Tuesday, 28 May 2013

Foreign investors vie for deals in India’s infrastructure sector, but hurdles persist

As if stalled projects, debt-laden developers and weak overall growth weren't enough, these last few weeks have seen further bits of bad news descend on Indian infrastructure. First came the news that the world's largest India-dedicated infrastructure fund, 3i, with a corpus of around $1.2 billion, would make no new investments in India — the value of its Indian investments fell by around 17% in 2012-13.
"While the case for infrastructure development in India remains unaltered, private infrastructure investment in India has faced more political, market and macroeconomic challenges than we expected when we initially made our commitment to the India Fund in 2007," said the board in its 2012-13 review.
Barely a week later came the news that the Tatas would buy out another fund Actis, from a roads sector joint venture the two had set up three years ago. This time the news was better — Actis is not disengaging wholly from the country but rejigging its portfolio of investments to focus on the power sector.
And the qualified bad news turns into partial good news when you dig deeper. Sector experts told ET Magazine that even as some foreign investors throw up their hands in disgust and leave, there are others, both foreign and domestic, looking for a good deal. "We believe this sector [specifically roads] has huge potential," says Sanjay Ubale, managing director and chief executive of Tata Realty and Infrastructure Ltd (TRIL). "There is a lot of value to be found in a number of projects," he adds. TRIL Roads, a subsidiary (and which was Actis' venture partner), recently acquired stakes in three toll road projects in Tamil Nadu from IVRCL, the Andhra-based developer. But there's a caveat here as well. There are definitely investors from India and overseas looking for bargains, but will any deals actually happen?

If they do, and it's a big if, such deals could go some way to relieve developers of some of their debt burden and contribute toward lifting sentiment in the sector. Also, they would come at the right time, when Indian banks have little leeway in extending further funding. But what's likely to hold investors back from signing on the dotted line?
The PPP Cycle
The pall of gloom over infrastructure, to some extent, is almost welcome, since it provides a big, and perhaps much needed, corrective to all the hype over public private partnerships (PPPs) in the years that preceded it.
Indeed, as securities firm Espirito Santo pointed out in a research report last month, such boom-bust cycles of investment are hardly unique to India. "PPP investment has often been a cycle of hype and then disillusion, as infra players become overly optimistic about their execution capabilities, government reform and future forecasts, only for those expectations to come crashing down," says the report, pointing to examples in Latin America and Southeast Asia in the '90s and 2000s.
In Latin America for instance, the sector was opened up during the '80s and '90s, and a private sector boom ensued. However, macroeconomic problems caused an eventual slump and over 30% of projects were renegotiated by governments.
Perhaps the most visible evidence of the 'hype' in India's case was in road projects in the past couple of years, with players bidding as much as a few hundred crores in premium to the government, to bag projects which were decidedly unviable at that price.
Another example is the boom-bust cycle in thermal power plants, as dozens of players scrambled to set up power projects in Chhattisgarh and Jharkhand, with little thought to where the fuel would come from. A third example, as ET has reported, was the signing of dozens of hydropower projects in Arunachal, again, with little thought to viability.
India, according to the Espirito Santo analysts, is at a stage in the PPP cycle where government is taking at least some action to fix outstanding problems, private players have moderated their expectations, interest rates are set to decline, and even fuel risks, on coal for instance, should gradually ease. To put it more bluntly, the sector has hit rock bottom, and there's only one way it can go from here. "...Many of the issues plaguing the sector are cyclical in nature rather than structural," says the report.
Fresh Entrants
Or perhaps not. "If you go by the number of people visiting the country, then yes, there is substantial interest in investing in India," says Athar Shahab, chief executive of Uniquest Infra Ventures, a joint venture of Khazanah, the Malaysian government's sovereign wealth fund, and IDFC. "But I am not sure how many deals will actually happen in the current environment."

Tuesday, 14 May 2013

Essential guide for NRIs investing in Indian real estate

In the aftermath of the Sub Prime crisis in the US and the sinking real estate segment in the EU nations, NRIs have been looking homewards for investing in real estate in past couple of years. Additionally the depreciation of the rupee in the last year has further fuelled the demand for real investment by NRIs in India. In some of the Middle East nations as well as places like Malaysia and Singapore the domicile restrictions are forcing NRIs working there to secure a home back in India when the going is good. But before investing in real estate in India the NRI must be clear about the actual benefits, the options available, the procedure involved and pitfalls that may accompany such a financial decision.

