Good morning, the best thing about Mondays is that irrespective of how good or bad the last week was, the day brings a brand new start. One that is full of hope, opportunities and rewards.
In the corporate world, deals of all kinds - from series x funding, IPOs and takeovers are making headlines, but all is not in the pink for real estate.
In today's Chai, we write about the sector's appeal for a GST review, India's ever increasing climate change mitigation cost and the global headline dominating Evergrande crisis.
Without much ado then…
No Money. Take Discount.
When this news of the company's runaway debt went viral, investors thronged the company’s Shenzhen headquarters late last week demanding money they’re owed from Evergrande.
With over 200k employees and 1,300+ developments across China, the firm is also facing angry mobs consisting disgruntled homebuyers and employees who fear that the Chinese housing market could now collapse, resulting is massive wealth erosion and an ensuing chaos.
Has This Ever Happened Before?
Some are seeing echoes of US bank Lehman Brothers’ bankruptcy 13 years ago, though that hasn’t happened yet. A different set of experts feel the comparisons to Lehman Brothers are hallucinatory in nature and that the Chinese government will probably step in to prevent Evergrande from triggering a free-for-all.
What Now?
Per this latest report, Evergrande, in a last minute effort to steer investors away from cash repayments, is offering deep discounts on its property assets.
😲 Investors, in lieu of the money owed to them can now invest in residential housing units at a 28% discount, offices at a 46% discount, and stores and parking units at 52%.
If cash is the need of the day, investors can choose to be repaid 10% of their principal and interest every quarter, with full repayment in two and a half years.
Four More Shots
Despite India's housing shortage, increase in construction costs coupled with an acute fund crunch are acting like wing clippers for the sector. While perfect days are a business myth, the sector hopes to reduce construction cost by getting GST rules amended in its favour.
Ease GST To Promote Sector
CREDAI's National President, in a recent press release reiterated that though there have been a number of amendments and tweaks to the GST regime by the government, the real estate sector hopes for more favourable measures to ensure growth for the sector and its stakeholders, primarily by reducing costs.
Four Core Asks
Residential Real Estate
Construction costs are at an all time high today not only due to the steep costs of raw material but also due to higher GST rates levied without providing for any Input Tax Credit (ITC) to developers.
Input tax credit in GST eliminates the cascading effect of taxation which was witnessed in the previous regime. Barring developers from availing ITC goes against the very notion of GST and this must be reviewed.
The ask is that developers be given an option to choose between 12% GST rate with ITC (Assessment scheme) or 5% GST rate without ITC (Composition Scheme).
Commercial Real Estate
Operational commercial properties are strong economic drivers and job creators for the country but currently, renting/ leasing attracts GST at 18%. However, input tax credit for construction (including renovation, repair, alteration etc.) is disallowed, breaking the seamless credit chain GST should enable.
Instead, the need today is for the government to ease the restrictions around availing this ITC to facilitate a more seamless credit flow.
Contract Services
Contract Services are currently divided into two categories - 18% GST is applied on non-governmental works contract services and only 12% GST applies on a work contract supplied to the government, a local authority or a governmental authority.
This dual rate should be standardised at 12% irrespective of the agency being served by the contract.
GST on Cement
Cement is being charged with 28% GST, the same rate as many luxury goods today. This needs a downward revision immediately.
Who Bears The Extra Cost Now?
No brainer. The home buyer/ end user of course, meaning passing on cost benefits to the consumer is a sure shot way to improve demand for property.
Business As Usual
Between 2016-2019, nearly a thousand homes in coastal areas of Kerala were partially or completely destroyed due to tidal attacks and extreme weather events linked to climate change.
Inclement Weather Ahead
Global warming is having its worst impact on Kerala as it is jammed between the Western Ghats on one side and the sea on the other.
This is is evident from the frequency of extreme weather events in recent years, starting with back-to-back droughts in 2015 and 2016, followed by the Ockhi cyclonic storm last year.
Per ocean weather watchers, the Arabian Sea and the Bay of Bengal are warming at a rate of 1.1 degree Celsius every 120 years, while other oceans are warming at a lower rate of 0.8-0.9 degree Celsius in the same period of time. This difference in temperature levels is leading to increasingly 'freaky weather'.
What About Coastal Dwellers?
Kerala Chief Minister Pinarayi Vijayan recently reported that INR 2,450 crore has been spent under the 'Punargeham' project to rehabilitate over 18,000 families living in coastal areas, where climate changes and tidal attacks pose a continuous threat to their lives.
As part of the Punargeham (meaning regenerate) project, 308 houses and 276 flats, in various districts of the state were handed over to fishermen families living on the state's coastline.
Affected families were committed INR 10 lakh each as part of the regeneration package, which included INR 6 lakh for purchasing land and INR 4 lakh for home construction.
The Way Ahead?
Thousands of crores MUST be spent regularly till the end of time by India's coastal states, to tide over the immediate risk posed by weather events resulting from global warming.
Tax payers, brace yourselves for impact please. This is not a one-off relocation anymore but on the contrary, the new norm.
- Without having any authority to do so, the Nagpur Municipal Corporation (NMC) regularised unauthorised layouts and plots, and sanctioned building plans under the Gunthewari Act for nearly 20 months.
- NBCC, tasked with delivering 38,159 flats by the erstwhile Amrapali Group by 2023, has auctioned unused floor area ratio (FAR) in the Princely Estate housing project at Sector 76, Noida for Rs 43 crore.
- The Rajasthan state assembly recently passed an amendment to the Registration Act (Rajasthan Amendment) 2021 by making a provision of registering tenants at the sub registrar office (SDO) to reduce the disputes between the owner and tenant. Stamp duty charges are INR 200 for properties valued up to INR 10 lakh.
- Reeling under a financial crisis, the Haryana Urban Development Authority is planning to monetise its unplanned and unused land. The development authority has identified such land parcels in sectors 9, 10 and 49 in Gurgaon and Sector 1 of Pataudi.
Wearables tech firm WHOOP's founder and CEO posted this image with a crisp note - ‘We left a message for Amazon etc on every 4.0 circuit board. Plus every engineers’ initials who built it. Competitors love to take hardware apart and look at various components. Figure this both saves them some time and celebrates our great WHOOP team’.
Stand by your work mates and be proud of all that they do this week. ❤
More swag tomorrow.
☕ The Crew@Ginger Chai