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To buy or not to buy property?

July 22nd, 2010

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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CREDAI seeks stress on infrastructure development

July 12th, 2010

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.

 

News Published Under:  The Hindu

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Posted in India Real Estate, Infrastructure Development, Real Estate

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.

 
News Published Under:  The Hindu

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ICICI Bank to focus on home-loans

December 31st, 2009
Mumbai: With the real estate segment witnessing a comeback after the economic slowdown, banks are now focussing on the home-loan segment, a top banker said. “We are focussing on the home-loan segment at the moment as there is a lot of activity in this sector (home)…people who stopped buying a few months ago, are back again,” ICICI Bank’s Managing Director & CEO, Chanda Kochhar, said Friday.
The bank had recently launched a home-loan scheme under which 8.25 per cent interest rate will be fixed for the first two-years for loans sanctioned from December 1, 2009 to January 31, 2010, irrespective of the loan amount. The first disbursement of the loan should be availed before March 31, 2010.

From the third-year onwards, the lender would charge a floating interest rate depending upon the then prevailing floating reference rate.

News Published Under:  Manorama Online

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RBI policy a breather for home buyers

November 5th, 2009

The recently announced credit policy of RBI has not made any changes to the interest rates and the home buyers, at least for the time being, could heave a sigh of relief.

But the decision to hike the amount that banks have to keep aside for advances to commercial realty sector from 0.4 per cent to one per cent with a view to build a cushion against likely non-performing assets (NPAs) in the sector could hamper funding to the sector.

However, the developers and other players welcomed the apex bank’s intention behind the move to prevent asset bubbles in the segment.

“I am fully for preventing asset bubbles but the increase in provisioning now sends a negative signal. The commercial real estate sector needs a push–the country needs IT and commercial space and the increase in provisioning could impede bank funding to the sector,” Sunil Mantri, Realty’s Chairman and Managing Director, said.

Mr. Niranjan Hiranandani, a developer, described the RBI action as “an ad hoc measure.” — PTI

News Published Under:  The Hindu

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Posted in India Real Estate, Kerala Real Estate

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Waiving pre-closure penalty will ease burden on borrowers

October 29th, 2009

At a time when Indian households have been forced to cough up more for their monthly living needs, the Reserve Bank of India (RBI) seems to have come to their aid. Last week, the Central Bank, for the first time, has indicated that it is not comfortable with the penalty being charged by banks for pre-closure of loans.

According to media reports, the RBI is planning to ask banks to discontinue the practice of foreclosure penalty, which was a bane for the borrowing community.

At present, borrowers sitting on large chunk of loans need to think twice before shifting loans as in most cases the penalty amount runs into thousands of rupees.

Though penalty charges are applicable for all types of loans, it is particularly harsh for those sitting on home loans because of the large loan ticket size.

Hopefully, it will be a thing of the past soon.

As a borrower, you are bound to feel like celebrating but you will have to wait a little longer.

For, the RBI’s move is likely to be applicable only for fresh loans though the regulator is not averse to the idea of extending it to old borrowers at a later date.

In fact, the RBI wants to make life good both for new and old borrowers by removing various disparities between the two.

For instance, there is a move (still in early stage) to remove the concept of benchmark rate and replace it with a single rate which would be

The above changes, in reality, would put a greater emphasis on the concept of borrowing and borrowers would be required to keep track of loan pricing.

At present, for many borrowers, the downward trend in interest rate did not mean much as they were forced to continue with existing loans because of pre-closure penalty. In the case of home loans, the penalty amount was good (huge) enough to maintain their loyalty.

For instance, a loan amount of Rs.30 lakh required the borrower to cough up a penalty of Rs.60,000 for foreclosure (at a rate of 2 per cent) and worse, this was not funded by the fresh lender.

As you are aware, loans when shifted from one bank to another, take care of only the principal amount and do not include other charges.

Hopefully, the new regime will bring in the desired changes.

As pointed out earlier, the changes on the home loan front require borrowers to be agile to the changing dynamics and it will be prudent for borrowers to prepare for an early closure in their own good.

Gone are the days when borrowers could feel comfortable with the fact that their EMI is not a burden. With interest rates fluctuating on a regular basis, it will be advisable to look at the option of closure of loans well before the due date.
News Published Under:  The Hindu

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Posted in India Real Estate, Kerala Real Estate, Real Estate

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Unscrupulous middlemen back on the prowl

October 23rd, 2009

The revival of the realty sector has once again brought cheers to investors. However, the recovery has also made unauthorised land brokers make a smooth comeback into this thriving business.

