Thursday, May 24, 2018

Mechanism for sudden price appreciation and need for regulator

Author: Sachin Gupta | Find me on Twitter
To many this wouldn’t be a new thing, I am talking about the sudden increase in residential property prices in Indian metro cities between the periods 2003 to 2007. On a macroeconomic side, it is very well documented that prior to 2003, the property prices were significantly depressed and they shot up post 2003 on account of huge demand driven by increased jobs in sunshine sectors such as IT, Auto, and services. This coupled with relatively short supply gave further rise to real estate prices.

But how did prices go up so suddenly to the tune of almost 8 - 10 times. Well, I struggled a bit to understand that phenomenon and after years of being in real estate sector, here are my two cents.

Firstly, on account of increase in jobs as well as increase in income levels, the demand for housing was tangible. However, the supply was limited and new infrastructure has to be created to cater to that rising demand. That new infrastructure (if we talk about Delhi NCR) could only be developed in new locations such as Greater Noida, New Gurgaon, Golf course extension road, Greater Faridabad, Far away Ghaziabad, and so on.

Now, simple calculations will tell us that cost of construction is about rupees 1200 per square feet (I am talking about high quality construction at current prices). Add land prices to that number, and you would arrive at rupees 1300-1400 per square feet of developed land in the new locations mentioned above. So, how could builders of these new developments in those locations sell those properties for about Rs. 2500 – 3000 when you have properties being sold in primary (already developed) locations such as Faridabad, Noida, Gurgaon, Ghaziabad being sold for Rs. 1800 – 2000 per square feet. No guessing here, the prices have to move northwards in primary locations to justify the Rs. 2500 – 3000 in new locations.

But how do prices move northwards in primary locations? Well, tried hard and after spending some years in real estate sector came to realize that it needed vitamins, injections, or even better steroids. To illustrate it very simply, take a case of real estate sector in Noida where land rates in 2003 were hovering at around Rs. 800 – 1000 per square feet in most localities. All of a sudden builders ABC, XYZ, and few more enter the market and purchased the land plots for Rs. 3000 – 4000 per square feet and I am talking about the primary Noida locations here. What it meant for those builders was loss of money (maybe 50-100 crores) having bought the land at high prices when same was available at very low prices. What does it mean to Mr. Sharma, who believed that since Mr. Verma has sold his plot at Rs. 4000 per square feet, that he wouldn’t sell it for anything less than the Rs. 4000. And rest as they say, residential land price of Rs. 4000 per square feet became the market price in no time.

Now, the very same builders were developing the new locations and now that the price in primary location has already been put on steroid, they can charge Rs. 2500 – 3000 in new locations. So, for the loss of Rs. 50-100 crores, they can now easily make thousands of crores. No fault of theirs, in a capitalist world maximizing value is the key and they did it in open market. However, presence of real estate regulator could have avoided this steroid and maybe saved the common man with pains of going to new locations when most jobs are in primary locations. Given the income levels in major metros, can you justify the prices of real estate? No, and that’s where the real estate regulator could have been helpful.

Have any Questions?

Saturday, May 19, 2018

UK’s Generation Rent

Presenting below the info-graphic on UK’s Generation Rent!

Young adults between the ages of 18 – 35 who are living in rented accommodation in UK are known as UK’s Generation Rent. 

This segment of population has little chance of becoming homeowners because of high property prices in UK. Is it true? Let’s compare UK’s Generation Rent with other nations in the EU.

Saturday, May 12, 2018

Mistakes to avoid when you rent out your apartment

A real estate report that was released recently highlighted the facts why Bangalore is considered as the most preferred city to stay in the country and also to invest in properties. While the real estate and property markets are down in cities such as Mumbai and Delhi, the report suggested that Bangalore has now a high rate of residential properties and the rate of rented apartments is going up with every quarter. Bangalore has a typical mobile population wherein people, young adults to be precise, come to the city to study and work on a temporary basis. This has resulted in the increasing numbers of rental accommodations like houses, flats and paying guests in Bangalore.

There are certain dos and don’ts that tenants need to keep in mind while finding a rent house in Bangalore so that the deal is profitable and stay is comfortable. However, as an owner also, one must keep in mind certain factors to avoid making mistakes., India’s first broker free housing portal lists down the common mistakes that one can avoid as an owner of rented properties.

The first basic mistake that a landlord might make is deciding on a proper rental amount to charge. Apart from the basic rental charge, there are many additional charges that as a landlord, one might need to pay. These may include maintenance bills, water bills, etc. If the tenant has to pay these separately, you may keep them out of the rental charges. Else, make a list of the utility items that you need to pay and make it part of the entire rental charges for the tenant.

