Where Is The Wealthy Indian Buying Home
*London, Dubai and Singapore are the popular destinations for wealthy
Indians when it comes to buying homes abroad*
*A majority of real estate buyers on foreign shores comprise people who are
looking for a second home or a place to holiday in, and for those whose
children are studying abroad.*
*Back in the 1990s, owning a house or even an apartment in south Mumbai
meant serious wealth. For the new rich, or ultra high networth individuals
(HNIs) of today, to whom no place is too far to go and no price too high to
pay, that address is pretty much passe.*
*"Some of the fanciest districts in the world, such as Kensington,
Belgravia or Holland Park in London or prestigious locations such as the
Burj in Dubai and Nassim Road in Singapore are among the most popular
global locations for Indian ultra HNIs to own luxury residential
properties," in a recent report.*
*Indians were among the top five international real estate buyers in the US
in the year ended March, according to the US National Association of
Realtors. Indians, along with buyers from Canada, China, Mexico and the UK,
accounted for some 53% of international property buyers in the US in the
year ended March, according to a survey by the association.*
*The global financial crisis and recession that followed the collapse of
Wall Street investment bank Lehman Brothers Holdings Inc. in September 2008
opened up the foreign real estate market to Indian buyers. As European and
American home owners struggled to repay their mortgages, and property
prices plunged, Indians who had the means pounced on the opportunity.*
*Money is no object. According to the Forbes Billionaires List, the number
of Indian billionaires increased to 55 in March from 48 last year. The
combined wealth of Indian billionaires as of March 2013 was $189 billion,
which, to put it in perspective, is roughly one-and-a-half times the size
of Bangladesh's economy or three times the size of the Sri Lankan economy
in 2012, according to International Monetary Fund (IMF) figures.*
*Top of the Pyramid report, defined an ultra HNI household as one having a
minimum average net worth of Rs.25 crore, essentially accumulated over the
past 10 years. The latest report pegs the number of such households in the
country at more than 100,900, which is poised to more than triple to over
329,000 by 2017-18.*
*The 2013 report says that driven by increasing globalization, comparable
valuations overseas and investment considerations, more and more ultra HNIs
are purchasing luxury properties abroad in places such as Singapore, London
and Dubai.*
*photo*
*Report 2013 says that despite recent economic concerns, the number of HNIs
in India is expected to more than double over the next 10 years, rising
137% in Mumbai alone.*
*The report says that prime residential and commercial property in
relatively risk-free locations has always attracted investors in times of
economic and political turbulence.*
*"There is something comforting about tangible assets that, barring
natural disaster, will retain their inherent value over time, even if
prices dip in the short term," says the report.*
*"Wealthy investors are also starting to buy into recovery, breathing new
life into previously moribund markets such as Dubai and Dublin."*
*A majority of real estate buyers on foreign shores comprise people who are
looking for a second home or a place to holiday in, and for those whose
children are studying abroad.**"Education- and business-related interests
are the major drivers behind such acquisitions," *
*Australia, the Middle East--including Dubai, Muscat and Abu Dhabi--and the
UK (especially London) and the US are the prime locations, *
*Then there are people who are working outside India and for whom buying a
home in the country they are employed in makes more sense than buying one
in India.**"Consumer knowledge has grown tremendously and the Indians
buying abroad are doing so with more information than ever," *
*"Understanding of the markets has changed," report says ."More and more
Indians are buying property outside the country today compared with five
years ago."*
*To be sure, the ardour to buy property overseas has been culled by an
August move by the Reserve Bank of India (RBI) to restrict investments
outside India in an attempt to stop outflows of dollars and stem the
rupee's decline against the dollar. The central bank has subsequently
clarified that the measures are temporary. **Report admits that buyers have
become more cautious after RBI's move.*
*"Due to this change, investing in properties abroad is not a viable
proposition anymore," says a consultant working with a global property
consultancy who asked not to be identified. "Moreover, for the builders
abroad as well as the global property consultant, marketing global
properties in India is not attractive any more."**"But it is too early to
say how this is going to impact the buying behavior of people," he says.*
*There are reasons why buying property overseas has become attractive to
Indian buyers--the growing population of cities such as New Delhi and Mumbai
