Jul 21
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the indian authorities

How Indian authorities, yet again, failed to make a difference in its NPA crisis approach?

By Banking No Comments

Indian authorities

The second wave of the COVID-19 pandemic ushered in an era of disintegrating companies, arduous acquisition battles, and heated arguments in courtrooms. While most companies struggled to stay afloat, those with deep pockets jumped onto the acquisition and organic growth bandwagon. A giant that swore by this mindset was the Piramal Group whose resolution plan for Rs 37,250 for debt-ridden Dewan Housing Finance Limited (DHFL) received a conditional nod from the Nation Company Law Tribunal (NCLT), which subsequently received pompous and overwhelming approval from 94% creditors.
Despite being one of India’s largest mortgage lenders, DHFL’s tainted history of unwise financial handlings led towards it being the first financial services company to be notified for insolvency resolution under Section 227 of the Insolvency and Bankruptcy Code, 2016 by the Reserve Bank of India. The case itself poses as an exception, as the corporate insolvency resolution process under the Insolvency and Bankruptcy Code by the Reserve Bank of India is not applicable to financial service providers or banks. Therefore, the government’s action for the insolvency proceedings of financial service providers to enable the insolvency process of DHFL, which had defaulted on payment obligations, comes across an exception to the Code.
The NPA crisis in India is an archaic evil eating into the mighty edifice of India’s banking sector. However, the government’s sheepishly reluctant attitude to deal with the burgeoning crisis is indeed one of the factors that have led to the digging of the grave of the mighty financial sector of India. Statistically, India’s bad debts amount to 11% of the total lending, whereas corporate bad debts constitute 56% of the total bad debts of nationalized banks.
With another financial unit succumbing to the NPA crisis owing to governance concerns and payment defaults, India’s financial monitoring framework is ripe for reform and to nurse its post-pandemic financial system to health. The official perspective seems to maintain that the government looked after the vulnerable small and midsize firms during the pandemic. This, according to the official authorities, has been done by guaranteeing fresh bank loans and mortgages under RBI. Consequently, this belligerent view has been supported by the low take-up rate for the RBI’s one-time restructuring offer. Given low consumer confidence and crippled economic growth due to partial lockdowns, the NPA crisis is doomed to materialize sooner or later. According to the authorities, the NPA crisis can be dealt with later but how exactly is the question? Given, the DHFL insolvency, the financial system is doomed to fail given its failure to combat the NPA crisis.
Papering over an economy-wide solvency problem by flooding the financial system with high liquidity is not only risky but also fatal for financial stability. It is to be noted, that the same strategy of incessant capitalization of the financial sector by the Indian authorities has time and again proved to be a concocted measure in vain, as NPAs of the financial sectors have never plummeted in recent history. Even if they have, it is due to the practice of writing off loans from the accounting books in order to clean the financial records of the organization. But it is also something that the monetary authorities want to continue indefinitely which does little to help the bankrupt organizations. Alternatives, however, in the case of India are scarce. This is due to the fact that India doesn’t have good tools to deal with insolvency. The 2016 bankruptcy law, had been reeling under the pressure even before the pandemic had struck. Liquidation, the outcome in most bankruptcy cases, has led to creditors recovering only 15%. This gross inefficiency can be scrutinized when compared with the global average of 80%.
Given all the detestable conditionalities against the government’s liquidity approach, the government extended the same regime to failing shadow banks. Dewan Housing Finance Corp., as aforementioned, is a mortgage lender whose controlling shareholders are currently in judicial custody on charges of accounting fraud and misappropriation of funds. Talking about the archaic process adopted by the Indian authorities to settle DHFL, has left the suitors groaning about how shabbily the process was being run. With how the acrimonious contest shaped up, it’s certain that when the buyers control the reins, it will have to go through a lengthy legal challenge and will turn out expensive for creditors.
Clearly, due to all the aforementioned reasons, the task at hand is much more than filling the hole left by the $2.5 billion alleged fraud by Dewan’s former owners. With the government’s pro spending budget and increase in expenditure due to the vaccination campaign, bankruptcy in the financial sector is likely to wreak havoc on monetary and political goals of the Indian authorities with the DHFL precedent.

Jul 21
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bad banks india

Bad Banks: India’s Pursuit to Mitigate Its NPA Crisis

By Banking No Comments

Understanding Bad banks and  NPA Crisis

With the banking sector crippling in the wake of COVID-19 induced depressionary forces, plans to place toxic assets in one or more bad banks have gained steam in recent weeks. Fundamentally, a Bad Bank purchases distressed assets from banks to eliminate toxic assets in their balance sheets and restore liquidity in the market. On account of the pandemic, India’s NPA crisis is all set to be exacerbated, where millions might not be able to uphold their end of the bargain.

Taking into consideration, the need to restructure the financial sector in India, Budget 2021-22 announced that the Centre will set up an ARC, commonly referred to as a bad bank, to resolve the issue.

Make no mistake, the Insolvency and Bankruptcy Code (IBC) and Asset Reconstruction Company (ARC) are two differentiable concepts. IBC aims toward the resolution and reorganization of insolvent companies, whereas ARCs are set up for clearing up NPAs. Thus, ARCs primarily deal with recovery, while the IBC seeks a resolution. Thus, ARC serves as a damage control policy rather than a damage prevention mechanism.

Given India’s deteriorating financial health, a preventive mechanism is the need of the hour. Given, Vijay Mallya’s felony to 17 banks, owing them 90 billion, which had sent shock waves throughout the market, Indian authorities should be cracking down on “bad boy billionaires” in order to restore financial discipline in the economy. Consequently, a preventive mechanism presents itself as an unadorned opportunity to usher India out of its bad bank crisis.

