While the government may feel the need to offer incentives to home buyers in the union budget 2017-18, to boost its objective of ‘Housing for All by 2022’, the present state of the economy may restrict good news for home buyers. An analysis.

The state of the Indian economy, suggests that the government will have to walk a tightrope with the Union Budget 2017-18, amidst forecasts of a slowing economy. Although banks are now flush with funds, due to the government’s demonetization drive and limit on the extent of cash withdrawal, the overall effect of the measure has not gone down well, with the health of the economy.

The Indian Central Statistics Office has estimated that economic growth will slow to 7.1% in the current fiscal year ending March 31, 2017. This is slower than the government’s prior estimates and the 7.6% growth, last year. The estimates have been reduced in all the sectors, except agriculture, which has improved due to the positive monsoon season. Analysts, however, warn that these forecasts are toned down since the real impact will be seen in the upcoming fiscal year.

Moreover, the impact on agriculture will also be visible, as the demonetization immediately prior to the crop season will take its toll.

Similarities with global markets brings hope to Indian realty

The real estate fraternity, nevertheless, remains upbeat and believes that the state of the economy, definitely allows the government to provide relief to the real estate sector and homebuyers.

They cite the Morgan Stanley report dated December 6, 2016, which suggests that annual Indian property sales are expected to grow, from USD 105 billion in 2015 to USD 462 billion in 2025. Research estimates a 14% compound annual growth rate (CAGR) for property sector demand during 2015-20 (8% volume, 6% pricing) and an 18% CAGR in the five years after that, versus the 12% CAGR (5% volume, 7% price) over the past six years.

India in 2015 is also similar to China in 2000-03 on key macro parameters. In the past 15 years, China’s economy and per capita income have quadrupled, urbanization has doubled and the property segment has grown 10x, to USD 1.3 trillion in annual sales.

Why real estate cannot be generalized with other sectors

“While the slow job market is a challenge, on a macro level, a one-size-fits-all statement cannot be made about the economic situation. This is because, while the cash-driven markets like Delhi-NCR are witnessing a slowdown, the service-driven markets are not that much affected,” is the view of experts.

The demonetization drive has resulted in increasing the expectations of the common man, vis-à-vis the upcoming budget. The realty sector will be benefited indirectly by an exemption in tax rates, as it will increase buyers’ purchasing power. The budget should provide a holistic model, where developers are incentivized for budget housing.

The budget should cover the entire value chain for the delivery of the affordable housing – from procurement of materials, government premiums and quicker approvals to developers, to stamp duty payments and lower home loan rates.

Impact of previous policy changes

Experts point out that the government offered various incentives to businesses in the previous two budget sessions. 2016 witnessed a strong foundation being laid for the real estate sector, with policies like Smart Cities, Housing for All by 2022, the Goods and Services Tax (GST), implementation of the Real Estate Act, demonetization and Benami Transaction Act. Consequently, the upcoming budget will be a step further in the right direction. While the sum of the recent policy changes is expected to improve the sector’s practices, the state of the economy may leave little room for the finance minister to provide major sops and ensure that Indian real estate remains an end-user-driven market.

Challenges for the finance minister, vis-à-vis real estate and the budget

• The emerging economic and political compulsions suggest that the finance minister may unveil a budget that is friendly to middle-class home buyers.
• Rate cuts ahead of the budget may indicate more sops.
• However, the state of the economy leaves little room for any budget bonanza.
• Growth in real estate can help GDP growth but excess liquidity could also derail the economy with artificial growth.

With the government reiterating its commitment to curb Benami properties, we look at what may be in store in the union budget for 2017-18 and how it may impact the real estate sector and property buyers.

The central government has repeatedly stated its intent to deal with Benami transactions. It is, hence, expected that several concrete steps and financial curbs on Benami transactions may be announced in the Union Budget 2017-18. However, the question that arises, is to what extent it will affect the business of Indian real estate.

With land records and transactions not digitized and up to date, it is a challenging job, to assess the extent of Benami properties in the country. Moreover, the real estate sector in the country remains largely unorganized. Nevertheless, developers within the organized segment of Indian real estate, are hopeful that there will be meaningful announcements, to curb benami properties.

Experts asserts that established developers will surely welcome concrete steps to curb Benami property transactions.

According to them, a crackdown on Benami properties can clean up the real estate sector, by improving transparency, reducing corruption and could even result in a correction in prices.

