Announcing this at the ASSOCHAM National Conclave on Threat Before Real Estate Sector – What are Solutions? held here today, Housing & Urban Development Adviser in Planning Commission, Mr. Harish Chandra also informed that the Cabinet Secretary has already convened a meeting of all States to seek solutions to revive stressed sectors including that of real estate, without specifying the date for the meeting. He, however, added that the mid term appraisal of Planning Commission will now take place immediately after conclusion of forthcoming Parliamentary Polls.

The new schemes will be unfolded during the forthcoming mid-term appraisal exercise of the Planning Commission even at the cost of deficit financing for which the Commission will enter into series of consultation with industry association like ASSOCHAM, said Mr. Chandra.

According to him, in its recent exercises, the Planning Commission, the RBI and the Finance Ministry have jointly announced series of measures to rebuild confidence in Indian economy and many more such initiatives could also be announced by the Commission after concluding the proposed mid-term appraisal, hinting at further lowering of interest rates for affordable housing.

In the meanwhile, Chief Executive Officers of Omaxe Ltd., Raheja Developers, Pioneer Urban Land & Infrastructure, Jones Lang LaSalle Mehgraj that participated in ASSOCHAM organized conference on Real Estate sector, collectively raised their voice, opposing foreign direct investments in real estate sector.

CMD, Omaxe Ltd., Mr. Rohtas Goel who heads the ASSOCHAM Real Estate Committee said that FDI’s in real estate would neither increase supply and demand for affordable housing. Their entry into it will enhance and shoot up the prices of land and therefore, real estate FDI’s should be discouraged as this will pose a serious challenge to affordable housing.

He demanded that the present model on which real estate sector currently stands crippled, needs to be changed and sought that in its stimulus packages of Rs.40,000 crore for infrastructure development, Rs.10,000 crore should exclusively be allocated for real estate sector as subsidy so that affordable housing becomes a reality.

Mr. Goel said that he has decided to offer affordable housing to people for which the first site identified is that of Indore and subsequently this initiative will spread in other parts of the country like Chandigarh, Ludhiana, Jaipur etc.

Speaking on the occasion, Mr. Navin Raheja, Managing Director, Raheja Developers and Sr. Member of ASSOCHAM Real Estate Committee also opposed FDI’s entry into real estate as it would lead to shooting up of land prices and hardly provide for affordable housing.

According to him, the real estate which is currently under stressed would come out of it in next 2-3 months as developers would have to build houses for all stake holders to stay and survive in the business.

Among others who spoke on the occasion demanding another Stimulus package for real estate sector include ASSOCHAM Secretary General, Mr. D S Rawat, Ex-CMD HUDCO, Dr. P S Rana, Mr. Pankaj Renjhen, Managing Director- North India, Jones Lang LaSalle Mehraj, Mr. Kuldip Chawla, Vice President, Red Fort Cappital and Mr. Shashikant Arora, President, Association of Certified Realtors of India.

The data on a crucial part of the index of industrial production showed the growth of six sectors – crude oil, petroleum refining, coal, electricity, cement and finished steel – was 5.1% for September this year over the same month last year. These sectors constitute a little more than a quarter of the weight of the IIP but these being vital inputs for other industries, the weakening of their growth momentum seems to indicate a more widespread slowdown.

To what extent that fear is well-founded should become clearer when the aggregate IIP data is released next week, but there is anecdotal evidence to support the fear. In recent weeks, there have been reports of units of even large corporates having to temporarily shut down due to inventories piling up.

The government has recently disputed such interpretations based on IIP data, arguing that the index with 1993-94 as its base year is too out of sync with the current reality to reflect the actual health of the economy. However, both central excise and direct taxes have shown a downward spiral in the first six months of this fiscal, making it difficult to argue that IIP data is an aberration.

On Thursday, the finance ministry had released its direct tax figures where real estate, infrastructure, cement, automobiles, power, textiles and downstream oil companies were shown as sectors that witnessed a slowdown in growth. The advance tax collections from these sectors had the sharpest falls. Even the September figures for central excise, a pointer to the health of the domestic industry, showed a negative growth of 3.8%.

