Thursday, October 31, 2013

What makes residential property rates go up & down???

Author: Sachin Gupta | Find me on Twitter

Recently one of my best pal visited one of the zillions property agent/dealer in Delhi NCR region, inquiring about the residential properties in Gurgaon and Greater Noida. He was looking to buy the residential property from an investment perspective. Now, just like any common man with black or white money (none of my business) in his pocket, he threw a plethora of questions on the poor property dealer. What is the current price in this region, that region, and that region?...what was the price last year? Is the property rights true or not?...what do you think of residential property appreciation?....what makes residential property go up & down?...and many such simple but make no mistake important questions.

Now, let me explain you why i called the property dealer "poor" because most of them are in the business not by choice but by 'no choice'. There is a saying these days "In India, whoever is out of job is either a Neta or a property dealer". However, they seem to be good at facilitating things and in the process makes a good commission if deal comes through. Now, asking these simple yet important questions to these property dealers is not going to satisfy many of the common people just like my friend.

So, what makes residential property prices go up & down? Lets Break It Down (L BID) to smaller elements. We all would agree that Demand and Supply are the two smaller elements of movement in property prices.

Now, what affects Demand? L BID again and we get 5 core smaller elements:

  • Economic base (Nature of employment in the region under consideration)
  • Income assessment of the people living in that region
  • Population Growth
  • Interest rate trends
  • Property tax rates

Just to illustrate, one would have noticed that certain regions are dominated by particular industry (IT in Bangalore) and income levels of people in IT industry are higher compared to say manufacturing industry. What do we understand from this?? I guess, you guessed it right, if population growth and interest rate trends are favorable then residential property rates would appreciate much faster in IT dominated region than in manufacturing region.

Now, what affects Supply? L BID again and we get 3 core smaller elements:

  • Land availability
  • Factors of production such as labor, capital(money), materials
  • Environmental restrictions, building codes, other regulations

Just to illustrate, one would have noticed that in certain regions huge amount of land is available such as outskirts of major metro cities (Gurgaon, Noida, Faridabad around Delhi). Since there is shortage of usable land in Delhi, the property prices tends to move up because for a limited amount of land thousands of people are running and each one has the money to outclass the other. In-fact, within a city say Delhi, in certain areas such as GK, because of shortage of usable land and other appealing facilities such as retail, educational, recreational, etc. the prices tend to move up compared to other areas within Delhi.

Finally, having understood the Demand & Supply elements, the current market equilibrium is done in order to understand the current property rates and why they are moving up or down.

So folks, whenever in doubt regarding the property prices or related things, L BID the issue and don't throw these questions on poor chap (property dealer).



Have any Questions?

Tuesday, October 29, 2013

How does the new Real Estate Regulatory Bill in India help me? What impact will this bill have on real estate sector in India? And what are its shortcomings...

Author: Sachin Gupta | Find me on Twitter

In June 2013, Government of India brought in Real Estate Regulatory Bill to provide for a uniform regulatory environment, to protect consumer interests, help speedy adjudication of disputes and ensure orderly growth of the real estate sector and has been much awaited by all aspiring home buyers.

The Real Estate (Regulation and Development) Bill, 2013 is a pioneering initiative to protect the interest of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects.

The Bill focuses on 3 principle parties namely, the real estate developer, the buyer, and the regulator.



What does the Bill intend to provide in nutshell?

  1. Introduction of the concept of using only ‘carpet area’ for sale which has till now been ambiguously sold as super area, super built up area etc.
  2. Register real estate agents which have hitherto been un-regulated, with clear responsibilities.
  3. Promoters (Builders) to register all projects, prior to sale; and only after having received all Approvals from development/municipal authorities and functions.
  4. Real Estate Authority(s) and Appellate Tribunal in the States, to enforce accountability norms for the promoter buyer and the real estate agents.
  5. Timely completion of projects, and prevent fund diversion.
  6. Speedy and specialized adjudication mechanism to settle disputes between the promoter, buyer and real estate agents.
  7. Developers or builders have to put aside 70 per cent of the proceeds of a particular project in a separate bank account which will help to fund the project and in timely delivery.

Well, in its present form the bill appears to be a "Real Estate Thana" and every wrong doing by real estate developer can be reported in this "Thana" and necessary action will be taken as per the Bill's guidelines. However, we all know, how long and tedious it gets to get justice from "Police Thanas". So, let’s wait and watch what action or justice comes out from this new "Real Estate Thana".

