Information – Money Market
Exchange rates spark confusion
Exchange rates spark confusion
By Shakir Husain, Staff Reporter GULF NEWS Published: December 03, 2007, 01:41
Dubai: Arbitrary dirham rates offered by UAE money changers, in some cases as low as Dh3.05 per dollar or almost 17 per cent lower than the official rate, are sowing more confusion in the market where speculation on the dirham’s revaluation is already rampant.
The UAE currency has been pegged at 3.6725 to the dollar since 1997 and until Sunday there was no change in the official peg.
UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi last month spoke about social and economic pressure to give up the dollar peg and to adopt a basket of currencies.
Saudi Arabia, the UAE and Bahrain have cut interest rates in the recent days to make it less attractive for investors to bet on the appreciation of their currencies. But that has not discouraged people from taking bets on the dirham’s revaluation.
The forward markets on Sunday were expecting the UAE dirham to appreciate to 3.54 against the dollar in a year.
“It is happening because there is a huge demand for Gulf currencies,” Monica Malik, senior economist at EFG-Hermes investment bank, told Gulf News.
“Increasingly we feel there is going to be some sort of currency reform in the next six months,” she said, but added that the two-day summit of Gulf leaders starting in Doha on Monday may not come up with a firm action on the issue.
Analysts have been expecting Gulf government action on the dollar pegs as the cost of living across the region has been rising as imports have become costlier due to the slide in dollar’s value.
Money changers, hotels and stores in shopping malls were accepting dollars at rates ranging from Dh3.05 to Dh3.50 per dollar yesterday.
They began revising the exchange rates on Friday and gradually raised the dirham rate against all other major currencies. Unofficial exchange rates of other currencies versus the dirham were similarly affected.
Tourists complained that they were getting fewer dirhams for their currencies.
“It is strange,” said Ahmad Jan from Saudi Arabia as he walked between a bank branch and a money exchange at Deira City Centre and noted that the bank offered 60 fils more per dollar.
“What you see here is the official rate,” a manager at the bank said.
Moroccan visitor Nasser Bin Omar said he accepted the lower dollar rate from the money dealer because he did not want to wait in the long queue at the bank.
“Offering a lower rate [than the official rate] to the US dollar against the UAE dirham is against the law. Money exchange houses should stick to the UAE Central Bank guidelines,” said B.R. Shetty, vice-chairman of the NMC Group that operates UAE Exchange.
However, UAE Exchange Centre was offering Dh3.30 per dollar, about 11 per cent lower than the official rate on Sunday.
As revaluation speculation gripped the market, many expatriates were also delaying their remittances. A manager at a money exchange in Dubai’s Al Ghusais area said there has been a decline in remittances.
Who gains most in a volatile market?
Who gains most in a volatile market?
23 Nov, 2007, 0521 hrs IST, TNN
Long-term passive investor gains most
Anurag Tripathi Executive VP (Equities), AGSL*
Every time the stock market touches a new high, it enters into an unchartered territory associated with higher volatility. History shows that the so called “intelligent money” is seldom able to exploit such bullish moves in the market. This happens because conservative investors move out of the markets into cash or cash equivalents. Attracted by the euphoria and sensing an opportunity to make quick money, new investors enter the market.
There is a general belief that increased volatility favours day traders as they get more opportunities to trade. Increased volatility is a double-edged sword which can result in higher profits or losses. As volatility increases, the ability of a day trader to hold a leveraged position declines. Stop losses in relation to the underlying volatility become smaller/tighter and as a result the likelihood of the stop loss being triggered on a given trade increases. The risk reward ratio thus favours risk rather than reward.
Further, the market often opens with large gaps as compared to the previous day closing. This implies that the day trader is not able to exploit the entire upward move in the market. Higher volatility often leads to panic reaction by the various market constituents, which results in inadvertent financial mistakes.
A passive long-term investor on the other hand is not influenced by the volatility in the market. He is usually sitting on deep notional profits and consequently has a much higher ability to hold on to his investments. His investment decisions are based on fundamentals of the company in which he is invested and the general macro environment. As long as these two factors remain positive, the long-term investor stays invested. He does not give much weightage to the price movements of stocks.
