Real estate firm Unitech today said two of its promoters firms , Prakausali Investments (India) and Mayfair Investments, have pledged equity shares equivalent to a 24 per cent stake in the construction firm. However, the company did not specify whether the shares were pledged to banks or financial institutions.

Prakausali Investments (India) and Mayfair Investments have pledged a 19.88 per cent and 4 per cent stake, respectively, Unitech informed the Bombay Stock Exchange in a regulatory filing. Firms usually pledge equity shares as collateral to raise working capital or avails loans when normal credit facilities are unavailable to them. Shares of the company closed at Rs 66.55 on the BSE today, up 0.53 per cent from the previous close.

In the last few years, the money management for these associations has been challenging because of diverse trends in income and expenditure.

On the one hand, the interest rate offered on fixed deposits has been coming down in line with global trends. On the other, the expenditure required to maintain a property has been steadily going up. The situation has forced many to look at newer options and here is a helping hand for such associations.

Monthly income plans

As the name suggests, monthly income plans MIP offers monthly income. The product offered by mutual fund houses does not guarantee returns but one can expect the returns to be in the range of 10 per cent. The payout will be in the form of dividend and hence tax free in the hands of investors, though the mutual fund will be declaring dividends after paying the dividend distribution tax. Still, it offers a better tax advantage for the investors.

The MIP of mutual funds invests a small portion, ranging from 10-20 per cent, in equity and hence they have the ability to generate higher returns. For instance, during good stock market years, the returns from these MIP have been as high as 15-18 per cent, but during bad market years, they can turn negative. Hence, associations need to bear in mind the fact that they carry an element of risk. Then how does one use MIP to advantage?

The best option will be to opt for monthly or quarterly dividend payout option depending on fund needs. For instance, if an association has a fund base of Rs.25 lakh, it can opt for a fixed deposit for its monthly expenditure need and invest the surplus, which could be in the range of Rs.2-5 lakh, in MIP.

The advantage with such a strategy is that the corpus of Rs.2-5 lakh has the potential to grow even in terms of capital and this, in turn, can take care of long-term needs of the building. The association can also look at annual dividend option to take care of extraordinary expenses without dipping into capital.

Fixed maturity plans

As the name suggests, fixed maturity plans FMP come with a fixed tenure and are a good alternative for short and medium term needs. For instance, at present, FMP with a tenure of 100 days offer returns in the range of 6.5 per cent, whereas it is almost a percentage lower in the case of fixed deposits. Unlike MIP, fixed maturity plans do not have any exposure to stock market and hence do not carry any risk.

Corporate deposits

Besides banks, companies mobilise deposits from the public and the advantage is that they offer a higher interest rate than bank deposits. Companies with good credit rating, such as triple A, are as safe as bank deposits and they can be one of the options.

However, while choosing the product, the association should take into account its fund needs over a period of time and should also focus on the quality of the fund house. One can take professional help by taking the assistance of qualified financial planners for choice of scheme.

More importantly, as pointed out earlier, though MIP has the ability to generate higher returns, they carry an element of risk. But then returns can never be higher if risk is not taken.

Below is the list of some must know changes proposed in the draft code with respect to realty sector.

Short-term capital gains: As per the proposals, tax will be imposed on any gain or loss made on the sale of an asset within a year.

Long-term capital gains: The proposed laws say that after an year of purchase, the taxation policy on any gain or loss made on the sale of an asset will be implemented as per the long-term capital gains tax policy.

As per the draft code, from April 1, 2011, April 1, 1981 will not be considered for calculating the discount rate; rather April 1, 2000 will be considered for the same.

Rental Income Taxation Policy: The draft code has proposed that the gross rent should be calculated on the actual rent receivable or received for the financial year.

Home loan Interest Rates: The draft DTC intends to keep on deducing tax on the interest paid on home loans up to Rs 1.5 lakh for construction or purchase of residential property.

Self Occupied House Property: Any self occupied house property (property not been let out) will be allowed for deduction on account of interest to the tune of Rs 1.5 lakh.

