Government Passes Land Acquisition Bill In Lok Sabha

Anuj Puri picAnuj Puri, Chairman & Country Head, JLL India

The Central Government managed to get the amended Land Acquisition Bill passed in Lok Sabha. The ruling dispensation enjoys brute majority in the Lok Sabha and hence had no problem getting the Bill passed through it. This Bill is an amended version of the original Bill introduced and passed in 2013 by the previous government.

Due to a long-standing demand from industry to relax some provisions which made land acquisition difficult, expensive and time-consuming and thus harming industrial growth, the ruling party brought in some changes by the means of an ordinance. Normally, any ordinance has to be brought to the parliament within six months of it being issued to be passed again by the Parliament to make it a law.

The new Bill introduced and passed in the Lok Sabha had nine additional amendments or concessions, plus two additional clauses made by the government to appease its allies and the opposition to some extent to gain some consensus before introducing it in the Rajya Sabha. The amendments made are:

  1. Limiting the industrial corridor to 1 km on both sides of highways and railway lines. This is limited to industrial corridors being set up by the government only.
  2. Employment for at least one member of farm labour families which are affected due to displacement and land acquisition
  3. Removal of exemption from consent clause extended earlier to five sectors has been taken away from social infrastructure projects under PPP model. SIA will be conducted for such projects also.
  4. Acquisition to be of bare minimum land
  5. Survey to be undertaken of wastelands
  6. Hassle-free grievance redressal to be undertaken at district level and creation of a quasi-judicial authority
  7. Social Impact Assessment has been made a prerogative for the state governments
  8. States can create land banks of vacant land for development projects

The changes above are in addition to the earlier amendments moved through an ordinance where the government had added five sectors (defence, rural infra, affordable housing, industrial corridors, infra and social infra projects including PPP) to a list that would not require owners’ consent while acquiring land as well as exempted them from submitting a social impact assessment (SIA) and removal of restriction on acquisition of multi-crop lands for these sectors. The last social infra projects including PP have been removed from the exemption list.

The changes above have managed to appease the allies to some extent, but questions remain whether the opposition is willing to relent as most of them walked out during the vote in the Lok Sabha. In the Rajya Sabha however it is a different story as the ruling NDA does not enjoy a majority there and where the amended Bill is likely to be defeated by an united opposition. The earlier changes or removal of consent clause has been termed anti-farmer, though they are definitely industry-friendly, while removal of SIA will save costs and time both. The main point is that the process should be fair to both farmers as well as the industry.

The government has the option to either pass the bill in a joint sitting of the two houses where it will have the requisite numbers to get it passed in case it gets rejected in the Rajya Sabha or it will have to re-promulgate the ordinance again to give itself breathing space. There is also the option of setting up a parliamentary panel and referring the bill to it, though it is likely to delay passage of the bill by a further six to eight month period.

 

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JLL is top real estate investment advisory firm in Asia Pacific for fourth year running

Latest data from Real Capital Analytics (RCA) shows JLL’s Asia Pacific capital markets team advised on the most deals by value in the region in 2014

SINGAPORE, 10 March 2015 – JLL Asia Pacific is the number one real estate investment advisory team in the region for the fourth year running, according to recently released independent data from Real Capital Analytics (RCA). JLL, which has been ranked in overall first place in Asia Pacific since RCA began releasing data in 2011, also emerged as regional leaders in the office and hotel sectors.

In 2014, JLL’s capital markets team advised on USD $16.1 billion of real estate investment transactions in Asia Pacific, which equates to a 26.4 percent market share in the region.

Stuart Crow, Head of Asia Pacific Capital Markets at JLL, said: “The Asia Pacific region is growing rapidly and global investors continue to seek real estate assets to strengthen their investment portfolios. Demand for Asian real estate continues to be focussed on the larger markets in the region and across a range of sectors, particularly those driven by the Asian consumer, and JLL ranked particularly well in the office and hotel sectors.

“JLL’s unique regional platform continues to support this demand from investors and we’re thrilled to, once again, be recognised as the number one real estate advisory service in the world’s fastest growing region. This year is set to be equally successful with a very strong start to 2015 and I look forward to maintaining our leading position in the RCA rankings for the fifth consecutive year.”

