Monday, July 13, 2020

What are the various State wise rooftop rainwater harvesting legislation in various Indian states?

Author: Sachin Gupta | Find me on Twitter

Monsoon in India is one of the oldest weather observations which happen from June to September every year. It is a major weather phenomenon because of its influence on the lives of people and their well being.

Average rainfall across various Indian states is as follows:

Sl. No. State Meteorological Divisions Average annual rainfall (mm) Average annual rainfall (ft)
1 Andaman and Nicobar Islands Andaman and Nicobar Islands 2967 9.73
2 Arunachal Pradesh Arunachal Pradesh 2782 9.13
3 Assam Assam and Meghalaya 2818 9.25
4 Meghalaya Assam and Meghalaya 2818 9.25
5 Nagaland Nagaland, Manipur, Mizoram and Tripura 1881 6.17
6 Manipur Nagaland, Manipur, Mizoram and Tripura 1881 6.17
7 Mizoram Nagaland, Manipur, Mizoram and Tripura 1881 6.17
8 Tripura Nagaland, Manipur, Mizoram and Tripura 1881 6.17
9 West Bengal Sub-Himalayan West Bengal and Sikkim 2739 8.99
10 West Bengal Gangetic West Bengal 1439 4.72
11 Sikkim Sub-Himalayan West Bengal and Sikkim 2739 8.99
12 Orissa Orissa 1489 4.89
13 Bihar Bihar Plateau 1326 4.35
14 Bihar Bihar Plains 1186 3.89
15 Uttar Pradesh Uttar Pradesh 1025 3.36
16 Uttar Pradesh Plain of West Uttar Pradesh 896 2.94
17 Uttar Pradesh Hills of West Uttar Pradesh 1667 5.47
18 Haryana Haryana, Chandigarh and Delhi 617 2.02
19 Delhi Haryana, Chandigarh and Delhi 617 2.02
20 Chandigarh Haryana, Chandigarh and Delhi 617 2.02
21 Punjab Punjab 649 2.13
22 Himachal Pradesh Himachal Pradesh 1251 4.10
23 Jammu and Kashmir Jammu and Kashmir 1011 3.32
24 Rajasthan West Rajasthan 313 1.03
25 Rajasthan East Rajasthan 675 2.21
26 Madhya Pradesh Madhya Pradesh 1017 3.34
27 Madhya Pradesh East Madhya Pradesh 1338 4.39
28 Gujarat Gujarat region 1107 3.63
29 Gujarat Saurashtra and Kachchh 578 1.90
30 Goa Konkan and Goa 3005 9.86
31 Maharashtra Konkan and Goa 3005 9.86
32 Maharashtra Madhya Maharashtra 901 2.96
33 Maharashtra Marathwada 882 2.89
34 Maharashtra Vidarbha 1034 3.39
35 Andhra Pradesh Coastal Andhra Pradesh 1094 3.59
36 Andhra Pradesh Telengana 961 3.15
37 Andhra Pradesh Rayalaseema 680 2.23
38 Tamil Nadu Tamil Nadu and Pondicherry 998 3.27
39 Pondicherry Tamil Nadu and Pondicherry 998 3.27
40 Karnataka Coastal Karnataka 3456 11.34
41 Karnataka North Interior Karnataka 731 2.40
42 Karnataka South Interior Karnataka 1126 3.69
43 Kerala Kerala 3055 10.02
44 Lakshadweep Lakshadweep 1515 4.97

As we all know, rain is the primary source of water while rivers, lakes and ground water are the secondary sources. Our daily consumption of water is fulfilled by secondary sources of water. However, these secondary sources of water are replenished by primary source of water (rainfall). Therefore, it becomes imperative for all of us to harvest this rain water in order to refill rivers, lakes, ground water.

Advantages of Water harvesting

  1. Provides drinking and irrigation water.
  2. Increases groundwater recharge.
  3. Reduces storm water discharge, urban floods and overloading of sewage treatment plants.
  4. Reduces seawater ingress in coastal areas.

An example,

Let’s take the case of Delhi; the average annual rainfall is 617 mm or 2.02 Ft. In a given area of 1 Ft by 1 Ft, the rain water that can be harvested every year will be 2.02 Cubic Feet or 57.21 liters. In other words, every household can harvest 57.21 liters of water in an area of 1 ft by 1 ft. If you have a roof of 50 ft by 20 ft, the water harvested would be 57206.4 liters.

Now, is this water harvested properly? Households, residential complexes, commercial complexes can harvest rain water by capturing runoffs from rooftops. The water thus captured can either be stored in a community water tank or allowed to go to the ground via a pipe which helps in refilling or increasing the ground water levels of a given region, thus, reducing the scarcity of water.


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Monday, July 6, 2020

As a prospective borrower, what are the terms you should be generally aware about in the housing finance field in India?

