of land in Noida for Rs 5,000 crore. The company, which was not able to make the complete payment surrendered the plot of land to the New Okhla Industrial Development Authority in February this year.
Now, BPTP plans to develop 300,000 sq ft of office space and 600,000 sq ft of hotel property on the plot of land. The hotel will have around 550 rooms and the company is in talks with leading international hotel chains to manage the hotel property, said Chawla.
The company has launched 500 flats in the first phase of the project. BPTP is also offering its buyers an upfront discount of 5 per cent on the installments of the basic sale price if paid on or before the due date.
BPTP Parklands will have 30 million sq ft of residential, 4 million sq ft of commercial and 2.5 million sq ft of retail space.
The construction cost for the Park Elite Floors has been budgeted at about Rs 1,000 per sq ft, said Kabul Chawla, managing director, BPTP. We have cut down on our margins as well and in most of our projects our margins are not more than 25 per cent, Chawla added.
On the Noida land that BPTP had surrendered, Chawla said that the company has taken possession of 22 acres of land after paying 100 crore of stamp duty. The total cost of the land is Rs1400 crore.
In March, 2008, BPTP had won the bid for a 95-acre commercial plot of land in Noida for Rs 5,000 crore. The company, which was not able to make the complete payment surrendered the plot of land to the New Okhla Industrial Development Authority in February this year.
Now, BPTP plans to develop 300,000 sq ft of office space and 600,000 sq ft of hotel property on the plot of land. The hotel will have around 550 rooms and the company is in talks with leading international hotel chains to manage the hotel property, said Chawla.
Pioneer Park, Sec 61, Gurgaon
| Team – Shaloo Agencies Recommends Pioneer Park, Sec 61, Gurgaon (Golf Course Road Extn.) for Investors, as well as for End Users. We strongly feel, it is – a) Located at a Fantastic Location – On the main Golf Course Road Extn. In close proximity to Schools, Hospitals, Metro, Shopping Malls, Hotels etc., and b) It has a Incredible Price Tag of only Rs. 3,000/- per sq.ft. which includes the E.D.C. & the I.D.C. (of Rs. 389/- per sq.ft.), resulting in a Nett Basic Price of only Rs. 2,611/- per sq.ft. (This Price Offer is for a very limited period only.). The average price prevailing in the vicinity is Rs. 4,500/- per sq.ft. Let’s Compare Pioneer Park With Other Projects in the vicinity -
Basic Sale Price (Inclusive of EDC/IDC) of Pioneer Park Is Being Revised Very Shortly To Rs. 3,300/- Per Sq. Ft. From Rs. 3,000/- Per Sq. Ft. So, please hurry in case you are interested to book your dream Apartment in Pioneer Park at the Existing Basic Sale Price of Rs. 3,000/- Per Sq. Ft. (Apartments Start From Rs. 39.10 Lacs) For Details, Please Contact - Shaloo Agencies Mobile # : +91 97178 55100 / Email : sales@shalooagencies.com |
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