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

JLL has over 50 years of experience in Asia Pacific, with over 28,00 employees operating in 80 offices in 16 countries across the region. The firm was named ‘Best Property Consultancy’ in seven Asia Pacific countries at the International Property Awards Asia Pacific 2014, and won nine Asia Pacific awards in the Euromoney Real Estate Awards 2013. www.jll.com/asiapacific

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Food Courts And Fine Dining In Malls: Eating Out Is ‘In’

Shubhranshu PaniShubhranshu Pani, Regional Director – Retail Services, JLL India

Food and beverages have evolved from being retail’s poor cousin to being the sector with the dominating edge. F&B and eating out as a concept in India has undergone a post liberalisation sea change – from once a month, the number of times young Indians and their families eat out has risen to as much as once or even twice a week. Indians are also more amenable to experimenting with various cuisines and have developed ‘global palates’. On the heels of these changes in mid-set and demand, F&B in malls is no longer restricted to fast food options but now also encompass fine foods and multi-cuisine options under a single roof.

  • The Business Proposition Of Food Courts

Food is a major footfall driver, and food courts give single customers and entire families the option of partaking of a variegated choice of cuisine. As such, they are often a primary reason for people to visit malls in the first place. Since they are usually on the top floor, customers are required to pass all floors below to access them. This increases the opportunities for impulse shopping. Food courts also boost overall sales because they offer panoramic views of what is available at the lower levels, thereby raising aspirational levels. By virtue of being open format, a food court is able to meet entire families’ tastes simultaneously, with price points that are a draw for all categories of mall visitors.

Food court space is usually immediately absorbed in malls. Many visitors now see malls primarily as a repository of cost-effective multi-cuisine food and entertainment. In other words, food courts (along with multiplexes) represent a completely separate set of retail with its own dedicated clientele. The conversion rate in food courts is always extremely high, since they generate multiple sales simultaneously. This is not the case in conventional retail outlets.

Food courts are universal revenue generators. No matter how badly a mall is doing, food courts will pull crowds on their own steam. For this reason, there is no likelihood of rentals for food courts increasing. Along with anchors, these represent the factor that brings in assured footfalls, and no mall owner would risk making food court occupancy less tenable and attractive by increasing rentals.

  • Achieving The Right F&B Equation In Malls

How food courts are positioned in malls depends on the format in question. Sometimes, entire floors are dedicated to food outlets because they are such big draws. In luxury malls, the accent on food is highly exclusive, subdued and status-oriented, so a food court is less viable than a carefully calibrated selection of fine dining restaurants.

Ideally, mall operators should aim at achieving a ratio of at least 15% or higher for food courts in context with the entire development. With the pressure on retail because of the onslaught of online shopping, food and entertainment are going to increase in their role as foot fall drivers in shopping centres.

Typical food courts in India are between 15000-25000 sq. ft., with a majority of them averaging at 15000 sq. ft. A proper food court needs to have at least 13-15 kiosks and food counters in order to be viable. Because of FSI constraints and the cost of real estate, food courts in India have been limited to this size, which is the bare minimum required by a food court in a decent sized mall with good footfalls.

Food courts are typically leased, either to a single food court operator or to various counter operators, with the mall managing the overall food court. The rentals in the food court segment are usually stabilised and based on what the operators can afford to pay. In some cases, food court space may be sold for a lump-sum, with the price based on the occupied square footage. Common area maintenance charges for food courts are higher than for other retailers, since the CAM costs encompass common seating and air-conditioning, which are added and apportioned on the food court counters.

Some malls charge a higher proportion of revenue towards food court rentals, and this invariably results in a reduction in margins and consequently reduction in quality of the operators. As a rule, this needs to be avoided. Mall developers should also make sure that the quality of food being turned out in their food courts is checked, monitored and maintained to highest standards of quality and hygiene to ensure that the food court performs and attracts well.

  • Hitting The High Notes With Fine Dining

As a vital sub-category of food retail in malls, fine-dining restaurants offer a controlled operating environment atmosphere and provide parking, which is a very essential factor to any retailing establishment’s success. Also, because they are juxtaposed with other and often lower-grade eating establishments, they offer the opportunity of displaying a visible degree of class differentiation. Mall developers consider fine-dining restaurants very important to their overall tenant mix because they help the establishment to attain a degree of exclusiveness and give customers a more holistic experience.

Over the last couple of years, fine dining restaurants have been on the rise in India, and many operators are coming up with novel concepts. The upwardly mobile Indian customer has lapped it all up, and there is a significant increase in interest by mall operators to include fine dining options. There is a lot of space for more brands in the ecosystem, and this market is bound to grow astronomically over the next 3-5 years.