Author: Sachin Gupta | Find me on Twitter

Continuing in our series of home finance, in previous article, we noticed the shortage of housing in India and the role that Home finance companies can play to plug this housing shortage gap. In this article, we will explore the various terminologies used in home finance such as types of home loans, pre-payment charges, processing fee, secured/unsecured loan, rate of interest, insurance, pre-approved loans, etc. The idea is to equip you with basic yet important terms used in home loan process. Therefore, whenever, you decide to go for the home loan to purchase property, it is advisable to quickly go through the following document.

Not only will this hold you in good position to bargain for lower interest rates with the bank but it will also help you to understand various charges that are incurred while procuring home loans. Home loans as described in the document below can be availed for purposes such as buying a property, construction, land purchase, etc. Irrespective of the type of home loan one is going for, it make sense to compare the various loan options from different banks.

Having understood the various terminologies used in the home loan process, we hope that you will make an informed decision.


Have any Questions?

Thursday, June 25, 2020

Can I time the real estate market?

Author: Sachin Gupta | Find me on Twitter

During the period of 2003 to 2008, property prices appreciated sharply. Land prices almost tripled in most parts of the country on account of faster job creation, urbanization, and rising income levels. Were these the only reasons for sharp appreciation? No, say the experts. According to them, real estate is a cyclical industry and at the beginning of the last decade, real estate prices were at their nadir. The coupling effect of sharp GDP growth and cyclical nature of the real estate industry resulted in a sharp appreciation of property prices from 2003 to 2008.

However, as the world financial crisis hit the world economy in September 2008, the GDP growth of most emerging economies started to dwindle. India was no exception and government & RBI brought in policy measures. In fact, the advent of the global financial crisis in 2008 caused a resurgence in Keynesian thought. Interest rates were lowered and government-provided stimulus (total spending in the economy) to boost the economy. At one point in time, RBI’s repo rate came down to a low of 4.75% in April 2009.

The impact of the financial crisis was severe in the real estate market. Some of the large real estate developers started offering a discount to the tune of 20% in 2008. The sector began to recover on account of government policy initiatives and the lowering of repo rate. However, massive government spending and low-interest rates during the period of 2009-2011 resulted in inflationary pressures. And the focus now shifted to tame inflation and thus interest rates started to go up and that resulted in a decrease in investment by individuals and companies.

In the last 2 years, real estate transactions including office space absorption and home sales have come down. The prices have stagnated in most micro markets.

With this in the background, can you, the real estate investor really time the market? It’s highly unlikely; however, one can pay attention to the real estate investment strategies, demand drivers, and supply elements.

1. Real estate investment strategies

2. Demand drivers
Following are demand drivers for the real estate sector
  • Industry
This is a no brainer; even my grandmom would say prices would appreciate more in cities/markets where there is all the likelihood of work or jobs creation or setting up of industries. Therefore, as an investor one should regularly visit the city development authority’s website and analyze the city’s master plan. A master plan would ideally comprise the road map for the city's development including the setting up of industries, educational institutes, recreational zones, and residential development. At the same time, pay attention to the news which highlights the setting up of a particular industry in your region. For example, the driving industries in Gurgaon are Auto and IT, and setting up these industries in the 80s and 90s has resulted in a real estate boom in the city.
  • Population growth
Growth in population requires the development of housing. Other societal changes such as the rise of nuclear families, the movement of skilled workers from other parts of the country again require the development of housing. Analyze the population growth in your city by following census reports along with indicators for urbanization.
  • Income levels
It’s true that setting up an industry in your region would result in direct and indirect job creation which will lead to a variety of real estate development. However, pay attention to what kind of industry is this? And what are the income levels of people in your region? For example, real estate prices in Gurgaon have appreciated more because of high-income levels of people in the city as opposed to say Bhiwadi (primarily a manufacturing town being developed under the Make in India program) where income levels are low.

3. Supply elements
Following are the supply elements that affect the real estate sector:
  • Interest rates
As explained above, interest rates have a direct impact on the supply of real estate. High-interest rates bring down the overall supply. On the other hand, low-interest rates encourage investment by both individuals and companies.
  • Land availability
Again one should look at the city’s master plan for availability of land. If land supply is limited, it is a good indicator that real estate prices will shoot up faster than expected. And if there is plenty of lands available with the city development authority; it will mean price appreciation will be linear. For example, in Delhi, due to limited land parcels, property prices appreciated sharply. However, now, DDA has initiated the land pooling policy and has demarcated new land parcels. It is now expected that the availability of this new land will put pressure on existing property prices in the city and city outskirts. Raising the FSI/FAR can also result in the softening of property prices. Track those developments.
  • Physical and social infrastructure
One should also pay attention to the existing supply of physical and social infrastructure in the city. In certain cities such as Greater Noida, physical infrastructure is in excellent shape. But property prices have not appreciated sharply. This is because social infrastructure which includes industrial development is minimal.

