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Real expectations Tax tips
Ground Realty Realty bites Launch
pad Sobha Developers
realises Rs 533 crore
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Real expectations Sailing through choppy waters for the past 12 months, the realty sector has its hopes pinned on this year’s Budget to get back on the growth track
Even though buying a new home in the tricity has been on the priority list of Sarthak Shukla for the past few months, he has been postponing the decision. This 30-something telecom sector employee is among lakhs of homebuyers and investors all over the country who are eagerly awaiting the Union Budget in the hope that the Finance Minister will have some favourable provisions for them and the real estate sector. The industry bigwigs, too, are expecting a better deal this year. Though a majority of developers have been putting up a brave face and claim to have a good response to their projects, the fact remains that the realty sector has had a rough ride over the past 12 months in most of the areas in the country. Piling inventories, lack of funds, rising cost of construction, delayed projects, reluctant investors and missing buyers are the ground realities that no one can ignore or pooh pooh any longer. Even “promising” areas like the tricity and its periphery have seen price corrections with experts forecasting further fall in prices if the booster shot of suitable measures is not given to this sector in the Budget this year. “The macro-economic concerns are having a cascading effect on the Indian real estate. With GDP not likely to cross the 5.7 to 5.9 per cent mark and inflation levels remaining high, immediate and effective steps are needed to address the situation”, says Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India. “It is high time that the government took a pragmatic and practical look at the real estate sector today and take steps that help the industry in particular and the economy in general,” concurs CREDAI national president Lalit Kumar Jain. The forthcoming Budget session will also see the tabling of two crucial Bills regarding regulation in the real estate sector and land acquisition provisions. Both these Bills will have a substantial effect on the sector on the whole as far as prices and transparency of realty deals are concerned. But apart from this, the main stakeholders have a lot of expectations from the Finance Minister to put the sector back on the growth track. The country’s housing shortage is at a staggering 18.1 million and an incremental need is around another 10 million houses. In its Budget wish list CREDAI has called for an inclusive housing policy and special zone to boost small and affordable houses. Jain suggested to the Finance Minister to allow tax exemption for small houses of under-60 sq m of carpet area and creation of special housing zones with tax exemptions on the lines of SEZ for constructing 45 sq m houses for low-income groups and 30 sq m houses for the economically weaker sections. The “fundamental right to own a home, raising the income tax exemption limit on interest paid on home loans to Rs 4 lakh and 2 per cent subsidy on home loan” were the three main points on the Budget wish list of homebuyers as per the findings of a survey conducted by property website makaan.com recently. Almost 27 per cent of homebuyers in this survey favoured an increase in the exemption limit on repayment of interest on home loan from Rs 1.5 lakh to Rs 4 lakh per annum, while 85 per cent saw urgent need for a “dispute redressal mechanism” to safeguard their interests in this year’s Budget. Some of the key expectations of the sector from this year’s Budget include: Change in status The demand for industry status for the realty sector has been a long-pending demand of the sector. “By granting it industry status, the government would enable the sector to access debt lending at better interest rates and reduced collateral values”, says Anuj Puri. Experts have also sought infrastructure status for affordable/low-cost housing. This will provide for funds at lower interest rates as infrastructure falls within the priority sector lending of banks. Infrastructure status would mean that developers would be covered under Section 80-IA of the Income-Tax Act allowing them to avail 100 per cent deduction for profits and gains derived from such business for 10 consecutive assessment years. Sachin Sandhir, MD, RICS South Asia, suggests that “affordable housing” should be brought under the infrastructure definition and affordable housing
