Monday, April 23, 2018

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.



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Saturday, April 21, 2018

Looking to rent your house or lease your property? Follow these steps to make sure your property is safe and the tenant follows the lease agreement.

Author: Sachin Gupta | Find me on Twitter

Leasing or renting out your property is a demanding job. Not only you need to maintain the property but at the same time you need to be careful in choosing the right tenant with good financials who can pay the monthly rent and other expenses on time.  There have been instances when tenant has refused to vacate the property even after the termination of rental agreement. Because of this, there is certain percentage of landlords who avoid renting out their property to prospective tenants. And it puts the pressure on housing market because on one hand there is demand for housing but rental market is not sufficiently catering to that demand. And therefore capital values of housing stock increases at a rapid rate. Had there been proper laws with respect to safeguarding the interest of landlords, the supply which would have then come into the market would have considerably eased the capital values.



The laws on landlord and tenants in India are outdated and needs complete reforms. However, the central government is encouraging local state governments to amend these laws to encourage investments in housing and construction sector. How fast will states in India will move to abolish its old system is still to be known.

In this environment, how can you as the landlord of residential property or commercial property such as office space, shops or warehouse lease/rent your property? We list down the steps which you should take before leasing or renting out your property:

  • Background checks

First thing first! Since you are renting your property to a prospective tenant, make sure to check his/her background by asking tenant to provide a reference certificate from a colleague/friend or co-worker. At the same time, find out about tenant’s previous landlords and talk to at least one of them. Ask for tenant’s permanent address as well and permanent address can be known by asking tenant to show 2 photo ID cards such as a passport and driving license or a voter card. In most cases, these 2 photo ID cards will have the same permanent address.

  • Police verification

As per the law, these days tenant verification at a local police station is required for landlords. Do not ignore this verification process before you rent out your property. This is a punishable offence under Section 188 of the Indian Penal Code.

  • Solid Lease agreement

Prepare a lease agreement which safeguards your interests and you should have the following in a typical lease agreement:
    • Basic clauses
A typical lease agreement must list the parties to the agreement at a specified date, namely you and the tenant, along with the address of the property which is being leased out. In the basic clause, you should also state the lease term including the time length for which agreement is being made, renewal option, and rent appreciation method. The expenses such as electricity, gas, water bill, maintenance charges should also be mentioned clearly in the basic clause of a lease agreement.

    • Security deposit clause
Your lease agreement should require the tenant to put up a security deposit equivalent to one month rent or more depending on the negotiation. The security deposits vary for commercial and residential properties. The security deposits also vary from state to state in India. For example, in Bangalore, for residential property, tenant pays 10 months’ rent as security deposit whereas in Delhi NCR the security deposit is about 2-3 months’ rent. For commercial property, the standard security deposit is around 6 months. Make sure that security deposits clause is clearly defined within the lease agreement.

    • Maintenance of the property
The lease should tell the tenant that he is required to properly maintain the property. If you are renting out a furnished property, make a check list of the items which are being provided as part of the property such as furniture, appliances, etc.  Include this checklist in the lease agreement as an appendix. Whatever, you want from your tenant as part of his/her responsibilities, make sure it is part of lease and is not just conveyed orally. The maintenance clause should be included in the lease agreement because if a tenant leaves the property in bad shape then leasing the property again might become difficult or else you would have to spend considerable amount of money to make the property rent-able again. The idea is to make sure that tenant gives you the property back in same shape as you handed over to him/her.

    • Concealed defects and responsibility for fixing it
If there is something that needs to be fixed in the property in coming 2-3 months, then clearly tell this to tenant. For example, if the roof of the property needs to be fixed in 6 months time, then it becomes your responsibility as an owner to include this fact in the agreement. A tenant will appreciate the fact that you have been forthcoming in your description of the property. If possible, try to fix all the things before letting it out.

    • Sub-leasing clause
Sub leasing clause is extremely important and you as the owner of the property should pay attention to it. We have seen in past how a tenant has sub leased the property to another tenant or in some cases have shared the property space with his/her colleagues or friends. To avoid this situation, clearly mark out the condition that prior to sub-leasing the property space, the tenant will take permission from you. But with our experience, we encourage landlords to rather cancel the current lease agreement and make a new lease with the new tenant. In a nutshell, you should not allow your tenant to sublease the property. And get that condition in the agreement.

    • Termination notice
The best practice is to know your jurisdiction’s rules on terminating a lease and include those details in your lease so your tenant will not be surprised. Clearly include the termination notice period as well in the lease agreement. For example, one month notice period is practiced in Delhi NCR for residential properties.


  • Registering the lease agreement

Now that lease agreement has the above mentioned clauses, it’s time to register the lease agreement. If you are leasing or renting your property for a short time period in India, a lease agreement is not mandatory, but the agreement is required if the property is being rented out for over 11 months. The agreement is registered with the local registrar office.

So, as a landlord, did you follow the above process of renting your property??







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Monday, April 16, 2018

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.

Thanks


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Monday, April 9, 2018

What is a completion certificate and how to apply for it?

