Author: Sanjeev Govila

18 Jun 2018
Real estate insights

What’s happening in residential real estate and Why? An Insights

‘See Sanjeev, I have the money since I’m recently retired, property is actually very cheap now and I don’t have too many liabilities. Then why the fxxx are you not letting me buy a good property?’

‘But Sir, why real estate of all the things!’

‘Everybody knows that property only goes up, you get good rentals and you can even take a home loan and save so much of tax!’

‘Sir, the property has only moved downwards in the past 4½ years, rental returns are traditionally only 1½ – 2% of capital value, and you save 30% tax on the home loan interest paid but you pay the balance 70% more too to save this 30%. How is it a good investment?’

And after this conversation and more, the senior officer went ahead and invested in a residential property with most of his retirement corpus!!

As far as I know, most of the people with some liberal amount of money are only biding their time by investing in financial assets (FDs, mutual funds, Govt bonds, savings account etc) till they think property prices are likely to resume their upward journey and then would jump on that bandwagon.

So, is it the right time to buy property again, since the prices are at their one of the lowest in recent times?

Before we answer this question, it may be worth its while to analyse why the real estate prices are so down and seem to continue their southward journey to a bottomless pit:

  • It all started as a regular cyclic real estate downtrend in 2013 or so but got a further kick with the current Govt’s war on black money – the colored part of the money which was opium to real estate, started feeling the heat.
  • The systematic raising of circle rates across the country in line with the market rates further limited the playground for the black money. And then there was demonetization…
  • To top it, the current huge inventory – those concrete jungles of rows after rows of unoccupied houses in metro cities around the country reminding one of the similar ghost towns in China, with many more adding up each month – has created huge Demand-Supply imbalances which will take years to be absorbed by buyers.
  • Lastly, regulations like 1% TDS on real estate transactions beyond Rs 50 Lakhs transaction, close monitoring of real estate deals by the Income Tax Dept, implementation of RERA by many states, etc have added to real estate woes.

Do you think even one of the above four reasons is going to go weak in times to come? We think there are no signs of this so far. In fact, the regulatory interventions seem to be only intensifying. Consequently, the arbitrariness of the builders is going out, the sacksful of money used in deals is getting much thinner, there is some semblance of state control coming into this sector, common man (‘the customer’) is getting some say in the state of affairs and many large, loud builders have started going belly up.

So, is real estate dead as an investment? It would be too naïve to write an obituary for a sector which is one of the biggest informal employment generators in India, though it seems to be a long haul ahead for it. Spring shoots are around but only for a small ticket (the ‘affordable’) residential properties, due to the sops being given by the Govt in home loans and in tax exemption to builders for such properties. They don’t interest most people due to the small profit potential.

However, if you still wish to try your hand at the residential real estate, look for genuinely distressed sale properties – there are few around now with prices having been down for such a long time. You may also plan to invest in areas where a real estate trigger is likely to come in a short while – metro being announced, an important highway or road coming in, a flyover facilitating connectivity, IT park or big mall or even an unauthorised colony being declared authorised etc, with good research to establish authenticity. Or you may get really lucky and be able to identify a new property available to you at great prices even with the facility to pay in installments…. who knows!

But for other potential real estate investors, it may still be a long haul.

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16 Feb 2018
Mutual funds

Invest in SIPs and take control of your Finances

Albert Einstein is supposed to have remarked: *Compounding is the 8th wonder of the world – one who understands it, earns it; one who doesn’t understand it, pays it!!*

Compounding as a benefit of Mutual Fund is been a very talked about subject. But as a layman not many know how does it work.

Compounding is simply an activity in which the earnings of the original investment also earn the same rate of return as an original investment.

Now in the case of Mutual Funds let’s say you invested in the fund when the NAV is Rs. 20. Now assume NAV goes up by 25%, in that case, the New NAV will be 25. Again markets go up by 20%. Now the new NAV will be Rs. 30 which is 20% above Rs 25. If there were no compounding than the return would be 20% over Rs 20 which was an original investment. This is compounding in Mutual Funds for you.

I would like to say is that for a long-term investor compounding will work in his / her favor. In fact, I must say compounding is the magic which magnifies your return over the long term.

It is a way which allows an investor to take control on the finances and Systematic Investment Plans are the way to manage finances with ease of investment.
12 Feb 2018
union budget insights

What’s in it for you in 2018?

Finance Minister Arun Jaitley presented the Union Budget 2018 yesterday, a month ahead of the usual date, in the backdrop of a strong stock market rally in 2017, high equity valuations, rising crude oil prices, dropping bond prices and an expanding current account deficit. As expected, the Budget has a populist stance, given the upcoming state and General elections in the next 9-12 months.