Land brokers are back to cash in on the new sentiments prevailing in the market. So, buying and selling plots should be done in a very cautious manner. Beware of being duped by unscrupulous brokers and mediators.

The boom witnessed in property two years ago went through a rigorous corrective phase and has now reached a fair level. The land mafia and the real estate brokers have jacked up prices in most parts of Kozhikode city as elsewhere in the State.

Hundreds of people who had earlier invested during the boom period in 2007-end and early-2008 on the advice of brokers had lost a substantial portion of their money. Many of them had invested in land after selling gold and shares in their possession.

On the other hand, many who have invested in flats and villas of reputable builders, instead of buying plots, have not faced such pitfalls. Several things have to be factored in before buying a plot. As far as possible, avoid utilising the services of brokers in striking a deal. Numerous instances have been quoted of clients being deceived. Seek professional help from firms such as the Bangalore-based Real Estate Bank India (REBI) that has a branch in the city.

Besides, the buyer and the seller have to pay commission to the land broker. The commission rate for selling a piece of land is 2.5 per cent and buying, 1.25 per cent. But more will be demanded.

Builders say that nearly 75 per cent of land transactions usually take place through brokers. So, the pertinent question is how to avoid their machinations? One of the options is to advertise in the media so as to get a one-on-one interaction between the seller and buyer. There are Internet sites offering help as well.

Do not get intimidated by fraudulent brokers who hold out as a threat the clauses of any agreement they have with the buyer or the seller. One can take up the matter with the police.

Always check the original title deed to get a clear idea of the plot. Verify the back documents of the property at least for 13 years. Get an encumbrance certificate from the registrar’s office. The land tax receipt issued from the village office should be checked. Another is the possession certificate.

Make sure that the seller has been remitting the property tax at the Corporation office if the plot has a building. Check the occupancy certificate. Get a certificate from an attorney based on the title deeds and tax receipts.

The buyer should also verify whether the seller is governed by the Hindu Succession Law or the Muslim Succession Law. Another aspect to be checked is whether minors have claim to the property. In the case of the seller, he/she has to get a no-objection certificate from the tahsildar and get permission from the court to sell the property. A minor after attaining 18 years of age can claim the property he/she has inherited within three years.

Deceitful brokers can land buyers in trouble by providing forged title deeds. They usually make fake title deeds for non-existent land in connivance with officials at the sub-registrar’s offices. A builder nearly lost Rs.1 crore after buying 30 cents of unclaimed land in Kozhikode city. The only way not to fall prey to such crooked methods adopted by land brokers is apply for a no-attachment certificate at the office of the tahsildhar. The prospective buyer can get this certificate within 20 days.

If one is planning to buy a constructed house, then go in for more details. The buyer should check the original plan of the house submitted by the owner to the Corporation. Check if the seller has deviated from the original plan and if he had secured a completion certificate and possession certificate.

The government has planned to bring in legislation to curtail unethical land deals in the State. The new law will give an idea to the buyer of the value of land at a particular place. Proposals for fair value have been made in 117 villages in Kozhikode district. There are 55 villages in Kozhikode taluk. The three villages in the limits of Kozhikode city are Nagaram, Kacheri and Kasaba.

Recently, the Registration Department has come up with a notification for a one-time settlement to get exemption from legal proceedings if anyone has deliberately undervalued land during registration. The facility will be available till March 2010.

News Published Under:  The Hindu

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Posted in India Real Estate, Kerala Real Estate

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Needed: a national regulator for real estate

September 25th, 2009

Sunrise sectors generally follow a pattern of rise and fall leading to consolidation and structural changes.

Time has come for the real estate sector in India to transform from a largely unorganised sector into an organised one, with a national regulator in place.

From its heyday, spurred by credit flow following the opening up of the sector to foreign direct investment and listing of real estate companies in the stock market, there has been a substantial erosion of money from the sector in the recent past. Still, there exists a yawning gap between people’s buying power and unrealistic expectation of sellers. In these circumstances, affordable housing options in a city such as Kochi will depend heavily on how soon the sector gets regularised.

