Tag: real estate

HDFC Bank looks to grow investment banking business

Banking & Finance

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Private sector lender HDFC Bank is looking to grow its investment banking business and possibly double it over the next two years.

“We are investing in the business. Organically, we are growing and inorganically also we are happy to look at options of partnership and ways to grow this business,” said Rakesh Singh, Group Head – Investment Banking, Private Banking, Marketing and Products, HDFC Bank.

The focus will be more on the equity side as the bank has been doing well on the debt side. In an interaction with BusinessLine, Singh said the lender is hiring people and strengthening its teams in divisions including equity research and sales investment banking.

Also read: HDFC Bank creates Digital and Enterprise factories to roll-out new digital products

“The business will grow a couple of times. We hope it will double in two years,” he said. Singh said the bank will also be keen on working on government PSU disinvestment issues.

When asked about corporate credit demand, Singh said that there are signs of revival in the infrastructure sector. “We are seeing some levels of usual growth linked to newer infra in the market. Roads and highways, transmission, warehousing, renewable energy, solar, city gas distribution, oil and gas, ports are witnessing demand for credit,” he said.

Equity markets

Meanwhile, when asked about the bullishness of the equity markets, he said that it is reflecting the potential of the country in the medium term. “I don’t think stock markets are running far ahead of fundamentals,” Singh said, adding that there is enough economic momentum for the country to come out of the Covid-induced economic slowdown. This could however, take a slightly longer period of time of two to three years, he added.

“Macro numbers are just an aberration because of the Covid-19 pandemic. The underlying goods and services tax collections are very strong and show the robustness of the economy. A one time event driven fiscal pressure does not reflect poor economic fundamentals of the country,” he said.

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Survey, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Real estate portal Magicbricks on Wednesday released its survey report on home loans, suggesting that a repayment period of up to 10 years is most preferred among consumers. The sample size of the survey is 500, it said.

“The period of up to 10 years is the most preferred duration of home buyers with 26 per cent of the respondents giving the nod for it. It was followed by 10-15 years (25 per cent) and 15-20 years (23 per cent) as the next most preferred tenures for home loans,” Magicbricks said in a statement.

About 16 per cent of respondents said that they would like to take a loan for more than 25 years, while only 10 per cent preferred repayment tenure of 20-25 years.

Last year, online property classifieds Magicbricks entered into home loan services and had tied up with leading banks, aiming to offer homebuyers a plethora of integrated services from the discovery to the transaction phase.

“With average home loan interest rates hovering between 6.65-6.90 per cent, borrowers now want to repay their mortgages as fast as possible,” Magicbricks Chief Executive Officer Sudhir Pai said on the survey report.

Magicbricks has monthly traffic exceeding 20 million visits and over 1.4 million property listings, the statement said.

Magicbricks.com is owned by Magicbricks Realty Services, which is a subsidiary of Times Internet, the digital arm of the Times of India Group.



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Home Truths: What you need to look for while redeveloping property jointly

Personal Finance

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Every asset has a lifetime, and brick-and-mortar homes surely start to show cracks. Typically, beyond 30 years, maintenance costs – for issues such as water leaks or clogged plumbing – may start to increase for buildings. And as your needs may have changed, you may also prefer a different floor plan or size; you may want better facilities such as more parking. These may prompt you to rebuild, rather than do a quick renovation.

You need to engage with a builder to get it done. However, rather than pay for the project and get a contractor, you can enter into an agreement with a developer, to be light on your pocket, plus even get some cash.

How it works

In a joint development, the house owners enter into an agreement with a developer to reconstruct their home. In exchange, the builder is given a share of the land that offsets the cost of construction.

For example, say an old apartment complex that has 4 flats of 1,000 sq ft each needs to be redeveloped. The property may have been built on a one-ground land (2,400 sq ft). The agreement terms may be that the owners each get a new 1,000 sq ft flat and the builder would construct additional floors and sell them. The undivided share of land would now be split between the four existing owners and the new owners who would buy from the builder.

The same joint development method works for independent houses as well. Similar to an apartment complex, the owners (typically members of the same family) get certain sq ft of constructed homes and the developer can build 2-3 more. While building independent homes can be done, what usually happens is that a single-family home is rebuilt as a multi-dwelling complex.

