Plan Your Investment
Think - Plan - Invest

State Bank of India has launched two special home loan schemes that assure low interest rates in the first three years, upping the ante for its rivals in the mortgage market that has turned bullish following a pick-up in home sales in May.
SBI Easy Loan for amounts up to Rs 30 lakh and SBI Advantage Home Loan for amounts above Rs 30 lakh will carry the special rate of 8%, introduced in February. The country’s largest bank has gone a step further by introducing special rates for second and third years in a move that could spark a rate war in the highly-competitive home loan market.

Under SBI Easy, interest rate for the second and third years is fixed at 9%. From the fourth year onwards, the customer can choose between a floating rate 2% below State Bank Advance Rate (SBAR) and a fixed rate 1% below SBAR with a five year reset. SBAR is the bank’s benchmark rate to which all floating rate loans are pegged.

Under SBI advantage, the interest rate is fixed at 9.5% for second and third years. From the fourth year onwards, the customer can choose between a floating rate 1% below SBAR and a fixed rate 0.5% below SBAR with a five-year reset.

Mortgage market leader HDFC and ICICI Bank charge 9.25% for loans up to Rs 30 lakh. For loans above Rs 30 lakh, HDFC charges 9.75% and ICICI charges between 10% and 11%. HDFC said it would review its rates after the Union budget, which will be presented on July 6. ICICI Bank said it had cut rates in line with the movement of systemic rates and deposit costs since December 2008.

Activity levels are gaining traction in the near moribund housing market as a flurry of interest rate cuts, price drops and the building industry’s focus on affordable housing start to lure buyers back into the market. A cross section of banks, property developers and real estate consultancies that SundayET spoke to confirmed that the rise in activity levels since the start of the year had picked up momentum in the last three months, with some in the sector saying that sales were up by as much as 25-30% since April, after witnessing a growth of 10-15% during the first quarter of 2009. India’s property market started showing signs of serious trouble nearly a year ago with first the American sub-prime crisis and later the Lehman bankruptcy playing havoc. The overpriced projects by builders found few takers which was worsened with the IT industry facing a major setback.

Builders were stuck with high-end apartments which had no takers. There was a severe drop in sales with people wanting to conserve resources. As a result, property prices too fell 30-45% since peak of 2007, according to industry estimates. But today the scenario is different, with builders getting a mix of mid end and affordable housing into their portfolio. Raminder Grover, CEO—Homebay Residential, Jones Lang LaSalle Meghraj, says the revival in sales has been, conservatively speaking, to the tune of around 25% across the mid-to-high income segments, according to his company’s sales records. Rohtas Goel, CMD of Delhi-based Omaxe too says there has been a 30% increase in sales thanks to factors such as a reversal in general economic sentiment after the elections and more options available in affordable housing.

Statistics too would appear to bear this out. India’s largest real estate developer DLF says it has sold almost 1,500 flats in various cities since April, notably some 400 flats in its mainstay market Gurgaon, 700 in Bangalore, 100 plots in Indore, 200 flats in Hyderabad and 50 in Cochin. Rival Unitech has managed to sell more than 4,000 units in the last two and a half months in the National Capital Region, Chennai and Mumbai. Omaxe has also sold almost 500 apartments in its Omaxe Eternity project in Vrindavan. Niranjan Hiranandani, MD of Hiranandani Developers says there had been a sale of 7,000 apartments across the industry, mainly in Mumbai suburbs, over the last 60 days. Despite indications of improving demand, builders don’t seem to be in a hurry to raise prices. They are conscious that demand was up due to price cuts and the affordable housing strategy. Builders are loathe to do anything that could incipient recovery.

“We will not be looking at a price increase,” says DLF’s group executive director Rajeev Talwar. The company says it has cut prices by up to 30% from peak levels of 2007. Others point out that the demand is coming from the low-end housing segment comprising houses prices under Rs 25 lakh. “Buyers have come out of the waiting mode…By December, the situation is expected to become much better,” said Mr. Goel of Omaxe. Mr. Hiranandani of Hiranandani Developers also agreed that affordable housing was selling the most right now, saying that while the overall market had improved, this particular segment was doing really well as buyers realised that the market has bottomed out. Bank officials SundayET spoke to also confirmed the trend of rising demand, and noted an increasing demand for home loans.

“Largely the demand is coming from the sub Rs 30-40 lakh category. Resale market is also showing high growth. However, there is lesser demand for new projects as well as in yet to be completed ones,” said Kamlesh Rao, senior vice president at Kotak Mahindra Bank. “While during January-March, there was a growth of 10-15%, now it is around 15-20%.” He is not alone. Officials at UCO Bank, Axis Bank and the country’s top mortgage lender HDFC too agree that an improving sentiment had helped drive housing sales. “We are witnessing an increased interest from our clients. The condition has definitely improved over the last 3-4 months,” says Sujan Sinha, senior VP and head of retail assets at Axis Bank. An HDFC spokesperson felt the growth is up month on month mainly due to decline in interest rate and the growth of affordable housing. “We are confident that we will achieve the 20% annual target growth,” he said.

