Factors deciding eligibility for home Loan

Many factors determine the fate of a home loan application. Thus it will be better to assess your home loan eligibility prior to making a plan for purchasing a property

Credit score/report

The primary and common cause for the home loan application rejection is a poor credit score. The first step taken by lenders towards processing of any credit facility by lenders is to obtain your credit score and credit report from any credit information bureau, like CIBIL. Any default on your part in the repayment of your credit card bill or any other loan is reported by these credit information bureaus to the lender.

Credit Report

Any settlement with the lender with regards to any outstanding loan amount will negatively impact the credit score. Any waiver of accumulated interest by the lender on an outstanding amount to settle due amount will account for another negative aspect contributing to the rejection of a home loan eligibility. In such cases, the lender writes off such unrecovered amount in its books and reports the same. The nomenclature ‘write-off’ has a negative connotation and this may discourage the new lender from sanctioning your loan.


Not all the cases, where the lender agrees to forego any amount due to it, are treated as write-offs, though. In cases of genuine mistakes on the part of the lender, the outstanding amount is waived and the lender is supposed to report such remissions as waivers and not as write-offs.

In case the lender has reported a waiver as a write-off, you need to ensure that the lender rectifies such errors. For example, this may happen if a credit card, with fees applicable on it, was sent to you even though you may not have applied for it. In such situations, the credit card issuing company has to forgo the amount, if the person to whom such a card is issued, refuses to pay. In most cases, the lender will report remissions of such small amounts as write-offs. Although the amounts involved may be small, the prospective lender may reject your home loan application.

Your age

Lenders generally do not grant home loans, to salaried individuals who have retired and to self-employed people who have completed 65 years of age, even if adequate security is provided, in the form of other immovable property. The reason for this is that the lender is interested in getting his home loan serviced each month and is not so interested in the value of the property that is mortgaged. So, unless you have a sufficient and regular flow of income, you will not be able to get a home loan.

Earning history

Lenders generally are not willing to give home loans to people who have not completed a certain minimum number of years in employment or in business. Lenders do so, to satisfy themselves about the consistency and quantum of the applicant’s income flow. However, a prior earning history is not a strict requirement. Lenders do consider the home loan application of professionally qualified persons favorably, even if they do not have much of an earning history. The same applies to people employed in permanent posts in government departments.



Union Budget 2017: proposals for Real estate and their impact

The Union Budget 2017 promises to continue economic reforms, control inflation and prudent fiscal management. However, it provides little impetus in the short term to the real estate sector other than a boost to the affordable housing segment.


The infrastructure status for affordable housing and tax relief for real estate developers are positive steps but not enough to boost residential sales in the short term.

The Union Budget 2017 promises to continue economic reforms, control inflation and prudent fiscal management. However, it provides little impetus in the short term to the real estate sector other than a boost to the affordable housing segment.

The infrastructure status for affordable housing and tax relief for real estate developers are positive steps but not enough to boost residential sales in the short term. The government has provided up to Rs 12,500 income tax benefit to individuals, which is insufficient to provide the demand side push to the sector, says a research report

Here are Budget proposals and their impact that are likely to influence the realty sector going ahead:

1) Infrastructure status to Affordable Housing – boost for affordable residential sector

Impact: Union Budget 2017-18 granted the much-demanded “Infrastructure” status to affordable housing. The step is well aligned with the government agenda of ‘Housing for All by 2022’. This will allow easier access to capital for developers, at a much lower rate with a longer amortization period. In addition, it allows developers access to viability gap funding and tax incentives. For affordable housing purpose instead of the built up area of 30 and 60 sqm, the carpet area of 30 and 60 sqm will be counted. The 30sqm limit will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including the peripheral areas of metros, limit of 60 sqm will apply.

