Demand for Semi Luxury Real Estate in India May Stall

The demand for much of the middle premium range of real estate in India may fall in the coming few months thanks to the layoffs of middle management employees. Over the past month, IT industry leaders have expressed that to remain globally competitive will require them to hire employees overseas rather than from India.

Outsourcing Jobs to India

Over the past two decades, Indian IT companies grew rapidly on the back of a large and well trained workforce. Such a workforce could be deployed for work at client’s site overseas at a fraction of the cost the client would have to pay to hire workers onshore. The term offshoring became a buzzword that was heard usually in the context of India.

Well trained Indian engineers would usually work at a fraction of the cost of foreign workers. Outsourcing became such a concern among educated American and European techies that they told the generation still in school not to pursue a technical degree because in all likelihood, their job would be done by an Indian at a fraction of what they would have to be paid.  

Indian Techies Living Large

Many mid-level Indian techies earn between 20 to 60 lakhs per annum and make up a significant bulk of buyers of semi luxury properties in India. Most such working professionals are between the ages of 30 to 40. Because such workers earn a large income at a relatively young age, they make up the biggest segment of buyers of flats priced between 4,000 to 7,500 rupees per square foot.

Risks Looming Large

In addition to the protectionist policies of important foreign markets which are harming Indian IT companies; Indian IT companies are also suffering due to a large number of jobs being automated and by the advent of Artificial Intelligence.

Cities such as Pune and Bangalore depend on mid-level technology workers for job creation and to spur demand for office and residential real estate. This makes such cities especially sensitive to layoffs of mid-level IT workers.

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There are nearly 16,000 Indian IT companies that employ close to forty lakh tech workers. Today middle management is such companies is particularly at risk of layoffs because many in this working segment have skills that are less irrelevant today. Employing workers in this segment is also more expensive for IT companies who require the skill sets of fresh graduates yet may be able to do without such a large middle management.

Impact Upon Real Estate

If there is a meltdown in the Indian IT sector, then many in the middle management may be the first to go. This would lead to a fall in the demand for semi luxury and even luxury properties in the country. According to this property site, there is a significant possibility that a recovery in the mid premium real estate sector will be delayed.

What Has GST in Store for Those Eager to buy Property in India?

Home buyers who purchase a best property in India after the introduction of the GST are unlikely to suffer from any additional tax burden than are buyers who purchase a house before the GST is introduced. The GST will have a partial impact on the price of property in the country as work contracts in India will be levied a tax rate of 12 percent. According to experts, the 12 percent tax rate levied on work contracts under the GST will not have any impact on the price of houses in India.

Indirect Taxes on Real Estate

Currently, three key indirect taxes are levied on houses in India. These are excise duty; value added tax, and service tax which total between 9 to 11 percent of the price of the property. Stamp duty is an additional tax yet being a state tax, its rate varies from state to state. The first three taxes mentioned will be combined into one single indirect tax under the GST regime. One of the key strengths of the GST is that it will lead to the removal of cascading taxes. Under the new GST regime, builders will be allowed input tax credit which will lower the taxes they pay. However, developers in India are still waiting for clarity from the authorities on the abatement rate they will be charged on the land they purchase for a project.

How GST Will Impact Real Estate

Excluding taxes paid as stamp duty, realestate in India is currently taxed at rates lying between 9 and 11 percent. As the GST is expected to tax property at a rate of 12 percent, after the GST comes into force, houses are unlikely to cost more than they do today. According to leading property websites in India, the price of houses post the GST rollout is unlikely to rise.

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The Goods and Services Tax is also expected to widen the government’s tax collection base because, under the GST, the entire industry will be awarded an input tax credit. Authorities believe that awarding the entire industry with an input tax credit will provide a strong incentive to builders to come under the government’s tax net. Furthermore, as more businesses and traders come under the government’s tax net, it will lower the amount of cash in the country’s economy.

Benefits of Buying Under Construction Property Today

Home buyers interested in buying a house will benefit from buying property that is still being built today because after the GST regime is implemented, the property is likely to cost less. This is so because builders are constructing properties today, which when they sell, they will be able to receive a tax credit on under the GST regime. According to this property website, once the GST is in place builders shall receive a tax credit because excise tax and central sales tax on construction materials will be offset against indirect taxes collected from homebuyers.

