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In Reverse gear
Trend Mill
TAX TIPS
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In Reverse gear
Despite an aggressive advertisement campaign — through hoardings, newspapers and TV commercials — by banks across the country to promote reverse mortgage loans for senior citizens, these have not really picked up, primarily due to a lack of enthusiasm among legal heirs of the aged property owners
Reverse mortgage scheme was launched in India with much fanfare about two years back, in order to provide the senior citizens holding own homes, with a regular stream of income on a monthly basis in the post retirement years. The scheme was meant to provide a fixed monthly income to elderly property owners who chose to mortgage their property to some bank. National Housing Bank (NHB) laid out the basic norms regarding the entire process of reverse mortgage. To be eligible for a reverse mortgage in India, the homeowner has to be 60 years or older. They have to then get the property
evaluated and mortgage it to get a monthly cash flow for a specific number of years. Most reverse mortgage loans are being offered at a rate of 10-11 per cent. The property is evaluated every five years and the rate of interest and monthly installment are subject to change accordingly. Though the lending institution owns the house, the borrower can reside there until his/her demise. Thereafter, the legal heirs can opt to repay the bank the entire amount and retain the property. Alternatively, the bank sells it and after debiting its share, transfers the surplus to the legal heirs. While the reverse mortgage scheme is intended to be a security net for senior citizens, it has very little utility to a majority of Indians. In the past few months, reverse mortgage has been touted aggressively as a product that will allow the elderly to unlock the value of their house. In fact, in the last two budgets, the Finance Minister had made a special mention about it. In the Union Budget 2008-09, the income earned from reverse mortgage was even exempted from Income Tax. As many as 20 public sector banks and housing finance companies are offering these loans.
Roadblocks
Cost factor: For one, the major reason why the reverse mortgage has so far found only 3,000 takers in the entire country amongst the 20 crore senior citizens, is that the onus of property evaluation and other legal documentation for availing a reverse mortgage costs anywhere between Rs 15,000 to Rs 20,000 apart from other paper work making it a tough ask for anyone within the 60-75 year age group. Children’s influence: A negative factor for the banks is the deterring influence being wielded by the children of elderly parents wanting to opt for such loans. According to H.D. Singh, former General Manager of the State Bank of Patiala, the reason for the slow acceptance of the scheme lies in the cultural roots of our society. Unlike in the USA or other western countries, the elderly in India want to bequeath their property to their children. Since many of the wards take care of their parents in old age, the parents feel that there is no need to opt for the reverse mortgage scheme. There are a number of cases where the applicants have withdrawn applications after the loan was sanctioned, citing their sons’ objection as the reason.
Poor marketing:
Though a large number of banks and non-banking finance companies have launched this offer, the response has been rather lukewarm. One reason is the product has not been marketed well by the lenders. Besides, there is some ambiguity about property valuation, maintenance and repossession. Though banks have been given targets, the branch staff, especially the managers, are not taking much interest in promoting the scheme because of the increasing volume of non-performing assets (NPAs) in view of a hike in the rate of interest. According to reports, only Rs 600 crore have been extended by banks across the country. The SBI has given only around Rs 200 crore under the scheme, while PNB has lent to a little more than 200 borrowers. Lack of awareness and society norms have worked against the scheme. Most people want their property to go to their children after their demise, rather than to the bank. Inheritance issues: Under the scheme, the loan can be given only on self-acquired property. But as most property in the country is ancestral and governed by inheritance laws, it can cause legal hurdles for banks to possess the property after the demise of the borrower. Low interest: Another reason why this scheme is not gaining popularity is that the monthly payments are low due to the prevailing high interest rate. If one owns a property worth Rs 13 lakh, the bank reduces the value to Rs 10 lakh after a cushion of 30 per cent. Dewan Housing, which was the first private company to introduce this scheme, gives Rs 2,050 for the same property and for the same time-frame. The SBI gives Rs 225 per lakh for the same time period with the maximum payout being Rs 1 crore — Rs 22,500 a month. It gives 90 per cent of the property value. And the onus is on the senior citizen to pay taxes and do regular maintenance of the house or property. “Amid falling property rates, banks, too, have become more cautious towards lending. This may be the reason for the scheme not picking up well,” a senior official with Punjab National Bank opined. Now that even that the tax confusion has been removed, the latest trouble that has started to haunt the takers of reverse mortgage scheme, or others seeking to avail of same, is that property prices have dwindled substantially from 2007 levels. Thus, those seeking reverse mortgage now on, would be entitled for a lower amount of regular income after mortgaging their property. In effect, the scheme is unlikely find many takers even after it has been clarified that the income from reverse mortgage would not be taxable. NHB is trying to create awareness about the scheme among senior citizens through organisations that deal with senior citizens such as NGOs and institutions, who work for senior citizens. Union Bank of India, Punjab National Bank, Syndicate Bank and UCO Bank are actively trying to sell these loans. The product will take the next three to four years to evolve. It is a trial period for both the lenders and borrowers as only 3,000 loans have been granted since its launch one-and-half-years ago. Though the government has announced tax exemptions for payments made towards repayment of the reverse mortgage loan, there are few takers.
