Monday, February 19, 2018

What are the various styles of real estate investment strategy and factors that affects property investment?

Author: Sachin Gupta | Find me on Twitter

Are you an investor looking to invest in real estate? What are your motivations for investing in real estate? In this article, we will consider motivations for real estate investment, variables that affect property market, and various styles of real estate investment patterns.

Make no mistake; most retail investors avoid investment in stock markets because of complicated financial jargon and relative ease of realty market to absorb cash. The idea is to invest in property (particularly residential) and leave it as it is for years to generate handsome capital appreciation value. However, one must be careful before blindly investing in real estate. Understanding, the local micro market such as its demand driver and supply is crucial in order to reduce investment risks. In the following document, we highlight the objective of real estate investment, risks, and what are the various ways one can invest in property market:






Have any Questions?

Monday, February 12, 2018

Taxation aspects for an NRI, PIO, or a Foreigner for buying an immovable Property in India

Author: Sachin Gupta | Find me on Twitter

Buying a property has tax implications. If a property is meant for income generation, then one has to pay income tax in addition to property tax, service tax, Capital Gains Tax, and wealth tax. Tax guidelines vary from state to state in India. A typical resident of India who has invested in property has resources and time to adhere to taxation aspects.

However, an NRI or PIO or a foreigner can find it cumbersome to adhere to taxation aspects of buying an immovable property in India. What are the various kinds of taxes, what is the definition of NRI or PIO as per income tax act, and what are the various tax exemptions? These are some of the questions a Non Resident Indian (NRI), Person of Indian Origin (PIO), or a foreigner will be confronted with. Here we present the detailed paper for taxation aspects for an NRI, PIO, and Foreigner for buying an immovable property in India:

Tuesday, February 6, 2018

Things to consider while buying a Property

So, finally decided to make a big move or still contemplating whether to take a step forward or not? There are so many things you think about when you want to make the big move of buying your own house. Be it buying a 2-bedroom, duplex, penthouse or a bungalow, its always a big decision.

Every buyer goes through series of questions and to find answers, they have to look at multiple websites, blogs and do a lot of research. There is never a single document which talks about all the facets of buying a property. So today, I’m going to try put all the steps required based on my experiences.

I have been lucky enough to have a chance to experience buying multiple properties, as an investment as well as buying a house to stay in. So, to help save the frustration first time buyers go through, I’m going to try to jot down all the points a buyer might think of before making the big decision.



Before any other questions arise, the most important thing to remember is the reason to buy a property. What are the motivation factors to buy a property?
  • House to stay in
  • Investment
  • Probably both
Let’s try drilling down for all of those options.

If you are buying as an investment,
  • How much are you willing to invest
  • Are you taking any loans?
  • what kind of returns are you expecting?
  • how long can you stay invested to get your returns?
  • can you afford to book a loss?
  • What’s your primary investment goal? Capital appreciation or rental yield? If both of them which one is more important 
Buying a house to stay in,
  • How long do you plan to stay there?
  • How is your job, source of income, do you see a steady cash flow for at least few years?
  • Changes that might happen in future (marriage, have kids, dependent parents moving in with you, in an unfortunate case death of loved one, divorce)
Both (first investment and then some day you plan to stay there or vice versa),
  • In addition to above points
  • Where are you staying right now, with parents, siblings, in a rental home, in company paid accommodation as you are in a transferable job?
  • Define your tentative time line for each activity
Ok, so now you have already decided why to buy and have already answered the above questions, next question will be as to what kind of property – under construction or second sale.

Each have their own pros and cons and everyone person has to weight what is more important for them. An under construction property will be a brand new house and you can get the interiors done as you like without having to demolish anything. But that mean after you pay your initial amount, there can be a long wait. You will start paying your EMI much in advance to actually staying in the house. Some people are ok to do so if they already have a house to stay in or live with your parents or siblings. But if you are renting out your current place, then it can get very expensive as you will be paying rent as well as EMI.

On the flip side, a second sale house might be difficult to find as you will want to find a house which is done to your liking. Its not impossible but it does take a lot of time and effort. When I bought my house, I couldn’t afford paying a rent and EMI, so I decided to buy a second sale property. It did take me 5-6 months to find a house but when I did, it was perfect. I could move in immediately once the paperwork was done.

Be it a first time buyer or a savvy buyer, every buyer has to go through different stages in their buyer’s journey.  Let’s dive a little deeper to understand what to expect at every stage.

Initial iterative stage:

  • At this stage you are really not sure what kind of property you really want and how much money would you need for it
  • You spend at least 60-70 % of the property hunting time in this stage.
    • Money Matters: You don’t have an exact idea how much this property is going to cost and can you manage that money? Note: You will need at least 20-25 % of the property value in cash
    • Selecting a Size/Type/Design: Deciding between 2 bedroom or 3 bedrooms, penthouse or duplex
    • Selecting a Locality:Ask these questions to yourself. How well do you know the locality? How know it well? Is it convenient?Proximity to your lifestyle needs (night life, malls, nature parks, medical facilities, grocery stores)
    • Selecting a Project: Are you fascinated by a particular condo or a complex? Have you got a particular size you are looking for,what are the amenities required?
    • Selecting a Unit: what view are you comfortable with? Garden, swimming pool, parking lots, another building,etc., any religious spiritual things involved.Does it need to be east / north facing, fengshui, vastu shastra, condition of the unit. Amount of repair work
You will go through this stage multiple times until you have found the right property. This iterative stage stops only when you have identified the property. But remember to use a top down approach – identify budget, then size type, the locality, the project and finally unit.