As long as supply and demand are in equilibrium, the returns from real estate investment will be linear. Therefore, as an investor, one should look for distortion in demand and supply curves. If demand is expected to be higher than the supply, it calls for investment in real estate to make windfall profits. If supply outdoes demand then it will yield low returns on your investment. 

Can I time the real estate market?
No, it’s not possible to gather data to time the real estate market. Instead, one should solely focus on 3 broad ideas as explained above and only then one should make a bet on real estate investment.

Did you follow these 3 principle ideas for real estate investment?

Have any Questions?

Wednesday, June 17, 2020

List of Permits and procedures generally required for construction of a real estate project in India

Author: Sachin Gupta | Find me on Twitter

Chennai building collapsed on June 28, 2014. Death toll has risen to 61.

As rescue operations by multiple agencies entered the sixth day, Chief Minister J. Jayalalithaa announced that the one-man commission headed by Justice (Retd) R Reghupathy will probe the circumstances leading to the collapse of the building at suburban Porur on June 28.

"The Commission will find out whose ignorant attitude resulted in such a mishap that left many workers dead and others injured and decide on (fixing) those responsible for it," she said in a release.

Who is responsible for the mishap? Is it the builder, designers, or the authorities? We will get to know by the findings of this commission.

Here is a list of various permits that are generally required for constructing a realty project in India. However, these may vary for Municipal Authorities across India.

Now, once the commission probes the matter, we will get to know at which stage the laxity happened. We are also sure that necessary corrective actions will be taken to prevent such mishaps from happening in the future.

The construction processes will be streamlined and there will be enough watchdogs to make sure that construction of buildings take place as laid out in the design. We recommend setting up of non-partisan private construction quality agencies which will ensure that construction is as per the design and there is no usage of sub-standard material.

Have any Questions?

Wednesday, June 10, 2020

8 mistakes to avoid when buying a home

Author: Sachin Gupta | Find me on Twitter

Home buying is a long term commitment and therefore one should not rush through the things. Going through a well laid down process will eliminate following common mistakes.

Mistake 1

Buying a home in a builder project means there are additional costs to it. External/Internal development charges, Preferential location charges, club membership, fire fighting charges, one time lease rent, Maintenance charges, car parking are some of the charges that are billed on top of base selling price. These charges put together can range from 18 to 20 % of total cost of home. Once possession is given, you will have to pay stamp duty and registrations charges too.

Mistake 2

Borrowing means you will be paying EMIs. And more you borrow, higher the EMI or you pay EMI for longer time period. Do your calculations and make sure you pay as much as possible in down payment and borrow the rest. There is no point in borrowing 80% of property cost when you can arrange for more funds for down payment.

Mistake 3

Plan at least 3 years before you plan to buy a house. That way, you will have enough surplus funds to make the down payment and borrow the rest from bank.

Mistake 4

Home affordability is a key consideration and one should never lose sight of it. Home affordability means what is the value of home that you can afford given your current income levels. You can easily calculate Home affordability here.

Mistake 5

We all dream of living in a house that is big and has all the world class amenities, but can you afford it?

Mistake 6

Do not ever overlook due-diligence part. Ask for approvals, land title certificates, license number form the developer.

Mistake 7

If buying a home for investment purposes, make sure you do not lend in a soup and have enough cover to pay for home installments. When realty market was going strong, investors/speculators entered the market in the hope that they will make windfall profits, but things have become tough. Most of these investors/speculators are willing to offload their purchases at relatively very low rate of returns.

Mistake 8

Make sure your finances are in order and you have pre-approved home loan before you start your search for home. This way, you will not overshoot your budget.

Did you make any of the above mistakes???

Have any Questions?

Wednesday, June 3, 2020

HRA Exemption, Rent Deduction and Tax Benefits for Home Loan in India

Author: Sachin Gupta | Find me on Twitter

Many a times, we are all confused with tax calculations on House Rent Allowance (HRA) and tax benefits on home loan, etc. Believe it or not, planning your HRA carefully can go a long way in your financial planning and therefore studying and understanding the various guidelines related to HRA is paramount for a salaried class and a business person.

  • HRA Exemption:

According to section 10 (13A) of Income Tax Act, 1961 read with rule 2A of Income Tax Rules, least of following three is exempt from tax:

  1. Actual HRA received 
  2. Rent paid in excess of 10% of salary (Basic + DA) 
  3. 40% of salary (50% if residing in a metro i.e., New Delhi, Kolkata, Chennai or Mumbai) Salary for the above purpose means BASIC + DA.

