Realty upswing
With the shadows of the downturn receding, things are beginning to look rosy in the tricity once again, writes Charandeep Singh

Giving credence to the fact is the number of advertisements of myriad builders, appearing in the various local dailies. The builders are out to lure their prospective buyers for sure.

Growth triggers

It was concurrence of various factors that helped the real estate prices move northwards in the past few months.

The massive cash inflow in the market as of now is because of many reasons. Firstly, FDI inflow is increasing in India every week. With the increase of FDI, the stock market is on a roll, which, in turn, is having a cascading effect on the real estate market, and thus the prices have appreciated.

Secondly, the disposable income of the burgeoning middle class has increased as they have got their much awaited salary hikes coupled with the affordable home loan rates, and people have started thinking of parking their money in real estate once again.

Along with this, during recession the investors had withheld their money just waiting for the right time or perhaps waiting for the market to touch its lowest point to invest. “But when the real estate market actually touched its lowest point a majority of investors failed to take benefit of it. So they had the money to invest once the market started recovering. Hence now you see the surplus funds available in the real estate market”, says G.P.S Waraich, proprietor of B.N Habitat.

Another important reason is the change in strategy adopted by the builders. The builders, apart from advertising on luxury, have changed their mantra to that of affordability. Now middle class is their focus area and thus, the builders all across the tricity have registered about 15-20 per cent increase in their sales volumes.

How the numbers speak

According to a new report prepared by realty consultant Cushman Wakefield, prices, however, are “still lower than what they were a year ago. As the market has revived, a large number of developers have jumped in the fray and revived some of their sick projects and launched some new ones”.

“After the slump got over, I was very bullish on advertising my new development areas within the Shivalik City” says Aamndeep Hira, one of the promoters of Kharar-based Shivalik City.

“Prices in my colony have appreciated. In September last year the prevailing rate for the sale of plot was around Rs 10,000 per sq. yard, but the current price is around Rs 14,000 per sq. yard. Thus there is an appreciation of about 40 per cent”, reveals Amandeep Hira. In Mohali, a newly constructed 10 marla house is available for around Rs 2 crore where as the sale price of the same property was around Rs 1.5 crore around nine months ago. One kanal houses in Mohali have also seen a massive increase. The existing price in and around Sector 71 is about Rs 4 crore, up from about Rs 2.75 crore last September.

The main reason for the prices of properties going up in Mohali is the sharp increase in the prices in Chandigarh. In Chandigarh the prices have increased from Rs 24,500 to about Rs 39,000 per sq. yd. “The price increase in Chandigarh is almost 60 per cent, and since Mohali is a satellite town of Chandigarh, the increase in Chandigarh is bound to have a cascading effect on Mohali”, says Vivek Kapoor of Sector 35-based Kapoor Realtors.

A one kanal house in Chandigarh costs around Rs 6 crore up from Rs 4 crore in 2009. A showroom on Madhya Marg would cost somewhere in the realm of Rs 18-20 crore, where as a double-storey SCO in Sector 35 is available at around Rs 12.5 to Rs 14 crore. “But in spite of this hike, the rentals have remained stagnant”, reveals Vivek.

In Panchkula the prices are around 15-20 per cent higher than those in Mohali. “One of the main reasons of Panchkula scoring over Mohali is electricity. While in Mohali the power supply is absolutely erratic, it is streamlined to quite an extent in Panchkula”, says GPS Waraich of BN Habitat. A 10 marla house is available for Rs 2.30 crore, up from about Rs 1.40 crore in 2008, and a one kanal house in Panchkula is priced at around Rs 4.5 crore.

Eye on future

According to a report prepared by India Brand Equity Foundation and Ernst &Young Pvt. Ltd., the Indian real estate industry is currently estimated to be US $ 48 billion, with a CAGR of 30 per cent. The total economic value of the market is estimated to be US $ 4045 billion, accounting for 4-5 per cent of the GDP. The consistently growing IT/ITes sector, increasing presence of large foreign businesses, globalisation of corporates, and the rapidly increasing consumer class provide a huge market potential. Rapid urbanisation has provided huge opportunities to builders, developers and investors. With the governent relaxing FDI regulations, foreign investors, along with private equity funds, NRIs, and high net worth individuals (HNI), too, have joined the bandwagon driving investments in the realty sector.