After this comes the closing stage.

  • You have identified the property, more or less comfortable with money matter and actively reaching final agreement with the seller
  • Before you start negotiating, make sure you have done a thorough research on the market price. Also, check what price the other units were sold at. This will help you get a fair understanding of what the seller might be expecting.
  • If the house you are buying is for investment, then also find out the rent the house would fetch. Check if the rent can pay off the EMI or you need to top up.
  • With this, also make sure you find out the maintenance fees and sinking fund if any.

 

Lastly, with all the above done, doing the paper work:

  • Token amount
  • Black/White part of the deal
  • Registration
  • Final settlement
  • Possession
This can be a little tricky as there is a lot of paperwork to do, lot of legal matters to take care of. It is advisable to get professional help if you are buying a property for the first time. Without prior knowledge of real estate, buyers get bogged down and don’t really know if they are doing the right thing. So to be stress free and to make sure that all the paper work is correct before moving into the new house, get yourself a property advisor who will not only help you find property, negotiate but also help with get the right paper work done for your dream house.

Depending on where and how you are buying, these points might defer. But the overall stages will remain the same in every buyer’s life.Hope this article help you make the right choices and happy shopping!


This is a blog post by Karishma Patel

Thursday, February 1, 2018

What are housing bubbles and how to predict them?

Find below the info-graphic illustrating the formation of housing bubbles and how to predict them. We have seen this scenario being played out in US that led to the financial crisis of 2008. We have seen housing bubbles in UK as illustrated in this info-graphic.

We have also seen housing bubbles in China especially in metropolis such as Shanghai, Beijing. And recently, we witnessed the housing bubble in India wherein housing prices rose sharply during the period 2004 – 2010, and then started to fall from 2013. Several investors including real estate developers, investors, and end-users have suffered great financial losses since the bust of housing bubble in India. Therefore, it makes sense to refer to this info-graphic to understand if the housing market is in bubble or not and how long will this bubble last. Based on this understanding, one can time the entry and exit from housing market across the world.

”How

Monday, January 29, 2018

How can one verify Property Titles in India??

Looking to buy a piece of land or plot or ‘ready to move’ property? Well, it can cost you in crores of Rupees. Agreed, you have arranged for the funds and also have done your due diligence. But, did you verify the ‘title of the property’?

Before you even initiate price negotiations with the seller for buying that plot or property, make sure you verify that ‘title of property’ is clear and the seller has the right to sell the property or land. The property shall be in the approved sector or area within the city. Make sure, property is located in an area where local municipal department has provided civic services such as sewage lines, water lines, and electrification. If it’s a ‘ready to move in’ property such as Bungalow, villa or independent house, make sure that property had been developed as per the local applicable building codes.

What does clear property title mean? A title that is free from claims or legal questions and all other encumbrances about the ownership of the property. Therefore, it is imperative for you to assess property titles carefully. One should take services of legal experts when it comes to verifying property titles. However, we present below the list of legal documents that can help you in verifying the title of the land that you intend to buy.


Monday, January 22, 2018

Vastu Tips for Home Buyers

Are you planning to buy a flat or an apartment?

 

Great! Now that we are in the year 2016 buying an independent house is out of the question. It is better to think of buying a flat or an apartment. There are many Advantages of Apartment Living.

But before you buy your brand new apartment or flat you need to analyze a few factors.

Vastu Shastra or the science of architecture is something that you need to examine for your new home.

Some people either deliberately or not so deliberately tend to ignore the Vaastu factors when buying a new home.

Often this creates a lot of problems in the new homes, and it never dawns that certain unresolved elements are welcoming negative energy.

So, what we are going to do here is provide you with Vastu tips for your new home:

 

Directions:


The northeast direction is considered to be one of the sacred directions from mythological perspective and scientifically.

Let us ignore the mythological facts and focus on what are the scientific aspects:

In India, the Northeast direction is the farthest one from the sun. This means the Southwest is closer to the sun and if you keep this area of your home open you are welcoming the sun's UV radiations.

 

UV rays are they good? Of course not!


You do not want to fill your home with these dangerous UV rays.

So, if you have been keeping your home's Southwest door open, close it now and let us think of Northeast.

Vastu comes from the word Vas which means Space and Time.

These are the two most important components of life science that you should not ignore.

As far as Indians are concerned Vastu Shastra is the science of architecture, a legacy, handed across generations.

It is something that we need to nurture and preserve in its best form to lead a happy life in our living spaces.

 

Health, peace and prosperity are the three things that we all want in our homes.


Vastu Shastra is a science that takes into consideration the Solar Energy and Magnetic power of the Earth.

Vaastu also follows the Cosmic Law of Nature. The sun's rays have a significant effect on our body.

We are not aware of these. But staying exposed to the sun's dangerous rays for a longer time can cause severe mental problems.

Have you ever heard elders or someone tell you that you need to sleep with your head facing the South or West?


Why?

Because we know that our head is the North of our body and the feet is the South of our body.

We are aware of the fact that like poles attract and unlike poles repel.

 

So, what happens now?

Consider your body as a magnet.

When you sleep with your head facing the North and feet towards the South, you know what will happen.

The blood circulation increases when all you need is little circulation while sleeping.

So keep your head towards the South or West while sleeping.

Now you realize why Vastu is an important factor that needs to be taken into consideration when buying flats or apartments.

