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Archive for

April 2017.

3 things startups must consider before agreeing on an office space.

April 22, 2017

The future of Indian startups has seen a sharp rise in the creation of new startups with a further up expected. We have witnessed huge funding rounds in 2015 and 2016, wherein Venture Capitalists, PE funds and angel investors all have been very active in infusing capital in Indian startups.

Key indicators such as opportunities existing in the domestic market, access to capital/mentors, and increased M&A and consolidation activities clearly point towards the new evolution of the ecosystem. However in 2017 the level of fund raising has slowed down, as investors are looking for their earlier investments to start showing growth or they are looking for startups with strong fundamentals. But that does not mean Indian startup euphoria is dead. It is still alive and kicking. However dynamics of the game have changed. Startups displaying product innovation and ability to upscale will continue to receive funding.

Now with slow funding the startups need to carefully evaluate their Corporate Real Estate (CRE) strategies as they shape overall business direction and add long-term value to the venture.

Increasing competition is causing startups to look for ways to enhance profitability and squeeze costs. The below 3 criteria, if considered, can help startups make the right choice for their office space and help in starting up right!

  • Cost:This needs to be realistically in sync with the financing plans and current cash positions. As startups generally raise funds every 18 to 24 months, they cannot afford to miscalculate their cash flows. A general thumb rule is to have at least 6 months’ rentals in their bank accounts as landlords demand advance rental every month.
  • Location:Attracting talent for a startup is key for growth.  Analysing the location where there is a readily available talent pool is critical. For example, in Delhi/NCR a startup would prefer a location close to metro connectivity. This can followed by sub factors:

Support services: These include banks, restaurants, medical clinics, cafes and salons are now quite common in office complexes, a perfect example in Gurgaon is DLF Cyber City as it has integrated all these services and has emerged a preferred choice for MNCs and startups

Proximity to social infrastructure: As employees spend more of their waking time in office than home, proximity to day-care facilities, residential colonies, multiplexes, health clubs are definitely key factors in an office location checklist.

  • Flexibility:Expansion is definitely a part of the growth cycle of a startup. It results in demand for additional space for new recruits. The terms in the lease agreement need to be clearly defined for hard options & FRR (First Right of Refusal) or exit clause from the lock–in period.

For a startup to understand the above fundamentals can be a daunting and time consuming task.  It is always advisable for a startup to engage a property advisory firm as it can make their property search easy and cost effective. A professional real estate advisory firm can offer following benefits:

  • Real time local data with latest market rentals and best practices precipitating from global channels.
  • Aggressive negotiation seeding from good relations, market awareness and excellent interpersonal skills.
  • Help in understanding the legal issues involved in a transaction.
  • Integrated services like space planning, fit-out design and facilities management, all under one roof.
  • Trust and reliability as such organisations driven by service excellence handpick human resources with best-in-class education backgrounds and work experience.
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9 natural DIY tips to cool your home this summer.

April 22, 2017

“ACs and coolers are fine, but nothing evokes my memories of childhood summers like a ‘khus ki tatti’,” says Gurgaon-based businessman, Avinash Arora. Confused? Arora spent his summer vacations in a little town named Tundla in UP. North Indian summers are infamous for their intense heat, which can even prove fatal. Very few things can help you survive such weather and a ‘khus ki tatti’ is one of them, the businessman maintains.

 

A ‘khus ki tatti’ is a wholly natural blind/ curtain mat that is made of reeds and special grass, laid out neatly in a box and complete with water pipes for drip wetting. This mat is laid across open doorways and windows and helps lower the temperature indoors.

 

Here are several other simple methods to cool your home:

 

  1. A simple trick involves using a bucket of water . Dip the bottom hems of your curtains into the bucket and leave the fan on. The water slowly seeps upwards through the fabric and the breeze will carry the coolness into the room

 

  1. Keep things dark .We all know how relaxing it is, to get away from the glare of a hot summer sun and into a cool space, under the shade. To achieve this, buy cotton curtains in the darkest colour possible. Ensure that the curtains have a thick lining, so that the sunlight doesn’t fade them. Dark green or brown are easy choices. Keep the curtains drawn shut, right from morning. If your room stays shielded from sunlight all day, it is bound to remain relatively cooler.