Author: Sachin Gupta | Find me on Twitter

In our last post, we discussed about various approvals that are needed to construct a house. We also discussed that no matter if you are constructing your own house or buying it from the real estate developer; you still need to get approvals from relevant authorities within your city.

An important approval (or document) among all the approvals is completion certificate (CC). As the name suggests, this certificate is granted after the completion of construction of your house or a group housing society. The certificate is issued when the property is ready to be moved in. Completion certificate is issued by the local development authority/Municipal Corporation certifying that:

  1. All necessary works have been completed according to the design plan and other directions, and
  2. The property is fit for moving in.


Therefore, it is your duty to apply for completion certificate when the house you are constructing is ready to be moved in. Or you should ask your developer to get the completion certificate in case you are buying the property in a group housing society such as high rise or low rise apartment complex.

Find below the procedure for obtaining the completion certificate:




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Monday, April 2, 2018

Looking to construct your own house on a given piece of land? Pay attention to stages of construction and the cost part of it.

Author: Sachin Gupta | Find me on Twitter

Planning to build your home on a piece of plot? What are the things that one needs to keep in mind before embarking on a year long journey of construction and dealing with multiple contractors, suppliers, etc? Surely, as an owner of the plot, you would have got multiple offers from architectural firms, contractors about the cost estimate. However, before even talking to these firms, one need to do his/her cost estimation.

Constructing one’s house is not easy because of the nature of the work. One needs to work/deal with professional firms such as architects, contractors and at the same time deal with labor. Therefore, you not only need to plan the stages of construction but also the costing part of it. Doing the cost analysis helps you in analyzing what you need to build and what you can postpone for future dates. For example, if your budget is limited, then in all likelihood, you may not go for modular kitchens, lavish bath fittings, etc.

Here we present the quick ‘to do’ list for you to arrive at a guesstimate of cost that you may incur during the construction of your dream house. This will help you in planning your construction stages as well as cost part of it.



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Tuesday, March 27, 2018

6 steps that can make real estate efficient and corruption free in India

Author: Sachin Gupta | Find me on Twitter

We have been writing a lot about the inefficiencies and mal practices in real estate sector in India. A lot of focus of our writing has been on highlighting the issues that plague the industry and how those issues can be tackled. While other ideas such as RTI; Aadhar; and recently Jan Lokpal bill has seen the light of the day, issues in real estate sector still remains unresolved. There is no denying that implementation of RTI, Aadhar, and Jan Lokpal bill will help in eliminating corruption from the government-public interface. But, what about real estate, where most of the cash finds its way? Why is the government not bringing in policy measures to cure the sector? We list some of the measures that can help in eliminating corruption from the real estate sector. In no way, these are the only measures, but, we are confident that implementation of the following measures will certainly help the sector.

  • Equalize market rate and circle rates

As the name suggests, market rates are determined by the economics of demand and supply equilibrium. Buyers and sellers participate in the market and transactions take place fairly & without any stimulus. Circle rates are the minimum rates fixed by the state government and a buyer of the property is entitled to pay stamp duty charges on these rates whenever a transaction takes place. For example, in Gurgaon, the market rate of an apartment in a multistory building is 7000 Rs/sqft, while the circle rate for the same apartment as fixed by the state government is 4000 Rs/sqft. For a 1000 sqft apartment, the stamp duty charges as per the circle rate would be Rs. 320000. While the stamp duty charges as per the market rates would be Rs. 560000. Therefore, it presents an opportunity for the buyer to under report the apartment value on papers in order to save on stamp duty charges. Equalizing market rates and circle rates would eliminate the practice of under-reporting of the property value. However, this may affect the growth of real estate sector because of fewer transactions between buyer and seller. And this can lead to an adverse impact on GDP of the state as well as the country. Well, the move to equalize market rates with circle rates should also be complemented with reduction in stamp duty charges.

  • Reduce stamp duty charges:

Stamp duty charges are exorbitant in most states across India. Stamp duty charges are least in Madhya Pradesh at 0.5%, while they are about 8% in states like Haryana, Punjab, Rajasthan, UP. Now, let’s say stamp duty charges are brought down in all states to a uniform level of 1%. Therefore, one would now pay Rs. 70000 as stamp duty charges on a flat of 1000 sqft with a market price of Rs 7000 per sqft. This move will not only encourage buyers to report market value of the property but will also lead to more and more transactions. Research based on past transactions can result in the optimum value of stamp duty charges which incentivizes true reporting as well as increased velocity of transactions across states in India.

  • Cap on property transfer on government sponsored schemes

On government sponsored schemes such as the recent DDA flats scheme, there should be a tenure cap. In other words, people who applied for the scheme and got allocation should not be able to sell the allocated apartment in secondary market for a fixed time period (say, 5 years). This happens in many countries in EU. The tenure cap will drive away speculators and only the real needy people will participate in the whole process. Can you imagine for 15000 DDA flats, some 15 Lacs application came. But this one looks impractical because banks, government bodies, and agencies all made money by issuing a lottery system. And then, they would say, we are pro-poor and these schemes help poor of the country. We came across a property dealer in Delhi who filled 8 forms for the DDA scheme. He called in various relatives and friends from his native Bihar and he made sure that at-least 8-9 forms were filled. He paid for the whole process and in return if a flat was allotted to any of those 8-9 members, he would share 50% of the proceeds. Everyone knows what a big lottery this whole flat allocation system is, yet government is not changing the policy. And who is benefitting? Government bodies by charging a fee for every form sold; banks for providing upfront money to the customer at an interest; and the rich who already owns multiple properties.

