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Open Letter to future PM of India on Indian Real Estate


Open Letter to future PM of India on Indian Real Estate

Last updated: May 30 2014
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  • Open Letter to future PM of India on Indian Real Estate

    Dear Prime Minister,

    Before I begin, I heartily congratulate you on becoming the Prime Minister of our great country irrespective of the political party you belong too.

    Now that you are the PM, a great responsibility rests on our shoulders to take our country further on the path to prosperity. Our country faces many challenges and I am sure that you have a plan to tackle the important ones.

    I write this open letter in the hope of highlighting the most common and most important issue facing the common man: Affordable housing.
    To put this in proper context I wish to point out that I mean Affordable Housing as generally applicable to the citizens of India and not necessarily to low-cost housing of small to very small sizes.

    I am a tax-paying, law-abiding citizen of India with a wife and two children. I have worked hard for 18 years and wish to buy a decent house for the family. I have been searching for the past 4 years but the cost of a decent house is beyond my reach though, by good grace of God, I earn a reasonable and decent salary.

    The problems faced can be illustrated by some simple facts. The per capita income of the country is less than Rs 1 lakh per annum. However a 2 bed house in the Tier-2 city I live in costs a minimum of Rs 60 Lakhs even on the extreme outskirts of the city. Assuming that the average income in a city is likely to be higher than that of the country in general, a factor of 10 would still mean that the per capita income in the city could be around Rs 10 lakh which is insufficient to buy a descent 2 bed house.

    Only a small minority of the country's population has the income needed to buy such a 2 bed house. What should the other folks like us do? Should we forever live in a cramped one-room or 1 bed house?

    I believe there are simple steps that can be taken to address part of the problem, but these will require great courage to implement against the vested interest of the powerful builder-politician lobby. Hopefully, you are not already part of this lobby. (In which case I hope and pray that you do not last the full 5 year term).

    1. Section 24 B of the Income Tax law allows deduction of Interest on Home loan up to Rs 1.5 Lakhs for a self-occupied property, but unlimited deduction when property is not self-occupiedt. This is an unfair provision. The struggling first-time owner who will buy a property as a home to self-occupy will get lower tax deductions. However a person who already owns a home and has bought additional property as "investment" can claim full deductions. I suggest that the provisions should be changed so than maximum deduction is allowed for self-occupied property and no (NIL) benefits should be allowed otherwise. The only exception should be if the property is the sole property bought for self-occupation but cannot be occupied due to employment transfer to a distant place. Please note that I have nothing against rich people who have the income to own multiple properties. In fact I wish them well in their investments, just that these investments should not be supported indirectly by the common man by providing tax incentives.

    This change will provide relief to potential first-time owners while moderating demand for housing solely for "investments".

    2. A reasonable time-frame must be fixed by a competent authority for a builder/developer to provide possession of the house from the date of commencement of construction for the building (or wing for a large complex). Failing which, significant fines must be imposed.

    This will have multiple benefits. Firstly potential home owners will get their housing delivered in a reasonable time-frame. Secondly it will ensure a predictable supply of housing in the market and prevent builders/developers from creating artificial scarcity by delaying construction.

    3. Builders/developers must be mandated to create a separate“Special Purpose Vehicle" (SPV) for each development project undertaken. All money collected for that project should be accounted for solely in that SPV and should be used only for the development of that project. The builder must be required to publish half-yearly audited financial balance sheet and cash-flow statements in local dailies and to all buyers.

    This will prevent builders/developers from taking potential home owners for a ride and utilizing the money from one project to kick-start an unrelated project. Preventing money from being misused may also ensure that projects get completed on time and the market has a steady and predictable supply of housing. This will also allow meaningful audit of a project by IT authorities if required.

    4. A person (or husband-wife pair) owning multiple properties should only be allowed to claim a property as Self-Occupied if they actually reside there for more than 183 days in a year.

    This change will allow taxes as per the actual situation instead of the most tax beneficial condition for the owners

    5. The Act allows a flat deduction of 30% of annual value of a flat for expenses such as repairs and maintenance of the house. This should not be allowed for houses that are not either self-occupied or actually rented out. Only actual expenses toward repairs and taxes should be allowed as deductions.

    This change will encourage owners to rent out properties and moderate rent increases.

    6. If the possession of any one flat in a building (or wing of a large complex) is given, then the builder/developer must be treated as deemed owner of any unsold flats in that building. The builder/developer must be required to pay taxes on the deemed/notional rental income on all such flats.

    This change will prevent hoarding of housing by builders/developers in pursuit of higher value. Once a building is ready the flats should be sold at competitive and reasonable rates.

    7. Builders/Developers must be required to maintain a list of actual flats sold and the agreement value of each such flat (private information such as buyer names/PAN numbers etc. should not be disclosed). Such a list must be up to date for the past 7 days and must be available for reference to all potential buyers before any monetary/non-monetary commitment is made by the buyer. This list must also be provided for public reference at local Tehsildar/collector office and also on the web-site of the developer.

    This change will help potential buyers know the real demand and value of the property and improve transparency. This is similar to the information available when buying or selling stocks on the stock market.

    8. We should have better sharing of property and rental registration data with the IT department so that relevant tax laws can be fully enforced.

    9. All brochures and marketing material for any project must include a prominent warning informing potential buyers of any claims that are not fully sanctioned or approved. Sales staff must be required to inform the same to every potential customer before any monetary/non-monetary commitment is made by the buyer.

    This change will help potential buyers make an informed decision and weed out actual vs "proposed" items as the proposed items may or may not turn in to reality.

    10. Every Bank official approving a property or property related loan must provide a declaration that all relevant rules/guidelines issued by the RBI are followed in processing/disbursing the loan. Such individual must be held personally liable for criminal proceedings if any "under the table" deals with the builder/developer come to light later.

    This change will discourage banks from forming a nexus with builders to circumvent RBI directives.


    A Hopeful Common Man
    Last edited April 24 2014, 07:25 PM.
  • #2


    Re : Open Letter to future PM of India on Indian Real Estate

    Wish we will not get deaf & dumb pm


    this open letter will be like close letter for him


    • #3


      Re : Open Letter to future PM of India on Indian Real Estate

      Looks like Modi will become the PM.

      Hope he sees the open letter.


      • #4


        Re : Open Letter to future PM of India on Indian Real Estate

        Modi is the future PM.

        If we have any BJP officials/karyakartas on the forum, please help bring this open letter to the notice of the BJP leaders.


        • #5


          Re : Open Letter to future PM of India on Indian Real Estate

          Nice points, Modi should give attention on Real Estate too.


          Have any questions or thoughts about this?