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Real Estate (Ashish Jagnani)
Budget 2011 Impact: Neutral
We believe the Union budget 2011 is largely neutral for the real estate sector.
Key highlights from the budget are:
Interest subvention of 1% available on housing loan extended to loan below
Rs1.5mn (vs. Rs1mn previously) with property value up to Rs2.5mn (vs.
Rs2m earlier);
Investment linked deduction (100% deduction allowed for expenditure of
capital nature, excluding land) for businesses developing affordable housing
and slum re-development projects notified by the Central/State governments.
Though, there is still more clarity awaited from tax authorities on this.
SEZ developers were brought under the minimum alternate tax (MAT) of
18.5% (vs. nil taxes earlier). While this would be partially offset by lower
corporate surcharge from 7.5% to 5% - the overall tax liability could increase
marginally.
Provision for tax credit on input services of ‘commercial/complex
construction’ up to 40% of service tax paid on full value of construction
contract services after availing CENVAT credit on inputs.
Based on our conversation with various developers, we do not foresee the
budget having a material impact. That said, steps to encourage affordable
housing demand and address CENVAT credit issues on service tax paid on
construction contract is positive, while widening the MAT net to SEZs is
negative.
Stock impact - HDIL a likely beneficiary from investment linked deduction on
slum projects; while DLF likely to be negatively impacted due to MAT levied
on SEZs, though lower surcharge may offset some of this.
Sector View
The sector has strongly underperformed the index by 20-40% over the last 3
months on back of negative news flow of rising inflation, interest rates,
tightening liquidity and ongoing scam investigations. While news flow may
remain an overhang on near-term performance, absolute downside appears
limited as most concerns seem priced in. Further, with the budget continuing to
guide for a stronger macro GDP growth of ~9%, we believe compelling
valuations of 60% disc to NAV and 1.5x P/BV outweigh risks.
With fundamentals in much better shape than last credit crisis and valuations
disc similar to crisis period, we see property stocks offering attractive riskreward
opportunities over next 9-12mth.
Top picks
DLF in large caps, given its superior business model, strong rental portfolio
and track record; even though MAT on SEZ is sentiment negative.
Phoenix Mills in mid-caps, a resilient retail asset business model and strong
annuity profile; with prime assets across key cities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Real Estate (Ashish Jagnani)
Budget 2011 Impact: Neutral
We believe the Union budget 2011 is largely neutral for the real estate sector.
Key highlights from the budget are:
Interest subvention of 1% available on housing loan extended to loan below
Rs1.5mn (vs. Rs1mn previously) with property value up to Rs2.5mn (vs.
Rs2m earlier);
Investment linked deduction (100% deduction allowed for expenditure of
capital nature, excluding land) for businesses developing affordable housing
and slum re-development projects notified by the Central/State governments.
Though, there is still more clarity awaited from tax authorities on this.
SEZ developers were brought under the minimum alternate tax (MAT) of
18.5% (vs. nil taxes earlier). While this would be partially offset by lower
corporate surcharge from 7.5% to 5% - the overall tax liability could increase
marginally.
Provision for tax credit on input services of ‘commercial/complex
construction’ up to 40% of service tax paid on full value of construction
contract services after availing CENVAT credit on inputs.
Based on our conversation with various developers, we do not foresee the
budget having a material impact. That said, steps to encourage affordable
housing demand and address CENVAT credit issues on service tax paid on
construction contract is positive, while widening the MAT net to SEZs is
negative.
Stock impact - HDIL a likely beneficiary from investment linked deduction on
slum projects; while DLF likely to be negatively impacted due to MAT levied
on SEZs, though lower surcharge may offset some of this.
Sector View
The sector has strongly underperformed the index by 20-40% over the last 3
months on back of negative news flow of rising inflation, interest rates,
tightening liquidity and ongoing scam investigations. While news flow may
remain an overhang on near-term performance, absolute downside appears
limited as most concerns seem priced in. Further, with the budget continuing to
guide for a stronger macro GDP growth of ~9%, we believe compelling
valuations of 60% disc to NAV and 1.5x P/BV outweigh risks.
With fundamentals in much better shape than last credit crisis and valuations
disc similar to crisis period, we see property stocks offering attractive riskreward
opportunities over next 9-12mth.
Top picks
DLF in large caps, given its superior business model, strong rental portfolio
and track record; even though MAT on SEZ is sentiment negative.
Phoenix Mills in mid-caps, a resilient retail asset business model and strong
annuity profile; with prime assets across key cities.
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