Shell companies, which are emphatically used by the corporate leaders to garb their revenues and clandestine corporate affairs, need to be rooted out from their core. The inefficiency to track such shell companies is what renders the government’s pursuit to counter defaulting banks, useless. It is to be noted that operating a shell company in India is not illegal.

With the shell company as a front, all transactions are shown on paper as legitimate business transactions, thereby turning black money into white. In this process, the business person also avoids paying tax on the laundered money.

It might come as a shock to many, but India does not have a concrete definition of shell companies. Shell companies are not defined in any law or act. This emphatically shows India’s reluctant attitude towards reviving its economy’s financial health. 

Have all the countries not defined shell companies in any law or act? No, the US has defined shell companies under their Securities Act. The US Securities Act defines shell companies as – “Securities Act Rule 405 and Exchange Act Rule 12b-2 define a Shell Company as a company, other than an asset-backed issuer, with no or nominal operations; and either: >no or nominal assets>assets consisting of cash and cash equivalents; or >assets consisting of any amount of cash and cash equivalents and nominal other assets.”

How ARCs or Bad banks won’t solve India’s burgeoning NPA problem?

It is no news that one of the worst victims of the ongoing economic crisis in India is the country’s already wounded financial sector. As per various reports, with businesses struggling to survive, bad loans are expected to rise, denting Indian banks’ health. But as a law of nature, someone’s loss is another’s gain. Here the only organization smelling opportunity is ARCs.

As can be expected, given the current state of the Indian economy, ARCs demand in India going forward is all set to rise as the economic slump will eventually lead to a surge in non-performing assets (NPAs).

Even the global players are smelling an opportunity. Canada-based asset management firm Brookfield is reportedly going to set up an ARC in India. But does that imply that ARCs are devoid of problems? Certainly not. The economic crisis, which provides them with a huge opportunity, has also adversely impacted their business of raising capital to recover money.

As aforementioned, raising capital for acquiring more assets is one of the biggest challenges faced by ARCs. Initially, ARCs had a fee-based business model. Banks had to pay ARCs a fee to handle their bad loans, but with the introduction of the 5:95 rule by the Reserve Bank of India (RBI), the easy business became difficult.

Under the 5:95 rule, if ARC was buying a stressed asset, it had to invest a minimum of 5% of the acquisition price. Later, the woes of ARCs were exacerbated under Raghuram Rajan, when this ratio was increased to 15%. This certainly led to ARCs having more skin in the game.

Secondly, given the current economic slump, ARCs’ probability to recover bad loans has plummeted adversely as people are unable to pay back their liability. The ability to pay has also been adversely impacted by the operational difficulties that are being faced by the borrowers due to the lockdown.

Thus, more time is being asked to repay their dues. Additionally, some of the asset sales, which were in the process of getting completed, have been postponed due to the pandemic. Similarly, IBC cases have been delayed as the National Company Law Tribunals (NCLTs) are not fully functional. Thus, raising capital for acquiring more assets is one of the biggest drawbacks and challenges for bad loans.

As the financial crisis continues, the need to remove troubled assets from financial institutions’ balance sheets has become critical. Confidence in our banking and the financial system requires confidence in our financial institutions and the ongoing reporting of losses and write-downs continuously hampers progress.

Therefore, it is imperative to see the situation as-is wherein ARCs and Bad Banks may provide incremental improvements but is unlikely to dramatically restore balance sheets. Indian financial structure additionally needs the option of restructuring stressed assets and IBC and a preventive measure to treat the root cause of the problem, which is segregation of troubled assets and timely risk management.

 

Tags: bad loan bank, bad loans, Bad banks, npa crisis, banks for bad credit, about bad bank

Jul 21
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affordable housing and middle class home buyers

Revival in Home Sales: Affordable Housing & Middle Class Buyers Hold The Key

By Real Estate No Comments

Affordable Housing & Middle Class Buyers Hold The Key

The overall gloom cast over the real estate industry on account of the COVID-19 pandemic has brought to light several unconventional methods to keep the dreams of homebuyers alive as developers strive to stay afloat. In fact, the pandemic has proven to give the necessary impetus and stimulus for people to invest.

India’s real estate market can be regarded as the second-highest employment generator in the country after agriculture. By 2025, this number is expected to rise, and the sector is predicted to account for 13% of the Indian economy. It could become a major wealth creator in the forthcoming decades, with the boom in the housing requirements; provided that all required reforms are executed in a timely manner.

Since the COVID-19 pandemic struck in March last year, just like several other industries, the construction sector was also badly hit by the nationwide lockdown. The unavailability of workers due to the migrant exodus, and disruption in the supply chain of materials all over the world, there resulted in many delayed projects and extended delivery dates. The plans of buyers to purchase homes were also postponed, fueled by this and by income contraction due to the pandemic.

However, the relaxation of the lockdown in the Second Quarter of FY21, resumption of economic activities, return of the migrant workers, and economic stimulus packages, gave the much-coveted push on its way towards recovery in 2021.

Currently, there exist numerous signs of recovery of the sector which could revive the industry at a slow but steady pace in the future. At the outset, with the unprecedented amount of time spent indoors for the sake of life safety, a multitude of alternatives have opened up for activities that would have normally been done offline i.e., online classes, professional and informal events, etc.

