V Nagarajan

Indian realty sector is much more regulated now with multiple regulations that have come into play. The key legislations governing the funding include Transfer of Property Act, 1882, Indian Contract Act, 1872, Real Estate (Regulation and Development) Act, 2016, Registration Act, 1908 and the Indian Stamp Act, 1899.

Each and every state has as a separate Stamp Duty Act and Registration Act, which governs regulations on how the property has to be registered.

In a significant development, 100 per cent Foreign Direct Investment (FDI) is now permitted in select sectors without any approval.

While funding is taking shape in different forms, some of the structures which bankers and investors are seeing it which they have not seen it in the past. Historically from just acquiring estate by paying stamp duty and capital gains, the situation has changed today where the developers are okay to buy the shares of the entity.

Additionally LLP is gaining recognition in the market in the recent past. A number of developers’ construction is happening through LLP entity. The significant advantage is there is no dividend distribution tax. If it is a company, then the entity will end up paying 22-25 per cent tax. Foreign capital entry into LLP has been permitted only in areas where there are no sectoral gaps.

From a domestic standpoint, today there are two or three construction funding banks and they fund debt and debt is generally secured by way of land share or area share in the property that is coming up. One another source of funding by NBFC is to fund construction and development.

There is a similar product coming up with security by way of land mortgage and the rate at which funding happens ranges from 18 to 27 per cent. The first share will go to the NBFC and he will have the right over the cash flow. Even the cash flow balance, whatever comes, it gets apportioned between the landowner and developer.

FDI in real estate has been considerably eased now. An investor can exit early but on two conditions. There has to be a minimum lock in period of three years or he has to at least deliver trunk infrastructure. The area should have roads, sewerage systems and as long as basic facilities are done, he can exit.

Unlike earlier, debt by foreign companies has been opened up. However, there are certain conditions that go with it. For overseas debt, there are restrictions on the quantum of interest. It should be on LIBOR plus 4.5 points. So the maximum rate is 6.5 per cent per annum is the debt.

Whether NCD can be issued to foreign investor? There has so far been conflicting thoughts and discussions. The way guidelines on NCDs have been framed it appears that it cannot be used for buying land. Do not just buy land. Do construct and develop.

Today debentures can also be listed. When debt security is listed, it can be used whenever needed by the company. It can be listed both for domestic and overseas investors.

I have been paying EMI on old interest rate. Can I shift my home loan to another lender if the terms are attractive? What are the ground rules while shifting home loan? S. Khatwani, Sharjah.

Before shifting there are certain factors that you should evaluate. Consider stamp duty and processing fee. There are lenders who charge legal, valuation, documentation and technical fee. The Reserve Bank has asked banks to link all their new floating rate retail loans to an external benchmark.

Basically, it makes sense if you switch your loan to a new lender if the existing tenure is over 10 years. Again you should consider switching I the differential is 25 basis points. For tenure ranging from 10 to 15 years, it is advisable to switch if the differential is 50 basis points.

My relative is planning to gift the commercial property located in Mumbai. She is a PIO and settled in US. Are there any restrictions in this regard? Sunil Almeida, Dubai.

There are no restrictions as the Reserve Bank has given general permission to Persons of Indian Origin to transfer residential or commercial property in India by way of gift to a person resident in India or to a person resident outside India, who is a citizen of India or to a person of Indian origin resident outside India.