Let’s take an example. 
Suppose that you’re residing in Mumbai and paying a rent of Rs 20,000 per month and that your salary package comprises of the following: 
  1. Basic — Rs. 50,000 per month
  2. DA — Nil 
  3. HRA — Rs. 20,000 per month (40% of basic)

Now, the exempted amount of HRA will be least of the following three figures: 
  1. HRA received i.e., Rs. 20,000 
  2. Rent above 10% of basic i.e., Rs. 15,000 (Rs. 20,000 – Rs. 5,000) 
  3. 50% of basic i.e., Rs. 25,000
The least of the three is Rs 15,000; therefore, in this particular case you’re entitled for HRA tax exemption of Rs. 15,000 p.m. (per month) out of total HRA received of Rs. 20,000 per month.

In other words, net taxable portion of the HRA works out to be Rs 60000/- per year. 
net taxable portion of the HRA = Total HRA received per year – HRA Tax exempt per year
                                                    = (HRA received per year Rs 240000/-) - (HRA tax exempt per year Rs 180000/-)
                                                   =Rs. 60000 per year

There are four variables in HRA tax calculations namely, salary (i.e. basic pay plus DA), HRA received, rent paid and the city of residence (whether metro or non-metro). In case all of the four elements remain same throughout the year, the HRA tax exemption calculation is to be done on ‘annual’ basis. On the other hand, if there is a change in any of the variable during the year then HRA tax exemption calculation is to be done on monthly basis.

In case the place/city of residence and place/city of working is different, for the purpose of HRA calculation, place of residence will be considered and not place of working. Suppose that you’re working in a factory or a company located in Meerut (near New Delhi) while residing in New Delhi. So, for the purpose of HRA, your maximum entitlement for tax purpose will be 50% of the basic instead of 40% because for metros HRA tax entitlement is 50% and for non-metros it is 40%.

If the employer refuses to allow the HRA tax benefit, then in that case just claim it while filing your return of income and get the refund of excess TDS deducted from your salary. Further with effect from AY 2014-15 a person claiming HRA of more than INR 100000/- will have to submit the PAN of the landlord to claim the exemption. 

Both the working spouses can claim HRA tax benefit separately, if both of them are paying rent and landlord issues either two separate rent receipts or only one receipt specifying the amount or proportion paid by each, then both husband and wife are entitled for HRA exemption according to the amount of rent paid. 

One can avail tax benefit of HRA if the person is living in the house of his/her parents. In such a case, one will be entitled for HRA tax exemption, but the owner of the house who may be the father/mother is assessable for the rental income derived from the house, provided such transaction should be genuine & not with an intention to evade tax. However tax benefit of HRA will not be available if one is living in the house of his/her spouse as no commercial transactions can occur between Husband & wife.

  • Deduction for Rent Paid

A self-employed person can claim tax benefit for the rent paid for his residence and can claim a deduction under section 80GG of the income tax act. As the self-employed person doesn't receive any salary, so there is no HRA and consequently question of HRA exemption – under section 10 (13A) of Income Tax Act, 1961 read with rule 2A of Income Tax Rules –doesn't arise.

As far as home loans are concerned following tax benefits are available to the tax payer:
  1. Tax benefit on principal repayment under Section 80C – Repayment of Housing Loan subject to maximum limit of INR 100000/-. (Maximum deduction under section 80C is INR 100000/-).
  2. Tax benefit on interest payment under Section 24(a) & (b). For self occupied property INR 150000/- and for let out property or deemed to be let out property there is no monetary limit to for interest payments.

  • Claiming both HRA and Home Loan Tax benefit
You can Claim both HRA and Home Loan Tax benefit provided you have a house in one city for which you have taken a home loan and you reside in another city due to work or similar reasons, then you are eligible to avail all the benefits including HRA, tax benefits on principal repayment of home loan and tax benefit on interest payments of home loan. But, if your house is vacant then you still have to pay notional rent income.

In this case the following situations will arise:

Your own house remains unoccupied while you stay in any other accommodation due to employment/business/profession reasons.  You may stay at a place – it may be a different city or a different location within the same city - different from the place where your own house is situated.  

  • Rented accommodation – You are paying rent:  In this case, you can claim HRA tax exemption while your house will lose the status of self-occupied property and will be treated as deemed to be let out, and thus its notional rental income will be taxable in your hands. However you'll get all the housing loan tax benefits i.e. both interest deduction u/s 24(b) and principal repayment under section 80C.

  • Non-rented accommodation i.e., you're not paying rent as the rent is not being paid, the question of HRA tax exemption does not arise. However, your house will be treated as self-occupied and you'll get the housing loan tax concessions i.e. interest deduction under section 24 and deduction for principal repayment under section 80C. 

In a nutshell, if you have a house, either stay in it or rent it out. Don't leave it vacant else notional rental income of your house (even if it is the only house you own) becomes taxable in your hands although you continue to get the interest deduction on housing loan u/s 24(b) and deduction for principal repayment of loan u/s 80C. Furthermore, as regards the HRA, you will be getting the tax exemption under section 10(13A) so long as you are staying in a rented accommodation and actually making the rent payment, irrespective of whether you are having your own house(s) or not.

Have any Questions?

