Buying real estate? Read this first!

Traditionally real estate in the form of the house that we live in has been the single largest investment for most of us. This is seen not only in India but across the world. Let us now apply the metrics that we attribute to investments in general to real estate and see the answers that come up.

No more than a hiccup for Indian market

Indian real estate companies together have an exposure of $2 billion to the United Arab Emirates (UAE), a big chunk of it in Dubai. Almost half the exposure is of real estate developers based in Mumbai.
The Mumbai companies’ total investments in the UAE are between $500 million and $1 billion; those from Bangalore and Delhi take this total to $2 billion. Most of the money was invested in Dubai, one of the emirates in the UAE.
“The major part of this money would have come from the banking system, with not just developers but retail investors too taking bank loans to buy property,” said Sunil Mantri, president of the Maharashtra Chamber of Housing Industry.
Not only developers but retail investors also borrowed money from banks and diverted it to buying property in Dubai. If property prices in the emirate keep dropping as they have, they would have a problem in repaying their loans.
Among banks, Bank of Baroda has the largest exposure to Dubai of about Rs 4,000 crore; only Rs 600 crore of it in real estate. “Our total book in the UAE is Rs 10,000 crore,” said M D Mallya, chairman & managing director of the bank. The bank’s overall real estate exposure, including that in India, is Rs 3,800 crore.
In the Palm Jumeria project where 500 bungalows are under construction, several have been bought by non-resident Indians and rich Indians, including film stars Amitabh Bachchan and Shah Rukh Khan. Each bungalow costs between Rs 30 crore and Rs 50 crore. As the property is under construction, it may be a long time before they can have a house-warming party there.
Companies that have invested in projects still to be completed will be in trouble as the property market has collapsed. Not only building activities have come to a halt, there are few buyers for ready properties.
Besides residential and commercial projects, Indian companies are also involved in road, bridge and power projects. “They too will be impacted,” said Prannay Vakil of Knight Frank, a property consultancy which marketed Nakheel properties in India. Overleveraged companies too will have problems as prices are dropping fast and fresh investors are hard to find.
At least one developer which invested in Dubai, Hiranamdani Properties, claims to be home and dry. The company has only one project there -- 26 Marina, the 380- metre tall apartment block. “About 97 per cent of the property is sold out and money has come into the company,” claimed Niranjan Hiranandani. His company has a piece of land in the emirate but has not decided how to develop it.

Small Dubai exposure may save Indian real estate arena

The demand- based Indian real estate industry having a very little exposure in the overseas markets will sustain the Dubai shock waves, according to experts.
The government- city owned conglomerate, Dubai- World, has interests in real estate, ports, transportation, logistics, natural resources and the leisure industry.
The firm carries around $ 60 billion in liabilities.
Anuj Puri, chairman and country head, corporate default situation. However, the sovereign has not defaulted, so the condition is presently restricted only to real estate. This would not have a major direct impact on India's real estate market, which is largely locally driven. Nevertheless, it is conceivable that the RBI may take a cautious approach in terms of liquidity in the real estate sector, which would not be good news in light of the fact that FDI norms for Indian real estate are on the verge of being relaxed." Almost all major real estate players, including Unitech Ltd, DLF, India Bulls Ltd and HDIL have confirmed having no who had plans for the Dubai market are now getting cautious.
For instance, Delhi- based Omaxe is likely to exit its two real estate projects in Dubai.
Rohtas Goel, CMD, Omaxe Ltd, said, " We will soon decide on exiting the Dubai realty projects. We had planned Rs 2,850- crore investment in Dubai. We have already paid Rs 40 crore to Nakheel as first installment last year for buying land for both the projects. The possession of land was to be handed over as per the set timelines. However, Omaxe has still not gained any rights from master developer He added, " With global downturn, there has been a slowdown in Dubai real estate market too. Current developments may not have large impact on us as we have other exit options open for us." Nagarjuna Construction is another company that has a venture in Dubai - a 440- apartment project. The company is now going slow on it.
Also, Emaar MGF, a joint venture between Dubai- based Emaar Properties and India's MGF, said its operations are only in India and the developments in Dubai would have no impact. " Our business and funding plans are on track," a company statement said.  

Real estate sales picking up in India but experts warn against price hikes

Low interest rates, a resurgent stock market and growing confidence in the economy is boosting the real estate market in India but analysts are warning that a sharp increase in prices could put investors off.

‘The residential market, including the premium segment, has rebounded quicker than expected.

We are seeing 2007 level prices again and a robust demand for houses in the $1 million range,’ said Anuj Puri, chairman of Jones Lang LaSalle Meghraj.
According to property consultant Ashok Narang the demand is coming from both investors who want to let out their properties and people who want them as homes.