About one-third of the country’s population of 1.25 billion, lives in cities, with more people migrating to cities. The government’s ‘Housing for All by 2022’ plan, aims to create 20 million new urban homes and 30 million rural homes. Going after Benami properties, can help accelerate this plan.

Builders welcome government’s measures against Benami properties

Experts further agree that there have to be some stringent measures in the upcoming budget, to check Benami transactions. The Benami law was introduced to control black money in the real estate sector. If the laws against Benami transactions are implemented properly, the registration of property will be flawless and in the name of the actual owner. There can be control on the maximum number of property registrations under one name and land inventory can also be managed.

Experts also point out that the realty sector has lately witnessed a series of corrective measures by the government, aiming at making the sector more transparent, with the Benami Transaction Act being one of them.

The institutional framework of the realty sector has already been strengthened by the government, by amending the Benami Transactions Act, to make the law more stringent.

How prevention of Benami transactions can help the property market

When the titles are clear and transactions are transparent, the confidence of lenders will also increase and result in an uptick in lending to homebuyers. This will increase the supply of residential real estate. However, for this to happen, the government will have to come up with a well-defined roadmap. While the union budget may address the problem, in terms of financial penalties on Benami transactions and benami property holders, a mere fiscal roadmap may not enough. With most of the land records not yet digitised, structural reforms in the administration are also needed.

The government has tried to address this, by amending the original Benami Transactions Act 1988, to make the law more stringent. Under the Benami Transaction (Prohibition) Amendment Act, 2016 which came into effect on November 1, 2016, a transaction is named ‘benami’, if property is held by one person, but has been provided or paid for by another person. The act lays rules for recovery of the property and also makes Benami properties liable for confiscation by the government.

Nevertheless, the big challenge for the government is to create a mechanism where the fiscal transaction is not possible in the property market, for Benami property deals. It remains to be seen, whether the 2017 budget will address these concerns.

Ground realities of Benami transactions in Indian realty

• After demonetisation, the curb on Benami properties, is likely to be the next big goal of the government.
• There are more Benami transactions in the unorganised property markets and hence, they tend to remain concealed from the law.
• With land records and transactions not fully digitised, Benami transactions remain a challenge for the government.
• There is no clarity over what can be an ideal fiscal deterrence, to stop Benami deals.
• There are expectations that the union budget 2017-18 may give some answers, on how to curb Benami transactions in the property market.

To know about your financial activities home loan providers mandatorily ask for the bank account statement for a certain period so they can learn about the saving and spending habits of the probable loan seeker.

Lenders normally ask the applicants to furnish a copy of their bank account statement varying between 6 months to maybe a couple of years as per the practice of the bank. Such a statement is very crucial for the lender to decide the eligibility of the applicant. Hereunder, we are detailing salient points that lenders look for in your bank statement.

1. The existence of any loan being serviced

From the bank statements, the lender can easily find out the existence of any loan(s) being serviced, in case, identical amounts are debited at regular intervals. The existence of any such loan will help the lender in deciding your loan eligibility amount. An existing loan will reduce your overall home loan eligibility.

2. The level and nature of activity

For self-employed persons, the lender asks for bank statements of the account, where the business or professional income is credited. These statements will help the lender in verifying the level of business activity like sales/receipts and compare it, with the one declared in the income tax returns or in the loan application form.

It will also help the lender to identify huge cash deposits or withdrawals. Huge cash deposits in the account will create doubt unless the nature of the business warrants such deposits.

For salaried people, bank statements enable the lender to verify that the salary purported to be shown in the income tax return, is in fact credited in the bank account. In case the salary is credited month after month and the amount is also similar, it points to the salary being genuine. In case the amount of salary, as shown in the income tax return, is not credited month after month in the bank statement, it is sufficient for the lender to view such credits with suspicion.

3. Inward and outward cheque returns

Bank charges that are debited for bounced cheques or those that are returned unpaid, help the lender to know the volume of cheques returned, which are either deposited in your account or are issued by you. The volume and value of the cheques deposited or returned will point towards the profile of the customer, his financial discipline and the strength of his business.

Isolated cases of cheque returns, will not impact your chances of getting a loan. However, repeated instances of cheque returns could impact your chances of getting a loan, because the lender will tend to avoid a person who issues cheques, without ensuring that adequate balance in maintained in the bank account.

