Indian real estate

In the absence of due diligence the Indian real estate market can loss basic fundamentals and get drive by the positive news stories. However there are no analytical techniques are available to support those stories. The market intelligence of the prospective buyers is only reflective in macro level market which often goes off track. Most of the buyers are agree that due diligence is the way for to manage the risk and returns in terms of property evolution. More than that, it can give the much needed facelift to real estate sector. Due diligence is probably the most important aspect of a transaction involving real estate immediately following a broad understanding of the commercials.

According to Bilateral business body of India and America and economics experts “when market is fulfill with potential of growth and debt price is higher than equity so it demands for a greater common sense”.  In the eco-system of Indian real estate market there is financial disorder, as investors are getting the higher interest rate in market, which is giving the best ROI. The problems with these investments are that, high returns are available in market with high risk with the absence of reliable data. The answer to the dilemma of the investors and funding of the serious developers lies in creating a plain and simple mechanism of due diligence.

A section of the analysts mention that due diligence has always been done in the Indian real estate, but the Bull Run made some of the developers a bit over ambitious to ignore the fundamental in order to get the higher profits with far higher risk. However the slowdown has taught  everyone a lesson and now developers are over cautious at the each level, but the fact remains that in the absence of scientific and industry accepted mechanism of due diligence the challenges and risk exposure are as much for the realtors as for the investors. According analysts the developers and independent property consultants should focus more on micro markets than general trends which could be misleading. Whenever there are many grey areas where in the absence of proper research and search and reliable data even assessment of ground realties is not feasible.

According to Rohit Gera, MD of Gera properties, agrees over the need of proper due diligence across the real-estate sector of country. Unfortunately the home buyers still do not undertake the requisite amount of due diligence especially when buying the homes from fly by night operations. The cost of reliable due diligence often is less than one month’s EMI and this offers peace of mind through 240 months of loan payment. Sometimes customers blindly believe that they will not be the victims and they can go forth without proper due diligence. There are number of reasons for the absence of due diligence in real estate sector.  The growth of real estate transaction combined with the growing participation of the organized sector in real estate, which resulted in heightened awareness of the risks involved and, consequently, the need for ensuring that the risks are identified and minimized in such transactions

Now residents of Chembur and Andheri East can look forward because of revised property tax system of the BMC (Brihanmumbai Municipal Corporation). Some other localities in Mumbai such as; Goregaon East, Malad West, Andheri West and Kandivali East are in the other areas, which are getting benefit because of revised property tax system. Availability of large size properties in Mumbai will keep the profits towards lower end. Earlier, BMC was cleared the new property tax system in 2013, all the housing societies in all over the Mumbai, recently received the revised property tax system, which is appears to be paid for the year 2010 to 2013. According to new tax guidelines, now property tax will be calculates on the property’s capital value, rather than the rental value of the property.

The area’s which have low plot value and high rental value will get the benefit because of new tax system. Properties in Chembur and Andheri East hold high rental value and low property value and here the built-up area is less in comparison of other areas of the western localities, so these areas will get the benefit. But it can vary from property to property because tax system consider several other factors such as; the age of construction. According to recent reports and data the capital value of properties in Andheri East region range from Rs 12,000 to 19,000 per sq ft, while the premium areas such as; in western area the value of property range from Rs 20,000 to 40,000 per sq ft, and in Chembur property rates are in the range of Rs 14,000 to 19,000 per sq ft. Whereas the rental value of these localities ranges Rs 35, 000 to 55, 000 per sq ft. Local realtors are not so happy with the new form of property tax as it depends on Area, Age, Price and type of property. These factors play an important role in assessing the cost of land.

Formula for property tax calculation:

Capital value = Built-up area* Base value *Type of building* Age factor* Use category* Floor factor

Chembur and Andheri are one of the well established localities of Mumbai, where one can find the building in different age cycle. Andheri West is a prominent residential location, whereas eastern part has some of the old residential and commercial buildings, which has age more than 30 years. Hence, in these areas there will be mixed impact and property tax will be measurable on case to case basis.

In case of re-developed properties, there will be flip side because of increased base value and change in the built-up area. The other positive feature for these localities is the size of residential and commercial units. According to recent reports, approximately 30 per cent properties in these areas have an average size of 300-500 sq ft, it stands for 1BHk and according to old tax system BMC has decided to levy taxes.