Latest Property News on 'Banking and Finance'

Banks now help you spot that dream home

The lengthy process of buying your dream home begins with the most critical aspect — identifying the property and while your local broker may have been your dependable man to do that till a few years ago, that is not the case any longer.

Most banks and housing finance companies (HFCs) now offer property search services giving you an option to deal with an institution that has benchmarked practices.

Lenders such as HDFC, ICICI Home Finance Company and Indiabulls Financial Services have property search divisions that help home buyers identify properties and also organise property visits and help with legal documentation.

“The benefits that you get while dealing with an institution is that there is professionalism, transparency and comfort that you get. Also when you deal with them a lot of the due diligence on the property has already been done,” says Vishal Dhawan, a Mumbai based financial planner.

HDFC Realty, ICICI Home Search and IB Home Finder have dedicated relationship managers who help customers with identifying a property and completing the transaction.

“There is a dedicated relationship manager who will help end to end in completing the transaction for property selected and at the same time arrange home loans at competitive rates. It is a complete end-to-end home buying solution under one roof, and that separates this value proposition from one that is offered by a local broker,” said Ashwini Kumar Hooda, MD, Indiabulls Housing Finance, whose services are limited only to builder properties.

HDFC Realty and ICICI Home Search offer their services for both builder and resale properties and while they do not charge a brokerage fee on builder property (first sale), they do charge a fee on the resale property.

“In case of builder property we have arrangement with the builder and in case of resale property we charge a fee depending on the price of the property which varies between 1 and 2 per cent,” said an HDFC official.

An official with another housing finance company said that property search divisions of housing finance companies and banks mostly focus on builder properties on account of transparency issues. “It is because in most of the resale properties, a cash component is involved in the deal whereas in case of builder property there is no such hassle.”

While such property search divisions offer professional service, experts say that the local brokers still hold an advantage over these institutions when it comes to providing the number of options in a particular geography.

“If you are going to purchase a home for your own use then going to a local broker might be beneficial as they have a deeper knowledge of properties and a particular geography and the number of options that they can provide cannot be matched by banks and housing finance companies offering these services. However if you are going for investment purpose then you can go to an institution,” says Dhawan.

An official with a housing finance company says that they too take the services of the local broker for identifying properties as per customer requirement.

“If banks and HFCs can increase their network and offerings then for end users it would add significantly,” says Dhawan adding that it may take some time for banks and HFCs to be able to do that.

Experts also say that customers should look to go for big brokers or institutions as they are in a better position to offer good deals on the same property.

“The negotiation power of a big broker with a builder is more and such brokers are in a position to pass on some benefit of their higher margins to their customers and hence they should avoid small brokers,” said an official with an housing finance company.

Finance Ministry working on safeguards against abuse of ECB in realty

The Finance Ministry is building safeguards to ensure realty companies do not misuse the external commercial borrowing (ECB) window announced in the Budget by diverting the money.

According to sources the modalities are being worked out for implementation of the Budget announcements. These were likely to specify the projects and also the developers who would be allowed to utilise the ECB facility. The Finance Ministry has cleared the way for implementation of the ECB announcements for power, roads and airlines. For affordable housing, the go-ahead is expected in two weeks.

Noting ECB is not allowed in real estate as a general rule but the Budget had proposed to allow these for low-cost and affordable housing projects so that the cost of borrowing could be lower for the segment, the official said the guidelines would be framed to ensure this.

Track2Realty has learnt that an escrow account may be made mandatory to check that ECB funds go only for affordable housing and are not routed elsewhere. The ministry is talking to various entities, such as the Housing Ministry, NAREDCO, the National Housing Bank (NHB) and RBI. ECB is most likely to be routed through a channel, like the NHB.

NHB CMD R V Verma has confirmed that ECBs may be routed through it, as it had an apex role and aggregate lending would provide ‘economies of scale’ to NHB, ensuring no risk was transferred to the sector. Verma did not divulge details today, saying the matter was being looked into by the Ministry of Finance.
Real estate bodies want a clear definition of affordable housing. “There needs to be clarity on the definition and eligibility criteria, and the guidelines should be practical. Otherwise, allowing ECBs would just be another statement to please people,” says Lalit Jain, Chairman, CREDAI.

However, Sachin Sandhir, Managing Director-South Asia of RICS is not convinced with the argument to allow ECB in the segment. “First, the government needs to give incentives to developers to go for affordable housing, such as low development fees, stamp duty exemption and tax rebate.” Allowing additional sources of funds through ECB is step two. Step one is not complete, so step two does not seem to be of a great benefit, and attracting funds for low-cost housing will be a challenge, he says.