Make sure to conduct a background check on your possible tenants before you allow them to stay in your house. It eliminates the possible chances of inviting uncalled troubles if the tenant turns out to be someone charged with legal cases or similar other situations. It also helps you stay clear of the legal issues as a landlord. You can call up their workplace or any reference number to get a background check about the person or the family and then decide accordingly. If required, do not hesitate to check on your tenant after renting out the house also. Regular screening of the property and the house and a proper credit check of the tenant is important.

One basic rule of being a landlord is to be familiarized with the various legalities involving the laws of real estate sector and what it means when renting a house. Get yourself familiarized with the various aspects of the laws regarding renting out apartments to the tenants. You can consult a legal adviser specialized in this sector. Be sure about the policies involving security deposits, maintenance costs, and payment of rent on a mutually agreed upon day, parking and other community charges if any.

While preparing the lease document, make sure to include all the clauses pertaining to maintenance of the house, items provided by the owner, payment of rent on a particular day of the month, extra payment for the utility items, etc. Get the lease documents verified by your legal adviser, read it carefully and share it with your tenant. If your tenant suggests changes, get it verified by the adviser, come to a mutual agreements and then sign the paper, after you have read it carefully (again!).

Before renting out the apartment, make sure to have discussion regarding the revision and raising of rent amount annually. Discuss the percentage of raise and other associated charges properly to avoid ambiguity at a later stage.

Lastly, maintain a cordial relationship with your tenant. It will help in having the same tenant year after year and will develop the trust. Ensure that you are there to help them if they need you and offer to fix any damage in the house immediately that has not been caused by them.

This is a guest post by Shanaya Mehta

Monday, May 7, 2018

What are the things one should notice before taking possession of the property or new flat in India?

Sumit was finally relieved that he will be getting the possession of his flat in Noida. Sumit had bought this under construction flat in 2009. After many delays due to environmental clearances and slow progress by the developer, the flats were finally ready for possession for flat owners. Sumit and other flat buyers in this group housing project had several rounds of discussions with the builder and environment ministry for speedy delivery of flats. Because on one hand, many of these flat buyers including Sumit were paying monthly rent and on the other hand, EMIs on these flats had started. That was double whammy for Sumit and others.

Now that, flats are ready for possession, what shall Sumit and other home buyers like him verify in order to make sure possession of flats is legal? Before handing over the final payment and taking possession of the property, Sumit and other flat buyers in this group housing project shall ensure that:

  1. Property is vacant
  2. Title certificate to be handed over by seller to buyer
  3. Buildings plans, approved layouts, and other supporting documents (original) to be handed over by seller to buyer
  4. In case of new group housing project (as is the case with Sumit), it shall be verified that building has been given the occupancy/completion certificate by the concerned authority
  5. Mutation is done to reflect the name of the purchaser

Find below detailed document highlighting what needs to be checked before taking over the possession:

Monday, April 30, 2018

What are the major differences between Real Estate Venture Funds, Real Estate Investment Trusts (REIT), and Real Estate Mutual Funds?

Real estate investment from an individual’s point of view is a large investment wherein large amount of money (in Lacs, or in Crores) is required to purchase either a commercial or residential property. The money invested sits there in the asset and over a period of time capital gains are accrued by the investor. The capital gains thus accrued depend on supply demand equilibrium prevailing in the market. If property is available for use, the investor can use it for own purpose or rent it out to earn rental income. Thereby, investment in real estate can fetch twofold returns namely rental yields and capital gains.

However, only investors with deep pockets can afford to invest in real estate asset class. What about retail investors with small amount of money? Can’t they invest in real estate just like they invest in stock markets? Yes, they can by way of participating in either Real Estate Investment Trusts (REIT) or Real Estate Mutual Funds (REMF).  Read more about Real Estate Investment Trust.

Find below the major instruments that can be used by investors to invest in real estate without actually buying a Property:

  • Real Estate Venture Funds

Investment Audience: HNIs, institutional investors and global investors (since minimum investment required by each investor is worth millions, retail investors are outside the purview)

Investment Target: Real Estate Assets (Projects/Ventures), securities (of listed/unlisted entities) or both.

Investment Returns: 25-30% (on an average)

Leading Entities: Indian players (such as Kotak, HDFC, ICICI, Kshitij, DHFL) and international players (such as Actis, Morgan Stanley, Maple Tree, Sun Apollo, Lehman Brothers etc).

  • Real Estate Investment Trusts REITs

Overview: Close ended investment vehicles that invest only in real estate assets (through property or mortgages). It is floated as a company with issued share capital. ( REITs are structured as corporations with issued share capital)

Investment Audience: Retail as well other institutional investors

Investment Target: Real Estate assets only (either through mortgages or property). It invests primarily in ready to use, constructed properties only.

Investment Returns: Returns in the range of 10-15% annually from rental income of property owned by REIT.

  • Real Estate Mutual Funds REMFs

Overview: Close ended funds that invests primarily in securities issued by real estate companies (and to some extent assets as well).

