4 Homeownership Myths, Real Estate Mental Traps To Avoid

Fear and anxiety are common when buying a home. After all, it’s a serious decision that comes with life-long responsibilities.

However, it’s also not healthy to worry about things that you shouldn’t really be worrying about. Trulia listed these 4 homeownership myths and real estate mental traps that you should avoid so you don’t get stuck in real estate limbo:

Assuming that buying is always better than renting

Renting is not always “throwing money away” as what most of us are made to believe. The truth is, the decision to buy or rent should be based on several factors (along with your willingness): the average housing and rent prices in your area, the amount of time you plan to spend on that dwelling, your tax bracket, the mortgage rate you qualify for, property tax, homeowners’ association (HOA) fees and insurance rates in your area, projected appreciation in your area, and inflation assumptions.

Believing your current needs reflect your future needs

When buying a home, it is important to consider that you are doing so to suite your future needs and your current needs. You may be single who like to travel and have minimal possessions and don’t have time to spend maintaining a home, but is this the same situation you will be in five years from now? Other factors to anticipate include maintenance costs, HOA fees, proximity to jobs (and potential future job sites), school district, yard size, neighborhood safety, and walkability.

Fear of getting priced out of the market

House prices have skyrocketed in the past five years and this can be reason enough for you to buy a home today in fear that you get priced out of the housing market. However, just like any industry, real estate is cyclical: Prices rise and fall. Additionally, housing is local; which means that Kansas and Jacksonville can have very different market price and appreciation. Considering this, the wisest action you can do is to buy according to your family’s budget and needs, not your guesses on what the future may hold.

Believing all renovations are profitable

Updating your kitchen, bathroom, landscaping and other features will definitely make your home more attractive, but that doesn’t always mean that you will recoup the cost of your renovations. Choose your renovations wisely; there are renovations that will fetch you a higher price while others simply lack a return on investment.

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Pakistan stumps India; rolls out South Asia’s 1st REIT while we still try to axe the tax

India 0 Vs Pakistan 1. It’s not the outcome of a ODI series between the traditional rivals but a progress card on reforms in the world of real estate. At a time Indian realtors and investors are struggling to roll out real estateinvestment trusts (REIT) amid regulatory complications and tax uncertainties, Pakistan has gone ahead to launch South Asia’s first REIT at a premium of 10% to the offer price, earlier this month.

A REIT is a financial instrument where the underlying asset is real estate. The rental income from the property assets are distributed by the Trust as dividends to the investors or unit holders of the trust. Typically therefore, a REIT invests in completed, revenue generating commercial realestate assets.

Mid-June, Pakistan-based Dolmen City launched its REIT offering that got subscribed 1.7 times. It owns a commercial property which has a mix of mall and office space and an occupancy of 96%. The company expects a net income of $21.9 million in first year while dividends are expected at $20.7 million. This was also the first REIT listing in Pakistan after the country came out with the regulations.

Interestingly, yields for the Dolmen City REIT’s investors in the first year are a percentage point lower than the current yields on Pakistan’s government securities (GSec) that are now trading at 9.75%. Typically,world over REITs notes trade at positive spread. This was based on estimation of rental income from the asset, 90% of which are to distributed back to investors. But even then, there were few global investors who bit the story — only 0.6% of HNIs/Institution allocation.

For starters, Pakistan has streamlined the process significantly to make it attractive for investors. For example, their REITs attract a withholding tax of 10% (in-line with Mutual fund taxation) with no further tax liability for individual investors. Moreover, the regulators there have agreed to concessional tax regime for transfer of an asset into a REIT with significant reduction in stamp duty across the region.

In comparison in India — despite the recent relaxations on taxability like MAT exemption, tax pass through to REIT – and simplification of structuring, the REIT controlled special purpose vehicles are still subject to corporate and dividend distribution tax ( DDT) which limits the pass through nature of REITs. This makes it imperative on the SPV to restructure to reduce the tax blow. Analysts feel while debt infusion at SPVs could improve the yields of the instrument, a simplified structure allowing tax pass throughs would improve transparency and improve visibility of returns to investors.

“Indian REITs in the current form have a significant tax disadvantage with double taxation in SPV-REIT structure and high transaction cost in direct holding structure,” said Abhishek Anand of JM Finance in his report on India REITs on June 12. “We believe tax regime needs to work towards simplifying the domestic REIT structure, and needs to reduce double taxation in order to make returns more attractive for investors.”

“Typically REIT is successful in the mature economies where it gives returns of 7 to 9% and government securities gives returns in the range of 1.5 to 2.5%,” says Hemal Mehta, senior director of Deloitte. “While, in India, government securities gives risk free returns in the range of 8 to 9% and hence, to make this instrument very attractive fiscal benefits like dividend distribution tax, minimum alternate tax and capital gain should be waived off to make the REIT attractive for Indian investors.”