The real estate sector plays a significant role in India’s economy. Almost 5% of the country’s gross domestic product (GDP) is contributed by housing alone and an unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times the increase in expenditure. According to Dun and Bradstreet Corp., a provider of credit information on businesses and corporations, the total value of real estate development in India was estimated to be around $14 billion (Rs67,480 crore), growing at an annual pace of 30%. This growth is fuelled by the growth in realty development in organized retail, followed by housing and information technology and information technology-enabled services.

While such statistics are praiseworthy, it is also relevant to remember that the ongoing slowdown had started with a bursting of a bubble in US real estate, driven by reckless demand and supply conditions. Real estate in India has been characterized by an increasing presence of a large number of public companies, along with the opening up of this sector to foreign direct investment (FDI) and private equity firms. This has increased the discipline and accountability of businesses undertaking large-scale real estate developments. On demand, Indians have an innate propensity to own homes. This, with rising income levels following India’s rapid growth, has resulted in a phenomenal increase in the demand for homes.

Moreover, the country has started viewing property as a preferred investment option, given that returns are pegged between 11% and 15%, compared with bank deposits, which seldom offer returns over 10% a year. Prices of homes, therefore, have increased at a steady pace in the past decade. In recent times, real estate has been seeing a plunge in demand with retail shying away from exorbitantly priced spaces or paying high rentals. Reduced consumer spending has also translated into a retail slowdown. Many firms have also decided to relocate from high to lower cost locations, leading to vacancies going up in retail and office space. Interestingly, a careful look at the performance of the sector reveals that the pace of activity has been shifting to smaller cities. Several reasons could cause this shift. First, speculative investments in real estate, which have been largely confined to the metros, resulted in greater price volatility in these cities.

Secondly, the high price of real estate in large cities has caused a number of offshore companies setting up operations in India to expand into smaller cities, resulting in a substantial increase in demand. Thirdly, builders and developers have mainly focused on high-end housing projects in large cities. The recent economic slowdown has meant large stock of unsold inventory. They have, therefore, shifted focus on developing projects aimed at medium-income, middle-class households. Lastly, the special economic zone policy has also resulted in a shift of activity from large to smaller cities. So, where are we headed? The advent of the private sector in real estate and the government’s proposal to offer fiscal concessions and creating an enabling environment for housing development have led to rapid growth in private investment in housing, with the emergence of developers mainly in metropolitan centres and other fast-growing towns. The growth has been fuelled by rising business opportunities in new and emerging enterprises, increasing income levels, low interest rates, employment generation and demographic changes.

The real estate market has also been boosted by a proposal to permit 100% FDI in the sector. Also, a significant factor that drove the growth of the housing market was easy availability of bank finance at affordable interest rates. Finally, it is important for policymakers to be vigilant and track the pace and economics driving the evolution of the sector. There should be adequate supervision to prevent reckless credit growth to fund its expansion. India’s favourable demography, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the retail real estate downturn from being protracted. The fundamentals of the sector are good and its growth should continue in the foreseeable future.

Demand in the Indian residential market is expected to turn positive in 2010 due to improvement in affordability, steady economic growth and greater liquidity, says a Crisil research report on the real estate sector. However, the decline in the currently overpriced capital values of all three real estate segments of residential, commercial and retail will persist through 2009. Commercial and retail markets will continue to see erosion of lease rentals in the next two years, it says.

The report is an analysis of over 400 areas across 88 micro-markets in Ahmedabad, Bangalore, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai-MMR, National Capital Region and Pune. Mr Sudhir Nair, Head, Crisil Research, said: “Accelerated growth of Indian economy, recovery of global economy, improved liquidity and expected fall in interest rates are key factors that will signal demand revival in the residential segment. This segment is likely to see a much faster revival due to a strong underlying demand for housing and supply coming at attractive price points.”

The demand in the commercial and retail segments is likely to remain under stress the next two years owing to excess supply and weak offtake, he added. The report says capital values for residential sector and lease rentals for commercial and retail properties had substantially corrected till March due to a slowdown in both the domestic and global economies, and also due to real estate becoming unaffordable. Kochi, Chandigarh and Pune, which have greater investor presence as against end-users, saw a greater fall in capital values compared to other cities. The situation is expected to continue through 2009 and 2010, particularly in the commercial and retail segments. However, Crisil Research believes that demand for houses will improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth in the economy.

