To buy or not to buy property?

July 22nd, 2010 No comments »

In India, small real estate investors do not have as much scope as institutional investors at the moment. They can hold multiple properties, but banks will generally not fund beyond a second home loan. That does not mean that they cannot invest beyond that from their personal accruals, however. They certainly have the option of investing in rent-generating assets, which can fetch decent returns if they have been purchased wisely.

Despite the present limitations for small investors, a property investment can give the buyer protection against inflation. Like gold, real estate tends to retain its intrinsic value. However, unlike with gold, it is possible to earn a regular income on it.

Depending upon various economic factors, a property owner can increase rent in times of high inflation. Also, real estate is always good investment option because of the possibility of capital appreciation.

 

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Mixed response to building rule modifications

July 22nd, 2010 No comments »

The decision of the State government to modify some of the amendments made to the Kerala Municipal Building Rules, 1999, a few months ago has brought some relief to property developers in Kozhikode.

A few restrictions on constructions of buildings close to roads have been relaxed indicating that builders will revive some of their stalled projects as well as launch new ones in the city. The revisions have been in the access width for high-rise buildings, which normally is more than 15 metres from the ground (or over four floors).

The required access width of roads to multi-storey buildings, both residential and commercial, in the past was only five metres. But it was amended based on number of the units — a building with 25 flats should have a minimum access width of seven metres; 50 flats, nine metres; 75 flats, 12 metres; and 100 units or more, 15 metres.

Now the access width has been reduced on all categories and the total space of the buildings, whether small, medium or industrial, will also be considered.

The parking areas have also been reduced considerably by 15-30 per cent. “The revised rules are quite reasonable enabling the builders to go ahead with projects,” says M.A Mehaboob, secretary, Confederation of Real Estate Developers Associations of India (CREDAI), Kozhikode chapter.

A parking lot for two flats each below 100 sq.m and one for each unit above 100 sq.m is acceptable. Earlier, the rule insisted on having two parking lots, one for guest parking, for any single unit in an apartment.

Another is concerning the digging of ground for construction of basements. The amended rule maintained that a builder should obtain a no-objection certificate (NOC) from the neighbour if the depth is 1.5 metres or more or the measurement exceeds the length from the boundary wall.

Mr. Mehaboob says the rule of getting an NOC for digging purpose has been dropped and instead a committee constituted by the Corporation or civic body will look into complaints, if any.

However, a new provision has been brought in regarding the construction of a dedicated road inside the premises of high-rise apartments for fire tenders. The rule, applicable for commercial and housing buildings, has to be enforced even if a public road exists. Besides at least five metres should be left vacant on all sides of the high-rise buildings.

FAR

The Floor Area Ratio (FAR) has been left unchanged (If the floor area of a house is 2,000 sq.ft and land area is 3,000 sq.ft, FAR is 0.66).

The new rule says that builders can increase the FAR only up to 2.75, after remitting an additional fee. It will be Rs.500 per square metre for FAR between 1.5 and 2, and Rs.1,000 per square metre for between 2 and 2.75. Earlier, FAR for residential buildings was 3, giving property developers a wide option in planning buildings.

The coverage of high-rise apartments has also been considerably reduced.

Only 60 per cent of the land available should be covered by buildings having six to 50 units. Only 55 per cent of the land can be used for building having units between 51 and 100; 50 per cent for buildings having 101 and 200 units. The construction should be restricted to 45 per cent for apartments having 200 units and above.

Builders say that overall the new rules will support the construction industry but only to a limited extent as the amended FAR has been left untouched.

Several new projects in the city and the suburbs have been put on hold following the new rules. “The concept of affordable housing will only remain on paper if the government does not further revise the FAR rules, ” Mr. Mehaboob says.

Already builders are thinking of increasing the rates by Rs.250-500 per square foot from the existing rates. The new rule will increase expenditure for builders.

Even so builders can rejoice as the government has reduced the stamp duty. The effective rate of stamp duty, surcharge and registration fee in Corporation areas is now 11 per cent; in municipality, township and cantonment areas to 10 per cent; and in grama panchayat areas to 9 per cent.

A further reduction in stamp duty has been provided for environment-friendly housing projects.
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CREDAI seeks stress on infrastructure development

July 12th, 2010 No comments »

Infrastructure is a key issue that has to be addressed if urban gridlock is to be avoided, says Kumar Gera, chairman, Confederation of Real Estate Developers’ Associations of India (CREDAI).

He says that according to reports, the population in cities will grow by 60 per cent by 2030.

