Real estate in Chennai

As per a recent notification by India's Ministry of Commerce, Foreign Direct Investment in the Indian real estate sector is now permitted through the "automatic route", i.e., without requiring the additional approval of the Foreign Investment Promotion Board. This implies that the foreign investor may now by-pass some of the previously required approvals, making the investment process less cumbersome.

Within the real estate sector, foreign investment in India is now permitted in construction and project development related to both residential and commercial development in (i) housing townships; (ii) commercial office space; (iii) hotels and resorts; (iv) hospitals; (v) educational institutions; (vi) recreational facilities; and (vii) city and state level infrastructure.

Certain guidelines exist within the reform measures:

Project Conditions

1.In residential development, the minimum land area must be 10 hectares (approximately 25 acres)

2.In commercial development, the minimum land area must be 50,000 square meters (approximately 540,000 square feet)

3.If the project combines residential and commercial development, either one of the above conditions may be satisfied

4.At least 50% of the project must be completed within five years from the date of obtaining all statutory clearances

5.The project must comply with all local land use guidelines

6.The sale of undeveloped land is not permitted, i.e. the developer may purchase undeveloped land but must develop the land before selling it further

In addition to the above project conditions, the following financial conditions must be satisfied:

Financial Conditions

1.Minimum capitalization requirement of US$10 million for wholly-owned subsidiaries of foreign companies and US$5 million for joint ventures with an Indian partner

2.Capital must be brought into India within six months of incorporation of the subsidiary or joint venture

3.Holding period of three years on repatriation of any of the initial investment unless with the prior approval of the Foreign Investment Promotion Board.

The need for a roof over one's head is as strong today as it was during the Megalithic Age. The difference now is in the kind of shelter we seek -- and the price we pay for it. Buying a house is up there on most people's to-do list.

Banks and lenders have, for some time now, been making it easy to get hold of the money needed for a room of one's own, and falling interest rates make it even easier. Most important, however, are the tax breaks and incentives that are provided to homebuyers.

We take a look at the ways in which the government encourages people to buy residential houses, particularly under Section 54 of the Income Tax Act.

Capital gains: Under Section 54, an individual or HUF taxpayer gets exemption from tax in respect of the long-term capital gains arising from the sale of his residential house, if he invests an amount equivalent to the gains on buying or constructing another residential house within a specified time. If the amount invested is lower than the capital gains income, the exemption is proportionate.

Under Section 54F, a taxpayer can get a similar benefit if he uses the long-term capital gains from the sale of any capital asset (other than a residential house) to buy or build a residential house within a specified time.

While Section 54 grants exemption with respect to reinvestment of the capital gains, Section 54F grants exemption with respect to reinvestment of the net consideration, that is, sales proceeds net of expenses incurred exclusively in connection with the sale, including brokerage, transfer fees, etc.

Reinvestment timeframe: The specified time permitted under both Section 54 and Section 54F for reinvestment is the same. If reinvestment is by way of purchase, it must be done either one year before or two years after the date of sale of the original capital asset. If reinvestment is by way of construction, it should be made within three years from the date of sale of original capital asset.

There is no need for you to reinvest the very same funds that you receive from the sale of assets; the exemption is judged on the basis of reinvestment of equivalent value. But in order to claim exemption under either section, it is compulsory for you to deposit the amount in a Capital Gains Account Scheme with a bank if this amount is not reinvested till the due date of filing return of income.

The amount so deposited has to be subsequently utilised for reinvestment within the specified time.

To be able to avail the exemptions under these sections, you will also have to fulfil certain other conditions when you reinvest the amount in another residential house within the specified period.

Only residences: Most importantly, the new purchase must be a residential house, no matter of what size and locality. You can avail of the exemption whether you buy a room in a chawl or a flat in a co-operative society or an apartment or a row house or a bungalow, whether in a metro city or at a hill station or in a small town or village. All that matters is that you buy a residential house.

The very fact that the income tax law permits acquisition by way of construction of property would suggest that the land beneath the house would also constitute a part of residential house. In the case of a flat in a co-operative society, the price paid for the land indirectly forms a part of the price paid for the flat.

The modern concept of a residential house is an evolving concept. It is not restricted to four closed walls with doors and windows, but encompasses the amenities, facilities and utilities that can be associated with the house. Structures like garages, servants' quarters, swimming pools, verandahs, lifts, play courts and gardens can be considered as part of a residential house, if they form part of the house or flat.

To avail the exemption, you don't necessarily have to live in the residential house that you buy. You can buy the house and leave it locked for most of the year and use it as a holiday home. Or you can lease it or rent it out to other residential users. But you must ensure that the end use of the house is for residential purposes; you cannot, for instance, buy a house and lease it to a doctor who converts it into a clinic.