Further, the ratio of profitable trades to loss making trades is also skewed in favour of the long-term investor. This happens because as the investment horizon increases, the ratio of trades resulting in profits to the trades resulting in loss improves in a bullish volatile market.
The cost of doing the trade is negligent in the case of a long-term investor, but is extremely high in the case of a day trader. Hence, a bullish volatile market generally favours the long-term passive investor.
Day traders may gain, but not continuously
R Swaminathan VP, IDBI Capital Market Services Ltd
Volatility is the result of pricing upheavals in the market due to irrational market response. The liquidity in the market pushes demand beyond a level creating valuations that are illogical. Even a perfect market with reasonable pricing can turn volatile due to sensitive issues like political or global issues or even liquidity.
One who invests for long term reaps the benefit, subject to the fundamental strength of the stocks invested. Long term sustainability of the prices denotes the inherent strength and the potentials of the future. As such a long term investor depicts the character of calm and patience over the investment decisions made and the possibility of certain growth. As for the day traders, they are hitting in the dark and trying their luck.
The market is surging on liquidity and expected liquidity. The valuations at PE of around 25-plus and PBV of around 6-times with a negative dividend yield (unheard of in recent times) with a swinging open interest positions in derivatives all denotes the market imperfections and gyration.
Day traders may succeed on a hunch once or twice but not continuously. The order of volatility even in percentage terms vary with the base. The markets have entered a different plane with the sensex over 12,000, 15,000 and 17,500 and even touching 20,000. Hence, the upheavals are wild.
In market swings, only long term investors make profits. In the upward market volatility, the day traders cannot benefit continuously. One should not get swayed by the consistent upward market. As the index moves up continuously, with every 1,000 points, the base for volatility increases. Hence even small percentage change of 1% can move the values in big way. As such investors who stayed invested have benefited, as growth over a period is always higher than the one time gain.
Last but not the least, churning always proves costly in missing opportunities and also results in expenditure like brokerage, STT and other charges. Long-term investors benefits on the taxation front too if the investment and sale is planned properly. Investing is like running a marathon and not a sprint. As such day trader’s greed cannot be compared with the long term yield.
India: World’s best performing stock market
India: World’s best performing stock market
21 Nov, 2007, 1903 hrs IST, PTI
NEW DELHI: India has emerged as the world’s best performing stock market in the past three months, notwithstanding the five-day plunge that wiped off close to $85 billion of investors’ wealth from the bourses.
The country’s benchmark Sensex has lost over 1,300 points in five trading sessions pulling down the total market capitalisation of all the listed firms from about $1,650 billion to $1,565 billion during the same period.
However, an analysis of three-month US dollar return data available with the global market intelligence service provider MSCI Barra for equity markets across the world shows that Indian bourses have delivered the highest gain of 33.64 per cent during this period, thus adding over $400 billion to the investors’ kitty.
The developed markets like the US, Japan, Austria, Sweden and Belgium have given negative returns in this period, while UK managed a modest return of 0.6 per cent.
The best performing developed markets has been Spain (18 per cent) and Hong Kong (17 per cent). But, their returns is just about half of the same on Indian bourses since August 21.
Worldwide, India is followed by Qatar, UAE and Egypt with a gain of about 28 per cent each. Among emerging markets, India is followed by Brazil with 31 per cent return, while Chinese stocks have managed to give about 17 per cent returns.
But, there are others as well like Taiwan, Sri Lanka, Chile, Mexico and Venezuela who have registered a fall during this period.
Since the beginning of this month, however, just a handful of markets have managed to register a positive return.
Spain is the only developed market to have seen a modest gain in November (0.6 per cent), while Morocco, Egypt, Colombia and Jordan are the only emerging markets posting positive returns.
GCC countries should revalue currencies
GCC countries should revalue currencies
By Saifur Rahman, Business News Editor GULF NEWS
Published: November 18, 2007, 15:27
Dubai: The six oil-rich Gulf countries should carry out a one-time big revaluation to adjust their currencies, Steve Forbes, US entrepreneur, told Leaders in Dubai conference.
Gulf consumers have lost between 25 to 35 per cent in purchasing power during the last two years as the falling value of dollars coupled with the strong economic growth has added inflationary pressures on the economy that has reflected in higher cost of living.