Besides constructing, the builder may also pay the owners upfront money and cover the rent costs (as owners need to move out) during the demolition and construction period. How much money you get as well as the share of land the builder gets and the owners keeps depend on many factors. For instance, a property in a prime location with sizeable land, where Floor Space Index (FSI) is high, rebuilt during a hot property market may fetch owners a higher payment and better terms, as they would have strong bargaining power. When there is some distress in the market, builders may negotiate on payment terms, especially what is paid upfront, citing liquidity issues.

Merits and risks

One clear advantage for home owners is to have a new home that fits your current needs, without having to worry about arranging money for construction. Also, for seniors, joint development can help unlock value from their asset and provide some amount of cash to cover their other expenses.

There are also risks and downsides to consider. One big headache is that of timing of the tax payment. Tax rules relating to redevelopment can be complex and subject to some amount of interpretation. For instance, tax liability arises when property transfer happens; there is often confusion on whether this is the date of the written agreement or project completion. It helps to consult a tax advisor and draft the agreement wordings the right way.

The first roadblock – when multiple stakeholders are involved – is often in getting started. Getting consensus from all home owners on the builder’s terms and timelines may be a long-drawn one. Redevelopment is a lengthy process and keeping the consensus can also be a challenge.

Consider the legal aspects of the agreement thoroughly, to protect yourself. Common issues where owners are short-changed include the rights of developers on the land and penalties for delays. One example is the rights granted to the builder for entering the premises, through a general power of attorney. This can be revoked if the contract terms are breached; but often owners do not register it and so it is not legally binding. The details of the proposed plan must also be specified clearly to avoid misunderstanding on what is built.

The biggest risk of all is the choice of builder. Rather than base the decision on good payment terms, also consider non-financial quality aspects. Verify the reputation – for quality, timely completion, responsiveness of the builder by going thorough reference checks. Ensure the builder has local expertise and currently has the financial and operational delivery capability.

Even with these, there is a risk that market conditions in the local area may worsen, causing demand to drop. If the builder is not able to find buyers, the project may be delayed. Owners may want to study the market – to know the going rates and terms in the area – before you go ahead with the project.

The writer is an independent

financial consultant

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Tax query: What’s the tax liability for buying resale property using proceeds of equity investment?

Personal Finance

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I am planning to buy a resale property using the proceeds from sale of my shares held in ICICI direct. What will be my tax liability, considering the fact the shares held in the account are one year old to seven-year old? Also, advise me on the precautions needed while buying a resale house.

Nilesh

Assuming that the shares held in ICICI direct are listed on Indian stock exchanges and are held for a period of more than 12 months, the gain/loss arising on sale of these shares shall be treated as long-term capital gain /long-term capital loss (LTCG/LTCL). As per Section 112A of the Act, LTCG in excess of ₹1,00,000 earned from sale of listed equity shares on which securities transaction tax has been paid shall be subject to income tax at the rate of 10 per cent (excluding surcharge and education cess).

Where the shares are purchased before January 31, 2018, the cost of acquisition shall be the higher of the following:

· actual cost of acquisition; or

· lower of (i) fair market value (FMV) of such share on January 31, 2018 (highest quoted price) or (ii) full value of consideration as a result of transfer.

You can explore deduction under Section 54F of the Act in case the net sale consideration arising from the sale of shares is invested in purchase of a residential house property within one year before the transfer date or within two years after the transfer date subject to specified conditions.

In regards to the purchase of immovable property, as per Section 194-IA of the Act, you will be required to deduct taxes at source (TDS) at the time of making payment of the sale consideration to the seller @ 1 per cent (assuming seller is a resident of India), where the sale consideration of the said property is equal to or exceeds ₹50 lakh. In such case, you will also be required to file a TDS return in Form 26QB and issue a Form 16B to the seller of the property.

A senior citizen engaged in businessis expected to make payment of advance tax based on his earnings. I would like to know the following: (i) if a senior citizen makes investment on equity, does he need to pay advance tax based on the quarterly earnings? (ii) if a senior citizen does trading on equity (buying and selling shares) will the same (payment of advance tax) be applicable? Please clarify while keeping in mind long- and short-term gains.

