This Time, Repo Rate Cut Should Make You Really Happy. Here Is Why

3:48 PM

This Time, Repo Rate Cut Should Make You Really Happy. Here Is Why

In its Third Bi-Monthly Monetary Policy Review on August 2, the Reserve Bank of India (RBI) reduced repo rate — the rate at which the Central bank lends to financial institutions — by 25 basis points (bps), to bring it down at six per cent, the lowest since November 2010. Since April 2015, repo rate has been slashed by 150 bps while banks have also cut the MCLR (marginal cost of funds-based lending rates) by 75-250 bps.

This certainly is good news for India’s real estate. Legislations such as the Real Estate Act and the Goods and Services Tax have already done their bit to bring positivity back among consumers; a fall in lending rate would further boost homebuyers’ confidence. As DLF Chief Executive Officer Rajeev Talwar put it, the move “could not have come at a more appropriate time”.

However, we all know you may have to wait a little longer till banks pass on the benefit and reduce the lending rates. Has it not been a recurring practice by financial institutions to wait for a stern directive from the Central bank to oblige borrowers? After reducing key policy rates, the RBI will invariably have to nudge banks to pass on the benefits of the cut to borrowers. The Central bank feels not enough is being done for the borrowers’ benefit.

“Though the marginal cost of funds-based lending rate (MCLR) system is an improvement over the base rate system, monetary transmission by banks has not been entirely satisfactory,” the RBI said in a statement on developmental and regulatory policies.

To address this, the Central bank had set up an internal group so that consumers are able to enjoy due benefits of favourable policy changes. Recently, the panel recommended that banks should link their home loan rates to the RBI's repo rate. It also suggested that the reset period be kept at one month. Currently, banks follow a reset period of one year. The RBI is yet to accept the recommendation.

MCLR versus base rate

While the MCLR system, which is more responsive to changes in rates than the earlier base rate system, was introduced in April last year to ensure better transmission, a large part of existing borrowers have their loans linked with the old system. To ensure borrowers who have their loans linked to the base rate system, the RBI plans to link the system to the changes in the cost of funds for banks. While the panel is likely to give it report by September 24, the RBI’s six-member Monetary Policy Committee (MPC) will meet on October 2 for the next review.

While experts are of the belief that the next cut in rates can only be announced in the fourth quarter of the financial year 2017-18, things are going to improve for homebuyers much before that.

However, do note that as it stands today only new borrowers will be able to reap the benefits of the reduction in rate in its entirety. Existing borrowers who have their loans linked with the MCLR system will have to wait till the reset period to avail of the benefits. Also, these borrowers will see their loan tenure shortening, not a decreased EMI (equated monthly installment) outgo.

In case your loan is linked with the base rate, you may consider switching to the new lending benchmark within your banks. By paying of a nominal charge, you may be able to reduce the cost of your loans that will amount to savings in six figures.

- by Sunita Mishra
Source : PropTiger

Goods & Services Tax

GST and its impact on maintenance charges

2:50 PM

GST and its impact on maintenance charges

What will be the impact of the Goods and Services Tax on the monthly maintenance charges paid by the residents of cooperative housing societies? We examine when and on what components, will GST be applicable

When is GST applicable on maintenance charges?

Maintenance charges were subject to the levy of service tax earlier, if the aggregate of the maintenance charges levied by the housing society exceeded Rs 10 lakhs in a financial year. Under the GST, this threshold limit has been raised to Rs 20 lakhs. So, a housing society will have to collect GST from its members, if the aggregate of the charges during a financial (whether subject to GST or not) exceeds Rs 20 lakhs. The society, therefore, will have to obtain a registration under the GST for this purpose.

However, even if the society obtains this registration, it cannot levy GST, if the maintenance charge for a flat does not exceed Rs 5,000 per month.

So, in case the aggregate of the charges levied by the housing society does not exceed Rs 20 lakhs in a year, it need not register under the GST. Therefore, it need not levy GST on the maintenance charges recovered from its members, even though the individual monthly charges for a flat may exceed Rs 5,000. In case of flats of different sizes in a housing society, it may happen that the monthly bill for smaller flats may be less than Rs 5,000 and thus, outside the levy of the GST. The other members having larger flats in the same housing society, may have to pay GST.