Forbes, however, is a strong advocate of the currency peg.
“The Gulf countries should carry out a one-time big revaluation by 10 to 15 per cent of their currencies to the dollar,” he said. “Don’t let your currency float, keep the peg, but revalue it and revisit the peg from time to time,” he said.
According to the International Monetary Fund, inflation in the UAE has reached 9.3 per cent last year on higher economic growth and partly due to the weakening value of the dirham pegged to the US dollar.
He blamed the US Federal Reserve for inflating the global economy.
“The US Federal Reserve has been printing too many dollars, causing global inflation,” he said.
“The major currencies, the euro, pound and others are in a way adding to the global inflation, with the Federal Reserve being the biggest sinner. The UAE and other Gulf countries should revalue their currencies to adjust.”
In an exclusing interview with the Gulf News, Forbes said, the Gulf states should tell the US Federal Reserve chairman to “put its act together”.
Dubaisation
Forbes said Dubai has created a model for economic growth, and others should follow what he fondly referred to as ‘Dubaisation’.
“Saudi Arabia is undergoing a reform process and developing its midedle class, which will create a healthy balance for growth. However they should look at Dubai and other economies should follow the Dubaisation example,” he said.
Forbes, a strong critic of the International Monetary Fund, said that the institution is good for nothing.
“The IMF loves to pay money to the countries and enjoy when they suffer. The IMF should be sent to Bolivia or some other places,” he said.
What’s short-selling of shares?
What’s short-selling of shares?
13 Sep, 2007, 0211 hrs IST, TNN
What is short-selling?
Short-selling, in the context of the stock market, is the practice where an investor sells shares that he does not own at the time of selling them. He sells them in the hope that the price of those shares will decline, and he will profit by buying back those shares at a lower price. In India, there is no prohibition on short-selling by retail investors. Institutional investors —domestic mutual funds and foreign institutional investors registered with the Securities and Exchange Board of India (Sebi), banks and insurance companies — are prohibited from short-selling and are mandatorily required to settle on the basis of deliveries of securities owned and held by them.
How is short-selling beneficial?
Short-selling is considered an essential feature of the securities market not just for providing liquidity, but also for helping price corrections in over valued stocks. Supporters of short-selling claim its absence distort efficient price discovery, gives promoters the unfettered freedom to manipulate prices and favours manipulators than rational investors. Securities market regulators in most countries, and in particular, all developed securities markets, recognise short-selling as a legitimate investment activity. The International Organisation of Securities Commissions (IOSCO) has also reviewed short-selling and securities lending practices across markets and has recommended transparency of short-selling, rather than prohibit it.
Are there any drawbacks of short-selling?
Critics of short-selling feel selling, directly or indirectly, poses potential risks and can easily destabilise the market. They believe that short-selling can exacerbate declining trend in share prices, increase share price volatility, and force the price of individual stocks down to levels that might not otherwise be reached. They also argue that declining trend in the share prices of a company can even impact its fund raising capability and undermine the commercial confidence of the company. In a bear market in particular, short-selling can contribute to disorderly trading, give rise to heightened short-term price volatility and could be used in manipulative trading strategies.
Will institutional investors in India be allowed to short-sell securities?
Sebi is working on a proposal to introduce a stock borrowing and lending mechanism. This will allow institutional investors to short-sell by borrowing shares. Under this arrangement, an investor A, who feels that a certain stock is overpriced, borrows those shares for a charge from investor B, who is willing to lend those shares. Investor A then sells those shares in the market, hoping that the price declines so that he can buy cheap and return them to investor B.
What is the difference between covered short sales and naked short sales?
Covered short sales are those in which the seller arranges for the delivery of shares he has sold by borrowing them. Naked short sales are those in which the seller does not intend to provide for the delivery of shares he has sold. Most international securities market regulators have prohibited naked short-selling and require the client to have documentary evidence of borrowing/tie-up with lenders before executing the sale transaction. This is because naked short sales in huge quantities can destabilise the market.
How does the stock lending and borrowing mechanism function in other markets?
