Implications of guideline value revisions in Tamil Nadu

The government of Tamil Nadu has revised the rates of guideline value of land in all zones, including residential, commercial and agricultural land across the state with effect from April 1, 2012. This revision comes after five years with the last set of values having come into effect in August 2007.

The revenue policy note, presented in July last year, reflected that this change was due to be ushered in and speculations were rife over the last eight months as to when the revision wouldcome into effect. In November 2011, the proposed revision of values for each region was put up for public opinion in all the Tahsildar offices and reviews were taken into consideration, before the current set of rates were introduced in the state.

The new values affect all types of land including agricultural, residential, industrial and commercial property in urban and rural areas equally. With a rise of almost 300% in many areas, the reaction to this revision has been mixed. There are three main aspects that this change brings in, the first being the prevention of black money and the loss of revenue to the state and country.

“The revision is a welcome move and is set to usher in a cleansing of the real estate industry and land transactions across the state,” states A S Shivaramakrishnan, Head, Residential Services, Jones Lang LaSalle India, Chennai, a premier international real estate consultancy firm. “The revision of the guideline values equaling the market value of land in most part across the state will greatly enhance the transparency index of real estate transactions in the city and promote investment and growth in a big way.”

A major concern in India is cash transactions in real estate deals, which is encouraged by the divergence of guideline value and market value. People often register the transaction at guideline value (sometimes as low as 20% of the transaction value itself), pay the registration and stamp duties based on the guideline value alone (affecting the buyer of property) and reflects the accounted portion equivalent to the guideline value alone for capital gains and tax purposes (affecting the seller of the property). With such high degree transactions happening in cash in most deals, it had become rare to find buyers or sellers insisting on a fully transparent deal. This led to huge revenue losses for the state exchequer. This is not only illegal, but also creates a vicious cycle of investment of black money in the real estate sector.

“Major legal reforms are still required with respect to property valuation and land acquisitions,” says RS Nambi, a Tax and Legal expert and advisor to the World Bank. “An ombudsman and valuation officer in every registering office to examine and evaluate the transactions, disputes and divergences between published values and the market can go a long way in ushering greater fluidity to real estate transactions. This revision of guideline values is the first step towards preventing the loss of revenue for the state and unearthing black money. We have to wait to see how the latest measures of the budget with respect to bringing in TDS on amounts greater than 2 lakhs will apply to property sales this year. The capital gains tax that the seller has to pay is calculated on transaction value or guideline value, whichever is higher according to law. “

The previous year saw close to `3,200 crores worth of stamp duties and registration fees being paid for property transactions between October 2011 and March 2012. The revision is expected to boost the revenue in the state this year to a figure greater than `8,500 crores in 2012-2013. Targets for revenue collections for the month of March were set for all the sub-registrar offices across the state by the Inspector-General of Registrations.

With expectations of a hike in the values, there has been a rush of registrations and many people who might have otherwise waited to conclude their transactions, were pushed to finish them before March 31. “With a high number of transactions having happened in March, the target of 21 crores set for the Neelankarai SRO was successfully achieved by the middle of the month itself,” states Vimala Jayakumar who runs a document services outfit in Neelankarai.

“Usually, there are around 40 registrations per day and in March it rises to about 60-70 per day. But this year, there was a heavy rush in the last two weeks of March, with more than 200 registrations happening per day.” This clearly shows that the revision of guideline values will not only promote transparency and usher in more revenue to the state, but it will also act as a mechanism to force people to complete delayed transactions all at once and bring in a combined revenue to the state, which has been starved of funds. It is estimated that the combined revenue of 1000 crores has been collected by the state for the month of March 2012 through these transactions alone.

The Inspector-General of registrations chairs the committee formed by different sub-collectors across the state to determine the guideline values. The proposed values were published in November 2011 and public opinion was invited. Accordingly, they were modified before coming into effect in April of this year. Says Vimala, “Overall, the new values reflect the market rates. Wherever people disagreed with the rates, appeals were submitted and they were taken into consideration. The older and newer guideline values have been listed by survey number, street and category on the official website of the Registration Department of Tamil Nadu (www.tnreginet.net) and the website itself mentions that values relating to 1.1 lakh streets and over 29 million survey numbers.

