Realty rules repo rate

Demand will continue to dictate the market, finds out S. Satyanarayanan

The RBI Governor’s announcement of hiking the repo rate by 0.25 percentage point and tightening of provisioning requirements on loans to the real estate sector is all set to increase the cost of loans to the realtors and thus enhance the prospects of new house owners having to pay more to own a house.

However, analysts strongly feel that the RBI’s step, aimed at checking the credit flow to the real estate sector in the backdrop of inflationary trend, is unlikely to dampen the boom in the sector.

According to analysts, buying a new home will be more expensive, not due to hike in home loan interests but due to builders or real estate developers, who face the prospect of being charged a higher interest rate on their loans passing on the burden of higher cost on their borrowings to the ultimate buyer.

With the RBI tightening prudential norms and doubling the provisioning requirements on loans to the real estate sector, banks will have to set aside more capital for lending to property developers, so the loans to the real estate sector will be priced higher, Assocham Secretary General D.S. Rawat said.

“Not only will the loans to the real estate sector be priced higher, but loans could be hard to come by with many banks going slow on sanctioning loans to the realtors,” he said.

Executive Director of Punjab National Bank K Raghuraman, felt that despite hardening of interest rates due to RBI’s new norms the real estate growth in the country, may not be dampened.

“The cost of loans to real estate sector will definitely go up. While the RBI’s move is aimed at discouraging banks to lend more to the real estate sector in the backdrop of inflationary concerns, the higher interest rate to realtors is bound to get translated into higher cost for the buyers,” Mr Raghuraman told The Tribune.

“Hardening of interest rate on the flow of funds to the real estate is going to have only marginal impact on the cost and thus, I don’t think the buyers, whose purchasing power is increasing due to an upward trend in salaries, will get deterred by it,” Mr Raghuraman said.

Chairperson and Managing Director of Punjab National Bank S.C. Gupta said the quantum of increase in the lending rate to the real estate would vary from bank to bank.

“Each bank has to take a call on its need to hike deposit and borrowing rates based on reserves, level of credit portfolio and net worth,” he said.

The RBI has raised the standard provision for loans to property developers from 1 per cent to 2 per cent. This would mean that for each loan of Rs 100 crore that a bank disburses to a realtor, Rs 2 crore need to be set aside from the profits as a provision.

To offset this impact of setting aside more capital in their own books for such a lending, banks will charge higher interest rates on loans to property developers, who in turn, may pass on the higher rates to customers.

The Chief Executive Officer of SVP Group Sunil Jindal perceives that the increase in the repo rate would hardly affect the property prices. Even if they do, it would be almost for a negligible span of time.

“At a macro view, repo rates are overnight rates and, therefore, the effect on commercial as well as residential properties is insignificant. Yes, the interest rate on home loans might increase to some extent, but this increase would also be very short-lived in the Indian scenario,” he said.

Vice-President (Sales and Marketing) Eros Group Kaushik Sengupta felt that the prices of properties, especially commercial ones, are catching up high more due to demand and supply mismatch. The impact of the repo rate revision on the cost of property will be negligible, he thinks.

“There are very little commercial properties available of the class that MNCs and other corporates are looking at. Already, therefore, there is an upward trend in the property prices due to higher demand,” Mr Sengupta said.

The Assocham Secretary General felt that the impact of the RBI decision could well be measured only after about two months.

“There will definitely be escalation in the cost, but the quantum of impact could well be felt only after two months. The hardening of interest on credit flow to the real estate is unlikely to impact the existing projects as the realtors would have already made provisions. Yet, there could be some impact on fresh projects,” Mr Rawat said.

Interestingly, Mr Rawat pointed out that there could be some shift in the investment pattern of NRIs from the real estate to the retail sector if the RBI’s decision leads to increase in the cost of investment in real estate.

“NRI’s have been investing in a big way in real estate due to high return. If they, in due course, realise that their investments would bring lesser returns, then they might shift to another booming sector, i.e. retail sector, which is also good for the country,” he added.



