Sunday, May 21, 2017

RERA just what the doctor ordered for Indian real estate sector

Home buyers across the country have been at the receiving end of endless delays over delivery of projects or late possession of real estate projects over the years, leaving themselves ‘helpless’ at the hands of  developers. All that is set to change with the implementation of the Real Estate (Regulation and Development) Act (RERA) 2016. The RERA is poised to bring about a paradigm shift in India’s real estate sector, with the onus now on real estate developers and real estate agents to comply with RERA, which came into effect from May 1, 2017.

Touted as a consumer-centric Act, the RERA aims to drive transparency and accountability in the sector and enhance the confidence level of home buyers. More importantly, it will not only protect the interests of home buyers and developers but also ensure home buyers are not taken for granted by real estate developers and brokers. 

It may be worth mentioning that both houses of Parliament had passed the real estate bill in March 2016. It is important to point out that the onus is now on the states to draft and pass their own laws according to the guidelines since land is a state subject.

The effective implementation of RERA is expected to mitigate the pain points of the sector. Although real estate players have welcomed the new Act, industry watchers believe that there are still challenges that need to be overcome before the much-hyped Act is effectively implemented. Many states are not still adequate prepared with the desired infrastructure and resources to implement the Act. What’s more, most real estate developers and brokers have indicated that they are still in the process of understanding the regulations. The response from the states to the Union government’s April 30 deadline to notify the Act left a lot to be desired with only 13 states and union territories having notified the rules so far – only three states – Maharashtra, Madhya Pradesh and Rajasthan – have appointed a housing regulator. Significantly, barring Maharashtra no state has set up a website where developers and brokers can register or apply for new projects under the new Act. All these effectively mean that teething problems exist, which have to be resolved before the Act is implemented across the country. 

The Act makes it mandatory for all real estate developers and brokers to register with their respective state regulatory authorities by July 30 without which they cannot sell any project. It remains to be see whether all builders and agents meet the stipulated deadline. For now, it does appear a tall order simply because most states do not have a regulatory authority and nor have websites ready to apply, which mean no new registrations and project launches can take place in these states. It is only a few big states with major real estate activities that are in advanced stages of either having notified (the new rules) or are geared up to comply with RERA.

Real estate lobby group Confederation of Real Estate Developers Association of India (Credai) is aware of the challenges the new Act offers for developers. Credai feels that real estate developers will face teething problems, which will result in new project launches getting delayed and home sales getting impacted for the next few months.

According to industry experts, most developers would be need about six to eight weeks of work to make themselves RERA compliant. It will not be easy for developers and agents to be RERA-compliant in a sector, which has been under no regulation for so long. Despite all the initial challenges, the RERA is a win-win situation for buyers and developers. But there are areas that would pose concerns for real estate developers. Developers would be held responsible for any delays caused by other agencies or authorities. From this perspective it does appear that RERA will end up favouring home buyers at the cost of builders and developers.

On the positive front, the RERA will instil a sense of fiscal discipline – it ensures no developer can transfer funds meant for one project for another. This measure will ensure sufficient funds for timely completion of projects as well as for timely delivery of flats to the home buyers.

The smooth implementation of the RERA may take some months, but there is no doubt that the Act will change the way real estate developers operate across the country. RERA was just what the doctor ordered for the Indian real estate sector.

Saturday, May 20, 2017

European Banking Sector: Effective implementation of PDS2, MiFid II holds the key

The European banking sector has been under stress over the past few years owing to various factors such as low interest rates, massive fines and feeble earnings results. Further, high levels of bad loans continued to be a drag on the European banking system. According to top audit firm KPMG, the European banking sector has around €1.1trillion (£0.94tn) in non-performing loans, almost three times as much compared to the US.

Besides high volume of bad loans, banks are grappling with weak balance sheet strength and inadequate loan loss provisions – all these factors have collectively crimped the performance of European banks. Top banks such as HSBC Holdings, Deutsche Bank and Barclays have all come up with disappointing earnings results. This is in stark contrast to big-ticket U.S. banks such as J.P Morgan, Citi and Goldman Sachs that posted stronger-than-expected profits in 2016, supported by the contractionary monetary policy in the US.

