India Real Estate Link » Lakh

Budget Hits Hard the Realty

chandrika johri — Thu, 11 Mar 2010 07:11:40 +0000

tThe real estate sector got hit quite seriously by the budget details. Very intelligently the Budget bribed the home buyers in the form of interest rate subvention and tax savings. On the other hand service tax on lease rentals in the Finance Bill was also brought back. So, the builders decided to pass on the service tax burden to customers. The continuation of interest rate subvention and higher disposable income in favour of individuals through income tax reliefs would make up for it and appear as the silver lining.

A maximum tax savings announced by Budget of Rs 20,000 for those earning an annual income up to Rs 5 lac and up to Rs 50,000 for those earning up to Rs 8 lac is likely to find its way towards buying homes. But the biggest worry of developers is re-introduction of service taxes.

Jai Mavani, executive director and head of the real estate practice at KPMG said, “The imposition of service tax will increase the price of properties.This has hit the hardest, as even renting under-construction property will attract service tax now.” Apart from this though the budget gave some relief by extending the completion deadline to projects started before March 31, 2008 as “one-time relief to the sector” but still developers and consultants said the measure does not help much. the impact of the amendment would be marginal because the commencement date of March 31, 2008, has not been extended but the period for implementation has been extended by one year.

However, hotel industry welcomes expansion of investment-linked deduction. The finance minister’s gave investment-linked deduction to new hotels in two-star or above categories.States like Himachal Pradesh and Uttarakhand will be benefitted. Now it has been extended to all.

A Delhi-based analyst said, “It’s a good measure that will boost investment in the tourism sector, with high employment potential. Also, the fact that the benefit is made available to hotels across the board will boost investment in all categories”.

Realty Crash Shuts Exit Options For Investors

rajani — Tue, 23 Sep 2008 07:50:49 +0000

It has become well nigh impossible for those who invested in real estate last year to exit the scene as the downturn has deepened and the prices being quoted do not even cover the purchase costs and interest expenses.

Moreover, the negative global news flow has set off a panic reaction, inducing investors to close deals at losses.

The 35-year-old Rahul Verma, who works with a Noida-based IT company, exemplifies the experiences of late entrants into the property market. He bought a Rs 50-lakh flat in Greater Noida early last year by arranging for a bank loan to finance 85% of the cost.

His EMIs have continuously gone up since the purchase, thanks to a series of rate hikes by the RBI. The flat purchase was a pure investment decision. Rahul had jumped onto the bandwagon after hearing stories of skyrocketing returns made on property investments.

However, the prices haven’t climbed as expected and the interest outgo has made the property expensive. Rahul is now left with the only option of selling at a loss. And given the global economic gloom, he is willing to take a hit.

“Several investors are stuck simply because there hasn’t been enough price appreciation in the past one year,” says Raheja Developers Chairman Navin Raheja.

Several young investors invested in property at the peak of the property cycle last year. Many purchased two apartments simultaneously, assuming that they would finance one by selling off the other at a premium. They are now caught in a difficult situation as they bought at a higher market rate and are compelled to service two EMIs.

Some investors have started defaulting, according to a senior Parsvnath executive. “There is a significant rise in the number of people who are approaching us to cancel their bookings and return the money,” he says.

Property consultants feel that investors will have to bear huge losses if the markets do not improve during the festive season. Home buyers in the country are staying away due to the high interest rate regime and expectations of a correction following the realty crash worldwide.

Cash-starved Small Players Offer Investors Fixed Returns

rajani — Sat, 17 May 2008 06:58:32 +0000

With bank credit drying up and private channels of funding getting expensive, several small developers are attempting to mop-up funds from retail investors by offering them a 12% guaranteed return for 5-9 years. Under the scheme, a retail investor has to buy a minimum area in the project and make an outright payment.

Delhi-based Piyush group, which is developing a 4 lakh square feet IT project in Faridabad, is offering a 12% return for nine years, but investor will have to make a minimum investment of Rs 20 lakh for 500 square feet. Piyush Group JMD Mr. Amit Goyal said, “We are offering a minimum guarantee to investors to cover their risk as the project is not yet ready and so can’t be leased out”.

There are several other developers who are offering a similar return for a minimum purchase of 500 square feet. A buyer or an investor would get monthly return till the project gets completed.

Following which, the developer will lease out the space and the rentals, if it exceeds the guaranteed 12%, would either be given away to investor or shared between the investor and the developer depending on the scheme. However, if the rentals dip below the 12% mark, the developer is expected to compensate the investor.

Experts say 12.25% is a much cheaper rate in today’s cash-crunch times. Cushman & Wakefield India director (capital markets group) Mr. Sandeep Singh said, “Small developers are not getting bank loans. Private borrowings at 18% or more is quite risky. So it makes sense for them to borrow it from retail investors at 12%”.

He added that if the developer borrows from a bank, he will have to pay back, but under this scheme he removes risk from the very beginning.