Archive for August, 2009

Slashed rates bring cheers to borrowers

August 30th, 2009

Housing loan rates are being slashed. The aggression by banks and home finance companies is intended to capitalise on the festival season spend and hence the special offers are valid till September 30. An analysis has been done to understand how significant these differences in rates offered by the banks are to a prospective borrower.

Taking the two big players, the SBI and LIC Housing Finance Ltd. (LICHF), we assume a borrower seeking a 15-year term and a loan of Rs.20 lakh (house property valued at Rs. 30 lakh).

The difference between the SBI and the LICHF is in the first three years. While the LICHF offers an 8.9 per cent rate fixed for the first three years, the SBI is offering 8 per cent for the first year and 9 per cent for years two and three.

Our assumption is that from the fourth year onwards till the 15th year, the rate of both banks will be identical at 12 per cent. The SBI offer is cheaper by 0.9 percentage point for Year 1 and expensive by 0.1 percentage point only for years 2 and 3.

When the EMIs are compared, Rs.52 is paid additionally per month for the first year and Rs.6 saved per month for next two years by choosing LICHF. For a five-year term, the interest difference in absolute terms is Rs.7,920 and for a 15-year term, it is Rs.9, 600. On property worth Rs.30 lakh for which a loan for Rs. 20 lakh is taken, Rs.9,600 works out to 0.32 per cent of the property cost and 0.5 per cent of the loan of Rs.20 lakh.
News Published Under:  The Hindu

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Posted in Kerala Real Estate, Real Estate

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New tax code and housing loans

August 24th, 2009

How will the realty sector be impacted by the new tax code proposed by the Union government? Will the generosity seen in respect of the income slabs for the salaried class lead to any negative factors for property developers and buyers? These are some of the questions that have come up after the code was unveiled last week.

Bankers and builders have positive views about the tax code, but they are sceptical about the absence in it of the existing income-tax exemption of housing loan interest payments up to Rs.1.5 lakh annually. Borrowers will have to spend more for tax payment as well as the equated monthly instalment (EMI), many say.

As of now, the tax for individuals having annual incomes up to Rs.1.6 lakh is nil. It is at the rate of 10 per cent of incomes between Rs.1.6 lakh and Rs.3 lakh; 20 per cent between Rs.3 lakh and Rs.5 lakh; and 30 per cent for Rs.5 lakh and above.

The code, which will replace the Income Tax Act in 2011, proposes to tax incomes between Rs.1.6 lakh and Rs.10 lakh at 10 per cent. The tax liability will be Rs.84,000 plus 20 per cent of the total yearly income for incomes exceeding Rs.10 lakh but below Rs.25 lakh. In addition, the tax liability for those having incomes above Rs.25 lakh will be Rs.3.84 lakh plus 30 per cent of the total income.

However, savings up to Rs.3 lakh of a salaried person will be exempted from income tax. The existing limit is Rs.1 lakh under sections 80C, 80CCC and 80 CCD of the Act. “The Rs.1.5-lakh limit for housing loan interest exemption is an attractive option for the salaried class. The Centre should continue with it to increase the flow of funds into property investments. Otherwise, the proposal will be counterproductive,” says Nityanand Kamath, president of the Confederation of Real Estate Developers Association of India (CREDAI) Kozhikode chapter.

A salaried person whose yearly income is between Rs.4 lakh and Rs.5 lakh will be forced to think twice before going for a housing loan. A person whose annual income is Rs.4.5 lakh and has taken a housing loan of Rs.9.5 lakh now gets Rs.1 lakh exempted from his gross salary. The individual also gets an exemption of nearly Rs.1 lakh under sections 80C, 80CCC and 80CCD.

That means he will be taxed only for Rs.2.5 lakh of his income, at 10 per cent.

