The best is yet to come
Shailendra Bhatnagar

Rajan Sharma bought 4,000 square feet (372 square metres) of office space on the outskirts of New Delhi, for Rs 2,900 ($65) a square foot in 2002 and hasn’t stopped grinning since. Four years later, the 42-year-old consultant regularly gets offers more than three times the price he paid for the same office space as the arrival of foreign players, easy finance and rising incomes fuel a rush for prime real estate.

“It has been a very short but a hugely profitable journey,” Sharma, who now runs a property firm, says. “Seeing these profits I feel I should have done real estate all my life.”

He is not alone.

There are literally thousands of sellers and speculators who have laughed all the way to the bank because of a property boom in New Delhi and its two satellite towns — Noida and Gurgaon. The pace has been almost as brisk in many other cities in India.

In Delhi, prices have been pushed even higher by a government campaign to close shops and offices built illegally in residential neighbourhoods, adding to already fierce competition for commercial property.

And a spreading underground rail network in Delhi, which will eventually reach parts of Noida and Gurgaon, has spurred property prices along existing and planned routes. “There is also fundamental and growing demand for office and retail space because of the sustained economic activity driven by software companies and branded firms,” says Tanaji Chakrabarti of real estate firm Trammell Crow Meghraj.

The $23 billion software services sector has been one of the biggest consumers of real estate, along with changing shopping tastes that are favouring multi-brand malls over neighbourhood mom-and-pop shops, says Chakrabarti.

New economy

Spurring the boom, the government has slashed cobwebs of legislation by allowing 100 percent foreign direct investment in large projects. Stamp duties have been rationalised and reduced, and a policy to set up special economic zones is boosting industrial growth.

Nascent chains such as Pantaloon Retail (India) Ltd and Reliance Retail Ltd have lined up multi-billion dollar expansion plans in which the largest component has been set aside for leasing or buying organised retail space. In addition, companies such as Nike Inc. and Adidas are deepening their presence through franchised operations beyond India’s metros to soak up demand from millions in the growing middle class.

“The demand for retail space across India will increase,” says Vivek Dahiya, associate director at global property advisor DTZ India. “Certain markets seeing oversupply will see reduction in vacancies.”

In Delhi, Gurgaon and Noida alone, organised retail space is likely to rise to 14 million sq.ft. by the end of 2007 from 2 million now, he said.

But the sharp rise in commercial rentals in the past three years is hurting growth prospects of organised retail chains, which operate on margins as low as 3 to 4 per cent. “Rentals are now dramatically higher — by at least 50 per cent in a lot of cities,” says Kishore Biyani, Managing Director at Pantaloon. “At these prices we can’t sign up new properties.”

Biyani, who started retailing in 1997, says annual sales needed to be at least 50 per cent higher to offset rising rentals.

In central parts of heavily congested Mumbai city, monthly rentals for discount stores have soared in excess of Rs 125 sq.ft from 55 rupees sq.ft about two years ago, says Pranay Vakil, Chairman, Knight Frank India.

“This is madness and has little relevance to actual supply and demand factors,” Vakil says. “Rentals are now crossing the industry norm of 12 per cent of gross sales, making it extremely difficult and unaffordable for retailers.”

But even after this rise, monthly retail rentals in prime commercial space or “high street” in Mumbai are low at $11 per sq.ft compared with $24 in Singapore and $80 in Hong Kong, according to data from Knight Frank India.

Services sector

Research firm SSKI forecasts demand for 160 million sq.ft. of commercial real estate over the next three to four years, driven primarily by the services sector, which contributes nearly 55 per cent of GDP in Asia’s fourth-largest economy. Similarly, the housing sector is likely to see 15.9 billion sq. ft. of construction by 2010, SSKI says in a recent report. However risks abound despite runaway gains and could harm short-term demand for residential property. “The sharp run in property prices over the last two to three years and an upturn in the interest rate cycle are the key risks,” says Shirish Rane, an analyst at SSKI.

