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The Waiting game Stagnant prices cause unprecedented property slump in Punjab Kanchan Vasdev THE global economic meltdown has cast an ugly shadow on the real estate business in this part of the country. Sample this: A few months ago, the sector was booming and real estate agents were raking in big moolah. Midway into November, sellers are simply sitting pretty, waiting for the recession to go away. Given the fact that people of Punjab have a good holding capacity compared to their counterparts across the country, no distress selling has been reported. Owners don’t want to part with their expensive land at throwaway prices. In Ludhiana, where land prices crossed Rs 1.5 lakh a square yard for commercial property and Rs 60,000 a square yard in residential areas, there are no takers. Consequently, sellers are adopting a wait and watch policy. "After the share market, worst-hit is real estate. We are virtually out of work and have not struck a single deal in the past month. It’s becoming difficult to keep the kitchen fire burning," said a real estate agent, requesting anonymity. Several residents who had bought plots in different city areas as an investment are worried. Anxiety writ large over their faces, they follow media reports of recession, but are not ready to sell their property at lower prices. An industrialist who recently purchased a plot in Sarabha Nagar is regretting his decision. "I bought a 650 square yards plot for Rs 2.5 crore. Soon after, the recession arrived. Had the reports come in a month ago, I would have been saved. Now my money is blocked. These days, money is best kept in a bank," he said. Things have come to such a pass that there are no investors in the market. "They deposited advance payments for several pieces of land thinking they would sell it further on profit. But there are no takers now and investors can’t afford to buy more. They are anxious now as they might lose money if the time of making full payment lapses,” said a real estate agent. Housing projects, too, have met an identical fate. Launched recently amidst great fanfare, these could not perform well. "Several developers are planning to abandon projects. Though formal announcements are yet to come, the property scene is pretty bad," said a spokesperson of a real estate company, not wanting to be named. He said that the scenario was very different in Punjab. “Investors in Delhi and Bombay don’t hold properties for long. They calculate the interest their investment would have yielded, lower its market price and sell it, making that amount of money. In Punjab, history has it that once prices go up, they never correct. It’s a different matter that selling and buying stops completely." Similarly, there are no takers for agricultural property. Till a few months ago, sociologists were demanding a ban on selling of agriculture property fearing fall in grain production. The meltdown has ensured nobody wants that property now! “Many industries are downsizing. They are already complaining of short of funds. A kind of fear psychosis is prevailing and even if somebody has money, he or she prefers to keep it in a bank instead of investing in land,” said D.P. Singh, a real estate agent in Ludhiana. He said many of his counterparts who were not able to strike a deal were forced to sell their assets, like cars. “My friend has started using a scooter after selling off his car. He says he would be able to sustain his family for a few months from the Rs 3 lakh he got. This is not the plight of small-time agents alone. Even those with fingers in several |pies have also started feeling the pinch, but have not resorted to selling off assets. The day may not be far away, our fingers are crossed...” said Singh.
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Banks see red
A large number of people, especially salaried professionals and those living in metros, are taking houses on rent for the time being. Homebuyers have adopted a wait and watch policy on loan rates too. Bankers, citing high deposit rates, have decided not to cut rates for now. With rising interest costs and high property prices, buyers were pinning their hopes on loan rate cuts to buy homes this festive season, one of the reasons the season was lacklustre. According to one of the developers, apart from buyers turning reluctant, tightening of norms by banks and housing companies is on the anvil. Add to this the possibility of higher delinquency and you have a stomach-churning scenario for someone in the housing finance business. “The reasoning given by banks is disappointing. With inflation coming down and liquidity available, there is no reason why interest rates should not come down,” he said. The reason why interest rates went up has reversed. One has to be dynamic in this environment, he added. As a knee-jerk reaction, banks would have to tighten norms. If earlier they were funding 90 to 95 per cent, and in some cases even 100 per cent of the house, they would now fund 60 to 70 per cent, which means higher down payments for buyers and these factors have served to dampen the realty demand. To disburse the same kind of money, housing companies or banks will have to extend loans to more people. With more buyers waiting for price to come down, the number of customers could drastically fall. As banks tighten norms and interest rates rise, EMIs too would rise for prospective buyers, curtailing their ability to buy large houses. However, the real estate sector is likely to get a fresh lease of life as the Union Government is considering infrastructure status for it. A number of projects of leading players have been held up due to liquidity crisis. Recently, DLF chief K. P. Singh along with five other leading realty players met the government authorities with a request to direct banks to provide cheaper credit to realty companies. According to one of the developers, it is important for the government to recognise real estate as a core sector since it has been able to create significant jobs across the country. Most big players have already started feeling the pinch of financial crisis and profits of country's largest realty company DLF have fallen by four per cent, Unitech's by 13 per cent and that of Parsvnath by a massive 79 per cent in the second quarter of the current fiscal. Parsvnath sales have also fallen by 45 per cent. Revenue of Omaxe drastically fell by 70 per cent while its profit nosedived by 87 per cent. Consequently, scrips fell by over 70 to 80 per cent on the Bombay Stock Exchange. The impact of a depressed realty market is also likely to be felt on jobs and overall economic growth, realtors caution.