While it is a great move to bring in transparency in the state’s real estate industry, there are some concerns as to how this revision will affect the public and developers. With steep revisions of up to 270% in most cases, the question on how this re-evaluation of property will affect the common folk remains. The hardest hit areas are the centers of urban development and the heart of Chennai city. “In the peripheral areas, it is business as usual even with the hike in values. Similarly, for multi-storeyed buildings, the direct impact is not as high, since the undivided share values come up only to 20-30% of overall values. The significant impact is within city areas where the values have jumped up to unaffordable levels,” says AS Shivaramakrishnan.

“While the cost of land is already high in the city, the steep increase in guideline values will make it impossible for developers to be able to afford to get premium FSI for redevelopment projects. What this means is that, on old buildings that can come up for redevelopment with joint-development agreements between the owners and developers due to revision of the FSIs over the last two decades can be rendered unfeasible if the developer has to pay the kind of fees based on the new guideline values for the premium FSI that would be his profit centre. Any move to provide some incentives for redevelopment projects on 25-30 year old buildings are necessary to avoid bringing redevelopment to a grinding halt. The concern is that the move makes it all that more expensive and unfeasible for urban projects.”

“Similarly, peripheral development needs the social infrastructure to expand accordingly. In a city like Bangalore, this has happened in concentric circles and not in an unbalanced way like we are seeing in Chennai. With the city at a crucial stage of its metamorphosis, with major infrastructure projects like the metro in progress, a significant aspect that affects its citizens and growth itself is redevelopment of existing structures and buildings. New infrastructure is being built to raise a brand new city from the ashes of the former metropolis. This has been the story in cities all across the world, right from New York to Mumbai, where redevelopment has been key to boosting its growth ahead. Hence, while it is a positive move by the government to bring in equity in the values of transactions, it is important that the city and state authorities remember that the redevelopment of its buildings is necessary for growth. “

Pune property options offer value for money

India’s IT, educational and automobile hub is developing at a speedy rate, with improved infrastructure and a variety of housing projects, especially affordable ones. For home buyers, Pune serves as the next best destination for investment, say experts.

Looking at the eastern side of Pune, Kharadi, Wagholi and Hadapsar are the areas that are most preferred as residential destinations, offering a range of options for buyers.

Wagholi in the East, Undri, Pisoli and Mohammedwadi in the Southeast and Dhanori, Charholi in the Northeast are the upcoming locations in Pune, says Shantanu Mazumder, Branch Head, Pune, Knight Frank (India). He adds that Wagholi and Undri are the destinations to watch out for the highest return on investment and maximum buying of residential property is happening in Wagholi and Undri.

Prathamesh Dubhashi, who recently purchased a flat around Kharadi, better known as Kalyani Nagar Annexe, says, “Since the rate in Koregaon Park is skyrocketing these are the areas that one can look into if one wants to purchase a flat in this part of the city. The flat that I bought was within my budget with all the amenities.”

Prathamesh explains, “Kharadi and Hadapsar were a few of the areas that I looked at while buying the flat. They have come up very well in the last two or three years with good residential as well as commercial projects emerging. One can expect a lot more development in the next few years. From numerous malls and excellent hotels that provide good eating options on Nagar Road to entertainment options in Koregaon Park, everything is in the vicinity. It’s close to the railway station as well as the airport.”

“For investment purposes Kharadi is the best option with a lot of upcoming projects that suits the budgets of all. Now is the time to invest in these areas as the prices are expected to escalate greatly in the coming few years.”

For Kharadi, the proximity factor plays an important role. “The upcoming locations are Kharadi and Wagholi,” says Sanjay Bajaj, Managing Director – Pune, Jones Lang LaSalle India.

Citing the reasons for these areas, Bajaj says, “Kharadi has come up because of its proximity to EON, Magarpatta, Commerzone, Gigaspace and Espace IT parks as well as its good connectivity to the airport, railway station and other places. It also has the best of Pune’s malls like Phoenix Market City, Inorbit, Jewel Square and Amanora in its neighbourhood.”

“Wagholi presents buyers with a clear affordability and value-for-money factor and also has extremely high investment potential.”

Pune west has also seen great improvement as the east and the areas responsible for this are Wakad, Kondhwa, Baner, Hinjewadi, Pirangut, Balewadi and Tathawade.