Every sector has undergone similar transformation. “For instance, with the opening up of the equity market, a regulator called SEBI [Securities and Exchange Board of India] came in. Likewise, real estate is in the process of a structural change because this is an investment asset class. This is something that people need,” says Suraj Nair, chief executive officer of Honey Bricks Property Management Private Ltd., which seeks to build an institution base for property intermediary services for the buyer and the seller. Problems crept in when seller expectations rose sky-high for various reasons. “But Kochi was not an isolated case because there was a wave of credit available across all asset classes around the world,” Mr. Nair says. “Equities and real estate in all economies outperformed everything else. When it declined, it did so the world over. In cities such as Mumbai and Bangalore, there was substantial erosion in property prices to the level of 45-50 per cent. Gold was outperforming all asset classes everywhere, including Kochi, where the erosion was only 10 to 12 per cent so far.”

After research for five months prior to its launch in July, Honey Bricks realised that in major tier-1 and -2 cities, over 70 per cent of real estate buying was for personal use or dwelling. About 25 per cent came in as investment. Kochi was, perhaps, the only city where it was primarily an investment option. “But there is something called affordability index. For instance, when a company’s health is evaluated, its market capital, balance sheet, a lot of financial ratios and economic indicators are taken into account. Similarly, there are a lot of financial indicators and economic ratios that define the value of property. Take the rental yield, for instance. Suppose someone buys an apartment for Rs.50 lakh in Kochi. The maximum rental yield that he would get could be in the range of Rs.8,000 to Rs.12,000 depending on the type of furnishing that has been done. In stray cases, the rent could be about Rs.15,000 to Rs.20,000 depending on the grandeur of the interior. If instead Rs.50 lakh is put in the least preferred of investments called fixed deposit, you are bound to get Rs.23,000 to Rs.24,000 after tax. Is real estate an investment option at this point when the least preferred investment option could yield a better return?” Mr. Nair asks.

“The seller has to be brought down from his level of expectation to a reasonable level of expectation. As for the buyer, there is still demand for real estate property, but the cream is gone. That raises the question of affordable housing,” he says.
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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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Home buyers in no-comfort zone

July 27th, 2009

Developers and consumers are concerned that the interest rates will go up further. 

For all the expectations that preceded its presentation, the Union Budget 2009-10 is a huge disappointment for the real estate sector.

In fact, it has turned out to be a ‘non-event’ for the housing industry. Budget is an income-expenditure statement of the government.

“A single budget speech cannot solve all our problems, nor is the Union Budget the only instrument to do so,” said Union Finance Minister Pranab Mukherjee while presenting his Budget. This statement gives a window of hope to all aggrieved segments of the industry.

The corporate borrowers and others will vie with the over-spending government for the money in the system. This competition is bound to push up interest rates.

Will the government go back to former times and regulate the interest rates? This looks farfetched at the moment.

Home loans these days are linked to the variable interest rates. By moving over to the variable-interest rate-based home loans, housing mortgage providers often justify their asset-liability mismatch (where they lend for long-term while themselves borrowing for medium-term).

In a situation like this where there is a slowdown and a lurking danger of a rising interest rate, any housing loan firm will not sit in a comfort zone just because it has lent at variable interest rates. It is likely that the interest rates will have to be raised.

Borrowers, perhaps, will manage if the rise in interest rates lies within a reasonable band.

What if the rates rise faster and go beyond a band? Like the proverbial sword, an ever uncertain interest regime is holding the borrowers on edge.

What really is the remedy? It lies in opening up the long-term debt market. Insurance firms, pension funds and the like are the right candidates with resources to be led into the long-term debt market.

A robust long-term debt market will rid the sellers and buyers of the home mortgage products of the persistent worry over the oscillating interest rates.

The Finance Minister has haltingly moved to woo the salaried class with marginal sweeteners in the form of a small increase in personal income-tax exemption limit. Any savings made through this would be offset by range of things from rising petrol prices to possible increase in EMI.

There were widespread expectations that Mr. Mukherjee would increase the interest limit for tax concession on home loans. But he did not do that.

The Finance Minister did, however, bring some limited cheers to home loan providers by announcing an allocation of Rs.2,000 crore to the rural housing fund of the National Housing Bank (NHB).

In the absence of a long-term debt market, the Finance Minister could have at least let the NHB issue tax-free bonds to step up re-finance to banks and housing loan companies.

 

News Published Under: The Hindu

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