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Low risk real estate investment bet: Ready to occupy flats

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Low risk real estate investment bet: Ready to occupy flats

Ready to occupy residential properties eliminate risks associated with project execution. It brings in benefits such as tax benefits on repayment of loans raised to fund such property, scope for price appreciation as well as some savings in the form of rents earned.

With the cash-strapped developers invariably delaying their projects in almost all major cities of India, many buyers, especially the end users have started preferring ready to move in, or properties nearing possession. In cities like Gurgaon, NOIDA and Mumbai, the average project delay is anywhere between one and two years, however, southern cities have relatively less delay in the range of three to six months. In some cases, the project delay has stretched to more than two years.

Not only there is delay in project delivery, there is also the problem that, most of the time after waiting so long for possession, the buyer feels that he did not get what he paid for. According to the National Consumer Helpline data, complaints in the real estate sector mostly pertain to delays in delivery of the apartment or plot, and/or the delivered product not being as promised at the time of booking in terms of quality, specifications and carpet area. Moreover, some times the developer even changes the layout plan of the project and adds a few extra floors.

A ready to move in property is considered as relatively low risk compared to under-construction properties as they do not suffer from risks such as variances from the promised layout plans and quality, delays and price escalations. However, as they say there is “no risk no return” the ready to occupy properties come with a price tag. Generally, the ready to move in properties are priced 25-40% higher than the under-construction properties which makes them unaffordable. In such a situation, a number of buyers, especially end-users, started showing an inclination towards projects nearing possession. Investing in such projects offers various advantages besides early possession.

A ready to move in property is considered as relatively low risk compared to under-construction properties as they do not suffer from risks such as variances from the promised layout plans and quality, delays and price escalations. However, as they say there is “no risk no return” the ready to occupy properties come with a price tag. Generally, the ready to move in properties are priced 25-40% higher than the under-construction properties which makes them unaffordable. In such a situation, a number of buyers, especially end-users, started showing an inclination towards projects nearing possession. Investing in such projects offers various advantages besides early possession.

Tax benefits: According to the income tax Act 1958, there are certain tax advantages available for home buyers. For example, the principal repayment upto INR 1.5 lac is eligible for deduction under section 80Cin loan taken for ready to move in properties. The interest paid for a loan on a first home is eligible for a deduction upto INR2 lakh per year, and for a second home the entire interest payment can be deducted from the income for the purpose of income tax calculation. However, one can only take advantage of these deductions after taking possession of the property. In the case of under-construction properties, one has to wait until possession to claim the tax shield available under the Income Tax Act as the interest paid during the construction period of the property can only be deducted in five equal instalments after the completion. Early possession comes with early tax advantages and saving on rent if the property was purchased for self-use. Moreover, the buyer can avoid the complexity of claiming tax advantages.

Room for price appreciation: As mentioned earlier, the ready to move in properties are priced 25-40% more than the under-construction properties and any short-term appreciation is generally unlikely if the market is already mature. Projects nearing possession not only limit the risk of delays, variances in quality and layout, there is also the scope for appreciation in the near future once the project becomes fully operational. Generally, the project gets another 10-15% appreciation once it is habitable and fully operational. This appreciation depends on occupancy, demand, amenities offered at the project and a number of other factors.

Savings on rent: The ready to move in properties nearing possession are best for end users who are living in rented premises. If one is planning to occupy the property there can be savings on rent. Moreover, if it is being purchased as a rental property, the rental income can also help you to pay EMIs. In the case of under-construction property, one ends up paying the EMI as well as the rent and if the property possession gets delayed, the whole financial situation may become distressed. However, if a loan is being taken to buy the property,one should never rely huge on the rent yield to pay EMI as the property may sit empty for a month or two.

Despite all the above pros of investing in ready to move in or nearing possession property the bottom line is that both under-construction and ready to move in properties have their pros and cons. Selecting between ready to move in and under-construction or nearing possession projects entirely depends on your property requirements. For immediate requirements, it makes sense to go for completed properties. If you are looking for higher returns and have idle money for investment, an under-construction property yield a better ROI and gives decent time to arrange for funds and offers flexibility in payments.

Source: moneycontrol.

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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