4. Account balance and nature of debits

The balance amount in your bank account reflects your financial health as well your saving habits. Regular debits (for example, in a Systematic Investment Plan) in mutual funds, will show your financial discipline and good saving habits.

There is a growing trend of using credit cards or Internet banking, for making payments for online purchases. The quantum of credit card payments or debits for online payments will help the prospective lender to understand your spending habits and pattern. This will help the lender, in determining your loan eligibility in relation to your income. Higher payments or debits in your bank account are likely to reduce your overall loan eligibility.

With numerous policy changes being announced in 2016, will the property market become more buyers friendly? We look at what homebuyers expect in 2017 and whether developers can address these concerns, without any extra burden

A majority of home buyers (as many as 82%), believe that the wide trust deficit between the builders and the buyers can be bridged to a considerable extent, if the developers genuinely come forward for a dialogue to understand the home buyers’ point of view, according to a survey. More than seven out of 10 (72%), maintain that the buyer must have access to communicate with the builder throughout the project’s lifecycle. Nearly as many (68%) feel this will address conflicts, even if there are changes in the layout of the project. More than half of the homebuyers feel that if the developer starts collaborating with the buyers, then, the buyers will also understand his point of view, in the case of any delay, policy paralysis, or other force majeure.

What homebuyers want from developers in 2017?

• Title assurance and the right to see all approvals in place.
• Rates based on carpet area.
• Right to a full refund, within 30 days of booking.
• Equal penalty for delay in completion.
• No change in the area bought.
• No hidden charges or escalation charges.
• Separate escrow account mechanism.
• Free first transfer.
• Fair agreements with indemnities for delays, poor workmanship, etc.
• Open and transparent communication throughout the project period.

This survey was conducted in ten cities – Delhi-NCR, Mumbai, Pune, Bengaluru, Kolkata, Chennai, Ahmedabad, Lucknow, Coimbatore and Hyderabad. A total number of 2,000 home buyers were interviewed. The respondents were a mix of seasoned homebuyers, with experience in more than one property purchase and first-timers who were on a house hunt. The survey had a mix of open-ended and close-ended questions, to understand the concerns of the homebuyers.

Home buyers expect honest dialogue, on issues like hidden charges and penalties

A majority of the respondents (66%) felt that issues like hidden charges, escalation clauses or penalties, could be settled if the developer was honest and came forward for discussions. Open and honest dialogue; can take care of a majority of the issues, as homebuyers do understand the concerns and legitimate problems of the developers. Similarly, most of their concerns will not cost the developer a fortune. The real issue is the lack of trust.

A representative of developers, however, put forth their point that arm-twisting and bullying by home buyers are also a reality today, if they are involved in a project right from its beginning. The idea is to keep your position safe from vested interests, who pose as guardians of home buyers’ causes. The developers, who were upfront with the buyers, are now evasive because they have already burnt their fingers, says the representative

Another developer has a separate view stating that the real problem is the fact that the top management is seldom involved in the execution of the project and communicating with homebuyers. This creates a vicious cycle of lack of trust. If developers communicate properly with their home buyers, they will not only give you some end-user perspectives for project enhancement, but will also be your partner in progress, either through repeat buying or by referring friends and family.

Buyers demand transparency in finances and agreements

Nearly everyone (94%) was concerned with the fiscal mismanagement of developers and demanded a separate escrow account – something that will be inevitable, once the real estate regulator is in place, in 2017.

The second most-important issue for buyers is fair builder-buyer agreements. 88% demanded indemnities for delays, poor workmanship, etc., while 86% wanted homes to be sold only on the basis of carpet area. This again is very much on the cards and the real estate act also provides a defect liability clause.

Homebuyers also want builders to provide buy-back offers. While 54% expect a complete refund within 45 days of booking, another 46% said that builders should provide buy-backs, at market price or slightly lesser than market value, anytime during the construction lifecycle.

Additionally, a majority of home buyers (as many as 60%), also want a removal of transfer charges, at least for the first transfer. 22% complained that the transfer charges are too high, while only 18% are okay with it if the property has appreciated to a considerable extent.

Beyond these expectations, a lot also needs to be done at the government level (proper land titling, title insurance, quick judicial remedies, standardization of norms, etc.), to instill confidence among homebuyers.