‘Projects in the suburbs are doing very well and buyers have started flocking to even under-construction projects where bookings are taking place. Earlier, banks were reluctant to lend to buyers for incomplete projects,’ he said.
However, he warned that if prices spurted too fast, the market would slow down once again.

Aditi Vijayakar, executive director of Residential Services at Cushman & Wakefield, agreed.

‘The ideal graph should be gradual,’ she said.

Many major developers have already put up their prices this year and the rest of the industry is concerned.

‘If residential realty rates rise at this juncture it will take the market back to a scenario of stalled sales, similar to what was prevalent during the end of 2008,’ warned Pankaj Kapoor, CEO of real estate research firm, Liases Foras.

And realtor Ramprasad Padhi feels that there is not yet a significant revival in the market that could warrant price increases.

‘The marginal improvement in sales has been mistaken by some builders as signs of the next wave.

In reality, it has been a combination of pent-up demand and accumulated stock being disposed off at lower prices,’ he said.

Potential buyers, he says, will and do find the new increased prices unjustified.

’ But developers seem determined to test the market.

‘At present price increases seem to be limited to certain mid to high end projects, in preferred locations.

If the trend percolates down to a wider spectrum of market segments and locations, we may see prospective buyers once again display circumspection and hesitation to buy,’ said Pawan Swamy, MD (west India) at consultants Jones Lang LaSalle Meghraj.

India is at least a year away from the next real estate upswing, according to Chaitanya Parekh of the Soham Group.

‘In the second half of 2008, several developers started reducing the sizes of the units they offered, aiming for a different customer profile.

Now, if there is any increase in the price, the whole objective will be lost,’ he said.

Real estate industry on the path of recovery

Driven by price corrections, softening of interest rates and improved liquidity, the real estate industry is on the path of recovery on the back of improved demand in the residential segment.

"After a rough phase that lasted for over a year, the Indian real estate industry is on the path of recovery. The residential real estate segment, which is leading the recovery, has witnessed a revival in demand, primarily due to improved affordibility," a Ficci - Ernst & Young report said.

The two-pronged strategies of the developers- improving balance sheets and focusing on developing self-funded projects - are now bearing results and helping in the recovery of the industry with a revival of demand in the residential sub-segment.

The demand in the residential segment has witnessed a revival primarily due to improved affordibility and was a result of lower interest rates, decline in property prices and the availability of small-sized affordable apartments.

The report, however, said that the commercial, retail and hospitality segments were still struggling due to the subdued demand from the IT/ITeS sectors and multinationals, which are halting expansion plans in the country. (

"In the aftermath of the global economic slowdown, most reatilers have deffered their expansion plans in India, since the slowdown has resulted in a decline in their revenues and profitability," the Ficci - Ernst & Young report said.

As developers shifted their focus to self-funded projects due to the liquidity crunch, they deffred and even cancelled hospitality projects that have higher gestation periods.

"This has resulted in the widening of the demand-supply gap in hotel rooms in the country," the report said.

Meanwhile, assessing over 60 parameters, the report ranked Delhi, the National Capital, as the most preffered destination for real estate developres and investors.

"The key factors that have helped Delhi to retain its number one prositions are the fast-paced improvements in physical infratsructure such as the functional metro railway, modernisation of the Internnational airport, road widening projects and dedicated efforts to make the ring road signal free," the report said.

The financial capital of the country came as a close second, loosing in the infrastructure index to Delhi.

SBI extends 8% home loan offer till March 2010

The prospective homebuyers, who are looking to cobble together funds to buy an attractive property, now have every reason to cheer.
The country's largest lender State Bank of India on Friday decided to extend its 8 per cent home loan scheme till March 31, 2010, just a day before it was due to expire. The move is sure to further intensify the already heated competition in the home loan market.
In the past few days banks like Axis Bank and Bank of Rajasthan have launched special scheme for home loan borrowers. Axis Bank came out with a special 8 per cent scheme for the first year and Bank of Rajasthan too dropped home loan rates to 7.5 per cent w.e.f. from November 9 and Punjab National Bank extended its 8.5 per cent scheme till December 31.
The bank, which offers the special scheme under 'My Home Campaign', gives 8 per cent fixed interest rate for 5 years for loans up to Rs 5 lakh, with a maximum tenure of 10 years.
These are clear signs of banks renewing focus on the growing home loan market in the country.
With low credit off-take worrying the banking industry, the banks' continued aggression in the retail space is not surprising especially in the absence of signs of strong demand from the corporates.
Credit off-take dropped to single digits recording 9.6 per cent growth as on October 23. In fact, both the disappointing credit growth numbers and SBI's move has already got other players thinking of extending their schemes too.
“Such schemes should be continued as it is not a time to withdraw schemes,” said MV Nair, chairman and MD of Union Bank of India.
SBI’s aggression may also force bigger private sector players to relook at their strategy for the fear of losing market share. The customers however are all smiles as the party continues.

