There was a Time when people had absolutely no idea of what to do with their Real Estate and putting them to better use. The NRIs who are away from home for years together come back to India and curse the archaic provisions of the Rent Control Act as they were afraid that the chances of getting their assets back or putting them to a better use to earn return on investment is very less.
When it comes to managing a property or renting it, the options are whether to self-manage it or hire someone to take care of it. This choice is completely based on the factors such as time, expertise and involvement that you can dedicate to the day-to-day happenings on the property and steps to manage it. Whether it is a full-on rental or seasonal, the task of managing them needs consistency and experience. Individuals who have the time and brains to learn the ins and outs of property management can do it all by themselves. However if you are an NRI who lives far from your property, you could hire a local expert to take care of your venture. It just needs your once-in-a-while follow up on the details provided to you by the contractor.
The Non-residents who live abroad from India are most likely to face many practical challenges if they own a property here at Home. There was a time when people were worried about getting better money out of their investments.
Investors can explore options such as warehousing, co-working spaces and even co-living.
With ready A-grade rent-yielding commercial assets becoming scarce and the residential market no longer offering the kind of returns it did a few years ago, investors are now turning to sunshine options such as warehousing, co-working spaces and co-living.
In 2019, commercial office real estate flourished and remained the top-ranking real estate asset class. The first REITS by Embassy Office Parks was launched in April.
The launch of Embassy REIT in 2019 opened up a new asset class for investment in country. Its success can be gauged from the fact that between 18 March and 30 November 2019, the price of a single REIT unit reached Rs 445.3 from a launch price of Rs 300, registering a significant 48 percent rise.
The country is expected to see the launch of more REITs in 2020.
Shajai Jacob addresses six recurring queries to ease investing procedures in India
Though the Indian real estate environment has become very conducive for NRI investors yet again, there is often still hesitation to take the plunge because of uncertainty about the legal implications.
The doubts that many first-time NRI property investors have are often very pertinent, and finding answers to them is far from easy.
It is time to tackle some of the questions that NRIs often ask in Gulf countries which have, by far, the strongest complement of Indian expatriates anywhere in the world.
Often, these investors do not have access to a lawyer well-versed in Indian property laws and related fields of expertise, which is why many of their questions are legal in nature.
We answer recurring doubts that individual NRI property investors have:
1. Can an NRI use a Will to bequeath property in India to someone else — either another NRI or a resident Indian?
NRIs can certainly bequeath property to their legal heir/s or any one of their choice via a Will. An NRI can inherit any immovable property in India, whether it is residential or commercial — and even agricultural land or a farmhouse (which they are otherwise not entitled to purchase).
An NRI is also free to inherit property from another NRI or resident of India. However, the RBI’s permission is necessary if the property is inherited by a citizen of a foreign state and is a resident outside India.
2. Can a property be gifted, and what are the statutory charges levied on a gifted property?
An NRI can gift residential and commercial property to a person residing in India, or another NRI. However, if the property is agricultural land, plantation property or a farmhouse, it can only be gifted to a citizen of India residing in India.
Gifts received from relatives (as defined under the Income Tax Act) are not taxed — but at the time of registration, one has to pay the prevalent stamp duty and registration charges. Relatives include a spouse, brother or sister, brother or sister of the spouse, brother or sister of either of the parents and any lineal ascendant or descendant of self or spouse. If the gift is received on the occasion of marriage or from a registered trust, it is exempt from tax.
Some NRIs are more interested in investing in Indian real estate via companies they have formed on foreign soil, or they may work for a foreign company that is interested in establishing a footprint in India.
3. Can an overseas company or a subsidiary company outside India invest in Indian real estate?
The Indian realty sector is eligible for 100% FDI (Foreign Direct Investment) under the automatic route in the construction development segment, which includes townships, housing, built-up infrastructure. An overseas company or a subsidiary company outside India can invest in Indian real estate via this route, but not in finished buildings.
