For many city dwellers, owning a home is always a distant dream. Unaffordable real estate prices compel them to stay in rented properties instead. However, several events and trends taking shape now could soon turn that dream into a reality.
The government’s surprise move to clamp down on black money hoarders through the ban on Rs 500 and Rs 1,000 currency notes is expected to have a cooling effect on certain pockets of the residential market in the country. The housing market is a hot-bed for the indiscriminate use of black money. Many developers, resellers and homebuyers insist on having hard cash as a component of payment in real estate deals.
The recent ban on high value currency notes is expected to deal a body blow to this practice. Another likely side effect of the move is a down ward pressure on the interest rate structure. This would come as a relief to people who cannot afford the high EMIs on housing loans. In addition to these factors, many developers are also aggressively turning towards the affordable housing segment. This effectively opens up another avenue for those who find themselves priced out of the housing market in ..
rther, with many states likely to enforce the buyer friendly provisions of the Real Estate Regulatory Act, homebuyers can expect more transparency. This would also provide them protection from delays in construction and handover, as well as other unscrupulous practices employed by developers. In the following pages, we will outline the opportunities these developments are likely to present for homebuyers, and delve into the emergence of the affordable housing segment.
What awaits housing?
Industry experts believe that the housing market will experience a lull in the coming months, as these developments take their toll. Homebuyers can expect property prices to come down in certain pockets, which would provide an opportunity for them to make their move. Rohit Gera, MD, Gera Developments, asserts, “There is no doubt that sales which involve the exchange of cash will be affected. This will impact land prices too. If land prices crash on this account, there will be a likelihood of property prices coming down as well.”
If home loan rates are cut by 25 BPS
The surge in low-cost deposits is likely to bring down bank deposit rates and ultimately lead to a drop in lending rates as well. Here’s how a decline in home loan rates will impact borrowers.
If you have a loan of Rs 50 lakh at 9.5% for 20 Years : A 25 basis point cut will reduce the EMI by Rs 812 per month.
Rs 46,606 Old EMI at 9.5% : Rs 45,793 New EMI at 9.25%
Lenders usually leave the EMI amount unchanged and reduce the loan term when rates are cut. The extent of reduction will depend on the balance tenure of the loan. The longer the remaining tenure, the greater the impact.
Balance loan tenure at 9.5% : 5 Years
Number of EMIS reduced at 9.25% : 1 EMI
Balance loan tenure at 9.5%: 10 Years
Number of EMIS reduced at 9.25%: 2 EMI
Balance loan tenure at 9.5% : 15 Years
Number of EMIS reduced at 9.25% : 5 EMI
Balance loan tenure at 9.5%: 20 Years
Number of EMIS reduced at 9.25% : 12 EMI
MCLR rates change
The 15-20 bps reduction in Axis Bank’s MCLR shows the emerging trend
While the currency notes ban has left less cash in the hands of consumers, thus driving down consumption for the time being,taking older Rs 500 and Rs 1000 notes out of circulation is also expected to have a longer term deflationary impact on the economy. It will bring about a slowdown in highticket purchases such as white goods, jewellery, high-end retail and of course, real estate.
“Banks that have excess liquidity will look to sanction more loans going forward, and will probably effect another round of interest rate cuts on home loans,” says Adhil Shetty, CEO, BankBazaar.
“The sudden decline in money supply and simultaneous increase in bank deposits is going to adversely impact consumption demand in the economy in the short term. This coupled with the adverse impact on real estate and informal sectors, may lead to the slowing of GDP growth,” says Sunil Kumar Sinha, Principal Economist and Director -Public Finance, India Ratings & Research.
This will probably lead to a softening in inflation, which may prompt the RBI to carry out interest rate cuts and give more leeway for banks to lower their lending rates. “With this move, we also expect that the RBI will reduce rates, which will have a direct impact on home loan interest rates, thus giving consumers more cash flow to invest in real estate,” says Brotin Banerjee, MD & CEO Tata Housing Development Company. Several major banks like SBI, HDFC and ICICI, have only recently slashed home loan rates.
SBI continues to offer the lowest interest rates under its recent festival offer of 9.15% for loans of up to Rs 75 lakh sanctioned in November and December this year. Private lenders HDFC and ICICI Bank now offer interest rates at 9.2% for home loans of up to Rs 75 lakh, down from 9.35%. Experts predict another 10-15 bps reduction in interest rate soon.
Grey market interest rates down to 5%
Interest rates have dropped to 5% from as high as 30% in the grey market, where a flourishing under-the-counter lending business has been stifled by demonetisation. Under grey market lending schemes, investors pool in money that is lent to real estate developers, small companies and people in distress at high interest rates. These loans are given in cash without written agreements.
Now loans can’t be given or repaid in the demonetised Rs 500 and Rs 1,000 notes, which were the most widely used. “The interest rates charged were anywhere from 18% to 30% per annum,” said an investor who is part such an arrangement. “Those who were to return money borrowed earlier are offering it in high denomination notes, and we ourselves are stuck with these. Interest rates have come down to minimum, about 5% per annum or even less,” he added.
Under Construction Flat Booking Finds Tax Deduction Under Time Constraints
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.
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.”
Retaining The Sustainability: 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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