The banking sector clearly has a tough road ahead, but structurally, it is poised for a massive overhaul with the European Commission moving toward implementing the revised Payment Services Directive (PSD2) by January 13, 2018. What is the PSD2 all about and why it has generated so much buzz in the European banking sector? Well, PSD2 is widely seen as a ‘game-changing’ directive that is poised to bring an end to banks’ control over their customers’ account information and payment services and offer third party providers access to customers’ accounts through open application program interfaces (APIs).

This eyeball-grabbing directive is set to transform the payments landscape across the European Union. PSD2, once implemented, will pave the way for bank customers (both consumers and businesses) to use third-party providers to manage their finances. A likely scenario could be that of customers using Facebook or Google to pay their bills, making person-to-person payments (P2P) transfers with their money safely parked in their respective bank accounts.

PSD2 – administered by the European Commission – aims to ensure every EU bank is digitally optimized. In a nutshell, this directive will create cut-throat competition in the payment services market in Europe between banks and new payment service providers (PSPs) as well as drive innovation in the European Fintech industry. More importantly, it will eliminate hidden fees charged by banks. It is seen that banks find it convenient to add transaction fees but now with the market becoming more crowded, banks will have to put their ‘rethinking’ caps on. All these factors will go a long way in ensuring an improved customer experience. In fact, the perceived fierce competition in the banking sector is a big worry for most European banks. According to some estimates, 20-25% of banks could be at risk from the new competitors owing to PSD2.

The advent of PSD2 has triggered talk about whether PSD2 would mark the end of banks’ monopoly over customers’ accounts. Delving deep, it is reasonable to assume that banks are unlikely to lose their significance as far as catering to customer needs are concerned, while granting third party providers access to customers’ account information. The need of the hour for banks is to walk down the ‘reinvent’ path and come up with robust differentiators to stay competitive.

The host of regulatory approvals and licenses required to enter the banking space means that it is never an easy proposition for new entrants. But non-banking FinTech companies, by virtue of PSD2, could find it a lot easier to foray into the market and play a significant role in the future financial landscape.


The European banking sector is also bracing up for the second installment of the Markets in Financial Instruments Directive — better known as Mifid II – considered one of European Union’s most ambitious financial reforms. The challenges of complying with Mifid II – which will come into force in 2018 – lie in ‘how prepared’ asset managers are for so-called unbundling. Under Mifid II, asset managers are required to budget separately for broker research costs and trading costs – a significant departure from decades-old practice of asset managers bundling together trading and broker research costs into a single fee, often receiving research from an investment bank or broker in exchange for using them to carry out trades. Asset managers have two options – either they absorb their research costs or set up a research payment account.


A research conducted by Electronic Research Interchange (ERIC) revealed that 74% of asset managers foresee a reduction in investment bank research. MiFid II is expected to improve quality of research. For instance, if there are more than 400 reports generated for a particular stock, we can end up having a scenario of 50 reports or even less for that stock. This will further enhance requirements for in-depth bespoke research.


It is fair to assume that the effective implementation of PDS2 and MiFid II is of crucial interest to the European banking sector. Effective implementation of these directives will crank up competition in the banking sector, which in turn, will drive consolidation across the European Union and improve customer journey. For sure, PDS2 and MiFid II might pan out to be a short-term pain but would pay rich dividends in the long run.  

India's construction industry will look to build on gains of 2016

The country's construction industry will be looking to build on the strong momentum gained in 2016. The year 2016 undoubtedly has been a hit year for the $126 billion construction industry, which is a major contributor towards India’s GDP (both directly and indirectly). The construction industry, which is the second largest employer, next only to agriculture, staged a strong comeback in 2016 after witnessing de-growth for four years owing to a sustained slowdown in the sector. In fact, the growth of the country's construction equipment industry can draw a parallel to the high growth it recorded in 2011.

