Housing prices to drop up to 30%, wiping Rs 8 lakh crore in value

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Housing prices in 42 major cities across India could drop by up to 30 per cent over 6-12 months after the demonetisation of high-value notes, wiping out over Rs 8 lakh crore worth market value of residential properties sold and unsold by developers since 2008.

“In the aftermath of demonetisation impact on Indian real estate sector, market value of residential property of Rs 802,874 crore is expected to be wiped off in the next 6-12 months,” PropEquity said in a statement.

PE Analytics owns and operates PropEquity which is an online subscription based real estate data and analytics platform covering over 83,650 projects of 22,202 developers across over 42 cities in India.

PE Analytics owns and operates PropEquity which is an online subscription based real estate data and analytics platform covering over 83,650 projects of 22,202 developers across over 42 cities in India.

“According to PropEquity research, residential real estate valuation in the top 42 cities in India, sold and unsold, will take a tumble and fall up to 30 per cent from Rs 39,55,044 crore by approx Rs 8,02,874 crore to Rs 31,52,170 crore,” it added.

The market value is of 49,42,637 units, which are built-up ready, under construction and currently launched properties, available and sold since 2008 for 42 cities.

Maximum fall on total market valuation will be in Mumbai Rs 2,00,330 crore followed by Bangalore by Rs 99,983 crore and Gurgaon Rs 79,059.

“Indian realty is now bracing for sub-prime level crisis, which is expected to deeply impact the core of unorganised real estate and black money,” PropEquity said.

“We expect lot of secondary market transactions (resales) coming down in volume. For every five buyers out there, there is only one buyer willing to pay all-cheque. And usually, people want to take at least 20 to 30 percent of the amount in cash, but this will now go away for the time being,” Samir Jasuja, CEO and Founder of PropEquity said.

“There will be almost a complete stop in resales in the coming weeks as this move will take sometime for real estate sector to absorb,” he added.

PropEquity also said that there have been unprecedented transactions in last 15 days with lot of people trying to convert their unaccounted money into real estate.

“But this will also mean that we can expect more formal and organised developers to weather this storm and will relatively be in a better position in the next 9-12 months,” it said.

“In our view, there will be acute pain in the short-term but in the mid to long run it will be hugely beneficial for Indian reality as it will create lot of transparency,” PropEquity said.

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Currency Demonetisation To Shake Up Real Estate For Sustainable Growth

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The landmark move by the Modi government to demonetise high-value currency notes to stamp out black money will have a far-reaching impact on the capital-intensive real estate sector where almost one-third of transactions still involve unaccounted money.

Though initially, in the short term, the government’s bold move will hit the sentiment of the real estate market, already reeling under a recession, in the medium- to long-term, the sector will reap the benefits of the greater transparency ushered in by government’s “surgical strike” against black money.

This is especially so when in the last couple of years, the government has initiated a number of key reforms in the real estate sector like Real Estate Regulation Act (RERA), GST, REITs and Benami Transactions (Prohibition) Amendment Act, 2016, besides reforms related to FDI, to bring in transparency. Consequent to the reforms, foreign investors are already betting big on real estate.

In a recent development, global private equity player Xander has formed a joint venture with Dutch Pension Fund Manager APG Asset Management to deploy $1 billion in real estate in India. Much to the relief of cash-strapped and debt-ridden developers, institutional financing will also come with lesser risk weightage.

As the real estate sector has significant consumption of black money, the impact of the government’s crackdown will be felt here much more.

There is a cash component of 20-30 per cent in property transactions, largely due to the difference between the collectorate rate and market rate of property. This is even higher in land transactions and property transactions in smaller cities.

At the initial stage of the real estate project, land purchase has the highest component (40 per cent or more) of unaccounted money. Also, the payments by investors at the pre-launch or early launch stage has a considerable cash component. Cash is also involved in purchasing building material and in payments to construction workers.

Secondary market transactions essentially involve cash payouts.

In the primary market, however, there is more or less no cash involvement, especially in residential real estate as home purchases are financed through mortgages. For affordable homes, the ticket size is too small to involve cash payments. But in high-end housing, the cash component is significant.

It is also seen that in primary sales, developers offer a discount if some part of the property’s value is paid in cash.