“The upcoming locations in the west are Wakad, Balewadi and Tathawade, and Wakad is one of the destinations to watch out for investment. Maximum buying is happening in Wakad and Hinjewadi,” says Mazumder.

Abhishek Rajagolkar purchased two flats in the last few years, both in the western corridor of the city, Hinjewadi and Pirangut. He says, “I needed a spacious place and the price ratio worked better in the flats available in these areas. It is the fastest developing part of the city. The IT and automobile boom has led to some very good projects in this area. Purchasing property here has been a good return on investment for me. It’s also closer to Mumbai. The upcoming industries and the proposed airport at Chakan will also foster the growth in this region. One big investment and this region will come up extremely well. Maximum buying happening in Pune as of now is Hadapsar and Kharadi in the eastern side and Baner, Wakad, Hinjewadi, Pirangut on the western side.”

Bajaj says, “Hinjewadi has two market drivers – its proximity to Mumbai and the employment opportunities that IT giants like Wipro, Infosys, Cognizant and Tech Mahindra have created in this belt.”

Shruti Sengupta purchased a flat in Kondhwa. She says, “We wanted a flat in this part of the city as its closer to my office. The rates in this area were lower than most of the surrounding regions. It is also very peaceful and full of greenery which attracted us a lot. It also offers easy accessibility to M.G Road, Koregaon Park. Also, it’s a self-sufficient area with malls and eating joints near-by and railway station and airport at vicinity.”

Ravet has also come up and has benefitted tremendously. Stating the reasons for the improvement, Shveta Jain- Director, Residential Services, Cushman & Wakefield – India, says, “The development in the area is in a much planned manner. Located in close proximity to Mumbai-Pune Expressway, it is considered to be an entry point of Pune. This area is being looked forward by the information technology (IT) professionals, as well as by the industrial work force, as it has easy accessibility to the Hinjewadi IT Hub, as well as Pimpri-Chinchwad industrial belt. The construction work on the 45-metre, grade separated, and non-signaled four lane Bus Rapid Transit System (BRTS) route joining Ravet to the up market Aundh is in full swing. This road will bring down the travel time to Aundh to less than 10 minutes. The industrial belts at Pimpri, Chinchwad, Chakan and Talegaon are now within easy reach from Ravet. With quality electric supply, as well as water supply, the precinct of Ravet holds an edge with respect to the other locations.”

Mazumder concludes saying, “With the growth of the economy in Pune, residential property rates in Wagholi, Undri, Wakad and Hinjewadi will only head northward.”

Construction industry moves from traditional to innovative building concepts

New eco-friendly engineered homes, building systems and technology are being introduced. We are moving away from the traditional method of construction towards the innovative concept of engineered residential homes. Noida-based Interior Craft has launched the unique concept of assembling partially constructed components manufacturing inside a factory. So, what’s different about this home?

Called Interior Craft Engineered (I.C.E) Homes, a sample building with this technology uses iron columns as supporting pillars, covered by shera board (fiber-cement composite) as substitute for cement, grade A steel beams, GI sheets, bison board for roof and membrane for water proofing, CFL and LED lighting etc. Propagating the need for green technology in all buildings, Interior Craft said that this building is ready within 3 months.

Eliminating the need of a large workforce and large turn over time, components such as supporting pillars, door head and roof structure, are built in a climate-controlled factory, away from the construction site and transported to the actual site for assembly. A structure built following this methodology is stronger, faster and economical as compared to buildings constructed conventionally.

Talking about the uniqueness of Engineered Homes, Anis Ahmed, Managing Director, Interior Craft said, “This home is durable and technically superior and has all the certifications of clearance as per the safety and environmental norms issued by the concerned authorities. Available at about Rs 2,600 per sq ft, the company has so far taken orders only for farm houses.”

G D Goenka’s farmhouse in Sultanpur, Delhi is the company’s next project. DC Architects are the design partners and Raj Nandini Estates Pvt. Ltd is the marketing partner.

Developers like M3M Ltd, Ambience Group, Eros Group have used Interior Crafts’ services like railing, gates, canopy, staircase etc. However, this is the first time when the concept of assembling a house at the construction site has been witnessed.

