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Real Estate and Crowdfunding: A New Path for Investors

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Innovations in real estate

Crowdfunding

By definition, crowdfunding should be a natural for the real estate market. In a word, crowdfunding makes use of the easy accessibility of vast networks of friends, family and colleagues through websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives.

Real estate is already climbing aboard the crowdfunding bandwagon and are touting the relatively low-risk access to the Indian real estate market.

“Crowdfunding for real estate is not an entirely new phenomenon,” said theCommercial Real Estate Development Association  . “Numerous players have entered the field. Although each of these platforms has its own niche and strategy, with different levels of minimum investment, all are geared toward accredited investment who meet specific requirements for net worth and/or annual income. By contrast, crowdfunding will open the field to many smaller investors.”

What are the pros and cons of crowdfunding for investors? In a word, both sides come down to risk; specifically, how much investors want to absorb online.

According to the report, both real estate developers and investors can reap significant financial returns through crowdfunding, and both are able to spread their risks.

Pros . . .

  • Investors get access to the real estate market with small amounts of money.
  • Investors get to work directly with real estate developers and have a voice in the process.
  • Investors can choose which real estate projects in which they want to invest their money.
  • Investors have access to myriad projects, so choice and options aren’t a problem.

Cons . . .

  • Investors have the same issues as every real estate investor. If the market goes south, they will likely lose money.
  • The risk of investment default (from real estate developers) is higher for crowdfunding compared to peer-to-peer and direct real estate investment funding.
  • A lack of liquidity, as the absence of a secondary market restricts easy selling access for investors.

To get started with crowdfunding in real estate, Jillienne Helman, chief executive officer at Realty Mogul, advises going with a firm that’s going to be around for a while.

“First, work with a crowdfunding company that will survive,” she says. “That means well-capitalized. What scares me is the number of crowdfunding companies out there that are headed up by two students who just graduated from college, and who aren’t capitalized themselves.”

Darren Powderly, co-founder of CrowdStreet.com, says doing your due diligence is more important in real estate than other investments, as far as working with a crowdfunding company goes.

“From the investor’s perspective, one should take care to research the platforms on which they are searching for investment opportunities,” says Powderly. “Not all platforms are created equal, and multiple business plans are being tested in order to capitalize on this emerging trend.”

Powderly specifically advises investors to investigate the founders and senior management of the crowdfunding platform or firm to make sure they have a sterling reputation built upon their previous business experience.

“Key industry expertise in finance, real estate and technology is essential to operate a trusted and reliable platform,” he adds. “Investors should gravitate toward platforms that deliver excellent customer service not only during the fundraising process, but also after the deal is fully funded and closed. Despite the fact that there are 50-plus platforms in some mode of operation, there are only a half dozen or so that are emerging as leaders in the space. Investors should research multiple platforms and select their top three based on their investment goals and preferred user experience.”

Transparency is Critical

Powderly advises looking for crowdfunding platforms and sponsors that acknowledge the risks and provide an education-based approach to risk management. “Most real estate crowdfunding platforms today only permit accredited investors, as defined by the SEC, to invest,” he says. “Accredited investors are advised to invest amounts that they are comfortable with given their overall investment portfolio.”

Another tip – only invest in offerings from sponsors that you trust and that you’re confident will look out for your best interest in good times and bad.

“If an investor does not understand how their money is being used, the risk factors of the investment and what factors influence their return on investment, then they should seek the advice of their trusted investment adviser or pass on the investment,” adds Powderly. “There will be plenty of other investment opportunities to choose from, so don’t get rushed into making an uninformed investment decision.”

A professional real estate crowdfunding platform should provide investors with ample opportunities to communicate about the offering, including making introductions directly to the sponsor of the particular property listing.

Is This Doable, and How?

The catalyst to launching crowdfunding for real estate investments, along with other types of business ventures, was the passage of the JOBS Act in 2012. Until recently, the ability to advertise and solicit investors for real estate investments has been restricted. The JOBS Act (Title II) dramatically changed the way investment capital can be raised by modifying existing Regulation D rules, specifically those rules pertaining to how companies can offer and sell their securities without having to register the securities with the U.S. Securities and Exchange Commission (SEC).

In the past, Regulation D, Rule 506 placed restrictions on fundraising efforts – namely, limiting fundraising to only pre-existing relationships and preventing a sponsor or other party from openly soliciting or advertising those private investment opportunities. The new Rule 506(c) allows issuers, sponsors, syndicators and others who are raising capital from private investors to advertise those private-investment opportunities to accredited investors under certain conditions. That rule became effective Sept. 23, 2013. The new federal legislation represents a huge change for sponsors that are raising funds for a real estate acquisition or development. Essentially, Title II gives crowdfunding firms the green light to a direct market to a large pool of potential investors via social media and the Internet. It also has opened up a new vehicle for investors to more easily access direct real estate investment opportunities.

As Powderly notes, for the first time ever, investors have direct access to a selection of private real estate offerings where they can browse, research and make well-informed investment decisions online.

The Bottom Line

Crowdfunding in the real estate market promises to be a revolution that’s just now taking off, and it’s attracting serious interest from serious investors these days.

Source : investopedia

Ahmedabad Real Estate News

Under Construction Flat Booking Finds Tax Deduction Under Time Constraints

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Tax Deduction

If a buyer makes a transaction to book an under-construction flat and if he acquires it within the three-year period of the sale of his old house, then he is entitled to a tax deduction, says a ruling from the Mumbai bench of the Income-tax Appellate Tribunal (ITAT). If an apartment is booked in an under construction project than it must be viewed as a method of constructing residential tenements, says the December 18 judgment.

That means if the buyer uses the entire gain from the transaction to buy another house within two years or construct another house within three years. The two- and three-year period applies even if the buyer bought another house a year before selling the first one. But the property should have been bought in the name of the seller.

