Offline checks before you buy

Real estate is a big ticket item; a great deal of contemplation is required before you sign on the dotted line. A visit to past projects is a must and gauges the level of satisfaction of past buyers. Next, try to find if the developer has a strong intent to deliver the project on time. One can make a successful purchase decision only upon feeling the vibes you get after visiting the project site.

Check whether the builder has received all the approvals. A prospective buyer must insist on seeing all the relevant documentation related to a residential property purchase, including clear land title, development permits and the commencement certificate.

Before writing the first cheque, clarify all your doubts in a face to face meeting with the builder and take all his commitments in black & white. Ensure the price being quoted is all-inclusive.

What are the risks involved?

Online transactions in the real estate sector are different from those taking place in clothing, FMCG or electronics. You can go online and search for the price of a cell phone and the results will throw the best website to buy that phone with complete information on the product.

In the real estate space however, while some developers quote only the basic price, others quote the basic price with IDC and EDC (internal and external development charges), and some others quote it with the service tax and others without it. So, while you could get many price quotes, you can’t be assured that more charges will not be tacked on later.

It is therefore imperative that one does both a thorough online as well as offline scrutiny before inking any real estate deal via the online route.

DLF’s new luxury property

Real estate giant DLF has announced the launch of its new luxury property ‘The Chanakya’ to bring in brands such as Longchamp, Hunkemoller, G Star Raw, Juicy Couture, La Perla and Chanel Beauty to its Emporio and Promenade malls in 2016. .

Speaking on the launch, Dinaz Madhukar, Senior VP DLF Luxury Retail said, “It’s an exciting time for the retail industry and we are glad that big brands looking to enter India are doing it with DLF,” adding that The Chanakya will offer a mix of bridge to luxury and luxury brands. We have worked with brands Versace and DKNY to get some of their existing retail space for brands like Bvlgari and Tumi at The Emporio.

While brands like Juicy Couture and Chanel beauty already have a presence in other malls in the country, DLF Emporio will house La Perla and Longchamp’s exclusive stores in India. Bvlgari and Tumi also have their exclusive stores in the Emporio.

Indian-Real-Estate

With more than 6, 00,000 units of inventory in India’s top cities, the situation is alarming. One in three houses constructed is unsold, despite builders, agents, online broking houses and now even e-commerce websites trying to allure consumers with lucrative schemes and offers.

Urbanization as a trend has just touched the tip of the iceberg and India has a huge demand for houses. Industry experts anticipate this number at 50 million houses in next 10 years. Strangely, over supply of inventory in the second most populous country in the world is an irony.

Unlike some European countries where the population growth is in the red, India is experiencing a very high rate of population growth and selling of ready houses really should not be a problem. More people are getting more liquid money to invest and a good number of immigrants moving in and out of major cities are some of the factors that drive real estate demand in the country. It is indeed paradoxical that there is supply and there is demand, yet no transactions.

What is driving this ironic situation is a market that is going through a transition – from high-growth expectations of the past to a mature market that will see rational returns.

Builders are still reminiscing on the hay days which were driven by a high growth rate economy where projects used to get sold in a jiffy and give big returns in a short time. Some ambitious developers still working on similar lines; they launch one project, and use the capital from initial sale to start a second project, then use the proceeds from the second project to start a third and then a fourth and sometimes even a fifth. They entwine cash-flows and spread themselves thin. However, they fail to realize that this strategy would not work in a slow economy; projects do not sell as fast, spelling doom on all subsequent projects.

Developers must focus on delivering as delays not only impact returns but also impinge on the investor sentiment in general. On the whole, the market experiences a downward curve and gets caught in the cycle of price stagnation, rising unsold inventory, incomplete projects, resulting in poorer returns on investment.

Builders, in their enthusiasm have gone way outwards than currently supported by the market. Moreover, with inadequate and restricted alternatives of structured financing, they raise funds from small time real estate investors who demand quick and hefty returns. Developers have no option but to artificially inflate the basic cost of the property. The markets have reached a point where these prices have gone beyond the affordability of end consumers. They would however, not reduce the prices as this will break their investor network. Whether the inventory remains unsold or is in the hands of speculative real estate investors, there is a desperate search for end-customers and real users – who remain elusive.

The Indian real estate industry is transitioning from a “pre-launch” to a “build and sell” model like developed markets which are the signs of a maturing industry. From traditionally a seller’s market, real estate in India is now a buyer’s market. Each buyer has lots of similar options to choose from. If buyers start dictating the markets, ask for transparency in the real estate pricing, a paradigm shift is bound to take place. Existing online players will struggle and will be forced to reinvent themselves. We’ll see transaction-oriented models vs simple listing-based models that will bring transparency that consumers so want today.

