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A budget push for affordable housing

March 16th, 2010

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

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

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

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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Welcome move for a regulator

January 22nd, 2010

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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Public bodies coming up with housing projects

November 21st, 2009

Several government, quasi-government and cooperative agencies are coming up with new housing projects as the concept of affordable housing gains prominence in the State.

In the past one year or so, many of these agencies had shied away from construction projects, the reason being the downturn in the real estate sector. But, more that a decade ago, the Kerala State Housing Board and cooperative societies such as the Ko zhikode Bhavana Nirmana Sahakara Sanghom (house construction cooperative society) had made a mark in the real estate market. However, they seemed to have run out of steam with the coming of private builders.

The housing board has now drawn up a proposal on a build-share-transfer basis on 65 cents (0.25 hectares) of land at Chevarambalam in Kozhikode city. Tenders have already been invited from private builders for constructing either residential complexes or commercial-cum-residential complexes. The builders will be short-listed soon based on the bids, says Jacob John, Executive Engineer, who is the Regional Engineer in-charge.

Selection criteria

One of the basic requirements is that the builder should have designed and executed similar projects, at least three of them, within a three-year period.

The project cost is Rs.15 crore. Construction activities will be on the basis of the existing rules of local bodies. The selected builder should complete the project within a stipulated period, he says.

The company will be selected for the project based on the highest quantity of shares it offers to the board. The ownership of the project will be with the housing board, but the builder can do business, he says.

Mr. John says the proposals for build-share-transfer and private-public participation projects have also been envisaged on 12 acres (one acre = 0.4 hectare) of land near the medical college.

Foraying into the construction sector, the Calicut City Service Cooperative Bank has announced a Rs.12-crore construction project at Chalappuram. The proposed cooperative complex will be constructed at a cost of Rs.12 crore.

Four floors, with an area of around 12,000 sq ft, of the complex will be entirely utilised for the head office of the bank and a farmers’ centre, says P.A. Jayaprakash and T.M. Velayudhan, directors of the bank.

Fifty flats will be constructed on the remaining floors of the 14-storey complex. The total area will be more than 71,000 sq ft. Earlier, there was a proposal to construct office spaces and a head office. The bank is yet to work out the details of allotting the flats, Mr. Velayudan says.

The cost of the project will be recovered through sale of the apartment area, he says.

Earlier, the housing board has been spearheading big projects in Kozhikode city. Hundreds of dwelling units thus have come up in places such as Chevarambalam, East Hill, Chevayur, Bilathikulam, Chakkorathukulam and Malaparamba. The boom in the realty sector two years ago saw several allottees occupying the flats at reasonable rates. Some have brought them for investment purposes. By returning to the housing sector once again, the housing board is providing an opportunity to middle-class people to get reasonably priced homes.

The sanghom is searching for land in the city for new projects. It had constructed more than 550 units in various places in a span of 30 years, says K.M. Radhakrishnan, secretary.

The Gandhi Nagar and Vrindavan Colony were the first villa project constructed under the cooperative society in the city.

The society has constructed flats at Eranhipalam and Chintavalappu. The villas are at Chevayur, Hill View, Vidya Nagar and Field View. Devi Nagar at Bilathikulam; Ullas Nagar at Pottamal; Giri Nagar on Florican Hill Road; Netaji Nagar at Kottoli and Kairali Nagar on Florican Road are the other projects.

The housing societies target the middle class. The projects of cooperative societies get the benefit of stamp duty waiver. Many say these are affordable.

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What one-time settlement scheme holds for buyers

October 29th, 2009

Under-valuation of land has been rampant in State. Those who have done this can make use of the one-time settlement scheme. 
The exchequer has been losing vast sums for many years as amounts much lower than the money that changes hands are shown on record during property deals. Land buyers do this to make gains from a corresponding low outgo in stamp duty.

Registration Department officials say that apart from denying the State its rightful share of revenue, the illegal practice has been helping the sellers, who include even the land mafia, get away with low income taxes.

A one-time settlement scheme has been on since June in the State for those who have undervalued their property. Considering the response, the department has decided to extend the scheme till March 1, 2010 from the September 30 deadline.

The land buyer who opts for the scheme is exempted from legal proceedings in future. The exemption is applicable to land registrations till March 31, 2009. One has to pay a penalty of Rs.2,000 for up to five cents (1 cent = 40.5 sq m) of land in the Corporation limits, Rs.1,000 in municipalities and nothing in grama panchayat areas. For five-10 cents of land in the Corporation limits, the amount fixed is Rs.5,000; in municipalities, Rs.3,000 and in grama panchayat areas, Rs.1,000.

The fine for 10 cents to 50 cents in the Corporation limits is Rs.10,000, in municipalities, Rs.5,000 and grama panchayats, Rs.2,000. The defaulters have to pay a fine of Rs.12,000 or 6 per cent of the earlier stamp duty, whichever is higher, for lands above 50 cents in the Corporation limits; 4 per cent or Rs.7,000 in municipal limits and 2 per cent or Rs.3,000 in grama panchayat areas. The department has mobilised nearly Rs.18 crore from the scheme in the State. Kozhikode district’s share is Rs.1.8 crore, officials say. Sajan Kumar, Deputy Inspector-General of Registrations, says under-valuation of land rates has been prevalent throughout the State. The stamp duty in Corporation areas is 13.5 per cent; municipalities, 12.5 per cent; and in the grama panchayat limits, 10 per cent. Apart from this, a 2 per cent charge is levied for registration, says K.P. Suresh Kumar, District Registrar, Kozhikode.