“Commercial and retail properties are threatened by the trend of rising rentals which impact profitability.” Prices of prime residential property in central Delhi have soared more than 75 per cent over the past two years thanks to demand from a growing tribe of millionaires and a law that limits the number of floors that can be constructed. All this euphoria has also spilled onto the stock markets where the real estate stocks have been among the top performers.

  • Key facts On India’s booming property market

  •  India’s real estate market is currently estimated at $16 billion and is forecast to reach $60 billion by 2010. The real estate sector could attract a quarter of an estimated $8 billion in long-term foreign investment bound for India in 2006-2007, according to a study by industry lobby Assocham
  • In the last two years, the value of commercial office space has increased by 40 per cent. It is expected that the demand for office spaces alone will grow to over 19 million square feet in 2006 to 2007. The outsourcing sector would account for approximately 75 per cent of the demand and by 2010 would need 200 million square feet of office space in major metropolitan cities.
  • The number of shopping malls in Kolkata, Mumbai, Bangalore, New Delhi, Hyderabad and Pune is expected to grow to 300 by 2010 from the current 50. The total mall space currently available in these cities is around 12.4 million square feet.
  • In 2005-06, the real estate sector tapped 16 per cent of the $5.54 billion of foreign investment attracted to India, compared to 10.6 percent of the $3.75 billion foreign investment in India in 2004-05.
  •  Morgan Stanley’s real estate investment arm has invested $68 million in Mantri Developers Private Ltd, which is based in Bangalore, while JP Morgan Chase’s Principal Real Estate Investments has invested $60 million in a residential project in Mumbai with Lodha Builders.
  •  Hilton International Corp. plans to invest $143 million for a 26 per cent stake in the joint venture company with domestic real estate firm DLF Universal Ltd for hotel and real estate activities.
  •  India’s first property trust is due to be launched early next year when business park developer Embassy group spins off buildings in a Singapore IPO.
  •  Investors betting on the sector have to bear the cumbersome bureaucracy. India has poor foreclosure laws and property registration processes are tedious. Property tax and document systems vary from state to state and the government does not allow foreign investors to own buildings that they don’t occupy.

— Reuters, Assocham.



Home on course
New residential projects promise in-built golf courses, says |
Ruchika M. Khanna

Novelty is the buzzword for the new housing projects coming up around Chandigarh. In an effort to wean away customers from the luxury apartments and penthouses on the periphery, the late entrants on the periphery are now coming up with residential projects that have inbuilt golf courses.

This US concept is finally coming closer home as Collage Group, Omaxe, Timber Trail group and ATS — all are now trying to woo investors by offering a haven with a perfect view of the greens. Be it 18-hole golf course or a nine-hole one, everyone is eager to sell the “dream houses” on the periphery, among the greens.

Collage Group, which is investing about Rs 2,000 crore in various projects of Punjab, says that its star project is the golf course settlement that will come up near Zirakpur. “It will be a signature 18-hole golf course with integrated housing project, spread over 200 acres. We have already got the necessary approvals from the Punjab government for the project and will complete it by year 2009,” says Amit Khaneja, Vice-Chairman, Collage Group. This project will have over 600 villas and apartments, and will be sold through invitation only.

He also said that they are also building an integrated mall in Jalandhar and a retail- and- group housing project in Amritsar.

Other than this, Omaxe Patiala Development Authority project in Patiala will also have a mini golf course, along with green belts. This will be spread over 330 acres. ATS Greens, is also coming up with a integrated housing project at Dera Bassi, overlooking a nine-hole golf course. This project will have almost 2,600 residential units. These developers feel that having a golf course will raise the general standard of living and working ambience of those who opt for these villas/ apartments. They feel that the golf villas will be lapped up by the NRI population having a base here as well as the local residents, aiming for hi-end living.