4. How to repatriate funds from real estate investment, both for rental income and proceeds on sale?
The laws are quite lenient but have some provisos.
There is no restriction on NRIs for repatriating rental income or even property sale proceeds (other than agricultural land, a farmhouse and plantation property) as long as the total proceeds are within the set limit of USD1 million in a fiscal year.
The conditions are:
The property being sold was acquired as per the foreign exchange regulations applicable during that period.
– The amount being repatriated cannot exceed the cost of the sale proceeds from the transaction.
– The sale proceeds from a maximum of two residential properties can be repatriated.
– The maximum amount of repatriated funds from a Non-Resident Ordinary (NRO) account is capped at $1 million per fiscal year.
– Funds can be repatriated only after settling all the applicable taxes and other charges.
If the property was purchased with money received from inward remittance or debit to NRE/FCNR/NRO account, the entire principal amount can be repatriated outside India immediately while the balance must be deposited in an NRO account.
To start the repatriation process, the NRI must get a certificate from a Chartered Accountant (CA) in India, issued in Form 15CB. The form can be downloaded easily from the Indian government tax website. This form verifies that the money acquired was via legal channels and all due taxes have been paid. The CA verifies and signs the form.
The next step is to fill Form 15CA which can also be downloaded from the same website. The form must be filled and submitted online, after which a system acknowledgement number is automatically generated and displayed. The NRI must print out the filled undertaking of Form 15CA displaying the system-generated acknowledgement number, and sign it.
The final step is to take the signed undertaking along with the CA certificate on Form 15CB to the bank where one has an NRO account. The concerned bank will check the forms and transfer the money abroad (up to $1 million in an FY). Apart from these forms, the bank will also ask for a copy of the sale document of the property. If the property has been inherited, the bank will ask for the Will copy, legal heir certificate, and death certificate of the person on whose death the property was inherited.
5. How does one verify whether an Indian property is legally compliant in all respects?
It is important for an NRI to pay attention to factors like the legitimacy of land, compliances to be followed during construction, environmental clearances, etc., at the time of a property purchase. As real estate is a state subject, laws may differ from state to state and there is, therefore, no one-size-fits-all response.
Before buying such a property, the NRI should ideally consult a lawyer to examine all the legal documents and verify their authenticity. They must also check whether the project is registered under the respective state RERA and whether or not it is fully RERA-compliant. However, many Indian states and Union Territories still do not have a functional RERA website, and this is where the services of a reputed real estate consultancy can be invaluable to save on time and effort, and ensure that all the boxes are ticked.
6. What is the jurisdiction of any dispute related to property investment in India?
It is not advisable for NRIs to file property dispute cases anywhere else other than the jurisdiction where the property is located. Only the court in that jurisdiction can try a property-related case.
Delays in the construction process beyond the extension period mentioned in the agreement fall under the purview of consumer courts under ‘deficiency in rendering of service’ in the Consumer Protection Act of 1986 if the project is not registered under state RERA.
If the project is registered under RERA, buyers can file a complaint under Section 31 of the regulation with the appointed regulatory authority within the respective state.
Interestingly, there may soon be a law in place in the state of Punjab to protect NRIs against property-related frauds. The State government is planning to bring the NRI Property Safeguards Act to resolve issues of NRI buyers effectively and transparently.
An ombudsman for resolving issues would also be set up under the law. If this happens, it would indeed be a worthy precedent for other states to follow.
Time consuming, but rewarding in the long run, says Sanchit Gaurav
When Bengaluru-based Preeti Kashyap approached Housejoy’s realty wing during her search for a house, she was particular she wanted a customised unit. “I wanted a home that met my family’s needs, and not something built and designed according to someone else’s choice.”
Kashyap is one among their many clients who prefer building a home from scratch rather than buying a flat in a complex or gated community. While the construction process is harder and time consuming, it’s rewarding in the long run.