This revised draft code of the DTC has come up as a boom for the home buyers and home owners. The revision seems to be beneficial for all, be it is investors or developers.

The move was initiated by RICS (Royal Institution of Chartered Surveyors) India.

The persons in the committee will mainly focus on developing standards and practices in the Indian Realty Market to increase the level of professionalism and transparency among professionals as well as bring reforms in policies for the benefit of people at large and overcome barriers obstructing the growth of industry.

The various challenges that have to be met are the currently fragmented and old legal system including the current laws on land acquisition, problems associated with Rent control laws, providing infrastructure facilities keeping pace with the speed of urbanization, lack of skilled professionals in the industry, among others.

As said by Sachin Sandhir, MD, RICS India, “As the mark of property professionalism worldwide, RICS aims to develop professional knowledge and standards in India and protect public interest through best practice regulation. We are pleased to be represented by India’s most established and respected professionals in this industry and are confident our new Boards and Committees will enable us realize this goal”.

An Agenda-driven conference on the issue saw participation from various Government bodies such as SEBI, National Housing Bank, Ministry of Corporate Affairs. Matters that were discussed were the need for valuation reform and the directions for future practices for the Real Estate Industry.

The RBI circular asked banks granting loans for housing projects to ensure that builders or construction companies disclose in pamphlets, brochures and advertisements in newspapers whom they have mortgaged their property to.

“We must honour this stipulation. There should be no harm or difficultly in doing so. There have been complaints that the flat buyer was not aware about the mortgage. This rule will bring more transperancy,” said Sunil Mantri, President, Maharashtra Chamber of Housing Industry.

Builders generally mortgage their land to get construction loans, a fact that most consumers are unaware of when they book flats in such projects. However, most builders have avoided publicising these details.

According to industry sources, builders are handing out allotment letters to flat purchasers even when the flats are mortgaged to banks and financial institutions by the builder. The buyer has no clue about this because the developer never divulges this information.

There’s a tug-ofwar going on between the BBMP and small-scale industries in Bangalore. Going by available statistics, there are nearly 80,000 small-scale industry units that come under BBMP limits, but almost 70-80% of them have not paid property tax in protest, for the past three years! On a rough estimate, the loss in revenue for the Palike amounts to at least Rs 150-200 crore a year.

“Why must we pay when we are not heard even after several representations?” asks J Crasta, immediate past-president of FKCCI. Incidentally, during his tenure as president, the Federation had also written to its members not to pay property tax until their issues are sorted out, he admits. One of their main complaints against the revised Self-Assessment Scheme (SAS) law for property tax is that it broadly categorises all properties under residential and commercial. There is no separate slab for industries.

“Technically speaking, the rate for industries has not been fixed till now. But the Palike wants to collect it under the commercial slab, which is not feasible for us. Though the rates have remained the same as in SAS 2000, a majority of these industries have seen a shift in zones, leading to a stark rise in property tax under the revised SAS,” explains N S Srinivasamurthy, FKCCI president.

Their recent survey — comparing the tax trends for industries in other states — has led to more heartburn. “A Btype shed of 5,000 sqft in other states like Tamil Nadu is taxed Rs 2,500, but in Bangalore, a similar industry is taxed Rs 13,000-14,000. We have already written to the government and made several representations on the exorbitant hike in tax under revised SAS. We will not pay until this issue is sorted out,” Srinivasamurthy added.

BBMP officials say, “The shift in zone has also been an issue with many residential properties as well. But a majority of them have paid their tax. Further, BBMP’s investment on developing the earlier CMCs must also be considered. All industries also get added benefits — of their total built-up area, 25% is considered utility area and charged at 50% of unit area value (UAV). Owner-occupied industries get flat 50% rebate in UAV.”

A majority of us have not paid property tax. When this area was earlier under CMC, we paid only Rs 2,500 as property tax. Now, under the new tax structure, there is a 300% increase. Most of our units are covered by asbestos sheets and have only cement flooring. We have no proper water and power connections. We are only manufacturers, not commercial people. What we want is a separate category for industries, that’s followed even in neighbouring states.