Investment Audience: Retail as well other institutional investors

Investment Target: As per SEBI guidelines, at least 75% of the total assets should be invested in real estate or related securities. Further, a mandatory 35% of assets within the stipulated 75% have to be invested in completed real estate assets. The remaining 25% can be invested in securities related or unrelated to the real estate sector.

Investment Returns: Expected returns in the range of 35% (largely capital gains through investment in securities or sale of assets at time of closure).

Monday, April 23, 2018

List of Permits and procedures generally required for construction of a real estate project in India

Author: Sachin Gupta | Find me on Twitter

Chennai building collapsed on June 28, 2014. Death toll has risen to 61.

As rescue operations by multiple agencies entered the sixth day, Chief Minister J. Jayalalithaa announced that the one-man commission headed by Justice (Retd) R Reghupathy will probe the circumstances leading to the collapse of the building at suburban Porur on June 28.

"The Commission will find out whose ignorant attitude resulted in such a mishap that left many workers dead and others injured and decide on (fixing) those responsible for it," she said in a release.

Who is responsible for the mishap? Is it the builder, designers, or the authorities? We will get to know by the findings of this commission.

Here is a list of various permits that are generally required for constructing a realty project in India. However, these may vary for Municipal Authorities across India.

Now, once the commission probes the matter, we will get to know at which stage the laxity happened. We are also sure that necessary corrective actions will be taken to prevent such mishaps from happening in the future.

The construction processes will be streamlined and there will be enough watchdogs to make sure that construction of buildings take place as laid out in the design. We recommend setting up of non-partisan private construction quality agencies which will ensure that construction is as per the design and there is no usage of sub-standard material.

Have any Questions?

Saturday, April 21, 2018

Looking to rent your house or lease your property? Follow these steps to make sure your property is safe and the tenant follows the lease agreement.

Author: Sachin Gupta | Find me on Twitter

Leasing or renting out your property is a demanding job. Not only you need to maintain the property but at the same time you need to be careful in choosing the right tenant with good financials who can pay the monthly rent and other expenses on time.  There have been instances when tenant has refused to vacate the property even after the termination of rental agreement. Because of this, there is certain percentage of landlords who avoid renting out their property to prospective tenants. And it puts the pressure on housing market because on one hand there is demand for housing but rental market is not sufficiently catering to that demand. And therefore capital values of housing stock increases at a rapid rate. Had there been proper laws with respect to safeguarding the interest of landlords, the supply which would have then come into the market would have considerably eased the capital values.

The laws on landlord and tenants in India are outdated and needs complete reforms. However, the central government is encouraging local state governments to amend these laws to encourage investments in housing and construction sector. How fast will states in India will move to abolish its old system is still to be known.

In this environment, how can you as the landlord of residential property or commercial property such as office space, shops or warehouse lease/rent your property? We list down the steps which you should take before leasing or renting out your property:

  • Background checks

First thing first! Since you are renting your property to a prospective tenant, make sure to check his/her background by asking tenant to provide a reference certificate from a colleague/friend or co-worker. At the same time, find out about tenant’s previous landlords and talk to at least one of them. Ask for tenant’s permanent address as well and permanent address can be known by asking tenant to show 2 photo ID cards such as a passport and driving license or a voter card. In most cases, these 2 photo ID cards will have the same permanent address.

  • Police verification

As per the law, these days tenant verification at a local police station is required for landlords. Do not ignore this verification process before you rent out your property. This is a punishable offence under Section 188 of the Indian Penal Code.

  • Solid Lease agreement

Prepare a lease agreement which safeguards your interests and you should have the following in a typical lease agreement:
    • Basic clauses
A typical lease agreement must list the parties to the agreement at a specified date, namely you and the tenant, along with the address of the property which is being leased out. In the basic clause, you should also state the lease term including the time length for which agreement is being made, renewal option, and rent appreciation method. The expenses such as electricity, gas, water bill, maintenance charges should also be mentioned clearly in the basic clause of a lease agreement.

    • Security deposit clause
Your lease agreement should require the tenant to put up a security deposit equivalent to one month rent or more depending on the negotiation. The security deposits vary for commercial and residential properties. The security deposits also vary from state to state in India. For example, in Bangalore, for residential property, tenant pays 10 months’ rent as security deposit whereas in Delhi NCR the security deposit is about 2-3 months’ rent. For commercial property, the standard security deposit is around 6 months. Make sure that security deposits clause is clearly defined within the lease agreement.

    • Maintenance of the property
The lease should tell the tenant that he is required to properly maintain the property. If you are renting out a furnished property, make a check list of the items which are being provided as part of the property such as furniture, appliances, etc.  Include this checklist in the lease agreement as an appendix. Whatever, you want from your tenant as part of his/her responsibilities, make sure it is part of lease and is not just conveyed orally. The maintenance clause should be included in the lease agreement because if a tenant leaves the property in bad shape then leasing the property again might become difficult or else you would have to spend considerable amount of money to make the property rent-able again. The idea is to make sure that tenant gives you the property back in same shape as you handed over to him/her.