  • Cap on home ownership in certain cities

Certain cities such as Mumbai, Delhi, and other major metros have become unaffordable for the masses. A basic 2BHK is virtually out of the reach for a salaried person and he/she has to go to the outskirts of the city to fulfill his/her dream of home ownership. People with deep pockets own multiple properties in these cities. Housing is considered an investment vehicle first and then the basic need. In China, the government has moved in recent years to quell home price amid worry that surging costs could lead to social unrest and has set Home-Ownership Curbs in Shanghai and Beijing. Can it be done in India?

  • Computerization of property titles across the country

E-governance is the need of the hour. When there is no dearth of talent in the country when it comes to software development and technology, why don’t we see the computerization of property records? In many instances, a single property is registered under 2 or 3 names and this leads to disputes. Computerization of property titles will not only eliminate property disputes but it will also help in land acquisition processes for mass urbanization.

  • Make it easy as far as capital gains tax are concerned

An individual is liable to pay capital gains tax whenever there is significant gain over the buying price. Applicability of long term and short term Capital gains taxes should be made simple. In order to reduce or avoid being liable to pay capital gains tax, an assessee can either purchase a house within a period of one year before or two years after the date on which the transfer took place, or construct a house within a period of three years after the date of transfer. Why can’t we have a common wealth tax instead of so many complicated tax structures?

Is it desirable as far as real estate is concerned or are we just getting too ahead of ourselves?





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Thursday, March 22, 2018

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???




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Friday, March 16, 2018

What are the various kinds of documents that are required to avail home loan in India? What are the documents a salaried class, self employed, businessman needs to present for home loan in India?

Author: Sachin Gupta | Find me on Twitter

As per the recent report by National Housing Bank titled “Report on trend and progress of housing in India 2012”, the following observations were made.

The urban population of India has been growing at a rapid pace. As per the Census 2011, 31.16 per cent of the total population is in the urban areas. The shortage of housing units for the urban areas for 2012 is estimated at 18.78 million units.

With time, there has been expansion and improvement in the housing finance market by way of various financial reforms; however the housing loans as a percentage of GDP have remained at around 7 percent, significantly lower than the levels achieved in most of the developed countries.

During the financial year 2011-12, housing loan which is disbursed to individuals across India stands at Rs. 68221.12 Crore. Out of which about 71.34% was used by individuals for acquisition/construction of new houses, about 2.63% for repair of existing houses, and about 26.03% was used for purchase of old/existing houses (resale properties). The housing loan availed by individuals across India continue to increase year on year by an average of about 20%. All these numbers suggest that home loan is a key factor when an individual goes out to buy home.

However, before one approaches the bank or housing finance companies for housing loan, he/she needs to have the papers in order. Papers about income proof, bank statements, PAN Card, etc. What are the documents that are required to avail home loan? This is a question many of you are confronted with. And therefore, we have put together a comprehensive list of documents that are required for home loan. Find it below:






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Saturday, March 10, 2018

What are the main approvals you need from the concerned authorities in urban areas while constructing a house in India?

Author: Sachin Gupta | Find me on Twitter

Building one’s own house is what most people dream of. You are always filled with the excitement of designing your bedroom, drawing room, choosing the right set of tiles for the floor, bath fittings, modular kitchen design, etc.  However, in all this frenzy, one might lose track of important approvals that are required from the city planning bodies.

Whether you are looking to construct your own house in Gurgaon, Delhi, Noida, or other cities in India, the approvals you need from urban bodies remain more or less the same. For example, if you are constructing your house in Noida, then, you must focus on these necessary approvals and accordingly design the house including Bedroom Layout, Modular Kitchen in Noida, Bathroom Layout, Open Areas, Fire Fighting Safeguards, Rain Water Harvesting Rules, etc.

To ensure that your dream home takes a concrete shape in a smooth manner, you need to obtain certain approvals from the concerned authorities such as Municipal Corporation, Area Development Authority, Electricity Board, Water Supply and Sewerage Board, etc. You must submit relevant documents/certificates along with the design plan to the concerned authorities.

In case, you are not constructing your own house and rather you are buying it from the real estate developer in a group housing society, then again, you need to verify that your developer has approvals from the concerned authorities such as Municipal Corporation, Area Development Authority, Electricity Board, Water Supply and Sewerage Board, etc.



Here is a quick reference for the main approvals you need from the concerned authorities in urban areas while constructing a house:






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Monday, March 5, 2018

Looking to sell the house or your property? Pay attention to these tips!