In five States, the urban population will be larger than in rural areas. By 2030, an estimated 70 per cent of the country’s GDP will come from cities. In such a scenario, infrastructure is hugely important and if it is not addressed, there would be a gridlock. Hence, “greater focus is needed on infrastructure.”

In India, unlike in developed countries, real estate is not part of infrastructure development, which includes roads, power and water.

Affordable housing, play areas and institutions were also real estate-related infrastructure.

Typically, in Indian cities, infrastructure comes after development and thus pushes the prices up in those areas. Those who are unable to afford the cost, had to look to areas with less infrastructure where prices were lower.

In States such as Maharashtra and Rajasthan, developers are encouraged to go in for townships that include infrastructure. On demand in the real estate sector, Mr. Gera says there was a slowdown about a year ago. Real estate came to a standstill in terms of sales and prices did come down by 10 per cent to 40 per cent. Prices had not returned to the earlier levels yet. They have started moving up. Demand for residential units is buoyant in most places.

 

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A budget push for affordable housing

March 16th, 2010 No comments »

It is official. The Union Budget 2010-11 has explicitly sent a message to the building sector in the country to focus more on building houses for the low-income groups.

It is an idea born out of necessity. The worldwide economic recession drew down property prices across the globe. Initially, it appeared that the property market in India, particularly in Kerala, would remain insulated from the global development. However, prices came down in India too, more significantly in some cities than in others.

For the less affluent

Under these circumstances, the idea of affordable homes caught up in the market. Housing for the less affluent and housing projects away from urban centres continue to hold the imagination of the public.

The Union Budget has just thrown its weight behind the concept and some analysts have interpreted it as an attempt to drive real property development into rural areas also where affordability is a must and housing requirements are high. The budget’s attempt is to invite the builders to the smaller towns in the country.

One of the key reasons for this view of the budget provision is the extension of the interest subvention scheme. The scheme for one per cent interest subvention for housing loans up to Rs.10 lakh, where the total cost of the house does not exceed Rs.20 lakh, was announced in the Union Budget 2009-10. In his budget speech, Union Finance Minister Pranab Mukherjee said the budget had provided Rs.700 crore for the scheme.

Consideration

It is a clear signal that housing for the poorer sections of society will get government consideration even in the future, said an official of a leading housing finance company. He said that affordable homes were a concept that had to be pushed more widely if housing requirements were to be met in the country.

However, considering it in the Kerala context, builders may not be so confident. One of the major reasons for this apprehension is the price of land, which is high almost on a uniform basis across the State, said a leading builder in Kochi.

Rural development

The increased allocation in the budget for rural development and rural housing are the other signals that moving away from urban centres will be advantageous to the builders in the long run.

The Indira Awas Yojana, a rural housing scheme for the weaker sections, has got an upward revision in allocation as the Finance Minister conceded increase in the cost of construction.

And so, the unit cost under the scheme has been raised to Rs.45,000 in the plain areas and to Rs.48,500 in the hilly terrains. The scheme has been allocated a total of Rs.10,000 crore for the financial year.

The budget reiterated that the government continued to focus on rural infrastructure development. The Finance Minister said in his budget speech: “For UPA Government, development of rural infrastructure remains a high priority area.”

The allocation for rural development is Rs.66,100 crore.

Focus

The focus on rural uplift is seen in the increased allocation of Rs.40,100 crore for the Mahatma Gandhi National Rural Employment Guarantee Scheme, which has completed four years.

The Bharat Nirman programme for upgrading rural infrastructure has received a substantial allocation of Rs.48,000 crore.

Sources in the housing finance industry predict that housing interest rates are likely to harden. Though institutions such as HUDCO are offering loans at eight per cent with a two-year fixed period, the trend is likely to change in the near future.

Private banks have already started raising rates and it is possible that their counterparts in the public sector too will take the cue, though it may not be until the July quarterly announcement from the Reserve Bank of India, sources added.

 
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Stamp duty cut wins wide applause

March 16th, 2010 No comments »

Property developers in Kozhikode city are happy about the proposals in the State Budget presented by Finance Minister T.M. Thomas Isaac in the Assembly last week.

One of the major proposals is to reduce the stamp duty and abolish the surcharge on stamp duty. “It is generally felt that stamp duty prevailing in Kerala is on the higher side,” Dr. Isaac said in his speech.

Repeatedly, builders have been demanding a cut in the stamp duty, which was the highest in the country. Now the proposal is to bring the effective rate of stamp duty, surcharge and registration fee in Corporation areas to 11 per cent; in municipality, township and cantonment areas to 10 per cent; and in grama panchayat areas to 9 per cent.