    • Concealed defects and responsibility for fixing it
If there is something that needs to be fixed in the property in coming 2-3 months, then clearly tell this to tenant. For example, if the roof of the property needs to be fixed in 6 months time, then it becomes your responsibility as an owner to include this fact in the agreement. A tenant will appreciate the fact that you have been forthcoming in your description of the property. If possible, try to fix all the things before letting it out.

    • Sub-leasing clause
Sub leasing clause is extremely important and you as the owner of the property should pay attention to it. We have seen in past how a tenant has sub leased the property to another tenant or in some cases have shared the property space with his/her colleagues or friends. To avoid this situation, clearly mark out the condition that prior to sub-leasing the property space, the tenant will take permission from you. But with our experience, we encourage landlords to rather cancel the current lease agreement and make a new lease with the new tenant. In a nutshell, you should not allow your tenant to sublease the property. And get that condition in the agreement.

    • Termination notice
The best practice is to know your jurisdiction’s rules on terminating a lease and include those details in your lease so your tenant will not be surprised. Clearly include the termination notice period as well in the lease agreement. For example, one month notice period is practiced in Delhi NCR for residential properties.

  • Registering the lease agreement

Now that lease agreement has the above mentioned clauses, it’s time to register the lease agreement. If you are leasing or renting your property for a short time period in India, a lease agreement is not mandatory, but the agreement is required if the property is being rented out for over 11 months. The agreement is registered with the local registrar office.

So, as a landlord, did you follow the above process of renting your property??

Have any Questions?

Monday, April 16, 2018

As a prospective borrower, what are the terms you should be generally aware about in the housing finance field in India?

Author: Sachin Gupta | Find me on Twitter

Continuing in our series of home finance, in previous article, we noticed the shortage of housing in India and the role that Home finance companies can play to plug this housing shortage gap. In this article, we will explore the various terminologies used in home finance such as types of home loans, pre-payment charges, processing fee, secured/unsecured loan, rate of interest, insurance, pre-approved loans, etc. The idea is to equip you with basic yet important terms used in home loan process. Therefore, whenever, you decide to go for the home loan to purchase property, it is advisable to quickly go through the following document.

Not only will this hold you in good position to bargain for lower interest rates with the bank but it will also help you to understand various charges that are incurred while procuring home loans. Home loans as described in the document below can be availed for purposes such as buying a property, construction, land purchase, etc. Irrespective of the type of home loan one is going for, it make sense to compare the various loan options from different banks.

Having understood the various terminologies used in the home loan process, we hope that you will make an informed decision.


Have any Questions?

Monday, April 9, 2018

What is a completion certificate and how to apply for it?

Author: Sachin Gupta | Find me on Twitter

In our last post, we discussed about various approvals that are needed to construct a house. We also discussed that no matter if you are constructing your own house or buying it from the real estate developer; you still need to get approvals from relevant authorities within your city.

An important approval (or document) among all the approvals is completion certificate (CC). As the name suggests, this certificate is granted after the completion of construction of your house or a group housing society. The certificate is issued when the property is ready to be moved in. Completion certificate is issued by the local development authority/Municipal Corporation certifying that:

  1. All necessary works have been completed according to the design plan and other directions, and
  2. The property is fit for moving in.

Therefore, it is your duty to apply for completion certificate when the house you are constructing is ready to be moved in. Or you should ask your developer to get the completion certificate in case you are buying the property in a group housing society such as high rise or low rise apartment complex.

Find below the procedure for obtaining the completion certificate:

Have any Questions?

Monday, April 2, 2018

Looking to construct your own house on a given piece of land? Pay attention to stages of construction and the cost part of it.

Author: Sachin Gupta | Find me on Twitter

Planning to build your home on a piece of plot? What are the things that one needs to keep in mind before embarking on a year long journey of construction and dealing with multiple contractors, suppliers, etc? Surely, as an owner of the plot, you would have got multiple offers from architectural firms, contractors about the cost estimate. However, before even talking to these firms, one need to do his/her cost estimation.

Constructing one’s house is not easy because of the nature of the work. One needs to work/deal with professional firms such as architects, contractors and at the same time deal with labor. Therefore, you not only need to plan the stages of construction but also the costing part of it. Doing the cost analysis helps you in analyzing what you need to build and what you can postpone for future dates. For example, if your budget is limited, then in all likelihood, you may not go for modular kitchens, lavish bath fittings, etc.

Here we present the quick ‘to do’ list for you to arrive at a guesstimate of cost that you may incur during the construction of your dream house. This will help you in planning your construction stages as well as cost part of it.