Genuine buyers pin hopes on Budget

Will FM shatter ‘dream houses’ of small investors, questions R. Suryamurthy

Illustration: Gaurav Sood With inflation soaring and the Reserve Bank of India (RBI) taking policy measures to rein in on the money supply, it is expected that the banks would raise the interest rate on housing loans.

The RBI is not happy with the unbridled growth at around 40 per cent to Rs 90,000 crore in 2006-07 in the home loans. The regulator had argued that this has made the real estate a costly asset class.

So, all eyes are now on Finance Minister P Chidambaram to see whether he would let the ‘dream house’ stay afloat or not.

He had recently stated that the “banks should go slow on credit towards real estate.”

With the ongoing real estate boom in India, the Budget is likely to take some steps to regulate this sector. It is not clear if the proposal to set up the real estate regulator would be announced in the Budget.

Analysts expect a correction rather than a crash, with the stock market likely to settle 10 to 20 per cent below the current levels and realty price rise to stall rather than collapse.

Ramani Sastri, President, Confederation of Real Estate Developers’ Association of India, said the government should exempt stamp duty on first allotment to give special incentives to low cost housing projects.

On the pattern of Special Economic Zones, he said the government should offer exemption from excise and sales tax on the building raw material and from stamp duty (on first allotment) for slum area development and low cost housing projects.

The builders’ association urged Mr Chidambaram to raise the housing property limit under wealth tax to Rs 25 lakh, linked to inflation index. In addition, the government should revive incentives to multiplex cinemas and convention centres.

They also demanded exemption from service tax for builders developing projects on their own account.

He suggested that rental housing stock investment allowance at 20 per cent, rental income from newly constructed houses with area of each unit not exceeding 150 sqm be completely exempted from income tax for the first five years and at the rate of 50 per cent for the next five years.

Mr G.P. Savlani, Resident Director, Credai, called for extension of tax benefits granted to developers under the Section 80IB (10). “In case the cut-off date for approval cannot be extended, we want this condition to be done away with altogether, and replaced by a condition that all projects completed before March 31, 2012 be eligible for this benefit.”

This section of IT Act exempts 100 per cent income from housing projects from income tax, provided the project is approved before March 2007, and completed within four years from the last day of financial year in which it is sanctioned. The existing clause also states that the project should be on a minimum plot area of one acre.

According to a survey, 72 per cent of the developers said if the provision is withdrawn, they would reduce the construction of number of such apartments and 28 per cent of the respondents said if the provision is withdrawn, they would exit small apartments segment.

The Finance Act explanatory note said when the benefit was last extended in 2005 it was done as housing shortage had not been wiped out, particularly in the middle and lower housing segment. That holds true even today. If private builders are offered incentives, housing stock will increase and prices will stabilise.

The Ministry for Urban Development said demand for apartments from lower-income group and weaker section is 13.5 million as against 1.14 million in the higher-income group and 1.56 million in the middle-income group.

According to the Eleventh Five Year Plan (beginning March 2007), the housing deficit in the country is about 24 million units, most of which is in the middle and lower segments.

However, analysts said rather than appeasing the developers, the government is likely to extract more revenues in this booming sector by imposing additional levies and taxes.



Alternative building material unit for Panchkula
Geetanjali Gayatri

Lower costs of construction, greater durability and earthquake-resistant buildings - these are just a few benefits that flow from using alternative construction material for buildings. And, shortly this material will be easily available, courtesy a recent initiative of Panchkula administration.

The proposal for a demonstration-cum-production centre has been approved in Naggal village of Barwala block. To come up in an area of over two acres, this centre will be set up with the technical support from the Building Material Technology Promotion Council (BMTPC), Government of India.

While the aim of the centre is to make this low cost material easily available to reduce the cost of construction, its use would also contribute to a healthier environment. “The production centre would develop this alternative material from material readily available in the area, making it environment friendly as well,” says Rajesh Gupta, officer-in-charge of the project.

While such projects are already operational in Faridabad and Gurgaon, it is the first one of its kind in north Haryana. While construction activity of the earmarked area is ready to take off, the centre will be ready for commercial production only by the first week of July.

