Reasons To Buy Instead Of Rent a Home

If you've been indecisive about buying a home and have so far preferred to rent instead, this is a good time to finally make your move. Home ownership is one of life's greatest joys, but that is not the only reason why you should finally take the plunge, says Arvind Jain, Managing Director of Pride Group.

Advantages Of Home Ownership

• Bargains

It is a buyer's market now. There have never been more developers in the fray, and there is a huge number of projects out there to choose from. This means that you can get a real bargain today - and that too with top developers who are known for excellent locations, construction and project amenities. Even with a less-than-spectacular budget, you can now own a great home in a great neighbourhood. Banks are also falling over each other to sanction home loans. In other words, your application will get successfully processed faster than ever before.

• Investment Value

When you pay rent on a home, the money is basically gone forever. You get no returns and no security - all that your money has paid for is accommodation. The landlord gets richer, but you have not reaped any investment benefits. It is true that buying a home involves a large initial financial outlay. However, unlike with paying rent, these expenses are recovered over time, because you are building equity in your own home. Residential property in major Indian cities appreciates very well indeed. Remember, home ownership is not only about occupancy but also about long-term investment. Also, you save tax on your home loan.

• A Sense Of Community And Belonging

People who rent homes in a major city never really build firm relationships with their neighbours. When you own a home, your children make long-lasting friendships, and the adults in your family become part of a long-term support system. Research has proved that people who have healthy relationships tend to be happier and have less stress in their lives.

• The Security Of Ownership

Obviously, home ownership means that the home is yours - not somebody else's. There are various advantages built into this, because you have the right to do what you want with your home. In other words, you can renovate, refurbish, paint and decorate it as much as you please (within the bounds of the housing society byelaws, of course). In short, you can make your own residential property into a real home. Also, you have the financial assurance of a rock-solid asset to fall back on.

Should You Buy A Resale or New Flat?

Should you buy a new flat or a resale? There appears to be no easy answer to this question. People buy resale flats instead of new ones for various reasons. Sometimes, a certain location just does not offer suitable options on the primary market. 

 

At other times, buyers do not do enough research and are unaware of the availability of very good new projects. Or they succumb to the pressure tactics of a persistent real estate broker and buy a resale flat when a new one was available in an excellent location, and within their financial reach. Or they believe that a serviceable flat available at a slightly lower price is always a good bargain.

Most often, people buy resale flats because they are in a hurry and want immediate possession. This renders them unwilling to opt for a flat in a project which is under construction, even if completion and possession are only a few months in the future, says Kishor Pate, CMD - Amit Enterprises Housing Ltd.

Because real estate is an eminently re-sellable asset, many people put perfectly acceptable flats on the market after a few years of use because they want to upgrade. This fact makes the market for resale flats almost as big as the primary market. However, this does not mean that resale flats and new apartments fall in the same value chain.

Assuming that a buyer learns of both new and resale options in the location of choice, it is important to understand the benefits of opting for the former:

• A home, both as an asset and a possession, is very much like a car - neither offers the same value or experience when it is second-hand. The feel of a used home or car cannot match that of a brand-new version, simply because it has already passed through the hands of one or more owners. It is true that this is something of an intangible psychological factor - but it is nevertheless very real.
• Assuming that one has bought it from a reputable developer, a first-sale flat has newer fixtures and fittings that come with a minimum guarantee of problem-free performance. Nor is wear and tear the only problem with older fixtures and fittings - like in the case of most other products, there is also a question of product generation. To illustrate - a first-generation iPhone cannot perform with the same speed, efficiency and reliability as a first-generation one.
• Flats in new projects by good developers tend to be more energy efficient, environmentally compliant, user-friendly and space optimized. Reputable developers are like doctors - they are constantly upgrading their knowledge, techniques and equipment. They do this to remain relevant and competitive in a market which they know to be replete with other options for buyers. The benefits of this mind-set are directly passed on to the buyers.
• It is very difficult - if not impossible - to paint a unique masterpiece on a used canvas. Previous owners of a resale flat always leave a certain indelible part of their personality or culture imprinted on the property. While it is possible to fill in and paint over nail holes in unwanted parts of the wall, undoing serious structural modifications is a challenge.   
• New flats in under-construction and sometimes even ready-to-move-in projects can, in fact, be cheaper than resale flats. In the case of under-construction projects, the sale value of individual units rises only in tandem with the stages of completion. But resale flats often cost as much as (if not more than) new apartments because the relative cost of original acquisition was higher. This is often a function of obsolete construction methods, which are costlier and more wasteful than more evolved construction technologies.
• New flats have higher resale value and also longer shelf-life on the resale market because of the lower age of the building.