Have any Questions?

Tuesday, March 27, 2018

6 steps that can make real estate efficient and corruption free in India

Author: Sachin Gupta | Find me on Twitter

We have been writing a lot about the inefficiencies and mal practices in real estate sector in India. A lot of focus of our writing has been on highlighting the issues that plague the industry and how those issues can be tackled. While other ideas such as RTI; Aadhar; and recently Jan Lokpal bill has seen the light of the day, issues in real estate sector still remains unresolved. There is no denying that implementation of RTI, Aadhar, and Jan Lokpal bill will help in eliminating corruption from the government-public interface. But, what about real estate, where most of the cash finds its way? Why is the government not bringing in policy measures to cure the sector? We list some of the measures that can help in eliminating corruption from the real estate sector. In no way, these are the only measures, but, we are confident that implementation of the following measures will certainly help the sector.

  • Equalize market rate and circle rates

As the name suggests, market rates are determined by the economics of demand and supply equilibrium. Buyers and sellers participate in the market and transactions take place fairly & without any stimulus. Circle rates are the minimum rates fixed by the state government and a buyer of the property is entitled to pay stamp duty charges on these rates whenever a transaction takes place. For example, in Gurgaon, the market rate of an apartment in a multistory building is 7000 Rs/sqft, while the circle rate for the same apartment as fixed by the state government is 4000 Rs/sqft. For a 1000 sqft apartment, the stamp duty charges as per the circle rate would be Rs. 320000. While the stamp duty charges as per the market rates would be Rs. 560000. Therefore, it presents an opportunity for the buyer to under report the apartment value on papers in order to save on stamp duty charges. Equalizing market rates and circle rates would eliminate the practice of under-reporting of the property value. However, this may affect the growth of real estate sector because of fewer transactions between buyer and seller. And this can lead to an adverse impact on GDP of the state as well as the country. Well, the move to equalize market rates with circle rates should also be complemented with reduction in stamp duty charges.

  • Reduce stamp duty charges:

Stamp duty charges are exorbitant in most states across India. Stamp duty charges are least in Madhya Pradesh at 0.5%, while they are about 8% in states like Haryana, Punjab, Rajasthan, UP. Now, let’s say stamp duty charges are brought down in all states to a uniform level of 1%. Therefore, one would now pay Rs. 70000 as stamp duty charges on a flat of 1000 sqft with a market price of Rs 7000 per sqft. This move will not only encourage buyers to report market value of the property but will also lead to more and more transactions. Research based on past transactions can result in the optimum value of stamp duty charges which incentivizes true reporting as well as increased velocity of transactions across states in India.

  • Cap on property transfer on government sponsored schemes

On government sponsored schemes such as the recent DDA flats scheme, there should be a tenure cap. In other words, people who applied for the scheme and got allocation should not be able to sell the allocated apartment in secondary market for a fixed time period (say, 5 years). This happens in many countries in EU. The tenure cap will drive away speculators and only the real needy people will participate in the whole process. Can you imagine for 15000 DDA flats, some 15 Lacs application came. But this one looks impractical because banks, government bodies, and agencies all made money by issuing a lottery system. And then, they would say, we are pro-poor and these schemes help poor of the country. We came across a property dealer in Delhi who filled 8 forms for the DDA scheme. He called in various relatives and friends from his native Bihar and he made sure that at-least 8-9 forms were filled. He paid for the whole process and in return if a flat was allotted to any of those 8-9 members, he would share 50% of the proceeds. Everyone knows what a big lottery this whole flat allocation system is, yet government is not changing the policy. And who is benefitting? Government bodies by charging a fee for every form sold; banks for providing upfront money to the customer at an interest; and the rich who already owns multiple properties.

  • Cap on home ownership in certain cities

Certain cities such as Mumbai, Delhi, and other major metros have become unaffordable for the masses. A basic 2BHK is virtually out of the reach for a salaried person and he/she has to go to the outskirts of the city to fulfill his/her dream of home ownership. People with deep pockets own multiple properties in these cities. Housing is considered an investment vehicle first and then the basic need. In China, the government has moved in recent years to quell home price amid worry that surging costs could lead to social unrest and has set Home-Ownership Curbs in Shanghai and Beijing. Can it be done in India?

  • Computerization of property titles across the country

E-governance is the need of the hour. When there is no dearth of talent in the country when it comes to software development and technology, why don’t we see the computerization of property records? In many instances, a single property is registered under 2 or 3 names and this leads to disputes. Computerization of property titles will not only eliminate property disputes but it will also help in land acquisition processes for mass urbanization.

  • Make it easy as far as capital gains tax are concerned

An individual is liable to pay capital gains tax whenever there is significant gain over the buying price. Applicability of long term and short term Capital gains taxes should be made simple. In order to reduce or avoid being liable to pay capital gains tax, an assessee can either purchase a house within a period of one year before or two years after the date on which the transfer took place, or construct a house within a period of three years after the date of transfer. Why can’t we have a common wealth tax instead of so many complicated tax structures?

