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Getting exemptions from your home loan

If you are going in for property as an investment, you can actually use tax laws more effectively

Given the number of options available to take home loans, how do you make a smart decision? What does one need to be aware of while going in for a loan? Kanchana Dwarakanath of HappyKeys talked to Ajai Kesavan, a private banker and wealth management specialist.

The precautions

You must set aside around 6-9 per cent of the Real Estates property’s purchase price towards stamp duty and registration (depending on the state you are buying). You need to have this as a separate saving.

The EMI you pay should not be more than 50- 60 per cent of your take-home salary. “Assume you have a Rs 80 lakh loan for 20 years. At today’s interest rates, you will have to pay 80,000 per month as EMI. Which means your take home needs to be nearly Rs 1.6 lakh for you to be able to afford this loan. Please take this in to account while budgeting for the amount that you’re going to take as loan,” says Kesavan.

Saving strategies

Banks and housing finance companies typically charge a percentage of the loan amount as processing fee. This can be reduced if you negotiate well. Today, you can switch loans from one bank to another without paying any pre-closure charges.

“With the result, banks have become competitive about processing fees,” says Kesavan. Typically, you shouldn’t have to pay more than Rs 15,000 for a Rs 1 crore loan.

Apart from looking at the interest rate, one should also be aware of the ‘spread’ between the bank’s base rate and the rate being charged from you. In a changing interest rate scenario, it is this spread that will determine the rate that you will be paying.

For example, if the bank’s base rate is 9.40 per cent and you’re being charged 9.65 per cent, then the spread is 0.25 per cent or 25 basis points over the base rate. You need to look at the historical base rate of your bank and also the spread that they are offering you and make an informed decision.

The tax-loan connection

Did you know that from a tax perspective, the benefits available on the EMI can be separated on the lines of pre-construction and post-construction property?

If the property is being built, then you do not get any immediate benefit for the interest component you pay.

However, the total amount that is paid as interest in the pre-construction phase is accumulated and one-fifth can be claimed as deduction spread over the next five assessment years after construction.

If you are going in for property as an investment, you can actually use tax laws more effectively. A property that is not self-occupied is considered to be ‘deemed to be let out’ and in this case, the entire interest component (not just the stated Rs 2 lakh limit) can be offset against your income.

For example, say the loan is Rs 80 lakh for 20 years and the EMI is Rs 80,000. If you look at the amortization schedule for the initial years, a major portion of this is the interest component.

“Assuming the entire Rs 80,000 is interest then 80,000 multiplied by 12 can be offset against your income and can result in a tax-saving of nearly Rs. 2.8 lakh. This can be a huge advantage and can actually reduce the overall cost of your loan,” says Kesavan.

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Checking a property’s construction quality

Experts recommend a proactive and hands-on approach to ensure continued quality in construction

Experts recommend a proactive and hands-on approach to ensure continued quality in construction. So what are some of the key factors you need to check?

On top of the list is meeting standards.

“When you buy a home, make it a point to drop in a few times unannounced. This will help you understand not just the quality of construction but also in ensuring there are no major deviations from the `approved plan’,” says Pratap Venugopal, Partner, K.J. John & Co., an advocate in Noida.

Concrete mixing
The concrete strength requirement depends on the structure’s load. Reputed builders closely monitor the strength of the concrete mix.  But what most consumers do not know is that there is an agreement and legal document that Real Estates developers need to sign to ensure the right mix. Thus, in case you are going in for smaller developers, it is essential you ask the builder for certification of concrete mix provided by a testing laboratory.

Wall thickness
There is a mention of this generally in the layout plan as well as in the booking document.

“It is essential investors read these documents carefully,” says Pramila Mehta, chief architect and planner of A&K Construction and Architects, an architectural firm in New Delhi.

“Visiting the site while the construction is on to check the construction workers are adhering to the promise is also an effective way of ensuring this,” she says.

Third-party deliverable
Developers often outsource aspects such as electrical ducts, lines, painting and even plumbing. Although the developer generally hires quality service providers, often it might be sticking to known vendors.