Real estate firm Ozonegroup is all set to commence its Rs 2,500 crore residential project in the city on 42 acres of land. The project, ‘The Metrozone’ at Anna Nagar, would have 1,600 apartments across 29 towers. “This is our flagship project in city and the total project cost is Rs 2,500 crore’’, Ozonegroup Managing Director Mr S Vasudevan told reporters here. He said the project would have three basement levels to park 6,000 cars and a piped gas network. As part of promoting ‘Green’ power, the project would have solar lighting and the rainwater storage systems, he said.

The residential units range between 1,555 square feet for double bedroom apartments (Rs 95 lakh) to 4,818 square feet for penthouses (Rs 1.5 crore), he said. The first phase of the project is likely to be completed by 2011. “Construction is expected to begin by June 29 and the entire project should be completed by 2013-2014′’, he said. Mr Vasudevan said the Metrozone would have 15-17 screen multiplexes and one lakh square feet area had been allotted for food and entertainment. “We are talking with the multiplexes and will be signing agreements on this very soon’’, Ozonegroup Chief Operating Officer Mr K S Sudarshan said.

The group is also constructing two residential projects in Bangalore at a total cost of Rs 400 crore, he said. “About 1,000 apartments are likely to come up in both these projects and the minimum price of an apartment would range between Rs 26 - Rs 28 lakh’’, he said. The company also planned to set up a leisure project in Goa on 180 acres, he said, but declined to divulge further details.

Laxity in promoting Coimbatore as next IT destination after Chennai,time-consuming approval process, speculative land prices, conservative nature of people and lack of political clout are some of the key reasons identified behind the sluggish growth in real estate in the techcity. Speakers at a forum organised by Confederation of Indian Industry (Coimbatore) and Jones Lang LaSalle Meghraj (JLLM) here on Tuesday. However, believed the realty sector has enough potential and it is poised to pick up growth in about six months to one-year.

In his presentation on Coimbatore Edge, Ramesh Nair, managing director of JLLM, Chennai and Hyderabad regions said branding Coimbatore, as a single entity is very important for the growth of the city. Also, the city has the capabilities to be promoted as a highly promising alternative IT/ ITES and a biotech destination. “There is a huge potential for local, national as well as international developers in the real estate sector in Coimbatore,” Abhishek Kiran Gupta, Head – Research, JLLM said. He cited high literacy rate, more number of people graduating out of many renowned colleges and the city’s contribution to the growth in the per capita income of the country.

“Coimbatore is a self-made city and we haven’t had a trigger point yet. If only the city had got an IT park five years ago when Chennai got it in 2000, it would have propelled a greater growth today,” said Ashok Bakthavathsalam, managing director, KG Information Systems. D R Sekar, chairman, Builders Association of India (BAI), Coimbatore Chapter added that getting approvals for land and buildings have been a difficult and laborious process in Coimbatore and whole of Tamil Nadu.

“Compared to other neighbouring states, the approval process takes a long time in TN and therefore all promoters are shying away from investing in the state,” he said, adding a single window system is the need of the hour. Rajesh B Lund, vice president of Confederation of Real Estate Developers Association of India (TN) said, apart from the delay in approvals, the market fell when the new projects were about to take-off. “It led to a lull in the construction industry,” he added.

Of the proposed seven SEZs in Coimbatore, only three including Tidel Park are under construction now. Likewise, many companies evinced interest to build malls in the city but today only two projects – Brooke Fields and Fun Republic are getting ready. “The lack of night life in Coimbatore and the delay in IT infrastructure has led to slowdown among retail mall developers,” said A Sridharan, managing director, Covai Propery Centre. “Coimbatore is not a modern city and it is also conservative and not used to mall culture. But, after these two malls start operations, people will get used to it,” added Mr Sekar. Also, with the new generation starting to work, the city is bound to catch up with experiencing a new culture”, he said.

On land values, Mr Rajesh Lund said though prices have dropped drastically compared to the all-time high in 2007-08, the landowners still stick to the high prices and are not willing to sell lands. About the city attracting big investments, he added, once infrastructure falls in place investments would automatically flow in. He also hoped that non-resident Coimbatoreans would return to the city and invest here. Mr Ashok added that with the opening of the Tidel Park and the IT-SEZ in Keerenatham village, nearly 16,000 seats would be created in another 1 to 1.5 years time. “If these new professionals are to come to the city, then there would be huge demand for affordable housing and also serviced apartments,” he added. Already leading promoters in the city have planned to construct budget houses costing Rs 15 lakh to Rs 20 lakh each.

HDFC branch head S Ramesh Kumar expected the market to pick up since the costs have come down. “Also with the fall in interest rates, a large number of people would be attracted to real estate now,” he said, adding the future trend also points to a reduction in interest rates.