The Ministry of Housing and Urban Poverty Alleviation (MHUPA) defines affordable housing where the size of a unit ranges from 300 sq ft to 1,200 sq ft, and 25 per cent of the 300 sq ft units are reserved for economically weaker sections (300 sq ft for EWS, 500 sq f for the low-income group (LIG) and 600-1,200 sq ft for the middle-income group (MIG).

Section 35 AD of the Income Tax Act defines affordable housing; a couple of the criteria being “at least 90 per cent of the total allocable rentable area of the project shall comprise of affordable housing units of EWS, LIG and MIG categories”, and “at least 30 per cent of the total allocable rental area of the project shall comprise of affordable housing units of EWS category”.

NAREDCO has recommended the finance ministry apply the affordable housing definition of MHUPA for allowing ECB, as the I-T 35AD definition talks about 30 per cent of the floor area ratio for EWS, and does not define size or number of units for these.

Bank lending to commercial realty rises by 9% in February

April 20, 2012

Banks’ lending to the commercial real estate sector grew 9 per cent in February 2012 compared to February 2011, as risk-averse fund houses continued to seek a higher rate of return and invest in smaller deals.

According to the Reserve Bank of India (RBI) data, banks sanctioned about 1.2 lakh crore in loans to the sector in February 2012 against Rs 1.1 lakh crore in February 2011. The year-on-year growth in January was 12.1 per cent.

Banks normally charge an interest rate of 13-16 per cent compared to 20 per cent or higher sought by fund houses, making bank lending attractive for builders seeking funds for project completion and to meet working capital requirement.

On the other hand, private equity exposure to the sector fell more than 50 per cent y-o-y in February. According to research firm Venture Intelligence, PE funds invested $327 million across nine real estate deals in February this year, compared to $714 million across six transactions in February 2011. PE exposure to the sector in the January-March quarter, too, was lower than that in the previous quarter.

“There is paucity of funds as sales volumes were impacted for most builders. Builders are not in a position to invest money into the project as cash receivables are at the end of the tunnel with sales slowing down,” a senior State Bank of India official said, adding, “Equity funds are also not ready to risk their money.”

Bank credit to the sector has remained high despite the central bank cautioning that banks must lend only to projects where necessary approvals have been obtained. SBI’s exposure to the sector at the end of December 2011 was 1,05,000 crore. Of this, about 10 per cent was in commercial real estate. “There has been growth over last year, but we continue to be cautious in lending to the sector. Till the money lent to the sector is in prudential norms, there is no concern,” another SBI official said.

A senior official of Punjab National Bank (PNB), the country’s second largest public sector lender, said the bank is witnessing a rush from builders as they continue to face cash flow issues. The bank recently sanctioned a 300-crore loan to Bangalore-based real estate firm Prestige Estates Projects against an upcoming commercial project in the city.

“We are evaluating several proposals for funding need of as much as Rs 500 to 700 crore. Of the total amount lent to the sector, exposure to builder finance is in double digits,” the PNB official who looks after builder finance said.

Venture capitalists, private equity connect with property sites

BANGALORE: Marquee venture capitalists (VCs), which have stayed away from funding real estate developers, are warming up to the digital property market. Facebook investor Accel, along with private equity (PE) firm SAIF Partners, have made a$5-million growth investment in PropTiger, an online property marketing start-up targeting first-time homebuyers.

This follows Indian Angel Network’s $1-million equity investment in Groffr, a groupbuying portal for properties, and Helion Venture Partners pumping $12 million into e-broker India Homes. Three American venture capitalists Canaan Partners, Mayfield and Bessemer Venture Partners have jointly invested $20 million in Consim Info, which also owns online portal IndiaProperty.

“Portals are engaging customers with technology to disrupt the property buying space. They are, right now, more of an enabler-providing tool to help homebuyers find a good deal rather than selling hard assets,” said Mohanjit Jolly, MD of VC firm Draper Fisher Jurvetson (DFJ) India.

PropTiger, for instance, markets residential properties to first-time homebuyers offering services right from identifying properties to facilitating the cheapest home loans. The firm aided in selling properties worth Rs 1,100 crore in the first year of business, said PropTiger co-founder Kartik Varma. China’s E-House Holdings, listed on the New York Stock Exchange, is touted as an emerging markets success story in digital real estate services.

“Online portals are exhaustive in catering to requirements based on price and location. There are roughly three million people visiting various online property portals in a given month,” said Sudhir Pai, business head at MagicBricks.com, which offers over four lakh property listings to a monthly traffic of 40 lakh people.