Home purchase is never a decision one should make in a hurry. Also, regardless of whether a new flat is slightly cheaper or marginally costlier than a resale apartment, it should not be made solely on the consideration of budget. Few investment decisions have as many long-term financial implications and appreciation potential as property purchase. 

It is therefore important to understand the pros and cons of old versus new flats, and to always take an informed call when it comes to buying a home.

Industry predicts six-fold growth for construction equipment market

"The Indian earthmoving and construction equipment (ECE) market has the potential to grow six times -- from total revenues of USD 3.3 billion in 2010 to USD 22.7 billion in 2020. But to realise the potential, the government would have to create an enabling environment. The Indian ECE industry wants the government to clear important national infrastructure projects without delay by addressing issues of land acquisition, dispute resolution and awarding contracts under clear PPP framework,” said Jasmeet Singh, Head - Customer Experience Programs & Defence Sales, JCB India Ltd. 

He was addressing a road show on Asia's third largest trade fair for equipment industry-Excon 2013, organised by the Confederation of Indian Industry (CII), in Chandigarh at its Northern Headquarters, Sector 31 A, recently.

“In addition, it has to be ensured that liquidity is available, while taxes need to be simplified with uniformity across states,” he emphasized. Excon 2013 is scheduled to be held at the Bangalore International Exhibition Centre (BIEC), from November 20-24, 2013. Spread over 2, 20,000 square metres of display area and with a participation of 800 exhibitors, Excon would witness over 100+ new product launches by participating companies. There will be country pavilions, including leading economies like China, Sweden, Germany, Italy, Japan, South Korea, and Turkey. The event would also have a large presence of SMEs in the component and aggregate manufacturing, showcasing India's potential as a preferred outsourcing destination for construction equipment manufacturing.

“For a country focused on development, it is imperative to mechanise its infrastructure creation. Besides this, collaboration with suppliers, competitive enhancement and skilled manpower are also crucial to boost the Indian Construction equipment sector, said Mr Narendera Arora, Vice President, GBP Group.

Calling skilled man power, a major challenge for construction equipment industry, “Ms Ritu Singhal, Director, Raglan Constructions said, “By 2020, the construction equipment industry will need an estimated one lakh trained operators and three lakh trained mechanics especially in areas of operations and maintenance. Skilled manpower remains a key challenge in this segment which calls for a skill development council.”

“Fast urbanization and industrialization has paved the way for multi-billion dollars infrastructure construction projects which propelled demand for construction equipments in the country. However, the industry recorded slight slowdown in FY 2012-13 amidst economic downturn, but the industry will sustain its positive growth momentum in coming years at a CAGR of 17.6%. Given these facts, it is absolutely essential for the construction equipment industry to work closely with all stakeholders including government agencies, and events like Excon can go a long way in facilitating that,” Mr Vinayak Sanger, Zonal Head, Schwing Stetter.

“The construction industry is a major contributor to the country's GDP (8% in FY12) and one of the largest employment generators, currently employing around 33 million people but the construction equipment market is still untapped. In such scenario, event like Excon will be a great platform for national as well as local players to share global best-practices and would aim at facilitating faster and sustainable development of infrastructure and related sectors in India,” said Mr Manmohan Singh, Chairman, CII Chandigarh Council. 