Motilal Oswal Real Estate

MORE, (Motilal Oswal Real Estate) the real estate arm of Motilal Oswal Group plans to raise about Rs. 1000 crore through its third real estate fund. The funds will be utilized for development of residential projects by reputable developers in the Mumbai Metropolitan Region (MMR), National Capital Region (NCR), cities like Bengaluru, Pune, Chennai and Hyderabad. The money will primarily be raised in about a dozen transactions of Rs 80-120 crore each from high net worth individuals and family offices.

Explaining the move, Sharad Mittal, director and head of the fund said, “the realty market is consolidating right now and prices are expected to remain stagnant for some time. This therefore, is the correct time for investors to invest through indirect investing since we would participate in the project profits rather than relying entirely on the future price rise.”

The fund has been set up as an alternative investment fund or AIF category II, registered with stock market regulator SEBI. “We expect to achieve first close by mid-January 2016 and conclude fundraising in the next six-nine months depending on the market conditions. Given the current scenario, direct investments may not fetch superior returns,” he added.

Motilal Oswal has in its two earlier funds invested capital under a mezzanine structure in top five property markets with developers such as ATS, Shriram Properties, Godrej Properties, Rajesh Lifespaces, Ahuja and Casa Grande. The new fund will also focus on top six property markets in the country. The first fund worth Rs 200 crore, raised in 2009, has been fully deployed and is currently in exit mode. The fund has exited its four out of total seven investments and given returns of about 82% of the capital. In March this year, MORE had raised Rs 500 crore through its second fund which is presently in investment mode wherein around 80% of the capital has already been deployed.

The third & the new fund, with a tenure of five years from final close looks to target a gross internal rate of return of about 23 – 25%. “We shall continue to undertake mezzanine investments with established developers for their mid-income housing projects across top cities. We shall also undertake structured equity investments depending on the market scenario,” said Mittal.

Diwali special offer

Almost every industry in the domestic circuit rakes in the moolah during the Diwali time because the sales go up. Every company looks forward to this festival in the country. Real estate however, has been an exception to this trend.

“A research on the demand for residential real estate during the past five years shows that, contrary to the common perception that a majority of sales happen in the second half of a year, the absorption is largely the same in both halves,” observes Akshit Shah, assistant vice president, Capital Markets Research, JLL India. “A weighted average of the past five years shows that the first quarter attracts the highest number of deals at 27%, while the fourth quarter i.e. the festive season, attracts 25%, which is at par with the average,” he adds.

Industry players attribute slow sales during the first two quarters to the fact that most part coincides with school exams, which negatively impacts the sales as family decision makers tend to steer clear of major disruptions in the schedule.

In the third Quarter, sales tend to be subdued because of the monsoon season and Pitru Paksh, which is considered an inauspicious period for new beginnings.

Therefore, real estate developers used to bet big on the festival season. However, this tendency has changed. The theory that sales boost during festival season was true till 2010, when the country’s economy grew at over 9 – 10%. Being an investment-intensive purchase, property-buying has slowed down considerably in the recent times.

Shah further notes that the average age of home buyers has come down from the mid-50s to the mid-20s. “The younger generation prefers to take informed decisions and focuses on better bargaining opportunities rather than auspicious days to purchase property,” he adds.

The service industry which is a major contributor to India’s GDP at 55%, announces salary hikes and bonuses in the second quarter whereas, the manufacturing and trading industry announces bonuses during Diwali that is fourth quarter. Also, people from the upper-middle and high-income groups plan their investments during the first quarter, for effective tax management purposes.

Despite RBI’s monitory policy review meeting held during end September to slash interest rates, this year too, the real estate industry does not expect to clock in a great sale during Diwali.

Housing Projects in Mumbai

The state Finance and Planning Minister, Sudhir Mungantiwar has announced that the government will provide all the required assistance to ensure real estate developments are executed in a time-bound manner.

Urging developers to take up affordable housing projects at a real estate summit organised by National Real Estate Development Council (NAREDCO) Mungantiwar said that realtors have been demanding single window clearance for undertaking housing projects. We are conscious about their demand and therefore have taken it as a priority.

The minister added that once developers start receiving faster clearances, project delivery will be quicker and at a much lesser cost. “While people must confidently invest in real estate, the developer community should ensure timely project delivery with sincerity,” Mungantiwar said.

Guide on legal checks before property purchase

Recently, in an Allahabad High Court ruling, the real estate giant Supertech was asked to demolish its 40-storey tower in Noida.  However the company will move the Supreme Court against the order claiming that all necessary approvals from appropriate authorities were in place. The tower was constructed against the mandatory building rules. While the permitted FAR should be 3.5, the builder followed only 2.75 FAR rendering the construction illegal.

In the current real estate scenario, most home buyers face litigations over their newly purchased apartments. It is therefore crucial to check if the property is legally clear before booking it. Even if it is a branded project by a reputed developer, inspection of the legal documents and construction approvals through legal consultants is becoming essential.

