News
Home Loan Interest Rates to Fall DownApril - 2007
The situation of perplexity created by increasing home loan rates seem to be over soon as bankers expect the rates to witness a fall of 15% after two years of robust 33-35% surge and sharply below the expected overall credit growth of 22-24%. The policy measures proposed by the RBI can be taken as a red signal for bankers to exercise caution on the real estate sector, including home loans. Around 18% of the hike in banks’ non food credit in 2006-07 was because of the home loans and another 5% on account of loans given to the commercial real estate. In 2005-06, home loans accounted for 12 per cent of the total loans. Banks have become too conscious in offering the home loans now. Some banks have brought a correction in their loan-to-value (LTV) ratio. Till now, borrowers could get the loans up to 90-95% of the purchase price of a residential property. Now, they have altered the ratio to 80%, thereby bringing back the norm which was prevalent over three years ago. Thus, individuals who were earlier enjoying the eligibility to borrow a Rs 20 lakh loan will now be able to borrow Rs 17 lakh. Most banks have held rates for existing borrowers but raised the rate for new. The interest rate surge in home loan has forced the consumers to break their bank and come up with the money to pay prohibitive EMIs every month. For every 100 basis point increase in the rate on home loans knocks off nearly Rs. 1 lakh from the amount an individual is eligible to borrow.
Indian Reality
LAND HO!
Is it a bubble or a brick? Well, no one’s sure even as property prices skyrocket in metros and developers move in for the kill in small towns. But with its industrial base, the north can afford many more malls, multiplexes and townships
13th, February - 2007: The Times of India, New Delhi Edition
APART from solid claims of a spiralling Sensex, 2006 was also the year of the real estate sector, with the national capital region taking the lead. Today, the boom wave has spread beyond the Gurgaon-Delhi-Noida axis to include interiors of Punjab, Haryana, J&K, MP and UP. In fact, in the last one year, land prices in these states have appreciated by more than 25-40%. The boom in the north is not confined to certain pockets, the prices have shot up in the entire region.
The trend is part of a larger one. The action is shifting from the metros to tier II and III cities. Towns and cities with population of 0.5 to one million are expected to see major retail and residential developments in 2007-08. In Lucknow, Rudrapur, Dehradun, Varanasi, Indore, Ludhiana, Chandigarh, Mohali, Amritsar, Kundli, Sonipat, Karnal, Panipat and Jammu, large-scale projects by leading developers are a common sight today.
Major developers like DLF Group, Unitech Group, Taneja Developers & Infrastructure Ltd (TDI), Omaxe Group, Ansal API, BPTP, Realtech Group and Parsvanath Developers are leading the charge. Says Anuj Puri, MD, Trammel Crow Meghraj Property Consultants, “The real estate sector in north India is active and the demand is expected to grow further over the next 12 months in the commercial and residential sectors. Developers are aggressive in this belt and there is huge demand from the actual end-users in this region.”
Adds Pradeep Jain, chairman, Parsvnath Developers: “Growth in the periphery is better explained by the theory of the growth of the middle class. The purchasing power of the middle class tends to be more than the average rate of growth of the economy. Beyond a certain threshold level of incomes, the growth of real estate in these towns can be 10%, whereas the rate of growth of the economy is just 6%.”
According to a research paper, the retail boom — 85% of which has so far been concentrated in the metros — will percolate to smaller cities and towns. The contribution of these tier II & III cities to total organised retailing sales will grow to 20-25%. Availability of cheaper real estate options coupled with brand acceptance among consumers in these cities is leading retailers and property developers to achieve break-even much faster as compared to larger cities. Take, for example, average rental values for ground floor space ranges from Rs 35 to 60 per sq ft per month as opposed to Rs 80 to 120 per sq ft per month in some of the prominent metropolitan cities.
A study done by Trammel Crow Meghraj says that the north Indian market, one of most vibrant, will require policy attention, consistencies and perhaps radical change in the next two years. According to estimates, more than 50 million sq ft of organised retail space will be coming up across the country by the year 2007-end, out of which eight million sq ft is expected to be in north India. Out of the proposed 282 malls slated to come up by the year end around the country there are more than 90 real mall projects under construction or under serious stages of planning in the eight big cities in north including the NCR. The cities are Delhi, Chandigarh, Jammu, Kanpur, Lucknow, Ludhiana, Agra and Jaipur. While the six metros of Mumbai, Delhi, Chennai, Kolkata, Hyderabad and Bangalore will have 77 malls by 2006, 58 malls will come up in tier II cities. In fact, there are 40 multiplexes also lined up in these different north Indian states.
