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Demonetisation was blessing for realty sector, RERA and GST will clean it up

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By Vinod Behl 

Though the government’s radical measure of demonetisation has disrupted the economy and has hit the real estate sector — already reeling under prolonged slowdown — it will turn out to be a blessing in disguise in the medium-to-long term.

As an asset class, real estate has been a big source of generating and consuming black money. The cash component in real estate has been there at various levels, beginning with land transactions where it amounts to 30-50 per cent. The cash payout is quite high in luxury housing too. The consumption of cash has been as high as 30 per cent in secondary market transactions.

The primary market transactions, however, are by far bereft of cash component as home purchases are financed through loans from banks and housing finance corporations. It is another matter that even in primary market deals, developers have been encouraging cash payouts by luring property buyers with good discounts on property price.

The speculative buying by investors through offerings like underwriting and pre-launches has also been involving cash payout, leading to artificial price hike and in turn making homes out of the reach of masses.

Demonetisation, coupled with the government’s move to check benami transactions through legislation and curbs on cash transactions, was meant to clean up the system.

This sudden ‘shake up’ was, however, not without its adverse impacts. Demonetisation badly affected the liquidity in the capital-intensive real estate sector, deepening the problem of massive fund shortage/cash crunch faced by developers reeling under delayed deliveries, which deterred buyers from purchasing property.

The impact was more evident in markets like NCR and Mumbai which were largely investor-driven, compared to southern markets of Bengaluru and Chennai and even Pune in the west, which have been end-user driven. The premium/luxury residential segment, in which the cash component was more in transactions, got impacted by demonetisation.

Real estate experts’ belief that the impact of demonetisation is only short-term and will not have long-term impact, stems from the fact that developers who have been following transparent and fair practices have not been affected by demonetisation and instead it worked out to their advantage.

This also turned out to be a positive development for big global real estate consultants like JLL India which doubled its profits in 2016 over 2014-15, with 60 per cent revenue growth.

One key positive impact of demonetisation and RERA (Real Estate Regulation Act) has been that speculative investors deserted real estate and end-users/genuine buyers, who were all these years pushed to the sidelines, came out in large numbers. Now, it is the property consumers who are driving the real estate market, especially residential market, aided by the government’s pro-industry and pro-consumer initiatives.

The step to promote affordable housing and according real estate industry status for the purpose of making easy and cheap funds available to the sector also helps.

Demonetisation has particularly boosted foreign funding. The transparency brought in by demonetisation, aided by RERA, GST reforms and liberalisation of FDI norms, has boosted the confidence of foreign investors, which is clearly evident from the spurt in foreign investments, particularly from pension funds.

This will inject much needed liquidity in the sector starved of funds. Targeting consumers, the government under the Pradhan Mantri Awas Yojana (PMAY), is providing substantial interest subsidy to home buyers. The clampdown on floating cash in the system has contributed significantly to curbing inflation which, in turn, helped RBI in cutting interest rates, thereby boosting home buying.

The proposed measures to liberalise FSI norms and rationalise stamp duty, will give further fillip to the residential sector, particularly affordable housing.

Demonetisation had a salutary impact on property prices by curbing cash transactions and checking speculative pricing, in turn increasing affordability, which is a key to achieve the government’s flagship mission of ‘Housing for All’. RERA & GST are further aiding demonetisation to control prices.

The key provisions in RERA, to speed up project completion, by checking diversion of funds through mandatory escrow account, stringent penalties to check project delays, together with the government’s move to make all building sanctions online, will go a long way in checking time and cost overruns of real estate projects, thereby controlling home prices.

The ban on pre-launching of projects under RERA will also check artificial spurt in pricing. GST has come to tackle the flow of cash in the purchase of building materials by introducing input credit tax. Further, the government’s plans to liberalise FSI norms, especially for affordable homes, and rationalising stamp duty will have a sobering effect on property prices.

But for some little lingering effect, economists and real estate experts believe that the overall downside impact of demonetisation has faded and its impact is not going to be there in the next quarter.

Says Ashwinder Singh, formerly CEO of JLL India & now CEO of leading real estate consultancy, Anarock Consultants: “Other than in terms of the initial confusion-induced decline in sentiment, the trend that is emerging now, points towards a recovery in buying sentiment with serious buyers already returning to primary markets.”

The entire demonetisation exercise undertaken by the government and aided by other reforms, like Benami Property Act, RERA and GST, is to be looked at in the backdrop of the government’s multi-pronged policy to create institutional and regulatory framework for speedy and steady growth of the economy. And at the centre of all these initiatives is real estate, which is a key contributor to GDP. Going forward, these policy initiatives will help make real estate more organised, transparent, credible and affordable, making the sector investor and consumer friendly.