Tuesday, May 26, 2020

What should I do if the builder has delayed the housing project or the delivery is not as stated in the builder buyer agreement?

Author: Sachin Gupta | Find me on Twitter

Hello, and very warm greetings for Diwali. During the past one week, our team spent time meeting with some of the customers, readers, real estate consultants. During our interaction with customers, we noticed that most of them were frustrated with the construction progress of their homes which they have booked with real estate developers. Recently, a study published by PropEquity also showed the fact that construction progress is slow and many a residential projects will be delayed considerably.

As we write this on Diwali, a festival of light and happiness, we believe, there is no point in getting frustrated with housing project delays or any other housing related issues. In fact, you should take solid steps to overcome your housing related challenges. We list few of them here:

1. Read the document carefully:
That’s right, even though you should have read the document carefully before signing the builder buyer agreement. You can still do it, read it now carefully. And look for penalty clauses which are stated in the agreement. Approach your developer and ask for the compensation as stated in the builder buyer agreement. Even though, this compensation will be pittance relative to what you would be paying to banks in form of EMIs. Still, claim it.

Also do not forget to check if there are any deviations in the project layout, project plan, size of the apartment, specifications, amenities, etc. If there are any deviations in any of these from what was stated in the builder buyer agreement then approach your builder and discuss the things in detail. Ask for compensation wherever applicable. If possible, take the help of your legal associates.

2. Form a group with other buyers:
Yes, you read it right. You are not the only one sailing in this boat. Visit the construction site on a regular basis and interact with other buyers who are visiting the site. Make a group and discuss the common issues and approach the builder. There is no better way of putting pressure on the developer than a group of buyers coming together. As a group, you can explore various options such as cancellation, shifting to other housing projects by the same developer which is nearing completion, legal action, etc.

3. Rate and review the project:
Now that you have thorough understanding of the real estate sector and ways of working of the property developers, share this with prospective buyers. You can easily rate and review your project at and alert the prospective buyers of the positives and negatives of a particular developer. Just like, you would like to read reviews for things such as cars, phones, etc. others are also interested in taking tips from you about the housing projects, real estate developers, etc. So, go for it.

4. Use social media:
Social media has enabled all of us in voicing our opinions and most brands whether big or small are always conscious of the fact that social media can make or break their position in the industry. Whatever you do, from forming groups to reviewing projects, keep sharing it on popular social media such as Facebook, Twitter, blog, and LinkedIn. In fact, you can always look to form groups on these social media channels as well.

5. Approach the relevant authority:
Once, you have a group of people who are facing the similar set of challenges as you. It makes sense to approach the relevant government authority. And recently, government of India has set up a Real Estate Regulatory Authority to protect consumer interests. Approach the authority for speedy adjudication of your disputes with the real estate developer.

Above all, be calm and keep discussing the issues within the group. With so many avenues for you to take recourse to, we are quite sure that you will be able to resolve your housing issues. Good luck!

Have any Questions?

Monday, May 18, 2020

Lease Agreement in India

Author: Sachin Gupta | Find me on Twitter

Leasing a property is a legal process wherein both Landlord and Lessee discharge their duties in accordance with the lease agreement. Lease agreement is prepared on a stamp paper and is duly signed by landlord and lessee in presence of 2 witnesses.

Lease agreement can also be registered at the local registrar office in India. Some leases such as the one for office space properties are registered at the local registrar office.

Here is a sample lease agreement:

Have any Questions?

Monday, May 11, 2020

How to calculate EMIs, Home Loan payments, home affordability, pre-payment of a loan in Microsoft Excel?

Author: Sachin Gupta | Find me on Twitter

Many a times, we have been inundated with queries such as how to calculate the Equated Monthly Installments (EMIs), what is the formula for checking the home affordability, what amount will I have to pay if I pre pay my home loan? These are basic yet important questions and therefore, understanding these concepts is crucial for real estate investment. Here we present the formulas in Microsoft Excel for you to calculate EMIs, Interest payments, home affordability, pre payment, changing the loan tenure.

Equated Monthly Installments (EMIs):
As the name suggests, EMIs are the monthly payments you will make for loan against property or any other thing.

Here is an example:
Loan Amount (Rs) - 100000
Interest Rate (%) - 11
Loan Tenure (Years) - 20

EMI (Rs) - 1032
Total Interest Payable (Rs) - 147725
Total of Payments (Principal + Interest) (Rs) - 247725

The formula for calculating EMI in excel is given below:
=PMT(rate, nper, pv, [fv], [type])
Rate = Interest Rate in percent, nper=Loan tenure in months, pv=present value or principal amount, fv=future value

During the EMI Calculations, leave out ‘fv’ and ‘type’ and fill in the other values.
=PMT((Interest Rate/12)%, Loan Tenure*12,- Loan Amount)
=PMT((11/12)%, 20*12,- 100000)
EMI = Rs. 1032

In this calculation, we divide interest rate by 12 to arrive at the monthly interest charged.

