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Sell or hold your realty investments?
Pankaj Anup Toppo, Outlook Money
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May 10, 2008

Did you put money in real estate during the past year or so with the express objective of gaining through capital appreciation? If yes, depending on a number of factors, you might have a bit of a problem on your hands. For, over the past year, the gains have tapered off.

The decision

The extent of the problem depends partly on your investing horizon. If you had taken a long view and plan to hold it for a decade or so, there is nothing to worry about. While there may be a few ups and downs, returns from real estate have been next only to stocks in the long term.

If, however, you were looking to sell off your property within a year or two and earn some capital gains, that plan may need some tweaking. As mortgages and prices continued their upward journey, since around the middle of last year, end-use buyers started staying away in larger numbers. Merrill Lynch, for instance, estimates that sales volumes in the NCR are down 50-70 per cent from last year.

Whither prices? Prices, too, have softened in areas of high speculative interest as property got priced out of the market. Smart investors like Delhi NCR lawyer Dheeraj Seth, 31, sold his Gurgaon house when real estate was still hot and parked the proceeds in another property that is under development.

In January 2008, the stockmarket tanked, pulling down sentiments, and real estate in its wake. Experts say prices will climb 20-30 per cent off their peaks. Those who have held on to their investments, have clearly missed the top this time around.

Over the hill? "Short-term investors in markets where the values have peaked could explore exiting," says Sanjay Dutt, joint managing director, Cushman & Wakefield, a real estate consultancy firm.

Has the price of your property passed the summit? The following three checks will tell you. First, if prices in the area have gained 100-200 per cent in the past year, says Dutt, they are unlikely to rise substantially soon. Second, if the area has lots of speculators, then supply will continue coming into the market and keep price rise in check. Third, if a property with better location or amenities are coming up nearby, that will keep yours off the coveted list. If any of these is true, sell.

Once you take the sell decision, you have to find the best deal.

The process

The channels. Once you decide to sell, cast the net wide to reach as many prospective buyers as possible. For that, tap both conventional as well as online channels. Contact real estate agents and tell them your asking price and by when you would like to sell. If a project is not sold out, you can also approach the developer's office.

Insertions in newspaper property classifieds also help and can cost up to Rs 1,500. "If it's a ready project where people are living, promote the property within the building complex," says Dutt. There would be people who could pass the word to other interested parties. The same holds true for friends and relatives.

The six-fold path

Evaluate the property sale decision against goals. Factor in loss of tax breaks claimed on mortgage repayments if you sell within five years of buying.

Spread the word. Use both conventional as well as online channels to inform as many prospective buyers as possible.

Get a fix on asking price by benchmarking against the latest sale prices of similar property in the project or the area.

Time your sale. Avoid lean periods and low-interest seasons such as summer or the monsoons.

Be clear about payment terms. Fuzziness here could hit the buyer's plans and jeopardise the sale.

Sign an agreement for sale if you do not have the funds to pay off your loan. Help the buyer with the necessary paperwork.

Most property portals such as, and allow a basic free listing. For example, allows 50 basic listings free, beyond which you will have to pay Rs 200 per listing. If you opt for the fast response listing then you will have to pay Rs 900 per listing.

If you contact a buyer directly, you can save on agent commission, which is usually about 1 per cent of the sale price.

The price. Be realistic and quote a fair price, or actual buyers might pass you over. "Fair value of the property would be the last sale done by the developer in that particular building complex," says Dutt. On that benchmark, put a discount (if rates have softened in the area) or premium (if rates have risen). If there has been no sale in the project in six months, identify projects within 5 km of yours and take the last sale price there as a benchmark.

The timing. Don't sell during lean times. There is no point trying to sell during vacations or during the monsoons, when sales are traditionally low.

The payment. Try and keep the payment norms clear and be upfront about it. This will give the buyer the much-needed confidence in dealing with you.

The mortgage. If you are trying to sell a house that still has an outstanding loan, a fair bit of paperwork will be necessary. The simplest way is to pay off the loan and then sell the house. But that may not be possible always. In that case, you have to sign an agreement for sale with the buyer laying out the payment terms. This document will be registered and stamp duty paid.

Next, you have to get an NOC from the society/builder (in case of an unregistered society). If the buyer wants to take a mortgage for the house, he has to submit fresh documents to the lender. Once that loan is approved, your outstanding, along with prepayment penalty if any, is set off and you are paid the rest. The property papers, if the new buyer has taken a loan, will have to be given to his lender.

The profits

If you make a capital gain on the sale (a tax consultant can tell you how to calculate that), you are liable to pay tax on it unless you deploy it in specific ways. If you use the money to 'construct' a house within three years from the date of sale, the tax is waived.

You also get a break if you use the money to pay for a ready house bought within a year before the sale or two years after. You can also avoid capital gains tax if you invest the gains in specified bonds under Section 54 EC  which typically pay 5.5 per cent per annum and have a lock-in of three years.

If you want to invest in other asset classes, such as equities, mutual funds, gold or debt paper, then you will have to first pay 20 per cent tax on the capital gains (after indexation).

And, finally, keep tax implications in mind. If the holding period of a mortgaged property is less than five years, you may lose all the tax benefits you have claimed on loan repayments.

Despite these deterrents, if you are still getting a good deal, sell. But keep in mind all the variables before you sign on the dotted line.

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