Says Davinder Gupta MD, DGS Realtors Ltd: “The plethora of malls coming up in Gurgaon, Noida and the entire north India covering over a million square feet of space, are under various stages of development. The availability of land with the flexibility of retail use has been the key trigger behind the supply deluge in the town.”
The growth in retail and commercial real estate has given fillip to the residential sector. These days executives are looking at the concept of walk-to-work and major small towns in north India like Jaipur, Bhopal, Indore, Lucknow, Patalia, Mohali, Gurgaon, Noida and now Jammu are becoming favoured destinations. In fact, many MNCs give added incentives to their executives who stay near to the work place. These north Indian cities is home to more than 700 MNCs.
Says, Sanjay Chandra MD, Unitech group, “These new towns are fast emerging as a modern township with lavish lifestyle, with golf courses, shopping malls, multiplexes, restaurants, pubs, etc. The real estate market has picked up, thanks to the lower interest rates and easy accessibility of loans in these areas. In fact, more businesses and corporate are moving to these towns, as also new schools, malls and cinemas, making it a self-sufficient township. The construction of expressway on National Highway 8 will ease the traffic movement from Delhi. This will further strengthen the residential real estate market.”
Agrees SK Sayal, CEO, Alpha G Corp: “More and more people are preferring to move to smaller towns which are closer to their work place, to save on travel time, traffic hassle and, of course, for better quality of life. A pollution-free environment, open space, superior building infrastructure, proximity to the airport and favourable housing sops are the other factors influencing the shift to Gurgaon. A lot of NRI population is also focussing on investment opportunities there.”
The residential market in north Indian cities has witnessed a steady rise in demand for residential projects and demand for flats in the Rs 25-30 lakh category. In fact, there has been a perceptible firmness in prices for the newly-built residential stock which is on offer for potential home buyers. The quoted rates are higher than a year back and there has been buoyancy in offtake volumes.
Says Sanjay Verma, executive MD, Cushman & Wakefield, “There are two key trends. There is a steady increase in the number of off-plan sales in the residential segment, which had almost petered out in the post-slump era, and highend residential developments are back on the scene. Market indications suggest that the favourable housing finance rate regime, coupled with attractive packages tailored by housing finance companies, is prompting the end users to consider purchasing for their own use or at times, for investment.”
However, infrastructure still remains a critical bottleneck in all the cities, and needs to be addressed fast, if it has to retain its attractiveness for the buyers at the macro level. This is despite the fact that most of the new large residential developments are comparable in terms of quality and finishes to the best available in the country.
January’07 Real Estate Watch,
Mr. Anuj Puri, MD – Trammell Crow Meghraj Property Consultants answers some of the most frequently asked questions on Real Estate.
What is your perception of the real estate boom in India?
For next two years, the Indian economy and the real estate boom are going nowhere but northward. A number of foreign investors are entering real estate investment space, with close to $7 - $8 billion of venture capital expected to flow into Indian real estate over the next 18 to 30 months.
How do you compare the real estate business of India from what it was maybe, a decade ago?
There is a significant correlation between a country’s GDP and its real estate investment trends and India’s GDP growth has been high at 6.5 percent annually over the last five years. Thanks to increasingly progressive economic liberalization,India is beginning to attract significant FDI inflows and the IT /ITES sector has emerged as a primary driver on India’s real estate market. If we compare this scenario to that of ten years ago, I can only say – no contest.
Will you agree that there had been a tremendous gap between demand and supply in the real estate sector that has primarily contributed to this boom in India?
Yes,definitely. Intact the mismatch between supply and demand has caused new property hotspots in the form of Tier II and Tier III cities to come into the limelight.
How long according to you is this boom likely to stay?
It is eminently sustainable and will continue until a major upheaval of some kind takes place – a change in government, for instance, or a drastically new fiscal policy.
Going by our currently prevalent policies and the indiscriminate rise of many a player in the industry, does not this boom face a potential stagnationthreat?
Currently, real estate prices are end-user driven. For instance, residential development is led by individual buyers purchasing their first homes. Salaried buyers are at an advantage no because of easy funding by banks, and so are developers. Developers are therefore able to construct and develop more projects. In the residential sector, the price boom is a phenomenon that literally feeds itself.
