First Published by ZebraLearn 2023
Copyright © Ashwinder R. Singh 2023
All Rights Reserved
ISBN: 978-81-958950-6-9
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Dear Mom and Dad,
As I sit down to write this preface, I am filled with a deep sense of gratitude
for the two of you. Your love and support have been my constant source of
inspiration and encouragement, and I could not have come this far without you.
This book is the fruit of my labor and passion, but it would not have been
possible without the foundation of values and principles that you have instilled
in me. Your unwavering belief in me, even during the toughest times, has given
me the courage to chase my dreams and pursue my passions.
I dedicate this book to you, Mom and Dad, in honor of all the sacrifices you have
made, all the times you have been there for me, and all the moments of love
and laughter that we have shared. This book is a testament to the profound
impact you have had on my life, and I hope that it will serve as a source of pride
and joy for you where ever you are.
With all our love and gratitude,
Ashwinder, Sandeep, Jiya and Jaina
Master Residential Real Estate
Preface
Have you always wondered how people who invest in real estate make it look so easy?
While it may not be easy, it is certainly not impossible. In my years of experience as a real
estate professional, I have come to realize that a lot of people find the realm of investing
scary. It feels like a vast, unexplored world full of mayhem and uncertainties to them.
Real estate is an asset if you invest right; it can be your best friend when everything
around is in utter chaos; after all, everyone needs a roof over their head.
That’s the very reason why I wrote this book - to take you through the wonderful,
beautiful world of real estate and share what I have learned over the years while helping
buyers buy their dream homes. Let me take you through some common mistakes
people make, things to watch out for, and how to navigate the real estate market.
Whether you are a seasoned investor, a first-time buyer, or a real estate developer, I
hope that all of you will find immeasurable value and guidance through this book.
In addition to sharing my experience and knowledge, I want to add that this book is
far more researched than my previous book, The A to Z of Residential Real Estate. It
includes detailed research on RERA (Real Estate Regulation and Development Act),
real estate finance, and land deal structures that developers can use for development,
along with bonus chapters on REITs (Real Estate Investment Trusts) and green building.
I hope that the readers will enjoy this book as much or much more than my first book
whose phenomenal success motivated me to write.
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Ashwinder R Singh
How to read
the book?
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Master Residential Real Estate
This real estate book is a comprehensive guide that covers
all aspects of the real estate industry. It is designed to provide
different levels of understanding to home buyers, investors,
students, and professionals having a career in the real estate
industry.
The book is primarily divided into 5 major sections and 2 minor
sections. These 5 sections are written around:
I.
II.
III.
IV.
V.
Real Estate Industry & Policy Overview
Homebuyers
Real Estate Finance
Developers
Channel Partners.
Following is a guideline for you to use this book.
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Ashwinder R Singh
For Homebuyers
1.
2.
3.
4.
Start with the first section which will explain the real estate industry from a holistic
point of view. It covers the different types of housing, policies, and regulations, and
impact of the pandemic, and more. This is where you build a basic foundation.
Second, move to the Homebuyers section to understand the entire home buying
process, do’s & don’ts, rent vs buy, and more. Most importantly, look out for the
10 Homebuyer’s How-to’s that give you a crystal clear process for the 10 most
searched home buying questions.
Third, the finance section will give you an in-depth look at the different types of
financing solutions available in India, which one should you pick, how to go about
the process, which documents to consider, manage EMIs and savings, and keeping
an eye on legal and compliance aspects.
Lastly, we encourage you to read the developers and channel partner sections so
that you can understand their perspectives as they are an important stakeholders
of the industry. This will help you better understand the true dynamics of the
sector which will come in handy at every step of your home-buying journey.
For Developers, Professionals & Students
1.
2.
3.
4.
5.
The first section covers the basics of the real estate industry and gives a
comprehensive overview of the market changing market conditions and the
impact of Pandemic on the real estate industry. For any developers, it is important
to understand the past, present, and what will be future of the industry in which
they are doing business.
Home buying is at the heart of the residential real estate industry. Understanding
the nitty-gritty of the process followed by the homebuyer is essential for a career
in the real estate industry. The homebuyers section will give you a perspective of
how the homebuyers think and how they make decisions while buying or renting
their homes; for developers of residential real estate it is the most important part
of their business i.e to understand what the end users and investors are looking
for, so make sure you don’t skip that part.
The Finance section covers detailed legal concepts related to real estate
investment, fixed and adjustable mortgage loans, additional concepts and analysis
of mortgages, and financing residential properties. The major chapters here
that you must read are the role of banks in the housing market, Underwriting
and Financing residential properties. Moreover, look out for the chapter on
various approaches a developer can follow in acquiring land and launching a new
residential project.
The Developer’s section gives insights on how to evolve as per buyers’ needs,
Do’s and don’ts, challenges faced by the developers, and much more details and
insights that are crucial to the success and understanding for any real estate
developer.
Students who want to make a career in the real estate industry will benefit from
reading the entire book, starting with the overview and introduction section. This
section provides a basic understanding of the industry and its workings. The book
then moves on to cover all specialized topics required to delve deeper into the
industry.
In conclusion, this real estate book is an excellent resource for anyone interested in
the Indian real estate market. It is structured to provide readers with different levels
of understanding based on their interests and expertise.
7
8
“Owning real estate is not just about
having a place to call home and in the
intangible memories, experiences,
and emotions that it holds. It’s also
about having a contingency plan for
the unexpected that preserves your
financial security and self-respect. It’s an
investment in your family’s future that will
pay dividends for generations to come.”
Ashwinder R Singh
9
Contents
Introduction
10
I. Overview
1.
Real Estate Market - Overview
14
2.
Types of Housings
28
3.
Decoding RERA
36
i.
Introduction, Objectives, 9 Pillars, Understanding
Carpet Area, Terminologies and Approvals
4.
Other Policies in Indian Real Estate
48
5.
Impact of Pandemic on the Indian Residential Sector
64
i.
72
Post-Pandemic Scenario
II. Home Buyers
6.
Rent vs Purchase
76
7.
Guide for Home Buyers
84
8. Home Buyers How To’s
10
i.
What are the basics to follow while buying your first property?
100
ii.
How to save money for a house?
104
iii.
How to clean up your credit score?
108
iv.
Do you have the right real estate agent?
114
v.
What questions to ask a real estate agent?
118
vi.
How to identify red flags when inspecting a property?
122
vii.
How to present your offer and negotiate?
126
viii. How to land a great home loan?
130
ix.
What is a good return on investment (ROI) for rental properties?
134
x.
Why do many rental properties fail?
140
9.
Tips for NRI Investors
142
III. Real Estate Finance
10.
Role of Banks in the Housing Market
152
11.
Real Estate Investment: Basic legal concepts
158
12.
Documents required to make Real Estate Investments
168
13.
Mortgaged Loan Foundations: The Time Value of Money
176
14.
Fixed Interest Rate Mortgaged Loans
186
15.
Adjustable and Floating Rate Mortgage Loans
192
16.
Mortgages: Additional Concepts and Analysis, and Applications
200
17.
Underwriting and Financing Residential Properties
208
IV. Developers
18.
Understanding the Market
214
19.
How to evolve as per Buyers’ needs and expectations
222
20. Do’s and Don’ts for a real estate developer
230
21.
238
Challenges encountered
22. SWOT Analysis from Developers perspective
248
23. Financing Residential Development Projects
254
24. Buying Land & Simplifying Deal Structures for Development in India
262
V. Channel Partners
25. Roles and responsibilities of a Channel Partner
276
26. Buyer-centric approach of Channel Partners
282
27.
290
Recommended marketing approaches for a Channel Partner
VI. REITs
28. Understanding REITS and its Introduction as an Investment Asset Class
296
VII. Green Buildings
29. An Introduction to Green and Sustainable Buildings
310
Conclusion
324
Disclaimer
326
Credits
327
Master Residential Real Estate
I
Overview
Real Estate Market - Overview
Types of Housing
Policies, Regulations, and
Government initiatives in Indian
Real Estate Sector
Role of Technology and Digital
marketing in the Indian Housing
Sector
Impact of Pandemic On The
Indian Residential Sector
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Master Residential Real Estate
Chapter 1
Real Estate Market Overview
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Ashwinder R Singh
Let us face it – you just cannot stop hearing
about real estate, even if you want to.
And this makes sense because real estate is the responsible force behind face-lifting
the country’s infrastructure. Rapid economic developments and growing demand for
residential and workspace have ushered in so much investment into the sector that it is
set to grow at 30% over the decade. The industry has undertaken a long journey over
the years to emerge as one of the fastest-growing markets globally today. Not only
domestically, but it has also piqued the interest of NRIs and has been attracting their
investments.
In 2015,
Real Estate was only a $126 Billion market.[1]
In 2022,
Real Estate Sector was approximately $250 Billion,[2]
according to IMARC.
By 2030,
Real Estate Sector is expected to attain a size of
$1 Trillion,[3] according to CEO of Niti Aayog.
1. https://www.jll.co.in/en/newsroom/indian-real-estate-sector-set-to-reach-market-size-of-180bn-by-2020-credai-jll-rep
2. https://www.imarcgroup.com/india-real-estate-market#:~:text=Market%20Overview%3A,9.2%25%20during%202023%2D2028
3. https://economictimes.indiatimes.com/news/economy/finance/real-estate-sector-to-touch-1-trillion-by-2030-kant/articleshow/87209359.cms
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Master Residential Real Estate
Six Sectors of Real Estate
Residential
Commercial
Hospitality
Retail
Land
Warehousing & Industrial
Comprises of ≈ 80% of
entire real estate market.
The real estate industry comprises six sectors – Residential, Commercial, Hospitality,
Retail, Land and Warehousing and Industrial of which the housing sector draws the
highest attention. Anytime you step out of your home, you will find grand hoardings and
banners of housing projects at locations that cannot escape people’s attention. Pick
up a newspaper for your daily news feed and you will be greeted by a front-page ad
for a residential project. The swelling infrastructural needs have put real estate on the
path to rapid growth, with the residential sector representing about 80% of the Indian
real estate market. Most importantly, shelter is one of the basic and eternal human
needs. Take a look at Maslow’s Hierarchy Pyramid and you will see them making the
very foundation of it.
From prince to pauper, everyone
needs shelter and a roof over one’s heads.
Home is a commodity that will never run
out of demand.
The sector, which constitutes about seven percent of the Indian GDP and is slated
to be doubled by 2040, further holds importance both as a source of abode as well
as an investment instrument. Unabating urbanisation, proliferating employment,
higher disposable incomes, and ever-increasing requirements for residential spaces
perpetuate the interest in this segment.
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Ashwinder R Singh
The dream of
owning a home
becoming reality.
With over 32 National Housing Board recognised financial institutions making it
convenient for buyers to avail of home financing, the dream of owning a house is
becoming reality for a larger section of the Indian population. What has encouraged
them even further is the falling interest rate on home loans. In addition to this, they also
have different types of housing loans today serving their requirements.
Notwithstanding the prevailing slowdown, lately, the housing sector has seen all the
action and the flurry of activities around it in the wake of demonetisation and the
government’s reform initiatives for affordable housing, the introduction of the Real
Estate Regulation and Development Act (RERA), Pradhan Mantri Awas Yojna (PMAY), etc.
Post reforms, this largely unorganised and fragmented sector with a smaller number
of national-level players looks to be shaping up and pacing toward phenomenal growth.
It is one of the fastest-growing markets globally. The journey thus far, however, was not
a smooth one. From post-independence to the liberalisation era of the 90s through
2008’s global economic meltdown and the current Pandemic-led economic slowdown,
it has gone through a great deal of metamorphosis.
Let us go back in time
to trace its path down to
where it stands today.
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Master Residential Real Estate
1.1
Timeline of Housing Market
The face of the housing sector has undergone numerous transformations over the
last several decades. Let’s explore the major trends and milestones in the housing
market -
was
The entire system
e to
du
nt
proved irreleva
hods
et
m
al
its old tradition
the
d
te
ica
and hence ind
tate
es
al
re
slow growth of
e.
or
furtherm
Post - Independence
After 1947
After independence, when the
market was highly disorganised,
the government took control
which led to small-time developers
or government-appointed
contractors being given the job.
18
Gandhinagar
Chandigarh
First Planned Cities
1952 and 1960
Chandigarh and Gandhinagar
were established as new
capital cities in 1952 and
1960, respectively, reflecting
the strength of the housing
demand then too.
Information Technology Growth
Economic Liberalisation
1980’s
Late 1980’s
As the 1980s came to end, India
entered the (IT) information
technology era, opening doors to
opportunities for the young population
which led to an increase in disposable
income, an upgrade in lifestyle, and an
increase in housing demand.
Warm welcomes for
multinational firms resulted in
a surge in foreign investment.
Huge demand in housing sector
and commercial spaces helped
the market to grow.
Ashwinder R Singh
However, the unavailability
of urban land for social
infrastructure led the
government to revoke this
act in most of the States.
The Urban Land (Ceiling
and Regulation) Act:
1976
This act was introduced in 1976
to prevent the concentration
of urban land in the hands of a
few wealthy landowners.
Advancement in
Industrialisation
1980’s
In the early ‘80s, Housing
demand was backed by
growing industries with greater
employment opportunities,
indicating an upward trend in
the Indian real estate market.
.com
Dot-com Crash
India as a Software Mine
1990’s
2000’s
During Dot-Com Era, Real Estate Market
suffered from a lack of infrastructure
and planning, which led to its rapid
downfall. The housing market
experienced a downturn since it was
unprepared for this sudden hit, causing
foreign investment to take the exit route.
More global companies opened
headquarters in IT cities like
Bengaluru and Hyderabad as a
result of India’s growing reputation
in the software industry.
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Master Residential Real Estate
Mortgage Availability
Global Financial Crisis
2000’s
2008
The Mortgage sector in India was
introduced in early 2000, As a
result, home loan interest rates
dropped from above 15% to around
8% which led to the average
homebuyers age be in their 30s.
The 2008 financial crisis had an
extremely negative impact on
the Indian real estate industry.
However, residential real estate
quickly recovered and resumed
its upward trend.
RERA Act
Introduction of RERA
20
Post-Pandemic State
2016-17
2020
The Real Estate (Regulation and
Development) Act, also known
as RERA, seeks to regulate
the real estate sector in India
by establishing a regulatory
authority and imposing certain
obligations on developers and real
estate agents, ultimately aiming to
protect homebuyers’ interests.
The residential real estate
sector underwent a remarkable
transformation after the pandemic,
as it encountered a multitude of
changes. Nevertheless, despite
the initial setbacks, the industry
experienced a sharp revival in
demand, as people started to reevaluate their priorities
Ashwinder R Singh
1.2
Factors influencing Housing
Sector
The housing sector has always seen fluctuations and will continue to do so. This is
because the functioning of this market is dependent on certain macro and microeconomic factors, which influence supply and demand, and prices. It is important to
understand these factors and their grip on housing.
Macro-economic Factors
These factors are well beyond the control of the market as they function at the economic,
government, or/and regulatory levels. Although they do not have an immediate effect
on a real estate project, they do have a grip on the supply and demand of houses. Major
of these factors are listed below:
1. Gross Domestic Product (GDP)
Gross Domestic Product or GDP refers to the total monetary value of all the
products and services produced within the geographic boundaries of a country
in a specific period. GDP and the housing sector are interlinked.
GDP and Housing
Sector is high
GDP and Housing
Sector is low
Higher Disposable Income,
Money flowing into the
market, More employment
Contraction in corporate
expansion, Job cuts, Less
production
2. Inflation
First and foremost, if inflation is high, the return on your real estate investment
will be low. Secondly, if the inflation is rising, the reserve bank will have to
correct the interest rate to the higher side, which will again augment the cost of
borrowing and your house will end up being more expensive for you.
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Master Residential Real Estate
3. Population Growth
Variation in population shapes the face of
real estate. A growing population means an
increasing number of home requirements.
If you look at tier 1 or 2 cities where the
population has grown because of education
or employment opportunities, the investment
in real estate, especially the housing sector
has increased whether it is for rental purposes
or ownership
e
migrating across th
With more people
t,
en
ion and employm
country for educat
is
estate sector
the residential real
th more homes.
wi
bound to come up
4. Employment
It has a hold on real estate in various ways:
Employment growth implies an increase in per-capita income and hence
increased affordability, creating more demand for houses and commercial
spaces. Affordability minimizes the risk of default in payments. The
affordability, however, has only seen an upward movement in urban spaces,
thanks to the creation of more jobs. The rural sector has not witnessed
significant changes in a long time.
Increased employment also means the economy is in healthy shape. A high
unemployment rate may push the government to borrow more which may
lead to a high fiscal deficit.
5. Interest Rates
Housing Demand
22
Low Interest
Low Cost of
Borrowing
High Interest
High Cost of
Borrowing
High Demand
Low Demand
One evident role of the interest
rate is that it decides the cost of
borrowing. Through one more
lens, you can understand that a
higher interest rate will prompt
the investor to look for higher
returns in the future. This may
negatively
influence
his/her
interest in the property.
Ashwinder R Singh
6. Stock Market
When the stock market is faring well in a bullish state and looking upwards, real
estate appears to be a lucrative investment option for buyers. Additionally, an
optimistic outlook for the market encourages banks and financial institutions
to relax the interest rates on home loans. This pushes demand for home loans
and makes way for more investment in real estate. And it happens the other
way around when markets do not look positive. Hence the stock market has a
direct impact on real estate.
7. Government Regulations and Policies
Government policies, regulations, and initiatives have a hold on the performance
of the sector and they influence buying behavior, consumer confidence, interest
rates on home loans, ease of doing business, availability of land and funding, etc.
8. Foreign Direct Investment (FDI)
Foreign Direct Investment (FDI)
is hugely important for the
construction and real estate
sector in India. In 2015, the
Indian government gave a nod
to 100% FDI in construction and
development projects through
an automatic route. Any variation
in FDI influences the capacity in
the sector to raise private equity.
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Master Residential Real Estate
9. Exchange Rate
NRIs and foreign investors contribute significantly to an inflow of funding in
Indian real estate, particularly in the residential domain. This leads to an increase
in foreign investment and a greater infusion of capital in the sector.
Rupee falling against US Dollar
Property prices
come down in India
Indian real estate is cheaper
to foreign investors
Micro-economic Factors
These are the elements that have an immediate influence on the property and play an
irrefutable role in a property purchase.
1. Location
This is an unsaid crucial point not just for the housing market, but for any sector
of real estate. Any buyer would first have these questions in his/her mind.
Where is the
project located?
How far is it from
school, hospital,
supermarket, and office?
What is the connectivity
to that location? Is public
transport available?
No developer may want to ignore these questions and the importance of the
location aspect.
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Ashwinder R Singh
2. Neighbourhood
Even if the location is good, it is not
sufficient. In fact, in certain cases, the
location may stand second in preference.
Before making a home purchase, one would want to make sure
that their home is in safe and healthy surroundings. Although it
is a matter of personal preference, if you are given the option to
invest that amount in a beautiful house in the heart of the city
but next to a noisy motor garage, you may want to think twice.
3. Project Plan and Approvals
How the housing project has been laid out is important as well. Therefore, these
days at least big-scale developers make a 3D architectural design to give an
aerial view of the project and provide prospective buyers with a much clearer
picture of the place where they will be living.
Also,
Buyers are keen to know
whether the land and project have all the
required clearances and it is approved by
all major financial institutions.
It makes sense because when it comes to investing such a big amount, and in
some cases, life’s savings, nobody would like to take a risk.
4. Amenities
Patience takes the front seat when home
buying is into consideration. Buyers want
to make sure that their dwelling unit has
access to all the amenities, especially
the basic ones like water and security.
Amenities can have a big say in the
home-buying process.
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Master Residential Real Estate
5. Design and Aesthetics
Tastefully designed projects surely
leave an impact and they appeal to
buyers. Moreover, once you have
settled in after taking possession of
the house, guests and relatives come
calling. Who would not love to show
their guests around? After all, social
and esteem need to form the fourth
and fifth layers of Maslow’s Hierarchy
Triangle for a reason.
6. Block Orientation
Block orientation determines the distance between blocks, open space, view
from one’s home, and no less importantly – the sunlight, and hence it is a crucial
factor. Big developers nowadays always make sure to give due importance to
block orientation in the layout designing phase.
7. Floor Plan
The floor plan holds the reins of buying
decisions; it is a variable on which
the desirability of the house leans. It
demonstrates how well and aesthetically
space has been utilised. A graceful floor
plan can expedite the buying process.
Similarly, bad positioning of rooms and
clumsy inelegant use of the space would
not take long to dissuade a prospective
buyer from going ahead to complete the
transaction.
8. Ventilation and Lighting
The floor plan holds the reins of buying decisions; it is a variable on which the
desirability of the house leans. It demonstrates how well and aesthetically
space has been utilised. A graceful floor plan can expedite the buying process.
Similarly, bad positioning of rooms and clumsy inelegant use of the space would
not take long to dissuade a prospective buyer from going ahead to complete
the transaction.
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Ashwinder R Singh
9. Vastu
And here comes the factor that has significant importance in the home-buying
decision. A flat or a house is not only considered to have an inflow of positive
energy, but it also boosts the confidence and self-assurance of the buyers. Joint
families, in particular, may consider the Vastu element holding high importance.
So, these were the macro and micro catalysts, dominantly influencing the housing
market. While developers hardly have any hold over the macros, they have started to
realise the significance of the micros as well, and they have woken up to take care of
them. This realisation should prove beneficial for them as an average buyer pays closer
attention to them and during the last decade, the ball was passed into their court. Not
only is this the key to the success of the developers, but this should also pave the path
to the enhancement of the entire housing sector. It is just the beginning; we are looking
forward to seeing what the future has in store for the market.
Author’s Insights!
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Master Residential Real Estate
Chapter 2
Types of Housings
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Ashwinder R Singh
The last two decades observed handsome growth in the residential real estate market
in India.
Over the last decade, buyers have started to realise their ‘customer-is-the-king’ power
and understood well that it is now a buyers’ market. As a result of this, developers
today have become smarter than before, and their offerings, as well as marketing
approaches, are becoming smarter, more innovative, and more focused by the day. It
is becoming obvious to them that with ever-changing and varied demography, it is not
wise to continue with mass marketing. They are now aware that buyers’ requirements
and priorities are at the core of their rupee spending and it is a mandate for them to
follow the direction that the buyers take.
Especially in a buyers’ market,
one size just cannot fit all.
With changing demography, housing preferences are changing too. People have a
variety of options for investment today—from a traditional one-storey standalone
independent house format to vertical high-rise residential structures. If you go windowshopping for houses, you can find a wide range of these offerings, majorly in the form of:
Bungalows
Villas/Independent houses
Row houses
Developer flats
Multi-storey/High-rise apartments
Studio apartments
Irrespective of the format, housing can be broadly categorised traditionally in the
following manner:
Housing
(traditional)
Ownership-occupied
Rental
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Master Residential Real Estate
Ownership - occupied
30
Lifetime investment
supported by loans from
financial institutions
Investment as an
instrument to yield
attractive returns in a
short time frame
Objective
Create an asset and put it
to some use, whether to
use it as residence or to
rent it out.
Buy a property in
the earlier stages of
construction and sell it off
when the time is right.
Sentimental
element
Investors
Sentimental element
is present in their
dishonours.
Missing an this purchase
is purely a business
venture.
Economic
slowdown
End
Users
Not as affected
Good risk appetite and
remain patient in times of
economic slowdown.
Ashwinder R Singh
Bulk deals and
negotiate for discounts
Eventually, an investor
needs an end user.
Investors
End Users
Building Approvals and COnstruction
Purchase/Rent
As long as their needs are met and interest rates are favourable, end-users do not
wait for long to take out their wallets and sign the deal, even during the slower times.
Therefore, developers can never afford to snatch priority status from them.
Rental
Rental housing contributes significantly to the
housing sector of the city as numerous people
move across cities in pursuit of higher education
and better employment opportunities. The
constant search for a second home and the
expense and risks associated with house
purchase drive people towards rented
accommodation, which usually costs about
1-3 % of the value of the purchased property.
Moreover, in tier 1 and 2 cities, even the natives
move within the city to reside closer to their
workplace.
This is why rental housing requirements are
constantly on the rise. A survey conducted early
this decade found that a massive 24.7 million
urban population was living in rental homes.
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Master Residential Real Estate
Even though the rental housing segment represents a major section of the Indian
housing sector, it does not get as much importance in housing space. While this is
interesting apparently, it is not surprising, given the following reasons:
Homeownership remains to be aspirational, a dream close to the hearts of the
majority of the population.
The rental market does not have a remarkable statistic to showcase.
If you find that a rental deal is not suitable, an exit is not difficult.
Rental expenses do not make for a financial investment that can fetch material
returns.
Almost all print, online and vantage advertisements come from developers
whose dedicated focus is on sale of the projects, not rentals.
Despite the reasons mentioned above, the rental market will continue to be in demand.
Moreover, while waiting for property prices to soar, investors can find rental options
an attractive source of steady income. Although rental housing offers various formats,
there exist three major types:
a. Single Family Rentals
This is a format where a single family holds control
of the entire property, apartment, or independent
house for the entire tenure of the rental deed.
This is the most common arrangement found in
urban areas. These rental homes which can be
a bare shell, semi-furnished, or fully furnished,
attract families with different needs. Their rents
vary depending on the location and facilities
provided by the landlord.
b. Paying Guest (PG) Accommodation
Paying Guest (PG) Accommodation is a format
of accommodation in which students, working
professionals, and those who need temporary
accommodation, are given a part of a house
on rent and they share the premises with the
house owner. The major downside to this model
of accommodation is the lack of independence
which poses certain limitations on the tenants.
This format already exists in metropolitan cities
and has started mushrooming in the cities which
are developing as educational and employment
centres. This is a ubiquitous arrangement in areas
surrounded by educational hubs or business
clusters and is a beneficial set-up for those having
budget constraints
32
+
Ashwinder R Singh
c. Shared Apartments
+
In this model, working individuals or students can pool their money to rent
an apartment and live there together. Unlike PG, one does not have to share
the premises with the house owner, and one lives more or less on his or her
terms. This type of rental housing offers privacy and does not come under
the owners’ scrutiny unless there are issues with other apartment owners,
or the apartment is not used as specified in the rental agreement. Similar to
PG accommodation, the shared apartment model is popular in areas that have
educational institutions or office complexes in the neighbourhood.
So far, we have looked at ownership and rental housing categories. Let us now go
through the housing segments categorised by economic status. They are:
Housing
(economic status)
Affordable Housing
Mid-Segment Housing
Luxury Housing
Affordable Housing
Affordable housing is the housing for the mass population where a majority (more than
90%) of the Indian population lives. This is the segment that attracts almost all property
investments.
It is largely affected by
the variations in lending rates
by banks and financial institutions.
Increased migration, attractive value proposition, and supply in the right cities decide
the fate of affordable housing in India. At present, affordable housing space faces a
problem of massive demand and huge unsold residential stock co-existing which is
majorly due to a pricing mismatch.
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Master Residential Real Estate
Developers started making
heavy investments in location and
amenities which added to the price and are
unable to bring the price down significantly
due to current market conditions.
This affordable housing system focuses on the housing needs of the following:
Housing for economically weaker sections or low-income groups (EWS/LIG)
Affordable housing (Middle-income group or MIG)
Affordable housing has been all the rage since the launch of Pradhan Mantri Awas Yojna
(PMAY)1 in 2015 by India’s Prime Minister Narendra Modi. PMAY is a credit-linked subsidy
scheme (CLSS), which aims to provide housing for all by 2022.
MidSegment
Housing
Mid-segment housing in the Indian residential real estate industry refers to the
category of homes that are affordable yet offer certain luxuries and amenities.
These homes are designed to cater to the needs of the middle-income and
upper middle-income group, who are looking for a comfortable and convenient
living space without breaking the bank.
In India, the demand for mid-segment housing has been steadily increasing
over the past few years. With the rapid urbanization of the country and the
growth of its middle-class population, more and more people are seeking
affordable homes that offer modern amenities and conveniences. This has led
to the emergence of a number of developers who specialize in building midsegment homes.
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Ashwinder R Singh
Mid-segment housing typically offers a range of amenities such as gated
communities, 24/7 security, swimming pools, gyms, and landscaped
gardens. These homes are often located in prime locations, with easy access to
transportation, schools, hospitals, and shopping centers.
In terms of pricing, mid-segment housing is typically priced between Rs. 50
lakhs to Rs. 1.5 crores, depending on the location and amenities offered. While
this may seem expensive, it is still relatively affordable compared to high-end
luxury homes that can cost several crores.
Overall, mid-segment housing is an important segment of the Indian residential
real estate industry, catering to the needs of a growing middle-class population.
With its affordable pricing and modern amenities, it offers a comfortable and
convenient living space for those who are looking for a home that is both
affordable and luxurious.
Luxury
Housing
If we put it realistically, luxury is what is not affordable to the masses. So here
the name says it all. Luxury homes are 1800 sq. ft in size with big kitchens, maid
rooms, and kingly amenities. This type of housing is not as driven by home
loans as by personal wealth, quite unlike the affordable segment. And where
it involves home loans, they are backed by sizeable down payments and fully
assured repayment power.
The slow season over the last few years has kept numerous home purchases
away from the luxury sector. Investors have turned their back on this segment
for some time. And demonetisation added more pain by clamping down on
all the cash transactions happening in the marketplace. However, despite the
slowdown, the wealthier class has been propelling the market regularly.