and rising prices of real estate at home.*
*According to International Residential Index, residential real estate
prices in Mumbai are now on par with those in cities such as Dubai, Los
Angeles, Miami, Rome and Tokyo.**The choice of location is the predominant
factor, according to the TOP report. "All other things being equal," the
study says, "factors that come into play in the purchase decision include,
among others: the extra lifestyle benefits (such as a clean environment,
better managed public infrastructure, entertainment facilities, health and
sanitation) that accrue in cities such as London and New York; and the safe
haven status that some of these cities offer (because they have been able
to better withstand global financial and economic turmoil)."*
*"Today's Indian consumer buying properties abroad is backing up his/her
investment with solid reasoning," says report. "For tax-free investments
people are looking at Dubai, Singapore tops for its proximity to India plus
its booming economy. For returns on rental investment the
current favorite is London."*
*In reality, however, tax forms only part of the picture for the rich when
it comes to buying property, according to the report. "What they really
value...is the lifestyle that comes with an open, cosmopolitan environment
and both personal and property security."*
*"The other important factor when choosing a second-home location was its
potential to provide a long-term safe haven for capital," says the report.*
*According to report, familiarity with markets is the biggest "make or
break" factor for all Indian consumers. "Despite the many attractive
options available widely, Indians still gravitate towards tried-and-tested
markets mostly."*
*The size and the scale of property purchases differ according to the need
and resources of the individuals as do the prices.*
*"London and Singapore are the most popular and also some of the most
expensive markets. Usually, a good starting price for a decent property in
these places is around $1 million. Dubai and Malaysia present opportunities
to grab early-stage investments (i.e. bargains) and a good price there
would be around $300,000," says report.*
*Understanding of the markets is changing, report says/*
*"For homes that would cost around £2-3 million in India, people are now
willing to shell out upwards of £10 million in London," he says.*
*Some of the properties in central London, which is one of the most popular
destinations, would cost anywhere between £3 million and £15 million.*
*Source :Economic Times*
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Tax treatments for house rent and home loan* *"*
*Sanjay, currently employed with a private company, is staying in a rented
apartment in Mumbai and has bought himself a property in Calcutta for which
he has taken a home loan. He finds himself in a dilemma while filing the
tax returns -- " Can I claim both HRA and home loan benefits?" This seems to
be a confusing point for most taxpayers.*
*When Sanjay pays rent, he is definitely allowed to claim exemption on both
the house rent allowance ( HRA) and the home loan under the income tax act.
Let us evaluate various possible situations individuals can find themselves
in and understand what the income tax act permits them to do.*
*Situation 1: You live in your own house. You have taken a home loan and
residing in the house purchased with it. Since you are residing in your own
house, you will not be able to claim HRA. However, you will be able to
claim tax benefits on both the principal and interest repaid on the loan.*
*Situation 2: You own a house in another city. This is the situation faced
by Sanjay. He resides in Mumbai but has bought an apartment in Calcutta
with a home loan. Sanjay will be entitled to HRA exemption and tax benefits
on both the principal and the interest repaid.*
*Situation 3: Your house cannot be occupied at this point. You have bought
a house in Mumbai with a home loan but you're currently living in the same
city in a rented apartment because the house is under construction.*
*In such a case, you are eligible to claim HRA. In the case of tax breaks
on the home loan, you can claim benefits only on the principal component
before the completion of the house. Once the house is complete, you can
claim exemption on the total interest paid up to the date of completion in
five equal installments in five years, beginning from the year of
completion.*
*Situation 4: You have a house which is ready for occupation but you cannot
reside in it. You have bought a house in Delhi with a home loan. Though the
new house is complete, you continue to live in a rented apartment in the
same city as the house you have bought is far from your office.*
*In such cases, the income tax act permits the individual to claim HRA and
home loan benefits, which include both the principal and the interest
repaid on the home loan.*
*Also, note that if your house remains vacant, you will still need to pay
tax on a notional rent income.*
*Situation 5: You have rented your own house while you are residing in a
rented house. You took a home loan and your house is ready for occupation.