Besides property related litigations, such construction issues add to the load of home buyers who have purchased the property on loan since they end up paying EMIs and rentals till the construction is free from litigation. Most residential project cases running in courts stretch for years and even if the judgement is in favor of the home buyers, the builders will appeal again leading to a never-ending wait for the possession.

We present here, a quick guide to a litigation free real estate transaction. Examine these factors before purchasing a property:

Verification of Title Deed & Khata

Ensure that the Title Deed from the seller is clear from any encumbrance. The records related to the title deed of the property can be searched at the sub registrar’s office. The report will contain the owner of the property and the related changes in the title. Khata is a legal document that supports the title which will have an entry of the present owner and it can be verified with the local municipal records. Check whether the Khata is changed in the present owner’s name as it is necessary to obtain home loan, electricity approvals etc.

Project plan examination

In case of under construction projects, inspect whether the building plan is sanctioned & approved by appropriate authorities. This can be done by comparing the sanctioned plan with the actual built up area of the project to avoid buying property in an illegal construction. The layout approval can be verified with the concerned authorities. Examine the land survey report made at the time of buying the property to validate that there are no legal disputes over titles, boundaries etc.

Checking legal dues

To check whether the property has any legal dues, one can scrutinize the encumbrance certificate which is an evidence that the property is free from all legal dues and mortgages. If the property already has a registered society, then a no objection certificate (NOC) is also necessary to authenticate the legal status of the project.

Examine bank approvals

A simpler way to check whether the property is legally clear is to look at bank approvals. Banks approve only those properties which are legally clear and possess valid documents. Banks usually check the title clearance and all other important paper-work related to the project so one can rest assured that the property is fit to be purchased.

With legal issues concerning real estate developments increasing by the day, it is advisable to not only check the documents and the builder profile along with his previous construction track record but also take professional help if possible to perform thorough checks on legal clearances before booking a home.

Deepika Padukone’s new home

The Bangalore beauty deepika Padukone has managed to buy a house in the expensive real estate city of Mumbai, at the age of just twenty six. A determined lady, deepika has fulfilled one of the ambitions of her life.

After the 2 BHK flat in Bandra, she has excitedly purchased and shifted to a classy three bedroom apartment in the thirty three storey Beau Monde Towers, Prabhadevi.

Beau Monde Towers is a highly priced complex with three residential skyscrapers, equipped with two tennis, badminton and squash courts and open exercise decks. Costing around 16 crore, Deepika has bought the flat in joint ownership with her father Prakash Padukone, the erstwhile badminton champion. The apartment measures 2,776 sq ft and is on the twenty sixth floor of the building. Deepika has parking slots for her three cars.

Deepika was very actively involved in doing the interiors of her house and knew exactly what she wanted. The décor is an interesting confluence of western and Indian designs; so while the motifs may be Indian the translation is western in outlook. Rightly put by her interior designer, the house is like ‘Deepika in a sari’, modern yet traditional.

Loan EMIs

Are you among the people who have been waiting to get the key of their houses from past couple of years? Well Sachin Kala is indeed one such man waiting to start staying in the flat which he had booked nearly 4 years back. According to his builders, he was supposed to get his flat back in December 2013 however looks like the wait might be for more long time. He has already paid about 80% value for worth of the property and this property is nowhere close to completion. The only solace for his is that he is not the only one who is going through this. Most of buyers are going through the same problem across the country. With the builders facing financial problems, properties are not being completed on time leading to huge delay in the completion of the projects. Being cash strapped is causing problems in completing the projects. As per the review of the real estate analytics firm PropEquity, between the years 2011-2014, 3,753 projects were offered for possession in the Mumbai Metropolitan Region and out of these projects nearly 45% of them are still under construction. This problem is severe in the NCR region wherein 856 projects were up for possession and out of these projects, 78% are still incomplete and running behind the deadline. The company saw similar patterns in some of the other cities like Chennai, Bengaluru, Pune, Hyderabad, and Kolkata among others.

Reasons for the delay:

There are many reasons, which can be attributed to the delay in the completion of the housing projects. The reason being, there has been a considerable amount of decline in the demand for residential housing due to constant increasing prices of the property. During the boom period, the developers and builders have highlights so many new launches that they are now facing difficulty to complete these projects. Most of the developers are under financial problems as they have used all the money collected from the new projects towards the projects that are still not completed.

The new hope:

From the buyers’ perspective, they have a new hope in the form of the Real Estate Regulatory Bill. The bill has been targeted towards bringing out balance in the currently chaotic real estate industry and has many clauses favorable to the buyers. For example, the bill has proposed that builders and developers are required to deposit around 50% of the amount that they receive from the customer in a very different escrow account. By this way, they will be able to stop diversion of some of the funds. According to this bill, the buyer will have the complete control over their funds as they will be able to ask the developers to return the complete amount in case of the property not being completed in the promised time. At present approval has been given to the bill and it is ready to be presented in the Parliament.

