Land Exchanges -- Efficient Way to Real Estate Trading

When we talk of investing, the foremost thought that comes to our mind is the shares and the Stock Markets associated with it. We in India have very less options for investing. however we choose the product, the money turns up in the stock market only. Even the funds like Pension funds, employees funds are finding their way in to stock markets. To find the alternative option of investing is a very daunting task. The assets classes other than stocks for investment include Real Estate, Government Securities, Gold Funds, Gold related products, Municipal Bonds (which are non-existent in India), Trading in Insurance policies, reverse mortgages.



With the REIT (Real Estate Investment Trusts) in vogue (after norms being set now), we have found a new of asset to invest into. But how they would be priced? what would be the mechanism of trading? how effectively would they be able to represent the asset class? These questions are yet to be answered.



As the shares of the company represent the holding of ownership in that comapny, in the same vein, the units of the REIT should reflect the ownership of the same asset class i.e. Real Estate. But how would that effected?



Consider this:



01) Every entity holding any real estate i.e. land (developed or undeveloped), buildings of any kind should get that listed at the Property Exchange.

02) Property Exchange would work in the same way as the Stock market works, the only difference will be instead to trading ownership of company, we would be trading ownership of real estate.

03) The unit that will be traded will be a standardised one like one sq ft or sq mt. All the stock will have the same units.

04) The companies listing their real estate will have to submit their ownership proofs of the real estate to the exchange to be listed.

05) The companies will submit reports like

(a) What kind of land do they own (agricultural or non-agricultural)?

(b) Whether that land is developed & to what extent?

(c) Where that land is located & what is the municipal valuation of that property as per ready reckoner.

(d) For what purpose that is used & what is the income earned from it?



06) The units so listed on the exchange should be converted into demat form.

07) The stamp duty on transfer of such units should be rationalised so that trading in the same is encouraged. The state governments would find their stamp duty revenues increasing manifold after that. Same had happened when stock exchanges were dematerialised.

08) Derivative products can later be launched for the same, once the certain level of trading is established to allow more depth to the market.

09) The purchase of single unit of the entity so listed will represent as holding of equivalent real estate by the concerned person.

10) Later on even the Co-operative Housing Societies should be allowed to list their flats. (better would be having a union of multiple societies being listed as single entity) though this can create problems while taking possession of the units.

11) The valuation of such entity would involve a complete diferent kind of dynamics like municipal valuation, location of the property, projected activity by the company owning that property, how much that property is developed and etc..

12) Later on Property Mutual Funds could be allowed who would still make more easy to hold the real estate across the country for small investor.

13) There would be completely new concepts like EPU (Earning Per Unit of Property held), VPU (Value of Per Unit of Property held), TPV (Total Property Value).




This kind of exchange will try to bring more transparency in the property related dealings. It will make real estate market more vibrant. It will also allow small investors to have holdings in the small part of the land.
The market will allow for price discovery mechanism and also create avenue for small investor in real estate.

This step could be a breakthrough in the type of investment avenue available to small investor, which hitherto was not available to him. Small investor can also reap the benefits growth of real estate market without investing huge funds. This would also enable more liquidity to the real estate. Locating of real estate would be more easier. The person holding certain property would find it easy to convert into cash, which now is very difficult. Even the Company's Stock has gone through similar transformation. We should try to extend the same to the real estate too. If we can have Exchange traded Gold Funds, then we can definitely have Property Exchange also.

Aternative to Common stocks as inflation Hedges---Benjamin Graham

Book: The Intelligent Investor
Author : Bejamin Graham
Edition: 1971-72

Chapter 2 The Investor and Inflation


"Alternatives to common stocks as inflation hedges

The standard policy of people all over the world who mistrust their currency has been to buy and hold gold. This has been against the law for American citizens since 1935---luckily for them. In the past 35 years the price of gold in the open market has advanced from $35 perounce to $ 48 in early 1972-- arise of only 35%. But during all this time the holder of gold has received no income return on his capital, and instead has incurred some annual expense for storage. Obviously, he would have done much better with his money in a savings bank, inspite of the rise in the general price level.