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Master Residential Real Estate
Chapter 3
Decoding RERA
in Detail
36
Master Residential Real Estate
Do you remember the school days
when despite the instructions given
by the teachers to maintain order,
the classroom would plunge into a
state of pandemonium when the
class teacher was away for long?
The order would get
restored when the teacher
returned, and with even
more discipline when the
principal was around.
Let me take another school example.
The invigilator would need to keep strolling around
the examination hall to prevent any malpractices.
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Master Residential Real Estate
As nostalgic as these examples are, I used them to reiterate the importance of rules,
regulations, and policies in the industrial world. Government, with these regulations,
works the same way as the principal or invigilator as cited above, to maintain order
and transparency, and keep a check on possible malpractices.
The year 2017, in particular, was a year of happenings in this space. It saw landmark
initiatives and regulations introduced by the government in the real estate industry. A
few key regulatory initiatives are listed below.
Introduction to RERA Act:
1.
RERA stands for “THE REAL
ESTATE REGULATION and
DEVELOPMENT Act, 2016.
2.
3.
All the sections of
the Act came into
force on the 1st
of May, 2017.
The Rajya Sabha passed the Real Estate Bill on 10th
March 2016 and the Lok Sabha on 15th March 2016. The
Hon’ble President assented to the Bill as passed by the
Parliament on 25th March 2016. The Act as assented to
by the Hon’ble President was published in the Official
Gazette on 26th March 2016 for public information.
The RERA Act was established to address the issues prevalent in the real estate sector.
It aims to ensure that the interests of homebuyers are protected and that developers
are accountable for their projects. Let us understand the finer aspects of RERA in more
detail
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Master Residential Real Estate
Objectives of RERA Act
The primary objective of the RERA Act is to promote accountability, transparency,
and efficiency in the real estate sector. The Act aims to safeguard the interests of
homebuyers and promote fair play in the real estate sector. The following are the key
objectives of the RERA Act:
Accountability
The Act ensures that developers
are accountable for their projects
and are held responsible for any
delays or breaches of contracts.
Dispute Redressal
The Act establishes an
adjudication mechanism
for speedy dispute
resolution.
RERA
Act
Transperancy
The Act makes it mandatory
for developers to disclose
all information related to
their projects, including the
status of approvals and the
timeline for completion.
Regulatory Mechanism
Consumer Protection
The Act establishes a
regulatory mechanism
to enforce contracts
and to impose equal
responsibilities on
both parties.
The Act aims to protect the
interests of homebuyers by
ensuring that they receive
the promised amenities and
are not subject to unfair
practices by developers.
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Master Residential Real Estate
What type of development
will the law be applicable to?
Any kind of development of building/plots/layout/apartments/converting existing
buildings into apartments for the purpose of selling all or part of the development/
building/plot/layout will come under the ambit of the ACT
What are the exemptions under which
development can be marketed or sold
without RERA?
>500 sq.m
OR
8 apartments or more
Project developed on land not
exceeding 500 sq. mts. A number
of apartments not exceeding
8 (in all phases) Completion/
Occupancy Certificate received
from the commencement of
the Act, Redevelopment of the
projects where no allotment to
be made, Renovation/Repair not
involving marketing, advertising,
selling, or allotment.
What is the rate of interest applicable by both
parties in case of delay & withdrawal?
SBI MCLR+2% from the date of receipt of the first payment till the date of default or
settlement applicable to both parties.
What are the key requirements in the agreement
to sell to be disclosed by the promoter?
Under the Real Estate Regulation and Development Act, 2016 (RERA), the promoter of
a real estate project is required to disclose certain key information in the agreement
to sell. The aim of this provision is to ensure transparency and protect the interests of
homebuyers. The following are the key requirements that must be disclosed by the
promoter in the agreement to sell:
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Master Residential Real Estate
1.
2.
The promoter must disclose the carpet
area of the apartment, which is the area
within the walls of the apartment. This
is to ensure that homebuyers know
exactly what they are paying for.
Restriction on
withdrawal from
project account
The promoter must deposit 70% of the
money collected from homebuyers in
a designated project account, known
as the escrow account. Any withdrawal
of funds from this account requires a
certificate of approval from the architect,
engineer, and chartered accountant.
4.
Carpet
Area
3.
Defect
Liability
The promoter is now responsible
for any structural defects in the
project for 5 years from the date
of possession. This is a significant
improvement from the earlier
practice of 1 year.
Rate of
interest payable
The rate of interest payable by the
homebuyer and the promoter must
be the same.
5.
Payment
Plan
The payment plan must be linked to the
construction stages of the project. This
ensures that the homebuyer pays only
for the work that has been completed.
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Master Residential Real Estate
6.
Modification of
Sanction Plan
If the promoter needs to make any
changes to the sanctioned plan, they
must obtain the written consent of at
least two-thirds of the allottees.
7.
8.
Force
Majeure
Delays in project completion due
to force majeure, such as war,
acts of God, natural calamities,
and pandemic situations, are now
included.
Project
Maintenance
The promoter is responsible
for project maintenance until
the association is formed.
9.
Dispute
Resolution
The agreement to sell must
specify the mechanism for
dispute resolution, as provided
under the RERA Act.
The disclosure of the key requirements
in the agreement to sell is an essential
aspect of the RERA Act, which is aimed
at providing transparency and protecting
the interests of homebuyers. Among
the key requirements, the disclosure of
the carpet area is particularly significant
as it determines the actual space that
homebuyers are paying for.
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Master Residential Real Estate
Understanding Carpet Area
Carpet Area
The carpet area is the area enclosed
within the walls of your f l at. It refers to
the area inside your house on which you
can actually lay a carpet and physically
move around.
According to RERA, the net usable floor area of an apartment, excluding the area
covered by the external walls, areas under services shafts, exclusive balcony or
verandah area, and exclusive open terrace area, but includes the area covered by the
internal partition walls of the apartment
Covered under
Carpet Area
Bedroom
Dining Room
Not covered under
Carpet Area
Kitchen
External
Walls
Any other
Room
Bathroom
Common
Areas
Terrace
Staircase
within the
house
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Master Residential Real Estate
The discussion of carpet area and related terminologies is essential for homebuyers
to understand the actual space they are purchasing. While carpet area pertains to the
area enclosed within the walls of a flat, terminologies such as built-up area and super
built-up area can cause confusion. It is important to be familiar with such terms as they
can affect the overall cost of the property. Hence, having a clear understanding of the
following terminologies is crucial for making informed decisions while purchasing a
property.
Terminologies
Measurments
Acres are termed to define the size of the land/plot.
1 Acre = 43,560 sq. ft
Guntas is also a popular term used to define the size of the land/plot.
1 Gunta = 1098 sq. ft
1 Acre = 40 Guntas
Square foot/ Square meter are the measurement units generally
used to define an Apartment/Built Area.
1 sq. mt = 10.7639 sq. ft
Built Up Area
Built-up area is the total area measured
on the outer line of your flat, including
balcony, terrace, etc. It refers to the usable
(or carpet area as described below) of
your flat plus the area occupied by the
walls and columns of your flat.
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Master Residential Real Estate
Super built-up area / Saleable area
A super built-up area or saleable area is
your flat’s total built-up area plus your
proportionate share of the common
amenities in your building complex.
It is also called the saleable area.
Proportionate share here refers to the
total of all common areas divided by
the total number of flats in your building
complex.
Undivided Share or UDS
Undivided share is a portion of land held by the buyer of the apartment in a
residential complex on a plot on which the entire structure is constructed. Each
and every flat built on that particular plot will have a share of the land but will not
have any defined boundaries.
After several (99) years, when the building undergoes redevelopment or
the government acquires it and brings it down, the property owners will get
compensation on the basis of their undivided share of land (UDS), which they
have in their name.
Floor Space Index or FSI / Floor Area Ratio or FAR
Area of the floor
FSI is the maximum permissible
floor area a builder can build on a
particular plot/piece of land. It is the
ratio of the building floor-covered
area to the area available on the land.
Impact on the possible FSI includes
the size of the plot, type of the
building, the location of the plot (city/
zone), etc.
Area of the plot
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Master Residential Real Estate
Transfer Development Rights or TDR
TDR means transferable development rights which are obtained in the form of
certificates that the owner can subsequently use for himself or can trade in the
market for cash.
Primarily used by the builder to develop the area beyond the approved FSI. This
minimizes the time needed and easily helps in the process of acquisition as the
owner can transfer his rights to the builder with the help of this certificate.
Approvals required to launch a Project
BDA / BMRDA / BBMP Sanction Plan Approval (Based
on Jurisdiction of State)
Sale Deed / Mother Deed.
Latest Tax Paid Receipt.
Latest Khatha Certificate (Legal Identification Certificate issued by Govt.)
Encumbrance certificate for 13 years.
Betterment Fee paid Receipt.
If the total SBA is >= 20,000 sq. mt for residential / 12,000 sq. mt for non-residential
buildings needs mandatory approval from BDA.
Approval from the Water Authority of the State
NOC issued for residential, commercial, and construction activities.
Approval from the Electricity Authority of the State
NOC issued for residential, commercial, and construction activities with
temporary connections.
Permanent connections were given to homeowners post-issuance of the
Occupancy Certificate.
Airport Authority of India or AAI/Flight Path Clearance
NOC issued for Structure Height within the development.
NOC issued for no obstruction to flight path in case of high-rise buildings/
proximity to the airport.
10 km proximity from HAL Airport/Airforce Station Yelhanka/BIAL Airport.
Approval from the Pollution Control Board of State
NOC for construction of 20 homes or more.
In case the built-up area is 20,000 sq. mt we will need SEIAA State Environment.
Impact Assessment Authority.
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Master Residential Real Estate
Fire Force Department Approval
NOC for construction of residential and non-residential buildings.
Railway Authority Clearance
NOC for building abutting railway margin from Central Railway Department.
NOC for sites abutting proposed metro lines.
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Master Residential Real Estate
Chapter 5
Impact Of
Pandemic on the
Indian
Residential Sector
64
Ashwinder R Singh
The pandemic from late 2019 to late 2021 created a major disruption to the economies of
all countries, including India. The repeated waves of infection, supply chain disruptions
and inflation caught policymakers unaware. The government had to change its priority
to cushion the impact on the vulnerable sections of society. The changes stimulated by
the pandemic, including lockdowns, social distancing, and inflation, have impacted all
sectors of the country, including real estate.
Impact on the Real Estate Sector in India
The Indian AEC industry was impacted by the long lockdown periods during the first
and second phases of the coronavirus in the country. The three main challenges faced
by the developers were the resumption of sales, retention of labour, and cost control. In
most cases, the delays cost the developers heavily.
The large-scale migration of contract
and unskilled and semi-skilled
workers to their hometowns delayed
the completion of the projects,
especially those of small developers.
The big players in the real estate sector
managed to provide for the safety of the
workers at their sites by providing closed
shelter, food, and basic healthcare amenities
like masks.
According to KPMG, the real estate
sector incurred a loss of over one lakh
crore rupees during the pandemic.
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Master Residential Real Estate
Residential Sales
4,00,000
units
in 2019-20
Residential Sales
<3,00,000
units
in 2020-21
90%
The first two quarters of 2020 saw new
building launches decrease compared
to the same quarters in 2019.
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Ashwinder R Singh
Both residential and commercial real estate were adversely impacted by the pandemic,
and not just in terms of sales. The disruption created by the unforeseen event resulted
in a shortage of raw materials and labour forces. In turn, this caused a steep increase
in the cost of sourcing the same. As job insecurity increased, the demand for new
projects was low, leading to a high inventory of unsold projects.
At the end of December 2021, Chennai
had the highest unsold inventory,
followed by Mumbai, while Hyderabad
and Pune were among the top six cities
with the lowest inventory.
The “stay home, stay safe” slogan
during the lockdown encouraged people
to focus on the importance of home
as a safe haven during the pandemic.
This had an impact on the end-user demand, especially in the affordable and midsegment user groups, who were postponing the purchase of apartments. The
pandemic presented developers with the challenge of the need for physical distancing
and contactless interaction through digital customer interfaces
Large developers, who would usually deal with non-resident Indians and high-networth individuals, had already developed infrastructure for online sales, virtual tours,
and contactless transactions. To adapt themselves to the ‘new normal’ created by the
pandemic, small developers across all cities also started improving their facilities along
similar lines during the pandemic to better their reach with prospective customers.
Impact on the Real Estate Sector in India
Although property rates were under stress after the pandemic outbreak in early 2020,
towards the latter part of 2021, prices in India started appreciating. Data shows that after
a fall in home sales and new launches, the sale of new apartments showed an upward
trend since early 2021. In the fourth financial quarter of 2021, the sale of residential units
peaked at 46750 units in the country’s top markets, that is, Mumbai, Delhi, Bengaluru,
Pune, Chennai, Hyderabad and Kolkata. This was the best quarter in home sales in over
eight years.
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Master Residential Real Estate
Apartment Sales Growth
H1 Units 2022
Mumbai
Bengaluru
Delhi NCR
137%
133%
Hyderabad
39%
308%
32%
30,000
20,000
10,000
5,003
3,800
Chennai
7,753
1,898
Kolkata
9,549
6,866 7,219
Pune
16,802
7,888
169%
18,709
8,716
105%
23,452 23,813
11,600
H1 Units 2021
0
10,000
20,000
30,000
City Share in H1 Sales, 2022 (%)
Chennai
5%
Bengaluru
22%
68
Hyderabad
Mumbai
9%
Delhi NCR
18%
23%
Kolkata
Source: Real Estate Intelligence Service (REIS), JLL Research
7%
Pune
16%
Ashwinder R Singh
As the work-from-home culture started being embraced by many companies, real
estate investments peaked in tier 2 cities like Surat, Coimbatore, Patna, Lucknow,
Jaipur, and Mohali. This upward trend was mainly driven by the growth of the IT sector.
Furthermore, the uncertainty fuelled by the pandemic across the world motivated the
NRI community to own a home in India as well. This helped in balancing the prices as
well.
Additionally, with the new work-from-home work culture during the pandemic, the
employees in companies in the major cities moved to the outskirts, thereby increasing
the demand and, consequently, increasing the price for outskirt properties. This
reduced the price gap between the properties in the city and the outskirts. The table
below indicates how housing prices got a boost in some of India’s major cities.
Housing Prices in India’s Major Cities
City Name
Price per sq.ft
YoY Growth %
Delhi NCR
4,500-4,700
4%
Ahmedabad
Kolkata
3,500-3,700
8%
4,300-4,500
5%
Mumbai
9,800-10,000
4%
Pune
5,400-5,600
8%
Hyderabad
6,000-6,200
7%
Chennai
Bengaluru
5,700-5,900
9%
5,600-5,800
6%
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Master Residential Real Estate
Relief Provided by The Government of India During
Pandemic
In order to boost the economy post-lockdown, the Government of India initiated
impressive relief packages. Since the real estate sector is the second largest
employment generator in India, the government announced major relief measures to
rejuvenate the sector. The package included the following:
1.
An increase in liquidity by lowering interest rates, a moratorium (delay in
EMI payments) on all term loans for a period of 3-6 months and a one-time
restructuring of loans.
Government
Infusing INR 15,000 crores to
improve long term funding
2.
3.
National
Housing Bank
Compliance under RERA and IBC by invoking the force majeure clause (a
clause which protects both parties from liabilities) under RERA, extending
project registration, and completion timeline by 3-6 months.
Reduction on TDS on the sale of property
and extension for filing GST and Income Tax.
Reduction in taxes by reducing
the stamp duty on affordable
housing projects in Karnataka
and Maharashtra
70
Taxes
Ashwinder R Singh
4.
Rent waiver by four
months for small IT units
operating out of software
technology parks in India.
5.
Some states had extended property tax
payments for three months until June and
extended rebates on payment of property
tax until May 2020.
These steps by the central government and various state governments helped the
developers, promoters, and home buyers to overcome, to some extent, the financial
crisis. The real estate industry, on its part, adopted new technologies and reduced
construction costs to generate more demand.
Due to the various initiatives mentioned above, there has been a truly sustainable
boom within the real estate industry, which is projected to be on an upward curve. In
fact, this boom has facilitated a record-breaking number of sales across the board.
Housing sales in the top seven property markets in India have touched a peak of 1.6
lakhs apartments, which surpasses the 2014 annual sales numbers. Although there has
been a 6-12% change in the average property prices across the top seven cities, the
demand for residential apartments is booming and is likely to last for another 5-8 years.
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Master Residential Real Estate
Post Pandemic Scenario
The coronavirus-led crisis ravaged the activities of the real estate sector and has
changed consumer behaviour, the type of buyers, and the mode of marketing. The
new generation of buyers, who have since emerged as the key drivers, now prefer
buying instead of renting homes. The sense of security of owning a home became a
compelling priority for new generations facing uncertain times.
There is a big transformation in the way the properties are marketed and the way the
new buyers are searching for their preferred properties. The number of users who use
the online platform for searching for homes increased sharply, prompting developers
to update their projects online via images, video walkthroughs, and literature about
the developer and their projects. Although the pandemic wreaked havoc in the real
estate sector, it has also helped in bringing much-needed transparency, changes, and
reforms in the sector. It has also brought in needed Foreign Direct Investments (FDIs)
and has helped many developers innovate and improve the overall quality of the real
estate sector in India.
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Ashwinder R Singh
Demad for Housing
The Indian housing sector has seen a sharp revival in
demand and has reached the pre-pandemic level in
2022. Despite the high inflation and higher input cost
to the developer, the housing price index tracking key
real estate market in India shows a strong consumer
sentiment driving investment in real estate in Q2 of 2022.
0
January
2017
January
2018
January
2019
May
2020
May
2021
September
2022
Years
Source: https://images.livemint.com/img/2022/11/01/original/g1_1667318025584.png
Due to the strong demand, developers can pass on some increase
in the input cost to the customer. In the second quarter of 2022, the
unit prices on an all-India basis witnessed a 1.8% jump from the
previous quarter and 3.5% year on year. The number of housing units
sold picked up in Q3 of 2022 when sales numbers jumped by around
10% . The Indian real estate sector is expected to reach a market size
of USD 1 trillion by 2030 and will account for 80% of India’s GDP.
These numbers are only expected to increase in the years to come
and contribute to a thriving real estate industry in India.
Source:https://www.livemint.com/money/personal-finance/postcovid-housing-prices-surge-sales-swell-in-the-secondquarter-of-fy23-11667317718353.html
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Master Residential Real Estate
Chapter 4
Other Policies in
Indian Real Estate
48
Ashwinder R Singh
Goods and Service Tax (GST)
fore
Be
Service Tax
er
Aft
JULY, 1
2018
Central
Excise Duty
Commercial Tax
A
un l in
de dir
r o ec
ne t ta
um xe
br s
el a
VAT
GST
Complex and ambiguous
tax structure
In the real estate industry, GST is also intended to bring uniformity in property prices,
reduce the tax burden of buyers while buying a home, and create a positive sentiment
among them. With proper implementation, GST is expected to bring big relief to the
sector, by way of numerous benefits to buyers, developers, tenants, and landlords. Let
me list down here a few major value-points that GST can bring to the table.
Types of Residential property
GST Rates
GST on the Under-Construction Affordable Housing Projects
1%
GST on the other than Under-Construction Affordable
Housing Projects
5%
For Ready-to-move-in properties
No GST
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Master Residential Real Estate
Benami Transactions (Prohibition
Amended Act, 2016)
The issue of Benami properties keeps creating buzz now and then. Real estate has,
for long, been a reliable shelter for people to keep their black money safe, instead of
stashing cash.
Benami Transaction
Gives black money
to buy property
Be
n
pr efit
op s
er
ty
Pr Buy
op s
er
ty
Real Owner
of
Benamidar
Such property can be bought in the name of spouse or children, or a joint property
with siblings or any other relative, where the source(s) of income for the amount paid
is unknown. In simple terms, people buy property in the name of others to evade tax
rather than hoarding black money in cash.
The government brought in the Benami Transactions (Prohibition) Amended Act, 2016
with a mission to fight against black money and prevailing unfair practices in the real
estate market.
The Benami Act in the country was originally introduced in 1988. However, it could not
be implemented in full might because of certain inherent limitations. Hence, in 2016, the
government decided to make amendments against bringing in a new act, as the law
does not allow retrospective movements, and all Benami transactions that took place
between 1988 and 2016 would be immune to it.
50
Ashwinder R Singh
Let us now look at what type of properties is not termed
Benami
A property purchased in the name of relatives where the sources
of income are known.
A property purchased by someone in a fiduciary capacity.
A property bought in individual name and then gifted to married
daughter (gift registration).
Genuine and legal General Power of Attorney (GPA) properties.
A property declared under Benami IDS-2016.
This act declares any Benami transaction null and void authorising the government
to confiscate such property.
Benami Transaction
Gives black money
to buy property
The Act also involves a rigorous
punishment of up to seven years and
monetary penalty of up to 25% of
the fair market value of the Benami
Property.
of
Pr Buy
op s
er
ty
Real Owner
Be
n
pr efit
op s
er
ty
Benamidar
The actual buyer
cannot recover
the property from
‘Benamidaar’, the
person in whose
name the property
is registered.
25%
7 years of
punishment
Monetary penalty of
25% of market penalty
The act may affect the real estate sector in rural areas where the records of ownership
of lands are not clear. Otherwise genuine transactions with known sources of income
will be unaffected.
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Master Residential Real Estate
Government Initiatives in Housing Sector
To streamline the real estate sector, which has been largely unorganised and
unregulated, the government has brought in various far-reaching initiatives in the
housing sector to bring in much-needed transparency and curb illegitimate activities.
Demonetisation
1.
On 8 November 2016,
the government of India delegitimized all 500
and 1000-denomination currency notes to
counter illegal activities and counterfeiting,
an act remembered as demonetization.
2. For the real estate market,
it helped in pricing standardization
with the elimination of cash making
it a buyer-first market rather than
a developer-first.
CASH!
Buyer
Developer 1
3. However,
the cashstrapped developers too
could now source legitimate
funding from the banks.
Cash
Banks
52
Developer 2
Ashwinder R Singh
Black Money
4. Cash surplus drove
down interest rates.
This was happy news for
the buyers that depended
on loans as well.
Black money
deposited in banks.
%
Lower Interest
Rates
Cheaper Loans
Even though construction and
5.delivery
were slowed down initially,
things have eased substantially now,
especially under the purview of RERA.
6. The process impacted
the luxury housing market which is
largely driven by cash transactions.
7. The affordable housing market
remained largely unaffected as those
buyers were anyway dependent on
legitimate financing from banks. Its effects
on various markets were as follows:
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Master Residential Real Estate
Primary Market (bought directly from developer)
Immediately after demonetization and across the subsequent
quarter, the primary market saw an alarming dip in sales with 1.5 lakh
unsold housing units.
Secondary Market (bought directly from end-user/investor)
The secondary market also experienced a significant impact with
a significant slowdown. Buyers across the primary and secondary
markets delayed purchases to wait out the initial aftereffects of
demonetization, RERA, and GST.
Rental Market
The lack of available cash, the obscurity of government policies, and
the relaxation of interest rates from banks all contributed to a surge
in the rental market as buyers opted to preserve their cash reserves.
Looking past its immediate impacts, the real estate market has rebound slowly
but surely mainly due to several enabling factors. They include relaxed interest
rates on home loans, improved stock market performance and FDI, limited
purchases due to cash crunch, and deceleration of construction work. And
even though it might be too soon to judge its ultimate impact, the combination
of demonetization, RERA, Benami Transactions (Prohibition) Amendment Act,
and GST is bringing about gradual yet certain positive changes in the property
market with significantly more transparency, accountability and buyerconfidence.
Pradhan Mantri Awas Yojana (PMAY)
This scheme was no less than manna from heaven for the buyers from the low
and middle-income groups (LIG and MIG) and economically weaker sections
(EWS). In 2015, the government announced Pradhan Mantri Awas Yojna (PMAY),
a scheme aimed at providing “housing for all” by 2022. This announcement
sent a wave of excitement across the country. PMAY aims to help the first-time
buyers from EWS, LIG, and MIG and intends to provide 20 million urban homes
(now scaled down to 122 million) and 30 million rural homes by March 31, 2022.
The first milestone was to complete 10 million houses for the rural population
by 2019.
Owning a house became a distant dream for the buyers from EWS and LIG due
to high prices. And bringing the home-buying within the reach of all buyers was
not an easy task, considering the number of challenges prevailing in the housing
sector. The major one was the lack of affordable land. Coupled with the absence
of a clear title, it dissuaded the developers from taking up the affordable projects
since these issues also discouraged the banks and financial institutions from
financing the land. Therefore, the government had to intervene through critical
financial and non-financial support and introduce policy reforms needed to
make the housing-for-all promise come true.
54
Application
Criteria
It only applies to
the applicants who
applied for a home
loan or whose loan got
sanctioned on or after
January 1, 2017.
First Time
Buyers
Only the first-time
home buyers are
covered under this
scheme. It is not
applicable for people
already owning a
house, or who owned
a house in the past but
have transferred it to
someone else.
Depending on
whichever is lower, the
sanctioned loan has
a tenure of 20 years
or whatever way the
beneficiary prefers.
Tenure
The scheme instructs
banks and financial
institutions not to
charge a processing
fee from applicants.
Processing
Fee
The EMI burden will
be reduced by paying
the total subsidy on
interest accrued on
these loans in one go.
Subsidy
Settlement
Pradhan Mantri Awas Yojana (PMAY) Key Features
Ashwinder R Singh
55
Master Residential Real Estate
CLSS Scheme
All thanks to the CLSS
scheme of the Pradhan
Mantri Awas Yojna (PMAY).
Conversation between
Priya and Mohan
Priya: Hello Mohan! You
seem very chirpy today.
Mohan: Oh yes! I have just
booked my dream home.
Priya: That’s great news.
Congratulations! How did
this happen?
I have never heard about
this. Can you tell me more?
CLSS is a scheme under PMAY where
you can get a subsidy on home loan
interest depending on your income.
But I do not want to buy
a house. Instead, I want to
get it constructed. Can I
still avail this benefit?
Mohan: Yes! The PMAY benefit is available
for the following purposes:
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Ashwinder R Singh
Mohan:
1. Buying a new house
2. Constructing a new house.
3. Expanding an
already owned house.
For, eg, you want to
construct another floor
or add some rooms.
So, how much loan can I
get under the scheme?
The scheme does not limit the amount of
loans that you can take. Rather, it puts a
cap on the amount of subsidy you can avail,
depending on the category you fall in
Priya: That sounds interesting. So is
everyone eligible for this?
Mohan: No, you will be eligible only if your
family’s total income is not more than
Rs. 18,00,000.
Priya: Who all are included in “family” here?
Family” includes husband,
wife, and children below 18
years of age.
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Master Residential Real Estate
Oh great! Then I am eligible
for his scheme as well.
Mohan: Hold on! There are some other
criteria you must keep in mind.
1. The age of beneficiary must be
between 21 to 55 years
2. The family must not pre-own any
house. The house you buy through
PMAY should be your family’s first
house.
3. You can either be salaried, a
professional, or self-employed.
4. Maximum tenure can be 20 years.
That’s nice. I think I am eligible for the scheme.
But how much subsidy will I get?
Well, this depends on your family’s
annual income. The scheme divides
individuals into different categories
Priya: I am curious to learn
about these categories.
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Ashwinder R Singh
The first category is the Economic Weaker Section
(EWS). These are families whose annual income
(husband+wife) is not more than Rs. 3,00,000. The
maximum subsidy available for EWS is 6.5% for upto a
loan amount of Rs. 6,00,000. For example, you’ve taken
a loan of Rs. 12,00,000 at a rate of 8%. Now, you’ll be
paying a rate of 1.5% (8%-6.5%) on the first 6,00,000 and
the bank rate (8%) on the remaining 6,00,000.
Priya: Oh! I do not fall under this
category. What is the next one?
Mohan: Lower Income Group (LIG). These
are families with an annual income
(husband+wife) of more than Rs. 3,00,000
but not more than Rs. 6,00,000. Similar
to EWS, the maximum subsidy available is
6.5% on the first 6,00,000 of the total
loan amount.
Priya: This is similar to the first one. But
again, this isn’t my category. Anyway, are
there any conditions for these categories?
Mohan: Yes, there are two additional conditions:
1. The maximum carpet area that can be bought
under this scheme is 645 sq.ft.
2. The owner or co-owner of the house should be
a female. However, this rule is not applicable
if you’re expanding an existing home. It is only
applicable if you’re buying or constructing a new
home.
Priya: These are very simple
conditions that make this policy
beneficial for all. However, I
am keen to learn about the
remaining categories.
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Master Residential Real Estate
Mohan: Middle Income Group 1 (MIG 1) These families have an annual income of
more than Rs. 6,00,000 but not more
than Rs. 12,00,000. The subsidy for the
MIG 1 group is limited to 4% on the first
Rs. 9,00,000 of the total loan amount.
For example, you took a loan of Rs. 20,00,000 at 8%.
Thus, you’ll pay a rate of 4% (8%-4% subsidy) on the first
9,00,000, and for the remaining 12,00,000, you’ll have to
shell out the agreed bank rate (8%). The maximum carpet
area of the house can be 1700 sq. ft.
Middle Income Group 2 (MIG 2) - This group includes
families with an annual income of more than 12,00,000
but not more than 18,00,000. The subsidy is restricted to
3% on a maximum loan amount of 12,00,000. However, the
maximum carpet area of the house can be 2150 sq ft.
Priya: So, is there
no requirement
for women’s
ownership for these
categories?
Good observation. Woman
ownership is not mandatory for
the MIG 1 and MIG 2 categories.
I think I will fall under the MIG
1 category. But how do I apply
for this?