Advertising spend on domestic the digital property market is tiny at Rs 150 crore, but rising 40% to cross Rs 1,000 crore annually in the next five years. India currently has about 120 million internet users, with roughly nine million of them being transacting customers. Internet users may reach 380 million with nearly 35 million online shoppers in the next three years, said a recent Avendus Capital report on the digital economy.

But the digital boom has already spawned several me-too start-ups, fragmenting the online property market just as the real estate industry. Group buying sites like Groffr now search for a constantly evolving and differentiated strategy (it will soon launch 25% cash back offer) to break the clutter and sustain decent commissions – pegged between 1% an 2.5% of the purchase value.

DFJ’s Jolly is still not a keen investor chasing digital properties. “We have looked at options, but we weren’t very comfortable with the differentiation and sustainability of the business model. We will take a hard look at it if we find one with a strong USP,” he said.

Choose your payment plan carefully

Buyers should look into the developer’s delivery record before deciding on the payment plan

When investing in a property that is under construction, under construction, buyers should carefully consider the different payment plans being offered by developers. Keep your financial position in mind before choosing one.

Down payment plan In a down payment plan, buyers are required to make payment of around 90% to 95% of the total purchase price, either at the time of booking or within a short period afterwards. Around 10% to 15% of the total purchase price constitutes booking advance or earnest money.
The down payment plans offer an attractive option to buyers, given that most developers offer a sizeable discount on the total purchase price.

However, this plan also has the highest risk exposure. In the unfortunate event of a project being cancelled or delayed, a buyer may find himself in the difficult position of being unable to withdraw from the project due to contractual clauses. If the buyer has taken a loan to purchase the property, payment of interest to the bank becomes an added liability, making it difficult for the buyer to invest in an alternative property.

Time-linked payment plan In a time-linked payment plan, buyers are required to pay the total purchase price in installments. The exact timelines for payment of installments are decided by the developer and are mostly non-negotiable. In the event of a delay in payment, buyers are required to pay interest over and above the installment amount for the period of delay. It becomes important for the buyer to pay his installments on time, irrespective of the progress of construction and development of the project.

Construction-linked payment plan In a construction-linked payment plan, buyers are required to pay an initial amount of 10% to 15% of the total purchase price as booking advance or earnest money. The remaining amount is paid in subsequent installments. Unlike a timelinked payment plan, here the timelines for payment are based on construction-linked milestones that are laid down by the developer. A construction-linked payment plan is more viable than other payment plans, as it takes into account the possibilities of delays in construction of a project. Thus, if a particular stage of construction is delayed, the timeline for payment of that particular installment is adjusted accordingly for a later date.

Before deciding on a payment plan, buyers should investigate the developer’s project track record and take note of the terms and conditions relating to payment as laid down in the application form. For instance, buyers should check the rate of interest and penalty payable on delayed payments, grounds of default on buyer’s part, grounds on which earnest money may be forfeited by the developer, timelines of refund of money by the developer in case of cancellation of allotment, payment of interest by developer in case of delay in delivery of possession, payment of holding charges in case of delay by buyer in taking delivery of possession, to name a few.

There are numerous cases where buyers have paid the full/major purchase price at the time of booking a property, but where construction did not begin for a long time.

If opting for a constructionlinked payment plan, buyers should check if installments are timed such that they do not end up paying the full purchase price before construction is complete. Payment of installments and rate of progress of construction should go hand in hand.

The author is senior partner, ZEUS Law Associates, a corporate commercial law firm. One of its areas of specialisation is real estate transaction and litigation work

Source: http://epaper.hindustantimes.com/PUBLICATIONS/HT/HD/2012/03/31/ArticleHtmls/ht-estates-LEGAL-REMEDIES-Choose-your-payment-plan-31032012231005.shtml?Mode=1

Kotak Realty to invest Rs 120 crore in Parsvnath Developers

BANGALORE | NEW DELHI: Parsvnath Developers is raising Rs 120 crore from Kotak Realty Fund for a new 100-acre integrated township project on Sohna Road in Gurgaon. Kotak Realty fund will get a 20% stake in the special purpose vehicle that will develop the yet unnamed project, more than one person in the know of the deal said.

The project will be largely residential in nature with some commercial and retail developments, and will be launched in the next two months. “The land for the project has been aggregated by Parsvnath over many years and at approvals are being taken to launch the project,” said the person.

A senior executive at Parsvnath who did not want to be named confirmed that talks were on. A Kotak Realty Fund spokesperson declined to comment on the deal.