It is apparent that for a considerable amount of time, especially with the second wave of COVID, our lives are going to revolve around our houses for a considerable amount of time.

This paradigm shift has increased the importance of having real estate as an asset in one’s investment portfolio and has heightened the sense of security that owning a home brings. The ‘Work from Home’ culture has strongly contributed to this phenomenon as well. With home offices being the common trend, this phenomenon is predicted to pave the way for the ‘Work from anywhere’ trend. This holds especially true for cities and technology hubs across the country, such as Mumbai, Delhi, Pune, Bangalore, Hyderabad, etc.

From the legislative standpoint, with homebuyers gaining more and more confidence in the real estate facilitation and recovery mechanisms such as RERA, Insolvency and Bankruptcy Code, etc. the erstwhile issues surrounding possession and delivery and enforcement of the lack thereof, while still subsisting, don’t plague the potential investment in the avenues.

Moreover, the tax exemptions and caps being put in force by the Central government to lure investors into owning part of leisurely properties, i.e. fractional ownership incentives, is also an indicator of the dynamic nature of the real estate sector, with alternatives in force to ensure that sector in question does not succumb to market collapses.

In addition to this, government incentives are offered under the Zero GST scheme, i.e. nil-GST provisioning for pending and underway construction projects so as to not hamper the foundation of real estate projects. The Zero-GST scheme puts on a decent show of faith of the government and RBI in the potential of the real estate sector to yield handsomely in the upcoming years, therefore considering it essential to provide such a boost as it requires.

The erstwhile moratorium put in force by the RBI to protect personal loans has also gone a long way in securing their positions as credit-worthy loan-payers. The much sought-after relief has enabled the average taxpayers to be able to secure a position, amid the economic collapse, to be able to pay such mortgages, and loans. etc., in a fashion that doesn’t render them crippled financially.

These incentives put forward by the government are nothing short of unwavering dedication toward the revival of the real estate sector and its allied avenues. While these ventures might affect the central and state coffers in the short run, the economists and jurists of renown claim these incentives to be of the utmost urgency and prudence in order for the Indian economy to function as a whole again.

Therefore, it goes without saying that affordable housing and middle-class buyers hold the key to the revival of a sector losing its sheen due to tot the pandemic. Given the correct legal framework and taxation incentives, the recent boom should be further encouraged to revive the sector in view of the prevailing ‘Work from Home’ and ‘Work-action culture to gauge the much-needed buoyancy in the market. 

 

Tags: Affordable housing, home sales, affordable housing apartments, affordable housing development, low income housing, middle class home buyers, affordable homes

Jul 20
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the second wave

The Second Wave in Need of a Second Economic Stimulus

By Others No Comments

The Second Wave of Pandemic & Economic Stimulus

A second wave is creeping back in India and is poised to rage across the country through 2021. This wave constitutes an imminent threat to society, with a potentially immense toll in terms of human lives and catastrophic economic impact, exacerbating the financial woes of millions of Indians. With the peak of the second wave yet to come in the coming months, its impact on all spheres of life across the country could be of varying magnitudes.

In theory, the economy should be the last thing on one’s mind in the wake of such a crisis, however, this health crisis quickly snowballed into a catastrophic economic crisis. It goes without saying that our economic performance is largely dependent on the performance of the health sector and the inoculation programme. 

Some experts believe that businesses are better equipped to deal with the economic repercussions of the second wave. When evaluating the long-term impacts on the economy, it is predicted that the impact should be minimised due to government intervention through several steps to check production loss, especially by MSMEs.

Also, companies and consumers have rapidly adjusted to the new normal and the relationship between lower mobility and weak economic activity has been weakening over time, with data ultra-high frequency data for March and early April, released since the renewed lockdowns were announced, corroborating the same.

How did a health crisis translate to an economic crisis? Why did the spread of the coronavirus bring the global economy to its knees? The answer lies in two methods by which coronavirus stifled economic activities. First, the spread of the virus encouraged social distancing which led to the shutdown of financial markets, corporate offices, businesses and events.

Second, the exponential rate at which the virus was spreading, and the heightened uncertainty about how bad the situation could get, led to a flight to safety in consumption and investment among consumers, investors and international trade partners.

Despite fundamental aspects being in order the clutches of the pandemic remain uncharted to a large extent. As a result, many experts believe that the worst is yet to come. Interestingly, the economic decline itself has an adverse effect on health; a reduction in economic activity reduces the circulation of money and, with it, tax revenues.

This then results in a reduction of the finances available for the public-health countermeasures which are needed to control the pandemic. It also hits individuals and families, who may see their income plummet catastrophically and thus may not be able to afford the required healthcare. Depleting financial reserves may also make companies close, with consequences for their owners, employees, and suppliers.

In all obviousness, this setting would have developed very differently in a setting in which there is a workforce with access to free healthcare and income protection than in one in which much employment is casual and people must choose whether to go to work when ill or to starve. The increasingly integrated global economy increases the fragility of this situation. 

In order to tide over the second wave, an introduction of additional economic measures is imperative. As a result, such a stimulus must be tailor-made for the most impacted people and businesses. For instance, states with high COVID cases such as Maharashtra, NCR region, Tamil Nadu and Gujarat also account for nearly 45 per cent of employment in MSMEs and 41 per cent of overall MSME credit.

Notably, stringent lockdowns in the aforementioned states have pushed thousands of MSMEs on the brink of a closedown or have already shut down. In view of this, the Tamil Nadu government announced a special incentive package to promote MSME investments. Other pandemic-hit states should also follow suit and announce incentives for MSME investments to build supply chains under the Centre’s PLI scheme.