The revival of the construction industry can be attributed to the Union government’s high focus on infrastructure funding. Clearly, the government’s stress on infrastructure funding in two successive budgets would seem like music to the ears of construction companies. It may be worth recalling that Union government had initially earmarked Rs 57,976 crore for construction and maintenance of roads and highways in the 2016-17 fiscal, up 24% over the actual spending in the previous financial year. This was subsequently revised down to Rs 52,447 crore. The government has set aside Rs 64,900 crore for construction of roads and highways
for the next fiscal.

A close look at the sales numbers of India’s leading earth moving and construction equipment maker, JCB India would only provide a seal of confirmation of where the industry is heading. The company’s revenue grew by over 40% to Rs 8,000 crore in 2016 over 2015, of which exports accounted for around 20%. It sold about 26,500 machines in 2016, which is close to the sales numbers it achieved in 2011 when it sold 27,000 such machines.

Amidst this growth journey, the industry has surmounted various challenges along the way. Acute shortage of skilled workforce and paucity of construction sand, raw materials, and political disturbances continue to serve as headwinds. On the positive front, technological advancements and international infrastructure players foraying into the Indian market augur well for the industry.
The construction industry will hope to thrive on big-tickets projects such as the Smart Cities Project, the Government's ‘Housing for All by 2022’, Atal Mission for Rejuvenation and Urban Transformation (AMRUT). There is also talk that the Union government is keen to further open up the construction sector. There is a possibility that the government might allow Indian companies to bring FDI even for undeveloped plots in any project. The further opening of FDI to the construction sector coupled with the roll-out of the much-hyped GST, which is expected to ease tax-related complexities,  will accelerate overall growth.

India’s construction industry is poised to maintain the strong momentum in 2017 and beyond, but will find it hard to sustain its growth journey purely on the back of a strong performance of the roads and highways sector going forward. Infrastructure funding will continue to aid the industry but overall the construction industry needs to see growth in other segments such as real estate, mining and irrigation. ‘Not much growth is happening in these sectors. It is imperative for these sectors to contribute to the growth of the construction industry,” said a top construction company official.

The construction sector has indeed walked down the growth path and a much-needed revival of the real estate, mining and irrigation sectors will make its growth journey a complete success.



Sunday, May 7, 2017

Is the Oasis of Tax Free Income drying out?

The Gulf region has been a big draw for the expatriate population for many decades now. Expats have been enjoying tax-free salary – surely a motivating factor for foreign workers to flock to the Gulf region. Tax-free salary provides an opportunity to save more, leading to an increase in the disposable income per capita. Hence it is no surprise that the Gulf region is home to a large foreign workforce. The expats comprise around 30 million of the 50 million GCC populations.

Oil export revenues constitute a major income source for Gulf countries. However, since its highs of approximately USD100 a barrel in 2014, the oil prices saw a significant drop. Oil prices have nosedived to around USD29 a barrel in January 2016 and recently recovered to hover around just USD50-55. The prolonged oil price slump since the summer of 2014 has hugely dented oil export revenues. Consequently,  the price slump prompted the GCC governments to explore new revenue-earning avenues.

The jitters grew within the expat population when Saudi Finance Minister Ibrahim Al-Assaf made a statement in mid-2016 that his ministry is intending to introduce an income tax on foreign workers, only to subsequently clarify that it was only a ‘proposal’.

According to the IMF, Saudi Arabia had introduced a personal income tax on both nationals and non-nationals in 1950. Subsequently, the Kingdom had excluded the Saudi nationals within six months of its introduction. Later, the personal income tax on foreign workers was suspended in 1975 amid high oil revenues and the need to recruit expatriates to help build the Kingdom’s infrastructure as well as develop the economy.

The 1980s saw GCC countries introduce a personal income tax on foreign workers during the low oil price period. However, GCC governments had to back down as livid foreign workers, including military contractors, raised the banner of ‘strike’ grounding air force planes.

Due to its unpopularity, imposing personal income tax in the GCC region may be off the table for now. Nonetheless, GCC governments have realized the importance of looking for alternative revenue streams. GCC economies are feeling the pinch over the prolonged dip in oil prices. One has to take into consideration the fact that GCC governments are bracing up to impose a value-added tax (VAT) from 2018 onward in their bid to diversify their revenue base. However, the introduction of VAT is no guarantee that personal income tax will not be introduced in future.