However, you have rented the same out while you are residing in a rented
house. The income tax act will allow you to claim both HRA and home loan
benefits. However, since you have also been receiving rent, income from the
latter will be taxable at your hands.*
*Now, that we have dealt with all the possible situations, let's take
Sanjay's situation as an example to help you figure out how to get the
benefits.*
*The income tax act treats HRA and home loan deductions under separate
sections independently. The two are not interconnected. HRA is dealt with
in Section 10( 13A) Rule 2A, while home loans are entitled for tax benefits
under Section 80C ( on the principal repayment) and Section 24 ( on the
interest payment) of the income tax act. Hence, feel free to avail yourself
both the exemptions.*
*Relief on home loan Suppose, Sanjay had purchased an apartment in Calcutta
for Rs 38 lakh three years back. He took a home loan of Rs 32 lakh to fund
the purchase.*
*So far, this year he has repaid an interest of Rs 3.3 lakh and a principal
amount of Rs 60,000.*
*Section 80C offers tax rebate on home loan up to Rs 1 lakh and Section 24
on interest up to Rs 1.5 lakh. So, Sanjay can utilise up to Rs 1.5 lakh on
the interest he has paid and get the tax benefit in full for the amount
paid towards the principal.*
*HRA calculation Sanjay earns a basic salary of Rs 40,000 per month and has
rented an apartment in Mumbai for Rs 20,000 per month ( he is eligible for
50 per cent of the basic pay for HRA exemption as he resides in a metro).
The actual HRA he receives is Rs 25,000.*
*The following values will be considered to find out his HRA tax exemption:
a. Actual HRA allowance from the employer, that is Rs 25,000 b. 50 per cent
of the basic salary as he resides in a metro ( else 40 per cent), that is
Rs 20,000, and c. The actual rent he pays for the house, from which 10 per
cent of his basic pay is deducted, that is Rs 20,000 - Rs 4,000 = Rs 16,000
His actual HRA exemption will be the least of the above figures. Hence, the
taxable HRA amount for Sanjay per month will be Rs 25,000- 16,000 (
available HRA deduction) = Rs 9,000.*
*Source : Bankbazaar*
Buy your first home by Mar 31
*Those planning to buy their first house should rush and complete the
formalities by March 31 to avail of the additional tax benefit against the
interest paid on a home loan. That's because an exemption available to
taxpayers will lapse in the current financial year which enables them to
reduce the interest paid from the taxable income. The reduction can be up
to Rs 1.5 lakh under section 24 of the Income Tax Act and up to Rs 1 lakh
under section 80EE against the interest paid on home loan.*
*The benefit under section 80EE can be availed only to buy the first house
of a value of Rs 40 lakh, provided the maximum loan amount is Rs 25 lakh.
The second provision is due to lapse. But those who have already borrowed
need not worry. The provision was introduced in the 2013-14 budget,
although the benefit was available only for a year to provide a much-needed
impetus to housing, which has been hit by rising interest rates and falling
real income levels. *
*In the Vote On Account presented on Monday, finance minister P Chidambaram
decided not to amend any direct tax provisions, many of which are due to
end on March 31, 2014. Although the next finance minister has the option to
reintroduce the benefit, it may not be available for the first three-four
months of 2014-15. Similarly, the benefit of income tax rebate to companies
which are involved in power generation and distribution will also lapse.
The provision of lower dividend tax paid by Indian companies on dividend
received from foreign companies will also lapse on March 31, 2014.*
*Source : Economic Times *
*"**Rent Received vis-a-vis Rent paid**"*
*All of us as human beings have three basic needs Roti, Kapda aur Makaan. *
*Last one is of special importance as it is the most difficult one to
acquire and we spend major part of our working life in saving money for the
same. *
*The lucky ones who are able to own second property than what they need for
their own use can get rent from it. But those who are not that lucky and do
not own even one, can live in one by paying rent. Our income tax laws have
provisions for both the scenario – where one is taking rent and other where
one is paying rent with respect to house property. *
*Tax implication for both the scenarios. *
*Income tax treatment for rent paid:*
*The tax benefits available for rent paid in respect of house property
occupied by you can be classified into two categories – one where the tax
payer is in receipt of House Rent Allowance popularly known as HRA from
employer, other where one is not in receipt of any HRA, may be employed
or self-employed.*
*Persons in receipt of HRA: *
*Though full HRA received by you is not always exempt from tax but Income
Tax Act allows certain exemption in respect of HRA received. The extent to
which HRA received by you shall be exempt depends on various factors like
actual rent paid by you, the city you are living in and your salary.