“Buyers need to be vigilant and check the quality of these products and ensure they are of promised quality. In case there is any discrepancy, they must take it up with the team at the site. This will ensure immediate redressal,” says Mehta.

Seismic care
Tremors are becoming frequent in Delhi-NCR. Hence, several builders are offering earthquake resistant structures.

“Most buildings constructed in the last five-six years can withstand earthquakes of magnitude 4.0 on the Richter scale. Much depends on how much weight it puts on the ground and the quality of steel used,” says Mehta.

However, it also makes good sense to ensure this is carried out at the ground level as well. Experts even recommend professional audits to be on the safer side.

“A proactive measure such as a ‘third-party audit’ can be extremely beneficial as it provides a safeguard against unpleasant surprises. In India, consumers can approach auditors registered with the Quality Council of India for an inspection to determine if materials used in the construction meet all safety norms,” says Sandhir S of RICS India.

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Noida or Gurgaon: Where to invest?

Gurgaon and Noida have witnessed rapid development over the last decade. There are however some key differences in the way these two property markets have matured

Are you unable to decide whether to invest in Noida or in Gurgaon? The decision to buy property must be well-evaluated. To give a comparative picture, Happy Keys takes a look at the offerings, infrastructure, connectivity and expansion plans of the two cities.

Property in Gurgaon and Real Estates Noida have both witnessed rapid development over the last decade and will continue to do so. There are however some key differences in the way these two property markets have developed.

Existing differences

According to Happy Keys data, while Noida caters to a wide range of budgets, Gurgaon consists primarily of premium offerings.

Secondly, Noida is perceived as one of the largest planned cities in Asia with broader roads and planned layouts. Gurgaon, on the other hand, has mostly witnessed haphazard development. The roads within the city are narrow and badly maintained. However, it is also the home to some of the largest commercial establishments and malls.

There are also subtle differences in the two markets. While a large number of Indian and international IT and manufacturing companies have set up base in Noida besides media houses in Film City, Gurgaon is home to several fortune 500 companies and global consultancies,” says Yogesh Luthra of Yogesh Property Advisers, who has been in this industry for over 15 years and has witnessed the growth of these two markets.

“Also, as far as the local population is concerned, Gurgaon tends to attract people from South and West Delhi as compared to Noida, which has witnessed investors from primarily East Delhi,” he adds.

Infrastructure

Though Gurgaon gains brownie points due to its proximity to the airport, when it comes to internal roads, it can be rated below Noida. Most of Gurgaon lacks proper urban infrastructure with broken roads and streets that often lead to traffic jams. On the other hand, Noida’s infrastructure is relatively well planned offering wide roads, better water treatment facilities, better public transport and good residential facilities in sectors.

The average road width in Noida’s industrial sectors is 80 feet as against just 45 feet in Gurgaon, as per area records.

The difference is that while infrastructure in Noida is planned and work begins in advance, with the launch of projects close on its heels, in Gurgaon, infrastructure develops around projects. And this has played a significant role in how the two areas have developed,” says Vinay Vasisht, a property consultant and adviser, who focusses primarily on high-end projects.

Expansions

The Noida-Greater Noida, Noida Expressway is the hot area in Noida.

With land availability reaching saturation level in core Noida, new developments are happening towards Greater Noida. Most projects are being launched along the Noida-Greater Noida Expressway and beyond on the Yamuna Expressway.

With Noida and its twin Greater Noida being brought closer with a 30-kilometer long metro corridor, construction of which is rapidly progressing, the impact on property is expected to be huge. This metro line will originate from Sector 71 and run parallel to the Greater Noida Expressway before terminating beyond Delta I sector.

The most awaited route however will be the dedicated metro line to Greater Noida (West), popularly known as Noida Extension. This developing sub-city has a massive 1.5 lakh units in supply across 190 residential projects.

Gurgaon is also expanding along NH8 towards Bhiwadi and Badshahpur towards Sohna. Gurgaon and Greater Gurgaon are expected to become one of the preferred luxury destinations in India. The area already has 11 metro stations of which five are managed by Delhi metro while the remaining six stations are operated by Rapid Metro.