Occupancy Certificate not mandatory for small builders in Hyderabad

Occupancy certificate will not be mandatory for buildings which come up on plots up to 100 square metres with height up to seven metres. The exemption is given to small builders as occupancy certificate (OC) is directly linked to electricity and water connections.

The amendments were incorporated in the new GO on Building Rules issued by the Municipal Administration and Urban Development (MA&UD) department on Saturday.

Also, civic bodies like Greater Hyderabad Municipal Corporation (GHMC), which releases building permissions, should communicate the approval or refusal of occupancy certificate within 15 days. If any officer fails to communicate, the civic body could initiate action against the officer. The GO said occupancy certificate might be issued to owners after collecting compounding fees, if there are any minor violations and deviations from the sanctioned plan.

For high-rise buildings, the OC should be released by the civic body after inspection and getting fire ‘No Objection Certificate’ from the AP State Disaster Response and Fire Services department. Until now, the town planning wing used to give OC without fire NOC. Two buildings where fire accidents were reported recently found to be having OC sans fire NOC.

The MA&UD department has also prepared a pro forma for commencement notice, completion notice and occupancy certificate by giving more clarity. The pro forma have been prepared so that a civic body could also receive them online.

Environmental impact assessment provisions have also been incorporated in the new buildings rules. As per the GO, buildings and construction projects that come up in 20,000 sq metres area and 1,50,000 sq metres of built up area and township areas development projects covering an area of 50 hectares and or building up areas of above 1,50,000 sq metres should get environmental impact assessment.

Director of Town and Country Planning (DTCP) B Purushottam Reddy said awareness programmes and meetings would be conducted across the state soon for licenced architects, town planning staff on changes in the buildings rules, especially on setbacks and road widths.

Ghodbunder Road witnesses rapid development

Ghodbunder Road is a state highway (State Highway 42) road that runs through the Thane district. This 20 km long road, which connects the Eastern Express Highway and the Western Express Highway, is witnessing rapid pace of development.

More than 5 million sq ft is under construction, most of which is residential; besides the road is dotted by retail, commercial, institutional projects, in the pipeline. Schools, colleges, hospitals, banks are coming while some restaurants and entertainment hubs are about to start in malls.

Cosmos Group, Everest Group, Hiranandani Group of Companies, Kalpataru Group, Raheja Developers, Prescon Developers, among others are some of the reputed developers having presence in this location. These projects are not integrated townships but residential projects built on 5-10 acres. These projects are gated communities that offer amenities such as swimming pool, sports complex, children‘s play area, clubhouses and gymnasiums. Proximity to Sanjay Gandhi National Park is touted as a positive with adverts reading ‘enjoy an unrestricted view of the Wild Life Sanctuary from your apartment.’

According to market sources, the average unit capital values at Ghodbunder road is about Rs 5400 per sq ft. The values have gone up by 20% in the last one year from Rs 4,400 per sq ft in June 2011 to Rs 5,400 per sq ft. However, currently there is little investor-driven activity and the prices are stabilising.

Looking at the commercial side, Hyper City mall and R Mall are operational on Ghodbunder road. According to local broker Rakesh S. Shelke, “Retail is concentrated at Waghbil and it basically comprises of clothes, jewellers, kirana stores, sweet shops etc. Typically a 250 sq ft shop is available for Rs 30 lakh. There are some offices such as banks, call centres and the office value ranging from Rs 110-120 per sq ft, amongst these most of the offices are small in size for about 500 sq ft. Other important commercial buildings include Regalia and Hirnandani.”

Infrastructure development is also taking place at a rapid pace. This road being a state highway (which connects eastern and western corridor) has over 5000 trucks plying everyday during early morning and late evening hours. To ease the traffic considerably, flyovers which are coming up at Majiwada, Manpada, Kapurbawdi, and Waghbil. In fact, the Waghbil flyover has just been commissioned. There are buses plying every ten minutes to Borivali, Kalyan, Navi Mumbai.

Anatomy of Urban Investments in Mumbai

India’s growth story has many facets; one of the integral parts of growth – and arguably the most important one – is urbanization. In fast-growing economies, cities are significant investment and employment generators, which in turn carry the growth momentum forward. The sustainability and livability of any city depends largely on the quality of its infrastructure and real estate stocks. Needless to say, cities also require large sums of money to create urban asset stocks, including buildings and infrastructure.