Prices in commercial development are rising because of difference of demand and supply. There is currently a very large demand and the supply is not able to keep pace with it. This naturally makes available real estate expensive. Today’s rates fluctuate wildly according to the project and the banner under which it is being developed. Certain areas are definitely overheated with artificially inflated prices. The present rate of transactions in such areas is not sustainable and we will see a slowing down there. If the overall rise in rates continues till then, property buyers will finally have run out of options and the true nature of the market will be revealed.
Which segment of the burgeoning real estate business is likely frontrunner in the trade?
Definitely retail. The total retail market in India is estimated to be $180 billion. The total world retail market is estimated at $6.6 trillion, making it the largest private enterprise. India has the largest number of retail outlets in the world.
How much do you think has retail construction progressed thus far in India?
There has been a tendency to ape the western mall models without taking into account the basic differences in cultures and customer preferences. However, many retail space developers have woken up to this discrepancy and are beginning to design malls that are more in tune with Indian sentiments and requirements.
Are the real estate boom and the retail boom in the present scenario, deeply connected?
The residential, commercial and retail sectors have an inherently symbiotic relationship. While one sector may see greater growth than the other at times, the fact remains that all three contribute to the sustenance of a thriving property market.
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HOME LOAN scenario in 2007
29th, December - 2006: The Times of India, Bangalore Edition
Ashish Gupta forecasts the home loan interest rate movements in the coming year
The year 2006 has now come to an end and 2007 is round the corner. What are the expectations of the people in the New Year for the housing sector? How will the housing sector scenario be in the year 2007? Will it continue the way as in the past or would it be different? As was evident during the year 2006, the interest rates kept climbing slowly and steadily. Various factors contributed to this trend with inflation being the major one.
The rise in the petroleum prices being the other one. In order to manage the liquidity in the system, the Reserve Bank of India has been increasing the repo rates, reverse repo rate and Cash Reserve Ratio rates. The fact that the era of soft interest regime was over has also been underlined. The housing loan interest rates had fallen down considerably over the years - from 16-17 percent to 7 percent to 10 percent and have now started to move up again and are now ruling at the double digit mark.
Will the upward trend continue or will they stabilise at these levels or will the good old times come back and interest rates will fall. RBI itself increased its repo rates. 2005 saw a hardening of interest rates. 2006 saw a further hardening effect. There have been increases in the interest rates by banks and Housing Finance Companies (HFCs). This applies to both fixed and floating rate loans. One major factor contributing to increase in interest rates was the increase in the inflation rate. Interest is based on the Inflation rates. As such, the lending rates on loans also tend to increase. Inflation tends to be affected mainly by crude oil prices and trend of monsoons. In case of any adverse movements in the oil prices, inflation takes a kick. Similarly, any adverse monsoons - low or excess tend to impact the inflation rate, which then triggers the interest rates. What happens to the housing loan interest rates, a lot will depend on these two factors. Also, as the industrial sector picks up momentum, it would act as a competitor to the housing sector for demand for funds from the banking sector.
The Income Tax Act allows exemptions in respect of the interest payments for housing loans as well as for repayment of housing loans. The repayment of loan upto Rs 20,000 per annum qualifies as an eligible amount for claiming tax rebate under Section 80C of the Act. The interest payable on housing loans up to a limit of Rs 1,50,000 is allowed as a deduction for self occupied houses. Various tax reforms committees have recommended phasing out of these exemptions. These recommendations were made in an era when the interest rates were falling. With the trend being reversed, the status of these recommendations needs to be seen.
The property prices have been rising and touching unprecedented heights. In fact so much so, that properties are again becoming out of reach of common man. Whether the price rise is justified or is it just a manipulated bubble remains to be seen. Reserve Bank of India, in its policy statements has time and again cautioned the banks to be extra cautious before taking exposure. In fact RBI went to the extent of increasing the risk weight age of the housing loans. Reserve Bank of India increased the risk weight on real estate exposure and hiked the risk weight for lending to the real estate sector. The RBI has cautioned the banks to be extra careful while going all out to fund and finance the real estate sector. As per the RBI there is a greater need to ensure credit quality and one needs to take a careful look before taking these risks.
According to reports, the property prices have come to their saturation and there is little scope for further increases. The price hike has been quite fast and unrealistic. The growth in infrastructure has not been able to keep pace with the increase in property prices. So there are more chances of this increase being more of a bubble.
Earlier, the government had opened up the construction sector and allowed 100 percent FDI in it. This was expected to give a tremendous boost to the already buoyant construction sector. With the coming in of the foreign players, it is expected that the interest of the consumers would be well met in future.