The Scheme
Reverse mortgage loan scheme was developed by NHB to help senior citizens (above age of 60 years) to get monthly payments against their property (house), while still living in it. The monthly payment depends on the value of the house and the risk appetite of the loan issuer. This scheme is applicable for 20 years from the day it is availed. For example, if a person at the age of 60 reverse mortgages his house, then he gets monthly payment from the bank till he/she is 80 years old or till death (whichever is earlier). This scheme works fine for senior citizens who have no other source of income. After the death of the customer, the legal heirs, if any, have to either pay the loan amount or surrender the house to the bank. The interest charged by the banks is at the same rate they charge for any other mortgage loans. The interest rates ranges from 12 to 14 per cent.
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Trend Mill
Learning from past experience when the luxury-housing segment got the worst drubbing following the economic meltdown, the real estate companies are trying their luck in Punjab but with a shift in focus now, from luxury to affordable housing.
Feeling that affordable housing will still have many takers among middle
class, the real estate companies are announcing new projects targeting potential
buyers in this segment. While the real estate scenario saw luxurious dwellings worth crores being on offer during the last two years, the fact remained that there were hardly any takers for these luxury apartments and independent floors. The developers are not taking any chances this time and are offering apartments and flats priced between Rs 30 to Rs 50 lakh. “After having suffered the worst years in real estate during the past two years, the companies are not targeting the elite and rich class only now. The main reason for this is that the rich are not spending on real estate and are holding on to cash instead, for the time being. On the other hand the middle class buyer prefers to buy a house rather than pay hefty rent and has many finance options available. So the companies have decided to launch projects targeting these people”, said Parminder Singh, a real estate agent in Ludhiana. With an eye on middle class in Chandigarh, Panchkula and Mohali tricity region, DLF has come up with DLF Valley project on Panchkula-Pinjore road. The company is trying to cater to the segment that works in and around Chandigarh and is finding it difficult to find affordable accommodation in the area. It is being developed on 178 acres on a semi-hilly area. The company has decided to offer fully constructed affordable houses in the price range of Rs 30, 33 and 37 lakh built on 270, 300 and 500 square yards, respectively, he said. Similarly an IT Park coming up on Chandigarh Road in Ludhiana is aiming to attract buyers from the same segment. “They are offering residential plots, apartments and even commercial outlets. The main aim is to attract people who want to enjoy living in a good colony equipped with all facilities like markets, parks, play areas etc,” said Ashok Malhotra, owner of Malhotra Group of Companies. The Ansals Woodbury Apartment project coming up on the Zirakpur -Patiala road near Chandigarh, too, has apartments in the price range of Rs 25 lakh to Rs 37 lakh on offer. Another player has come up in a big way in three villages lining Ludhiana towards Jagraon. The 500-acre project will have residential area along with educational institutes, a hospital and a water body. “It seems once again the real estate has a future in Punjab in the form of its huge middle class. This is a do or die year for all of us”, said Parminder Singh.
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Ground Realty
These paints are prevalent today also and mostly, dark colours are chosen while the other three walls are painted with light coloured paints, colour family remaining the same. These colours and application-methods add three-dimensional effects to the walls. The highlighted wall looks like a curtain or painting or sky or fabric. The house owners also choose these paints for the wall where they want to do a mural. However, wallpapers have become very popular as these add a stylish look to the walls that no amount of paints can. The range of designs, patterns and colours available is mind-boggling. Name a colour, a shade or a style and the wallpaper is available. Once an expert craftsman fixes the wallpaper on a wall, it becomes impossible to judge whether the wall is covered by a fabric or wood or stone or bricks or mural. Wallpapers were popular in many parts of the world in 1960s. Then, these were almost wiped out of the scene, but now these have re-emerged most luxuriously and have stormed the market.
