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India Budget 2014: Slum Rehabilitation won't be part of CSR for co, says HDIL
Giving a CSR status for slum redevelopment programmes and pass-through status to REITs, are two major
announcements by the finance minister that will strongly help in the revival of the real estate sector. Thats the word
coming in from Hariprakash Pandey, Vice President (Finance) of HDIL.
He believes plan to incentivise development of low cost housing, raising of income tax exemption limit, deduction of
interest on self occupied properties, allocation of Rs 8,000 crore for National Housing Bank programme for development
of rural houses, will create a favourable environment that will boost affordable housing in the country.
Below is a verbatim transcript of Hariprakash Pandeys interview to CNBC-TV18s Latha Venkatesh and Sonia
Shenoy
Sonia: I want to ask you about the statement of slum development that will be added in companys mandatory
corporate-social responsibility (CSR) activity. How will that benefit a company like yours?
A: We need more clarity on this whether it also includes the rehabilitation. Our understanding is that in terms of -- if they
really want to do slum development and that is where this statement comes on then it has to include rehabilitation. We
have seen in past that a lot of large corporates, multinational companies, were keen to be a part of slum rehabilitation
process.
So if that includes rehabilitation also, which our understanding is that it should to make a meaningful difference then it
should be a positive for company.
Latha: Our discussion with lawyers indicated that CSR contribution should always be made to charitable
organisations, trusts or made through them. So in that case since an SRA for a real estate company is always a
profitable venture with some social benefit also being accruing to the society, the legal position was that it will not
qualify. Could you check with any of the lawyers?
A: The slum rehabilitation for HDIL will not be a CSR activity because this is a normal course of business for us. So the
CSR guidelines is very clear that the normal course of business cannot be -- so even though we do a slum, it should not
be for us.
Now, the question here is that, let us say any of the large corporates or any of the large institution wants to do a slum
rehabilitation or slum development, which is allowable as per CSR, can they work with company like us and appoint us as
an implementation agency because in CSR policy, they have mentioned that there should be an implementing agency
which could be a developer.
Latha: How will that benefit your P&L?
A: How that will benefit the P&L needs to be checked in terms of clarity because a large corporate wants to do any
construction of schools, colleges, they always give a contract to any of the agencies. So that agency will not work on CSR.
They will work on a cost plus margin basis. But we need more clarity on this as of now.
Yesterday, only a one line has come in the Budget. So we need more clarity on this.
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Sonia: What about the other things that were announced be it REITs, FDI in smart cities etc, affordable housing,
anything that benefits company like yours? Will your interest cost go down this year itself?
A: I think those are the bigger positives for us because we have a very large segment of affordable housing with us
especially in Vasai-Virar area. So the steps, which have been taken by the government in terms of relaxation of FDI norms
for low cost housing, are positive.
Also the FDI norms benefit some of our city centre projects because the area requirement has been reduced from 50,000
sq mt to 20,000 sq mt so lot more projects are now eligible for FDI.
In terms of the overall interest cost, for customers, there has been a relaxation in terms of the interest rates, which they
used to take for affordable housing especially if the ticket size of the loan was less than 20 lakh. Now because they have
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also increased the home loan deduction from one and half lakh to two lakh, this should help the apartment size where the
ticket price was around Rs 3-4 million and wherein we have a very large segment in Vasai-Virar and Palghar including
Navi Mumbai. So I think that will be positive for the company and that should help to pick up a growth in those areas.
Sonia: Out of your total portfolio, how much comes in from the Vasai-Virar affordable housing project?
A: I think as of now we have around close to 60 percent of our land bank in those areas and if you look at couple of large
projects, which we want to launch after monsoon, which includes 500 acre township development for which we have got
all the approvals in Virar where the ticket size is around close to Rs 3 million. I think those projects will get benefited
because of the relaxation in the home loan interest deduction. Also they have increased the benefit of 80C, which also
includes the principal component of home loan. So these are some of the steps because as of now 80C also included
within one lakh the principle repayment of home loan. So if they have increased that that will also benefit the customer.
Latha: Because of this FDI money and possibly before the year is out, you are being able to raise money through REITs,
do you expect that in the second half your interest cost could go down?
A: I think interest cost is going down because we have also been able to reduce our debt. So over a period of last one year,
we have brought down our debt by around 25 percent. So the interest cost is going down. However, REITs is something
which will bring long-term capital for the company at substantial lower cost and the bank funding. But I think REITs will take
some more time, there needs to be more clarity in terms of a framework but it is a positive step.
Yes, FDI will help because a lot of city centre projects, which were less than 50,000 sq meter built up area, -- which were
viable for private equity and FDI investors to look in from a return point of view -- will see a light of the day and lot of interest
will come from private equity investor and FDI investor for city centre projects.
Sonia: Did you get any clarity on this REITs tax deduction, is there any exemption on the capital gains on transfer of the
SPV to REITs or is it only on that double taxation of dividend distribution tax (DDT) and corporate tax?
A: As of now there is not much of a clarity. I think there were two major concerns. One is the transfer of properties into an
SPV. That is the property tax component. That is a state subject so there we need a clarity that one time transfer of property
into an SPV, how is that going to be taken care of. So I think that is a bigger thing because if they want all the properties to
be hold by the SPV under REITs then there needs to be a lot of shifting of commercial assets into an SPV properties and
how will that impact because the property tax rates are very high.
Latha: That will be different states taking a different view, is it?
A: I think that is something where clarity needs to come in terms of structure. That is what I had said that the framework of
REITs needs to be very clear in terms of how do we transfer the property. In terms of rest of the taxation of direct tax, there
is some clarity that in the hands of REITs holder, it will not be taxed. On a corporate level tax and on a dividend distribution
tax, it will be similar to some of the mutual funds which are there.
Sonia: Based on the Budget would you expect higher revenues and higher profits in FY15 or do you still hold on to the
guidance that you spoke to us about last?
A: I think this Budget has created a very macro framework. It is positive for real estate because if you look at last four-five
years, this is one Budget which has given a lot of policy thrust to sector in terms of relaxation of FDI norms or creating a
framework for long-term capital in form of REITs or giving more money to NHBs, putting allocation for smart cities.
So on a macro basis, this is positive for real estate, whether it will impact earnings this year would be difficult to say as of
now. But as I said couple of our projects, which are on the outskirts of cities should be a benefit of this in terms of picking
up of demand.