  • Where Indian F&B Still Falls Short

India still lacks the depth of F&B operators and categories seen in other countries. The quality of operators – and their ability to expand, given the crunch in funding and manpower – continues to be a challenge. The period between 2012–‘14 saw a boost in the funding environment, but Indian F&B still has a long way to go but in terms of operation and management. Also, though the eating-out trend in India has grown, it has not yet matched the levels seen in South Asia, Europe and the US.

A fairly large ongoing issue in the Indian F&B industry arises from the multiplicity of licences that is needed to operate a restaurant or food court. Operation timings are another major hindrance – many cities restrict time of operation to 11.30 PM, and this seriously restricts the ability of F&B operators to cater to customers, resulting in lower rotations.

Encouragingly, some of the more proactive state governments are now looking at increasing the time to 1.30 PM. Apart from taking into account the evolving needs of Indian consumers, such policy-level initiatives will boost to the profitability of operators by as much as 25-30%, and this also will favourably impact their ability to pay their dues to the government exchequer.

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Project Delays, Project Deviations And Other Customer Woes

Anuj Puri picAnuj Puri, Chairman & Country Head, JLL India

Reams of newsprint have been dedicated to discussing the sufferings of consumers in the Indian real estate sector. Particularly, homebuyers’ woes related to late delivery of projects, deviation of housing projects from promised quality, additional payments due to change in apartment area and inadequate protection of their rights have been well-documented.

The question that invariably arises is whether the developer is at fault, or whether larger market forces beyond the control of developers are at play.

Construction Delays – By Developer or By Approval Authority?

Technically speaking, the time consumed in obtaining all approvals adds to the total time expended in completing the project. Any approval which is needed between the launch to the actual start of construction up till handover of the apartments to the buyer will be an additional time factor. Delays here will cause cascading delays in delivering the project as per the promised time.

Before a project is officially launched in the market and offered to buyers, there are myriad approvals that a developer needs to obtain from the state and central agencies and ministries. In any business, the longer raw material is held, the higher is the holding cost – which, in addition to interest costs in case of borrowed funds, causes an increase in the overall price of the finished product.

This analogy, when extrapolated to the real estate sector, considers land as the basic raw material for real estate development, with construction materials being the variable costs. The longer a developer has to hold his land without getting any receipts through the sale of proposed apartments, the higher his project costs escalate.

This can, in fact, be a very costly proposition all around. In the current scenario, obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders already have to cover external and internal development charges, license costs and often charges for change of land use from various departments, which have also risen. Cost of construction has gone up by more than 50%, as well.

However, this is only one side of the picture. Many developers intentionally undertake a slower pace of construction if sales in their project are sluggish or a larger part of the project is unsold. They may have diverted a sizeable chunk of the revenue generated from pre-launch sales to another project, or utilized it to pay off a pressing bank debt. At other times, the authorities can be blamed for not granting timely projects approvals.

Project Quality And Deviations

A major concern has been the difference in the promised quality and actual delivery status of the apartment, which remains a concern for real estate buyers. A change in the apartment area after buying from the developer can occur if a change in project plan is necessitated due to a design or approval issue. A deviation of up to 10% is usually acceptable – for a higher deviation, a customer must definitely seek legal recourse. That said, project deviations can also happen because of structural deficiencies of the overall system, wherein rules are being made by the governing authorities in a reactive manner rather than on a proactive basis.

There are readily recallable examples of how abrupt changes in regulations governing real estate development can work against both developers and buyers. The revisions made in the DCR regulations in the Mumbai Metropolitan Region a couple of years ago caught the industry unawares, and added to development costs by about 15%. This included the fungible premium payable if the builder opted to take the additional 35% FSI option. These cumulatively accounted for a 20% hike in construction cost. This move has led to an increased pressure on the developers’ margin – which, in turn, resulted in price increases across most projects in MMR.

The fact that developers had to re-work their project specifications (upcoming as well as on-going unapproved projects) resulted in significant project delays. The result was an exacerbation of the cash-crunch on developers, and an outcry from their buyers.

This is not to say that developers do not tamper with overall project quality or make arbitrary changes in their project designs with a clear intent to maximize profit. By pinching off space from designated open spaces, children’s play areas, compound perimeters and guest parking areas in an originally approved plan, an unscrupulous developer can make a limited plot yield more saleable space.