 

  1. Use the bathroom . Keep your bathroom door ajar, pour a few litres of water on the floor and let the breeze do its job again

 

  1. Leafy plants , too, can work wonders. If you have some large decorative or potted plants around, move them closer to your windows. They will absorb most of the heat and create a cooling effect around them

 

  1. Leave the fridge alone . You may be tempted to reach for cold water and ice-cubes frequently, but opening and shutting the refrigerator multiple times, increases the load and temperature on its motor. This, in turn, increases the ambient temperature in your house

 

  1. Take a look at lighting . From LEDs to fluorescent lights, there are many cool lighting options available, so there’s no reason to continue using hot incandescent bulbs. Similarly, switch off all electrical appliances, especially the TV, when not in use. Even a mobile charger emits heat

 

  1. Buy a dehumidifier . You will breathe much easier, once the intense humidity is reduced. You can check online sites for the best deals

 

  1. Cotton is king . Summer is no time for fancy satin or silk bedsheets, or for faux leather upholstery. Buy at least one set of crisp cotton bedsheets, in white or pastel shades. If your couch is upholstered in any fabric that’s not cotton or linen, buy some sofa covers or throws that are made of cotton

 

  1. Open up at sunset . If you throw open your windows at the right time, you will get the benefit of the cool evening breeze. This will lower the temperature of your home and make it more comfortable for the night ahead. Also, open up every internal door in your house, including kitchen cabinets and bathroom, bedroom and closet doors. This will help, to dissipate the heat that is built up during the course of the day and reduce the overall temperature. Remember to close these doors as soon as the next day dawns and the sun is up again.
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How much of your salary should you spend on rent?.

April 22, 2017

The rental housing market has many options, available at various rates. Consequently, it may be difficult for a prospective tenant to figure out how much to spend as rent. The answer to this depends on one’s salary/income.

“Ideally, you should not be paying more than 30% of your salary towards rent and utilities (such as maintenance/water/electricity expenses). If you consider a monthly take-home salary of Rs 60,000, ideally, your rent should not be more than Rs 15,000”

We suggest you first determine where you want to live, as well as the security in the region, its accessibility and the commute to your workplace.

“Factor in all these aspects, before taking a call. For instance, you might get a good house in a reasonably-priced locality. However, it might make your commute lengthier and more expensive. So, a slightly smaller but expensive house closer to your workplace, might be a better trade-off,”

Experts point out that while residential rental yields have remained low in India to the tune of 2%-3%, in urban centres such as Bangalore, Mumbai and Delhi individuals often spend as much as 40%-50% of their monthly income on accommodation. Despite lower rental yields, the cost of accommodation in urban India continues to remain high.

 

Impact of HRA on home rent

“House Rent Allowance (HRA) is received by individuals who receive a salary. Under Section 10 (13A) of the Income Tax Act, a deduction is permissible and you can claim exemption on your HRA, if you stay in a rented property and receive HRA from your employer. This is based on the lower of the three:

  • The actual HRA received.
  • Rent paid in excess of 10% of the salary (defined as Basic + DA + Commission as a percentage of T/O).
  • For metros, an amount = 50% of the salary and for non-metros, an amount = 40% of the salary.”

Regardless of the actual rent paid, if any of the components is lower, that would be the maximum exemption possible. If there is a huge variation in the rent paid and the basic salary, you could negotiate with your employer, for a restructuring of your salary package, to reflect a higher basic salary.

 

Managing the rent payment, if the salary is not adequate

The ideal scenario would be one, where your monthly rent does not exceed the stipulated HRA amount, to avail the maximum tax benefits. However, this is often not possible, given the high price of urban real estate. Hence, it becomes incumbent on the individual, to find a good balance between various monthly expenses. Consequently, the first thing to do, is draw up a budget so that you know where and how much you are spending. Follow the 30% rule, while selecting a rental property. If possible, bring that percentage even lower, so that your monthly outflows are not too high. You may also want to compromise on other luxuries, such as eating out frequently, to save enough to pay your rent.

“Calculate your priorities and figure out what you need and what you can do without. The most prudent thing to do, is to look for a less expensive place, with fewer amenities or luxuries that might be easier on the pocket. For instance, if you are single, you may not need to stay near the top schools in the locality and instead, opt for a slightly less premium location. However, security is not a luxury, but a necessity,. Other options to reduce rental outgo include sharing your living space by getting a roommate or moving in as a paying guest.

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Important amenities that tenants look for in a rental house.

April 22, 2017

Location

 

“The most important feature that a tenant considers, is the locality or neighborhood. This is an important feature that one cannot compromise on and tenants may be willing to pay higher prices if the property is located in the heart of the city,”

 

For example, some areas in Bengaluru, Gurgaon and Hyderabad , have become hubs in the rental market, due to their proximity to the media and IT companies. Most of the expats and professionals prefer these locations. The availability of day-to-day necessities, which includes accessibility to the market, hospitals, banks, police stations and highways, is crucial while renting a house. People prefer properties that offer flexibility in terms of transportation, shopping, food and entertainment.