Is it desirable as far as real estate is concerned or are we just getting too ahead of ourselves?

Have any Questions?

Thursday, March 22, 2018

8 mistakes to avoid when buying a home

Author: Sachin Gupta | Find me on Twitter

Home buying is a long term commitment and therefore one should not rush through the things. Going through a well laid down process will eliminate following common mistakes.

Mistake 1

Buying a home in a builder project means there are additional costs to it. External/Internal development charges, Preferential location charges, club membership, fire fighting charges, one time lease rent, Maintenance charges, car parking are some of the charges that are billed on top of base selling price. These charges put together can range from 18 to 20 % of total cost of home. Once possession is given, you will have to pay stamp duty and registrations charges too.

Mistake 2

Borrowing means you will be paying EMIs. And more you borrow, higher the EMI or you pay EMI for longer time period. Do your calculations and make sure you pay as much as possible in down payment and borrow the rest. There is no point in borrowing 80% of property cost when you can arrange for more funds for down payment.

Mistake 3

Plan at least 3 years before you plan to buy a house. That way, you will have enough surplus funds to make the down payment and borrow the rest from bank.

Mistake 4

Home affordability is a key consideration and one should never lose sight of it. Home affordability means what is the value of home that you can afford given your current income levels. You can easily calculate Home affordability here.

Mistake 5

We all dream of living in a house that is big and has all the world class amenities, but can you afford it?

Mistake 6

Do not ever overlook due-diligence part. Ask for approvals, land title certificates, license number form the developer.

Mistake 7

If buying a home for investment purposes, make sure you do not lend in a soup and have enough cover to pay for home installments. When realty market was going strong, investors/speculators entered the market in the hope that they will make windfall profits, but things have become tough. Most of these investors/speculators are willing to offload their purchases at relatively very low rate of returns.

Mistake 8

Make sure your finances are in order and you have pre-approved home loan before you start your search for home. This way, you will not overshoot your budget.

Did you make any of the above mistakes???

Have any Questions?

Friday, March 16, 2018

What are the various kinds of documents that are required to avail home loan in India? What are the documents a salaried class, self employed, businessman needs to present for home loan in India?

Author: Sachin Gupta | Find me on Twitter

As per the recent report by National Housing Bank titled “Report on trend and progress of housing in India 2012”, the following observations were made.

The urban population of India has been growing at a rapid pace. As per the Census 2011, 31.16 per cent of the total population is in the urban areas. The shortage of housing units for the urban areas for 2012 is estimated at 18.78 million units.

With time, there has been expansion and improvement in the housing finance market by way of various financial reforms; however the housing loans as a percentage of GDP have remained at around 7 percent, significantly lower than the levels achieved in most of the developed countries.

During the financial year 2011-12, housing loan which is disbursed to individuals across India stands at Rs. 68221.12 Crore. Out of which about 71.34% was used by individuals for acquisition/construction of new houses, about 2.63% for repair of existing houses, and about 26.03% was used for purchase of old/existing houses (resale properties). The housing loan availed by individuals across India continue to increase year on year by an average of about 20%. All these numbers suggest that home loan is a key factor when an individual goes out to buy home.

However, before one approaches the bank or housing finance companies for housing loan, he/she needs to have the papers in order. Papers about income proof, bank statements, PAN Card, etc. What are the documents that are required to avail home loan? This is a question many of you are confronted with. And therefore, we have put together a comprehensive list of documents that are required for home loan. Find it below:

Have any Questions?

Saturday, March 10, 2018

What are the main approvals you need from the concerned authorities in urban areas while constructing a house in India?

Author: Sachin Gupta | Find me on Twitter

Building one’s own house is what most people dream of. You are always filled with the excitement of designing your bedroom, drawing room, choosing the right set of tiles for the floor, bath fittings, modular kitchen design, etc.  However, in all this frenzy, one might lose track of important approvals that are required from the city planning bodies.

Whether you are looking to construct your own house in Gurgaon, Delhi, Noida, or other cities in India, the approvals you need from urban bodies remain more or less the same. For example, if you are constructing your house in Noida, then, you must focus on these necessary approvals and accordingly design the house including Bedroom Layout, Modular Kitchen in Noida, Bathroom Layout, Open Areas, Fire Fighting Safeguards, Rain Water Harvesting Rules, etc.

To ensure that your dream home takes a concrete shape in a smooth manner, you need to obtain certain approvals from the concerned authorities such as Municipal Corporation, Area Development Authority, Electricity Board, Water Supply and Sewerage Board, etc. You must submit relevant documents/certificates along with the design plan to the concerned authorities.

