5th May, 2010: Moneylife Foundation on Wednesday organised an interactive discussion on real estate titled ‘Real Estate: Trends, Issues & Consequences’ jointly conducted by industry experts Pranay Vakil, Chairman, Knight Frank (India) Pvt Ltd and Pankaj Kapoor, Managing Director, Liases Foras.
Speaking on the occasion, Pranay Vakil said, “One of the major reasons why the prices are high today is infrastructure. Nobody wants to travel long distances for work. Title insurance is another major issue in this industry.”
He also spoke on what he learnt from the short recession, “Liquidity is vital. Developers realised this when sales volumes declined drastically due to the liquidity crunch. The slowdown gave customers ample choice as affordable housing came into the industry in a big way. Investors are ‘fair-weather friends’, Sell ‘ready’ products during a slowdown; contracts can be broken; healthy growth can be sustained by a gradual increase in prices; high-value transactions hyped by the media are not the ‘real’ market and the need is to innovate sales strategy.”
Mr Kapoor said, “Are we heading towards another asset bubble? Are the prices affordable? What is wrong with the valuation and where is affordable housing? The government is responsible for hiking prices.”
He added, “We need a regulator for this industry to grow and curb wrong practices.”
The workshop saw participation from several investors, research analysts and industry experts. The event witnessed a healthy exchange of ideas between the participants.
Ms Kavita Hurry, CEO, ING Vysya Mutual Fund asked the speakers to highlight three major issues in the sector.
“Three most important things we need in real-estate as a priority are—rental housing, all over the world there is organised rental housing. Here you are left at the mercy of the broker who does not know anything. Secondly, infrastructure— the government cannot be a provider, it can be a facilitator. Thirdly, all these need funds, so get foreign parties excited about India,” said Mr Vakil.
Mr Kapoor said, “We need to address the congestion issue in the island city. If we move five buildings from the island city to Bandra, there will be a whole shift in the crowd. If we can shift Mantralaya, BSE or the Income-Tax office, there will be a difference. There are three-four magnets which draw the crowd there.
Everyone knows about it but there is no intension to do that because they are sitting in luxurious places. We need to add more connectivity. We need a complete master plan for Mumbai to reduce the congestion. We need a regulator, and urban planning.”
Other industry experts also voiced their opinion. Raymond Dastur, Vice President, real-estate, Shapoorji Pallonji said, “The government has to play an important role to facilitate housing which is affordable. We need the regulator who will facilitate the business.”
“FDI has already come into the city and we still have to see the results. There needs to be more transparency for FDI to flow into this country and more strict laws so that foreign players are also convinced while investing,” said Jesal Saghvi, executive vice president, Westbrook (India) Advisors Ltd.
The consensus among the audience was that there is a dire need for a citizen action forum to make higher authorities listen.
Pictures of the event
The glut of wine globally has affected many Indian farmers. Grape harvesters are now considering the option of either destroying their crop or selling their harvest at a much lower price
Throughout the world, there seems to be a glut of wine. On one side of the globe, in Australia, wine producers have been compelled to destroy nearly 40,000 hectares of vineyards, while in France, winemakers have turned their wines into ethanol. Even India’s wine-making pioneer, Indage Vintners, burnt its fingers when it tapped Australian and South African vineyards, leaving them severely leveraged.
Back home, the scenario is grim for Indian grape harvesters. A number of farmers are looking at destroying their crop, and a few are looking at selling their harvest at a much lower price than the market price.
“The supply and demand for grapes is the issue. The supply for grapes is abundant but there is no demand for them among winemakers,” says Violet D’souza, co-owner and managing director, Indus Wines.
Maharashtra’s grape cultivation has been steadily rising 10% every year, with currently over 3,000 acres under grape cultivation and making the State the largest contributor to the Rs 300-crore winery industry in the country.
Grape farmers are still awaiting their payments for their supplies to wineries last year. But what is even worse for these farmers this year is the fact that there are no buyers to buy their grapes. Wineries are not ready to buy the grapes due to the recession.
Many farmers have started selling their grapes to wineries on a credit basis in the hope of getting some cash in the future. Others have started selling their grapes at a price lower than the market price. “They are ready to do it because there are no takers and also they can’t be sold in the open market. The only ones, who can take their wines, are processors but they are not willing to do it,” says Nerraj Agarwal, head of agriculture, Sula Wines.
According to Ms D’souza, many farmers have given up hopes and are considering destroying their acres of land and cultivating new crops. “Nearly 40% to 50% of farmers have given up on their vineyards and switched over to other agriculture produce,” she said. Farmers are switching over from wine variety grapes to table variety grapes.
Farmers who have not signed any contracts with companies are the ones enduring the pains of the current scenario. “The very serious farmers will sustain and keep it going and the others might destroy their grapes,” said Ms D’souza.
Considering the circumstances Indage Vintners is facing, the only notable brand making its presence is Sula, which has been coming out with cheap and affordable wines. However, even Sula is suffering, according to a producer in the region whom Sula has approached to buy their grapes.
With the current state of affairs, state intervention seems to be a likely solution. “I have been told that some associations and farmers are planning to take these issues to the State government,” said a senior official from a major wine-making company.
That being said, this seems to be an error made by the government itself. Seduced by the promise of lucrative returns, mixed with glamour and agriculture, and added to the fact that some political heavyweights are involved in the industry, the government gave out incentives lavishly to the sector.
With concessions like zero excise duty, no stamp duty & registration fees, and concessional rates for land, the sector was expected to grow. The Maharashtra Industrial Development Corporation (MIDC) was appointed by the State as an agency to develop winery parks in Sangli and Nashik.