Here is a list of important things to keep in mind when you decide to build your own home:
l Take natural lighting into consideration when designing the windows
l Think about the saleability of the property when you plan it
l Plan for extra electrical outlets all over the house
l Be actively involved in the entire process
l Thorough investigation while selecting the builder or contractor
l Be short-sighted about your family’s space and storage needs
l Miss out anything from the written agreement
l Put cost before quality. Good materials will stand the test of time
l Ignore the advice of professionals
l Rush into the building process
l Land title, land clearance and zonal clearance (from the State Revenue Department)
l Copy of the Building Plan Approval will be needed by many agencies like the land development office or electricity board, etc.
l The floor plan can be taken from the architect and engineer
l The local authority will provide a permission letter and commencement certificate
l The local water supply and sewage board will have to be paid a certain fee and they will then inspect the premises before providing water and sanitary approval as well as sanctioning a new borewell for the house.
l The electricity board will grant temporary electricity connection before metered connection is given after completion of the construction
l After inspection, you will get an occupancy certificate by the authority
The construction costs will depend on the location of the plot and the amenities nearby. That said, the current construction cost is anywhere between ₹1500 and ₹1700 per sq.ft. for building a budget home, ₹1800-₹2200 per sq.ft. for building a luxury home, and approximately ₹2600 per sq.ft. for a premium home.
When you decide to build instead of buying, pick the right team to help turn your dream home into a reality.
The writer is partner, construction and interiors, at Housejoy
Filing income tax returns is a huge responsibility for everyone and if you are a landlord you must include the rental income in your ITR.
July is one of the most hectic months for every tax payer in India. You must show your tax liabilities and income to the government and the entire process requires lot of calculations. July end is the time of the year when salaried employees across the country get busy filing their income tax returns.
In case you own a home and earning some rental income from the same you need to include your rental income in your return as well.
Sushila Ram Varma, Founder and Chief Consultant of The Indian Lawyer & Allied Services, says, “Under the Income Tax Act, 1961 (the IT Act), all types of properties are taxed under the head ‘income from house property’, whether residential or commercial. Rent received with respect to both residential and commercial property is taxable under this head. Even the rent received for letting out a factory building or rent received on land appurtenant to the building, is taxable under this head.”
The gross annual value of a self-occupied house is zero. It is the rent collected for a house on rent.
“The property is taxable on the basis of its annual value. The annual value of a property is determined by the rent actually received by the property or the amount of rent for which the property can reasonably be expected to be let out, whichever is higher,” Varma adds.
Rental income becomes taxable on accrual basis and not on receipt basis. It is only the owner, who is taxed for rent received.
Deductions from rent received
It is not that the gross rent received becomes taxable. One is allowed deductions on account of municipal taxes. One is also allowed a standard deduction of 30 per cent of the annual value, to cover the expense for repairs, etc. This 30 percent deduction is allowed irrespective of whether one has actually incurred any expenditure for repairs or renovation for the property, during the year under review.
In case one has borrowed any money for purchase, construction, repair/renovation of the property, one is also allowed to claim deduction for the interest payable on money so borrowed.
Any loss under this head, beyond ‘2 lakhs, shall be allowed to be carried forward for set off, during eight subsequent years. This provision will adversely affect people who borrow money to buy a property and let it out, as rental values are generally around 3 percent-4 percent of the capital value, whereas the rate of interest on such loans is around 9 percent.
Since home loans are usually taken for longer periods, the situation of loss under this head will normally continue for longer periods and the excess interest beyond ‘2 lakhs will effectively be lost forever.
However, the Budget for 2017-18 has proposed a ceiling of ‘2 lakhs, for loss under the head ‘Income from house property’, which can be set off against other incomes likes salaries, business income or capital gains.
Benefits/concessions from rental incomes
The tax benefits on rent paid differs, depending on whether one is a salaried person who receives HRA from the employer, or pays rent but does not receive HRA.
