The rise of India’s commercial real estate market

While talks about the residential real estate sector have got people gripped, commercial property is not far behind. Thankfully, good days have returned for office real estate property in India, with lots of domestic and foreign companies looking for space and many businesses in expansion mode. Bangalore being the prime location for office spaces, many companies are purchasing apartments in Bannerghatta road Bangalore and converting them into office spaces.

• Change in government

One of the most stabilizing factors is last year’s general election and that was one of the reasons behind the upswing of the real estate. It brought with it new confidence in the country’s economic development. Though, the country witnessed uncertain times in the first quarter of 2014, and market morale was low, sentiment improved gradually following the elections. Apart from buying apartments in Bannerghatta road Bangalore, the city of Mumbai, for example, witnessed 65 per cent appreciation in average deal sizes between the second quarter of 2014 and the second quarter of 2015.

The growth of the real estate sector can also be attributed to expanding businesses, especially due to India’s emergence as an attractive offshore destination. The government’s decision to introduce incentives to attract foreign investors plays a role. Also, the availability of a large pool of highly skilled technicians and engineers, customer-friendly banks and housing finance companies, the country’s favorable demographics, and increasing purchasing power. Increasing professionalism among real estate brokers is also cited as an advantage.

• The big three cities

Major shares in the profit are gained from tier 1 cities such as Bengaluru, Mumbai, and New Delhi. These cities are technological, commercial, and political hubs respectively. According to a survey, these cities even outperformed global commercial property market when it comes to annual rental yields. The Indian office market has been maintaining a healthy traction in 2014 and has clocked office space transactions of 18 million square feet in the first six months of 2015.

It is a record year for Bengaluru, which is expected to transact office space to the tune of about 12 million square feet in 2015. The three cities have also endured the largest individual transactions in the sector, with big corporations and expansive start-ups such as Flipkart and Snapdeal picking up a lot of office space. Some of them are purchasing apartments in Bannerghatta road Bangalore and expanding them to set up their offices. And with the growth in office activity, other commercial spaces follows suit, particularly retail, as well as hospitality due to increasing demand for lodging in the trade hubs from business travelers.

• REITs on their way

The Real Estate Investment Trusts (REITs) is expected to come up with a future boost. However, due to some legal barriers, the scope of taxation proceeds from such trusts remains unresolved. Foreign investors will be allowed to buy units. It will help reduce pressure and stress on the banking system to fund the real estate sector as REITs will enable the industry to propose fresh equity by attracting long-term finance from domestic and foreign investors. The Indian REIT sector is expected to give a further push to commercial real estate and is tipped to attract investments. So far, REITs worth a total of $20 billion in assets are mainly focusing on Grade A office space and parks, logistic space and warehouses, malls and shopping centers, hotels and other commercial space.

Today, the potential of the Indian real estate sector is enormous, but there needs to be a clear solution with regards to REIT taxation. Among other trends, there's been a steady growth of the commercial sector, which is favorable for organizations.







This is a guest post by Deepak Yewle

Can development of Secondary Mortgage Market help fix the housing shortage in India?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

As has been documented on numerous occasions about the shortage of housing in India, till 2012 (as per the census results) the housing shortage in urban areas stood at 18.78 million units**. About 99% of this housing shortage pertains to the economically weaker section (EWS) and low income group (LIG) categories. That’s a whopping number and constructing those many housing units for growing urban population will take enormous effort on the part of government, private businesses, and finance ministry.

Providing low cost housing finance to plug the housing shortage is seen as the key ingredient. However, most banks use traditional products such as using funds from deposits to finance long term housing loans. Therefore, to provide housing on a scale as large as in India, the concept of secondary mortgage market may well soon be adopted in India. In this article, we will briefly talk about the secondary mortgage market and why it is difficult to implement in India.

What is a Secondary Mortgage Market:

The secondary mortgage market is active in developed economies such as USA, Europe, Japan, Australia, etc. The primary function of this market is to provide a mechanism for refilling funds used by mortgage originators (Banks, Housing Finance Companies, etc.). This, in turn, enables them to maintain a flow of new mortgage origination during periods of rising and falling interest rates. They may accomplish this by selling mortgages directly to government agencies or private entities. Or they may form mortgage pools and issue various securities, thereby attracting funds from investors who may not otherwise make investments directly in mortgage loans. Hence, much like any corporation raising funds for doing business, the primary goal of mortgage originators in today’s market is to replenish funds by reaching broader investor markets.

