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PRUDENT move
REAL VIEW
GROUND REALTY
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PRUDENT move
Like most new homebuyers, you have probably financed your purchase with a home loan. Simultaneously, you may want to ensure that you have enough insurance to enable your family to pay off any existing loan on your home in the event of any unfortunate incident. By having adequate insurance, one can be sure that one’s family will be able to keep the house if something happens to the borrower. A little planning right in the beginning may help protect you and your family in the long run. Today more than 60 per cent of the home loan borrowers are protected by insurance. The coverage of insurance is increasing as awareness has increased among new borrowers, besides there has been a significant increase in real estate prices in the past six years, which has prompted people to buy insurance. Most of the lenders say that now borrowers prefer to take insurance cover for their loan. Under the loan cover term assurance plan, the insurer pays the outstanding loan amount in case of death or disability of the borrower. It provides life cover for the entire period of the home loan, equivalent to the outstanding loan amount of any time, subject to a maximum of Rs 50 lakh. Insurance cover is provided to the borrower up to the age of 70, or the last date of repayment, whichever is earlier. Premium payable is determined on the basis of the home loan amount, tenure of repayment, and age of the borrower. The policy covers the home loan borrower against death due to any reason. In the event of death, insurance company pays the balance loan directly to the bank, thus providing complete freedom to the family. Apart from this what makes the scheme all the more attractive are the tax rebates — insurance premium paid is eligible for tax rebate under the Section 88 of the Income Tax Act. Then the death claim is tax free in the hands of the nominees/assignees under Section 10 (10) D of IT act. A single premium covers the entire duration of the loan. This scheme is truly a winner. According to one of the banker earlier those who were over 40 in age were buying property and since they had the capital they were taking loan for only 50 to 60 per cent of the total amount. But now as more and more people in their late 20s are buying property, they are taking loans for 80 to 90 per cent of the total cost of a residential unit with repayment period extending to over 20 years.
Schemes on offer
SBI life insurance introduced the home loan (creditor) life insurance cover and has been selling it on State Bank of India’s branches and its seven associates branches, which are currently around 15,000 in number across the country. It is one of the largest life insurance companies, which has insured the maximum number of home loan borrowers than any other insurance company across the country. SBI life has also tied up with Dewan Housing finance and other public sector banks. As of today it has covered more than 8 lakh home loan borrowers. The awareness of such insurance has increased significantly over the past three years according one of the managers of the SBI life at Chandigarh. Under ICICI prudential plan; the single premium is around Rs 27000 for 20 years for loan amounting to Rs 20 lakh. As many as 30 per cent of its borrowers are covered by insurance. While HDFC, which has home loan portfolio of Rs 60, 000 crore, has almost covered over 37 per cent borrowers under insurance, the LIC housing finance is understood to have covered 100 per cent of its borrowers. According to LIC housing officials, since it is no longer mandatory the proportion of those going in for insurance cover has declined slightly, but most of the borrowers still opt for insurance.
Property transactions in India are inherently risky because the government does not guarantee ownership of land. It merely endorses property transactions and earns revenue from them. Experts say six out of every 10 court cases filed or waiting to be resolved in India relate to property.
Property Title
Insurance
Now the property title insurance, a new product, is likely to be launched. The Insurance Regulatory Development Authority (IRDA) is considering it. As many as half a dozen insurance companies have already submitted their proposals with regulatory authority. The new products are a sign of the growing maturity of the insurance and real estate business in the country. Title insurance is very common in the USA and Europe. In India, in the current context this will be primarily offered in transactions where the title is clear and the valuations are large. It will be primarily used for commercial properties and not for the retail side. The insurance is basically protection against financial loss from real estate transactions due to defects in the title or ownership of the property. The Karnataka Government has also decided to give a half percentage point discount in stamp duty to property buyers who opt for title insurance. Meanwhile, the National Housing Bank is in talks with a few insurance companies for tie-ups related to offering insurance linked housing finance products. A proposal to this effect has been sent to insurance companies so that they can explore the concept further. The National Housing Bank is also in the process of framing outlines of this scheme. So if you don’t want to put your family through any additional distress, it’s best to buy a home loan protection plan. Also make sure that you compare home loan offers from various lenders and try to find the best, which reduces the repayment liability. This will also reduce the cost of home loan insurance.