Make no mistake, even though the bill falls short on policy front...yet it could prove to be helpful for buyers. However, the bill would have served the larger purpose if it were to encourage people including builders, buyers, and government agencies to do right things instead of taking action when something wrong has been committed. Lets explore...

What is needed?
We need environment ministry, income tax authorities, revenue department to work in tandem with Real Estate Regulatory Authority to provide clearances, keep a check on fair practices, and study the real estate market regularly.




  1. The idea is to have a single window clearance mechanism wherein real estate developers submit their plans for approvals and the regulator approves or disapprove the same. It is estimated that, this alone can reduce the cost of housing by about 20%. Phew…
  2. Income tax department to check who is buying the property from developers. In other words, it should be made mandatory by law for real estate developers to disclose the buyer details. This will ensure true demand for the housing and keep away speculators. After all housing is a need first and then investment vehicle.
  3. Revenue department to study the real estate and housing market carefully and then levy stamp duty. It is widely believed that reducing stamp duty and registration charges will encourage buyer and seller to report the market value of property instead of the circle rate value. Thereby, eliminating cash from resale market.
  4. Environment ministry to provide timely and consistent environment clearances with regards to water, natural resources, forestation, etc.
  5. Land acquisition department to ensure that land has been acquired as per the governing law.

Well, we do not live in an ideal world and let's hope slowly but surely, the role of real estate regulator evolves and we have an act that promotes fair practices on part of all the concerned parties involved.

Thanks




Have any Questions?

Saturday, October 19, 2013

Grave injustice - The BMC is wrong to target flat owners of Campa Cola Compund Worli instead of builders

Grave injustice!

The BMC is wrong to target flat owners instead of builders

To right a wrong is justice. But when that involves punishing the innocent and rewarding the culprits, justice is not served. Yet, the residents of the Campa Cola compound in Worli, Mumbai, face a very similar situation.
To summarize, about 60 years ago, in 1955, the BMC leased 17,901 sq mt to Pure Drinks Ltd, which then converted 13,409 sq mt of the entire plot into a residential zone, and gave the development rights to PSB construction, Yusuf Patel and B.K. Gupta. In 1983, their plans to build nine buildings of five floors each were sanctioned. However, the builders eventually constructed seven high-rise buildings from 1981 to 1989. While four of the buildings are limited to about six storeys, two towers of 20 floors and 17 floors were also constructed. This despite the fact that the BMC issued several stop work notices and a penalty in 1986. Or as the Supreme Court states in its judgment, “It is a different story that after issuing a ‘stop work notice’, the authorities of the Corporation buckled under pressure from the developers/builders and turned a blind eye to the illegal constructions made between 1984 and 1989.” So the builders built, sold and gave possession of all the flats, without an occupation certificate (OC) and hid material facts such as the lack of BMC approval, the sanctions, stop work notices, etc. Nor did the builders execute a conveyance to the buyers.

A review of the facts suggest that had some of the buildings not appealed to the Bombay High Court for a water connection, this case would probably  have never come to where it is today. The BMC, instead of providing a water connection to the other  buildings, issued a demolition notice, stating that the original sanctioned plan allowed for only five floors. The demolition notices cover an area of approximately 8,000 sq mt. Yet, a 2010 order by the chief minister’s office states that the area beyond the permissible FSI limit in this case is only 1,774 sq mt. And if that wasn’t odd enough, the Supreme Court has upheld both – the BMC’s demolition notices and the chief minister’s order! Which begs the question – how can the BMC demolish 8,000 sq mt when the Supreme Court has agreed that only 1,774 sq mt is illegal?

But this case is not just about legal discrepancies. There are much larger issues at stake. The BMC seeks to demolish these buildings in order to set a precedent that such unauthorized construction will not be tolerated. In doing so, it harms 102 flat owners, and over 200 innocent families. Demolishing these buildings serves no purpose other than an empty chest thumping in the name of making an example of unscrupulous builders, and worse, rewarding Pure Drinks with the FSI that will result from the broken flats. Nor does the BMC seek any punishment for the builders, the actual lawbreakers.

In another twist to the case, Pure Drinks sold the remaining, undeveloped parcel of land to Krishna Developers, who sought to develop the property. But the plot remains undivided as per BMC records and due to the ongoing issues, the builder has been unable to construct as planned. Many residents allege that the builder is hand in glove with the BMC to destroy the 8,000 sq mt, and buy out the remaining five floors to ensure a large, prime piece of real estate for the builder and his backers, while the current residents, many old and infirm would be out on the streets.