World over, securities lending and borrowing transactions are, by and large, over-the-counter (OTC) contractual obligations executed between lenders and borrowers. International securities market regulators do not directly regulate the lending and borrowing transactions. In many international markets, entities like custodians and depositories run the lending and borrowing scheme and have their own screens for meeting the demand and supply of securities from their clients.
( With inputs from the Sebi discussion paper on short-selling and stock lending )
ICICI fined Rs 50 lakh for employing goons
ICICI fined Rs 50 lakh for employing goons
PTI News
NEW DELHI: The Delhi Consumer Commission fined ICICI bank a whopping fine of Rs 50 lakh for employing “goons” to recover loan and deplored the practice of the banks intimidating consumers to pay the installments.
In the significant judgement, the Commission deprecated the “audacity and impunity” with which the banks have been effecting forcible possession of vehicles and ordered ICICI also to pay Rs 5 lakh to a consumer, who was mercilessly beaten by the recovery agents while they snatched a loaned car from him.
“No civilised society governed by rule of law can brook such kind of conduct,” the Commission’s President Justice J D Kapoor said, adding the violent methods adopted by the recovery agents were serious violation of “human rights”.
Holding the ICICI Bank guilty of “unfair trade practice,” the Commission termed such miscreants as “yahoos” and said they are boorish and a brutal lout, who care a fig for legal and judicial authorities, including the Supreme Court.
While taking to task the leading bank, it vented its anger on ICICI for flouting the apex court’s direction that restrained all the financial institutions from employing musclemen to recover a loan amount or possession of a vehicle.
The Commission, also comprising Member Rumnita Mittal, issued notices to the Collection Manager of ICICI and the CEO of the recovery agency, seeking their explanations over blatant violation of the direction of the highest court of the nation.
Its strong worded order came recently while hearing a complaint by Tapan Bose, whose loaned car was taken away by some recovery agents after beating up his friend’s son with iron rods on January eight, leading to serious injuries on his skull and other parts of the body.
Home loan: EMI and tenure
Home loan: EMI and tenure
4 Nov, 2007, 0511 hrs IST,Kavita Sriram, TNN
There was euphoria and expectation. Everyone hoped that the rates would come crashing down. Very much like how the rates peaked steadily with every Reserve Bank of India (RBI) move, the anticipation of a fall was huge. New borrowers were offered lower rates compared to existing borrowers. And Devansh was certainly unhappy and upset.
Three years ago, he procured a home loan of Rs 20 lakhs. The tenure of the loan was 10 years. The rate of interest was a humble eight percent. His monthly EMI outflow was a reasonable Rs 24,000. Today, the interest rate stands at a whopping 13 percent. This translates to a monthly outflow of Rs 30,000. Devansh contacted his bank to find out if any rate cut was being planned for existing borrowers and their answer was ambiguous.
The burden of unanticipated increase in monthly EMIs caught Devansh off guard. He had planned his monthly expenses and other financial commitments. Now, it had all gone for a toss. He had to rework on his finances, take stock of his assets and explore any changes to the structure of his home loan. The two most obvious options before Devansh are pay higher EMI or increase the tenure of the loan.
Some borrowers may feel more comfortable paying higher EMIs to the lender. This way, one does not need to prolong the loan period and bear the brunt of increased rates. Anxious borrowers are keen to repay their dues as soon as possible, as they fear defaulting in case the rates increase to an unaffordable level.
Paying off the home loan gives borrowers peace of mind. Perhaps, increasing the EMI is the best option in case further increases in interest rates is on the cards. This option is not for those who are already over-burdened with EMI repayments and cannot stretch their finances beyond this.
For those who are paying heavy EMIs, remember that in future, in case you need some more money from a lender, you may not be eligible for it. This is because the bank realises that your debt is heavy and bulk of your earnings is set aside for servicing your existing home loan.
Borrowers, who increase their monthly dues to the lender, agree to bear the increased cost of home loan immediately rather than postpone it to an indefinite future. Before increasing your EMI commitment, see if you can manage repayments with ease. A very tight lifestyle and a tight financial position can increase stress and make your life difficult.
If you anticipate a drop in rates in the future, increasing the tenure may not be a bad idea after all. On the contrary, if rates travel northwards borrowers who increase their tenure can end up shelling out more to the lender.