Till last year, Special Economic Zones (SEZs) were the flavour of the season. But for some developers, the downturn in the global economy is now forcing them to surrender their SEZs despite having received formal approvals from the Centre. On Tuesday, the Board of Approval of the ministry of commerce and industry in Delhi will deliberate on half a dozen proposals by two developers construction giant DLF and the Mumbai-based K Raheja Universal to denotify their SEZs. Both the developers have cited global slowdown in the IT sector as reasons for scrapping their SEZs. DLF, the country’s largest real estate company, has requested the Board of Approval to denotify four of its approved SEZs 25 acres in Gujarat, 25 acres at Rai, Sonepat in Haryana, 25 acres in Kolkota and another 25 acres in Bhubaneswar in Orissa.

Raheja Universal controlled by Suresh Raheja, the youngest of the Raheja brothers who split about two decades ago, has requested the board to denotify its 50-acre IT/ITES SEZ in Navi Mumbai and also sought part denotification of a portion of its 30 acre SEZ in the same area. According to sources, Raheja Universal approached the board with a proposal to surrender its SEZ, citing economic recession in the IT industry. The company has been selling of its land bank for the past several months now. Last month, the realty company sold its Wallace Flour Mills property at Mazgaon for a substantial loss following pressure from a private bank to shore up its hefty loans.

In DLF’s case, the board in its meeting on Tuesday will consider if the realty major had benefitted from the duty free benefits offered to SEZs and whether it should be returned to the government. In Maharashtra, as many as 109 SEZs have received a formal go-ahead while another 35 have got in-principle approval by the union ministry of commerce and industry so far. Incidentally, Maharashtra has the largest number of SEZs in the country. The SEZs which have received formal approvals by the board of approvals in Delhi are cases where the developers have got complete possession and ownership of the land to be developed.

Six of the approved SEZs are located in Mumbai itself. They are Hiranandani Builders’ 31 acres proposed information technology (IT) zone at Powai, Royal Palms India’s 24 acres (IT) in the heart of Aarey Milk Colony in Goregaon (east) and another 24 acres for a gems and jewellery SEZ in the same region, Chiplun Infrastructure’s 99 acres (location not given) for a warehousing zone, Bombay Industrial Corporation’s IT SEZ on 30 acres in Mahul and Ferrani Hotels Private Ltd/Ozone Developers 69 acres for a IT zone in Malad.

Foreign fund house Citigroup Global Markets Mauritius has picked up a 0.11 per cent stake in domestic real estate developer Indiabulls Real Estate for Rs 7.45 crore. As per the data available with the Bombay Stock Exchange, in a block deal Citigroup today purchased three lakh shares of Indiabulls Real Estate at a price of Rs 248.60 a piece.

Meanwhile, in a separate deal, another foreign fund house Morgan Stanley Mauritius Company today sold three lakh shares of the company at the same price (Rs 248.60 a piece). Shares of Indiabulls Real Estate closed at Rs 248.50, up 0.95 per cent on the BSE.

After struggling for months to sell large parts of its land bank to repay part of its debt, Bangalore-based Sobha Developers Ltd has changed tack. The realty firm is now scouting for joint developments and looking to sell smaller plots to keep the cash flowing. Several realty and infrastructure projects have been deferred or scrapped since late last year after funds became scarce. Consequently, most developers have stayed away from buying land or are negotiating hard for steeper discounts despite an up to 30% fall in property prices. Over the past six months, Sobha Developers has managed to sell only small land parcels, said chief financial officer S. Baaskaran. In March, the firm, already stuck with an inventory of unsold high-end apartments, made its first attempt at selling residential plots for quick cash flow.

Saddled with a debt of Rs1,850 crore, the firm has outlined plans to raise Rs200 crore through land sales and some Rs1,000 crore from qualified institutional placements, or QIPs, in which promoters of listed entities sell shares to institutional buyers such as banks without involving retail investors. Sobha Developers has sold 64 of 94 plots in its Bangalore and Coimbatore projects, earlier meant for large projects. “There has been some movement in the land market but we still have a lot of land to be sold (including in prime areas such as a 1.5 acre property near MG Road in Bangalore),” said Baaskaran. “We have also dropped out of ongoing negotiations for new land buys.” Sobha Developers had been trying to sell the plot, where it had planned a shopping mall and a hotel, for four months. But the high asking price of Rs120 crore had kept away buyers.