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Ready to Move in Property in Hyderabad More Popular than Booked Property

Ready to move in property in Hyderabad is more likely to be bought or sold than a property that is under construction. A ready to move in property is likely to be sold faster than a freshly booked property regardless of whether the property is being bought or sold in the primary or secondary market. Thus if a ready to move in property is being sold by the builder, or being sold by an individual, it is likely to attract more buyers than an under construction property.

The Factors behind this Trend

Two factors have led to greater demand for ready to move in property. The first factor is the lower interest rate being charged by banks on home loans, this has led certain households to invest in real estate which otherwise wouldn’t have invested in a house. Demonetization is still playing a role in the cities real estate market seven months after it was implemented. Due to demonetization, buyers have more negotiating power over sellers translating into buyers being able to quote a more favorable offer price.

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The Ready to Move in Premium

Even though there are more transactions of ready to move in property, buyers are also willing to pay more for such a property due to the money they will save from owning a completed house. A household saves money by buying a completed house because project delays on an under construction property increase the financial burden on buyers.

Experts have stated that real estate property in Hyderabad is inexpensive when compared to real estate in other metro cities, this according to industry veterans is the key reason households in Hyderabad invest in ready to move in houses. Regions of Hyderabad such as Gachibowli and Hitech City have numerous ready to move in housing options available for interested buyers. According to industry veterans, usually when money is a major factor in deciding on a home do buyers opt to purchase a house in a fresh booking. Households that are not as constrained by money usually choose to buy a completed house. A major reason that investors choose to buy an under construction home when they have fewer funds is that they hope to benefit financially as the property nears completion and subsequently begin to increase in value.

The Role of Hyderabad’s growing IT Workforce

It is estimated that within one year, the headcount of Hyderabad’s IT workforce will increase by forty thousand; this is likely to lead to more demand for ready to move in houses. Notably, a reason ready to move in houses are more expensive than properties under construction is that there is greater demand for ready to move in houses.

Conclusion

It is expected that a larger IT workforce that is well paid will continue to create demand for completed real estate projects in Hyderabad.

Affordable Property in India Leads Realty Markets From the Front

A recent survey has revealed that demand for best property in India has risen in the 2017 fiscal year. Affordable property made up fifty percent of new home sales during the October to December quarter of 2016.

What Makes a House Affordable?

Houses that cost less than fifty lakh rupees fall under the category of affordable houses. During the third quarter of the 2017 fiscal year, affordable houses made up the bulk of the share of residential houses sold in the nine largest cities in India.

Urban Regions Leading Demand for Affordable Houses

The cities covered by the survey included Mumbai, Noida, Pune, Bangalore, Chennai, Gurgaon, Ahmedabad, Kolkata, and Hyderabad. Of all the new real estate launched in the mentioned cities during the third quarter of the fiscal year 2017, affordable houses make up sixty percent.

Factors Resulting in Greater Demand

Real estate industry experts and commentators on some of the top ranked property websites in India have stated that the main reason more affordable houses are being built and sold is that there is growing demand for such houses. The government’s actions have also led more consumers to buy an affordable house than otherwise would have. Private players, by increasing their participation in building affordable houses, have played a role in increasing the supply of affordable houses in the recent past. Cities such as Pune, Gurgaon, Noida, and Bangalore have more demand for affordable houses than most other cities in India.

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The Governments Role

Policies enacted by the central government have played a key role in stimulating demand for affordable houses in India. Its policies are geared to lead to the construction of three crore new houses in India that will be home to families that fall under the Economically Weaker Sections and Lower Income Group. The three crore houses for the EWS and LIG households are expected to be completed by 2022.

Laying the Ground Work

Many builders sense a great opportunity to earn profits for themselves from government policies tailored to lead to the construction of thirty million new houses in urban centers in India. More than a few private developers are expected to explore the chance to fuel sales by building affordable houses. Experts with intimate knowledge of the real estate industry are confident that builders will be able to build and sell affordable houses at favorable prices. Government authorities and many leading commentators on real estate sites have stated that the role played by private players will be crucial in closing the current gap in demand and supply of affordable housing in urban regions of India.

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Without Bidders, Government Real Estate in India Will House Affordable Homes

If the government’s efforts to auction the land bank of realestate in India that is currently in the hands of the nations loss making state run enterprises fails to attract bidders, the government plans to use the vacant land to construct affordable homes on it.