You can benefit from the strategy of increasing the tenure only if rates come down. Otherwise you’ll be bound to an expensive financial commitment. Some banks do not allow borrowers to increase their loan tenure beyond a fixed period say 20 or 25 years.
Others see to it that the borrower repays the loan before he retires. Hence, his retirement age, will decide how much his tenure can be extended. Before taking any of these crucial financial decisions, borrowers must consult their financial advisors or professionals.
Look before you leap
Look before you leap
How not to trip up while taking a loan.
Applying for a loan is a complicated process where a customer is faced with many bewildering choices. It is important to make the right impression on your loan officer to get the loan you want. However, there are some things that you should just not do. Here are 10 common-enough pitfalls to avoid while applying for a loan.
1. Don’t lie in your application form
All the columns in the application form are meant to provide vital information that the prospective lender uses to evaluate your creditworthiness. Do not leave out any important details about your income, your address (both temporary and permanent) and about your past or existing relationship with the lender. All this information has also to be supported by documents. Lying in the application form amounts to fudging documents.
2. Don’t fudge salary slips and income statements
Don’t ever fudge salary slips or income statements. You loan officer handles hundreds of loan cases. The chances are, he knows ever trick in the book before you could even think of one. Fudging salary slips is a serious offence. It is fraudulence of a high order. Don’t ever do it. Not only will you not get this loan, you can even be blacklisted by not only this lender but by other lenders too (given the amount of information-sharing between companies).
3. Don’t go in for a co-applicant unless it is necessary
Loan officers are notoriously conservative. The greater the pile of documents related to your case in their files, the more comfortable they feel. You should always put your foot down when a loan officer asks for more guarantors or asks you to bring another co-applicant. The loan officer could be convinced of your case but may be merely trying to protect himself from all possible eventualities. If you follow his dictates, you are killing the prospects of the co-applicant to procure a loan for herself in the future.
4. Don’t offer proof of a lavish lifestyle to prove creditworthiness
Your loan officer is only interested in seeing the adequacy of your income. This emerges clearly out of the income documents you submit with your loan application. So, an effort to project a lifestyle merely to impress him is a definite no-no. It could even backfire on you if he feels that you are living beyond your means. Remember, he can reject your loan application on this ground. If you ever blew your month’s salary on your favorite perfume or that gorgeous pashmina shawl, please don’t tell him.
5. Don’t bounce or return cheques
Your bank statement speaks volumes about your spending habits. It mirrors your spending behavior. It provides your loan officer with a comprehensive view of how you manage your money. If there are too many cheques bounced or returned check entries in your bank statement, be prepared with a convincing explanation and papers to prove it. Generally, though, there should not be any cheque returns or bounced cheques. It lowers your creditworthiness and could result in lower or no borrowing.
6. Don’t show a cleaned-out account
Maintain a certain balance and show some savings in your account. Otherwise you will come across as someone who is barely able to meet his expenses. Savings in your account will show the loan officer that you’ll be able to meet the EMI. Otherwise you will have to come up with a convincing plan of lowering your expenses.
7. Don’t hide details about other loans
If there is a recurring payment on an existing loan, make sure you’ve mentioned the existing liability in the form. Since other loan repayments bring down your income-to-instalment ratio and result in a lower loan, this is a vital piece of information. Don’t hide details about the loan. Consider consolidating all your debt before going in for another loan.
8. Don’t fudge details of professional degrees
Loans to self-employed professionals are extended on the strength of the professional degree and the income (especially in case of a personal loan). In such a case, fudging your professional degree or income documents can seriously jeopardise your loan application. Professional qualifications are almost always verified.
9. Don’t ever attempt to bribe the loan officer
You perhaps feel that your loan application is not strong enough to get you the loan amount you are asking for. And you probably think that you can grease the palm of the loan officer to enhance your loan eligibility. Don’t even think about it. Even if you got lucky and your loan officer was the bad apple in the company’s basket (it could happen), your loan is reviewed by two or sometimes three other people. You were not planning to bribe all of them, were you?
10. Don’t take a loan against your FD as collateral. Break it.
A common mistake most borrowers commit is to borrow against their fixed deposit. They prefer taking loan against their own money at a rate higher than the rate they are receiving on their fixed deposit. You should consider this option only when you require funds for a very short term. Otherwise, it makes sense to encash your FDs. This way you’d be able to borrow less.
