Real estate basics

Trainings by Vidya Bhagwat
1.1 Basic Concepts Of Assets And Investments
The real estate sector has to be at the forefront of India‘s
development agenda on account of its obvious potential to propel
economic growth. The importance of this sector is that, it is the
second largest employer next only to agriculture and supports
nearly 250 ancillary industries such as cement, steel, brick, which
are some of the supporting services. Real estate development
market in India is around $12 billion, growing annually at 30 per
sent.
The sector has of late witnessed a spurt in the demand of not
just residential property but also commercial property. Indian cities
have found a place for themselves on the world map as attractive
investment destinations for international real estate players.

What Is An Asset?
Asset can be anything of material value or utility, the entire
property of a person, association, corporation, or estate applicable
or subject to the payment of debts. We can also say that asset is
anything which the business owns or has title to, in short, have
ownership of.
An enterprise usually employs its assets to produce goods or
services capable of satisfying the wants or needs of customers;
because these goods or services can satisfy these wants or needs,
customers are prepared to pay for them and hence contribute to
the cash flow of the enterprise. Cash itself renders a service to the
enterprise because of its command over other resources.

1. Current Assets
A balance sheet account that represents the value of all assets
that are reasonably expected to be converted into cash within one
year in the normal course of business can be termed as a current
asset. Current assets include cash, accounts receivable, inventory,
marketable securities, prepaid expenses and other liquid assets
that can be readily converted into cash.
In personal finance, current assets are all assets that a person
can readily convert to cash to pay outstanding debts and cover
liabilities without having to sell fixed assets. Current assets include
cash in hand and in the bank, and marketable securities that are
not tied up in long-

2. Fixed Assets
A long-term tangible piece of property that a firm owns and
uses in the production of its income and is not expected to be
consumed or converted into cash any sooner than at least one
year‘s time.
Buildings, real estate, equipment and furniture are good
examples of fixed assets. Generally intangible long-term assets,
such as trademarks and patents, are not categorized as fixed assets
but more specifically referred to as “fixed intangible assets”.
Fixed assets are items that are for long-term use, generally
five years or more. They are not bought and sold in the normal
course of business operation. Fixed assets include vehicles, land,
buildings, leasehold improvements, machinery and equipment.

Fixed Assets As Investments
Money invested in fixed assets or as per the Income Tax Act,
Capital assets‖ attract the provisions of the Income Tax Act, 1961, in
various ways, such as, Capital Gains, Income from House Property,
Income from Business and profession, etc.
i. Long term investments :
As per Section 2(29A) of the Income Tax Act 1961, long-term
Capital Asset means a Capital Asset which is not a short-term
Capital Asset As per Section 2(29B) of the Income Tax Act 1961
long-term Capital gain mean Capital gains arising from the transfer
of a long-term capital asset.

ii. Short term investments:
As per Section 2(42A) of the Income Tax act 1961, short-term
more than thirty-six months immediately preceding the date of its
Capital asset means a Capital asset held by an assesses for not
more than thirty-six months immediately preceding the date of its
transfer.
• Fixed assets as Stock-in-trade :
As defined in Section 2 (14) of the Income Tax Act 1961, an asset
held as stock in trade does not get covered in the definition of a
Capital Asset hence the capital gains provision does not apply to
them. Any transfer of Stock-in-trade is covered under the profits
and gains of from Business or Profession.

1.2 What Is The Meaning Of The Term Real Estate?
The term ‘real estate’ refers to land as well as building. The
word ‘land’ includes the air above and the ground below and any
buildings or structures on it. It covers residential houses,
commercial offices, trading spaces such as theatres, hotels and
restaurants, retail outlets, industrial buildings, factories and also
government buildings.
• The transaction includes:
1. Purchase
2. Sale
3. Development of land

The main players in the real estate market include the following :
1. The landlords.
2. The builders.
3. The developers.
4. Real estate agents.
5. Tenants.
6. Buyers.

Transfer of Property Act, 1882
According to (Sec 3), ‘Immovable Property’ does not include standing
timber, growing crops or grass. Thus, immovable property constitute of
‘Building’ and ‘Machinery’ if embedded in the building for the beneficial
use thereof. Then it must be deemed to be a part of the building and the
land on which the building is situated.
General Clauses Act, 1897
As per Section 3(26), ‘immovable property’ shall include land, benefits
to arise out of land and things attached to the earth, or permanently
fastened to any thing attached to the earth. This definition of immovable
property is also not exhaustive.

The definition of the term ‘Immovable Property’ under the
Registration Act 1908, which extends to the whole of India, except
the State of Jammu and Kashmir, is comprehensive. Section 2(6)
defines ‘Immovable Property’ as under:
Immovable Property includes land, building, hereditary
allowances, rights to ways, lights, ferries, fisheries or any other
benefit to arise out of land, and things attached to the earth or
permanently fastened to any thing which is attached to the earth
but not standing timber, growing crops nor grass.
The Registration Act 1908 :

1.3 Why Real Estate Has Become Buzzword?
• The US$ 50b Indian real estate market is booming and
• expected to grow at 25 per cent annually.
• The boom owing to the consumption powered growth of
• the country‘s economy has seen investors planning nearly
• 250 new shopping malls by 2008, as against just three
• that existed till 2002.
• The central government adopted a regulation in 2005
• allowing foreigners to bid for Indian construction projects
• with local partners and also reducing their minimum
• land holding limit from 100 acres to 25 acres.
• Enthused by the liberalized investment guidelines, a slew
• of foreign builders are rushing to launch projects in Asia‘s
• third largest economy.
• Expected annual shortfall of 20 m housing units by 2011.
• Mumbai alone would need more than 180,000 housing units.