When choosing a builder or an architect, check whether they incorporate all the Vastu Shastra components while building the flats and apartments.

We want you to experience an immense flow of positive energy in your homes and so we recommend you cross check whether your builders consider Vastu Shastra in building dream homes.

As per Vaastu, if not possible to leave all the four directions of your flat or apartment or villa open, you need to at least let the North and East directions of your home open.

There is a lack of space everywhere, so many buildings are being constructed side by side, so obviously it is not possible to leave all your doors open.

But at least, one of them you can keep open to ensure the flow of positive energy in your homes.

We never said that you cannot choose homes that face the South or West direction because there are many people around the world living in such apartments and are leading a happy and contented life.

 

So what according to Vastu are these directions doing?

 

  • West: Brings in materialistic comfort
  • East: Brings in the most important factors mental peace and physical comfort
  • North: Ensures prosperity
  • South: Redemption, Salvation, and relieves you of all the earthly woes.

So if you are eyeing for material wealth then don't think more, a flat facing the West will be the best choice.

But, life is more than materialistic richness.

 

Some Astrology:


Indians especially since we belong to the land of the great Dwarakapuri and having been introduced to the Vedas and ancient sages and rishis, we have belief in Astrology.

 

Vastu has some relation with Astrology too.


For people who belong to the star sign Pisces, East Facing houses are suggested.

If you belong to Libra, Aquarius or Taurus, West Facing houses are the best.

For people belonging to Aries, Sagittarius or Leo, North Facing houses are recommended.

Gemini, Virgo and Capricorn go for South facing houses.

 

Vastu Shastra for Kitchen:


This is where health begins. Ensure that the flat or apartment that you're buying does not face the North East. It would be great if it is in the South West direction.

 

Vastu Shastra for Toilets and bathroom:


In India, the direction of the wind is from Northeast to Southwest, so if your toilets or bathrooms are facing the North East, the air will enter your rooms from the toilet, and it will contaminate the other rooms.

Bathrooms and toilets are best facing the Southwest direction.

 

Vastu Shastra for Bedrooms:


Best recommended that you keep your bedrooms facing the Southwest direction so that you can enjoy a sound sleep after a tiresome day at work.

These are some of the simple tweaks and tips that you can follow when buying a new house or you can think of introducing these points in your home.

Are you buying your first home or apartment? Or do you own a home? Are you leading a happy life? Did you get the Vaastu examined before moving into your new apartment? Share your thoughts and comments on Vastu with us.


This is a guest post by Vipin Nayar

Monday, January 15, 2018

Due - Diligence: A must do exercise before investing in a property

Author: Sachin Gupta | Find me on Twitter
 
Sumit Sharma was ecstatic having done renting vs. owning and home loan analysis and was now all set and ready to go for his dream home. All of a sudden he got to know from various sources such as newspapers, radio and his colleagues about some cases where builders have failed to deliver the project on time, or there were litigation issues and deviations in homes from what was promised. That was a cause of concern and since, buying a home is a lifelong decision and therefore nothing should be left to luck. He decided to go for a comprehensive check with the help of a real estate agency. The agency adopted the L BID (Lets Break It Down) approach and came out with following verification:

Verification of the Project:

1. The agency got the copy of most important documents in verification of a new project such as Copy of intimation of disapproval (IOD) and commencement certificate (CC) from builders. Only after complete verification, they recommended the client.
2. They asked for and studied the copy of approved drawings of the project for an under construction project and recommendations were made accordingly.
3. Land title verification is crucial in a sense that land should be free of litigation and any kind of associated debt. The agency with a team of legal professionals verified the land documents.
4. They also checked the copy of functional water connection, electricity connection, and occupation certificate in order to make sure that deal was hassle free and transparent.
5. The agency also checked if the property to be bought is mortgaged with the lender (such as bank, or housing finance companies). If that was the case, they asked for a NOC (no objection certificate) from the lender.

Verification of the price of home:

1. In addition to the base selling price, there are other additional costs associated with the project. The agency hired by Sumit Sharma also verified the total cost of home in addition to project verification.
2. Stamp duty verification: to check if the rates quoted by builder are on the super built up area or carpet area.
3. Registration Fee: to check if the rates quoted by builder are on super built up area or carpet area.
4. Floor rise: to check for the prices with the builder
5. PLC charges: to check for the prices with the builder
6. Infrastructure development cost (IDC): to check for the prices with the builder
7. External development charges (EDC): to check for the prices with the builder
8. Car parking charges: to check for the prices with the builder
9. Society and club membership: to check for the prices with the builder
10.Electricity and water charges: to check for the prices with the builder
11.Power Backup charges: to check for the prices with the builder
12.Lease Rent one time: to check for the prices with the builder
13.Interest Free Maintenance Security (IFMS): to check for the prices with the builder
14.Fire Fighting Charges (FFC): to check for the prices with the builder
15.EEC: to check for the prices with the builder
16.Extra space in storage rooms and lawns: to check the prices with the builder

The agency verified all these charges with the builder and asked for them to be included in the builder buyer agreement in order to avoid future escalation of the price.

Verification of other important elements:

1. Monthly maintenance charges
2. Ratio of carpet area to super area
3. Delivery date and what are the penalties if project is delayed?
4. Penalties for deviation in size of the house
5. Who is the supervisory authority and legal dispute authority?
6. Possibility and ratio of loan availability.

The bottom-line is to carry out property & builder assessment, verify the charges, legal terms and get them included in the sale agreement.