On what component of maintenance charges is the GST levied?

It is not that the society shall collect the GST on all the components recovered from the members. The housing society will not recover GST from you, on charges in the nature of reimbursement of expenses incurred by the society and recovered from members. These include various taxes paid by the housing society on behalf of the members, like municipal tax, property tax, water bill, non-agricultural land tax, etc.

Likewise, contribution towards the sinking fund, is also excluded from the scope of GST. However, the housing society will have to levy GST on the contribution towards the repairs funds, collected from its members.

Rate of GST, input tax credits and the reverse charge mechanism

The housing society will have to levy GST at 18 per cent, on the maintenance charges recovered from its members. The housing society can avail of the input credit, for the GST paid by it on various supplies received by it (for example, services like security or payment of audit fees). Although the society will be able to avail the input credit for such items, it cannot reduce the rate of GST being charged to its members. The society will also have to pay GST under the reverse charge mechanism, in case it is registered under GST, on all the services or goods received by it from unregistered suppliers. The society will be entitled to claim set off of the GST paid on such supplies, against its GST liability with respect to maintenance charges.

It may also happen that the society may be paying GST at different rates, for the goods and services purchased by it and availing of the input credit on it.

Hence, the society may recover lower maintenance charges, to pass on the benefits of these input credits. The exact benefit of lower maintenance charges, will depend on the input credit available, as well as its liability under the reverse charge mechanism. With the necessity of having to file monthly returns under the GST regime, the overall costs may go up for the society. Due to the higher rate under the GST, as well as the reverse charge mechanism and increased compliance costs, the monthly outgo of flat owners could increase.

- by Balwant Jain
(The author is a taxation and home finance expert, with 30 years’ experience)

Source : Housing.Com

NRI

Why Realty Is The Best Bet For NRIs

1:19 PM

Why Realty Is The Best Bet For NRIs

(Dreamstime)

Confused how investing in Indian real estate market can be fruitful for your portfolio? Despite slow price rise in the property market as compared to other developed economies, the investment climate in India is positive due to favourable political situation and right policy initiatives. This has enhanced the confidence of global investors in the Indian economy. Apart from this, improved outlook of the economy on global platforms is bringing back those investors into the field who were so far sitting on the fence. This combination makes India a hot destination for investments.

Here is how non-resident Indians (NRIs) considering investment in India can benefit:

Property prices are at the lowest

NRI investors should make the most of the slow real estate market. Historically, the price rise rate in India has always been higher than the matured markets of the West. This is the reason why India can offer more value for money to the investors, with better returns in less time as compared to other prominent real estate markets of the world.

Tax exemption

NRIs can invest in real estate in India and can still manage to save tax like a regular Indian resident. Tax deduction on home loans on principle repayment and interest component can be claimed by the NRIs. Apart from this, for a property sold after two years from the date of purchase, profit so earned on the capital gain is exempted from the income tax.

Rental income

NRIs can invest and earn rental income in India without any trouble. Though the 30 per cent TDS (tax deducted at source) has to be deducted by the tenant, the remaining amount can be repatriated under the Foreign Exchange Management Act rules. This proceeds earned through the sale of immovable property in India can also be repatriated under the act.

Retirement benefits

Though reverse mortgage is a more popular concept in the US, India is still gearing up for this kind of system. NRIs that tend to plan their retirement can invest in India and take advantage of reverse mortgage. The amount taken from the bank as a consequence of this type of mortgage is not factored in the taxable income of NRIs. This way, ageing NRIs can enjoy the benefits of their property in India. At the same time, they can take money from banks as a part of reverse mortgage of the property.

