New DTC will be implemented from 2011

On June 15, the revised Direct Tax Code (DTC) was released which has got approval now. This new DTC will be implemented from 2011. The aim of this revision is to simplify the existing income tax laws. There are some changes proposed in the code for the real estate sector too which go as follows:
Taxation policy for Rental Income Originally, according to DTC, the gross rent was to be calculated at a presumptive rate of 6% of either the market value, or acquisition or the cost of construction, whichever is higher. But the revised DTC has proposed that actual rent received or receivable for the financial year should be the basis of calculation.
Home Loan Interest Policy:Originally, it had been proposed to do away with the tax deduction on the interest paid on home loans. But, as per the revised DTC, tax deduction on the interest paid on home loans up to Rs 1.5 lakhs for purchase or construction will continue.  This revision is quite encouraging for the buyers to buy residential properties.
Also, the property which has not yet been let out will be kept out of tax calculations. Thus, there will be no deduction against tax or interest.

DTC Revision Beneficial for Realty

income tax
On June 15, the revised draft for the Direct Tax Code was released. This code is a try by the Indian government to simplify the laws of income tax. The government is waiting for the Parliament to pass the code and plans to adopt it from April 1, 2011.

Below is the list of some must know changes proposed in the draft code with respect to realty sector.

Short-term capital gains: As per the proposals, tax will be imposed on any gain or loss made on the sale of an asset within a year.

Long-term capital gains: The proposed laws say that after an year of purchase, the taxation policy on any gain or loss made on the sale of an asset will be implemented as per the long-term capital gains tax policy.

As per the draft code, from April 1, 2011, April 1, 1981 will not be considered for calculating the discount rate; rather April 1, 2000 will be considered for the same.

Rental Income Taxation Policy: The draft code has proposed that the gross rent should be calculated on the actual rent receivable or received for the financial year.

Home loan Interest Rates: The draft DTC intends to keep on deducing tax on the interest paid on home loans up to Rs 1.5 lakh for construction or purchase of residential property.

Self Occupied House Property: Any self occupied house property (property not been let out) will be allowed for deduction on account of interest to the tune of Rs 1.5 lakh.

This revised draft code of the DTC has come up as a boom for the home buyers and home owners. The revision seems to be beneficial for all, be it is investors or developers.

What Should the Buyers do?

Delhi Properties - Real Estate India - Unitech Location
The apartment buyers were already burdened by the day by day increasing property rates, and now come another burden to their door. Since last month, many developers have been demanding the buyers to start paying up the service tax announced in Union Budget, 2010, i.e. a 2.5% tax.

However, this service tax will be imposed only on the under construction residential project or where the building has not yet received its occupation certificate. Some sources revealed that some developers admitted that they asked purchasers to pay this tax.

On the other hand, buyers say that they were not told about this additional taxation at the time of booking of flats. A market source told that although the buyers are raising voice against this game played by builders, but they do not have much choice. As they are forced to pay the development charges, society fees, hefty parking charges and other various charges, they will have to pay this tax too.

Hike in Mumbai Property Prices is expected

Blackstone Hotel Omaha, Nebraska
April 20, 2010

A current report by JLLM, Jones Lang LaSalle Meghraj revealed the fact that since sales are increasing and investor sentiment s are being strengthen, residential housing prices in Mumbai are expected to move further upside.

According to the report, demand for commercial spaces is improving and this growth is likely to continue till the end of 2010. As far as leases and outright purchases are concerned, this will result into a large number of transactions.

The supply is coming in all segments of residential, from luxury to mass housing. For the next year, in order to keep the markets going, both retail and commercial segments are also yielding enough supply.

The report also said that since many developers are now going for public funding, a large number of activities on the residential property front, owing to the strong demand will take place.

Besides, in order to boost accessibility more locations within the city and reduce commuting time, infrastructure projects such as the monorail, metro, and flyovers are being put in place.

Swami said that considering the pace at which these measures are implemented, in the medium to long-term this is good news for the realty sector. He also added that residential realty is likely to continue its demand growth, and thus will be on the priority list of most builders.

Residential realty prices moving up

Residential real estate prices are going up. In the last three months, prices of affordable apartments have appreciated by around 10% across the country.

Anshuman Magazine, MD – real estate consultancy firm CB Richard Ellis – South Asia, said, “With improvement in the sentiment in the economy, transactions in the affordable range of residential real estate have gone up. This has made developers to increase prices by 5%-10% in the last three months”.

The developers had cut prices by around 30% in first two quarters of calendar 2009 to revive the demand of residential units, which plummeted to a low due to the global financial crisis. Magazine said the price cut led to some recovery in demand. Enthused by the partial recovery, he said, the developers, who had sold a substantial portion of their projects at hugely discounted prices, decided to increase them marginally in the next phase.

According to a IIFL report, in Mumbai, prices are up 25%-40% from the bottom in early 2009, while in NCR, the corresponding figure is 15-20 %. “Constrained supply and a revival in demand drove up prices in Mumbai, and NCR,” the report said.