IANS

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Key Indian equity market indices open in green

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Mumbai, Dec 13: Taking a cue from global markets, the key Indian equity market indices opened higher on Thursday.

The Sensitive Index (Sensex) of the BSE, which had closed at 35,779.07 points on Wednesday, opened higher at 36,024.88 points.

Minutes into trading, it was quoting at 35,979.33 points, up by 200.26 points, or 0.56 per cent.

At the National Stock Exchange (NSE), the broader 51-scrip Nifty, which had closed at 10,737.60 points on Wednesday, was quoting at 10,807.40 points, up by 69.80 points or 0.65 per cent.

Buying at lower levels and hopes of an easing monitory policy with the appointment of Shaktikanta Das as the new Reserve Bank of India (RBI) Governor, pushed the key equity indices up.

The Sensex was up by 629.06 points or 1.79 per cent at the Wednesday’s closing. In the day’s trade, the barometer 30-scrip sensitive index had touched a high of 35,826.58 points and a low of 35,167.47 points. The Nifty, too, was up by 188.45 points or 1.79 per cent.

On Thursday, Asian indices were showing a positive trend. Japan’s Nikkei 225 was quoting in green, up by 1.13 per cent while Hang Seng was up by 1.43 per cent, South Korea’s Kospi was also up by 0.97 per cent. China’s Shanghai Composite index was trading in green, up by 1.50 per cent.

Overnight, Nasdaq closed in green, up by 0.95 per cent while FTSE 100 was also up by 1.08 percent at the closing on Wednesday.

IANS

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RBI is accountable, government runs country: Shaktikanta Das

On the issue of RBI’s reserves, he said a committee to examine it would be constituted shortly and then with the appointment of its Chairman, the terms of reference of the committee would be drawn with fixed timelines.

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Shaktikanta Das

Mumbai, Dec 12 : Declaring that he will uphold the “autonomy, integrity and credibility” of the RBI, newly-appointed Governor Shaktikanta Das said on Wednesday that the government is responsible for running the country and the central bank is also accountable.

Briefing reporters here after taking charge as the 25th Governor of the Reserve Bank of India (RBI), Das said that consultations with stakeholders have become fundamental to the central bank’s functioning in view of the complexity of modern day decision-making, and as part of this process he would meet the heads of the Mumbai-based state-run banks on Thursday.

Meetings with public sector banks outside Mumbai would follow “after some days”, he added.

“The RBI is a great institution and I will try my best to uphold its autonomy, identity and values. The autonomy, integrity and credibility is very important for this great institution and it will remain intact,” he assured.

In response to queries on the recent government-RBI tiff culminating in the resignation of Urjit Patel as Governor, Das refused to go into contentious issues.

“I do not like to go into whatever the issues or what are the issues between government which runs the country and the RBI, but every institution has to have its professional integrity, maintain its professional autonomy. At the same time, every institution also must adhere to the principles of accountability,” he said.

“Government is not just a stakeholder but I mean the government of the day runs the economy, runs the country and manages major policy decisions.

“There has to be a free, fair, objective and very frank discussion between the government and the RBI. And, I believe that all issues, however contentious, can be resolved through discussions,” he added.

Das, who holds post graduation degree in history from the Delhi University, unlike his predecessors Urjit Patel and Raghuram Rajan, who were economists of repute, said the RBI board meeting would be held on Friday (December 14) as scheduled.

“We will hold the central board meeting as planned on December 14 and go through the agenda and discuss the various issues that are listed,” he said.

Das took charge as the RBI Governor a day after Urjit Patel resigned amidst a tiff with the Central government on the issue of RBI’s autonomy. Das had steered the monetary situation post-demonetisation as the Economic Affairs Secretary.

On the issue of RBI’s reserves, he said a committee to examine it would be constituted shortly and then with the appointment of its Chairman, the terms of reference of the committee would be drawn with fixed timelines.

Das said he does not want to discuss individual issues as he intends to settle down first and study the issues before taking any decision. On capital requirement in the economy, he said he is open to discussing all issues within the ambit of RBI.

“After the amendment of the RBI Act, the inflation targeting continues to be very important and it’s very heartening to note that inflation broadly is as per the targets and inflation outlook also looks fairly benign at this stage, but we have to be very watchful of the developments,” he said.

Health of public sector banks, liquidity issue and maintenance of growth trajectory of Indian economy are some of the important issues for which he would interact with stakeholders and get an internal feedback before taking a view on these, he said.