FAQs
What is a home loan protection plan? A home loan protection plan is one whereby in the event of your death or disability resulting in loss of income, a sum of money will be made available towards the repayment of your loan. This ensures that your family or dependants do not have to worry about the loan repayment and your home will not be taken away. The pricing depends on the age of the borrower, the amount of home loan and the tenure of home loan. The rates are lower than individual life insurance policies. You can opt for payment of premium on a monthly basis or a one time upfront payment. Some banks may build in the premium with the EMI of the loan. How can one buy an insurance policy that takes care of the loan
amount? Most finance companies or housing loan companies expect borrowers to provide a security against their loans. The security provided usually is the asset - the house itself. However, a life insurance policy that is equivalent to the loan amount, assigning the benefits of the policy to the housing/finance company can be provided as security against the loan. Moreover, a few housing companies add on an extra amount to the installment paid by the borrower. In the event of death of the insured during the term of the loan, the proceeds of the insurance policy payoff the balance amount to the housing or finance company. What are the eligibility criteria for these
plans? Generally, the minimum age to get this policy is 18 years and the maximum age at entry is 50 years. These policies are available both for joint and individual home loans. These policies sometimes require medical examination. Check with
your lender. The policy is always taken in the name of the borrower of the home loan. In case of an eventuality, the proceeds of the insurance are paid to either the lender directly, or to the family member beneficiary. In case the borrower pays the entire loan back, the policy comes to an end with the close of the loan tenure. The borrower will not get back the premium paid if he lives beyond the loan repayment term. The insurer is not liable to pay any benefit in the case of death by suicide, within a year of the date of commencement of policy or issue of policy, if later.
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REAL VIEW
Year 2010 will be a testing time for the realty sector in the region as the effects of recession are not likely to wane significantly till the end of this year at least for colonisers, builders and short time investors who believe in making quick profits. At present the supply of residential units is far more than the actual demand. Thus it is the right time for genuine buyers/end users who are planning to buy a house for their own use, and also for long-term investors who are ready to hold the properties for at least next two years to strike deals in Punjab and Haryana.
But house prices in Chandigarh are bound to see a major correction may be by the end of this year or in 2011. Power problem in the surrounding areas of Chandigarh, especially Punjab, has led to unrealistic escalation in property prices in the Union Territory in the last two years. But even as Punjab Government has taken concrete steps over the past few months to deal effectively with the power crisis in the state, Chandigarh has been complacent about this aspect. People must realise that now power cuts are being imposed in Chandigarh and these cuts are going to increase in duration and also in more areas as the consumption of electricity has increased manifold in the city, which has no independent source of power generation. At present Chandigarh is in the “buy and supply” mode, but sooner or later it would be: “ Beg, buy and supply” and then the residents won’t enjoy this luxury. Water situation is already worse in Chandigarh .The moment power situation improves in Mohali and Panchkula, which is bound to happen in coming year or so, the property prices in Chandigarh might witness a very sharp fall. Enquiries have already started pouring in from genuine buyers, while investors are still speculative. It is advisable for investors who can spare money for next two to three years to explore the market and make sensible investments at this time, as this is the right time to make investments, especially in Punjab areas. Though the growth may not be as high as it was in 2004-2008, the property prices will see an upward trend from here, it would be consistent and the average return on housing is expected to be around 10-15 per cent annually, which makes it a better option than banking. As far as commercial properties are concerned the prices are very unrealistic. Already on the higher side, the prices will not see much appreciation in the coming months. Even rentals are not proportionate to the value of the property. Also some more areas are coming up in the commercial sector. So this sector is set to see a major price correction and, hence, it is not advisable to invest in commercial properties at the present rates. Real estate and infrastructure sector is among the top few employment-generating sectors in the country, but unfortunately this is on the “most neglected” list of the government. For government this is just a source of income as very little has been done to organize this sector. It is one of the most unorganized, non-transparent and graft-ridden sectors. Obsolete laws governing the sector are the biggest impediment in the way of fair and smooth trade and it is time to have policy reforms. Major industries like cement and steel totally depend on this sector and vice versa. Actually in the order of priority this sector comes next to agriculture and can contribute almost 1.5 per cent in the national GDP. Agriculture gives roti and the reality sector gives makaan and is source for kapra. So the concept of good governance i.e. providing “roti, kapra and makaan” to people, is not complete till the time the real estate sector is properly organised. So the governments should get this sector on priority list and formulate policies to save this sector, to watch the interest of the people without hurting the interest of the people involved in promoting this sector. People from this sector should be involved in policy making matters, because bureaucrats sitting in high offices who have no access to this industry alone cannot do any good to this sector. It has to be a joint effort so that housing can be made more affordable for everyone.
