SEBI Panning New set of Rules for Alternative Investment

Entities promising hefty returns to gullible investors from ‘offbeat’ avenues like art, antiques and real estate may soon come under the scanner of Sebi, which is framing a new set of rules for ‘alternative investments’. These alternative or offbeat investments are generally offered by wealth or portfolio managers in schemes focused on real estate, art works, antiques and even coins and stamps. India currently classifies most of these schemes as ‘collective investment schemes’, which are regulated by Sebi, but a need has been felt to have a separate set of regulations for ‘alternative investments’. With a view to safeguard investors from falling prey to dubious schemes of portfolio managers, Sebi will soon come out with a separate set of guidelines for alternative investments.

The issue was discussed at Sebi’s board meeting last evening, after which Chairman U K Sinha said the regulator would frame regulations to govern alternative investments and portfolio wealth managers. Globally, alternative investments are quite in vogue among rich investors, who are estimated to allocate 5-10 per cent of their investment portfolio on these products. As per the annual World Wealth Report of Cap Gemini and Merrill Lynch Wealth Management, alternative investments are expected to account for nearly 9 per cent of high net-worth individuals’ financial assets in 2011.

These investments used to account for as much as 10 per cent of HNIs’ financial assets in 2006, but had fallen to as low as 6 per cent by 2009 due to the economic slowdown. While Sinha did not disclose what kind of alternative investments would fall under the new regulations, such schemes generally include those investing in art works, antiques, coins and stamps, as well as a host of other instruments other than popular avenues like stocks, commodities and derivatives. At times, these schemes offer hybrid products, which target both traditional and alternative investments. Sebi regulates investments in stocks, mutual funds, debt securities, derivatives and mutual funds, among others, while there is a separate regulator for commodities.

However, India does not have separate regulations for alternative investments, which could include all investment avenues other than traditional ones like stocks, commodities, debt securities, derivatives and mutual funds. In the recent past, there has been a mushrooming of portfolio managers offering schemes designed for investing in avenues other than traditional products like stocks and commodities, given the volatility in these markets. However, investors are exposed to a high level of risk in the absence of any clear rules for ‘alternative investments’. The new rules would also apply to the estimated USD 1 trillion wealth management industry.

Rise in lending rate leads to low value property deals

The third hike in repo rates by the Reserve Bank of India since May this year is driving buyers to go for properties with lower price tag. As per figures compiled by the office of the inspector-general of registrations (IGR), 1,98,206 property registration documents were processed in April 2011 which earned the state a revenue of Rs 985.47 crore. In contrast, the office processed 2,11,388 documents in May, but the revenue dipped to Rs 781.48 crore. This drop could be attributed to decrease in spending capacity of the buyer who has been forced to pay more interest following the Reserve Bank of India’s decision to revise repo rates on May 3.

June reported slight rise in revenue collection, but it was still lower than the April figures. The IGR processed 1,86,196 property documents adding Rs 846.25 crore to the exchequer. “These figures are still being verified,” said inspector general of registration and controller of stamps S Chockalingam. “The situation is not very bad, as last year the department had set a revenue target of Rs 10,000 crore but the actual earning in financial year 2010-11 was Rs 14,099 crore. The target was achieved by December 2010 itself. The government has taken decisions to control inflation, but after a certain extent, property deals will take place,” said Chockalingam.

Satish Magar, Pune-Maharashtra president of Confederation of Real Estate Developers of India (Credai) said, “The government on one hand promotes affordable housing schemes and on the other hand increases interest on home loans. This shows the contradictory nature of the Union government’s stance. Real estate is the second largest employment generating sector, which will be hit by the decision to increase repo rate. Out of total price of a flat, some 36% amount goes as tax to the government. What purpose government and RBI are serving by increasing repo rate, which always has a negative impact on the market? How can inflation be controlled by increasing interest rates of home loans?” Magar also said that such decisions are badly affecting the middle class, which is the largest segment in the country.

According to Mukund Abhyankar, former chairman of Cosmos Cooperative Bank, “Since March 2010, the RBI is increasing repo rates regularly which has badly affected property deals. The dip in the revenue in May this year indicates how it has affected the property markets in the state.” “The increase in the repo rate has direct impact on flat buyers who are looking for flats with the size of one bedroom-hall-kitchen or two-BHK, but of a smaller size. Generally, these flats cost around Rs 50 lakh in Pune city. These are the customers, who are going to suffer a lot as their schedule of repayment will be affected. There are more customers in this category than the high-value flat category, who are anyway going to make their investments. So the rising repo rates do not have any bearing on them,” Abhyankar said.

On the implications of the decision of RBI, he said, “There is no coordination between the Union government and the RBI over measures for controlling inflation. The repo rate was increased to control the spending for which RBI withdrew money from the market. But the Union government spends thousands of crores on various subsidies and grants which ultimately enters the market and dilutes the repo rate increase decisions. There are other ways to control the inflation, but neither the RBI nor union government are implementing them for some unknown reasons.”

Send Your Comments on Newly Drafted Land Acquisition Bill to Government

The Union Government has brought Draft Land Acquisition and Resettlement and Rehabilitation (LARR) Bill, 2011 in public domain for pre-legislative consultative process. Now the Government is inviting suggestions/comments on the draft bill from the stakeholders including general public, farmers, land owners, builders, developers, real estate professionals, property consultants, rural and urban experts etc.