In Mumbai, the prices of apartment in Metropolis appreciated by 38% since March to Rs 10,500 per square feet. Similarly, the project, Planet Godrej, has become 20% costlier to Rs 25,000 per sq ft in the last six months. In NCR also, many developers like DLF, Unitech, Jaypee Greens, Mahagun and Amrapali among others, have increased prices by around 10% from the launch prices in March-June.

In the premium segment also, there is revival in demand, said Vibhor Gupta, senior official of Jaypee Greens. However, the prices have not witnessed any escalation in the premium segment. Similar trend has been noticed in cities like Bangalore, Pune and Chennai.

“The current trend of price escalation can not be sustained as it will affect the demand,” said Aditi Vijayakar, ED of Cushman and Wakefiled, adding, as the demand has revived following interest rate cuts by banks, many developers have announced projects in the affordable range. This will increase the supply and will put pressure on the price rise.

At the same time, another consultant said the financial condition of the developers has not improved to a level that they can hold a project for long. They need cash flow to service the debt, which they have taken to buy lands. The source said the money from other sources like dilution of equity is still not easily available. This has forced developers to depend on the sales proceeds to service debt.

Residential property prices rise

The upward movement has begun. Not only have the sales picked up, but the prices of residential property too have increased 5-15 % in the last couple of months. With a long festive season ahead, realty experts believe property markets could see heightened activity, provided developers desist from increasing prices of residential space any further.

Aditi Vijayakar, the executive director (Residential Services, India) of Cushman and Wakefield, said, “The festive season (September-December) has historically been a buying period, with a large chunk of overall sales being converted during this auspicious time. Some developers see as much as 30-40 % of the yearly sales taking place during the festive season”. Further she pointed out, “Residential prices have increased by 5-15 % from the bottom it made in the first half of the year. If the developers continue to raise the prices then the renewed demand and interest that is being witnessed will start to abate”.

She added, “The previous year has been a taxing one for the real estate industry and the initial signs of recovery are evident in the market, and as most of the sales happen during the festive periods, developers have to be cautious not to hike prices in projects and new launches as this will drive out the end users and prolong the revival in the residential space”.

According to the expert, almost all cities are registering a rise in sale as transactions had frozen up during the start of the year. But now as the economy has stabilized and is back on the growth trajectory, there is a revived interest in buying homes by end users and this increase in confidence, better economy, favorable borrowing conditions and rationalized capital values amongst others which is promoting rising sales across India.

Residential property prices may go down

Knight Frank India said that prices in the residential property segment are likely to decline in a short time. Knight Frank India Chairman Pranay Vakil said, “We feel prices of residential segment may go down over a period of time”. Further he added that the residential segment may see a robust demand in certain markets and it was also a good time for property developers to invest in land.

Real estate demand at this stage is the result of investor-led demand and end-user demand. While investor demand is due to shift in money from equity markets, on the other hand the end-user demand is due to increased consumer confidence and pent-up unmet demand from the recession period. This leads to a rapid increase in demand for real estate and also in property price.

Raymond to enter realty

Textile company Raymond plans to move towards realty sector. The initial project would be to develop the surplus land of 15-20 acres in Thane, where its factory is located. Mr Gautam Singhania, Chairman and Managing Director, Raymond, said in a press conference that the primary focus would be in the residential segment and funding would be from internal accruals. He further said, “This proposal is in line with the strategy of the company to unlock value of the land.” Further he added that it was subject to shareholders’ approval.

Plaza Centers to invest three thousand crore

Zuri Group Global is planning to invest about twelve hundred crore rupees for setting up five-star business hotels and luxury residential properties over the coming three years.

The investments would have a debt-equity ratio of 70:30. The company was open to raising funds through the private equity and IPO routes.

The Bangalore-headquartered company plans to open three to four hotels of 150-175 rooms each in Pune, Ahmedabad, Kolkata, Nagpur, Delhi (NCR) and Mysore entailing investment of Rs 800 crore over next three years.

Zuri was also planning to start constructing this year its luxury villas and apartments in Goa, which would entail an investment of Rs 400 crore including land cost. Zuri had acquired 300 acres for the project. The approvals for the project are in place and the villas are expected to be ready in 18 months from zero date.

NHB Residex to cover cities with over 1 million population

National Housing Bank (NHB) aims to cover all cities with population of over one million under its NHB Residex, which is the country’s first official residential property price index.
Currently, the NHB Residex gives relative movement of residential property prices in different localities in fifteen cities.
According to Mr S. Sridhar, Chairman of NHB, “By the end of next year, we want to cover sixty-three cities — all cities with over one million population”.
He also said that NHB Residex will be available on a half-yearly basis from now. The values for the index are derived from the market, and not from Government data.

Residential property becomes cheaper

Home Loan
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Residential property prices are expected to fall by about 10% this year. Residential property rates declined by 18% to 20% in this March. Despite this drop, buyers are watching market scenario with ‘wait and watch’ policy. This trend is likely to continue through 2009. Mr. Sudhir Nair, Head, CRISIL Research says, “Demand in the commercial and retail segment is likely to remain under stress for the next two years owing to excess supply and weak off take.”

It is believed that lower home loan interest rates would help to revive demand in the residential segment. Hence, capital values are likely to stabilise in the first half of 2010, and increase during the second half of the year.