Influences of delayed projects:

When it comes to a first time property buyer, any kind of delay in the completion of the project and them taking over the flat can cause them to undergo serious financial problems. Most of the times buyers will atleast anticipate a delay of about 10-12 months in the completion of the project however, none would have expected the same to go beyond 2 years. According to the reports on PropEquity, the Mumbai Metropolitan Region has seen an average delay of 25 months in the completion of the projects. The average delay in the NCR region is about 33 months. In simple, the bigger a residential project is, the buyer can anticipate a longer delay in possessing the property. Buyers who took loans to pay for the property and expected the EMIs paid to the bank to replace their monthly rents have now landed into a situation, that requires them to pay all these amounts. According to one of resident from Ghaziabad, it is very difficult to pay both the EMIs as well as monthly rental but they are left with no choice. When it comes to a double-income family, the problem remains the same. The same problem is also for the investors especially the ones who have put money towards their second or third houses. For them investment was about earning through the monthly rentals that would have easily covered up the EMIs they need to pay to the bank. Potential delay in the completion of the project can completely make the entire calculations go downslide. Even though everybody is paying EMIs to the bank, there is no sign on earning the monthly rentals.

Loss of tax benefits:

Any delay in the completion of the project means that you will not be able to avail any tax deductions until the project has been completed. Buyers look of tax deduction of about Rs1.5 lakh, which is towards the principal repayment, and a further saving of tax deduction of Rs2 lakh meant for interest on the payment. However, it is important for the buyers to have the possession on the property within 3 years of taking loan to avail benefits under Section 24. In case the buyer is unable to do the same in the span of 3 years they will end up paying tax for about Rs30,000 a year. The buyers however have one option; they can sell out the delayed property and always invest in ready to move in properties. However, they still have the roadblocks in terms of transfer fees and registration charges. People who have taken the property with the intend of renting it out have benefits as the complete interest is tax free even if the project has not been completed in the 3 years of time.

Avoid delayed projects:

Always have enough information pertaining to the construction project as well as the developers. This will avoid any problems later on. Attentiveness among the customers is the key to avoid many problems in the future. Customers can protect themselves from fraud developers and projects. Keeping a track on the record of accomplishment of the developers also avoid lots of problem in these kind of projects. Referring to online forums will help to learn about these developers and it is important to avoid investing and dealing with new groups and developers.

It is important to ensure that the developers have valid license and government’s approval to run the project. There are many instances where in developers have tried to sell out property even before they have ownership of the land. It is important to ensure that the payment of construction is linked with the stages of project completion. Customers need to ensure that they have clauses of delay in the contract and ensure that the developers do not hike the price of the property.  Never fall prey to lure or other offers which talks about big properties for lesser price.  Carefulness is everything today and especially when there is lot of money involved.

Image credits : DNA India

The Maharashtra government is planning to regulate the real estate market of the state and for this soon they will appoint a regulatory body to save the interest of the home buyers as Central Government has gave the nod to state government to frame rules and regulation to implement the Housing Regulatory Bill approved by the President and passed by the legislature. However; we are know that in 2012 The Maharashtra Housing (Regulation and development) was passed, but after that the Presidential assent came in effect in 2014.

The process of framing the rules and regulation is in the progress and there I little delay in that because Central Government had framed s similar law know as the “Real Estate” Regulation and Development Bill) for each and every state with a motive that each and every state will adopt it. But the Central government’s bill is still pending in Rajya Sabha. State Government stated that we have explained to the Centre that Mumbai’s real estate market needs are different from the rest of the country and due to that there is need for housing regulator and the provisions which we have is better than the proposals of the central law. According to Shrikant Singh, who is Principal Secretary Housing department, “Our Submission has been accepted and we are planning to implement our own housing regulator. The more he added that we have god the final approval from central to set up our new regulatory authority for Maharashtra. Currently we are in the process of rules and regulation formation after which our authority will come into existence.

The real estate regulatory authority of Maharashtra will be a quasi-judicial body which will be able to resolve the disputes that are related to the housing sector. Apart from that the previous Congress-NCP government has proposed the real estate law to ensure home buyers interests are in the safe hands. Apart from that Centre has brought a similar legislation in Parliament and they have asked the Government of Maharashtra to hold back implementation of their own law in the real estate sector. But, the draft bill of centre has gone into the Rajya Sabha’s parliamentary committee and hence the state is planning to go ahead with its own regulatory authority bill. According to Singh our consultations are on the way and our law, judiciary and finance departments are framing the rules to setup the regulator. However; he declined any comment that when they are completing the framing the process.