The upward revision in repo rate by the Reserve Bank of India is likely to increase pressure on real estate developers to offer discounts in the upcoming festive season as they struggle to clear their inventory at a time when demand is tepid and interest rates are rising.
HDFCBSE -1.24 %, ICICI Bank BSE -2.36 % and Axis Bank BSE -0.44 % raised interest rates on home loans last month while State Bank of India BSE -1.24 % did so on Thursday and the RBI on Friday raised the rate at which the central bank lends money to commercial banks by 25 basis points.
“Discounts are now inevitable,” said Sanjay Dutt, executive managing director of South Asia at real estate services firm Cushman & Wakefield. This festive season is likely to see just a tenth of last year’s new project launches, according to an estimate by the Confederation of Real Estate Developers‘ Associations of India (Credai).
“Developers will want to sell their unsold inventory instead by using innovative schemes and discounts. Rising interest rates, though, will lower sentiments and could impact sales,” said Credai chairman Lalit Kumar Jain.
The festival season usually generates about 20% of the annual home sales. But demand has been severely hit this year due to the economic slowdown, higher inflation and job cuts in several sectors. The spike in interest rates can only add to the industry’s woes, developers said.
“If interest rates go up, demand will be impacted slightly,” said National Housing Bank chairman RV Verma. Home prices fell in 22 of the 26 cities in the quarter to June, according to the National Housing Bank’s residential housing index, Residex,
“If developers really reduce prices, some sales should happen this festive season. This is an opportunity for them to clear their inventory pile-up,” said a senior SBI BSE -1.24 % official, who did not wish to be named.
DLF’s group executive director Rajeev Talwar termed the increase in repo rate a missed opportunity. “There was a need to lower rates to stimulate demand,” said Talwar.
According to property research firm Liases Foras, close to 670 million sq ft of stock is lying unsold with developers as home sales have fallen over the past few quarters.
“We will not be launching new projects this festive season. Instead we will focus on delivering old projects and will offer schemes and discounts to get rid of our inventory,” said RK Arora, managing director of Noida-based developer Supertech.
Several developers are poised to launch new schemes for existing projects and also offer innovative payment structures, said Ankur Srivastava, chairman of GenReal Property Advisers. “They are also repositioning parts of existing projects to stir sales,” Srivastava said.
Freebies are now Inevitable.
DEMAND has been severely hit this year due to the economic slowdown, higher inflation and job cuts in several sectors.
BUILDERS will want to sell their unsold inventory instead by using innovative schemes and discounts.
MANY DEVELOPERS are poised to launch new schemes for existing projects and also offer innovative payment structures.
How these two income tax deductions apply.
You can claim an income tax exemption on your house rent allowance (HRA) as well as on interest paid on a home loan. Many salaried employees take a home loan to acquire a residential property but do not stay in that property for various reasons. They may stay in a rented premises and be in receipt of HRA from the employer. The exemption of HRA is covered under Section 10 (13A).
The conditions for allowing the exemption on HRA are:
The rent must actually be paid for the rented premises which you occupy The rented premises must not be owned by you
The amount of HRA exempt is the least of:
- The actual amount of allowance received by you in respect of the relevant period The amount by which the expenditure actually incurred by you in terms of rent exceeds one-tenth of your salary in the relevant period
- Half of the salary in the relevant period if the rented house is in Mumbai, Kolkata, Delhi, or Chennai
- 40% of the salary in the relevant period if the rented house is anywhere else
As long as the rented house is not owned by you, the exemption of HRA will be available up to the limits specified in the relevant rules. In case of interest paid on a home loan, the deduction is allowed while computing ‘Income from House Property’. In order to compute the ‘Income from House property’, the net annual value of the property is reduced by 30% and from the balance, the interest payable on the loan taken for acquisition or construction of this property is deducted.
In case the property is given on rent, the annual value will be calculated based on the rent received and the final ‘Income from House Property’ will be calculated. In case the property is lying vacant and is neither rented out nor self-occupied, the rental that could have been derived had it been rented out is taken as the deemed rental income and the calculation has to be then made.
There are a few circumstances under which the annual value of a self-occupied or vacant property is treated as ‘nil’. First, where the property is located in a city different from where you work, and you stay in a rented house.
You will be able to take the annual value of such property as ‘nil’ even though it is not occupied by you.
Second, where the property is located in the same city as your rented house but is in your occupation, and used to live in. In the case of a self-occupied property, the annual value is taken as ‘nil’. The only deduction is on account of interest on housing loan, which is restricted to a maximum of Rs 1.50 lakh.
- As long as the rented house is not owned by you, the exemption of HRA will be available up to the limits specified in the relevant rules.
- In case of interest paid on a home loan, the deduction is allowed while computing ‘income from house property’.