cost

Increase in Interest Rates May Result in 10-15% Hike in Property Prices

by Paul Joseph June 17, 2011

Housing prices may rise by 5-10 per cent in the next 3-6 months as the cost of funds for developers is expected to increase following the Reserve Bank of India’s decision to raise key policy rates by 25 basis points. “Property prices are bound to go up in next 3-6 months by 5-10 per cent across the country,” Confederation of Real Estate Developers’ Associations of India (CREDAI) Chairman Pradeep Jain told PTI.Jain, who is also the Chairman of Parsvnath Developers , said the hike in repo and reverse repo rates would result in an increase in interest rates for builders and the same would be passed on to home buyers. He, however, said demand would not be hit despite the expected rise in interest rates on home loans. “People will continue to buy knowing that housing prices would go up further,” he said. Instead of demand, Jain said supply would be affected, as the increase in interest rates would impact the liquidity situation of small developers. Asked about impact of the hike in repo and reverse repo rates on the realty sector, DLF Group Executive Director Rajeev Talwar said, “The constant increase in interest rates over the last one year would definitely have an impact”, and suggested that the government initiate reforms to boost the supply of housing. The Reserve Bank, for the tenth time since March, 2010, raised the repo rate by 25 basis points to 7.5 per cent and the reverse repo rate by a similar margin to 6.5 per cent today. Echoing similar views, Credai President Lalit Kumar Jain said, “Any increase in the rate of interest will be counter- productive and my fear is that it will give rise to inflation instead of curbing it.” “… The cost of funding from the developers’ point of view would also shoot up. This will be passed on to the customer, who is already under stress,” Jain, who heads Mumbai-based Kumar Urban Development Ltd , said. Raheja Developers Chairman and Managing Director Naveen Raheja said: “As the cost of money goes up, the cost of construction and production will also go up. This will lead to further inflationary pressures.” The need is to increase supply so that demand pressures can be eased and consequently, the prices are curtailed, he added.

Tagged as: bangalore, chairman, cost, developers, director-rajeev, hike, kumar-urban, mumbai, property prices, raised-the-repo, real estate, real estate india, reserve, urban

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Hike in Lending Rates will Affect Cost Sensitive Real Estate Market

by Paul Joseph May 20, 2011

After the Reserve Bank of India (RBI) decided to increase both the repo rate and reverse repo rate by half a percentage points each, to 7.25% and 6.25% respectively, banks and financial institutions are likely to increase their lending rates sooner than later. While repo rate is the rate at which RBI lends short-term funds to banks, RBI accepts short-term deposits from banks at reverse repo rate. Even more worrying for the feel-good factor of the Indian economy is the RBI’s projection moderating the economic growth to around 8% for 2011-12 , from around 8.6% in 2010-11 .This will affect the general mood of the investors, as it will bring down the return on investment in the economy. In the Union Budget presented by finance minister Pranab Mukherjee on February 28,2011,the government had estimated an economic growth rate of 9%. Therefore, one percentage point lower than the projected one for the year and 60 basis points lower than the previous year will have a severe impact on the mood of the investors and other players in the economy. The hardening of the interest rates coupled with slowdown in the economy will affect the activities in the real estate sector as well. The lowering of the economic growth is mainly on account of the efforts taken by the central bank to contain inflation which is presently hovering around 9%. Ashutosh Limaye, director (strategic consulting) at Jones Lang LaSalle India, says, “It has always been axiomatic that when financial institutions raise their lending rates, there are bound to be ripples on the highly cost-sensitive Indian real estate market.” The latest rate hike obviously means that the cost of construction has gone up for developers and this increase in repo rates by the RBI certainly does not come at the best of times for them.Limaye says banks have already taken a cautious approach to real estate lending and reduced their exposure to the sector. As result, most developers are now raising a larger component of their construction costs from the private sector.The fact that such funds come at a higher cost of borrowing has already increased their construction costs significantly. Under such circumstances ,it is logical to assume that developers would not hesitate to pass on the incremental burden to buyers to maintain their profit margins. This would certainly happen if buyer sentiments and resultant market activity were high enough to accommodate it. But, Limaye says that the market for residential real estate is far from effervescent at the moment. In a case where staying competitive and selling stock is of the utmost essence,developers are unlikely to increase the cost of their units and thereby risk losing more customers. While this will certainly impact their revenues to an extent, most developers see a sufficient profitability quotient to make a strategic decision on this count. On the whole, the increase in the rate would slowdown activities in the real estate sector.