So friends, have a look at this checklist and if need be take the services of a professional real estate agency or lending institutions in order to make sure that your lifelong savings are being invested in the right property.


Have any Questions?
 

Monday, January 8, 2018

Things to Avoid while Investing in Real Estate

If you were to believe the latest national news, consumer confidence is on decline and cash deficit on builders on incline. In Mumbai, Delhi-NCR, and other popular cities, the demand has come down to around 50% for new property launches.

But not everything in real estate is gloomy, the Reserve Bank of India has recently made a cut in policy interest rates. While this news may cause a haste in investing in the sector, say in buying luxury villas in Bangalore or any other metro cities, there are some things you need to consider before making an investment. These are mentioned below for your consideration:


  • Trading in real estate properties frequently


When you trade in real estate properties more frequently – that is, buy or sell your property in shorter duration – you may incur a loss in tax benefits.

To be precise, if you sell your property within 3 years of making your real estate acquisition, such acquisition would then be called short term capital gain, which entitles you to zero tax concession or exemption.

But, if you sell your real estate property after 3 years, it entitles you to long term capital gains and the taxation for this would be at a comparatively lower rate.

Be wary that if you trade in too many times even in long term capital gains as it could alarm your Income Tax officer, who may consider this dealing as your business income and withdraw the low rate on long term gains.


  • Investing in properties that are due completion


It’s easy for your agent or builder to make excuses for not completing their project on time and completing it at a much later date than promised. They may not have any hidden agenda behind this, except prolonging time. It means a little more number of EMIs for you than which were originally expected.

The second of the two-pronged effect of the delay is this: The tax benefits that you receive on your property investment are restrained on possession, which is direct effect of long delays.

Being alert on investing in incomplete or overdue properties is therefore very important, at least for your pockets.



  • Planning your budget before investing


We know that if a budget is unplanned or unsupervised before investing in real estate, it may deplete most of your saved resources, back-up money, or hamper your short-term investments. It may also affect your daily expenditure and can create dearth in your cherished small purchases every now and then.

Purchasing properties not just involves a down payment but also what seems as an endless array of EMIs – directly affecting your monthly salary.

Seek the professional advice of your financial consultant before buying a real estate property. A good recommendation would be saving at least 40% of your total income after you have made your investment.


  • Considering all the factors before making your investment


As again like planning your budget, it is equally important in knowing and fully understanding all factors involved with making your investment, because knowing the loan criteria, real estate details, and repaying capacity are not adequate. Consult a financial adviser for a complete financial plan on your investment.


  • Plenty of investment in properties may not result in profits always


The best idea would be to divide your finances into different types of investments, and not just stick to investing in real estate. First because transaction costs in real estate are much higher than say investing in gold, bank deposits, bond funds, equities, etc.

The prime reason that people choose to invest in lump sum in properties is because their prices increase at a faster rate compared to other most forms of investments. While this may not be true always, it’s wise to be aware of the current changes or trends in the market for accurate predictions.

If you are planning to make any investment such as buying villas in Bangalore or Chennai, etc., these above-mentioned points should hopefully help you in making the right investment.


This is a guest post by Dinesh Dhawde

Tuesday, January 2, 2018

10 things to check when booking an apartment in a builder project

Author: Sachin Gupta | Find me on Twitter

Call it practices or malpractices; real estate in India is riddled with cases where buyers have been taken in for a ride. And in this environment, buying an apartment is not as easy as it may sound. Whether you are an end-user or an investor, you should pay attention to the following 10 items when booking a flat. These 10 items are categorized into two principal checklists namely Project details and Apartment details:

Project Details

  • Land Titles
When making real estate investments, buyers of property typically want assurance that they will become the legal owner of the property and that the seller is lawfully possessed and has the right to convey title. When a real estate developer has “Title”, he is said to have all the elements, including the documents, records, and acts, which prove ownership. Therefore, a buyer should insist on documents that clearly demonstrate Land Titles.

Some of these builder projects are approved for home loans by banks or lending institutions. These lenders are also concerned about title assurance because the quality of title affects the collateral value of the property in which they have a secured interest. Therefore, if you as a buyer lack the capacity to verify Title certificates by yourself, you should at least check and verify with the list of banks that have approved the project for home loan grant.

  • License Grant
The Town and Country Planning (TCP) Department grants license to private developers owing land for converting it into a colony or a group housing society. The license is granted upon fulfillment of parameters laid down by the TCP Department.

Ask for the License number from your developer and verify it at the TCP website.

  • Intimation of Disapproval (IOD)
Check if the builder has received the IOD from relevant authorities (Town and County Planning Department). IOD lists out the conditions based on which the building should be constructed. It is usually valid for one year and has to be re-validated thereafter.

  • Master Plan
A master plan typically demarcates city or region’s future development including residential, commercial, industrial, and recreational facilities. Visit the City Development Authority website and verify the claims made by the developer while selling the project.

  • No Objection Certificates (NOC)
In addition to the License number granted by the TCP department, a builder should also possess NOC from environment, fire fighting, electricity, water, airport departments. Check these NOCs.


Apartment Details

  • Location
First thing first, location is the key differential in selecting or rejecting a project. Make sure, you book an apartment in a project which is well connected by road to city’s CBD (Central Business District). In addition to that, look around for the presence of social infrastructure such as schools, shopping malls, college, etc.

  • Floor Plan
You are going to live in this apartment. Therefore, pay attention to the floor and unit plan. In one particular project, we noticed there were about 14 apartments on one single floor and that was a big dampener in otherwise a good project. In an under construction project, it is very difficult to assess the floor plan and unit plan. Ask for the approved floor plan and unit plan from the developer and analyze these plans for open spaces, lobbies, lifts, etc.

