Jun 10, 2012

Have full knowledge of the market conditions before disposing of the house

Of course, it is not easy to sell a house where one has lived for decades. If that is
so, why do people sell their houses?
After all, isn't a house meant for one's permanent living? In the good old days of
the joint-family system, the ancestral house always came to one's rescue in
giving shelter - and shelter was all that people mainly wanted. The position has
changed substantially with the younger generations branching out.
Samir Jasuja of PropEquity says that there are several issues that force people to
sell their homes. The issues involved may include: Inadequacy of space in the
present house. Increase in cost of the plot, securing a handsome price in case of
sale of the old house, which may be invested in another property at a less costly
and less congested locality. In this situation , while a portion of the sale proceeds
could be reinvested in another property, the balance could be saved for
exigencies. Another reason that drives people to sell is when developers tie up
with them to build multistorey apartments on their plots and giving them
possession of one floor over and above the sale amount they receive when they
dispose of their old house.
How can you sell your house faster and at a reasonable price? Sanjay Khanna,
the director of Kailash Nath Projects Pvt Ltd says that one must have full
knowledge of the market conditions, deals going on in the area, price at which
recent deals were struck, and of course acquaintance of a reliable real estate
agent in the locality. Knowledge of regulations governing sale-related matters
applicable to the house in question, stamp duty and registration charges, tax
implications, etc, is also a must.
Remember, if your house is a little old, it may need some repair or renovation,
which may be carried out before you talk to property consultants of your
intention to sell it. Essentially, the repair should include the bathroom, the
closets and the kitchen.
A touch-up of painted and varnished surfaces would add to a well-cared for look
and aesthetic value. All these tend to fetch a decent sum for your house.
Some people are averse to the idea of a middleman in the sale of one's house
but this may not always be to their advantage. Paying brokerage or commission
alone should not deter you from approaching a reliable agent.
An agent, with years of experience, would be in a better position to execute a
clean deal, as otherwise you will have to haggle with many prospective buyers,
some of whom may not be genuine.
Narender Gambhir, who deals with tax and housing matters, says that the sale
procedures of a house are many and vary from deal to deal. Some important
legal and taxation issues are documents to be executed and exchanged,
absolving the seller from future tax payments, capital gains-related investments
and deposits, accounting of full value received, payment of stamp duty and
registration charges as per current laws, etc.
Similarly, if the deal is with a builder for raising apartments, the agreement
involves cost of your site, total cost of the project, the number of apartments
you will be given, the cash you will get, etc. All these need critical study and
drafting so that you receive a satisfactory deal and the wording of the agreement
protects your interests.
Sanjay Khanna says: "When I meet somebody who is planning to sell his house, I
always discourage him. I tell him that if he sells the property, he will have a lot
of issues to settle. Hence, it is better to unlock the property. It would serve his
cause better in every possible manner."
Realty experts say that sellers should keep in mind that when they dispose of
their property and buy another one, they have to pay a broker's commission
twice, for both transactions. The commission you pay varies between 1-2 % of
the cost of the property. Then there's a 6% stamp duty for every property
transaction, so, when you sell the buyer pays stamp duty, but when you buy you
pay the entire stamp duty. By the time you wrap up the deal, you could have lost
as much as 10% of your gains. And, in case you want to buy another property
with the proceeds of the sale you could end up losing as much as 20% of the
value as transaction costs in the entire process.
Apart from this financial setback, there's the passing but very real emotional loss
that comes with selling a house that's been home for decades.
Narender Gambhir says that any gain arising from the sale of a house is taxable
under the provision of Income Tax Act, 1961. However, the act provides
exemption in certain circumstances. Here is how one can compute capital gains
and other aspects involved during taxation on the sale of a house.
When a house is being sold, the first step is to determine whether it falls under
the category of long-term capital asset (LTCA) or short-term capital asset (STCA).
If the house is held for up to three years from the date of acquisition, it is
classified as STCA and, accordingly, any gain arising from it is termed as short-
term capital gain (STCG). On the other hand, if the period exceeds three years,
the house is termed as LTCA and any gain arising from it is termed longterm
capital gain (LTCG).
In case the house is a STCA, cost of acquisition and improvement of the asset
along with expenses incurred at the time of its sale are deducted from the sale
consideration received to arrive at STCG. But in case the house is a LTCA, the act
provides relief to cover for the inflation by permitting the enhancement of the
actual cost and (or) cost of improvement with reference to cost inflation index
notified by the central government.
In case the gain arising on sale of house is in the nature of LTCG, one can save
tax by making investments subject to fulfilling the specified conditions as
contained in the respective sections of the Income Tax Act, 1961.
LTCG arising on transfer of a residential house property is exempt if the same is
reinvested in a new residential house under Section 54 of the act.
The gain arising on transfer of any LTCA is exempt if the sale proceeds are
invested in the notified bonds within a period of six months from the date of
transfer. However, there is a cap of Rs 50 lakh per fiscal year for making
investment in such bonds under Section 54EC.
Source:Economic Times