Expectation & trepidation
The dawn of 2011 held the promise of a bright and productive phase for the realty sector. But the tremors of economic uncertainity and torrents of rate hikes courtesy the RBI curbed the spending spree of investors and buyers, while the builders grappled with increasing construction costs and debt burden and diminishing sale volumes. On the last day of this year we look back and take stock of the realty scenario in the country and the region 
Samir Jasuja

Year 2011 witnessed many significant developments that impacted the Indian economy. Rising inflation, depreciating Rupee value, decreasing Gross Domestic Product (GDP) numbers, low industrial production levels, declining foreign investments, ever increasing interest rates along with global uncertainties, have been in the headlines throughout the year. Recently, the government slashed its GDP forecast to 7.5 per cent, compared to over 9 per cent projected earlier for the current fiscal. All these factors affected the Indian realty sector on the whole and clouds of gloom loomed over the horizon for most of the year. The overall sentiment remained negative with developers, investors and end users all grappling with their own set of difficulties and dilemmas.

Liquidity concerns

During 2011, limited access to funds, increasing cost of debt and high construction costs remained a concern for developers. Private Equity (PE) investors' expectations have been hit due to difficulty in enforcing covenants, while the banks are already going slow on realty lending. Besides, foreign investors are skeptical about prevailing market sentiments post the European crisis and fallout of regulatory changes. RBI data shows that gross bank lending to real estate sector grew by 11.6 per cent (data as on October, 21) as compared to 15.7 per cent during the corresponding period last year. FDI figures, too, portray a similar crunch with 26 per cent decline even on annualised basis.

Given the liquidity crunch, during 2011, developers have been going slow on execution resulting in construction delays and higher unsold inventories. Till September, Delhi-NCR had the maximum unsold inventory levels of residential real estate at 102,758 units, followed by Mumbai Metropolitan Region (90,512 units), Bangalore (46,596 units) and Pune (40,734 units). Comparing year-on-year growth, Chennai and Bangalore had the maximum piled up inventory at 52.7 and 41.2 per cent, respectively.

During 2011, developers also went slow on fresh launches. Most developers are still affected by regular regulatory bottlenecks like delay in project approvals and land acquisition related uncertainty (especially in Noida and Greater Noida). Hyderabad registered the steepest yearly fall in fresh launches at 55 per cent, followed by Pune (54 per cent) and Navi Mumbai (50 per cent).

Buyers' woes

Affordability has been the biggest concern for buyers. During 2011 RBI continued its stance of keeping the policy rates high and announced seven rate hikes in the year. Collectively, RBI has now hiked its key policy rates 12 times, aggregating 375 basis points since March 2010. The banks have responded with similar hikes in lending rates. Inflation, however, still remains high at 9.11 per cent for November, 2011.

The buyers have been expecting a price correction which hasn't happened delaying their buying decisions. Major residential markets across India have witnessed a steady price rise. In fact, in markets like Gurgaon and Mumbai prices are already surpassing pre-crisis levels of 2008. Gurgaon has seen the maximum price appreciation (21.4%), followed by Mumbai (13.2%) and Pune (12.5%).

Developers have been reluctant to reduce prices due to the tight liquidity situation. Also because of increasing inflation, the cost of construction has increased for developers.

Developers have come up with alternate strategies, including other funding sources (e.g. private equity), disposing off non-core assets, loan restructuring, varied promotional schemes, and more focus on quick selling plotted development to generate sufficient cash flows.

Thus, given the above concerns for developers and buyers, gross absorption across major markets declined significantly over the past year.

Outlook for 2012

The near term outlook for residential real estate market is likely to remain cautious, given the likelihood of low market sentiments. Key market indicators including absorption and new launches are likely to remain low given the execution concerns. Developers may focus on execution and delivering the committed projects in 2012 rather, than launching slew of new projects to avoid insurmountable inventory overhang.

In terms of prices, the pace of appreciation may be marginal because of low sales volume and even decline. Decline could however, be developer specific and may be a result of factors, including price holding capacity of the developer (depending on the debt level and working capital availability), future projects in the pipeline etc.