14 tax-free incomes for FY 2009-10

In a few months' time the taxman will coming knocking on your door. However, he cannot tax you on the following 14 important items of income and receipts, as they are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.

1. Agricultural income

Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.

However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.

2. Receipts from Hindu undivided family (HUF)

Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

3. Allowance for foreign service

Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).

This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.

4. Gratuities

Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.

In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

5. Commutation of pension

The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.

However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely:

(a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and

(b) In any other case, the commuted value of half of such pension.

It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.

6. Leave salary of central government employees

Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.

7. Voluntary retirement or separation payment

Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.

The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.

8. Life insurance receipts

Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.

However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.

9. Payment received from provident funds

Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.

10. Certain types of interest payment

There are certain types of interest payments which are fully exempt from income tax u/s 10(15). These are described below:

(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.

(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);

(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;

(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;

(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank;

(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;

(v) Interest on Gold Deposit Bonds;

(vi) Interest on certain deposits are: Bhopal Gas victims;

(vii) Interest on bonds of local authorities as notified, and

(viii) Interest on 6.5% Savings Bonds [Exempt] issued by RBI

(ix) Stipulated new tax free bonds to be notified from time to time.

11. Dividends on shares and units - Section 10(34) & (35)

With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.

12. Long-term capital gains of transfer of securities - Section 10(38)

With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.

Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.

This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.

13. Amount received by way of gift, etc - Section 10(39)

As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative, etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.

Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.

14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)

Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.

These amendments by the Finance Act, 2008 apply from FY 2007-08 onwards.

Increase in realty sales may translate to price hikes

It doesn't take much for residential realty prices to move upwards; with just a slight improvement in sales, prices at projects that were

once stalled start inching upwards. It is all part of basic real estate marketing strategy. Prices move up when actual deals take place but the scenario in 2009 is a bit different , says Pankaj Kapoor, CEO of real estate research firm, Liases Foras.

He cautions that "If residential realty rates rise at this juncture, it will again take the market back to a scenario of stalled sales, similar to what was prevalent during the end of 2008," he points out.

Realtor Ramprasad Padhi feels that there has not been any significant revival in sales. "The marginal improvement in sales has been mistaken by some builders as signs of 'the next wave' . In reality, it has been a combination of pent-up demand and accumulated stock being disposed off at lower prices" shares Padhi.

Potential buyers, he says, find the new, increased rates 'unjustified' , even if it is higher by just 10 to 15 per cent.

In Mumbai, around 25 to 30 per cent of hitherto fence-sitting home buyers have now begun initiating purchases or indicated serious purchase decisions , says Pawan Swamy, MD (west India), JLLM. "The current sales figures are a vast improvement over the depressed market scenario six months ago. Developers who have been successful in selling a sizable component of their projects are now beginning to test price elasticity" he adds.

"At present, these price escalations seem to be limited to certain mid to high-end projects, in preferred locations. If the trend percolates down to a wider spectrum of market segments and locations, we may see prospective buyers once again display circumspection and hesitation to buy," feels Swamy.

We are at least a year away from the next real estate upswing, cautions Chaitanya Parekh of the Soham Group. "In the second half of 2008, several developers started reducing the sizes of the units they offered, aiming for a different customer profile. Now, if there is any increase in the price, the whole objective will be lost," he points out.
The writing on the wall seems clear - price hikes will clearly have to wait, at least for now.

SBI says 8% home loan scheme to stay

The country’s largest lender, State Bank of India (SBI), today said it has no plans to revise its most popular home loan scheme which charges 8 per cent interest for the first year.

The clarification comes amid media reports that SBI may withdraw the scheme from November 7.

“News reports have been appearing in various newspapers across the country indicating that SBI plans to withdraw its special home loan schemes carrying an interest rate of 8 per cent for the first year of the repayment period. SBI has no immediate plans to revise interest rates on home loans,” the bank said.

The scheme was launched in February which other banks were forced to follow later. SBI had extended this fixed rate scheme for auto loans too.

When SBI launched the home loan scheme in February, it was applicable till April-end. However, the lender later extended the deadline to September, which was further extended with no deadline set for its closure.