An adverse impact can be seen on retail loans disbursed by banks and NBFCs, wherein a large number of informal loans are disbursed by shadow financers. Hence, an economic package tailor-made for the needs of vendors and small ticket personal loans can be implemented by state governments in conjunction with RBI and the Centre.

In addition to this, the RBI window of one-time restructuring of MSME advances should be extended until 31 March 2022. It has been found that MSMEs benefited most from the Centre’s sovereign credit guarantee scheme and so a similar scheme should be announced by states to provide the much-needed liquidity shot to MSMEs.

Furthermore, Maharashtra temporarily reduced stamp duty on real estate to push the demand side upward leading to a marginal revival of the sector. A similar scheme can be announced by states which will revive the real estate sector—one of the largest employers of informal jobs. 

Measures and relaxations offered by the government can be magnanimous, but their effectiveness will be washed out if the inoculation programme remains sluggish. With international financial crises and recessions; unsustainable inequality in income, wealth and across regions; the climate emergency; and the threat of future pandemics, the need has never been greater for balanced economics and systemic change.

Therefore, a speedy vaccination programme coupled with balanced measures introduced by the government will be the best antidote to revive demand and restore our national treasury.

 

Tags: economic impact payments second wave, second economic stimulus, financial woes, catastrophic economic collapse, the second wave, second wave of the pandemic

Jul 20
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understanding copyright law

Understanding Copyright Law in Real Estate

By Real Estate No Comments

Understanding Copyright Law in Real Estate

Intellectual Property Law can be best described as a safeguard for the creation of one’s intellect. It aids the interests of the innovators and creators by providing them with the rights and safeguards over their creations and preventing their appropriation and misuse by other individuals.

Many diverse rights can be included within the ambit of IP rights, such as literary, artistic, and scientific works; performances of performing artists, phonograms and broadcasts; inventions in all fields of human endeavor; scientific discoveries; industrial designs; trademarks, service marks, and commercial names and designations; protection against unfair competition; and “all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields”.

Popular examples of intellectual properties include logos, copyrights, trademarks, patents, trade secrets, and so on. This article will attempt to focus on the importance and essence of Copyright Law in Real Estate, and the measures that may prove to be useful in protecting the requisite intellectual property.

This article also aims to evaluate the safeguards that can be taken to protect such intellectual property, both in Indian and American law.

Copyright primarily relates to literary and artistic creations, such as books, music, paintings and sculptures, films, and technology-based works, such as computer programs and electronic databases. The expression copyright refers to the act of copying an original work which, in respect of literary and artistic creations, may be done only by the author or with the author’s permission.

“Authors’ rights” refers to the creator of an artistic work, thus emphasizing that authors have certain specific rights in their creations that only they can exercise such as the right to prevent distorted reproductions of the work. Such rights are often referred to as moral rights and can be observed across legal systems. 

Other rights, such as the right to make copies among many other such rights, can be exercised by third parties with the author’s permission, for example, by a publisher who obtains a license to this effect from the author. It is possible for authors and creators to create, have rights to and exploit a work very similar to the creation of another author or creator without infringing copyright, as long as the work of another author or creator was not copied.

Indian Copyright Law, on the other hand, is governed by the (Indian) Copyright Act, 1957. The Indian law is at parity with the international standards contained in TRIPS, and pursuant to the amendments in 1999, 2002, and 2012, fully reflects the Berne Convention for Protection of Literary and Artistic Works, 1886, and the Universal Copyrights Convention.

Under the Act, the term “work” primarily includes an original artistic work which could comprise a painting, a sculpture, a drawing (including a diagram, a map, a chart, or plan), an engraving, a photograph, a work of architecture or artistic craftsmanship, dramatic work, literary work (including computer programs, tables, compilations, and computer databases), musical work (including music as well as graphical notations), sound recording and cinematographic film.

The Act was also amended to bring the law in line with recent developments in the information technology (IT) industry, be it satellite broadcasting or digital technology. Provisions were also made to enhance the performer’s rights, in line with the Rome Convention.

The importance of copyright law in this ever-evolving digital world becomes more and more imperative, especially with the popularity and easy access to the internet. In the real estate industry, such copyright issues can often be observed in connection with listing photographs.

Listing photographs can be generally defined as the photographs of the property that are presented to potential buyers so that they could make an informed choice. This becomes more pertinent when taking into account online listings, or organizations that might send across such images online to potential buyers.

Improper use of such photographs can create copyright infringement liability for agents, brokerages, and other people involved; and implementing copyright risk-management strategies may help real estate professionals avoid liability. It’s crucial for real estate professionals to know and fully understand the rights they own in listing photographs, and should strive to own their listing photographs.

When ownership is not possible, an effort must be made by real estate professionals to gather other legal safeguards and rights involving the photographs, and how they permit others to use the same.

Signing agreements that govern the use of such photographs, along with certain limitations and restrictions, can be one way of safeguarding one’s rights. The real estate professionals should make sure that they review such agreements, audit the photographs to ensure compliance with the agreement, decide on how such photographs are to be used, and maintain records of all such photography agreements they enter into.

In the US Legal system, Compliance with the Digital Millennium Copyright Act of 1998 (DMCA) will help real estate professionals avoid liability when infringing content appears through an IDX (Internet Data Exchange) feed. Under federal copyright law, online service providers are protected from liability for copyright infringement when those online service providers comply with certain procedural requirements.