“From live demonstrations of equipment to a display of power tools, Excon promises to give close to 35,000 visitors from different parts of India, a great business opportunity. Apart from the participation of major equipment renting companies, and leasing and finance companies that offer on the spot loans, visitors can benefit by benchmarking product features of different makes, interacting about their requirements with technical heads, and negotiating deals with chief executives. The event also acts as a forum to position India as an outsourcing destination for components, aggregates and equipment,” said Pikender Pal Singh, Regional Director, CII NR region.

TDR hike will increase property prices in Mumbai

The sudden rise in the Transfer of Development Rights (TDR) price has taken the market unawares, despite the fact that such a rise was likely because not much of TDR generation was taking place. Effectively, TDR prices have now doubled, and such a steep rise was not expected. The current price of TDR is now around Rs 4000 per sq ft, says Subhankar Mitra, Head - Strategic Consulting (West), Jones Lang LaSalle India.

A close reading of the TDR scheme from a regulatory perspective indicates that the supply of TDR was expected to be driven largely by slum rehabilitation schemes. Such projects have a long gestation period and their success is a function of diverse factors - factors which do not always work cohesively. In other words, a regular flow of TDR from these projects may not be always possible.

The current TDR rate rise is the result of a slowdown of supply from such schemes, and is also linked to performance of some of the leading developers within the SRA projects sphere. Another reason for a drop in supply is the fact that developers who earlier created projects purely to house PAPs in the Mahul Road area (south of Chembur) and generated TDR which they sold in the open market have seen sale prices rise sufficiently in this specific area to make a project with a sale component profitable. Hence, developers have stopped projects directed towards generation of TDR.

Since the base FSI in the suburbs is only 1, it is a practice for developers to load about 60% TDR in the project in order to take the FSI about 2.0. Thus, the increase in TDR cost will increase project costs. At present, when sales are slack and the developers are finding it difficult to sustain prices, the additional cost are going to squeeze their margins even further.

One way to check further TDR price hikes would be to place more emphasis on TDR generation through SRA schemes and other infrastructure projects. The BMC can also consider allowing more premium FSI to be used as against TDR.

Assocham wants states to follow Maharashtra model in stamp duty and registration fee collections

'The industry body predicts the revenue can go up to Rs 2 lakh crore if things are streamlined at registrar offices'

Following innovative approach, transparency and progressive policy, the revenue collected on account of stamp duty and registration fees on property and capital transactions across India could be more than doubled and be raised to about Rs two lakh crore, an ASSOCHAM study said, which has advised states to follow Maharashtra model to curb evasion by builders and property buyers.

Lauding Maharashtra for following transparent and innovative policy, the study titled, ‘Trade Policy & Tax Regime: State Level Initiatives’ said, “Maharashtra alone accounts for over 20 per cent of both stamp duty/registration fees and overall taxes on property transactions as the state has largely streamlined compliance and tax administration in this area, thereby curbing evasion.”

Stamp duty and registration fees on property and capital transactions form a major component in the states’ revenue basket.

Other smaller states, viz., Delhi, Kerala, Haryana and Punjab too maintain robust collections on this account, which is reflective of the real estate industry in the respective states, highlighted the ASSOCHAM study while suggesting that Maharashtra’s pattern should be studied by other states and adopted with necessary modifications.

“With property prices skyrocketing in most metropolis and price of agricultural land too rising sharply in recent past, a progressive policy in this regard is the need of the hour,” said D.S. Rawat, secretary general of ASSOCHAM while releasing the chamber’s study.

“The stamp duty and registration fees on property and capital transactions form a major component in the states’ revenue basket,” said Rawat, adding, “In India, where property transactions are often regarded as shady and undervalued to avoid payments vis-à-vis stamp duty and registration fees, an innovative approach to this aspect would result in much larger collection, besides tackling parallel economy to an extent.”

“As stamp duty and registration fees collections show strong growth, state governments should do away with land revenue and property tax or factor this at the time of sale or purchase and make it a one-time payment,” suggested the ASSOCHAM study. “While local bodies can be compensated for the loss of revenue on this account, it could save the stress and trouble for village and urban poor who own a small piece of land.”