So, what could be the likely ramifications if GCC governments indeed impose a personal income tax on both foreign workers as well as locals? As learned from history, the most immediate consequence might be that foreign workers may just pack up. Such a move can precipitate a labor crunch. This is because foreign workers are still a ‘must-have’ for certain jobs in the GCC region largely for two reasons. Firstly, the local population in the GCC region do not appear to be keen on taking up menial jobs. Secondly, the local population at times, lack requisite skills required for various semi-skilled and skilled jobs performed by expats.

It is pretty clear that a lot will hinge on how oil prices shape up in coming years and how successful GCC governments are enhancing their non-oil revenues that will eventually determine whether expats can continue enjoying tax-free salary in the Gulf region.


Sunday, April 23, 2017

CSR initiative – the never-ending buzzword for companies

There is little doubt that the objective of corporate enterprises is to walk down the ‘growth path’ or scale up or improve profitability. But one is tempted to ask: is staying profitable the be-all and end-all for companies? The answer is a big ‘No’ as enterprises are straining every nerve to think beyond ‘profitability’. Corporate enterprises are showing a ‘real intent’ to make their presence felt, in terms of engaging in societal engagement programs, which bodes well for the future.
 

There is a pressing need for the corporate world to embrace corporate social responsibility (CSR) initiatives. Over the past two decades or so, enterprises have taken to CSR activities in a big way. According to an iamwire report, global software giant Microsoft has been pumping billions of dollars in CSR activities. The IT bellwether has worked closely with many non-profit organizations – what’s more, it even asks its employees to spend a certain number hours each month on volunteering activities for issues that are close to their heart. Search giant Google’s ‘green program’ is another robust CSR initiative aimed at making businesses more reliant on renewable sources of energy.

Of course, there is also a line of thought that companies tend to carry out CSR programs sans any ‘real focus’. This could be true in some cases, but it will be unjust to suggest that a large chunk of companies are not taking CSR with any kind of seriousness.
 

CSR initiatives are of crucial interest for companies because there is a strong feeling that they must shoulder ‘some sense of responsibility’ in addressing social issues largely dealt with by government agencies, NGOs, etc across the globe. There are broadly two types of corporate social responsibility – one is related to providing funding and resources for social causes (such as donating money to charities etc), while the other is drawing up a comprehensive plan to produce products/services that are in the best interests of society, corporate environment-friendly initiatives, etc.

CSR initiatives are emerging as a ‘must-have’ for enterprises as prospective clients look beyond price, quality and reputation of a service/product. Clients are showing ‘increasing interest’ in knowing how ‘much community engagement presence’ firms are having before they actually avail their product/service.

Realization has probably dawned on companies that CSR can be a ‘strong selling point’ before prospective clients – a strong CSR portfolio can surely help enterprises showcase before clients how much they yearn to ‘do something for the society’. The dynamics of business are such that clients look at companies having a robust CSR background with an ‘extra interest’. A company may a strong reputation, reputed workforce, solid infrastructure, vibrant work environment, etc – but if it has a solid CSR portfolio it lends that ‘X factor’ – thus, a highly effective community engagement program paves the way for companies to come up with new client wins.
Community engagement is something clients want to know

CSR initiatives are seen as an integral part of a company’s business strategy as well as in shoring up its ‘already-built reputation’. A study conducted by New York-based private global consulting firm Reputation Institute revealed that reputation is increasingly playing a major role in how companies are bagging client wins. The study says that willingness to buy, recommend, work for, and invest in a company is driven 60% by the company’s reputation and only 40% by the reputation of its products or services. The bottom-line is that CSR activities enhance the feel-good factor about the company.

CSR activities will have its share of challenges. And the biggest of them is ‘execution’ – any CSR initiative without a proper strategy is bound to come a cropper. The effective implementation of a CSR drive is significant as its success lies in the active involvement of all its stakeholders. This is where employee engagement comes into play. The active involvement of the employees is a big factor in shaping up the success of a company’s CSR activity. Such initiatives cannot be termed a ‘success story’ unless it enjoys unstinted support of all employees or at least a bulk of it. It is also not a bad idea at all if existing clients/customers can be a part of such CSR initiatives as this would provide them a helicopter view of how the CSR initiative is conducted.
 