- by Surbhi Gupta

Source : Housing.Com

Home Loan

5 Disadvantages Of Not Taking A Home Loan

3:03 PM

5 Disadvantages Of Not Taking A Home Loan

(Shutterstock)

Let us not try to challenge the basics in anyway; being a borrower is not easy. There are so many terms and conditions you have to abide by; there are so many dos and don’ts one has to mind. Given a choice, you may never like to seek financial assistance from banks. Now, what if you have a choice? What if you have enough money to buy a house without taking a home loan? You like a house worth Rs 50 lakh, and you and your wife have enough savings to make the purchase without having to go to a housing finance company. Why should you opt for a life where several restrictions will be thrown your way when you can simply avoid them? A fair point, indeed, but here are some other points that you must consider before arriving at a decision.

It may not be a wise idea to pump all your liquid money into an illiquid asset. In case you need cash owing to an emergency in future, you would find it mighty hard to arrange it. Your home may be worth millions but it happens to be an illiquid asset. It may take a long time before you are able to sell it and use the cash received through the transaction. In short, it is never a good idea to invest all your money in immovable assets.

You enjoy tax deductions on the principal and interest paid against a home loan. In India, a borrower can claim deductions under Section 80C of the Income Tax Act for the repayment of the principal component. The limit in this regard is set at Rs 1.5 lakh. Section 24 of the Act, on the other hand, allows borrowers to claim deductions on repayment of the interest component. The deduction limit here is set at Rs 2 lakh. When you buy a house without taking a home loan, you are letting go of these benefits, too.

The value of the property you have bought using other people’s money — the bank’s in this case — is going to increase as time progresses. That would be enough to make up for the interest you have been paying on the loan. On the other hand, you can invest in another property using the remaining cash, in case you wish to. If you have liquid money lying in your bank account, there is no lack of choice. You would be limiting your options when you put all your money in an illiquid asset.

You may like to see it as restricting, but a borrower learns to live a more financially prudent life. Compare two people, one who is repaying a loan and another who is not. The latter is more likely to splurge money on unimportant things. Even if the person regrets his decision to recklessly spend his hard-earned money later, the fact of the matter is that his financial position would take a hit in the process. The absence of restrictions may actually run havoc on most of us who are compulsive buyers. Someone who has a loan to repay will be far more carefully before he spends a penny.

Gone are the days when thought highly of you if you could foot all your bills using the money lying in your pocket. We live in a digital age. You are likely to pay less if you use your credit card for making certain payments, for instance. You get certain discounts in certain restaurants, for example, for using certain kind of credit card. Same is true of ticket bookings—movie, air tickets, et al. Will it not simply be dumb to let go of all these advantages because you like to depend on your finances alone? How you utilise financial assistance from banks reflects in your credit score; having no record whatsoever would mean you are a poor manager of finance. Now, how is home purchase and all this co-related? They are, as a matter of fact. We also live in uncertain times, and have no idea when the need to knock the doors of a bank might arise. In case we have no credit record, the bank may not find it comfortable lending to us. In case you take a loan to buy your home, you would also be maintaining a good credit history.

-by Sunita Mishra

Source : Housing.com

Goods & Services Tax

How will GST impact the cost of homes

2:34 PM

How will GST impact the cost of homes

Here is how home prices in various segments of the property market will be affected by the GST

Under the Goods and Services Tax (GST), the effective tax on under-construction projects has gone up to 12 per cent, which is an increase of 6.5 per cent.

The actual GST rate is 18 per cent on realty, but allows one-third of the tax to be deducted from the land value, from the total cost charged by the developer. While the GST gives an option of getting full input set-off credit, this is not applicable on ready-to-move-in flats and as a result, developers will have to bear the burden of the higher tax or pass on the same to the end-consumers or increase the overall prices, to match the new tax burden, say developers. However, new flats will cost less, giving some breather to the developers of upcoming projects.

“While developers might still get some benefits for projects that are in the nascent stages, they will have to bear the tax burden for ready-to-move-in projects, since they are kept out of the GST’s ambit,” House of Hiranandani’s chairman and managing director, Surendra Hiranandani said. Under the GST regime, tax on under construction projects would be 12 per cent, an increase of 6.5 per cent for buyers, points out Rohit Gera, managing director of Gera Developments. “There is an option of getting full input set-off credit on all input side if GST is paid by them, but this is not applicable on ready-to-move-in properties. As a result, developers will either have to bear the burden of the tax, since it cannot be passed on to the end consumers, or the rates of apartments that are ready-to-occupy will increase to the extent of the taxes,” Gera said.