The centre will produce flyash bricks, hollow bricks, pre-cast door and window frames, roofing tiles and RCC plank casting blocks. “Once the infrastructure is ready, the machines and raw material will come from the BMTPC. The project will entail a total cost of Rs 20 lakh and will be funded by the Shivalik Development Board. The Ministry of Housing and Urban Poverty Alleviation, GOI, is also involved in the setting up of this centre,” he explained.

Maintaining that the material was “tried and tested”, he added that the cost of construction of a building would be reduced by 20 to 30 per cent compared to costs of normal construction. “Besides, while this material reduces costs, it is also more durable as compared to the regular construction material. Our experience is that alternative material is one-and-a half times more durable than the regular material,” he stated.

The demonstration-cum-production centre will supply construction material to the private and government parties once operations start.



Buyers go slow in Amritsar

Property business turns sluggish in PUDA-approved colonies, says Ashok Sethi

As the winter sets in and the temperatures plummet, the enthusiasm generated in the real estate of the Holy City two years ago with the thaw in the Indo-Pak relations has also been on the wane for the couple of weeks.

However, sounding a note of optimism, a majority of real estate developers and property dealers claim that the present sluggishness was only a temporary phase and the property prices would again firm up in the next few months. The details collected by the correspondent, however, belie the claim, as there have been no enquiries by the prospective buyers what to talk of any deal being struck.

The sustained cordiality of relations with Pakistan had initially brought in a number of Punjabis living in Delhi and other areas of the country to buy the property but that phenomenon, too, petered off and with very little response from the local residents to move to undeveloped areas on the airport road as well as the Amritsar-Jalandhar GT road.

The colonies under development are facing buyer resistance, which may force them to cut the prices of the plots to give them allurement for the exodus of the population from the densely populated areas of the walled city.

In Amritsar and the surrounding areas more than a dozen PUDA-approved residential colonies, besides the unauthorised colonies, have offered more than 10,000 residential plots and commercial sites but there are hardly any real time buyers willing to build house. According to the survey conducted by The Tribune it was found that only 5 per cent of the plots available have been sold to the genuine buyers while the remaining have been purchased by the financers and their cohorts purely for speculative purposes.

Itching to offload their investment, a large number of financers and the real estate developers have been offering several options, including instalments with lower interest rates and other benefits to the prospective buyers.

Duly approved colonies with a majority of them situated on the Ajnala Road include DR Enclave, Heritage City and Heritage Forest, Golden City, Green Acres, Blue City, Imperial City, while the periphery of the city have Global City, Impact Gardens, Veer Enclave, SG Enclave and Vrindaban Gardens. More are in the pipeline on the Amritsar-Jalandhar GT Road.

At present, property rates in the PUDA approved colonies range between Rs 5,500 and Rs 6,500, according to the infrastructure, location and the size of the plot while the plots in the size bracket of 150, 200 and 250 square yards fetch a little higher rate. The worst effected are the unapproved and illegal residential colonies where the promoters were offering lower rate of Rs 3,500 to 4,000. Despite this, there were no buyer.

A leading property dealer explained that a number of buyers who had been duped by the promoters of unauthorised colonies for buying at a lower rate have been now trying to dispose off their property and venturing to take a plot in the authorised and duly approved colonies.

Fancy advertising campaigns in the leading newspapers and other allurement by the colonisers recently have not been able to generate any business as no real time purchasers have come forward to buy. Although, a number of PUDA approved builders have established modern infrastructure and provide all basic amenities, including roads, sewerage, water and power back-up facilities yet the buyer is not enthused by the marketing gimmicks of these developers.

Meanwhile, the property dealers have been flooded with enquiries of plots in the city as well as immediate periphery. Property rates in the Civil Line areas including Green Avenue, Basant Avenue, Ranjit Avenue and around the Mall Road have shown an unprecedented rise as very few plots were available but the demand grew resulting in shooting up of the prices of the real estate.