Unitech Ltd, the country’s second largest listed developer, too has started advertising plots on land earlier meant for projects such as schools and hospitals. In two months, it has sold four plots of up to 5 acres each in and around Delhi; it aims to sell another 17-18 plots. “We have seen good response for these plots,” a Unitech spokesman said. Unitech, with a debt of Rs7,800 crore, has been trying to raise funds by selling some of its 500 million sq. ft (11,478 acres) of land, and is in advanced talks to sell land meant for schools in Gurgaon, the firm disclosed in a recent presentation to analysts. Over the past three months, Unitech has sold its Marriott Courtyard hotel in Gurgaon for about Rs231 crore and an office property in Saket, Delhi, for Rs500 crore. In April, it raised $325 million (Rs1,536 crore) through a QIP to partly repay debt and fund some projects. Land sales have just about begun, with some real estate funds and corporate houses emerging as buyers, said Ashutosh Limaye, associate director (strategic consulting), Jones Lang La Salle Meghraj, a property advisory firm.

Credit rating agency CRISIL has started grading real estate valuers with the very first grading announced for a Mumbai based valuer. The grading of real estate valuers is expected to facilitate benchmarking for the valuers and also help banks, housing finance companies, real estate mutual funds, select real estate valuers for specific valuation assignments.

The company today said that it has assigned ‘Grade 3′ to BDO Haribhakti Consulting Pvt Ltd which, reflects that the valuer’s ability to provide fair property valuations is ‘good’. CRISIL considers parameters like management quality, organisation structure, organisation system and financial strength before grading the valuers, it said in a press release issued here.

The valuer grading by CRISIL meets with the requirement of SEBI regulations which state that the underlying assets of real estate mutual funds can be valued only by those real estate valuers that are accredited by registered credit rating agencies, the statement said.

Foreign fund house Morgan Stanley has acquired 7.68 per cent stake in Indiabulls Real Estate for about Rs 570.18 crore, through qualified institutional placement (QIP) route. Morgan Stanley & Co International through its various investment arms has acquired over three crore shares, representing 7.68 per cent stake in the realty firm, Indiabulls Real Estate said in a disclosure on the Bombay Stock Exchange. Last week, the company had said it would issue shares on institutional placement basis at the rate of Rs 185 a piece.

Calculated on the basis of the said price, the allotment to Morgan Stanley is worth Rs 570.18 crore. Earlier, the company had raised Rs 2,656.50 crore through issue of 14.36 crore shares on institutional placement basis. Shares of Indiabulls Real Estate closed at Rs 198.20, down 3.67 per cent on the BSE.

The country’s largest lender, State Bank of India, today said it will consider a cut in interest rates after the bankers’ meeting with Finance Minister Pranab Mukherjee scheduled for early next month.

“As far as interest rates are concerned, we will take a view after (bankers’ meeting with Finance Minister),” SBI Chairman O P Bhatt said after the launch of Defence Salary Package here.

There is enough liquidity. Credit is not strong at this point of time but it is expected to pick up during the year, he said. “There is definitely a softening bias (on interest rates). There is no chance of going up,” he said, adding that “perhaps they (interest rates) would come down.”

With inflation going down and sufficient liquidity make case for rate cut, he said, adding, “how much it will fall and to what extent would depend on the products mix and balance between asset and liability”.

Earlier this week, Mukherjee had said that he will ask banks for a “benign plan of action.”

Mukherjee had said, “Industry and business have been hurt by the cost of finance … The cost and the speed with which finance can be accessed remains a matter of concern.”

“One of the first steps I propose to take is to meet bankers and get them committed to a more benign plan of action,” Mukherjee added.

SBI last reduced the benchmark lending rate by 75 basis points to 12.75 per cent beginning this year. At the same time, the bank is offering home loans at a rate of 8 per cent.

Speaking about the Defence Salary Package, Bhatt said the product offers a bundle of free services to the Army personnel.

The package includes free drafts, free cheque book, free fund transfers to any of the SBI’s Group network of about 15,000 branches and free ATM cards, he said.

Bhatt said, the bank would also offers home, auto and personal loans to Army personnel at 25 basis points lower than the floor rate.

At the same time, bank is contemplating to launch special two-wheeler loan scheme for the Army personnel, he added.

The full budget to be presented by the new government in the forthcoming session of Parliament to begin sometime next month may come packed with some concessions for the middle class by way of raising the tax exemption limit to up to Rs 1.75-Rs 2 lakh from the current Rs 1.50 lakh.

The other benefit in the direct tax segments could be withdrawal of the Fringe Benefit Tax. If through, both these measures will result in a tax outgo of around Rs 10,000 crore. Proposals in this regard are under active consideration, indicated a senior official in the finance ministry.

Raising of the tax exemption limit along with the withdrawal of FBT will act as another stimulus since the large middle class population will be left with more money in hand, especially at a time when the government is likely to release the remaining 60% salary arrears of the 6th Pay Commission.

The removal of FBT has also been mooted by the commerce ministry. It had also sought continuation of interest rate subsidy while seeking to further raise it from the existing 2% to 4%.

Sources in the finance ministry said there is no scope for any further cuts in excise duty, customs or service tax as the indirect tax collections had slipped into negative domain towards the end of the last fiscal. With the widening fiscal gap, it is equally important for the government to keep its revenue stream rejuvenated to fund its developmental and social schemes.