be treated as ‘public purpose’. “This would augment the flow of much-needed credit to the affordable housing segment through various sources such as IIFCL, Infrastructure NBFCs, insurance companies (mandated to finance infrastructure), ECBs etc”. The National Real Estate Development Council (NAREDCO) has sought changing the definition of infrastructure facility so that integrated townships and group housing societies may be benefited. NAREDCO suggests that in the definition of ‘infrastructure facility’ the following clause may also be added: “An integrated township and group housing development on area more than 10 acres involving provision of residential, educational, medical, community, commercial or institutional buildings and creation of required facilities including roads, water supply, water treatment, sanitation and sewerage systems and solid waste treatment and management systems”. Promoting rental housing The shortage of housing in the country has brought the focus on rental housing and demand for giving a boost to this segment is also gaining momentum. NAREDCO has suggested that the income from renting of properties should be taxed at a flat rate of 10 per cent from the current 30 per cent. High cost of houses and high property taxes lead to a low rate of return (ROR) from rental housing making renting out an un-remunerative proposition. To improve the effective ROR from renting, it is suggested that the deduction from rental income under Section 24(a) be increased from 30 to 50 per cent. This will promote rental housing. Commenting on the steps required in this regard Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield says, “Rental housing in the affordable housing segment should be encouraged by setting up public ‘Housing Associations’ (HA) that construct, own, operate and manage the rental housing units. The necessary funding could be either provided through budgetary allocations or with the Credit Guarantee Trust Fund, setup by the Government last year, guaranteeing the loans taken by these HAs”. “Increasing the limit of deduction on account of interest payment on housing loans from Rs 1.5 lakh to the fullest extent in case of owner-occupied houses; modifying the tenancy laws to protect the interest of the property owners so that owners are encouraged to freely rent their premises”, adds Sandhir. Suggesting the formation of a proper Real Estate Investment Trust (REIT), CREDAI also called for special rental housing projects under the affordable segment, treating the expenditure as capital investment for long-term capital gains, exemption from Income Tax, Service Tax, VAT and Stamp Duty for rental housing. “Even the rental income from these projects must be exempted from Income Tax as the indirect benefits are far too many”, says Lalit Jain. Revision of home loan limit for priority sector lending The increasing prices of homes have been the main handicap for an increasing number of homebuyers. In view of the rising prices the home loan limit of Rs 25 lakh should be revised to Rs 35 lakh under PSL, in order to benefit an increased number of home buyers. “Bank loans to government agencies involved in the construction of affordable housing units should also be relaxed from the existing Rs 5 lakh to Rs 25 lakh per dwelling unit”, says Sandhir. Controlling the escalation in input costs The input prices for construction have skyrocketed in recent years, rising by more than 50 per cent in the past two years alone. In addition, builders are faced with the increased costs of external and internal development charges, licenses and charges for change of land use from various departments. “These factors have been directly responsible for rising real estate prices. The Budget should make provisions for subsidised construction materials for low-to-mid-income housing, and rationalised license fees and other government levies”, says Anuj Puri. The common man as well as the realty big wigs expect a lot, it remains to be seen what the FM has in his bag for the sector and whether he will come up to the expectations of the real estate sector this year. Tax benefits
on housing loans The topmost demand for homebuyers has been a revision in the rebate on home loan interest payment. The provision of rebate of interest on housing loan to a maximum of Rs 1.5 lakh from the taxable amount on yearly basis was last amended in 1999. Since then housing prices and the amount of housing loan availed by the middle class segment have grown manifold. The current home loan interest repayment exemption is not even in line with the HRA benefits buyer normally gets. “The entire interest payment for the first house in which person intends to stay should be exempted from tax or at least there could be a limit based on metro and non metro city”, says Pankaj Bansal, Director, M3M group. "The interest rebate needs to be revised upward on an urgent basis. This will motivate end users to buy properties and shall reduce speculative investment", he adds. The demand for revising the rebate for payment of principal amount has also been gaining momentum. “The deduction for principal repayment of housing loans under Section 80C should either be increased from the existing limit of Rs1 lakh or the principal repayments be excluded from Section 80C and be treated separately. The principal repayments in such a case may be treated as a separate tax exemption component like interest payments on housing loans (under Section 24) which are deducted from the taxable house income and have an upper limit of Rs 1.5 lakh”, adds Sandhir.