Real Estate Sector in India is the second largest employment
generator next only to agriculture. About 250 ancillary industries
directly or indirectly depend on real estate activity. It is difficult to
estimate the exact contribution of the real estate sector to gross
domestic product (GDP) as it appears in a disaggregated and
dispersed form in the National Accounts Statistics.
Residential housing and real estate services (activities of all types
of dealers such as operators, developers and agents connected with
real estate) is covered under the category real estate, ownership of
dwellings, business and legal services. The gross value added in the
ownership of dwellings is equivalent to gross rental of the residential
dwellings less cost of repairs and maintenance. Gross rental is
estimated as a product of average gross rental per dwelling and the
number of census dwellings and includes imputed rent of owner-
occupied houses.
1.4 Contribution of Real Estate Activity to India’s
GDP

The future of the real estate sector in India is going to be
guided by some important factors viz., suitable amendments to
the Foreign Direct Investment guidelines in the townships, housing
built-up infrastructure and the construction development projects
as well as the abolition of service tax on the construction industry
especially the housing sector. Conversely, if the abolition per-se is
not possible then drastic changes/ modifications in the service tax
norms are the need of the hour. This sector is already over-
burdened with taxes; any further imposition of taxes in any form
would adversely affect the growth of this sector and also the
whole economy as such.
1.5 Future of Real Estate Sector in India

I. Foreign Direct Investment :
Till recently, FDI in real estate was restricted to
development of industrial parks, hotels, integrated townships
and SEZs. On March 3, 2005, Government of India replaced the
integrated township policy to permit FDI up to 100% in
townships, housing, built-up infrastructure and construction
development projects, under automatic route (Press Note 2
(2005 series)).
FDI is now permitted in
Townships.
• Housing
• Commercial premises.
• Hotels.
• Resorts.
• Hospitals

• Industrial parks.
• Resorts hospitals.
• Educational institutions.
• Recreational facilities.
• SEZ‘s, etc.
Certain guidelines exist within the reform measures.

II. Public Private Partnership :
Real estate development in India is estimated to be in the
region of USD 12 billion, growing at a pace of 30 per cent each
year. Almost 80 per cent of real estate developed is residential
space and the rest comprise office, shopping malls, hotels and
hospitals. This double digit growth is mainly attributed to the off-
shoring business, including high-end technology consulting, call
centers and programming houses which in 2003 is estimated to
have accounted for 10 million square feet of real estate
development.

1.6 Selection of Mode of Business for Conducting
Real Estate or Construction Business
The various modes in which an enterprise can be started are as
follows:
A. Proprietorship
B. Partnership
C. (a) Private limited companies (b) Public limited companies
D. HUF
E. Trusts
F. Co-operative societies
Distinguishing characteristics of each of the above:

A. Proprietorship :
1. It is a single person operation. There is no difference
2. between the owner and the company.
3. It is the easiest to set.
4. Profit of the company is the owner‘s income.
5. Liability is unlimited, i.e., Losses may have to be made good out
of the personal assets of the proprietor.
6. The greatest advantage of such an organization is that it requires
minimal of legal documentation.
7. There is no separate law on sole proprietorships.

B. Partnership :
1. Two or more persons can start a partnership.
2. The maximum number of partners which are permissible
3. in a firm is 20 and in the case of banking firms it is 10.
4. The liability of partners in Indian partnerships is joint
5. and several.
6. There is no minimum capital to be subscribed for a
7. partnership.
C. Companies :
1. Company as a legal person—can borrow, lend, enter into
contracts, can sign, can sue and be sued.
2. Has a life beyond the life of the promoters.
3. Can hold assets of its own.
4. Company seal acts as its signature.

(a) Private Limited companies :
Private Limited company means a company formed with the
word private in its name. A private limited company can be
formed with a minimum of 2 members.
• articles of association restricts the right to transfer its shares.
• The minimum paid up capital for a private company would be Rs.
100,000.
(b) Public Limited companies :
Public Limited company means a company which is not a
private limited company. It does not carry the word ‗private‘ in its
name and also do not have the restrictions as carried out in the
private limited companies. Public limited companies are generally
large companies with widespread shareholding with shares being
quoted in the stock exchange. The minimum paid up capital for a
public company would be Rs 500,000.

D. HUF :
The joint Hindu family form is a form of business organization
in which the family possesses some inherited property. The
inheritance of the property is among the male members. The
share of ancestral property is inherited by a member from his
father, Grandfather and great grandfather.
The important features of the joint Hindu family business are
as follows:
1. Membership By Birth:
Membership of the joint Hindu family business is
automatic by birth of a male child and is not created by an
agreement between persons.
2. Management:
The management vests in the Karta, the eldest
member of the family. However, the Karta may associate other
members of the HUF to assist him.

E. Trusts:
A Trust is created when a donor attaches a legal obligation to
the ownership of certain property based on his confidence placed
in and accepted by the done or trustee, for the benefit of another.
• A trust can be created:
1. By any person competent to contract.
2. With the permission of a principal civil court of original jurisdiction
by or on behalf of a minor.
3. Any person or corporation capable of transferring property or
interest in property can create a Trust.
F. Co-operative Societies :
A cooperative form of business organization is different from
other forms of organization. It is a voluntary association of persons
for mutual benefit and its aims are accomplished through self help
and collective effort.

Real estate basics

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (20)

Similaire à Real estate basics

Similaire à Real estate basics (20)

Plus de umrella

Plus de umrella (20)

Dernier

Dernier (20)

Real estate basics