RM Ramanathan

As per Section 208 of the Income Tax Act, 1961 advance tax is applicable if the tax liability (net of taxes deducted or collected at source) on taxable income is ₹10,000 or more. As per Section 207 of the Act, liability to pay advance tax doesn’t apply to a resident senior citizen (who is aged 60 years or more), not having the income from business or profession.

Scenario I

The senior citizen doesn’t have income from business/profession:

Earnings on investment in equity could be in the form of dividend & capital gains (long term or short term, depending upon the period of holding) which are chargeable to tax under the head ‘Income from other sources & Income from Capital gains, respectively.

In view of the provision discussed above, payment of advance tax provision doesn’t apply in this scenario.

Scenario II

Senior citizen derives income from business/profession (trading of shares):

Since the senior citizen is trading in equity (which may include shares held as stock-in trade, intraday transactions etc.), it would tantamount to carrying on a business.

Accordingly, the advance tax provision of section 208 shall apply and he is required to pay advance tax if the net tax liability exceeds ₹10,000 in a FY.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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Financial planning for a family of 4

Personal Finance

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Sankaran (42) and his wife Revathi (39), parents of 2 children, work in the IT industry. They want a financial plan to achieve their goals in future. They had prioritised their key goals as follows.

1. Education fund for kids, aged 9 and 4.

2. House at the earliest, preferably a 3-BHK in Chennai at a cost of ₹1.2 crore

3. Investing for retirement

4. New car at an additional cost of ₹8 lakh in 2022

5. Protection of family from unfortunate events

The family’s cash flow and assets are as follows:

 

All the investments in real estate were made based on third party compulsion in the last 4 to 5 years. They had not seen their assets appreciate considerably. They had sought unit-linked insurance policies on the assumption that they were investing in mutual funds. They had started to invest in mutual funds two to three years ago. With home loan interest rates at attractive levels and surplus cash available in hand, the couple wanted to buy a house.

Sankaran did not exhibit confidence of getting any substantial increase in his salary in the coming years. Revathi was comfortable continuing with her employment.

 

We reviewed their investments and recommended the following.

a) Build up ₹ 6 lakh towards an emergency fund

b) Set up protection by buying term insurance for Sankaran for a sum assured of ₹1 crore and Revathi for ₹1 crore without riders.

c) Buying health insurance for the family for a sum insured of ₹10 lakh. Though the family is covered for medical emergencies through employer-provided group insurance, these covers had many restrictions along with low sum insured. The health cover was also insufficient considering their life style

d) Keep track of spending for the next one year to ascertain their actual monthly expenses. The expenses may have come down because of the Covid lockdown and that they could go back to their old spending habits once life returned to normal.

e) Restructure their holdings in unit-linked insurance plans within the next one year, mainly to reduce the annual commitment. This would reduce the premium commitments from ₹ 6 lakh per annum to ₹1 lakh per annum

f) Sell two of their plots of land to partially fund the house purchase, so that their leverage could be restricted and an unproductive asset monetised. This would help them to buy a house for ₹1.2 crore while also restricting the loan component to ₹60-70 lakh.

With adequate contingency measures in place, reduced premium commitments and surplus available as cash, they were better placed to service the housing loan without additional financial burden. They were also advised to reduce expenses wherever possible to foreclose the loan in the next 8 to 10 years.

Education goal

Towards elder son’s education, they would require about ₹35 lakh in the next nine years. They would also require ₹57 lakh for the younger son’s education. (Current cost for education is presumed at ₹15 lakh with inflation assumed at 10 per cent).

At 11 per cent expected return, they would need to invest ₹14,000 and ₹16,000 per month in large-cap mutual funds to fund these two education goals.

Retirement goal

We recommended that they invest ₹25,000 in large-cap mutual funds towards their retirement corpus. With an expected return of 11 per cent over the next 20 years, they would be able to achieve a corpus of ₹2.16 crore. Along with regular PF and NPS accumulations that they were making, they should be able to reach a sizeable corpus towards retirement.

Other facets

To become successful investors, we encouraged them to keep an ‘Investing Behaviour Journal’ to keep a record of their emotions as and when there were wild swings in the markets either up or down.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI

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Can I buy an apartment to get capital gains tax relief?