It is also rather unimaginable, how the BMC plans to demolish over 15 floors of a building while leaving the remaining five intact, without any harm to their foundation or structure? By the BMC’s own admission, there are over 65,000 illegal structures in Mumbai. Experts believe that number is actually far greater. Then why is the BMC hell bent on singling out this group of residents, when it can  easily charge them a penalty, destroy a much smaller part of it, regularize it and make it legal?

BMC supporters allege that the residents are at fault for buying an apartment without an oc. But in a city like Mumbai, it wouldn’t be an exaggeration to say that over 30 per cent of all apartment owners must lack an OC. Besides, at a time when most people buy an apartment before it has even been constructed, there is no choice but to rely on the builder and hope that the plans have been approved by the BMC. To set a precedent that builders will go unpunished, and buyers will be homeless is devoid of compassion, but most importantly, logic.

Courtesy: Business India

Wednesday, October 16, 2013

What are the various kinds of taxes and charges you have to pay when buying a property, residential plot, or apartment in India?

Author: Sachin Gupta | Find me on Twitter

Ok, you have finalized your property; i.e. residential plot or an apartment. Now what? Well, in addition to paying the property price, there are other charges which are incurred and are broadly categorized as follows:

  1. Transaction charges
  2. Stamp duty and registration charges
  3. Service tax
  4. Value Added Tax (VAT)
  5. Capital gains tax to be borne out by the seller for a resale transaction


Transaction charges:
Transaction charges are those that are spent in availing the services of property broker. In case, you are buying an under construction property from real estate developer, then transaction charges are Nil. However, if you are buying the property from resale market such as a residential plot or a completed apartment, you will be paying the brokerage fee which is equivalent to 1% of the property value.

Stamp Duty and Registration Charges:
Real Estate Stamp duty is a type of tax accumulation by the Government of India. Stamp duty is established on the agreement value or on the market value whichever is greater.



For other states across India, click stamp duty and registration charges in India

The procedure also includes a registration fee for properties costing more than Rs. 30,000, which is fixed at 1% of the market value or the agreement value, whichever is higher.


Service Tax:
Service tax is applicable for under-construction property. In other words, if you are buying in an under construction project (apartment, flat, villa, etc.) from real estate developer, then you will be liable for service tax on property price. 

Service tax under composition scheme stands at 3.71% of property price.


Value Added Tax (VAT):
Recently, supreme court of India ruling states that the sale of an under construction property would be liable to VAT. It is likely that real estate builders will pass on this additional VAT on buyers. The VAT under composition scheme stands at 3% of property price.


Here is an example showing different charges for buying an apartment in Gurgaon, Haryana.



So the question to be asked is, if you would like to purchase an under construction property or completed one? While, in an under-construction property you will pay as per the construction plan whereas in a completed project the entire amount is payable within mutually agreed upon time period of 2-3 months.

In an under-construction property, you can make payment through cheque (white) whereas for a completed property you will end up paying by cheque and cash (black). The amount of money you pay by cash is dependent on the market value of the property minus the value of property as per the government circle rate. Why do a seller prefer cash component? Well, to save on capital gain taxes which stand at 20%.

Now, that you have a bit of information about various charges and taxes in property transaction. You decide J




Have any Questions?

Saturday, October 12, 2013

Selling tricks used by real estate developers and how to avoid them

Author: Sachin Gupta | Find me on Twitter

Greetings of the start of the festive season in India  Happy Navratri 2013!

With festive season around, the spirits are high. Most of us buy big ticket items during this time of the year. The big ticket items may vary from buying a house, car, gold, etc. It is also that time of the year in India when marketers will come up with sale offers; discount offers to lure customers in making a purchase decision.

However, buying a home is a lifelong commitment and you will be paying EMIs for several years and therefore don’t fall in the trap of these discounts, offers, schemes, etc. Instead, you should do your due-diligence so that you do not repent later.

We have put together a list of 9 things that the sales executive of a real estate developer will throw at you in order to close the deal. Make sure to research all these 9 things just like this smart buyer has 




So, Are you a smart buyer???



Have any Questions?

Friday, October 11, 2013

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




 
Have any Questions?


Thursday, October 10, 2013

Project launch-Vardhman Flora Byculla Mumbai

Press Release: Vardhman Group launches Vardhman Flora in Byculla

Luxury project with 2 & 3 BHK apartments to change skyline in Byculla

Mumbai: Vardhman Group, one Mumbai’s leading and oldest real estate groups, has recently announced its new project – Vardhman Flora in the up-market area of Byculla, in South Mumbai. Soaring up to 36 floors, Vardhman Flora rises above all else in Byculla promising to alter the skyline of this neighborhood. The project offers a magnificent view of Mumbai’s famous skyline.