Tagged as: ashutosh-limaye, cost, delhi, economy, faridabad, gurgaon, most-developers, property prices, rate, real

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Hike in Lending Rates will Affect Cost Sensitive Real Estate Market

by Paul Joseph May 20, 2011

After the Reserve Bank of India (RBI) decided to increase both the repo rate and reverse repo rate by half a percentage points each, to 7.25% and 6.25% respectively, banks and financial institutions are likely to increase their lending rates sooner than later. While repo rate is the rate at which RBI lends short-term funds to banks, RBI accepts short-term deposits from banks at reverse repo rate. Even more worrying for the feel-good factor of the Indian economy is the RBI’s projection moderating the economic growth to around 8% for 2011-12 , from around 8.6% in 2010-11 .This will affect the general mood of the investors, as it will bring down the return on investment in the economy. In the Union Budget presented by finance minister Pranab Mukherjee on February 28,2011,the government had estimated an economic growth rate of 9%. Therefore, one percentage point lower than the projected one for the year and 60 basis points lower than the previous year will have a severe impact on the mood of the investors and other players in the economy. The hardening of the interest rates coupled with slowdown in the economy will affect the activities in the real estate sector as well. The lowering of the economic growth is mainly on account of the efforts taken by the central bank to contain inflation which is presently hovering around 9%. Ashutosh Limaye, director (strategic consulting) at Jones Lang LaSalle India, says, “It has always been axiomatic that when financial institutions raise their lending rates, there are bound to be ripples on the highly cost-sensitive Indian real estate market.” The latest rate hike obviously means that the cost of construction has gone up for developers and this increase in repo rates by the RBI certainly does not come at the best of times for them.Limaye says banks have already taken a cautious approach to real estate lending and reduced their exposure to the sector. As result, most developers are now raising a larger component of their construction costs from the private sector.The fact that such funds come at a higher cost of borrowing has already increased their construction costs significantly. Under such circumstances ,it is logical to assume that developers would not hesitate to pass on the incremental burden to buyers to maintain their profit margins. This would certainly happen if buyer sentiments and resultant market activity were high enough to accommodate it. But, Limaye says that the market for residential real estate is far from effervescent at the moment. In a case where staying competitive and selling stock is of the utmost essence,developers are unlikely to increase the cost of their units and thereby risk losing more customers. While this will certainly impact their revenues to an extent, most developers see a sufficient profitability quotient to make a strategic decision on this count. On the whole, the increase in the rate would slowdown activities in the real estate sector.

Tagged as: cost, economic, government, gurgaon, indian, investors, mood, real, real estate developers, reserve

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Hike in Lending Rates will Affect Cost Sensitive Real Estate Market

by Paul Joseph May 20, 2011

After the Reserve Bank of India (RBI) decided to increase both the repo rate and reverse repo rate by half a percentage points each, to 7.25% and 6.25% respectively, banks and financial institutions are likely to increase their lending rates sooner than later. While repo rate is the rate at which RBI lends short-term funds to banks, RBI accepts short-term deposits from banks at reverse repo rate. Even more worrying for the feel-good factor of the Indian economy is the RBI’s projection moderating the economic growth to around 8% for 2011-12 , from around 8.6% in 2010-11 .This will affect the general mood of the investors, as it will bring down the return on investment in the economy. In the Union Budget presented by finance minister Pranab Mukherjee on February 28,2011,the government had estimated an economic growth rate of 9%. Therefore, one percentage point lower than the projected one for the year and 60 basis points lower than the previous year will have a severe impact on the mood of the investors and other players in the economy. The hardening of the interest rates coupled with slowdown in the economy will affect the activities in the real estate sector as well. The lowering of the economic growth is mainly on account of the efforts taken by the central bank to contain inflation which is presently hovering around 9%. Ashutosh Limaye, director (strategic consulting) at Jones Lang LaSalle India, says, “It has always been axiomatic that when financial institutions raise their lending rates, there are bound to be ripples on the highly cost-sensitive Indian real estate market.” The latest rate hike obviously means that the cost of construction has gone up for developers and this increase in repo rates by the RBI certainly does not come at the best of times for them.Limaye says banks have already taken a cautious approach to real estate lending and reduced their exposure to the sector. As result, most developers are now raising a larger component of their construction costs from the private sector.The fact that such funds come at a higher cost of borrowing has already increased their construction costs significantly. Under such circumstances ,it is logical to assume that developers would not hesitate to pass on the incremental burden to buyers to maintain their profit margins. This would certainly happen if buyer sentiments and resultant market activity were high enough to accommodate it. But, Limaye says that the market for residential real estate is far from effervescent at the moment. In a case where staying competitive and selling stock is of the utmost essence,developers are unlikely to increase the cost of their units and thereby risk losing more customers. While this will certainly impact their revenues to an extent, most developers see a sufficient profitability quotient to make a strategic decision on this count. On the whole, the increase in the rate would slowdown activities in the real estate sector.