Approximately 1.86-lakh under-valuation cases have been detected in the 33 sub-registrars’ offices in the district since 1986. The State has nearly 20 lakh cases.

The department has served notices on 25,000 people till now under Section 45(B) of the Kerala Stamp Act. There was a shortage of stamp paper for a month; so, the department is yet to despatch notices to the remaining defaulters. People can voluntarily submit the penalty even if they have not received any notice so as to avoid any liability in future, Mr. Sajan Kumar says.

He says that the sub-registrars determine the value of land in an area based on the guidelines fixed by the State government. They can report cases of undervaluation also on the basis of the market rates or a transaction registered at the actual value in a particular area. Normally, land transactions are done far below the actual market rates.

The sub-registrars’ offices will look at the highest transaction that took place in an area when dealers undervalue land. At present, the government tries to extract at least 30 per cent of the actual stamp duty, although in most cases it gets only 15 per cent. Builders of flats generally remit 50 per cent.

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Towards houses for all

October 23rd, 2009

Recognition of housing as a basic right of every family is the theme of a memorandum being submitted by the Kerala State Housing Board Employees’ Association to the Union government through the Indian National Trade Union Congress (INTUC).

Why cannot the government come forward to amend the Constitution to protect the right of the citizens to have a decent shelter was the fundamental question raised in the paper, submitted at the 29th plenary session of the INTUC in the city early this week.

With the government having introduced steps such as the National Rural Employment Guarantee Programme, the National Health Insurance Scheme and compulsory primary education for all children, it is expected that the issue of housing will be addressed with the seriousness it deserves, said the paper, submitted at the session by Vithura Sasi, working president of the association.

The government cannot shy away from its responsibility to provide affordable housing for all, especially the weaker sections of society, said E. Sankaran Potty, general secretary of the association, explaining the contents of the proposed memorandum. According to figures provided by the association, there will be a shortage of 24.71 million housing units in the country in the near future.

The paper quoted a study by the Associated Chambers of Commerce and Industry of India, which said that despite the current slump, demand for housing would become “stronger and more intense” with rising income, a swelling middle class and rapid urbanisation. At present, the housing shortage is 19.4 million units in the country, of which 6.7 per cent is in rural areas.

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Improve infrastructure on city roads: DDC

September 28th, 2009

KOCHI: The District Development Committee (DDC) has asked the State government to resolve the traffic problems of the city by recruiting more personnel to city traffic police and constructing more overbridges and flyovers.

K. Babu, MLA, moved a resolution to this effect at a meeting of the committee held at the collectorate conference hall on Saturday. M.J. Jacob, MLA, seconded the resolution. District Collector M. Beena presided.

MLAs, M.M. Monayee, and Dinesh Mani pointed out the various difficulties in the repair works and maintenance of roads in the district.

Dr. Beena said that efforts had been intensified for the construction of the approach road to the Kumbalanghi-Ezhupunna Bridge. Executive engineer, Public Works, said that maintenance works of Brahmapuram-Karimukgal Road would be undertaken shortly.Bills on works executed using the flood relief fund till June 30 had been cleared, Assistant Development Commissioner V.S. Soman said.

K.V. Beena, programme coordinator, National Rural Health Mission, said that tender procedures had been completed for the maintenance works of the taluk hospital at Muvattupuzha. Babu Paul, MLA, asked for more facilities at the hospitals in Pandappilly and Payipra.

Dr. Beena said that Rs. 13 lakh had been allotted for the community health centre at Malippuram. M.K. Purushothaman, MLA, asked about the progress of work on the health sub centre at Nayarambalam.

MLAs, Dinesh Mani and K. Babu asked to remove the shortcomings in the functioning of government hospitals at Chellanam and Palluruthy.

Mr. Monayee and Mr. Jacob wanted the maintenance works of the Muvattupuzha and Periyar Valley irrigation canals to be completed by November. Mr. Paul said that early completion of survey works in the irrigation project areas was vital for the eligible to be granted possession rights. Dr. Beena informed the meeting that approval had been received for the construction of village offices at Kalloorkkavu and Kaipattur.

T.U. Kuruvilla, MLA, brought to notice the construction of compound wall for the forest depot at Kothamangalam and the resultant traffic problems in the area.

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Capital gains under income head soon

September 28th, 2009

The draft Income Tax Code aims to simplify the income tax rules. The new norms will come into effect on April 1, 2011. Of the many things suggested, proposals relating to capital gains will have an impact on property investment and planning.

The receipts relating to ordinary sources, such as employment, house property, business and capital gains, will be classified under income.

The gains arising from the transfer of assets will be treated as capital gains that is to be added to the total income of the financial year in which the investment asset is transferred irrespective of the year in which the consideration is received.

If you sell a property in 2009 and register it in 2009 but the full and final payment happens in 2010, the year 2009 will be taken for tax purpose.

In case of compulsory acquisition, capital gains will be taxed in the year in which the compensation is actually received.

For immovable property, if the period of holding is less than three years, capital gains will fall under short-term and the gain made by transfer of the property is added to income from other sources and income tax has to be paid for the total amount.

In case of the property held for more than three years, capital gains is taxed at 20 per cent of the gain made. The tax will be exempted if the gain made is deposited in specified bonds (issued by the National Highways Authority of India or the Rural Electrification Corporation Ltd.) within six months from the date of transfer.

This is set to change. In the proposed code the distinction between short term and long term is removed. Gains made from the property, irrespective of the years of holding, will be added to the income of the year.

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