The commerce ministry is firmly backing industry’s proposals for extending tax sops to export-oriented units, besides the continuation of interest rate subvention till March 2010. In their proposals to the finance ministry, industry chambers had asked the government to include measures in the budget that would promote investment and create additional demand.

Is it a good time for those living in rented apartments? Your location could well be the answer to that. While some pockets in the country are showing an upswing in rentals, other micro-markets are witnessing a reverse downward movement. Leading real estate consultants say that the residential rental market has been moving in tandem with the demand-supply dynamics of a particular area, rather than the property prices. Pankaj Jain, executive director of Realistic Realtors, a North-Indian real estate consulting firm says while rentals in some areas have come down, certain pockets are showing an upswing due to the limited supply. “In the national capital region for instance, lack of supply has led to an increase in rentals in some areas. These include east Delhi, south Delhi and the university campus areas in north Delhi. However other areas in NCR such as Noida, Greater Noida and Gurgaon, have seen the opposite trend.” Agrees Subhash Kumar, a resident of east Delhi whose rent just got higher last month. “I was paying Rs 9,000 per month till last month for a 2BHK apartment. The landlord has recently increased it to Rs 14,000. I tried negotiating but he did not reduce the rent.”

While the upswing in residential rentals have impacted the mid-segment across cities such as Delhi, Mumbai and Bangalore, the high-end segment has seen a downward correction in most of these markets across locations. According to Cushman & Wakefield (C&W), in Delhi NCR all micromarkets witnessed correction up to 4% over the last quarter. In Mumbai too rental values for high-end apartments witnessed a downward movement across most micro markets in Q1 ‘09. Chennai, on the other hand, saw no movement during the quarter as genuine demand continued to exist. However, a new trend in the city saw clients wanting to consider mid-end options in prime locations such as RA Puram and Poes Garden. In contrast to Chennai, Hyderabad witnessed significant quarterly correction between 10-23% in the high-end segment. Reduced hiring by IT/ITeS companies, speculation regarding lay-offs and tenants becoming more selective towards rental commitment led rentals in the top-end segment to further drop in January, with these remaining stable over the last two months.

Like Hyderabad, Bangalore too saw a correction in the range of 17-20% in the high-end segment largely due to declining leasing activity. South Bangalore, in fact, has been most affected in the high-end sectors, with rental depreciation of around 19%, due to the decreasing demand. Jones Lang LaSalle Meghraj (JLLM), too, sees the top-end residential rental market in Delhi slowing down. Transactions are happening, but there are significant time lags between them and volumes have gone down. Expatriate movement is at an all-time low. Landlords are not getting the kind of rentals they did during the peak phase, but there is no likelihood of a further fall. In Mumbai, according to the consultancy, the residential rental markets have shown a decline in overpriced and speculative areas and in most areas that have seen more supply than demand can absorb. However, rentals have displayed a remarkable level of inflexibility in areas where there is no supply and demand is high. Kolkata has not shown much of a decline and continues to look good. In fact, the residential rental market of Kolkata seems to have escaped the worst of the slowdown dynamics, according to JLLM.

Rajiv Sahni, partner, real estate practice, Ernst & Young agrees that while there has been a significant rental correction in the upper end of micro-markets that witnessed unprecedented growth in the last few years, there has been a strong resistance in markets that have healthy demand-supply dynamics and strong fundamentals. But are people more inclined towards renting now or to buy/sell options? Sanjay Dutt, CEO (business), JLLM says the demand for rental homes continues to be high in prime areas with little or no new supply, and in locations that have witnessed a more rational supply rate in the past. “In areas that have witnessed oversupply, the accent is currently more on outright purchase. This is because investors who had bought units in such areas have, to a large extent, failed to respond to the new market dynamics by coming down sufficiently on their rental expectations. There is also an increasing trend among property owners to sell rather than rent out their properties, since there is still scope for correction in many areas.”

While some developers feel that people are opting more for rent at present due to the uncertainty in the job market, others are of the view that end users will derive more benefit if they buy their own flat rather than stay on rent. Ajay Midha, director, SEZ & commercials, Raheja Developers feels that a lot of people are opting more for rent owing to uncertain economic conditions and overall confused market sentiments. Rajeev Rai, V-P, corporate, Assotech, says rental property is currently being preferred by those who are not looking to stay in their city of residence for a longer duration. “Those who have the means and better jobs to back their decision of buying property are going ahead with their plans of buying it. As far as rents are concerned, while the high-end apartments have been affected, the rentals of low and medium-range apartments are moving ahead.” The current situation, many feel, has led landlords to bargain hard with existing tenants to revise the rent in line with the market scenario.