Tagged as: chennai, cost, down-the-return, economic, faridabad, india, investors, most-developers, property prices, reserve

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Developers/Home Buyers will Feel the Pinch of Higher Interest Rates

by Paul Joseph May 4, 2011 Uncategorized

Real estate developers and home buyers will feel the pinch of higher interest rates, which could slow down home sales. Higher interest will push up monthly installments for home loans for existing as well as new home buyers. The National Real Estate Development Council (Naredco) expects interest rates on housing finance to increase to 10.5 per cent for loans up to Rs 30 lakh and 11 per cent or more on loans above Rs 30 lakh. The Council feels the problem of food price increase and oil price rises should not be tackled by enforcing restrictions on all sectors. Reduced investments in the real estate industry will only widen the housing deficit and escalate cost. Naredco estimates a housing shortage of 26.53 million dwelling units in the country, the bulk for low income and economically weaker sections. Ashutosh Limaye, Local Director – Strategic Consulting, Jones Lang LaSalle India, said construction costs have gone up as most developers have been forced to raise money from the private sector in the absence of bank lending. More than interest rates, what’s hurting home buyers is that many banks are now funding only 75 per cent of the cost of an apartment as against 85 per cent earlier. “The fact that the salaried class now has to supply a higher contribution to the cost of their homes is having a very tangible impact on demand,” said Limaye. Pradeep Jain, chairman, Confederation of Real Estate Developers’ Association of India, said: ‘‘The increase in rates will intensify the cash crunch scenario the industry is facing. The current pressure on prices is global in character and reflects supply-side bottlenecks. The solution is not monetary tightening.”

Tagged as: cost, country, feel-the-pinch, higher-interest, india, industry, local-director, most-developers, pradeep-jain, real estate developers

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RCA for Property Maintenance

by Paul Joseph December 15, 2010 Uncategorized

Cost of rented property maintenance is often common point of dispute between landlords and tenants. Usually, it depends on the mutual terms and conditions as agreed upon and laid down in the lease agreement. The landlord has to ensure that the tenanted premises are habitable and safe, with adequate repairs undertaken. In case a landlord is unable to do so, the tenant may undertake these repairs, with a proper notice to the landlord, mentioning the nature of problem, inconvenience, safety hazards, and the necessary steps required to correct the problem. It should be mentioned that, in case the landlord fails to undertake these repairs within the specified time, the tenant will have it done and will be eligible to recover the amount spent from the landlord. However, this covers only repairs that are essential and urgent. The Rent Control Acts says, that a landlord is bound to keep his premises in good and tenant-able repairs. If a landlord fails to undertake any repairs, the tenant may do so himself and deduct the expenses from the rent payable to the landlord. This is subject to the condition that any amount deducted or recoverable in any year will not exceed 1/12 of the rent payable by the tenant for that year. In case of repairs, without which the property is not habitable, and the landlord  fails to do so notice in writing, the tenant may apply to the rent controller under the Rent Act for permission to undertake the repairs himself. He should submit to the controller an estimate of the cost of such repairs too. After considering the estimate of cost, controller may by an order permit the tenant to undertake the repairs. It will then be lawful for the tenant to undertake the repairs and deduct the cost. The costs can be recovered from the landlord.