Vinod S Menon, CEO of Bengaluru-based mid-market developer Citrus Ventures, says “Everybody talks about the positives that GST brings in. However, the devil lies in the details and no one seems to have any clarity on that.” Although the one-third deduction makes the effective rate 12 per cent, with current effective VAT plus service tax rate being nine per cent, there is still a three per cent incremental charge.

“Since no retrospective claim of credits is possible, this will be a bone of contention between customers and developers, as to who will bear this, he said. Coupled with the new RERA regulator, GST will increase paperwork and thus, the overall cost, Menon said.

However, Knight Frank India chairman Shishir Baijal, feels that akin to the note-ban, the GST would trigger some momentary disturbances but augur well for the industry in the long term. “The intention of the GST, is to bring in efficiency in the entire tax system and its implementation will see some teething issues. Eventually, it will pave the way for an extremely efficient tax system for the country,” he said. Echoing similar views, SILA founder and MD Sahil Vora, said there will be pain and forced consolidation in the sector, but in the long-run everybody will benefit.

Anarock Property Consultants’ chairman, Anuj Puri said, the affordable housing sector will not be impacted by GST, as there will be no tax under GST for affordable housing schemes. RICS south Asia managing director Sachin Sandhir adds, “The affordable housing sector is happy, as there is no tax on it. Since almost 70 per cent of the market caters to the middle to high income segment, the GST could shift the focus of smaller developers towards the high volume, low to medium income segment.”

According to Ram Chandnani, managing director, advisory and transactions services, India, CBRE, the GST will also attract international residential investment, as it has been seen globally that a unified tax structure has been one of the many catalysts for increased investments. “Additionally, sectors ancillary to real estate, will see improved supply chain efficiency with the removal of various federal tax barriers and the creation of a common market, thereby, accelerating the delivery of goods,” he noted.

India Ratings maintained a negative outlook for the real estate sector for FY18, on expectations of a continued slump in the sale of residential units. This will lead to continued negative cash flows since FY14 and a further increase in already high debt levels, resulting in a weakening of the sector’s credit profile.

Rohit Jain, a partner at law firm Economic Laws Practice, maintains that greater clarity is needed on the transitional provisions under GST, whether it pertains to credit of inventory, credit on unsold stock or the tax implications where part payments are made under the pre-GST and part under the new taxation system.

Source : Housing.Com

Indian Real Estate

Independent India - A real estate perspective

2:48 PM

Independent India - A real estate perspective

As of now, the incumbent Government's 'Housing for All by 2022' vision seems a bit Utopian.

In the 71 years since India gained independence, the country’s real estate market has changed tremendously. While it has not always been consumer-favouring throughout this period, it is certainly so today. The country’s cities have expanded, new economic drivers have come in and jobs are being created at all levels. Likewise, appropriate housing is now being created for all income levels. The current government has taken the needs of the people to heart and deployed various policy initiatives to ensure that home ownership becomes affordable and desirable.

Also, like the real estate market itself, the market for housing loans has become very competitive, giving consumers the edge of choice. Moreover, property prices have also rationalised across the country after the government's demonetisation move late last year. While it was initially expected that only the resale homes and land markets would be affected, it quickly became evident that the lowered sentiment had percolated in primary sales as well.

Many of the most important changes to positively impact home buyers in India so far have been at the policy level, while others have been induced by advances in technology:

• The internet has opened up the ability for everyone to do their own basic research and shortlist locations, projects and properties that suit their needs.
• Housing loan interest rates have become extremely attractive and promise to become even more so in the future.
• RERA is clearing fly-by-night operators from the market, leaving only credible and reliable players who are bound by law to adhere to their assurances on the market.
• The economy’s opening up with a plethora of new employment opportunities has, among other things, also led to the emergence of dual-income nuclear families with vastly enhanced home buying abilities.

• There is a wealth of property options available to home buyers today, which means that buyers are not limited to just a few developers and projects.