All’s not well with Gurgaon condominiums

Builders bend rules to suit their needs, says Ravi S. Singh

Condominium culture is here to stay, defining top tier way of living. However, the seamy side portrays an allegedly unholy nexus between those in government and the private players who build condominiums much to the dismay of the purchasers of apartments in them.

On a rough estimate there are presently about 50 occupied condos and nearly 150 more are in various stages of constructions or in the pipeline.

For the sake of clarity, condos are set up by private builders in “licensed areas” falling in the “planned” portion of the city. It is different from the areas where Haryana Urban Development Authority (HUDA) sets up its sectors. The licence/authorisation is granted to the builders on conditions, which need to be fulfilled before and after the constructions under the Haryana Apartment Ownership Act, 1983, which was notified in 1986.

According to Col. B.K. Dhawan, President of the Haryana Owners Associations, condominium culture is a relatively new concept in the country and is preferred as it provides centralised and integrated, security system, shopping, cultural activities, shopping facilities in the condos. It suits the senior citizens as well as the working couples.

The momentum of the culture in this city is rooted in various factors, the dominant one of course being that the industrialisation and modernisation of Gurgaon has thrown up a vast number of top jobs.

Also, with rush in Delhi increasing people are choosing Gurgaon, which is contiguous to the national capital. The additional charm is the airport in Delhi falling near the Gurgaon border. Also, the expansion of the national highway and provision of toll tax road in it holds promise of further enhancing Gurgaon’s accessibility to Delhi.

DLF, Unitech, Ansal, HLF Enterprises, Gulmohar Estate Pvt Ltd and other reputed builders have set up eye-catching and swanky condos like Beverly Park, Heritage, Hamilton Court, Windsor Court, Emeritus Silver Oaks etc.

The apartments in them cost between Rs 80 lakh and Rs 2 crore. With corporate biggies shifting their head offices and bases it is an open season for the private builders to do business in condominium apartments with high paying employees around.

However, while these avant garde condos, along with the ambience around them, give cultural edge to Gurgaon city, the flip side of the development is an eye sore. These condos have reinforced the wide-ranging perception that Gurgaon has two cultural characters — one modern and the other old.

All round squalor and filth, lack of infrastructure and civic amenities juxtaposes with the condo-dotted new city.

The other sordid development is the alleged unholy nexus between the builders and those in government, especially the Town and Country Planning Department, much to the chagrin of the apartment owners in the condos. As per the rules under the Haryana Apartment Ownership Act, it is mandatory on the part of private builders to file a “declaration” before the Haryana Town and Country Planning department within a stipulated time after they have been granted licence to set up condos.

The declaration includes details on what the builder had promised in the layout plan and what has actually been constructed. Also, as per the Act, the builder will have to hand over the complex, including other properties, like the common areas including schools, convenience shops, parks etc to the Residents’ Welfare Associations (RWAs). The RWA has to be registered under the provisions of the Act.

In some cases builders have made a sham of handing over the properties to the RWAs. The genuine owners of apartment find themselves duped. In a majority of the cases the builders do not file the mandatory declaration and procure extension period from the Town and Country Panning Department, year after year on flimsy ground.

Col. Dhawan charges that the declaration is not filed so as to avoid handing over the properties, including the common areas to the residents. Meanwhile, the builders dispose of, lease or transfer the ownership title of the common areas for commercial gains in spite of prohibition by the Haryana Apartment Ownership Act.

As per the Act, condos are to be maintained out of good use of the common areas. Leave aside treating the common areas sacrosanct; builders fleece the apartment owners in the name of maintenance.



Choose fruit-bearing trees for bigger houses

Always select region-suitable plants, suggests Satish Narula

We have recently been discussing the horticulture for those living in apartments. Let us now familiarise ourselves with a few ‘on-the-ground’ realities. Those on the ground have the main advantage of mother earth. Go in for the plantation of best of the trees but with some planning.

The love for horticulture is touching new heights. People, however, fall victim to unorganised planting in over enthusiasm with the result that they suffer. Follow certain rules of horticulture and you will be rewarded, with the ‘fruits’ of labour.