Why buy a House in India?
Currently there are several extremely compelling reasons for NRIs to buy a house in India:
  •  The depreciated rupee presents an ideal situation for smart investment in Indian real estate.
  •  The procedure has been greatly simplified for encouraging NRI investment in real estate. (Refer Foreign Exchange management (Acquisition and Transfer of Immovable Property in India) Regulations of 2000 and additions to this regulations vide RBI master circular No. 4/2012-13 dated 2/7/2012 applicable for Acquisition and Transfer of Immovable Property by NRI/Persons of Indian Origins.)
  • Wonderful offers being floated by the CREDAI (Confederation of Real Estate Developers Association of India).
  • Tax benefits that are especially applicable for NRIs investing in real estate in India.
  • The inherent security of real estate investment that is offered by Indian markets.
      What can a NRI buy in Indian Real Estate?
The RBI and FEMA regulations have categorically specified the kinds of investment that is permitted for NRIs in the real estate segment. A NRI has the permission to carry out the following with regard to real estate in India:
  • Acquire any immovable property other than agricultural land, plantation property and farm house in India.
  •  Acquire any immovable property as described above by way of gift from a resident Indian, citizen of India residing outside or Person of Indian Origin.
  • Acquire property by means of inheritance.
  • Transfer by means of sale of immovable property described above by means of a sale to a person residing in India.
  • Transfer agricultural property, plantation land or farm house by way of gift to Indian citizen who is residing in India.
  • Transfer by way of gift residential or commercial property by means of gift to any person who is a citizen of India whether residing within or abroad or a Person of Indian Origin.
      What are the Financing Options?
As on today there are several financing options for NRIs looking to buy a house in India. The RBI has stipulated the following norms for NRIs to buy a house in India.
  • The home loan amount for a NRI is restricted to a maximum of 80% of the cost and the balance has to borne directly by the NRI.
  • The remittance of the down payment by the NRI can be made directly from the nation of current residence through normal banking channels such as the NRE/NRO account in India.
  • The repayment of the principal as well as the interest amount to the financing agency must be done through similar channels only.
     What are the Tax Implications for NRIs Buying House in India?
The NRI will have to pay the stamp duty and the registration fee while purchasing but will have no additional tax due at the time of the purchase.
  • He shall be able to avail the same benefits as resident Indians on the interest paid towards the house loan.
  •  In case the property is leased then the tax procedure becomes slightly more complicated. The income received by this means shall be treated as ‘Income from Property’ and hence the standard slabs will be applicable with the standard deductions also. For NRIs residing in nations where worldwide income is taxable such as the US, the individual will have to pay the tax applicable in that country unless there is a Double Tax Avoidance Agreement with India.
  • As a special benefit all amount paid towards the interest of the home loan repayment is deductible from the taxable income for NRI without any upper limit.
  •  In case the NRI sells off the property he shall be liable for the capitals Gains Tax as applicable under the IT Act.
     What to watch out for when buying House in India?
While investing in real estate in India can be a smart move there are several pitfalls which one needs watching out for in order to secure the investments.
Property Title: The seller must have clear title of the property and the required authority to sell it especially in case of inherited house or a joint property.
  •  NDC: There should be no outstanding civic authority dues or electricity/ water bills pending at the time of sale. A  No Due Certificate to this effect must be produced by the seller.
  • Bank Release Letter: In case the property had been mortgaged for a loan or provided as a direct/indirect collateral security for any loan, then the seller must be able to provide a release letter from the concerned bank stating that all outstanding loans have been settled and the documents have been releases.
  • Permits: The stated house must have all the required approvals and permits from concerned civic authorities with regard to construction and layout.
  • ·      Litigation: The house under consideration must be verified for any kind of pending litigation.

How to get a safe deal?
The NRI may often find it quite daunting to decide on the right property while deciding to invest in a house in India. The traditional manner is to request friends, relatives and acquaintances to search for the right one. However currently there are many reputed real estate developers who are offering complete services in this regard for NRIs in order to attract investment. Many seminars and Expos are being organized in different parts of the world to woo NRI customers by these developers. One can avail their facilities and select the properties on offer. The reputed developers will usually offer a clear title and litigation free property though this might cost a bit more. These developers also have schemes to take care of the house in terms of maintenance as well as leasing post purchase.

A word of caution in this regard is that NRIs should not completely rely on such Expos and seminars that are held abroad to decide on buying the right house. The agents of the developers may at times provide incorrect and misleading information regarding the true value and prospects of the property that they try to sell. They might be trying to palm off projects that failed to take off in domestic market. Cross checking such claims with someone you trust back home in India can save many complications at a later stage. Careful research undertaken to select the right house to buy in India is the beginning of a really great investment idea for NRIs today.