Tax benefits to salaried people who receive hra from their employers
One is entitled to tax exemption under Section 10 (13A) of the IT Act, with respect to the HRA received, subject to certain limits and conditions. The first condition, is that he should actually be paying rent for a residential accommodation occupied by him. This means that the accommodation should be in a place where he is employed. Moreover, the person should not be the owner (sole owner or co-owner) of the accommodation for which he is paying rent.
The quantum of deduction, will depend on where the employee is staying. The exempt amount of the HRA would be lowest of the following:
HRA actually received
50% of the salary (for employees staying in metropolitan cities of Mumbai, Kolkata, Delhi or Chennai), or 40% of the salary (for employees living elsewhere).
Rent paid by people who are not in receipt of HRA
Section 80GG of the IT Act also allows deduction on the rent paid by a person. This can be claimed by self-employed people, as well as employees who do not receive any HRA from their employers. The benefit is allowed as a deduction from one’s total income. However, the deduction is restricted to 25 percent of the total income, or excess of rent actually paid over 10 percent of the total income. Moreover, the maximum deduction that can be claimed in a year is ‘60,000 and ‘5,000 per month.
Excess of the rent paid over 10% of the salary
Salary for the above purpose includes the basic salary, dearness allowance and any fixed commission as percentage of turnover.
Income from second homes in the file
If an individual owns more than one house property for his use, then under the provisions of the IT Act, any one property as per his choice is treated as self-occupied and its annual value is computed to be nil. The other house property is deemed to be let-out and a notional rent as per the provisions of the IT Act is computed as the taxable income under the head ‘Income from House Property’.
Home loans for an under-construction or any other homes
Deduction on home loan interest cannot be claimed when the house is under construction. This pre-construction interest can be claimed only after the construction is finished.
A home loan borrower can claim Income Tax exemption on interest payments of up to ‘2 lakh and another ‘1.5 lakh under Section 80 C towards the principal repayment for a self-occupied property.
Section 24 of the IT Act states that if a property is still to be constructed, there will not be any tax deduction on the interest payment for all of those years.
However, the interest for the pre-construction period can be availed for deduction in five equal installments from the year the construction is complete.
Even vacant house has tax implications
If one owns more than one Self Occupied Properties (SOP), he has a choice to treat any one of the properties as SOP. The other such property which lies vacant will be treated as Deemed Let Out Property (DLOP) under the Act. If a property is treated as a DLOP, it is effectively put at par with a let out property as far as taxation is concerned. Hence, a notional rental value is considered as the gross taxable rent for such property.
Jadav Kakoti, Times Property, The Times of India, Ahmedabad
Mumbai: Finance Minister Nirmala Sitharaman on Tuesday flagged concerns over the problems faced by the real estate sector, saying that the ailing sector required a lot of attention.
“The government of India is very keen and is working with RBI to see how best we can where necessary tweak the existing laws and help the people in this particular sector (real estate) which is not completely addressed till now,” Sitharaman said at a function to mark 25 years of NSE.
She said the sector had a cause and effect impact from the stock market.
“We have to say there are alternative funds, which are now approaching us saying we would like to do something with you all so long as there is some support mechanism available for reviving the real estate sector” she added.
“Real estate sector requires a lot more attention because the sluggishness which prevails there must be addressed,” she pointed.
Speaking at the same event, Ajay Tyagi, Chairman of the Securities and Exchange Board of India (Sebi) said Indian capital markets have an exciting journey.
He said the depth of capital markets was an indicator of economic growth of a country.
Tyagi pointed out that while ease of doing business is important, investor protection is equally important.
Vikram Limaye, Managing Director and CEO of NSE, said that over the years India has emerged as an attractive investment destination.
He urged the Finance Minister and Sebi to examine to reduce security transaction costs to improve competitiveness of the market.
Residential sector attracted USD 295 million during January-September 2019 against USD 210 million a year ago.
India’s real estate market attracted USD 3.8 billion private equity investment from January to September 2019, a nearly 19 per cent yearly rise, according to research by ANAROCK Property Consultants.