Now that the government has come down heavily on black money, the cash component in property transactions will go down. This will result in a drop in land prices and land deals will likely see a substantial dip.

Developers are already avoiding outright purchase of land for their new projects and instead are going in for joint development agreements with land owners. They are also finding it difficult to monetise their land bank to cut down debt obligations.

The debt-ridden developers, in the short term, will face cash-flow issues. And, in view of the high inventory and cash crunch, they may well have to resort to price-cutting to push up sales, much to the delight of property buyers.

Speculative and inflated pricing will take a beating in secondary or pre-owned properties, especially in markets which thrive on speculative investments. This will benefit home buyers as interest rates have already come down by 1.5 per cent in the last about one-and-a-half years.

Going forward, with improved liquidity of banks following currency demonetisation, interest rates are expected to further come down, making homes more affordable.

This will boost home sales which have seen a 15 per cent hike in Q2 FY17 across the top eight cities. And, as RERA becomes operational and home buyers get protection of their investment, sales will further pick up, especially in the affordable segment, much to the benefit of the government’s Housing for All mission.

It’s not just the top cities, even the tier II and III cities where the government is focusing on Housing for All, and Smart City projects, are expected to gain. Of late, many big organised players with corporate governance have been entering these cities.

Some of these cities which offer good job opportunities, especially in IT and have good physical and social infrastructure, are already on the radar of domestic and global funds. Demonetisation will further boost investors’ confidence in the long run.

And, since corruption and approvals’ bottlenecks are major factors responsible for price inflation, demonetisation, coupled with the government’s next big reform to introduce a single-window clearance system, will make property affordable for the masses.

Notwithstanding initial setbacks, as the sector reorganises itself, real estate will be transformed into a more efficient, evolved, corporatised, fair and transparent asset class, well on its way to a long-term sustainable growth path.MoneyMindz

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How existing borrowers can reduce their home loan interest rates

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Lenders are aggressively reducing interest rates on new home loans. But what if you are an existing borrower? Those who have taken home loans before April 2016 are still paying a higher interest as their loans are either Base Rate-Linked or Benchmark/Retail Prime Lending rate (B/RPLR)linked. The options before you are as follows.

If bank is the lender
One-time switch to MCLR: You can switch from a base rate to MCLR or marginal cost-of funds based lending rate. The latter is more dynamic as it is directly linked to repo rate and allows you to enjoy the change in interest rates faster. “In the current cycle of lower interest rates, it makes sense to shift to MCLR as a downward change in repo rate will lead to lower MCLR,” says Anil Sachidanand, MD & CEO, Aspire Home Finance.

There is also a cost involved. Banks charge a conversion fee of around 0.5% on your outstanding loan amount, plus taxes. For instance, if your home loan outstanding is Rs 20 lakh, the conversion fee would be around Rs 10,000, plus taxes. Most importantly, switching to MCLR is a one-time option, you cannot revert to base rate again. And once you choose an MCLR rate, you cannot reset it for the next one year.

If loan is with NBFCs
Reset to a lower rate: The MCLR system doesn’t apply to Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs). So, if you have taken a loan from either, you can reset your interest rate by paying a conversion fee.

HFCs and NBFCs usually do not change the base or BPLR rate, they change the spread, which results in an overall reduced rate (actual interest rate = base rate +/- spread). For instance, a lender with a base rate of 16% and a spread of -6%, will allow you to change your spread to say -7%. This would result in a reduced rate of 9% [16% + (-7%)] than the earlier 10% [16% + (-6%)]. The conversion fee will vary from lender to lender. Also, unlike with banks, you can reset your interest rate any number of times.

Once you opt for a reduced interest rate either with banks or NBFCs, you have the option of maintaining the same EMI or lower the loan tenure and vice versa. In case you choose the option to lower the EMI, you would be required to provide new ECS mandate/post-dated cheques.

Cost-benefit analysis
Before taking the plunge, calculate the total cost you are incurring to reduce your interest rate, and the savings you are making in the process. If the fees are higher than the savings, it doesn’t make sense to switch or reset. Account for the total cost—conversion fee plus taxes. Look for at least 25 bps difference in interest rates.