Introduction

In this article I will write about the Cost Inflation Index(CII) and how it is measured by the government every year. Many of us not aware of the term CII. It is the main logic behind increase in the value of land and house prices. The value is set by the government each year. This articles explores more details on the CII. Please post your comments after reading the article. If you like the article please subscribe it here.

What is Cost Inflation Index(CII)?

It is a measure of inflation that finds application in tax law, when computing long-term capital gains on sale of assets. Section 48 of the Income-Tax Act defines the index as what is notified by the Central Government every year, having regard to 75 per cent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year.

How does CII help in capital gains computation? Capital gain, as you know, arises when the net sale consideration of a capital asset is more than the cost. Since “cost of acquisition” is historical, the concept of indexed cost allows the taxpayer to factor in the impact of inflation on cost. Consequently, a lower amount of capital gains gets to be taxed than if historical cost had been considered in the computations.

Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost.

For example, if a property purchased in 1991-92 for Rs 10 lakh were to be sold now for Rs 40 lakh, indexed cost = (519/199) x 10 = Rs 26.08 lakh. And the long-term capital gains would be Rs 13.92, that is Rs 40 lakh minus Rs 26.08 lakh.

Summary

In this article I have explained about the Cost Inflation Index(CII) and how it can be calculated. Hope this article helped you to find the meaning of CII. Thank you for reading this article.

Subscribe to our future articles here.

I want to invest Rs 40,000 for a short period. I would need the money in 6-8 months. Can you suggest an investment avenue that can give me best returns and also offer liquidity? I have ruled out a fixed deposit as I may need to break it and end up paying a penalty.

The answer depends on when you need the money. If you will need it only after a particular period, then you can invest in a bank fixed deposit (FD). This way, you can opt for the preferred time frame and you will not face a penalty on a premature withdrawal. The best part about bank FD is that you will get guaranteed returns. Also, they are the safest.

But if you are vague and cannot ascertain the time frame, then it is better to opt for a liquid fund. This category is reasonably safe. Redemption in a liquid fund takes T+1 days. This means the money is credited to you on the day after you make your redemption request.

However, if you also want to keep this money for emergency purposes and would need it instantly, you can keep it in a recurring deposit. You can have instant access to it whenever the need may arise.

have been systematically investing in Magnum Taxgain since June 2006. And in the first year, I invested in the dividend re-investment option. But from May 2007, I started investing in the growth option. When can I withdraw the total money?

Each investment through a systematic investment plan (SIP) is considered as a fresh purchase in the fund. Each instalment in a tax-saving fund, hence, needs to complete three years of holding, which is the compulsory lock-in period.

If you started your SIPs in this fund in June 2006, it does not mean that your lock-in period will get over in June 2009 and that you can withdraw your total investment. Yes, the first SIP will complete its lock-in period in June 2009. But the units bought in the next month, that is July 2006, can be redeemed only in July 2009, and so on.

SIPs with a dividend reinvestment option in the first year will also have to be compulsorily locked-in for three years. A change of plan does not change their lock-in status. Since you were investing in the dividend re-investment option in the first year, it must be noted that the compulsory lock-in period of three years is also applicable to the dividends reinvested.

I have held units in the ABN AMRO Opportunities Fund since four years. I used to track its net asset value (NAV) till a few months ago, and even used to receive regular statements each quarter from ABN AMRO. Of late, I am unable to find details on it ? Can you tell me on where I should look for the NAV of this fund and how do I redeem it?

The global restructuring of the ABN AMRO group in October 2008 led to ABN AMRO Asset Management becoming a part of Fortis Investment Management. Due to this, there was an indirect change in the control of ABN AMRO Asset Management (India) and the company has since then been renamed as Fortis Investment Management (India).

Following this, the existing schemes of ABN AMRO were renamed and the fund you invested in - ABN AMRO Opportunities - is now called Fortis Opportunities. As for redeeming the fund, you can do so with the Fortis Investment Management.

Subscribe to our future articles here.

Introduction

In this article I will be writing about clubbing the income from minors. If the person age below 18 is considered as minor and he/she is not eligible to submit the income tax under the Indian Income tax act except certain exceptional cases. If a minor is earning income, then it will be clubbed with his guardian or parents income and will be paid tax for the amount. This article explores all the details involved in the minor income and how it is clubbed with others income. If you have any doubts please post it in the comments section. Subscribe to our future articles here.

Minor’s Income

Normally, the income of any minor is clubbed in the hands of either of his parents and, therefore, the minor need not file the return and hence PAN is not required. There are some exceptions.

All the income of a physically or mentally handicapped minor child will be directly assessed in the hands of the child. Similarly, a minor earning income by way of manual work or an activity involving application of his skill, talent or specialized knowledge and experience, is directly assessed in the hands of the child.