Tagged as: cost, nature, rent

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New Delhi most Expensive Indian City in Terms of Cost of Living

by Paul Joseph July 2, 2010

New Delhi has emerged as the most expensive city for expatriates in terms of cost of living, according to a survey by global HR consultancy Mercer said. However, the cost of living in Indian cities still happens to be cheaper than 84 cities in other parts of the world, the ‘2010 Cost of Living Survey’, which covers 214 such locations across five continents, stated. Angola’s Luanda topped global rankings as the most expensive city to live in. It was followed by Japan’s Tokyo (second), Ndjamena in Chad (third), Russia’s capital Moscow (fourth) and Geneva in Switzerland (fifth). Indian cities figure somewhere in the middle of the list as the cost of living in the country is on the rise due to escalating property prices and a steadily improving economic climate. “New Delhi (85) is India’s most expensive city, followed by Mumbai (89) and Bangalore (190) with Chennai and Kolkata ranked 195th and 207th on the global list, respectively. New York was used as the base city for the index, and all the cities were compared against it. Currency movements were measured against the US dollar. The cost of housing, often the biggest expense for expats, plays an important role in determining the ranking of cities, the report added. Pakistan’s Islamabad (212) and Karachi (214), and Nicaragua’s Managua (213) were ranked at the bottom — as the least expensive cities in the world.

Tagged as: cities, cost, delhi, indian, real estate, real estate developers, real estate india, world

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The Impact of New Tax Code on Real Estate

by Paul Joseph June 24, 2010

The revised draft for the Direct Tax Code released on June 15, is currently a hot topic of discussion among people. The code is an attempt by the government to simplify the existing income tax laws in the country. Assuming there are no further roadblocks, the government expects to implement DTC on April 1, 2011, after it is passed by the Parliament. Here is a list of some of the noteworthy changes proposed in the draft code that will impact the real estate segment. The government has revised the criteria for computing short-term capital gains. According to the proposals, any loss or gain made on the sale of an asset within a year of purchase will be taxed. The loss or gain made will be factored in your income and taxed according to the income tax slabs of the investor. According to the existing tax laws, sale of asset before three years of purchase is considered short term. Long-term capital gains- According to the proposed laws, any loss or gain made on the sale of an asset after one year of purchase is liable for long-term capital gains tax. Instead of indexation benefit, the government plans to introduce the concept of discounting based on which LTCG will be calculated. It has also revised the base date for determining the cost of acquisition. According to the draft code, from April 1, 2011, April 1, 2000 will be considered for calculating the discount rate and not April 1, 1981, which is used currently. This is a good news for investors who have invested in property years ago, as the unrealised capital gains on such assets between April 1981 and April 2000 will not be taxed. Earlier long-term gains were taxed at a flat rate of 20 per cent after indexing it for inflation. However, now it will be added to your income after indexation (wipe out the rise in property value on account of inflation) and be taxed at the marginal tax rate i.e., the rate will be dependent on the tax bracket you find yourself in. This change will have a direct bearing on individuals in the higher income bracket as tax outflow will increase. So if you fall in the 30 per cent tax bracket, your gains will be taxed at 30 per cent. Taxation on rental income- According to the earlier draft, the DTC had proposed that gross rent should be calculated at a presumptive rate of 6 per cent of either the market value or the cost of construction or acquisition, whichever is higher. However, it has now decided to reinstate it to the actual rent received or receivable for the financial year. Doing away with the complex method of calculation of rent will prove to be beneficial for recent home owners letting out their house. Interest on home loans- The draft DTC released in August 2009, proposed doing away with the tax deduction on the interest paid on home loans. But fortunately, the revised DTC intends to continue tax deduction on the interest paid on home loans up to Rs 150,000 for purchase or construction of residential property. This has come as a relief for first time home buyers. Property not let out- This will be ignored from tax calculations and hence no deduction for taxes or interest will be allowed. Any one house property that has not been let out (treated as self occupied) will be eligible for deduction on account of interest to the tune of Rs 150,000. Ambiguous areas- The discussion paper does not mention anything about the tax benefits on the principal amount paid on housing loans, while it clearly states that interest paid is deductible up to Rs 150,000. It has also not mentioned anything on the tax treatment of interest during the pre-construction period. Changes proposed in the revised draft of the Direct Tax Code will cheer home owners and home buyers. While changes like tax deduction on interest paid on home loans and calculation of tax on actual gross rent are favourable for investors, changes in capital gains dampen enthusiasm.