The first preference with the gardeners is to have the choicest of fruit plants.

This is the only time of the year; rather only a few more days are left when you can plant deciduous plants like peach, plum, pear, grapes, mulberry and the delicious phalsa. These are planted before they come out of winter slumber and start sprouting again. Do not be afraid to ‘carry’ bulk of the soil ball as at this time you can carry them bare-rooted. Do not, however, fall victim to a nurseryman who is selling unspecified plant varieties. You may end up growing plants that bear no fruits.

For best results, you can visit any nursery of the agricultural universities, the government horticulture department nurseries or government registered private nurseries. You can find one or the other, spread all over the state. Here the given plants are of those varieties that have been carefully selected and recommended for the region.

The selection of the plant should be done depending upon the suitability of a species in a particular region. When it comes to accommodating plants in the space available, we normally forget the size a tree has a potential to attain when fully grown. So far as possible, one should give at least 25 to 30 feet of space between the big plants like mango, litchi and cheekoo.

It is better to have less number of choice fruits rather than more number of fruit trees sans fruits.



TAX tips
Computing gains post-acquisition
by S.C. Vasudeva

Q. I had purchased an agricultural land about 20 years back on which I was carrying on the operations for about 10 years. Thereafter, I could not carry on such operations on account of a visit outside India where I stayed for about a period of five years. Upon my arrival, I came to know that it is possible to get the agricultural land converted to non-agricultural category as a large number of industries are being set up around the vicinity of the land owned by me. I made efforts and have been successful in getting the conversion of the land into non-agricultural one. I intend selling such land and am likely to get a good price for the same. Will the cost of the acquisition be taken as the original cost or the notional cost as on the date on which the land was converted into a non-agricultural land?

— Harsh Jain, Hoshiarpur

A. It is not possible to substitute the notional cost of non-agricultural land for the purpose of computing capital gains. The cost of acquisition for such purpose will have to be taken as the cost of acquisition of the agricultural land. In this connection, your kind attention is also invited to a decision of Madras High Court in the case of Meccanae Industries Limited vs. CIT (254 ITR 175).

Source of income

Q. I have let out a plot, which was owned by me, to a person who is carrying on the business of selling marble slabs. I have also permitted him to install a machine for the polishing and cutting marble slabs. I am receiving a rent of Rs 35, 000 per month. I have declared the income from such letting out as income from house property. The assessing officer however, has not accepted my contention and assessed the same as ‘income from other sources’. Is the stand of the officer correct?

— Akhilesh Mishra, Jalandhar

A. According to Section 22 of the Income Tax Act, 1961 (the Act), annual value of a property, consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner is chargeable to tax under the head “Income from house property”. The vacant land will not fall under the above provision and, therefore, the stand of the assessing officer is correct. The income from letting out the vacant plot would be taxable under the head “Income from other sources”.

Setting off loss

Q. I have earned a short-term capital gain on the sale of a plot of land as the same was sold within a period of three years of acquisition. In return, I have been declaring a long-term capital loss on sale of shares, which is being carried forward over the last five years. I would like to adjust the above short-term capital gains against my brought forward capital gains. Is it possible?

— Srikant Saxena, Panipat

A. According to the Section 74 of the Act where the net result of computation under the head “capital gains” is a loss, such loss shall be carried forward to the following assessment year and can be set off against any income under the head “capital gains” as follows:

(a) From the assessment year 2003-04, long-term capital loss can be set off only against long-term capital gain. However, short-term capital loss can be set off against short-term or long-term capital gain.

(b) Short -term or long-term capital loss can be carried forward for eight years immediately succeeding the assessment year in which the loss was first computed.

(c) Such loss cannot be carried forward unless the return of income is filed within the time limit provided for in the Section 139(1) of the Act.

In view of the above provisions, it would not be possible for you to set off the long-term capital loss against a short-term capital gain.