Over last decade, India’s population grew by 18% while its urban population grew at almost double that rate (at 32%). Currently, about 31.2% of India’s population lives in urban areas. The country’s share of urban population has increased by almost 3.5% over the last decade. What is even more astounding is the increase in the built-up real estate stock in its cities and towns.

Data from the 2001 census shows that about 110 million ‘Census Houses’ exist in the urban areas, which indicates an increase of 39 million over the last 10 years. In other words, real estate stock shows a compounding growth of 4.5 % per annum as against the growth rate of 2.8% in urban population. Obviously, such massive growth needs adequate support from infrastructure.

However, the state of affairs with infrastructure in Indian cities is not very encouraging. Most of the cities still have to deal with issues in terms of roads, public transportation, sanitation, storm water drainage, solid waste management systems, etc. on a regular basis. With the volume of real estate stock increasing inexorably in the cities, there is an acute problem with the basic needs like energy and water in the store for urban India.

The private sector contributes most of the development of real estate stock; however, the responsibility of infrastructure development lies squarely with public sector entities such as ULBs and other utility companies – most of which are Government agencies. The investment pattern in our cities shows a similar trend – the private sector invests in the development of real estate stocks, while the public sector invests largely into infrastructure development.

The quantum of investments in most infrastructure projects is huge, and the agencies responsible for its development are seriously under-financed. They depend either on domestic grants like JNNURM or on intercalation financing involving bilateral and multilateral agencies.

In some instances, funds are mobilized from private sources in the form of Public Private Partnership. The private sector generally tends to shy away from investments into city-level infrastructure projects, as most of these projects are considered non-remunerative. They prefer to focus on investing into the development of real estate stock.

Mumbai – A Case Study

Mumbai, India’s financial capital, attracts massive investments – largely in the real estate sector. The city being the nation’s epitome of high real estate prices and land scarcity, huge sum of money keep chasing land in the city – while infrastructure augmentation lags behind. Way behind.

The opening up of FDI in real estate in 2005 opened the floodgate for investors vying for a share in the juicy pie that Mumbai real estate represents:

Prime Land Deals in Mumbai City Since 2005

Since 2005, there have been many record-breaking land transactions in Greater Mumbai – mostly from NTC mill lands and by MMRDA at Bandra Kurla Complex (BKC). Some of the aggressive land purchasers were IndiaBulls, Lodha Developers, Piramal Sunteck, Wadhwa and Peninsula Land Limited, among others.

A whopping Rs. 276 billion have been invested in land in Mumbai since 2005 – and this does not even include the confidential transactions and investments made into Slum Rehabilitation projects (SRA) and other redevelopment projects. The sum of the unaccounted transactions could possibly be another Rs. 100 billion in the same time period.

Patterns of Investment in Land Over Time

In terms of investment sizes and the total quantum of investment, South Mumbai leads the pack, followed by the Western zone – primarily because of land auctions at BKC. The East zone attracted the least investments – most of them into defunct industries along LBS Marg. Interestingly, CIDCO at Navi Mumbai has also been able to mobilize massive funds through the auction of plots at different nodes. The level of infrastructure, social amenities and economic activities has pushed up the real estate prices of Navi Mumbai – and they are still rising.

From a city-level perspective, it is important to understand whether the large volumes of investments in land have actually delivered a proportionate development of real estate stocks in the city:

Prime Residential Unit Launches

The data indicates that about 2.5 lakh dwelling units have been launched in Mumbai over the last five years. Some of this stock has been constructed and delivered, while part of it is still under construction or at the approvals stage. If, for the sake of an argument, we consider the entire stock of dwelling units and the average investment for the land component per dwelling unit, it works out to over a million rupees.

In other words, the direct beneficiaries of these real estate investments are, at best, about 2.5 lakh households (considering one family occupying one dwelling unit) or less than 10% of the city’s population.