Tagged as: cost, financial, government, real estate india

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Why you should go for a fixed home loan rate now

by Paul Joseph June 14, 2010

Some analysts indicate that home loan interest rates may rise in the near future. There are indicators to this effect. The high inflation rate of around 10 per cent could affect the stable macroeconomic and interest rate environment here. The Reserve Bank of India (RBI) may hike the key interest rates again to cool down the inflation rate in the next credit policy review in the next couple of months. The inflation rate has been rising due to the rising food prices. The RBI had hiked the key rates in the Annual Credit Policy for 2010-11. It increased the short-term lending and borrowing rates and the portion of banks’ deposit with it by 25 basis points each. The move was aimed at controlling the inflation rate spiral without choking growth. It had hiked the key lending and borrowing rates, as also the mandatory cash reserves banks park with it by 0.25 per cent. The RBI increased the repo and reverse repo, the rates at which it lends to and borrows short-term money from banks, by 25 basis points. It hiked the cash reserve ratio (CRR), the portion of money that commercial banks deposit with the central bank, by an identical percentage. The move was to draw out Rs 12,500 crores from the system. The hike in the repo and reverse repo rates, to 5.25 and 3.75 per cent respectively, will raise the cost of funds for lenders. At that time, borrowers could breathe easy as there was enough liquidity in the system. The policy actions resulted in the cost of funds going up which was absorbed by the banking system. Moreover , the RBI had said that it will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted. The three major factors that could have a bearing on inflation are uncertain monsoons, volatile prices of crude oil in the international markets, demand pressures. Presently, all these factors are uncertain. The global factors including the euro crisis, volatility in the stock markets, oil prices etc are all causes of concern. The inflation rate hasn’t really reversed. The economic growth is contingent to a large extent on the monsoons. All these micro and macro indicators indicate that the interest rates may again increase in the coming months. Bad monsoon, global cues and spiralling inflation, can push up interest rates. Following the global slowdown the property prices went through a correction. Now, as the economy has staged a recovery , the prices too are on an upward trend. There is more job security and homebuyers are back in the market. Regardless of the interest rate movements, this is a good time for those planning to buy property to make a move. The question is which one to go for—fixed and floating rates. Fixed rate ideal Those planning to purchase a house may do well to lock-in their borrowing now. They should go in for a fixed rate loan. As such, there is no concept of fixed rate loans for the entire tenure of the home loan. The interest rate is generally fixed for only two or three years, after which it is subject to revision. Yet, one should lock into a fixed rate loan Source : http://economictimes.indiatimes.com/quickiearticleshow/6036138.cms Filed under: Home loans Tagged: Home loans

Tagged as: cost, home-loans, india, inflation, price

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IndiaReit Plans Project-Specific Fund

by Paul Joseph June 8, 2010

Ajay Piramal’s real estate fund will launch a property-specific fund that will give investors the opportunity to buy apartments in such projects at a discount. “We will jointly identify residential projects with builders and launch a property-specific fund for the project,” chief executive and managing director Ramesh T Jogani said on Tuesday. Investors in IndiaReit Fund Advisors Pvt Ltd’s plan “will be allotted units which will entitle them to apartments in the project from our share of investment in the project, at prices lower than that offered by the builders.” Investors will be allowed to invest up to the cost of the flat. They will have to pay the cost price of the property along with a 15-20 per cent management fee to buy it, said Jogani. “Our logic to this sale hinges on our guarantee to investors with a 20 per cent return to our investors. Our plan is to take this theme to a mass scale,” said Jogani, who closed a Rs 350 crore domestic fund recently and is in the market to raise Rs 450 crore from domestic institutional investors for real estate development. The fund is betting that the popularity of affordable homes won’t wane. IndiaReit also plans to raise about Rs 1,200 crore from high networth individuals for a fund that will focus on buying land around large cities earmarked for residential development and sell it within 12 years. Investors should be willing to stay invested for that length of time against the regular tenure of nine years. “We believe that land prices will rise as government creates infrastructure around large cities,” Jogani said. IndiaReit is promoted by Piramal Enterprises, which owns three funds with a corpus of $450 million that have jointly invested along with eight developers across nine cities to build residential properties. The company is looking to sell nearly 260 acres it owns in Hyderabad instead of developing it because the Telangana agitation has put off investors and buyers, Jogani said.

Tagged as: cost, delhi, gurgaon, india, real estate, real estate developers, real estate india

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