Also, consider the remaining tenure of your loan. “When the balance tenure is only a few years, it is not advisable to switch/reset as the bulk of the interest component would have been paid and EMI would constitute mainly the principal,” suggests Rishi Mehra, Founder, Deal4Loans.

Next, check on the spread being offered by the lender. “Lenders can’t lend below MCLR or base rate, but if you have a good credit history and track record, you can negotiate on the spread,” says Mehra.

You also need to look at the charges. They vary from lender to lender and can be negotiated.

Refinance options
If the deal with your existing lender isn’t lucrative, you could consider refinance or balance transfer option. However, it is a lengthy process. It is like getting your loan approved all over again. Refinancing can be costly too. Various fees of the new lender can be up to 50 bps of the loan amount and then there is the mortgage fee plus taxes.

“If the processing and transaction fee is less than the savings on the interest rate difference (between existing and the new lender) for one year, it makes for a case to switch to a new lender,” says Devang Mody, President, Consumer Finance, Bajaj Finance. “If there is a minimum difference of 75 bps between the interest rate offered by a new lender compared to existing lender, refinancing makes sense. That too only for loans with residual tenure of more than 7-10 years,” says Sachidanand.

So the choice between refinancing, switching or resetting a loan rate depends on the outstanding amount and tenure, the difference in rates and the amount of time you have to get the job done. As interest rates may not remain low for ever, make the most of current low rates.

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Housing prices to drop up to 30%, wiping Rs 8 lakh crore in value

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NEW DELHI: Housing prices in 42 major cities across India could drop by up to 30 per cent over 6-12 months after the demonetisation of high-value notes, wiping out over Rs 8 lakh crore worth market value of residential properties sold and unsold by developers since 2008.

“In the aftermath of demonetisation impact on Indian real estate sector, market value of residential property of Rs 802,874 crore is expected to be wiped off in the next 6-12 months,” PropEquity said in a statement.

PE Analytics owns and operates PropEquity which is an online subscription based real estate data and analytics platform covering over 83,650 projects of 22,202 developers across over 42 cities in India.

“According to PropEquity research, residential real estate valuation in the top 42 cities in India, sold and unsold, will take a tumble and fall up to 30 per cent from Rs 39,55,044 crore by approx Rs 8,02,874 crore to Rs 31,52,170 crore,” it added.

The market value is of 49,42,637 units, which are built-up ready, under construction and currently launched properties, available and sold since 2008 for 42 cities.

Maximum fall on total market valuation will be in Mumbai Rs 2,00,330 crore followed by Bangalore by Rs 99,983 crore and Gurgaon Rs 79,059.

“Indian realty is now bracing for sub-prime level crisis, which is expected to deeply impact the core of unorganised real estate and black money,” PropEquity said.

“We expect lot of secondary market transactions (resales) coming down in volume. For every five buyers out there, there is only one buyer willing to pay all-cheque. And usually, people want to take at least 20 to 30 percent of the amount in cash, but this will now go away for the time being,” Samir Jasuja, CEO and Founder of PropEquity said.

“There will be almost a complete stop in resales in the coming weeks as this move will take sometime for real estate sector to absorb,” he added.

PropEquity also said that there have been unprecedented transactions in last 15 days with lot of people trying to convert their unaccounted money into real estate.

“But this will also mean that we can expect more formal and organised developers to weather this storm and will relatively be in a better position in the next 9-12 months,” it said.

“In our view, there will be acute pain in the short-term but in the mid to long run it will be hugely beneficial for Indian reality as it will create lot of transparency,” PropEquity said.

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How to Invest in Mutual Funds in a Minor Child’s Name?

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Post demonetisation, piggy bank money accumulated by kids as gifts is finding its way to their respective bank accounts. Experts suggest parents use this money fruitfully and invest it in mutual funds in the name of the minor child. They can start with amounts as little as Rs 500.

1. Is a MF investment possible in the name of a minor child?

Yes, you can make an investment in any scheme of any fund house of a mutual fund (MF) in the name of a minor child.

The minor shall be the first and the sole holder in such a folio. No joint holder will be allowed in this folio. The guardian in the folio should be ei ther parent or a court-appointed legal guardian.

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2. Documents required to make an investment?