Personal Finance

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This is with further reference to your reply to the query raised by Mr. GSR Murthy in the column ‘Tax Query’ in BL dated January 3. It was stated that the flat in question was purchased on November 16, 2010 for ₹24.5 lakh and sold on March 11 for ₹38 lakh. You had replied that the profit on sale would qualify as LTCG. Please explain how indexation shall apply in this case, and how LTCG is to be calculated?

Mathew Joseph

As per the provisions of the I-T Act, any capital asset, being land or building or both, held by a taxpayer for a period of more than 24 months qualifies as a long-term capital asset and any gain / loss on transfer of such asset is to be considered as long-term capital gains/loss (LTCG / LTCL). In the instant case, the LTCG is to be calculated as below:

Cost Inflation Index (CII) for every FY is notified by the Central government and is available on the official website of IT Department — tinyurl.com/taxCII . The property was purchased in FY 2010-11, for which the CII was 167 and sold in FY 2019-, for which the CII was 289.

I bought a piece of land a year ago, and will sell it shortly. I may get ₹ 20- lakh capital gain. Can I buy an apartment to get relief? Currently, I own one apartment.

Srinivasa M Reddy

I note that the capital asset in consideration is land. Also, the same was acquired by you a year ago. Please note that the I-T Act provides for relief from taxation of long-term capital gains (LTCG) on sale of land by investing in a residential house property, as per section 54F of the I-T Act. However, as per the provisions of the Act, the land shall be considered to be a long-term capital asset (LTCA) if it is held at least for 24 months. In this case, since the land is expected to be held for less than 24 months, the same shall qualify as short-term capital asset (STCA). No relief shall be available from taxation of any gain arising on transfer of such STCA.

On an assumption that you shall sell the same after holding for 24 months, you shall be eligible to claim exemption of the total amount of LTCG by investing the Net Sales Consideration (NSC — sale price less any expenditure incurred wholly and necessarily for such sale). In case a lesser amount is invested, a proportionate exemption shall be allowed (ie, in proportion of LTCG and NSC invested). Also, the following conditions merit attention and are required to be satisfied for claiming such exemption:

— Purchase of a house should be done a year before or two years after the date of sale. In case of construction, the same should be done within three years from the date of sale.

— You should not hold more than one residential house other than the investment in new asset.

In case this condition is breached in subsequent years, the exemption earlier allowed would be withdrawn and capital gain will be brought to tax in the year in which the breach has taken place. Since you own only one residential house property in your name, you shall be eligible to claim benefit of exemption under Section 54F, subject to fulfilling the specified conditions

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“SBI to offer home loans starting from 6.80% against 6.90% earlier”

Banking & Finance

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State Bank of India (SBI) has cut the minimum interest rate at which it will offer home loans up to ₹30 lakh to 6.80 per cent from 6.90 per cent. Further, for home loans above ₹30 lakh, the minimum interest rate has been pared to 6.95 per cent from 7 per cent.

India’s largest bank said it now provides higher interest concession based on the loan amount, the borrowers’ creditworthiness, and the property’s location. The bank also announced a 100 per cent waiver on processing fees. 

SBI, in a statement, said five bps interest rate concession each is available on home loans to women borrowers and those opting for a balance transfer.

Also read: SBI delivers on earnings in Q2, but warns of bad loans ahead

Further, customers applying for home loans via YONO App / https://homeloans.sbi / www.sbiloansin59minutes.com will get additional interest concession of 5 bps.

“Home loan interest rates are linked to CIBIL score and start from 6.80 per cent for loans up to ₹30 lakh and 6.95 per cent for loans above ₹30 lakhs.

“Interest concessions up to 30 bps is also available in 8 metro cities for loans up to ₹5 crore,” India’s largest bank said in a statement. Concessions to prospective home loan customers are available up to March 2021, it added.

CS Setty, MD (Retail & Digital Banking), SBI said “With the nation all geared up to move ahead post-pandemic, SBI would continue to support the home buyers and the Real Estate Sector.

“Further, our eligible existing home loan borrowers can also avail a paperless pre-approved Top-up home loan through the YONO App in just a few clicks. ”

Meanwhile, Saraswat Co-operative Bank, India’s largest urban co-operative bank, in a statement, said it is offering retail loans such as home loans (at 7 per cent interest, no processing fee); car loan (at 8 per cent, with 100 per cent finance and free FASTag), and gold loan (at 8.50 per cent, no processing fee) at lower rates up to March-end 2021.