CSR initiatives must exude a feeling that companies are delivering CSR programs that has a ‘strong community feeling’ ingrained in them and not suggest anything close to being just ‘going through the motions’. Companies must refrain from any half measures and look to generate the right kind of ‘buzz’. The very purpose of conducting CSR initiatives could get defeated if there is no adequate publicity. Enterprises would be well served if they value the essence of creating a buzz about such initiatives – optimizing various social media platforms as well as ensuring such initiatives are published in newspapers, news portals, magazines, etc so that a larger audience is in the know. Media publicity of CSR activities is one aspect, which at times, is ignored by firms and Clearly, CSR initiatives would only get bigger in intensity going forward. Such initiatives are no longer confined to large or mid-sized companies. Even startups have quickly realized the importance of CSR drives and have readily chosen to wear the ‘CSR’ hat. The coming years are poised to see CSR emerge as an indispensable feature of companies.



How poor managers can cause serious reputational damage to a brand!

In a fiercely competitive marketplace, companies always have one goal in mind – how it can be ‘best heard’. Companies are increasingly ‘taking extra care’ to ensure they do not suffer any reputational damage, which can go a long way in them losing customers/clients.

It is clear that managers play a ‘crucial’ role in ensuring companies do not suffer from serious reputational damage. It is an open secret that no brand wants anyone to talk ‘bad’ about a company as it can translate into negative word-of-mouth. But why then managers have a big role in ensuring a brand is not at risk of any reputational damage? Well, it is easy to understand that companies expect managers to run the their day-to-day affairs. However, in pursuit of ‘driving the day-to-day operations managers at times, operate in such a way that it causes serious harm to the reputation of a company.

Every manager will be different but a common goal of all managers is to get the best out of their teams. The problem is that a lot of times, managers do exceed their brief (if not at all times) and resort to uncalled-for measures as they believe that those are the best ways to raise the performance of their underlings. Of course, the corporate world will have numerous instances of managers ill-treating their underlings. To put it bluntly, some managers are ‘more demanding than necessary’ and put extra pressure on their team members. They believe that this is the best recipe to scale up productivity. Many Managers at times are known to act as ‘control freaks’ and want to carve out a dominating presence. No wonder, there is a saying in the corporate world that ‘people leave managers, not companies’.


A survey conducted by American research company Gallup, only reinforces the fragile worker-manager relationships. As per Gallup’s 2015 survey, 50% of employees (among the 7,200 adults surveyed) ‘leave their company to get away from their bosses’. This survey is a true reflection of how managers operate in the corporate world. It also throws light on the prevalent, undesired worker-manager relationships.

So why then managers cut a sorry picture in workplaces? Well, people get promotions into managerial roles not always because they are really ‘good at managing people’. More often people ascend the career ladder because of outstanding performance in their earlier position.


The Gallup survey on the worker-manager relationships brings a few things in focus. How does an employee cope with a bad manager? An underling rarely questions his manager or gets into an argument bout for the fear of either losing his job or getting a bad appraisal. On many occasions, these underlings silently put up with ‘whatever these so-called bad managers throw at them’. They seemingly resign to their fate. Quitting the job to ‘escape a bad manager’ seems the only realistic option for these underlings. More importantly, these bunch of employees turn disgruntled and ‘generously badmouth’ the company in front of all and sundry when they leave the company.

What is significant here is that these employees probably have ‘nothing against the company’. They end up castigating the company purely based on their bad experience with their managers – something brands are looking to take cognisance of. It is only bad managers, who ruin the reputation of a company – it is their modus operandi that drives employees to exit the firm. It is seldom that managers across the globe face ramifications for poor treatment of their underlings.

Of course, there are companies that keep a close watch on how managers conduct themselves. They grill employees when they want to put in their papers. The objective is to know if these employees are quitting due to personal issues or better prospects or because of having to deal with bad managers, who brutalise them. But the percentage of such companies is far too small.