The existing stamp duty in Corporation areas is 13.5 per cent; municipalities, 12.5 per cent; and in the grama panchayat limits, 10 per cent. This apart, a 2 per cent charge is levied for registration.

Builders are also elated over the prospect of bringing down the stamp duty charge on flats and apartments to five per cent. “Surely, this is a radical proposal that will benefit the end-user. Moreover the budgetary proposal will give an impetus to the construction industry,” says Nityanand Kamath, Chairman, Confederation of Real Estate Developers Associations of India (CREDAI), Kozhikode chapter.

Clients who booked apartments and flats in Kozhikode have not registered the units because of the high stamp duty rates prevailing in the State. Many had kept in abeyance the registration even after occupying the flats. The proposal will make them register their property and bring revenue to the State exchequer, he says.

Reduction in stamp duty has been provided for environment-friendly housing projects. Apartment complexes having facilities for harvesting rainwater, energy- saving electrical appliances and solar panels for lighting and water heating will need to pay four per cent stamp duty. A chartered engineer should certify such projects. This concessional rate shall apply only if the transfer takes place within six months from the date of allotment of house number by the civic bodies.

Dr. Isaac said, “I feel that the construction industry, which is being badly affected by recession, needs a helping hand from the government.”

However, realty experts feel that the stamp duty needs to be reduced further in the range of 7-8 per cent to make the rates uniform with other States. Eventually, future governments will be compelled to buy this argument in the wake of the implementation of the fair value of land in the State, Mr. Kamath says.

The budget has already made a proposal that the fair value of land fixed on the basis of 15 categories will come into effect on April 1, 2010. “It was insisted that the fair value of land should not exceed 50 per cent of the market value. There may be some practical difficulties in implementing fair value. In order to resolve such difficulties, District Collectors will examine and redress such anomalies relating to valuation,” Dr. Isaac said.
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A ‘plateau’ for property segment growth

February 11th, 2010 No comments »

The year that has gone by belied the expectations of property buyers, mainly due to the reluctance of promoters to reduce rates significantly

The slump in the Indian property market as a result of the global economic meltdown was, in fact, a product of the year 2008.

Despite the revival measures implemented by the Union government and the Reserve Bank of India, such as reduction in interest rates and special treatment for loans up to Rs.30 lakh sanctioned to affordable homes, in real terms, the demand from buyers remained low throughout 2009.

At the same time, property development did take place, especially in the small segment.

The year saw Tata Housing, Godrej Properties and a few others going in for development of one-room apartments, especially on the outskirts of metros and in tier-2 and -3 cities.

Another trend was new marketing strategies such as offering modular kitchens and furniture to lure the low and middle income group.

We have seen plenty of ads projecting eco-friendly habitats, nil interest for the start-up period and longer/lower repayment schedules.

High prices

Prices remained high, mainly due to the reluctance of the promoters and developers to reduce the rates, maybe for reasons such as high cost of land paid earlier, cost of materials and labour and so on.

In Karnataka, one factor was the high level of ‘guidance value’ fixed by the State government about two years ago when property prices were at their peak.

Of course, there has been some talk in the State government corridors about revising the guidance value downwards in line with the market, but nothing has materialised so far. All said and done, 2009 was rather a ‘plateau’ for property segment growth.

Many authorities feel that the recession is almost over and the economy is looking up. Industrial indexes have gone up in a couple of months.

There is even a talk that it is time to withdraw the support measures provided by the government and the RBI. The recruitment activities reintroduced by some software companies also has given optimism of economic revival followed by sectoral growth. All these are likely to push up demand for housing in the first quarter of 2010.

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IIA slams new building rules

February 11th, 2010 No comments »

The Indian Institute of Architects have slammed the recent Government Order on amendments to the Kerala Municipal Building Rules, 1999, describing it as something that will sabotage the State’s development and adversely affect its economic development.

A recent statement from the institute said that it was with shock that the new notification was received by the community of architects.

Most of the revised rules were impractical and full of incongruities.

They were framed without consulting any of the stakeholders, such as architects, builders and the public.

One of the most striking feature of the Government Order was that about 80 per cent of the building permits could be issued only by the Chief Town Planner in Thiruvananthapuram, a return to the old regime, said Lalichan Zacharias, chairman of the Association, in the statement.

