Per Income tax provisions, rental income from commercial property is taxed under head ‘Income from House Property’. Under this head, limited expense deductions can be claimed as standard deduction equal to 30% of rental receipts is granted. This effectively reduces taxable income to less than 70% of rental income and thus, effectively it reduces taxation rate.
Note: Not sure about whether income from business exhibitions would be covered under above treatment. Also, no depreciation deduction is available in case income is taxed under Income from House Property.
If an entity is in the business of letting out premise for rent… It shall be covered in profits and gains from business or profession. Refer section 28
While I agree that there is a little bit of taxation ambiguity here, amount adjusted for income not taxable is little higher than FY 19 IT park revenue multiplied by 30% standard deduction multiplied by tax rate of 34.94%. (136960.30.34)
Enclosed is a update on SC decision pertaining to this matter (found on desktop search, not subject matter expert on this). It clearly talks about intentions of the lessor. We will have to evaluate that
considering facts of the specific casepwc_news_alert_6_may_2015_chennai_properties_investments_limited.pdf (255.9 KB)
The heading itself in the link is clear… If u r in the business of letting out property it will be taxed under the head profits or gains from business or profession…
Object - In order to consolidate and effectively manage business groups across both the Companies as a single entity, which will help in provide several benefits including streamlined group structure by reducing the number of legal entities, reducing the multiplicity of legal and regulatory compliances, rationalizing costs, elimination of administrative functions and multiple record-keeping, thus reducing expenditure considerably.
The amalgamation will thus eliminate a multi-layered structure and reduce managerial overlaps, which are necessarily involved in running multiple entities and will also prevent cost duplication that can erode financial efficiencies of a holding structure and the resultant operations would be substantially cost-efficient. Nesco_Limited.pdf (59.3 KB)
in the past Nesco management used to not concede to ten year leases. Sumant Patel would not budge on this when IT Building 3 was constructed and it took about year for the whole building to be leased out. Tying up with JLL to help lease the properties may have helped changed his mind. Moreover, problems in quickly leasing out 12 lakh square feet too may have helped. Management has given six month rent-free period for tenants to fit out the property.
Leasing to a co-working operator is one of the worst decision taken by any building owner. The reasons listed below:
Co-working operators generally does not put in deposit/capex in their current leases (they used to put in capex before their melt down).This creates zero stickiness and can leave anytime even if the contract is for 10 years
Lease term for 10 years means that owner is locked in for 10 years. This further prevents Nesco from marking to market their lease rental. Office asset class is going through a bull run and in place rental growth is much lower than market rental growth. No rental reversion/upside possible if one is like locked for 10 years, much better to do shorter leases.
Co working operators create a huge strain on the building…They pack in less than 50 sft person compared to 100+ sft per person in normal leases…They creates Hugh pressure in AHU, chillers which results in higher operating costs and lower life of building
In the current situation, co working operators are not a financial worthy tenant. Most of co working spaces are sub 50% occupied and they may stop paying rentals if occupancy does not reach a critical mass or they are not financially backed.
@SinghiGirish, are you from this industry? Just wanted to understand, whether you have any insight into the nesco deal with wework.
You have few valid points, but whether they are all applicable to nesco in this deal or not is the real question.
Thanks.
Disc: invested since long. views may be biased due to our investment.
Point no 2:All long term clauses HV a provision of increase in rentals after 3years at least. A long term lock in provided you the safety of the property not remaining vacant and losing income plus long term agreement saves you from realignment of fitments to suit the new incombent , painting of color scheme, possibility of downward cycle etc.
In current scenerio , the long term lease is preferred by the property owner.
It depends upon the real estate cycle. In the current cycle with no vacancies, shorter lease period is preferred by property owners as they can negotiate a better deal from market. The tenant prefers a longer tenure lease so that he can amortize his fit outs over a longer tenure and occupancy costs are low.
Also while the contractual escalation is built in the agreement (generally 15%/12%) every three years, this is less than 5% per year (roughly 4.8% per year). In the sub market where Nesco operates (Western suburbs) market growth is high. Lastly once you get a lower locked in rents, the price of the property is locked at lower valuation. (Calculated as: NOI/Cap rate)
Magicbrick no could be very generic. Their previous rent , Oberoi commerz rent is also around 140. LEEDS certified plus building type , rent could vary. Current rent is on similar lines of own historic n close competition
The rent in Goregaon is around 140-160…So the rent achieved is same as market. Along with the headline rent, other lease terms like escalation, lock in, rent free period, CAM, deposit, tenant improvements (TIs) are important to analyze. Generally speaking, these variables are worse in case of co working.
Nirmal Bang Institutional Equities retains buy rating with price target of Rs. 937 on NESCO saysTower 4 witnessing strong demand and Plans for expansion on track
The key takeaways from meet with management are:
(1)Strong demand continues for Tower 4 at competitive rates
(2) New Tower 2 at planning stage
(3)Plans to add 0.15 mn sq. ft. of space in Bombay Exhibition Center (BEC) by FY21E on track and
(4)Capex of approximately Rs 21 bn to be incurred during FY20E-FY25E,to be financed through internal accruals.