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— Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India At present, capital gain arising from transfer of any capital asset is exempt from tax in cases where the sale proceeds are invested in acquiring one residential house. Such a restriction is a deterrent to the object of boosting the housing sector, and hence needs to be removed. This restriction should be removed and the scope be broadened by allowing the exemption as long as the entire capital gain is invested, whether in one or more
houses. — NAREDCO — Rohtas Goel, Omaxe CMD
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Tax tips
Q. Our father purchased a house in the name of us five sisters in November 1945 for Rs 5,300 and Rs 7,800 was spent on improvement in 1946 to make it habitable. Our father died in 1972. The record of this expenditure is available in the house PTTA and his BHAEE. We sold the house in August, 2012, for Rs 6,82,500. But the purchaser registered the conveyance deed for Rs 4,00,000. My 1/5th share came to Rs 1,36,500. The house is located in a small town in Rajasthan. A local valuer in that district has given a certificate that the value of the house in 1981 was between Rs 80,000 to Rs 90,000. Now my query is: What will be my Capital Gain and how can I calculate it? I am a tax payer. — Durga Sharma A. The capital gain would be computed by indexing the fair market value as on April 1, 1981 which has been determined by a local valuer between Rs 80,000 to Rs 90,000. It would be advisable to obtain a valuation certificate from an approved valuer. He should give an exact figure of fair market value as on April 1, 1981. The figure so available will be indexed 8.52 times so as to arrive at the indexed fair market value. The value so arrived at would be deducted from the sale price. The balance amount would be capital gain / capital loss. In all probability, there should not be any long-term capital gain. This is because the capital gain on the basis of fair market value of Rs 80,000 works out at sum of Rs 900 only. Therefore, in case the fair market value as on April 1, 1981 is determined at say Rs 85,000 there would not be any capital gain chargeable to tax for financial year 2013-14. It may be added that the above computations are based on the actual sale price of Rs 6,82,500. Clarification on ownership issue
I shall request you to kindly re-examine your opinion and advise me afresh as there is lot of difference in impact of income tax on short-term capital gain and long-term capital gain. May be there was some confusion in my query resulting in the above opinion. In case the opinion expressed in Tribune (dated August 4, 2012) is not applicable in my case, please tell me about the dis-similarity in my case. — Ved Parkash A. In the query raised by Sunil Gupta it was explained that the paper possession was taken by him but he had not taken the physical possession. It has been stated in the reply to his query that as the possession had been taken by him in accordance with the records of Housing Board it would be difficult for the department to contest that no possession had been taken for three years prior to the date of sale of the plot. In the query raised by you the vender-vendee agreement contains a clause that vacant physical possession of the said plot has been handed over to you whereas, in fact, the possession was taken by you on May 31, 2012. It was, therefore, explained in reply to your query that the mention of possession being handed over to you in the vender-vendee agreement will have no significance as the earlier owner of the plot had not taken the possession of the plot. There is no necessity to re-examine the reply to your query as you have taken the paper possession on May 3`, 2012 and you intend to sell the plot within three years of taking of the possession, the capital gain, if any, arising on the sale of such plot would be treated as a short-term capital gain. How can an NRI transfer sale proceeds abroad?
— Baldev Singh A. Your queries are replied hereunder:
Is there any discrepancy in the deal?
Is there any capital gain and tax liability? Is the transaction OK? In case there is any mistake in this transaction, what is the remedy available? — Gopal Krishan A. Your son would not be liable to pay tax on the long-term capital gain arising on the sale of the residential house. On the basis of figures given in the query the indexed cost would work out at Rs 10,68,512 and therefore there would be capital loss of Rs 68,512 on the sale of the residential house. There is no discrepancy in the transaction. The amount of capital loss can be carried forward for a period of eight assessment years. Email your queries to realestate@tribunemail.com
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Ground Realty
Visit the site Get acquainted with your plot. Know its exact location and the approach roads available to reach it. Know whether the houses have been built on the adjacent plots or not. If yes, you may meet the owners and apprise them of your plot ownership. Visually assess your plot level, whether it is low-lying or at normal level with respect to road level. Know the exact direction your plot is facing. Know its width and depth. Inquire about the level of water below the ground and the soil conditions. Check that a sewerage manhole or a pole is not interfering with your plot.
Get the services of an architect Next, know about the architects in your area. It is better to utilise the services of a local architect as he can visits the site easily. A good architect located outstation may devise good plans and elevation for you but his visits to your site or availability in emergency are not guaranteed. Moreover, a local architect will be conversant with the prevailing bylaws in the area.
House plans Next comes the most crucial point. The architect will suggest many house plans to you. He will prepare these plans by keeping the bylaws in view. The open space to be left in front or back, the porch area, the plinth level, floor levels and roof level, the percentage of plot area to be covered etc will be taken care of by the architect. He will know whether the common walls are to be made use of or not. The maximum permissible area of basement will also be known to him.
Finalise the plans Feel free to make any suggestions to the architect. In meeting your requirements and fulfilling your dream lies the success and satisfaction of the architect. The architects never object to the plot owner's suggestions even if these are weird and against the principles of architecture. They politely make their clients understand in case a suggestion is resulting in violation of building bylaws or is not practical from lighting or ventilation or placement point of view. Take your time, discuss the plans with your family and give your nod to a plan only when you are fully satisfied.
Water supply When the plans are sanctioned, look for a water supply source at your site. Water is a primary requirement during the construction of your house. Municipal connection may be available but not sufficient. Therefore, go ahead with the installation of a submersible pump at your site. Decide its location in such a manner that it doesn't interfere with the building line and could be used as a source of drinking water for you. Try locating it in North East direction. Hire an earth-bore driving gang. They'll bring their machine and casing pipes to site and do the job in two to three days. Select a reputed make submersible pump. Its capacity depends on the depth from where the water is to be pumped out.