However in case where though you are in receipt of HRA but are not paying
any rent, whole of the HRA received by you shall be taxable in your hands. *
*The exemption shall be least of the following three items. *
*a) Amount of HRA - House Rent Allowance actually received *
*b) 50% of your basic salary and dearness allowance in case of person
residing in any of four metros and 40% of basic salary and dearness
allowance in other cases.*
*c) Amount of rent paid by you in excess of 10% of your salary. *
*Let us understand this with an illustration. *
*For a person residing in Mumbai whose basic salary inclusive of dearness
allowances is Rs. 25,000 per month is in receipt of HRA of Rs. 14,000 per
month. He also pays monthly rent of Rs. 10000. *
*The extent to which the HRA shall be exempt shall be Rs. 7500/- being
least of the following: *
*1. HRA actually received Rs. 14,000*
*2. 50% of salary Rs. 12,500*
*3. Rs. 7,500 being rent paid beyond 10% of salary ( rent actually paid Rs.
10,000 - 10% of salary Rs. 2500 = 7500)*
*So out of Rs. 14,000 of HRA received only 7500 shall be exempt and the
balance of Rs. 6,500 shall be taxable. The above working shall be done for
the number of months for which the employee has paid the rent.*
*Persons who are paying rent but not in receipt of any HRA: *
*Section 80GG of the Income Tax Act grants tax benefits to the people who
though are not in receipt of any HRA are still paying rent for the house
occupied by them. This provision applies to employed as well as self-
employed persons. A person shall be allowed deduction in respect of the
rent paid by him which is in excess of 10% of his total income. However the
actual amount of deduction i.e. excess of rent paid over 10% of your total
income should not exceed in case 25% of your total income. However in case
the deduction so calculated exceeds Rs. 2,000 per month then the amount of
deduction shall be restricted to only Rs. 2,000 per month,*
*Let us understand this also with another example: *
*The rent paid is Rs. 60,000 for the whole year and the total income of the
person is Rs, 2,50,000. *
*He will be entitled for a deduction of Rs. 24,00 being least of the three
calculated as hereunder:*
*1. Rs. 35,000( i.e. excess of rent paid over 10% of total Income
60000-25000)*
*2. Rs. 62,500 (25% of total income)*
*3. Rs. 24,000 ( Rs. 2,000 per month)*
*As compared to the benefits available to people who are in receipt of HRA
the benefit offered to people who are actually not in receipt of any HRA is
very insignificant which in my opinion is very unjust. The restriction in
terms of absolute entitlement of Rs. 2,000 per month needs to be revised
upwardly as the same was fixed in April 1998 and the rentals and real
estate prices have since gone up manifold.*
*Tax treatment of rent received:*
*After having discussed the tax treatment for rent paid by you in respect
of house property occupied by you, now let us understand the tax treatment
when you receive the rent in respect of the property owned and let out by
you. *
*In case you own a property and have let it out, the rent received by you
is taxable under the head “Income from house property”. However before such
income is calculated you are allowed two items to be deducted from the rent
received. The first deduction is a fixed 30% of the rent received by you.
The second deduction is in respect of interest paid by you on loan taken
for the purpose of acquiring, constructing or repairing, renovating the
house property. There is no restriction on the amount of deduction that is
available to you in respect of the interest paid on loans for such
properties. The deduction shall be available in respect of the interest
payable for the year in respect of the loan taken for the property. The
deduction of interest is available even if you have borrowed the money from
your relatives and friends and not necessarily from any bank or housing
finance company.*
*Source : Apna paisa*
*"**What to ask the real estate developers?* *"*
*Like any another purchase, buying a property has its own confusions and
risks during decision making. A home buyer has to be sure that he/she
chooses the right builder and the right location within the right price.
From a personal point of view, every buyer does his/her best to verify the
property and have the best pick; however, we still see a lot of cases
wherein the buyer is duped and is eventually dissatisfied by the purchase.