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Floating rate: old borrowers take the hit

February 5th, 2010 No comments »

If you have taken a home loan in recent years, you may be paying higher interest rates between 10 per cent and 13 per cent, whereas new borrowers are charged 8-8.25 per cent for the first two or three years and later on at around 9 per cent (as per prevailing rates then), which may be still much less.

Being a loyal customer who has been paying EMIs (equated monthly instalments) for the past few years, ideally the lender should have rewarded you by charging interest a notch less than that charged to the new customer.

The floating rate home loans are benchmarked to PLR (Prime Lending Rate) or Benchmark Prime Lending Rate (BPLR).

The PLR is defined as “the lowest rate of lending offered for the most preferred borrower and for such loans which are fully secured.”

A committee headed by Executive Director was formed by the RBI felt that there was much less transparency in fixing the PLR and it recommended to do away with PLR and introduce a base rate comprising of all cost elements which can be identified and are common across borrowers.

The committee recommended charging the same rate of interest for new borrowers as well as old borrowers under floating rate loans.

When it was expected that the woes of lakhs of home loan borrowers would end, the leading bankers aired their inability to charge same rate of interest for all borrowers old and new, under floating rate home loans.

The RBI officials clarified that since incremental funds have brought down average cost of funds for banks, why cannot they pass on the benefit to old customers.

Some bankers have expressed the fear that offering same interest rate for all borrowers may invite legal disputes as interest spreads (loans offered at PLR-2%, PLR -3% and so on) varied from customer to customer.

The RBI should help set right the injustice meted out to existing borrowers.

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Low-down on loans

January 22nd, 2010 No comments »

As we enter the new calendar year, the focus is once again on the interest rates. This time, unlike last year, the rates are showing mixed signs. While deposit rates have already dipped, the lending rates haven’t kept pace with them.

Even banks are playing the waiting game and have created innovative products. That makes life tough for the borrowers as they need to take an informed decision. Here are some tips for choosing your loan:

Many banks have launched hybrid loans wherein the rate is fixed in the first year of the loan period but is linked to the market rate from the second year onwards. Here, the assumption is that the rate would go up at a later date though chances of the rate coming down are not ruled out. For instance, some banks have pegged the first year rate at eight per cent. One of the reasons why the rate could be higher from the second year onwards is the linkage of the rate to the benchmark lending rate which still hovers around 10-11 per cent.

In the last few years, though banks have reduced the lending rate on special products, they have not cut down the benchmark rate. So, Barring home loans, most other loans such as personal loans or overdraft facility continue to attract an interest rate of over 14 per cent. Hybrid loans will be suitable for individuals who are looking at home loans with a tenure of less than 10 years.

Since the interest component of an EMI is large in the initial years, it will be profitable to go for this option even if the lower interest is for a period of one year.

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Welcome move for a regulator

January 22nd, 2010 No comments »

The building industry has responded positively to the proposal of the Union Ministry for Housing and Urban Poverty Alleviation to set up a regulator for the real estate industry.

The Model Real Estate (Regulation of Development) Act will get the building industry more organised and make the industry’s now unregulated operations more transparent, building industry sources said here.

Apart from the regulator, there will also be an Appellate Tribunal “to regulate, control and promote planned and healthy development and construction, sale, transfer and management of colonies, residential buildings, apartments and other similar properties,” according to the proposals.

The regulator will also host and maintain a website with all project details, to protect the public interest “in relation to the conduct and integrity of promoters and other persons engaged in the development of such colonies” and to facilitate smooth and speedy construction and maintenance of properties. The practical aspects of implementing the proposed Act include more or less uniform procedures for the building industry across the country, an industry source said. Currently procedures for obtaining building permits vary vastly from State to State.

The Act will make it mandatory for builders to register any development. If a property is not registered with the regulator it cannot be sold or transferred. Any complaint against the registered property developer will be examined and if the developer is found guilty the registration can be cancelled by the Regulator.

Advertisement or prospectus cannot be issued for sale of a plot or building that has not been registered with the Regulator. It will also be mandatory for the promoter (builder) to first file a copy of the advertisement with the regulating authority.

Advertisements should contain true statements and disclose all the details of the project. The builder or promoter will also have the responsibility to make all details accessible to the public. For this purpose, the onus has been put on the promoters for entering all the records and details of a project on the website of the Regulator. The onus for the veracity of the information in the public statements or advertisements rests with the builder. Any person wanting to withdraw from a project at any point, on finding that that information furnished was false, would be compensated fully. Similarly, the builder (promoter) cannot take any advance or deposit without first entering into an agreement of sale.

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