He will not get the benefit of the Rs.1 lakh interest exemption when the code comes into effect. After considering the benefits under other categories of deduction, the gross salary will be calculated at Rs.3.5 lakh. The individual will then have to seek ways to increase savings from the existing Rs.1 lakh to Rs.3 lakh. “But that will not be possible for a person with a low income because he will have to pay the EMI,” says K.K. Ajithkumar, Assistant General Manager, Federal Bank Ltd.

At the same time, a person who has not taken a housing loan will have a wider choice of savings on account of the Rs.3 lakh limit. Thus, the individual who has taken a housing loan will have to pay more taxes than others with equal income who have not taken a housing loan.

Many believe that the proposal will be detrimental to the policy of affordable housing in the country. The government will have to do a rethink on the proposal before it intends to introduce the Bill on the tax code in the winter session of Parliament.
News Published Under:  The Hindu

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Posted in Government, Kerala Real Estate

Good times ahead for realty in Kozhikode city

August 22nd, 2009

The lull in the construction sector has disappeared. After a hiatus, the sector has picked up in a moderate way in Kozhikode city. The slowdown in the real estate sector has had its drastic impact on the construction sector for some time, leaving builders to face the music.

Now, property developers are in high spirits in the wake of the revival of the industry. New projects have taken off. Ongoing projects are getting ready for occupancy. Then, there has been an encouraging response to the three-day Calicut Property Show held at the Marine Grounds last week.

“Approximately 1,500 serious customers had registered for the event. The walk-ins were over 4,000. That is a good trend compared to other cities of the country,” says M.A. Mehaboob, secretary, Confederation of the Real Estate Developers Association of India (CREDAI) Kozhikode chapter.

Wide variety

Projects of 16 Kozhikode-based builders were on display at the show. Villas, apartments, studio homes, townships and commercial space were among them. The builders had also displayed their ongoing projects in Malappuram, Thalassery, Kannur and Kochi. Customers had been provided the option of booking an apartment or villa at the venue.

Most of them were genuine buyers keenly interested in investing in a project on a long-term basis. Short-term investment had been a temporary phenomenon. In fact, property transaction has been on between real buyers and sellers. The demand for housing in the city and its suburbs has not declined in the past two years, Mr. Mehaboob says.

Builders say that several mega information technology (IT) projects are being mooted in the city in the next few years. Some of them have also launched new projects. Infrastructure development is also going on at a fast pace. The flyover at the Arayadathupalam junction will be completed this year and the Malaparamba-Vengalam stretch of the Vengalam-Ramanattukara bypass will be ready in 2010. These two projects, once completed, will spur construction activities specifically related to the real estate sector on the bypass stretch.

New projects are expected on the beach, in the medical college area and around the civil station and Thondayad.

Already, builders at the State and national levels have evinced interest in launching housing projects in Kozhikode.

After all, the realty business last fiscal was not bad in the city in spite of the downturn in the industry. Business estimated at Rs.500 crore would have taken place in the housing sector in the city in the last financial year. The average annual business will be in the range of Rs.500 crore to Rs.600 crore. The big boom was during the 2006-07 period when the business crossed Rs.1,000 crore.

The rate of an apartment or villa is in the range of Rs 2,600-3,000 a sq.ft. Units have also been sold at Rs.2,400 a sq.ft. The rationalisation of prices in Kozhikode, unlike elsewhere in the country, has caught the attention of serious buyers.

“Kozhikode has not witnessed an artificial demand for housing. Buyers also respond positively to the offers,” says K.V. Haseeb Ahamed, State treasurer of CREDAI.

This recovery is good for the industry. The housing sector is going to witness a boom in the outer fringes of the city. Small towns will see greater development activities with the growth in urban population. Remittance from non-resident Indians (NRIs) will contribute to the growing income. Over 70 per cent of the construction sector in the city directly or indirectly involves the NRI segment.

Adequate funds

Mr. Ahamed says that the banking sector has been munificently helping the real estate sector.

There is no paucity of funds for builders. Loan applicants have increased in recent times.