Author: Sachin Gupta | Find me on Twitter

In May 2012, one of our colleagues decided to sell his 250 square yard plot in Delhi NCR region. He has bought the plot in 2003 and therefore, the capital appreciation gains were substantial. He wanted to sell this piece of plot and buy another plot in different city. The idea was to build a house on this new plot and live there. Therefore, he has reasons to sell the plot. However, when looking to sell your property, the first question you should be asking is “do I really need to sell?”

  • Do you really need to sell?
There can be in-numerous reasons to sell the piece of property you own and these reasons can range from shifting to new city, family wedding, education, or building/buying a bigger property, etc. Analyze those reasons carefully and discuss within your family members before arriving at the decision to sell the current property you own. Because make no mistake, selling is no easy job, it takes time as well as it incurs unwanted expenses such as brokerage fee, advertising fee, paper work, no-due certificates fee, etc. One can also explore the possibilities of obtaining loan against property (LAP) in order to fulfill the current need for funds rather than selling the property. However, once, you have considered all the possible options and selling is the best bet, then pay attention to the following advice.


  • Verify the prevalent market sentiments

The true value of the property is what a buyer is willing to pay in a transparent and mature market. Therefore, once you have decided to sell, do the quick check of property valuation and this is how you do it:
    • Check the selling price of highly similar properties which have been sold in recent months/days within the same locality. As a seller, you would not like to sell at below market prices. If there is no data available for similar properties, then check the selling price of dissimilar properties and adjust for dissimilarities in the selling price. For more on, property valuation, visit Property Valuation in India
    • Check for the time-duration it took others to sell their property. If it takes longer to sell, then it can be safely concluded that market sentiment is low and you would have to wait for long time period before being able to sell your property. However, one can always 'sell in distress' at high discount. This is what happened to our colleague since market sentiments in 2012 were low and he had to wait for 6 months before selling the property at a substantially lower price.
    • Check for the rental values of the similar properties within your locality and city as a whole. Sometimes, property transactions (sale/purchase) might be slow but there is demand for the housing and therefore, rental values may be appreciating whereas capital values have remained stagnant. This is what is happening in the current real estate market across India. In this scenario, it will be advisable to stay invested in your property and earn decent monthly income by renting it out for some time and sell the property when market sentiment is strong.



  • Selling process
Finding the right buyer for your property is not easy. Because property transaction involves large amount of money, one needs to be careful in advertising the property, dealing with brokers, and prospective buyers. 
    • Online classifieds: list your property on online classifieds portals. Don’t just list the property blindly on all available classifieds portals. Rather select the ones which have high degree of trust among other sellers and buyers and at the most list your property on 2 online classified portals.
    • Brokers: approach the local area property brokers and enquire about current property market sentiments before listing your property with them. One should never list the property with multiple brokers. Rather list with 2-3 trustworthy brokers. "The best approach is to ask some brokers about buying the similar property and ask some brokers about selling the property. If there is substantial difference in the buying price and selling price as quoted by the brokers, then it indicates that there is demand for the property in the market but real estate brokers are downplaying that demand". In that scenario, it is better to wait and strike the deal when you get the best possible price for your property.
    • Agreement to Sell: once you have identified the buyer, check for his/her credential to pay the required amount in mutually agreeable time period. It is advisable to ask the buyer to make reasonable advance payment (say 20% of the property value) with the condition that in case the buyer subsequently backs out from the deal or fails to make full payment and take possession of the property in accordance with the terms & conditions of the deal/agreement, such advance payment will stand forfeited and will not be paid back to the buyer. This is known as “option” and should be included in the “agreement to sell” paper. The time period between “agreement to sell” and “sale deed” can be mutually decided between the buyer and seller. The prevalent trend is about 45 days or 2 months.
    • Sale deed: after the “agreement to sell”, the next step is to formalize the “sale deed”. ‘Sale Deed’ should be signed and title documents handed over to the buyer only on the receipt of full and final payment. Once the deal is concluded, full payment is received and Sale Deed signed, insist on the registration of the property in the name of the buyer with the Sub-registrar of assurances under the provisions of the Indian Registration Act. Consulting and engaging a good lawyer before selling the property to a person or organization is a good and sensible idea.

  • What are the risks in property selling?
As explained in the article above, the property selling process is long and there are inherent risks and one should be careful with the following elements:
    1. Inappropriate valuation of the property
    2. Selling through too many real estate agents
    3. Dubious buyers


  • Taxes

In case of sale of house property, long-term capital gains are taxed at the rate of 20% after availing indexation benefit. The indexation rates are released by the Income Tax department each year, which can be applied to arrive at the indexed cost of acquisition of the property sold. Short terms capital gains on house property, on the other hand, are included in the gross total income and normal tax rate is applicable.

Exemptions from Tax

The Income Tax Act 1961 contains certain provisions that offer exemption from tax on long term capital gain arising on sale of house property, these are as under:
  • If capital gain is invested in new residential property: Section 54 of the Act protects capital gains arising out of sale (or transfer) of a residential house (original asset) in either of the following situations:
    1. One has purchased a new residential house either within a period of one year before the date of sale of the original asset or two years after the date of sale of the original asset.
    2. One has constructed a residential house (new asset) within three years after date of sale of the original asset.
  • If long term capital gain is invested in capital gain bonds issued by specified institutions:
Section 54EC, under various schemes (as listed below), provides exemption to capital gains arising from any long term capital asset (original asset), provided the capital gains are invested in long term specified assets covered by Section 54EC within 6 months from date of sale of the original asset. The said Section requires locking of the funds for 3 years. However, the investments made on or after 1 April 2007 in the long term specified assets during any financial year should not exceed Rs. 50 lakhs.