Parsvnath Developers has sold stakes in many of its residential and office projects to private equity funds in the past. Last year, JP Morgan had invested $30 million in Parsvnath’s residential project La Tropicana in Civil Lines area of north Delhi, which was used to give an exit to Red Fort Capital that had invested 115 crore in the project in 2009.

Red Fort Capital had earlier picked up 24.5% for Rs 120 crore in an office project Parsvnath is developing on land it had got from the Delhi Metro Rail Corporation in New Delhi. In January 2011, Sun-Apollo India Real Estate Fund invested 100 crore for a 49.9% stake in a residential project Parsvnath Exotica in Ghaziabad near Delhi.

The listed real estate player, which has a focus on the national capital region, is currently trying to reduce its debt, which stands at around Rs 1,300 crore. It recently put a 1.2-acre plot in the heart of Delhi, on Kasturba Gandhi Marg, on the block and is expecting to raise around 700 crore through the sale.

The plot is located opposite the American Centre on KG Marg, just outside the Lutyens Bungalow Zone. If the sale goes through, it will be the first new building to be built in the central business district of Connaught Place in Delhi after the Birla Tower that was built in early 2000.

It is also in the process of selling some land parcels it owns in Kochi and Chennai. The company has been selling its non-core assets to reduce debt, which has come down by 50% over the last two years.

Source: http://economictimes.indiatimes.com/markets/real-estate/news-/kotak-realty-to-invest-rs-120-crore-in-parsvnath-developers/articleshow/12360625.cms

FM asks for foreign asset details and TDS on property sale

FM asks for foreign asset details and TDS on property sale

The finance minister has taken a step forward to tackle the black money menace by allowing reopening of assessment up to 16 years for overseas assets. And, individuals are mandated to report such assets.

Currently, the time limit for reopening assessment is six years (Section 149) for unassessed foreign income. But it is insufficient. “It is proposed to amend Section 149 to increase the time limit to 16 years, for income from assets outside India that is chargeable to tax. Amendments are also proposed in Section 147 for income to have escaped assessment for assets overseas,” says the Budget memorandum.

However, these provisions do not demarcate unaccounted and accounted foreign assets, points out Anish Mehta, partner at BDO. “Those who used to hold assets overseas but don’t hold it anymore can also come under the ambit of this provision,” he adds. Corresponding amendments are also to be made to Section 17 of the Wealth Tax Act. The provisions will take effect from July 1, 2012.

According to Rajesh Srinivasan, senior director, tax and leader of the GES practice, Deloitte India, “This would be applicable for residents who are currently not required to furnish income-tax returns. For instance, you have an overseas asset but you do not require to file a tax return since you earn less than the basic exemption, or if you have a total taxable income of less than Rs 5 lakh. You will now need to file the returns to declare the foreign asset,” he explains.

On the other hand, property sellers will now need to pay tax of one per cent of the property cost at source (as TDS) if the price is over Rs 50,00,000 (urban area) or Rs 20,00,000 (other area). According to the I-T Act, TDS is required on certain specified payments such as salary, interest, commission, brokerage and so on. In the case of a transfer of an immovable property, non-residents are asked for TDS.

Mehta says this rate may increase going forward but individuals need not file withholding tax returns. Instead, you can claim it against your tax liabilities at the time of filing income tax returns.

Here’s how it may work. The seller will pay one per cent of the property price to the buyer, who will give a payment challan to the bank, since the property registration will not happen till the seller does so.

“It will be interesting to see if the government extends this to other areas, like professional fee,” adds Srinivasan

-Business standard

Your loan rates are unlikely to fall soon

The Reserve Bank of India (RBI) let pass an opportunity to cut the repo rate on Thursday, keeping it unchanged at 8.5% going into Budget Day, as inflation reared up for the first time in five months.

Recent growth-inflation dynamics have prompted it to indicate that no further tightening is required and that future actions will be towards lowering the rates, the apex bank said in a statement post its monetary policy review.

It noted, however, that inflation risks remain notwithstanding the deceleration in growth, which will influence both the timing and magnitude of future rate actions. Headline inflation weighed in at 6.95% in February, increasing for the first time in five months.

Bankers said the move was largely along expected lines and puts off a much awaited round of rate cuts by weeks, if not months.
The market now expects the RBI to announce a cut in the April monetary policy, a move that will encourage banks to start lowering lending rates, albeit with a lag.

“If a repo rate cut happens in April, then may be after a month from then, banks will cut their lending rates,” said Ram Sangapure, general manager- retail banking, Central Bank of India.

RK Bansal, executive director, IDBI Bank, concurred. “Banks may not cut lending rates immediately. The deposit rates need to go down first and for that liquidity condition has to improve and inflation should come down.”