Banks will be competing with one another to offer loans in the coming months.

Nationalised banks have proposed to offer home loans up to Rs.30 lakh at the rate of 8.5 per cent for the first three consecutive years. As of now, the State Bank of India has the steepest reduction in interest rate on home loans between Rs.30 lakh and Rs.50 lakh. The interest rate will remain 8 per cent for the first year. It will be 8.5 in the second year from 9.5 in the third.

If this trend continues, more banks will be forced to take a cue from the big players.

The draft Direct Tax Code released on Wednesday gives an indication that growth in several sectors, especially the housing industry, will get a stimulus.
News Published Under:  The Hindu

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Posted in Infrastructure Development, Kerala Real Estate

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Builders seek tax concessions

August 14th, 2009

The Kerala Builders’ Association has suggested exempting flats with areas less than 100 sq.m (about 1,000 sq.ft) in rural areas from within the purview of the value-added tax regime.

The association has suggested tax holidays for a limited period for the building and real estate sector in view of the hard times it faces. The concession will help it come out better from the lull.

M.D. Jairaj, president of the association, says that giving incentives to builders in rural areas can help then offer affordable houses in rural areas to the common man. Besides, he says, this can help people in search of affordable homes move from urban to rural areas.

The association, representing nearly 150 builder members in the State, sees signs of a revival in the housing market in Kerala.

However, Dr. Jairaj alleges that the government is looking at builders as enemies and acting in a way that will render futile their efforts to survive these times of economic recession.

There is, he says, a widespread allegation that tax collection from the sector is low.

This has led the government and the taxes department to treat them from this perspective. The association demands that the government and the department do something to protect the sector, which provides lakhs of jobs in the organised sector.

The sector is straddled with taxes. It pays around 33 per cent, including tax on inputs, he adds.

The sector has been the worst hit in the economic recession. Added to this is a fear psychosis over the recession that scared away potential investors.

The government has admitted to a dip in revenue from registrations in the recent past. However, the association feels that the actual revenue fall may have been more than what is claimed. But the situation may have been helped by the ongoing drive opened by the Registration Department to settle cases related to undervaluation of property.

The association, says T. Padmajan, its general secretary, has been demanding remedial measures for several problems facing the sector. These demands and appeals have fallen on deaf ears.

One of the demands is reduction in stamp duty. The stamp duty in Kerala is one of the highest in the country and scares away buyers. A cut in this can create a more robust property market.

Taking into consideration the present financial crisis faced by the builders, the government should consider allowing them to defer the payment of labour welfare cess.

Individual structural plans for each panchayat is another demand. According to them, each panchayat should have land-use rules to make planning easier.

News Published Under:  The Hindu

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Good tidings for realty

August 8th, 2009

Builders have a reason to cheer. Compared to business conducted by them from October 2008 to April 2009, this June saw an upswing. And it continued through July, says George E. George, chairman of the Kerala Builders Forum.

“The downslide has stopped and we are hopeful that the market will start picking up soon,” he says. There is no fresh stock; so, if the demand sustains, builders will get the required momentum to start again, he adds.

Housing is a requirement and buyers have the best rates available now, says Antony Kunnel, secretary of the forum. Since the fear of job losses no longer lingers, investors are looking back to where they had left off, perhaps.

Mr. George and Mr. Antony are quick to deny that the surge in the two months is because of the NRI influx at this time of the year. Rather, they believe that it will be a new beginning. People still are earning their salaries and they continue to have some expendable income.

“The money is going to flow back here,” says Mr. George. It is because the investors have more trust in the Indian economy than any other. “It is good to hear when NRIs and the general public talk positively about India’s growth, while India-bashing was a favourite pastime some time ago,” he adds. The trust in Indian banks has increased manifold, as the country has proved to be more resilient in facing the recession.