Interest that is paid on each EMI:
=IPMT(rate, per, nper, pv, [fv], [type])
IPMT – Interest paid for a given EMI
Rate – rate of interest
Per - The month for which you want to find the interest and must be in the range 1 to nper.
Nper- total number of months
Pv – present value or principal amount
Fv- future value
Type- optional

=IPMT((11/12)%, 1, 240, -100000)
=Rs. 916.67 (It means, on your first EMI of Rs 1032, the interest paid will be Rs 916.67)

=IPMT((11/12)%, 240, 240, -100000)
=Rs. 9.38 (It means, on your 240th EMI of Rs 1032, the interest paid will be Rs 9.38)

=IPMT((11/12)%, 200, 240, -100000)
=Rs. 322.15 (It means, on your 200th EMI of Rs 1032, the interest paid will be Rs 322.15)

Similarly, you can calculate for other monthly EMIs by just changing the ‘per’ value from 1 to 240

Total Interest paid during the tenure of the loan:
=CUMIPMT(rate, nper, pv, start_period, end_period, type)
=CUMIPMT((11/12)%, 240, 100000, 1, 240, 0)
=(Rs. 147725.21)

In our example, start period is 1 and end period is 240. You can also calculate the total interest paid say for a period of 13 to 228. In other words, how much interest did you pay from second year on-wards up to the end of 19th year.

=CUMIPMT((11/12)%, 240, 100000, 13, 228, 0)
=(Rs. 136089.79)

Home Affordability:
Home affordability is the measure of the value of the home that you can afford given your current household income. Detailed analysis of home affordability is given here.

Pre Payment or changing the tenure of the loan:
Suppose, you secured a home loan of Rs 100000 in 2008 and have paid 60 EMIs thus far. You have now decided to pre pay your entire loan amount. What will be the value that you will have to pay now? Here is the answer:
=IPMT(rate, per, nper, pv, [fv], [type])/rate
=IPMT((11/12)%, 61, 240, -100000)/ (11/12)%
=(Rs. 90813.93)

Similarly, you can calculate for any period. Say, for example, you have paid 88 EMIs and now want to pre pay the loan amount. Just replace the value of ‘per’ to 89 from 61.
=IPMT((11/12)%, 89, 240, -100000)/ (11/12)%
=(Rs. 84471.24)

Having arrived at the loan balance using the above formula, you can either pre pay the entire balance amount or reduce the tenure of the loan to arrive at new EMIs using the payment formula.
=PMT(rate, nper, pv, [fv], [type])


Have any Questions?

Monday, May 4, 2020

Land Development Process in India

Author: Sachin Gupta | Find me on Twitter

Land development:

  1. Acquisition of land with the intention of constructing utilities and surface improvements
  2. Reselling some or all of the developed sites to project developers or in case of housing to home builders.

Key criteria for land development business:

Before proceeding with the development, however, there must be evidence that the project is feasible or that market acceptance of the end-product (single family houses, offices, warehouses, etc.) is highly likely. This step is important even though the land developer may or may not be the developer of the final product. In other words, in the land development phase, the developer must anticipate and understand the demand for the final product (or products in the case of a mixed-use land development). For example, the economic drivers may alter the land use for residential, industrial, or for commercial developments such as Office Space in Gurgaon.

In residential land development, it is common to find firms specializing in the acquisition of raw land in suburban fringe areas and developing sites for single family detached units or for multiple uses, such as combinations of single family units, multifamily apartments and cluster housing.

Based on the market segment in which the end use will likely sell, the land developer
  1. Acquires land
  2. Develops a land use and traffic circulation plan
  3. Constructs streets, lighting, and subsurface improvements (utilities, drainage, sewage)
  4. The developer then subdivides individual sites, and sells smaller sites to builders and project developers.
  5. The developer may also retain some retail sites for later sale if the site has suitable highway frontage.
  6. The land developers usually stand ready to sell sites to other project developers as long as those project developers abide by the required development controls. These controls usually include construction of buildings of adequate quality, maintenance, landscaping, and so on. These controls are usually specified in deed restrictions and/or provisions in an agreement governing the operation of a business park owner’s association.
Important note: Land developers and builders or project developers may or may not be the same entities.

Feasibility study:
Many land development firms usually exist in a given urban market.
  1. They enter the market for raw land by contacting landowners or land brokers and obtaining information on tracts of land available for sale.
  2. These developers then engage consultants to conduct market studies to assess the demand for end use that would ultimately be developed and price ranges for each use.
  3. The developer then completes a preliminary land plan, estimates the land development cost, and analyzes whether the tract can be purchased and developed profitably.