The budget has doled out a series of measures for alleviating farmer distress and boosting the rural economy and ongoing support for broader Infrastructure development. While a lot of technical and financial jargon can be written on what all the Budget has, we would give out here only the salient aspects that concern you and your investments. Anybody interested in knowing more can refer to the 102 pages long Finance Bill 2018 (as the budget is called in official jargon) which is available at lots of websites by now.

Salient aspects of the Budget:-

There is no change in the personal tax slabs. Hence the slabs remain the same as below:

  • 0             –          2.5L                                 :              Nil Tax
  • 2.5L        –          5L                                   :              5% tax
  • 5L+         –           10L                                :              20% tax
  • 10L+                                                         :              30% Tax
  • Senior Citizens (60 – 80 Yrs age)            :              Nil Tax is till 3L
  • Super Senior Citizens (80+ Yrs age)       :              Nil Tax is till 5L

Education Cess is being increased from 3% to 4 % and to be known as Education and Health Cess.

  • TDS (Tax Deduction at Source) limit on Interest on FDs raised to Rs 50,000 for senior citizens. Senior Citizen Medical Insurance limit (under Section 80D) raised to Rs 50,000. Critical illness expenditure limit (under Section 80DDB) also increased to Rs 1 lakh for senior citizens.
  • Standard Deduction of Rs 40,000 for salaried employees. However, benefits of no-tax on transport allowance up to Rs 19,200 and Medical Reimbursement up to Rs 15,000 under Section 17(2) are being withdrawn. Thus, net benefit to salaried class is only Rs 5,800.
  • Section 54 EC benefits, under which one could buy Capital Gains Bonds to save Long Term Capital Gains (LTCG), is now restricted to long term capital gains arising out of sale of land or buildings only and not to any other asset classes. Section 54EC bond tenure is also increased to 5 years from 3 years earlier.
  • Penalty for non-filing of Income Tax Returns (ITRs) is being increased to Rs 500 per day from Rs 5000 one-time.
  • Government to take all steps to eliminate use of cryptocurrencies which are being used to fund illegitimate transactions. Hence stay away from bitcoins etc since the harsh measures likely to be adopted by the Govt may jeopardise your entire investment.
  • In the end comes the contentious aspect of tax on equity (stocks and equity mutual funds). The tax introduced is slightly complicated and hence will be explained below with an example. Please remember that it is much lesser than what was being speculated in media earlier.

A. Long term Capital Gains  (LTCG) Tax

Tax Rate:
Capital gains over Rs 1 lakh to be taxed at 10% (no indexation benefit).
Method of Calculation: Any notional gains till Jan 31, 2018 are proposed to be exempted in calculations for long-term capital gains the way they are currently.
Applicability: From April 1, 2018

Investment Implications:
For redemptions done from Feb 1, 2018 to March 31, 2018: No LTCG Payable as earlier.
For redemptions done from April 1, 2018 onwards, LTCG payable on the difference between (i) highest value on Jan 31, 2018 or cost of acquisition, whichever is higher; and (ii) Sale Value
Example: Assuming a stock bought for Rs 100 on July 1, 2017, highest market rate on Jan 31, 2018 is Rs 150, sold on June 30, 2018 for Rs 180, LTCG payable in FY18-19 will be on Rs 30 (Rs 180- Rs 150). The LTCG will be 10% on this Rs 30, that is Rs 3.

B. Dividend Distribution Tax on Equity Mutual Funds:

Tax Rate: Dividend Distribution Tax of 10% introduced on Equity oriented Mutual Funds which was hitherto tax-free. This will be deducted by the Mutual Fund companies and the investors will not have to pay this tax separately.
Applicability: From April 1, 2018 as per Finance Bill 2018
Hence, for those who have been sold (or have enthusiastically bought) Balanced Mutual Fund schemes to get dividends, 10% of the Dividend will go into Govt kitty from April 1, 2018. For those who haven’t, continue not to fall for this mis-selling pitch by some unscrupulous elements.

In our overall analysis, Budgets are irrelevant for long term market moves and this budget will also be the same. The emphasis on the Rural sectors and upliftment of the poor was expected in this last Budget prior to elections. However fiscal profligacy has been avoided to a great extent and that is a positive.

LTCG Tax introduction was widely expected and has come and now will provide policy certainty for the next few years on this front. Beyond this you will read many things in the papers; however, it is the performance of the Real Economy and corporate profits that will determine market movements. So, this is a basically a lack luster Budget which should not affect anything in your life or in your investing life.

For more information, feel free to reach us on, contactus@humfauji.in or call + 011 – 4240 2032, 40545977, 49036836 or

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