Echoing this, a senior official of a leading real estate focussed PE fund says if the government considers such waivers, REITs alone have the potential to attract investment in the range of $15 to $20 billion from FII and NRIs.

According to Chandubhai Mehta, Managing Partner of Mumbai-based law firm Dhruve Liladhar & Co, which advises many developers, complexities in taxation to unit holders in REIT as well as to owners of the assets are the hindrance in the way of making this a popular instrument.

“REIT is beneficial to both the investors and the industry because it provides the investors with an investment avenue, which is comparatively less risky than investing in under construction properties and provides regular income,” says Mehta.

In India, many marque PE investors including Blackstone together with real estate JV partner Embassy or developers DLF were reportedly planning to go ahead with mega REIT listings, but till date have stayed away due largely on account of the tax complications. But realtors are hopeful of an early resolution. “There are issues related to taxation but as the market evolves, am sure the government will also change the rules according to market needs,” said Rajeev Talwar, Group Executive Director, DLF.

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Can the Online Real Estate Shopping Sell 863 Million Sq. ft. of Unsold Real Estate Assets?

The Real Estate Industry in India is considered to be one of the fastest growing markets. It is expected to touch $180 billion by 2020 with a CAGR of 11.2%. However with 863.09 million square feet or 650,000 unsold assets, as per Liases Foras, the real estate industry in India is extending itself to attract customers from the internet. Google says $43 billion of real estate is sold due to research and decision making on the Internet.

Just like the Online Ecommerce portals, the real estate industry too has got into the so-called The Online Real Estate shopping way. Top Real Estate Portals like Magic Bricks, CommonFloor, 99acres, IndiaProperty and Housing offer opportunities to both buyers as well as real estate firms to engage online.

Opportunities for Real Estate firms & Buyers

Real estate firms utilize these online portals to be listed and showcase their projects to the world. With features to display even the minute details of the projects along with Virtual Walkthroughs and Video listings, it becomes easy to gain a buyers attention. Also with options to place inquiries and book, many firms have taken great advantage of it. In March this year, Tata housing says till date they have sold over 1500 apartments online equalling to about 1 million square feet and Pune-based Kolte-Patil developers recently sold over 200 houses through the online medium.

For buyers there are enormous opportunities taking the online route. They could choose to buy properties in a city where they do not reside. Buyers can do price & feature comparisons between projects. The online medium also offers them a lot of information to research about the projects and the company before they wish to do a site visit.

Threats of Online Real Estate Shopping

Where there are opportunities, the online real estate poses quite a number of threats to both buyers as well as the real estate firms.

Since it is the Virtual Reality, a buyer cannot verify the existence of the project in the state that has been said in the internet.

“A buyer should always visit the spot and check out the social fabric before buying. For all you know, these projects might be in no man’s land” says Pankaj Kapoor, MD of Liases Foras.

Also, builders often use the internet route to offload inventory as a last option. Hence, it is advisable to use the internet only as a research option and as a supplement to the standard evaluation of projects.

Subhankar Mitra, Head, Strategic Consulting (West) at JLL India says, “At best, it can be used for information dissemination, due diligence and price comparison. Unlike retail products, here it is better to research online and buy offline”.

The threats to the Real estate firms are much stronger than that of a buyer. For a buyer there are options to choose one against the other, but for a real estate firm, the online offers are a bigger threat in terms of reputation damage of their businesses. Disgruntled buyers sling mud at the real estate companies on popular social media pages such as Facebook, Twitter, Google+ such that the companies are defamed. Online has become the ideal platform for an irate buyer to tell the world about their experiences. The brand gets damaged in the course of action. Builders have to work a lot on their reputation to neutralize them.

“When we see negative conversations, we try build on them and put the right perspective forward, reason it out. If there has been a project delay, we tell them the ground reality about why it happened”, says Rajeeb Kumar Dash, head of marketing services at Tata Housing.

Conclusion

For a buyer, Online Real Estate should be a medium to research and evaluate the projects, builders, and the opportunities. It should not be the only way to purchase real estate. Real Estate is not Retail.

For a Real Estate firm, the mantra Ensure your Brand Reputation is held high in the Internet world. You should keep track of what your brand encounters and manage where necessary. But the first step to it is to get your online reputation assessed.

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DLF to sell properties worth Rs 15,000 crore in various projects

India’s largest realty firm DLF plans to monetise properties worth about Rs 15,000 crore under various projects to boost its cash flow and reduce debt, a senior company official said. DLF had a net debt of Rs 20,336 crore at the end of the December quarter. “We have a total of Rs 14,000-15,000 crore stocks. Out of this, Rs 4,000 crore is in finished projects and more than Rs 10,000 crore is unsold stocks in projects which are launched and are under development,” said DLF Chief Financial Officer (CFO) Ashok Tyagi.