RBI has hinted that reversal in policy is on the cards as inflation is expected to decline in the next few months, but benefits from this possible rate cut would come with a lag.

However, for those having enough cash, time is ripe as developers are ready to negotiate on prices.

— The writer is founder and CEO of PropEquity, a real estate data, intelligence and analytics provider

Region scan

Though there was a marginal appreciation in Ludhiana, Amritsar, Dehradun, Mohali, Faridabad, in Chandigarh and Sonepat prices saw a downward trend with the difference between Q1 and Q3 being in the range of 25 to 30 per cent. The prices, however, remained robust in Gurgaon and Panipat with 10-15 per cent hike between Q1 and Q3 in 2011.

Pricing in smaller cities doesn’t seem to be a problem given the robust demand for residential units. In fact, rational based pricing has been a demand trigger for these cities. In the last several quarters, prices have remained stabilised in most of the cities (excluding Sonepat and Chandigarh), with modest appreciation in most cities.

Barring Gurgaon, Mohali and Faridabad, significant supply is yet to hit the market in 2012 for other cities. However, most of the projects are witnessing good absorption levels, which should be encouraging for developers. Challenges for them would be to overcome obstacles like rising construction cost and high cost of capital and set the benchmark with timely project delivery.

The unrest in Greater Noida by farmers over higher compensation for their land being acquired by real estate developers acted as a starting point for the Real Estate Regulation Bill. The draft Bill has currently been made available for public comments. The Bill aims to clip the wings of fly-by-night developers, facilitate transparency, assure consumer protection against developers' malpractices, and encourage fair practices in the sector. Under the Act, a regulator would be set up, with whom the developers will have to register their individual projects, make commitments regarding project completion, specifications, and possession.

HIGHLIGHTS

n Realty growth dips from 25-30 per cent to about 15 per cent.

n Noida and Greater Noida, which had dominated affordable housing sales in NCR, suffered a setback due to land rows. 160,000 units remained unsold in NCR.

n Subsidy on home loans of up to Rs.15 lakh

n Sale deed made mandatory by Supreme Court for property transfer.

n Circle rates hiked in Delhi to curb black money flow.

n National Investment and Manufacturing Zones to boost industrial real estate.

n Introduction of green building rating

n DLF fined Rs 630 crore for abusing its dominant position, tribunal stayed penalty.

n Sahara realty ordered to refund money to investors, order challenged.

n Number of realty firms deferred public offers.

n Government failed to introduce Real Estate Regulatory Bill.

n Land Acquisition and Rehablitation Bill also not introduced.

n Top 11 listed real estate companies accumulated a debt of over Rs.38,000 crore, with DLF alone contributing more than 50 per cent to it. — IANS

Tricity loses sheen
B.K Sanghi

While the realty scene lost its fizz almost all over the country in 2011, the Chandigarh, Mohali, Panchkula tricity region, too, didn't remain unaffected by the slow movement of the sector. The overall picture remained dismal with a marked decrease in property prices, depleting coffers of major players, and the lament of those who had procured holdings at escalated rates in the hope of making huge profits. Apparently, novices, too, had burnt their fingers as they had been misled by unscrupulous and ill-informed operators in real estate consultancy.

The year that begun on a very positive note for real estate players saw property prices take a nosedive over the next few months. Property prices plunged in Chandigarh, Panchkula and even in Mohali by 25-30 per cent making investors squirm at the diminishing value of their assets. A number of reasons lead to this state of affairs. Some of the major causes that slowed the pace of the realty market in tricity and its periphery in 2011 were:

Hike in Collector Rate

The first blow to the steadily burgeoning property sales in the region came in the form of increased Collector Rates. While the hike effected in Zirakpur area in April was up to 165 per cent, in UT the rates were hiked by 25 per cent for urban areas and 15 per cent for rural areas with effect from August. According to B.B Chabra, a real estate dealer in the Zirakpur and Panchkula area, "The massive hike in Collector Rate was one of the major reasons for low sale volumes in the region". As the sword of another hike in April, 2012 hangs dangerously over the realty sector, Chabra maintains that the lull in property market would lift considerably if the government did not effect any further hike in Collector Rates next year. "We appeal to the government to seriously consider this impact and not increase the Collector Rate in 2012. This would go a long way in giving a respite to home buyers".