The government has also extended the time of completion of such projects from 3 years to 5 years. Buyers of affordable housing got a boost with the announcement of interest subvention of 4% and 3% on loans up to INR0.9 million (USD13, 318) and INR1.2 million (USD17, 758), respectively. The proposed deduction of the income tax rate to 5% for taxpayers having income less than INR0.5 million per annum (USD7, 400 million) will increase the disposable income of the common man which will, in turn, raise spending power and increase investment in the affordable segment.

Thus, more projects will now be eligible for profit-linked income tax exemptions. So far, we have seen limited participation from private developers in the affordable housing segment despite high demand. Profit-linked exemption along with the infrastructure status for affordable housing will push developers to undertake more affordable housing projects, thus increasing private player’s participation in the sector.

2) 10 million homes to be built by 2019 for the homeless and those living in kutcha houses

Impact: To stimulate the rural housing sector in India, INR230 billion (USD3.4 billion) has been allocated under the Gramin Pradhan Mantri Awas Yojana. In line with their aim to promote affordable housing not only in cities but also in rural areas, the government intends to complete 10 million homes by 2019.

Currently, the housing sector is active mostly in Tier-I and Tier-II cities in India; however, the scheme will not only provide necessary housing to the poor but also promote the residential sector in rural areas.

3) Tax breather for notional rent income on unsold unoccupied completed projects

Impact: At present, houses that are unoccupied after getting completion certificates are subject to tax on notional rental income. Builders for whom constructed buildings are stock-in-trade, the rule will be applicable only after one year of receiving the completion certificate. The law will provide some breathing time for developers to liquidate their inventory.

4) Holding period for immovable assets reduced from 3 years to 2 years and indexation to be shifted from 1.4.1981 to 1.4.2001

Impact: This is a significant step regarding capital gains taxation provisions on land as well as buildings. Reduction in the holding period and amendment in the base year indexation will considerably reduce capital gains tax providing tax relief for several asset holders.
It is likely to increase the government’s tax base through the immovable property and encourage the mobility of capital assets. With the proposed taxation provisions, property holders are more likely to engage in the sale of real estate, thereby giving a much-needed fillip to the sector.

5) National Housing Bank (NHB) will refinance individual housing loans of about INR200 billion (USD3 billion) in 2017-18

Impact: The demonetization drive towards the end of 2016 has resulted in surplus cash within the banks; thereby allowing major banks across the country to lower their lending rates.

The lending rate cut will be welcomed by not only new homebuyers but will also be a reason to rejoice for homebuyers who have already taken a flexible housing loan. However, the refinancing scheme from the NHB will improve the sentiment of current homeowners, especially those subjected to high lending rates in the past, opine experts.

6) Increase in investment in infrastructure and development projects

Impact: Following the announcement of several major infrastructure projects in 2016, the union budget disclosed one of the biggest budget allocations for the infrastructure sector. About INR1310 billion (USD19.4) billion) has been allocated for railways and INR64.9 billion (USD0.9 billion) for highways which include 2,000 kms. of coastal roads, facilitating better connectivity between major port cities such as Mumbai, Chennai, Kochi and other cities and small towns.

Similarly, select airports in Tier-II cities will see investment for operation and maintenance through the public-private partnership (PPP) model. The government plans to elevate the current state of infrastructure in India aiming to create a state of the art infrastructure network. Improved infrastructure is more likely to catch the attention of foreign investors and also aid and enhance investment in the real estate sector. The government is looking to upgrade airports in tier-II cities and proposed to monetize unused land assets. Another positive step is the decision to introduce a bill to resolve disputes in PPP projects, predict experts.

7) Capital gains tax liability changed for Joint Development Agreement (JDA) signed for development of property

Impact: If a Joint Development Agreement is signed for the development of the property, then the capital gains tax will only be paid in the year of completion of the project. Apart from several other measures to reduce capital gains tax, this step will provide tax relief not only to the landowner but also the builder/promoter, thereby decreasing their liability.

8) No cash transaction above INR0.3 million (USD4439) permitted

Impact: As one of the extensions to the demonetization drive, the government plans to disallow any cash transaction above INR0.3 million (USD4439). The real estate sector involved several cash transactions before the demonetization drive. However, buyers and developers had turned cautious post-demonetization with a notable reduction in the number of cash transactions.