In addition to direct sales of mortgages from originators to investors, many large mortgage originators found that they could place mortgages in pools and sell securities of various types, with mortgages in these pools serving as collateral. With the assistance and expertise of investment bankers, large mortgage originators can then issue securities in small denominations which would be purchased by many more investors. Firms with smaller mortgage origination volumes could continue to sell mortgages directly to government agencies, which in turn would create large pools of their own and issue securities.

Many types of mortgage related securities have been developed in recent years. The number and types of securities are continuing to increase as mortgage originators, investment bankers, and government agencies continue to innovate and reach investor markets that provide the ultimate sources for many of the funds used in new mortgage origination. Major types of mortgage backed securities are:

1. Mortgage backed bonds (MBBs)
2. Mortgage pass through securities (MPTs)
3. Mortgage pay through bonds (MPTBs)
4. Collateralized mortgage obligations (CMOs)

Why it is difficult to implement in India?

RBI recently came out with a report listing down the reasons for non-implementation of secondary mortgage market in India:

1. Low Investor Base
2. Cultural factors
3. Poor capital market infrastructure
4. Regulatory environment
5. Legal hurdles
6. Lack of proper accounting standards
7. Taxation
8. Poor quality of assets
9. System deficiencies
10. Lack of standardization

Road Ahead:
It is clearly evident from the discussion above that development of secondary mortgage market in India is inevitable given the scale of housing stock that needs to be provided. And sooner, we as a country fix some of the issues facing secondary mortgage market; the better it is for growing urban population and economic growth of the country. In 2011-12, the housing loan disbursed to individuals stood at Rs. 68221.12** Crores. With secondary mortgage market in place, this disbursed loan amount can achieve the global levels. And at the same time, provide a mechanism for transparent debt markets.

** Source: National Housing Bank

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Can I afford to buy a home given my current income levels? How do I calculate Home Affordability?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

This piece of blog is meant to illustrate if the home you are buying is affordable or not, given your current income levels.

For many of us working in IT/ITES; Auto; Manufacturing; other services sector, buying a home is a long-term financial commitment. On one hand, we have the aspirations of owning a home while on other hand we have the obligation to fulfill that aspiration. This is where a quick home affordability analysis would help us a great deal given our current financial situation.

Step 1:
Assess your current household income (include your spouse salary to it)
Household Income = your current take home salary + your spouse take home salary + other sources of income

Step 2:
According to global standards, one should allot maximum of 40- 50% of household income for home loan EMIs.
As an example, if your net household income is 1 Lac rupees, allot maximum of 50000 rupees for paying EMIs.

Step 3:
Most banks offer floating home loan rates, Therefore, we will only consider floating home loan rates here.
Analyze current home loan rates (It would help if you have the data for last 5 year home loan rates, because interest rates tend to move up & down in cycles)
As an example, let’s assume home loan rates are @ 10.5% and tenure of the loan is 240 months.

Step 4:
Calculate the home affordability ratio which is
Value of home /your net household yearly income
In this example, the net household income=1200000
Value of home=6260142
HAR (Home Affordability Ratio) = 6260142/1200000, that comes out to be 5.21.

As a thumb of rule, the home affordability ratio should fall between 4.9 and 5.4 for the home to be considered affordable.

Therefore, before proceeding to buy your home, doing simple maths would go a long way in assessing the value of home that you can afford.

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5 most brutal accidents in the recent history of infrastructure projects

We are all accustomed to high levels of safety when it comes to construction of infrastructure projects these days. From bridges, to railway networks, to Metro line construction, to expressways, to dams, we expect nothing less than ordinary. The factor of safety in today’s construction is very high and therefore we don’t get to hear massive tragedies at infrastructure projects.

However, it was not all that rosy; it took human beings hundreds and thousands of years to reach these levels of safety. Here we present 5 most brutal accidents in the recent history of infrastructure projects.

Source: Five deadly construction sites

Celebrities’ amazing homes and guess which celebrity own these homes

Home decor is a personal and subjective choice and often reflects the personalities. Take a look at celebrities’ amazing homes and guess which celebrity own these homes!