There is much anguish and hand wringing in the city about people losing valuable parts of their cherished homes to road-widening. The most vocal of the affected 40,000 have been lambasting the BBMP’s move meant to smoothen the flow of traffic in a very congested city.

They can all breathe easy. No acquisition can be done without the owner’s consent, according to the current law, under Transferable Development Rights (TDR). Simply put, if a person doesn’t want to give his/her property for road-widening, then he/she need not.

Right to Information (RTI) documents have thrown up the surprising and hitherto well-hidden clause which states that properties can be acquired for road-widening only under TDR. The catch — which favours the home owners — comes in the next clause; TDR can be enforced only if the owner is willing. If he isn’t willing, the only option open to BBMP is to forcibly acquire the property by paying current market rates under the Karnataka Land Acquisition Act. A process that is very expensive, tedious and time-consuming and as such not a route preferred by BBMP to acquire land for road-widening.

H Siddaiah, the newly appointed BBMP commissioner, admitted as much, “We cannot forcibly take land under TDR for road-widening. In case people refuse to give land for TDRs, then we have the option to acquire land only under the Karnataka Land Acquisition Act. But for this, there are many procedures involved — wherein we first have to issue notices to the property owners. We have to give them three months time to file objections. Then compensation will have to be paid to the property owners. The quantum of compensation again varies from area to area depending on the real estate value of the land.”

The commissioner’s hope is that Bangaloreans will willingly part with their land for road-widening and the consequent infrastructure projects, keeping in mind the larger interests of the city. For the record, BBMP has already identified over 37,000 properties across the city of which 4,436 properties are in Central Business District. Realising that under TDR they cannot forcibly knock down properties, BBMP had readied plan B — to forcibly take away land for road-widening. But that might come to naught. “If the BBMP has to compensate all the affected property owners, the Palike will incur Rs 10,000 crore expenditure, which is virtually unaffordable for a corporation already reeling under financial crunch,” sources said.

The initiative comes in the wake of the reports that half a dozen real estate companies are planning to raise ECBs worth Rs4,000-crore in the coming months and the possibility of these funds being used for activities which, as per the extant press notes, cannot be funded through ECBs.

Under the current norms, realty companies that are purely into integrated townships of specific sizes are allowed to access ECBs provided the funds are used only for activities in these townships.

The country’s major realty developers have been circumventing the rules by placing non-convertible debentures with banks and NBFCs and listing them at a later stage for eventual sale to foreign institutional investors.

The state has the exclusive power to levy taxes on land and buildings in terms of Entry 49 of List ii to the seventh schedule of the constitution, by amending the provision to levy service tax on transaction of sale of immovable property is seem to be unconstitutional.

Sunil Mantri, President, MCHI said that the centre and the state have separate domains in respect of its taxing powers under the constitution.

Mantri added, “The sale of an unit in the complex as per the settled law of transfer of property is not a service accordingly sale by the builder should not be treated as a service since service tax is levied ultimately on the property this would be a tax on transfer of immovable property only.”

Mantri felt that such levy will increase the cost of the flat and ultimate buyer will have to bear such cost on the one side national housing and habitate policy 2007 envisages for affordable housing for all, the proposal to levy of service tax irrespective of any kind of house (even EWS or MIG) would run counter to the policy of the government.

The RBI circular asked banks granting loans for housing projects to ensure that builders or construction companies disclose in pamphlets, brochures and advertisements in newspapers whom they have mortgaged their property to.

“We must honour this stipulation. There should be no harm or difficultly in doing so. There have been complaints that the flat buyer was not aware about the mortgage. This rule will bring more transperancy,” said Sunil Mantri, President, Maharashtra Chamber of Housing Industry.

Builders generally mortgage their land to get construction loans, a fact that most consumers are unaware of when they book flats in such projects. However, most builders have avoided publicising these details.

According to industry sources, builders are handing out allotment letters to flat purchasers even when the flats are mortgaged to banks and financial institutions by the builder. The buyer has no clue about this because the developer never divulges this information.