The range
Almost all of the good quality and durable wallpapers available in the market are the imported ones, Germany being the main country. While every colour is available in all dark and light shades, the designs concentrate on nature, floral and fabric patterns, stone look, wooden texture, metallic look and veneers. Velvet and silk finishes can’t be distinguished from fabric. Many types of wallpaper also provide 3D effects. As the vast range may leave a person undecided, one should always look for the following points while using wallpapers:
Where to apply
Instead of making wallpaper application on all the four walls of a room, apply it on one wall only. Let the other walls be painted with oil-bound distemper or acrylic emulsion. If you insist to use wallpaper on all the four walls of a room, let one wall be chosen as the feature wall and highlight it with dark-coloured wallpaper of your choice and other walls may be treated with light-coloured wallpapers. The colour combination should be chosen carefully. Red and pink, green and pastel green, blue and sky blue combinations are quite popular.
Choose the finish
Choose whether you want a shiny touch or a matt finish. Next, choose whether you want a fabric-look or wooden texture or metallic finish. Apart from these, floral patterns or natural sceneries can also be chosen. For kids’ rooms, special wallpapers having fancy names like wild safari, dragon castle, little princess, space mission etc are available. Keep the colour of your carpet and furniture in mind while selecting the colours and patterns. Silk, velvet, wood and leather like finishes look most attractive.
Quality
Ensure that the wallpapers are durable, non-fading and washable. Their being washable is a great advantage. Test it practically and see that the wallpaper doesn’t fade or wear out when a mark put on it is washed off. Mostly, wallpapers are vinyl wallpapers or vinyl coated, very sturdy and pass the test. Get supplier’s guarantee for this. Try scratching wallpaper hard and see that it resists any scratches. Carefully check the pattern to be uniform. Check for no printing errors or waviness in design.
Surface preparation
Ensure that the wall is completely dry before wallpaper is pasted on it. Plug all sources of seepage or leakage or dampness. Don’t try to hide the leakage by stone or tile covering before fixing of wallpaper. It shall be of no use. Detect the source of leakage or dampness and get it plugged. Further ensure that the wall is completely smooth. Wallpapers have a thickness in fraction of a millimeter and it becomes difficult to hide any unevenness of the wall surface. Get all nails removed completely and finish the surface smooth with sand paper after filling the hole with putty. Get all holes filled, all joints treated and finished.
Application
Hire only the skilled workers of the supplier to paste the wallpaper on the walls. Let it be a complete ‘supply and fix’ job contract. Skilled workers fix the wallpaper with such precision that you can’t detect the joints in rolls. If there is a small wooden niche in the wall with its plywood or board cover’s face even with the wall, get it covered too. Only you’ll know that a niche exists there.
Speed
Skilled workers can completely finish all the four walls in a day. If single wall is to be done in each room, the job can be completed for whole of the house in two to three days. That is pretty quick in comparison to paint jobs. And there are no floor droppings and minimal nuisance.
Cost
The cost of wallpapers varies from as little as Rs 10 per sq. ft to as high as Rs 900 per sq.ft. Mostly, wallpapers are supplied in rolls with a standard width of 53 cm which gives 50 cm finished width. Length of wallpaper in each roll is plus 10 metres. One such roll should be assumed to give 5 sq. m finished area. However, when the job is assigned for supplying and fixing, actual measurement of walls can be taken. The wastage of wallpaper, if any, is to supplier’s account. Gratex, Marshall, Disney, Esprit are some of the well known brands.
Availability
Mumbai, Delhi, Pune and Bangalore are witnessing a great takeover by wallpapers for internal finishing of walls. Good suppliers have arrived in Ludhiana and sectors 19, 17 and 7 of Chandigarh, too. Most of the wallpapers supplied by these are imported from Germany. Highly attractive all-inclusive wallpaper finishing usually costs around Rs 50 to Rs 55 per sq.ft. 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 am a pensioner of Punjab Government getting approximately Rs 1,50,000 per annum as pension and interest income of about Rs 2,50,000. I am living in a rented accommodation and paying Rs 3,500 per month as rent. I want to know if I can claim deduction of house rent paid by me for the purpose of Income Tax. If so, then, under what provision and how is it to be computed?