Wednesday, 8 May 2013

7 most common Home Loan problems faced by borrowers in India

Getting a home loan is a lengthy procedure. However simple it might look in the bank's advertisement, the fact remains that there are a lot of hiccups in the entire process. Here are the 7 most common problems faced by home loan borrowers in India. Each problem is discussed in detail and appropriate remedies are mentioned along with it. The objective of this article is to ensure that your home loan becomes a hassle-free experience.

1.      Rejection at the first stage

Strange but true, many of the home loan applications do not pass even the first test. They are out rightly rejected due to incompatibility between the borrower's qualifications and lenders requirements. It could be the age criteria, income criteria, proper documents not being submitted, the bank not being able to verify your details properly, not passing the field investigations conducted by the bank and many more. The best way to avoid being rejected in this way is to check the eligibility requirements of lending banks carefully and apply only to that bank which matches your profile. Keeping proper documents ready and providing accurate, verifiable details to the banks will ensure that you sail through the preliminary verification process.

2.      Processing fee not refunded

With every application form for home loans, banks require about 0.25% to 1% of the loan amount to be submitted as the processing fees. This processing fees is generally NOT REFUNDABLE. In simple words this means that for whatever reasons, if the bank finds that you don't deserve the home loan, this fees won't be returned. This is the cost of applying for home loans. If in any case, the bank you have applied to states that it will refund the processing fees in case the bank doesn't sanction you the home loan, it is better to get any such declaration in writing and make sure that the clause is enforceable. A verbal statement by bank authorities won't be of any use unless it is properly and legally documented. In all other cases there is little remedy for processing fees being not refunded.

3.      Desired loan not sanctioned

The loan amount sanctioned is based mostly on repayment capacity of the borrower. Many things come into picture, when the bank decides how much home loan a person can get. The monthly income, financial history, other unpaid loans with the borrower, past repayment record, credit card usage history if any, bounced checks, average balance with the banks, continuity in present employment, total years in employment, nature of employment etc. These factors all clubbed together help the bank to decide whether it will be able to recover its money satisfactorily or not. If you get rejected due to any such criteria, you can increase your eligibility by clubbing together your spouse's, father's, son's, relative's income and make them a co-borrower. In addition to it, if you have sufficient funds in NSC's, provident funds, LIC policies etc. you can keep them as collateral and ask the bank to finance your home loan.

4.      The interest rate dilemma

Whether to go for a fixed rate or floating rate interest for home loans is a dilemma which almost every home loan borrower faces. Even after deciding on a particular loan regime, the home loan terms and condition fine prints can create havoc with your interest rates. For example even if a borrower has opted for fixed rate home loan and the bank has promised him a rate which he feels is good, the catch is in the fine prints which authorizes the bank to vary this fixed rate every 2 years, things can go worse for the fixed rate borrower. Similarly if the bank doesn't pass you the benefit of lowered interest rates in floating interest rate regime, it will be of a little value. Avoiding such a situation essentially means that you study the terms and conditions of home loan carefully and clearly ask the bank about such things. In case of floating interest rates the facts can be verified by checking how the interest rates on home loan dropped during low interest periods. Ask your bank for some historic floating rate changes.

5.      Difference in property valuation

The bank has its own experts for legal, technical and financial appraisal of the property in question. It evaluates the property on its own established parameters and assigns a value to it. This value can be significantly lower than the price you quoted for the property. Thus the bank will only lend you up to the amount it valued. This can cause a significant gap between what you need and what the bank is willing to lend. To avoid this situation the borrower can get the property valued before applying for home loan from a bank approved valuator.

6.      The down payment

Banks require the borrower to fund at least 10% to 20% (varying from bank to bank) of the entire loan amount as the down payment for the home loan. This amount has to be deposited before the disbursal of the home loan. In the absence of such down payment the bank will refuse home loan to the borrower. For a home loan of 10 lacs this could mean anything between 1 to 2 lacs. This amount must be readily available with the borrower. In a scenario where the valuation of the property by bank is considerably lower than the market price of the property, the balance will also have to be paid by the borrower. This effectively increases the down payment. The obvious remedy to this tricky situation is to get the property valued beforehand and have the down payment ready. Some banks also allow NSC's, provident funds, LIC policies etc for down payment. It is generally a good procedure to check the down payment requirement of various banks and choose the one which requires the lowest amount to be deposited initially or fits your budget well.

7.      Title deeds and NOC Documentation Problems

The title deeds and NOC documents have to be furnished in the bank's format. Borrowers who don't provide such documents in proper format, will ruin the entire exercise and won't get any home loan. To avoid falling into such uncomfortable situation, enquire about all the documents required by banks beforehand and take necessary steps to get them ready within the stipulated time frame.