On the other hand, if we look at the investments made in the city’s infrastructure (which aims to cater to 100% of the population) the situation is very different:

Prime Infra Projects in Mumbai since 2005

Total investment (crores)

Monorail

 2,716

36 Skywalks

 735

MUTP Phase II

 5,300

MUIP

 2,648

Extended MUIP

 1,550

Mumbai Metro – Versova-Andheri-Ghatkopar Corridor

 2,356

Total

 15,305

The data indicates that the quantum of investments in mega infrastructure projects amounts to only 60% of the investments made in prime land in the city, approximately in the same period. If we look at the present status of these infra projects, most of them are stuck in various bottlenecks and running abysmally behind schedule. One of the main reasons for this is inadequate funds arriving far too sporadically.

On a hypothetical note – had the authorities had the kind of money that the private sector invested in prime land, the city of Mumbai would have been transformed much faster.

Going forward, the funds requirement for infrastructure projects will increase further. Many mega projects which are extremely critical in terms of enhancing mobility, clearing up traffic congestion and thereby improving the overall quality of life in the city have been planned:

To be added

Total investment (crores)

MTHL

 8,800

Worli Haji Ali Sea Link

 1,120

Mumbai Metro – Charkop-Bandra-Mankhurd

 8,250

Mumbai Metro – Colaba-Bandra Corridor

 9,400

Total

 27,570

The city of Mumbai needs additional investments of about Rs. 275 billion in the infrastructure sector over the next five years if these projects are to be completed on schedule. This is equal to the amount that the city has buried in its land. The paradox of the situation is that, despite sitting on such massive money resources, Mumbai is unable to generate to fund its most essential requirements.

Much of the investments in land, particularly in South Mumbai, have actually remained non-yielding. The complexities of the Development Control rules, the approval process and policy flip-flops have virtually kept the supply side down for several months. Investors have not been able to fully monetize their investments, and the end users have faced spiraling price rises despite economic slowdowns.

This would be an apt time for the authorities and policy makers to focus on breaking this deadlock. The need of the hour is to view real estate and infrastructure development in Mumbai cohesively, not as isolated phenomena. There are enough ingredients for solutions available within the system.

IT corridors ideal for property investment in Hyderabad

Property market in Hyderabad is concentrated along IT corridors like Hi-Tech City, Kondapur and Gachibowli. All categories of housing have been active in the city – multi-storey apartments, houses and villas. According to market sources, despite Telangana issue, demand has remained constant for both domestic and international property buyers. In some areas like Gachibowli and Hi-Tech City, demand for villas matches multi-storey apartments demand.

Infrastructure development like the International Airport, completion of the Outer Ring Road (ORR), about 30 radial roads, MMTS, metro, procurement of water from Krishna and Godavari rivers, etc are all attracting global MNCs and investors to start their operations in Hyderabad.

According to G Yoganand, CMD, Manjeera Group, “The city has witnessed second highest occupancy of IT spaces in India during last one year. Hence, this is the best time for property buyers because Hyderabad may witness property boom in the mid-term. IT Corridor is the best place for investment. The mode depends on the budget. A plot in a good location is always the best but you will not get loan.”

IT corridor areas like Gachibowli, Kondapur, Madhapur, Nallagandla, Nanakram Guda, Kokapet, APPA junction, Hi-Tech City are ideal for investment.

According to MagicBricks.com, Hi-Tech City has seen an increase of 17% in values of multi-storey apartments in the Jan-Mar quarter this year compared to Oct-Dec quarter in 2011.

When talking about where the maximum demand is coming from, Yoganand added that Hyderabad has investors from across the country. “Even now, many people from Andhra region are buying and they are not worried about Telengana. Whether Telangana or no Telengana, Hyderabad is the best place in India to invest for better appreciation. Hyderabad has the best infrastructure, cosmopolitan culture, no language barrier, less pollution, better weather conditions, and better connectivity by road, rail and airways to all important cities of India. Prices are also reasonable,” he added.

Infrastructure is a key reason for the increase in demand in Hyderabad as well as for the rise in property values. A major infrastructure development has been the commencement of the Phase I of Metro covering Nagole and Gachibowli, market sources say. Rakesh Sudam of Earthwide Properties pointed out that infrastructure like the Phase I of Metro will affect localities like Nagole, Uppal and Gachibowli. “Values are already rising here and are expected to rise by 5 to 10% in the next 3 to 6 months,” Sudam said.