Using the loan’s amortisation schedule, the NPV of the interest subsidy is first calculated at a 9% discount rate and then credited upfront to the loan.
After the recent changes in the Pradhan Mantri Awas Yojana (PMAY), it seems that the interest in the scheme is picking up. Developers have started promoting their offerings in the affordable housing segment, which may sound tempting to those interested in government subsidy.
Real estate has its own share of concerns, both for the end-consumer as well as an investor looking to lock in funds for a quick gain. From a delayed home possession to oversupply of units, there’s a lot to tackle in such an illiquid and immovable asset class. PMAY may, however, still generate a positive response, especially if the builders live up to their promise in terms of construction quality and timely delivery. The infrastructure related to affordable housing is also something the government needs to address.
Meanwhile, the subsidy in PMAY is in real rupee terms. Existing guidelines are aimed at the economically weaker section (EWS) and the lower income group (LIG) category, earning Rs 3 lakh and Rs 6 lakh per annum respectively. The two new subsidy slabs (yet to be notified) will bring in people earning up to Rs 12 lakh and Rs 18 lakh per annum into the fold. Irrespective of the loan amount, the subsidy is fixed for each category of income level.
Government subsidy in percentage
The credit-linked subsidy of 6.5 per cent will be available only for loan amounts up to Rs 6 lakh. In the two new slabs, people earning up to Rs 12 lakh per annum will get 4 per cent interest subsidy on a loan amount of Rs 9 lakh, and the Rs 18 lakh per annum income category will get a 3 per cent subsidy on a loan amount of Rs 12 lakh. Any additional loans beyond the subsidised loan amount will be at a nonsubsidised rate. For all the slabs, the scheme will apply to loans with a tenure of up to 20 years.
Government subsidy amount
The interest subsidy amount will not be the differential of interest amount (of actual and subsided rate) but will be the net present value (NPV) of the interest subsidy amount. It is to be calculated at a discount rate of 9 per cent. For calculating NPV of the subsidy, one will need the loan’s amortisation schedule as the interest portion of each equated monthly instalment (EMI) has to be considered. Thereafter, use the Fx function in an excel sheet to arrive at the NPV.
Because of the subsidy amount, your loan amount reduces and, therefore, the interest burden too comes down. Let us now see how the interest subsidy amount will be calculated and how it will be applied to one’s loan.
I. First, let’s consider someone with an income up to Rs 6 lakh
(Maximum subsidised loan of Rs 6 lakh; Subsidy: 6.5 per cent)
Original loan amount: Rs 6 lakh
Interest rate: 9 per cent
EMI: Rs 5,398
Total interest cost (over 20 years): Rs 6.95 lakh
At 6.5 per cent (subsidy), the NPV of the interest subsidy amount comes to Rs 2,67,000.
This interest subsidy amount is what the government is offering to the borrowers. So instead of the Rs 6 lakh loan, the revised loan amount comes to Rs 3,33,000. Remember, the borrower has still to service the loan at 9 per cent per annum. This is because the interest subsidy amount will be credited upfront to the borrowers. The net effect: Reduced EMI and a lesser interest burden.
Revised loan amount: Rs 3.33 lakh
Interest rate: 9 per cent
EMI: Rs 2,996
Total interest cost (over 20 years): Rs 3.86 lakh
Net reduction in EMI: Rs 2,402
Net savings in interest: Rs 3, 08,939
II. Next, let’s consider someone with an income up to Rs 12 lakh
(Maximum subsidised loan of Rs 9 lakh; Subsidy: 4 per cent)
Original loan amount: Rs 9 lakh
Interest rate: 9 percent
EMI: Rs 8,098
Total interest cost (over 20 years): Rs 10.43 lakh
At 4 per cent (subsidy), the NPV of the interest subsidy amount comes to Rs 2, 35,000.
Revised loan amount: Rs 6.65 lakh
Interest rate: 9 per cent
EMI: Rs 5,983
Total interest cost (over 20 years): Rs 7.70 lakh
Net reduction in EMI: Rs 2,114
Net savings in interest: Rs 2, 72,445
III. Next, let’s consider someone with an income up to Rs 18 lakh
(Maximum subsidised loan of Rs 12 lakh; Subsidy: 3 per cent)
Original loan amount: Rs 12 lakh
Interest rate: 9 per cent
EMI: Rs 10,796
Total interest cost (over 20 years): Rs 13.91 lakh
At 3 per cent (subsidy), the NPV of the interest subsidy amount comes to Rs 2,30,000.
Revised loan amount: Rs 9.7 lakh
Interest rate: 9 per cent
EMI: Rs 8,727
Total interest cost (over 20 years): Rs 11.24 lakh
Net reduction in EMI: Rs 2,069
Net savings in interest: Rs 2, 66,649
The actual interest rate may be different from the 9 per cent considered above. Currently, marginal cost of funds based lending rate (MCLR)-linked home loan rate is hovering around 8.5 per cent, so the EMI will be lower and even the interest savings will be more. But yes, do check out PMAY’s eligibility, which is that the person (beneficiary) who applies for the scheme should not own a pucca house (an all-weather dwelling unit) either in his or his family member’s name anywhere India. A beneficiary family includes husband, wife and unmarried children.
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.
Realty Firms Stick To Luxury Projects Backed By NRI Demand
10 Best Real Estate Brands that took over Social Media by storm in 2017
Property Brokers Gets Alert As Maha-Rera Indicate Towards A Mandatory Registration
Soilbuild Group Holdings Ltd. Streamlines Operations with Yardi Voyager
In The League Of Its Own? Transported Is Making Waves In The VR Property Marketing Segment
Mumbai’s Development Plan 2034: Second Draft Sees A Steep Drop In Responses
Bitcoin Finds Its Market In The Commercial Real Estate
Reforming The Realty Market: RERA Redefines Carpet Area
Housing And Urban Affair Ministry Takes Over RERA Administration
Project Review: Shivalik Ventures Gulmohar Avenue-Bandra North
Realty Nxt Interviews Mayfair Housing, MD Mr. Nayan Shah And Aditya Shah at CREDAI MCHI
Top 10 Real Estate brands to garner the maximum website traffic in India
Innovative Revolution of Real Estate Industry with MIVAN
Real Estate Blogs? Tips to get started
11 Pointers To A Perfect Real Estate Website
Technology1 year ago
Using Big Data to Find Clients for Your Real Estate Business
Ahmedabad Real Estate News3 months ago
Tata Value Homes Launches “Offer Of The Century” With 99 Hours Flash Sale on Affordable Homes
Bangalore Real Estate News5 months ago
5 Real Estate Tech Startups in India You Can’t Ignore
Mumbai Real Estate News3 months ago
Tanvi Group Fail To Deliver Homes And Declare Bankruptcy
India Real Estate News5 months ago
Tenders For ₹15,000 Crore Mumbai Coastal Road Project In Final Stages, Construction To Commence By Early 2018
India Real Estate News1 year ago
Maharashtra’s Real Estate Regulatory Act draft rules favour developers, say activists
India Real Estate News2 months ago
How Is Technology Shaping The Future Of India’s Real Estate Consultancy?
GST Real Estate3 months ago
Maharashtra Not Happy About Bringing Real Estate Under GST