 

 

Budget

 

The costs related to rent, security deposit, electricity costs based on appliances in the flat and the cost of the flat if it is fully-furnished and whether all these fit within their budget, is another main concern for tenants.

 

Many people, who come on a deputation to a city, prefer fully-furnished or semi-furnished flats. Since the investment to purchase the movable furnitures and the white goods could be quite burdening, So, I preferred to rent a flat which would provide me with a bed, gas connection and other daily basic amenities and I was ready to pay extra for these facilities.”

 

 

Renovations

 

Some tenants are particular about having modular kitchens, wardrobes and if the house has been painted recently. “Rental properties generally have prior occupants, who leave their mark. So, most people would prefer looking for flats which had been renovated by the owner, after the earlier tenant vacated the flat. Renovated kitchens and bathrooms are some of the key factor.

 

 

Parking facilities

 

For tenants who own cars, parking is a very important facility. Off-street parking is definitely not desirable option for tenants.

 

“While searching for a house on rent in Mumbai, my main priority was that the house should have a covered parking facility in the building, as many housing societies in Mumbai don’t allow the tenants to park their car inside the campus. So, I was focused only on apartments with covered parking,” says, a software engineer working in Mumbai

 

 

Security

 

“A safe neighborhood is a very important feature that people consider while renting the property. People consider security features like alarms, fences, deadbolt locks, CCTV cameras and security guards, while looking for a property,”.

 

 

Gymnasium, swimming pool and play areas for children

 

Fitness has become increasingly important and young professionals are commonly in search of housing societies that offer these amenities. Earlier tenants , used to enquire on the size of the flat and configuration but now, people ask about club house in the building and a parks where their children can play. As the house is normally leased for three years, they want to have all these facilities.”

 

 

Adequate supply of water in the building is another concern for tenants.

 

“Adequate supply of water is really important for any household but in many buildings in this area, the municipality supply is erratic. Hence, tenants search for houses which had overhead tanks or facility for additional storage of water.”

 

 

 

Other factors that tenants consider

 

  • Good condition of the house and storage space.
  • Condition of pipes (gas, water, etc.) and leakage.
  • Working condition of sink faucets, shower heads and other plumbing and fixtures.
  • Backup generator

 

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Karnataka Budget 2017-18: Key proposals that will impact Bengaluru’s property market.

April 22, 2017

The Karnataka government presented the state budget for 2017-18, on March 15, 2017. We look at the key provisions for the real estate sector

The honorable chief minister of Karnataka, tabled the State Budget 2017-18 in the assembly on March 15, 2017. Below are the key provisions that may have a direct or indirect impact on Bengaluru’s real estate sector.

 

Housing ●      1 lakh residential units for the urban poor to be constructed by utilising the amount realised from sale of plots/houses, developed in an area of 25% of the available land.

●      Bangalore Development Authority (BDA) to construct 3,000 flats, allot 5,000 sites in Nadaprabhu Kempegowda Layout.

●      BDA to develop an innovative township spanning 166 acres in Konadasapura.

Commercial, industrial, information technology ●      Development of commercial hubs in 5 locations along 10.7 kms of a major arterial road connecting Mysore Road and Magadi Road, through Kempegowda Layout.

●      Rs 400 crores to the Karnataka Industrial Area Development Board (KIADB), for land acquisition on Tumakuru Industrial node, under the Chennai-Bengaluru-Chitradurga Industrial Corridor.

●      Establishment of a ‘Centre of Excellence in Data Sciences and Artificial Intelligence’ and ‘Cyber Security’ Centre.

●      Construction of an international level science gallery and artificial intelligence and robotics centre at Bengaluru.

Infrastructure ●      Development of 150 km roads in and around Bengaluru, through Karnataka Road Development Corporation Limited (KRDCL).

●      Metro Rail – Phase 2 (A): Additional new line (17 kms) from Silk Board to KR Puram.

●      Development of a second runway and terminal at Kempegowda International Airport.

●      Construction of an underpass and widening of the flyover along ORR at Hebbal junction.

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Here’s how GST will impact the real estate sector in India.

April 22, 2017

GST, which has been one of the longest awaited tax reforms, got unanimous approval of both houses of parliament this monsoon session. Union government of India has set a deadline of April 2017 for its roll out. As of now 3 states have already ratified the bill and others will quickly follow. How it might impact taxes in residential real estate transactions has got varied views of industry experts. Through this article we will try to detail out the issues involved to give a better understanding of these varied views.

