Real estate ratings have the potential to offer home seekers with an objective assessment of projects and also help financing of projects, provided developers are willing to shed their reluctance and not try to control the ratings
Although a rating system for real estate exists in India, this system has not evolved and is also prone to criticism, vis-à-vis its objectivity. Analysts maintain that real estate ratings have to evolve beyond the mere financial rating of their account books. There has to be a standardized and comprehensive rating system that includes the brand equity, buyers’ trust, past track record and the developer’s overall standing in the market.
“Now that the Real Estate Regulation Act is a reality and the demonetization will help to curb black money in the sector, the issue of lack of financial modelling in the business, needs to be addressed,” says Nikhil Hawelia, managing director of the Hawelia Group.
Why can’t ratings be used as a benchmark, to assess a developer’s credibility? he asks. “As of now, a higher rating is just another token of appreciation for developers. It is high time that we make it count, as something that can be a substantial catalyst for funding,” he maintains.
Major concern areas in the property market
Objective and comprehensive real estate ratings can also help the buyers in making an informed choice, by giving them an objective perspective on all the critical parameters of a project. This can be invaluable, in a business where authentic research is a critical missing link. Today, in any given micro market, the projects of various developers in the same segment of housing, have similar specifications. Consequently, buyers are left confused, with no scientific tool to verify the developers’ track record.
A large number of unorganized players, poor institutional funding, shortage of manpower and raw materials and lack of adequate and timely information, are some of the other problems that plague the real estate sector. Legal clearances and financial backing for the project, the ability of the promoter and quality of construction, also affect the project’s timely delivery. In such a scenario, ratings have the potential to be the differentiator.
How effective are real estate ratings?
Revati Kasture, CGM-CARE Ratings, points out that the effectiveness of the rating exercise, depends on the due diligence process, methodology and rating/grading expertise of the rating agency. “Ratings across projects, enable comparison and provide a decision making tool to the purchaser of the property. Increasing acceptance of ratings amongst the developer community and lenders will improve the transparency in the sector and can also boost institutional funding to the sector,” says Kasture.
How real estate ratings can help home buyers
The question is, how will this rating help the sector? A committee set up by the Finance Ministry a few years ago, had recommended a rating-based mechanism for lending. The committee went to the extent of suggesting that a developer with a certain level of rating, could avail of capital at a lower rate of interest, compared to those who do not have a similar rating. Many developers had then objected to these recommendations, saying that it should not be made mandatory. Nevertheless, this does not change the fact that developers who get themselves rated, may benefit. Once the developers who have a high rating, start the capital at cheaper rates, it may even encourage others also to adopt it.
Analyst’s points out that credibility and transparency are the most important factors of a brand’s image. When a builder gets his projects rated by a credible third-party firm, it sends positive signals to the home buyers, as well as other key stakeholders, such as bankers, financers and suppliers. This boosts the developer’s reputation and brand.
Advantages of an objective rating system in the realty market
Ratings on four crucial parameters of a project – the developer, legal clearances, construction quality and financial stability, can help buyers to take an informed decision and also be used to avail of home loans.
A higher rating (on a scale of 1-7, with 7 being the highest) could instill confidence that the project will be delivered on time and according to the agreed specifications.
Objective ratings can also impose a sense of discipline among developers and encourage competition.
Developers too, can use the rating for marketing and branding purposes and to obtain financing for their projects.
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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