Stamp duty and registration fees have much wider ramifications in so far as streamlining and management of a very important segment of the economy, highlighted the ASSOCHAM study.

Taxes on property and capital transactions cover two important aspects viz., stamp duty and registration fees, besides land revenue and tax on urban immovable property tax. Thus, this segment covers a very huge financial sector which determines the flow of savings, housing, land and property holding.

“Hence a very close look at various aspects of this item of revenue will ensure a greater transparency in the economy and also a steady inflow of revenue to the exchequer,” said the ASSOCHAM study. “This will also result in monitoring and administratively gathering vital data on land and property holdings both in urban and rural areas.”

ASSOCHAM has also emphasized about a pressing need for taking an all-inclusive view of the entire fiscal policies and tax structure to pep up domestic demand and make India’s exports more competitive. “Creation of an efficient and cost effective production base within the country would lead to a gradual rise in demand from internal and external markets.”

“Desperate times call for desperate measures, more so as India is facing one of the worst economic phase due to the recent rapid rupee devaluation together with the burgeoning current account deficit (CAD) threatening the country’s ability to meet foreign currency payment obligations, multitude of taxes and sluggish pace of reforms are also key reasons why Indian economy is tottering,” said Mr Rawat. “There is a need to develop a national level single market by removing all existing trade barriers, multiplicity of acts, fiscal policies and marketing arrangements across India.”

A customer friendly and responsive service environment should be created across the country for consumer, trade and industry demand to flourish, added the ASSOCHAM study.

In its study, ASSOCHAM has further said that it is possible to marginally raise the motor and commercial vehicle tax and abolish the passenger and goods tax. “With the increasing number of vehicles produced and used in India, there is a compelling need to make road traffic smooth and free from bottlenecks and this will go a long way in easing the traffic and undue harassment to transporters and passengers as local bodies could be compensated by the state governments for loss of revenue in this regard.”

ASSOCHAM has also suggested that policy makers should focus on increasing efficiency of tax collections with a customer friendly approach as increasing volume of goods and services are being produced and traded in the country. “Money will flow into government coffers if the policy initiatives focus on ‘tax collection with human face’.”

By taxing diesel, petrol and other petroleum products (including cooking gas) more and more, it will result in a cascading effect and lead to overall inflation and make household necessities prohibitively expensive due to rising transportation costs, added the ASSOCHAM study.

ASSOCHAM has also suggested that the government, on its part should streamline all procedures relating to both real estate and automobile sectors and rationalization of tax rates across the country and the industry will continue to grow if these initiatives are considered seriously and are applied to other sectors too.

With agricultural production and trade going up steadily together with compelling need to promote both production and consumption of value added and manufactured goods, ASSOCHAM study has suggested that states should rationalize taxes on all items of mass consumption and consumer goods.

“There is a scope to bring down tax rates to promote consumption, thus focus should be on collection without increasing rate of taxes,” said the ASSOCHAM study. “In view of the growing demand for value added food items, consumer durables and fast moving consumer goods (FMCG), production needs to be incentivized to increase tax revenues.”

Property Investment: Focus Shifts from Mumbai to Pune

Arvind Jain

Over the last three years, an increasing number of property investors who were previously focused solely on Mumbai have shifted focus to Pune. The reasons are not hard to understand. Mumbai’s real estate market is caught in a cycle of unrealistic property price escalation that cannot last much longer, feels Arvind Jain, Managing Director of Pride Group.

Such a scenario is called a ‘bubble’ because it will eventually burst. Paradoxically, one of the foremost reasons why real estate prices in Mumbai have gone through the roof in the first place is excessive investor activity.

Today, Mumbai’s property market is facing oversupply and lack of demand. In the short to medium term, I expect this market to see a downward correction in pricing as the current price levels are beyond the reach of most buyers. Mumbai’s luxury homes market continues to perform well, but it takes more than good performance in one niche segment for the overall market to bounce back.