Average price
Broadly, as per Happy Keys data, Noida caters to a broader cross-section of budgets as compared to Gurgaon. While average property prices in Noida are in the range of about Rs 3,500-6,500 per square feet, a similar property in Gurgaon is in the range of about Rs 7,000-9,000 per square feet.

“It is not that Gurgaon doesn’t have property aimed at the mid-segment. It is just that premium offerings outnumber them,” says Luthra. “Gurgaon has a higher population density as compared to Noida. It is also close to the airport. Both these factors have encouraged the development of premium projects.”

Ultimately, buying it is a matter of personal preference. So while a frequent traveler may prefer Gurgaon, those preferring to live in a planned city can go to Noida.

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Yamuna Expressway market sees upswing

HappyKeys takes a look some of the diverse offerings in this area that differentiate this stretch from the rest of NCR

Yamuna Expressway Property, a 166-km stretch touted as an affordable destination for property investors, has transformed beyond the low-priced tag alone. The areas along the six-lane expressway have fast become a realty hotspot brimming with activity catering to a broad cross-section of prospective buyers.

HappyKeys takes a look some of the diverse offerings in this area that differentiate this stretch from the rest of NCR.

Affordable housing with premium amenities

The upcoming residential areas in Yamuna Expressway are within the price range of the budget-conscious investor. As per Happy Keys data, several of the ongoing and newly-launched projects come with premium amenities. And this is one of its key distinguishing factors.
“Yamuna expressway today is home to lifestyle projects, which is in contrast to what it was perceived as few years back,” says Amar Kumar Rathore of AK Real Estate Consultants.

“Developers have announced several lifestyle projects with premium amenities. This is a clear indicator to the potential the market has, especially given the planned infrastructure development along this stretch.”

Developers with ongoing projects in the market today include Jaypee Developers, Supertech, Amrapali, Lotus Green, Cosmic and Oasis Group.

The average unit sizes of these projects range between 900 and 2,025 square feet for 2BHK, 3BHK and 4BHKs. The starting price for these projects is from about Rs 35 lakh, which brings great value for money for a home buyer,

Broadly, lifestyle amenities planned in these projects include state-of-the-art club house, fitness centre, swimming pool, indoor games facility, parks with walking and jogging tracks, sauna, jacuzzi, tennis court, open green spaces with water bodies, security surveillance and more.

According to HappyKeys research, property values of apartments have witnessed an escalation of about 39 per cent in the past one year.

Plot offerings

Plots, an almost unthinkable luxury in Delhi-NCR, are the other option available along this stretch.

Recently, the Yamuna Expressway Industrial Development Authority (YEIDA) conducted a draw of lots for about 900 affordable residential plots along the stretch. These plots are of two sizes — 120 meters (600 plots) and 162 meters (300 plots)–  located in Sector 22D at a price of Rs 14,250 per square meter. This means that a 120-meter plot would come at a cost of Rs 17.10 lakh while a 162-meter plot would cost a home buyer about Rs 23 lakh. YEIDA has fixed the Floor Area Ratio (FAR) for at 1.8 and ground coverage allowed will be 75 per cent.

In addition to these, there are several private land developers who are in the process of coming up with gated-plotted communities,” says Parushuram Tiwari, a freelance consultant and property advisor in the area.

Priced at around Rs 10,000 per square feet, plot sizes vary between 1,400 and 2,500 square feet.

Villa offerings

In last one year, the area has also witnessed the mushrooming of villas, currently priced between Rs 80 lakh and Rs 2.25 crore.

Ongoing projects include Golf Country Villas by Supertech and Villa Expanza by the Jaypee Group.

Future development

Given the infrastructure development of the six-lane road, extendable to eight lanes, five planned LFDs (Land of concessionaire) with four toll plazas, and six interchanges along the entire length, social amenities are expected to come up fast.

The recent capital appreciation is another factor making this stretch attractive.