Considering all these factors, one can deduce that the further increase in interest rates may not be there. The interest rates may well have reached their peak. Further substantial increases in 2007 may not be possible. As it is, with the present interest rates, only genuine buyers would remain in the market in the long run. The speculators and investors would have to exit. Why? Well because the property prices are so high that selling properties would be difficult. It would be difficult to buy at the present rates. As per the HDFC annual report, in many parts of the country, the housing demand is investment driven. Further with increase in interest rates, the returns on this investment would fall. RBI on the other hand is trying its best to prevent increase in inflation.
So the floating loan buyers need not despair. The hard times may be a temporary phase. And hopefully it should not get any harder further.
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Opportunities for investors in 2007
29th, December - 2006: The Times of India, Bangalore Edition
With rising salaries and easy accessibility to home loans, the demand for houses
and commercial spaces is bound to increase making investments in the realty
sector an attractive option in the coming year. R Jayaprakash has this analysis
Internationally recognized as one of the largest emerging markets in the world, India today is the world's fifth largest economy, a rapidly growing consumer market of 900 million people that will, by 2010 surpass China as the world's most populous country. And the real estate sector too in a significant way has contributed to the economy. While the Bangalore office space market still leads the charts with over 14 million sqft transacted over last four quarters leaving behind NCR, Mumbai, Chennai, Hyderabad and Pune.
The Bangalore property market has been vibrant and opened up new vistas for realty opportunities in last few years but significantly in 2006. Investors in property market are all smiles at present. The boom in the property market over the last few years has resulted in a lot of supply coming into the residential market, especially in the suburbs.
According to realty consultants Cushman and Wakefield, the IT Park, hospitality, leisure and entertainment projects could fetch an annual return of 20 to 25 percent in the next three to five years. The return from residential projects would also be high between 17 and 22 percent.
Hospitality and leisure
According to the estimates doing rounds in the realty market, there is a demand for 30-35 million sqft of space in hospitality-focused real estate spread across 6-7 major cities between 2005-09, entailing a capital investment of $8-9 billion. The increase in economic activities has also led to its geographical expansion. Traditionally, India's hospitality sector was limited to 7-8 city markets comprising of the tier-1 cities Mumbai, Chennai, Bangalore, New Delhi, Kolkata and Hyderabad and tourist hotspots of Jaipur, Agra and Goa. But, in the last one decade, this has spread to cities like Ludhiana, Chandigarh, Ahmedabad, Pune, Cochin and Mysore. It is said that if the untapped potential in these markets were to be factored, India could very well be looking at a 16-17 city market in the ensuing years.According to reports published by Jonse Lang Laselle, the investment opportunities in the new emerging city market would give good returns in the medium to long term. The report added that the return in this sector could be upward of 25 percent.
Retail sector
The outlook for retail real estate markets in 2007 remains positive in the medium term. As the retail is a space intensive industry and is growing rapidly in India, the real estate requirements are also going to be large. The report estimated that an additional 46 million sqft of space for malls and multiplexes would be added in tier I, II and III cities in the next 24 months. The five tier I cities, Mumbai, NCR, Chennai, Kolkata and Bangalore, have absorbed 30 million sqft space in 2006. By the end of 2008, another 32 million sqft space is expected to become operational in these five tier I cities.
Opportunities for investors . . .
After testing the successes in the tier I cities, the retailers are now queuing up to enter in the tier II cities. According to the report, as many as 45 malls offering around 9.5 million sqft of retail real estate are expected to become operational in tier II cities by 2007.
At the same time, as the government has allowed Foreign Direct Investment in the construction sector, the quality of real estate is also expected to undergo a quantum jump. The Indian players have also introduced international practices to deliver international quality products in the market. However, some developers are only leasing out space to retailers. There are many developers who are not keen on managing the mall after completion. At the same time, many retailers are also not keen on buying the space. They are more interested in taking the space on lease. This creates a space for investors who buy space from the developers and lease out to the retailers. According to going rates, the return through rentals itself is around 10 to 12 percent. However, the developers make upward of 20 percent in the venture, the report states. Talking of Bangalore, the garden city is seeing a frenetic demand for retail space. While CBD areas are facing an acute shortage of adequate space for malls, suburbs and peripheral areas are paving way for new malls.
As construction of new malls will take some more time for completion and no large supply is imminent, some retail companies have begun to take up space in standalone buildings in CBD areas, according to Trammell Crow Meghraj Property Consultants. The key traditional areas like MG Road, Brigade Road and Commercial Street continue to attract investments. Retailers who are already based in CBD areas are also looking at expanding in off CBD locations.