Borrow only if you must
Borrow only if you must
15 time-tested ideas on how to avoid debt.
You’d think that you don’t really need us to tell you that you should borrow only if you must. But a debt is easy to slip into and hard to get out of. We believe that you should not be spending your hard-earned money contributing to the coffers of a finance company. You should look at a loan if, and only if, all other avenues have been exhausted. And there are more than enough places that you would have likely forgotten to look in. Explore these and, at the very least, you could reduce the amount of loan you’d have to take. Where should you look? Read on to find out…
1. Cut back on non-essential items
If you are overstretched now, the last thing you need is more credit. It was probably some attractive advertisement that made you an easy target for buying one more electronic gadget (at a very low rate of interest, of course). A gadget that you do not need! We suggest you address your spending habits before you inundate yourself with debt and consign yourself to a lifetime of interest payments and late fees. They are the source of the problem. Even small things matter. Try and reduce the number of cigarettes you puff away and you’ll be surprised to learn how much you can save on a long-term basis. The powers of compounding can be an eye-opener.
Cutting back on non-essential items does two things. One, it leaves you with more money every month: money that you can use more productively. You can pay back borrowings and invest smartly. Two, it paradoxically increases your borrowing capability. The more your repayment capability, the easier it is to borrow.
2. That forgotten treasure: your PF
Have you transferred your PF corpus from your previous employers? If you haven’t, do it. In every job, you make a contribution every month to your provident fund account. Your employer also makes a similar contribution. When you change jobs, you have the option to transfer the money accumulated in your account to the new provident fund account opened by your new employer. But many neglect to do this. Check whether you have any accumulated money in those PF accounts. The money will still be safe and earning you a nice interest. Set the process in motion to transfer them. The amount lying in them can come as an agreeable surprise to you.
There is another option: of encashing them. But, don’t encash blindly. Compare the compounded annual rate of return against the cost of the loan. If the compounded rate of return is lower, it makes sense for you to encash. Otherwise, stay invested.
3. Hit on your family and friends
Before going to a lender, explore all the options of borrowing from your relatives and friends. Unless you’re the black sheep of the flock (and even that’s not an irremediable state!), chances are you’ll get the money at either a very favourable interest rate or without any interest. They may even tolerate a late payment or two. But if you want to maintain the relationship, it’s best to keep things straight and insist on a written agreement.
4. Recover dues
If you’ve never been borrowed from, you’re a lucky person (or you’re broke always, in which case, we can’t help you). If you form a part of the real world where people rely on advice like the one you’ve just finished reading (Point 3, above), there are surely people who have borrowed from you and… ahem… conveniently forgotten to pay back. Turn enforcer. And get your money back. Remember, it’s your money. The rule: Better my money than borrowing at usurious rates.
5. Encash your savings and fixed deposit holdings
It makes perfect financial sense to cash in your savings and investments and use the proceeds instead of contracting a fresh loan. The reason is simple. It would make sense to remain invested in your fixed deposit or bank savings if the return on these were greater than the cost of your loan. But in today’s low interest rate environment, high-quality fixed deposits earn you between 11 and 12 per cent per annum. Post-tax, the return is even lower. Even a secured loan — a loan backed by an asset like your car will rarely be available below 14 per cent. So the moral is: the higher the interest rate on the fresh loan, the more attractive it is to use your funds for meeting a contingency. And it will always be in your interest to break low-return generating fixed deposits. The caveat: Don’t break your low-generating but long-term retirement funds. Compounding works wonders there. We are recommending that you break only your short-term fixed deposits.
6. Take an advance from your employer
If the employer has a no-loan policy, then explore an advance on your salary. This could be structured in such a way that it would be deducted from your salary over a few months. The amount you could take as an advance will be limited and based on the salary you draw, but it beats borrowing at commercial rates. And every penny raised cheaply counts.
7. Take a low-interest loan from your employer or other sources
Employers and societies have the provision of extending a short-term loan at a highly subsidised rate of interest, especially to longstanding employees. Loan amounts are generally based on the length of service you have put in and your position in the organisational hierarchy.