What shall I do if interest rates go up?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Sumit booked his apartment in a builder project in 2010 in Noida Extension. He booked a 4BHK unit measuring 2250 Square Feet at a base selling price point of Rs. 1950 per Square Feet. Prices were affordable and he was able to book the apartment within his budget:

Area of the Apartment (SqFt)	2250
Base Selling Price (Rs/SqFt)	1950
Development Charges (Rs/SqFt)	225
Car Parking (Rs)	150000
Club Charges (Rs)	100000
Interest free Maintenance Charges (IFMS) in (Rs/SqFt)	85
Final cost of the apartment (Rs)	5335000

Out of the required 53.35 Lacs, he arranged for 13.35 Lacs from his own sources such as cash, provident fund, and fixed deposits. Balance amount of Rs. 40 Lacs was availed from a leading bank in form of home loan. Home loan rates in 2010 were hovering at around 8 to 8.25%. Which meant his monthly payment in form of EMI was Rs 33458 for a period of 20 years. His home loan interest rates were of floating type. This meant whenever, RBI revises repo rates, home loan interest rates would go up or down depending upon RBI monetary policy.

Everything was going as per plan; however, as the inflation started to go up because of various macro economic factors, RBI started revising its monetary policy. The focus of RBI moved towards bringing inflation under control. And therefore, interest rates started moving up. From about 8% in 2010, the interest rates jumped to about 11% in 2014.

What it meant for Sumit was that his EMI outlays increased over a period of time. At one point of time, he was paying monthly payment of Rs 41288 in form of EMI. That’s an increase of Rs 7830 per month.

What can Sumit do to maintain his EMI under control?

1. Stretch the loan tenure: Sumit had availed home loan for a period of 20 years. However, since, interest rates had moved up, he could sit with bank officials and seek to extend the loan tenure to 25-30 years. Thereby, he can bring his EMI under control.
2. Move to another lender: Sumit can also move to another lender offering lower interest rates. In this case, he has to study and analyze the offers by various banks. And if there is a difference of about 0.5%, then, Sumit can switch to another lender to bring his EMI under control. However, he should check if there are any pre-payment charges with existing lender. As per RBI rule, customer can move from one lender to another without paying any pre-payment charges.
3. Prepay portion of the Loan amount: Sumit can also prepay some portion of his loan amount to the existing lender. This way, his EMI would come within manageable limits.
4. Avoid shifting to fixed loan rates: When interest rates are fluctuating, many people believe fixed rates are way to go about. However, fixed interest rates are more expensive and at the same time, one cannot take benefits of lower interest rates as and when RBI brings interest rates down. Therefore, Sumit should stick to points 1, 2, or 3 and should completely avoid point 4.

Thanks. Please share!

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Mechanism for sudden price appreciation and need for regulator

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

To many this wouldn’t be a new thing, I am talking about the sudden increase in residential property prices in Indian metro cities between the periods 2003 to 2007. On a macroeconomic side, it is very well documented that prior to 2003, the property prices were significantly depressed and they shot up post 2003 on account of huge demand driven by increased jobs in sunshine sectors such as IT, Auto, and services. This coupled with relatively short supply gave further rise to real estate prices.

But how did prices go up so suddenly to the tune of almost 8 - 10 times. Well, I struggled a bit to understand that phenomenon and after years of being in real estate sector, here are my two cents.

Firstly, on account of increase in jobs as well as increase in income levels, the demand for housing was tangible. However, the supply was limited and new infrastructure has to be created to cater to that rising demand. That new infrastructure (if we talk about Delhi NCR) could only be developed in new locations such as Greater Noida, New Gurgaon, Golf course extension road, Greater Faridabad, Far away Ghaziabad, and so on.

Now, simple calculations will tell us that cost of construction is about rupees 1200 per square feet (I am talking about high quality construction at current prices). Add land prices to that number, and you would arrive at rupees 1300-1400 per square feet of developed land in the new locations mentioned above. So, how could builders of these new developments in those locations sell those properties for about Rs. 2500 – 3000 when you have properties being sold in primary (already developed) locations such as Faridabad, Noida, Gurgaon, Ghaziabad being sold for Rs. 1800 – 2000 per square feet. No guessing here, the prices have to move northwards in primary locations to justify the Rs. 2500 – 3000 in new locations.