These stocks would get monetised as and when the demand picks up resulting in improvement in cash-flow as well as reduction of debt, he said when asked about the company’s strategy to reduce the huge debt. Stating that sales have been “low” since last year, Tyagi said bookings would comfortably cross Rs 3,000 crore in this fiscal, lower than Rs 4,070 crore in the 2013-14 financial year.

DLF has achieved sales bookings of about Rs 2,700 crore till February 15 of the current fiscal. With property market showing sluggishness, Tyagi said the company is looking to raise about Rs 3,000 crore by selling about 50 per cent stake each in 4 housing projects to private equity firms.

“Since sales are slow, we are planning to raise about Rs 3,000 crore through private equity. In the short term, PE funds will be the substitute for the cash flow which would have normally come from sales,” Tyagi said.

Tyagi said only about Rs 6,500 crore debt pertains to development arm DevCo and the same would be eventually reduced with monetisation of these Rs 15,000 crore worth stocks. On reducing of about Rs 14,000 crore debt pertaining to rental business RentCo, DLF CFO said the company plans to launch two Real Estate Investment Trusts (REITs) to monetise the rent-generating commercial assets. The company earns an annual rental income of over Rs 2,000 crore from its office buildings and shopping malls covering about 30 million sq ft area. Last month, DLF had reported 9 per cent decline in consolidated net profit at Rs 131.79 crore for the quarter ended December against Rs 145.29 crore in the year-ago period. Income from operations fell 5 per cent to Rs 1,956.72 crore for the third quarter of this fiscal from Rs 2,058.42 crore in the corresponding period of the previous year.

Recently, Sebi slapped fines totalling Rs 86 crore on DLF, its top executives, their family members and various other related entities for entering into “sham transactions” to mislead IPO investors about eight years ago. DLF had said that it did not violate any laws and would challenge the order. The company had also said it was guided by the advice of “eminent legal advisors, merchant bankers and audit firms” while formulating its IPO documents. DLF has a land bank of about 295 million square feet, of which 50 million square feet is under development.

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What real estate buyers should expect from Budget 2015?

Real estate stakeholders in every Indian city are looking forward to the upcoming financial Budget 2015 to see whether it will provide any relief to the sector. Developers have their own expectations, because positive announcements for real estate buyers made during the budget will help increase the market sentiment, and therefore sales. The general hope is that the Union Budget this year will provide cheer to intending home buyers who have been deterred for various reasons.

Make home loans affordable

The Union Budget 2015-16 should make the rate of interest specific to home loans more reasonable. Currently, banks are offering interest rates ranging between 10.15-10.40%, and this is far too high. Paying so much interest has serious implications on the family budgets of most middle-class wage earners. It is not surprising that many of them currently shy away from home loans. The budget should bring the interest rate on home loans down to between 7.5%-8.0%. The new government has clearly stated that it wants to make Housing For All Indians a reality by 2022. It is impossible to achieving this goal if home loans do not become affordable to all, as well.

Additionally, the home loan interest amount exemption under Income Tax benefit should be increased from the existing limit of Rs 1.5 lakh to Rs 3 lakh. Further, this exemption should be made applicable for more than single property purchases. This is not an unreasonable expectation. In the current times and in many cases, a single home is not enough to accommodate all family members. The finance ministry should take due note of this fact and accordingly provide relief for both first home and second home buyers.

Eliminate multiple taxation on property purchase

The budget should also do away with the multiple taxes involved in the purchase of residential property. As of now, home purchasers are required to pay service tax and value-added tax (VAT) on top of stamp duty and registration charges. Goods and Service Tax (GST) should be introduced in the place of these taxes. Also, the real estate industry expects the Budget to finally make the Real Estate Regulatory bill a reality this year, so that the industry has the benefit of an apex body via which all concerns can be addressed transparently and efficiently.

Reduce cost of property registration

Another expectation from the Union Budget is a reduction in the cost of property registration. The recent hike in ready reckoner rates in Maharashtra has been a sentiment setback for the real estate sector. Stamp duty and registration costs are as high as 6% in most cases, and this needs to be reduced by a few base points to aid consumers. Alternatively, a slab-based approach should be introduced. Stamp duty falls under state government purview, but the Center can nevertheless issue a directive to reduce stamp duty costs.

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How Indian Real Estate Market Will Likely Fair in 2015?