 The highest demand in Mumbai is for homes in the Rs. 65 to 80 lakh bracket, and there are very few options available in this budget range. Considering the lack of demand for the overpriced properties in most areas, it is logical that there will be a mark-down in prices very soon.

Pune, located less than 200 kilometres from Mumbai, is a far more rational market and has been performing very differently. The ratio of supply and absorption is much better in this city because prices are still within the budgets of mid-income buyers.

The city has been steadily adding new areas to its real estate development landscape, and the supply coming up in these areas helps to keep prices in other areas at rational levels. These positive dynamics have acted like a ‘detour’ sign for property investors. They can see where Mumbai’s real estate market is headed and prefer to plunge their capital into the prospering neighbour city of Pune.

Going by experience, these investors are not looking at saturated areas where price growth has slowed down. The maximum growth is in the city’s developing areas which have more competitive rates and therefore the highest demand. Also, these investors are looking at large projects by reputed players.

The safest and most promising investment opportunities in Pune today lie in townships. These provide residential products which include all the right ingredients for protracted capital appreciation as well as rental income. While prices in the centrally located townships are no longer attractive to property investors, they are drawn to the ones coming up in strategic upcoming areas. These properties are available at lower rates and have the highest potential for appreciation over the next 3-5 years because the city's population growth is headed towards them.

Illegal Buildings Not New to Mumbai: Anuj Puri

The problem of illegal buildings in Mumbai - and their impact on the existence of Mumbai's citizens and organizations, as well as its real estate market - is not a recent phenomenon. In fact, it is as old as the BMC itself, says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India. 

"Whether they were the result of corruption and collusion or lack of vigilance of, the issue has always persisted in what is India's financial capital, which is also the country's most space-challenged city," he adds.

However, the issue of illegal buildings started intensifying from 1995 onward. This was when the BMC introduced a slew of new regulations pertaining to development control, FSI and TDR. What followed was a significant increase in violations such as consumption of excessive FSI, building being built higher than permitted, flouting of CRZ and air space regulations, and projects being built without environmental clearances. Yet another common violation is the illegal utilization of open spaces that must mandatorily be maintained around buildings.

Considering that the problem of illegal construction is rampant throughout Greater Mumbai as well as the Kalyan-Dombivali belt, Thane and Ulhasnagar, it is impossible to define a focal point of highest incidence. What is certain is that the problem has been more or less been kept under control in Navi Mumbai, where CIDCO enforced strict norms on such matters. The rest of the city seems to have been, and continues to be, wide open to the rampant spread of illegal constructions.

The fallout of illegal buildings or constructions on the city is severe. In the first place, residents of such buildings face the constant risk of traumatic life disruption and displacement, as such buildings are liable to be identified and illegal and consequently demolished without much notice. Also, since illegal additional constructions are not part of the original approved building plans, the entire project is effectively rendered structurally unsound.

Residents at Campa Cola compound in Mumbai protesting against demolition drive by BMC

Because of huge shortage of FSI within Mumbai and its surroundings, illegal constructions are on an inexorable increase. When development clearances and increased FSI are not available, areas which are defined by huge demand for built-up spaces and no supply of new land parcels, illegal buildings are and will always be an unfortunate but logical consequence.

Also, property prices in buildings tend to be lower in illegally constructed buildings. In a city like Mumbai, where astronomically high property prices represent the greatest rift between people and homes, this factor plays a significant role in maintaining demand for any kind of available space.

A  building's overall legality can be verified by the availability of an occupation certificate and original drawings approved by the BMC. However, it is beyond a layperson's capacity to verify whether the offered space lies within the approved part of a project or is an illegal extension.

 

Mumbai is not alone when it comes to the plague of illegal structures - most other Indian cities have their share of the problem as well. The notable exceptions are cities where development rules are more flexible and practical, or are enforced with greater strictness. Some of these cities are New Delhi, Hyderabad, Chandigarh and Bangalore.  Ahmedabad, which earlier had major issues with FSI violations, clamped down seriously after the earthquake in 1991 and completely overhauled its regulation process. As a result, the incidence of illegal construction in Ahmedabad has reduced considerably.