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Ashwinder R Singh
There are several ways you can
apply for PMAY benefits:
Government banks
Private Bank
Housing Finance Companies
Small Finance Banks
You can also apply online at www.
pmaymis.gov.in
Thank you, Mohan, for
explaining everything so
patiently. I am also headed
to apply for this scheme.
Mohan: You’re welcome.
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Master Residential Real Estate
Let us look at the developments in this direction.
Affordable housing has been given the infrastructure status which mandates that the
banks have to lend funds to such developers at a cheaper rate of interest, thereby
making financing economical, which is an encouragement to the developers to focus
on this segment. For further relief to the developers and middle-class homebuyers, the
Union cabinet increased the carpet area of houses under the government’s affordable
housing scheme.
Categories
Interest
Subsidy
(%)
Subsidy
calculated on
max. loan of
(Rs.)
Max.
Interest
Subsidy of
Max.
Carpet
Area of the
Property
Upto 3 Lakhs
EWS
6.5
6 Lakhs
2.67 Lakhs
30 sq.m.
3-6 Lakhs
LIG
6.5
6 Lakhs
2.67 Lakhs
60 sq.m.
6-12 Lakhs
MIG I
4.0
9 Lakhs
2.35 Lakhs
120 sq.m.
12-18 Lakhs
MIG II
3.0
12 Lakhs
2.30 Lakhs
150 sq.m.
Annual
Household
Income (Rs.)
A partnership between the International Finance Corporation (IFC) and the country’s
biggest mortgage lender HDFC intends to finance the affordable housing constructions
and also lend funds to the developers.
The PMAY scheme brings several benefits to both buyers and developers, and has
the potential to generate housing demand, employment opportunities and economic
development. However, it will need to address certain challenges, such as the scarcity
of affordable land and clear title on the property.
Permanent Residency Status for Foreign Investors
The cabinet has given its nod to granting Permanent Residency Status (PRS) to foreign
investors subject to relevant conditions in the FDI policy. The move will invite additional
foreign investment in residential real estate and infuse more capital into the sector.
Initially, the grant of residency will be for 10 years with a multiple entry facility without a
stay clause and with an exemption on registration requirements.
To be eligible, a foreign investor must take the FDI route to make a minimum investment
of 10 crores within a period of 18 months or 25 crores within 36 months. These
investments should also generate at least 20 jobs annually for Indian residents.
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Ashwinder R Singh
Notes
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Master Residential Real Estate
II
Home Buyers
Rent vs Purchase
Guide for Home Buyers
Home Buyers How To’s
Tips for NRI Investors
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Ashwinder R Singh
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Master Residential Real Estate
Chapter 6
Rent vs. Purchase
For Rent
76
For Sale
Ashwinder R Singh
Author’s Insights!
The age-old question of buying or renting a house has always been an important part
of a person’s financial planning. Purchasing a house comes with a hefty cost and owing
to this, most people prefer to rent a house. Over time, when a person is financially stable
and has a strong financial backing, he/she decides to buy a home.
There are several factors to be considered while deciding whether to purchase a house
or to stay on rent. Real estate is a safe and rewarding investment, but there is more to
it than meets the eye.
One should not decide to
purchase a house just out of
peer pressure, or just for the
sake of owning a property.
One should analyse all the pros
and cons associated with renting
and purchase and understand
the repercussions and rewards
associated with it, and then making
a calculated decision.
Though the timing of purchasing a house is a personal choice, here are some factors
that can make your decision process a little easier. More often than not, it makes sense
to buy a house in a particular city, if you are planning to stay there in the long term, i.e.,
if it is your base location.
If you have just started your career and you have been working only for a few years,
then it is better to rent a house as you would not have the clarity about where you
would be staying five years from now.
So, first and foremost, you need to take a call on buying or renting, based on your need.
Once you have clarity on that, the other factors come into play.
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Master Residential Real Estate
To begin with, here are a few things to keep in mind while buying a house:
1. Savings at your disposal
Purchase Price
$$$$
80%
Loans from
Bank
20%
Savings of
the buyer
Most lending institutions give loans amounting to about 80% of the cost of the
property. However, you have to manage the remaining 20% amount on your
own.
So, make sure you have enough savings
that you can invest.
2. Mobility
When you decide to buy a house, you in a way freeze your mobility. You decide
to stay in that particular house during the upcoming years. Make sure you are
ready for this commitment before you invest to buy a house.
Ask yourself some of these basic questions before you decide to invest in a house:
Does my current
financial condition allow
me to invest in a house?
Am I currently capable enough to
manage my expenses and do I
have a surplus that can be used
towards EMI or investments?
Do I have any other major
upcoming expenses?
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Ashwinder R Singh
Do I have a plan for
any contingencies?
Will I save money in the
long run by buying a house
or is renting a better option?
What is my future earning
potential? Will I be able to
sustain my finances?
Am I ready to lock in a
fixed part of my earning to
finance a house purchase?
If you wish to stay in a rented house, consider the following factors to determine
whether you need to purchase a house or you should continue living in a rented house:
The fix security deposit that you will need to pay - It depends on the rent of the house
and the city you stay in.
Calculate if the monthly rent you are paying is too high and if the EMI will turn out to
be much lower.
Brokerage charges and the shifting expenses you will have to frequently incur.
Annual increase in the rent.
If you are a salaried employee, you
will have the benefit of house rent
allowance, but at the end of it all, you
will not own any property.
Some of the advantages and disadvantages of buying a house are listed on the next
page!
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Master Residential Real Estate
Buying a house:
Pros
Cons
1. Investing in a house gives you
guaranteed returns in the long run.
The real estate prices keep going
up and one usually does not incur
a loss by investing in a house.
1. When you buy a house, it becomes
your legal property, which allows you
greater freedom, You change the
landscaping, décor, layout, based on
your personal preferences
2. It instills in you a sense of
financial security and belonging.
3. You can avail
several tax
exemptions if you go
for a home loan.
4. You do not need to move
around frequently, and worry about
searching for a new house every
few years.
5. You can rent your
house and earn
returns through it.
6. When you buy a house, it
becomes your legal property, which
allows you greater freedom, You
change the landscaping, décor, layout,
based on your personal preferences
80
2. You cannot entirely
depend on a bank loan.
3. You need to have
some disposable savings
with you.
4. You have a fixed
expense every month
towards the EMI.
5. It could at times disrupt your
financial stability.
Ashwinder R Singh
Home ownership comes with a lot of risks as well.
investing a huge part
of your savings into
an asset
more expensive
to maintain
For Sale
en
ev to
t
igh i cult er
It m diff t lat
i
be sel
e
r
You have to consider
capital gains taxes
And what if you have to move to a different
city due to any circumstances. Expenses
on account of property taxes, society
maintenance charges and the normal wear
and tear of the apartment eat up around
20-30% of the rental income, depending
upon the age and location of apartment
building.
Disposability is another factor that you
should consider while buying a house.
It is difficult to liquidate or dispose of an
asset like a house. So, it is always a good
option to invest in a house that has basic
infrastructure in place, has good road
connectivity, is inhabited, and is in a safe
locality.
Your house can become a liability pretty
quickly if your financial planning does not
go as calculated or if you face any issues
with your finances later. But buying a house
is often driven by emotions. It is terrifying,
yet liberating.
1000 sq.m House
Mumbai
Ahmedabad
1-1.5 Crores
Less than half
the price
So, buying a house in
Ahmedabad might not be
a huge financial strain on
you, but buying a house in
Mumbai will.
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Master Residential Real Estate
So, if you really do decide to buy, first set your finances right. The bigger the down
payment, the smaller your EMIs are.
Plan in such a way that you are not
overburdened or stressed all the time
because of your EMIs.
Also, do not put everything else at stake so that you can buy a house. Like a wise man
once said, do not put all your eggs in one basket.
Do some background research and find out your loan eligibility. Check on your credit
rating, and talk to various bankers and try to understand how the current scenario
works.
Do not always get carried away by a lower price. If property prices are low in a particular
city, do not just decide to buy a house there without doing a thorough verification of
the buyer. Rely on good agents. Be ready to shell out a little extra to consult a reputed
real estate agent. Always remember, that just because you are willing to pay, does not
mean you can pay. Be practical, and do not make any emotional decisions.
Renting a house is not a bad option altogether. It has many benefits. A few are listed on
the next page:
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Ashwinder R Singh
Renting a house:
Pros
Cons
1. Living in a rented
house gives you the
flexibility of moving
to a different house
based on convenience,
access to office, and
proximity to schools
and hospitals.
1. The rent of the house increases
over time and you cannot control it.
2. Maintenance charges are not too
high, and in most cases, the house
repairs expenses are taken care of
by the house owner.
2. There are many restrictions and
since you are just a tenant, you
have to abide by your landlord’s
rules.
3. You do not have to worry about
paying hefty taxes and registration
fees. All you need to do is pay
your security deposit, your monthly
expenses, and you are sorted.
3. Even after living in the same
rented house for years, you still
cannot call it your own.
4. You do not have to worry about
huge EMIs for the next several years
of your life. You are not financially
bound.
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Master Residential Real Estate
home?
Chapter 7
Guide for Home Buyers
84
Ashwinder R Singh
Author’s Insights!
The profile, age and socio-economic status of a first-time home buyer is gradually
changing. Unlike the unsaid traditional practice, people do not wait to attain a certain
age to invest in property.
Today’s buyers,
They are as young
as 25 years & as
old as 65 years.
But buying a property is a herculean task and when it comes to buying a home, we
may have to look for a more serious adjective. The entire process is cumbersome
and requires a lot of effort, patience, and uncompromisingly – perseverance. There
are multiple stakeholders involved in the cycle and there is a high dependency on the
external factors.
A home is
more than just
bricks and mortar.
+
House
Lifestyle
We can call it a sum of a house and lifestyle. A lot of factors including the location, size
of the property, construction quality and amenities offered by the developer go into
making a home.
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Master Residential Real Estate
If you are a first-time buyer, it can be quite an intimidating process and you might come
across several unfamiliar circumstances. You will be greeted with innumerable jargons,
legal policies, technical specifications, etc.
First-time home buyers in India need to be
cautious and diligent before signing on the
dotted lines of a home buyer’s agreement.
Before jumping on the bandwagon of buying a house, one must understand the
process involved, and keep in mind a few things that will enable him or her to make an
informed and correct decision. The following tips are intended to guide first time home
buyers as they finalise one of their most crucial investments.
What to buy?
1. Identify the amenities you would require
List down all the facilities that you require.
Include the basics and be specific with the
number of rooms, carpet area, locality, etc.
Your needs could be as basic as a property
with a swimming pool and a gym, or include
advanced amenities like a personalised
terrace, 24/7 CCTV surveillance, a rainwater
harvesting system, etc. There are several
options available in the market and you need to
be cognizant of yours and your family’s needs,
and decide accordingly.
2. Under-construction vs. Ready-to-move-in
An under-construction project is less
expensive.
With an under-construction project, there
will certainly be a waiting period before
you can get a handover and move in.
You have no idea of what an underconstruction property would look like at
the end.
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Ashwinder R Singh
An ready-to-move in project is more
expensive.
With an ready-to-move in project, there
will be no waiting period before you can
get a handover.
You have a brief idea of what an underconstruction property looks like in the
end.
3. Investing vs. End-use
For people who are planning to move into the house immediately and buying
it for their personal use, it could be more beneficial to select a house keeping
in mind the locality, accessibility, external environment, road connectivity,
neighborhood, etc. However, if you are buying a house as a long-term
investment and you do not intend to stay there, then it is best to opt for an ongoing construction in a developing area.
4. Leasehold vs. Freehold
The main difference between freehold and leasehold properties pertains to
land ownership and control. As an owner, you can do what you want with your
home, provided you keep it within the local area planning rules. In the case of
a leasehold property, you do not have the complete ownership. You have the
right to use the premises for a stipulated time.
When to buy?
When you buy your home
can be as crucial as what you
buy. There are a few things
you must consider here. The
first is your own financial
condition. Most homes are
purchased with a home loan.
Understand that this is a longterm commitment that will
require you to be in decent
financial health throughout
the loan’s tenure. You should
only take a home loan when
you have assured income
for the foreseeable future to
avoid any future issues.
HOME
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Master Residential Real Estate
A higher monthly
salary, the
approved home
loan will be higher.
A lower monthly
salary, the
approved home
loan will be lower.
Age 25
Age 45
And finally, you must study the market
carefully when taking the plunge. Factors
like interest rates and property prices
should be your chief considerations here.
Also, if regulations and policies related to
real estate are changing, it might often be
wiser to wait until they are finalized before
making a long-term commitment.
On the other hand, you must consider
your retirement plans, savings, and
other expenses if availing of a home
loan at a later stage of your career.
Where to buy?
Where you should buy your home depends on the greater purpose of your buying a
home. If you are in the real estate market looking for a place to live, you should look at
your own preferences. Once you have decided on the general geographical area - like
a town or a city - you should get into the specifics. A popular consideration here is the
proximity to prime areas or places of interest.
40 km
Work
Home
<5 km
Home
88
Work
Ashwinder R Singh
If you have to travel to your work every
day, you might want a place that’s easily
accessible from your workplace. Other
considerations might include the
availability of markets, malls, hospitals,
schools, transport centers like airports,
railway stations, and basically, places
that meet your daily requirements.
Another consideration is the condition
of the locality. If you have elderly people
staying with you, consider looking for a
quiet neighborhood.
ROI - Return on Investment
9%
3%
1%
If, however, you are
an investor and want
to invest in the real
estate market, then you
can solely choose the
location based on ROI
(return on investment).
Investing in a home that’s in either a well-established community, or an up-and-coming
community can be your best option. In the case of the latter, you can get good returns
on your investment with a smaller upfront payment. You should also keep an eye on the
market and nearby developments. For example, the construction of bridges, metros,
highways, markets, etc., can often inflate property prices for a region. Investing before
these projects get completed makes good sense from an investment perspective.
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Master Residential Real Estate
How to buy?
Yes, now that the wheels are turning, it is vital to take care of the following aspects:
1. Property Identification
Take pictures of the sites that you
visit and draw comparisons on your
preference parameters so that you
can make a calculated decision.
2. Legal Diligence
Learn about all the legal aspects
involved in the purchasing
process and do not deviate
from the set regulations.
Check if the developer/seller
has the required approvals
and certifications and the right
to sell. Consult a legal expert
for all the legal formalities and
make sure you check all the
documents.
3. Payments
Study the current payment system in
the market and try and negotiate with
the seller. Payment patterns vary from
case to case and understand which
one seems more viable and beneficial
for you.
4. Registration
Process
Make sure you register the
property in your name at
the right time to avoid any
fraudulent activities. We have
already read about the Benami
Properties Act, haven’t we?
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Ashwinder R Singh
6. Financials
5. Right Agent
And if you still have apprehensions,
look for someone who is wellinformed and who is well versed with
the business and knows about the
locality in detail. An agent or channel
partner with a decent business
acumen and sound knowledge is
an asset and would make the rest of
your process simpler. Let the driver
take the wheel and you sit behind
relaxed.
Plan the purchase in such a manner
that it does not strain your monetary
stability. Educate yourself about all
the costs that would be involved in
the process – not just the cost of the
property. There are agent’s fees to
be paid, legal expert’s fees, the taxes,
registration fees, etc. Make a detailed
account of your monthly expenses
and then determine how much from
your earnings can you contribute
towards the EMI.
Buying a house is an intricate procedure. Understand the implications and all other
costs involved beyond the price of the property, such as:
Premium price for the preferred location
Covered parking charges
Maintenance deposits and other monthly charges
Club membership (in townships that offer club
houses as a part of the recreational facilities)
Registration costs
Taxes
There are numerous taxes that one must be mindful of while purchasing a property. It
helps to remain abreast with the latest developments that will help one in making more
informed decisions and negotiate for a better deal.
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7. Home Loans
Banks approve your home loan
application by scrutinising the
following details:
Source of income
Salary structure
Age
Other assets and
liabilities
Apart from this, these are a few basic
documents that banks require to process your
loan:
Identity proofs
Address and age proof
Employment details
Bank statements
Proof of income
The loan is processed after a detailed analysis
of your case and verification of all the details.
Your repayment capacity is assessed and only
then does the bank decide your eligibility for
the loan.
8. Know your CIBIL
Score
It records and maintains credit details
of individuals. These include details
such as payment records of loans and
credit card bills received from member
banks and financial institutions. This
information is then used to create
Credit Information Records (CIR) and
credit scores. This is shared with all
the banks and financial institutions for
evaluation and sanctioning of different
types of loans.
CIBIL SCORE: XXX
A CIBIL score is a threedigit number outlining
your credit history. It is
calculated based on your
previous borrowings and
payments.
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Credit Information Bureau India
Limited (CIBIL) is the first credit
information company founded in
India
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Whenever you apply for a loan, your CIBIL
score is the first thing that the banks check.
Make sure you have a clean credit history.
Age is a relative term and there is no right age to buy a property. If one has the resources
or the proper plan, then one can buy any property at any age one wishes to. However,
if one invests in a property at a young age, chances are that he/she may not have the
required amount of disposable funds to bank upon. If you are middle aged, you might
have some amount of disposable income, but at the same time, you might have added
responsibilities and expenses to take care of.
Who can lend?
When it comes to home loans, the first and foremost option that comes to our minds
is scheduled commercial banks. But there are quite a few other ways to finance your
home purchase. The alternate options are:
Bank
Non-banking Finance
Companies (NBFCs)
Housing Finance
Companies (HFCs)
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Explore all the options and opt for the one which maximises your benefit and which
seems the most reliable of them all. But before all this, it is crucial to review your current
financial obligations and get a sense of your net savings/income post all the other
unavoidable expenses like existing loans, insurance premiums, day-to-day expenses,
contingencies, etc.
Futuristic Goals
One should also assess his/her future needs and goals before deciding to make such
a huge commitment.
When deciding to invest in a property, you
must not only have a clear picture of your
present needs but you should also consider
your future needs and goals.
Some of us are just looking for a home for our family, while some of us want capital
appreciation through a long-term investment. Some just want to be part of a new
upcoming complex or some want to move closer to their workplace. When we invest,
we should be clear about our goals to ensure we make an informed choice.
For multi-storied apartments, several approvals from the central and state government
agencies are mandatory. Approvals are required for the land conversion and land use
for environmental clearance. Certain types of tall constructions require approvals
from the Airport Authority of India. Before you sign an agreement, insist the developer
provide proof of all the required legal approvals so that you are safe and do not have to
bear the brunt at a later stage.
The following are the basic approvals that every developer would need for any project:
Building Plan
and Floor Plan
Approvals
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Structural
Safety
NOC (No Objection
Certificate) from the
civic authority
Urban Land
Ceiling Certificate
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Commencement
Certificate
Title Deed
Occupation
Certificate
Risk Litigation Plan
When purchasing a home, it is important for buyers to be aware of the risks involved
and to have a plan to mitigate them. This may include keeping track of the progress
of the project and communicating with the developer regularly. It is also important for
buyers to do their due diligence before making a purchase and to be prepared for
the financial responsibilities that come with owning a home. By following these tips and
being informed and proactive, buyers can have a smoother and more enjoyable home
buying experience.
Do’s and Dont’s for Home Buyers
Investing in property can be a wise decision due to the low risks, tax benefits, and
potential for long-term appreciation. However, it is important to be well-informed when
making a big financial decision like purchasing a property. Investors looking to buy a
property to lease should approach the process with careful consideration in order to
get optimal returns and avoid financial setbacks. Factors to consider when looking to
buy a property include researching the market, setting a budget, and considering the
location and condition of the property.
Sample Property vs. Actual Property
Many upcoming projects nowadays
have a sample apartment to show
potential buyers how their dream
homes would look.
The developers go overboard
on spending on the sample flats
to make it look perfect, gaudy,
and every buyer’s dream home.
But do not get carried away. Do a
thorough inspection and enquire
how different will the actual end
product be from the sample house
and if the materials used would be
of the same quality.
Actual Property
Check on all the specifications of the sample property so
that you know what you will get when your house is ready.
Sample Property
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Get your property insured!
Property insurance can protect your
financial well-being in case of damages to
your property, legal issues, or problems with
the property title. There are many types of
home insurance policies to choose from, and
it is important to find a trustworthy resource
to help you make the best decision for
your needs. When purchasing a home, it is
important to be thorough and pay attention
to all details to ensure that you are adequately
protected.
Here is the list of those don’ts:
Don’t evade liabilities!
When it comes to doing what is right, try not using shortcuts. So, do not look for
ways to put off paying taxes and registration fees. This may lead to penalties
and significant additional costs, thus disturbing your financial planning.
Don’t invest in areas with no growth prospects!
Avoid investing in areas where you are not fully convinced or in situations where
you are unable to understand the growth prospects of that particular area.
You can get your money stuck in such investments for a long time waiting for
infrastructural developments and thus price appreciation to happen.
Don’t do frequent job-switches if availing a loan!
If you are purchasing the property with the
help of a loan, then don’t switch jobs too
often. Consistency in job and salary is an
important factor that banks like to observe.
During the loan process, they are less
anxious over a job change within the same
industry; however, they would prefer the
stability provided by the presence of the
conditions that existed at the time of loan
approval.
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Don’t bite more than you can chew!
Avoid making an investment which is way over and above your repaying capacity.
That is why a proper financial planning in advance is strongly recommended,
especially to the first-time buyers.
Don’t increase the Credit Card limit
Another mistake many home buyers make, is using credit to start preparing
for their new living arrangements. You may want to start buying furniture and
household appliances for your new home, but hold back. If the payments are
not made on time, it will largely affect your credit score and ranking. Taking on
new debt, even for furniture or other household items, will change the state of
your credit and may throw up a red flag for the lender that leads to the loss of
your loan approval.
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Chapter 8
Home Buyers
How To’s
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Top 10 questions searched
by Indian Home Buyers,
answered by the author!
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Q1.
Master Residential Real Estate
What are the
basics to follow
while buying your
first property?
When buying a property, it is important to
be thorough and careful, especially if you are
a first-time buyer. The process of buying a
property can be complex, so it is extremely
important to spend time and effort on it to
ensure that it is done correctly. Some things to
consider before purchasing a property include
the location, budget, type of property, financing
options, and any legal or logistical requirements.
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i. Budgeting
As a first-time investor in property, you must plan ahead
of time to have clarity on the budget that can be set aside
for the purchase of the property. All sources of income,
savings, investment, and all essential expenses must be
considered before you start the process of purchasing a
property. While budgeting, besides the cost of the property,
ensure that you make provisions for the registration fees,
stamp duty, and other charges applicable to the area. Many
banks offer home loans, and it is a good practice to consult
different banks to get a fair idea about the loan eligibility,
the rate of interest, payment terms, and the checklist of
documents required.
ii. Location and Size
The location must be in proximity to public amenities like markets, groceries, educational institutions,
healthcare facilities and other needs based on the requirements of your family.
For residential purpose,
You can select a decent
property size depending on
the current household size
and future additions to your
family and budget.
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For investment purpose, you still need to take the size of
the property into account carefully.
This is because it will take a
considerable amount of time to
rent or resell a property that is
too big or too small.
iii. Property Verification
There are many online platforms
where you can check if the property
is registered under RERA. You can
also check whether a reputed bank
approves the property since banks
verify properties for legal and
financial compliance when you apply
for a home loan.
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iv. Amenities and
Maintenance Cost
$
$
Modern properties come with many
amenities which add considerably to the
cost of the property. While these amenities
look attractive to new buyers, you must
decide what you need and what you will
actually use. Some amenities, like parking
spaces, are necessities, whereas others, like
gyms or swimming pools, that add to your
maintenance cost may not be used. Most
of these costs are recurring costs and
hence must be factored in, while preparing
your budget.
v. Developer Reputation
As a first-time buyer, it is important to purchase a property from a reputed developer
with a clear background and thorough information on land records, utilities, construction
plans, and the surrounding area.
Buying your first property is an important milestone. You must make a balanced choice that is
aligned with your needs and within an affordable budget that gives all the members of your family
a good living experience.
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Q2.
Master Residential Real Estate
How to save
money for a
house?
Purchasing a home is one of the largest single
investments you will probably make. If you
plan on buying a house in the future, it is
important to start setting a budget aside as
soon as possible. Here are some tips that will
help you save money for a home.
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Financial Planning
Careful budgeting can help you build the initial down-payment
amount. Avoiding wasteful expenses and slimming down on
non-essential lifestyle expenses will add to your savings for
the down payment. A systematic investment plan (SIP) is a
way to invest a fixed amount of money at regular intervals,
typically monthly. You can use an SIP to save for a down
payment on a house by following these steps.
After 5 years,
Down payment = ₹₹₹₹
₹₹₹
₹₹₹
₹₹₹
₹₹₹
₹₹₹
Equal to the down
payment of the home.
Set up an SIP
Contact the investment company or
financial institution and set up an SIP
through which you will invest a fixed
amount of money on a regular basis,
typically monthly.
₹₹₹₹
Choose your
investment vehicle
Consider investing in mutual
funds or other investment
products that offer a higher
return on your money. Research
different options and choose one
that aligns with your financial
goals and risk tolerance.
Investments & Progress
Make regular investments and monitor your
progress to gradually build up your savings
for a down payment. Consider adjusting your
investment amount or frequency if necessary.
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Budgeting for the EMI
Budgeting for expenses other than the down
payment is another element that you must
plan carefully. An EMI calculator can help you
determine the amount that must be set aside
each month. Accordingly, you can set aside savings
and investment returns before the actual EMI
payment starts.
SWP
EMI for Home Loan
Use a systematic withdrawal plan: When you are ready
to make EMIs on a house, you can use a systematic
withdrawal plan to withdraw the funds you need for
EMIs on regular basis. This allows you to access the
money you have saved without incurring any tax
penalties.
Schemes in India
Employee Housing Schemes: Some employers offer
employee housing schemes to help their employees
save for a house. These schemes may provide financial
assistance or other benefits to help employees purchase
a home.
Life Insurance Policies: Endowment policies are a type of
life insurance that allow policyholders to save for a down
payment on a house with added tax benefits and other
advantages. These policies combine the benefits of life
insurance with the opportunity to save for a specific
goal over a fixed period of time.
Here are a few examples of life insurance policies that
may help you save for a house:
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ULIPs (Unit Linked Insurance Plans): ULIPs are
a type of endowment policy that offers both
life insurance coverage and the opportunity to
invest in various funds. The policyholder can
choose to allocate a portion of the premiums
paid towards saving for a house.
Insurance Premium
₹₹₹₹
Premium for Life
Insurance
Money-Back Policies: Money-back
policies are a type of endowment
policy that offer periodic payouts
to the policyholder during the policy
term. These payouts can be used to
save for a house or for any other
purpose.
Used as an
investment vehicle
Endowment Plans: Endowment plans
are a type of life insurance policy
that offers a fixed sum of money
upon the policy’s maturity. The
policyholder can choose to use this
money to save for a house or for
any other purpose.
It is important to carefully research and compares different life insurance policies to
find one that meets your needs and budget. Be sure to carefully review the terms
and conditions of any policy you are considering, including the premiums, benefits, and
any exclusions or limitation.
Improving your credit score:
A good credit score is important for securing
a home loan and getting lower interest
rates. A poor credit score can result in
higher interest rates, a larger down payment,
and decreased chances of loan approval.
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Q3.
How to clean
up your credit
score?
Lenders or banks use your credit score to help
them decide whether a loan can be approved. It
also helps them determine the interest rate that
will be charged. This is decided at the time of
processing an application for a loan. The higher
the credit score, the faster the processing and
approval time, and you will have better options
while negotiating interest rates.
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It is impossible to improve your credit score overnight; it is only
possible with patience and effort. In India, The Credit Information
Bureau (India) Limited (CIBIL) is the most popular of the four
bureaus that generate reports related to credit scores.
A credit rating over
650 is considered good,
whereas one below 40 is
considered bad.
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1
Repaying outstanding
debts
This significantly impacts
your credit score. All EMIs
and loans must be paid on
time. In case of difficulties
in paying EMI due to
unforeseen circumstances,
it is advisable to visit
the bank and arrange to
restructure the loan.
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2
Making corrections if
any errors are detected
in the CIBIL report
Sometimes, due to clerical
delay, the EMI payment date
would have been incorrectly
updated. Such errors must
be acted upon and brought
to the attention of relevant
authorities within 30 days,
and the credit score can be
corrected.
3
Customising the
credit limit
You can do this to
restrict credit usage to
the allotted credit limit.
This will improve your
credit utilization ratio.
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4
Opting for a
longer tenure for
repayment while
taking a loan
Doing this will ensure
your EMI is within your
budget and payments can
be made on time. Credit
scores will improve on
timely payment of EMI
without any defaults.
5
Negotiate hard for
the best terms
Your credit score will be
adversely affected if you
apply for a loan that was
rejected earlier. It is better to
wait for the credit score to
improve before reapplying for
a loan.
6
Avoid applying for
multiple loans or
credit cards
Your credit score will be
adversely affected if you
apply for a loan that was
rejected earlier. It is better
to wait for the credit
score to improve before
reapplying for a loan.
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7
Maintaining a
healthy mix of
unsecured loans
and secured loans
Unsecured loans, like credit
cards and secured loans, like
vehicle loans and personal
loans, can help you improve
your credit score. This is
because a good credit score
is given if the secured
loan is higher than the
unsecured loan.
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8
Paying more than
the minimum due on
credit card usage
Paying only the minimum
due on your credit card
negatively affects your
credit score. This shows
financial instability, although
the payment is made on time.
9
Not using the
credit card to the
maximum limit
Using your credit card to
the maximum limit set more
often than not will reflect
over-dependency on credit
and negatively affect your
credit score.
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10
Avoid being a
joint holder or
guarantor of loans
Any default from the other
party will affect your CIBIL
score.
11
Using an older
credit card to pay
your bills in full
and on time
This will help build a lengthy
and solid credit history
which will help in maintaining
a good credit score.
12
Not settling loans
and credit cards
before due dates
This way, your settlement
amount will be lower than
the actual amount on the
due date, and it will have
a negative effect on your
credit score.
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Q4.
Do you have the
right real estate
agent?
A real estate agent plays an important
role between the buyer and seller in
getting the best and fair deal for
both the buyer and seller. Since the
developers will only highlight the best
of their property, it is advisable to
use the service of a real estate agent
who will have better knowledge of the
other nuances and localities. The right
agent will also be able to show you
property options that will suit your
requirements. Here are a few tips
when shortlisting a real estate agent:
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Knowledge of the local area.
An excellent real estate agent must know the local area well. He
should be aware of the recent buying and selling trends in the
area and the upcoming infrastructural development in the area.
You can ask your real estate agent a few questions about the
area and cross-verify his answers to gauge his knowledge.
Do your own checks
Like in any other business, misinformation and ignorance
are pretty common in the real estate market. Real estate
agents make impressive and convincing sales talks. Before
shortlisting any property for purchase, you must do your
own investigation as a buyer. You can visit the neighbourhood
and check with any known homeowner about the current
rates, problems in the area, amenities available, and price
escalations over the past few years. You can also check the
websites of popular developers in your area and speak to
other agents to protect yourself from misinformation.
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Credentials of the agent
You can check an agent’s credentials by
asking him to provide a few references
of his clients. You can then speak
directly to the clients about his integrity,
knowledge of price trends, and the quality
of his service. Some states, like Haryana,
have a licence issued to agents by an
authorized state body. In such states,
the agent’s licence can be checked for
complaints or pending cases. An excellent
real estate agent must be experienced
and be able to establish a rapport
immediately. He must ideally be someone
you are comfortable working with, who
understands your requirements and who
can help you select the right property.
Non-transparent agents
As a buyer, you must steer clear of real estate agents who delay giving you
information or do not give the requested details of the property. Before you
finalize a deal, you will understandably have many questions. If the agent cannot
provide details about the ownership of the property, a copy of the property
deed, or other important documents, it is important to be cautious. In such a
case, do not rush to complete the deal even if the price is attractive. Sometimes
agents avoid questions regarding the quality of construction, completion delays,
and litigations, which is a red flag. Agents must also arrange face-to-face meetings
between you and the seller to avoid the risk of being misled.
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Agent’s Fee
It is important to discuss and agree on the fees upfront
to avoid misunderstandings and disputes. In order to get
the client, some real estate agents might avoid talking
about the fees during the process of finalizing the deal.
Sometimes, they might charge a very high percentage once
the deal is completed. Doing your research ahead of time
on the average agent’s fee can help you avoid disputes and
misunderstandings.
Buying or selling a house is an important financial and emotional
commitment that becomes quite stressful if done alone. An
excellent real estate agent is vital in making the experience less
stressful and ensuring the buyer and seller get the best deal.
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Q5.
What questions
to ask a real
estate agent?
Selecting the right real estate agent is
crucial in helping you find your dream
home within your budget. Asking the right
questions will not only help you find the
best real estate agent but will also help
you gain confidence in your decisions. It
will also help the agent understand what
you are looking for. Here are some of the
questions that you can ask your real
estate agent:
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How long have
they been an
agent?
An agent with
experience will have
good knowledge of
the local area. They
will also be able to
anticipate problems
and negotiate well.
They would also have
a good experience
with property
developers and real
estate professionals.
Questions on
property details
How many
deals have they
been able to
successfully
complete?
The sale prices
of homes in
the immediate
neighbourhood will
indicate the price
trend in the locality.
An experienced
agent will be able
to negotiate below
the asking price and
finalise prices that
are comparable to
similar houses in the
area.
When considering
purchasing a
property, it is
helpful to ask about
the current value
of the property, its
negotiation flexibility,
and accessibility to
amenities. It is also
important to inquire
about potential
future issues with
the property.
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Questions
related to the
ratio of buyers
to sellers
When working with
a real estate agent,
it is helpful to ask
about their areas of
expertise and their
experience helping
buyers find homes
within a certain
price range. This
information can
help you determine
whether the agent is
a good fit for your
needs.
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How do you plan
to communicate
with me
throughout the
process?
It’s important
to have good
communication
with your agent.
Asking about their
communication
style can help you
determine whether
they are a good fit
for you.
How will you
determine the
asking price for
my property?
Knowing how the
agent plans to
determine the asking
price can give you
insight into their
approach and help
you understand their
reasoning.
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Questions
related to resale
How do
you handle
negotiations
with buyers or
sellers?
Asking about the
agent’s negotiation
style can help you
understand how
they approach this
important aspect of
the process.
If you are buying a
second-hand home,
you must ask
your agent why
the seller is selling
the apartment, the
age of the flat,
how many owners
the home had, the
maintenance cost,
how the association
or society is, and
more. Real estate
agents see several
flats during their
careers, and so
they are experts in
spotting problem
areas. Knowing these
details will also help
you negotiate a
better price.
Questions after
shortlisting the
agent
Once you shortlist
an agent, you can
ask him questions
related to the
payment terms,
the commission
percentage that will
be payable, and the
mode and time of
payment. There must
be clarity on who
will be the contact
person and when he
can be contacted.
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Q6.
Master Residential Real Estate
How to identify
red f lags when
inspecting a
property?
Buying a home is undoubtedly a big decision,
and picking the right home can always be a
bit challenging, whether you are doing it for
the first time or the fourth time. Assuming
that you have the required budget available,
the next step is picking a home that suits
your needs and your family’s needs. Here are
some tips to help make the process a bit
easier for you:
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When looking for a new home, consider the location, desired features, and hiring a real estate
agent. Location should have good connectivity and be near amenities. Make a list of desired
features, including number of bedrooms and baths, balconies, and parking. A real estate agent can
help you find a home that meets your needs and budget. Consider the age and condition of the
house and factor in maintenance costs. Narrow your search online and consider the location and
layout before looking at homes in person.
Picking the right home is easier, faster, and more effective if you are clear about what you need
and have a budget in mind. Sometimes you might have to compromise on some “nice to have”
features to ensure that you have all the “must have” features. Here are some additional technical
and useful points to consider when selecting a home:
a.
b.
Check for structural issues
Structural issues can be a major concern when buying a
home. Signs of structural problems may include foundation
issues, uneven floors, or cracks in the walls. These
problems can be costly to fix and can affect the overall
integrity and safety of the home. To check for structural
issues, you can look for visible signs such as cracks in
the walls or uneven floors, or you can hire a professional
home inspector to conduct a thorough evaluation.
Look at the roof
The roof is an important part of the home’s structure and is responsible for protecting
the interior from the elements. It is important to check the condition of the roof and
ensure that it is in good repair. Signs of a damaged or poorly-maintained roof may include
missing or damaged shingles, leaks, or visible wear and tear. If the roof is in poor condition,
it may need to be repaired or replaced, which can be a major expense.
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c.
d.
e.
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Check for water damage
Water damage can be a serious issue in a home and can
indicate underlying problems that need to be addressed. Look
for signs of water damage such as stains on the ceiling
or walls, or a musty smell. Water damage can be caused by
leaks, plumbing issues, or other problems, and it can lead to
costly repairs if not addressed promptly.
Evaluate the electrical and plumbing systems
The electrical and plumbing systems are important
parts of the home and are responsible for
providing power and water to the property. It
is important to check the condition of these
systems to ensure that they are in good working
order. Signs of problems with the electrical or
plumbing systems may include outdated wiring,
leaks, or other issues. If these systems are in
poor condition, they may need to be repaired or
replaced, which can be a major expense.
Check for energy efficiency
Energy efficiency is an important factor
to consider when buying a home, as it
can affect your energy bills and your
overall comfort in the home. Look for
features such as energy-efficient windows,
insulation, and appliances that can help
reduce energy costs. You can also check
the home’s energy rating to get an idea of
its overall energy efficiency.
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Consider the age of the home
f.
Older homes may have charming character, but they can
also come with a higher maintenance burden. Consider
the age of the home and whether you are willing to
take on any additional upkeep or repairs. Older homes
may require more frequent repairs or updates, so it is
important to factor this into your budget.
g.
Think about the layout
h.
Check for zoning restrictions
i.
The layout of the home is an important factor
to consider when selecting a property. Consider
whether the layout of the home meets your needs
and whether it will be functional for your lifestyle.
For example, if you have a large family, you may
want a home with multiple bedrooms and bathrooms
to accommodate everyone’s needs.
Zoning restrictions are rules that regulate the use of
land in a specific area. These restrictions can affect
how you can use the property, such as what type of
business you can operate from the property or how
many units you can rent out. It is important to check
for zoning restrictions before buying a property to
ensure that you will be able to use the property in
the way you intend.
Evaluate the neighborhood
When buying a home, consider the character of the
neighborhood and whether it is a place you can see
yourself living. Look at crime rates, the condition of
other homes in the area, and the availability of amenities.
Think about the proximity of the neighborhood to your
place of work or other important destinations.
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Q7.
Master Residential Real Estate
How to present
your offer and
negotiate?
Negotiating the price of a house can
be a complex process, especially if you
are a first-time homebuyer. However,
with a little preparation and the
right strategy, you can successfully
negotiate a fair price for the home
you want. Here are some tips for
negotiating the price of a house:
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Ashwinder R Singh
Research comparable sales: Look at the prices of similar homes in the area that have recently
sold. This will give you a sense of the market value of the house you’re interested in and help you
determine a reasonable offer price. Be sure to consider factors such as the size, age, condition,
and location of the properties.
Consider the seller’s circumstances: The seller’s motivation to sell can play a significant role
in the negotiation process. If the seller is in a hurry to sell, they may be more willing to accept a
lower offer. On the other hand, if they are not in a rush, they may be less likely to negotiate. It’s
also important to consider whether the seller has any emotional attachments to the property, as
this may affect their willingness to negotiate.
Make your initial offer: When you’re ready to make an offer, present it in writing to the seller
or their agent. Be sure to include the price you are offering, as well as any contingencies, such
as a financing contingency or a home inspection contingency. A financing contingency allows you to
back out of the sale if you are unable to obtain a mortgage, while a home inspection contingency
allows you to back out if the property fails a home inspection.
Negotiate: If the seller counteroffers, be willing to negotiate and try to come to an agreement
that works for both parties. Be open to making compromises, but don’t agree to anything that
you’re not comfortable with. It may be helpful to have a real estate agent represent you in the
negotiation process, as they can provide guidance and help you navigate any complex legal issues.
Use the power of persuasion: There are a few tactics you can use to persuade the seller
to accept your offer. For example, you can express enthusiasm for the property, highlight any
personal or professional connections you have to the area, or offer to close the sale quickly. You
can also make a personal connection with the seller by sharing your plans for the property and
how it will fit into your lifestyle.
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Be prepared to walk away: If the seller refuses to budge on the price, you may need to
consider whether the property is worth the asking price. Be prepared to walk away if the price is
too high, as there may be other properties on the market that meet your needs and budget. It’s
important to stay true to your budget and not get caught up in the excitement of the homebuying process.
Finalize the deal: Once you and the seller have agreed on the terms of the sale, you’ll need to
sign a purchase agreement and put down a deposit. The purchase agreement should include the price,
any contingencies, and the closing date. After that, it’s just a matter of completing the necessary
paperwork and closing the sale. This typically involves obtaining a mortgage, paying closing costs,
and transferring the title to the property.
Once you have finalized a home for purchase, it is time to
make a n offer to seal to d eal. T he purchase offer is usually
mad e th rough the real estate agent. T he offer must be mad e
quickly because a ny d elay or hesitation on your pa rt ca n give
someone else a cha nce to buy your d ream home. T he offer is
usually in w riting a nd is signed by the seller a nd the buyer. T he
offer letter includ es the following:
Offered Price vs. Buyer’s Price
The price will be the final price offered by the buyer after
considering some factors. These factors include the prevailing
market price in the area, how long the home is up for sale, the
age of the structure, and the cost of repairs if any. The real
estate agent will be able to assist in suggesting the best price
for the home.
Property Details
The address, survey details, and legal description of the property
offered for sale are mentioned in the offer letter.
Expected occupancy date
The occupancy date is the date on which the seller is ready to give
possession to the buyer. Sometimes the offer letter will include
penalty terms if the seller does not hand over the property to
the buyer on the agreed occupancy date.
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Ashwinder R Singh
Details about the token amount
When making an offer on a home, the amount of token advance
and down payment will be specified in a letter. The token deposit
is a deposit made by the buyer to show interest in the home and
will be adjusted against the down payment or closing costs once
the seller accepts the offer. The down payment is based on the
terms of the loan and can vary from 3% to 20% of the total price
of the house, depending on the buyer’s credit score.
Expected closing date
The offer letter must include the expected date of purchase by
the buyer, which is called the closing date. This is usually after the
date when the offer is accepted. The real estate agent, the bank,
or the housing finance company fix the closing date. On this date,
the commitment letter is signed, which describes the mortgage
amount, terms of the loan, interest rates, and EMI.
Furniture and fittings included with the property
If at the time of viewing the property, some furniture and
fittings were included as part of the cost by the seller, the same
must be included in the offer letter. This is to ensure that there
is no dispute after the finalisation of the deal.
Contingencies
A contingency is a condition that must be met before a sale
agreement becomes legally binding. For buyers, a loan contingency
allows them to back out of the purchase if their loan is not
granted. For sellers, the offer may depend on the property passing
a building inspection.
The offer’s expiration date
This date refers to the date beyond which the offer is not valid.
The seller must return the duly signed offer letter before the
expiration date. A letter signed and sent after the expiration date
can be rejected by the buyer. However, in most cases, the expiry
date is not relevant, and the buyer, who has selected the property
of his choice, will accept the letter.
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Q8.
Master Residential Real Estate
How to land
a great home
loan?
Selecting a home that suits your
budget, as well as the requirements
of your family, is a long process.
Once you have identified the house
you want to buy, it is important
to search for and select the right
home loan. A home loan is a longterm commitment and must be well
understood and planned. Listed below
are some tips to help you land the
best home loan:
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Ashwinder R Singh
Credit Score:
Borrowers with a credit score of over 750 are likely to
get loans faster and at lower interest rates. You can
check your credit score before you plan to purchase a
property. If your score is low, you can try to improve
it before you apply for a loan to get a good deal.
Down payment and EMI: The savings for
the down payment must be planned in advance.
The higher the down payment, the lower the EMI
will be. Ultimately, this will give you a better
chance of your loan application being approved.
Banks and lenders offer lower interest rates if
the loan-to-property value ratio is low. A higher
down payment will reduce the monthly EMI and
also the interest rate.
Co-borrow with your spouse:
Some lenders offer lower interest
rates to females. Home buyers can
co-borrow with their partners to
avail of the lowest rate and also
avail tax benefits. Additionally, having
two sources of income in the
household can help you get a lower
interest rate.
Apply for loan pre-qualification:
A loan pre-qualification can help you understand
where you stand in terms of loan eligibility.
Pre-qualification will also help speed up the
process of loan approval.
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Compare home loan offers:
You must not choose a home loan offer
based solely on the interest rate. Factors
like processing fees, the duration of the
loan, fixed or floating interest rate, and
other things must also be considered. Home
loan offers must be carefully studied and
compared, to select the best one that suits
your needs and budget.
Loan Tenure:
Negotiate hard for the best terms:
You will have plenty of attractive home
loan offers at your disposal because there
are many private and public sector lenders.
Market rates and terms must be compared
even after taking a loan. If your credit
score is good or excellent, your bargaining
power increases. Even after you take a
loan, the same can be transferred to a
new lender who can offer a better deal.
During the recent festive season, lenders
in India slashed the interest rate by 0.5% to
1% and waived the processing fees and the
prepayment fees to attract new borrowers
or transfer existing loans.
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Since loan repayment is a long-term
commitment, decide your loan tenure
based on your day-to-day expenses and
affordability. Although longer tenure means
a higher payout toward interest, it is better
than defaulting or getting into a debt trap.
If your income improves or there are other
sources of income, you can restructure
your loan to increase the EMI and reduce the
loan tenure. Home loans do not attract any
prepayment penalties as per the directives
of the Reserve Bank of India. So, you save
some extra amount, you can pay this
made toward the principal amount, thereby
reducing the loan term.
Ashwinder R Singh
Notes
133
Q9.
Master Residential Real Estate
What is a good
return on
investment (ROI) for
rental properties?
Owning a rental property is
an excellent way to generate
passive income and build your
wealth over a period. However,
not all properties offer a great
return on investment (ROI).
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Ashwinder R Singh
An ROI measures the profitability of a rental property over a specific
time period, usually a year. It is expressed as a percentage, and you can
use this to measure how your rental property is performing. In simpler
terms, the ROI can help you compare the actual or projected profit from
your rental property to the amount you invested in the property, to
determine whether your investment is worth it.
Factors that impact the ROI of a property include operating
expenses, cost of repairs, type of rental property, mortgage rates,
and property taxes.
i ng
rat
e
p
O osts
c
Cost of
repairs
Type of
rental
property
Mortgage rates
& Property
taxes
ROI from rental properties can vary
depending on the real estate market
and within neighborhoods in the same
city.
There is no set rule for what a
good ROI is, but generally a higher
ROI indicates better profit potential.
High ROI does not necessarily indicate
more risk.
ROI can be easily calculated using a simple formula.
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Master Residential Real Estate
(Income from Investment – Cost of Investment)
=
ROI
Cost of Investment
Year 0
Year 1
Year 2
}
-1,00,000
Invested on
rental property
1,20,000
Profit earned
in 2 years
(Rs. 1,20,000 - Rs. 1,00,000)
=
=
ROI
20%
Rs. 1,00,000
The formula above is a simple one, and you can use more detailed formulae to
give you a clearer idea of the profits to be made. This can be done with the
cash-on-cash (CoC) calculation, which is a ratio of a property’s annual cash flow
and the total amount of money that is invested in the property. The formula is:
Annual Cash Flow
=
x 100%
CoC
Total Cash Invested
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Ashwinder R Singh
For instance, if you buy a property worth Rs 2,00,000 and have a 20% deposit as
well as a mortgage, and you spent Rs 3,500 for the closing costs, and Rs 10,000 for
remodelling or repairs. So, the total amount you invested in the property is Rs 53,500.
0,000
0
Rs. 2,
Total Cash Invested
20% Deposit
Closing Costs
Repairs
= Rs. 40,000
= Rs. 3,500
= Rs. 10,000
Rs. 53,500
In addition, you will have a monthly interest, which can be assumed
to be Rs 1000. If your tenant pays Rs 1500 every month, you
will have a cash flow of Rs 500 per month. After a year, you will
get Rs 6000 in profits. So, your CoC will be as follows:
Bank
}
Rs. 500 Profit per month
that is Rs. 6,000 per year.
Monthly
Interest
Rs. 1,000
Rent
Rs. 1,500
Mort
gage
Owner
Tenant
Rs. 6,000
=
CoC Rs. 53,500 x 100% = 11.2%
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Master Residential Real Estate
A good return on investment is usually more than 15%, but this is determined by the
investor. For some, an ROI of 8% is excellent, whereas, for others, an ROI of 20% is subpar.
If you are unsure about what a good ROI for
you is, you can use the one percent rule.
According to this, when looking at a rental property for investment, you should
charge at least one percent of the property’s purchase value as rent.
For Sale
1 % of purchase price
including upfront renovations
like a new roof.
<
For Rent
Gross Monthly
Rent
In India, the average rental yield ranges
between 2% to 4% of the valuation of a
house in different cities in India, so you can
use this average as a starting point as well.
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Ashwinder R Singh
Notes
139
Q10.
Master Residential Real Estate
Why do many
rental property
owners fail?
Investing in rental properties can be
a good opportunity for profit, but
it is important to compare potential
returns to other investments and
consider potential challenges, such as
maintenance costs, vacancies, and tenant
management. Having a plan in place can
help to maximize profitability.
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Ashwinder R Singh
Location and Accessibility
The neighbourhood of a property will change over time which will affect
the value of the property. Properties in underdeveloped or developing
neighbourhoods can underperform if the investor’s judgement is
incorrect. This, in turn, leads to a low return on investment.
Non-cooperative Tenants
As a landlord, it is important to protect your interests by including
appropriate clauses in the rental agreement. This can help to prevent
issues such as non-payment of rent, property damage, or other
problems. It is also important for landlords to be prepared to handle
difficult conversations with tenants and take firm action if necessary
to resolve issues and ensure compliance with the rental agreement.
Maintaining a professional relationship with tenants can also help to
avoid problems and make it easier to handle any issues that may arise.
Upkeep and Maintenance
The rental property owner is responsible for maintaining the property,
including regular maintenance and minor repairs, to prevent damage and
expenses. Keeping thorough records can help avoid additional costs and
reduce fraud risk. Owning a rental property involves investing time and
money to address issues such as vacancies, maintenance, and repairs,
and having a dedicated fund for these issues is important.
Property Management
The landlord must manage the property and address any issues that arise,
or delegate this responsibility to property management agency. Setting the
rent at market rates can maximize rental income and minimize vacancy.
Efficient property management, including choosing the right tenants,
collecting rent on time, and addressing tenant issues, is important to avoid
increasing the burden on the investor and negatively impacting profits.
Not treating investment like a business
Investing in a rental property cannot be done with the attitude
of “invest and forget”, with the expectation that there will be a
steady rental income. The owner must be well-informed on everything
happening on his rental property. The property owner must keep
track of all the repairs, documents, rent, and deposits, especially if he
is not directly involved in taking care of the property and interacting
with the tenants.
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Master Residential Real Estate
Chapter 9
Tips for NRI
Investors
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Ashwinder R Singh
NRIs have preferred to invest in Indian real estate for various reasons, such as, Seeking
a steady monthly income from renting or leasing, seeking long-term capital gains or
looking for a new house for their parents. The new India is becoming an increasingly
attractive investment destination for NRIs due to:
Falling Value of
Rupee
Better employment
Affordable
properties
Higher
income levels
NRIs carefully consider the timing of their real estate investment in India in order to
maximize returns. Favorable market conditions are currently making it an opportune
time for NRIs to invest in Indian real estate.
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Master Residential Real Estate
NRIs are using digital tools to research properties in India, including property listing
portals and the RERA website, to gather information and check the credentials of
developers. NRIs should also be aware of legalities and consider preparing a checklist
before finalizing a property purchase.
NRIs require no special permission or documentation to invest in Indian real estate.
They just need to have a requirement, willingness, funds, and –
Foreign Exchange
Management Act (FEMA)
An Indian Passport!
Also, there is no limit on the
number of properties of
permissible nature which an
NRI can own in India.
they can also get into a
joint ownership of the
property with another NRI
Indian Resident
NRI 2
NRI 1
and government regulations
allow them to own a property
in India as long as it is a
commercial or residential
property and not an agricultural
or plantation land, or a
farmhouse unless it is inherited,
gifted or received out of a legacy.
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Home
e
ith a
t w omeon
o
n
n
s
a
u
c
r
b y
o
they Indian ed to
.
w
t
allo
India
iden
res is now rty in
e
who prop
a
Ashwinder R Singh
It should be remembered that all the transactions related to the investment must be
made only in Indian currency using authorised banking and financial channels, or
through NRE, NRO or FCNR accounts. It is worth noting that payment made through
traveler’s cheques or foreign currency is not considered an acceptable means.
Non-Resident Indian
Indian CUrrency
Authorised Banking
and Financial Channels
NRE, NRO or FCNR
accounts
Traveller’s cheque/
foreign currency
It is also convenient for them to avail a home
loan, if they need, from a bank or financial
institution registered with National Housing
Bank. They just have to make sure that the
documentation pertaining to them as well
as the property is clean and clear. Upon
sanction of the loan, the amount is directly
credited to the account of the seller or
developer and the NRI has to repay it using
the same channels and means applicable
as mentioned above.
While the loan application process is almost
similar to the one for Indian residents, there
are a few differences.
The educational qualification
and professional experience
will have a role to play in the
amount of loan sanctioned,
and repayment-tenure will
be shorter ranging from 10-15
years, considering higherincome and payback potential
of the NRIs. The cap for
sanctionable home loan is
1 crore rupees.
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Master Residential Real Estate
There is no tax on owning a
property. The capital gain earned
by selling it, however, is taxable.
20.6% Tax
Long Term
Capital Gains
Year 1
Year 2
Year 3
Future
30.9% Tax
Short Term
Capital Gains
The cost inflation index is also taken into consideration while taxing the long-term capital
gains, reducing the tax liability for NRIs. Moreover, they can get the TDS liability waived
off if they choose to use the longterm capital gains in purchasing another property.
You are liable to pay tax in a country where you earn an income. Noting that, NRIs
should be sure to file income returns if they have rented out a property and are
receiving regular rentals on the same. The tenant is expected to have TAN and deduct
30% from the total rent before sending the remaining to the NRI landlord.
Another aspect that needs serious attention is the power of attorney. It comes as a
crucial option for those NRIs who are not physically present in India to buy property, an
underconstruction property in particular. A PoA (Power of Attorney) allows them to
authorise a trusted friend or relative to sign agreements and other official documents
on their behalf, thus completing the transaction.
NRI
POA (Power of Attorney)
Documents sent to India
for adjudication
Indian Embassy
The PoA can also authorise the representatives to
lease or rent out the property. NRIs should ensure to
hire a lawyer to consult on matters related to the PoA.
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PoA Authorities
Ashwinder R Singh
Hire a Chartered
Accountant
Understand Tax
Liabilities.
Options for Rebates or
Exemptions.
Handle necessary
documentation.
Update on progress
of investment
Follow up with
developer.
Get updates and
current pictures.
Do not rely solely on
local contacts, friends
or relatives.
Avoid delays in
project.
Purpose of
Investment
Long-term gains.
Rental Income.
Parents or relatives.
Retirement.
Research Market
Current Policies and
Regulations.
Developers and localities.
Channel Partners and similar
properties.
Market Trends.
Reliable Sources.
Local Contacts.
NRI Investor
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Master Residential Real Estate
While you are employed in some other country pursuing your career and engaged
fully in your day-job, it may turn out to be quite daunting a task to keep a tab on the
development of the residential project you invested in. You can take services from
a channel partner or real estate agent in that case. They have an expert-eye and
professional objectives to carry out this responsibility. Do remember to run a realitycheck on and regular follow-ups with them as well. If your investment was to generate
regular rental incomes, leaving your house to tenants is safe and lucrative.
absense o
f possess
ion
by the origi
nal owner
NRI OWner
It is bad,
isn’t it?
Same tenants since 12 years
The tenant can
claim ownership of
the house according
to existing policies!
Well, just make sure that you do not let the same tenant stay in your house for a long
time. To minimise this risk, you can always hire professional caretakers and service
providers who can protect your ownership on the property and update you regularly
on its status by making frequent visits and maintaining a report on it.
Knowledge of these facts and tips associated with NRI real estate purchases are
anything but optional and being on top of them will not only make transactions easier
for NRIs but also help prevent any shocker and alleviate apprehensions.
To avoid risks in real estate investment, NRIs should be prepared and have a
comprehensive checklist. While it is not possible to completely eliminate risk, being
aware of potential risks can help NRIs make informed decisions. Despite risks, the real
estate industry can be lucrative for NRIs.
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Ashwinder R Singh
Notes
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Master Residential Real Estate
III
Real Estate
Finance
Role of Banks in the Housing Market
Real Estate Investment: Basic Legal
Concepts
Documents Required To Make Real
Estate Investments
Mortgage Loan Foundations: The
Time Value of Money
Fixed Interest Rate Mortgage Loans
Adjustable and Floating Rate
Mortgage Loans
Mortgages: Additional Concepts and
Analysis, and Applications
Underwriting and FInancing
Residential Properties
Financing Residential Project
Developments
Buying Land And Simplifying Deal
Structures For Development In India
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Master Residential Real Estate
Chapter 10
Role of Banks
in the Housing
Market
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Ashwinder R Singh
B’s
Banks
Buyers
Developers
Channel Partners
Banks have an off-screen yet
irreplaceable role especially
in the residential real estate
market development.
Banks offer loans for the mortgage
of houses which appreciate over
time, providing security for the
bank’s credit and profitability.
Additionally, the increasing demand
for housing makes it an attractive
investment for banks. Real estate
is a capital-intensive industry,
requiring financing at various
stages of the business, both for
developers and buyers. Banks and
financial institutions offer financing,
but with different requirements for
purpose, size, and eligibility.
Eligibility Factors for a Buyer
Home buyers and investors largely depend on banks to finance their housing
investment since it is a huge investment and almost a lifetime commitment.
Several financially capable buyers too
look for bank-financing to maintain
their liquidity and avail tax relaxation
in the long run.
Home financing support is not only limited to buying a house in the primary or
secondary market. People also reach out to the banks for finances related to repairs,
renovation or extension of an already constructed house.
Here are the key eligibility criteria for the individual buyers to be able to avail a home
loan.
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Master Residential Real Estate
Criteria
Employment
Status
Description
The individual’s job stability and payback capacity are
taken into consideration
The individual’s age is considered to assess their future
financial plans
Age
Earnings and
Expenses
History
Credit
Report
The bank assesses the individual’s ability to afford another
loan based on their past earnings and expenses
The individual’s credit score and repayment history are
taken into account as an indication of risk associated with
financing
Banks have also contributed to attracting and encouraging NRI investment in the Indian
housing market by offering them liberal rates of interest and easier disbursement.
Financing for Developers
Financing needs of the developers
are much bigger than those of
an individual home buyer. Banks
lend finance to them for landacquisition,
procurement
of
construction materials and other
activities pertaining to the project
development. They require a regular
flow of funds to meet the timeline
for each construction stage and
complete the project by promised
date, ensuring timely transfer of
possession to the buyers.
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Ashwinder R Singh
Also, when I mention developers here, it does not only mean the large-scale players.
Banks also help individual households to acquire land and construct their own house,
equipped with basic amenities, as long as they have clear title of ownership of the land.
Eligibility factors for a Developer
While the banks are ready to finance the project, the financing is not as easy. Before they
can approve the loan, they want to know everything about the project with thorough
information of each development stage, thus ascertaining what the funds will be used
for. Banks also check the paying capacity of the developer. Below are the major criteria
which the banks go through to decide on loan disbursement.
Criteria
Marketability
of Residential
Project
Status of
Approvals
Description
The bank evaluates the demand for the property and the
price at which the developer is selling it
Developers must have all necessary approval documents
in place, including registration with RERA
The bank evaluates the value of the property being used
as collateral for the loan
Valuation of
the Project
Operations
Management
Plan
The developer must share their plan for managing the
project and keeping it on track
The developer must provide regular updates on the
progress of the project to the bank
Project
Reports
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Master Residential Real Estate
Criteria
Financial
Contribution
to the Project
Description
The developer’s own financial investment in the project is
considered as a factor in loan disbursement
Banks play a crucial role in the housing market by providing financing support for new
housing and infrastructure development. They have helped make owning a house
possible for many through easier financing and favorable interest rates, and benefit
from returns on credit and surplus from both buyers and developers. Overall, the
system benefits all parties involved.
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Notes
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Master Residential Real Estate
Chapter 11
Real Estate
Investment: Basic
Legal Concepts
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Ashwinder R Singh
Buying real estate is an excellent investment opportunity that can be lucrative if done
right. However, the process can be nerve-racking and confusing, especially if you
are a beginner. There are several complex steps and jargon involved in the process.
Moreover, there are multiple legal matters that you must consider before making a
real estate purchase. The good news is that these laws and processes can be easily
understood with some research.
Best Ways To Invest In Real Estate
When you think about real estate investing, the first thing that probably pops into your
mind is a home. However, if you are a budding real estate investor, there are several
options when it comes to selecting investments, some of which are non-physical
properties. These include Rental Property, Real Estate Investment Groups (REIGs),
Real Estate Investment Trusts (REITs), and House Flipping, each of which has been
explained below:
1. Rental Property
Investing in rental properties can provide a regular source of income, with
potential for property value appreciation over time. Both residential and
commercial properties can be rented out, and rights of landlords and tenants
are protected by the Rent Control Act of 1948.
2. REITs (Real Estate Investment Trust Funds)
If you are looking for a hassle-free,
liquid way to diversify your investment
portfolio, REITs are a great option.
As the name suggests, REITs are
investment trusts which are comparable
to mutual funds that own and operate
income-generating real estate properties.
Profits made through this investment
are taxable under certain laws by the
Government of India. We will learn more
about REITs later in this book.
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3. Real Estate Investment Groups (REIGs)
REIGs are companies that collect investments from multiple investors. These
investors wish to earn profits through investments, without the hassle of
managing and operating these properties. This type of investment is not as
liquid as an investment in REITs.
These groups mainly focus on buying,
renovating, selling, or financing
properties to make a profit. They buy
or construct multiple unit properties,
sell them to investors, and oversee
operations and management.
4. House Flipping
House flipping is usually a short-term investment aiming at making quick profits.
Flips the
property
Buys an old property
Sells it at a higher
price after renovation
It is a good investment
option if you have extensive
experience in renovation, real
estate valuation, or marketing.
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Fundamental Real Estate Laws In India
While there are several federal laws that are applicable throughout the country, most
Indian states and union territories have specific laws.
Both the central and state
governments can make and enact
laws related to these matters.
The Constitution
of India
Central
Government
State
Government
Concurrent
List
Land
Laws pertaining to the transfer
of property, contracts, and
registration of documents for
non-agricultural properties,
belong to the Concurrent List.
Moreover, India is undoubtedly a diverse country with varied sectors. Laws related to
matters such as inheritance are often heavily influenced by practices and customs.
Broadly speaking, some of the most important laws governing Indian real estate
include the Transfer of Property Act (1882), Registration Act (1908), and (Regulation
and Development) Act (RERA) (2016). A few of them have been outlined in the next
page.
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1.
Transfer of Property Act, 1882
This central act lays down
general principles of movable
(jewellery, money, etc.) and
immovable property (land,
buildings, etc). The act covers
aspects such as the sale,
lease, exchange, mortgage,
and gifting of properties.
Per this act, “sale” is
defined as the transfer
of ownership in exchange
for a price. This price can
either be legally promised
or paid in full or partial
amounts.
It also states that the transfer of
ownership for immovable properties
like land can only occur through
registered documents.
The act also protects your rights as a buyer. For example, let us say you found a preexisting material defect in the property you bought, like a roof leak or foundation
damage, which the seller did not disclose to you at the time of sale. This failure on behalf
of the seller to disclose a material defect gives you the right to seek compensation
from the seller, as per this act.
2.
Indian Contract Act, 1872
This act is applicable to all Indian states. It dictates the circumstances under which
promises made by two parties, like the buyer and seller, are legally binding. Per the act,
a “contract” is defined as an agreement that is enforceable by law. It covers aspects
such as who can enter into a contract and how it can be implemented and executed.
In addition, it covers circumstances where someone is allegedly involved in breach of
a contract and remedies available for the parties. For example, if you and the seller
signed a contract to buy a piece of land for Rs. X and if the seller refuses to sell it at that
price later, you can seek legal action.
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3.
Transfer of Property Act, 1882
Property A
Property B
Easement
An easement refers to your legal
right to either occupy land owned by
someone else or use the facilities on
the land for some specific purpose.
The most common example of
an easement is when someone
is given the right to cross a
road that is on someone else’s
property to get to his own house.
Other examples of easements include electrical lines, groundwater, and drainage. You
cannot transfer an easement to another person, but it is transferred by default when
the property is transferred. The laws governing easement are stated by the Indian
Easement Act.
4.
Indian Stamp Act, 1889
The primary purpose of this act is to generate revenue
for the state governments.
This act mandates the payment of a certain
amount of tax called stamp duty, on specific
documents.
A document that is stamped by an authorized person
is considered valid evidence in a court of law. Since
stamp duty is to be paid to the state government, the
rates vary across states. In most states, the stamp duty
is a percentage of the total transaction.
1000 sq.ft Land
In, Bangalore: 5.6% Stamp Duty
whereas, Mumbai: 5% Stamp Duty
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5.
Registration Act, 1908
This is a central act that regulates the procedures required to register
immovable or movable property. It also lists the specific documents you would
need to register these properties. Moreover, according to this law, you would
also have to pay a certain amount, called a registration fee, to register your
property. The fee is usually 1% of the property’s value and is capped at Rs
30,000, in Mumbai.
6.
Rent Control Act, 1948
If you are planning to invest in real estate by buying a property and renting it
out, this act is especially important for you. The renting out of any property in
India is subjected to several rules and regulations as laid out by the Rent Control
Act. It protects the rights of both the landlord and tenants. If you lease out a
property, for example, you cannot charge an extraordinary amount of rent.
In most states, the rent must not exxceed 8-10% of the value of the property.
7. Right to Fair Compensation and Transparency in
Land Acquisition, Rehabilitation and Resettlement
Act, 2013:
Land acquisition refers to the power of the
central or state government to take private
property for public benefits, like the widening
of a road.
In such a case, the government is
required to compensate the original
owners and all those affected by
the acquisition.
This act outlines what fair compensation to
the owners is and mandates the transparency
of the acquisition process. It also assures
the rehabilitation (restoring the property to
an improved state) or resettlement (moving
people to a different place to live) of those
affected.
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8.
Land Revenue Codes
These codes vary from state to state and cover taxes paid to the government
by the property owner. These codes cover regulations related to tenancy types,
land revenue, and agricultural land holdings, among others. It also classifies
immovable properties within a state. Transfer restrictions, powers and duties of
revenue officers, as well as penalties for infringing these codes are all covered
by land revenue codes.
Apart from the laws stated above, there are multiple other local, municipal,
and state laws that cover aspects such as rent control, slum redevelopment,
urban development, building byelaws, property tax, land zoning, land use,
environmental protection, and Special Economic Zones (SEZs).
Law
What
Who
How
Transfer of
Property
Act, 1882
Transfer of
ownership of
property.
Property buyers
and property
sellers.
Lays down
principles for the
sale, lease,
mortgage, and
gifting of properties.
Indian
Contract
Act, 1872
Determines the
circumstances
under which
contracts are
legally binding.
Two or more
parties, like
property buyers
property sellers,
or tenants and
landlords.
Covers who can
enter into a contract
and a contract’s
implementation and
execution.
Indian
Easement
Act, 1882
Right to
easements
Property owners
and general
members of the
public.
Legislates and
governs the right to
easements.
Indian Stamp
Act, 1899
Validates official
documents.
Two or more
parties, like
property buyers
property sellers,
or tenants and
landlords.
Document stamped
by an authorized
person after paying
stamp duty is
considered valid by
a court of law.
Registration
Act, 1908
Registration of
properties.
Property
buyers
and property
sellers.
Lists specific
documents and
procedures to
register a property.
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166
Law
What
Who
How
Rent
Control
Act, 1948
Ensures fair
protection of the
rights of
landlords and
tenants.
Landlords and
tenants
Legislates aspects
of rental properties
such as fair rent
and eviction.
Right to Fair
Compensation
and
Transparency
in Land
Acquisition,
Rehabilitation
and
Resettlement
Act, 2013
Legistlates the
acquisition
process
by the central
and state
governments.
Property
owners, the
general public,
and union
and state
governments.
Ensures
transparency and
fair compensation
during the
acquisition process.
Real Estate
(Regulation
and
Development)
Act
(RERA), 2016
Promote
real estate
investments and
make the real
estate sector
transparent
and accountable.
Real estate
developers and
property
buyers.
Land
Revenue
Codes
Cover taxes
to be paid
by property
owners to state
government.
Property
owners
and state
governments.
Mandates the
registration of
certain projects with
RERA. Ensures
quick redressal of
disputes with the
Appellate Tribunal
and RERA.
Includes regulations
related to tenancy
types, transfer
restrictions, and
duties of revenue
officers.
Ashwinder R Singh
Notes
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Chapter 12
Documents Required
To Make Real Estate
Investments
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Author’s Insights!
Investing in real estate can be a tricky process, especially when you consider all the
documents you require. Moreover, the type of documents you need varies depending
on the type of property you are buying. Before you make an investment in real estate,
it is important to ensure that you have gone through the right documents. You will also
need the right set of documents to apply for a bank loan and to register the property
in your name.
If you are planning to invest in real estate, the handy documentation checklist below
will save you a lot of hassle and time. However, it is important to note that several
factors affect the documents you need; it depends on specific state laws, the type of
property, how old the property is, and if you plan to apply for a home loan.
Documents Required While Buying Property From Land or
Independent House Owners
If you are buying a flat, house, or piece of land directly from a property owner, these are
the documents you would need to complete the purchase:
1. Agreement to Sell
AGREEMENT TO SELL
An agreement to sell is a contract between
a buyer and seller. This document will be
prepared If you are a buyer and you agree
to buy a property. It contains the following:
• It has detailed description of the
property in question
• It states the terms and conditions
between the seller and buyer.
• It also includes the property price
and payment plan that is agreed
upon between the two parties.
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2. Sale Deed
Also known as a title deed, this is perhaps the most important document
required if you are buying a property. The document is a record of the actual
transfer of ownership of the property in the name of the buyer. The original
copy must be registered at the sub-registrar’s office in the area where the
property being sold is situated.
3. Mother Deed
Also known as a title and search report, this document is especially important if
you plan to apply for a home loan.
The mother deed is a document
that traces the ownership of the
property over the last 25 years, at
the least.
It involves getting all the registered
documents related to the property’s
history. For example, if you are
buying a third-hand house, the
mother deed will include the
details of both owners. It includes
a description of the property, title
holders’ names, joint tenancy
details and more. Hence, it serves as
official proof of property ownership
and protects certain rights of the
property owner.
4. Khata Certificate
This document is proof that the property you are buying has been officially
listed in local municipal records. In the case of a flat or house, it is also proof
that the building has been built according to an approved plan. This document
is also essential if you plan to apply for a home loan. The document is known by
different names in different states.
5. Property Tax Receipts
All property owners must pay a
certain amount of property tax
on their properties. The receipts
prove that the property owner or
seller has paid all taxes to date and
has no dues. The receipts also help
establish that the property is safe
to buy and is listed in government
records. Moreover, even developers
must pay property taxes and
municipal taxes until the property is
transferred to property buyers.
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6. Encumbrance Certificate
In legal terms, encumbrance refers to a claim (financial or legal) against a
property by someone other than the owner. For example,
Mo
loan rtgage
a
pro gains
t
per
ty
st
gain
a
claim perty
pro
Lender of the
Mortgage Loan
Home
Owner
ENCUMBRANCE CERTIFICATE
An encumbrance certificate will state that the property has a loan against it.
An encumbrance certificate acts as proof that the property does not have any
loans against it and that it is not part of any legal disputes.
It contains all the details about loans and legal matters relating to the property.
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7. Bank Statement
Suppose the property you are planning to buy still has some loan against it that
is yet to be paid. In this case, it is in your best interest to ask the seller to get the
statements regarding the loan so that you don’t face any problems later.
8. Power of Attorney
You will only need this document if someone has been authorised to act as the
seller on behalf of the property owner. You will need to ask for the original copy
to ensure that the registration process is smooth-sailing.
Power of
Attorney
Asks for
original copy
Original
Seller
Authorised
Seller
Buyer
9. Allotment Certificate
This is a crucial document if you plan to apply for a home loan. It contains all
the details about the price you have to pay. It can also contain any additional
amount to add more facilities to the property. This document is also important
if you plan on booking a property that is under construction. In this case, the
developer can be held accountable for not providing the property on time, as
per the letter.
10. Land Use Certificate
Also called Change of Land Use (CLU)
certificate, this document gives you the
required land-use details.
For example, a residential house
cannot be built on land that has
been earmarked by the government
for commercial property.
The CLU will give you the required
information to guarantee a risk-free land or
property purchase.
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11. Possession Certificate
A possession certificate or letter is given to the buyer by the developer, or seller.
It sets a date by which the
seller will give the buyer
possession of the property.
For example, if you are the
buyer, it is proof that the
property and any interest
on the property have been
transferred to you legally. If
you are applying for a home
loan, you would need to
show an original copy of this
document at the bank.
12. Share Certificate
This document is important if you are buying a property in a cooperative group
housing society. It states that the buyer is the rightful owner of the cooperative
housing society’s shares. It contains details about the shares held, the value
paid, and other details related to the property owner.
Documents Required To Buy Property From Developers
If you are buying a flat directly from a developer, or flat owner, you will need to check a
few other documents in addition to those listed above. These have been outlined below:
1. Copy of Sanctioned Building Plan:
When a developer has to build an
apartment, they will have to approach
the local civic authority to get approval
for the layout of the apartment. Once
approved, this plan is known as a
sanctioned building plan. While it is not
compulsory to ask for this, it is good to
check for any changes in the proposed
plan.
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2. Certificate of Commencement
To begin any type of construction, a
developer will need a certificate of
commencement from the local town
planning committee. This certificate
is proof that the building has been
constructed legally.
Local Town Planning Committee
CERTIFICATE OF
COMMENCEMENT
Developer
3. Completion Certificate
to begin
construction
This is often confused with an occupancy certificate, but they are not the
same. A completion certificate is a legal document given to a developer by the
municipality. It is proof that the building has been completed according to an
approved plan (sanction). It also serves as an assurance that the developer has
completed all the work and will not carry out any other work on the property.
4. No Objection Certificates (NOCs)
There are nearly NOCs that a developer has to get from various authorities
while building an apartment. Some of the departments that give NOCs include
sewage, electricity, water, and safety boards. It is proof that all these amenities
have been provided to the building, with no legal disputes. On the other hand, a
NOC from the building society is proof that the society does not object to you
becoming a member of the society.
5. Occupancy Certificate
An occupancy certificate is given to the developer by the municipal corporation
once a building has been constructed. It guarantees that the project was
completed according to national safety standards and building codes. It is also
proof that the building has basic amenities like water and electricity and that
the flats are ready to move into. The seller of an independent house need not
give the buyer an occupancy certificate. An occupancy certificate is only given
once the NOCs, completion certificate, copy of the sanctioned plan, certificate
of commencement and latest property tax receipt have been given.
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Notes
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Chapter 13
Mortgage Loan
Foundations: The
Time Value Of Money
₹
₹
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Author’s Insights!
If you are planning to invest in real estate and are looking to secure a loan for the same,
you might have come across the term mortgage loan. Mortgage loans are the most
favoured secured loans in India, thanks to the multiple benefits they offer. A home loan
is often confused with a mortgage loan, but the two are completely different. Let’s dive
into all the details about a mortgage loan, including its benefits.
What Is A Mortgage Loan?
The term mortgage comes from the Old English and French and means ‘death pledge’.
These loans are named so, since they ‘die’ when you fully repay the loan or if you fail to
repay the loan.
Home
Loan
A home loan provides funding
to help you upgrade, construct,
or buy a residential property.
Lenders consider the home or
the property as collateral for the
loan.
Collateral
Mortgage
Loan
Family
On the other hand, mortgage
loans are taken against a
property collateral, i.e. loans
against properties.
Loan from Bank
Collateral
Same
property
Other properties
Home
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Most people use mortgages to invest in real estate without paying the entire purchase
price in one go.
Lender
If you take a mortgage loan
and stop paying it or fail to
pay it on time, the lender or
the bank has the rights over
the property. So, they can sell
this property to get back the
money that you owed them.
Installment
Property
Ownership
Installment
Installment
The borrower repays the loan amount with
interest over a certain number of years until
they own the property legally with no debts left.
There are several benefits of
mortgage loans. One of the most
important benefits that make
these loans popular, is that they
come at a lower rate of interest. In
addition, these loans are offered
for a longer period of time.
In India, as of 2022, the interest that you would have to pay on
mortgage loans would vary from 8.15% to 11.80%. Banks will
usually offer only 60% of the registered value of the property you are
putting up as collateral as a loan. Most banks in India will give you
a period of 15 years to repay the loan with interest.
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Types of Mortgage Loans
Based on Interest Rates
1. Fixed-Rate Mortgage Loans
As indicated by the name, fixed-rate mortgage loans are
offered to you at a fixed interest rate. These are one of
the most popular mortgage loans since it allows you to
calculate a fixed monthly amount that needs to be paid
back to the bank.
6%
2. Variable Rate or Floating Mortgage Loans
Contrary to fixed-rate mortgages, the monthly instalments you
pay every month vary in variable rate, floating or adjustable rate
mortgages.
6%
9%
While the principal amount
remains the same, the
interest rate changes
regularly, depending on
the market conditions.
4%
If you are looking for a combination of fixed-rate and variable-rate mortgage loans,
then adjustable-rate mortgage loans are the right fit for you. In some types of floating
mortgage loans, the interest rate is fixed for the first few years. Following this, the
interest rate changes based on market conditions.
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Understanding Amortized Mortgage Loans
Loan Payments
An amortized loan refers to a loan that requires the loan bearer to pay scheduled
payments regularly.
Interest
Amount
Principal
Amount
The scheduled payments include both the principal
amount, or the amount that was offered as loan to you
as well as the interest on the loan. In amortized loans,
the amount you pay is first used to pay off the interest
amount for that period. Following this, the rest of the
payment goes toward reducing the principal amount
that you owe the bank.
The interest in an amortized loan is
calculated based on the last ending
balance of the loan.
Hence, the balance against which your interest is calculated also
reduces. Once the interest amount you owe decreases, a larger
chunk of your payments will go toward principal loan payments.
If you pay an amount that
exceeds the interest amount for
a period, the extra amount will
reduce the principal amount owed.
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So, the interest amount
you owe decreases as
payments are made.
Ashwinder R Singh
You can say that interest and principal have an inverse relationship within the payments
of an amortized loan. Here’s a simple formula to calculate the interest you owe, with an
example:
For example, let us assume you had taken a loan of Rs 10,00,000 and have paid back
Rs. 80,000 toward the principal amount. If your interest is 6%, then the amount of
interest for your next scheduled payment is:
Interest due for a period
= Interest rate x current balance of the loan
= 6% x Rs. 9,20,000
= Rs. 55,200
Therefore, you will have to pay 55,200 as
interest in your next payment cycle. This amount
can be divided by 12 for annual interest rates.
If you pay Rs 1,00,000 during this period, Rs 55,200 will go toward the interest amount,
and the balance will reduce the principal amount you owe. The new outstanding
balance will then be used to calculate the interest for the next period.
Amortized loans are often confused with balloon loans, but they are quite different.
Unlike amortized loans, where you have the option to pay more than the amount
scheduled, balloon loans are short-term loans where only a small portion of the loan
is amortized.
Interest
Amount
Principal
Amount
Amortized Loans
In the initial period of a
balloon loan you will only have
to pay the interest amount.
Balloon Loans
After the term of this loan is over,
you will have to pay a large amount to
cover the principal amount you owe.
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Types of Mortgage Loans Based on
Nature of Transaction
1. Simple Mortgage Loan
In a simple mortgage loan, the property’s ownership is not transferred from the
borrower to the lender if they fail to repay the loan. Instead, it gives the lender the
right to sell the property to get back their loan amount if the borrower fails to repay
it.
2. Usufructuary Mortgage Loan
USUFRUCTUARY
USUS FRUCTUS
Usus means the right
to utilize the property
as it is without
changing it or causing
any damage.
Fructus refers to the
right to enjoy the fruits
or the products of the
property that is set as
collateral for the loan.
Right to use the
property for financial
purposes
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Unlike a simple mortgage, in
a usufructuary mortgage,
the entire property is given
to the lender so that they
can use the property for
financial gain. Moreover,
the property is given to the
lender only for a few years
until they can get back the
amount that they had lent
to the borrower.
Ashwinder R Singh
3. English Mortgage
If you sign an English mortgage loan agreement, you agree to transfer the
property to the lender if you cannot repay the loan until a particular date.
However, your property is not permanently transferred to the lender. While the
possession rights of the property remain with you, the lender can either stay in
the property or can rent it out. If you pay the loan amount in full, your property
will be transferred back to you.
Feature
Usufractuary Loan
English Loan
Ownership
of property
during loan
Transferred
to lender
Lien on property
retained by lender
Possession
rights
Transferred
to lender
Retained by borrower
Use of property
by lender
For financial
gain
Can rent it out if
borrower defaults
Back to borrower
after loan is repaid
Lien on the property
is released and the
property ownership is
transferred back to the
borrower
Transfer of
property after
loan
4. Subprime or Sub Mortgage Loan
A subprime or sub mortgage loan is offered to borrowers who have a poor credit
history or who are considered high risk. These loans have a high interest rate
because the lender is accepting a greater risk by lending money to someone
with poor credit history.
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The Mortgage Process
To begin the mortgage loan process, you would have to apply for a loan at a bank of
your choice. The bank will then ask you for evidence so that it knows you are capable
of paying the loan. The documents you will require to apply for a mortgage loan in India
include the following:
For Self-employed
For Salaried People
Filled loan application form
Passport-size photographs
Identity proof - Passport, Aadhar
Card, Driver’s Licence, or Voter’s ID
Address proof - Aadhar Card,
Ration Card, Rental Agreement, or
Electricty bills
Latest bank statements
Latest salary slips
Processing fee cheque
Form 16, which is a TDS issued
by your employer to confirm the
financial deductions made by them.
Filled loan application form
Passport-size photographs
Identity proof - Passport, Aadhar
Card, Driver’s Licence, or Voter’s ID
Address proof - Aadhar Card, Ration
Card, Rental Agreement, or Electricty
bills
Financial statements of past 3 years
Business proof
Income tax certificates of past 3 years
Profit and loss statement
Latest bank statements
Processing fee cheque
The next step is loan processing, where the bank will determine your eligibility
for the loan.
Gross Annual
or Monthly
Income
No. of
dependents
Valuation of
property
Existing
debts
Age -21
years min.
Once your application has been approved, the bank will offer you a certain amount
as loan with a certain interest rate. Apart from the market conditions, the interest rate
offered can depend on your liabilities and your source of income. If the lender feels that
they are taking a higher risk by giving you a loan, the interest rate charged will be higher.
You can apply for a mortgage either right before buying the property or while you
are still looking for a property to buy. The latter is a process known as pre-approval.
Pre-approved mortgages have certain benefits especially in a tight housing market.
For example, if the property you are buying is in high demand, you may be given
preference because the seller will know that you have the money to back up your offer.
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To sum up, the loan application
process looks like this:
1.
Documents are collected
to process the loan
3.
Your personal or business
information is verified
4.
2.
You will receive a sanction letter
through post or email once the
loan has been approved.
The value or quality of
your credit is assessed
by the bank
6.
The documents
of the property
you are putting
up as collateral
will be collected.
5.
The request for
disbursal (payment of
money) will be sent
7.
Your property
will be evaluated
8.
Once all documents are
successfully verified,
you will receive a
disbursement cheque.
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Chapter 14
Fixed Interest
Rate Mortgage
Loans
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As we saw in the previous chapter, no two mortgage loans are identical. A mortgage loan
is a way to borrow money using your property as collateral, and fixed-rate mortgages
are a type of mortgage loan. These loans are popular among those planning to invest
in real estate, and in this chapter, we will examine them in detail to help you decide if
they are right for you.
The Mortgage Process
A fixed-rate mortgage is a type of loan where the interest rate remains fixed
throughout the loan term, regardless of market conditions. The payment
amount and duration of the loan will stay the same, making it popular for those
who prefer predictability in their finances.
0
1
30 lakhs
2
8.15%
interest to be
paid every year
3
6
4
5
7
8
9
10
Fully Amortizing Loan
In this example, Rs. 30 lakh is the principal amount, 8.15% is the interest rate, and
the payment schedule and loan term are both 10 years. Hence, it is an example
of a fully amortized loan.
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How does Fixed-Rate Mortgages work?
Once you have filled out your home loan application, you can apply for a fixedrate mortgage loan at a bank of your preference. Usually, the amount of funding
you can get from the bank will be about 60% of the registered value of the
mortgaged property. If you are eligible for the loan, the bank (lender) will offer
you multiple loan terms (duration of the loan) and interest rate options. Often, if
you pay more upfront to secure your loan, the interest rates go down.
Once you secure your loan, you will have to make scheduled payments in
regular manner, which are typically monthly. Every fixed-rate mortgage loan
has a constant interest rate, payment schedule or amortization, and loan term.
When you make extra payments, you can pay off your loan earlier than what
the term suggests. However, some banks may charge a prepayment penalty
for paying off your loan too early, depending on the terms and conditions of
your loan contract.
Fixed-Rate Mortgage Terms
In India, the repayment period for mortgage loans is 15 years at the most. There
may be some banks that offer a loan term of 20 years, but they may be hard
to find.
Long Term Loan
If you opt for a long-term loan,
you will have to pay a smaller
amount every month since the
principal payment amounts are
spread out over a longer period.
Long term loans are likely to have
a higher interest rate since the
borrower’s chances of not paying
the loan (defaulting) are greater.
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Short Term Loan
Larger monthly payments will
help you pay off the loan
faster.
A short-term mortgage loan can
help you save money on total
interest amounts since you will
be eligible for a lower interest
rate.
Fixed-Rate Mortgage Calculation
Here’s how you can calculate your monthly mortgage payment on your loan
with a simple formula:
M=
P [ i (1+i)n ]
(1+i)n-1
Here,
M = Monthly payment
P = The amount borrowed or the principal loan amount
i = Monthly interest rate
n = number of months needed to pay the loan
All you have to do is substitute the numbers as per your loan plan. If you are
on a non-amortized loan (balloon payment loan) and want to only calculate the
monthly interest, you can use this formula:
Monthly interest = (Loan balance*interest rate) / 12
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Pros and Cons of Fixed-Rate Mortgages
Here’s how you can calculate your monthly mortgage payment on your loan
with a simple formula:
Pros
The main benefit of a fixed-rate
mortgage is that your monthly
mortgage payments will remain
the same throughout the loan
term. The principal amount and
the interest rate will not change,
despite market fluctuations.
For example, if interest
rates increase, you will
still be paying a lower
interest rate compared
to market conditions.
So, for those who plan to hold
a property for the long term, a
fixed-rate mortgage loan is the
best option.
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However, on the flip side, if
the interest rates go down,
you will pay more toward your
loan than market conditions.
Cons
Some banks give you the option of
refinancing your fixed-rate mortgage at
the current market rates. However, you
will have to pay a significant amount as a
penalty for doing so.
Moreover, compared to other types of
mortgage loans, fixed-rate mortgages
have higher interest rates. This is
because of the greater risks involved for
the lenders. The risk for lenders is that if
interest rates increase, they will not be
earning as much as they could have from
the higher interest rates since your rates
remain fixed.
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Notes
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Chapter 15
Adjustable and
Floating Rate
Mortgage Loans
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Several types of mortgage loans are available in India for those planning to buy a home.
A mortgage loan offers much lower interest rates than other home loans. Additionally,
there are several types of mortgage loans available for you to choose from, according
to your needs. While fixed-rate mortgage loans are undeniably popular, adjustable or
floating-rate mortgage loans are equally popular. Let us go through all the important
details of adjustable mortgage loans to see if these are the right choice for you.
What is an Adjustable Rate Mortgage Loan?
Also known as a floating rate or variable-rate mortgage loan, adjustable-rate
mortgages are home loans with an interest rate that keeps on changing. This
variable interest rate is reset based on a benchmark or index, which gives the
lenders an idea of the general market condition.
ARM ( Adjustable
Rate Mortgage) Index
Loan Interest Rate
When the ARM index decreases,
floating-rate mortgage loans
benefit the borrower as the
interest rate also decreases.
When the ARM index
increases, the interest
rate increases, thus,
benefiting the lender.
It also depends on an ARM
margin which is a number set by
your lender and doesn’t change
after securing the loan. While
the index can change, the ARM
margin remains the same.
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Interest Rate = ARM Margin + ARM Index
Variable
Interest
Rate = 7%
ARM
Index = 4%
ARM Margin = 3%
ARM Margin = 3%
ARM Cap Limit
Variable
Interest
Rate = 9%
ARM
Index = 6%
For instance, if the ARM margin is 3%
and the index is 4%, the variable interest
rate is 7%. However, if the next time the
interest rate adjusts, the index is 6%, and
the variable interest rate is 9%.
An ARM usually has a cap to limit how much
the interest rate or payments can increase
every year or over the loan’s lifetime.
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It is the perfect choice for those who plan to keep the loan only for a short time
and can handle a potential increase in the interest rate.
An amortization schedule determines the structure of ARMs. An amortization
schedule is a table that provides the details of the periodic payments of loans. It
helps both the lender and borrower keep track of all instalments paid.
Types of Adjustable Rate Mortgage Loans
Floating-rate mortgage loans can be further divided into three categories
based on loan repayment terms, as explained below.
1. Hybrid ARMs
As the name implies, Hybrid ARMs offer both a fixed and adjustable rate period.
10%
12%
14%
8%
6%
4%
In this type of
loan, the interest
rate is fixed at
the beginning of
the loan term.
16%
18%
For Fixed Time
It will turn into a
variable interest
rate after a
certain period, as
you dictated while
confirming the loan.
20%
10%
12%
14%
8%
16%
6%
4%
18%
After certain
time period
20%
Usually, a hybrid ARM is expressed as two numbers. The first number refers
to the length of time the fixed rate is applicable, whereas the second number
refers to the duration of the variable interest rate.
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For example,
2/5 ARM Loan
0
1
2
3
4
you will have to pay a
fixed interest rate for
the first two years
5
6
7
Then pay a variable rate
for the remaining five years.
Similarly,
7/3 ARM Loan
0
1
2
3
4
you will have to pay a
fixed interest rate for
seven years.
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5
6
7
8
9
10
Then pay a floating
interest rate for the
next three years
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2. Interest Only or I-O ARM
If you want to spend less on your mortgage for the first few years after securing
the loan, then you can opt for an Interest-Only ARM.
Interest
Amount
Principal
Amount
You would only have to pay interest on your
mortgage loan for a specific period of time.
After this period ends, you have to pay both
the interest as well as the principal on your loan.
This way, for the first few years, you can free up some funds for something else
like renovating your home or buying some furnishings. It is also beneficial to
those who are waiting for a promotion at work or a change in job roles.
Waiting for a promotion at
work or change in job roles
Renovation of your home or
buying new furnishings
However, the drawback of this ARM is that the final
payments for longer I-O periods are significantly higher.
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3. Payment-Option ARM
In this type of ARM, you have several options to pay back your mortgage.
Typically, Payment-Option ARMs include payments that cover the principal and
interest, only the interest, or a minimum amount that is less than the interest.
Payment options that include only the interest amount or a minimum amount
can help you set aside money in the first few years. However, it is important to
remember that you will eventually have to pay back the principal amount with
the interest rate by a certain date.
Pros and Cons of Adjustable
Rate Mortgage Loans
An adjustable-rate mortgage is a great option if you are planning to keep the loan for
a limited period of time and are okay with the risk of an interest rate increase. So if you
are looking for a short-term loan, you can consider opting for an ARM.While some ARMs
have payment caps that limit how much the interest rate can increase every month, it
can lead to negative amortization.
Negative amortization happens when the loan’s
principal balance increases when your monthly
payments are not enough to cover the interest rate.
Hence, the amount you owe will continue to increase,
even if you make the required payments monthly.
While floating-rate mortgage loans do have their appeal, they are not suitable for
everyone. Although these loans typically have lower interest rates at the beginning and
can help you secure a bigger loan, they are hard to budget. You simply cannot predict
when payments can fluctuate erratically due to market conditions such as inflation. If
interest rates spike and there are no caps in place, you could end up with a lot of debt.
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Notes
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Chapter 16
Mortgages:
Additional Concepts
and Analysis, and
Applications
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Applying for a loan and receiving the disbursement from the bank of your choice is
not a one-step process. There are several checks and risk-assessment tools that a
financial institution like a bank conducts to determine whether you are worthy of
receiving a loan. This task also called home loan eligibility, is carried out diligently and
strictly to ensure minimum risk to the bank. Hence, banks leave no stone unturned
before lending money to someone.
What Is Home Loan Eligibility?
Home loan eligibility refers to a set of criteria based on which a financial institution will
assess if you can repay a loan amount with the interest amount. These criteria include
credit history, age, credit score, work experience, and financial obligations, among
others. The bank will also conduct several legal and technical checks on the property
you are mortgaging to ensure that they are lending money toward a safe property. A
detailed breakdown of the checks conducted is given below:
Work Experience
Age
Income and FInancial Repayment
Credit History
Margin Money and Repayment
Legal Verification of Property
Technical Verification of Property
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1. Work Experience
One of the first checks a bank conducts to determine your loan eligibility, and
interest rate is to assess your work experience. The bank will analyze your
employment history and current job to ensure that your income source is
steady and reliable. It will also assess if your current employer is financially
stable and doesn’t have a history of delaying payments.
Banks conduct this check to determine whether your income source is reliable
and consistent enough to repay your loan on time. Most banks prefer loan
applicants who have worked for a while at their current company, as it indicates
stability.
Since the stability of your job matters in this check,
Government jobs have an added
advantage as they are often
considered as safer.
Private companies, selfemployment, and start-ups
jobs have a disadvantage when
compared to government jobs.
2. Age
Your age will help banks determine if you are financially stable. Age plays a
significant role in determining a person’s financial stability, and it is an important
factor that banks take into account when assessing loan applications. Banks
use age as an indicator of an individual’s level of work experience and earning
potential.
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Early 20’s
30’s and 40’s
Mid to Late 50’s
If you apply for a
mortgage loan in
your early 20s, when
you barely have
any experience, the
chances of your
loan being rejected
are high.
If you apply for a loan in
your 30s or 40s and are
well-established in your
career, it gives the bank
a picture that you are
moving up the “corporate
ladder” and have a better
salary. So, your loan is likely
to be approved.
If you apply for a
loan in your mid to
late-50s, you will
have fewer earning
years to repay your
loan. Therefore, if
you apply for a loan
when you are close
to retiring, it is likely
to be rejected.
3. Income and Financial Obligations
As discussed earlier, your income represents your capacity to repay the loan.
Banks will determine your income by considering various factors like your
credit history and credit score. In addition, they will also consider things like debt
obligations, dependents, your income source, and the duration of any pending
loans.
Financial Obligations
Amount Left after
Financial Obligations
If you have any pending loans or EMIs, the
bank will check the amount you are left
with after all your payments. If this amount
is too less, the bank gets the message that
you have spread your financial resources
too thinly, and that you are likely to default.
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Amount Left after
Financial Obligations
Financial
Obligations
However, if you have more than five
times the amount you spend on financial
obligations left over every month, you
will be considered financially healthy.
Your loan has a better chance of being approved if you have filed your IT returns
and paid taxes. But, if you have filed returns with no tax liability, that is, if your
income was not taxable, your loan approval chances decrease.
Freelancing
Jobs
Investments
Side Business
Your eligibility for a loan
is better if you can show
additional sources of
income. Since you have
more than one income
source to tap into, in
case you lose one of the
sources, your bank will be
assured that you have
repayment capacity.
As a part of the credit appraisal process, a representative of the bank can also
visit your home or office, to verify the details that you have provided them.
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4. Credit History
Your credit history helps a bank assess your pattern in settling past loans. It is
also indicative of your future repayment behavior, that is, whether you will be
punctual with your loan payments. If you have any outstanding debts or have
defaulted or delayed payments in the past, it will warrant an investigation by the
bank. The longer the delay in repayment of existing debts, the lower is your loan
eligibility score.
If you don’t have a credit history, your application is likely to be rejected, since
the bank will not have anything to measure your eligibility against. In this case,
you can maintain a credit card with no default in repayment. Banks will get your
credit scores from reputable sources like the Credit Information Bureau (India)
Limited (CIBIL).
700-800
<300
A credit score of 700-800 is
considered excellent. This score
tells the bank that you are a safe
applicant, with a clean history free
of any loan or credit defaults.
If you have a score of 300 or less,
your application will likely be rejected, or
you will be charged a high-interest rate.
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5. Margin Money and Repayment
Your credit history helps a bank assess your pattern in settling past loans. It is
also indicative of your future repayment behavior, that is, whether you will be
punctual with your loan payments. If you have any outstanding debts or have
defaulted or delayed payments in the past, it will warrant an investigation by the
bank. The longer the delay in repayment of existing debts, the lower is your loan
eligibility score.
Chances of getting loan approved
In addition to the down payment you
are able to make, the repayment
period you choose will also have
an impact on your mortgage loan
application. Most banks favour an
application for a repayment period of
up to five years, so if you apply for a
shorter repayment period, the chances
of your loan being approved are
better. Your eligibility score reduces as
your repayment period increases in
five years slabs of 10, 15, or 20 years.
0
5
10
6. Legal Verification of Property
15
Time
For any property investment to be risk-free and fulfilling for both the lender and
borrower, it must be free from all legal hassles. While you must have already
checked the legal status of your property before buying it, you will receive
additional help from the bank if you are utilizing housing finance benefits.
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As a general rule, all financial institutions
will send an expert team of certified
lawyers to examine property-related
documents. The documents include
the title deed, No Objection Certificate,
and other ownership papers. While you
will be requested to give a copy of all
these documents when submitting your
loan application, you will also need to
present the original documents when
the bank’s legal team makes a visit to
examine the property.
After examining each document, this team will prepare a report and send it to
the bank. The report will state whether or not it sees issues with the legal title. If
there are any issues with the mortgaged property’s title, it will be mentioned in
the report, and the bank will reject your home loan application.
7. Technical Verification of Property
Before approving a mortgage loan request, the bank will also conduct a
technical assessment of the property you are putting up as collateral. If you
default on paying the loan, the bank will sell the property you have put up for
mortgage to recover its losses. Hence, if you have applied for a loan of 1 crore,
the bank will expect to get the same amount back if it was forced to sell the
property in case of loan default.
So, it will send a team of technical experts which include architects, civil
engineers, and structural engineers, to assess the mortgaged property’s
physical condition, building specifications, as well as market value. All these
aspects will help them determine the amount of loan that they can give.
While determining the property’s value, the team will also take into consideration
the quality of building materials used and the labor charges in a particular city.
For example, labor charges and the cost of materials in metropolitan cities like
Bengaluru will be higher than in cities like Mangaluru.
As in the case of legal verification of the property, the technical valuation team
will send a report to the bank, with their findings. In addition to the factors
mentioned above, your existing relationship with the bank will also play an
important role during loan approval. If you have a clean record based on the
assessments above and are a long-time customer of the bank, your chances of
loan approval are very high.
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Chapter 17
Underwriting and
Financing Residential
Properties
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One of the most common misconceptions about investing in real estate is that you
initially need a lot of money to begin the process. While buying real estate is not an
inexpensive thing, the reality is that there are several options available to help you fund
your investment. Since there are many perks to investing in a property, like creating
a source of passive income, it’s essential to know the options you can explore and
evaluate to fund your investment. Moreover, choosing the wrong financing option for
your needs can negatively impact the success of your investment, so it’s important to
consider all the alternatives before you approach a lender.
Residential Real Estate
Financing Options In India
1. Conventional Bank Loans
To this day, conventional bank loans are one of the most preferred ways of
financing residential properties.
I.
II.
The way this works is simple - you can approach
a bank of your choice and apply for a loan.
Once your application for the home loan is approved,
you will be offered a certain amount as a loan, which
you will repay as Equated Monthly Payments (EMIs).
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Most banks in India will offer you about 60 - 90% of the property’s value as the
principal amount. You will have to secure the rest yourself and pay it as a down
payment to book your property.
One of the main reasons why bank
home loans are popular is that you get a
significant amount of time, usuawy 20 25 years, to repay your loan with interest.
The advantage of this is that the value of your property will go on increasing,
and thus, you will have a substantial profit.
Additionally, banks offer lower interest rates than private lenders and have
smaller processing fees. Conventional bank loans are the best option for you if
you are looking for a long-term investment.
2. Mortgage Loans
A mortgage loan is a type of loan in which a property is used as collateral. Banks
typically offer up to 60% of the value of the property as a loan, with repayment
terms capped at 15 years. The interest rate on a mortgage loan is lower than
that of a conventional home loan. There are multiple types of mortgage loans
available to choose from, based on repayment capacity and available funds.
This type of loan is generally best for short-to-medium-term investments, such
as purchasing a home or refinancing an existing mortgage.
3. Hard Money Loans
Hard money loans are a good option for those
flipping or renovating a property to sell, as private
lenders focus on the property’s profitability in a short
period of time, making it easier to qualify for and get
larger amounts. They are not suitable for buying and
holding or renting out the property. While this is a
great option for those with a credit score of 40 and
below who don’t qualify for bank loans, these loans
have a drawback.
Interest rates for this kind of loan can
be as high as 18%, and you will have a
very short span of time to repay the
principal amount with interest. Hence,
this type of loan can chip away at
your profits if you are not careful.
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Real Estate Underwriting In India
The term underwriting originated from Lloyd’s of London, an insurance channel partner,
in the 17th century. It is a key aspect of finance used in various sectors like lending,
insurance, and investments, including real estate. Underwriting is the process of
assessing if an applicant is worthy of getting a loan by evaluating their creditworthiness
and satisfying prerequisites. It’s the final step in the loan application process and
involves a thorough review of the borrower’s creditworthiness, income, assets, and
the property being financed. It can take a few days to a few weeks, depending on
the checks your lender will have to make. Borrowers should be prepared to provide
all the necessary documentation and information required by the lender during the
underwriting process to avoid rejection of the loan application.
How Underwriting Works In Real Estate
In the real estate sector, lenders use the process of underwriting to determine
the creditworthiness of a person. It helps them determine the interest rate,
set prices for investment risk, and the amount they are willing to lend. The
process involves a close inspection of your credit score, age, income, debt and
other liabilities, the appraisal of your property, and the value of your collateral.
Different lenders may choose to focus on different aspects. For example,
Bank Underwriters will focus on your credit
score, which they obtain from reputed
credit bureaus like HighMark, Equifax, and
TransUnion CIBIL.
On the other hand, hard money lenders may
focus on property appraisal to ensure that
the property’s price is comparable to others
in the market.
This helps ensure that the loan is used solely for buying the property and a portion of it
is not used for other purposes. The real estate underwriter assesses creditworthiness
based on factors such as employment history, ability to repay the loan, and the amount
of funds in reserves and assigns a rating. If the rating is satisfactory to the lender, the
loan is offered at a particular interest rate, otherwise the loan application is rejected.
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IV
Developers
Understand the market
How to evolve as per buyers’
needs and expectations
Do’s and don’ts for a real estate
developer!
Challenges encountered!
A SWOT analysis from
developers’ perspective
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Chapter 18
Understanding
the Market
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In order to run a successful real estate business in India, developers must have a
thorough understanding of the market. This includes being aware of the different types
of buyers in the market, such as end-users and investors.
End User
Individuals who will
live in the property
they purchase
Investor
They buy
properties as an
investment, for
rental income or
selling for a profit.
It is important for developers to consider both endusers and investors in their business strategies,
rather than focusing solely on investors.
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Primary Market
Sells home
directly to
Developer
End User
The true representation of the
real estate sector’s growth.
Secondary Market
Sells home
directly to
Buyer/End User
Other individuals
May not accurately reflect
the state of the sector.
However, the secondary market can still have an impact
on the overall financial exchange in the primary market,
so it is important for developers to keep it in mind.
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Price Conciousness
The average Indian consumer has always been extremely price conscious.
Mileage
11-15 km/lt
VS.
A buyer is more
concerned about the
mileage to keep the
operating costs lower.
Mileage
18-27 km/lt
The idea of freebies or anything extra at the same cost works well in our country.
The developers understand this psyche of buyers well and have employed various
resources to improve their sales. This weapon in their armour has helped them
tremendously during the recent period of low sales and rising unsold inventories. I
would like to mention here that just offering freebies, discounts or attractive financial
schemes is not enough. Developers who have been able to capitalise on this idea are
the ones who have kept their fundamentals clear, that is, offering a project that fulfils
the buyers’ need of quality housing at optimum cost!
Impact of Government Policies
Certain
Government
Policies
like
demonetisation, introduction of GST,
digitisation of the economy has made
the realty sector much more organised
and transparent. This has simplified
documentation of the transactions
and gained the trust of buyers and
authorities. Developers have found that
the transparency and shifting into cashless
transactions has made them raise capital
easily. Thus, the future of the real estate
sector is bright and quite positive for
players who are serious and there’s scope
for gaining newer heights.
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Investment Vehicle
Real estate has traditionally been a safe investment option, but it faced challenges
due to a slowdown in economic growth and the emergence of alternative investment
options such as gold and equity markets. Developers struggled to raise financing
and buyers had less disposable income for investment. However, the economy is
showing signs of recovery.
RERA
The implementation of the Real Estate
Regulation and Development Act (RERA) is
helping the sector regain the trust of buyers.
The introduction of Real Estate
Investment Trusts (REITs), which allow
common individuals to invest in real
estate, has made it easier for buyers
to prioritize real estate investments.
REITs
Rental Market
Investing in property for long-term rental income is a growing trend in India as people
are increasingly moving to different cities and even countries for work and education
opportunities. Renting a house is a practical solution for those who cannot afford to buy
a house in every city they work in.
The demand for rental
housing is increasing as
a result, and developers
are constructing
residential projects in
cities with high demand
for rental housing.
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Desire for steady
rental income
Economic growth
Trend for
demand
housing Increasing
for housing
Redevelopment
Redevelopment of existing housing projects, bungalows, and villas is a growing trend in
India due to population growth and demand for housing in cities.
converted to
Bungalow with
one family
This trend is particularly
common in cities with cooperative housing societies,
such as Mumbai, and even
in cities like Delhi where
bungalows are being converted
into multi-story buildings.
High Rise Building with large
number of families
This trend benefits both buyers and developers as buyers get to live in newly
constructed, modern houses in their preferred location, and developers can make
profits.
Future Growth
The future of the real estate sector is extremely bright, thanks to the growth of Indian
economy which is pushing out more and more people from the poverty zone, into the
middle-class segment. In the next couple of decades, a lot of people will be buying their
dream homes, a fact that is well known by the developer community. This has made
adequate resources are being apportioned to ensure that the construction cycle
continues.
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The construction boom is going to be enormous
and its potential is making every major real estate
developer in the world a share of the pie. Thus,
developers of international repute are opening
shop in the country on their own or entering into
tie-ups with local developers to capitalise on their
understanding of the market, as this is the best
time. Knowledge, skill sets and the right attitude to
fulfil the dreams of millions in an honest, efficient
and price-effective way are the things required to
make it big in this sector.
Also, building homes do bring
smiles on a billion faces!
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Notes
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Chapter 19
How to evolve as
per buyers’ needs
and expectations
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Author’s Insights!
Charles Darwin, a famous scientist who lived over 100 years ago, made the observation
that in order to survive, individuals and species must be able to adapt to change. This
idea can also be applied to the real estate industry, which is made up of people and
is constantly evolving. Some real estate developers are able to adapt to change and
thrive in the industry, while others become extinct. The key to success in the real estate
industry is the ability to be flexible and adapt to the changing business environment. In
order to understand the current state of the industry and build a successful future, it is
important to learn from and understand the past.
India grew at a slow to moderate pace during the first 30-35 years after independence.
However, in the last 35-40 years, the process of change picked up some speed, and the
past two decades have witnessed exponential shifts in the way we live, work and are
defined as a nation. The change made way for a new lifestyle and demography.
There are three major changes which can be considered as a landmark for their impact
on the real estate sector:
1. Cultural Change
Unlike western cultures, we are known for our strong family ties and bonds with the
resultant lifestyle of everyone living together under one roof.
The joint family system was the
accepted norm ever since the beginning.
Increasing employment opportunities
have acted as catalysts the movement
of people across states. It started
breaking down into the nuclear family
set-up.
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2. Urbanisation
Even though it’s an ongoing process, it gathered steam in the past two decades.
Census of
particular year
% of population
in Urban Areas
Growth %
1901 Census
11.4%
-
1960 Census
18%
7%
2011 Census
31.1%
72.7%
2019 Census
34.4%
10.6%
This indicates not only the number of people who have migrated from villages to cities,
but also the growth of population in urban areas.
Rise of manufacturing
and service sectors
This dynamic shift in
demography took place
not only due to increasing
economic possibilities,
but also due to various
other reasons like,
Decline in agriculture
as a major source
of living
Land
Fragmentation
Better
infrastructural growth
3. Private Sector
The real estate sector’s mind-boggling success is as young as only about 20 years old.
GOvernment
HOuse
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Private
Sector
HOuse
Before 1990s
After 1990s
For the longest time in India’s
independent history, housing was
an individual’s responsibility or
part of the government’s job.
It was only in the 1990s that the
private sector was promoted
to actively participate in India’s
growth story.
Ashwinder R Singh
Haryana was one of the first states to have done so. Before that, government run
development authorities took care of providing housing. This contribution from the
private sector is still evolving and taking newer shape with every passing day.
The success of real estate developers in India depends on their ability to adapt to
the changing needs of the industry and the customers. There are no fixed rules for
success in the industry, but following certain guidelines can help developers perform
better than their competition.
After my years of humbling experience in one of the most challenging industries of the
country, I have shortlisted the following pointers that my developer community should
keep in mind to help evolve as per the buyers’ needs and expectations:
a. Space
There is no set size for homes or apartments, but
they should be designed with the needs of nuclear
families in mind.
Land is a limited resource, so people are willing to live in smaller, but still spacious
homes as long as they provide privacy, safety, and are located in convenient
areas with good social infrastructure. These factors will attract buyers to invest
in housing projects.
b. Change in Mindset
Here are the differences between the earlier generation
(born before the 1980s) and today’s generation (born in
the 1980s and after):
Earlier Generation
Content with what they had, easier to please,
fewer options available, building a house of their
own was a big dream that took time to realize.
Current Generation
Wants to achieve goals quickly, more
access to money and resources,
resources such as money and
options more easily available, dreams
and aspirations more achievable in a
shorter amount of time.
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Developers who can build and deliver homes that meet the requirements of this
generation on time will be highly valued.
c. Awareness
Buyers today have extensive knowledge of the construction process and are
aware of industry norms and regulations. They are also well-traveled and want
the best for their home. Developers have had to improve their game and use
high quality resources to meet the demands of these informed and qualityconscious buyers. This has become a key factor distinguishing regular smalltime developers from well-established ones that offer a satisfying experience
to home buyers.
d. Consumer Expectation
Buyers today have extensive knowledge of the construction process and are
aware of industry norms and regulations. They are also well-traveled and want
the best for their home. Developers have had to improve their game and use
high quality resources to meet the demands of these informed and qualityconscious buyers. This has become a key factor distinguishing regular smalltime developers from well-established ones that offer a satisfying experience
to home buyers.
Before,
Park
High End Buyers
Now,
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Gym
rds
g towa
Caterin buyers
d
n
high e
Park
With the growing middleclass segment and more
people moving to the uppermiddle class segment
Swimming
POol
Swimming
POol
Basic
ities
Amen
Gym
Yesterday’s valueadditions are
today’s bareminimums. Buyers
expect it and they
hold no additional
premium in
terms of buyers’
expectations.
Ashwinder R Singh
e. Different Housing for Different Buyers
Buyers today have extensive knowledge of the construction process and are
aware of industry norms and regulations. They are also well-traveled and want
the best for their home. Developers have had to improve their game and use
high quality resources to meet the demands of these informed and qualityconscious buyers. This has become a key factor distinguishing regular smalltime developers from well-established ones that offer a satisfying experience
to home buyers.
Developers that only cater to
a niche segment may struggle
to sustain in the real estate
industry, which can experience
cyclical downturns.
Luxury Housing
It is beneficial for developers to
be present in various segments
in order to grow as a company,
gain the trust of buyers, and
maintain financial liquidity.
Some developers have already
started to focus on this.
Affordable
Housing
f. Social Responsibility
Campaigns promoting going green are
raising awareness and making buyers
conscious of their responsibilities. They
prefer to do business with developers who
invest in green projects and use green
resources during construction. Although
the number of potential buyers interested
in green projects is small now, it is increasing
and will be an important factor for buyers in
the future.
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g. Collective Purchasing
Social media has shrunk the world so much that people living apart in distant
corners can connect in real time. Thanks to the virtual world becoming an
integral part of our life, more and more cities are witnessing formation of virtual
communities, with a group of buyers joining hands to extract a beneficial deal
from the developers. It is an opportunity for the developers as it helps them to
sell off a large chunk of inventory in one go. Imagine the reduction in acquisition
cost per buyer for a developer.
The world is changing with every tick of the clock. And with it are changing perceptions,
viewpoints and expectations, not to mention the needs and desires of a growing human
population. India is going through a period of exciting growth and a lot of people are
crossing the poverty line and joining the mainstream. It is not about just the business
sense on the part of developers to cater to these needs, but they can very well play
a part in nation-building wherein every family can live a high-quality life of global
standards in their worldclass homes.
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Chapter 20
Do’s and don’ts
for a real estate
developer!
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The rules of real estate development are often not formally taught and can be complex,
with both individual developers and the broader sector having to navigate government
regulations and policies. These guidelines aim to provide a foundation for building a
successful real estate enterprise and ensure the sector operates within the confines
of the country’s laws and business ethics. It is important to understand the regulations
at both the individual and sector levels to improve efficiency and create a business
environment conducive to the sector’s growth and benefits for buyers.
Individual Real Estate Developer
It is not difficult to become a real estate developer if you have money. One might argue
that trying to become one is to make money. Of course, but as an old saying goes,
money attracts more money. However, to ensure that success attracts more success,
you need to take care of the following fundamentals:
1. Legal Entity
It is common for beginners in the real estate business to start out in a partnership
or as a sole proprietor to minimize initial costs and paperwork. However, this
approach may not be the best in the long run as real estate is a cyclical business
with high financial risks. Incorporating a business can provide insulation against
downturns and it is advisable to start and operate on a large scale. It is common
for beginners in the real estate business to start out in a partnership or as a sole
proprietor to minimize initial costs and paperwork.
n
io
ss
ce
Re
E
ion
ns
a
xp
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However, this approach may not be the best in the long run as real estate is a
cyclical business with high financial risks. Incorporating a business can provide
insulation against downturns and it is advisable to start and operate on a large
scale.
2. Research
Whether you’re starting or are an established player, this is one advice that I
constantly give and it has proven to be a golden mantra for success for every
developer, who has understood and followed it.
Invest a considerable amount of
time, money and manpower to
do a meticulous and scientific
research about the market you
want to operate in.
Cyclical Pricing
Trends
Breakthroughs
in construction
technologies
Right Project
Regulatory
Environment
updates
Consumer
Behaviour
A detailed groundwork, understanding the
market needs and trends, will enable you
to invest in the right project, build a housing
project keeping in mind the needs of
potential buyers, and bringing in resources
to build a project that can outperform the
competition.
3. Relationship
Real estate developers need to build relationships with a wide range of people,
including contractors, engineers, bankers, architects, channel partners,
appraisers, buyers/tenants, and equity sources, in order to be successful.
These relationships can help with raising capital, getting better loan terms,
meeting deadlines, avoiding litigation, delivering high quality projects, and
improving buyer experience. In the real estate industry, relationships are key
to long-term success.
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4. Risk Management
The real estate sector in India has potential, but it is a dynamic business.
Conceptualising the
project
Getting approvals and
permissions
Construction
process
It is an extremely long and uncertain
cycle. There are huge risks involved
and obstacles keep cropping up at
various stages. Therefore, one must
account for potential risks, prepare an
alternative plan or a strategy to lower
the impact of risks and be ready to face
the downsides as well, despite all the
planning and strategising.
Selling process
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5. Realistic Goals
Buyers in the real estate market are demanding and developers must be
accountable. While it is important to set ambitious goals, they must also be
realistic and achievable.
Smart developers take into account
contingencies and unexpected
delays in their project scheduling.
Failing to deliver on promised
projects can damage a developer’s
reputation and have financial
consequences for both the
developer and potential buyers.
6. Documentation
Accurate and thorough documentation covering all aspects of a real estate deal
is essential to avoid legal issues, additional costs, and damage to reputation. It
can also prevent misunderstandings and conflicts between business partners
and colleagues, which is important for the smooth functioning of a project. Hiring
the right people to handle documentation and maintain adequate accounts can
help ensure efficient operation.
7. Put Buyer First
Every project a developer develops has to be based on what the market
demands. The designing, construction material, amenities to be provided
and the likes have all to be catered to as per potential buyers’ needs and
requirements. There have been instances where some developers invest in
projects to showcase their skills and taste or in alternative scenarios, they do
not give any attention to the final product and are only concerned about their
profits. Both the situations need to be avoided. Always remember, a developer
just builds a project, but the buyer will spend a lifetime in it. Make it a happy and
satisfying experience for him.
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8. Systems
The entire construction activity follows more or less a set pattern.
i.
Selecting profile
ii.
Purchasing Land
iii.
Seeking permissions
iv.
Working with contractors,
engineers, architects
v.
Putting up the project
vi.
vii.
All of this is done
once and then
repeated in every
other project.
I would advise
you to document
this process
with expected
benchmarks, define
the milestones and
set out expectations
as per pre-defined
deadlines.
Dealing with
financial institutions
Finally selling
the constructed
property to buyers
This would ensure that your team members are aware of this and follow the
systems put in place so that there is no confusion, duplicity of work or any acts
of omission. In short, make the systems work so that you or your team members
do not have to keep reinventing the wheel with every new project.
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9. Personal Skills
Real estate development involves creativity, vision, and the ability to anticipate
market trends. It requires a sharp eye for identifying viable locations and the
creativity to design homes that meet the needs and desires of buyers. To
succeed in this field, developers must also have the ability to bring together
cutting-edge technologies, talented professionals, and resources to create
satisfied customers. The ultimate goal is to create homes that buyers can call
their own.
10. Smart Investments
The real estate sector is one of the few in the country that gives you substantial
returns on investments, compared to other sectors. It is therefore quite natural
to set your eyes off the target and indulge. There’s always this argument that
profits have to be enjoyed since loans and other financial sources are always
available for future projects. This is where a lot of real estate developers go
wrong.
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Notes
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Chapter 21
Challenges
Encountered!
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Challenges make life exciting and push us to discover our limits. The real estate industry
has faced many challenges, but they also present opportunities for improvement,
learning, and growth. Indian real estate developers have shown the ability to excel even
in difficult circumstances. Identifying these roadblocks is only the first step towards
overcoming them.
Financers
Investors
Business
Partners
Financial
Institutions
Channel
Partners
Regulatory
Authroities
Buyers
The real estate sector has multiple stakeholders that come
with their own set of expectations and challenges.
Developer
A developer can face issues with
any or all of them simultaneously
on different fronts.
Since realty development is a dynamic process, every step proves to be crucial for
carefully tackling to tread carefully to come out victorious.
For the sake of simplicity and better understanding, I will be discussing the broad factors
that prove to be difficult instead of routine day to day obstacles that keep cropping up
no matter how well sorted a developer’s systems and processes are.
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1. Land
India is the seventh largest country
in the world by land mass. So, it
may easily cross one’s mind at first
instance that land should be the least
of the concerns. Unfortunately, it is
one of the biggest issues facing the
industry.
3.
Impact of high
land costs
on housing
development.
1.
Availability of Useable Land
in
2. Challenges
Purchasing
Land
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1.
Availability of Useable Land
2.
Challenges in Purchasing Land
When considering purchasing land for a residential project, it is important to
ensure that it offers basic infrastructure and is located near necessary amenities
such as hospitals and places of work. However, land available for development
in and around cities is often in short supply and there is a large demand for it,
leading to a mismatch between supply and demand.
Secondly, if land is available, there are no clear land titles to prove ownership and
a lot of land parcels are embroiled in litigation, hence out of the market. These
litigations take long and crucial time is lost. Realising the dynamics of real estate,
time is the essence. Land title issue is a spectre which has been haunting the
housing sector for a long time.
3.
Impact of high land costs on housing development.
Thirdly, most of the remaining land that’s accessible for construction is priced
high enough to prevent a business venture from being financially viable. Due to
land shortage, all those with deep pockets can corner the available land, as a
buffer. Although it is not illegal to do so, it sometimes leads to artificial price rise.
The land scarcity and resultant high price, leads to rise in per unit cost and deter
potential buyers from investing in the project.
Do you see the problem there?
Unfortunately, land-laws in the country are quite archaic, and despite the authorities’
commitment to overhaul them and make land acquisition a smooth process, it is still a
long way to go. Therefore, most developers try different ways to acquire land within city
limits. They do it either by offering sweetening deals and promises of free apartments
to existing landowners or paying a hefty amount and subsequently transferring that
extra cost to the potential buyers. The other option is to go beyond city limits, develop
a residential project, and then hard-sell it while waiting patiently for buyers to show
an interest. Yes, that may take time and require an extraordinary amount of patience,
especially considering the interest accumulating on the loan from the bank.
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2. Finance
This affects the entire spectrum of the sector. When it comes to the developer’s
end, despite the government allowing FDI, it is quite challenging to raise funds.
Adding to the woes is the higher rate of interest.
Even though the Reserve Bank of
India (RBI) has reduced rates, they
are still high when compared to..
%
Global markets and it proves costly
for the sector to service such loans.
Banks went in the ‘once-bitten-twice-shy’ mode. This inadvertently made
them tighten their purse-strings when it came to lending to the sector. Liquidity
woes led to delays in new launches and substantially eroded the profitability.
At the same time, the financial market has not been able to make inroads into
every part of the country. It deprives a substantial part of the population the
access to economical funding. As we all know, financial inclusivity of the majority
of the population is still a long work in progress and this leaves the market with
limited sources of finance for the average man to buy a house.
3. Regulatory Environment
Regulatory support and clarity in policies are needed for businesses to be
accountable and transparent and for an industry to flourish. The government
has taken steps to support the sector, but more needs to be done. Bureaucracy
is a negative catalyst in the housing sector and decelerates the pace of
development
There are multiple approvals required
from different government agencies and
departments before construction can begin.
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Land Title, Land
Clearance, Zonal
Clearance, Building
Approval
0
1-3 years
}
About 30-40 approvals are
required that take almost 1-3
years to come by, thereby...
Escalating the entire
cost of construction by
20-30%.
Besides this, there are several central, state,WWW and local level rules and
regulations that sometimes overlap, making real estate development a difficult
business. Strict developmental and environmental policies also result in delays
and lead to complications in the construction process.
4. Delayed Deliveries
Developers have earned a bad
reputation because of delays and
added costs for buyers caused
by inadequate infrastructure
and economic, regulatory, and
policy factors. Most developers
are facing financial difficulties
and unsold inventory, which is
causing losses and adding to the
fear of litigation and costs.
Only a handful of developers
have been able to work as per the
schedule and deliver possession
on time. Of course, buyers have
rewarded them by spreading
goodwill by word of mouth and
references.
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5. Demand vs. Supply
India faces a massive shortage of houses for the everincreasing population.
One might consider it as a rosy picture for the sector, but the truth is far from
reality. India has a shortage of houses for its growing population due to:
Economic Slowdown
Developers targeting
audience with rising incomes
Demand for
affordable housing
Available houses in a
costlier price bracket
Housing
Shortage
• Sales went down,
• Prices were reduced,
• Developers defaulted on payments,
• Banks became wary of lending, liquidity crisis
hit,
• New projects were stopped or slowed down
It is only now that with economic growth picking up again
that the developers are investing in affordable projects and
generating enough activity on the ground to make a revival.
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6. Rental Yield
Rental income is important for generating demand for housing projects
and attracting investors. However, I would like to mention here that given the
country’s growth rate, the rental yields generated here are one of the lowest in
the world at 2.2% of the value of the property. Low rental yields make property
investment a poor option for income generation and result in lower returns
compared to gold or equity. Even in major cities with high property prices, rental
yields are low.
Malaysia
5%
Thailand
5%
Indonesia
7%
Philippines
8%
Singapore
3%
Hong Kong
3%
China
3%
India
2%
0 1 2 3 4 5 6 7 8
Rental Yield in %
Low rental yields make property investment a poor option for income generation
and result in lower returns compared to gold or equity. Even in major cities with
high property prices, rental yields are low.
7. Job Losses
Technological Advancements
While the economy is
growing, it is a jobless
growth. With the advent
of technology, less people
are required to do the
same set of jobs. Many
people, employed earlier
in lucrative high salary
paying professions like IT
etc. are either losing jobs
or have to compromise
with their salaries.
Economy
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This macroeconomic change is proving to be a big challenge for the realty sector
that predominantly targeted such a working class as their priority customers.
Unless the employment market stabilises, jobs are created and salaries start
rising again, I am sorry to say, the realty sector will face such adverse headwinds.
8. Skilled Manpower
Skilled manpower
is necessary for a
business to grow
and evolve
There are no
educational
institutes that
specifically
train people
in the real
estate sector
as part of their
curriculum
Most people in
the real estate
sector learn
through handson experience
rather than
formal
education.
Incorporating
the latest
technologies
will improve
the sector’s
Teaching
performance,
specific
increasing
real estate
buyer
skills at the
university level satisfaction and
equips future driving growth.
generations to
join the industry
professionally.
Do you understand that these are challenges and not impossible tasks that
cannot be tackled? A lot of developers are already working hard to overcome
such obstacles and improvising to not only sustain but also set benchmarks
for other developers to follow. The future of the real estate sector is bright and
promising. All it needs is a concerted effort on behalf of every stakeholder to iron
out the problematic areas and work cohesively to provide global experience in
housing to fellow citizens of our country.
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Notes
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Chapter 22
SWOT Analysis
from Developer’s
Perspective
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The housing industry is similar to the stock market in that both are investment mediums
with short and long-term investors. Both are influenced by consumer confidence and
economic, regulatory, and political factors. However, the housing industry is distinct in
that it is driven by the constant need for housing as a basic necessity. Land scarcity
also makes it a potentially profitable long-term investment. As a result, the housing
industry is likely to continue growing and attracting investment.
Developers in the housing market have a different focus than investors and buyers.
They have to manage entire residential projects and cannot rely on long-term benefits.
They are also responsible for various stages of the process, from planning to possession
transfer, and must be aware of industry movements and scenarios to make the most of
opportunities, address weaknesses, and prepare for threats.
While the mainstream view assures a dependable growth in the housing sector, there
are mixed views and speculations in the market about its short-term and medium-term
activity. Let us go through a quick SWOT analysis of the housing market to dive into
the existing scenarios and understand the possible course of movement of the sector
from the point of view of a developer.
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INCREASING POPULATION
The high population growth in India
(over 1.5% per year) leads to a strong
demand for housing.
GOVERNMENT POLICIES
Recent policy initiatives such as RERA and
demonetization have brought transparency
and increased buyer confidence in the
housing market.
Strengths
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RAPID URBANIZATION
This trend has led to an increase in
employment opportunities, a rise in
disposable income, and a trend towards
nuclear families, all of which contribute to
the demand for housing.
DEMAND FOR RENTAL HOUSING
Urbanization, employment and education
needs, and the presence of expatriates
and diplomats all contribute to the
demand for rental housing in India.
Ashwinder R Singh
Weaknesses
UNORGANISED MARKET
The housing market in India has long
been unorganized, with unclear laws,
middlemen, and land titles, as well as
scattered rental housing options.
PREVAILING BUREAUCRACY
Red tape and bureaucracy can hinder
the development and sale of housing
in India.
HIGH LAND PRICES
LIMITED AVAILABILITY OF LAND
The high cost of land can make housing projects financially unviable.
There is a shortage of land suitable
for housing development in and
around cities.
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GOVERNMENT POLICIES
Policy initiatives such as RERA and
demonetization have the potential to
streamline the housing market and make it
more attractive to new players.
INCREASING DISPOSABLE
INCOMES
The IMF reports that India’s per capita
income has increased 625% since 1990,
leading to increased consumer spending
and a potential increase in housing demand.
GROWING MIDDLE CLASS
The expansion of the middle class in
India could lead to increased demand for
housing.
Opportunities
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Threats
ECONOMIC DOWNTURN
Economic downturns can lead to a
decrease in demand for housing.
NATURAL DISASTERS
The IMF reports that India’s per capita
income has increased 625% since 1990,
leading to increased consumer spending
and a potential increase in housing demand.
COMPETITION FROM
OTHER COUNTRIES
The IMF reports that India’s per capita
income has increased 625% since 1990,
leading to increased consumer spending
and a potential increase in housing demand.
FLUCTUATING INTEREST RATES
Urbanization, employment and education
needs, and the presence of expatriates
and diplomats all contribute to the
demand for rental housing in India.
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FINANCING
Chapter 23
Financing
Residential Project
Developments
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Residential project developments involve buying land, constructing flats or row
houses on this land, and selling them off to buyers at a significant profit. Needless to
say, residential projects are a lucrative investment opportunity, if done right. Since
residential projects are planned and executed on a large scale, they require external
financing.
What Is Residential Project Finance?
Residential project finance refers to the
funding of new, long-term residential
projects using a non-recourse (loans
without collateral) or limited recourse
financial structure (mortgage loans). The
loans that are secured can be paid back
from the cash flow the project generates.
Any person or company involved in real
estate development or construction in the
country, such as developers, are eligible
for project financing.
The biggest challenge for those involved
in a residential project is to structure their
finances in a way that the cost is minimum,
and the returns are maximum. This
financial structuring depends on factors
like project type, development stages
of the project, mode of financing, legal
frameworks, and stakeholders involved. It
will also depend on your loan repayment
capacity and the duration of the project,
from acquiring the land to the final handoff to prospective buyers. Financial
structuring is, therefore, the key to a
residential project’s success. An efficient
and effective structuring model will give
the best output for everyone involved.
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How to fund a
Real Estate
Project?
There are several ways
of funding a residential
development project,
as listed on the side.
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Equity
Equity refers to the ownership of assets
that may have debts or other liabilities
attached to them. While there are
several equity sources in real estate
project financing, residential project
developments can take two forms.
Debt
Debt or loans are given by banks, private
lenders, or syndicates. The downside of
loans is that if in an the unfortunate event
your project goes downhill, the lender
can foreclose the property and keep it.
In addition, you will have to pay a certain
interest on the principal amount, which
can cut your profits if the interest rate is
high based on your credibility. However,
the benefit is that the processing fees
are generally lower, and you can get an
assured amount as a loan.
Debts can also include syndicated or hard
money loans, where you can receive a loan
from a lender, who will then sell parts of the
loan to private investors. Before issuing a
loan, the lender will delegate an underwriter
to assess your creditworthiness before
issuing a loan. Depending on their business
model, these lenders will often charge
feeds to pass on to developers or investors.
First, you can acquire funds from friends,
family, and other people you know in small
portions in the early stages of your project.
Another newer method which is gaining
popularity in India is equity crowdfunding.
In equity crowdfunding, many people can
contribute toward the purchase of an
asset through a platform that is set up just
for the purpose of owning an asset or SPE
(single purpose entity).
Investors can hold shares in the SPE that
owns the asset in return for their financial
contributions. In addition to owning shares
in the SPE, the developer will also have an
operating agreement that defines their
responsibilities and property rights.
Investors will also have clear-cut rules
and responsibilities and will also have
an agreement that defines how their
investment will be returned to them and
what share of profits they will get. Some
developers avoid equity since they want
to prevent the dilution of their control
over the project, whereas others prefer
it because it has less rigid legislations in
contrast to debts.
The downside of syndicated loans is that
the interest rates are much higher than
conventional bank loans, and the loan
repayment period is shorter. The benefit
is that these hard money lenders lend to
borrowers who may not have a good credit
score or those who need the loan faster
than a bank can give one.
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Financing
Residential
Projects
Based On
Developmental
Stage
The development stages of residential projects help
determine funding requirements. It can also help you build
trust with your lender. In general, the closer a project is
to its completion, the easier it is to secure a loan from a
lender. This is because a project that is in its final stages,
gives the lender the message that the project will generate
a good cash flow. The stages of a residential real estate
project can be broadly classified into land acquisition phase,
construction phase, and completion phase, each of which
have been outlined below.
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Ashwinder R Singh
1. Land Acquisition
Land acquisition refers to the process of buying the parcel of land where you
want to develop a residential property. Since the land acquisition phase is
the preliminary stage of a real estate project, there is a lot of uncertainty and
risk associated with it. Therefore, if you are looking for funding at this stage,
you will find it hard to do so, especially with banks, due to RBI regulations
concerning funding land acquisition.
On the other hand, if you are willing to fund your project through equity, you
should be able to get it relatively easily through NBFCs (Non-Banking Financial
Companies). However, since the risk at this stage is high, you will probably be
asked to agree to a debt-to-equity ratio of 40:60. In this arrangement, the
financial company will give you 40% of debt if you have 60% of equity.
This can take place through two kinds of transactions - joint venture
agreements or joint development agreements. In joint venture agreements,
two or more groups of people or individuals agree to pool their resources
together for a common goal. On the other hand, in a joint development
agreement, the landowner and developer will collaborate together on the
project.
For example, if you own a parcel of land, a developer might approach you for
a joint development agreement. If you agree to it, you will have to contribute
your land, while the developer will take care of getting approvals, construction,
and launching the project. In return, you will be given a significant part of the
profits from the project.
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2. Construction Phase
Once you have bought some land to develop your project on, the next step is to
begin construction. At this phase, securing a loan from a bank is relatively easier.
Moreover, NBFCs will also give you a loan if your debt-to-equity ratio is 70:30,
provided there are no regulatory issues. At this stage, as a developer, you can
start earning cash flows by opening the project for pre-booking. You can then
start paying off the funds you raised for the project.
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3. Completion Phase
At this stage, the residential project is either fully complete or almost complete.
While most developers will not have any funds left after the construction phase,
which requires the largest chunk of funds, loans will be easily granted. This is
mainly because the project starts to generate profits at a fast pace.
To assess the project at this stage, the estimated cost and actual cost of the
project are compared. If the project cost deviates too much from the estimate
and the actual cost is much higher than expected, it might be harder to secure
a loan. A slight deviation is okay since the actual cost exceeds the estimate more
often than not due to fluctuating market prices of materials, delays, unforeseen
circumstances, and more.
Apart from the mode through which you secure funds and the development
phase of the project, you will also benefit from considering the economic
environment. This is because interest rates impact the demand for real estate
as well as the price people are willing to pay for it. For instance, lower interest
rates will lead to a higher number of buyers which will also drive up the prices.
So, carefully structuring a residential project development financially is the key
to a successful real estate venture.
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Chapter 24
Buying Land And
Simplifying Deal
Structures For
Development In India
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Real estate and infrastructure development are key indicators of a region or country’s
growth and development. Traditionally, in India, real estate companies would purchase
land and invest in the construction and marketing of the projects. This involves a high
degree of negotiation, investment and plenty of time.
Developers must identify the project, develop it, and market it. Despite these obstacles,
real estate developers in India are aggressively expanding their business, thanks to a
sharp rise in the demand for homes. In just 2022, the number of land deals increased
three-fold to 68, across eight major cities in India, according to research conducted by
a leading property consultant.
Land deals, or more formally, land transactions, take place between two parties
through a written, legally-binding agreement between the land owner or the grantor,
who owns the property title and the land buyer or the grantee to whom the title is being
transferred. Listed below are the four types of land transactions that can take place
between a land owner and a developer.
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Outright
Sale
For Sale
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An outright sale is the simplest process through which land is sold and
purchased. The title of the land and all rights to the land are sold by the
landowner to the developer when the latter pays the full cash amount.
Unlike some of the other land deals, we will explore below, there are no
conditions attached in this type of deal; as the name suggests, once
the payment is made by the buyer, it is a done and dusted deal.
Advantages
An outright sale has several benefits for
both parties involved. The landowner
gets his payment in full without any
legal disputes or payment delays that
may occur in long-term development
agreements. The developer, on the
other hand, benefits by negotiating at
a lower price for a quicker deal. The
developer will also get to reap the full
rewards of marketing and selling the
project at a premium rate. Another
benefit is that both parties have lower
legal risk and tax complexities.
Advantages
Disadvantages
Disadvantages
The disadvantage for the landowner
is that if the property is not at a prime
location, only a few buyers will be
available, and, hence, the room for
negotiating for a higher price is low. If the
land is sold for a significantly high price,
the seller will also have to pay a significant
amount as tax, which will cut into his
profits. The buyer is at a disadvantage
since, by paying upfront, a major part of
his budget is spent before the start of the
project. As discussed in earlier chapters,
securing a loan at the land acquisition
stage, is quite difficult. Additionally, the
buyer will also be exposed to the risk of
market fluctuations.
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Joint
Development
Agreement
(JDA)
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In the past few years, the real estate scenario has evolved to include
the model of the Joint Development Agreement (JDA).
Transfer of
development rights
Developer
Development
Activity
Sale
Agreement
LandOwner
Buyer
A Joint Development Agreement must be framed to protect the interests of both the
land owner as well as the developer. Therefore, a JDA must be registered in a subregistrar’s office to make it legally binding. A JDA is usually a long-term agreement, and
to avoid future disputes or disagreements, the clauses must be clearly outlined and
must be executable. Ideally, this agreement should include the following aspects:
Contribution of the resources of the landowner and the developer
towards the project
An estimate of the cost of the project and the developer’s investment
terms. Some costs can be shared by the owner as well.
The details of the transfer of land. Since the title of the land is not
transferred in a JDA, a power of attorney is issued by the landowner
to the developer for obtaining the necessary sanctions and
permissions of various regulatory authorities.
The marketing rights of the project by the owner to the developer.
Transferring the right of land to the developer.
Marketing and development rights and accountabilities. This is
significant since it determines when the developer gets the right to
transfer ownership of the developed units to the customers.
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Payment consideration to the landowner, that is, the percentage of
sales revenue or percentage of the completed project
Terms regarding mortgage of land.
Process for the termination of the contract and exit options for both
parties in case of disputes.
Since a Joint Development Arrangement mostly takes a couple of years to complete,
you need to keep in mind several factors to be considered while filing taxes, as given
below:
any additional amount
1. If the landowner pays
velopment, a TDS
toward the project de
e) of 10% must be
(Tax Deducted At Sourc
er.
deducted by the develop
downer will not be
lan
the
for
2. Capital gain tax
nsfer of the land is
considered when the tra
oper. However, capital
handed over to the devel
income in the year
gains will be taxable as
cate of completion
before which the certifi
tent authority. For
is received from compe
landowner and you
example, if you are the
of completion in 2010,
received the certificate
d to the income you
your profits will be adde
cal period.
received in the 2009 fis
e to pay taxes on the
3. The developer will hav
lling his share in the
income he gets from se
developed property.
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Advantages
The advantage of a JDA that it is a legally
binding document which offers clear
and precise details to avoid any disputes
during the long-term commitment
between the parties. Since there is no
initial investment for land acquisition,
the developer’s investment is lower, and
he will secure a loan more easily in the
construction phase of the project. The
developer can focus on his expertise
in land development, construction, and
marketing of the property.
At the same time, the landowner benefits
since he can expect better returns than
the market value of the land. This is
because the construction and marketing
will be done by the developers and their
team of experts. Also, if you consider the
high cost of maintaining independent
parcels of land in cities, it is an excellent
option to get into a JDA than outright
selling your property.
Moreover, developers offer attractive
options for jointly developing the
property, which can be turned into a
lucrative investment opportunity by
the landowner. For example, if you
get a percentage of the property as
compensation for giving your land to
build on, you can sell your share of the
property in parts based on your financial
requirements.
Disadvantages
JDAs are made for the long term, which
may cause differences and disputes,
especially if the projects do not develop
as per plans and expectations. There is
also the risk of changes in laws during
the long period of the JDA. The tax laws
related to JDA are complex, and often
there are differences in how these laws
are interpreted.
If these agreements are not clearly
drafted, it can negatively impact the
completion of the project. So, what
the two parties agreed on, on paper,
does not turn out as initially expected.
Sometimes, overzealous landowners
or developers may exploit the situation,
causing legal and financial disputes,
which ultimately affect the completion
of the project. This, in turn, affects the
buyers and people who have made
bookings, which makes all the marketing
efforts pointless.
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Joint
Venture (JV)
Agreement
or Equity Exit
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The real estate industry, due to its complexity, is one of the most unorganised industries.
The Real Estate Act of 2016 and the formation of the Real Estate Regulatory Authority
(RERA) brought accountability and various checks in the real estate sector. Small-time
developers could not survive the stringent regulations and went into bankruptcy. This
eventually gave rise to the Joint Venture Agreement, which was formed to achieve a
specific investment goal. When the objective is achieved, the JV is usually terminated.
JDA
JV
The only parties involved in
JDA are the land owner and the
developer.
A JV can include more than two
parties. These parties then pool
their resources together based
on their expertise and develop a
real estate project together.
The key players in a JV project can be categorized into operating members and capital
members. Operating members manage and develop the real estate project to start to
finish. Capital members finance either the full project or a large portion of it.
Advantages
Disadvantages
A Joint Venture allows small and
upcoming developers to channelise
their expertise in different fields. It also
enables them to get the capital needed
to complete big projects, which would
not be in their scope if they operated
single-handedly. Jointly developing the
project with a renowned developer
gives buyers confidence that the project
follows all the rules and regulations and
uses high-quality materials. Moreover,
such
ventures
complement
the
strength and weaknesses of partners in
different departments - development,
finance, marketing, and construction.
This results in the delivery of the project
on time.
Since it is a joint venture, all decisions
must be taken after consulting everyone
involved in the JV. Therefore, any
independent idea, however good, may
not see the light of day if not approved
by everyone involved in the project.
Moreover, in most JVs, there is a noncompete clause with the Joint Venture.
This can affect any personal business
opportunity. Additionally, problems
are likely to arise if the objectives are
unclear, the level of investment and
expertise is not the same, or there is
no proper communication between the
partners in the Joint Venture.
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Development
Management
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Development Management is a relatively new concept in India. In this, big development
management or realty firms step in as developers for small developers or landowners
for a share in revenue or profits or a management fee. The development management
company will act as an external monitoring agency for monitoring the quality, cost, and
on-time delivery of the project.
On the other hand, the local partner, that is, the small developer or landowner will have
access to the expertise offered by trained and skilled planners for the completion of
projects within budget and time constraints.
Advantages
Landowners and developers can benefit from the
brand association, quality of construction, expertise,
and project management offered by the development
management firm. At the same time, the development
management company will get an opportunity to
enter the local market and benefit from the regionspecific experience.
+
+ +
-
-
-
Disadvantages
Earlier, there were no legal clauses to the Development
Management partnership, but post-RERA, the development
management company will be held accountable for
any mistakes. Both parties will have limited control over
the activities of the other. Moreover, the development
management company will have to depend on the landowner
or developer to fund the project.
As people are beginning to invest in real estate in India, there are several unconventional
land acquisition partnerships that are gaining popularity for both big and small projects.
All these have advantages and disadvantages, and you can choose one after carefully
analysing your needs and requirements.
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V
Channel
Partners
Roles and Responsibilities
of a Channel Partner
Buyer-Centric Approach
of Channel Partners
Recommended
Marketing Approaches
for a Channel Partner
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Chapter 25
Roles and
Responsibilities of
a Channel Partner
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Although buyers are much stronger, smarter and more informed today than they ever
were, and they have done all the homework before they visit a developer’s office, yet
real estate remains to be not-a-core-competence for many of them. When it involves
huge investment in such a volatile and risk-replete industry, apprehensions are sure to
find their way to the top of a buyer’s mind. This is why the requirement of real estate
channel partners and agents is going up with the increase in housing demand.
Real estate channel partners and agents are in demand due to increasing housing
demand and buyers who may not have expertise in the industry. However, the industry
is constantly changing and recent government regulations have made it clear that
unprofessional channel partners will not be successful. The arrival of multinational
companies has also added competition for channel partners. Their responsibilities
have expanded and they must now perform a variety of tasks to run their business
effectively.
Let us take a closer look at the roles and responsibilities they have to carry out now
1. Obtain License
RERA requires all
channel partners to
have a mandatory
registration before
operating in the
market.
Licensed channel partners are required to protect the interests of buyers and
make developers and channel partners more accountable.
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2. Stay Informed and Know the Market
Familiarity with the market is a prerequisite for a channel partner.
To establish themselves as experts and dependable professionals, channel
partners must follow market movements and happenings closely.
3. Knowledge of Products
It is essential for a channel partner to have complete awareness about the area
they are handling and available properties there.
They should know the pros
and cons of the area,
including social, political, and
infrastructural conditions.
They should have a list of developers operating in the area, along with details of
their credentials and performance.
4. Show and Help Select Property Options
Channel Partners are responsible for showing clients all relevant property
options fitting their buying requirements.
They should share all necessary details, including pros and cons, with clients.
They should also
compare various
properties and help
clients select the best
possible housing option.
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5. Maintain and Update Buyer Database
A channel partner should maintain and constantly update their database of
prospective buyers.
They should track all queries and project visits on their website.
They should have the names,
contacts, and requirements of
each query and lead, and track
their progress based on the
last conversation.
6. Look for and Profile Potential Clients
Channel Partners should always be on the lookout for potential clients.
They should use their database and industry network to get leads and connect
with them.
Leads generated through marketing or website queries have better conversion
prospects, while referrals are often ready for conversion.
7. Obtain Approval from Property Owners
A channel partner should obtain approval from property owners before
placing a property in their portfolio.
This ensures that the owner wants the channel partner to facilitate the sale of
their asset.
8. Negotiate Deals and Provide After-Sales Support
Channel Partners are responsible for
negotiating deals and closing sales.
They should also provide
after-sales support, including
assistance with documentation
and any issues that may arise.
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9. Act as Mediator and Maintain Transparency
Channel Partners should act as mediators between buyers and sellers.
They should maintain transparency and honesty in all business dealings.
10. Follow Ethical Guidelines and Keep Up with
Industry Trends
Channel Partners should act as
mediators between buyers and
sellers.
They should maintain transparency
and honesty in all business dealings.
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Checklist
Obtain a required license as mandated by RERA.
Stay informed and up-to-date on market movements and happenings.
Have thorough knowledge of the products and properties in their
portfolio, including the area and its social, political, and infrastructural
conditions, developers and their credentials, and the process of
purchasing residential properties.
Show clients all relevant property options that fit their buying
requirements and provide them with pros and cons and other
necessary details.
Help clients select the best possible housing option by comparing
various properties.
Maintain and update a database of prospective buyers, including
their contact information and requirements.
Look for potential clients and profile leads effectively.
Obtain approval from property owners before placing a property in
their portfolio.
Negotiate deals and close sales.
Provide after-sales support, including assistance with documentation
and any issues that may arise.
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Chapter 26
Buyer-Centric
Approach of
Channel Partners
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The gravity of this thought just simply cannot be ignored. As businesses increasingly
understand the irrefutable importance of customers, they formulate their strategies
around that. Customer service is a critical element in any industry or sector including
real estate and brokerage business. Housing buyers are becoming wiser by the day
and their bare minimum expectations from their channel partners have risen too. They
are in absolutely no mood to compromise on their demand for high-quality services,
professionalism, trustworthiness and expertise from a channel partner.
Channel Partners must prioritize good customer service to be successful and
sustainable. This includes adopting a buyer-centric approach and understanding the
needs of clients. Channel Partners should focus on various aspects of customer service
to maintain a long-term relationship with clients and stand out from competitors.
Buyer Experience
The experience of buyers is a good indicator of how well a real estate channel
partner or agent is doing in terms of client relationships. Channel Partners
should regularly check in with buyers to ensure they are happy with the
services provided and consider their feedback when creating business
strategies. Analysis of buyer experiences should be a key part of a channel
partner’s business values and strategies. This can help channel partners
understand whether their clients are satisfied and approve of their services,
and provide evidence-based insights into the effectiveness of their business.
You will get clear answers to the questions like –
What activities are working and what are not?
Which services on your portfolio are
generating business?
What is it that your clients are looking for in
you?
How do they make house purchase
decisions and what is your role there?
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An insight coming directly from the source
does not have a comparison. Therefore, you can
carry out a survey with your clients post the
deal, asking for their feedback and experiences.
Listen to what they say and adapt your services
and approaches accordingly.
Also, diagnose recent failures and identify factors responsible for those. You
can then take appropriate corrective measures and prevent these failures from
repeating in future.
Cultivate Relationship
Invest in cultivating relationships with your
clients as it will help increase their trust in
you and boost their confidence related to
the purchase. Therefore, go beyond the
deal and professional engagement and
connect with them on a personal level.
Another
benefit
of
building
client
relationships is the ability to upsell or crosssell. A client who trusts and feels valued by
a channel partner is more likely to consider
and purchase additional properties through
them or recommend them to others.
Additionally, having a good relationship with
a client makes it easier to discuss any issues
that may arise and find a solution together,
which helps to build even more trust.
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eal
the d hem
d
n
o
ht
ey
go b nect wit vel
le
n
o
a
c
on l
and
pers
a
on
Professional
Engagement
Personal
Connection
1.
Find out clients’
requirements and
offer understanding
and suggestions as
a trusted advisor.
2.
Foster personal,
interactive conversations
rather than focusing on
transactions.
3.
Act as a partner
in the house-buying
process and go above
and beyond job duties
to assist with tasks
outside your purview.
4.
Suggest reliable professionals,
such as interior designers,
or assist with tasks like
arranging a painting job
to establish a business
partnership and show
concern for clients’ needs.
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We know that each individual is different from the other, and hence buyers and
their requirements vary from person to person. Considering this, it is important
to try out a personalised approach for each client. This way, you can make them
feel special and valued.
In all cases, your association with the client
should not be purely business and end with his/
her signing the commission cheque for you.
You should always stay in touch with them.
Remember, investing in relationships never
fails to generate returns.
Customer-Centric Workforce
Preach what you intend to practice and develop a customer centric workforce.
Your ideas and ideologies should be passed on to your employees and they
should also have the customers’ interest on top of their priority list. Your agents
should be prepared to deliver exceptional customer service. Plan and organise
required trainings for the workforce, based on discussions with clients and
client-feedback received through the survey questionnaires. The performance
appraisal system for your employees should also have customer feedback as
a parameter.
So, in addition to the revenue generated, an employee should also be appraised
on how his clients rate him and what they have to say about him. And ensure to
reward the employees who excel in this area.
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Competition
In the brokerage field, competition is high and buyers have many options.
s on
se
Focu
A Good Channel Partner
Clients who are their
biggest assets
Does not
focus on
Striving for a higher market
share through various strategies.
In reality, the strength of a channel partner’s client database is a more important
measure of success than market share. Channel Partners should focus on
investing in their client base.
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Communication
When customers hire a channel partner, they expect him to keep them
educated on all the steps, not hiding anything from them.
They want open and honest communication
in their interactions with the channel partner.
Rosy pictures may give rise to suspicions.
Therefore, a channel partner should be proactively communicative. Another
thing to remember is to have a two-way communication during the channel
partner-client interaction.
Oneway communication may
be valuable and appear to
be hitting a wall without an
active engagement from the
buyer.
Two-way communication
will help the channel partner
know his client more.
Absence of right communication can make the buyers wary and they may start
doubting the seriousness and involvement of their channel partners.
Technology
Technology helps create a buyer-centric approach in real estate through
improved property listings, communication, and customer insight. CRM tools
aid in engaging and analyzing interactions with clients. Investing in long-term
relationships and providing exceptional experiences leads to happy, loyal
customers. Prioritizing customer service is important for success.
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Notes
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Chapter 27
Recommended
Marketing
Approaches for a
Channel Partner
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Real estate’s profit potential has led to the growth
of individual and institutional channel partners,
particularly in the housing market. Low barriers
to entry and diverse opportunities have attracted
more participants. Channel Partners need to
adapt and be innovative to stay competitive, but
having a diverse portfolio is not enough without
effective marketing. Marketing is important to
reach the market, but only if it is focused and
credible and not exaggerating the channel
partner’s position in the market as a leader.
The key lies in recognizing the importance of the
difference between selling and marketing. While
the former is entirely product-based, marketing
primarily considers the interest of the buyers and
all the messaging is designed to suit it. And it is
equally important for the channel partners to be
sure of who their buyers are, where they live and
what their housing needs are, and prepare their
marketing plan accordingly.
That is why channel partners must invest seriously in marketing and have a marketing
plan with clear objectives in place, and this performance of the marketing activities is
reviewed periodically.
Channel Partners should also design their marketing campaigns with a touch of
personalisation as the housing requirements vary from buyer to buyer.
Ground rules for marketing strategies for channel partners include recommendations
for creating a unique positioning, and reducing customer acquisition cost through
targeted marketing approaches.
Different methods and approaches for marketing includes property listing, email
marketing, referrals, website, social media, content and video marketing.
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Website
Email Marketing
Property Listing
Marketing Strategy
Have a professional and relevant website
that is frequently updated and registered
with search engines to increase
discoverability. Use appealing visuals and
graphics, and consider adding a live chat
feature to interact with clients.
Utilize email marketing as an effective means
of customer acquisition. Use visually-appealing
templates, eye-catching subject lines, relevant
details on the property options with their
photos, and a call-to-action.
Enroll on listing portals and announce presence
with available property options. Use high-quality
photographs to give buyers a clear idea of
the property. Encourage buyers to read the
channel partner’s description and know more
about their other listed properties.
Description
Increases visibility
and discoverability,
establishes a
professional
image, improves
communication and
interaction with clients.
Higher conversion
rate, cost-effective,
establishes a
strong brand
presence.
Reaches a larger
target market,
increases visibility,
gives buyers a
clear idea of the
property.
Advantages
Master Residential Real Estate
Video Marketing
Networking
Social Media
Increased brand
awareness, increased
engagement, and
interaction with
potential buyers.
Expand your
professional network,
create new business
opportunities,
increase exposure
to new leads.
Allow potential
buyers to get a
better feel for
the property,
differentiate
yourself from
other channel
partners.
Utilize social media platforms to reach
a wider audience and create brand
awareness. Share engaging content and
property listings, post testimonials and
success stories, and interact with potential
buyers and clients. Utilize platforms like
Facebook, Instagram, and LinkedIn to create a
strong online presence.
Attend local real estate events and
networking events, join industry organizations
and groups, and connect with other real
estate professionals to build relationships
and generate leads.
Create and share property walkthroughs,
virtual tours, and explainer videos on
platforms like YouTube and Vimeo. Video
marketing allows potential buyers to get a
better feel for the property and can be a
great way to differentiate yourself from
other channel partners.
Ashwinder R Singh
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VI
REITs
Understanding REITs And Its
Introduction As An Investment
Asset Class
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Chapter 28
Understanding REITs
And Its Introduction As
An Investment Asset
Class
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Author’s Insights!
A Real Estate Investment Trust, commonly known as a REIT, is an instrument of
investment that allows investors to own a certain percentage of real estate properties.
These properties generate income through rent, lease etc. Usually, these properties are
commercial establishments since commercial properties generate the highest rental
income among others. Real estate investment has been a very popular investment
type in India for a very long time. However,
Investing in an entire property
can be capital intensive, that
is, it requires a lot of money.
High Income Group
Middle Income Group
Low Income Group
On the other hand, REITs
can help you invest money
in revenue-generating real
estate even if you have
a small amount to invest.
Thus, REITs are accessible
to most income groups.
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How REITs works?
Pools
money
Investors
Mutual
Funds
Returns generated are
distributed to investors
Invests
in
Stocks, Bonds and
Other Securities
Similarly,
Buys
from
shares
exchange
Investors
REITs
Rental income/ Interest
Income is distributed to
investors as dividends.
Owns
finance
and
real esta
te
Real Estate Properties
REITs buys buildings, hotels, offices, and leases them to generate rental income or
finance mortgages on real estate to generate interest income. The main profits in REITs
are through rental income. About 90% of these profits are given to investors in terms
of dividends (a small amount of money paid by the company, typically annually), while
the rest is re-invested.
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In the long term, an increase in the asset’s market price, or capital appreciation, can
also give you a decent return on investment. In simple words, investing in Real Estate
Investment Trusts can help you diversify your investment portfolio. It can also help you
earn a good and steady income through dividends and long-term capital appreciation.
It is a hassle-free way to invest in the real estate market and is great for beginners.
Taxes on REITs
Unfortunately, REITs don’t provide many tax benefits. So, if you are interested in
investing in REITs, you should consider the points below before investing:
1. Taxation on income earned by REIT unit sale
If you hold a certain number of REIT units,
that is, you don’t sell them for less than a
year, you will have to pay a 15% tax on the
profits you gain in this period. This is quite
high compared to other investment classes.
This is known as capital gain tax.
0
1
2
3
4
5
6
7
8
On the other hand, if you don’t sell any
REIT units for more than 36 months
(3 years), and you earn more than Rs
1 lakh in profit, you will have to pay a
tax of 10%. This is known as long-term
capital gain tax.
2. Taxation on dividend income
REITs provide a decent dividend income to their investors, but it comes at a
small price. In India, REITs or Real Estate Investment Trusts are subject to tax
on the dividends paid to investors. The tax treatment of dividends from REITs
depends on whether the REIT has obtained a special tax concession.
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REITs
Obtained Special
Tax Concession
Not obtained
Special Tax
Concession
Dividends paid to
investors are taxfree in the hands
of the investors.
The dividends paid to investors are
taxed as per the Income Tax Act. In this
case, the dividends are added to the
income of the investor and are taxed at
the applicable slab rate. This means that
the dividends are taxed at the same
rate as the investor’s other income.
Types of REITs
REITs are pretty diverse and they have various types. You can choose to invest
in any of the following REIT types:
a. Equity REITs
This is the most common type of REIT available.
Equity
REITs
OWns or manage
revenue generating Real
Estate Properties
Rent
- Cost to operate
the property
Remaining Revenue
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Real Estate Properties
Paid out as dividends
to the shareholders
Ashwinder R Singh
b. Mortgage REITs
Mortgage REITs are also known as mREITs.
Mortgage Loans
Mortgage
REITs
Real Estate Buyers
Interest
Generate their income from
the interest that they receive
from the loans
These types of REITs are comparable to debt mutual funds, but they are riskier. So, if
you don’t mind the risk, these are a great options for you.
c. Retail REITs
As the name suggests, this type of REIT invests in the retail sector.
Buying retail
properties
Retail
REITs
Hotels and Stores
Rent
This category usually includes spaces like grocery stores and supermarkets. The
main focus of retail REITs is not running the retail outlets but generating income by
renting out the spaces for retail purposes. This type of REIT is considered a safe choice,
especially if you are looking for a steady income.
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d. Residential REITs
Residential REITs buy and manage residential properties such as apartments and
housing communities. Residential properties usually have growing demand which is
also reflected in this type of REIT. If you invest in this type of REIT, you can expect more
profits as and when the demand for housing booms.
e. Healthcare REITs
This type of REIT invests in healthcare establishments. Due to the rising demand for
healthcare facilities after the pandemic, these REITs are expected to show great growth
in the near future. Therefore, they are great investment opportunities.
f. Office REITs
These REITs focus only on office spaces, and they usually have great returns earned
through rent.
However, this type of REIT may
face some sort of setback in
the future due to the recent
shift to the work-from-home
concept due to the pandemic.
If the trend continues, these REITs might see a downward trend.
Approximately 650 million sq.ft. of
Grade A office space is currently
present in India, of which approximately
320 million sq.ft. is REIT-able stock.
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Type of REIT
Revenue
Generation
Risk
Potential
for Growth
Equity
REITs
Rent and Sale
of Properties
Low
Moderate
Mortgage
REIT
(mREITs)
Interest from
loans
High
Moderate
Retail
REITs
Rent
Low
Moderate
Residential
REITs
Rent
Low
High
Healthcare
REITs
Rent
Low
High
Office
REITs
Rent
Low/
Moderate
High
Please note that the risk level and potential for growth are relative
and may vary depending on market conditions and other factors.
It’s always recommended to consult a professional before making
an investment decision.
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Investing through REITs
Investing in REITs is very similar to investing in the stock market. All you need
is a Demat Account (Dematerialized Account) to invest in REITs. While REITs let
you invest money in the lucrative real estate sector, it is very simple and comes
without any extra paperwork. You can invest in REITs in the following ways:
1. Investment through Stock Exchange
This is the most popular way to buy REIT units. Just like ETFs
(Exchange Traded Funds), you will only require a Demat
Account to invest. The price of the REIT unit fluctuates as
per the demand in the stock exchange. The demand for
these REITs is also driven by performance. The concept of
REITs is quite new to India, and so investment options are
limited to just three listed REIT stocks in India.
42 million sq.ft
31 million sq.ft
14 million sq.ft
2. Investment through Mutual Funds
This method of investment is uncommon in India,
as of 2022. Only a handful of domestic mutual funds
invest in REITs, and investment and exposure to real
estate are not commonplace. But as REITs surge
in popularity, the investment percentage of mutual
funds is expected to go much higher in the near
future. While limited, there are few options to invest in
International REITs through mutual funds.
3. Investment through IPOs (Initial Public Offerings)
This is another option for you as an interested
investor. However, to invest through an IPO, ensure
that you thoroughly research the concerned
company, as there are no direct indicators of
performance. Since REITs are becoming popular
in India, it is likely that many IPOs will be launched
in the future. So, a few years from now you can
expect a lot of REIT investment options available
to you.
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Topic
Advantages
Disavantages
Affordability
and Volatility
REITs shares are
comparatively
affordable and
are less volatile as
compared to equity
funds, making it easier
for you to invest in
them. Over a long term,
capital appreciation
provides good returns.
REITs are subject to
market fluctuations,
even if they are not
as risky as stocks.
During unforeseen
circumstances like
a pandemic or
recession, the demand
for real estate may
reduce, leading to a
decline in profits.
Regular
Income
About 90% of the
taxable income is paid
as dividend to the
investors, making it a
great source of regular
income in the form of
dividends.
REITs might not be a
great option when it
comes to tax saving.
You even have to
pay taxes on the
dividends you get.
Liquidity
REITs have very
low liquidity risk and
eliminates any direct
contact with property
developers.
REITs are not as
liquid as other
investments like
stocks.
REITs are regulated
by the Securities and
Exchange Board of India
(SEBI) and disclose
their capital portfolio
regularly, providing
transparency and trust
to the investors.
The level of
transparency and trust
can be affected if the
REITs are not regulated
properly or if the REITs
are not disclosing their
information regularly.
Transparency
and Trust
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Topic
Diversification
Growth rate
Maintenance
Fee
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Advantages
Disavantages
REITs provide
diversification of
investment portfolio as
it has a low correlation
with other mutual
funds, stocks and
bonds.
REITs are still a real
estate investment
and are affected
by factors such as
location, property
type, and economic
conditions which may
limit diversification.
REITs provide a
steady income through
dividends but may
have low growth rate
in terms of capital
appreciation.
The operational cost
of REITs is taken care
by the management
team which makes
it convenient for the
investor.
REITs have a low
growth rate in terms
of capital appreciation,
since 90% of your
earnings will be
given in the form of
dividends, and only
10% of it is invested.
The maintenance fee
is quite high as the
operation cost of
REITs is on the higher
side. It also comes
with other additional
charges.
Ashwinder R Singh
Notes
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VII
Green
Buildings
An Introduction To Green And
Sustainable Buildings
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Chapter 29
An Introduction To
Green And Sustainable
Buildings
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It is no secret that the AEC (Architechture, Engineering and Construction) industry is a
resource-intensive one.
In a report by SERI, in 2007, the
construction sector was the
second-largest in terms of material
consumption, accounting for 20% of the
country’s material demand
1997
Construction
Sector
20%
Other Sectors
80%
2007
30%
Material Consumption
The anticipated increase in demand for
resources and materials by the AEC
industry will undoubtedly exert pressure
on limited resources. Moreover, the
industry generates a large quantity
of waste; according to the Building
Material Promotion Council (BMPC),
only 1% of construction waste is
recycled in India out of 150 million
tonnes generated annually.
23.6%
2014
Electricity
Greenhouse
Gases
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The rest of the waste makes its way into landfills, which then pollutes previous resources
that are vital to human survival, like air and water. Fortunately, there is a solution to
these problems - green and sustainable buildings, which we will discuss in detail in this
chapter.
What are Green Buildings?
As the name indicates, green buildings refer to those structures that are designed,
constructed, and operated in an eco-friendly manner. These structures generate
the least waste and use the least amount of resources during their construction and
operation. Most often, the materials used to construct green buildings are eco-friendly
or recycled.
Wind Energy
Solar Energy
Rainwater Harvesting
Composting
By adopting all these strategies, green buildings
have a positive impact on the environment while
ensuring the health and well-being of occupants.
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Since these buildings are energy efficient, they contribute to energy savings and,
ultimately, reduce energy bills.
Green Buildings and Sustainability
If you want to assess whether any process or product is sustainable, all you have to do
is answer a simple question - can the process continue forever or can the product last
forever? One of the most unpleasant truths is that the construction industry largely
requires materials that only be used once. When demolished, most of these materials
do not degrade naturally, therefore, severely impacting the environment.
For instance, let’s take the most widely-used construction material in modern times cement.
Cement Company
~66 million
tonnes
Carbon dioxide emissions
12%
Moreover, the production of cement
is a resource-intensive process
since it requires the use of huge
amounts of limestone and water.
Total Carbon dioxide
emissions reported by
cement companies worldwide
If the current production rate to meet the
demand continues, limestone reserves
will be severely depleted, and the quality
of life will reduce significantly due to air
pollution.
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Green buildings, on the other hand, explore alternatives. For example, ‘green cements’
substitute limestone with fly ash, slag, or calcined clay, out of which fly ash is gaining
immense popularity. Similarly, wood or fibre panels produced in an environmentfriendly way are great alternatives since they can be reused and repurposed multiple
times.
An excellent example of this is India’s first
green building, the CII-Sohrabji Godrej
Green Business Center by Karan Grover and
Associates, where recycled materials like fly
ash, glass, aluminium, and ceramic tiles were
used for construction.
The construction of green buildings is, therefore, a part of sustainable
development, where the smart use of natural, renewable resources ensures
that there are plenty of non-renewable resources left for future generations.
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Green Building Design Principles
If you plan on designing and building a green building on your site, there are some s you
can take note of to ensure your building is green, from foundation to finish.
1. Site Selection and Planning
In the site selection and planning
stage, it is important to ensure that
natural features on and around
the site remain undisturbed and
undamaged by the construction
and operation of the building.
During this stage, it is crucial to
understand the ecological nature
of the site, as this will hint at the
design elements you can include
in your structure.
Non-invasive trees and plants that
grow on the site naturally should be
nurtured and can be incorporated
into your design. You’ll get to
understand the movement of the
sun, wind direction, and natural
groundwater levels. Supporting
biodiversity and contributing to a
healthy system is the core concept
of sustainable and green buildings.
2. Water Reuse and Conservation
Water, or the elixir of life, while a renewable resource in general, is one of the mostpolluted resources today. This has sent the amount of freshwater dwindling at an
alarming rate. It is highly important to conserve this resource, especially since only 1%
of water in the world is constituted by fresh water.
Through processes such as rainwater harvesting, living pools, and greywater reuse,
water can be captured, stored, treated, and then reused. In this way, water that could
be used for drinking need not be unnecessarily wasted in sewage or irrigation.
In fact, in certain Indian cities such as
Bangalore, it is compulsory for all newly
constructed buildings on sites measuring
60 by 40 feet to harvest rainwater and use it
for non-drinking purposes.
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Grey Water System
Coarse-Filtered
Grey Water
Sand Filter
Sewer
Filtration
Sanitary Fixtures
Pump
Water your plants or
lawn, irrigate farmlands,
wash your car, or flush
your toilets.
3. Use of Solar Energy
Solar energy is a renewable energy source that is present in abundance worldwide. The
sun’s energy can be utilized to heat and cool living spaces within buildings. This can be
done in two ways - active and passive systems. Passive systems use design features,
building orientation, and the properties of building materials used to optimize the
sun’s light and energy. Passive systems require minimal maintenance since they do
not have any mechanical components or moving parts.
Passive solar features include the
orientation of the building and its
shape, the shape of the roof, and
the capacity of the building materials
to absorb, retain, and dissipate heat,
among others. Double-glazed window
panes and window overhangs or
chajjas are other examples of passive
solar systems you can use.
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Active systems, on the other hand,
use devices to convert the sun’s
energy into a form that can be used
by you, like hot water or electricity.
Using solar devices like solar water heaters or solar panels to generate electricity
can help you save 30% - 40% on electricity bills. This can be further optimized by
incorporating passive strategies as well. According to a building bye-law that was
passed by the state government in Karnataka in 2013, developers must install solar
water heaters in spaces that have a floor area of 600 sq ft or more if they are built on
a land area of 1,200 sq ft.
4. Green Building Materials
Choosing materials that are good for the environment is a major component of building
green buildings. The materials must be green in terms of resources consumed during
their generation and sourcing and their environmental impact if and when discarded.
For instance, even though
terracotta is an eco-friendly
material, if it is sourced from
a faraway country, it loses
its eco-friendly status. This
is because of the fuel and
other resources consumed to
transport this material.
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5. Living Architecture
Living architecture focuses on natural,
ecological processes that can be
integrated into the built environment
to improve the quality of life.
Increase in
Plantations
of Trees
Solar Energy
conversion
Rain
Water
Harvesting
Planting trees around your house can lead to a cooler microclimate within your home.
Trees provide shading and cooling effect, which can reduce the need for artificial
heating or cooling.
Trees and certain plants can purify the air around you.
Plants can reduce surface water run-off and promote the percolation of rainwater into
the ground, recharging groundwater levels.
The concept of living architecture addresses the social aspect of green buildings.
Research shows that those in touch with nature have an improved state of mental wellbeing.
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Green Building Rating Systems In India
If you are wondering if you can get your project rated ‘green’, then you can easily do
so. In India, there are several green rating systems for buildings that help measure how
well a building performs with respect to the environment. These green rating systems
analyze the environmental, social, and economic benefits a building offers. This is
done by analyzing parameters like water and waste management strategies, energy
efficiency, indoor air quality, materials, site planning, and construction methods. Some
of the most popular green rating systems in India are discussed below.
a. IGBC Rating Systems
In 2001, the Confederation of Indian Industry (CII)
established the Indian Green Building Council (IGBC).
IGBC is headquartered in India’s first green-rated
and net-zero building in Hyderabad. The council is
the leading green building certification organization
in the country, and it offers four certifications to
green buildings - certified, silver, gold, and platinum.
It is a voluntary and consensus-based program. As
of 2022, the council has graded more than 2383
projects in the country, and all of them have some
features in common:
Reduction of CO2
emissions by 12,000
tonnes per million sq ft
annually.
100 MW of
renewable energy
installed.
45,000 litres of
water conserved
per million sq ft
per year.
Recycling or reuse of 500
tonnes of construction
waste that would have
otherwise ended up
in landfills or water
resources.
15,000 MWh of energy per
million sq ft saved every
year.
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b. GRIHA
Green Rating for Integrated Habitat Assessment
(GRIHA) is India’s national rating system for
all completed projects. It is endorsed by the
Government of India, the Ministry of New and
Renewable Energy (MNRE), and The Energy and
Resources Institute (TERI).
GRIHA gives a rating of
up to five stars for
green buildings based on
how the buildings perform
under 34 criteria.
34
criterias
criterias
Health and
Wellbeing
Solid Waste
Management
Water
Conservation
Renewable
Energy and
efficiency
Materials and Sustainable
Resources Site Planning
Moreover, the system assesses a building across different stages of its lifecycle
- pre-construction, building planning and construction, and building operation
and maintenance.
c. LEED
Leadership in Energy and Environmental Design (LEED) is a globally-acclaimed
green rating system. Previously managed by the IGBC, the certification process
is now managed by the Green Building Certification Inc. (GBCI) to maintain
uniformity. Based on the points achieved in different parameters, a building
can receive one of four LEED ratings - certified, silver, gold, and platinum. The
prestigious LEED certification is applicable to IT parks, offices, commercial
spaces, residential complexes, independent homes, and hotels, among
others.
There are several methods and standards that can help developers build structures
that positively impact the environment. Green buildings are a part of sustainable
development and contribute to energy efficiency, cost-effectiveness, and resource
optimization. It is important to apply these methods and standards to all stages of a
building’s lifecycle to ensure a cleaner and greener future.
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Notes
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The key to your dream
home is a reality and
not imagination!
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Before I wind up my serious real estate interaction with
you through this book, allow me to share this interesting
anecdote with you. Read on, and close this book with a
huge laughing smile on your face.
A banker, an accountant and a real estate agent, all
become homeless and decide to live under bridge.
The banker finds a cardboard box and moves into it.
The accountant finds a cardboard box and puts it next to
him and crawls into it.
The real estate agent finds a cardboard box and puts it on
top of the cardboard boxes of banker and accountant.
He, then outs a poster on it, reading –
“Penthouse available in new development for
professionals.”
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Conclusion
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As we come to the end of this book, I hope that you have found it to
be a valuable resource in your journey as a real estate investor in India.
From exploring the history and intricacies of the Indian real estate market
to discussing the impact of technology, pandemic, and government policies,
this book has provided comprehensive coverage and practical advice.
Whether you are a first-time homebuyer, an NRI investor, or a seasoned
land developer, I hope that the insights and strategies presented in this
book have equipped you to navigate the complexities of this market with
confidence and achieve success in your investments.
I sincerely hope that this book has helped you in your dream home-buying
journey. By providing a comprehensive guide to the home buying process,
including tips for making an informed decision and navigating the home loan
application process, this book aims to make your journey as a homebuyer
smoother and more rewarding. With the knowledge and confidence gained
from this book, I am confident that you will find the perfect home for you
and your family. Good luck, and happy home buying!
Thank you for taking this journey with me, and I
wish you all the best in your real estate endeavors.
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Disclaimer
Please note that the information contained in this book is intended
for general informational and educational purposes only. While
we have taken care to ensure the accuracy, completeness, and
reliability of the information provided, we cannot guarantee that it
is entirely free from errors, omissions, or inaccuracies.
It is essential to note that the author and publisher of this book do
not make any representations or warranties of any kind, express
or implied, regarding the completeness, accuracy, reliability,
suitability, or availability of the information contained herein.
Furthermore, we do not endorse or recommend any specific
products, services, or providers mentioned in the book.
Readers are advised to seek professional advice before making
any decisions based on the information provided in this book. The
author and publisher of this book do not accept any liability for any
losses or damages that may arise from the use of this book or the
information contained herein.
In addition, we would like to acknowledge and thank all
International Property Consultants and research firms operating in
India for their contributions to the field of real estate. While we have
made every effort to include all relevant sources and information,
there may be inadvertent omissions or sources that we missed.
Therefore, readers should be aware that there may be additional
sources of information that were not included in this book.
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Credits
Designed by
Ashwini Ramesh Kumar
Cover Design by
Shweta Mahuvagara
Edited by
Fairy Panchal
Ayush Srivastav
Additional Illustrations
Storyset
Freepik
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