Minor investments are identified by the date of birth of the investor, and so, while making an in vestment, you have to provide the child’s date of birth and age. In addition to this, you will have to give a copy of the age proof, which can be birth certificate, passport copy , etc. evidencing date of birth of the minor and relationship of the guardian (natural or le gal guardian) with the minor. This needs to be provided while making the first investment or while opening a folio.

3. Can I even start a SIP or STP in the name of a minor child?

Yes, a mutual fund will also register instructions by an investor like SIP, STP in a folio held by a minor. However, this instruction will be valid only till the date of the minor attaining majority , even though the instructions may be for a period beyond that date.

4. What happens when the minor child becomes a major or attains 18 years of age?

When a minor becomes a major all transactions standing instructions systematic transactions etc. will be suspended. The folio will be frozen for operation by the guardian from the date of minor attaining majority . Prior to the minor attaining majority , the AMC mutual fund will send a notice to unit holder at their registered correspondence address advising the minor to submit, on attaining majority , an application form along with prescribed documents to change the status of the folio from `minor’ to `major’. Along with this, KYC Acknowledgement Letter of the unit holder becoming major should also be provided.

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Features and Tax Benefit of Education Loan in India

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The salient features of the scheme are as under:

  • The scheme envisages loans up to Rs.7.5 lakh for studies in India and up to Rs. 15 lakh for studies abroad.
  • For loans up to Rs. 4 lakh no collateral or margin is required and the interest rate is not to exceed the Prime Lending Rates (PLR)
  • For loans above Rs. 4 lakh the interest rate will not exceed PLR plus 1 percent.
  • The loans are to be repaid over a period of 5 to 7 years with provision of grace period of one year after completion of studies.

Tax Benefit

Repayment of an education loan is deductible under section 80E of the Income Tax Act. The yearly limit for deduction is Rs. 40,000 (for both the principal and the interest). Only loans taken for higher education – full time studies in any graduate, professional, and pure and applied science courses – may claim deduction. The deduction will be available for a maximum of eight years starting from the day you start repaying.

Equitable Access to quality higher education has been a concern of the University Grants Commission. To this purpose the Commission, besides encouraging colleges and Universities to provide for liberal financial support to the meritorious but needy students, has also been instrumental in educational loan scheme. The Reserve Bank of India (RBI) has issued guidelines in this regard to all commercial banks.

A large number of banks have already launched educational loan schemes. Provided below are links to the respective websites of individual banks offering such facilities.

List of Banks Offering Educational Loans:

Allahabad Bank

Central bank of India

Panjab National Bank

State Bank of Saurashatra

Andhra Bank

Corporation Bank

State Bank of India

Dena Bank

Bank of Baroda

Syndicate Bank

State Bank of Bikaner and Jaipur

Indian Bank

Bank of Maharashtra

Uco Bank

State Bank of Indore

Indian Overseas Bank

Canara Bank

Union Bank Of India

State bank of Mysore

Oriental Bank Of commerce

United Bank Of India

Panjab and Sindh Bank

Vijaya Bank

Federal Bank Limited

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SIPs in MFs rise on investors’ awareness, robust equity market

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The number of Systematic Investment Plans (SIPs) in mutual funds has more than doubled to 134 lakh in two-and-half years, primarily on account of increased awareness among investors and buoyancy in equity markets, Parliament was informed today.

SIP is an investment vehicle that allows investors to invest in small amounts periodically instead of lump sums. The frequency of investment is usually weekly, monthly or quarterly.

As of October 31 this year, the number of SIPs in mutual funds in India was 134.5 lakh, Minister of State for Finance Arjun Ram Meghwal said in a written reply to the Lok Sabha.

SIPs increased from 60 lakh as on March 31, 2014 to 90.2 lakh at the end of March 31, 2015. They increased further to 116.3 lakh at the end of the last fiscal.

Meghwal attributed the higher number of SIPs to rising awareness among investors, focus on other than top 15 cities by mutual fund houses and general buoyancy in stock markets.

“The Sensex remaining continuously above the 22,000 levels in 2014-15 and 2015-16 and above 24,000 level during 2016-17 has led to renewed interest in SIPs from investors,” Meghwal added.

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