Section 54EC Schemes for Capital Gains Tax Savings
    1. NHAI Capital Gains Bonds issued by National Highways Authority Of India.
    2. REC Capital Gain Bonds issued by Rural Electrification Corporation Of India.


  • Stamp duty and registration charges:
Stamp duty and registration charges are borne by the buyer and these charges differ from state to state. Visit Stamp duty and registration charges in India for more.


Above all be patient in the entire property selling process!


Data Source For Tax considerations: National Housing Bank




Have any Questions?

Monday, February 26, 2018

How to calculate the true value of the property? What are the methods to real estate valuations? Am I paying the right price for the apartment?

Author: Sachin Gupta | Find me on Twitter

Alright, you have now decided to purchase your dream home or a commercial property. But hang on, before you jump on the bandwagon and go for property hunting, keep in mind the valuations. By valuations we mean how much the property is worth at given point of time. So, you got to ask these simple questions…am I paying the right price for this property. Can I get anything lower than this? You need to understand the concept of market value before financing or investing in a property.

Market Value:
It is the most competitive price which a property should bring in an open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus.

How do you value a property?
There are 3 principle approaches to valuation of property. All these approaches require you to gather market information before you apply these approaches to value a property. The data you need to gather is:

  • Identification of location or sector you are looking to buy the property
  • Effective date of value estimate
  • Gather market data on current rentals, capital values, and presence of social infrastructure



Approach 1 – Sales Comparison approach:
This approach is based on data provided from recent sales of property highly comparable to the property under consideration. If there are differences in size, scale, location, age, and quality of construction between the property being valued and recent sales of comparable properties, adjustments should be made to compensate for such differences. The more differences that must be adjusted for, the more dissimilar are the properties being compared, and less reliable the sales comparison approach. The fundamental principle for this approach is that an informed investor would never pay more for a property than what other investors have recently paid for comparable properties. Ideally the data should be collected of properties that are situated in the same locality (sub market).

For example, if you looking to buy an apartment in a builder project in Sector 85, Gurgaon. Collect the information about all other projects within the same locality and see at what price points apartments in those projects are being sold. Adjust for luxury specifications, approach towards apartment complex, and builder track record of successful and quality delivery. As an example, the price at which new apartments are being sold in Sector 85 is Rs. 5500 per Sq. Ft. A reputed developer has launched a new project at price point of Rs. 6200 per Sq. Ft. Why? Is this project offering luxury specifications? Is this project nearer to Highway or metro rail? Or what could be the reason for high prices? Ask these questions. Similarly, if something is being sold at below rate, try to understand why? Is there any litigation with the property? Are there any construction defects?


Approach 2 – Cost Approach:
For a new property, the cost approach ordinarily involves determining the construction cost of building, then adding the market value of the land. In other words, what will it cost you if you were to buy a piece of land and construct by yourself.

So, again, if you are looking to buy an apartment in Sector 85 in Gurgaon, check the prices of land or plots in the same locality. Let us assume, a 250 Sq Yd plot is sold at 60000 Rs. per Sq. Yd.

Below are the calculations you should do in order to arrive at the property value using cost approach.




















Approach 3 – Income approach:
This approach is based on the principle that the value of a property is related to its ability to produce cash flows. This approach is highly recommended for commercial properties and least effective for residential properties. The income generated from commercial properties is capitalized to arrive at the correct valuation. We will cover this approach in details in next article.


So, now that you have some methods to calculate the worth of property you are considering to buy, we are hopeful that you will buy the right property at right price point.

Cheers :)


Have any Questions?

Monday, February 19, 2018

What are the various styles of real estate investment strategy and factors that affects property investment?

Author: Sachin Gupta | Find me on Twitter

Are you an investor looking to invest in real estate? What are your motivations for investing in real estate? In this article, we will consider motivations for real estate investment, variables that affect property market, and various styles of real estate investment patterns.

Make no mistake; most retail investors avoid investment in stock markets because of complicated financial jargon and relative ease of realty market to absorb cash. The idea is to invest in property (particularly residential) and leave it as it is for years to generate handsome capital appreciation value. However, one must be careful before blindly investing in real estate. Understanding, the local micro market such as its demand driver and supply is crucial in order to reduce investment risks. In the following document, we highlight the objective of real estate investment, risks, and what are the various ways one can invest in property market:






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Monday, February 12, 2018

Taxation aspects for an NRI, PIO, or a Foreigner for buying an immovable Property in India

Author: Sachin Gupta | Find me on Twitter

Buying a property has tax implications. If a property is meant for income generation, then one has to pay income tax in addition to property tax, service tax, Capital Gains Tax, and wealth tax. Tax guidelines vary from state to state in India. A typical resident of India who has invested in property has resources and time to adhere to taxation aspects.