One such exemption is for website owners who allow third parties to post user-generated content, for example, a brokerage website that includes an IDX feed of third-party listings.

In India, photographs are protected under copyright law as artistic work (as was discussed earlier) under Section 2(c) of the Copyright Act. The essential element in photography, and similarly in all other artistic works, requires that the photograph must be an original work where some degree of skill and effort must have been expended on it.

As per section 25 of the Copyright Act, photographs are provided copyright protection for a period of 60 years from the date of publication, that from the day they came into existence. Such safeguards can be utilized by real estate professionals when trying to safeguard their listing photographs, provided that the photographs are clicked by their own selves. Even if this is not the case, an agreement concerning its proper usage and rights can always be utilized. 

Lastly, the role of copyright law in real estate can be essential and provides a lot of scope for future research. With the increasing digitization and flouting of copyright norms in the online sphere, such concerns will be better heard and resolved with stricter copyright laws, and even strict implementation.

In the end, it is in the best interest of real estate professionals to be aware of the rights that they possess in relation to their intellectual property, and take appropriate safeguards in accordance with the law.

 

Tags: intellectual property law, understanding copyright law, ip rights, copyright act, intellectual property protection, intellectual activity, intellectual property rights

Jul 20
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real estate industry

Can NRIs Save The Indian Real Estate Industry?

By Real Estate One Comment

NRIs and The Indian Real Estate Industry

India’s real estate market can be regarded as the second-highest employment generator in the country after agriculture. Of late, the industry has been sluggish with more than a dozen measures needed to help real estate developers stay afloat. The overall despair cast over the real estate industry on the pretext of the COVID-19 pandemic has brought to light several unconventional methods to keep the dreams of homebuyers alive as developers tiptoe their way towards recovery.

Real estate had been lamented in recent years in India. The startling demonetization followed by the introduction of the GST regime, the RERA Act, and followed by the NBFC crisis collectively propelled real estate players to their lowest ebb.

Adding fuel to fire was the COVID-19 pandemic where real estate giants faced massive unavailability of workers due to the migrant exodus, and disruption in the supply chain of materials, thus resulting in numerous deferred projects and delayed delivery dates. The income contraction among the masses muted the demand, whereas a massive liquidity and labor crunch impacted the supply side of the industry. 

However, the government introduced a series of measures including the moratorium on equated monthly installments, restructuring of loans of real estate companies at the project level, and setting up of Swamih fund – rescue capital for affordable and mid-income housing projects, etc. While these relaxations may not have addressed issues at the grassroots level, this backdrop turned out to be favorable for the Non-Resident Indians (NRI). 

During the pandemic, NRI’s turned towards India in large numbers on the look for real estate for the purpose of working from home and also for investment/s. The ‘Work from Home’ culture strongly contributed to this phenomenon and with home offices gaining traction, the ‘Work from anywhere’ phenomenon was leveraged by thousands of NRIs. 

Despite the sluggish economy, the confidence in the real estate facilitation and recovery mechanisms such as RERA, Insolvency and Bankruptcy Code, etc. has played a major role in enticing NRIs to the distressed yet well-regulated industry.  In fact, real estate transactions falling under the purview of the Foreign Exchange Management Act (FEMA) have been further simplified to attract foreign investment.

Further, in absence of a cap on the number of properties an NRI can purchase, they can easily cash in on their investment in property by renting, leasing, selling, etc. As a result, NRIs are investing in multiple properties and getting high returns on investment through rental income, leasing income, and short-term and long-term capital gains.

However, despite the potential downside NRIs traditionally preferred investing in the residential real estate segment owing to a good return on investment, reasonable capital appreciation, and low rupee value. They are one of the crucial growth drivers and the overall community accounts for a sizeable part of Indian real estate demand.

Therefore, it goes without saying that NRI money helps increase the purchasing power of people in India, which in turn stimulates the market and pushes demand and supply upward. 

This development is likely to have a two-fold effect wherein both NRIs and real estate players may benefit from the trend and eventually become a part of the growth story of their own country, however, a pressing question is whether the Indian market will be leveled to the extent that the NRI’s will be able to resale their properties?

Irrespective of what the future holds, real estate cannot solely rely upon NRIs to pull them out of the COVID-induced doldrums but can definitely be treated as one of the first steps towards growth and revival.

 

Tags: indian real estate industry analysis, indian real estate market, real estate industry, Can NRIs Save The Indian Real Estate Industry, real estate news india, real estate and construction, real estate growth in india

Jul 20
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intellectual property appellate board

Scrapping of The IP Appellate Board

By Real Estate No Comments

Intellectual Property Appellate Board

Tribunals, at least in theory, are known to provide technical expertise, ease of the procedure, and speedy disposal of cases. Moreover, Tribunals are supposed to alleviate the burden on the Indian judiciary and expedite justice. However, these objectives seem easier to conceive in theory than in practice. 

The Intellectual Property Appellate Board (IPAB) was established in 2003 under the Trade Marks Act, 1999 with the intention of speedy disposal of cases in alignment with the above objectives. To affect this intent, it also established a timeline of 3 months to file an appeal, with the duration starting from the date the order was passed by the Registrar of Trade Marks.

However, contrary to the intent behind its establishment, a significant delay persisted in the adjudication of such disputes with an estimated backlog of 2,626 trademark cases, 617 patent cases, 691 copyright cases, and 1 geographical indication case, as last seen on April 2020.

In one case, Novartis v. Controller General of Patents, the delay in adjudicating matters related to Patents was as much as 5 years. There has been a considerable lag in the appointment of a chairperson as well, a responsibility vested with the Government. In fact, in its entire existence, a total of 1,130 days the tribunal has been forced to function without a Chairperson.

