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 www.nirrtigo.com 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:




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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])

Thanks


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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