However, an NRI or PIO or a foreigner can find it cumbersome to adhere to taxation aspects of buying an immovable property in India. What are the various kinds of taxes, what is the definition of NRI or PIO as per income tax act, and what are the various tax exemptions? These are some of the questions a Non Resident Indian (NRI), Person of Indian Origin (PIO), or a foreigner will be confronted with. Here we present the detailed paper for taxation aspects for an NRI, PIO, and Foreigner for buying an immovable property in India:

Tuesday, February 6, 2018

Things to consider while buying a Property

So, finally decided to make a big move or still contemplating whether to take a step forward or not? There are so many things you think about when you want to make the big move of buying your own house. Be it buying a 2-bedroom, duplex, penthouse or a bungalow, its always a big decision.

Every buyer goes through series of questions and to find answers, they have to look at multiple websites, blogs and do a lot of research. There is never a single document which talks about all the facets of buying a property. So today, I’m going to try put all the steps required based on my experiences.

I have been lucky enough to have a chance to experience buying multiple properties, as an investment as well as buying a house to stay in. So, to help save the frustration first time buyers go through, I’m going to try to jot down all the points a buyer might think of before making the big decision.



Before any other questions arise, the most important thing to remember is the reason to buy a property. What are the motivation factors to buy a property?
  • House to stay in
  • Investment
  • Probably both
Let’s try drilling down for all of those options.

If you are buying as an investment,
  • How much are you willing to invest
  • Are you taking any loans?
  • what kind of returns are you expecting?
  • how long can you stay invested to get your returns?
  • can you afford to book a loss?
  • What’s your primary investment goal? Capital appreciation or rental yield? If both of them which one is more important 
Buying a house to stay in,
  • How long do you plan to stay there?
  • How is your job, source of income, do you see a steady cash flow for at least few years?
  • Changes that might happen in future (marriage, have kids, dependent parents moving in with you, in an unfortunate case death of loved one, divorce)
Both (first investment and then some day you plan to stay there or vice versa),
  • In addition to above points
  • Where are you staying right now, with parents, siblings, in a rental home, in company paid accommodation as you are in a transferable job?
  • Define your tentative time line for each activity
Ok, so now you have already decided why to buy and have already answered the above questions, next question will be as to what kind of property – under construction or second sale.

Each have their own pros and cons and everyone person has to weight what is more important for them. An under construction property will be a brand new house and you can get the interiors done as you like without having to demolish anything. But that mean after you pay your initial amount, there can be a long wait. You will start paying your EMI much in advance to actually staying in the house. Some people are ok to do so if they already have a house to stay in or live with your parents or siblings. But if you are renting out your current place, then it can get very expensive as you will be paying rent as well as EMI.

On the flip side, a second sale house might be difficult to find as you will want to find a house which is done to your liking. Its not impossible but it does take a lot of time and effort. When I bought my house, I couldn’t afford paying a rent and EMI, so I decided to buy a second sale property. It did take me 5-6 months to find a house but when I did, it was perfect. I could move in immediately once the paperwork was done.

Be it a first time buyer or a savvy buyer, every buyer has to go through different stages in their buyer’s journey.  Let’s dive a little deeper to understand what to expect at every stage.

Initial iterative stage:

  • At this stage you are really not sure what kind of property you really want and how much money would you need for it
  • You spend at least 60-70 % of the property hunting time in this stage.
    • Money Matters: You don’t have an exact idea how much this property is going to cost and can you manage that money? Note: You will need at least 20-25 % of the property value in cash
    • Selecting a Size/Type/Design: Deciding between 2 bedroom or 3 bedrooms, penthouse or duplex
    • Selecting a Locality:Ask these questions to yourself. How well do you know the locality? How know it well? Is it convenient?Proximity to your lifestyle needs (night life, malls, nature parks, medical facilities, grocery stores)
    • Selecting a Project: Are you fascinated by a particular condo or a complex? Have you got a particular size you are looking for,what are the amenities required?
    • Selecting a Unit: what view are you comfortable with? Garden, swimming pool, parking lots, another building,etc., any religious spiritual things involved.Does it need to be east / north facing, fengshui, vastu shastra, condition of the unit. Amount of repair work
You will go through this stage multiple times until you have found the right property. This iterative stage stops only when you have identified the property. But remember to use a top down approach – identify budget, then size type, the locality, the project and finally unit.

After this comes the closing stage.

  • You have identified the property, more or less comfortable with money matter and actively reaching final agreement with the seller
  • Before you start negotiating, make sure you have done a thorough research on the market price. Also, check what price the other units were sold at. This will help you get a fair understanding of what the seller might be expecting.
  • If the house you are buying is for investment, then also find out the rent the house would fetch. Check if the rent can pay off the EMI or you need to top up.
  • With this, also make sure you find out the maintenance fees and sinking fund if any.