Cost components: The quantum of qualifying investment (known as the cost of acquired house) can be determined keeping in view the concept of a house as explained above. Broadly, costs and expenses that are incurred or are necessary to be incurred till the date the property is occupied (by a residential user) can be regarded as qualifying investment in the acquisition of house for capital gains exemption. The qualifying components of cost will include:

1.Purchase cost of land or TDR (transferable development rights) when you construct your own house;
2.Amount paid to a builder or developer for purchasing a newly constructed property (inclusive of the price quoted for amenities and facilities tagged on to a flat);
3.Purchase price paid to an existing member of a co-operative society or apartment for acquiring his right title and interest in the property;
4.Stamp duty, registration charges, associated legal fees for documents and formalities;
5.Brokerage paid to a broker;
6.Transfer fees or premium payable to the society or authorities for perfecting the transfer;
7.Cost of certain renovations of a civil nature under instructions of the purchaser when, typically, a "khokha" of a flat is contracted and further expenditure on flooring, tiling, sanitary fittings, platforms, lofts, first initial painting, etc., is incurred prior to occupation of the flat;
8.Interest incurred up to the stage of occupation of the house.

However, any expenditure on furniture and furnishing, soft furnishings, decoration items, paintings, closing of lofts, etc., cannot be regarded as part of the cost of house. All recurring expenses such as repairing, painting, replacements, etc., will also not qualify as acquisition cost for claiming the exemption. Since the house will need to be owned by the taxpayer, the amount paid as premium for securing tenancy of the house is not likely to qualify as cost of the house.

The tax officer has the right to verify the genuineness of any expenses. So it's best that you maintain a record of all expenses in respect of which exemption is being claimed and preserve all the bills and proof of payments.

The taxpayer also has the option of claiming deduction under Section 80C for payments made in respect of repayment of borrowing or for stamp duty, registration fee and other expenses incurred during the transfer of such a residential house in his name.

Chennai is the fourth largest metropolitan city in India with a total population of 7 million and annual growth rate of 19 per cent. The city is a major trade centre, well linked by road, rail and air to important cities besides being a seaport. Dubbed once as a sleepy and slow-paced city for long, it is today abuzz with activity in business, industry, entertainment and leisure.

A new policy by the state government has a clear focus on state-level second-generation reforms, namely building worldclass infrastructure, including supply of quality energy, changes in labour laws, taxation reforms and business deregulation.

With names like Ford, Hyundai, Hindustan Motors, TVS, Ashok Leyland, MRF, etc., Chennai city is known as Detroit of India. Recently, BMW has opted for the city to set up a car assembly plant at the Mahindra City and Hyundai has decided to put up a second plant near its existing facility on the outskirts of the city. This coupled with Prime Minister's recent announcement that one of the automobile testing centres would be set up near Chennai, the city is all set to become 'Detroit of South Asia'.

Leather, biotechnology, floriculture, horticulture and construction industry are the potential growth areas in the state in future with IT industry. In the context of changing industrial climate, there are a host of industries where the State is strengthening and deepening its presence.

Chennai has traditionally been the hub of economic, geographic and political activities of south India. Its economy is well balanced with the info-tech , entertainment, industrial and other service establishments playing equal role in city's growth. Unlike other metros, there was no significant steep rise and fall of the real estate market in the post liberalization era in Chennai. This was due to the fact, that not many multinational companies had chosen Chennai to start their operations. It can be attributed to the large floating stock available in the market during this period.

In high street retailing, Chennai has major retail chains like Shopper's Stop, Lifestyles, West side, Pantaloons, Landmark, Globus etc. Retailing corporates like Food World, Vivek & Co., Subiksha, are headquartered in Chennai. Though Chennai faces a shortage in terms of good quality retail space with good signage, it continues to be the favourite location for highpowered national retailers due to the relatively low cost of real estate as compared to other metros.

Organised Retail - Shopping Malls and Complexes

Chennai has been the city where the concept of organised retailing had its origin. It was this city, which saw the rise of Indian retail chains like Food World, Nilgiris, Saravana Bhavan etc. It was Spencer Plaza that has changed the concept of retailing in Chennai and brought in the first organised mega format for retailing. The Mall, located on Anna Salai road, was developed by Mangal Tirth Estate Limited and has become an important retail cum office destination in the city over the years.

The mall, which started with a super built up area of 300,000 sft, has now become the mega mall of city with a total of 1.05 million sqft. The pricing has gone up tremendously as in the year 1991 the mall started leasing retail space at Rs18 - Rs 22 per sqft per month on super area, which is currently hovering at Rs 60 - 100 per sqft per month.

Promoted by the ETA group, Chennai City Centre was recently inaugurated on Dr Radha Krishnan Salai. The mall has an area of 3,00,000 sqft and out of which 2,00,000 sqft is for shopping and multiplex theatre. The remaining 1,00,000sft is for office space.
The Ampa Mall on Nelson Manickam Road, with 4,00,000 sft BUA is coming up on a 3 acre property on Nelson Manickam road and Poonamallee High Road.

Keeping in view the fast pace of development of commercial and residential developments in the city, the number of malls coming up in the city are very few. There are speculations of development of malls towards the southern part of the city by many private developers as well as malls as part of township projects.

Two upcoming malls will add approx 8 lakh sft of retail space in the city. Chennai has a huge demand for organised malls due to increase in the number of IT companies entering the city.