In view of the existing plight, the Central Government abolished the Intellectual Property Appellate Board (IPAB) through an Ordinance that aims to eradicate tribunals set up under a plethora of subsisting legislation such as the Copyright Act 1957, the Customs Act 1962, and the Patents Act 1970, to name a few. The most instant consequence that would be observed of such scrapping, would be seen in the public exchequer due to the reduced costs spent on infrastructure. 

When seen from the point of view of the litigants, the same would result in the reduction of legal costs, since IPAB functioned as a step of the hierarchy, pursuant to which its orders could be challenged in the High Courts through Writ Petitions. However, there is no denying that matters of intellectual property are complex and expertise-oriented and take much more time than normal other civil or criminal matters.

Thus, abolishing a series of tribunals under the Ordinance would invariably defeat the purpose of expeditious disposal of cases in the interest of justice. Another by-product of delayed proceedings is higher litigation costs to be incurred by litigants. 

The abolishment of IP Tribunals, at a time when India’s data protection regime is at a nascent stage while technological innovations are sky-rocketing, could spell disaster in these pandemic times. Among other industries, the pharmaceutical industry is likely to bear the brunt of such abolishment, especially in times where each second, each milliliter of vaccine could save an additional life.

Therefore, it appears that blanket abolition of diverse tribunals smacks of arbitrariness and blatant absence of application of mind.

What’s next? Experts suggest an IP bench in the High Courts. However, it remains no hidden fact that the stounding level of pressure the High Courts face due to the backlog of many pending cases, and such a shift without requisite guidelines to fast track these matters, seems like a shaky foundation to begin on.

Further, due to the transfer of power, while it is certain that there may be differences in opinions on various IP issues, it is only hoped that the same does not create furthermore confusion and administrative issues.

However, since ‘technical expertise’ had been the foundation and intent behind establishing the IPAB, how the High Courts deal with such matters involving such precise technical expertise still remains in the dark.

Thus in view of the above changes, the onus will be transferred to the shoulders of the High Court to outperform the IPAB’s “marvelous record” of reversing unreasonable decisions and provide justice to litigants in infringement suits, patent claims, and other IP disputes which are likely to gain further traction with the rise in IP-conscious companies.

 

Tags: intellectual property appellate board notes, ipab trademark, intellectual property appellate board, ipab patent, trademark law in india, trademark act in india, trade marks act, trademark act 1999

Jul 19
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indian telecom sector

Wave of Consolidation in the Indian Telecom Sector

By Telecom No Comments

Consolidation in the Indian Telecom Sector

India is experiencing an unparalleled wave of telecom mergers, but value creation is far from certain. Currently, it is in the consolidation phase amid decreasing revenues, intense competition, and high capital expenditure requirements, and on the anvil where telcos will offer a whole gamut of services beyond voice and become digital services providers to witness a growth trajectory.

While the pandemic brought economies to a screeching halt, it created demand on account of people working from home, schools going online, home entertainment, and isolated consumers reaching out to friends and family. Further, telcos facilitated the digital transition of people and businesses at a pace much faster than it would have otherwise.

With increasing data usage among consumers, companies are shifting focus from traditional voice calls to wider digital consumer space such as content and mobile banking solutions. As a result, telcos invariably emerged as a lifeline in keeping the world connected and contributed significantly during the lockdown. This paradigm shift is likely to stir growth and bring about stabilization in the industry. 

Spooling back to 2016, the aggressive entry of Reliance Jio into the telecommunications market took the telecom sector in India by storm. In order to penetrate the market, Jio adopted disruptive market strategies. It attracted customers by offering unlimited LTE data and national voice, video, and messaging services, including national roaming at a very nominal price.

However, these strategies started a tariff war in the telecom market to acquire customers. Further, the launch of Jio proliferated the market for 4G services and smartphones. It is self-explanatory that the availability of such cheap data leads to an exponential rise in the consumption of online content, habituating people to digital services. In order to combat the competition triggered by Jio, other market players were forced to adjust their tariff strategies. 

Witnessing a wave of consolidation, smaller operators such as Aircel and Reliance Communications Ltd closed operations, whereas Tata Teleservices and Telenor were acquired by Bharti Airtel, and Vodafone India merged with Idea Cellular.

From a macro perspective, the year 2018 left three large players in the telecommunication industry namely: Reliance Jio, Bharti Airtel, and Vodafone Idea — accounting for over 90% of revenue and 80% of spectrum holding. Plummeting revenues, lower costs, and market competitiveness – were some of the factors that led to a massive consolidation phase. 

Recently, the credit rating agency India Ratings and Research stated that the telecom sector is headed for a second round of consolidation. The telecom industry is no more limited to traditional wireless services. Customers now prefer the operator that can provide more than one service such as broadband services, cable TV services (direct-to-home), enterprise solutions, e-payment wallets/ platforms, music applications, and over-the-top transmission platforms in a bundled form.

Consolidation 2.0 will kick in within the industry, which has the potential to bring change within the trade models of telecom companies, driving the advancement of officeholders from the suppliers of conventional voice-only administrations to total advanced arrangements for households.

One of the offshoots of the consolidation in the telecom market is alleviating competition. From 16 telecom operators, the market has reduced to a mere total of 4 players. The increased concentration in the telecom market will drive a potential loss of competition.