RBI's multiplier effect on interest rates on housing loans

Another reason that made home buyers give a second thought to their decision of buying a home was the frequent increase in home loan rates. The Reserve Bank of India (RBI) increased the rates of interest on housing loans a whopping 13 times during the year. As a result the EMIs shot up astronomically, making it understandably difficult, if not altogether formidable, for common man to afford a house of his own. Heavier EMIs scared new buyers, while the existing ones tried to juggle the increased load by making pre-payments or by shifting to other options. Realtors on the other hand, were nonplussed because they could not materialise any sales and several of small-time operators had no option but to shelve their projects. This was a major reason for decreased sale volumes after the second quarter of 2011.

GPA verdict

The final nail in the collective realty coffin came in the form of historic Supreme Court Judgment of September 10, 2011. According to Shankar Goel, of Mahalaxmi Property, Panchkula, "There has been a 25 per cent decrease in the real estate pickings in the last two quarters of 2011. This becomes all the more evident if we take a look at the deals finalized during this time. For example there are no buyers at the prevailing market rate whatsoever for sectors 25, 26, 27, and 28 of the Panchkula extension and the major reason for this is the SC judgment regarding GPA sales".

The ruling on GPA gave a deathly blow to benami deals and black money in the realty sector transactions. The judgment is certain to bring more transparency in property deals, make title search an effective tool, stop evasion of stamp duty and proliferation of black money in real estate transactions. It will also do away with malpractices indulged in by builders who cheat flat buyers by not executing and registering the agreements. Now it would be difficult for a buyer to get relief from a court if the transaction/ exchange of money is based on unregistered agreement as the title would stay with the seller until it is transferred to the new owner.

Exceptions: Dera Bassi & Zirakpur

By virtue of their ideal location on the national highway, and having a palpable ease of connectivity with Delhi, Zirakpur and Dera Bassi were the two areas that managed to buck the slowdown trend in 2011. The sale volumes did not lose steam in these mofussil towns on the city's periphery. In fact, these showed remarkably variant trends.

Sushil Sharma of Adarsh Properties, says, "While in January 2011, the maximum rates being quoted for some of the prime locations like the sites of the Royal Estate, Silver City etc had stagnated at about Rs 25,000 per sq yd, as the year progressed there was a surge in property prices. As a consequence the last quarter of the year witnessed the prices shoot up to Rs 40,000 per sq yd in the same projects.

This upsurge surprised industry mavens and realty watchers in the area.

These exceptions to the rule notwithstanding, the overall picture has been quite dismal to say the least but the New Year holds hope for the sector. An appraisal of the undercurrents that determine the success of any property venture in the tricity region reveals that there is a lot to be looked forward to. The housing and property interests of a common man would not be nipped in the productive bud as it is only in the present decade that the Indian investor has begun actively participating in the myriad dimensions of the realty sector.

These hiccups only go to show that these interests are gradually maturing into a healthy and upward trend whereby the achievements of the real estate world would conclusively be calculated more from profits than from stagnation and discouragement as had been experienced in 2011. 

Commercial stress
Vinod Behl

Commercial office real estate was in stress in 2011 due to a slowdown in demand and an oversupply situation. There was excess supply of nearly 166 million sq ft of ready and under construction commercial space across top seven cities of Mumbai, Delhi NCR, Bangalore, Chennai, Hyderabad, Pune and Kolkata.

Around 60 million sq ft of office space is likely to remain vacant this year. But due to a dip in demand for corporate leasing and an oversupply situation, there has been a correction in rentals. Commercial office real estate also witnessed a trend of leases skewed towards suburban sub-markets due to easy availability of cost-effective space. Taking cost advantage, many large office occupiers, especially big IT companies, relocated themselves to special economic zones.

Retail renaissance

For the retail segment, it was a year of renaissance and maturing market, as retailers expanded their footprint in not just Tier-I but also in Tier-II and Tier-III cities with both mall and high street space leasing picking up.