Tax tips
Assets covered by wealth tax
S.C. Vasudeva

Q. What are the assets covered for the purposes of wealth tax? Is wealth tax chargeable on a self-occupied house also? What is the limit up to which wealth tax is not chargeable? Is it Rs 15 lakh or Rs 30 lakh.

— A.K. Sahni

A. Your queries are replied hereunder:

Assets other than those specified in Section 2(ea) of the Wealth Tax Act, 1957 are exempt from the chargeability of wealth-tax. The assets specified in the said Section are as under:

Any guest house; residential house; commercial property; and/or farm house situated within 25 km of the local limits of any municipality or a cantonment board; but excluding:

A house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having gross annual salary of less than Rs 5 lakh.

Any residential house forming part of stock-in-trade,

Any house for commercial purposes (i.e., commercial property) which forms part of stock-in-trade.

Any house which is occupied by the assessee for the purposes of any business or profession carried on by him.

Any residential property that has been let-out for a minimum period of 300 days in the previous year.

Any property in the nature of commercial establishments or complexes.

Motor cars other than those used in assessee’s hiring business or used as stock-in-trade.

Jewellery, bullion and furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, those used as stock-in-trade by the assessee.

Yachts, boats and aircrafts, other than those used by the assessee for commercial purposes.

Urban land, being land situated in any area, within the jurisdiction of a municipality or a cantonment board which has a population of not less than 10,000; or within 8 km of the local limits of such municipality or a cantonment board, as the Central Government may notify.

However, urban land shall not include:

Land on which construction of a building is not permissible under any law or the land on which building is constructed with the approval of the appropriate authority.

Any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him.

Any land held by the assessee as stock-in-trade for a period of 10 years from the date of its acquisition by him.

Cash in hand, in excess of Rs 50,000, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account.

The assets mentioned above are chargeable to wealth tax without any exemption. The other assets such as, shares, debentures, deposits, units, loans advanced, etc are not liable to wealth-tax.

One house or part of a house or plot of land not exceeding 500 sq. meters belonging to an individual or HUF is exempt from the levy of wealth tax.

Wealth tax is chargeable on net wealth exceeding Rs 30 lakh. The exemption limit for assessment year 2009-10 was Rs 15 lakh. The same has now been raised to Rs 30 lakh w.e.f. assessment year 2010-11.

Wealth tax payment

Q. I own the following assets, the values of which are given hereunder:

FD with Bank 2,00,000

Equity Shares 10,00,000

Urban Plot of 700 sq. meters

for residential purposes 35,00,000

Self-occupied house 30,00,000

Cash at home 1,10,000

Am I liable to wealth tax? If so what would be my total wealth for the purposes of levy of wealth tax.

— Nishant Gupta

A. You are liable to pay wealth tax on the market value of urban plot of 700 sq. meters and cash held by you in excess of Rs 50,000. Presuming that the values indicated in the query represent market value of urban plot, your total wealth would work out as under:

Value of urban plot 35,00,000

Cash in excess of Rs 50,000, 60,000, 35,60,000

You will be liable to pay wealth tax @ 1 per cent of the value of assets exceeding Rs 30,00,000.

Erroneous interpretation

Q. I purchased a flat in Gurgaon in 2000 and sold the same in December, 2007. The amount realised was more than the acquisition cost and a capital gain arose on such a sale. The flat was being used for residential purposes by me. I had booked another flat and had started paying installments for that over the years. The amount of capital gain arising from the sale of this flat was fully utilised for making payment towards the purchase of the new flat. The possession of the new flat was given to me in March, 2008. I had claimed the exemption under Section 54 but the Assessing Officer has rejected my claim. Is the contention of the Assessing Officer correct?