But how do prices move northwards in primary locations? Well, tried hard and after spending some years in real estate sector came to realize that it needed vitamins, injections, or even better steroids. To illustrate it very simply, take a case of real estate sector in Noida where land rates in 2003 were hovering at around Rs. 800 – 1000 per square feet in most localities. All of a sudden builders ABC, XYZ, and few more enter the market and purchased the land plots for Rs. 3000 – 4000 per square feet and I am talking about the primary Noida locations here. What it meant for those builders was loss of money (maybe 50-100 crores) having bought the land at high prices when same was available at very low prices. What does it mean to Mr. Sharma, who believed that since Mr. Verma has sold his plot at Rs. 4000 per square feet, that he wouldn’t sell it for anything less than the Rs. 4000. And rest as they say, residential land price of Rs. 4000 per square feet became the market price in no time.

Now, the very same builders were developing the new locations and now that the price in primary location has already been put on steroid, they can charge Rs. 2500 – 3000 in new locations. So, for the loss of Rs. 50-100 crores, they can now easily make thousands of crores. No fault of theirs, in a capitalist world maximizing value is the key and they did it in open market. However, presence of real estate regulator could have avoided this steroid and maybe saved the common man with pains of going to new locations when most jobs are in primary locations. Given the income levels in major metros, can you justify the prices of real estate? No, and that’s where the real estate regulator could have been helpful.

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UK’s Generation Rent

Presenting below the info-graphic on UK’s Generation Rent!

Young adults between the ages of 18 – 35 who are living in rented accommodation in UK are known as UK’s Generation Rent. 

This segment of population has little chance of becoming homeowners because of high property prices in UK. Is it true? Let’s compare UK’s Generation Rent with other nations in the EU.

Source: https://money-pod.co.uk/guides/generation-rent/

Mistakes to avoid when you rent out your apartment

A real estate report that was released recently highlighted the facts why Bangalore is considered as the most preferred city to stay in the country and also to invest in properties. While the real estate and property markets are down in cities such as Mumbai and Delhi, the report suggested that Bangalore has now a high rate of residential properties and the rate of rented apartments is going up with every quarter. Bangalore has a typical mobile population wherein people, young adults to be precise, come to the city to study and work on a temporary basis. This has resulted in the increasing numbers of rental accommodations like houses, flats and paying guests in Bangalore.

There are certain dos and don’ts that tenants need to keep in mind while finding a rent house in Bangalore so that the deal is profitable and stay is comfortable. However, as an owner also, one must keep in mind certain factors to avoid making mistakes. Grabhouse.com, India’s first broker free housing portal lists down the common mistakes that one can avoid as an owner of rented properties.

The first basic mistake that a landlord might make is deciding on a proper rental amount to charge. Apart from the basic rental charge, there are many additional charges that as a landlord, one might need to pay. These may include maintenance bills, water bills, etc. If the tenant has to pay these separately, you may keep them out of the rental charges. Else, make a list of the utility items that you need to pay and make it part of the entire rental charges for the tenant.

Make sure to conduct a background check on your possible tenants before you allow them to stay in your house. It eliminates the possible chances of inviting uncalled troubles if the tenant turns out to be someone charged with legal cases or similar other situations. It also helps you stay clear of the legal issues as a landlord. You can call up their workplace or any reference number to get a background check about the person or the family and then decide accordingly. If required, do not hesitate to check on your tenant after renting out the house also. Regular screening of the property and the house and a proper credit check of the tenant is important.

One basic rule of being a landlord is to be familiarized with the various legalities involving the laws of real estate sector and what it means when renting a house. Get yourself familiarized with the various aspects of the laws regarding renting out apartments to the tenants. You can consult a legal adviser specialized in this sector. Be sure about the policies involving security deposits, maintenance costs, and payment of rent on a mutually agreed upon day, parking and other community charges if any.

While preparing the lease document, make sure to include all the clauses pertaining to maintenance of the house, items provided by the owner, payment of rent on a particular day of the month, extra payment for the utility items, etc. Get the lease documents verified by your legal adviser, read it carefully and share it with your tenant. If your tenant suggests changes, get it verified by the adviser, come to a mutual agreements and then sign the paper, after you have read it carefully (again!).

Before renting out the apartment, make sure to have discussion regarding the revision and raising of rent amount annually. Discuss the percentage of raise and other associated charges properly to avoid ambiguity at a later stage.

Lastly, maintain a cordial relationship with your tenant. It will help in having the same tenant year after year and will develop the trust. Ensure that you are there to help them if they need you and offer to fix any damage in the house immediately that has not been caused by them.