According to Bansal, banks will not be able to slash the deposit rates if inflation remains high, and in that scenario, lending rates may also take time to start falling.

High lending rates have impacted credit growth in the banking system.

“Given slowing credit growth, we expect the RBI to reverse its policy stance to protect growth, especially as inflation peaks off. We expect RBI to cut repo rate by 125 basis points through FY13 in a largely frontloaded policy action,” said Praveen Agarwal, Deepak Agrawal, Siddharth Goel and Namesh Chhangani of Enam Securities said in a report dated March 1.

Lending rates are expected to come off 150 basis points, while deposit rate is likely to pick up with a lag due to high nominal interest rates, said the Enam analysts. Historically, falling policy rates have boosted credit growth and banks have been a big beneficiary, they said.

The repo rate has increased 375 basis points since March 2010 and banks have passed on much of it by hiking lending rates 300-325 basis points so far.

You can fight a case against developer in consumer court without hiring a lawyer

Though consumer courts hear such cases, you need to be quick in reacting against the shortcoming on the developer’s part

If your developer is deficient in services such as construction defects, maintenance or misuse of common areas, you can take the matter to a consumer court and fight your own case without hiring a lawyer.

Things for which you can take your developer to court

Construction defects: The final design of the house could be different from what you were promised initially. If you do not get the same design or outlay as mentioned in the advertisement or shown in the sample flat, it is a deficiency in services on the developer’s part.
Price escalation: An alteration clause in your builder agreement allows your developer to take a unilateral decision on price change during the course of the construction. But this may not suit you.

Misuse of common areas: The developer cannot sell the open spaces within the premise for setting shops and offices. Selling of common spaces of the complex may take away the extra space that you have paid for.

Delay in compensation charges: Although the property possession cases are taken up by civil courts, you can approach the consumer court if the developer fails to pay you the compensation charges for delay in such cases.

Timeline for complaints
Though consumer courts hear such cases, you need to be quick in reacting against the shortcoming on the developer’s part. This is because once the developer offers you the possession, he is liable to take care of the deficiencies within a specified period of time. For example, in the first year after possession, the builder is liable to take care of damages such as leaks in water pipes or cracks in the walls. Also, it is the developer’s responsibility to maintain parks, parking spaces, clubs and other such amenities for the first three-five years. Beyond these time limits, the developer cannot be held responsible for any deficiency.

Redressal
Consumer Protection Act, 1986, provides a three-tier system of redressal mechanism. You can file a complaint in the district forum of the district concerned where the value of goods, services and compensations, if any, is up to Rs. 20 lakh. You can also approach the state commission for cases involving sums of money between Rs. 20 lakh and Rs. 1 crore and the national commission for sums above Rs. 1 crore. The hearing in consumer courts is taken on a fast-track basis. You may get the judgement in a single day if all the necessary documents are in place. If the court finds the developer guilty, it orders a compensation amount that the developer needs to pay to you.

Source: http://www.livemint.com/2012/03/15212133/Did-you-know–You-can-fight-a.html

RBI cuts CRR: Developers hail cut; hope banks to fund realty projects

NEW DELHI: Terming RBI’s decision to reduce cash reserve ratio (CRR) as a “positive step”, the realty body CREDAI on Friday said the move would enable financial institutions to fund real estate projects.

The body also sought cut in short-term lending and borrowing rates, repo and reverse repo, to bring down the interest rates. In order to ease liquidity situation, the Reserve Bank today slashed CRR, the portion of deposits banks are required to keep with the central bank, by 0.75 percentage point to infuse Rs 48,000 crore into the economy.

“This is a positive step by the RBI. This will help financial institutions to lend money to entrepreneurs for the growth of business as well as the economy,” Confederation of Real Estate Developers Association of India (CREDAI) Chairman Pradeep Jain told PTI.

He expects financial institutions would fund real estate projects, as the sector is the second biggest employer in the country. Jain, however, said RBI should cut repo and reverse repo rates to reduce the cost of funds to developers as well as home buyers.

The realty sector is currently facing a tight liquidity situation, which has led to delays in ongoing projects. Recently, a report from research firm PropEquity suggested that 45 per cent of the housing projects in NCR, Mumbai and Bangalore are facing delays due to the paucity of funds and lack of demand.

The sharp increase in repo and reverse repo rates in the last two years has affected housing demand. The interest outgo of most of the developers, sitting on a huge debt, has also gone up significantly.

Source: http://economictimes.indiatimes.com/markets/real-estate/news-/rbi-cuts-crr-developers-hail-cut-hope-banks-to-fund-realty-projects/articleshow/12199802.cms