A solution?
THE government is likely to formulate a policy on special residential zones
(SRZs) on the lines of SEZs for large-scale, affordable housing projects. Once the realty companies get the much sought after core sector or infrastructure status, they will be able to obtain loans from banks at cheaper interest rates. This will help reduce the demand-supply mismatch, especially in the low cost and mid-segment housing sector. To give infrastructure status, government has to consult the Reserve Bank of India.
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Tax tips
Q. I have a residential house that was constructed about 50 years back. Now, I intend selling the said house, which has a very high market value, and intend purchasing two houses at Gurgaon and Faridabad. Can I get exemption from taxability of capital gain, which would be fully utilised in the acquisition to these two residential houses?
— N.C. Sharma A.
Section 54 of the Act provides that in case of capital gain arising from the transfer of a long-term capital asset being a residential house would not be chargeable to tax in case the assessee acquires a residential house within a period of one year before or two years after the date on which the sale took place. The above section, though, provides for the acquisition for a residential house, the Income-tax Appellate Tribunal in a number of cases has held that this is no bar on acquiring more than one residential house out of the proceeds of one residential house. The following decisions of the Tribunal may be referred to in this regard:
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D. Anand Basappu v. ITO [2004] 91 ITD 53 (Bang.) Q. I sold some residential property and earned a capital gain of approximately Rs 12 lakh. I have invested the said amount in constructing the first floor of another residential house owned by me. Am I entitled to exemption under section 54 of the Act? — R.S. Tiwari A.
The words ‘house property’ used in section 54 of the Act do not mean a separate residential house. These words have to be given the same meaning as concept of house property in section 22 to 27 of the Act. It would thus include the independent unit such as the first floor of the house. On the basis of the facts given in the query, it is evident that the constructed portion is of a residential house. Therefore, in case the construction of such an independent floor is completed within a period of three years after the date of the sale, the exemption from the taxability of capital gain arising on the sale of a residential house would be available under section 54 of the Act provided the amount of capital gain is utilised towards such construction.
No extra exemption on installments
— Karan Singh A.
In accordance with the provisions of section 80C(2) of the Act, a deduction is allowable where the payments are made towards or by way of any installment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis. Such deduction is allowable within the overall limit of Rs 1 lakh provided by the said section. On the basis of facts given in the query, you should be entitled to the deduction of the installments paid towards the acquisition of the flat which is to be allotted to you by state agency engaged in the construction and sale of residential flats.
This column appears weekly. The writer can be contacted at sc@scvasudeva.com
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GROUND REALTY The perfect exterior finish will look good and protect your pad from the vagaries of weather at the same time, writes JAGVIR GOYAL. There’s one for every taste and budget GUIDELINES for surface preparations, use of cement-based paints and textura type finishes were given in the last column. There are better paints and exterior finishes available that are a tad expensive but can fully combat the harsh effects of weather. Most house builders opt for these finishes to have a ‘paint and forget’ experience. These paints boast of wonderful results if certain guidelines are followed in their use.
Similar paints with specific properties are available from other paint companies like Goodlass Nerolac, Berger and ICI. Another upcoming company in paint segment is Nitco. Basically, all these emulsions are good. Choose as per the desired finishing effect. However, always go in for an exterior paint that is dirt resistant. Apex Ultima exterior emulsion paint from Asian Paints is extremely popular these days because of largescale advertisement by the company but others are no lesser in grade. Cement paints are fast losing their market to acrylic or textured paints. Weathershield (ICI Dulux), Supercote, Apex Ultima (Asian) and Ace Exterior (Asian) are also good. Here are a few tips: The Application
ALL acrylic emulsions can be applied by brush as well as roller. These resist high rainfall, algae, fungus, heat and humidity very well. Acrylic emulsion is a breathable paint also that doesn’t allow moisture to lie trapped inside the wall and allow the walls to breathe. On horizontal surfaces like top of window projections, one should apply an additional coat as these surfaces are more subjected to weathering and rain effects.
Textured paints
A MIDDLE order choice for external surfaces is textured exterior acrylic paints. These are ready-to-use paints with a variety of textured finishes that look like granite, Dholpur, wood, stencils, glazing etc. These, too, are waterproof, anti-fungus, fire-resistant, withstand rain and above all allow escape of trapped moisture. Textured paints are in fact toughened acrylic emulsions and are produced both for interior as well as exterior surfaces. If you want to paint a wall and forget for years together, these are the paints to be used. Siliceous aggregated marble chips, quartz powder and pigments are added to emulsified acrylic polymers to produce these paints. Most of the paints can be applied by brush or spray pump or trowel. While basic coat is applied with steel trowel, plastic trowel is used for final coat. Some paints can be applied by roller also. Thickness of these paints is 1 to 2 mm. These paints dry up completely in 24 hours. After eight hours of application, there is no effect of rain.