The Timber Trail group, which has set up a cable car tourist resort near Parwanoo in Himachal Pradesh, too, is planning to come up with a residential complex amidst an 18-hole golf course near Raipur Rani in Panchkula. The project will be spread over 400 acres and other than attracting investors, will also serve as a major tourist attraction in the region. Work on the project is expected to begin by March this year and the project is expected to be complete by 2009.



Delhi residents throng private colonies in Rohtak
Locals consider HUDA colonies a safe bet, says Raman Mohan

Residents of Delhi have booked an overwhelming majority of plots in the two residential colonies floated by private land developers here. However, the locals have shown little interest in the two projects floated by Suncity and Omaxe groups. Initially, the two companies were offering plots on pre-launch rates, which hovered around Rs 5,000 a square yard. Later, after the two companies officially acquired the licences, the rates were jacked up to Rs 7,500.

There are several reasons why Delhiites have shown interest in plots here. Firstly, the rates here are significantly lower than those in Delhi, Gurgaon and Noida . So, Delhi-based investors with limited funds on their disposal have preferred to invest here as they are getting bigger plots for a much smaller investment. The other category of Delhi residents who have booked plots here are businessmen whose establishments are close to Bahadurgarh on the Haryana-Delhi border. They have to travel during peak hours from their residences to their business establishments both in the mornings and the evenings.

It usually takes them an hour to 90 minutes to reach their destination because of heavy traffic on Delhi roads. Many of them are hoping they can shift to Rohtak and travel to Bahadurgarh and nearby areas in much less time especially when the Delhi-Rohtak section of the National Highway 10 is being widened to six-lanes. The project is likely to be completed within two years.

This category of plot holders has another reason for thinking to shift to Rohtak. They now live in multi-storeyed housing colonies in small apartments. Now that over the years, the prices of these apartments and flats have soared and they can easily dispose them off to build much bigger houses in Rohtak with the same money. Besides, the area is environmentally much better compared to pollution-hit Delhi.

That the Haryana government plans to set up Industrial Model Townships at Sampla, Rohtak and Gohana is another reason why Delhiwalas want plots at Rohtak. They hope that when these townships come up in a few years from now, industrial plots can be purchased here while maintaining residences in Rohtak.

However, the locals remain highly skeptical about investing in these colonies. The most important reason being that while the rates in private builders’ projects are the same as those in HUDA residential sectors, Omaxe and Suncity colonies are devoid of any infrastructure like roads, sewers, power and water supply.

Besides, the Suncity project spans over 300 acres and locals say it would take five to 10 years for these colonies to develop. As against this, HUDA sectors are thrown open to sale only after providing the infrastructure. Property consultants also say the locals are as yet wary of private developers as they have so far dealt with unscrupulous colonisers who sold plots in unauthorised colonies which took years to get regularised. They are of the view that once the locals get to trust big and reputed builders, the response would be much better.

Despite these new projects, the rates in older colonies like Mansarovar Park , Jhang Colony and Model Town continue to be the highest. The recent development projects launched after the elevation of Bhupinder Singh Hooda to the office of the Chief Minister have also helped raise land prices in these areas.

Model Town perhaps has the widest roads among all residential colonies and, therefore, old houses built over 50 years ago after the partition are being pulled down and swank new houses are coming up. The town’s rich and famous are still clamouring for plots here rather than HUDA sectors and private builders’ colonies. Most of these areas are flood prone.

However, the town is being given a hi-tech drainage system, which would make the town flood free by the coming summer. This has also made such colonies a hot favourite.



Apartment's area holds the key
Jagvir Goyal lists out 6 types of areas for prospective buyers

Realty boom is on. Countless builders have launched their housing projects in areas around Chandigarh and Delhi. Newspapers run full-page advertisements. A host of attractive facilities are on the list. Also, best finishing specifications are chosen by the builders. Looking at the offered areas of the flats, prices too look competitive. Then where does the catch lie?