It is not just the big builders who are feeling the cheer. Jayanthan Namboothiripad, builder from Thripunithura, says that there have been many enquiries and quite a few conversions of them to purchases in the past couple of months. The builders say that funds left for investment will be parked in the real estate and property sectors, providing the required boost to the sector, though the government has not announced any sops.

It is “advantage India,” says Mr. George. The stock markets are going up, the elections have brought in a stable government and the market is not depressing at all. The focus of the builders is on completing ongoing projects and start projects announced earlier when the going gets steady.

Mr. Kunnel says that if the government brings in more regulations in the real estate sector, people will have more faith in the transactions of construction companies.

As part of the movement started by the forum in its bid to achieve industry status, builders have been asked to have a strict valuation process. “We have come a long way from what the sector was about five-six years ago,” he says. But there is much more to be done, he adds.
News Published Under:  The Hindu

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Real estate looking up, people start buying again

August 3rd, 2009

The booming real estate market that received a jolt during the slowdown last October-November seems to be recovering. People are slowly purchasing, but only for personal use. Not for investment purposes.

“In the last few months the real estate market has undergone major changes. The slowdown that migrated from the US has got corrected in India now. The prices have got corrected. And whatever pent up demand was there in the market has started getting converted into business,” Santosh Rungta, president Confederation of Real Estate Developer’s Associations of India (CREDAI), told IANS.

With 4,000 members, CREDAI is the apex body of the organised real estate developers and builders across India, representing pan-India associations of real estate and housing developers.

People were virtually not buying during the slowdown as the real estate price was high and insecurity gripped buyers.

“The government made an appeal to us that the prices should be brought down and we (CREDAI) made an appeal to our fellow developers that they should try and bring down prices, and they acted accordingly,” Rungta said.

The pan-India price reduction was to the tune of 15-35 percent depending on various categories and geographies, he said.

“Today flats are being sold, but the pace could be better. Generally things have reversed. In Mumbai also, rightly priced projects have been sold. The major contributor to this is the government policy to generate demand. It brought in stimulus packages, ensured availability of liquidity to the home buyers, interest rates softened,” he said.

Another real estate player Indrajit De, chairman of Eden, also said housing loan lending rates cut may attract a few more buyers into the market.

“If the lending rate falls further by 50 basis points, the sales figure will climb up,” he said, adding, “Certainly the market is looking up now. Sales have also improved.

“We are selling around 25-30 units (flats) per month. But it was much higher in the range of 55-60 units per month before the recession actually hit India.”

Harshavardhan Neotia, chairman, Ambuja Realty Group, told IANS: “Sales have picked up in the last two-three months. There is more offtake now than what it was six months back. But now the buyers are genuine users and not just investors. These are the people who really need housing. They are lot more quality conscious and they look for the right products.”

He said there was a drop of 10-15 percent in the price during the recession period. In the last two-three months the company has sold around 200 flats, he said.

Reacting to the recent announcement by union Finance Minister Pranab Mukherjee on interest subsidy on new home loans and extension of deadline in tax holidays on projects approved by March 2008 if they are completed by March 2012, Rungta said: “One must understand that extending the tax holiday under 80 I B (10) for a mere one year to projects approved by March 2008 will fail to create a significant positive impact on the real estate market. It will only benefit a few micro markets with a handful of projects.”

CREDAI has suggested the centre consider extending the dateline to March 2012 for providing tax holidays to projects irrespective of the date of approval. “This will be of greater benefit to the sector and encourage developers to take up new projects and expedite ongoing projects as well.”

Rungta further said: “Even the proposed interest subsidy of one percent to home loan borrowers for loan taken for houses costing up to Rs.20 lakh is also not justified.”

CREDAI has proposed that the centre increase the subsidy to home loan interest rates by another one percent to two percent and extend the scheme for houses costing upto Rs.30 lakh from the currently proposed valuation of Rs.20 lakh. 
News Published Under: Malayala Manorama

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Posted in India Real Estate, Real Estate

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