Buyer sentiment today

For a long time, India's independence did not have too many favourable connotations for aspiring home buyers. Their disadvantageous position had a lot to do with the fact that the real estate market was largely held hostage by developers. Today, this scenario has changed significantly. Over the past two years, we have seen the decisive return of consumer power on the market, with the arrival of the Real Estate Regulatory Act (RERA) providing the final edge.

While RERA is still experiencing teething troubles, it is for certain that it is here to stay - finally putting buyers firmly in the driver seat. The Act is by far the most convincing manifestation of independence for home buyers in modern-day India, promising to eventually bring the residential property market on par with international standards of transparency and accountability to consumers. We are already seeing a return of home buyer interest on the back of this major policy reform, and there will be faster forward momentum going forward.

Meanwhile, the opening up of new locations via rapid infrastructure deployment and various consumer-favouring policy initiatives by the government are boosting housing affordability. With RERA simultaneously cleaning up the market of unscrupulous elements, the market is becoming larger, more wholesome and more attractive than ever before. We are indeed poised at the cusp of massive change, and the consumer is the primary beneficiary.

Technology-enabled consumer power

The internet has done a lot more than just open up the Indian real estate market's topography. It has also brought with it a greatly rebooted job market - not only in terms of IT / ITeS jobs but almost all industries as a whole. Today, India is leading from the front in terms of Infotech-enabled businesses, with e-commerce and a thriving start-up culture driving economic growth.

In independent India today, there are close to 450 million internet users, and a vast number of new avenues of revenue generation has opened up. In contrast, twenty years ago the means for Indians to make a decent livelihood was restricted to a handful of professions. This has had direct implications on home buyer sentiment.

Housing for All by 2022 ?

In 1928, the US presidential campaign by the Republican Party promised Americans 'a chicken in every pot and a car in every garage' if its candidate Herbert Hoover won. Probably nothing else could have captured the spirit and specific needs and aspirations of those times than this promise. It was made a time just before the Great Depression began to spread its dark wings over America in 1929, and was already sending out signs of its coming.

As of now, the incumbent government's 'Housing for All by 2022' vision seems a bit Utopian. India still has over 75 million homeless people and there is still a shortfall of about 19 million homes in the country. Nevertheless, as an electoral promise, it remains uniquely evocative and relevant for Indians today. Indeed, a roof over every Indian's head would be the most compelling deliverable for any government to actually achieve. Can this dream be achieved? A lot would depend on:

• Making land for affordable housing available where it is needed the most
• Making the creation of mass housing a more attractive business proposition to developers
• Creating single-window clearances for mass housing projects to ensure minimum delay for such projects
• Ramping up infrastructure deployment in newly emerging areas where affordable housing can be created

• Offering further incentives for budget-strung first-time homebuyers

Definitely, the government has within its grasp the means to make it happen. Perhaps independent India will indeed see this ambitious goal achieved by 2022. For now, however, we can still look back with justifiable pride and satisfaction over the milestones already crossed. Over 71 years of variable economic growth led by different and subjected to rapidly changing market environments, India today stands heads and shoulders above other emerging countries.

- by Anuj Puri
(The writer is Chairman – Anarock Property Consultants)

Source : MoneyControl.Com

Pages

This Time, Repo Rate Cut Should Make You Really Happy. Here Is Why

GST and its impact on maintenance charges

Why Realty Is The Best Bet For NRIs

5 Disadvantages Of Not Taking A Home Loan

How will GST impact the cost of homes

Independent India - A real estate perspective

Independent India - A real estate perspective

As of now, the incumbent Government's 'Housing for All by 2022' vision seems a bit Utopian.

recent posts

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Pages

This Time, Repo Rate Cut Should Make You Really Happy. Here Is Why

GST and its impact on maintenance charges

Why Realty Is The Best Bet For NRIs

5 Disadvantages Of Not Taking A Home Loan

How will GST impact the cost of homes

Independent India - A real estate perspective

Independent India - A real estate perspective

As of now, the incumbent Government's 'Housing for All by 2022' vision seems a bit Utopian.

recent posts

Blog Archive

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