It is mandatory that within a period of two years after or one year before the date of transfer of old house, the taxpayer should construct a residential house or acquire another residential house within a period of three years from the date of transfer of the old house. The date of receipt of compensation will determine the period of acquisition or construction in a case of compulsory acquisition.

This exemption is effective and can only be claimed in respect of one residential house property purchased/constructed in India. In the case of multiple house purchases or constructions, the exemption under section 54 will be available in respect of one house only. Any purchases made outside the country does not fall under any kind of exemption. Section 54 gives relaxation in such cases by providing relief to the taxpayer who sells his residential house and acquires another residential house from the gained capital.

After the sale of an asset, the difference between the buying price and the selling price is a capital gain or a capital loss. These are further classified as long-term or short-term. If a property is held for 24 months or less, with effective from 2017-18, then that asset is treated as Short Term Capital Asset. Then an investor can make

treated as Long Term Capital Asset. Then only a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL) can be made on that investment.

ITAT agreed that booking of a new flat in an under-construction apartment should be considered as a case of “construction” and not “purchase”, hence following the earlier decisions of the Bombay high court and the tribunal itself. Further ITAT allowed the fact that the construction can began prior to the date of sale of the old asset. Same was stated in the earlier judicial decisions of the Karnataka high court and Ahmedabad ITAT, that the date of commencement is not relevant but it is the completion of construction that comes in relevance to section 54.

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India Real Estate News

HDFC and Quikr Make A Deal

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HDFC and Quikr Make A Deal

According to a deal between HDFC and Quikr, a stake of more than 3 percent will be given to the mortgage giant in return to its transfer of offline and online real estate brokerage business to the classified ads platform.

After acquiring Commonfloor in 2016 Quikr already has a major presence in online real estate broking.

“Most of the searches for real estate are moving online. Quikr has a much bigger presence online. Through this deal, we are partnering Quikr in the broking business,” said HDFC MD Renu Sud Karnad. According to her, this deal will strengthen Quirks position with offline support.

The deal suggests that HDFC will transfer to Quikr its entire shareholding in HDFC Realty, a real estate brokerage platform, and HDFC Developers, which runs the HDFC RED online platform.

Karnad added that the deal expects Quikr to generate home loan leads for HDFC. The transaction consists of a co-branded alliance between both parties and the HDFC brand will continue to be used online for a year.

The e-real estate classifieds platform HDFC RED has around 7,000 project listings and generates traffic of over 80,000 unique visitors per month. HDFC Realty has a 300-member, in-house sales team, and 7,000-strong nationwide broker network. Avendus Capital was the exclusive financial adviser to Quikr while Kotak Investment Banking acted as the exclusive financial adviser to HDFC on this.

30 million monthly users make Quikr India’s largest classifieds platform. It runs multiple vertical businesses across real estate, automobiles, jobs, services, and goods. The Quikr Home, its real estate vertical generates 3.5 million monthly unique visitors.

Both companies intend to work closely and conduct analytics and identify potential homebuyers, and therefore home loan customers, early in their home-buying journey. Quikr founder and CEO Pranay Chulet said, “We see great synergies between Quikr and HDFC as we start working together to bring a seamless online-to-offline platform to developers and consumers.”

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India Real Estate News

Retaining The Sustainability: GRIHA Launches Star Rating For Urban Homes

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GRIHA Launches Star Rating For Urban Homes

Green Rating for Integrated Habitat Assessment (GRIHA), is the National Rating System of India, a Sanskrit word meaning – ‘Abode’. Human architecture has always consumed resources in the form of energy, water and material from the environment. From their construction to operation, these habitats absorb the resources throughout their life cycles, emitting wastes in the end. This emission could be direct in the form of municipal wastes or indirect emission into the atmosphere, such as from electricity generation. Hence GRIHA was formed to reduce an architecture’s resource consumption, waste production and overall environment impact up to certain national acceptable limits.

In attempt to quantify all these aspects, like energy consumption, waste generation etc. GRIHA tries to manage, control and bring down the respective to the best possible limit. Being a rating tool, it helps people to assess the performance of their respective projects against the national benchmarks.

Hence it becomes an evaluation of the environmental performance of an architecture on a holistic level. Covering its entire life cycle, this evaluation provides a specific standard for a ‘green building’. This rating system aims to strike a balance between established institutions and emerging concepts, on a national as well as the international level.

The process starts with an online submission of documents according to the criteria. Then a team of professionals and experts from GRIHA Secretariat takes a site visit for the evaluation of the building.  There are four different sections categorized by 34 criteria in GRIHA rating system. Some of them are site selection and site planning, conservation and efficient utilization of resources, building operation and maintenance, and innovation. 

Sanjay Seth, CEO, Green Rating for Integrated Habitat Assessment (GRIHA) Council says, “A rating between one and five stars is being provided, helping the costumers to know about the sustainability of the houses”.

According to the Union Minister, Hardeep Singh Puri, the climate resilient and sustainable buildings are the need of the hour. As the government is aiming to construct around 1.2 crore houses for the urban poor under the affordable housing scheme.

In one of his keynote addresses, Andreas Baum, Ambassador of Switzerland to India and Bhutan said that the Indo Swiss collaboration is operating with the Indian Bureau of Energy Efficiency in the development of guidelines for energy efficient housing.

“At present India is witnessing a rapid urbanisation, if each building becomes greener than the last one, then we have a huge opportunity and hope for our country. We need to look beyond the conventional methods of building, in order to provide our citizens with a good quality of life. Hence, GRIHA gains important in meeting our national goals with respect to a sustainable society”, says Dr Ajay Mathur, director general, TERI & president, GRIHA Council.

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