The near-complete failure of gold to protect against a loss in the purchaing power of the dollar must cast grave doubt on the ability of the ordinary investor to protect himself against inflation by putting his money in "things". Quite a few categories of valuable objects have had striking advances in market value over the years-- such as diamonds,paintings by masters, first editions of books, rare stamps and coins, etc. But in many, perhaps most, of these cases there seems to be an element of the artificial or the precarious or even the unreal about the quoted prices. Somwhow it is hard to think of paying $67,500 for a U.S. silver dollar dated 1804 (but not even minted that year) as an "investment operation." We acknowledge we are out of our depth in this area. Very few of our readers will find the swimming safe and easy there.

The outright ownership of real estate has long been considered as a sound long term investment, carrying with it a goodly amount of protection against inflation. Unfortunately, real-estate values are also subject to wide fluctuations; serious errors can be made in location, price paid, etc.; there are pitfalls in salesmen's wiles. Finally, diversification is not practical for the investor of moderate means, except by various types of participations with others and with the special hazards that attach to new flotations--- not too different from common-stock ownership. This too is not our field. All we should say to the investor is, "Be sure it's yours before you go into it." "

Indo Japan Currency Swap...

India and Japan have entered into currency swap agreement. This agreement specifies that in the event of either country facing currency/forex crisis can swap local currency for dollars with the other country. That means, if any BOP or forex crisis arises for India, then Japan will buy Indian Rupee and sell Dollars to India and vice-a-versa.

Japan has entered into similar arrangements with other asian countries also. In the current scenario, the deal does not have any importance as almost all the asian countries are holding huge forex. But the significance of deal will realised in the event, crisis like that of Asian Financial crisis in 1997 and recent Indonesian forex woes.

Currently Chinese Remnibi is gaining ground and along with that inflation is also galloping in china, this could lead to adverse effect on chinese trade surplus (nevertheless china is experience huge upsurge in its trade surplus---thanks to artifical limit on chinese yuan)
Inflation in china may lead to increase in demand for imported goods vis-a-vis home manufactured goods.

anyways, if that happens, that would mean good days for Indian products as the cost advantage of chinese products may get eroded. The current inflation ion china is around 7%.

How to become a crorepati?

The setting objectives plays an important part in any individual's quest to achieve various goals in life. Objectives help channelise the thought process and thereby initiate appropriate action, which is in line with the goal that the individual has set out to achieve.

With respect to financial planning and youth, financial objectives play an important part in helping individuals achieve their dreams and goals in life. Financial objectives act as the first step towards determining the course of action needed to achieve various goals.

For example, youth can aspire to become Crorepatis (millionaires) one day. And through erfectly legal means! We are not trying to advocate any kind of illegal activity like going to a casino and gambling with your money or betting on horse races (which is legal by the way!). This goal is very much achievable in our view provided individuals plan their finances wisely. This article outlines a strategy for the youth of today to become a Crorepati.

Suppose an individual aged 25 years wants to become a Crorepati by the age of 40. This means he has 15 years to achieve the goal. He wants to know how much he will need to save per month/annum to achieve the target.

Assuming a rate of return of 15% per annum (p.a.) and an investment tenure of 15 years, the individual will need to save Rs 210,171 every year to become a Crorepati (refer Table 1 at end of article. Effectively, the individual would need to invest Rs 16,414 every month.

Of course, the above figures would vary with a change in the 'given' set of variables. For example, assuming that the individual had 20 years to become a Crorepati; he would need to invest a sum of Rs 97,615 per annum (or Rs 7,624 per month), other variables remaining the same. If we were to reduce the rate of return to 12% p.a. and the tenure were 20 years, then it would need an investment of Rs 138,788 p.a. (or Rs 10,974 per month).