General observation:

In many cases the developer is more of a facilitator of the development process than a firm that undertakes all necessary functions in the land development process. Many functions may be done by consulting firms (land planners, civil engineers, and landscape architects) and contractors (roads and utility construction companies). In these instances, the developer owns the land, obtains the necessary financing, and implements the overall development plan, but may not employ a staff that is directly involved in construction or design. The developer must also interact with public sector officials in obtaining various project approvals and changes in zoning when necessary, and then market sites to project developers and/or builders.

The land development process:
  • Acquisition of land – use of the option contract
The developer usually negotiates an option contract because it takes time to accomplish various tasks and activities prior to the decision to actually purchase the land. Some of these activities are:
Site inspection, preliminary market study, preliminary cost estimates, soil studies, engineering, feasibility, appraisal, and design strategy, bidding and/or negotiating with contractors, plan for public approvals, plan for financing.

Option periods can be very short (one month for small residential land development) or as long as 3 years or more (regional shopping centers)

  • Financing and development
When financing the land acquisition and development process, a number of structures may be available to the developer.
  1. The developer may purchase the land for cash. The developer may then obtain a loan for the cost of improvements and interest carry.
  2. The developer may purchase the land by making a down payment only. The seller finances all or a portion of the land sale by taking back a purchase-money mortgage from the developer. The developer then acquires a loan for improvements only. The seller of the land (mortgagee) agrees to subordinate the lien represented by the purchase-money mortgage to the development loan, and the developer repays the sellers’ mortgage from funds as parcels are sold and after payments on the development loan are made.
  3. The developer purchases the land by making a down payment and obtaining one loan based on a percentage of the appraised value of land plus improvements. The funds pay off the seller and construction improvements. 

An example showing the possible land development process in Haryana, India:

Land Development Process in Haryana
Land Development process in Haryana

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Monday, April 27, 2020

What are the various kinds of risks involved in real estate investment? And what should you as an investor do to minimize those risks?

Author: Sachin Gupta | Find me on Twitter

Any kind of investment whether in Gold, property, stocks, bonds, etc. is subjected to certain risks. While Government securities are considered risk free, there is still some amount of risk involved in those. What if the government defaults as has happened in some of the EU nations? Consciously or unconsciously people do their risk analysis before making any investment. In this post, we will analyze the risks that are involved in real estate investment. Whether one is investing a small amount or substantial amount, going through this risk analysis will help you in foreseeing the potential risks that can creep in your real estate investments.

  • Business risk:

Property investors suffer due to fluctuations in economic activities that affect the variability of rental income generated by the property. Changes in economic conditions prevailing in the country often affect some properties more than others depending on the type of property, its location, and any existing leases. For commercial properties, particularly office space buildings, a property with a well diversified tenant mix is likely to be less subject to business investment risk. Lease deeds that provide the owner with protection against unexpected changes in expenses (e.g., with expense stops in the lease, or leases indexed to WPI, etc.) would have less business risk. Changes in the economic conditions also affect the residential property investors who are primarily looking for capital appreciation gains on the property. With economy slowing down, the capital yields goes drastically down as can be seen in the latest housing price index across many cities in India.

  • Financial risk:

The use of debt (financial leverage) magnifies the investment risk. Financial risk is directly proportional to the amount of debt taken to finance the purchase of property. Based on the prevailing interest rates, the financing costs may go up and eat into the income generated by the property. Financial risks affect both commercial and residential property investor due to the financial leverage. The cost of financing goes up or down depending on the economic situation and prevailing interest rates.

  • Liquidity risk:

This risk occurs when a continuous market with many buyers and sellers and frequent transactions is not available. The more difficult it becomes to sell a property, the greater the likelihood that owner will have to under-sell the property in order to dispose of the investment quickly. Sometimes, it can take from six months to a year or more to sell real estate income properties especially during period of weak demand. We have seen many cases in recent past when investors were forced to undersell because of slow property transactions across the country.

  • Inflation risk:

Unexpected inflation can reduce an investor’s rate of return if the income from the investment does not increase sufficiently to offset the impact of inflation. To overcome this risk, use of leases that allow the Net Operating Income to adjust with unexpected changes in inflation is applied. Higher inflation also eats into the capital gains that are sought by many housing investors.

  • Management risk:

The risk is based on the capability of the management and its ability to negotiate leases, respond to economic conditions, and operate/maintain the property efficiently. Even in case of residential properties, with outdated tenant laws across India, we have seen how difficult it gets for the manager or owner to get hold of their property. Therefore, as is the case in commercial properties, property owners must go for registered leases for residential properties as well.

  • Interest rate risk:

Real estate tends to be highly leveraged and thus the rate of return earned by equity investors can be affected by changes in interest rates. Most mortgages are of floating interest rates in India and therefore any monetary policy changes by RBI is keenly watched by the real estate investors. Even if an existing investor has a fixed interest rate loan or no loan at all, the change in the monetary policy by RBI by increasing the level of interest rates may also lower the capital value of a property that a new buyer is willing to pay.