Under such situation, the minor requires a PAN. However, if it is only investment income, then the same will suffer clubbing.

Q : I have two children, both minors. The income of the first child was clubbed in my hands as at that time my total income was higher than that of my wife’s. The second child did not have any income at that time. In the current year, the second child has income but my wife’s total income will be higher than mine. In whose hands will the second child’s income be clubbed?

A : Section 64(1A), which provides for clubbing of the income of a minor child with that of the parent, provides that where the marriage of the parents subsists, the income of the minor child is to be clubbed in the hands of the parent whose total income is higher and further that once the income of a minor child is clubbed in the hands of one parent, the same is to be continued to be clubbed in the hands of that parent unless the assessing officer after giving an opportunity of being heard to the other parent is satisfied that the income needs to be clubbed in the hands of that other parent. In your case, since your second child has had income only in the current year and since in the current year your wife’s total income would be higher than yours, your second child’s income would have to be clubbed in your wife’s hands and not in yours.

Summary

In this post I have explained about the clubbing of minor’s income. This provides only the basic ideas on how to treat the minor’s income. There many be many other rules which will be applicable only in the specific scenarios. I will write it in my future articles. Thank you for reading this article. Please subscribe to our future articles here.

In an attempt to attract fresh retail money into equity schemes, fund houses have begun launching ‘daily SIP’ plans that allow investors
to invest a small sum of money every day, if they so wish to.

While Bharati Axa and Sahara Mutual have already launched daily SIP plans, several other top fund houses are also considering similar plans or make their existing SIP plans more flexible.

“Contrary to monthly SIPs which have a date system (where fund houses set the dates for collection of SIP money
through the ECS route or post-date cheques), daily SIPs are more flexible, as they invest directly in that particular day’s market,” said Vikaas Sachdeva, country head (business development), Bharti Axa Investment Managers.

“This is an ideal risk-mitigation product. Daily SIPs allow investors to have a better play or control over market volatility,” he added. Bharati Axa has a daily SIP plan that starts at Rs 300 while Sahara Mutual has a Rs 10-a-day plan.

Fund houses are coming out with such plans to include customers of varied backgrounds and in the process increase their retail investor clientele.

“Daily SIPs — though it may look very retail or small investor-focused — could also be an HNI product. There are many high net worth individuals who use the product to make chunk investments and capture every minute levels of market volatility,” said mutual fund expert Vijay Venkatram.

According to fund marketers, daily SIPs — and even micro-SIP plans, where minimum monthly investment is very low — are high-cost products for the fund house. Thanks to its recurring investment nature, operational expenses like bank charges, cheque/cash collection charges and registrar (registrar and transfer agent) charges are much higher in daily SIPs than monthly SIP plans.

“For sure, we’re a bit stretched at Rs 300-a-day, but at a daily investment of Rs 450-500 a day, we’ll easily be able to make it a viable proposition,” Mr Sachdeva added.

However, there are a few fund experts who believe daily SIPs are not a product for the salaried class. To counter competition, a few fund houses have launched monthly plans where investors can make staggered payments throughout the month (in three or four installments).

“The concept of investing on a daily basis is good for people who earn daily wages. The invested fund is better utilised when it is made in small tranches throughout the month,” said the channel head of a Mumbai-based fund house.

After Rs 1-lakh people’s car Nano, the Tatas on Wednesday unveiled a low-cost realty project which offers a house for less than Rs 4 Lakhs. Tata Housing, the real estate development arm of the Tatas, will build one-room-kitchen flats for just Rs 3.91 lakh in a township being developed at Boisar, 100 km from Mumbai. The salt-to-software Tata conglomerate plans to develop the township within 24 months and allotment of flats would made through lottery, Tata Housing’s Managing Director Brotin Banerjee said.

The company has plans to replicate the project, Subha Griha, in the National Capital Region (around Delhi) and Bangalore in the current fiscal itself, he said. Tata Housing, Banerjee said, would also start such projects in Chennai and Kolkata and subsequently to other Tier-I and tier-II cities. “We observed that since most of the people in the low- income bracket live away from their families to earn a livelihood in big cities, there is a large percentage of migrant population with people living in either rented or company provided accommodation,” he said.

“Our study shows that 48 per cent of the people in the lower segment are currently staying in rented accommodation. As a real estate company, we are sensitive to the need of providing this segment with their own home along with community life,” he said, however, adding that local people would also be eligible to own homes in these projects. Banerjee said in the Boisar project, a one BHK flat with a total saleable area of 465 sq ft would be available at Rs 6.7 lakhs. Out of the total 63.58 acres, there would be also space for “affordable housing” along with hospital, school and a community hall among others within the entire township project. Affordable housings within the Shubh Griha project could cost anything between Rs 10-15 lakhs, he said.