Following the customer feedback, in this article, lists a few questions
that you can ask the real estate developers and then shortlist the
property.*
*Use of land*
*What is the use of the land on which the project is being developed? Is it
for residential or commercial property; floors or plots; how many floors
does it permit etc. It has been seen that often developers begin a project
and start to sell properties before land acquisition is over. A portion of
the land acquisition may be pending and might impact your apartment;
therefore, make sure to ask the developer and verify the land acquisition
documents. A home buyer should verify the papers demonstrating the
builder’s ownership of the land. You could also hire a lawyer to conduct
the title search and to find out whether there is a legal dispute over the
land.*
*What about the approvals?*
*A home buyer should check all the approval documents prior to finalizing
the deal. Check for the developer’s licence in order to check the
permission from the area’s town planning authority to develop the project
and approvals for building plan, water, environment and pollution, and
height clearance. If the approvals have not obtained, it is suggested that
a home buyer should not invest in that project as delay in approvals is of
the major causes of project delays. *
*Payment Plan*
*In the application form, pay attention to the payment plan. One should not
pay a large portion of the cost of the property at initial stages. It is
suggested that one should stick to a construction-linked payment plan or
one in which a portion of the cost has to be paid after possession. Another
area of concern is that the builders often include a cost-escalation clause
in the builder-buyer agreement, which states that the developer has the
right to increase the cost of the project in case the cost of building
materials goes up. Enquiries regarding the builder’s track record as to
whether he has implemented the escalation clause in the past can be made or
finalise a developer who does not include an escalation clause in the
agreement.*
*Delivery and its terms*
*Most of the agreements mention a time frame within which the developer
will give the possession of the property; however, the trick is that the
agreements do not mention the start date of the time frame. Enquire about
the start date and if possible get it documented. Also check whether the
agreement has a penalty clause under which in case of a delay in
possession, the developer will have to pay a penalty to the buyer. If the
clause is there, find out how much penalty he will pay and whether he has
paid it in the past.*
*Change in layout plan*
*Often builders bring about changes in the layout plan and show them as
beneficial for the buyer; however, the buyer should not be lured by the
increase in area of the property, instead at the time of booking, should
find out whether the builder has changed his plans in the past and what
were the terms of that. For example, if the area of the property increases,
the buyer will have to pay according to the original booking amount or the
current rate?*
*The extra charges*
*Check out the various heads under which the developer may ask the home
buyers to pay, for example, preferential location charges (PLCs), external
and internal development charges (EDC and IDC), advance maintenance fee
etc. Calculate what will be the purchase value after adding all these
charges and buy only if the sum falls within budget. There can also be a
case when the buyer falls behind in paying an installment; in that case the
buyer should be clear about whether the developer will give extra time to
pay up, what will be interest liability etc.*
*Record of the developer*
*The record of the developer includes his financial status and his
reputation as a developer. The buyer can verify a developer’s financial
status by asking for his company’s balance sheet. Do not invest in the
project if his company is over-leveraged because it increases the
probability of delay in project completion. Moreover, find out how many
projects the developer has completed, whether there were legal issues in
his past projects, whether the projects were delayed, are the current
occupants satisfied with the construction etc.*
*Source : Makaan Research Team*
Real estate bill is beneficial for home buyers !
*With the approval to the real estate bill, there was quite an emotional
upheaval in the real estate industry and most of the key players commented
on the update. Post the real estate regulation bill, the property players
hope to see a transparent and uniform environment. It was a debate on
whether the home buyers will have benefit from the step or the provisions
are very harsh on the developers. But what is the take of the home buyers?
Will now their property buying process be less time consuming and more
assuring? A survey conducted with the end users directly as to whether they
think that the real estate bill will be beneficial for them and the maximum
people voted in affirmation.*
*The following are the benefits that the home buyers can expect from the
real estate bill: *
*• Increased transparency and uniformity*
*• Strict guidelines on advertisement and prospectus will stop
misguiding the buyers*
*• Provisions for claiming compensation for loss caused by misleading
statements*
*• Selling based on carpet area*
*• A project cannot be launched until all the approvals from authorities
are achieved*
*• Developers will be required to put project-related information on
their websites*
*• Setting up of an appellate panel to take up disputes between buyers
and builders*
*• Speedy resolution of issues such as delays and change in
specifications*
*• Fewer possibilities of project delays being caused due to absence of
necessary approvals*
*• A buyer can claim refunds if a project is delayed*
*Buying a home is one of the most significant financial investments that
one ever makes; therefore, it is only advisable to do a proper market
research and survey prior to finalizing anything.*
*Source : Makaan Research Team*