Thus, this provision may only lead to a nominal impact on the sector in the short term, while it will lay down the foundation for a transparent economy and boost foreign investment.

9) Abolition of Foreign Investment Promotion Board (FIPB)

Impact: Over the last two years, the government has implemented several reforms to encourage Foreign Direct Investment (FDI) in India. As more than 90% of the total FDI inflows currently take place through an automatic route, the government has decided to do away with the FIPB in 2017-18.

This is in conjunction with the government’s view to further liberalize FDI norms and attract foreign investors. Under the automatic route for FDI, the foreign investors will not require any prior approval from the FIPB and will only be subject to laws defined for each sector.

10) Introduction of innovative land-pooling mechanism for development of the new state capital of Andhra Pradesh

Impact: The budget announced that the new state capital of Andhra Pradesh is being constructed by an innovative land-pooling mechanism without the use of the Land Acquisition Act. Land acquisition remained a much-debated issue and a major hurdle with respect to large-scale developments.

The new land pooling mechanism may significantly reduce land-related disputes and increase the speed of development. The exemption of capital gains tax will uplift the confidence of landowners whose land is being pooled for the creation of the capital city under the government scheme. However, the exemption is only limited to those who were the owners of such land as of June 2, 2014, the date on which the state of Andhra Pradesh was reorganized.


Overall, it was a positive budget for the sector and the government has done well to create awareness for the need to increase tax compliance. Demonetization was a temporary setback and the economy may bounce back. In particular, we look forward to the gains once Goods and Services Tax (GST) is rolled out later this year.



Will the budget-2017 be realty-friendly?

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.

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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.


Will Budget 2017 focus on Benami Property?

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.

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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.


Why home loan lenders ask for Bank Statement.

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.


What will be the wish list for homebuyers in 2017.

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.


Decisions that impacted the Realty sector during 2016.

The present year, 2016 can be termed as a year of transformation for Realty sector. A year-end review of the sector will provide an insight of the decisions that will change the course of functioning. Given below are top 10 real estate stories that shall be a game changer for this sector.

Interest subsidy for first-time buyers:

The start of this financial year brought some good news for homebuyers. The budget 2016, provided for an additional deduction of Rs. 50,000 on the home loan of Rs 35 lakhs for the home that costs up to Rs. 50 lakhs.


No service tax for affordable housing:

The central government, in order to augment the affordable housing for the poor, has exempted levy of service tax on homes having carpet area up to 60 sq. mtrs.


Home Loan Interest cut:

This year, unlike bygone years, RBI declared rate cut for several times, but the banks did not respond positively to the cut. It was after continuous persuasion by the Apex Bank that the commercial passed the benefit to homebuyers.


 RERA (Real Estate Regulation Act:

The act to protect Consumers interest came into existence this year. The act also provides for realty sector regulation. It will regulate residential and commercial real estate, developers, brokers and homebuyers alike. Though, the effectiveness of the act will depend on how much of it is adapted by the states and its implementation by them.


GST (Goods and Service Tax):

Touted as biggest indirect tax reform since Independence, GST will create a unified taxation regime. Its impact on property prices will depend on the adoption of lower or higher rate slab.


Clarity on RIET and invIT’s

This year SEBI, in order to facilitate RIET and invIT’s simplified regulation for both instruments.

Private Equity Funding:

PE investment in the real estate sector grew 22% during Jan-Sept. 2016 to Rs 28,300 Crores from Rs. 23,200 Crores during the corresponding period last year.

Folders with the label Projects and Funding

Benami Property Act:

 This act came into effect on Nov. 1, 2016. The aim of this act is to prohibit Benami transactions in Real Estate sector and curbing Black money menace in the sector.



This move by the Government is expected to impact primary, resale segment and land prices in short term. The short-term slowdown is expected but in long-term, there will be clean up of black money in real estate.