— J.K. Goel

A. The provisions of Section 54 of the Income-tax Act, 1961 (the Act) refer to the date of sale of the residential house and purchase or construction of a new residential house. The Section does not mention about the dates of payment for the new residential house. The installments paid to the builder towards the acquisition of the new residential flat are in the nature of advance payments for the construction of the residential house. The term ‘construction’ used in Section 54 of the Act implies completion of the residential house. The relevant date in this case is the date of possession of the residential house. On the basis of the facts in the query, the possession of the residential house (flat) was handed over to you by the builder in March, 2008, and, therefore, the construction has been completed within three years of the date of transfer of the earlier residential house. The action of the learned Assessing Officer is, therefore, not based on a correct interpretation of the provisions of the Act. 

The loan factor

Q. I had availed a home loan of Rs 15 lakh from a public sector bank jointly with my wife, who is an employee of that bank. In the loan documents my name is mentioned as a co-borrower. The loan consists of two parts. The first part is Rs 4.5 lakh with a concessional interest applicable to bank staff and second part is Rs 10.5 lakh with interest rate as per PLR. I am employed in the private sector. Please clarify if I am eligible for IT relief on full amount of the home loan interest.

— Pralay Das

A. Income under head ‘income from house property’ is chargeable to tax in case an assessee is owner of a property consisting of building or land appurtenant thereto. Further deduction for interest payable is allowable where a property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital. Presuming that you are the owner of the house and the home loan of Rs 15 lakh availed has been utilised for the purchase/construction of the house, you would be entitled to a deduction of Rs 1.5 lakh in case the property is self-occupied.

In case such property has been let out, you would be entitled to claim deduction of the entire amount of interest payable on the loan borrowed from the public sector bank. 

Entitled to deduction

Q. I own a house property, which I am occupying for residential purposes. I have borrowed money from a bank for carrying out substantial repairs to this house. The interest liability is approximately Rs 10,000 per month. Am I entitled to claim the deduction for interest so paid/payable?

— N.P. Singh

A. Interest under Section 24(b) of the Act is deductible if the amount has been borrowed to finance purchase, construction, reconstruction, repairs or renewal of a house property. Such interest is deductible on accrual basis.

Further in case the borrowing has been made for construction or purchase of self-occupied house on or after April 1, 1999, and the construction or purchase is effected within three years from the end of the financial year in which the borrowing is made, the deductible amount is Rs 1.5 lakh.

If these conditions are not met, the deductible amount is Rs 30,000. Since you have borrowed money for carrying out substantial repairs, you will be entitled to a deduction of Rs 30,000 only. 

Delay in possession and capital gain

Q. I had applied for a flat in the Naval Officers Housing complex. I was given the possession in 2009, though installments have been paid over a period of seven years. The construction was delayed by the contractor, hence there was a delay in handing over the possession. I intend selling the flat now. How will the capital gain be computed as I expect to realise more than what I have paid for?

— Arun Sahu

A. You were given the possession of the flat in 2009. The capital gain would thus be computed from the year 2009. In case you sell the flat within three years of the date of possession, it will be a case of short-term capital gain. Such gain would be added to your other income and tax would be levied on the total income, including such short-term gain at the applicable rates.

Dicey investment
Karun Varma

Various factors can negatively affect the value of one’s real estate assets. Being aware of these is an inalienable part of successful property investment.

Rising cost of money

Increasing inflation is the first factor that inhibits the profitability of a real estate investment. While investing in any kind of property, one should always consider what the overall earnings would be worth at the point in time one wishes to liquefy them.

If one fails to plan for the inflationary effect, further property purchases may be out of reach — rendering the whole concept of real estate investment an exercise in futility.

A simple method of establishing whether inflation will erode one’s real estate investment is to determine if the interest rate earned on one’s savings is less than or equal to the rate of inflation. If it is, it means that your real estate investment too will suffer because of inflation.