Private equity investments were over USD 3.2 billion in corresponding period of 2018. Commercial sector comprised 79 per cent overall share, attracting close to USD three billion funds, said Shobhit Agarwal, MD & CEO, ANAROCK Capital.
“Foreign private equity funds continued to dominate the real estate investment scene. Top investors included Blackstone, Hines, Ascendas and Brookefield,” Agarwal said.
Residential sector attracted USD 295 million during January-September 2019 against USD 210 million a year ago. Retail and logistics & warehousing saw total inflows of approximately USD 260 million and USD 200 million in 2019, respectively.
MMR (Mumbai Metropolitan Region) saw maximum inflows at USD 1.59 billion this year, recording a yearly increase of three per cent. Pune saw more than 200 per cent yearly rise in investments from USD 125 million in 2018 to nearly USD 390 million in 2019. Hyderabad witnessed a 76 per cent yearly decline from over USD 790 million in 2018 to just USD 190 million this year.
Of total USD 3.8 billion funds in 2019, equity funding comprised 95 per cent share, while the remaining five per cent was via structured debt.
Indian real estate in Q3 2019 alone saw total PE inflows of nearly USD 1.7 billion, it was stated.
Well-placed listed developers will see strong response in the second half of the FY 2019-2020, says a report
Large listed real estate developers will witness strong sales growth in the second quarter, analysts tracking the sector said, even as the overall sales volume is likely to remain weak impacted by the ongoing liquidity crunch and weak consumer sentiment.
In the June quarter, listed real estate firm sold 7.1 million sq ft of total housing units, up 20% from the year-ago period, as per data compiled by brokerage firm India Infoline Ltd (IIFL). However, on a quarter-on-quarter basis, it fell by 36%.
“The overall sector continues to look challenging because sentiments remain weak despite the cut in corporate tax. The change on accounting standard will also impact the sales number to an extent. New bookings for some of the leading firms like DLF Ltd look good but we don’t see a significant growth in the quarter,” said Abhimanyu Sofat, head of research, IIFL.
Despite the overall weak demand, firms like DLF Ltd, Oberoi Realty, Sobha Ltd and Prestige Estates continue to see steady performance and increasingly gain share in the overall real estate industry, according to analysts. Though most of these firms had held back on new launches in the September quarter due to extreme monsoon rains in some parts of the country, these realty companies are now gearing up for a slew of launches for the festive season.
So far this year, BSE Realty Index gained 8.53%, while the benchmark index, Sensex gained 6.76%. While Godrej Properties Ltd gained 51.53%, shares of Prestige Estates and Phoenix Mill gained 33.62% and 24.08% respectively.
“Q2FY20 was a slow quarter for the Indian residential market along expected lines with a heavy monsoon season along with overall macro-economic uncertainty causing developers to hold back launches,” said Adhidev Chattopadhyay, research analyst, ICICI Securities in a report published on October 9.
According to the report, well-placed listed developers which accounts less than 5% of the total builder community in India will see strong response in the second half of the financial year 2019-2020 as most unlisted real estate firms continue to grapple with shortage of funds and stalled projects.
While overall sentiment looks weak, there is enough interest for new launches from leading, organised developers with a strong execution track record, Chattopadhyay said adding that homebuyers have become more discerning in the last few years.
Home sales in July-September declined 18% in the top seven cities hit by a ban in subvention schemes and excessive rainfall, as per real estate advisory firm by Anarock Property Consultants Ltd. Around 55,080 units were sold in the top seven cities — Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Bengaluru, Pune, Hyderabad, Chennai and Kolkata, as per the report. On a quarterly basis, housing sales were down 20%.
“Weak property buying sentiments, high unsold inventory and paucity of new launches has impacted second quarter-pre-sales,” said Parikshit D Kandpal, analyst, HDFC Securities, a brokerage firm. However, real estate firms are pinning hope on the upcoming festival season as new launches have starting picking up.
“We believe that discounts/sales promotion will speed up ready inventory monetization. We remain constructive on volumes with muted expectation on pricing power,” Kandpal said.