 Unprecedented Consumer activism:

This year, 2016 will go the annals of history as the landmark year om terms of legal judgments pronounced in favor of homebuyers.


How will demonetization affect different segments of the real estate market

Different segments of the real estate market, like primary, resale, land, will be impacted differently by the recent demonetization. Here is an analysis how each segment is likely to fare in the short to long term

People look to buy a resale flat as their second investment, so that it could be let out on rent. Generally, such investment is supported by taking a home loan and it is not possible to proceed in nine out of the 10 projects owing to the presence of a substantial cash component in these deals. On the other hand, many people who have recently sold their properties and accepted partial payment in cash have no option but to declare the amount and pay taxes on it.


Demonetization has resulted in a slowdown in sales, as buyers and sellers wait for cash availability to normalize.

The primary market (purchase of properties directly from developers) will not be affected much because it is already at the bottom of the price trends and further corrections are not possible. Moreover, the primary market is mortgage driven, especially at the lower and mid-end and will not face many problems. However, the luxury segment could see a bit of Land sale and the secondary (resale) market are likely to be hit for some time though due to the liquidity crunch, as investors wait for better returns.



Will all property deals be in white post demonetization?

Property consultants maintain that in the primary market, nearly all the reputed builders in metros have stopped taking cash. With transactions occurring through accounted payments, such as cheques, demand drafts or bank transfers, experts opine that the primary markets will not be affected.

Nearly 90% of the primary market in the metros, will not be impacted. The tier-2 and tier-3 cities will surely be affected though as the cash component is relatively higher in these cities.

Demonetization may also cause a slight spike in distress sales. Earlier, consumers with ready payment abilities were able to bargain and get a good deal. Now, this may be more unlikely.

Demonetization’s impact on artificial inflation

A common belief is that the real estate market is artificially inflated, due to the circulation of black money. However, developers maintain that this is not true for primary markets, as investors are no longer present in this market. The primary reason for this is that the return on investment in properties for investors is not sufficient. The purchasers are actual end-users. Thus, there should not be a significant effect on the prices.

Experts explain that inflated property prices are a result of the presence of black money. As a result, the prices of resale flats will come down by 20%-40%. With demonetization, such artificial demand will go down in the medium term, which is a major positive for realty.

Experts don’t rule out the possibility of artificial inflation in the long run. If a seller is unable to accept a ‘black’ component for the sale consideration, he may simply ask for the entire consideration in ‘white’ and levy on the purchaser, all the taxes that will be additionally incident in the process, resulting in increased prices. The same thing could happen in the primary market if upstream transactions have unaccounted components.

In this scenario, recent laws on real estate, like RERA, GST, and Real Estate Investment Trusts (REITs), can bring in the much-needed transparency and increase buyers’ confidence in the real estate market.


Which property markets will be affected by demonetization?

  • Nearly 90% of the primary market in the metros will not be impacted by demonetization.
  • Tier-2 and tier-3 cities are likely to be affected, as the cash component is relatively higher in these cities.
  • Land sales and the secondary (resale) market are likely to be affected for some time, due to the liquidity crunch.



Can buying a home serve the dual purpose of Investment and end-use

Real estate does give better ROI than any other investment instrument but can an end-user afford to act like an investor? Here are some answers

The psychology of home buyers and their expectations vis-à-vis return on investment (ROI) have traditionally been different for investors and end-users. However, this difference may be gradually disappearing, at least in the top eight cities.

Thinking in terms of risk-versus-return is something that is predominantly done by investors. The mindset of an average end-user is similar to that of a seasoned investor today, is very much debatable. Take the case of a person who rented an apartment in Atta Market, close to the central business district of Noida, at Rs 18,000 per month. With 12 years to go before his retirement, he invested in a property in Ghaziabad.

He did this with the belief that he made a sound investment decision. He felt that when he can buy the same kind of property at Rs 60 lakh in Ghaziabad then what is the point in investing Rs one crore in Noida? It does not make sense to pay extra for a property that has lesser chances of appreciating; as against an upcoming market, was his logic. Moreover, this investment gave him the flexibility of mobility, if he is transferred in future.