  • Legislative risk:

Regulations such as tenant laws, taxes, registration procedures, stamp duty, restricted use of property, zoning, and other restrictions imposed by the state bodies or municipalities are categorized as legislative risk and must be factored in by the investors.

  • Environmental risk:

Environmental risks such as constructing or buying property in areas where the land use policy is under jurisdiction and therefore have the possibilities of adversely affecting the returns on investment.

Having gone through the above risks, a property investor should do his/her due-diligence before investing in a property:

  • Review of title/deed documents
  • Property survey
  • Government compliance
  • Areas of review/locality
  • Physical inspection
  • Tax matters
  • Insurance policies
  • Pending dues
  • Market studies including the demand for the similar property
  • Review of rent agreements or lease deeds in case the property is already rented.

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Monday, April 20, 2020

How can Indian Real Estate Developers reach out to NRIs and target Overseas Indians?

Author: Sachin Gupta | Find me on Twitter

Real estate is an extremely important industry in the growth of Indian economy. The sector contributes about 6% to the nations’ GDP. The sector is also the second largest employer of labor (formal and informal) behind agriculture.

Real estate developers buy land from the city authorities or directly from the farmers/landowners. Once the land acquisition process is complete and titles are transferred in the name of the developer, the construction work starts. What kind of development will take place on a given plot of land depends on the market conditions. A developer can develop commercial or residential buildings based on the market elements of demand and supply.

The next step for the developer is to sell or lease the project to investors who are willing to use it for their end-use or for investment purposes. When market conditions are not favorable; it becomes extremely difficult for the developer to clear the unsold stock of inventory and that seems to be the case today in India. About 7.6 Lacs of housing units were unsold at the end of June 2014. And new project launches have been greatly reduced.

In this scenario, what can a developer do? Wait for the economic conditions to improve? Wait for the interest rate cuts? Wait for the improvement in job market? No doubt, all of these factors will certainly help the developer in clearing off the existing inventory; however, real estate developers can still tap into the highly lucrative Overseas Indians market.

This is a massive market with a population in excess of 21 million. The market constitutes of Non Resident Indians (NRIs), Person of Indian Origin (PIO), and OCI.

In 2013 alone, Private remittances from overseas Indians into India stood at whopping 71 Billion US $, the largest for any single country in the world.

Where are they investing? A closer look at the RBI data reveals preference for NRE/NRO accounts.

What can Real estate developers do to tap into this segment of the market?

A well thought out strategy is based on 4 principals

  1. Customers
  2. Product or services
  3. Region
  4. Channels

Having identified the customers (overseas Indians), the next step for real estate developers is to pay attention to the behavioral patterns of Overseas Indians. What kind of home sizes they prefer? What are the amenities that they demand? Who will take care of their apartments in their absence? Are there professional Property Management Companies in Delhi NCR and other parts of the country to provide NRI audience with apartment management services? What kind of on-site infrastructure they desire, etc. etc. A well prepared survey can help real estate developers in decoding the behavioral patterns of NRI audience.

After studying the behavioral patterns, the product (homes) can be conceptualized and sold in chosen regions. The next challenge is the choice of channels to reach out to NRI audience?

  • Web:
Use of web to reach out to NRIs is an inexpensive approach, but it is too generic and crowded in nature. However, it helps in creating awareness about the developer and the projects. If combined with other channels such as local brokerages and property shows, significant results can be achieved.

  • Partnership with local brokerages:
NRIs still transact through Indian Channel Partners and some international channel partners (Brokers of Indian origin settled abroad). A real estate developer can tie up with a few local channel partners (brokers) in the respective countries and had them invite their customers. However, not all real estate developers can successfully do it because of limited brand exposure and competition from other reputed developers.

  • Own office:
Having an office in a country can certainly help a real estate developer in reaching out to NRIs in that particular country. However, it is an expensive approach and developers with big pockets can manage to afford it. There are some developers who have set up their own offices in Singapore, Dubai, California, London, Malaysia, etc.

  • Property Shows:
Property shows or exhibitions are country specific in nature, wherein 40-50 real estate developers participate and showcase their properties to overseas Indians in that particular country. Past Indian Property Show in Singapore, Dubai, London indicates a footfall of 2500-3000 visitors a day. Even though, a developer may or may not make on the spot bookings, the exhibition certainly helps in brand building and that helps in future sales.

Having identified the NRI audience, a real estate developer must make the optimum use of different channels to reach out to this segment. One cannot simply afford to ignore this massive and profitable market segment. And the developer must continuously invest in reaching out to Overseas Indians.

NirrtiGo works with Indian Real Estate developers in order to reach out to overseas Indian community. NirrtiGo organizes Indian Property shows in overseas markets, utilize web based platforms, and create awareness on the vast property investment opportunities in India. Real Estate developers looking to target NRI markets can contact NirrtiGo for upcoming Indian Property shows in overseas markets at

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