  • Amenities
After a long and hard day at office, one would like to relax and rejuvenate. Buy an apartment in a project which offers state of the art amenities such as park, jogging track, swimming pool, clubhouse, etc.

  • Apartment specifications
Specifications comprise of kitchen fittings, bath fittings, flooring, electric work, walls, etc. Visit the sample flat prepared by the developer and assess the specifications first hand. Make sure that specifications provided in the brochure and shown in the sample flat are part of the builder buyer agreement.

  • Carpet Area/Sale-able Area Ratio
Most builders would charge you on the basis of sale-able area. Ask for the efficiency of the apartment or in other words carpet area of the apartment. In most cases, ratio of carpet area to sale-able area is 75 to 80%. If possible, get that included in the builder buyer agreement.

We are sure you will have your own stories to tell, your own issues with real estate projects, your own experiences of buying an apartment with a builder, and your own follow-ups? Share them here with the larger audience and let’s help each other.



Have any Questions?

Tuesday, December 26, 2017

Natural Disaster Preparedness: How to Stay Safe at Home

"Natural Disaster Preparedness: How to Stay Safe at Home" 

Find below some steps you can follow to make your home stand the toughest catastrophes like floods, storm, earthquake, and landslides.





This is a guest post by Keys90

Friday, December 15, 2017

Tips for landowners before they enter into a joint venture agreement with real estate developers

Author: Sachin Gupta | Find me on Twitter

Recently, our team was interacting with some of the landowners who have entered into a joint venture agreement with real estate developers in Delhi NCR region. Now, believe it or not, most of these landowners are inheritors of ancestral property and have no clue about the legalities of a joint venture. They go as per the words of their confidants and sometimes find themselves into trouble. Take this, a landowner who entered into a joint venture agreement with a real estate developer in 2006 still finds that his land has been locked by the developer and there are no signs of the proposed group housing project taking off. What can you as the owner of land do before entering into a joint venture with a property developer?

1. First of all, what is a joint venture between a landowner and a real estate developer?
Joint ventures are formed by at least two parties with the objective of achieving a specific investment return. Unlike many other business agreements, when the objective is achieved, the joint venture is usually terminated. Following are the attributes of a joint venture.

  • Risk sharing: A single investor may be unwilling to undertake a real estate venture because of its size, location, capital requirements, and/or duration. However, by sharing the risk, two or more parties may be willing to undertake the venture.
  • Combining expertise with capital: Joint ventures are frequently formed as a way to pool equity capital from one or more sources, as well as a means of bringing parties with different expertise to the venture. A joint venture could also involve purchasing existing properties and operating them. In this case, one of the parties may be responsible for acquisition, leasing, and management, and others may provide capital.
  • Speculative objectives


2. Organizational forms
Participants in joint ventures may include any combination of individual investors, partnerships, corporations, or trusts. However, a joint venture in and of itself is not a legal form of organization. In order to specify capital contributions, rights, duties, profit sharing, and the like, a joint venture agreement or a business entity must be created. The choice of organizational form used to accommodate those various groups of investors could be a partnership, corporation, Pvt. Ltd, or trust. Partnerships are frequently the vehicle of choice in real estate joint venture.


3. Profit sharing
Because the parties to a joint venture may contribute different things, and possibly in different proportions, a partnership must be structured such that it provides economic incentives for all parties. Differences in tax status of investors also may affect the way partnerships are structured.

A joint venture can take on a number of different partnership forms. The most common is the limited partnership. As is the case with all partnerships, there must be at least one general partner and any number of limited partners. Generally, in real estate, limited partners are the investors that provide most of the equity capital, while general partners are usually responsible for managing the partnership assets and may contribute a relatively small portion of the required equity capital.


4. Following factors are considered by potential investors for structuring a joint venture.
  • How much initial capital will the parties contribute and how will the parties contribute additional capital if needed in the future?
  • How will the parties share in the annual cash flows to be produced from operating the property?
  • How will the parties share in the cash flow received from sale of the property?
  • Will some of the parties receive a preferred return? Will the preferred return be paid from annual cash flows and/or from sale?
  • Will taxable income (or losses) and capital gain (or loss) be shared in the same proportion that operating cash flow to be distributed?
  • Who will have control over the operation of the property and decisions involving capital improvements, approving leases to tenants, financing and possibly refinancing the property, and when to sell the property?

5. Points you as the owner of the land must keep in mind:
  • Check the credentials of the developer. His past record and success in achieving targets.
  • Before entering into a joint venture agreement with a builder, register your company and transfer the land on the book of this new entity. You can hold 100% of shares of this new entity or shares can be held by various promoters depending on their claim in the land. The new entity formed should ideally be registered as private limited company under the company’s law act of India.
  • Now, enter a joint venture agreement with a builder’s company. Therefore, the agreement is between two companies. One providing land for the development of the project and other providing capital and expertise to develop the project.
  • How do you decide on profit sharing? Well, we have defined it above. However, Recent trends in India indicates a 1/3rd – 2/3rd rule. 1/3rd of the project outflows going to the landowner and 2/3rd of the project outflows going to the real estate developer.
  • As a landowner, make sure that the number of housing units or the developed area of the project is assigned to you and is clearly mentioned in the joint venture agreement. For example, in case of housing project, you should have the housing unit number, size, and floor in the joint venture agreement.
  • As an example, a landowner enters into a joint venture agreement with a ABC real estate developer Pvt. Ltd. The plot of land measures 20 acres and about 600 housing units would be developed. As a thumb of rule, 200 units should be assigned to landowner and remaining 400 to the builder. For a landowner, this kind of agreement is safe and can result better returns for his/her land as opposed to the agreement wherein builder pays the 1/3rd of the cash inflows to the landowner on the sale of housing units.
  • Hire a professional legal company with expertise in real estate joint agreements, and due-diligence.