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GROUND REALTY
Residential sector in India is undergoing a complete transformation. The architects are suggesting path-breaking designs. Air, light and openness are receiving extra attention. Stunningly beautiful interiors and exteriors are being invented every day and marketed vigorously by the construction industry. However, the basic building material has remained the same — the bricks.
Ancient times saw extensive use of bricks in forts. Today also, almost cent percent buildings use bricks one way or other. Even if we adopt earth-quake resistant, framed structure, bricks fill up the space between beams and columns to act as walls. And bricks will continue to dominate as the main building material for many more years to come. Thus the selection of bricks has to be made carefully by the buyer. Checking that the bricks are red in colour is not enough. Certain points if checked while selecting the bricks may save the house owner from a lot of trouble later on. Good quality bricks can resist both, the dampness and the cracks. Here are certain points to be kept in mind:
Soundness
All bricks produced by a kiln are not good. Some bricks have received full heat while others may not have. Among the stacks, certain stacks are of well-burnt bricks while others are of under burnt or over burnt bricks. Check bricks in different stacks by selecting two bricks and striking their free ends against each other. Select such stacks whose bricks give a ringing sound when struck against each other. Such bricks are hard and free from cracks. Bricks made out of sandy soils will not produce such ringing sound.
Strength
The bricks should be strong, having a compressive strength of not less than 105 kg per sq. cm. Right method of checking the strength is to draw a few sample bricks and take them to a laboratory for testing on a compression testing machine which will tell the strength of each brick. Ideally, the bricks need to be immersed in water for 24 hours; their frogs filled with mortar and allowed to dry, before putting them under test. Otherwise, a quick method to test bricks at kiln site is to hold one brick vertically in left hand, to place second brick horizontally and centrally over it with the right hand and then to allow them to fall to solid ground from the chest height. The brick placed horizontally shouldn’t break into two pieces.
Size
Checking the bricks for size is very important. Bricks are sold in numbers and a smaller size may result in their extra consumption, causing extra expenditure. Exact size of a brick is 9”x 4 3/8”x 2 11/16”. Smaller size bricks also cause problems during masonry work. The size of the frog, commonly called dabbi in the brick is 4”x 1 ½”x ¼” or 100 mm X 40 mmX 6mm. It carries manufacturer’s mark in it. All the faces of the bricks should be smooth and corners should be sharp, not blunt or broken. Distorted bricks, even if well burnt in having deep red colour, should be avoided.
Variation in size
Another important point to be checked is to see that there is no variation in the size of bricks. Such variations cause lots of problems to the masons who find difficulty in maintaining the lines and levels in masonry work. Generally, variation in size or thickness of bricks occurs when we buy bricks from different kilns. One should prefer to get bricks from one kiln only. That’s why the initial survey should be done carefully. Also avoid distorted bricks.