This is a guest post by Shanaya Mehta

What are the major differences between Real Estate Venture Funds, Real Estate Investment Trusts (REIT), and Real Estate Mutual Funds?

Real estate investment from an individual’s point of view is a large investment wherein large amount of money (in Lacs, or in Crores) is required to purchase either a commercial or residential property. The money invested sits there in the asset and over a period of time capital gains are accrued by the investor. The capital gains thus accrued depend on supply demand equilibrium prevailing in the market. If property is available for use, the investor can use it for own purpose or rent it out to earn rental income. Thereby, investment in real estate can fetch twofold returns namely rental yields and capital gains.

However, only investors with deep pockets can afford to invest in real estate asset class. What about retail investors with small amount of money? Can’t they invest in real estate just like they invest in stock markets? Yes, they can by way of participating in either Real Estate Investment Trusts (REIT) or Real Estate Mutual Funds (REMF).  Read more about Real Estate Investment Trust.

Find below the major instruments that can be used by investors to invest in real estate without actually buying a Property:

• Real Estate Venture Funds

Investment Audience: HNIs, institutional investors and global investors (since minimum investment required by each investor is worth millions, retail investors are outside the purview)

Investment Target: Real Estate Assets (Projects/Ventures), securities (of listed/unlisted entities) or both.

Investment Returns: 25-30% (on an average)

Leading Entities: Indian players (such as Kotak, HDFC, ICICI, Kshitij, DHFL) and international players (such as Actis, Morgan Stanley, Maple Tree, Sun Apollo, Lehman Brothers etc).

• Real Estate Investment Trusts REITs

Overview: Close ended investment vehicles that invest only in real estate assets (through property or mortgages). It is floated as a company with issued share capital. ( REITs are structured as corporations with issued share capital)

Investment Audience: Retail as well other institutional investors

Investment Target: Real Estate assets only (either through mortgages or property). It invests primarily in ready to use, constructed properties only.

Investment Returns: Returns in the range of 10-15% annually from rental income of property owned by REIT.

• Real Estate Mutual Funds REMFs

Overview: Close ended funds that invests primarily in securities issued by real estate companies (and to some extent assets as well).

Investment Audience: Retail as well other institutional investors

Investment Target: As per SEBI guidelines, at least 75% of the total assets should be invested in real estate or related securities. Further, a mandatory 35% of assets within the stipulated 75% have to be invested in completed real estate assets. The remaining 25% can be invested in securities related or unrelated to the real estate sector.

Investment Returns: Expected returns in the range of 35% (largely capital gains through investment in securities or sale of assets at time of closure).

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

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

In our last post, we discussed 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 the construction of your house or a group housing society. The certificate is issued when the property is ready to be moved in. A 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.
3. The construction is carried out as per the building codes set up by the development authority.
4. The building adheres to the earthquake guidelines, fire fighting guidelines, and do not breach any safety parameters.
5. The interior work also has been completed as per the approved layout map. 
6. The development authority has no role in the choice of interior fixtures such as bath fittings, electrical fittings. Fans, cooling systems, ventilation systems such as an exhaust fan, airconditioning, appliances, furniture, electronic items, kitchen fittings, are decided by the homeowner and the development authority has no role in that.

Therefore, it is your duty to apply for a 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 a high rise or low rise apartment complex.

Find below the procedure for obtaining the completion certificate:

What is the completion certificate and how to obtain it from Green Realtech Projects Pvt. Ltd

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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 Follow @sach_gupta

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:

What are the main approvals you need from the concerned authorities in urban areas while constructing a house from Green Realtech Projects Pvt. Ltd

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

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

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

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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 Follow @sach_gupta

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 :)

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

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

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:

What are the various styles of real estate investment strategy and factors that affects property investment from Green Realtech Projects Pvt. Ltd

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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 the 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 a 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 the housing bubble in India. Therefore, it makes sense to refer to this info-graphic to understand if the housing market is in a 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 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.

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

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

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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Natural Disaster Preparedness: How to Stay Safe at Home

"Natural Disaster Preparedness: How to Stay Safe at Home" 

Find below some steps you can follow to make your home stand the toughest catastrophes like floods, storm, earthquake, and landslides.

This is a guest post by Keys90

How will Real Estate Regulatory Bill (RERA) help home buyers in India?

Real Estate Regulatory Bill (RERA) has been passed and is now being implemented at state levels. How will Real Estate Regulatory Bill (RERA) help home buyers in India? Here is quick look: