real turf
Investment inflow plumps up hopes
* Nearly $800 million invested in Indian realty in Q1 2014
* Corporate land sales dominate real estate investment scenario
Anshuan Magazine

For the quarter ended March 2014, nearly $800 million was invested into India’s real estate sector. This translates to almost Rs 4,800 crore having been injected into the sector through the private equity route over the past few months.

This couldn’t have happened at a more opportune time for a sector faced with a liquidity crunch, high land acquisition costs, and stringent due diligence from the banking sector, which continues to perceive real estate as a high-risk domain in India. It is this selective attitude towards lending to particular assets and markets, which has also provided opportunities to non-bank lenders such as pension funds and insurance companies to begin to consider funding India’s realty industry.

One of the first foreign pension funds to directly invest in an Indian company happened to be the Canada Pension Plan Investment Board (CPPIB) and Caisse de depot et placement du Quebec (CDPQ) in partnership with Oman’s State General Reserve Fund (SGRF). The entity invested Rs 2,000 crore (approximately Rs 1,000 crore in phase I, and the remaining amount to be funded within aperiod of 12–18 months) in Larsen & Toubro’s (L&T) infrastructure development arm, L&T Infrastructure Development Projects Limited (L&T IDPL), during the first quarter of 2014.

Other key investment trends observed during the quarter were land transactions, investments in built-up commercial assets, and the sale of non-core assets by business entities. More than 60 per cent of the realty investments observed during the quarter under review were seen to be the sale of land parcels by corporate entities seeking to maximise returns, primarily in the Mumbai Metropolitan Region (MMR), to realty developers for housing development projects. Some of the most significant cases in this category involved the sale of a 25-acre land parcel owned by Tata Steel on Dattapada Road, Borivali (East), Mumbai, to the Oberoi Group for approximately $ 187 million for a luxury residential project.

Other similar land sales in the MMR included the town planning agency, City and Industrial Development Corporation of Maharashtra Limited (CIDCO), selling off three of its land parcels in Navi Mumbai to local developers for residential as well as commercial development. While the CIDCO plot at Sector 23, Khargar, was bought by the Bhagwati Group for about $24 million to be developed as a housing property, two more plots at Ulwe’s Sector 19 were sold to Shagun Enterprises and Varun Enterprises for nearly $7 million and $6 million, respectively. Yet another land deal saw Ardent Properties Pvt. Ltd., a 100 per cent subsidiary of realty firm, Tata Housing Development Company Limited, buying a 7-acre plot at Thane for nearly $36 million from KEC International for the development of a premium housing project. Other such land sales were also observed in Bangalore, Pune, Ahmedabad, and the Delhi National Capital Region during Q1 2014. It is interesting to note that these are all corporate deals, which goes to show that an increasing number of firms are now open to monetizing their defunct real estate assets for the right valuation.

Industrial assets (such as IT SEZs) remained sought after due to comparatively better yields over residential assets, stable returns and strong occupier demand. The first quarter of 2014 saw quite a few investments in built-up commercial assets. The most significant was that of US-based industrial engine maker, Cummins, buying its 700,000 sq. ft. India office campus at Balewadi, Pune, from Panchshil Realty for nearly $125 million.

The quarter also witnessed developers seeking equity investment partners with several Indian developers generating cash by disposing off their non-core assets and/or forming joint venture partnerships with investors to develop realty projects. A case in point being realty major, DLF Ltd., divesting off nearly 25–26 of its hospitality property portfolio—under its Amanbagh brand—to the Adrian Zecha and Peak Hotels joint venture.

In conclusion, more platform deals and equity stake acquisitions are expected to be seen in the forthcoming quarters. Although India is not yet a significant player in the regional real estate investment market, going forward, we expect the entry of real estate investment trusts (REITs) to provide alternative funding channels to the sector, and trigger strong growth in its investment volumes. A forward looking legislation on REITs will be a key enabler for capital markets in the country, and shall be the single-most consequential reform in the sector

— The writer is CMD, CBRE South Asia Pvt. Ltd.

REITs may tap 90,000 cr in first year

Real estate investment trusts (REITs), which are expected to get a green signal in the upcoming Budget, could open up a new source of funding for developers battling declining sales and high cost of funds.

Reits, similar to mutual funds that can be listed and traded on exchanges, could attract investments of Rs 60,000-90,000 crore in the first year of operations itself. These are tax-free instruments that invest in income-generating assets such as offices and malls and distribute the income as dividend to unit holders.

Many in the industry believe even government owned entities that have large portfolios of offices could look at selling them to REITs and leasing them back. These are expected to benefit companies like DLF, Prestige, Phoenix Mills and privately held firms such as Embassy and K Raheja Corp that have a large portfolio of leased assets.

Companies like Infosys, Wipro and TCS could look at selling their office assets to REITS and taking them back on lease. When REITs buy large assets from property developers, it helps developers to repay loans. “Almost all developers have residential projects stuck over money. It will increase liquidity in the sector on the whole”, said Mangat Rai of M/S Subhash Mangat and Company, a tricity real estate consultant.

realty bites
Mumbai favourite among UAE-based NRIs

Mumbai has emerged as the top Indian city for property investments by NRIs in the UAE with Bangalore being the second most popular, according to a survey.

Mumbai retained the top spot with 31.86 per cent NRIs preferring to make property investments in the city, a recent survey on Indian properties by Sumansa Exhibitions, the organisers of the Indian Property Show in Dubai, said.

Bangalore came in second with 24.35 per cent preferring to invest in residential property in the coming months, the survey said.

Chennai and Pune jointly hold the third place with almost equal percentage of people preferring these cities. Delhi has the fourth position followed by Cochin, Navi Mumbai, Gurgaon and Hyderabad.

“Bangalore’s property market bucked the trend in other metros with many new launches, good demand and resilient prices. Sector experts predict that residential property in the city will remain a good bet for 2014, too,” said Sunil Jaiswal, CEO Sumansa Exhibitions.

“Bangalore is the third-largest real estate investment hub for High Net worth Individuals (HNIs) and tops the list in terms of investments from Non Resident Indians (NRIs) looking at settling down in India in the future”, said Jaiswal.

“With a high net-worth individuals population of about 10,000 the third highest in the country after Delhi and Mumbai Bangalore's super-luxury segment is also worth watching,” he said.

IBM to provide smart city tech for Lodha’s project

Technology and consulting firm IBM has entered into an agreement with realty player Lodha Group to develop and manage smart city infrastructure in the real estate group’s township project- Palava in Thane district.

The project, spread across 4,000 acres and envisioned as a city, will incorporate IBM’s smarter city technology using advanced data driven systems to integrate information from all operations in Palava into a single system.

“IBM will integrate services in areas such as energy, water, transportation, public safety and smart cards with a central command and control center. We will also support a central hub to monitor and enable coordination among Palava city and agencies involved in public safety and emergency management,” IBM India (South Asia) Director of smart planet solutions Dhamodaran Ramakrishnan said in Mumbai.

Located at the centre of the economic triangle of Navi Mumbai, Thane, and Kalyan, Palava project is expected to be completed by 2025 and house one lakh families. It will also provide 3.5 lakh jobs.

The first phase of the project, where it will build 19,000 homes, will be completed by 2015-end.

“We will require to spend another Rs 14,000 crore by 2025 when the entire project is expected to be completed. We will also need an incremental investment of Rs 400 crore for the next 10 years for making Palava a smart city,” Palava Development Director Shaishav Dharia said.

launch pad
City Heart in Kharar

Kharar-based developer SBP Group announced the launch of its first commercial project ‘City Heart’ in Kharar earlier this week. The eight-acre project being developed under the group’s new brand Credo is located on Chandigarh-Kharar highway (NH-21).

The commercial space with 3,50,000 sq ft area will be completed in 15 months time. The 1056 sq ft units in the commercial complex will cost Rs 47 lakh onwards in construction-linked plan.

Speaking on the launch Aman Singla, Managing Director, SBP Group, said, “Locational advantage and bookings from some prominent names, including Country Inn and Suites of the Carlson Group and Gulab Sweets among food joints will make City Heart a shopping hub in the area. This project is being marketed by BioQue and Gandhi Group. — TNS

loan zone
Reverse mortgage loan yet to come of age in India
S. C. Dhall

Reverse mortgage is a special type of loan against a home that allows the borrower to convert a portion of the equity in the property into cash. The equity built up over many years of home loan payments can be paid directly to the borrower. However, unlike a traditional home equity loan no repayment is required until the borrower(s) cease to use the home as their principal residence.

With a traditional second mortgage, or a home equity line of credit, one must show sufficient income versus debt ratio to qualify for such a loan, and one needs to make monthly payments towards the mortgage. Reverse mortgage differs in that it pays the borrower, and is available regardless of current income or assets. The amount that can be borrowed depends on the borrower’s age, the current interest rate, other loan fees, and the appraised value of the property. One does not have to make payments, because the loan is not due for paying off as long as the house is one’s principal residence. Like all homeowners, the borrower is still required to pay applicable real estate taxes and other conventional payments like utilities.

One of the myths about a reverse mortgage is that one loses one’s home at the end of the mortgage term. However, this may not be the case always. The owner can retain the home if he pays back the funds received from the reverse mortgage lender. Payouts on a reverse mortgage can be made to the borrower in a single lump sum on approval of the reverse mortgage, in monthly payouts or in the form of a line of credit that the borrower you can draw from whenever he or she decides to. There are benefits to both approaches depending on one’s immediate cash requirements and tax situation.

There are three reasons why reverse mortgage has not proved to be popular in India. First, Indians look at owned property as a primary asset, ideally to be handed down generations and not encashed in any form unless extreme financial issues prevail.

Secondly, Indian culture has the care and support of senior citizens hard wired into it — elderly people who own properties in this country do not, as a rule, lack the financial wherewithal to support themselves in their twilight years.

Thirdly, the product itself is not as well understood in India as traditional home loans are. In any case, it does seem that unless the classic reverse mortgage is tweaked in a manner to make it more palatable to Indian sensibilities and values, it is not likely to become a big hit.

Reverse mortgage in the Indian context makes sense for elderly persons owning residential property who, for whatever reason, have no other dependable financial recourse. Also, there are instances of severe rifts within the family which can make an elderly person choose to encash rather than leave the property for legal heirs.

Finally, reverse mortgage can be used as a temporary fallback option. In other words, reverse mortgage can be availed for a certain amount which can then be paid back in a predictable period so that the ownership of the property is returned to the owner.

tax tips
Can plot loan be converted into home loan?
S. C. Vasudeva

Q. I am working as SDE in state government and my monthly gross salary is Rs 45,000 (without deductions). My wife is also a government employee and is earning Rs 43,000 per month (without deductions). We both jointly intend to purchase a residential plot in New Chandigarh, Mullanpur, Mohali, Punjab, measuring 250 sq. yd @ Rs 18,000 per sq. yd in resale from M/s Manohar Singh Co. According to the payment plan 50 per cent payment has to done initially from which 30 per cent amount has to be paid from own pocket and the rest 70 per cent will be financed by HDFC in plot loan. Till date, only CLU has granted by GAMADA to this company. My queries are:

a) What is the difference between plot loan and hme loan?

b) Can we both jointly avail tax rebate in our respective salaries on this plot loan? if no then what should we do to avail tax rebate on this loan?

d) How much tax rebate can be taken on both on our salaries?

e) How much construction has to be done on this residential plot to convert plot loan to home loan? — Sandeep Kumar

A. Your queries are replied hereunder:-

a) The difference between a plot loan and home loan is that plot loan is granted for purchase of a plot whereas the home loan is granted for construction of a residential house.

b) Interest paid on an amount borrowed for purchasing a plot is not allowable as deduction against income from house property under the provisions of Income-Tax Act, 1961 (The Act). Therefore, none of you can seek deduction in respect of the interest so paid on the amount borrowed for purchase of a plot.

c) There is no procedure which can be adopted for seeking deduction of such an interest.

d) In view of the reply in (b) above, this question would not arise.

e) Section 24 of the Act permits deduction in respect of interest paid/ payable on amount borrowed for the construction or purchase of a residential house. The deduction is allowable against the income from house property which implies that the house must be complete and habitable. It may be added that deduction under the aforesaid Section is limited to Rs 1,50,000 in case of a self-occupied residential house.

How can I save TDS deduction?

Q. My son who is an NRI bought an apartment in Gurgaon in 2009 with a consideration amount of Rs 44 lakh plus Rs 3.50 lakh as stamp duty and he has a registered sale deed showing therein his residential address of abroad i.e. USA. Now he intends to sell this apartment with a proposed sale price of Rs 1.80 crore. The buyer after consulting his chartered accountant informed that TDS@ 20 per cent will be deducted on the whole consideration of Rs 1.80 crore under Section 195 of the IT Act of government of India.

Our question is how to save deduction of TDS. I understand that Tax authorities can grant tax exemption certificate for which application has to be submitted on form 13.

My queries are:

a) Please guide how much time it is usually taken by the AO to issue such certificates?

b) What are the documents required for getting such tax exemption?

c) Can the application on form 13 to get tax exemption be filed on line?

d) If not then can I being his father, apply for getting such tax exemption certificate if a power of attorney on plain paper or on e-mail is sent by my son in my favour to apply for such certificate.

e) As per cost inflation index of income tax department the figures of 47(cost inflation index 2009-10 = 632) lakh becomes around 70.66 as per cost inflation index 2012-13 =932) hence capital gain of Rs 1.09 crore.

As per existing rules if the amount of Rs 1.09 crore is invested for buying a new residential property, entire long-term capital gains tax can be saved. Please confirm whether capital gain of Rs 1.09 crore is to be invested or entire sale proceeds of Rs 1.80 crore investment will save capital gains tax @ 20 per cent.

f)Also clarify that if another residential apartment is also owned by my NRI son, then is there any restriction to get such capital gains tax exemption? If such capital gain is for only one residential property/apartment ownership and not for those who have more than one residential property/apartment. The second apartment is not being sold now and will be retained. — Lajpat Rai Thakral

A. Your queries are replied hereunder:

a) The application in Form 13 can be made under Section 197 of the Act for issuance of a certificate for deduction of tax at lower rate or no deduction of income-tax. Rule 28 and Rule 28AA are applicable for issuance of such certificate. It will take a minimum period of one month for issuance of such a certificate. A short note seeking exemption from the taxability of capital gain will have to be filed along with form 13 in terms of clause (xv) of the form. The form cannot be filed online. Form 13 is required to be signed by the person concerned. A power of attorney on a plain paper or through e-mail may not be sufficient. Power of attorney in proper form should be available to enable you to sign the form on behalf of your son.

b) The amount of capital gain computed by you would be further reduced as cost inflation index applicable for financial year 2014-15 is yet to be notified. It may be added that the cost inflation index of 939 was applicable for a capital asset transferred during financial year 2013-14. Your contention that it is the amount of capital gain which is required to be utilised for the purchase or construction of a residential house is correct provided the apartment purchased by your son was a residential apartment and the long-term capital gain pertains to the sale of such residential apartment. The new residential house will have to be purchased or constructed within the specified period which in case of purchase of a residential house would be within one year before or two years after the date of transfer of the residential apartment in Gurgaon and for construction of a residential house within three years after the date of transfer of residential apartment in Gurgaon. In case the residential house is not purchased or constructed before the due date of filing the tax return, the amount of capital gain will have to be deposited under the capital gain scheme in a bank account. The amount so deposited is required to be utilised for purchase or construction of a residential house within the period specified hereinabove. Your son can claim exemption from the taxability of capital gain even if he owns another residential apartment.

Share in property

Q. A house is in the name of my husband, his father and mother and is mortgaged. The loan is on my husband’s name and he is paying instalments. He has three married sisters two of whom are staying abroad (NRI) and having children. I have two sons. Due to some dispute we are not staying in that house but are paying instalments. My father-in-law has not made a Will. As we are paying back the loan, my husband is not able to take another home loan to buy a house. He has also taken personal loans for his sisters’ marriages. I want to know how much share will my husband get and can his NRI sisters claim their share or it all depends upon the Will made and what about the instalments that we are paying as the property has become semi-commercial and is worth a lot? — Kumud Singh

A. On the basis of the facts given in the query, your father-in-law is 1/3rd owner of the house and therefore he can make a Will in respect of his share in the property. In case he makes a Will in favour of his daughters, the daughters would become 1/3rd owner of the house. In case no Will is made, your father-in-law's share will be inherited by the legal heirs who in this case will be your husband’s mother, your husband and three sisters. Each one of them will have equal shares in 1/3rd share of the said house property.

The loan that has been repaid by your husband would be a liability on the house to the extent of 2/3rd of such loan. In case of inheritance of the 1/3rd share, the loan will also be equally apportioned for being paid back to your husband by the other legal heirs

Right authority

Q. We had been allotted some land in 1954 for being displaced migrants from Pakistan. We could not take the possession of one Khasra Number as the said Khasra was occupied by Kabristhan Authorities (graveyard). Now we want to get an allotment of some other land in lieu of that Khasara Number which was allotted to us in 1954. I request you to advise us as to who we should approach for the new allotment. — Manjit Singh Walia

A. You will have to approach the same authority that had allotted the land to you under the category of migrated persons from Pakistan. In case the said authority has been wound up, the successor authority will have the powers to consider the allotment of land in lieu of land of which you could not take possession in 1954.

Can a tenant sell land under tenancy pact?

Q. Can a tenant sell the land given to him from the landlord holding under the Himachal Revenue Act, to anyone? — RC Gathania

A. A tenant normally does not have the power to sell the land that has been given to him under a tenancy agreement as he does not have the ownership rights in such a land.

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