Supervisors rate managers often on the results they achieve and not how well they treat the people below them. For example, if managers do not achieve the desired results but treat their underlings well, it is of no help to them in the long run, in terms of securing a promotion.

The bottom-line is that companies must look to put a mechanism in place so that their reputation is not besmirched due to the unbecoming behaviour of managers. They hire managers to ‘ensure smooth running of the day-to-day operations of a company and not ruin them’.

Going forward, we could see a trend of brands keeping a ‘strict watch’ on how managers operate, as brands are striving to protect their reputation against damage by poor working ways of managers.

Monday, April 3, 2017

Steady acceptance of ‘blockchain technology’

The emergence of the ‘blockchain technology’ is poised to transform the way people transact online. No wonder, companies are hopping on to this break-through technology, which was first introduced by an unknown programmer or group of programmers known by Satoshi Nakamoto in 2008. Blockchain can be used to facilitate peer-to-peer exchange of assets, property, contracts, etc using cryptography. It is a distributed ledger which maintains a list of records called blocks, which comprise a time stamp. This time stamp contains information about a certain transaction taking place (its date and time). This information is subsequently linked to the previous block in the blockchain. Blockchain records are visible to all members of a network and can be easily monitored. These transaction records are protected by a groundbreaking peer-to-peer cryptographic validation. It’s important to mention that data once recorded in a block cannot be altered.

So why is blockchain such a big thing for corporate enterprises? This technology drives transparency in transactions and also provides security to people’s money and data. It also ensures speedier and tamper-proof transactions. Blockchain enables companies to be cost-efficient as they can trim down middle man costs. A report published in CB Insights stated that around $20 billion of middle-man costs is expected to be slashed going forward thanks to this technology. The efficacy of the blockchain technology can be best understood by the fact that it is being steadily embraced by global giants. It is true that the immense potential of blockchain is largely exploited by the financial sector. According to a Deloitte University Press report, 30 of the world’s biggest banks have joined a consortium to build blockchain solutions, and Nasdaq is working on a blockchain-powered private market exchange. We know for a fact that cash transfers can take days, often lack a “received” receipt, and come with fees. This blockchain technology can remove all these shortfalls in the banking system.

The significance of this technology is only accentuated by Nasdaq CEO Bob Greifeld. “Blockchain technology will not only redefine how the exchange system operates but also the global financial economy as a whole.” An IBM report only reinforces this thought. The report says 15% of the global banks will use blockchain by 2017 and another 66% will adopt this technology by 2020. A joint survey conducted by Synechron and TABB Group reveals that 55% of bankers expect blockchain to have a huge impact on the financial services industry over the next ten years.

Other industries are steadily adopting blockchain as well. Microsoft has deployed a cloud-based blockchain-as-a-service. IBM offered blockchain-as-a-service in logistics space, tracking food products as they move from farms and factories to store shelves. The blockchain ledger can record a product’s location, temperature, etc using tags and sensors. Blockchain can secure intellectual property and creative digital products like music and images. Further, IBM and Samsung have offered a proof-of-concept built partly using Ethereum, a blockchain-base framework, to demonstrate how blockchain can support Internet of Things (IoT) applications by supporting transaction processing devices. The distributed nature of the ledger can drive coordination among multiple devices. Even the government authorities are excited about this technology – the British government is even mulling incorporating blockchain into their student loan payments.

Interestingly, global players are upbeat about blockchain but investments in this technology have dipped this year. According to CoinDesk’s latest quarterly research report, $376 million were raised this year, which is 17% less than the amount raised in the year-ago period. It is possible that companies are not doubting the effectiveness of this technology but are only adopting a wait-and-watch approach, probably taking their own time to see where this technology can be of help in carrying out their day-to-day transactions.

Blockchain poised to rule the roost

Although the blockchain technology will go a long way in automating peer-to-peer value transfer, it is not free from vulnerabilities. Human fraud, double spending, compromise of wallets, servers, and even the possibility of an attack against the crypto are areas the blockchain application must address.

There is no denying the fact that blockchain is here to stay and will transform the way companies conduct day-to-day transactions. Companies are looking at ways to remain cost-effective and improve performance efficiency, and blockchain is an ideal application to cater to their needs.