 

Lets first understand the various taxes applicable in a residential real estate transaction.

 

  1. VAT (Value Added Tax) – If you are purchasing an under-construction property, you will have to pay additional VAT in some states such as Karnataka, Haryana and Maharashtra. Developers charge this value added tax and deposit it with state government. VAT has also been under dispute for long time and still there are many states such as UP who do not charge VAT. Also unlike service tax there is no uniform way of computing VAT across states. E.g. in Maharashtra under composition scheme VAT is charged as 1% of agreement value whereas in

Haryana the same proposal was passed but not yet agreed by developers. In Karnataka VAT is charged at 5% of agreement value of unit. To calculate accurate value of VAT and not use composition scheme, developers will have to maintain proper accounts of goods purchased for construction and VAT paid by them for the same to get input credits which is cumbersome and makes it tough for buyers to understand.

 

  1. Service Tax – If you are purchasing an under-construction property, developer will have to charge you service tax and deposit it with central government. This tax was not applicable till 1st July 2010. The key reason for the same was contract between builder and buyer for construction of residential unit was disputed as works contract as it also includes value of land. Hence rules regarding taxes on work contract was not applicable on residential complex construction. In finance act 2010, government added an explanation to definition of construction of residential complex and made it deemed service. For the simplicity sake government has given abatement of 3/4th of cost of unit as land and goods for construction and only 1/4th of the cost of unit is treated as service.

Hence presently most homebuyers are paying 3.75% of cost of unit as service tax (1/4th of 15%). Recently service tax on under construction property has again been put under question as Delhi High Court ruled against this and matter is sub-judice at Supreme Court of India.

 

  1. Stamp Duty – Stamp duty is charged by state government, again at varying rates, for registration of sale agreement for real estate transactions.

 

Incidentally if you are buying a ready to move-in property directly from developer after he has obtained completion certificate from authority, you don’t need to pay service tax and VAT hence saving 3.75% to 9% of property cost depending on state where you are buying property.

 

Now lets understand how GST will impact these three taxes. Service Tax and VAT will be replaced by Central GST and State GST whereas stamp duty stay unchanged as it is out of purview of GST.

 

There are two open items because of which at present it is difficult to predict accurately the impact of GST on real estate transactions. One is the GST rate and second is abatement for land value in total agreement value of under construction residential unit. Let me take assumptions on these two items to estimate impact of GST. These assumptions might be off but has a high probability of being true as well. GST rate might be set at 18% as many experts back this rate and abatement of land might be only 25% of agreement value as 50% is assumed to be cost of goods and remaining 25% as cost of service. Based on these assumptions the effective GST on under construction property transaction will be 13.5% (3/4th of 18%). Now this rate is significantly high compared to 3.75% – 9% currently being paid. Hence we can assume cost of buying under-construction property will significantly increase after GST becomes applicable from 1st April 2017.

 

But this might not be true. Currently developers pay service tax and VAT on services and goods they procure for construction of residential complex but are not allowed to take input credits of this tax because of which end customer pays tax on tax. As per estimates given by developer community this tax on tax adds up to 20 – 25% of the cost of residential unit. Hence if GST is implemented and developers are allowed to take free credits of input tax paid, the cost of unit should reduce by 20% at least. To understand this better let’s take an example, a residential apartment which is sold at Rs 100 today finally cost end customer 103.75 in Uttar Pradesh excluding stamp and registration duty. If post GST price of unit is reduced by 20% i.e., it becomes Rs 80 then final cost to end customer will be 80 + (13.5% of 80) i.e., Rs 90.8 which is much less than Rs 103.75. So in fact if developers pass the benefit, which they will get from GST, cost to end customer actually will reduce.

 

But it is easier said than done. First of all current under construction projects are at different stages of construction and developers would have already paid service tax and VAT for procurement of goods and services for which they will not get input credit. Hence cost reduction will be lesser than 20% for current under construction project. Second model GST law clearly mentions input credit will not be available for goods and services purchased for execution of work contracts. Presently we have seen two different interpretations by courts of whether construction of residential complex is a work contract or not. If it is treated as a work contract cost of developer will not reduce at all after GST implementation. Another issue which needs to be kept in mind is, presently government does not allow input credit if the composition scheme (i.e., abatements for cost of land and goods) is used by developers for calculating service tax and VAT.

 

Therefore at present, we are more likely to believe that cost of under construction residential unit will increase post GST implementation. This will be a hefty blow to industry, which is already suffering from slow sales.

Industry bodies need to urgently engage with government to minimize this impact by clarifying position on works contract, composition scheme and already paid service tax and VAT by developers on under construction property.

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