 

 

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House Price Index moderated at 1.1% in Q2, says RBI

Banking & Finance

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The annual growth (y-o-y) in all-India House Price Index (HPI) continued to moderate, standing at 1.1 per cent in Q2 of 2020-21 (July-September), compared with 2.8 per cent in the previous quarter and 3.3 per cent a year ago, according to Reserve Bank of India (RBI) data.

The central bank observed that the all-India HPI contracted by (-) 1.1 per cent on a sequential basis (quarter-on-quarter/QoQ) in Q2:2020-21; among major cities, Delhi, Bengaluru, Kolkata and Chennai recorded sequential decline in HPI, whereas house prices in Mumbai remained around the previous quarter’s level.

The maximum contraction in HPI was in the case of Chennai at 4.72 per cent, followed by Bengaluru (3.73 per cent).

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Buy home below circle rate without tax burden

Personal Finance

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On November 12, the Finance Minister announced some income-tax relief for home developers and buyers. The differential between the circle rate and the agreement value – to sidestep tax under Section 43CA and Section 56(2)(x) of the Income -Tax Act – was increased from 10 per cent to 20 per cent. The benefit of this increased differential is available for primary sale of residential units of value up to ₹2 crore from November 12, 2020 to June 30, 2021.

What and how?

In general, the government frowns upon property transactions happening at rates below the circle rates (stamp duty value) fixed by it because this could be a way to evade income taxes.

So, it taxes the differential amount, in the hands of both the developer who sells the property at below the circle rate and the buyer who purchases it. Say, the circle rate of a property is ₹100 while the property transaction happens at ₹70. Here, ₹30 will be taxed in the hands of the developer as business income under Section 43CA, and ₹30 will also be taxed in the hands of the property buyer as income from other sources under Section 56(2)(x).

Now, over the years, the government has provided some concessions on this tax – acknowledging that sometimes property transactions do happen below circle rates due to fall in market rates or delay in reducing circle rates. So, in Budget 2018, a safe harbour threshold of 5 per cent was given. That is, if the transaction value was, say ₹100, while the circle rate was up to ₹105, tax would not be applied on the difference.

Then, in Budget 2020, the threshold was increased to 10 per cent. This has now been increased further to 20 per cent. So, if the transaction value is ₹100 while the circle rate is up to ₹120, tax would not be applied on the difference as it is within the 20 per cent of the transaction value.

Here’s another example, if the circle rate of a house is ₹50 lakh and a developer sells it to a buyer at ₹ 40 lakh, the safe harbour threshold of 20 per cent will not be available, as the difference (₹10 lakh) is 25 per cent of the transaction value (₹ 40 lakh). In this case, both the developer and buyer will have to pay tax on the difference of ₹10 lakh.

Had the transaction value been ₹42 lakh and the circle rate ₹50 lakh, the safe harbour threshold of 20 per cent would have been available since the difference (₹8 lakh) – 19 per cent – is within the limit of 20 per cent of transaction value (₹42 lakh). In this case, both the developer and the buyer will not have to pay tax on the difference of ₹8 lakh.

The economic slowdown has pulled down property prices. The increase in threshold from 10 per cent to 20 per cent eases a tax disincentive that could have prevented transactions at market rates much lower than circle rates.

Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, says, “With the increase in circle rate in a few States such as Maharashtra despite zero or negative movement in the market rates, it was challenging for the developers to sell the properties below the circle rates as income-tax rules tax such transactions both in the hands of the buyers and the developers. The threshold increase relief will provide a breather to developers and buyers for the time being.”

If and buts

Note that the increase in differential threshold is only for some property transactions. One, it is only on sale of residential units. It is not available on sale of commercial property or land. Two, it is only on primary sale – that is, from a developer to a buyer. It is not available on re-sale of houses. Three, it is only on sale of houses with value up to ₹2 crore. Four, it is a limited period offer – up to June 30, 2021. After this date, it’s back to the original threshold of 10 per cent.

For the others – sellers and buyers of land, commercial property, costly homes, resale homes, etc –the threshold of 10 per cent continues.

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