Electricity connection The submersible pump at site will require an electricity connection to run it. Moreover, electricity shall be required to run electric vibrators for compaction of concrete and for other miscellaneous jobs like running the machines brought in by the carpenter. Apply for a temporary power connection. Normally, it is made available in two to three days.
Hiring a labour contractor Next step is to hire a labour contractor. Negotiate and strike the price to be paid to him. Normally, the labour contractors demand a rate per sq ft of the building area. For the basement work, the rate is higher, almost 1.5 times the normal rate. Clear all terms with him. Know what is included in his rate and what is not included.
Site clearance Ask the labour contractor to do some site clearance so that one may be able to move in the plot area freely. Normally, lots of wild growth is there on the plots and it is not safe to move through it.
Layout of the building Now, the layout of the building is marked on the ground. A foundation-excavation plan is prepared by the architect and the outline of the width of foundations is marked on the ground to make it easy for the labourers to start excavation work. During the marking of outline of the plot, it should be doubly checked that there is not even slightest encroachment on the neighbour's plot in case it is lying vacant. Some wall in the North East direction is chosen to apply first cut and to perform bhoomi pujan by the owners.
Foundations Next, the excavation in foundations is taken up. In case a basement is planned in part area of the plot, the excavation in foundations of walls should be so taken up to enable you to utilise the earth dug out from basement area for filling under floors.
Talk to a trader Building materials such as cement, steel, bricks, sand, coarse aggregate of 40 mm size, 20 mm size and 10 mm size shall now have to be arranged by you. The house owner may arrange these from his own sources otherwise there are traders in the market who keep supplying these items as per telephonic requirements of the house builder. The house builder keeps visiting them from time to time to clear the outstanding account and a sort of system is struck between the two parties. This arrangement helps in avoiding the stoppage of work at site for want of any item. With this, all the preliminary activities are over and your house is now set to proceed further.
This column is published fortnightly
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Realty bites Indian commercial property seems to be on the mend, as real estate indicators strengthen in Q4. This has been revealed by the latest RICS Global Commercial Property Survey. According to the survey the capital values are expected to rise over the next few months and tenant demand and rental expectations will pick up leading to better performance for occupier markets. Commenting on the survey with respect to global commercial property, Simon Rubinsohn, RICS Chief Economist, said, “Asia appears to remain a particularly attractive location for investors seeking out commercial real estate assets with sentiment still strongly positive.” In fact, India has improved its overall global ranking by 10 places with respect to occupier demand and available space, ranking 9 in Q4 as compared to 19 in Q3 2012. Commenting on the current and expected market environment in India, RICS members said, “The government’s decision to allow 51 per cent FDI in multi brand retail has cheered both retail and real estate sectors. From real estate point of view, it will open up multiple opportunities in the medium and long term, as the demand for quality real estate would rise. With flow of fresh investment into the retail sector, it will trigger investment in real estate at both the front and back end. Vacancy in malls across the board ranges between 15-20 per cent. Opening of FDI in multi brand retail would surely improve the uptake of present vacant retail spaces and vacancies should improve by at least 5-7 per cent in next two to three years. There should be an increase in demand for commercial real estate and increased investor confidence, as presently there is a mismatch in lease rates and capital values. All this would motivate developers to build quality shopping centers with a clear vision to long term profit.”
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Launch
pad According to company spokesperson, Apartment 55 limited edition homes, the first of these three projects, at Greater Noida will have an exclusive club with provisions like badminton courts, health and fitness centre, swimming pool, meditation avenues, etc. DAMAC partners with FENDI Casa DAMAC Properties recently announced a major regional strategic tie-up with luxury global brand FENDI to provide interior designs on projects in Riyadh in the Kingdom of Saudi Arabia and Dubai, UAE. The largest private luxury developer in the Middle East revealed details of DAMAC Esclusiva Luxury Serviced Apartments, a 150-metre high tower overlooking the Kingdom Tower in Riyadh, which will provide refined luxurious interiors by the Italian fashion house for more than 100 luxury serviced hotel apartments. The two companies will also partner on the interiors for private apartments, DAMAC Residenze in the Dubai Marina. — Based on information provided by the developers
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Sobha Developers realises Rs 533
crore Realty Major Sobha Developers has realised Rs 533 crore by selling 0.90 million sq ft of new space during the third quarter of fiscal year 2013. Company sold this space at an average price of Rs 5910 per sq ft. This is the company’s highest ever cash flow in a single quarter since inception, a growth of 19 per cent year on year. Commenting on the Company’s performance, J.C. Sharma, Vice Chairman & Managing Director, Sobha Developers Limited, said, “This has been the best quarter ever in terms of cash realisation from our operations. It further strengthens our faith that there is a large market for discerning buyers who appreciate and value a superior, quality-oriented product.” “On the contracts side, we have completed and handed over projects measuring 0.26 million sq. ft. during the third quarter of FY 12-13. We have a clear visibility for the next three years and are positive about having a sound income from this vertical too,” added Sharma. The improving cash flows have prompted the company to look for new opportunities in emerging markets as well as its existing locations. In the upcoming financial year, Sobha will make a foray into three new geographies — Kochi, Kozhikode (Calicut) and Noida/Ghaziabad region. Sobha is also exploring opportunities in the Hyderabad realty market. The Company is also committed to work within the Debt-Equity Ratio of 0.6. As of December 31, 2012, Sobha has completed 83 real estate projects and 224 contractual projects covering about 54.45 million sq. ft. The company currently has 43 ongoing residential projects aggregating to 24.18 million sq. ft. of developable area and 17.40 million sq. ft. of super built-up area.