Recourse For Consumers

Regardless of what causes delays or abrupt changes in project blueprints, consumers must be able to get justice. Many examples of customers obtaining favourable decisions upon approaching consumer courts exist, and the power of these forums should not be under-estimated. However, the larger and less wholesome truth is that the current legal dispensation is ill-equipped and under-regulated to offer complete consumers protection in matters related to real estate.

The Real Estate Regulation and Development Bill – long languishing on the policy drawing board and still under consideration by the government – was intended to offer vastly enhanced protection to buyers. However, after the most recent revisions to RERA, it seems that it will in fact now be less protective towards buyers. While the bill aimed at providing an alternate redressal mechanism, the new provisions are talking of no recourse to other consumer forums. This can, in fact, lead to pressure on this regulatory body in terms of an increased log of cases, though it will reduce instances of multiplicity of suits.

Consumers should be aware that a certain degree of due diligence and awareness about their rights can protect them against unscrupulous practices by developers. In the first place, due attention should be paid at the time of drafting the sale agreement. A property buyer should fully understand the contents, if necessary with the help of a lawyer, and make a clear note of what the developer has agreed to deliver.

Developer’s sales team will usually present a buyer with a ready-made agreement format, and a buyer must ensure that this captures every relevant detail. If it does not, the buyer is fully entitled to ask for missing details to be included, and potential grey areas to be clarified. A copy of the final agreement must be retained under any circumstances, as this will serve as the primary evidence in a legal action filed for agreement violations.

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India Real Estate’s Analysis Of Budget 2015-‘16

Anuj Puri picAnuj Puri, Chairman & Country Head, JLL India

In this year’s budget, the Finance Minister has conveyed a message wherein the benefits lie only in the fine print. For the common man, though the cumulative savings implied by various provisions are stated to be to the tune of Rs. 4.44 lakh, this is assuming a certain magnitude of personal investments into pension funds and health insurance.

The budget has not provided any additional relief via increased income tax deduction limit or on repayment of housing loans. The regime on these fronts which was announced during the previous budget from eight months ago remains unchanged. This is a disappointment, since there was expectation that the Finance Minister would further increase either or both of these limits and thereby address the reality of high property prices in India.

The budget is low on big bang reforms and real estate is only an indirect beneficiary at best:

  •  Smart Cities: The budget did not provide any details on this initiative taken by the Government. Factors such how it will define these cities and which cities have been identified remain unclear. However, increased allocations for rail-road development, penetration of education and training centres and towards the Digital India initiative could contribute to the shaping of Smart Cities in the country.
  •  GST: The Finance Minister has announced that GST will commence from the next financial year and has increased service tax and central excise duty as a preparatory measure for its deployment. This puts an end to the speculation on when GST would finally become a reality.
  •  REITs: The Finance Minister has said that he proposes to rationalise the capital gains regime for REITs, but has not given any specifics. This could mean that the sponsor of a REIT may get a one-time capital exemption in exchange for units, but this needs to be confirmed.
  • Wealth Tax: Wealth tax has been eliminated and a new Super Rich tax has been put in place. Thus, instead of valuing personal assets (including property of individuals), the government has decided to do away with that process and introduce a Super Rich Tax that simply levies an additional 2% surcharge on incomes of those individuals earning INR 1 crore and above. This is positive on two front, firstly, with the previous applicability limit of INR 30 lakhs, practically every urban households came under the ambit of wealth tax, and secondly, simplifies the tax structure and collection mechanism.
  •  Transparency: Incentivising usage of wired money rather than cash transactions has significant pertinence to real estate, which is one sector where cash transactions have been impacting transparency. Another boost to transparency in the real estate sector is the enhanced punitive measures which will now be taken on concealment of assets, including benami properties.
  •  Visa on Arrival: The visa on arrival program has been increased to cover 150 countries from the previous 43, which will lead to a huge step forward for tourism in India. This is a huge plus for hospitality real estate and will also significantly amplify destination retail in the country.
  • Alternative Investment Funds: The government will allow foreign investment in Alternative Investment Funds (AIFs), a category of pooled-in investment vehicles for real estate, private equity and hedge funds. AIFs are funds established or incorporated in India for the purpose of pooling in capital from Indian investors for investing as per a pre-decided policy.

 

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