 

Lastly, with all the above done, doing the paper work:

  • Token amount
  • Black/White part of the deal
  • Registration
  • Final settlement
  • Possession
This can be a little tricky as there is a lot of paperwork to do, lot of legal matters to take care of. It is advisable to get professional help if you are buying a property for the first time. Without prior knowledge of real estate, buyers get bogged down and don’t really know if they are doing the right thing. So to be stress free and to make sure that all the paper work is correct before moving into the new house, get yourself a property advisor who will not only help you find property, negotiate but also help with get the right paper work done for your dream house.

Depending on where and how you are buying, these points might defer. But the overall stages will remain the same in every buyer’s life.Hope this article help you make the right choices and happy shopping!


This is a blog post by Karishma Patel

Thursday, February 1, 2018

What are housing bubbles and how to predict them?

Find below the info-graphic illustrating the formation of housing bubbles and how to predict them. We have seen this scenario being played out in US that led to the financial crisis of 2008. We have seen housing bubbles in UK as illustrated in this info-graphic.

We have also seen housing bubbles in China especially in metropolis such as Shanghai, Beijing. And recently, we witnessed the housing bubble in India wherein housing prices rose sharply during the period 2004 – 2010, and then started to fall from 2013. Several investors including real estate developers, investors, and end-users have suffered great financial losses since the bust of housing bubble in India. Therefore, it makes sense to refer to this info-graphic to understand if the housing market is in bubble or not and how long will this bubble last. Based on this understanding, one can time the entry and exit from housing market across the world.

”How

Monday, January 29, 2018

How can one verify Property Titles in India??

Looking to buy a piece of land or plot or ‘ready to move’ property? Well, it can cost you in crores of Rupees. Agreed, you have arranged for the funds and also have done your due diligence. But, did you verify the ‘title of the property’?

Before you even initiate price negotiations with the seller for buying that plot or property, make sure you verify that ‘title of property’ is clear and the seller has the right to sell the property or land. The property shall be in the approved sector or area within the city. Make sure, property is located in an area where local municipal department has provided civic services such as sewage lines, water lines, and electrification. If it’s a ‘ready to move in’ property such as Bungalow, villa or independent house, make sure that property had been developed as per the local applicable building codes.

What does clear property title mean? A title that is free from claims or legal questions and all other encumbrances about the ownership of the property. Therefore, it is imperative for you to assess property titles carefully. One should take services of legal experts when it comes to verifying property titles. However, we present below the list of legal documents that can help you in verifying the title of the land that you intend to buy.


Monday, January 22, 2018

Vastu Tips for Home Buyers

Are you planning to buy a flat or an apartment?

 

Great! Now that we are in the year 2016 buying an independent house is out of the question. It is better to think of buying a flat or an apartment. There are many Advantages of Apartment Living.

But before you buy your brand new apartment or flat you need to analyze a few factors.

Vastu Shastra or the science of architecture is something that you need to examine for your new home.

Some people either deliberately or not so deliberately tend to ignore the Vaastu factors when buying a new home.

Often this creates a lot of problems in the new homes, and it never dawns that certain unresolved elements are welcoming negative energy.

So, what we are going to do here is provide you with Vastu tips for your new home:

 

Directions:


The northeast direction is considered to be one of the sacred directions from mythological perspective and scientifically.

Let us ignore the mythological facts and focus on what are the scientific aspects:

In India, the Northeast direction is the farthest one from the sun. This means the Southwest is closer to the sun and if you keep this area of your home open you are welcoming the sun's UV radiations.

 

UV rays are they good? Of course not!


You do not want to fill your home with these dangerous UV rays.

So, if you have been keeping your home's Southwest door open, close it now and let us think of Northeast.

Vastu comes from the word Vas which means Space and Time.

These are the two most important components of life science that you should not ignore.

As far as Indians are concerned Vastu Shastra is the science of architecture, a legacy, handed across generations.

It is something that we need to nurture and preserve in its best form to lead a happy life in our living spaces.

 

Health, peace and prosperity are the three things that we all want in our homes.


Vastu Shastra is a science that takes into consideration the Solar Energy and Magnetic power of the Earth.

Vaastu also follows the Cosmic Law of Nature. The sun's rays have a significant effect on our body.

We are not aware of these. But staying exposed to the sun's dangerous rays for a longer time can cause severe mental problems.

Have you ever heard elders or someone tell you that you need to sleep with your head facing the South or West?


Why?

Because we know that our head is the North of our body and the feet is the South of our body.

We are aware of the fact that like poles attract and unlike poles repel.

 

So, what happens now?

Consider your body as a magnet.

When you sleep with your head facing the North and feet towards the South, you know what will happen.

The blood circulation increases when all you need is little circulation while sleeping.

So keep your head towards the South or West while sleeping.

Now you realize why Vastu is an important factor that needs to be taken into consideration when buying flats or apartments.

When choosing a builder or an architect, check whether they incorporate all the Vastu Shastra components while building the flats and apartments.

We want you to experience an immense flow of positive energy in your homes and so we recommend you cross check whether your builders consider Vastu Shastra in building dream homes.

As per Vaastu, if not possible to leave all the four directions of your flat or apartment or villa open, you need to at least let the North and East directions of your home open.

There is a lack of space everywhere, so many buildings are being constructed side by side, so obviously it is not possible to leave all your doors open.