Have any Questions?

Friday, December 8, 2017

How will Real Estate Regulatory Bill (RERA) help home buyers in India?

Real Estate Regulatory Bill (RERA) has been passed and is now being implemented at state levels. How will Real Estate Regulatory Bill (RERA) help home buyers in India? Here is quick look:


Thursday, November 30, 2017

GST – Simplifying Taxation in India’s Complex Residential Real Estate Sector

“One Nation, One Market, One Tax” was the driving principle behind the passing of the GST bill. GST has become one of the most revolutionary tax-reform India has seen in decades. It will almost certainly have a profound effect on the Indian economy; making it easier for businesses and retailers to comply and moderate overall taxation levels that will inevitably increase the collection of taxes. The real estate sector contributes to 5% of India’s GDP and is the second-largest employer in the country. However, indirect tax levies, such as VAT, service tax, excise, stamp duty and registration fees have been a significant hurdle in this sector. GST will simplify tax hurdles and minimize the scope for double taxation. This transparent way of taxation will benefit both the customer, industry and the tax collectors.

Under the ambit of GST, under-construction properties will be charged at 12%; this won’t include stamp duty and registration charges. Today different states impose different property taxes; GST will ensure the buyer pays one uniform rate across all states. To better understand the impact of GST on the real estate sector, let’s take a look at the current tax structure of some of India’s tier-1 cities.


Bengaluru
Mumbai
Pune
Chennai
Gurugram
VAT
4.0%
1.0%
1.0%
2.0%
4.0%
Service Tax
4.5%
4.5%
4.5%
4.5%
4.5%
Stamp Duty
5.7%
5.0%
5.0%
7.0%
6.0%
Registration Charges
1.0%
1.0%
1.0%
1.0%
0.5%
Total Taxation
15.2%
11.5%
11.5%
14.5%
15.0%












The 12% rate on under-construction properties will likely bring down property rates. Developers will now be authorized to take input credits on the sale of property under construction against the taxes that are paid by the buyer. This will bring down the cost for the developers, and in-turn the developers will have to pass on this benefit to the customers. The anti-profiteering provision in the GST bill makes it mandatory for developers to pass on any tax benefits of GST to the customers.However, GST may not benefit luxury real estate. Top luxury apartments in Chennai, Mumbai, Bengaluru, Pune and other tier-1 cities are set to see a major increase in taxation as compared to affordable homes in the same locations because they aren’t given the full set-off in terms of the land component. As things stand, service tax is charged on 30% of the property value, but GST will be charged on the entire value of the property; making it increasingly taxing on luxury real estate. Notwithstanding the burden of taxation on premium furnishing, fittings, super quality of cement and other top-quality raw materials used in the luxury housing market will be significantly more than that used in the affordable housing segment.

The best possible advice for home-buyers and investors “is to wait”. Wait till the property rate on GST is finalized. Wait till the property rates on GST are finalized. At a time, when property prices are already not affordable in most suburbs, if the GST rate were to rise above 12%, the market will certainly take a hit. If you buy real estate when the markets are on the rise, it only benefits the builders. The right time to buy property is when the markets are down as this gives you the best rates, infinite choices, and loans with lower interest rates from banks.

This is a guest post by Dinesh Dhawde

Friday, November 24, 2017

How GST Implementation Would Be Helpful for Real Estate?

Why is the Goods and Services Tax (GST) a welcome change for realty? Read on if this topic piques your curiosity as a property developer or seller.

The Goods and Services Tax (GST) is an effort toward simplifying the process of taxation by bringing different types of taxes under one umbrella. As simple as it seems, the implementation of GST entails far-reaching effects across sectors. Real estate is indubitably part of this spectrum.

Real estate has evolved by leaps and bounds over the last 15 years and will continue this upward trend in the years to come. Properties have always been looked upon as a lucrative investment option. GST promises to reduce the cost of ownership if its rate is lower than the summation of all the existing taxes.

Tax management is a challenge in the dynamic domain of realty, as any property purchase transaction is governed by a number of indirect taxes such as Value Added Tax (VAT), stamp duty, and service tax. With GST, all indirect taxes pertaining to property deals would be absorbed into one large cover.

We are aware that the effects of GST implementation are not restricted to buyers; developers play a significant part in the story, as they are the ones who initiate projects. Be it procurement of land or a redevelopment project, taxes rule the roost at every stage of property development. In the current scenario, taxes are levied at two levels: center and state. The state taxes the goods and materials, and the center taxes the services. Such a taxation process adds to the complexity of real estate deals, and it is the end customer who bears the brunt of dual taxation. GST implementation promises to put an end to the woes faced by property buyers, as a uniform rate would make it easy for the buyers to interpret the nitty-gritty of property dealings. Even though buyers may need to pay a slightly higher price, GST is sure to simplify the process of compliance to a great extent.


What is the probable impact of GST on developers?