Banks may soon stop tempting you with attractive home loans

If you are looking to finance the purchase of your dream house with a cheap bank loan, time is running out, with large public sector banks such as State Bank of India (SBI) and Punjab National Bank (PNB) planning to withdraw the special schemes that offer rates as low as 8% for the initial years. With the Reserve Bank of India (RBI) sending out hawkish signals in its second-quarter review, these banks may have to raise their home loan rates by January to align them with the expected hike in key policy rates. The special schemes offered by public sector banks have resulted in the cost of home loans crashing to the lowest levels in five years. “Seeing the hawkish tone in RBI’s quarterly monetary policy review, the bank board thinks it may not be possible to continue with these schemes after the end of the current calendar year,” said a senior official with PNB, the country’s second-largest public sector lender, requesting anonymity. While the special offers will be withdrawn from the end of the current calendar year, most banks are extending the festival offers such as zero processing fee till that time. PNB chairman and managing director KR Kamath confirmed that the discounted rates on housing loans would be extended till December-end. Currently, various banks are offering teaser rates for the first few years on home loans. Development Credit Bank is offering 7.95% rate for the first year on their home loans. SBI, Dena Bank and Canara Bank are currently offering 8% rate for the first few years. After the offer period, such loans will be converted into floating rate loans. Some public sector banks (PSBs) have already informed the finance ministry that with RBI looking at reversing the expansionary credit policy, they will not be in a position to continue with the offers on retail loans. The government is keen that the soft interest rate regime continues till the time there is more confidence in the economic recovery. The central bank has hiked its projection for inflation for the end of the current fiscal year to 6.5% from 5%. There has also been suggestions of an asset bubble in the RBI governor’s policy speech. The consensus among various forecasts is that there will be a 50-100 bps hike in key rates within the next six months. Private sector banks, which were forced to offer lower rates after the announcement of special schemes by their state-owned rivals, are likely to hike rates once the PSBs withdraw such schemes. Considering the fact that floating rate loans comprise a large part of the housing loan segment, any increase in rates will affect a large number of existing loans as well. Analysts expect HDFC, the largest player in housing loan segment, to marginally increase its lending rates. The current floating rate offered by HDFC are 8.75% for loans up to Rs 15 lakh, 9% for loans between Rs 15 lakh and Rs 50 lakh and 9.5% for loans beyond Rs 50 lakh.

Realty brokers' body building live property valuation index

National Association of Realtors (NAR), an apex organisation of real estate brokers in the country, is working towards developing a live

property valuation index, which will become the benchmark for real estate deals in the country.
NAR President Ravi Varma told TOI that the brokers' body has almost concluded talks with the National Housing Bank (NHB) for development of such an index. The NHB is the norm-deciding body for all housing finance institutions (HFIs). "We will soon formalise the arrangement and start developing the index for which data collection is already under way," Varma said.
Under the mandate from NHB, the brokers body will develop Residex' which will be an index similar to the stock exchange index that will reflect the valuations of home properties in different locations across the country.
Varma said Residex will be a quarterly indicator of property prices that will come in handy for HFIs to assess the correct value of a property they are considering to finance. "The index will also act as a guide for property buyers," he added.
Varma informed that initially, the exercise will be of an experimental nature and will eventually become a benchmark for property valuations for the HFIs.
"This is a set practice in matured real estate markets, like the United States, and with globalisation of India's realty sector the index has a relevance here as the international buyers are asking for information based on statistics and future expectations about returns," Varma said.
NAR has begun an exercise to expose its members to the new valuation methodology by inviting international experts to conduct workshops across the country. An effort is on to involve local real estate brokers' bodies like the Estate Agents Association of Pune (EAAP) to introduce best international practices to the members, he said.
"As a part of this ongoing initiative we are focusing on undertaking various programs with support from international agencies for empowering Indian realtors to adopt best global practices in their functioning," said Ravi Varma, president of the National Association of Realtors, India.
"In this process we are taking help from organisations like United States Agency for International Development, International Real Property Foundation and the National Association of Realtors, USA. Moreover, we at NAR, India, are also taking special efforts in customising the best international practices to suit the practices prevalent in the Indian market," he added.
EAAP president Govind Bhagchandani said, "The realisation to develop and nurture fair, transparent and internationally benchmarked valuation practice is gaining momentum in the country and to equip realtors in Pune with the right and scientific valuation process, EAAP in association with NAR, India, undertook a special training drive, where over 150 realtors in Pune were trained in professional valuation by Gheorghe Badescu, an international real estate valuation specialist from USA."
"We feel that we are now better equipped to evaluate properties based on scientific and well-articulated norms. Credible valuation will surely help in creating a transparent and fair real estate market and will also help in inducing confidence amongst investors and property buyers," added Kishen Milaney, vice-president of EAAP.