But at least, one of them you can keep open to ensure the flow of positive energy in your homes.

We never said that you cannot choose homes that face the South or West direction because there are many people around the world living in such apartments and are leading a happy and contented life.

 

So what according to Vastu are these directions doing?

 

  • West: Brings in materialistic comfort
  • East: Brings in the most important factors mental peace and physical comfort
  • North: Ensures prosperity
  • South: Redemption, Salvation, and relieves you of all the earthly woes.

So if you are eyeing for material wealth then don't think more, a flat facing the West will be the best choice.

But, life is more than materialistic richness.

 

Some Astrology:


Indians especially since we belong to the land of the great Dwarakapuri and having been introduced to the Vedas and ancient sages and rishis, we have belief in Astrology.

 

Vastu has some relation with Astrology too.


For people who belong to the star sign Pisces, East Facing houses are suggested.

If you belong to Libra, Aquarius or Taurus, West Facing houses are the best.

For people belonging to Aries, Sagittarius or Leo, North Facing houses are recommended.

Gemini, Virgo and Capricorn go for South facing houses.

 

Vastu Shastra for Kitchen:


This is where health begins. Ensure that the flat or apartment that you're buying does not face the North East. It would be great if it is in the South West direction.

 

Vastu Shastra for Toilets and bathroom:


In India, the direction of the wind is from Northeast to Southwest, so if your toilets or bathrooms are facing the North East, the air will enter your rooms from the toilet, and it will contaminate the other rooms.

Bathrooms and toilets are best facing the Southwest direction.

 

Vastu Shastra for Bedrooms:


Best recommended that you keep your bedrooms facing the Southwest direction so that you can enjoy a sound sleep after a tiresome day at work.

These are some of the simple tweaks and tips that you can follow when buying a new house or you can think of introducing these points in your home.

Are you buying your first home or apartment? Or do you own a home? Are you leading a happy life? Did you get the Vaastu examined before moving into your new apartment? Share your thoughts and comments on Vastu with us.


This is a guest post by Vipin Nayar

Monday, January 15, 2018

Due - Diligence: A must do exercise before investing in a property

Author: Sachin Gupta | Find me on Twitter
 
Sumit Sharma was ecstatic having done renting vs. owning and home loan analysis and was now all set and ready to go for his dream home. All of a sudden he got to know from various sources such as newspapers, radio and his colleagues about some cases where builders have failed to deliver the project on time, or there were litigation issues and deviations in homes from what was promised. That was a cause of concern and since, buying a home is a lifelong decision and therefore nothing should be left to luck. He decided to go for a comprehensive check with the help of a real estate agency. The agency adopted the L BID (Lets Break It Down) approach and came out with following verification:

Verification of the Project:

1. The agency got the copy of most important documents in verification of a new project such as Copy of intimation of disapproval (IOD) and commencement certificate (CC) from builders. Only after complete verification, they recommended the client.
2. They asked for and studied the copy of approved drawings of the project for an under construction project and recommendations were made accordingly.
3. Land title verification is crucial in a sense that land should be free of litigation and any kind of associated debt. The agency with a team of legal professionals verified the land documents.
4. They also checked the copy of functional water connection, electricity connection, and occupation certificate in order to make sure that deal was hassle free and transparent.
5. The agency also checked if the property to be bought is mortgaged with the lender (such as bank, or housing finance companies). If that was the case, they asked for a NOC (no objection certificate) from the lender.

Verification of the price of home:

1. In addition to the base selling price, there are other additional costs associated with the project. The agency hired by Sumit Sharma also verified the total cost of home in addition to project verification.
2. Stamp duty verification: to check if the rates quoted by builder are on the super built up area or carpet area.
3. Registration Fee: to check if the rates quoted by builder are on super built up area or carpet area.
4. Floor rise: to check for the prices with the builder
5. PLC charges: to check for the prices with the builder
6. Infrastructure development cost (IDC): to check for the prices with the builder
7. External development charges (EDC): to check for the prices with the builder
8. Car parking charges: to check for the prices with the builder
9. Society and club membership: to check for the prices with the builder
10.Electricity and water charges: to check for the prices with the builder
11.Power Backup charges: to check for the prices with the builder
12.Lease Rent one time: to check for the prices with the builder
13.Interest Free Maintenance Security (IFMS): to check for the prices with the builder
14.Fire Fighting Charges (FFC): to check for the prices with the builder
15.EEC: to check for the prices with the builder
16.Extra space in storage rooms and lawns: to check the prices with the builder

The agency verified all these charges with the builder and asked for them to be included in the builder buyer agreement in order to avoid future escalation of the price.

Verification of other important elements:

1. Monthly maintenance charges
2. Ratio of carpet area to super area
3. Delivery date and what are the penalties if project is delayed?
4. Penalties for deviation in size of the house
5. Who is the supervisory authority and legal dispute authority?
6. Possibility and ratio of loan availability.

The bottom-line is to carry out property & builder assessment, verify the charges, legal terms and get them included in the sale agreement.

So friends, have a look at this checklist and if need be take the services of a professional real estate agency or lending institutions in order to make sure that your lifelong savings are being invested in the right property.


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