Joint secretary in the finance ministry KP Krishnan said government is likely to revisit norms for VC funds and talks have already been held with the market regulator SEBI towards this end.

Efforts are also on to create a legal framework so that venture fund investments should not land in a few sectors only and equitable distribution takes place. The government is specifically worried about huge fund inflow in sectors like real estate, which has affected investments in other hi-tech sectors like software and biotechnology. At the same time, it has led to appreciation in the prices of real estate in the country.

Government, it is learnt, is considering to give some new tax incentives to venture funds and PE funds to invest in high-risk areas.

Venture funds invest in the equities of high growth companies to earn hefty returns. At present, foreign funds have an advantage over their domestic counterparts under the existing tax system of the country.

Head of financial services at PWC India, Punit Shah said foreign VC funds are at an advantageous position against domestic ones, while investing other than nine hi-tech sectors like biotechnology, software and nano technology. Government gives tax sops (no capital gains tax on profit) to domestic funds if they invest in these nine sectors but not others.

But sectors like real estate is not included in this list. Therefore, when a domestic venture fund invests in an unlisted real estate company, he pays tax on the capital gains earned while exiting the company, Shah added.

But, foreign funds registered in tax heavens like Mauritius and Cyprus do not pay any tax on the capital gains earned such transaction because of the double tax avoidance treaty. The new initiative, according to Krishnan, would ensure that same tax rule apply on both foreign and domestic VC, PE funds to achieve a level-playing field. Besides, the move will also make the investments by these entities transparent. For this purpose, the government would like to redefine VC, PE and hedge funds.

On its part, SEBI will make it mandatory to register VCs and PEs after compiling data about their investments in sectors like real estate, ITeS, education. SNI director TC Nair said that at present the market regulator has no definite source about the exact investments of PEs and VCs.

The finance ministry view could pave way for the launch of new investment avenues for small investors keen to tap the real estate sector’s growth potential. The doubts raised by RBI added to the hesitation in REMF launches.

Highlighting that the scheme allowed NRIs and FIIs to invest in real estate sector in conflict with the policy, the apex bank had asked finance ministry to intervene and take up the issue with Sebi.

The FDI policy prohibits investment in real estate but allows investment in construction and development sector with conditions like a three-year lockin , minimum capitalization of five million dollar for a wholly-owned subsidiary and ten million dollar for joint ventures, and development of at least ten hectares. The government had allowed 100% FDI in the construction and development sector on the automatic route in 2005 under the Press Note 2 issued that year.

In the reply to RBI, the ministry has stated that investment through REMFs could be allowed as there was no linkage between the investments made by a fund and its investors . REMF investors only own units in the fund and don’t drive its investments decisions on assets. Moreover, Sebi has prescribed several restrictions on investments by REMFs, government sources said.

The concerns expressed by RBI with regard to construction projects (as per Press Note 2, 2005) also did not hold much water as FII investment in pre-initial public offer are treated as FDI and face a three-year lockin , they said. There was no case for restricting NRIs investing in REMFs as they had been exempted from conditions applicable to FDI in the real estate sector.

“It is UPA government’s policy to provide housing to the weaker sections of the society, and non-compliance will result in tough action from the government. Builders cannot go against the National Housing and Habitat Policy, which has made mandatory for them to set aside at least 10% for EWS construction,” a senior housing ministry official said.

According to the policy, at least 15% of land in housing projects or 20% floor area ratio (FAR), whichever is greater, has to be reserved for EWS/ LIG (low income group) housing. The Center has taken seriously to instances in states such as Karnataka, Delhi and UP where builders have flouted EWS norms. Therefore, it has directed states to enforce the reservation strictly.

According to officials, city municipal authorities would not permit developers to advertise their buildings or flats if the building plan does not have accommodation for poor. Apart from EWS allocation, necessary building bye-laws and lay-out clearances by registered architects have to be in place before the builders can advertise their properties.

Apart from pursuing the mandatory EWS housing, the ministry has also asked the finance ministry to direct nationalized banks to lend EWS families funds at lower rates to buy houses. The ministry has said the poor should be charged 5% below the prevalent market rate.