Water absorption
Bricks are porous material. Yet these must have minimum possible water absorption property. Lesser is the water absorption of bricks, more solid, strong and dampness resistant these are. For checking water absorption, again the ideal method shall be to get a few samples checked in a laboratory. Otherwise, one may choose a few bricks and note the weight of each brick. Effort should be to choose bricks as dry as possible. A sunny day should be preferred for their selection. Now, each brick should be given an identification mark and then immersed in a bucket full of water for 24 hours. After 24 hours, each brick should be taken out, wiped and weighed. The increase in weight shouldn’t be more than 20 per cent of the original weight of a brick.
Efflorescence
Often, people complain of shora appearing on the walls of their houses and damaging the costly finishing work. This happens when the bricks contain free lime that comes out after sometime when the moisture soaked by the bricks during rainy season begins to dry. It evaporates, leaving the shora on the surface of walls. The problem keeps on recurring. Best way to avoid it is to select efflorescence free bricks. To check whether the bricks are efflorescence free or not, best way is to get them checked in a lab where the bricks are kept in a pan in semi-immersed condition, allowed to soak water and then checked for appearance of salts on their surface. A rough method to check bricks at site for efflorescence is to break a few bricks and to check their broken faces for any lumps of free lime, but this is not a guaranteed method.
IS Code
If a buyer is particular enough to buy bricks conforming to IS standards, the IS code for clay bricks is IS 1077.
Hand moulded vs machine moulded bricks
Most of the brick kilns produce hand moulded bricks. Installation of machines at kiln site demands extra capital and heavier power connection. However, machine moulded bricks are certainly better in size and strength and should be preferred for use in face-work.
Other kinds of bricks
Though clay bricks are most popular and mostly under use in India, Clay Fly ash bricks and Fly ash lime bricks are also under use these days. Ministry of Environment and Forests has made it mandatory for all brick kilns located within 100 kms radius of a thermal plant to use fly ash in the production of bricks. Bricks produced in a conventional kiln by mixing fly ash with clay are certainly better in strength, size and have least water absorption property. The IS code for these bricks is IS 13757. Fly ash lime bricks don’t use clay but lime, sand and fly ash. These are not burnt. These are also called FAL G bricks. The lime used in these bricks should be only C class, hydrated lime as per IS 712. The IS Code for these bricks is IS 12894. When used, these are generally prescribed for buildings having less than two storeys. This column appears fortnightly. The writer is deputy chief engineer, civil,
PSEB. He can be reached at www.jagvirgoyal.com
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TAX TIPS
Q. I owned an agricultural land within the city limits of Ludhiana. The same had been purchased in the financial year 1982-83 for Rs 6 lakh and was being used for agricultural purposes. The same was sold in October 2008 for a sum of Rs 50 lakh. In January 2009 I purchased some agricultural land in a remote village of Haryana for Rs 20 lakh. This place is more than 20 km. from the nearest town. The agricultural land purchased in Haryana has now been sold within a period of one year of the date of purchase for a sum of Rs 30 lakh. Will I be liable to pay any capital gains on such a sale in assessment year 2010-11?
— D.S. Chaudhary A. On the basis of facts given in the query the capital gain on the sale of agricultural land in Ludhiana would work out as under: The said amount of capital gain would be exempt from tax, as you have utilised the same towards the purchase of agricultural land within the specified period. The capital gain arising on the sale of agricultural land situated in a remote village beyond a distance of 20 km from the city limits, would not be taxable as such agricultural land is not a ‘capital asset’ on the basis of definition of the term capital asset contained in Section 2(14) of the Act.