Unlike his immediate predecessor Patel, who the government officials alleged had little stakeholder consultations, Das said consultation with all stakeholders always adds value to understanding and his top priority is the banking sector.

“To begin with, I have convened a meeting with the MDs and CEOs of the public sector banks based in Mumbai tomorrow. Banking is an important segment of our economy and is currently facing several challenges which are of critical importance and they need to be dealt with.”

He will follow it up with similar consultations with the state-run banks from outside Mumbai and still later with the chiefs of private sector banks to understand the issues relating to them.

“This is a general consultation. There is no fixed agenda,” he said denying that RBI’s Prompt Corrective Action (PCA) framework, a measure to check banks’ financial health, would be discussed. Currently, 11 out of 21 public sector banks are barred from lending.

Looking forward to working with the officers and staff of the RBI, Das said he always found RBI officers possessing inherent core competence and professionalism to deal with any technical issue.

“I will work as a team with other officials here (RBI) in the best interest of the economy,” he said. Das is a retired 1980-batch IAS officer from Tamil Nadu cadre.

Immediately prior to his current assignment, Das was acting as 15th Finance Commission member and G-20 Sherpa of India. In last 38 years, Das held important positions in Central and state governments in areas of finance, taxation, industries and infrastructure.

IANS

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November retail inflation falls to 2.3%, October IIP up over 8%

Similarly, the output of consumer non-durables rose during October by 7.9 per cent, and that of consumer durables by 17.6 per cent.

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New Delhi, Dec 12 : Lower food prices eased India’s November retail inflation rate to 2.33 per cent from 3.38 per cent in the previous month, while higher manufacturing boosted industrial output growth in October to 8.1 per cent, an official data showed on Wednesday, even as India Inc. welcomed the double bonanza for the economy.

On a year-on-year (YoY) basis, the Consumer Price Index (CPI), or retail inflation, fall was even sharper as compared to 4.88 per cent registered in November 2017.

Central Statistics Office (CSO) showed that the Consumer Food Price Index (CFPI) deflated further to (-) 2.61 per cent in November from (-) 0.86 per cent in October 2018.

Product-wise, prices of milk-based products, meat and fish rose during the month under review on a YoY basis.

In contrast, deflation in the cost of eggs, vegetables, pulses and sugar helped lower the overall food price index.

On a sub-category basis, vegetable prices reduced on YoY basis in November by (-) 15.59 per cent.

“Pulses and products” became cheaper by (-) 9.22 per cent and that of “sugar and confectionery” by (-) 9.02 per cent.

Food and beverages during the month under consideration recorded a fall of (-) 1.69 per cent over the same period last year.

Among non-food categories, the “fuel and light” segment’s inflation rate accelerated to 7.39 per cent in November.

Higher production in the manufacturing sector, especially of capital goods and consumer durables, accelerated India’s industrial output growth to 8.1 per cent in October from a rise of 4.46 per cent in September and 1.8 per cent during the corresponding period of the previous fiscal.

“The cumulative growth for the period April-October 2018 over the corresponding period of the previous year stands at 5.6 per cent,” the ‘Quick Estimates’ of IIP released by the Ministry of Statistics and Programme Implementation showed.

On a YoY (year-on-year) basis, the manufacturing sector’s output expanded at 7.9 per cent, while mining production edged-up by 7 per cent and the sub-index of electricity generation increased by 10.8 per cent.

The output of primary goods, which has the highest weightage of 34.04, grew by 6 per cent. The output of intermediate goods, which has the second highest weightage, inched up by 1.8 per cent.

Similarly, the output of consumer non-durables rose during October by 7.9 per cent, and that of consumer durables by 17.6 per cent.

Infrastructure or construction goods’ output increased by 8.7 per cent and capital goods by 16.8 per cent.

Commenting on the numbers, Confederation of Indian Industry (CII) Director General Chandrajit Banerjee said in a statement: “The impressive rise of industrial output, which has bounced back sharply to record a growth of 8.1 per cent in October is noteworthy and augers well for the narrative of economic strengthening, going forward. The uptick in manufacturing growth also shows the second half has started off on a positive note.”

“High double digit growth in capital goods at 16.8 per cent in October 2018 is an indication of strengthening investment demand in the economy. Demand in the economy, especially in rural India, is reviving as consumer durables grew at the rate of 17.6 per cent in the month of October 2018.

“Going ahead, decline in international crude oil prices and stability in rupee scenario is expected to further strengthen the macro-economic environment in the economy,” said PHD Chamber President Rajeev Talwar.

IANS

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