8. Take advantage of the no-gift-tax rule
Gifts are not to be received only on birthdays and anniversaries. Find someone who is willing to make you a gift of money. That’s money that you don’t have to borrow and pay interest on. You can the put this to good use instead of taking on a loan or a mortgage.
Some things to remember: Keep gifts within the family, so that the authenticity (for the tax authorities) can be established easily. Gifts should be in small amounts, since verification is unlikely in small amounts — say, Rs 20,000. If your yearly income plus the gift exceeds Rs 1.5 lakh, you’ll have to pay tax at the rate of 30 per cent against it. But remember, the entire amount is a gift. So pay tax and use the rest.
9. Sell stocks selectively
Everybody has some junk stocks in their portfolio. This is a good opportunity to, well, junk them. Face it: you’ll never do it otherwise. Not wanting to take a loan can actually be an opportunity to spring-clean your stocks portfolio. Also consider selling other stocks where you can book profits. In short, take a close look at your portfolio and decide what you can sell. Remember, with markets going up and down, you can still enter the stock at a later date. Right now, what matters is that you want your loan amount to be as small as possible. However, don’t distress-sell your best stocks. Selling them might cause serious harm to your long-term portfolio.
10. Borrow against your life insurance policy
While we constantly stress the point that insurance is not an investment avenue, the insurance policy does accumulate some value as the years go by. And if you’ve held the insurance policy for a sufficient number of years, you would have accumulated enough surrender value on the policy to borrow against the policy. You can expect to borrow up to 85 per cent of the surrender value accumulated.
Interest rates are typically well below usual commercial rates (about 10-11 per cent), and you can take your time repaying the loan. There is only one downside: the (remote) possibility that you may die before it’s repaid. In that case, the outstanding balance plus interest will be deducted from the face value of the policy payable to your beneficiary. As a negative, that seems a small price to pay to get out of debt now.
11. Take a loan against your provident fund
Explore taking a loan against your public provident fund account. You are eligible for a loan against your PPF after three years and you can take a loan up to 25 per cent of the value accumulated in the fund. Also, this loan is available at a concessional rate of interest of 12 per cent.
12. Borrow/sell jewellery
Indians have a remarkable fetish for gold. Not surprising. We are one of the world’s largest consumers of gold. Consider utilising this unproductive asset. Sell your gold and silver to realise some money. If you’re sentimental about the charm bracelet that your husband gave you on your last wedding anniversary or grandpa’s gold signet ring, then consider borrowing against it. It will cost you lesser than commercial rates.
13. Hold a garage sale
Consider selling your old TV, bicycle, kitchen appliances that you bought and never used, as well as all the wood and other fittings left over from last year’s renovation. You’ll be surprised by the amount you can raise. And as a bonus, your house would have had undergone a bit of spring-cleaning.
14. Faithfully enter contests
You never know when you might get lucky: ask those people who entered “Kaun Banega Crorepati” and won some fabulous prizes. Randomly enter all slogan contests too. And drop your name into every lucky coupon box that you can find.
15. Dig your backyard in the hope of finding a treasure!
Even if you don’t unearth a pot of gold, your backyard will be ready for being planted.
A smooth sail into your new home
A smooth sail into your new home
Here’s a list of six areas, which, if dealt with carefully, may help you escape problems that you may encounter while buying a house on resale. Seek the right information and ask the right questions
BY Urmila Rao for OUTLOOK MONEY
Buying a home is a cherished dream for most, but the path leading to it is typically fraught with challenges. This was famously imitated in the film Khosla Ka Ghosla (2006), which depicts the travails and eventual triumph of a soon-to-be-retired man duped by an unscrupulous property broker while he was buying a plot of land.
The trials and tribulations of buying a house is not restricted to buyers of plots or new apartments. They also affect those buying property on resale—from an existing owner. In recent years, as the purchases of new properties from builders skyrocketed, purchase of resale properties, too, went up. Rajneesh Gulati, 34, a Gurgaon-based garment exporter, had a reason to buy a bungalow spread over 6,500 sq. ft in 2005 from the secondary market. “The bungalow was well-located, had three independent floors and was suited for my family of eight members,” he says.