You can download the copy of the draft bill from here in English and Hindi.

You can send your comments directly to the Ministry of Rural Development, Government of India.

Alternatively, you can write your specific comments to NIREM. We will in turn edit and summarize all the comments and will send across to the Ministry of Rural Development for necessary action. You can mail your views to nirem.india@yahoo.com Please mention Comments for Land Acquisition Bill in the subject line of the mail. Please send your comments till 25^th August, 2011.

Property in NCR may Get Dearer

NCR real estate may get costlier The draft Land Acquisition and Resettlement and Rehabilitation Bill, 2011 will have a direct impact on real estate prices in Delhi and neighbouring Gurgaon, Faridabad and Noida — if it becomes law. The bill’s proposals that no irrigated and multi-crop land can be acquired and compensation must be much higher than present will impact land prices in Noida, Gurgaon and Faridabad, making it more expensive. A Noida authority source said, “Since most of the land in this belt is irrigated, if this draft becomes law, there will be scarcity of land for housing and other commercial projects.”

Since the government will have to pay a minimum two times the market price for any land to be acquired, this will also have a domino effect on land bought by private builders. There is already a dispute in the Greater Noida area over compensation, which has put several thousand housing units in limbo. Gurgaon and other Haryana towns are likely to be less affected. The state government has already kept itself away from any acquisition for private projects. The builders deal with the farmers directly. But if the bill becomes law, increased compensation — and a likely shortage in Noida — could hike prices here as well.

In Delhi, senior Delhi Development Authority (DDA) officials said they have a sufficient land bank for development projects. DDA sources said Delhi Masterplan 2021 envisaged the creation of a land pool by builders themselves for all future housing projects. But former DDA officials pointed out that the authority will have to work out a plan to get one-third of land required for roads, social infrastructure like police stations and physical infrastructure like waterline, drainage and solid waste management.

Money into Property Asia Pacific 2011: Engine of World Growth

Recently, DTZ launched its latest Money into Property research that also covers results and analysis from DTZ Fair Value Index™. The report also covers major issues facing the real estate industry globally and Asia Pacific. The main findings of Money into Property 2011 are:

Global: 

• 2010 was a turnaround year, as global stock and volumes returned to growth

• But, the big opportunity in property is now behind us, forcing investors to become more selective going forward

• The solid funding environment supports DTZ’s forecast of a continuation of the two-speed recovery.

Asia Pacific:

• Asia Pacific (APAC) property markets had another great year in 2010 with growth in invested stock and record investment volumes. In fact, APAC has been the engine for a return to growth in global markets.

• APAC showed 14% growth in contrast with no growth in the US and European stock, illustrating the two-speed global recovery. As a result, global stock increased by 3.4% in 2010 after a 3.0% decline in 2009, in fixed US dollar terms.

• Within APAC, we also saw a two-speed recovery, as China grew by 22% while Japan declined by 4%, in local currencies. Both countries now have invested stock in excess of US$1 trillion.

• For the first time, APAC passed Europe to become the most actively traded region, as volumes more than doubled in 2010. On the back of record APAC volumes, global transactions rebounded by 76%.

• Despite last year’s strong growth, most APAC markets remain attractive across property types in both developed and developing countries.

• This attractiveness is evident from the DTZ Fair Value Index^TM (FVI) score of 65 for APAC. Well over 80% of markets remain at or above fair value, with 45% HOT and 37% WARM. The Hong Kong markets are a notable exception and rated COLD.

• In contrast, the big opportunity in property globally is behind us. The global FVI score of 50 implies that property is broadly at fair value across the markets.

China and India

• China and India’s growth way out in front: The developing markets of China and India have led the growth rates in invested stock in Asia Pacific over the last decade. But each market remains at opposite ends of the invested stock size spectrum. China’s invested stock topped US$1 trillion in 2010, with India’s stock at only US$38 billion. This means that Indian growth rates are calculated from a low base and look very high.

• Opportunities exist across the region: The Indian and Chinese cities have great opportunities as these developing markets continue to benefit from both capital and rental growth.

Prospects

• Looking forward, we expect that in 2011 APAC will continue to perform well. Its invested stock is forecast to surpass the US by year-end 2011.

• Stock and capital value growth is supported by a strong in-place development pipeline, the increase in available equity and the lack of legacy debt issues in the region.

• Transaction volumes are expected to stay at record highs in APAC. But, its share of global volumes is projected to decline as US and European volumes continue to recover.

• Deleveraging is anticipated to continue globally. But gearing levels in APAC continue to rise from a low base, with China leading the way. Property companies and developers, particularly in China and Hong Kong, are circumventing restrictive lending policies by issuing property bonds. This type of innovation is expected to further APAC markets’ momentum, especially in developing countries.

• Investors are able to take advantage of market opportunities for some time to come. But, future re-pricing will render more markets COLD, joining Hong Kong and Taipei.

Read the complete report HERE.

Money into property is a flagship research report of TDZ for last 35 years. The report analyses invested stock and capital flows into real estate markets across the world including Asia-Pacific and measures the development and structure of the global investment market.