Budget 2104 and Real Estate

The budget 2014 has made some very promising announcements which can give much needed boost to the economy in general and real estate sector in particular.
Let us study the announcement relating to real estate and see how they will impact the industry and the home buyers.

Foreign Direct Investment in Real Estate Projects
In order to encourage foreign investment, particularly for development of Smart Cities, the government has liberalized FDI norms for Real Estate projects. The requirement of minimum built up area and capital conditions for FDI is being reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million respectively.
This will attract more foreign capital and provide liquidity to the fund starved Real Estate sector.

Affordable Housing
In pursuit of its objective of providing housing to all by the 2022, the government has given Affordable Housing a major thrust in the Budget. The government has allocated a sum of 4,000 crores for NHB with a view to increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment.
However, what could be a major game changer is the announcement that projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be completely exempted from minimum built up area and capitalisation requirements for FDI discussed above.
The above measures will facilitate availability of funds both for home buyers as well as developers.
However, in order to make housing really affordable, the cost of construction has to come down. For this, apart from cheaper funds, two more things are required – cheaper land and faster construction .In order to achieve former, the government may be required to make changes in the Land Acquisition Act.  Whereas the later will require, speeding up the approval process (single window clearance) and better project execution technology. The government will have to quickly take necessary action to address the above issues if it wants to make its dream of providing affordable housing to all a reality.

Slum Development
The New Companies Act makes it mandatory for profit making companies in India to spend 2% of its profit on Corporate Social Responsibility (CSR) activity.
By including slum development in the list of CRS activities, the Budget has given a major boost to housing sector. Large corporate realty players, especially in Mumbai, like Mahindra, Godrej, Tata etc. who so far have stayed away for Slum Redevelopment projects, may now get active in this area.

Income Tax Concession
The Individual tax payer also has lot to cheer from the budget announcements. The limit for deduction under section 80 C for specified investments/payments which includes payment of Housing loan instalments (principal) has been increased from 1 lac to 1.50 lacs. Further, deduction under section 24 for payment of interest on self occupied house has also increased from 1.50 lacs to 2 lacs. These are over and above the increase in overall income tax exemption limit from 2 lacs to 2.50 lacs. Thus an individual, paying housing loan instalments and falling in the highest slab could end up saving tax of nearly rupees fifty thousand. Also, potential home buyer will be left with more disposable income which will enhance his borrowing capacity for purchasing home.

REITS
While the talks of launching REITS in India have been going on for many years, the same could not take off for variety of reasons, the chief among them being the issue of double taxation.
REITS is similar in structure to Mutual Fund in the sense that it invest (in Real Estate) on behalf of investors and then distributes income to them. Hitherto, it was subject to double taxation first when it earns the income and again then again the distributed income was taxed in the hands of recipient. By giving pass through status to REITS the government has done away with the double taxation.
There is no doubt that introduction of REITS can provide liquidity to the funds starved Real Estate Industry. However this is just one step in the right direction and there are still other regulatory (SEBI, FEMA etc) as well as market related issues to be sorted out before REITS can be successfully introduced India.
Urbanization, Transportation and Infrastructure development
Apart from above, the government has announced major initiatives in the areas of urbanization, transportation and other infrastructure development which will give a tremendous boost to the development of Real Estate in the days to come. Some of these are :

• Provision of Rs 7060 crs. for developing ‘one hundred Smart Cities’, as satellite towns of larger cities and by modernizing the existing mid-sized cities
• Allocation of Rs. 100 crs. For Metro Projects in Ahmedabad and Luknow
• Allocation to Urban Renewal (infra development) increased from 5,000 crs. to 50,000 crs.
• Boost to road construction - Investment of Rs. 37,880 crs. in NHAI for construction of National and State Highways. 8500 kms to be completed this year.
• Expressways to be set up along new industrial corridors –Rs. 500 crs. for project preparation
• Setting up new airports, inland navigation system, SEZs etc. through Public Private Participation

As can be seen from above the budget has made some very bold announcements, on the real estate and infrastructure front to revive the economy. However, these will have to be backed by further concrete actions on the ground level to ensure delivery.

Source:Easy2ownEstate

Essential questions that home buyers must ask their real estate developer -- How to buy ?

Buying an apartment is fraught with risks. From choosing the right builder to ensuring that he is the actual owner of the land on which he is developing the project, there are many issues that you need to look into before deciding to put your life's savings in a builder's project.

What's the land use?

Check the land use of the property on which the project is being developed. The licence states what the land use is: whether it is for developing residential or commercial property, floors or plots, and so on.

Has land acquisition been completed?

Often developers begin to sell apartments before land acquisition is over. Some unforeseeable problem may arise due to which acquisition may not be completed. The developer may manage to buy 80% of the land he needs but get embroiled in a dispute over the balance 20%. Now, if that one tower in which your apartment was planned was to be developed on the disputed 20%, you would get into trouble.

Does the developer have legal title?