This raises a fundamental question, as to whether houses have become more like trading commodities and the emotional quotient associated with its purchase, has diminished in leading Indian cities. In real estate, even if the investor does not have very sound economic wisdom, the chances are that he will not lose his money. Compared to real estate, stocks are risky, as most of the companies are not blue chips and will have debt. So, even if the quantum of return is not that high in real estate, it remains a safe investment avenue, he maintains.

Experts point out that one also has to consider the buying pattern. Indians generally prefer to buy property in the top eight cities where they work, or in their hometowns where they intend to retire, even if they live on rent in the city where they work. So, if a person is not an investor and even if he is advised that the research has established that there is fantastic return in a city other than his place of work or hometown, it is unlikely that he will invest there.

Analysts maintain that end-users should not buy homes on the basis of expected price appreciation. A house may give better ROI than any other investment instrument but one has to look at a long-term time frame – of around ten years. In the residential segment, even if you pick the right project at the right price, it may take three to five years to get ROI. The time frame is important for investors as well, and the product will vary accordingly. For instance, in the residential segment, speculators can opt for pre-launch properties in north India and make money in one or two years. For mid to long-term investors, the commercial and retail segments may be a better option.

However, if one is looking at a fairly long-term period, then, investing in the land would be ideal, as the returns are highest in this category. There are instances where people have made returns worth a thousand times their initial investment, over a period of 15-20 years. Ultimately, each homebuyer has to take a conscious call, on whether s/he is an investor or an end-user.


Importance of Stamp duty for Income tax purposes

Any difference between the agreement value and the ready reckoner value of a property, has implications, not only on the stamp duty payable but also on the income tax of the buyer and seller.


When you enter into an agreement to buy a property, you have to pay a certain amount to the government, which is known as stamp duty. The amount of stamp duty is generally based on the value of the property mentioned in the agreement.

To avoid evasion of stamp duty through the undervaluation for agreements and to minimize the disputes on the quantum of stamp duty, all state governments publish an area-wise, stamp duty ready reckoner on a yearly basis. If the value of the property based on the ready reckoner is higher than the value of the property stated in the agreement, then, you will have to pay the stamp duty on the basis of the value computed from the rates in the ready reckoner. However, if the agreement value is higher than the ready reckoner valuation, the stamp duty payable will be calculated with reference to the agreement value. The stamp duty valuation also has implications on the income tax of buyers and sellers.


Importance for the seller under income tax laws

As per Section 50C of the Income Tax Act, in case the agreement value is lower than the stamp duty valuation, the law presumes that the seller has received an amount equal to the stamp duty valuation and the capital gains are computed accordingly. However, if the seller claims that the stamp duty valuation is higher than the fair market value of the property, the income tax officer can ask its valuation officer to assess the value the property for capital gains purpose. The value determined by this officer shall be treated as the sale consideration of the property for income tax purpose. However, if the valuation given by the income tax officer is higher than the stamp duty valuation, such excess valuation shall be ignored and only the stamp duty valuation shall be treated as the sale consideration. This provision is applicable to all the taxpayers, including limited companies.

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In cases, where the Stamp duty valuation is higher than the agreement value, and the taxpayer invests the net sale consideration under Section 54F to claim exemption from long-term capital gains, s/he may have to borrow money as the money received may be lower than the amount required to be invested.


Importance for the buyer under income tax laws

As per Section 56(2) (vii)(b) of the Income Tax Act, in case the stamp duty valuation of the purchased property is higher by more than Rs 50,000, then, the difference between the stamp duty valuation and the agreement value shall be treated as income of the buyer. This provision applies to Hindu undivided families (HUFs) and individuals only.

However, if the agreement date and the date of registration are different and thus, the values on these dates are also different, the valuation as on the date of agreement can be considered for this purpose, only if full or part consideration was paid by means other than cash, either on or before the date of the agreement.