Bio-wash solution
TAKE care that any fungus or moss on the exterior surfaces is thoroughly cleaned with water and a wire brush. A bio-wash solution now available in the market can be used if the moss or algae doesn’t come off. Fill all cracks or dents on the surface with the putty produced by the same paint company whose paint you have selected. Otherwise a mixture of white cement and white sand in ratio of 1: 3 may be used. Always apply a coat of acrylic primer before applying exterior paint. Add water to the primer and paint as per supplier’s recommendation only, as there is a large variation in recommendations by different manufacturers. Some paint companies allow 20 per cent water while others allow equivalent quantity i.e. 100 per cent water. Allow four to five hours to pass after application of acrylic primer. Don’t leave the primer coat unpainted for days. Apply two coats of final paint and give a time gap of five to seven hours between the two coats. To prepare final paint, about 400 ml of water may be added per litre of paint. Prefer to check manufacturer’s instructions instead of leaving it to the painter.
Heritage Finish
FOR exterior surfaces, heritage surface textures are the most attractive surface finish for the buildings. These eye-catching finishes mesmerises. Buy these, if budget is not a constraint. These stand the test of time. Thickness of these finishes is 0.8 mm to 1.2 mm only. So keep the plastered surface perfectly level if you choose heritage finish. Apply only single coat of heritage finish. Choose from granules, flakes and granite finishes. Granule finish is cheapest and granite costliest. Prices vary from Rs 15 a sqft to Rs 40, including application. Heritage finish comes in two parts. One part is of dry flakes or granules while second part is of bonding agent. Add water to their mixture if necessary and apply on plastered surface with a trowel. An additional coat that looks like lamination can be applied but that makes the item too expensive. So choose to apply the base coat only. Roller coat application of heritage finishes works out very expensive and uses acrylic co-polymer as an ingredient and is applied with the help of a special roller. So choose flakes or granules with colour mixing of your choice. Heritage finish is suitable both for inner as well as exterior surfaces. Take care that you get it done from authorised dealers only to have a lifelong maintenance-free surface.
Spectrum Finish
ANOTHER unique, textured wall finish is Spectrum. Cheaper than Heritage but having unique designer characteristics, Spectrum finish has a range of both single and double coat application products. Have a look at the shade card of these finishes for final decision. Spectrum prices vary from Rs 8 a sqft to Rs 30. Spray coat and granule finishes are most preferred. Spectrum paint finishes are especially suitable for hot areas as these paints do not fade even when exposed to extreme heat.
Wall Claddings
IF instead of painting, you prefer to clad the walls of your house with a special covering, there are many choices available. Cladding may be of ceramic tiles of gloss, matt or wood finish, artificial stones, granite, various sandstones like Kota, Dholpur, Cuddapah, Paharpur or Agra Red. Also there are marble and quartzite such as Delhi blue stone. All stones can take good polish. For any stone cladding work you choose, provide stainless steel dowels in walls at regular intervals depending upon the sizes of stone slabs. These dowels will hold the slabs in position and avoid their falling off after sometime. Otherwise a few stone slabs falling off is often witnessed. Another natural wood external finish has now become available. Brought out by Prodema, it is available in metros only and works out very expensive. The choice is yours. More tips on paintwork will follow. Till then, happy painting!
Sealed Tight
OPT for a sealant on external surfaces. It will fill up the micro holes or pores of the walls and save them from water seepage. Sealants don’t change the appearance of the wall. Choose a sealant that lends glossy or matt finish look to the walls depending upon your choice. Get it sprayed over the final finish. Application of sealants on porous surfaces such as brickwork or stone cladding especially proves useful.
(This column appears fortnightly) The writer is deputy chief engineer, civil, PSEB. He can be reached
at
www.jagvirgoyal.com
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THE stage is set for a battle of wits: While property dealers and realtors refuse to lower prices, the genuine house hunter is willing to wait. This waiting game is likely to hurt the growth of housing companies’ banks, as this income accounts for around 15 to 20 per cent of the total income of the banking sector.
Q. I have applied for allotment of a flat in a housing colony being developed by a land development agency of the state government. Am I eligible for income tax exemption on account of payment of installment towards the purchase of flat? 
Companies produce acrylic exterior emulsions with variable end results. Asking for merely an acrylic emulsion is not enough. Some paints are classified as shining, some have a metallic effect and some have elasticity to stretch themselves over hair cracks. These variations are due to some additives made to these paints. Basically, all of these paints are acrylic emulsions. For example, Asian paints produces Apex Ultima, Apex hi-stretch, Apex weatherproof exterior emulsion, Apex textured exterior emulsion and Ace exterior emulsion.