According to the National Housing Bank (NHB) Residex Index, residential property prices show an upward trend in the second half of 2014. First half had seen property prices dip, as the weak rupee and high inflation had a negative impact on spending. Needless to mention that 2015 will largely be about recovery. The RBI will most likely cut interest rates and this will see more spending in the residential real estate segment. The Ministry of Statistics Program and Implementation and PwC Analysis predict a growth of 8 to 9 per cent. Added to this, the introduction of REITs, improved market sentiment and more efforts by the government to reduce project loopholes and bottlenecks in transactions will go a long way in clearing the way for positive trends in 2015.

In India, real estate plays an important role, from affordable housing to infrastructure and generating employment. Here are some of the reasons why:

  • The Economic Survey of 2012-13 revealed housing to be the second largest industry that generates employment, after agriculture.
  • With more than 300 linked industries like steel, transport, construction, cement and brick, real estate contributes significantly to the country’s GDP share and capital formation.
  • NHB’s report places real estate as the third most impactful industry in India in terms of its effect on other industries and fourth in terms of employment generation.
  • The residential segment, comprising residential buildings, townships, schools, colleges and hospitals and other projects, makes the maximum overall contribution in the real estate industry and commands the largest part of its market share.
  • The real estate sector employs more than 35 million people, especially low and medium skilled labour
  • Directly impacts manufacturing
  • Attracts a lot of money in foreign direct investment (FDI)

Recap of 2014, its main events and economic drivers

  • According to Colliers Research, Bangalore and Chennai witnessed maximum demand and growth, while Kolkata, Mumbai and Gurgaon were unchanged. Despite this, many developers launched new projects during the end of 2014.
  • There is a backlog of unsold property. 2014 has seen delays in approvals, project clearances and targets, apart from debt commitment on property and government spending less in this area and a huge delay in finishing projects
  • Construction industry has grown 2 per cent from 2014 to 2015.

Trends in 2015

  • The Planning Commission estimates that by 2030, about 600 million people will live in cities. Affordable housing therefore is a huge demand and the industry has a large gap to meet, with shortage seen among the low income groups.
  • International agencies like IMF and World Bank predict an increase in GDP.
  • Real estate market is driven largely by sentiment.
  • First half of 2015 will be largely recovery with property markets.
  • ProjectVendor.com projects a 10 to 15 per cent increase in growth from FY14 to FY17 and 11 per cent growth in FY15. Residential and commercial projects, organised retail will contribute to this growth significantly.
  • Real estate construction market is poised to grow by 20 per cent between now and 2017.
  • Both large and specialised players stand to benefit and gain equally.
  • Real Estate Investment Trusts (REITs) and commercial real estate will make significant impact. REITs will have a huge impact in 2015. It is an internationally tried and tested strategy, especially in the USA, Taiwan, South Korea, Singapore and Australia. An REIT is a trust that buys, sells, develops and manages income-generating real estate property such as malls, commercial office spaces and more, with the main intention of attracting investors who can manage an interesting array of properties. Corporate investors benefit from tax exemptions. It largely impacts small investors and encourages proper investment channels in large real estate accounts, and is a better alternative to investing in stock, due to its higher returns and a diversified portfolio of investments. Blackstone, Xander, Brookfield and more real estate funds intend to launch REITs in the country and DLF, Phoenix and Prestige are expecting to make use of this huge opportunity.
  • The residential real estate space in India is divided into affordable housing, mid-level priced houses and the luxury segment. The onus on low cost housing is expected to put pressure on the luxury segment, but this is not significant. 2015 will focus more on recovery and clearing inventory, construction deadlines and backlogs.
  • Pricing is very important. Affordable price points will lead to higher absorption levels.
  • Easing pressure on the rupee will also impact the industry positively.

(more…)

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Decoding what Budget 2014-15 means for real estate

With a large number of offices and ITeS segment growth apart from residential growth coming from small tier II and tier III centres, the development of smart cities can bring opportunities for real estate developers, investors, end users and well as the housing loan sector.
On expected lines, the real estate sector and the infrastructure sector were the focus sectors of the government in the annual union budget of 2014-15. The finance minister announced a series of measures to bring investment into the sector while giving special emphasis on affordable housing. The announcement that Rs 8000 crore will be earmarked for rural housing along with a series of dedicated proposals augers well to the future of the realty sector in the country. Market analysts and real estate experts have given the budget a big thumbs-up as is focuses evenly on housing and development with both domestic and foreign investments in the sector.

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Haryana fixes deadline to make land records online

CHANDIGARH: Haryana Land Records and Consolidation Department has fixed October 31, 2012 as the deadline for making all land records hundred per cent online.

No manual ‘nakal’ of record of rights will be issued from November 1, 2012 and only computerized ‘nakal’ from software of Haryana Land Record Information System (HALRIS) would be permitted, said a spokesman of the department on Saturday.

A communication to this effect has been sent to all Deputy Commissioners in the State, he added. (more…)

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