The Story Thus Far

A state run real estate firm intends to soon auction 2.000 acres of land that belongs to five loss making state run companies. The companies that will soon have their land holdings under the hammer for auction are Instrumentation Limited, HMT Bearing Limited, Tungabhadra Steel Products, Hindustan Steel Products, and HMT Watches Ltd. If the land holdings of these companies refuse to attract government bidders when the land in auctioned, the government will consider constructing affordable homes on the land.

Public Sector Companies Given Preference

It was reported to this property site in India by a senior government official that in case public sector companies as well as the various state governments fail to bid for the land parcels when they are auctioned, the government will conduct a feasibility study considering the possibility of building affordable houses on the land. If the feasibility study proves that the land would not be a suitable backdrop for affordable property, the government will open the land to private bidders.

As reported by the senior government official, the governments goal is not to generate as much revenue for itself as possible by auctioning the land but rather to utilize the land to it’s fullest potential.

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A Possible Role for State Governments

The state run real estate firm charged with the responsibility for all 2,000 acres of land will hold talks with the respective governments to ascertain whether they would be willing to buy the land. If the governments do not agree to buy the land, a feasibility study will be conducted. If the study indicates that affordable real estate can be built on the land, the state run real estate firm will comply and construct affordable houses on the land. Additionally, if the governments agree buy the land banks, the state run real estate company will provide the various governments who bought the land with the required expertise to build houses on the land.

More Land Banks Up For Sale 

In the next few months there may be more land banks up for sale according to the Chairman of the company responsible for auctioning the land banks of the five PSU’s mentioned. The land banks of six more government run companies may be up for sale within the next few months in addition to the current land banks of the 5 loss making state run companies that are up for sale.

Land Bank Sale Management Galore

The state run real estate company which will auction the land bank of the five companies mentioned has also been appointed as the Land management agency responsible for auctioning the real estate assets of the other six loss making government firms.

After the land bank auction of loss making firms has been successfully completed, the state run real estate company that conducted the sale shall receive half of one percent of the value realized from the auction as its fee for services rendered. The maximum the company may receive from the auction has however been capped at 1 crore.

In Conclusion

The central government will be the first suitor considered for the land banks, followed by Central PSE’s, State Department’s, and finally state government bodies will be considered suitors for the land banks. If all these government’s and government companies do not agree to purchase the land banks within six months, then, according to this real estate website the government will auction the land to private players.

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Under RERA Builders and Buyers to be Penalized Equally Concerning Property in India

Those who have invested in a best property in India the delivery of which has been delayed will receive a return on the amount invested. The return the buyers will receive due to delay on the part of builders will be at the rate prescribed by the RERA. RERA has prescribed this rate to be 10 percent as opposed to the flat payments of 5 rupees per square foot to 10 rupees per square foot that are contracted on the sales agreement.

Developers May Continue to Advertise Unregistered Projects 

Till date developers have not been barred from advertising and marketing their projects and may continue to do so according to regulators of Madhya Pradesh, Punjab, Haryana, and Delhi. Many doubts held by builders were dispelled as they were clearly informed that they may register their project by the last day of July this year. The interim regulatory authority under the RERA stated at a conference organized by FICCI to builders that they need not register their project first before advertising the projects. Projects by builders can continue to be advertised without first being registered as they had been during the pre RERA regime.

Projects for which the application for registration has not been made by July 31 of this year with the regulatory authority cannot be marketed by builders. The joint secretary of the housing ministry has stated that fourteen states and union territories have already implemented the new law and fourteen more states are in the process of notifying the rules and he is hopeful that these fourteen states will notify the rules soon.

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The Late Penalty According to RERA

The Chief Secretary of Madhya Pradesh, Anthony De Sa has stated that the delayed ongoing housing projects will be registered with
RERA only if the builder, in case the project is delayed, has agreed to pay the buyer an interest rate that is the same as the rate prescribed by the RERA authority. The rate prescribed by the authority is 2 percent greater than the SBI’s MCLR (Marginal Cost of Lending Rate) whereas the contractual rates builders had agreed to pay buyers in case of project delays (contractual rates were agreed upon when the sales agreements are signed between buyers and builders) stood between 5 to 10 rupees per square foot. Hence, in the future, properties in India that are built will have attached with them checks and balances to ensure the timely completion of the project.