In case, you are not constructing your own house and rather you are buying it from the real estate developer in a group housing society, then again, you need to verify that your developer has approvals from the concerned authorities such as Municipal Corporation, Area Development Authority, Electricity Board, Water Supply and Sewerage Board, etc.

Here is a quick reference for the main approvals you need from the concerned authorities in urban areas while constructing a house:

Have any Questions?

Monday, March 5, 2018

Looking to sell the house or your property? Pay attention to these tips!

Author: Sachin Gupta | Find me on Twitter

In May 2012, one of our colleagues decided to sell his 250 square yard plot in Delhi NCR region. He has bought the plot in 2003 and therefore, the capital appreciation gains were substantial. He wanted to sell this piece of plot and buy another plot in different city. The idea was to build a house on this new plot and live there. Therefore, he has reasons to sell the plot. However, when looking to sell your property, the first question you should be asking is “do I really need to sell?”

  • Do you really need to sell?
There can be in-numerous reasons to sell the piece of property you own and these reasons can range from shifting to new city, family wedding, education, or building/buying a bigger property, etc. Analyze those reasons carefully and discuss within your family members before arriving at the decision to sell the current property you own. Because make no mistake, selling is no easy job, it takes time as well as it incurs unwanted expenses such as brokerage fee, advertising fee, paper work, no-due certificates fee, etc. One can also explore the possibilities of obtaining loan against property (LAP) in order to fulfill the current need for funds rather than selling the property. However, once, you have considered all the possible options and selling is the best bet, then pay attention to the following advice.

  • Verify the prevalent market sentiments

The true value of the property is what a buyer is willing to pay in a transparent and mature market. Therefore, once you have decided to sell, do the quick check of property valuation and this is how you do it:
    • Check the selling price of highly similar properties which have been sold in recent months/days within the same locality. As a seller, you would not like to sell at below market prices. If there is no data available for similar properties, then check the selling price of dissimilar properties and adjust for dissimilarities in the selling price. For more on, property valuation, visit Property Valuation in India
    • Check for the time-duration it took others to sell their property. If it takes longer to sell, then it can be safely concluded that market sentiment is low and you would have to wait for long time period before being able to sell your property. However, one can always 'sell in distress' at high discount. This is what happened to our colleague since market sentiments in 2012 were low and he had to wait for 6 months before selling the property at a substantially lower price.
    • Check for the rental values of the similar properties within your locality and city as a whole. Sometimes, property transactions (sale/purchase) might be slow but there is demand for the housing and therefore, rental values may be appreciating whereas capital values have remained stagnant. This is what is happening in the current real estate market across India. In this scenario, it will be advisable to stay invested in your property and earn decent monthly income by renting it out for some time and sell the property when market sentiment is strong.

  • Selling process
Finding the right buyer for your property is not easy. Because property transaction involves large amount of money, one needs to be careful in advertising the property, dealing with brokers, and prospective buyers. 
    • Online classifieds: list your property on online classifieds portals. Don’t just list the property blindly on all available classifieds portals. Rather select the ones which have high degree of trust among other sellers and buyers and at the most list your property on 2 online classified portals.
    • Brokers: approach the local area property brokers and enquire about current property market sentiments before listing your property with them. One should never list the property with multiple brokers. Rather list with 2-3 trustworthy brokers. "The best approach is to ask some brokers about buying the similar property and ask some brokers about selling the property. If there is substantial difference in the buying price and selling price as quoted by the brokers, then it indicates that there is demand for the property in the market but real estate brokers are downplaying that demand". In that scenario, it is better to wait and strike the deal when you get the best possible price for your property.
    • Agreement to Sell: once you have identified the buyer, check for his/her credential to pay the required amount in mutually agreeable time period. It is advisable to ask the buyer to make reasonable advance payment (say 20% of the property value) with the condition that in case the buyer subsequently backs out from the deal or fails to make full payment and take possession of the property in accordance with the terms & conditions of the deal/agreement, such advance payment will stand forfeited and will not be paid back to the buyer. This is known as “option” and should be included in the “agreement to sell” paper. The time period between “agreement to sell” and “sale deed” can be mutually decided between the buyer and seller. The prevalent trend is about 45 days or 2 months.
    • Sale deed: after the “agreement to sell”, the next step is to formalize the “sale deed”. ‘Sale Deed’ should be signed and title documents handed over to the buyer only on the receipt of full and final payment. Once the deal is concluded, full payment is received and Sale Deed signed, insist on the registration of the property in the name of the buyer with the Sub-registrar of assurances under the provisions of the Indian Registration Act. Consulting and engaging a good lawyer before selling the property to a person or organization is a good and sensible idea.