Ask the developer to show you the papers demonstrating his ownership of the land. Every plot has a unique khasra number. Ask the builder for that number and check in whose name the plot is registered. You could hire a lawyer to conduct the title search. He can also find out if there is a legal dispute over the land.

Are all the approvals in place?

Ask the developer for the licence, which is proof that he has obtained permission from the area's town planning authority to develop the project. Every licence has a unique number. Developers who have obtained the licence often print the licence number in their ads. Also ask whether the developer has received the following approvals: building plan, water, environment and pollution, and height clearance (if the building is situated near an airport).

Often, when clearances have not been obtained, the developer makes optimistic projections that he will get them within, say, six months. "In reality, delay in getting clearances is one of the chief causes of project delays," says Rajan Ahuja, Director, Realty & Verticals, a Gurgaon-based realty consultancy.

What are the terms of the application form?

In the application form, pay attention to the payment plan. Is the builder asking for a large portion of the cost of the apartment at an early stage of construction? Stick to a construction-linked payment plan. Nowadays many developers offer plans where a substantial portion of the cost has to be paid after possession. Such plans are favourable to the buyer as they compel the developer to hand over possession at the earliest.

Is there an escalation clause?

Builders often include a cost-escalation clause in the builder-buyer agreement. It says that if the cost of building materials or other inputs goes up, the developer reserves the right to hike the cost of the project. Make enquiries regarding the builder's track record: has he implemented the escalation clause in the past? Did he have a genuine reason to implement the clause? Or, opt for a developer who does not include an escalation clause in the builder-buyer agreement.

When will the project be completed?

The builder-buyer agreement usually states that the project will be completed within a certain period, say, 36-42 months from the start of construction. However, no explicit starting date is mentioned. "Send an e-mail to the developer and get a written reply from him regarding when the project will start," says Pradeep Mishra, head of Sainik Estates, a Gurgaon-based real estate consultancy.
 
Is there a penalty clause?

In case of a delay in handing over possession, the developer pays a penalty to the buyer, provided the penalty clause is there in the builder-buyer agreement. Find out how much penalty he will pay. Also, when there was a delay in the past, did he pay the penalty or did he find a way to circumvent it?
 
What will be the size of the apartment?

The builder states the size of the apartment in terms of super area. This not only includes the carpet area (the area within the apartment's four walls) but also the balcony, parts of the lift, lobby, basement and staircase. This creates ambiguity regarding the carpet area. Ask the developer for a complete breakup of the super area.
 
What if the plan changes?

Often, developers show you one building and layout plan at the time of sale, but alter it midway through construction. The flat's area could increase. The original plan may have shown a swimming pool and club opposite your apartment. Instead, another block of apartments may come up in that space. Read the builder-buyer agreement closely to find out if any redress is available to you if the plan changes. According to Mishra, "Buyers should find out if the builder has changed his plans in the past. Moreover, if the area of the flat increases, at what rate will you have to pay: the original booking amount or the current rate?"

Is an early exit permitted?

Sometimes you may change your mind and decide not to keep an apartment. Enquire whether an early exit is permitted. When a developer's own inventory doesn't sell, he imposes curbs so that people are not able to buy from the secondary market. Has the developer blocked sales in the past? And what transfer fee will he charge for an early exit?

What are the extra charges?

Check out the preferential location charges (PLCs). The developer also collects external and internal development charges (EDC and IDC). Find out what the quantum of these charges is. Are they subject to change? Are there any hidden charges that the developer could impose? One favourite trick is to demand two years of maintenance fee in advance. "Get a written assurance from the developer that no further charges will be levied," says Ahuja. Find out what the apartment's all-inclusive cost will be. Buy only if this sum falls within your budget.

What if you don't pay on time?

If by chance there is delay on your part in paying an installment, how much extra time will the developer grant you to pay up? What will be your interest liability? Will your allotment be cancelled? What are the provisions of the forfeiture clause? How much money will be returned to you?

  Is the property mortgaged?

If the project has been mortgaged by the developer to a bank, other banks will not give home loans for that project. Moreover, if the developer is not able to sell enough apartments and repay the bank's loan, the bank will not give its no-objection certificate. Unless it does, you will not be able to get the property registered in your name.
 
How strong is his financial status?

In case of a listed player, you can easily find information regarding its financial status in the company's balance sheet. If the company is over-leveraged, avoid its projects as high debt increases the probability of delay in project completion.
 
How good is his track record?

Find out how many projects the developer has delivered in the past. Avoid novices as they usually lack the financial strength to weather a downturn. Visit an established developer's past projects and speak to the residents. Did the developer hand over possession on time? Did he provide all the on-campus facilities and the specifications promised within apartments? How well has he maintained the project after its completion? In case of an under-construction property, visit it with a civil engineer and have him evaluate its construction quality.

In most of these matters, the developer may or may not anwer your queries truthfully. Speak to the residents in earlier projects to get an inkling of how the developer is likely to behave if and when some of above-mentioned situations arise.
 

Source : Economic Times