Understanding the Financials

According to this property site since the SBI’s MCLR stands at 8 percent and in the future builders will be penalized by paying buyers interest at a rate 2 percent greater than the MCLR, hence in case of delay in project delivery, builders will pay interest to buyers at a rate of 10 percent on the amount paid to builders. However both the builders and buyers will have to pay penalties at the same rate of interest I.e. a rate 2 percent greater than the SBI Marginal Cost of Lending Rate. In case builders delay projects they will have to pay buyers at a rate of ten percent of the amount paid by buyers to builders; in case buyers delay payment to builders, they would have to pay a 10 percent penalty on the amount owed to builders.

7 Ways RERA Will Affect Indian Realty Market

Real Estate (Regulation and Development) Act, 2016 or RERA is expected to bring a revolutionary change in Indian realty market. The act was passed in March 2016 and came into effect from May 1, 2017. The government has also formed a body named RERA to deal with the regulation, execution and functioning of the governing law. The government body will focus on smooth and proper channelization of the builders, buyer and real estate agents to make Indian realty market more organized, transparent and reliable.

Broadly, RERA is said to be a buyer-friendly law, which will compel builders and agents to engage into fair practices. The Minister of Housing and Urban Poverty Alleviation said that the law will make “buyer the king” making transaction of properties in India more consumer friendly.

Giving more power to the buyers is not the only change RERA is expected to bring in the market. Given below are top 7 ways RERA will make real estate market in India better.

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1. Developers need to register new projects which come under RERA norms with the considered authority. Along with this, they also need to register ongoing projects within three months of May 1, 2017. This will largely affect the quality of construction as builders will have fear of the authority keeping an eye on their activities.

2. As per the law, while selling a property builders need to clearly define carpet area, which is the net usable area. This will help buyers get complete value for their money with clarity on transactions.

3. Though the entire nation comes under RERA umbrella, every state needs to establish a State RERA. It will compel states to regulate the market in their region.

4. The rule to register projects on over 500 square meters of land or with eight flats needs to be registered on state RERA website. Buyers now don’t need to check other property websites in India to get project details.

5. Buyers now don’t need to rely only on the Appellate Authority for solution of their problems. They can now also approach consumer courts. Further, buyers now have right to ask the builders for repair of structural defects until five years from the possession.

6. Builders need to deposit 70% of the sale amount in an escrow account for construction of the same project. In case of default, they need to pay interest to the buyers as per prescribed standards.

7. Increased trust and comprehension of the real estate market after implementation of RERA law will draw attention of overseas investors.

Impact of the Real Estate (Regulation and Development) Act can already be seen in the market. There are many real estate websites, which have already started making improvements to abide by the rules.

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Lack of Regulatory Authority Creates Confusion Among Builders in Ahmedabad and Gujarat

Many builders in Ahmedabad are facing a problem with regards to RERA as the Gujarat Government as yet has not formed a state level regulatory authority which is to frame regulation for builders to follow. Real estate developers in much of Gujarat are uncertain and confused with regards to how to register ongoing projects.

What the New Law Requires?

According to the new RERA law, new and ongoing projects shall have to be registered with the regulatory authority. By July 1 of this year, realtors have to register their ongoing and new projects. However because the Gujarat Government is yet to appoint a state level regulator who will frame regulation, builders are left in quandary concerning whom to approach to register their projects.

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Builders in Confusion in Gujarat

Builders in all of Gujarat including those in Ahmedabad are confused regarding how to proceed as there is no regulatory authority in the state with which they can register their projects. According to industry insiders, builders have stated that they hope that a authority would be established soon. For all their wanting of a regulator with whom they may register their projects, builders are also anxious about where and when they will get their registration numbers and which receipts from the bank accounts of new and existing customers will need to be deposited.

The questions mentioned above are of serious concern to builders and developers and are leading to confusion among not only builders and developersin Ahmedabad but also among builders across India in states that have failed to appoint state level regulators. According to a member of the CREDAI, the question of how and when builders will get their registration numbers and the question of customers bank receipts are paramount among those being posed by builders.

RERA: Bringing Transparency

Developers have stated that the RERA will bring transparency in the real estate sector, however developers have stated that the government should also create a dialogue with consumers in addition to a dialogue with builders. In such a dialogue the government could clearly explain its plans to build the required infrastructure.

The Word on the Street

The word on the street is that by the time the government takes the necessary steps to create a state level regulatory authority, there will be a shortage of time for builders to register their projects leading to a mad rush among numerous builders to register projects once the necessary infrastructure is in place.