You have guessed it right. It lies in the areas. There are so many areas associated with a building that any person may feel bewildered. Here are the guidelines for you.

Plinth Area: This is the most important area associated with a building or a flat. Plinth area of a flat is the built up area of that flat. As the name suggests, it is measured at plinth level or floor level. The best method to calculate it in an accurate manner is by finding the centerline length and breadth of each room, multiplying these two dimensions and then summing up all area components.

Carpet Area: This area of a building or a flat is the area that can be carpeted. It is, in fact, the area that we bring under use while living in the flat. Roughly, it is equal to the plinth area minus the area coming under walls and cupboards at plinth level or floor level.

Loft Area: Another kind of area associated with buildings. It is the area created for storage space. Generally, it is above the cupboards. It has no special access created for it and exists between any two floors.

Mezzanine Floor Area: This is an area different from loft area. Mezzanine floor is created in between two floors but has a permanent access. Sometimes, it is created at landing level of a staircase.

Miscellaneous Area: In addition, there are many other areas associated with a flat or a building. These include the balconies, the porch, mumty (roof over stairs), terraces, wall or column offsets, stilt (common parking), shafts for water supply and sanitary installations, lifts, AC shafts or ducts, open verandahs and the generator room, if created.

Super Area: This is the area projected by almost all builders in their brochures and advertisements. Super Area is quite a misleading term. There are many common areas in a society or a colony. There may be a common terrace, a common parking and a few common lifts etc. What the builders do is that they divide the sum of all these areas among the number of flats and add that area to the plinth area of a flat and term the sum total as super area.

A flat with a super area of 1,500 sq. ft. may in actual have a carpet area of only 1,000 sq. ft. Believe in a builder who has based his flat price on plinth area or carpet area and not on super area. In first instance, the figure projected as super area looks impressive while in actual, the livable area is quite less. Also, the super area being much more, the per sq. ft. rate charged by builders looks much less when worked out on basis of super area. If the rate per sq.ft is worked out on the basis of plinth area, it will be much more than the projected figure.

For example, suppose a flat of 1,650 sq.ft. super area is sold for Rs 30 lakh. The cost of flat works out as Rs 1,818 per sq.ft. If we work out the plinth area of this flat, it might be somewhere around 1,300 sq.ft and actual cost that the buyer will be paying is Rs 2,307 per sq.ft which seems to be quite high. As per the prevailing rates, cost of construction of a building with quite good specifications should be somewhere around Rs 800-900 per sq.ft. In order to win the trust of the buyers, the builders should project a break up showing the cost of land, cost of construction and the cost of common areas, separately. Even though the buyers may be paying the same price that the builders are asking for now, there will be transparency in the deal and mutual trust will prevail

The writer is Superintending Engineer (Civil) in PSEB



Include cost on laying foundation stone to calculate depreciation


Q. I spent a large amount on the laying of my factory’s foundation stone and had invited one of the Members of Parliament to lay the same. Can such an amount be treated as part of the actual cost of the building? If so, will the amount so incurred considered for allowing depreciation by the department?

— Durga Dass

A. The expenditure incurred on account of the foundation stone laying ceremony can be added to the cost of the factory building as foundation is a part of the construction of the building. Such expenditure should also form a part of the actual cost for the purpose of depreciation. The issue is covered by a Bombay High Court decision in the case of CIT vs. Nirlon Synthetic Fibres and Chemicals Ltd. (137 ITR 1) (Bombay).

Legal heir

Q. My father owned a residential house property in Jalandhar and all of us were residing there since last about 30 years. The house was sold in April 2006 as it was essential for us to move to Chandigarh on account of some family reasons. We purchased a residential house in Chandigarh to save the capital gain but before the sale deed could be registered in favour of my father in December, 2006, he died in October. The sale deed has been registered in my name being sole surviving legal heir. Can I get the benefit of the Section 54 of the Act?