  • What are the risks in property selling?
As explained in the article above, the property selling process is long and there are inherent risks and one should be careful with the following elements:
    1. Inappropriate valuation of the property
    2. Selling through too many real estate agents
    3. Dubious buyers

  • Taxes

In case of sale of house property, long-term capital gains are taxed at the rate of 20% after availing indexation benefit. The indexation rates are released by the Income Tax department each year, which can be applied to arrive at the indexed cost of acquisition of the property sold. Short terms capital gains on house property, on the other hand, are included in the gross total income and normal tax rate is applicable.

Exemptions from Tax

The Income Tax Act 1961 contains certain provisions that offer exemption from tax on long term capital gain arising on sale of house property, these are as under:
  • If capital gain is invested in new residential property: Section 54 of the Act protects capital gains arising out of sale (or transfer) of a residential house (original asset) in either of the following situations:
    1. One has purchased a new residential house either within a period of one year before the date of sale of the original asset or two years after the date of sale of the original asset.
    2. One has constructed a residential house (new asset) within three years after date of sale of the original asset.
  • If long term capital gain is invested in capital gain bonds issued by specified institutions:
Section 54EC, under various schemes (as listed below), provides exemption to capital gains arising from any long term capital asset (original asset), provided the capital gains are invested in long term specified assets covered by Section 54EC within 6 months from date of sale of the original asset. The said Section requires locking of the funds for 3 years. However, the investments made on or after 1 April 2007 in the long term specified assets during any financial year should not exceed Rs. 50 lakhs.

Section 54EC Schemes for Capital Gains Tax Savings
    1. NHAI Capital Gains Bonds issued by National Highways Authority Of India.
    2. REC Capital Gain Bonds issued by Rural Electrification Corporation Of India.

  • Stamp duty and registration charges:
Stamp duty and registration charges are borne by the buyer and these charges differ from state to state. Visit Stamp duty and registration charges in India for more.

Above all be patient in the entire property selling process!

Data Source For Tax considerations: National Housing Bank

Have any Questions?

Monday, February 26, 2018

How to calculate the true value of the property? What are the methods to real estate valuations? Am I paying the right price for the apartment?

Author: Sachin Gupta | Find me on Twitter

Alright, you have now decided to purchase your dream home or a commercial property. But hang on, before you jump on the bandwagon and go for property hunting, keep in mind the valuations. By valuations we mean how much the property is worth at given point of time. So, you got to ask these simple questions…am I paying the right price for this property. Can I get anything lower than this? You need to understand the concept of market value before financing or investing in a property.

Market Value:
It is the most competitive price which a property should bring in an open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus.

How do you value a property?
There are 3 principle approaches to valuation of property. All these approaches require you to gather market information before you apply these approaches to value a property. The data you need to gather is:

  • Identification of location or sector you are looking to buy the property
  • Effective date of value estimate
  • Gather market data on current rentals, capital values, and presence of social infrastructure

Approach 1 – Sales Comparison approach:
This approach is based on data provided from recent sales of property highly comparable to the property under consideration. If there are differences in size, scale, location, age, and quality of construction between the property being valued and recent sales of comparable properties, adjustments should be made to compensate for such differences. The more differences that must be adjusted for, the more dissimilar are the properties being compared, and less reliable the sales comparison approach. The fundamental principle for this approach is that an informed investor would never pay more for a property than what other investors have recently paid for comparable properties. Ideally the data should be collected of properties that are situated in the same locality (sub market).

For example, if you looking to buy an apartment in a builder project in Sector 85, Gurgaon. Collect the information about all other projects within the same locality and see at what price points apartments in those projects are being sold. Adjust for luxury specifications, approach towards apartment complex, and builder track record of successful and quality delivery. As an example, the price at which new apartments are being sold in Sector 85 is Rs. 5500 per Sq. Ft. A reputed developer has launched a new project at price point of Rs. 6200 per Sq. Ft. Why? Is this project offering luxury specifications? Is this project nearer to Highway or metro rail? Or what could be the reason for high prices? Ask these questions. Similarly, if something is being sold at below rate, try to understand why? Is there any litigation with the property? Are there any construction defects?

Approach 2 – Cost Approach:
For a new property, the cost approach ordinarily involves determining the construction cost of building, then adding the market value of the land. In other words, what will it cost you if you were to buy a piece of land and construct by yourself.

So, again, if you are looking to buy an apartment in Sector 85 in Gurgaon, check the prices of land or plots in the same locality. Let us assume, a 250 Sq Yd plot is sold at 60000 Rs. per Sq. Yd.

Below are the calculations you should do in order to arrive at the property value using cost approach.

Approach 3 – Income approach:
This approach is based on the principle that the value of a property is related to its ability to produce cash flows. This approach is highly recommended for commercial properties and least effective for residential properties. The income generated from commercial properties is capitalized to arrive at the correct valuation. We will cover this approach in details in next article.

So, now that you have some methods to calculate the worth of property you are considering to buy, we are hopeful that you will buy the right property at right price point.

Cheers :)

Have any Questions?

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