During the procurement of land, developers are required to pay a host of taxes, such as Central Sales Tax, Excise Duty, and Customs Duty. Developers’ expenditure on construction materials comes to be 20 to 25% higher owing to indirect taxes. If all these taxes were to be subsumed, the cost of procurement and development would drop. This would translate into reduced costs for the buyer, which would eventually lead to a boost in sales. However, the actual impact on property prices would be based on the final GST rate.

Given that interdependence is an industry norm, real estate has close relations with other sectors such as finance, IT, steel, and construction. Therefore, if any one industry was to benefit from GST implementation, all the related sectors would simultaneously reflect the positive impact.

Transparency is a major advantage of GST implementation; a unified tax structure makes tax calculation a more comprehensible process for not only the industry bigwigs but also the end customer. Tax evasion would reduce significantly after GST enforcement, as a unified structure leaves no room for manipulations.


How would GST influence the economy?


Considering the booming trend in realty, the contribution of this sector to India’s gross domestic product (GDP) would be 5%. GST itself is estimated to account for 2% of the country’s GDP. 

Is there any section that would not witness the impact of GST?

Indirect taxes are not levied on possession-ready property, so resale dealings would not be affected significantly by GST implementation. 

In conclusion, GST implementation would prove to be a boon for developers and buyers alike, provided the standard rate is low. Buying high-end luxury apartments in OMR, Chennai would no more be a distant dream, which is a good enough reason to cheer. 

This is a guest post by Pooja

Friday, November 17, 2017

Get the best revenue with real estate investment

We all wish to invest in avenues which give us better profit margins. But it is difficult to gauge them and finally invest. Investment is a matter of the right time you enter and the exact time to exit out as well. You need expertise for this kind of investment which comes only with experience. The best investment option available in the market today is the real estate. It is a booming industry and almost all the investors are pooling their money in this lobby. The developers keep on giving handsome returns to all the investors who help them in providing the investment to complete the projects.


  • How does the real estate work?

Real estate is a business of constructing properties for the end users. Since real estate is at a boom and is in the demand by every individual, it is a huge money-making business. But not all investors buy it for self-consumption. They invest when the project has just started or in the initial phase and get out of it when it nears completion or is completed. This way the holding period of the construction gives them humongous profits which is the fruit of investing while you can hold it for a while. The profits are just unimaginable. But do you need a huge investment for such a profit. Well it completely depends on the kind of investment you would like to do and the budget you have.


  • What you need to be careful of?

If you wish to invest for a goal then you need to be calculative. But if you need to do it just for investment purposes then a small amount of profit would also excite you. But you need to be very careful while dealing with real estate developers. There are many loop holes that need to be known by the investor. The basic thing to be done by you is to be sure on the paper work. Check on the property and the land it is built upon. The titles should be clear and the paperwork should be accurate. Also, if you are investing in a property then ensure you get all the rent agreement formats seriously and keep them updated as and when needed. Many times, your property needs to be sold to someone who wishes to use it for self-consumption.

All such things help you to be safe from any legal formalities or complications. It is a way to protect your property and investment amount. You would find many fraudsters who dupe you of the money and sell your property to multiple people to make more profits but in an illegal manner. This can be evaded if you are smart enough and know all the loop holes of the game. It is not easy to get into the act completely as it is just a side income you wish to generate for your better future. But if you wish to make it big in this game then I suggest you know all that is required.

You can get in touch with many real estate brokers who has immense knowledge about the property and the business to help you to take the right decision. These brokers should be registered with the real estate lobby and should have a good background. If they are not the right people then you would face challenges and losses as well if not paid much attention. Real estate is a huge pool of investors and you would need to be smart on all your actions to make a good profit out of your investment. So, ensure you have all that would make your investment profitable.


This is a guest post by Mukul Malik

Monday, November 13, 2017

Odd even rule has drawn public attention to the alarming pollution levels in Delhi. Now, we need a long term sustainable solution for curbing vehicular pollution and jams. Here is one – an App based public transport system.

By: Sachin Gupta | Find me on Twitter

1. The Problem

Last few months have seen heated debates among environmentalists, activists, policy makers, and public at large about the deteriorating air quality in national capital Delhi. Aam Aadmi Party Government in Delhi led by Arvind Kejriwal has announced some measures to curb the rising pollution levels. Notably among them has been the animatedly debated ‘odd-even formula’.  We wish them best and hope pollution levels reduce drastically in Delhi.

So, what contributes to Delhi’s Pollution? Let’s have a look:




Transport contributes 22.7% to overall pollution levels in Delhi. Out of which Heavy and light trucks contribute about 14.2%. Private vehicles that include cars (4 wheeler) & 2 wheeler contribute 6.6%. Public transport that includes buses and 3 wheeler contribute 1.9%.

Government of Delhi has announced variety of measures to curb pollution at all levels. One among them is ‘Odd-Even’ formula which intends to target 4 wheeler. Will it succeed? We will have to wait for the 15 day trial run.

 

2. Existing situation

But what is the existing situation as far as transport is concerned? With growing GDP, more and more people are able to afford their own private vehicles to commute in the city. According to Delhi Economic Survey, the vehicular population in Delhi registered a 135.59 % jump between 1999-2000 and 2011-12 to touch 74.53 lakh. As things stand today, Delhi adds 1400 cars a day on its roads. About 50% of these cars sold run on diesel. Despite the world class Metro Rail, the public transport has not been able to keep pace with growing demand.