An example of the same is the Vodafone-Idea merger that aided Vodafone Idea beat Reliance Jio and Airtel to become India’s largest telecom company with 408 million active subscribers and revenue market share of 32.2 percent. Consequently, a decrease in competition intensity will also reduce the incentives to invest in the market. 

Another impact of the consolidation in the telecom sector is the concentration of pricing power. Jio started off by providing free and later ultra-cheap data services to its consumers. This forced other telecom operators to lower their tariff rates as well. Cheap data rates, as well as bundled digital services, have now increased the customers’ dependency on the data services.

However, with the consolidation of the operators, the price of the tariff plans will hike now. In 2019, for the first time in five years, Reliance Jio, Airtel, and Vodafone increased the price of their prepaid plans with the hope to improve the overall financial state of the telecom industry. With the proliferation of the consolidation, will come an increase in the average revenue per user (ARPU), causing a blow to the customer’s pockets.

Even though the consolidation has its own detriments, the tariff revision followed by it is a necessary aid that the Indian telecom sector desperately requires. Ever since the launch of Reliance Jio in 2015, Telecom operators have been struggling with a financial crunch due to the low prices.

However, how long the revision in tariffs will help the operators will depend on the customers’ reaction to the same. Content consumption has incremented the need for data services but customers’ data usage patterns after the hike in tariff prices are yet to be seen.

The telecom industry is experiencing a troublesome move from being voice-centric to data-centric and will stay beneath weight within the near term. In any case, within the long term, upon consolidation, we anticipate it to stabilize, with players undertaking innovative up-gradation with back from the government.

Considering the rising utilization of versatile web and a likely expansion of millions of unused web clients over the another five a long time, the industry is balanced for development and speaks to huge potential despite the prevailing pandemic situation.

The telecom industry is currently in turmoil, fraught with rising pricing pressure due to continuously declining ARPU and intense competition. Debt levels also remain high due to a reduction in organic cash flow and high CAPEX requirements, resulting in low stabilization.

However, going forward with the rising consumption of mobile internet and a likely addition of 500 million new internet users over the next five years, the industry is poised for growth and represents tremendous potential.

 

Tags: capital expenditure requirements, india telecom, indian telecom sector, telecommunication industry in india, future of telecom industry in india, telecom industry in india, telecommunication sector in india, growth of telecom industry in india, indian telecommunication

Jul 16
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k shaped recovery

India Headed Towards K Shaped Recovery as Inequalities Grow: What This Means for Borrowers and Lenders?

By Economy, Real Estate No Comments

India Headed Towards K Shaped Recovery as Inequalities Grow

No country escapes. Only China is forecast to show positive economic growth, and that is a meager 1%. Although the International Monetary Fund (IMF) foresees a considerable rebound in 2021, the extent of the depressionary forces pressed by the pandemic remains uncorroborated and hence not comparable to any economic crises of the past.

In an economy that struggles to battle with huge unemployment and stressed asset abundances every year, the pandemic seems harshly unkind as the recovery charts start to form not a ‘v’ but a ‘k-shaped’ recovery chart.

The Economic Survey 2021, predicted a ‘v-shaped recovery and projected the real economy to grow at 11% in 2021-22. The estimates match closely to the one given by IMF, with the latter predicting 11.5% in its global outlook report. If the same is achieved, the real GDP shall reach the pre-pandemic level of 2019-20.

Across the globe, various patterns of recovery are anticipated such as V-shaped, U shaped, W shaped, L shaped and even K shaped if upper-income groups recover fast, however, low-income groups continue to lose ground. Further, it may be that all of these patterns will be observed in different countries, for the profile over time depends on the social and sanitary policies implemented to stop the spread of the virus and the nature of the economic stimulus.

However, a closer look at the GDP numbers points to a ‘k-shaped’ recovery. A ‘k-shaped’ recovery chart essentially means that different sectors of the economy shall grow and revive at different paces, thereby forming distinct staggers in the process of being mapped. While the richer households and businesses are witnessing their incomes and profits grow at a faster pace, income and consumption are plummeting to the bottom. These differences are visible in employment and consumption statistics as well.

Such a stark split in the recovery of different sectors essentially translates to a dismembered recovery pace, wherein a handful of the sectors see an upward rise whereas the other handful observes a downward trajectory, indicating the ailing sector in an economy that might need investment, restructuring or other such incentives for their upheaval. More often than not, the rather well-equipped and modernized players observe the upward trend on the chart, whereas the non-adaptive, orthodox players observe the boorish one. 

Lender-Borrower Dynamics 

The Indian scenario recounts economists as considering the rebound of the Indian economy being in tandem with the aforementioned phase of recovery, as the pandemic has rendered the already gaping inequalities in the Indian forefront as a vastly dilapidated social dynamic. This forecast further hurts the chances of the quarterly growth agendas massively as the second wave of the virus also threatens to loom large over the heads of the jurists and economists.

Such a staggering growth chart would quite obviously lead to a ballooning of the financial debt, and the said monetary incentives and policies would fail to correct the deviations kept in mind should they not be adapted to the problem at hand, thereby suggesting an even slower recovery chart, as compared to a ‘v-shaped’ form of recovery that indicates a faster and all-round revival of the economy.

The highlights from the address by Duvvuri Subbarao feature certain key points with regards to the opinion stated above, these key points entail  RBI’s pledge to buy 1 trillion rupees worth (about $14 billion) of sovereign notes through the G-Sec Acquisition Program in the upcoming quarter, supporting overall growth, ensuring price stability in the economy, financial stability of earning households, yield curve management and lastly protecting savers in India who are grappling with non-yielding deposits, moreover,  the RBI needs a separate instrument for each objective.