Retail real estate supply grew rapidly with additions of six million square feet of space in the first half of the year. Rentals in malls and high-streets appreciated to the tune of 15-20 percent. There was a clear shift towards well-designed and well-managed malls and transactions were skewed in favour of revenue-sharing deals than simple leasing.

Lacklustre investment

The real estate investment scenario was also not very encouraging. Foreign equity inflows remained moderate and a number of companies deferred their public issues due to volatile stock market conditions, with realty index taking a severe beating. Investments in land banking, too, experienced a slowdown to the tune of 20 percent.

Due to curbs imposed by the Reserve Bank of India on exposure to real estate, private equity was much sought after and is likely to top the $1-billion mark this year. There were also signs that non-resident Indians were taking advantage of rupee depreciation to invest in real estate. — IANS

Tax Tips
Rules of deductions on house rent
S. C. Vasudeva

Q. Kindly explain the circumstances in which the house rent paid by an assessee is deductible from his total income. — Amar Veer

A. Section 80GG of the Act provides that in computing the total income of an assessee not being an assessee who is in receipt of house rent allowance, there shall be deducted any expenditure incurred by the assessee in excess of 10 per cent of his total income towards the payment of rent used for his own residence to the extent to which such excess expenditure does not exceed Rs 2,000 per month. This deduction is, however, subject to the following conditions:

n The assessee or his spouse or his minor child or where such assessee is a member of a HUF, does not own a residential house at the place where the assessee ordinarily performs his duties of employment or carries on business or profession.

n The residential house owned by the assessee at any other place than that mentioned above which cannot be occupied owing to his employment, business or occupation carried on at any other place and the assessee has not claimed the concession in respect of self-occupied property.

n The deduction is limited to a maximum amount of Rs 2,000 or 25 per cent of the total income, whichever of the two is less.

n A declaration in Form 10BA is filed along with the IT Return.

Property transfer on mutual agreement Disclose the amount of capital gain

Q. I need your expert advice on the following points:

In Haryana, the registration of sale deeds in the area outside the municipal limits has been suspended. However, in spite of this ban, the properties are being transferred on the basis of mutual agreements/undertaking. Kindly advise as to how the amount accepted in such cases by the seller should be shown in the Income Tax return. My friends have suggested me to ignore such transaction as being an advance payment and the same can be reflected in the IT Return of the year when the registration of the sale deed is actually carried out in state revenue records. — R.C. Sharma

A. In case the possession of the property is handed over to the purchaser on the basis of mutual agreement/undertaking and the consideration for the sale is received by virtue of such an arrangement, it will be essential to disclose the amount of capital gain earned on the basis of such arrangement. This is in view of the definition of the term 'transfer' in Section 2(14) of the Income-Tax Act 1961 (The Act) which provides that where a possession of a capital asset is handed over in lieu of a part consideration, the transaction would be treated as a 'transfer' and the amount of the capital gain will arise in the year in which the possession is handed over. Therefore, in case you have not handed over the possession of the property but have received an advance only, it may not be necessary to make any disclosure in the IT Return.

The writer can be contacted at sc@scvasudeva.com

REALTY GUIDE
Sale deed seals ownership
B K Sanghi

Q. I purchased a house in Sector 17, Huda, Jagadhri from a seller (second allotee) after obtaining permissions from the estate officer on January 8, 2010 and then a registeration deed was executed on March 12, 2010 at the time of taking possession. Unfortunately, the seller fell ill and expired in September, 2010 , and could not fullfill all conditions laid down in the permission letter. Anyhow, I submitted the papers for transfer of the house in my name in September, 2010, alongwith the registeration deed, death certificate of the seller and clearance certificate for bank loan. After correspondence, the estate officer conveyed his decision on August 10, 2011 ( after almost one year) that “ Advice given by the A.D.A that due to death of the allotee, the right of his legal heirs has come forward, thus either the legal heirs shall submit their no objection affidavit and submit permission for transfer in your favour or they should first get the house transferred in their name in death case and then submit transfer permission in your favour.”