Himango Gupta, 33, a regional manager in a Gurgaon-based international firm now residing in Vaishali, Delhi NCR, had another reason. “Builders don’t meet deadlines and I wasn’t prepared to keep paying EMIs for an extended period,” he says.
Missing Links
Vishal Garg, a Delhi-based real estate lawyer, gives four small but important tips.
Establish the property’s autheticity. You can get original documents from the sub-registrar’s office, House Tax Department (check on the arrears and chain of owners), Land and Building Office. The last also has a RTI cell that can be used to check the property’s status and whether the land has been notified.
Take a loan. Even if you can buy from your own resources, opt for a loan as banks’ own due-diligence reinforces yours.
Don’t forget the frills. Be clear on issues like parking slots and the area allotted to you.
Take permission. Take the permission of other floor owners in case of reconstruction.
There could be a slew of reasons why people prefer the secondary market. Seek the right information and ask the right questions before taking the plunge. Watch out for six problem areas.
Examine the property title papers. You should ensure that the property has a clear title. If the unit has changed many hands, the biggest challenge is tracking down the ownership titles of the past owners. Banks wouldn’t give you a home loan if the ownership can’t be clearly established. Also, the property should be free from any encumbrances. “This is very relevant as the seller could have availed loans from other banks and institutions and deposited the original deeds to them as a security. Therefore, it needs to be verified that the seller is in possession of all the original documents,” says Madhumita Ganguly, senior general manager, HDFC Bank.
For Delhi-based working couple Pallavi and Rahul Narvekar, the process of buying a 3-bedroom house was rather smooth. “All the papers regarding the property were in place, but we still hired a lawyer to validate the documents,” say the Narvekars, who bought their house in 2003. “The purchase was through a distress sale and we got a pretty good deal,” they add.
In cases of leasehold property, prior permission of the lessor—the authority that leased out the land—may be needed for the transfer and mortgage of the property. There could be situations where the properties are being sold on power of attorney. Remember that not all states recognise this transaction, and if they do, the documentation will need to be legally compliant. It is also advisable to keep other documents such as indemnities and advertisements in newspapers so that you are prepared for contingencies such as loss of documents.
Look for the purchase agreement. This is your second step of ownership verification. Get hold of this agreement paper between the seller and the previous owner of the property. It helps in identifying whether the seller is entitled to sell the property.
Appraise the building sanction plan. You wouldn’t want a rude shock of municipal or other authorities knocking at your door and then penalising you for not conforming to structural norms and building plan approvals. “Ensure that the structure has complied with the sanctioned plan and the property has an acceptable, verifiable completion certificate and occupation certificate,” says Ganguly of HDFC. Both completion and occupation certificates are issued by municipal authorities. The completion certificate proves that the building complies with norms such as those related to its height and its distance from the road, and doesn’t flout other norms. The occupation certificate testifies to proper water, sewage and electrical connections.
PALLAVI 34, RAHUL NARVEKAR 33
Delhi-based working couple
For the Narvekars, the process of buying a 3-bedroom house from the secondary market was pretty smooth
“All the papers were in place, but we still hired a lawyer to validate the documents.”
Seek a no-objection certificate (NoC). If you are buying a house in a co-operative housing society, it is important to obtain an NoC from the society’s managing executive. “For resale of properties in co-operative societies, the transfer should be in accordance with the society bye-laws. The society should endorse such a sale,” says Ganguly. Also, do check out for the share certificate. It is a proof of the owner’s membership of the society and should ideally form a part of the ownership deed.
Check for pending dues. Ask the seller to give you a ‘no dues’ certificate that can be procured from the house tax department and check whether all the utility bills have been paid. You will also have to get the electricity and water meter transferred in your name. Banks will typically check the property tax and utilities receipts to establish the seller’s ownership. Further, check whether the property is registered with the local authorities and the seller has the necessary paperwork to prove it. The lending bank will also look out for this.
Estimate renovation costs. An architect can help you assess these. Also, older houses incur higher maintenance cost.
How well you do the due diligence in these six areas can be crucial to the way you buy a property and how smoothly the life in your new house begins. Remember all stories need not have a happy ending like Khosla Ka Ghosla.
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