Vardhman Flora is one of the first projects where the tenants will be shifted in the transit accommodation provided by MHADA in the same belt opposite to the project; hence the tenants are shifted in the new transit accommodation provided by MHADA in the newly constructed building of the mill land.

The project is centrally located, and is close to local stations like Byculla, Cotton Green, Reay Road and Chinchpokli. Also located in close proximity are hospitals like Prince Ali Khan and J.J Hospital as well as reputed ICSE and SSC Schools. People living in the complex will be spoilt for choice with numerous leisure options ranging from 5 star hotels like ITC Grand Central to shopping malls and theatres in the vicinity. The central business district of Lower Parel with corporate parks is also within quick access, besides the upcoming monorail will add a lot of value to this project.

Vardhman Flora gives home-buyers the opulence of spreading out their life, by giving a very rare privilege that exists in this city: the luxury of having only 2 flats per floor. With choices of 2BHK for 1100 sqft and 3 BHK for 1500 sqft, the apartments at Vardhman Flora have enough natural light and cross ventilation from all sides. Column free spaces add to the luxury of limitless size of the apartments. The project also features majestic full height windows for a panoramic view with high ceilings. Immaculate finishing whether it’s the veneer on the door, wall paints, concealed wiring or window frames add to the impeccable interiors.

The design for Vardhman Flora adheres to the group’s philosophy of ‘Responsible Living’. The concept of responsible luxury will be pioneered by Vardhman Flora across every facet of its iconic residential haven. The structure is designed to provide adequate natural light and air that give the residents clear visibility and coolness without flicking on a switch. Every fixture and fitting used to light up the building’s compound will be energy efficient and rain water harvesting systems channelize the abundant monsoon productivity. Besides, every apartment in Vardhman Flora will be designed after intensive sun path analysis to ensure optimal sun light within the living spaces with minimal heat gain.

Speaking of the project, Mr. Rajesh Vardhan, Managing Director, Vardhman Group says, “Vardhman Flora is the most ambitious project for our group, and the entire project is driven by a passion to create not just residential apartments but rather a landmark that catalyzes the future structures in this city. I am sure that this project will redefine the perception of luxury to include spaces that encourage responsible living.”

Spread over more than 250,000 sq. ft., Vardhman Flora is likely to be completed by 2016.



About Vardhman Group 

Vardhman Group is a revered name in the real estate industry and has become synonymous with luxury living and engineering sophistication. The Group has grown exponentially during its journey spanning close to 50 years. Mumbai city bears witness to a lot of the Vardhman Groups signature structures – innovative, well-engineered landmarks that make no compromise on quality. Customer satisfaction and value for money is the motto of the Vardhman Group.

Wednesday, October 2, 2013

Around 140 families, 35 floors, and a thousand affected people face demolition of constructed floors in Mumbai's Campa Cola Compound Worli. Whose fault is it?

This is a post on behalf of the Campa Cola complex and all those facing demolition of their homes.

"A man is determined to find justice after the loss of a loved one, even though he is incapable of fully remembering the crime. Is the same true for a person who is about to lose their home?

How does one deal with knowing they will have no place to go tomorrow?

Is it an emotion that can be contained in a blog post? Is it something that can garishly be described in a picture of a demolition ball? What face do you show your 90 something year old grandmother when you have to tell her we have nowhere to live any more, we need to move out of your home for the last 20 odd years. What would you do?

We’re all crying here. Do we rent? Do we move city? How will we get through this? These are the larger questions, this is the surface, we haven’t begun to digest or acknowledge what we are really feeling inside.

Worli Naka is now going to be iconic not for its fantabulous view, it’s going to be known for a tragic site, something like what Jalianwala baug was, the same gravity and intensity, but jilted sentiment and energy, energy that could well be consumed in better and more important tasks.

We at the Campa Cola Compound Association, will do all the government asks us to, we will respect and heed the law. We have started packing our bags haven’t we ?  We have started looking for rental houses too. Some of us have help, some of us don’t. Some of us are young, some middle aged and some old. Some of our kids have exams, some of us are about to have children, some of our parents are paralyzed, all simple stories of real homes, being demolished.



35 Floors.
140 Flats.
A thousand people.

Each flat has a story. Each flat has a set of lives. Each of these lives, are fighting the thought of losing their homes.

They say you’ll never know what you have - unless you’ve lost it. We are this close to losing our homes, the place we go to every night – at the end of a long hard work day, when all other lights shut, those at home shine bright. Help us keep our homes, help us keep our light".

- A soon to be homeless person...