One needs to establish whether the average price for property rentals in the location one wishes to invest in will remain higher than the rate of inflation in the long term. If it does not, there is not much point in investing in that location.

Death and taxes

Property taxes are yet another aspect that can negatively influence property investments. While buying a property with the intention of reselling it for a profit or renting it out, one should remember that profits arising from both the sale of a property and monthly rental income generated are taxable.

The yardstick here is not how much one earns from one’s property, but how much one manages to keep after the taxman has taken his cut. It is very unwise to invest in a property without first consulting with one’s chartered accountant or an experienced real estate professional.

While there is no way of avoiding property taxes, it is certainly possible to make the taxation scenario more realistic. This calls for current knowledge of property taxation laws, which often change without warning. One needs to determine one’s post-taxation cash flow in order to know just how valuable one’s property investment will be in the long run.

Fate — the silent companion

Finally, there is also always an aspect of free-floating risk attached to property investments. For instance, buying a property with the intention of selling it at a profit afterwards always involves a degree of uncertainty and chance of loss.

One can judge the current appreciation value of a certain location with a fair degree of accuracy, but there is no way of anticipating all developments:

l The location may fall out of favour with buyers.

l There may be unsuspected litigation attached to the property.

l Though superficially sound, the property may be legally untenable because it has substandard construction or does not conform to required earthquake-resistance parameters.

l The Government may decide to acquire the land the property stands on at the minimum rate for infrastructure development.

l The investor may need to sell the property at a moment’s notice — and at a loss — to cover other urgent financial commitments.

l There may be a natural calamity such as a flood, rendering the entire location unmarketable.

The writer is Managing Director, Bangalore & Kochi, Jones Lang LaSalle Meghraj

GREEN HOUSE
Tender care
Satish Narula

This is the ideal time to plant new additions in your garden. Just as the ideal conditions for planting new plants last for a short time, the kind of plants that are advised to be planted at this time are also restricted i.e. only the evergreen plants that don’t shed leaves during winters are planted.

As the plants have a limited planting time in a year, it is all the more important to make sure that there is minimum or no mortality. Losing a plant means losing a year. They have to be brought, planted and reared with motherly care.

How you get a plant and how you bring it home or in your nursery in large estates is very important. The plants, when sold from the nurseries, have their first shock when these are extracted from the soil. Next is the transition shock and then the transplant shock. These aspects need to be taken care of.

The plants that are carried with earth ball should have good amount of earth. Normally, in order to carry more number of plants, the earth ball is intentionally removed with very little earth and in this process the feeder roots are severed. Nothing could be more damaging for the plants. In most of such cases the soil carried with the three to four feet tall plants is not more than 150 to 200 grams where as it should be a few kilos. It is more damaging when the soil used to rear the plants is clay. The roots remain confined to the clay and don’t come out of it. Such plants may survive for a few months or years but die without any apparent symptom.

The plants with earth ball should be tightly wrapped in straw so that the earth ball does not break. The chances of survival in case of broken earth ball are meager. I have seen people planting the plant without removing the straw. This can be very dangerous as the straw attracts white ants that can damage the new plant

The plants that are to be transported without earth ball should be carried while maintaining proper moisture. Now even rose plants are carried without earth ball. Even kinnow and ber plants are carried in winter months without earth ball. In such cases it is very important to maintain moisture so that the roots don’t dry up. For this, one can use wet moss grass to cover the roots that then could be wrapped in polythene.

Immediately after planting the plant, one should press the soil around the plant with feet taking care no to trample on the young plant. First water should also carry chlorpyriphos, dissolved at one millilitre to a litre of water. A bucketful of this solution is sufficient to keep the white ants at bay during the establishment period of the sapling. The dying or dead wood from the plant should also be removed at once taking a little of healthy part. In case you see the plant tilting towards one side, straighten it by tying a support on the opposite side and give only one whorl of sutli. Remove any polythene used on the plant to do grafting. This can be removed with the help of a sharp knife if it has embedded in the plant. Do not add any fertiliser at the time of planting as you may kill the plant in over enthusiasm.