Apart from that, I learnt that Section 54(e) of State Act provides rules in which transfer of any right title and interest in any land or building maybe permitted. Therefore my queries are :-

n Does the decision conveyed by the estate officer on the basis of advice given by the ADA have any legal force or binding in my case for transfer?

n What are the rules for transfer of building/land under Section 54(e) of Huda Act enabling me to persue this case? — Didar Singh

A. 1.) Once the sale deed is executed on March 12, 2010, you are bonafide purchaser of the house.

n Consideration amount passes to the seller or the vendor (which shall include his heirs, executors, legal representatives and assigns)

n Sale deed and legal possession is with you. Only the mutation in HUDA record i.e. re-allotment letter is left. No claim of legal heir is left.

Under the Transfer Of Property Act Ammended Section 55(2), the seller, is bound to deliver to the buyer all documents of title relating to the property which are in the seller' s possession or power. As the seller is expired so it is the duty of legal heirs to do so.

n You have full right under the specific performance.

(Specific performance can be in the form of any type of forced action, it is usually used to complete a previously established transaction, thus being the most effective remedy in protecting the expectation interest of the innocent party to a contract.)

This column appears fortnightly. Readers can send their queries at Real Estate Desk, The Tribune, Sector 29, Chandigarh (by post) or through e mail at realestate@tribunemail.com

Green House
Open your doors to natural air purifiers
Maj Gen C.S. Bewli

Indoor plants add vibrancy and colour to any decor and help in bringing nature closer to us. A study conducted by NASA on the use of common indoor plants for purification of air suggests that some species of "house" plants are more efficient than others in removing toxins and cleaning the polluted air indoors. Hence, there is an aesthetic green way to combat indoor air pollution by using these easy-to-grow plants. Keeping in view the present lifestyle of using air conditioners during summer months and heaters during the winter months, it becomes imperative to place such plants indoors.

Harmful allergens like benzene and formaldehyde that can cause allergic reactions and long-term health problems are often contained in the air at homes and offices. Formaldehyde is emitted naturally by plastics and building materials, where as benzene is emitted by paints, wood preservatives and disinfectants.

These house plants play a dual role by converting carbon dioxide into oxygen through the process of photosynthesis, and by absorbing pollutants, which are released into the air through off-gassing. As the total surface area of leaves influences the rate of release of oxygen, thus larger the plant leaf area, the higher is the release of oxygen. One plant is sufficient to cover an area of 100 sq ft.

Here are some species that are ideal for purifying air around you:

Mother-in-law's tongue

It is a common plant and is popularly known as "mother-in-law's tongue". This plant is tough and can tolerate full sun exposure outdoors as well as low light conditions indoors, and hence can be placed in any suitable indoor location. The long and narrow sword shaped leaves are stiff, thick and erect and can reach up to a length of 4 ft. The thick leaves help in storing water, but the plant can rot from over-watering during winters and should be potted in well-drained soil. The variegated and smoothly textured leaves have golden yellow margins and a central broad dark-green band with creamy yellow vertical stripes. Though the plant rarely flowers indoors, but it is grown for its beautiful foliage. It is a tall and slow growing plant which lasts for many years, and can also be used as a natural element of interior decoration.

Money plant

The writer is President of the National Cactus and Succulent Society of India

Tips to keep indoor plants healthy

n Plants should be watered when the top 1cm of the soil gets dry.

n Fertilise soil with nitrogen, phosphorous and potash (NPK) once a month during growing season

n Due to prolonged exposure to low-light conditions the plants get weakened, and lose their original shape and colour. Hence they should be taken outside for good development once a fortnight for a weeks' time, and should not be kept in direct sunlight to avoid scorching of leaves.

n It is better to have two sets of such plants to be kept alternatively in the living room for regular availability of purified air.

n To promote growth, leaves should be sprayed regularly to clear the stomata holes of any dust and also to prevent tips of the leaves from dehydrating.

n The plants should be re-potted annually during spring.

As we stand educated now, and the life line to good health has come to the fore, it is worth the effort to rear and nurture these easy to grow plants for creating greener and cleaner environment indoors.