Retailing for wine became a lot easier when wine and beer licences were made available both for individual retailers and supermarkets. Then, just ahead of the State Assembly elections, the Congress-NCP government became more generous by reducing value added tax (VAT) to 4% from 25% on wine last October.
Out of the 58 wineries in the State, more than half have either shut down or stopped producing wine due to the glut in the market. In the last week of November when Moneylife had contacted Sula Wines, the winery still had over 40%-50% of its wine lying unsold in its tanks, while Indus Wines has around 90% of its wine still in its inventory. (http://www.moneylife.in/article/4/2543.html). The market for wine before 2007 was growing at 28%. Ever since 2008, the market has come down by 30%.
With the government set to garner more revenues than expected from the 3G and BWA auction and its disinvestment programme, it may be able to rein in the fiscal deficit to 5.5%, a level not seen after FY07
The robust response to the Indian government's plan to auction the 3G spectrum and broadband wireless access (BWA) and disinvestment is likely to help the government to rein in the rising fiscal deficit. India commenced the auction for 3G and BWA on 9th April and set itself a target of Rs35,000 crore as the spectrum licensing fees. On Wednesday, the provisional all-India 3G bid price reached Rs11,047 crore, an increase of 213% over the base price of Rs3,500 crore at the end of the 128th round. With no excess demand in any of the total 22 circles and the activity level set to reach 100% in round 132, the auction may end on Thursday itself. With the provisional figures, the government is set to garner a minimum of Rs45,000 crore as against its target of Rs35,000 crore. This is just from the 3G auction. With the 3G auction bid crossing Rs11,000 crore, the government may receive about Rs15,000 crore from the auction for BWA, which will begin in two days after the close of the 3G auction. In short, the government may earn about Rs60,000 crore from the 3G and BWA auctions alone.
Similarly, the government can earn about Rs40,000 crore by selling its stake in 10 more units this year including Indian Oil Corp (IOC), MMTC Ltd, Coal India Ltd, Steel Authority of India Ltd (SAIL), Rashtriya Ispat Nigam Ltd (RINL) and Shipping Corp of India Ltd (SCI).
According to a PTI report, Sidhartha Pradhan, joint secretary in the disinvestment ministry, had said, "Engineers India is likely to be disinvested in June; Coal India in August; Hindustan Copper in August-September; SAIL in September and Power Grid in November this year."
This would be followed by disinvestment in IOC and Manganese Ore India Ltd in December, RINL in January 2011, MMTC Ltd in February and SCI in March next year, he added.
The government expects to earn Rs40,000 crore by selling its stake in the State-run companies. During FY10, the government earned Rs25,000 crore by divesting its stake in Oil India Ltd, iron ore miner NMDC Ltd, Rural Electrification Corp Ltd (REC) and power producer NTPC Ltd.
Together, the government may earn Rs1 lakh crore, from the 3G+BWA auction and disinvestment. For FY11, the government needs to borrow about Rs4.57 lakh crore from the domestic markets to fund the fiscal deficit at a time when the credit needs from the private sector are rising.
During FY10, India's fiscal deficit that measures excess expenditure of the government over its revenues rose to 6.7% of gross domestic product (GDP). This was mainly due to the stimulus provided by the government to reduce the impact of the global slowdown. India has already started withdrawing the stimulus by increasing excise duty and duties on fuels.
Prime minister Dr Manmohan Singh, while speaking at the platinum jubilee celebrations of the Reserve Bank of India (RBI) in Mumbai had said, “We allowed a large increase in the fiscal deficit in the past two years as we responded to the global economic crisis. This must now be reversed. We are therefore, firmly committed to bring the economy back to a fiscally sustainable path. This involves a reduction in the fiscal deficit to 5.5% in 2010-11 from 6.8% of GDP in 2009-10 with a further reduction in the next two years reaching 4.1% in 2012-13.”
Dharmakirti Joshi, chief economist, CRISIL said," Divestment and 3G revenues are one time gain. To bring lasting fiscal benefits, the government will have to initiate steps such as decontrol of fuel prices, gradually withdraw stimulus and implement general sales tax (GST) as soon as possible."
Earlier, ratings agency Standard & Poor’s, while revising India’s outlook to ‘stable’ from ‘negative’, had said that the revision reflects its view that the country’s fiscal position could now begin to recover and the economy will remain on a strong path. S&P also affirmed 'BBB-' long term and 'A-3' short-term sovereign credit ratings on India. The ratings continue to be constrained by the high government debt burden and deficit, and India's weak fiscal profile, the ratings agency said.
“For the moment, the rub of the green seems to be going the government’s way: The ongoing 3G+BWA telecom auctions indicate that the government should be able to garner about Rs8,000 crore to Rs10,000 crore more than its target of Rs35,000 crore, which would help alleviate some of the resource crunch. Also, the IMD has forecast that the monsoon will be normal, helping tame food inflation which at present is at 17%,” said Enam Securities Pvt Ltd, in a note.
Inflation has remained a major concern for the RBI. The central bank, in its annual monetary policy review, hiked the repo, reverse repo and cash reserve ratio (CRR) by 25 basis points each. By increasing the key rates and CRR, the RBI has reinforced its stance of containing inflation and anchoring inflationary expectations.
"If government gets the resources from 3G and divestment as expected, fiscal deficit and hence government borrowings will remain within target. This will lower the pressure on government bond yields and make RBI's task of smoothly conducting government program easier," Mr Joshi added.
With the government set to garner more revenues than expected from the 3G and BWA auction and its disinvestment programme, it may be able to rein in the fiscal deficit to 5.5%, a level not seen after FY07.