Gift to wife

Q. I had gifted Rs 10 lakh to my wife the preceding years. She invested the said amount in the purchase of a flat, which has been allotted by the Improvement Trust. The same has been let out to a person working in a nationalised bank. The rent of the property being more than Rs 1,20,000 per annum, the bank has deducted tax at source and given the tax deduction certificate in the name of my wife. Please let me know, how can I claim refund of such tax as the total income of my wife is less than Rs1,35,000.

— Prateek Kumar, Karnal

A. The income from house property, which has been acquired by your wife with the money gifted by you, is includible in your income in terms of Section 64(1)(iv) of the Act. Tax deduction certificates will, therefore, have to be attached with your income with a claim that the deduction thereof should be allowed against tax payable by you, since the income from property is taxable in your hands in view of the provisions of the Act as explained hereinabove.

Vacating property

Q. I had made a payment of Rs 5 lakh to a tenant for vacating the property, as I want to sell the same and hand over the vacant position to the purchaser. Is the amount paid deductible against the capital gain arising of such sale?

— Varun Gusain, Patiala

A. The amount paid to a tenant to get the property vacated is deductible from gains arising from the sale of property. In this connection your kind attention is invited to a decision of Madras High Court as quoted in 137 ITR 846.



Spanish villas in Chennai
Arup Chanda

Alliance Group, a Bangalore-based real estate developer with over Rs 2,250 worth of projects in hand, has announced its entry into Chennai with the launch of Bougainvi1lea, an upmarket 300-villa project at Porur.

Spread across 25 acres and situated strategically close to the Porur junction off Poonamalle High Road, the Rs 200-crore project will have tastefully-designed Spanish style villas with a fully-equipped club house offering an exclusive, contemporary and luxurious lifestyle. These include leisure facilities like a swimming pool, gym, health club with sauna and steam baths.

Chairman and Managing Director of Alliance Group Manoj Namburu, said these “villas with a warranty” will be the first of their kind in Chennai.

Alliance is also poised to launch a 4 million sq ft IT-specific SEZ near Pallavaram off the OMR-GST junction, which would be put up at a cost of Rs 1,400 crore.



Buzz on Bourses
Welspun to open outlets

Ludhiana: Welspun Retail Limited, part of Welspun Group, is planning to open 200 retail outlets under the brand of ‘Spaces’ and ‘Home Mart’ across the country within next fiscal and targeting a turnover of Rs 500 crore within next five years. “We have plans to strengthen our footprint across the country by opening 200 new retail outlets on home furnishing products in 2007-08. The stores will cover Tier II and Tier III cities. — PTI

LIC housing arm hopeful

Mumbai: Life Insurance Corporation’s housing finance arm, LIC Housing Finance Ltd, has said it expects around 15 per cent growth in sanctions this fiscal despite slack demand for home loans in the metros. “We have lot of sanctions in the pipeline, which we aim to disburse in the current fiscal itself. This will help us to achieve around 15 per cent growth in sanctions in the current financial year compared to last fiscal,” company’s Chief Executive Officer S.K. Mitter said here. — PTI

Railways nod for hotels

New Delhi: Ahead of the anticipated rush of tourists during Commonwealth Games 2010, the Railway Ministry has given green signal to 20 sites for construction of low-cost budget hotels for mid-class spenders. Tourism Ministry sources said a proposal was sent for about 100 sites across the country out of which 20 have been assessed as suitable for the construction of low cost hotels. — PTI

Holcim to park money in India

New Delhi: Finding Indian cement market attractive for its growth, Swiss cement major Holcim, which has a stake in ACC and Gujarat Ambuja, is planning to expand its presence in the country by ramping up capacity by 10 million tonnes. In their presentations to the Indian Commerce Minister Kamal Nath at the World Economic Forum at Davos recently, Holcim officials informed that the company would be pumping in additional investment in increasing capacity by 10 million tonnes. — PTI

MBD Zephyr in Bangalore

New Delhi: The MBD Group has said it will launch MBD Zephyr, a mixed-use lifestyle destination entailing luxury hotel, luxury retail and premium retail and entertainment in Bangalore. Located in the heart of Whitefield (Bangalore), this magnificent two million square feet development is spread over 8 acres. — UNI