At the outset, the privatization of state-run banks may be a step in the right decision. Instead of utilizing scarce budgetary resources to recapitalize government-controlled lenders, it would be advisable to employ that money in an arena where it will be more productive. It is an indisputable fact that banks and NBFCs have written off over ₹2 trillion in the past two years.

From the lender’s perspective, the RBI moratorium provided momentary relief to borrowers, but the consequences of such stalling of the economy remain in an uncharted zone. Adding fuel to fire is the rise in bad loans as the moratorium has come to an end. These bad loans are likely to snowball in the coming quarters and propel banking institutions and NBFC-lenders to take a cautious approach just when credit is most needed to keep the economy going.

From the borrower’s perspective, the numerous schemes and relaxations accorded by the government have been formulated to push the demand side up but the key lies at the grassroots level. Therefore, though government policies and relaxations revolve around customers’ interests and well-being at the core, the well-being of banks and NBFCs themselves remains precarious in a demand-mute and liquidity-dry market therefore raising concerns about smooth policy implementation.

Especially in light of the cautious lending approach, smaller traders, MSMEs, and individual borrowers thereby hurling them into an abyss of stagnancy, litigation, and perhaps more debt and thus being severely hit.

It goes without saying that the pandemic has given rise to an urgent need to lessen the negative economic consequences, safeguard the vulnerable population of the society and pave the way for sustainable recovery.

However, it is an admitted fact that the inability of low- and middle-income countries to invest in robust immunization programs could result in “a deeper and longer-lasting crisis, with mounting problems of indebtedness, more entrenched poverty and growing inequality” as rightly pointed out by Treasury Secretary Janet Yellen.

Therefore, the subsisting inequalities and vulnerabilities that characterize the present growth path, coupled with the structural and institutional changes that are needed in India and the world should be adequately addressed to witness positive growth in the post-COVID era.

Jul 15
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fractional ownership investment

Fractional Ownership: The New Realty for Indians

By Real Estate No Comments

Fractional Ownership

The overall gloom cast over the real estate industry on account of the COVID-19 pandemic has brought to light several unconventional methods to keep the dreams of homebuyers alive while developers strive to stay afloat. In fact, the pandemic has proven to give the necessary impetus and stimulus for people to invest.

A growing number of Indians are acquiring slices of rent-yielding residential and commercial properties, owning parts of expensive property, in a way that is comparable to investing in stocks of a company. Fractional real estate, as the concept is known, allows investors to buy, say, 1% of a vacation home for a minimum amount and use and occupy it while earning rental income. What’s interesting is that weekend properties were neither essential nor urgent, but COVID-19 has changed this perception.

Such realty ownership concept has arisen predominantly from the Work-From-Home culture and subsequent work-vacation culture, attracting NRIs and the domestic demographics alike. Such a property acts as an asset, attracting a plethora of investors, and becoming a potential Special Purpose Vehicle-related investment.

Emerging as a completely new form of realty investment arena wherein the property in question not only attracts a variety of classes as investors but also ceases to act as an overly expensive property yielding no returns.

From the taxation standpoint, the fractional ownership of property opens such owners to a plethora of taxable liabilities, when comparing the yearly taxation related costs of such interests, prospective buyers or their counsel/advisors need to be sure of the usage arrangement, location, ownership size, basic amenities, and other items.

A unicorn investment refers to a startup avenue/venture, occupying less than $1 billion of the industry share. Considering the fact that this sort of timeshare arrangement is a novel arena of investment for the Indian masses, the value of such investment could possibly render the whole idea a potential cash cow for the Real Estate developers adapting to such forms of investment.

Especially with the pandemic having rendered the traditional and conventional real estate an under-yielding area of investment in the markets currently, fractional ownership might just pave way for the steady boom in the real estate sector.

Whilst fractional ownership may appear to be an inexpensive mode of investment to potential investors, it comes with a plethora of pros and cons. Procedures involving the investment in such ventures could involve detailed due diligence and legal red-tapism, not paying attention to such procedures could end up providing stressed properties in the hands of lesser advised investors.

Moreover, expenses considering maintenance of the property, management expenses, and any such costs could essentially tip the scales against the owners should they not be able to actually utilize the property within their arrangements.

Having said that, the benefits accruing out of part ownership of vacation properties, while might not account monumentally in financial terms, the leisurely advantages of utilizing such property allow the investors to change their workspace surroundings or in general, allows them to choose rather inexpensive modes of vacation. Furthermore, the ownership of real estate may act as the potential for lower-class investors who may want to opt for lesser investments.

As has been numerously recounted above, fractional ownership could prove to be the gateway to a real estate investment boom the sector so gravely yearns for, however, the legal procedures involve might turn off a certain class of investors, moreover, a relatively newer arena of investment always ends up taking a lot more time in yielding the benefits, even if the time-value of money is rather unaccountable, since the property provides more leisurely than commercial benefits, however, the case may differ.

Timeshare investments, while popular in western investment culture, are considered to be a relatively nascent area of investment, particularly while fractional ownership is considered to be the gateway to the current unstable recession in the real estate market. However, given the correct legal framework and taxation incentives, the current status of such investment could be elevated to providing the work-vacation culture with the stability that the recent short-lived boom is testament to.

 

Tags: fractional interest, fractional ownership in india, fractional ownership investment, fractional real estate investment, fractional real estate india, fractional ownership, fractional ownership real estate investment, fractional ownership rental properties