Individuals could also be faced with another kind of dilemma; they know how much they can invest but would like to know the time it would take for them to become a Crorepati. An illustration would make things easier to understand. six months to achieve the magic figure of Rs 1 crore (refer Table 2). Conversely, if his investments were to increase to Rs 100,000 p.a. and his expected rate of return were to fall to 12%, it would take him 22 years and six months to achieve his target.

However, the numbers given above assume certain factors to be 'given'. For example, it is assumed that the individual Let us suppose an individual can invest Rs 50,000 p.a. and his expected rate of return is 15% p.a. on his investments. It will take him approximately 24 years and will be a disciplined investor and he will continue to invest the specified amount(s) diligently every month/year and that he will not deviate from his investment plan. If viewed differently, it
takes patience, discipline and belief on part of the investor to stay on course of the journey the entire distance.

Individuals therefore need to bear the minute details in mind before embarking on their journey to becoming a Crorepati. As we have shown, becoming a Crorepati is not 'mission impossible'- in our view, it is 'mission achievable'!

* Rs 1 crore = Rs 10 million

Source: personalfn.com. To download full article click here.

How costly can the delay in filing tax returns be?

First, what are the due dates?
Assessees having income from salary have to file return of income before July 31 of the assessment year. This is the ‘due date’ prescribed in section 139(1) of the Income Tax Act, 1961.
Self-employed businessmen and professionals, and those deriving income from let-out property too have to file their returns by this date.
However, businessmen and professionals with aggregate turnover/annual receipt exceeding Rs 40 lakh (in the case of business) and Rs 10 lakh (in the case of profession) have time up to October 31 for filing their return of income.

Are there any benefits in filing by the due date?
An assessee filing return by the ‘due date’ provided in the statute is eligible to file a revised return if he discovers any omission or wrong statement therein. Time limit for filing revised return is one year from the end of the assessment year or before completion of assessment. No penalty would be levied for filing a revised return on voluntary basis.

So, by filing late, does one lose the revision option?
Yes. If an assessee does not file his return within the ‘due date’ and files his return subsequently, he cannot have the benefit of revising the return, as the return filed beyond the ‘due date’ is treated as ‘belated return’.

Any other advantages of sticking to the deadline?
The taxpayer gets the advantage of carry forward and set off of losses, such as loss from business and loss under the head ‘capital gains’. If the return is filed beyond the ‘due date’ mentioned in section 139(1), these losses cannot be carried and set off against the income of subsequent years.
Yet another advantage of filing return before ‘due date’ is the eligibility for interest on tax refund from April 1 of the assessment year.

Can delay, therefore, be wasteful for ‘refund’ cases?
Yes, because where the return is filed after the ‘due date’, interest on refund is paid only for the period from the month of filing the return to the date of refund. In other words, no interest is paid for the period from April 1 of the assessment year to the date of filing the ‘belated return’.

Do those with ‘nil’ tax liability have anything to fear?
Where the return is filed beyond the ‘due date’, the taxpayer has to pay interest if any, on tax liability existing beyond tax deducted at source (TDS) or tax collected at source (TCS) or the advance tax paid. The question of interest does not arise where tax due for payment is ‘nil’, as would be in the case of most salaried people who pay their taxes through the TDS route. Legally, a taxpayer can file his return before the end of the assessment year without any penalty (however with penal interest under section 234A). Again, the question of penal interest does not arise in the ‘nil’ cases discussed above. For the assessment year 2007-08, return of income could be filed up to March 31, 2008.

How costly can delay in filing IT return be?
Apart from interest and penal interest, there are other implications. If the return is filed after March 31, 2008 but before March 31, 2009 the AO (Assessing Officer) could levy a penalty of Rs 5,000 under section 271F. Even when there is no further tax payable on the income admitted, penalty under section 271F is leviable for the delay. If the return is filed after March 31, 2009 then such return would become an invalid return.

source: HINDU