— Anirudh Tripathy, Jalandhar

A. There is no dispute that there was a transfer of the house property and the income of Jalandhar property must have been shown as “Income from house property” in his return by your father. Further as legal heir, you will have to pay tax on the income of the deceased for assessment year 2007-08. Since you are liable for the tax liability for the said assessment year 2007-08, you should be able to avail the benefit under the Section 54 of the Act. In this connection you may also refer to a decision of the Madras High Court in the case of C.V. Ramanathan vs. CIT (1980) 4 Taxman 432, which supports the view given herein above.

No more bonds

Q. I sold a plot of land, which was held by me for more than three years. I was keen to invest the capital gain of about Rs 20 lakh earned on such sale in the capital gains tax saving bonds. I understand that subscription of such bonds has been stopped. Is there any other method of saving the capital gains tax?

— Shradhanand Shastri

A. Your information that subscription of bonds issued by the National Highways Authority of India or Rural Electrification Corporation Limited had been stopped is correct. However, recently the government has opened another Rs 3,500 crore investment window for saving tax on long-term capital gains from sale of property. You should thus take immediate steps to deposit the amount of capital gain in the specified bonds.

Capital gain

Q. I had acquired a plot of land in April 1981 for a sum of Rs 2 lakh. The funds invested were borrowed at the rate of 9 per cent per annum. The amount was repaid in April 1985. The plot of land was sold recently in June 2006 for Rs 20 lakh. What will be amount of long-term capital gain for 2007-08?

— Sumit Saxena

A. In accordance with the decision of Delhi High Court in CIT vs. Mithilesh Kumar (1973) 92 ITR 9 (Delhi), the cost of acquisition would include the expenditure incurred after the date of acquisition e.g. interest on funds borrowed for the payment of purchase consideration. The capital gain accordingly would be computed as under:

Sale proceeds

Rs 20,00,000

Less: indexed cost of acquisition

Rs 2,00,000 x 519 divided by 100 = Rs 10,38,000

Interest for 1981-82 (31.3.1982) 18,000 x 519 divided by 100 = Rs 93,420

Interest for 1982-83 (31.3.1983) 18,000 x 519 divided by 109 = Rs 85,706

Interest for 1983-84 (31.3.1984) 18,000 x 519 divided by 116 = Rs 80,534

Interest for 1984-85 (31.3.1985) 18,000 x 519 divided by 125 = Rs 74,736 Total = Rs 13,72,396

Long-term capital gain = Rs 6,27,604

Sale, purchase

Q. I own 10 acres of agricultural land within Ludhiana. The land had been purchased in 1982 for Rs 15 lakh. I sold the said land in January 2005 for a sum of Rs 80 lakh and purchased 5 acres of agricultural land for Rs 50 lakh in a village near Karnal in May 2005. The agricultural land in the village near Karnal has been sold in October 2006 for Rs 55,00,000. Please let me know my tax liability on capital gain from the sale of land in the village near Karnal.

— Ramesh Pandey

A. The capital gain earned on the sale of Ludhiana land was invested in accordance with the provisions of the Section 54B of the Act and capital gain would work out as under:

Assessment Year 2005-06

Sale proceeds of agricultural land = Rs 80,00,000

Indexed cost of acquisition 15,00,000 x 497 divided by 109= Rs 68,39,450

Long-term capital gain = Rs 11,60,550

Exemption under Section 54B = Rs 11,60,550

Assessment Year 2007-08

Sale proceeds of agricultural land = Rs 55,00,000

Cost of acquisition = Rs 50,00,000

Less: Long-term capital gain exempted u/s 54B of the Act (Rs 11,60,550) = Rs 38,39,450

Short-term capital gain= Rs 16,60,550

The above amount of short-term capital gain would be added to your total income and taxed at slab rate of 30 per cent plus surcharge @ 10 per cent and education cess @ 2 per cent. On this basis the tax on capital gain would work out at Rs 5,02,841.