Tax on plots
Q. I am a non-resident settled in the UK for a number of years. I had purchased certain plots in an area developed by
UNITECH. These plots are lying vacant and have not been registered in my name so far. Am I entitled to pay any tax on such plots? — Pankaj A. The facts in the query are not complete in as much as you have not indicated the market value of the plots that were purchased by you. You would be liable to pay wealth-tax in case market value of such plots exceeds Rs 15
lakh. The wealth-tax is presently payable @ 1 per cent on the amount in excess of Rs 15
lakh. You are required to file wealth-tax return by July 31, of the year immediately succeeding the financial year. For example if the return is required to be filed for the financial year ended March 31, 2010, the due date for filing the wealth-tax return would be July 31, 2010. You may also have to obtain a permanent account number for the purposes of filing such return. The wealth-tax on the market value of the plots will have to be paid before filing the return.
Claim after completion of construction
Q. I am working in Haryana Government and I have taken a house-building loan. The principal amount is being deducted by the government, but interest will be deducted after the complete deduction of principal amount. Kindly let me know whether I will be entitled accrued interest on the principal amount for the tax benefit at present. Government has verbally informed that it will not give benefit of interest as at present no interest is being charged. — Raman Garg A. You would be entitled to claim the deduction in respect to the interest payable against income from house property as and when the construction of the house is completed. Section 24 of the Act does provide that the deduction in respect of interest would be allowable even if the interest is payable.
Rental income
Q. Rent received from commercial property, whether rental income is taxable under house property head or taxable under business head (if assessee has the sole object in business for renting his property and collecting rent). — Pankaj Galhotra A. Normally the rental income from a commercial property is taxable as income from house property and deductions specified under Section are allowable. The taxability under the head ‘business income’ is possible only if it can be proved that property is a commercial asset and is being exploited as such.
Revise returns
Q. I had entered into an agreement to sell a house situated in Gurgaon for a sum of Rs 20 lakh.The possession of the property was handed over to the buyer on the basis of the consideration, which I had received in January 2009. The sale deed was registered in December 2009 on the basis of the circle rate prevailing in
Gurgaon, which is higher than the amount of Rs 20 lakh received by me. I had declared the capital gain in the assessment year 2009-10 on the basis of the consideration of Rs 20
lakh. I have been told by my tax adviser that I would be liable to pay capital gains tax on the basis of the value declared in the sale deed. Should I revise my tax returns? —
A.K. Sarin A. Jodhpur Bench of the Income-tax Appellate Tribunal in the case of Navneet Kumar Thakkar vs. ITO (110 ITD 525) has held that unless the property transferred has been registered by a sale deed and for that purpose value has been assessed and stamp duty has been paid by parties, Section 50C (dealing with the computation of capital gain on the basis of assessed value for the payment of stamp duty) cannot come into operation. In view of the above decision Section 50C of the Act should not be applicable for the assessment year 2009-10 relevant to the previous year in which the property had actually been transferred by you. I would, therefore, suggest that considering the spirit of the legislation you should revise the IT returns for the year 2009-10 and pay the tax accordingly.
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Most Indians buy a house by taking a home loan. However, this increases one’s risk profile. A home loan protection plan is the way out, writes S.C. DhallBuying a house is an important decision, and for a majority among us it is probably one of the biggest investments. Even if it means taking a loan from a bank or getting an interest-free loan from your employer, having “your own home” is worth all the effort.Like most new homebuyers, you have probably financed your purchase with a home loan. Simultaneously, you may want to ensure that you have enough insurance to enable your family to pay off any existing loan on your home in the event of any unfortunate incident.
Year 2010 will be a testing time for the realty sector in the region as the effects of recession are not likely to wane significantly till the end of this year at least for colonisers, builders and short time investors who believe in making quick profits. At present the supply of residential units is far more than the actual demand. Thus it is the right time for genuine buyers/end users who are planning to buy a house for their own use, and also for long-term investors who are ready to hold the properties for at least next two years to strike deals in Punjab and Haryana.
Capital gain on sale of agricultural land
Most Indians buy a house by taking a home loan. However, this increases one’s risk profile. A home loan protection plan is the way out, writes S.C. DhallBuying a house is an important decision, and for a majority among us it is probably one of the biggest investments. Even if it means taking a loan from a bank or getting an interest-free loan from your employer, having “your own home” is worth all the effort.