The Sigma Grand mall is expected to be ready by the end of 2007. This mall is a discount mall located strategically on Outer Ring Road stretch between Varthur road and Old Madras Road. On completion, it would be the first operational mall in this market segment, according to Jones Lang Lasallee research report. Esteem Builder's Esteem mall on Bellary road is expected to be complete by first quarter of 2007. Another mall, which is expected to come up in second quarter next year, is Gesco's Lido on Ulsoor road. The total supply of mall space in the pipeline, aggregating 3 million sqft is distributed across the city with projects proposed in the western, southern and eastern regions. Among major future supply of malls, specific mention must be made about Prestige Forum-2 (3.5 lakh sqft) during first quarter, 2007 in Whitefield, UB City (1.5 lakh sqft) on Vittal Mallya road and Ozone in Whitefield. The rental values on Brigade road, a prime high street location increased by 4.2 per cent over the previous quarter. No increase in the rental values was observed in secondary high street locations such as Indiranagar.
Residential real estate
The residential property market constituted almost 80 percent of the real estate market in terms of volume and has been growing at 34 percent annually, the report said. As demand is far in excess of supply, the price is not likely to decline in the near future.
However, the report pointed out that the key aspects for future sustainability of the activities in real estate would be the continued performance of the economy, future availability of housing finance around the prevalent interest rates and a conducive investment climate.
Substantial real estate activity has been witnessed during 2006, especially in the metropolitan cities. Rising employment opportunities and consistent increases in salary levels have led to high disposable incomes with relatively smaller households. This has translated into direct demand for residential apartments. The number of first time apartment purchases by middle class has witnessed a sharp rise over the past half a decade.
According to the report, the biggest stimulus for this demand came from easy access to finances at a much cheaper rate than what it used to be some 10 years ago. In 1996, a housing loan was available at 16 percent per annum, which came to around 7.5 percent.
A combined effect of these factors is the steep rise in residential prices across the town and suburbs of most metros. The price rise, interestingly, remained unabated despite large scale supply. This, the report said, underlines the latent confidence among the developers, of the sustainability of demand growth in the long term.
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Renting out house may save you tax
13th, December - 2006: The Times of India, New Delhi Edition
Tax
breaks on selfoccupied houses are passe, there could be a bonanza in store for
those who earn rental income. The government is considering a proposal to
provide tax rebate for properties occupied by tenants. At present, any rent
earned by an individual is added to his or her annual income and taxed
according to the applicable rate. So, a person who earns an annual salary of,
say, Rs 6 lakh, finds his tax liability shooting up by another Rs 1.2 lakh if
he gets Rs 10,000 a month as rent. The total amount of Rs 7.2 lakh is then
subjected to 30% income tax. That may not be the case if a proposal from
housing and urban poverty alleviation ministry before Planning Commission is
accepted by the finance ministry. If North Block, too, finds merit in the
proposal, the individual’s income could stand reduced. By how much? That’s
something to be decided later. The housing ministry’s argument is that tax
breaks would make it attractive for people to rent out properties and reduce
pressure on housing. If the move goes through, tax experts say it could trigger
a fresh rush to buy houses since people would not only enjoy benefits on the
interest they pay on housing loan but also save some tax from the second house.
But there is some bad news for those who want to play it safe and are not
letting out houses that they own. Housing ministry has proposed that tax breaks
on vacant houses should be withdrawn. The ministry has estimated that 9% of
houses in urban areas are lying vacant while economically weaker sections (EWS)
and low income groups (LIG) are forced to make do without a dwelling. A study
conducted by government-run National Building Organisation has estimated the
housing shortage at the beginning of next month at 24 million. The study says
that 98% of the shortage will be accounted for by LIG and EWS. The National
Habitat and Housing Policy, awaiting Cabinet approval, has also made a pitch
for encouraging renting out of houses and providing sops to companies to build
service apartments which can be leased out. Housing ministry has, however, not
suggested whether the entire tax benefit should be withdrawn or the withdrawal
would be partial. Similarly, there are no details of how much benefit would be
provided to those who are renting out houses. The details would be worked out
over the next few weeks and may come up for discussion during the budgetmaking
exercise.
HOUSE THAT!