— Daljit Singh
A. You are entitled to claim deduction for the house rent paid provided you satisfy the following conditions. The rent is in excess of 10 per cent of your total income for the year before allowing deduction for the rent paid. The rent paid is in respect of accommodation occupied for the purposes of your own residence, subject to the condition that a declaration in Form 10BA as per Income-tax rules is filed alongwith the return. The deduction will be available only in case where any residential accommodation is not owned by you or by your spouse or minor child or Hindu Undivided Family of which you are a member. This ownership has to be at a place where you are residing. You are not entitled to any house rent allowance. The deduction is limited to the least of 25 per cent total income, rent paid in excess of 10 per cent of total income or Rs 2000 p.m. Presuming that the total income in your case, as per the facts in the query, is Rs 4 lakh, the allowable deduction would be computed as under (see box). The least of the three is Rs 2,000. You would thus be entitled to claim a deduction of Rs 2,000 only. The above deduction is allowable under Section 80GG of the Income-Tax Act 1961 (the Act).
Plot in wife’s name
Q. I purchased a plot for Rs 30,000 in 1985 and constructed a house there with a bank loan of Rs 6,00,000 availed in stages. The total cost of construction was Rs 8,00,000. Now, I want to sell this house that will fetch me approximately Rs 20,00,000. Further, I want to purchase a plot in the name of my wife and want to construct a house with the money got from selling the first house. My queries are as under: Whether I have to pay any property gain tax. Whether I can utilise the proceeds of the house for the construction on the plot, which will be in the name of my wife and get tax benefit.
— Gurbax Singh A. Your queries are replied hereunder: w Capital gain arising on the sale of the residential house if utilised for purchase of house in the name of your wife, would entail the payment of income tax on such capital gain. w The purchase of plot in the name of your wife would not entitle you to claim any tax benefit.
Matter of Will
A. Your queries are replied hereunder: A person can execute a Will of movable or immovable property in favour of any person even if he is not related to the person who has executed the Will. The Will takes effect after the death of the person concerned. A purchase of immovable property by a person would enable him to get the ownership immediately after the same is purchased and handed over to him. He need not wait till the death of the person so as to inherit the immovable property for which a Will has been executed in his favour.
Contribution to purchase plot
Q. My wife wants to purchase a plot for, say Rs 22 lakh. She has only 12 lakh this time in her name. Can I give her rest Rs 10 lakh. In which way can I give this amount to her. Can I gift Rs 2 lakh to my cousin (father’s sister’s daughter). I want to know whether this gifted amount will be added to her income?
— Nitender Kumar A. You can contribute Rs 10 lakh towards the cost of the land to be purchased for Rs 22 lakh. Both you and your wife can be joint owners of the property to the extent of investments made by each one of you. Your father’s sister’s daughter is not covered within the term ‘relative’ as defined by Section 56 of the Act. According to the said section the following relatives are covered vis-à-vis the individual receiving the gift. Spouse of the individual; brother or sister of the individual; brother or sister of the spouse of the individual; brother or sister of either of the parents of the individual; any lineal ascendant or descendant of the individual; any lineal ascendant or descendant of the spouse of the individual. As would be observed from the above, she would not be able to claim exemption for the purposes of taxability and therefore, the amount of Rs 2 lakh gifted by you would be treated as her income and taxed under head income from other sources.
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The reverse mortgage scheme has failed to yield the desired result, writes
Learning from past experience when the luxury-housing segment got the worst drubbing following the economic meltdown, the real estate companies are trying their luck in Punjab but with a shift in focus now, from luxury to affordable housing.
Feeling that affordable housing will still have many takers among middle class, the real estate companies are announcing new projects targeting potential buyers in this segment.
Ground Realty
IT rebate on house rent
A few years back, a premier paint company launched ‘Royale Play’, a product aimed to highlight one of the walls of each room in a residential house. These special effect paints, applied with special effect tools like sponge, ragging roller, comb, special effect brush and spatula soon became quite popular. Many householders were seen getting one of the walls, normally the one against which the double bed was placed, painted with these paints.
Q. I want to know whether a person can execute a Will of movable or immovable property in favour of any person irrespective of relation. If it is so, then what is the need of purchase and sale of land after paying thousands of rupees as tax to government at the rates fixed per acre.
— Sita Ram