Time is Of the Essence

It is expected that nearly a month will pass before the authority can be ready to create registration numbers for builders. According to estimates, there are 750 to 800 upcoming new projects in Ahmedabad and these have some 70,000 units all of which will have to be registered costing a lot of time and man hours in the process.

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Concerning Property in India, Demonetization Seems a Distant Memory

Sales of property in India have grown by nearly 13 percent in the fourth quarter of 2016-2017. Three cities Mumbai, Bangalore, and Pune were the primary drivers of home sales in India during these past few months. The three cities together accounted for 57 percent of the total sales among the top nine real estate markets in the country for the quarter ended March of 2017.

Going By the Numbers and Laws

The number of new residential units sold increased to 51,700 units in the quarter ended March 2017 from 43,500 units during the previous quarter. According to those who work within the real estate industry, demand for housing is being driven by the affordable housing sector. Residential markets, say experts, have recovered from the lows of demonetization and sales and new launches have reached healthy levels in the fourth quarter of the financial year of 2017. Real estate insiders have also gone on to state that affordable housing is driving rising sales in domestic real estate because affordable housing has been granted infrastructure status which makes it possible for builders to receive loans at lower rates and build such Projects.

Post Demonetization Resurgence

According to industry reports, realestate in India has been revived post demonetization and sales have risen by 13 percent while they had fallen by nearly 22 percent in the last quarter in the top 9 real estate markets in the country. Concerning Mumbai, Pune, and Bangalore each city has contributed 23 percent, 18 percent, and 16 percent respectively to the total sales of real estate in the latest quarter.

A Rise in Launches

Across the cities of Mumbai, Pune, and Bangalore the number of new launches has risen by 19 percent. This is the highest increase in the number of new launches in the last two years. According to those who follow the industry, the number of new launches stood at 51,500 units in the final quarter of 2016-17 whereas it had stood at 43,250 in the third quarter of the financial year 2016-17. According to this real estate websites the number of new launches was the highest in Mumbai followed by Hyderabad and Gurgaon respectively. for more here

New Partnership Good News For Buyers Seeking Affordable Real Estate in India

Affordable realestate in India may have finally come of age as the SBI and the Confederation of Real Estate Developers of India (CREDAI) have joined together to create affordable housing in India. The agreement between the SBI and the CREDAI is to be valid for three years in which time the SBI is expected to extend construction finance to developers to the tune of 12,500 crores. Notably the SBI believes that in total, over a period of two to three years, borrowers will demand 25 thousand crores of housing loans to purchase affordable property across India.

CREDAI and Affordable Property Today

The CREDAI has recently launched 373 affordable projects that once completed, put together, will consist of two lakh thirty three thousand individual housing units. A sum exceeding seventy thousand crores has been invested in the 273 affordable projects mentioned which were launched by Union Minister of Urban Development Housing and Urban Poverty Alleviation Minister Mr. Venkaiah Naidu.

The SBI and CREDAI Partnership

The SBI is expected to support the CREDAI as its national banking partner. The State Bank of India is India’s largest bank and the biggest mortgage lender in the country as well. As the national banking partner of the CREDAI, the SBI will also provide easy construction finance for affordable housing projects to developers who are members of the CREDAI that too at a lower rate of interest than the SBI does to other borrowers.

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The SBI and Affordable Housing

As a housing financier, the SBI is the largest one in the country when it comes to financing affordable housing. According to this property website, those within the SBI have stated that the partnership with the CREDAI is a special time as the partnership between the SBI and CREDAI is part of a larger national mission to provide housing for all in India by 2022. The initiative between the SBI and CREDAI is expected to fulfill the dream of homeownership for millions of Indians and in the long run will boost the real estate sector in India and the nation’s economy as well.

Financials of SBI’s Partnership with CREDAI

The SBI will provide up to 35 basis point (.35 percent) interest rate concession to eligible builders in the form of construction finance. A partnership between the SBI and the CREDAI will benefit both builders who are members of the CREDAI and to end users who actually buy the housing units.

Conclusion

The CREDAI president has stated that the organizations partnership with the SBI will bring the CREDAI one step closer to it’s goal of providing housing for the masses in India and to elevate the quality of lives of many of the urban poor in India. According to many real estate sites in India once the urban poor have a permanent home they will cease to suffer from the many disadvantages that are a part of not having one’s own physical home address. for mor info click here