Tax rebate for properties occupied by tenants will encourage people to rent out houses
This could reduce housing shortage, which is expected to touch 24 million at the beginning of next month
Those unwilling to let out their houses stand to lose as tax breaks on vacant properties may be withdrawn
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Take that home loan before the rate rises
11th, December - 2006: The Times of India, New Delhi Edition
The question home buyers are now asking is: With interest rates inching northward, do I wait a while before availing a loan? The consensus answer is: No . Interest rates are expected to move further up in the near future. This follows RBI’s unexpected decision to hike the cash reserve ratio (CRR) by 50 basis points to 5.50% from 5%. This means, banks will have to park more funds with the central bank and will be left with lesser resources to lend. ‘‘Interest rates are expected to firm up as the hike in cash reserve ratio will strain the liquidity in the banking system,’’ said Vishakha Mulye CFO and treasurer ICICI Bank. The only silver lining in the cloud is that the hike in CRR would force banks to attract more resources from the public. Towards this, banks may offer higher deposit rates. But this additional cost, in turn, will have to be borne by loan seekers. Bankers, who have until now been averse to raising the rates on retail loans due to the intense competition, are now of government securities and treasury bills. This move on RBI’s part is largely aimed at curbing inflation which has inched up to 5.3% as against 4.3% at the end of March 2006. It is also concerned that there is too much money chasing the same set of resources. Another concern is the 19.4% growth in the money supply as against 17.3% growth in the year ago period. Growth in money supply is a function of the fact that there are huge dollar inflows, thanks to stock market boom. To prevent rupee from appreciating, RBI has been mopping up dollars. Every time it does that, it has to pump in an equivalent amount of rupees in the system adding to excess liquidity. The dollar mopping exerand reprice long-term loans. Banks are expected to hike lending and deposits rates by 50 basis points,’’ said Abheek Barua chief economist ABN Amro Bank. State Bank of India’s decision to hike term deposits rates by 25 to 75 basis point from December 11 has set the stage for banks to follow suit. This rise in borrowing cost will force banks to pass on the cost to customers by way of rates hikes in loans. ‘‘We have been caught unawares. Until now, liquidity in the system was comfortable and there was no pressure on rates. However, the hike in CRR will definitely push up rates on both deposits and loan segments. It’s just a matter of time,’’ said a senior official from a private sector bank.
GHOST OF INFLATION
Banks will be forced to increase deposit rates to raise resources. The CRR hike likely to drain out Rs 13,500cr from the banking system. RBI’s efforts to mop up dollars has also caused excess liquidity. The central bank’s action is seen as a sign to push up rates.
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2nd home googly foxes taxpayers
07th, December - 2006: The Times of India, New Delhi Edition
Officials Deny Capital Gains Tax Exemption On Second Property If you are selling a smaller flat at a prime location to buy a bigger flat in the suburbs and using the surplus from the sale of your old flat to buy another property, then better watch out. Chances are that your move may not go down well with the income tax department. The tax officials are denying capital gains tax exemption on the second property purchased on the grounds that a taxpayer is entitled to exemption only for one property. Capital gains set-off is given on the money a taxpayer gets from selling a residential property, if the money is reinvested to buy another residential property. For instance, if a flat is sold for Rs 30 lakh by a person who uses this money to buy a bigger flat for Rs 45 lakh, then no capital gain tax is levied on Rs 30 lakh (the sale price of the old flat). But if the new property is worth Rs 20 lakh only, then the taxpayer is expected to pay capital gains tax on the residual amount, Rs 10 lakh in this case. With more and more people upgrading to bigger houses, more claims are being made for the capital gains exemption under Section 54 of the Income Tax Act. According to the Reserve Bank, housing loans witnessed an year-onyear growth rate of 54% to Rs 60,495 crore till Juneend this year, indicating a boom in the real estate market. The issue crops up when a taxpayer buys two properties and claims exemption on both. The two properties could be adjacent flats, or flats in different places in the same city or a different place. The I-T department is using its interpretation of the phrase a residential house used in sub-section (I) of section 54 and 54F, saying that taxpayers are entitled to capital gains exemption only on the first property they buy. The issue cropped up in the case of a Mumbai-based taxpayer Sushila M Zaveri. The income-tax appellate tribunal (ITAT), the final fact-finding body of the income tax department, is now slated to take up the issue on January 17. A special three-member ITAT bench has been set up to answer whether the phrase a residential house means one residential house or more than one house independently located in the same building/compound/city. There have been conflicting judgments on the issue which have complicated the issue. The income-tax appellate tribunal’s verdict, whatever it may be, will give clarity to the issue, says K Shivaram, an eminent tax advocate.
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