Sumit Sachdeva, Who lives in Faridabad drives a petrol CNG car, says, “I have to go to my office on Lodhi Road from my home in Sector 21C in Faridabad. There is no door to door public transport facility. If I want to take Metro Rail, then, first I have to take an auto from home to Metro station and then another auto from Metro station to office. It’s too time consuming and at the same time expensive”.

Manish Sharma, who lives in Greater Kailash II drives a diesel car, says, “I am in a sales job and there is no way I can use the existing Metro Rail or other Public Transport systems. I have 3-4 meetings a day and all these public transport systems don’t connect me at all”.

Everyday there are Lakhs of such cases where people use their own private vehicles rather than using the public transport. This not only raises the pollution levels but at the same time chokes city roads leading to massive traffic jams.



 

3. Proposed Solution

It is clearly evident that unless government provides high quality public transport system with last mile connectivity, citizens will continue to use private vehicles.

It is in this context, we provide this solution with the motto that “Public Transport needs to compete with Private transport in terms of comfort, safety, and cost efficiency”.

With the existing infrastructure of Metro Rail, citizens can be made to use public transport more. All that is needed is the last mile connectivity. So, how do we get the last mile connectivity? By deploying ‘Metro Shuttles’ as shown in the picture below:


    3.1. Implementation of Metro Shuttles:

A high quality 14 seats electric shuttle costs about Rs 3.5 Lacs with following specifications:
  • Overall Dimensions:4650*1675*2020mm
  • Seat Capacity:14 Persons
  • Motor:5kw DC Motor
  • Body Color: Customized
  • Fuel: Electric
  • Emission Standard: 0 Emission
  • Maximum Speed(Unload / Full Load):30km/H
  • Battery:6V*8
  • Max driving distance (20km/h constant speed on flat road) (Km)    ~80

The idea is to connect people with Metro rail using these Metro Shuttles. Each Metro Shuttle will run within the radius of 5 km with multiple predetermined Metro Shuttle Stops. Metro Shuttle Stops will be created keeping in mind that no individual should walk more than 500 meters to catch a Metro Shuttle.

These Metro shuttles can be manufactured in India, thereby, giving boost to Make in India campaign.

           3.1.1. Financing

Let’s assume, there is a requirement of 100,000 Metro Shuttles to cover whole city.
Cost of buying these Metro Shuttles = 100000x350000 = Rs 3500 Crore.
Now, who will provide funding for buying these Metro Shuttles? Here is the plan:
  • Government of Delhi to announce the launch of Metro Shuttles system.
  • By just paying 10% (Rs 35000), an individual with a valid driving license can buy a Metro Shuttle to operate in the city. These drivers will not be on payroll of Delhi Government but will be guided by Delhi Government’s Rule Book of Public Transport system.
  • Remaining 90% (Rs 315000) to be financed by banks at subsidized interest rates of say 5% with Government of Delhi providing collateral support. Therefore, there is no risk for banks to give loans to Metro shuttle owners who normally don’t have necessary papers to get loan.

           3.1.2. App for Metro Shuttle Stops

An app will be developed with information about Metro Shuttle stops, drivers, and timings. Citizen can download the app on their Mobile phone in order to locate the nearest Metro shuttle stop with navigational capabilities. Any individual who wishes to commute within the city can use the Metro Shuttle to go to Metro station or vice versa take a Metro shuttle from Metro station to the nearest stop for his home. Metro Shuttle stops need to be created in such a way that any individual using the app shall not walk more than 500 meters to reach to Metro shuttle stop.


           3.1.3. Pricing

Ticket Price for using the Metro Shuttle will be highly affordable. And it needs to be fixed at say Rupees 5. People can pay in following formats:
  • Cash (If a user wishes to pay in cash, then, the ticket price could be Rs 10. This is to encourage users to use Metro Shuttle Card).
  • Metro Shuttle Card that can be charged at the metro station itself or Pre paid Metro Shuttle Card can be sold at super markets. A person using the Metro Shuttle card can swipe the card at the swipe machine attached to all Metro Shuttles. The money goes directly to the central authority and from there Metro Shuttle Driver can claim once every week or fortnightly.

           3.1.4. Real time tracking

Metro Shuttles will run in 2 shifts with only one shift allowed for an individual driver to operate.
  • 6 AM to 3 PM
  • 3 PM to 12 MID NIGHT
All the drivers driving Metro Shuttles will be registered by Government of Delhi and their behavior & capabilities can be tracked by the ratings provided by users on their Metro Shuttle App.

    3.2. Political Benefits:

Government of Delhi can draw huge political mileage by implementing this proposal. Indirectly, they will be providing jobs to over 1 Lac people (many of them can be women drivers). 

Can it be implemented? Yes, all it needs is a ‘Project Champion’ and in a matter of 2-3 years, the plan can be successfully implemented. And subsequently be adopted in other NCR cities.

We have to note that in many developed countries in Europe, Government provides last mile connectivity to people. In addition to trains, they have trams which take people from one stop to another within the city. However, In India, building trams is a futile and expensive exercise. Instead, we can easily implement Metro Shuttles.


    3.3. How to discourage use of Private Vehicles:

In addition to implementing the Metro Shuttle system, Government can tax the use of private vehicles in following way:
  • High cost of parking
  • More taxes on fuel

4. Conclusion:

In a nutshell, government needs to provide high quality public transport system. A system that is inexpensive, can be implemented fast, and at the same time strengthens the government’s political capital. Metro shuttle system can be the answer.

Thanks! Please comment and we can take the discussion further. Maybe we find some other ideas :)

Kindly share :)




Have any Questions?