Fortnightly alert

For all those planning to purchase fruit plants from a nursery in the next few days, it is important to be sure that the fruit plants that you are buying have been grafted and produced in the same nursery and not brought from states like UP. Plants raised and brought from other places like Malihabad (mango, guava, litchi etc.), should not be bought. 

DLF can’t ‘afford’ affordable housing

Realty major DLF may withdraw from the much-hyped affordable houses as low margins under the scheme are unattractive. The firm is grappling with 25 per cent rise in net debt to Rs 18,463 crore.

Talking to analysts, DLF Executive Director Saurabh Chawla said along with other realty firms and associations, the company has approached the government for possible tax incentives to develop affordable houses, but have not got any. “We are very focused on margins... If it doesn’t make sense, we will not be launching the projects,” he added.

Entering the race for low-cost housing, the company had planned to build 1,00,000 affordable homes at a price below Rs 20 lakh in major cities across the country and 
the first such project was to come up in Gurgaon.

“Today, the whole real estate industry has same tax rates and there is no difference (of taxes) between luxury houses and development of slums,” Chawla said.

The other industries, such as automobiles, there are different tax structures between mass and premium products, he pointed out. The company had planned to come out with an affordable housing project in Gurgaon, but it is getting delayed because of regulatory issues, Chawla said.

“We may still come out with one or two projects depending on the markets. Also there may be some cases, where we will change the project into a luxury one,” he added.

Meanwhile, the company’s net debt increased to Rs 18,463 crore as on June 30 from Rs 14,820 crore at the end of March quarter this year. Although DLF repaid Rs 732 crore during the April-June period, it had further taken loans of Rs 2,330 crore.

On its future projects, Chawla said: “We will be launching projects if we get all regulatory approvals and it will depend on absorption capacity of the markets.. We are also concerned about inflation and we want to doubly sure that we make money.” Speaking about its hotel venture — Aman Resorts, Chawla said DLF would not exit the business and was currently exploring “the possibilities for strategic partnerships to further strengthen the business model”. — PTI 

REALTY BYTES
Date with Seasons

After successfully launching the most acclaimed residential project ‘Paras Tierea’ in Noida sector 137, Paras Buildtech India Pvt. Ltd. has announced the launch of Paras Seasons. It is an affordable premium housing project in Sector 168, Noida. Based on country’s four seasons. One of the major attractions of Paras Seasons is fully furnished 1 BHK ‘loft duplex units’, which will have an area of 650 sq. ft. There will be 900 residential units including 1 (duplex) 2, 3 and 4 BHK option variants in sizes ranging from 650 sq. ft. to 2100 sq. ft. price range starts from Rs 16 lakh onwards which suit every budget.

World class lifestyle for seniors

Sensing the need for senior community living that offers world class facilities, an atmosphere of fun and revelry, and the company of peers who share similar tastes, is what made the Acron Group consider setting up Vivara Residences around the country.

With the first set of Vivara homes ready to roll out in October 2010, in the tranquil vistas of north Goa, the company is all set to revolutionise senior-living in India.

According to Dr John Britto, one of the directors of the Acron Group, “at Vivara Residences, care has been taken to ensure people who come to live here can enjoy a worry-free life. We’ve gone one step further and incorporated this philosophy even into the buying process. Something that has always proved a hurdle for senior citizens.

Vivara operates on a leasehold model and not Freehold. So you pay only a deposit and a lease you’re comfortable with, we take care of the rest. It has, therefore, considerably reduced the stress of buying and selling property at that stage in one’s life.”

Thoughtful features will make living here a pleasure, is what the management of Vivara likes to call - ‘Unretirement’. Unretirement is pure unadulterated pleasure that you get out of life, when you know that everything has been taken care of for you. From security to maintenance to emergency health care. That’s the kind of life we’re promising at Vivara Residences!”—TNS