 Buying a home is one of the major decisions a person has to take during his life. It is rare to find someone who pays the entire cost of home at one go. A home loan is an essential part of any home buying endeavor. Taking a home loan is a long journey, which involves many stages. The key to getting your home loan in a smooth way is being familiar with the entire home loan process.

Beginning the home loan process in India

The process of getting a home loan starts with a formal application for the loan. The application form requires certain basic information about you. This will include your personal, residential, income, employment, educational details, details about the property, estimated costs and current means of financing the property. Though the requirements may vary from bank to bank but there certain thing which every bank will ask.
The application form must be supported with valid documents to substantiate the facts. Generally the banks will ask you to submit following documents.
  • Income proof
  • Age proof
  • Identity proof
  • Address proof
  • Employment details
  • Proof of educational qualifications
  • Details about the property if finalized
  • Bank statements
The purpose of the entire exercise is to ascertain the suitability of a applicant for a home loan. The income documents and bank statements provide vital clues to the bank regarding your financial health.
Processing fees for home loans in India
An important thing to note about home loans is the processing fee. Banks charge a processing fee for every home loan application. This fees is non refundable. The processing fees varies from bank to bank and is generally between 0.25% to 0.50% of the loan amount. This fees is used by the bank to start and maintain the home loan process including completing the various formalities during the entire period.


The above mentioned problems are very common, but can be easily avoided if the borrower follows proper procedure, prepares adequately before applying and takes care of correct documentation.

Source :: http://www.rupeetimes.com

Thursday, 2 May 2013

Managing EMIs with uncertain cash flows

Imagine a person who has taken a home loan for Rs 30 lakh, but suddenly meets with an accident resulting in a temporary disablement? He is unable to continue working and so there is a break in his income. He has not taken a personal accident insurance, and as a result is not compensated for this accident. He is not sure when he will start working normally again, which will give him the same income as his previous job to enable him to continue his monthly loan payment. What can be done in this case? Lets first look at what should be done before such a situation happens and how to stay prepared for it.
Building an Emergency Fund: As the popular saying goes ‘It is better to be safe than sorry’, it is important to build a safety fund for emergencies. The purpose of such a corpus is to help you deal with life’s uncertainties, of which a fall or stop in income is one of them.
You must consider all your expenses in a month to calculate the amount required for this fund. Experts generally recommend at least six months of expenses as the amount to be built as an emergency fund. This can even go up to 2-2.5 years of expenses, depending on your risk tolerance.
The corpus in this fund should only be used to meet the contingencies and not for regular expenses or on luxuries. It is better to keep a majority of this fund as liquid, to help you access the money without much problem. Remember, this can entail lower returns. Hence the amount to be invested in an emergency fund depends on what you perceive to be your risk level and the returns you expect on your investments. However, it must be kept in mind that the sole purpose of an emergency fund is to help you in emergencies and not to enhance your returns.
The higher the emergency fund, the better is your ability to deal with a crisis. The amount from this emergency fund can be used to pay your EMIs till you become fit to earn again.

Now what can be done after you realise you have uncertain cash flows?

Stay Calm: This situation cited earlier sounds scary, but anyone can be a victim of this. The first thing to do in such a case is to stay calm and think straight. Although it is difficult to manage your monthly cash flows, it is very important not to panic.
Talk to your bank: The next important thing to do is to talk to your bank or lender and discuss the issue. Get your loan papers in order and meet the bank officials. Banks generally understand such uncertainties and can re-work a loan repayment schedule, which takes into account your situation. You can either opt for lower EMIs or for a delayed repayment with some penalties or for re-financing the loan. These options will work out to be costlier for you over the long term; but they can provide you with the much needed breathing space which will ease your cash flows. The bank looks at your past repayment history, and will definitely entertain requests from genuine borrowers who have the intention to repay.
Cut out unnecessary expenses: Analyse your monthly expenses and cut out on all unnecessary expenses. In the normal course of life, when there is a regular income, we often spend on things which are not so critical or essential. Only when a crisis strikes, you can recognise these unimportant expenses and reduce or cut back on these. This will help you in paying off your EMIs more easily, as cash is freed up.
Avoid borrowing: Generally, when a crisis strikes, people resort to borrowing. Borrowing from banks may not be possible, as banks require payslips while granting a personal loan. If they know you are not working, they will not grant a personal loan. However, it is possible to borrow from other sources where higher interest rates are charged. This has to be avoided to the maximum possible extent, as this can be very harmful over the long term.
Talk to credit counsellors: You can also talk to credit counsellors who will help you deal with this situation in a better manner.
Events such as job loss, fall in income from a business venture, sudden illness, accidents etc. can happen to anyone, crippling your ability to meet your expenses and pay your debt. The situation calls for careful planning and methodically working out all possible options to manage cash flows efficiently.