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Even though buying a new home in the tricity has been on the priority list of Sarthak Shukla for the past few months, he has been postponing the decision. This 30-something telecom sector employee is among lakhs of homebuyers and investors all over the country who are eagerly awaiting the Union Budget in the hope that the Finance Minister will have some favourable provisions for them and the real estate sector. The industry bigwigs, too, are expecting a better deal this year.
Constructing one’s home can be a daunting task for many. The task looks gigantic, time-consuming and finance draining. One has to muster tremendous courage before going ahead with the job. And often, people don’t know just how to begin. That’s why so many queries keep landing in my inbox about it. The job may perhaps look easy if the first few steps are known to them. Therefore, one must start in a systematic manner. Here are the first few steps to begin well:
In this Budget, the government should come up with simple and effective polices that will ease real estate development approval procedures. Obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for projects rises. Single-window clearances are the need of the hour, since the absence of such mechanisms causes project delays which prove to be expensive to both developers and end
users. 
We expect Budget 2013 to address the concerns of housing shortage in the country through measures that would provide incentives to developers to take up more affordable housing projects and to end users by way of tax exemptions. The long-pending demand for single-window clearance, industry status for real estate sector, friendly land acquisition norms, a considerate real estate bill and issues of service tax, stamp duty, VAT etc will help the sector and the overall economy towards diminishing the demand-supply gap. The easing of FDI in retail will have a positive impact on the real estate sector in the next few months. Increasing the pace of infrastructure projects is the need of the hour as focus on tier II and III cities has become an area of priority for every business owing to rise in demand and aspiration levels in these
cities.
Q. My situation is similar to one mentioned in case of Sunil Gupta in the Tribune Real Estate (August 4, 2012). In my case, I purchased the plot on December 12, 2003 and it was re-allotted to me by HUDA on April 12, 2004. The paper possession was taken by me from HUDA on May 31, 2012. The clause mentioned by the seller with regard to his handing over the possession to me in vendor/vendee agreement has no significance as the paper possession from HUDA has been taken by me which the seller had not taken on the date of sale by him to me. Conveyance deed is yet to be executed in my favour. In case of Sunil Gupta also, all the three conditions were the same. However, you have stated “you should claim that the capital gain earned beyond three years of date of allotment but within three years of date of possession is a long- term capital gain. The benefit can’t be denied as it is a decided principle of law that in case two opinions are possible that which powers the assessee should find favour with the authorities.”
Q. My father had willed our ancestral agricultural land in favour of my son, who is an NRI living in USA. The land was mutated in favour of my son, after the death of my father, a few years ago. If my son wants to sell this agricultural land and repatriate the sale proceeds to
USA,
Q. My son purchased a house for Rs 7 lakh by raising a bank loan of Rs 5 lakh and Rs 2 lakh as gift from me. Registration charges Rs 50,000 were paid from his savings in the year 2007. He sold this house for Rs 10 lakh in 2011 and repaid Rs 4.5 lakh bank loan. Out of remaining Rs 5.5 lakh, he has purchased space in mall in 2011.
Constructing one’s home can be a daunting task for many. The task looks gigantic, time-consuming and finance draining. One has to muster tremendous courage before going ahead with the job. And often, people don’t know just how to begin. That’s why so many queries keep landing in my inbox about it. The job may perhaps look easy if the first few steps are known to them. Therefore, one must start in a systematic manner. Here are the first few steps to begin well:
AMR Infrastructures Ltd. that is known more for commercial projects and IT parks will be entering the premium residential segment with the launch of a new project in Noida. According to Kapil Aggarwal, Managing Director, AMR Group, “We are coming up with three luxury residential projects in the near future and have tied up with noted designer Manish Arora, who will personally style these homes as per the established preferences of the niche clientele.”